# Comstock Inc.: Form 10-K for the period ended Dec 31, 2015 - Company: [Comstock Inc.](/companies/lode.md) (CIK 1120970) - Form: 10-K - Filed: 2016-01-28 - Accepted by EDGAR: Jan 28, 2016, 06:19 ET - Period: 2015-12-31 - Accession: 0001120970-16-000068 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1120970/000112097016000068/lode-2015x1231x10k.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1120970/000112097016000068/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2015-12-31. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2015-10-01 to 2015-12-31 | $2.6m | us-gaap:Revenues | | Revenue | 12 months, 2015-01-01 to 2015-12-31 | $18.5m | us-gaap:Revenues | | Gross profit | 3 months, 2015-10-01 to 2015-12-31 | $2.3m | us-gaap:GrossProfit | | Operating income | 3 months, 2015-10-01 to 2015-12-31 | −$5.6m | us-gaap:OperatingIncomeLoss | | Operating income | 12 months, 2015-01-01 to 2015-12-31 | −$12.4m | us-gaap:OperatingIncomeLoss | | Interest expense | 12 months, 2015-01-01 to 2015-12-31 | $1.2m | us-gaap:InterestExpense | | Income tax | 12 months, 2015-01-01 to 2015-12-31 | $0 | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2015-10-01 to 2015-12-31 | −$5.9m | us-gaap:NetIncomeLoss | | Net income | 12 months, 2015-01-01 to 2015-12-31 | −$10.5m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2015-10-01 to 2015-12-31 | −$0.05 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 12 months, 2015-01-01 to 2015-12-31 | −$0.14 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2015-10-01 to 2015-12-31 | −$0.05 | us-gaap:EarningsPerShareBasic | | Basic EPS | 12 months, 2015-01-01 to 2015-12-31 | −$0.14 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 12 months, 2015-01-01 to 2015-12-31 | 110,072,486 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 12 months, 2015-01-01 to 2015-12-31 | −$3.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 12 months, 2015-01-01 to 2015-12-31 | $5.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Cash and equivalents | at 2015-12-31 | $1.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2015-12-31 | $5.6m | us-gaap:AssetsCurrent | | Total assets | at 2015-12-31 | $43.2m | us-gaap:Assets | | Current liabilities | at 2015-12-31 | $12.1m | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2015-12-31 | $24.5m | us-gaap:Liabilities | | Shareholders' equity | at 2015-12-31 | $18.8m | us-gaap:StockholdersEquity | ## Business As filed, 17,471 characters. ### 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 a producing, Nevada-based, gold and silver mining company with extensive, contiguous property in the historic Comstock and Silver City mining districts (collectively, the “Comstock District”). The Comstock District is located within the western portion of the Basin and Range Province of Nevada, between Reno and Carson City. The Company began acquiring properties and developing projects in the Comstock District in 2003. Since then, the Company has consolidated a substantial portion of the historic Comstock District, secured permits, built an infrastructure and brought exploration projects into production. The Company also received the 2015 Nevada Excellence in Mine Reclamation award, voted on unanimously by five participating Federal and State of Nevada agencies. 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 of the project area through vigorous surface mapping and drill hole logging. The volume of geologic data is immense, and thus far the reliability has been excellent, particularly in the various Lucerne Mine areas. We have amassed a large library of historic data and detailed surface mapping of Comstock District properties and continue to obtain historic information from private and public sources. We use such data in conjunction with information obtained from our current mining operations, to target geological prospective exploration areas and plan exploratory drilling programs, including expanded surface and underground drilling. Our Lucerne Resource area is located in Storey County, Nevada, approximately three miles south of Virginia City and 30 miles southeast of Reno. Our Dayton Resource area is located in Lyon County, Nevada, approximately six miles south of Virginia City. Access to the properties is by State Route 341/342, a paved road. Our business plan is to deliver stockholder value by validating qualified resources (measured and indicated) and reserves (proven and probable) from our first two resource areas, Lucerne and Dayton, and significantly grow the commercial development of our operations through coordinated district wide plans that are economically feasible, socially responsible and operated in a lean and low cost manner. The plans are focused on expanding both the Lucerne and Dayton Mine plans, both with surface and underground development opportunities. The Company also plans on developing longer-term exploration plans for the remaining areas, which include the Spring Valley, Northern Extension, Northern Targets, and Occidental Target areas, subsequent to the exploration and development of Lucerne and Dayton. The Company achieved initial production and held its first pour of gold and silver on September 29, 2012. The Company produced approximately 22,925 gold equivalent ounces in 2014, the Company’s second full year in production and 18,455 gold equivalent ounces in 2015. That is, the Company produced 19,601 ounces of gold and 222,416 ounces of silver in 2014 and 15,451 ounces of gold and 221,723 ounces of silver in 2015. The Company continues acquiring additional properties in the Comstock District, expanding its footprint and creating opportunities for further exploration, development and mining. The Company now owns or controls approximately 8,546 acres of mining claims and parcels in the Comstock and Silver City Districts. The acreage is comprised of approximately 2,245 acres of patented claims (private lands), surface parcels (private lands), and approximately 6,301 acres of unpatented Lode, Placer and Mill site mining claims, which the Bureau of Land Management (“BLM”) administers. The Company’s real estate segment owns significant non-mining properties, including Daney Ranch, the Gold Hill Hotel and related homes and cottages. The real estate segment consists of land, real estate rental properties and the Gold Hill Hotel consisting of a hotel, restaurant and a bar. On March 20, 2015, the Company entered into an agreement to lease the Gold Hill Hotel to independent operators while retaining ownership. The initial term of the lease agreement was effective on April 1, 2015, and ends in March 2020. The tenant may renew the lease for two extended terms of five years each. Lease payments are due in monthly installments. Financial information for each of our segments is disclosed in Note 14 to the consolidated financial statements. ### Current Projects The Company’s headquarters, mine operations and heap leach processing facility are in Storey County, Nevada, at 1200 American Flat Road and 117 American Flat Road, approximately three miles south of Virginia City, Nevada and 30 miles southeast of Reno, Nevada. The Company has identified six distinct target areas on its land holdings and has focused, to date, on the Lucerne Resource area (including surface and underground) and the Dayton Resource area. We anticipate developing exploration plans for the remaining areas, which include the Spring Valley, Northern Extension, Northern Targets, and Occidental Target areas, subsequent to the exploration and development of Lucerne and Dayton. The Company’s existing heap leach processing facility for gold and silver was redesigned and expanded in late 2013 and again in the fourth quarter of 2014, to accommodate production plans. The Lucerne Resource area has been the primary focus of the Company’s exploration and development efforts since 2007. It includes the previously mined Billie the Kid, Hartford and Lucerne mining claims, and extends east and northeasterly to the area of the historic Woodville bonanza, and north to the historic Justice and Keystone mines. The Company has the key mining permits required for mining this area. The Lucerne Resource area is approximately 5,000 feet long, with an average width of 600 feet, representing less than three percent of the land holdings controlled by the Company and is the site of our current production activities and ongoing exploration and development program. The Dayton Resource area is southwest of Silver City in Lyon County, Nevada. It generally includes the Dayton, Kossuth and Alhambra claims, including the old Dayton Consolidated mine workings, south to where the Kossuth claim crosses State Route 341. The historic Dayton mine was the last major underground mining operation in the Comstock District, before being closed after the War Production Board promulgated 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 production targets. In January 2014, the Lyon County Board of Commissioners approved a strategic master plan and zoning changes on the Dayton, Kossuth and Alhambra mining claims 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 the 30,818 feet of drilling completed in 2015, and data from prior drill programs. The Spring Valley exploration target lies at the southern end of the Comstock District, where the mineralized structures lie mostly concealed beneath a veneer of sediment gravels. The area includes the Kossuth patented claim south of State Route 341, 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 Northern Extension, Northern Targets and Occidental areas represent exploration target areas that contain many historic mining operations, including the Overman, Con Imperial, Caledonia, and Yellow Jacket mines, among others. Previous operators have explored the various mines in this area, some of which have led to mineralized material inventories. 