Item 1. Business
Item 1. Business
OUR COMPANY
Unless the context otherwise indicates, the terms “Comstock,” “we,” “us,” “our,” “our Company” or “the Company” mean Comstock Mining Inc. and its consolidated subsidiaries.
The Company is an emerging leader in climate-smart mineral development and production of increasingly scarce strategic and precious metals, focused on conservation-based, high-value, cash-generating, minerals and metals essential to meeting the rapidly increasing demand for clean energy technologies. The Company has extensive, contiguous property in the historic Comstock and Silver City mining districts (collectively, the “Comstock District”) with fully permitted, metallurgical labs and an operational, mineral processing platform that includes a growing portfolio of gold, silver, lithium, nickel, cobalt, and mercury remediation extraction and processing facilities .
The Company’s goal is to grow per-share value by commercializing environment-enhancing, precious and strategic-metal-based products and processes that generate a rate of predictable cash flow (throughput) and increase the long-term enterprise value of our northern Nevada based platform. The next three years are dedicated to delivering that value by achieving performance objectives in line with the strategic plan approved by the Company's Board of Directors. The strategic plan is designed to deliver higher per-share value over the next three years, while positioning the Company for continued growth beyond 2023.
The Company began acquiring properties in the Comstock District in 2003. Since then, the Company has consolidated a significant portion of the Comstock District, amassed the single largest known repository of historical and current geological data on the Comstock region, secured permits, built an infrastructure and completed two phases of test production. The Company continues evaluating and acquiring properties inside and outside the district, expanding its footprint and evaluating all our existing and prospective opportunities for further exploration, development and mining.
The Company and its subsidiaries now own or control approximately 9,358 acres of mining claims, parcels, and royalty interests 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 and just south of Virginia City, Nevada.
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 historical data and detailed surface mapping of Comstock District properties and continue to obtain historical information from public and private sources. We integrate this data with information obtained from our recent mining operations, to target prospective geological exploration areas and plan exploratory drilling programs, including expanded surface and underground drilling.
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 sale to Tonogold Resources, Inc. ("Tonogold") of the membership interests in Comstock Mining LLC ("Comstock LLC"), the owner of the Lucerne Mine, resource area and related permits, closed on September 8, 2020. The 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. Lucerne is the subject of ongoing assessment, exploration and development plans by Tonogold. The Company retains a 1.5% net smelter return ("NSR") royalty in the Lucerne properties.
The Company achieved initial production and first poured 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.
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Figure 1 - Comstock Mining's Land Position in the Comstock District
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Comstock Mining’s Corporate Realignment
Since 2019, the Company's Board of Directors approved, and the Company's management has been pursuing, a transformational strategy focused on high-value, cash-generating precious and strategic metal-based activities (the "Strategic Focus"). The Company advanced the Strategic Focus by facilitating the formation of dedicated subsidiaries that optimize the alignment with the goal and the performance objectives. The realignment was completed in 2019, and the Company has begun investing in activities aligned with the performance objectives, including MCU, Pelen, and Comstock Royalty Holdings.
Figure 2 - Comstock Corporate Realignment
The Company completed the realignment during 2019, such that the new corporate structure is now well aligned with the Strategic Focus. Comstock Mining Inc. remains as the parent company that wholly owns the realigned subsidiaries. Comstock Processing LLC owns the American Flat processing facility and additional land for potential expansion. Comstock Northern Exploration LLC owns or controls the remaining Storey County exploration targets, primarily located north of the Lucerne properties, including the Occidental Lode. Comstock Exploration and Development LLC owns or controls the Lyon County mining claims and exploration targets, including the Dayton Resource Area and the Spring Valley target. Comstock Industrial LLC owns the Silver Springs properties and water rights. Comstock Real Estate Inc. owns the Daney Ranch and the Gold Hill Hotel. Comstock LLC controls the Lucerne properties, including those owned by Northern Comstock LLC, and is now owned 100% by Tonogold. The Company recorded a gain of $18.3 million associated with that sale during 2020.
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Current Projects
The Company has identified many exploration targets on its land holdings in the Comstock District, but has focused, to date, on the Dayton resource area and, through our Membership Interest Purchase Agreement with Tonogold, the Lucerne resource area (including surface and underground exploration). We have also leased other Storey County mineral properties, including the Occidental group and the Gold Hill group of exploration targets, to Tonogold, which is currently performing exploration activities and plans to ultimately develop towards feasibility for those assets. We are developing updated geological interpretations and associated exploration and development plans for the remaining areas, primarily the Spring Valley group of targets that we view as an extension of the Dayton resource area.
