Comstock Mining Inc

Pure Comstock Silver Nevada Sesquicentennial Medallion This limited edition medallion commemorates Nevada’s Sesquicentennial and is the first substantial minting of Comstock Silver since the Carson City Mint closed in 1893.
Comstock Benefits
Comstock Foundation
Pure Comstock Silver Nevada Sesquicentennial Medallion
2017 Awards
2017 Awards
Comstock Mining Inc
Financial Snapshot

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides information that we believe is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company as of and for the year ended December 31, 2018, as well as our future results. It should be read in conjunction with the consolidated financial statements and accompanying notes also included the company's Form 10-K.

The Company is a Nevada-based, gold and silver mining exploration, development and production company with extensive, contiguous property in the historic Comstock and Silver City mining districts (collectively, the “Comstock District”) and additional mining, commercial and industrial properties located in Storey and Lyon Counties, Nevada. The Comstock District is located within the western portion of the Basin and Range Province of Nevada, near Reno and Carson City. The Company began acquiring properties and developing projects in the Comstock District in 2003. Since then, the Company has consolidated a substantial portion of the historic Comstock District, secured permits, built an infrastructure and brought exploration projects into production.

The Company and its subsidiaries now own or control approximately 9,358 acres of mining claims and parcels in the broader Comstock District and surrounding area. The acreage includes approximately 2,396 acres of patented claims and surface parcels (private lands) and approximately 6,962 acres of unpatented mining claims (public lands), which the Bureau of Land Management (“BLM”) administers. The Company's headquarters is on American Flat road, immediately north of the Lucerne resource area.

Because of the Comstock District’s historical significance, the geology is well known and has been extensively studied by the Company, our advisors and many independent researchers. We have expanded our understanding of the geology through vigorous surface mapping and drill hole logging. The volume of geologic data is immense, particularly in the Lucerne and Dayton resource areas. We have amassed a large library of historic data and detailed surface mapping of Comstock District properties and continue to obtain historic information from private and public sources. We integrate this data with information obtained from our recent mining operations, to target geological prospective exploration areas and plan exploratory drilling programs, including expanded surface and underground drilling.

The Company continues evaluating and acquiring properties, expanding its footprint and evaluating all of our existing and prospective opportunities for further exploration, development and mining. The near-term goal of our business plan is to maximize intrinsic stockholder value realized, per share, by continuing to acquire and develop mineralized and potentially mineralized properties, exploring, developing and validating qualified resources (measured, indicated and inferred) and reserves (proven and probable) that enable the commercial development of our properties through extended, long-lived mine plans that are economically feasible and socially responsible, including mine plans for both the Dayton and Lucerne resource areas, with both surface and underground development opportunities.

Our Dayton resource area and the adjacent Spring Valley exploration targets are located in Lyon County, Nevada, approximately six miles south of Virginia City. Access to the properties is by State Routes 341 and 342, both paved roads.

Our Lucerne resource area is located in Storey County, Nevada, approximately three miles south of Virginia City and 30 miles southeast of Reno. The Lucerne resource area was host to the Company’s most-recent test mining operations from 2012 through 2015. The heap processing facility is in American Flat, approximately three quarters of a mile west of the Lucerne mine.

The Company achieved initial production and held its first pour of gold and silver on September 29, 2012. The Company ceased mining in 2015 and concluded processing in 2016. From 2012 through 2016, the Company mined and processed approximately 2.6 million tons of mineralized material, and produced 59,515 ounces of gold and 735,252 ounces of silver.

Exploration & Development

The Company's long-term plans contemplate the exploration and development of specific, identified geological target areas across the District, which the Company has grouped into the Lucerne and Dayton resource areas, and the Spring Valley group, Occidental group, and Gold Hill group of exploration targets. These exploration targets represent over 7 miles of mineralized strike length, with current and historical grades of gold and silver. Refer to Figure 3.