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. Figure-1 Comstock Mining’s Claims in Storey and Lyon Counties, Nevada 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. ### Employees As of December 31, 2015, we have 53 full-time mining employees, inclusive of our general and administrative function. During our exploration and development activities in 2016, we expect to operate with less than 25 employees. ### 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 amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 (“Exchange Act”) are made available through our website as soon as reasonably 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: Judd Merrill, Principal Financial Officer and Principal Accounting Officer PO Box 1118 Virginia City, NV 89440 ### Principal Markets We sell our production on world markets at prices established by commodity markets. These prices are not within our control. We had revenues of $18.2 million in our third full year of production in our mining segment and $0.2 million of revenues in our real estate segment during the year ended December 31, 2015. We had operating losses of $12.3 million and $0.1 million in our mining and real estate segments, respectively, during the year ended December 31, 2015. We had total assets of $41.9 million and $1.3 million in our mining and real estate segments, respectively, as of December 31, 2015. We did not have a real estate segment for any period prior to fiscal year 2011. See Note 14 to our audited consolidated financial statements for additional information regarding our segments. ### Government Regulation Mining operations and exploration activities are subject to various national, 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 or have pending applications for substantially all of those 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 mining, health, safety and environmental statutes 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 $11.6 million, that is, $7.1 million for BMRR and an additional $4.5 million reclamation surety bond, including $3.0 million with Storey County related to the move of State Route 342 and a $1.5 million surety bond with Storey County related to reclamation. For the years ended December 31, 2014, and 2013, the Company had provided estimates and surety bonds in the amounts of $8.6 million and $5.2 million, respectively. As part of the surety agreement, the Company agreed to pay a 2.0% annual bonding fee and has signed a corporate guarantee. The cash collateral percentage due to Lexon is approximately 25.0% or less of the current bond amount. The current bond amount with the State and County is $11.6 million. At December 31, 2015, $2.5 million of the required collateral has been deposited. ### 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 2004-2006 from our existing Lucerne 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. The Company restarted mining operations in the third quarter of 2012 and resumed pouring doré bars of silver and gold in September 2012. In 2014, the Company produced 22,925 gold equivalent ounces. In 2015, the Company’s third full year in production, the Company produced 18,455 gold equivalent ounces, that is, 15,451 ounces of gold and 221,723 ounces of silver. ### Customers All accounts receivable amounts related to mining are due from a single customer. Substantially all mining revenues recorded to date relate to the same customer. As gold can be sold through numerous gold market traders worldwide, 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 During 2015, the Company completed one equity financing transaction of $6.0 million (approximately $5.9 million, net of issuance costs) to be used to accelerate the drilling and development of the Lucerne underground program, accelerate planning and prerequisites for the next phase of Dayton drilling and development, and general corporate purposes. On March 6, 2015, the Company reached an agreement to draw on its $10 million revolving credit facility (the “Revolving Credit Facility”) with Auramet International, LLC (“Auramet”), pursuant to which the Company may borrow up to $10 million, subject to satisfying certain conditions and obtaining certain consents. The proceeds from the Revolving Credit Facility were used to accelerate the construction schedule for rerouting State Route 342, located in the Company’s Lucerne Resource Area, the first phase of which was completed in early June 2015, and the second phase was completed in November 2015. On March 6, 2015, the Company drew $5 million representing cash proceeds of approximately $4.4 million, net of prepaid interest of approximately $0.4 million, and other fees of approximately $0.2 million. On December 28, 2015, the Company and Auramet agreed to a re-advance under the Revolving Credit Facility evidenced by the Note and to extend up to $10 million of availability thereunder for the period from and after April 2016 to April 28, 2018. On May 12, 2015, the Company entered into a master lease agreement with Varilease Finance Inc. pursuant to which the Company obtained capital financing under a sale-leaseback transaction in the amount of $5 million. Due to certain types of continuing involvement, the Company was precluded from applying sale-leaseback accounting and has accounted for the transaction under the financing method. The Company’s obligations under the Varilease agreement are secured by an interest in the Company’s mining equipment in exchange for 24 monthly payments. Current payments are $247,830 per month. The total monthly payments will total the cash proceeds of $5 million and applicable interest and taxes. ## Risk factors As filed, 56,829 characters. An investment in our securities involves risk. You should carefully consider the following risk factors, in addition to those discussed elsewhere in this report, in evaluating our Company, its business, its industry and prospects. The risks described below are not the only ones facing us. Additional risks not presently known to us, or that we currently deem immaterial, may also have a material adverse effect on us. The following risks could cause our business, financial condition, results of operations or cash flows to be materially and adversely affected. In that case, the market price of our securities could decline, and you could lose part or all of your investment. ### You may lose all or part of your investment. If we are unable to find and mine adequate quantities of gold and silver ore, it is unlikely that the cash generated from our internal operations will suffice as a primary source of the liquidity necessary for anticipated working capital requirements. There is no assurance that the Company’s initiatives to improve its liquidity and financial position will be successful. Accordingly, there is substantial risk that the Company will be unable to continue as a going concern. In the event of insolvency, liquidation, reorganization, dissolution or other winding up of the Company, the Company’s creditors would be entitled to payment in full out of the Company’s assets before holders of common stock would be entitled to any payment, and the claims on such assets may exceed the value of such assets. ***Because we may never earn significant revenues from our mine operations, our business may fail.*** Our first full year of production was 2013. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. We have a limited operating history. The success of our Company is significantly dependent on the uncertain events of the discovery and exploitation of mineralized materials on our properties or selling the rights to exploit those materials. If our business plan is not successful and we are not able to operate profitably, then our securities may become worthless and investors may lose all of their investment in our Company. We recognize that if we are unable to generate significant revenues from the exploration and exploitation of our mineralized materials in the future, we will not be able to earn profits or continue operations. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide no assurance that we will generate significant revenues or ever achieve profitability. If we are unsuccessful in addressing these risks, our business will fail and investors may lose all of their investment in our Company. ***Transportation difficulties and weather interruptions may affect and delay proposed mining operations and impact our business plans.*** Our mining properties are accessible by road. The climate in the area is hot and dry in the summer but cold and subject to snow in the winter, which could, at times, hamper accessibility depending on the winter season precipitation levels. As a result, our exploration and mining plans could be delayed for several months each year. Such delays could affect our anticipated business operations and increase our expenses. Moreover, extreme weather events (such as increased frequency or intensity of hurricanes or prolonged drought) have the potential to disrupt operations at our projects. Where appropriate, our projects have developed emergency plans for managing extreme weather conditions; however, extended disruptions to supply lines due to extreme weather could result in interruption of activities at the project sites, delay or increase the cost of construction of the projects, or otherwise adversely affect our business. ***Supplies and equipment needed for exploration may not always be available. If we are unable to secure exploration supplies we may have to delay our anticipated business operations.*** Competition and unforeseen limited sources of supplies needed for our proposed exploration work could result in occasional shortages of supplies of certain products, equipment or materials. There is no guarantee we will be able to obtain certain products, equipment and/or materials as and when needed, without interruption, or on favorable terms, if at all. Such delays could affect our anticipated business operations and increase our expenses. ***We have invested capital in high-risk mineral projects where we have not conducted sufficient exploration and engineering studies.*** We have invested capital and have otherwise been involved in various mineral properties and projects in the Comstock District where we have not conducted sufficient exploration and engineering studies to minimize the risk of project failure to the extent that is typical in the mining industry considering our size. Our mineral projects involve high risks because we have not invested sufficiently in the characterization of mineralized material, geologic analysis, metallurgical testing, mine planning and economic analysis to the same extent that other mining companies might deem reasonable. Standard industry practice calls for a mining company to prepare a formal mine plan and mining production schedule and have these documents reviewed and validated by a third party specialist. We have not had a formal mine plan and mining production schedule economically validated by a third party specialist. ***We will not be successful unless we recover precious metals and sell them for a profit.*** Our success depends on our ability to recover precious metals, process them, and successfully sell them for more than the cost of production. The success of this process depends on the market prices of metals in relation to our costs of production. We may not be able to generate a profit on the sale of gold or other minerals because we have limited control over our costs and have no ability to control the market prices. The total cash costs of production at any location are frequently subject to great variation from year to year as a result of a number of factors, such as the changing composition of ore grade or mineralized material production, and metallurgy and exploration activities in response to the physical shape and location of the ore body or deposit. In addition, costs are affected by the price of commodities, such as fuel and electricity. Such commodities are at times subject to volatile price movements, including increases that could make production unprofitable. A material increase in production costs or a decrease in the price of gold or other minerals could adversely affect our ability to earn a profit on the sale of gold or other minerals. ***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.