Trick or Treat? Comstock Mining Reports on the Third Quarter

Comstock Mining, Inc. (CMI) filed its Third Quarter Securities and Exchange Commission financial and business report on October 31, accompanied by a press release and conference call hosted by Comstock’s CEO, Corrado DeGasperis. The Halloween date is appropriate, since “Trick or treat?” is an obvious question to be asking of this company.

The trick is to ignore the half-dozen elephants occupying the room — among them multi-million dollar losses, a sinking share price, and a 1 for 5 reverse stock split. The only treats at the moment are the checks CMI cuts to management every two weeks.

With respect to Silver City, CMI made their plan for an open pit mine in town clear at the beginning of the year, and nothing in their third quarter reporting changed this. Previous exploration established the economic potential of the projected Dayton Mine, in the southwest quarter of Silver City, and additional drilling will finalize the “parameters” of a mine plan.

The permitting process will begin in late 2017 and early 2018, and production plans will follow “within the next two years.” The Dayton Mine figures prominently in the company’s professed goal of producing 100,000 gold-equivalent ounces per year by 2020, and Mr. DeGasperis made clear their intention to ultimately expand the Dayton “resource” into Spring Valley and “almost up to Highway 50.”

The company reiterated that further exploration at the Dayton will be financed through the sale of non-mining assets, including real estate and water rights. The joint venture agreement with Tonogold Resources, Inc. will allow CMI to develop both the Lucerne and Dayton projects simultaneously. (See “New Kid on the Block” on the “Late-Breaking” page, https://www.savesilvercity.org/.)

The company’s bottom line, and the overall condition of the business, have a direct bearing on CMI’s ability to impact the lives of Silver City residents, as well as the entire Comstock area. During the third quarter of 2017, CMI had a net loss of $2.5 million, bringing total losses for the first nine months of the year to $8.2 million. In 2016, the company lost $12,964,704; in 2015 it lost $10,454,427; and in 2014 it lost $9,638,773.

This continued an unbroken series of yearly, multi-million dollar losses dating to the company’s formation in 2010. But as significant as they are, these losses have never deterred CMI from pursuing its ultimate plan for an open pit mine in Silver City.

It is interesting how this bad news is folded seamlessly into CMI’s quarterly press releases and conference calls, as if it was perfectly normal. The press release noted the loss of $8.2 million so far in 2017 as point No. 7 of a long list of “Selected Financial Highlights,” only commenting that it was less than the $9.1 million lost during the same period in 2016.

None of the conference call participants — and there were fewer than usual — brought up the subject. Instead, they lobbed softball questions at Mr. DeGasperis, and allowed his selective, glowing descriptions of company activities — especially real estate transactions and the joint venture — to go unchallenged.

An especially pointed example was Mr. DeGasperis’ frequent reference to “record” reductions in operating expenses. This conjured up an image of decades’ worth of faithfully kept statistics, although the CMI record book is actually pretty thin. The fact is, operating expenses “reached a record low of $3.8 million” because CMI had essentially stopped operating by 2017, at least in terms of mining and processing ore.

More telling is the spin CMI put on the reverse stock split, which will go into effect on November 10. The 1 for 5 reverse split is intended to artificially increase the per share value of CMI stock. Each five existing CMI shares will be combined into 1 new share, with five times the value—at least for the time being. Mr. DeGasperis described this as a “mechanical change that does not impact our strategy, business plans, liquidity, operations or the intrinsic value of the shares.” He later referred to it as an “exercise,” to satisfy the New York Stock Exchange’s “minimal share price requirement.”

But CMI is applauding themselves for addressing a symptom — as the NYSE requires — while ignoring the disease. The fundamental problem is the serious, long-term fall in the share price, which has steadily declined from over $3 per share in 2012 to under 10 cents as of November 3.

This is not only the mark of a troubled company, but penny stocks — as low-priced shares are called — are very susceptible to various forms of manipulation and other questionable dealings. The NYSE informed CMI in May that if they wanted to continue trading on the exchange there had to be an increase in the share price within six months, either through improved performance or a reverse stock split. This “mechanical change” was forced on CMI not because of some arcane rule, but because the company was not meeting the standard required for trading on one of the world’s most reputable stock exchanges.

So, along with overlooked elephants, there is a fair amount of whistling past the graveyard this Halloween. It is tempting to regard CMI as grand ambitions gone awry, or simply a company that can’t get out of its own way. But mining is an unpredictable business, and there are enough rags to riches stories to show that anything can happen. CMI’s future is uncertain, to say the least, but the very real threat the company poses to Silver City is not going away soon, nor can it be ignored.

A fully referenced version of this post, along with other articles about Silver City and the challenges faced by our community, is available on https://www.savesilvercity.org/.