Figure 3 - General Overview of Priority Exploration Targets

Lucerne Resource Area

In December, 2018, the Company received unanimous approval from the Storey County Board of Commissioners to extend its landmark Special Use Permit (“SUP”) for mining and processing for the Lucerne Mine Project for the maximum allowable, 20-year term, extending the original, 10-year permit until September 2, 2034. This permit represents one of the most significant, progressive and collaborative permit approvals in the Company’s history, and its extension strengthens the foundation for the future growth of the Company and its partner in Lucerne’s development, Tonogold Resources, Inc.

The amendment significantly extends the duration of the permitted and allowable uses for the entire Lucerne Mine Project, including the Lucerne Mine and resource area and the fully permitted American Flat processing area. The permit applies to both surface and underground mining, processing and milling, mine definition, exploration and development, and other ancillary uses.

In October, 2017, the Company entered into an Option Agreement (the “Option Agreement”) with Tonogold Resources, Inc. (“Tonogold”), giving Tonogold the right to lead engineering, development, drilling and test-work, towards completing a technical and economic feasibility assessment, and ultimately, to earn-into a joint venture for the future development and mining of mineral resources on the Lucerne Property.

Under the terms of the Option Agreement, Tonogold can earn a 51% interest in the Company’s wholly-owned subsidiary, Comstock Mining LLC, which owns the Lucerne Property, by making capital expenditures on the Lucerne Property of $20 million by no later than 42 months following signing of the Option Agreement and payments of $2.2 million to the Company. In addition, if all conditions are met, Tonogold is also granted the option to purchase 51% of the Company’s American Flat processing facility for a purchase price of $25 million, or, alternatively, enter into a toll processing agreement with the Company. If Tonogold elects the tolling alternative, Comstock would retain 100% ownership and Tonogold would rent the Company’s processing facility, paying the Company a usage fee of $1 million per annum plus $1 per ton processed. Tonogold is also granted a right of first refusal if the Company elects, in its sole discretion, to sell certain mining properties.

The initial payment of $0.2 million was paid by Tonogold to the Company at the time that the Option Agreement went into effect. After an initial, six-month evaluation, Tonogold elected to proceed and paid the Company $2.0 million in April 2018. To date, Tonogold has met their spending commitments under the Option Agreement. Tonogold has retained the independent mining advisory firm of Mine Development Associates (“MDA”) to publish a National Instrument 43-101 (“NI-43-101”) compliant, technical report for the Lucerne Project, including an updated resource estimate, scheduled for the first quarter of 2019, and ultimately, reporting on Lucerne’s preliminary and full economic feasibility assessments.

On January 24, 2019, the Company entered a definitive agreement with Tonogold to sell its wholly-owned subsidiary, Comstock Mining LLC, which owns the Lucerne properties for $15 million in cash, relief of $8 million in future lease and reclamation obligations, a permanent reduction of annual operating expenses by $1 million, and a retained 1.5% net smelter returns royalty. The sale includes the related permits, such as the Storey County Special Use Permit for mining and processing, which was recently extended to 2034. The Company received a non-refundable deposit of $1 million. An additional $9 million in cash is due at closing, plus a one-year, secured note for the final $5 million. The agreement includes an exploration and mining lease for additional mining properties in Storey County, and an option to lease the American Flat processing facility for processing material from Lucerne. The terms provide for Tonogold to reimburse approximately $1.1 million in annual expenses during the option period, and to pay $1 million per year, and $1 per ton, plus all capital and operating expenses to use the processing facility. Reduced rates apply after the Company has received $15 million and $25 million from the lease.

The Company expects the transaction to close between March and May 2019. Upon closing, the new agreement will replace the October 2017 Option Agreement.

Dayton Resource Area   

The Company plans to advance the Dayton Project to full feasibility, with a production ready mine plan within the next two years. The plan includes expanding the current resource at the Dayton resource area and continuing southerly into Spring Valley with incremental expansion programs that include exploration and definition drilling of targets identified by the prior conventional percussion, RC and diamond core drill programs and magnetic, IP and resistivity geophysical surveys (see Figure 4).