*** Our success depends on our ability to produce sufficient quantities of precious metals to recover our investment and operating costs. We do not have proven or probable reserves. Substantial expenditures are required to acquire existing gold properties with established reserves or to establish proven or probable reserves through drilling and analysis. We do anticipate expending large sums for additional drilling and analysis which may or may not establish proven or probable reserves on our properties. We drill in connection with our mineral exploration and mining activities and not with the purpose of establishing proven and probable reserves. While we estimate the amount of mineralized material we believe exists on our properties, our calculations are subject to uncertainty due to several factors, including the quantity and grade of ore, metal prices and recoverability of minerals in the mineral recovery process. There is a great degree of uncertainty attributable to the calculation of any mineralized material, particularly where there has not been significant drilling, mining and processing. Until the mineralized material located on our properties is actually mined and processed, the quantity and quality of the mineralized material must be considered as an estimate only. In addition, the estimated value of such mineralized material (regardless of the quantity) will vary depending on metal prices. Any material change in the estimated value of mineralized material may negatively affect the economic viability of our properties. In addition, there can be no assurance that we will achieve the same recoveries of metals contained in the mineralized material as in small-scale laboratory tests or that we will be able to duplicate such results in larger scale tests under on-site conditions or during production. There can be no assurance that our exploration activities will result in the discovery of sufficient quantities of mineralized material to recover our investment and operating costs. ***The cost of our exploration and acquisition activities is substantial, and there is no assurance that the quantities of minerals we discover or acquire will justify commercial operations or replace reserves established in the future.*** Mineral exploration, particularly for gold and other precious metals, is highly speculative in nature, involves many risks, and frequently is nonproductive. There can be no assurance that our exploration and acquisition activities will be commercially successful. If gold mineralization is discovered, it may take a number of years from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to acquire existing gold properties, to establish ore reserves through drilling and analysis, to develop metallurgical processes to extract metal from the ore, and in the case of new properties, to develop the processing facilities and infrastructure at any site chosen for mineral exploration. There can be no assurance that any gold reserves or mineralized material that may be discovered or acquired in the future, if any, will be in sufficient quantities or of adequate grade to justify commercial operations or that the funds required for mineral production operation can be obtained on a timely or reasonable basis, if at all. Mining companies must continually replace mineralized material or reserves depleted by production. There can be no assurance that we will be successful in replacing any reserves or mineralized material acquired or established in the future. ***The price of gold and silver fluctuate on a regular basis and a downturn in price could negatively impact our operations and cash flow.*** Our operations will be significantly affected by changes in the market price of gold and silver if we are able to produce gold or other minerals. Gold and silver prices can fluctuate widely and may be affected by numerous factors, such as expectations for inflation, levels of interest rates, currency exchange rates, purchases and sales by governments and central banks, monetary policies employed by the world’s major central banks, fiscal policies employed by the world’s major industrialized economies, forward selling or other hedging activities, demand for precious metals, global or regional political and economic crises and production costs in major gold-producing regions, such as but not limited to South Africa and the former Soviet Union. The aggregate effect of these factors, all of which are beyond our control, is impossible for us to predict. If gold or silver prices decline substantially, it could adversely affect the realizable value of our assets and potentially, future results of 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 may from time to time sell some future production of gold pursuant to hedge positions. If the gold price rises above the price at which future production has been committed under these hedge instruments, we will have an opportunity loss. If the gold price falls below that committed price, we may experience losses if a hedge counterparty defaults under a contract when the contract price exceeds the gold price. As of December 31, 2015, we have no material open hedge positions. ***Since our business consists of exploring for, producing from, or acquiring gold and silver prospects, the drop in the price of gold or silver will negatively affect our asset values, cash flows, potential revenues and profits.*** We plan to pursue opportunities to acquire properties with gold or silver reserves or mineralized material with exploration potential. The price that we pay to acquire these properties will be influenced, in large part, by the price of gold and silver at the time of the acquisition. Our potential future revenues are expected to be derived from the production and sale of gold and silver from these properties or from the sale of some of these properties. The value of any gold reserves and other mineralized material, and the value of any potential mineral production therefrom, will vary in direct proportion to variations in those mineral prices. The price of gold and silver has fluctuated widely as a result of numerous factors beyond our control. The effect of these factors on the price of gold and silver, and therefore the economic viability of our projects, cannot accurately be predicted. Any drop in the price of gold or silver would negatively affect our asset values, cash flows, potential revenues and profits. ***We compete with other mineral exploration and mining companies which could lead to the loss of opportunities.*** We compete with other mineral exploration and mining companies or individuals, including large, established mining companies with substantial capabilities and financial resources, to acquire rights to mineral properties containing gold and other minerals. There is a limited supply of desirable lands available for claim staking, lease or other acquisition. There can be no assurance that we will be able to acquire such properties when competing against competitors with substantially greater financial resources than we have. ***The estimation of the ultimate recovery of gold and silver from the Lucerne Mine, although based on standard industry sampling and estimating methods, is subjective. Actual recoveries may vary from our estimations.*** Our Lucerne Mine utilizes the heap leach process to extract gold and silver from ore. The heap leach process extracts gold and silver by placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a portion of the contained gold and silver, which are then recovered in metallurgical processes. We use several integrated steps in the process of extracting gold and silver to estimate the metal content of ore placed on the leach pad. Although we refine our estimates as appropriate at each step in the process, the final amounts are not determined until a third-party smelter converts the doré and determines final ounces of gold and silver available for sale. We then review this end result and reconcile it to the estimates we developed and used throughout the production process. Based on this review, we adjust our estimation procedures when appropriate. Due to the complexity of the estimation process and the number of steps involved, among other things, actual recoveries can vary from estimates, and the amount of the variation could be significant and could have a material adverse impact on our financial condition and results of operations. Each of these factors not only applies to our current and future operations at the Lucerne Mine, but will also apply to any other active mine property and any future development of other properties not yet in production. In the case of mines that we may develop in the future, we will not have the benefit of actual experience in our estimates with respect to those mines, and there is a greater likelihood that actual results will vary from the estimates. ***Resource and other mineralized material calculations are estimates only, and are subject to uncertainty due to factors including metal prices, inherent variability of the ore and recoverability of metal in the mining process.*** The calculation of mineral resources, other mineralized material and grading are estimates and depend upon geological interpretation and statistical inferences or assumptions drawn from drilling and sampling analysis, which may prove to be unpredictable. There is a degree of uncertainty attributable to the calculation of mineral resources and corresponding grades. Until mineral resources and other mineralized materials are actually mined and processed, the quantity of ore and grades must be considered as an estimate only. In addition, the quantity of mineral resources and other mineralized materials and ore may vary depending on metal prices. Any material change in the quantity of mineral resources, other mineralized materials, mineralization, grade or stripping ratio may affect the economic viability of our properties. In addition, we can provide no assurance that gold recoveries or other metal recoveries experienced in small-scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production. ### Our mining production depends on the availability of sufficient water supplies. Our mining operations require significant quantities of water for mining, ore processing and related support facilities. Most of our mining operations are in areas where water is scarce and competition among users for continuing access to water is significant. Continuous production at our mines is dependent on our ability to maintain our water rights and claims, and the continuing physical availability of the water supplies. ***Cost estimates and timing of new projects are uncertain, which may adversely affect our expected production and profitability.