The rumor dancing eagerly, gladly, euphorically up and down Gold Canyon from Virginia City to Dayton and then back again, is that Comstock Mining Inc is dead.
This judgment is uttered as gospel over the bars at C Street Saloons, and accepted as the inevitable outcome by those who have followed the shameful story of this underfinanced and inexperienced mining company. It is even spoken of aloud in the Storey County Court House.
With the eager assistance of Storey County officials, CMI’s unprofitable five years of floundering has done major permanent damage to the Virginia City National Historic Landmark. It also exposed the limitations of federal and state oversight on mining in Nevada, and the even more severe limitations of sophistication on the part of the Storey County commissioners and staff.
The company mined out the Lucerne pit, tumbled the highway into it without consequence, opened a new adit to intercept a hoped-for hot spot to the east, ran out of money, disposed of most of its heavy equipment, laid off all but a dozen workers and shut down active mining operations.
Most, if not all the company-owned real estate in Gold Canyon and elsewhere is now for sale, with the Gold Hill Hotel at the head of the list, asking price $1.4 million. The dream of developing a Faux Western Town in Gold Hill (Winfield’s Folly), financed by the gold in the Lucerne Pit seems to be shattered.. Scott Jolcover, a CMI executive, gave a presentation about the company at the Hotel a couple of weeks ago but I can’t find anyone who attended.
A friend did attend a recent meeting of the Virginia City Tourism Authority, which is an agency of Storey County. Jolcover is its Chairman by virtue of the company’s ownership of the Gold Hill Hotel (even though the company no longer operates it, and when it did it was a stone loser). He closed its September meeting by setting aside his official position in order to make a Public Comment. Then he reported pridefully that CMI was being honored with a coveted Mining Safety Award, and led the sparse applause by opening his eyes wide and clapping his hands enthusiastically.
Of course, having divested itself of its heavy equipment and laid off all but a few employees, CMI’s properties are among the quietest, calmest, safest places in the state now. The award was based on data from 2015, and the judges clearly didn’t visit during the company’s short-lived attempt at underground mining. A former employee has whispered to friends that he helped open up the tunnel for CMI last year, after the highway slid into the Lucerne pit to open the way. He said they hadn’t found anything and it was getting increasingly dangerous “because of all the old mining structures, and the way the ground is still prone to collapsing. I wondered how much longer they would keep at it because doing it right — meaning safely — meant increasing costs.”
But the company ran out of money almost immediately and the work petered out. Characteristically, the company’s press release on the topic painted it as good news — costs had been reduced by more than $8 million a year! “Cost Reduction Run Rate Exceeds $8 million Annually, Strengthens Balance Sheet”.
More good news: On July 14 the BLM conveyed title to the parcel of public land that the company had trespassed on in 2013, clearing the haul road for future use without further permissions. Why this was done has not been publicly explained.
On October 20 the company submitted its 3rd Quarter filing with the SEC revealing a loss of $2,193,201 in the Quarter and more than $9,000,000 on the year so far. The company’s stock price slid to 23¢ a share and it had only $400,000 in ready cash or the equivalent on hand — barely enough to pay Corrado De Gasperis’ salary, much less to continue mining operations.
In a press release dated October 20, 2016, the company stated: “During the third quarter, the Company (through a wholly-owned subsidiary) exercised an option to purchase, for $3.2 million, industrial land and senior water rights in Lyon County, Nevada. This land is situated in immediate proximity to where the new USA Parkway effectively connects with Highway 50, from Highway I-80, through the Reno Tahoe Industrial Center, and is valued, together with the water rights, at over $10 million. USA Parkway is progressing on or ahead of schedule, with paving commencing last week, and completion targeted between August and December of 2017.”
The SEC filing outlined the company’s frantic search for revenue in more detail: “On July 25, 2016, a wholly-owned subsidiary of the Company purchased 98 acres of land and 257 acre-feet of senior-priority water rights in Silver Springs, Nevada for $3.2 million and entered into a Loan Agreement (the “Loan Agreement”) of $3.3 million for the purpose of purchasing the real property and water rights. The loan agreement was made with GF Comstock 1 LP, a third party. Hard Rock Nevada Inc., an employee owned entity, participated in approximately $0.2 million of the loan through GF Comstock 1 LP. The indebtedness under the Loan Agreement is secured by a deed of trust on the property purchased.”
The Loan Agreement has a term of two years. The indebtedness under the Loan Agreement accrues interest at a rate of 9% per annum for the first year post-closing, 12.5% per annum for the six months that follow the first anniversary of the Loan Agreement and 14% per annum thereafter until such indebtedness is paid in full. Proceeds from the sale of the property securing the loan must be used to repay the indebtedness under the Loan Agreement. In addition to customary remedies for secured indebtedness on real property, the Loan Agreement allows the lender thereunder to convert the principal amount of the indebtedness into common stock of the Company upon a default.
“The Company plans to sell non-mining related lands, buildings and water rights, over the next 6-12 months, resulting in expected net cash proceeds of over $7 million. These actions are anticipated to eliminate substantially all of the Company’s debt obligations and strengthen the financial position of the Company.”
Gee, it sounds too good to be true. The stockholders must be thrilled.