The Company has retained the independent mining advisory firm of Behre Dolbear to produce a National Instrument 43-101 (“NI 43-101”) compliant technical report for the Dayton resource area, scheduled for completion in the first quarter of 2019. The reporting scope includes an updated, robust mineral resource estimate, plans for expanding and further developing the mineral resource, and most of the prerequisite data for a subsequent Preliminary Economic Assessment (“PEA”). The PEA is the first major step in determining overall economic feasibility for the Dayton project.

The Company previously estimated a mineral resource for Dayton as part of a broader technical report for the Comstock Mine Project, but this new, Behre Dolbear commissioned technical report represents the first stand-alone NI 43-101 technical report to be published specifically for the Dayton resource area. Since our last Dayton resource estimate, the Company has:

  • Increased the Dayton project property position, both mining claims and private land, including more than 350 acres of contiguous private lands suitable for a dedicated mineral processing site;
  • Achieved a landmark, Lyon County Master Plan and zoning change that broadened the potential land uses and restored mining as an appropriate use for the historic mining patents;
  • Submitted our project estimates for due diligence reviews by SRK Consulting in both Reno and Denver offices;
  • Restored several historic Dayton mine portals for safe exploration of the accessible mine workings;
  • Completed underground geologic mapping of the accessible mine workings and completed underground sampling;
  • Completed significant assaying and other analysis for furthering the geologic interpretation;
  • Identified new, broader mineralized zones and structures;
  • Drilled 408 shallow holes totaling 30,819 feet, identifying new mineralized structures covered by shallow alluvium;
  • Improved, meaningfully, the geologic mapping of the area;
  • Expanded trials by Cycladex, a strategic investee, testing their patented, cycladextrin lixiviant, a potential alternative to cyanide heap leaching for our Dayton materials; and
  • Commenced trials with Itronics, Inc., using their KAM-Thio metallurgical recovery processes, another potential alternative to cyanide heap leaching for our Dayton materials.

The new information is supporting the development of a completely updated, detailed, three-dimensional model of the Dayton project. The Company’s technical staff is currently compiling a detailed structural interpretation of the Dayton resource area, which will provide the framework for the new resource model. The detailed interpretation is leading to a list of highly prospective drill targets to further define and expand the mineral resource.

The Company announced assay results from a recently uncovered, high-grade shear zone in the Dayton adit. Systematic channel sampling revealed a 90.8 foot mineralized shear zone, starting 245 feet inside the adit. The results for the entire 90.8 feet averaged 0.043 opt gold and 0.404 opt silver. The zone included 7.5 feet averaging 0.121 opt gold and 0.753 opt silver. Multi-element assays confirmed the presence of previously-identified, elevated values for additional elements such as Cadmium, Selenium, and Tungsten. Additional drilling is being targeted to determine the lateral and down-dip extents of this mineralization.

In-house Dayton engineering and mine planning have resulted in profiling various economic shells with multiple cutoff grade scenarios. Multiple layout plans for the mine and corresponding processing facilities have been conceptually developed and located on lands 100% privately held by the Company, thus simplifying and shortening the critical permitting chain. The new technical report will provide not only a new resource estimate, but also a phased drilling plan for further defining and expanding the resource for sustainable, profitable mining.

Dayton Metallurgy

The Dayton mineralized material has been subjected to metallurgical testing by independent laboratories as well as in the Company’s on-site lab. Column tests were conducted by McClelland Laboratories in 2011 on medium grade and high grade composites from the Dayton Pit area, at 1” and ½” crush sizes for each sample. The gold recovery after 154 days averaged 86.7% for gold and 47.4% for silver. The final report stated that at the end of the test, the curves had flattened, but recovery was still increasing.

In early 2018, the Company’s in-house lab ran column tests on bulk samples from three different locations in the Dayton resource area: Glory Hole mid-grade, Glory Hole high-grade, and Dayton Adit. Two columns were loaded from each bulk sample. The recovery after 74 days averaged 84% for gold and 55% for silver. The metal recovery had not stopped after 74 days, but the daily incremental increases were below the Company’s analytical detection limits.