*** The capital expenditures and time required to develop and explore our properties, including the Lucerne Mine and the Dayton Resource area, are considerable and changes in costs, construction schedules or both, can adversely affect project economics and expected production and profitability. There are a number of factors that can affect costs and construction schedules, including, among others: - availability of labor, energy, transportation, equipment, and infrastructure; - changes in input commodity prices and labor costs; - fluctuations in currency exchange rates; - availability and terms of financing; - changes in anticipated tonnage, grade and metallurgical characteristics of the ore to be mined and processed; - recovery rates of gold and other metals from the ore; - difficulty of estimating construction costs over a period of a year; - delays in completing any environmental review or in obtaining environmental or other government permits; - weather and severe climate impacts; and - potential delays related to social and community issues. We currently recover gold and silver from oxide ores at the Lucerne Mine. Oxide heap leach mining and processing has inherent variation, therefore, the costs and yields from this type of operation could vary greatly from our estimates. ***We may experience increased costs or losses resulting from the hazards and uncertainties associated with mining.*** The exploration for natural resources and the development and production of mining operations are activities that involve a high level of uncertainty. These can be difficult to predict and are often affected by risks and hazards outside of our control. These factors include, but are not limited to: - environmental hazards, including discharge of metals, concentrates, pollutants or hazardous chemicals; - industrial accidents, including in connection with the operation of mining transportation equipment, milling equipment and/or conveyor systems and accidents associated with the preparation and ignition of large-scale blasting operations, milling, processing and transportation of chemicals, explosives or other materials; - surface or underground fires or floods; - unexpected geological formations or conditions (whether in mineral or gaseous form); - ground and water conditions; - fall-of-ground accidents in underground operations; - failure of mining pit slopes and tailings dam walls; - seismic activity; and - other natural phenomena, such as lightning, cyclonic or tropical storms, floods or other inclement weather conditions. ***Our activities are inherently hazardous and any exposure may exceed our insurance limits or may not be insurable.*** Mineral exploration and operating activities are inherently hazardous. Operations in which we have direct or indirect interests will be subject to all the hazards and risks normally incidental to exploration and production of gold and other metals, any of which could result in work stoppages, damage to property and possible environmental damage. The nature of these risks is such that liabilities might exceed any applicable liability insurance policy limits. It is also possible that the liabilities and hazards might not be insurable, or we could elect not to insure ourselves against such liabilities because of the high premium costs, in which event, we could incur significant costs that could have a material adverse effect on our financial condition. ***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.*** We do not possess all of the governmental approvals necessary to conduct the full extent of the operations contemplated by our strategic plan. Those operations will be delayed, hindered or prevented to the extent that we are unable to obtain the necessary permits and approvals in a timely fashion or at all. This inability may occur due to a variety of factors, including opposition by third parties, such as members of the public or environmental groups. We expect that future permit and approval applications and issuances will meet with similar opposition. We may encounter delays and added costs if permits and approvals are challenged. ***Mining companies are increasingly required to consider and provide benefits to the communities in which they operate.*** As a result of public concern about the real or perceived detrimental effects of economic globalization and global climate impacts, businesses generally, and corporations in natural resource industries, face increasing public scrutiny of their activities. These businesses are under pressure to demonstrate that, as they seek to generate satisfactory returns on investment to shareholders, other stakeholders, including employees, governments, and communities surrounding operations benefit and will continue to benefit from their commercial activities. Such pressures tend to be particularly focused on companies whose activities are perceived to have a high impact on their social and physical environment. The potential consequences of these pressures include reputational damage, legal suits, increasing social investment obligations and pressure to increase taxes and royalties payable to governments and communities. ***Our operations are subject to strict environmental laws and regulations, which could result in added costs of operations and operational delays.*** Our operations are subject to strict environmental regulations, which could result in additional costs and operational delays. All phases of our operations are subject to environmental regulation. Environmental legislation is evolving in the United States generally, and Nevada specifically, in a manner that may require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for companies and their officers, directors, and employees. There is no assurance that any future changes in environmental regulation will not negatively affect our projects. At the state level, mining operations in Nevada are regulated by NDEP. Nevada state law requires our Nevada projects to hold Nevada water pollution control permits, which dictate operating controls and closure and post-closure requirements directed at protecting surface and ground water. In addition, we are required to hold Nevada reclamation permits required under Nevada law. These permits mandate concurrent and post-mining reclamation of mines and require the posting of reclamation bonds sufficient to guarantee the cost of mine reclamation. Other Nevada regulations govern operating and design standards for the construction and operation of any source of air contamination and landfill operations. Any changes to these laws and regulations could have a negative impact on our financial performance and results of operations by, for example, requiring changes to operating constraints, technical criteria, fees or surety requirements. ***Regulations and pending legislation governing issues involving climate change could result in increased operating costs which could have a material adverse effect on our business.*** Our business is an energy-intensive undertaking, resulting in a significant carbon footprint. A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to the potential impacts of climate change that are viewed as the result of emissions from the combustion of carbon-based fuels. In December 2009, the EPA issued an endangerment finding under the U.S. Clean Air Act that current and projected concentrations of certain mixed greenhouse gases, including carbon dioxide, in the atmosphere threaten the public health and welfare. Regulations have been adopted and additional laws or regulations may be promulgated in the U.S. to address the concerns raised by such endangerment finding. Legislation and increased regulation and requirements regarding climate change could impose increased costs on us and our suppliers, including increased energy, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations. Until the timing, scope and extent of any future requirements becomes known, we cannot predict the effect on our financial condition, financial position, results of operations and ability to compete. ***Because our land holdings are within the Carson River Mercury Superfund Site, 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.*** Substantially all of our land holdings are within the Carson River Mercury Superfund Site (CRMS) Study Area and portions are within the risk area boundaries identified by NDEP and the United States Environmental Protection Area (USEPA). These risk areas have been defined due to the known or suspected presence of certain contaminants of concern, including mercury, arsenic and lead. To comply with the agencies’ requirements in these areas, the Company conducts soil sampling pursuant to a plan that has been approved by NDEP. This sampling is intended to demonstrate the absence of contamination before mining, processing or other operations in that area. If contamination above agency-established levels of concern is encountered, the Company intends to excavate and process such materials for metals recovery wherever feasible. If metals recovery is not feasible, the Company may avoid or defer excavating in that area, remove the materials for disposal, or cover the area with clean fill material. Through this sampling program and, if necessary, removal of contaminated materials, the Company intends to enable NDEP and USEPA to better define the Carson River Superfund Site and the currently designated risk areas so as to eventually exclude our land holdings from such areas and from the Site itself to the maximum extent feasible. NDEP and USEPA are continuing to study the ecological and human health risks that may be presented by contaminated sediments in certain portions of the Carson River watershed and downstream areas. The agencies’ studies indicate that these contaminants are primarily associated with historic mining tailings that have been redistributed into these waterways. The agencies have not adopted a remedial plan for these sediments nor have they decided whether remediation will be undertaken. Thus, there is no assurance that the Company will not be asked to undertake additional investigatory or remediation activities or to pay for such activities by the agencies or that future changes in CRMS-related requirements will not negatively affect our operations. ### Our insurance and surety bonds for environmental-related issues are limited. Our insurance and surety bonds against environmental risks are limited as to the maximum protection against potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production. Further, there is no assurance that insurance carriers or surety bond providers will be able to meet their obligations under our arrangements with them. In the event that our environmental liabilities and costs exceed the coverage provided by our insurance carriers and surety bond providers or such parties are unable to meet their obligations, we would have limited funds available to us to remedy such liabilities or costs or for future operations. If we are unable to fund the cost of remedying an environmental problem, we also might be required to enter into an interim compliance measure pending completion of the required remedy. ***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.