Dayton Resource Area and Spring Valley
The Dayton resource area is south of Virginia City in Lyon County, Nevada. It generally includes the historic Dayton, Kossuth and Alhambra patents, including the old Dayton Consolidated mine workings, south to where the Kossuth patent crosses State Route 341. The historic Dayton mine was the last meaningful underground mining operation in the Comstock District, before being closed after the War Production Board published Limitation Order L-208, 7 F. R. 7992 on October 8, 1942, that closed down all gold mining operations in the United States and its territories. The Dayton resource area ranks as one of the Company’s top exploration and potential mine development targets. In January 2014, the Lyon County Board of Commissioners approved strategic master plan and zoning changes on the Dayton, Kossuth and Alhambra mining patents and other properties located in the Dayton resource area, enabling a more practical, comprehensive feasibility study for mining. Geological studies and development planning are currently underway utilizing data from extensive metallurgical testing and assessment during 2017, 30,818 feet of additional drilling completed in 2015, geophysical analysis and interpretation completed in 2013, and extensive geological data from pre-2013, drill programs.
The Spring Valley group of exploration targets lies adjacent to the Dayton resource area at the southern end of the Comstock District, where the mineralized structures, trending to the south from the Dayton resource area, lie mostly concealed beneath a veneer of sediment gravels. The area includes the Kossuth patented claim south of State Route 341, the Gennessee patented claim, the Dondero patented property, the Daney patented claim, the New Daney lode mining claims, and the Company’s placer mining claims in Spring Valley and Gold Canyon.
The Dayton Resource area and the remainder of the Company's Lyon County properties were the primary focus of a 3-D, airborne geophysical survey flown in September and October 2020 by Geotech Ltd of Aurora, Ontario, Canada.
Lucerne Resource Area
The Lucerne resource area has been the primary focus of the Company’s exploration and development efforts since 2003. It includes the previously mined Billie the Kid, Hartford and Lucerne mining patents, and extends east and northeasterly to the area of the historic Woodville (southern-most of the historic Comstock bonanzas), Succor and Lager Beer patents and north to the historic Justice and Keystone mines. The Lucerne resource area extends approximately one mile along a strike, with explored widths from 600 to 1,800 feet.
Our Lucerne exploration activities included open pit gold and silver test mining from 2004 through 2006, and from late 2012 through 2016. As defined by the SEC Industry Guide 7 and regulation S-K 1300, we have not yet established any proven or probable reserves at the Lucerne Mine, now owned by Tonogold.
Tonogold now controls the Lucerne resource area through their acquisition of the membership interests of Comstock LLC. Tonogold has begun work on an updated resource estimate, leading to a Preliminary Economic Assessment. The Company and Tonogold hold the key mining permits required to resume surface or underground mining of this area.
Tonogold Agreements
There are three current agreements between Comstock and Tonogold: the Membership Interest Purchase Agreement, the Mineral Exploration and Mining Lease, and the Lease Option Agreement for the Company's American Flat processing facility. Tonogold and the Company previously entered into an Option Agreement in 2017 that was terminated during 2019.
Membership Interest Purchase Agreement
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On January 24, 2019, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) to sell its interests in Comstock LLC, a wholly-owned subsidiary of Comstock with sole net assets of the Lucerne properties and related permits to Tonogold. The Purchase Agreement, as amended, requires a total purchase price and fees of $17.6 million, comprised of $11.5 million in cash (excluding interest) and $6.1 million in Tonogold Series D Convertible Junior Participating Non-Cumulative Perpetual Preferred Stock (“CPS”). Tonogold also guaranteed the Company’s remaining financial responsibility for its membership interest in Northern Comstock LLC, which owns and leases certain mineral properties in the Lucerne area, and assumed certain reclamation liabilities, both totaling approximately $7.0 million.
At the initial closing on November 18, 2019, Tonogold received 50% of the membership interests of Comstock LLC. On September 8, 2020, the Purchase Agreement was closed, and 100% of the membership interests were acquired by Tonogold. The fair value of the consideration delivered by Tonogold for the membership interests in Comstock LLC was $18.8 million, including cash, CPS, and a note receivable, net of the contingent forward asset. The Company retains a 1.5% NSR royalty on the Lucerne properties.
Mineral Exploration and Mining Lease
Effective September 16, 2019, and restated on December 23, 2019, the Company entered into a renewable mineral lease with Tonogold for certain mineral properties owned or controlled by the Company in Storey County, Nevada (the "Exploration Lease"). The Exploration Lease grants Tonogold the right to use these properties for mineral exploration and development, and ultimately the production, removal and sale of minerals and certain other materials. The restated lease clarified and increased Tonogold’s exploration spending, permitting, and engineering commitments to a minimum of $1.0 million per year, for a cumulative total of $20.0 million over 20 years. Tonogold also committed to specific milestones for issuing technical reports on their results, culminating in a published Feasibility Report by the 20 th anniversary of the agreement.
