Comstock Mining Update – August 12, 2013

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Will this be the greatest feat of magic to be performed in Nevada since Siegfried and Roy first turned that tiger into thin air?

Is Comstock Mining Inc about to disappear? 

At $1300/oz it takes about 60 truckloads of the Virginia City National Historical Landmark to produce a
At $1300/oz it takes about 60 truckloads of the Virginia City National Historical Landmark to produce a “gold-equivalent ounce” for CMI. Photo courtesy Virginia City News

In its 1st Quarter results as reported to the SEC the company says it had precious metal sales revenues of just less than $3.7 million against a direct cost of just over $3.8 million and a total operating cost of more than $9.5 million. Net loss: $5.8 million.

That might sound like bad news to you, but the company noted cheerfully that it was better than last year’s first quarter loss, which was $7.3 million.

Those Q1 sales were at $1600/oz gold, and gold has fallen to $1300 and below since then. Using an optimistic $1400/oz for the price of gold and $22/oz for silver the “direct cost” [of mining and milling] to produce 2,506 equivalent ounces is $1,531/oz and the “all in” cost is $3,802/oz. The over all loss for the quarter would amount to $9,527,812.

No-one knows what the price of gold will be from one minute to the next, but it’s clear what its cost is. Roughly speaking, it’s $10 million per quarter.

Now the company has released its 2nd Quarter SEC filing, indicating that gold production more than doubled and silver nearly tripled over Q1. Revenue was $6.8 million. Net loss for the quarter was a mere $5.5 million, much less than the $9 million loss in Q2 2012.

More good news: operating expenses, other than those applicable to mining, were down nearly $5 million from Q2 2012, only $4.4 million. Some fat has been trimmed from the payroll, including that of Doug McQuide, once a highly visible member of the CMI executive team.

Even so, on June 30 there was only $2.4 million in cash on hand, the least amount in a long, long time, with Accounts Receivable of $252,460, Payables of $3 million and an accumulated deficit, the money taken from investors vs. assets, of nearly $169 million.

Question: how long does it take to make back $169 million when you’re losing $5 million a month?

CMI’s Q2 filing also contained new caveats to go with others in previous filings. From p. 18:
“Our Comstock exploration activities include open pit gold and silver test mining. As defined by the Securities Exchange Commission (“SEC”) Industry Guide 7, we have not yet established any proven or probable reserves at our Comstock Lode Project.”

From p. 23:
“The Company’s recurring losses and negative cash flow from operations require an ongoing assessment of our ability to continue as a going concern.”

“The Company’s current mine plan will require that the Company utilize existing financing arrangements or raise additional funds. . . . there is no assurance that the Company will be able to obtain additional equity capital or other financing.”

“Insufficient near-term financing or future production rates and gold prices below management’s expectations . . . could raise substantial doubt about the Company’s ability to continue as a going concern. If the Company was unable to obtain any necessary additional funds, this could have an immediate material adverse effect on liquidity. In such case, it could be required to limit or discontinue, certain business plans, activities or operations, reduce or delay certain capital expenditures or sell certain assets or businesses. There can be no assurance that the Company would be able to take any of such actions on favorable terms, in a timely manner or at all.”

Meltdown, in other words.

Will it happen? Perhaps. And if it does, no-one can say they weren’t warned.

Comstock Mining Inc. is an undercapitalized junior mining company attempting its first project. It brings a huge risk to our communities because it has neither a long-term mining plan nor the capital to back it up. This company is a flight risk. It can can be collapsed with short notice and the majority of the assets spared. CMI has no experience, no long term good reputation to uphold and no ethical standards to apply.

Question: how big a bag will Storey County be left holding if that meltdown takes place?

But don’t count CMI out. Twice before the company has made hair’s breadth escapes from what seemed like certain disaster: once when an environmental violation should have voided its SUP (but Storey County pretended not to notice), and once when CMI fumbled its application for right-of-way access to use the BLM haul road (so Storey County let them use the highway).

The magic trick might be that CMI doesn’t disappear after all.

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