*** Mining companies must post a bond or other surety to guarantee the cost of post-mining reclamation. These requirements could add significant additional cost and delays to any mining project undertaken by us. Our mineral exploration operations are required to be covered by reclamation bonds deemed adequate by regulators to cover these risks. We believe we currently maintain adequate reclamation bonds for our operations. BLM requires that mining operations on lands subject to its regulation obtain an approved plan of operations subject to environmental impact evaluation under the National Environmental Policy Act. Any submission or significant modification to a plan of operations may also require the completion of an environmental assessment or Environmental Impact Statement prior to approval. ***The Company’s costs of close- down, reclamation, and rehabilitation could be higher than expected.*** Close-down and reclamation works to return operating sites to the community can be extensive and costly. Estimated costs are provided for, and updated annually, over the life of each operation but the provisions might prove to be inadequate due to changes in legislation, standards and the emergence of new, or increases in the cost of, reclamation techniques. In addition, the expected timing of expenditure could change significantly due to changes in the business environment that might vary the life of an operation. ### We may be subject to litigation. We may be subject to legal proceedings. Due to the nature of our business, we may be subject to a variety of regulatory investigations, claims, lawsuits and other proceedings in the ordinary course of our business. The results of these legal proceedings cannot be predicted with certainty due to the uncertainty inherent in litigation, including the effects of discovery of new evidence or advancement of new legal theories, the difficulty of predicting decisions of judges and juries and the possibility that decisions may be reversed on appeal. There can be no assurances that these matters will not have a material adverse effect on our business. ***Title claims against our properties could require us to compensate parties making such claims, if successful, and divert management’s time from operations.*** There may be challenges to our title in the properties in which we hold material interests. If there are title defects with respect to any of our properties, we might be required to compensate other persons or perhaps reduce our interest in the affected property. The validity of unpatented mineral claims, which constitute most of our holdings in the United States, is often uncertain and may be contested by the federal government and other parties. The validity of an unpatented mineral claim, in terms of both its location and its maintenance, depends on strict compliance with a complex body of federal and state, statutory and decisional law. Although we have attempted to acquire satisfactory title to our properties, we have not obtained title opinions or title insurance with respect to the acquisition of the unpatented mineral claims. The investigation and resolution of title issues would divert management’s time from ongoing exploration programs. ***Our business depends on a limited number of key personnel, the loss of who could negatively affect us.*** Our officers and employees are important to our success. If any of them becomes unable or unwilling to continue in their respective positions, and we are unable to find suitable replacements, our business and financial results could be materially negatively affected. ### Our business may be adversely affected by information technology disruptions. Cybersecurity incidents are increasing in frequency, evolving in nature and include, but are not limited to, installation of malicious software, unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and the corruption of data. We believe that we have implemented appropriate measures to mitigate potential risks. However, given the unpredictability of the timing, nature and scope of information technology disruptions, we could be subject to manipulation or improper use of our systems and networks or financial losses from remedial actions, any of which could have a material adverse effect on our financial condition and results of operations. ***We rely on contractors to conduct a significant portion of our operations and construction projects.*** A significant portion of our operations and construction projects are currently conducted in whole or in part by contractors. As a result, our operations are subject to a number of risks, some of which are outside our control, including: - Negotiating agreements with contractors on acceptable terms; - The inability to replace a contractor and its operating equipment in the event that either party terminates the agreement; - Reduced control over those aspects of operations which are the responsibility of the contractor; - Failure of a contractor to perform under its agreement; - Interruption of operations or increased costs in the event that a contractor ceases its business due to insolvency or other unforeseen events; - Failure of a contractor to comply with applicable legal and regulatory requirements, to the extent it is responsible for such compliance; and - Problems of a contractor with managing its workforce, labor unrest or other employment issues. In addition, we may incur liability to third parties as a result of the actions of our contractors. The occurrence of one or more of these risks could adversely affect our results of operations and financial position. ***Our business requires substantial capital investment and we may be unable to raise additional funding on favorable terms.*** The construction and operation of potential future projects and various exploration projects will require significant funding. Our operating cash flow and other sources of funding may become insufficient to meet all of these requirements, depending on the timing and costs of development of these and other projects. As a result, new sources of capital may be needed to meet the funding requirements of these investments and fund our ongoing business activities. Our ability to raise and service significant new sources of capital will be a function of macroeconomic conditions, future gold and silver prices, our operational performance and our current cash flow and debt position, among other factors. In the event of lower gold and silver prices, unanticipated operating or financial challenges, or a further dislocation in the financial markets as experienced in recent years, our ability to pursue new business opportunities, invest in existing and new projects, fund our ongoing operations and retire or service all of our outstanding debt could be significantly constrained. ***Our substantial indebtedness and payment obligations under capital leases could adversely affect our operations, financial condition, cash flow, and operating flexibility.*** Our significant amount of outstanding indebtedness and lease payment obligations, and the covenants contained in our debt agreements and documents governing such obligations, could have a material adverse effect on our operations and financial condition. The size and terms of certain of our agreements limits our ability to obtain additional debt financing to fund future working capital, acquisitions, capital expenditures, engineering and product development costs, and other general corporate requirements. Other consequences for our operations could include: - making it more difficult for us to satisfy our obligations with respect to our other indebtedness, which could in turn result in an event of default on such other indebtedness; - impairing our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes; - requiring us to dedicate a substantial portion of our cash flow from operations to debt service payments, thereby reducing the availability of cash for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes; - limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and - placing us at a competitive disadvantage compared to our competitors that have proportionately less debt. Our ability to make required payments of principal and interest on our debt and lease payments under our capital leases will depend on our future performance and the other cash requirements of our business. Our performance is subject to general economic, political, financial, competitive, and other factors that are beyond our control in addition to challenges that are unique to the Company. We cannot provide any assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available in an amount sufficient to enable us to service our indebtedness and lease obligations. Our debt and lease agreements contain certain restrictive covenants and customary events of default. These restrictive covenants limit our ability to take certain actions, such as, among other things: make restricted payments; incur additional debt and issue certain preferred stock; create liens; engage in mergers or consolidations or transfer all or substantially all of our assets; make certain dispositions and transfers of assets; place limitations on the ability of our restricted subsidiaries to make distributions; enter into transactions with affiliates; and guarantee indebtedness. One or more of these restrictive covenants may limit our ability to execute our preferred business strategy, take advantage of business opportunities, or react to changing industry conditions. Upon an event of default, if not waived by our financing parties, our financing parties may declare all amounts outstanding as due and payable, which may cause cross-defaults under our other obligations. If our current financing parties accelerate the maturity of our indebtedness or obligations, we may not have sufficient capital available at that time to pay the amounts due to our financing parties on a timely basis, and there is no guarantee that we would be able to repay, refinance, or restructure the payments on such debt and lease obligations. Further, the financing parties would have the right to foreclose on certain of our assets, which could have a material adverse effect on our Company. ***Our stock is a penny stock and trading of our stock may be restricted by the SEC’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our stock.*** Our stock is a penny stock. Rule 3a51-1 generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers that sell to persons other than established customers and “accredited investors.” The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 (excluding one’s primary residence) or annual income exceeding $200,000 individually or $300,000 jointly with their spouse. The penny stock rules (including Rule 15g-9) require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock. The Financial Industry Regulatory Authority (FINRA) sales practice requirements may also limit a stockbroker’s ability to buy or sell our stock. In addition to the “penny stock” rules promulgated by the SEC, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretation of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy or sell our stock and have an adverse effect on the market for our shares. ***If we are unable to maintain the listing standards of the NYSE MKT, our common stock may be delisted, which may have a material adverse effect on the liquidity and value of our common stock.*** Our common stock is traded on the NYSE MKT. To maintain our listing on the NYSE MKT, we must meet certain financial and liquidity criteria. The market price of our common stock has been and may continue to be subject to significant fluctuation as a result of periodic variations in our revenues and results of operations. If we fail to meet any of the NYSE MKT’s listing standards, we may be delisted. In the event of delisting, trading of our common stock would most likely be conducted in the over the counter market on an electronic bulletin board established for unlisted securities, which could have a material adverse effect on the market liquidity and value of our common stock. ***The price of the Company’s common stock may fluctuate significantly, which could negatively affect the Company and holders of its common stock.*** The market price of the Company’s common stock may fluctuate significantly from time to time as a result of many factors, including: - investors’ perceptions of the Company and its prospects; - investors’ perceptions of the Company’s and/or the industry’s risk and return characteristics relative to other investment alternatives; - investors’ perceptions of the prospects of the mining and commodities markets; - difficulties between actual financial and operating results and those expected by investors and analysts; - our inability to obtain permits or otherwise fail to reach Company objectives; - changes in our capital structure; - trading volume fluctuations; - actual or anticipated fluctuations in quarterly financial and operational results; - volatility in the equity securities market; and - sales, or anticipated sales, of large blocks of the Company’s 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.*** The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We have relatively little research coverage by securities and industry analysts. If no additional industry analysts commence coverage of the Company, the trading price for our common stock could be negatively impacted. If one or more of the analysts who cover us downgrades our common stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock price and trading volume to decline. ### We do not expect to pay any cash dividends for the foreseeable future. We currently expect to retain all available funds and future earnings, if any, for use in the operation and growth of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board, subject to compliance with applicable law, our organizational documents and any contractual provisions, including under agreements for indebtedness we may incur, that restrict or limit our ability to pay dividends, and will depend upon, among other factors, our results of operations, financial condition, earnings, capital requirements and other factors that our Board deems relevant. Investors seeking cash dividends in the foreseeable future should not purchase our common stock. ***The concentrated beneficial ownership of our common stock and the ability it affords to control our business may limit or eliminate other shareholders' ability to influence corporate affairs.*** Based on filings made with the SEC, Mr. John V. Winfield, and entities that he controls (the “Winfield Group”) own 47,130,077 shares of the Company’s common stock and Van Den Berg Management, Inc. owns 29,579,066 shares of the Company’s common stock. Collectively, such shareholders own 76,709,143 shares, or approximately 47.3% of the Company’s outstanding common stock as of December 31, 2015. Because of this concentrated stock ownership, the Company’s largest shareholders will be in a position to significantly influence the election of our board of directors and all other decisions on all matters requiring shareholder approval. As a result, the ability of other shareholders to determine the management and policies of the Company is significantly limited. The interests of these shareholders may differ from the interests of other shareholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of officers and directors and other business decisions. This level of control may also have an adverse impact on the market value of our shares because our largest shareholders may institute or undertake transactions, policies or programs that may result in losses, may not take any steps to increase our visibility in the financial community and/or may sell sufficient numbers of shares to significantly decrease our price per share. ***Restrictions imposed by the 2015 Stockholders' Agreement and the Revolving Credit Facility may inhibit growth.*** The 2015 Stockholders’ Agreement and the Revolving Credit Facility limit the ability of the Company to incur debt, incur liens, issue securities, enter into merger or acquisition transactions, redeem capital stock, or pay dividends to common shareholders, among other things. Such restrictions could significantly impact the Company’s ability to take certain actions that potentially could enhance shareholder value. Refer to Part III, Item 13 for more information about the Stockholder’s Agreement. ***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.*** The Operating Agreement of Northern Comstock LLC requires that the Company make monthly cash capital contributions of $30,000 to Northern Comstock LLC and annual capital contributions in the amount of $482,500 payable in common stock or cash, at the Company's option, unless the Company has cash and cash equivalents in excess of $10,500,000 on the date of such payments, wherein the Company would then be required to pay in cash. The number of shares to be delivered is calculated by dividing the amount of the capital contribution by the volume-weighted average closing price of the Company’s common stock on its primary trading market for the previous 20 consecutive trading days prior to such capital contribution. The Operating Agreement also provides for a one-time acceleration of $812,500 of the capital contributions payable when the Company receives net cash proceeds from sources other than operations that exceed $6,250,000. The agreement also includes an ongoing acceleration of the Company’s capital contribution obligations equal to 3% of the net smelter returns generated by the properties subject to the Northern Comstock LLC joint venture. The Operating Agreement also provides that if the Company defaults in its obligation to make the scheduled capital contributions, then the remaining capital contribution obligations may be converted into the principal amount of a 6% per annum promissory note payable by the Company on the same schedule as the capital contributions, secured by a mortgage on the properties subject to the Northern Comstock LLC joint venture. The operating agreement requires that these capital contributions, totaling $9.75 million, commence in October 2015, and end in September 2027, unless prepaid by the Company. The Amendments also eliminated all royalties with the related party associated with these properties. ***The Company may issue additional common stock or other equity securities in the future that could dilute the ownership interest of existing stockholders.*** The Company is currently authorized to issue 3,950,000,000 shares of common stock, of which 159,917,711 shares were issued and outstanding as of December 31, 2015, and 50,000,000 shares of preferred stock, of which 0 Preferred Shares are issued and outstanding as of the December 31, 2015. To maintain its capital at desired levels or to fund future growth, the Board may decide from time to time to issue additional shares of common stock, or securities convertible into, exchangeable for or representing rights to acquire shares of common stock. The sale of these securities may significantly dilute stockholders’ ownership interest and the market price of the common stock. New investors in other equity securities issued by the Company in the future may also have rights, preferences and privileges senior to the Company’s current stockholders that may adversely impact its current stockholders. ***We have made and may in the future pursue investments in other companies, which could harm our operating results.*** We have made, and could make in the future, investments in other companies, including privately-held companies in a development stage. Many of these private equity investments are inherently risky because the companies’ businesses may never develop, and we may incur losses related to these investments. In addition, we may be required to write down the carrying value of these investments to reflect other-than-temporary declines in their value, which could have a material adverse effect on our financial position and results of operations. ***We may pursue acquisitions of other companies or new properties, which could harm our operating results, may disrupt our business and could result in unanticipated accounting charges.*** Acquisitions of other companies or new properties may create additional, material risks for our business that could cause our results to differ materially and adversely from our expected or projected results. Such risk factors include the effects of possible disruption to the expansion of our production capacity, permit requirements, debt incurred or capital stock issued to make such acquisitions, the impact of any such acquisition on our financial results, negative customer reaction to any such acquisition and our ability to successfully integrate an acquired company’s operations with our operations. If the purchase price of any acquired businesses exceeds the current fair values of the net tangible assets of such acquired businesses, we would be required to record material amounts of goodwill or other intangible assets, which could result in significant impairment and amortization expense in future periods. These charges, in addition to the results of operations of such acquired businesses and potential restructuring costs associated with an acquisition, could have a material adverse effect on our business, financial condition and results of operations. We cannot forecast the number, timing or size of future acquisitions, or the effect that any such acquisitions might have on our operating or financial results. Furthermore, potential acquisitions, whether or not consummated, will divert our management’s attention and may require considerable cash outlays at the expense of our existing operations. In addition, to complete future acquisitions, we may issue equity securities, incur debt, assume contingent liabilities or have amortization expenses and write-downs of acquired assets, which could adversely affect our profitability. ***Diversity in application of accounting literature in the mining industry may impact our reported financial results.*** The mining industry has limited industry-specific accounting literature and, as a result, we understand diversity in practice exists in the interpretation and application of accounting literature to mining-specific issues. As diversity in mining industry accounting is addressed, we may need to restate our reported results if the resulting interpretations differ from our current accounting practices. See Note 2 to the Consolidated Financial Statements for a summary of our significant accounting policies. ## Properties As filed, 19,113 characters. ### Comstock Mine Project #### Location, Access, and Title to the Property The Comstock Mine Project is located in Storey and Lyon Counties, Nevada. The property is physically situated just south of Virginia City, Nevada. Paved state routes from Reno, Carson City, and Virginia City provide access to the property. The Comstock Mine Project has been the focus of our efforts since 2007, and has been the subject of four National Instrument 43-101 (NI 43-101) technical reports published in May and August 2010, November 2011 and January 2013. Our property rights to the mineral estate of the Comstock Mine Project consist of five mineral leases, one joint venture (providing exclusive rights to exploration, development, mining and production), and fee ownership of real property and mining claims administered by the BLM. This project has 110 patented and 351 unpatented mineral lode claims, as well as 25 unpatented placer claims. The Comstock Mine Project holdings consist of approximately 8,546 acres of mining claims and parcels. The acreage is comprised of approximately 2,245 acres of patented claims (private lands), surface parcels (private lands), and approximately 6,301 acres of unpatented mining claims that the BLM administers. The Comstock Mine Project mineral leases are as follows: #### Fred Garrett - Lease On April 1, 2008, we entered into a mineral exploration and mining lease agreement with Fred Garrett et al, covering one patented claim located in Storey County, Nevada. The lease remains in effect as long as exploration, development, mining, or processing operations are being conducted on a continuous basis, without a lapse of activity for more than 180 days. We pay a royalty to the lessor of $250 per month or a 3% net smelter royalty (“NSR”), whichever is greater. We are responsible for the payment and filing of annual maintenance fees, if any, and taxes for these claims. #### James Obester Lease On August 1, 2008, we entered into a mineral exploration and mining lease agreement with James Obester, covering ten unpatented claims located in Storey County. The lease remains in effect as long as exploration, development, mining, or processing operations are conducted on a continuous basis, without a lapse of activity of more than 180 days. We pay a royalty to the lessor amounting to $200 per month for the first two years and later increasing to $300 per month for the following three years, and then increasing to $500 per month thereafter. In addition, a NSR royalty percentage is applicable. The royalty percentage is a 2% NSR when the market price of gold is $900 or less per ounce and 3% NSR when gold is greater than $900 per ounce. We are also responsible for payment and filing of annual maintenance fees, if any, and taxes for these claims. #### Railroad & Gold - Lease On October 1, 2009, we entered into a mineral exploration and mining lease agreement with Railroad and Gold, LLC covering nine patented mining claims and sixteen unpatented mining claims in Storey County. The lease also includes rights for nine town lots and a rural parcel in American Flats. The lease is for an initial term of 15 years, but remains in effect for as long as exploration, development, mining, or processing operations are conducted on a continuous basis. We made an initial payment of $25,000 for the lease. The Company makes annual advance minimum royalty payments, which started with $30,000 on the first anniversary, and increasing by $5,000 each year. We are also required to pay a 4% NSR, which will be reduced by the sum of previously paid advance minimum royalties. We are also responsible for payment and filing of annual maintenance fees, if any, and taxes for these claims. Effective January 1, 2016 the royalty will be reduced to 1% NSR in exchange for 24 monthly payments of $2,083. Additionally, starting January 1, 2016 the annual payment on the lease is reduced for 2016 to $18,000 per year and $20,400 per year in 2017 and 2018. #### New Daney - Lease On June 2, 2010, we entered into a mineral exploration and mining lease agreement with New Daney Company, Inc. covering seven unpatented lode claims. These claims are located in Lyon County and are contiguous with the Company’s Spring Valley mineral holdings. All production from the property is subject to a 3% NSR. Once permits have been obtained to put the property into production, lease payments will be treated as advance royalties, which will be credited against the NSR. The Company makes advance minimum royalty payments of $200 per month. The lease is for an initial term of five years. We have the option, if we believe the property warrants further development, to extend an additional five years and then continuously thereafter as long as exploration, development, mining, or processing operations are conducted on a continuous basis. #### Renegade Mineral Holdings - Lease On October 14, 2010, we acquired twenty-six unpatented lode-mining claims along the southern extension of the Occidental Lode structure in Storey County, Nevada. The historic Occidental Lode, also referred to as the Brunswick Lode, is located 1.5 miles due east of and sub-parallel to the veins of the main Comstock Lode. These claims adjoined and extended the Company’s previous holdings of six patented and six unpatented claims, significantly expanding the Company’s position on the Occidental Lode. The Lease has an initial term of three years and, in the event we determine that exploration results warrant further development, then the term can be extended initially for two additional six-year terms and then continuously thereafter as long as the Company is producing on property adjacent to or in the vicinity of these claims. The agreement includes a 3% NSR from production with the gold price capped at $2,000 per ounce. We are also responsible for payment and filing of annual maintenance fees, if any, and taxes for these claims. #### Northern Comstock LLC On October 20, 2010, the Company entered into an operating agreement (the “Operating Agreement”) to form Northern Comstock LLC (“Northern Comstock”) with Mr. Winfield, our largest shareholder, and an entity controlled by Mr. Winfield, DWC Resources, Inc. (“DWC”). As part of the Operating Agreement, the Company obtained rights relating to certain property formerly owned by DWC in Storey County, Nevada (the “DWC Property”) and two groups of properties leased by Mr. Winfield in Storey County, Nevada from the Sutro Tunnel Company (the “Sutro Property”) and Virginia City Ventures (the “VCV Property”). Pursuant to the terms of the Operating Agreement for Northern Comstock, DWC contributed the DWC Property to Northern Comstock and John Winfield contributed his rights under the Sutro Property and the VCV Property to Northern Comstock. The Company contributed 862.5 shares of Series A-1 Preferred Stock in each annual period from 2010 to 2013, and contributes its services in the area of mine exploration, development and production to Northern Comstock. The terms of the Operating Agreement provided that on each anniversary of the Operating Agreement, up to and including the thirty-ninth (39th) anniversary, the Company would make additional capital contributions in the amount of $862,500, in the form of Series A-1 Preferred Stock or cash (upon request of Northern Comstock, which request for cash can be denied by the Company in certain circumstances). On August 27, 2015 the Company signed an amendment related to the restructuring of its Joint Venture agreement with Northern Comstock LLC. The Amendments resulted in reduced capital contribution obligations of the Company from $31.05 million down to $9.75 million. The Operating Agreement of Northern Comstock LLC requires that the Company make monthly cash capital contributions of $30,000 to Northern Comstock LLC and annual capital contributions in the amount of $482,500 payable in stock or cash, at the Company's option, unless the Company has cash and cash equivalents in excess of $10,500,000 on the date of such payments, wherein the Company would then be required to pay in cash. The number of shares to be delivered is calculated by dividing the amount of the capital contribution by the volume-weighted average closing price of the Company’s common stock on its primary trading market for the previous 20 consecutive trading days prior to such capital contribution. The Operating Agreement also provides for a one-time acceleration of $812,500 of the capital contributions payable when the Company receives net cash proceeds from sources other than operations that exceed $6,250,000. The agreement also includes an ongoing acceleration of the Company’s capital contribution obligations equal to 3% of the net smelter returns generated by the properties subject to the Northern Comstock LLC joint venture. The Operating Agreement also provides that if the Company defaults in its obligation to make the scheduled capital contributions, then the remaining capital contribution obligations may be converted into the principal amount of a 6% per annum promissory note payable by the Company on the same schedule as the capital contributions, secured by a mortgage on the properties subject to the Northern Comstock LLC joint venture. The operating agreement requires that these capital contributions commence in October 2015, and end in September 2027, unless prepaid by the Company. The Amendments also eliminated all royalties with the related party associated with these properties. The Operating Agreement provides the Company with the exclusive rights of development, production, mining and exploration on the respective properties and requires the Company to make certain expenditures toward that end. Under the terms of the Operating Agreement, all cash flows from the bullion or other minerals recovered from the ore mined out of the ground but untreated and minerals produced from the milling or reduction of ore to a higher grade produced from the DWC Property, Sutro Property or VCV Property, as applicable, or finished products produced from any such property, will be distributed to the Company after the payment of royalties associated with such properties. Mineral production from the DWC Property is subject to a 1% NSR payable to Mr. Art Wilson. Mineral production on the Sutro Property is subject to a royalty of 5% NSR payable to the Sutro Tunnel Company on all production from the Sutro Property. Mineral production from the VCV Property is subject to a 5% NSR. The Company makes advance minimum royalty payments of $1,000 per month on the Sutro Property and $6,000 per year on the VCV Property leases. Each lease is for an initial term of five years. We have the option, if we believe the property warrants further development, to extend an additional five years and then continuously thereafter as long as exploration, development, mining, or processing operations are conducted on a continuous basis. ### The Como Project The Como Project is located in Lyon County, Nevada, approximately 15 miles east of Carson City. The Company performed geological reconnaissance on this property, but has not drilled or collected any samples. We own a 100% interest in eight unpatented lode-mining claims, covering an area of approximately 168 acres in Lyon County, Nevada, that comprise the Como Project. ### Facilities Area The heap leach facility and former Company headquarters originally occupied a 40-acre site in Storey County, Nevada, at 1200 American Flat Road, approximately three miles south of Virginia City and 30 miles southeast of Reno, Nevada. The property was included in the acquisition of Plum Mining by the Company in November 2003. The site has expanded, through land acquisitions, to 400 acres. The Company’s headquarters is at our Corporate Campus at 117, 119 and 123 American Flat Rd. in Gold Hill, Nevada, covering a 5-acre parcel. Our active mining and reclamation operations currently take place over a nearly 100-acre area. ### Present Condition of Property and Work Performed We have completed extensive geological mapping, sampling, and drilling on a portion of the Comstock Mine Project property, in order to characterize the mineralized material. We have performed metallurgical testing, mine planning, and economic analysis, and have produced internal reports of our mineralized material inventory. However, we have not established reserves that meet the requirements of SEC Industry Guide 7. Therefore, any activities that we perform on our lands and claims are considered exploratory in nature, including test mining. ### Description of Equipment and other Infrastructure Facilities We own or lease all property and equipment necessary to conduct mining and doré bar processing operations sufficient to support our current production rates. ### Geology, Structure and Mineralization Gold and silver mineralization in the Lucerne Resource area is highly dependent on geologic attributes including but not limited to: multiple episodes of mineralization; numerous fault structures of varying orientations that acted as fluid conduits for precious metal transport; and amenable host rocks for deposition of economic concentrations of precious metals. The primary host rocks for the current Comstock resource areas are early Miocene age volcanic rocks, primarily andesitic to rhyolite volcanic flows, domes and intrusive rocks. Mineralization in the Lucerne Resource area is located in the historic mine sites of the Lucerne open-cut, Silver Hill, Hartford and Billie the Kid. The mentioned historic mines extracted precious metals from mining veins developed within the northwest striking Silver City fault zone. Detailed studies by our geologic staff have identified within the Silver City fault zone four definitive sub-parallel northwest striking mineralized structures. The spacing between each of these structures is approximately 100 to 150 feet. Our geologists have also identified structurally complex zones developed within the Silver City fault zone that have enhanced precious metals grade of contiguous mineralization averaging 0.10 gold ounce per ton for 200 feet. The structural complexity is explained by cross-cutting east-west and northeast striking mineralized structures intersecting with the northwesterly striking assembly of Silver City fault zone structures. During 2014 and 2015, the mineralized material extracted from the Lucerne Resource area and historical dumps progressively increased in silver content. In early 2014, the silver to gold ratio was approximately 10:1. As the open cut developed the northern Justice portion of the Lucerne and deepened down-dip along the Silver City fault zone, the silver to gold ratio increased. The silver to gold ratio peaked in December 2014 to a high of 18:1. The 2014 weighted average of silver to gold ratio was 17.5: 1. During 2015 the weighted average silver to gold ratio was 14.4:1.This compares to historic ratios of silver to gold of 100:1 located in the northern Comstock District. Currently, exploration drilling has identified gold and silver mineralization over a strike distance of nearly one mile, with definition and in-fill drilling on 50 to 100 foot centers over almost one mile. Mineralization is open-ended to the north and south along strike and down-dip to the east, including the Chute Zone in the eastern portion of the Lucerne Resource area. ### Future Exploration Potential The Comstock Mining district is a well-known, historic mining district, with over 150 years of production-based history. We have access to extensive reports and maps on various properties in the district, but to-date, we have only conducted detailed geologic exploration and resource modeling on less than 10% of our approximate 8,546-acre land position. We are conducting an ongoing exploration program to locate and test surface and underground mineral targets, as well as deep underground “bonanza” targets, by using historic compilation, geological mapping, geochemical and geophysical investigations and drilling. In 2014, the Company completed an extensive geologic exercise that included compiling, interpreting, and feasibility modeling for expanded surface mining and initial underground mine development. The models incorporated all available data, including the Company’s drill holes and historic drilling programs, historic underground mine maps, current western mine development and the Company’s detailed surface geologic maps. This work was utilized to develop the underground targets adjacent to the Lucerne Pit. Apart from the continuing drill program within the Lucerne underground drift (both core and a planned reverse circulation (“RC”) drilling program), the most significant exploration target that the Company is currently exploring is the Succor mineralized zone and the historic Woodville bonanza, both of which are situated adjacent to the southeasterly portion and northern portion, respectively, of the quartz porphyry (“PQ”) zone. The Company recently began an initial phase of drifting extending eastward from Drill Bay 2 toward the intersection of the Succor with the hanging wall of the PQ zone. The Company anticipates continuing the drift in order to intersect a historic haulage level on the Succor vein and to position the Company for exploration of the vein, both by underground RC drilling and extensive sampling and mapping of the workings. Additionally, an approximately 10,000 foot surface RC drill program has been planned for the first quarter of 2016, to further define the top 400 feet of mineralization. Together, these drill and sample programs will incorporate exploration of almost 1,000 vertical feet of known mineralization on the Succor vein system. The results from the PQ target and Succor drill programs will be incorporated into the geologic model in order to update grade shells and grade models with the objective of deriving a phased reserve model and mine plan. Exploration within the vicinity of the Lucerne Cut includes a limited surface drilling plan to verify the extent of mineralization and historic mining within the Woodville Bonanza. If warranted, the underground tunnel would be extended north toward the Woodville for further infill drilling. Additional ‘look ahead’ or ‘scouting’ drill holes have also been planned for the area along the footwall of the Silver City Fault east of the Justice Cut. In the southern part of the Comstock district, the Company has developed a comprehensive drill plan for the Dayton Property designed to deliver a mine plan, economic reserves and mine life. Farther to the south, a limited surface drilling plan has also been developed to expand exploration of known mineralized zones in the Spring Valley area on several of the Company’s claims. The engineering and geologic staff are also currently expanding their research on other known mineralized areas within the district including the Occidental area and the Gold Hill segment of the Comstock Lode. Research includes compiling historic production records and maps of geology and underground workings. ## Legal proceedings As filed, 2,780 characters. The Company’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company believes its operations are in compliance with applicable laws and regulations in all material respects. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures. On January 31, 2014, the Comstock Residents Association (the “CRA”) and two of its members filed a civil action in the Third Judicial District Court of the State of Nevada in and for Lyon County (the “District Court”) against the Lyon County Board of Commissioners (the “Commissioners”) and the Company, asking the Court to reverse the Commissioners’ decision to grant an application for master plan amendment and zone change submitted and approved by the Commissioners on January 2, 2014 (the “Application”). Prior to the approval of the Application, the master plan designation and zoning precluded mining on certain property of the Company in the area of Silver City, Lyon County. Generally, the CRA argues, among other things, that the Commissioners should not have approved the Application because the master plan and zoning designations on that property had been in place for more than forty years. In April 2015, the District Court ruled in favor the Company and the Commissioners. The written Order Denying Petition for Judicial Review was filed and mailed to all parties on June 15, 2015. On July 14, 2015, the CRA and one individual (“Appellants”) filed a Notice of Appeal of the Court Order, appealing the decision to the Nevada Supreme Court (“Supreme Court”). On December 9, 2015, Appellants filed their Opening Brief in the Supreme Court, generally repeating the arguments that were made at the District Court. On January 15, 2016 the Company and the Commissioners jointly filed an Answering Brief. The Company believes that the Commissioners properly exercised their statutory authority and the Company, in cooperation with the Commissioners and the Lyon County District Attorney, will continue to aggressively oppose the pending appeal. