Comstock Mining Inc. 10-Q Summary
Business Context and Reporting Period
Unaudited results for the three months ended March 31, 2020, compared with the three months ended March 31, 2019. Comstock is a Nevada-based gold and silver exploration, development and former production company, with real estate and emerging mercury-remediation activities. Mining and processing operations have been inactive since 2016; current revenue was generated only by the real estate segment.
Financial Results and Position
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $48,425 | $37,598 |
| Mining revenue | $0 | $0 |
| Real estate revenue | $48,425 | $37,598 |
| Loss from operations | $(1.22) million | $(1.57) million |
| Net loss | $(1.33) million | $(1.84) million |
| Basic and diluted loss per share | $(0.05) | $(0.12) |
| Cash used in operating activities | $(0.17) million | $(0.89) million |
| Cash and cash equivalents at period end | $1.03 million | $0.31 million |
- Total assets were $39.3 million at March 31, 2020, including $10.5 million of assets held for sale and an $8.8 million Level 3 investment in Tonogold convertible preferred shares.
- Total liabilities were $16.8 million, including $5.3 million of debt net of discounts and issuance costs. The $4.85 million senior secured debenture is due in January 2021, and approximately $5.1 million of debt was classified as current.
- The accumulated deficit was $237.2 million. Total equity was $22.5 million.
- Cash flow from investing activities was $0.14 million, while financing activities provided $0.04 million. The company issued 638,511 common shares for gross proceeds of $242,621 and paid $50,070 of issuance costs.
- Operating expenses were $1.27 million, down from $1.61 million. General and administrative expense increased to $845,228 from $660,366, partly offset by lower depreciation, exploration, mine-claim and environmental costs.
Material Changes Versus the Prior Comparable Period
- Net loss improved by $509,562, primarily because operating expenses declined by $336,149 and interest expense fell by $410,549. These benefits were partly offset by approximately $0.3 million of fair-value expense on Tonogold preferred shares and other unfavorable changes in other income and expense.
- Operating cash use improved by approximately $0.7 million, principally because of higher Tonogold-related reimbursements and deposits.
- Average shares outstanding increased to 27.3 million from 15.8 million, reflecting prior and current equity issuance. The average equity issuance price in Q1 2020 was $0.38 per share versus $0.75 in Q1 2019.
- Debt declined modestly from $5.6 million gross at December 31, 2019, but substantially all remaining debt was classified as current because of the January 2021 maturity.
Liquidity, Outlook, Risks and Unusual Items
- Management disclosed substantial doubt about the company’s ability to continue as a going concern. The company has recurring losses, only $1.0 million of cash, and stated that it currently cannot repay the debt obligation maturing in January 2021.
- Management expects to fund operations through existing cash, equity issuances, monetization of Tonogold securities, and planned sales of Lucerne and non-mining assets. These plans are outside management’s control.
- Management expects approximately $10.1 million of net proceeds from planned Silver Springs asset sales and intends to use approximately $4.9 million, plus accrued interest, to retire the senior secured debenture. The transactions were expected to close in the second quarter of 2020; completion was not assured.
- Management’s 2020 plan calls for approximately $5.1 million of annual operating expenses, including other income and expense and excluding depreciation. Approximately $2.3 million was expected to be reimbursed under Tonogold agreements, leaving planned net operating expenses of approximately $2.8 million before exploration spending.
- Tonogold is expected to make monthly interest payments of $54,750 beginning in May 2020 on the remaining $5.475 million purchase obligation. The company also planned to monetize part of its Tonogold preferred-share investment, whose value is subject to significant market and valuation uncertainty.
- COVID-19 restrictions could delay Dayton development, Tonogold exploration drilling and the Mercury Clean Up pilot. The filing states that the duration and financial impact could not be reliably estimated.
- The company committed $2.0 million to the Mercury Clean Up venture, including $1.15 million in cash and $0.85 million in stock; it had invested $0.90 million in cash and approximately $0.75 million in stock by March 31, 2020, with additional payments expected in 2020.
- On April 24, 2020, after quarter-end, the company completed its acquisition of a 25% interest in Pelen, LLC for total consideration of $0.6 million in stock and cash.
- The company faces environmental and reclamation obligations, including a long-term reclamation liability of $6.0 million. It also disclosed an appeal by the Comstock Residents Association and an OSHA complaint by three former employees; management intends to defend both matters.
- The company reported effective disclosure controls and internal control over financial reporting as of March 31, 2020. It also reported that its NYSE American low-price listing deficiency had been cured in January 2020.
Important Facts for Investors to Verify
- Whether the Silver Springs asset sales closed and generated the expected proceeds to repay the senior secured debenture.
- Whether Tonogold made the required interest and principal payments and whether its remaining purchase obligation and preferred-share investment can be monetized at expected values.
- Available liquidity, equity issuance capacity and the company’s ability to refinance or repay debt due in January 2021.
- Progress, funding requirements and technical results of the Mercury Clean Up pilot and related joint ventures.
- COVID-19 effects on exploration, permitting, asset-sale closings and operating costs.
- Updates on the Comstock Residents Association appeal, OSHA complaint and reclamation or environmental obligations.