Open Pit Mine For Silver City, "Come Hell or High Water"

On August 1, 2017, Comstock Mining, Inc. (CMI) released its quarterly report, which included a number of statements and topics important to Silver City. CMI’s ultimate goal of an open pit mine in Silver City remains unchanged. The company plans to begin the permitting process for the Dayton Mine by the end of the year. “We are marching toward Dayton feasibility come hell or high water,” according to company CEO Corrado DeGasperis, with production plans ready to go in two years. The company hopes to conduct additional exploratory core-drilling at the Dayton in the near future, funded by the sale of non-mining assets.

The Dayton would comprise an open pit mine occupying the southwest quarter of Silver City. Mr. DeGasperis stated that the Dayton is already permitted for exploration and development, although with respect to Lyon County this is true only because the county has no permitting requirements for exploratory core drilling. According to Lyon County Code, if less than 1,500 cubic yards of material are removed during exploration, it does not qualify as “mining,” and requires no notification or permit. The Lyon County Planning Department defines “remove” as excavating or digging up material and then transporting it off site. In the case of exploratory drilling, the core samples themselves are the only material transported offsite. These are no more than a few inches in diameter, and would never approach 1,500 cubic yards in total volume. Material removed from one place to another during earthwork, road and drill pad construction, or sump excavation does not count. Consequently, the noise, dust, and other disruptions produced by core sampling are not, and would never be, subject to any permitting requirements.

Full-scale mining at the Dayton would, however, require a special use permit from Lyon County, as well as state-level environmental permits. CMI apparently intends to apply for these permits by the end of the year.

The financial condition of Comstock Mining obviously determines much of what the company does—or does not do—in Silver City. Key CMI personnel and resources are currently focused on resolving pressing cash flow issues, but this has not prevented the company from laying the groundwork for future projects. It is also difficult to correlate financial news and stock prices with specific events—present or future. However, a couple of fundamental points do stand out, and are certainly worth watching.

The first is the bottom line. CMI’s financial statements show a net loss of $2,932,722 during the second quarter of 2017, which brought net losses for the first half of the year to $5,706,903. This is nothing new. Prior reports show the company lost $12,964,704 in 2016; in 2015 it lost $10,454,427; and in 2014 it lost $9,638,773. These represent the continuation of an unbroken series of yearly, multi-million dollar losses dating to the company’s formation in 2010.

Second, the individual share price of Comstock Mining stock has steadily declined for several years, from over $3.00 per share in 2012 to just over 19 cents on August 4 of this year. The share price has remained under 20 cents for several months. As a result, on May 25, 2017, the New York Stock Exchange (NYSE) notified Comstock Mining that unless there was a sustained price improvement, or the company effected a reverse stock split, CMI shares could no longer be listed or traded on the NYSE. Delisting would be a potentially fatal blow for any company. Barring improvement in the stock price, CMI will almost certainly be forced to declare a reverse stock split. A reverse stock split is a mechanism for increasing the individual share price by arbitrarily reducing the number of shares in existence. It does not change the value of each investor’s holdings, however it does not bode well for a company’s overall health.

That said, Comstock Mining has shown remarkable resiliency in the face of staggering losses and a precipitous fall in share prices. It is impossible to draw conclusions from the company’s economic performance, other than to take them at their word and assume they will move forward with their plans for a mine in Silver City.

For the last few years, Comstock Mining has touted joint venture partnerships as a pathway toward viability. In the current quarterly report, Mr. DeGasperis noted the company had completed or was in the process of negotiating five joint ventures. One of these, involving Cycladex, Inc., has clear potential to impact Silver City.

Cycladex, Inc., is a startup company that has developed an alternative gold extraction method to the commonly used cyanide process. According to the Cycladex website, CMI has a $300,000 ownership and in-kind contribution stake in Cycladex, and has been testing ore from the Dayton Mine using the Cycladex process at the company’s American Flat facility. They hope to be operating on a commercial scale by mid-2018.

The development of the Cycladex process has been supported by approximately one million dollars in grants from the National Science Foundation. Both companies have emphasized this point, with CMI pointing out in the second quarter press release that “These simulations [tests on the Dayton ore] were conducted on-site, in the Company’s metallurgical labs, and are coordinated through, and funded by U.S. National Science Foundation grants.” In the second quarter conference call, Mr. DeGasperis pointed out that CMI’s work with Cycladex had been a very “safe” (low risk) investment, because it has “mainly been using federal funds.”

Because the Cycladex-CMI collaboration is federally funded, Silver City residents have raised questions about National Environmental Policy Act (NEPA) requirements for the project. Throughout its history, CMI has carefully calibrated its work to avoid any comprehensive, legally mandated environmental or socio-economic studies. This is understandable, especially with respect to the Dayton Mine. It is difficult to imagine any study or analysis that would find constructing and operating an open pit mine in a town to be anything short of an environmental and socio-economic disaster. Silver City residents have contacted the National Science Foundation regarding this issue, and it is currently being looked into by the Environmental Compliance Office of the National Science Foundation’s general counsel.