The initial term of the Exploration Lease (the "Exploration Term") is 5 years, with Tonogold committing to spending at least $5.0 million for exploration, at the rate of $1.0 million per year, and to producing an NI 43-101 compliant technical report by the end of the 5 th year. The Exploration lease will automatically renew for a second, 10-year term (the "Development Term") as long as the commitments have been met. During the Development Term, Tonogold is committed to an additional $10.0 million in expenditures for exploration, development, and technical reporting, at the rate of $1.0 million per year, and to producing an economically viable mine plan and an NI 43-101 compliant Pre-Feasibility report by the end of the 15 th anniversary of the agreement. The Exploration Lease will automatically renew for a third, five-year term (“the Planning Term”) provided that the spending and reporting commitments have been met. During the Planning Term, Tonogold is committed to an additional $5.0 million in expenditures for exploration, development, permitting, and technical reporting, at the rate of $1.0 million per year. By the 20 th anniversary of the agreement, Tonogold also commits to producing an economically viable mine plan, and an NI 43-101 compliant Feasibility report, and will produce a mutually agreed-upon schedule for placing the properties into production.
Tonogold pays a quarterly lease fee of $10,000, in advance. The lease fee will escalate 10% each year on the anniversary date of the Exploration Lease. Tonogold will also reimburse the Company for all costs associated with owning the properties. The lease also provides for royalty payments after mining operations commence. For the first year following the commencement of mining, royalties will be paid at the rate of 3% of NSR for the properties. The rate will be reduced to 1.5% of NSR thereafter. The Company accounts for the Exploration Lease as an operating lease.
Occidental and Gold Hill Targets
The Occidental group and Gold Hill group of exploration targets represent longer-term exploration target areas that contain many historic mining operations, including the Overman, Con Imperial, Caledonia, and Yellow Jacket mines. We believe that our consolidation of the Comstock District has provided us with opportunities to utilize the historical information available to identify drilling targets with significant potential.
The Occidental and Gold Hill properties are currently being explored through drilling by Tonogold under their Mineral Exploration and Mining Lease.
Lease Option Agreement for the American Flat processing facility
The Company and Tonogold also entered into an agreement (the "Lease Option Agreement") to lease its permitted American Flat property, plant and equipment to Tonogold for crushing, leaching and processing material from the Lucerne Mine. If the option is exercised, Tonogold will pay the Company a rental fee of $1.0 million per year plus $1 per processed ton, in addition to all the costs of operating and maintaining the facility, up to and until the first $15.0 million in rental fees are paid,
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and then stepping down to $1.0 million per year and $0.50 per processed ton for the next $10.0 million paid to Comstock, and then stepping down again, after the first $25.0 million of revenue is received, to $0.25 cents per processed ton, with no annual rental fee but with a $100,000 per quarter minimum revenue. Tonogold will reimburse American Flat expenses of approximately $1.1 million per year during the option life.
Employees
We believe we have exceptional mine engineering, geological, regulatory, environmental, financial and operating competencies on our management team. As of December 31, 2020, we have 9 full-time employees, inclusive of our general and administrative function. We have also strengthened our system through agreements and relationships with key partners.
Our Team
Corrado De Gasperis, Executive Chairman since September 2015, director since June 2011, Chief Executive Officer since April 2010, brings more than 30 years of industrial, financial, project management, and operational metals and mining, manufacturing, capital markets and board governance experience. Mr. De Gasperis is also a Director, President and CEO of Sierra Springs Opportunity Fund, Inc., a strategic investee of Comstock Mining, since July 2019.
From 2006 to 2009, Mr. De Gasperis served as the Chief Executive Officer of Barzel Industries Inc. (“Barzel”) and its predecessors. Barzel operated a network of 15 steel-based manufacturing, processing and distribution facilities in the United States and Canada that offered a wide range of metal solutions to various industries, from construction and industrial manufacturing to transportation and mining. Mr. De Gasperis resigned from Barzel in September 2009, after Barzel agreed to sell substantially all of its assets in a planned transaction that was consummated in a sale pursuant to Section 363 of the U.S. Bankruptcy Code following a multiple party bidding process with suitors focused on both in-court and out-of-court transactions. Barzel and substantially all of its U.S. and Canadian subsidiaries were purchased for $65.0 million in cash.
From 1998 to 2006, Mr. De Gasperis held roles of increasing responsibility at GrafTech International Ltd. (“GrafTech”), a global manufacturer of graphite and carbon cathodes and electrodes. From 2001 to 2006, he served as the Chief Financial Officer, in addition to his duties as Vice President and Chief Information Officer, which he assumed in 2000. From 1998 to 2000, he served as the Controller of GrafTech and a leader of its transformation and recapitalization.
From 1987 to 1998, Mr. De Gasperis was a Certified Public Accountant with KPMG LLP, an international provider of financial advisory and assurance services. As a Senior Assurance Manager in the Manufacturing, Retail and Distribution Practice, he served clients such as General Electric Company and Union Carbide Corporation. KPMG announced his admittance, as a Partner, effective July 1, 1998.
Mr. De Gasperis is also a founding member and the Chairman of the Board of Directors of the Comstock Foundation for History and Culture, a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). He is a board member and previously served as Chairman of the Virginia City Tourism Commission, and is a member of the Northern Nevada Development Authority and the Northern Nevada Network. Mr. De Gasperis has served as a director of GBS Gold International Inc., where he was Chairman of the Audit and Governance Committee and the Compensation Committee and a member of the Nominations and Advisory Committees. Mr. De Gasperis holds a BBA from the Ancell School of Business at Western Connecticut State University, with honors.
Laurence G. Martin, Director of Exploration & Mineral Development since 2010, and Chief Geologist since 2008. He brings over 40 years of successful precious metals exploration, mine development and production experience. He participated and supervised exploration projects in Northwest Territories, Canada; Liberia, West Africa; Honduras, Central America; Sinaloa, Mexico; and the western region of the United States, predominantly Nevada. Mr. Martin’s supervisory production experience includes the following Nevada mines: Manhattan, Borealis, Hog Ranch, and Denton-Rawhide.
Mr. Martin’s geologic technical expertise overlapped into the environmental and civil engineering disciplines of geology. He was an instrumental member of the geologic team reporting to the U.S. Geological Survey during a three-year program conducting detailed geologic and structural mapping of the proposed nuclear repository site located at Yucca Mountain, Nevada. Mr. Martin participated in the Vadose Zone Hydrology studies of the environmentally sensitive sites of Hanford Nuclear Reservation, Washington and Anniston Army depot, Alabama. Mr. Martin was a key member of a geologic team supporting Atkinson Construction, Washington Group and Zachry Construction Group during the construction of the largest earth-core rock-fill dam in the United States, East Side Reservoir Project, Riverside County, California.
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Mr. Martin received his Bachelor of Science in Geologic Engineering from Colorado School of Mines in 1978. He is a Qualified Person (QP) and a Certified Professional Geologist (CPG) accredited by American Institute of Professional Geologists (AIPG). In two separate trials before the United States Department of the Interior, Office of Hearings and Appeals, Mr. Martin was qualified as an expert in two categories: mining exploration geologists and mining structural geologists.
Michael N. Norred , Director of Strategic Planning and Resource Development since December 2017, and in similar and consultative roles from 2007 to 2013. He designed and led the effort to analyze and incorporate an unprecedented amount of historical and modern data into a comprehensive geologic database of the Comstock District. He implemented QA/QC protocols and procedures, trained and coordinated geologic staff, and maintained the database updated through five years of field work and drilling, including over 400,000 feet of additional drill results. Mr. Norred brings over 40 years of experience in resource modeling, surface mine design, geological database management and software development. His geological modeling experience includes precious metals, base metals, industrial minerals, coal, oil and gas.
Mr. Norred is also the founder of Techbase International, Ltd, where he has served as President since 1982. He designed and led a team of programmers to develop the Techbase ® engineering database management package. He successfully commercialized the software and served and supported users worldwide. He enabled clients in the implementation of robust modeling and database management and the development of internal processes for a variety of projects and industries.
Mr. Norred received his Bachelor of Science in Mining Engineering from the Colorado School of Mines in 1978, and was named Colorado School of Mines Young Alumnus of the Year in 1987. He is a Qualified Person (QP) as defined by Canadian National Instrument 43-101 and as defined by SEC Regulation S-K 1300, and is qualified in Federal Court as an expert witness in open pit mine modeling. As a QP, he has authored or contributed to National Instrument 43-101 and JORC compliant technical reports.
Chris Peterson, Director of Health, Safety, & Environmental Protection and General Site Manager since 2020. Mr. Peterson previously held positions with Comstock Mining ranging from Senior Grade Control Geologist to Director of Mining and Mine Development. Mr. Peterson returns to us from a period in the consulting industry where he was an Environmental Scientist, Air Quality Specialist and Site Management Consultant.
With over 10 years’ background in mining and related disciplines while working in the field, leading research projects, conducting geologic mapping, and supporting ore process and production, Mr. Peterson has held increasingly responsible leadership roles.
Mr. Peterson held positions at Kona Gold LLC and EM Strategies at DeLamar Mining Company. Prior to that, and while previously with Comstock Mining, he oversaw the realignment of Nevada State Route 342, and completion of the Lucerne Underground Project.
Mr. Peterson earned a Bachelor of Science in Geology from California State University; Chico, and a Masters in Geology from Mackay School of Mines at the University of Nevada, Reno, both degrees earned with Honors.
Zach M. Spencer, joined Comstock Mining in 2017, as Director of External Relations with more than 30 years of experience in the communications field and 16 years dedicated to the Nevada mining industry, including investor, government and media relations. Mr. Spencer has held similar roles in Nevada with General Moly, Inc. and Newmont Mining, Corp.
Mr. Spencer has produced and directed broadcast television and managed marketing and communications for the telecommunications industry. He is a founding member and former officer of the Reno Media Press Club and served on the boards of the Nevada Mining and American Exploration & Mining Associations, chairing their Public Outreach Committees.
Mr. Spencer earned a Bachelor of Arts from the Reynolds School of Journalism at the University of Nevada, Reno and a Master of Business Administration from the Ageno School of Business at Golden Gate University, San Francisco.
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Available Information
The Company maintains a website at comstockmining.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any filed or furnished amendments to those reports pursuant to Section 13(a) of the Securities Exchange Act of 1934 (“Exchange Act”) are made available through our website as soon as practical after we electronically file or furnish the reports to the SEC. Also available on our website are the Company’s Governance Guidelines and Code of Conduct, as well as the charters of the audit, compensation and nominating committees of the Board of Directors. Information on our website is not incorporated into this report. Stockholders may request free copies of these documents from:
Comstock Mining Inc.
Attention: Mr. Zach M. Spencer, Director of External Relations
PO Box 1118
Virginia City, NV 89440
Principal Operating Segments
We did not have any production or revenue in our mining segment during 2020 or 2019, and we had $0.2 million of revenues in our real estate segment for each of the years ended December 31, 2020 and 2019. We had operating losses of $4.9 million and $5.5 million in our mining segment for the years ended December 31, 2020 and 2019, respectively, and an operating loss of $0.6 million for the year ended December 31, 2020 and operating income of $0.1 million for the year ended December 31, 2019 in our real estate segment. We had total assets of $34.3 million and $8.8 million in our mining and real estate segments, respectively, at December 31, 2020. We had total assets of $30.1 million and $9.5 million in our mining and real estate segments, respectively, at December 31, 2019. See Note 20, Segment Reporting, to the consolidated financial statements.
Government Regulation
Mining operations and exploration activities are subject to various federal, state, and local laws and regulations in the United States, which govern prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous substances, and other matters. We have obtained substantially all licenses, permits, and other authorizations currently required for our mining, exploration and other development programs. We believe that we are in compliance in all material respects with applicable laws and regulations. Capital expenditures relating to compliance with laws and regulations that regulate the discharge of materials into the environment, or otherwise relating to the protection of the environment, comprise a substantial part of our historical capital expenditures and our anticipated future capital expenditures. For example, we incur certain expenses and liabilities associated with our reclamation obligations. See Reclamation section below.
Reclamation
We are generally required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping, and re-vegetating various portions of a site after mining and mineral processing operations are completed. These reclamation efforts are conducted in accordance with plans reviewed and approved by the appropriate regulatory agencies.
The Nevada Revised Statutes (NRS) 519A to 519A.280 and Nevada Administrative Code (NAC) 519A.010 to 519A.415 promulgated by the Nevada State Environmental Commission and the Nevada Division of Environmental Protection (“NDEP”), Bureau of Mining and Reclamation (“BMRR”) require a surety bond to be posted for mining projects so that, after completion of the work on such mining projects, the sites are left safe, stable and capable of providing for a productive post-mining use. Over the past four years, the Company has provided a reclamation surety bond, through the Lexon Surety Group (“Lexon”), with the BMRR. The BMRR, with concurrence from Storey County, has approved our most recent reclamation plan, as revised, and our estimated total costs related thereto of approximately $7.3 million, including $6.8 million for BMRR and $0.5 million of additional reclamation surety bonding, primarily with Storey County.
As part of the surety agreement, the Company agreed to pay a 2.0% annual bonding fee and signed a corporate guarantee. The cash collateral percentage held on deposit by Lexon is typically one third or less of the current bond amount. At December 31, 2020, the total current bonded amount is $7.3 million, and the total collateral held on deposit was $2.7 million.
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Competition
We compete with other mineral exploration and mining companies in connection with the acquisition of gold and other mineral properties, and the attraction and retention of human capital. Such competitors may have substantially greater financial resources than we do.
History
The Company began acquiring properties and developing projects in the Comstock District in 2003. The Company produced over 12,000 ounces of gold and over 53,000 ounces of silver from 2004 through 2006 from our Billie the Kid mine and American Flat heap leach processing facilities. Our test mining activities were concluded in January 2007 when, based on our longer-term production plans, we prioritized land consolidation and mine planning.
After five years of intensive geological mapping and interpretation, drilling, resource modeling and mine planning, the Company restarted mining operations in the third quarter of 2012 and resumed pouring doré bars of silver and gold in September 2012. The Company produced 59,515 ounces of gold and 735,252 ounces of silver from September 2012 through December 2016. The Company completed leaching from its existing leach pads in December 2016, and has since focused on exploration and development activities, primarily in the Lucerne and Dayton resource areas.
In September 2020, the Company completed the sale of Comstock LLC, owner of the Lucerne Mine, resource area and related permits, to Tonogold. The Company retains a 1.5% NSR royalty interest in the Lucerne properties.
Customers
The Company is not economically dependent on a limited number of customers for the sale of its product. The real estate segment has numerous customers and is not dependent on any one customer.
Financing Events
S-3 Shelf Registration
On February 18, 2019, the Company filed an S-3 shelf registration with the SEC (the "S-3 Shelf"), for the sale of up to $50 million of the Company’s securities, from time to time, and used $8.2 million of that capacity through December 31, 2020, leaving an aggregate unused capacity of $41.8 million. As long as the aggregate market value of the Company’s voting and non-voting common equity held by non-affiliates is less than $75.0 million, the aggregate market value of securities sold by or on behalf of the Company pursuant to the S-3 Shelf during the period of 12 calendar months immediately prior to such sales is limited to being no more than one-third of the aggregate market value of the Company’s non-affiliated voting and non-voting common equity. On December 31, 2020 and March 5, 2021, these limitations resulted in $8.8 million and $20.8 million, respectively, of unrestricted, available S-3 Shelf capacity. There can be no assurance the Company can sell common shares up to that capacity.
Equity Issuance Agreements
On March 2, 2021, the Company entered into equity purchase agreements (the “Equity Purchase Agreements”) with certain investors to issue and sell in a registered direct offering (the “Offering”) 4.0 million shares of common stock at a price of $4.00 per share. The shares are being offered by the Company pursuant to its shelf registration statement on Form S-3 (File No. 333-229890) filed with the SEC on February 26, 2019 and declared effective on March 7, 2019, and prospectus supplement thereunder dated March 2, 2021, and filed with the SEC on March 2, 2021. The Equity Purchase Agreements contain customary representations, warranties and agreements of the Company, and customary conditions to closing, indemnification rights and obligations of the parties. The Offering of the shares closed on March 4, 2021. The Company paid Noble Capital Markets, Inc., the placement agent for the Offering, an aggregate cash fee equal to 6% fee of the aggregate gross proceeds raised in the Offering, and agreed to pay up to $30,000 for other fees and expenses, resulting in expected net offering proceeds of $15.0 million.
On February 8, 2021, the Company entered into an equity purchase agreement (the “2021 Leviston Sales Agreement”) with Leviston Resources LLC (“Leviston”) to offer and sell registered shares of common stock at an aggregate offering price of up to $5.0 million from time to time, at the Company’s option, on terms deemed favorable to the Company. Any shares offered and sold will be issued pursuant to the Company’s shelf registration statement on Form S-3 and the related prospectus (File No. 333-229890) filed by the Company with the SEC pursuant to the Securities Act.
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Sales of common stock, if any, under the 2021 Leviston Sales Agreement may be made in sales deemed to be “at-the-market” equity offerings as defined in Rule 415 promulgated under the Securities Act, at a price of ninety percent (90%) of the volume weighted average closing sales price per share of the common stock on the NYSE American stock exchange on the day of each respective put date.
In July 2020, the Company entered into an equity purchase agreement (the "2020 Triton Equity Agreement") with Triton Funds L.P., (“Triton”) to offer and sell registered shares of common stock at an aggregate offering price of up to $1.25 million, from time to time, at the Company's option. In July 2020, the Company issued to Triton 2,040,483 common shares with an aggregate sales price of $1.25 million, at an average price per share of $0.61, and paid related cash fees of $15,000. At December 31, 2020, the 2020 Triton Equity Agreement has no capacity.
Also in July 2020, the Company entered into an equity purchase agreement (the “2020 Leviston Sales Agreement”) with Leviston to offer and sell registered shares of common stock at an aggregate offering price of up to $2.5 million, from time to time, at the Company's option, and paid a commitment fee of $125,000 in shares of common stock and $52,500 of cash fees. From July through September 2020, the Company issued to Leviston 2,793,586 common shares with an aggregate sales price of $2.5 million, at an average price per share of $0.89, and an additional 173,611 common shares in commitment fees. At December 31, 2020, the 2020 Leviston Sales Agreement has no remaining capacity.
In October 2019, the Company entered into an equity purchase agreement (the “2019 Leviston Sales Agreement”) with Leviston to offer and sell registered shares of common stock at an aggregate offering price of up to $1.25 million, from time to time, at the Company’s option, subject to certain restrictions and a $125,000 fee payable to Leviston in shares of common stock. In October 2019, the Company issued to Leviston 1,863,150 common shares with an aggregate sales price of $0.8 million, at an average price per share of $0.43, and an additional 284,852 common shares in commitment fees. From March through July 2020, the Company issued to Leviston an additional 913,539 common shares with an aggregate sales price of $0.4 million, at an average price per share of $0.49. As of December 31, 2020, the 2019 Leviston Sales Agreement has no remaining unused capacity.
In February 2019, the Company entered into an equity purchase agreement (the “2019 Murray Equity Agreement”) with the Murray Family Office (“Murray”) to offer and sell shares of common stock at an aggregate offering price of up to $5.0 million, from time to time, at the Company’s option, subject to certain restrictions, at a 10% discount to a volume weighted average sales price per common share, and paid a fee of $250,000 in shares of common stock and cash fees of $50,715. From May through September 2019, the Company issued to Murray 2,988,120 common shares with an aggregate sales price of $1.9 million, at an average price per share of $0.65, and an additional 213,156 common shares in fees. As of December 31, 2020, the 2019 Murray Equity Agreement has no remaining capacity.
See Note 14, Equity, and Note 22, Subsequent Events, to the consolidated financial statements.
Convertible Preferred Stock
In June 2019, the Company entered into a securities purchase agreement with Temple Tower Group LLC ("Temple") providing for the issuance and sale to Temple of 1,274 shares of convertible preferred stock with a stated value of $1,000 per share, for net proceeds to the Company of $1.1 million, with 191 of the preferred shares representing due diligence fees. The total of 1,274 preferred shares had a stated value of $1.3 million and a fair value of $1.5 million based on a third-party valuation study. The Company recorded the difference between the net proceeds of $1.1 million and the fair value of $1.5 million as a cost of issuing the preferred shares.
The preferred shares were issued pursuant to the Company’s S-3 Shelf, and were convertible into shares of the Company’s common stock. The number of common shares issuable upon conversion was determined by dividing the stated value of the preferred shares by the conversion price. The conversion price was calculated as 90% of the lowest reported volume-weighted average price per share of the Company’s common stock as reported at the close of trading on the NYSE American stock exchange during the seven trading days ending on, and including, the date of the notice of conversion. From July through September 2019, Temple converted all of the preferred shares for 2,240,441 common shares at an average conversion price per share of $0.57.
Reverse Stock Split
In November 2019, the Board of Directors of the Company approved a one-for-five (1:5) reverse stock split (the “Reverse Split”) for all issued and outstanding shares of the Company’s common stock, par value $0.000666, and a
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contemporaneous one-for-five (1:5) reduction in the number of shares of the Company’s authorized common stock from 790,000,000 to 158,000,000 shares. The Reverse Split resulted in each outstanding five pre-split shares of common stock automatically combining into one new share of common stock without any action on the part of the stockholders. No fractional shares were issued as a result of the Reverse Split. Fractional shares were rounded up to the nearest whole share, requiring the issuance of 9,114 additional shares of common stock, included in issuance of common stock in the consolidated statements of changes in equity. The Reverse Split was effective for trading purposes on November 29, 2019. The total number of outstanding common shares was reduced from 126,970,215 to 25,394,043 on the effective date. All common shares and per share amounts set forth herein give effect to this Reverse Split. The Reverse Split also applies to awards available for issuance under the 2011 Equity Incentive Plan.
Risk Factor Summary
An investment in our securities involves risk. You should carefully consider the risk factors detailed in Item 1A, “Risk Factors”, in addition to those discussed elsewhere in this report, in evaluating our Company, its business, its industry and prospects. These risks include, but are not limited to, those described in the following summary:
Business and Operating Risks
• We have a limited operating history.
• We may never earn significant revenues from our mine operations or our other precious metal-based activities.