The Company is working with strategic partners to test alternative, greener technologies for processing the mineralized material from the Dayton resource area. This includes trials by Cycladex, Inc., a strategic investee, in part funded by the National Science Foundation, for extensive testing of their patented, cycladextrin lixiviant, a potential alternative to traditional cyanide heap leaching.

The Company has also begun trials with Itronics, Inc., to test their KAM-Thio metallurgical recovery processes as an alternative to cyanide heap leaching for processing the Dayton mineralized material. Previous trials by Itronics showed promising results for recovering substantially all the residual silver from the Company’s previously leached material. The Company delivered a bulk sample of higher-grade, Dayton mineralized material to Itronics in August. Itronics has begun testing with two clear objectives: first, to model the same process flow sheet that they developed for processing the previously leached material, and second, to test the ability of the KAM-Thio liquid to recover significant percentages of gold as well as silver. A final result from the testing will be a proposed processing flow sheet and screening level economics for use in the preliminary economic assessment of the Dayton resource.

The ongoing testing of alternative technologies underpins the Company’s commitment to responsible development of the Dayton resource. A breakthrough with any of these cleaner technologies could result in higher, faster recoveries with reduced waste, as well as a streamlined permitting process and lower long-term reclamation costs.

fig6Figure 4 - Dayton and Spring Valley Magnetic Geophysics with Interpreted Veins and Structures

Dayton - Spring Valley Group Targets

Spring Valley is south of the Dayton resource area, extending to the south and east of State Route 341. The volcanic host rocks and structural controls of the mineralization defined to date for the Dayton resource area are known to continue south into Spring Valley. Potentially economic gold mineralization has been intercepted in several widely spaced holes drilled during prior Spring Valley drilling programs.

Ground magnetic geophysical surveys identified a linear anomalous corridor, defined by a series of relative magnetic lows. Altered volcanic host rocks have been intercepted by limited drilling and identified several mineralized zones, the global Dayton resource foot print is outlined with reference to the technical report authored by Behre Dolbear in January 2013. The exploration of Spring Valley will include phased drilling programs that will continue southerly from SR341 to the historic Daney mine site (Figure 5), with a potential strike length of approximately 9,600 feet.

fig5 Figure 5 - Dayton and Spring Valley Group Targets

The technical staff reviewed historic geologic and geophysical studies and prior drill programs that focused upon the Dayton resource area and extensions south into Spring Valley. The few drill holes that were completed in Spring Valley intercepted altered Miocene volcanic rock known to host the economic mineralization of the Dayton resource. Specific drill holes that encountered highly mineralized zones are highlighted on Figure 4. Collectively, several specific locations were selected and are targeted for future drilling. The Dayton resource area has open ended economic mineralization requiring additional drill holes to delineate the geometry for mine planning. South of the Dayton resource area the limited drilling coupled with the geophysical interpretation indicates the targeted exploration model extends an additional 8,000 feet (length of geophysical magnetic survey) into Spring Valley.

Ground magnetic geophysical surveys identified a linear anomalous corridor, defined by a series of relative magnetic lows. Altered volcanic host rocks have been intercepted by limited drilling and identified several mineralized zones. Selected drill hole intercepts are highlighted (see Figure 4). The mid-level magnetic lows define a zone (up to 500 feet wide) beginning at the Dayton resource and continuing southerly approximately 8,000 feet (length of geophysical magnetic survey) towards the Daney patent. The zone is further defined by the trace of interpreted north/south trending vein swarms depicted on Figure 4. In the Dayton resource area the increased density of the vein swarms with intersecting cross structures has been indicative to host the higher grades and larger volumes of economic mineralization. This scenario is part of the exploration model and has generated a multiple drill target environment.

The Spring Valley exploration program is designed to target areas that have similar magnetic signatures of known economic grade mineralization. The magnetic geophysical survey was further studied and a structural interpretation was developed that illustrated multiple cross cutting structures (colored green) that are oblique to the southerly projected north/south vein trend (colored red), refer to Figure 4. Though rare due to alluvial cover, the outcropping quartz veins and outcropping crosscutting structures had definitive diagnostic magnetic signatures. The interpretation of the structures and veins were derived by connecting these specific magnetic attributes as identified on each 25-meter spaced survey line. Similar structures have been identified in the Dayton resource area and were found to be important components for the development of economic grades of mineralization.

Pelen-Sutro Tunnel Company Acquisition

In January of 2018, the Company issued 1,475,410 shares of restricted common stock as initial payment to acquire 25% of the total membership interests of Pelen, LLC. Pelen LLC is the 100% owner of the historic Sutro Tunnel Company that owns the Town of Sutro, the historic 6-mile Sutro Tunnel, the federal land grants and mining rights spanning 1,000 feet on each side of the 6-mile span, the rights to the tunnel’s water and the patented mining claims and private lands on Gold Hill.

The purchase of the membership interests will close by December 31, 2019, once the seller of the membership interests has received total cash proceeds of at least $585,000 either through sale of the restricted common stock received or through additional cash payments made by the Company. If all of the shares of restricted common stock have been sold by the seller of the membership interests and the aggregate proceeds received are less than $585,000, then the Company is required to pay the shortfall in either additional shares of the Company’s common stock or cash, at the Company’s election.

The Company issued 1,758,181 additional shares in November, 2018, and has recorded a make-whole liability of $135,000 representing the value of the shortfall as of December 31, 2018.

Non-mining Real Estate

Our non-mining land sales are progressing with the signing of an agreement to sell the Silver Springs property to a real-estate focused fund. The Board has designated an independent committee to directly negotiate the sale of those properties.

The previously-announced sale of the Gold Hill Hotel to a local, experienced hotelier was cancelled in December, 2018, due to his inability to secure financing. We have re-listed the Gold Hill Hotel for $1 million. The Gold Hill Hotel has been consistently cash positive over the past two years. A planned sale of our Daney Ranch property also was cancelled in the 4th quarter of 2018. The Ranch is currently on the market for $3.9 million.

On February 5, 2019, the Company announced it had received Board approval to sell the Silver Springs non-mining assets to Silver Springs Capital Partners for $9.75 million plus 3% of the amount of the carried interest that the general partner of the fund that purchased such party is due to receive after all costs, expenses, investor hurdles and returns are deducted from the gross proceeds arising from any gain with respect to such property by the buyer. The sales are expected to be finalized by February 25, 2019, and closed between March and July, 2019. The Company expects to record a gain of approximately $5 million on these transactions.


The Company plans on closing the Tonogold transaction between March 31 and May 31, after receiving a $1 million non-refundable deposit on January 25, 2019, with proceeds of at least $9 million more expected upon closing. Tonogold has announced that they plan on publishing an updated NI 43-101 compliant mineral resource estimate for the Lucerne Project during the first quarter of 2019 that should be in advance of closing the transaction for the sale of the 100% membership interests in Comstock Mining LLC, which will solely own the Lucerne properties and related permits.

Our annual operating expenses are planned at $3.8 million, with approximately $1.2 million of that amount currently being reimbursed under the existing Tonogold Option. We anticipate an additional $1 million in annualized savings, or a total of $2.2 million annually, upon closing the new transaction, with approximately $1.7 million realized in 2019, or approximately $0.5 million more in operating savings realized during 2019 vs. 2018, expected from the Tonogold arrangements.

The Company also expects an early extinguishment of the entirety of our outstanding Senior Secured Debenture obligation, principal and make-whole of approximately $8.6 million, plus accrued interest of $0.4 million, during the second quarter of 2019, most likely by May 2019. Senior Secured Debenture interest expense is also expected to be eliminated by May 2019, with about $0.5 million of actual interest avoidance realized during 2019, and over $1 million saved for the full year of 2020.
The Company expects to finalize the agreements for selling the 98-acre industrial site and related water rights in Silver Springs, NV, and the option to purchase the 160-acre Downtown Silver Springs commercial property and the option to purchase water and sewer rights during the first quarter of 2019, and then closing these sales between March 31 and July 31, 2019, with proceeds of $9.75 million ($9.5 million, net of closing expenses estimated at $0.25 million).