• We are exposed to global health, economic and market risks that are beyond our control, which have adversely affected, and could continue to adversely affect, our financial results and capital requirements.
• Transportation and weather interruptions may affect and delay proposed mining operations and impact our business plans.
• If we are unable to secure raw materials and exploration supplies we may have to delay our anticipated business operations.
• We have invested capital in high-risk minerals and metals projects where we have not conducted sufficient exploration, development and/or engineering studies.
• We will not be successful unless we recover precious or strategic metals and sell them for a profit, and/or provide related services for a profit.
• We do not have proven or probable reserves, and there is no assurance that the quantities of precious metals we produce will be sufficient to recover our investment and operating costs.
• The cost of our exploration, development and acquisition activities is substantial, and there is no assurance that the quantities of minerals and metals we discover, acquire or recover will justify commercial operations or replace future reserves.
• The prices of gold, silver, lithium, nickel cobalt and other metals fluctuate on a regular basis and a downturn in price could negatively impact our operations and cash flow.
• The use of hedging instruments may not prevent losses being realized on subsequent price decreases, or may prevent gains being realized from subsequent price increases.
• We compete with other mineral exploration, metal recycling and mining companies which could result in lost opportunities.
• Actual recoveries may vary from our estimation of the ultimate recovery of gold, silver and other metals, which is subjective.
• Resource and other mineralized material statements are estimates subject to uncertainty due to factors including metal prices, inherent variability of the mineralized material and recoverability of metal in the mining and beneficiation processes.
• Our mining and metal recycling production depends on the availability of sufficient water supplies.
• Cost estimates and timing of new projects are uncertain, which may adversely affect our expected production and profitability.
• We may experience increased costs or losses from hazards and uncertainties associated with mining and processing.
• Our activities are inherently hazardous and any exposure may exceed our insurance limits or not be insurable.
• The Company’s costs of close-down, reclamation and rehabilitation could be higher than expected.
• Our ability to execute our strategic plan depends on many factors, some of which are beyond our control.
• We rely on contractors to conduct a significant portion of our operations and construction projects.
• Our business requires substantial capital investment and we may be unable to raise additional funding.
• We may not be successful in selling non-mining related assets.
• Owning real estate and water rights and options on real estate and water rights carries inherent risks.
• Illiquidity of real estate investments could significantly impede our ability to respond to changes in economic and other conditions.
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• The unique nature of our properties, including our held-for-sale properties, may make it difficult for us to sell or develop those properties, and could require considerable, additional capital to adapt the properties for sale or other productive uses and could negatively affect our financial performance.
• Our indebtedness and other payment obligations could adversely affect our operations, financial condition, cash flow, and operating flexibility.
• Mining companies are increasingly required to provide benefits to the communities in which they operate.
Legal, Regulatory and Compliance Risks
• Our ability to execute our strategic plans depends upon our success in obtaining a variety of required governmental approvals that may be opposed by third parties.
• Our operations are subject to strict environmental laws and regulations, including regulations and pending legislation governing issues involving climate change, which could result in added costs of operations and operational delays, and could have a material adverse effect on our business.
• Our operations are subject to certain soil sampling and potential remediation requirements, which may result in added costs and delays; and we are also potentially subject to further costs as the result of on-going government investigation and future remediation decisions.
• Our insurance and surety bonds for environmental-related issues are limited.
• We are subject to federal and state laws that require environmental assessments and the posting of bonds, which add significant costs to our operations and delays in our projects.
• We may be subject to litigation.
• Title claims against our properties could require us to compensate parties and divert management’s time.
Risks Related to Investment in Our Common Stock
• Our stock has historically been a penny stock with trading restricted by the SEC’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our stock.
• If we are unable to maintain the listing standards of the NYSE American stock exchange, our common stock may be delisted.
• The price of the Company’s common stock has and may continue to fluctuate significantly, which could negatively affect the Company and holders of its common stock.
• If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
• We do not expect to pay any cash dividends for the foreseeable future.
• The terms of the Operating Agreement of Northern Comstock LLC require significant cash payments and may significantly dilute the ownership interests of the common stock.
• We may issue equity securities in the future that could dilute the ownership interest of existing stockholders.
Risks Related to Strategic Transactions
• We have and may continue to pursue investments in other companies, acquisitions, divestitures, business combinations or other transactions with other companies, involving our properties or new properties, which could harm our operating results, may disrupt our business and could result in unanticipated accounting charges.
• We may undertake joint ventures, investments, joint projects and other strategic alliances and such undertakings, as well as our existing joint ventures, may be unsuccessful and may have an adverse effect on our business.