The Company’s 2019 plans also include commencing and obtaining the local permits for Dayton in 2019, expanding Dayton’s current resource and continuing southerly into Spring Valley with incremental exploration programs that include exploration and definition drilling of targets identified by geophysical surveys, surface mapping, prior drilling and deeper geological interpretations that all lead to publishing an updated, NI 43-101 compliant, mineral resource estimate for the Dayton Project during the second quarter of 2019.

Equity Raises

During the years ended December 31, 2018, and 2017, the Company issued 28,102,170 and 10,163,368 shares, respectively. During 2018, 21,216,856 of the common shares issued were either through the Company’s equity programs or two private placements, at an average price per share of $0.20, for gross of approximately $4.2 million ($4.1 million, net of cash issuance costs). During 2017, 8,686,828 of the common shares were issued through the Company’s equity programs, at an average price per share of $0.85, for gross proceeds of approximately $7.4 million ($7.1 million, net of cash issuance costs). Common shares outstanding at December 31, 2018, and 2017, totaled 75,338,273 and 47,236,103, respectively.

Liquidity and Capital Resources

The Company had total assets of $28.6 million, total current assets of $8.6 million, current liabilities of $2.4 million and net current assets of $6.2 million, including cash and cash equivalents of $0.5 million at December 31, 2018. The cash balance at December 31, 2018, excludes the receipt of $1 million from Tonogold, received on January 25, 2019, as a non-refundable deposit toward the purchase of the Lucerne properties. The Company’s current capital resources include cash and cash equivalents and other net working capital resources, along with a loan commitment agreement with $10.0 million in unused capacity, before consideration of fees due at the time of borrowing and an equity sales agreement (the "Sales Agreement") with Murray FO, LLC ("Murray"), with aggregate unused capacity of $5.0 million, pursuant to the Company’s new shelf registration statement on Form S-3, expected to be filed February 26, 2019. These capital resources are in addition to certain planned non-mining asset sales totaling $14 million and the sale of the Lucerne properties, in conjunction with the signed Membership Interest and Purchase Agreement (the “Tonogold Sale Agreement”) between the Company and Tonogold dated January 24, 2019.

The Tonogold Sale Agreement signed on January 24, 2019 should provide $10 million in cash to the Company during the first quarter of 2019, $1 million already received plus $9 million at closing (March 31, 2019). At Tonogold's discretion and with a $1 million non-refundable deposit paid by March 15,

2019, the closing date would be extended to April 30, 2019. Additionally, at Tonogold’s discretion and with an additional $1 million non-refundable deposit paid by April 12, 2019, the closing date would be extended to May 31, 2019. The agreement also provides $5 million in cash on the first anniversary of closing, that is, sometime between March 2020, and May 31, 2020. The agreement also relieves the Company of $8 million in long-term obligations, primarily $7.2 million for the Northern Comstock annual mine claims and $0.8 million other Lucerne-specific reclamation liabilities with Storey County and the State of Nevada. The new agreement also subsidizes an additional $1 million of annual costs (in addition to current reimbursements of approximately $1.2 million per annum, for a total, post-transaction-closing reduction of approximately $2.2 million of operating savings per annum).

On January 30, 2019, the Company’s Board of Directors approved two additional transactions to sell one non-mining asset, that is, the 98-acre certified industrial site and related water rights, and to sell the purchase agreements and options on the 160 acres of land and water and sewer rights, all located in Silver Springs, NV, for a total of $9.75 million plus a residual 3% future share of the profit. The sales are to Silver Springs Capital Partners LLC, an opportunity zone fund and the transactions are expected to be finalized during the second quarter of 2019. The Company expects to record a gain of approximately $5 million.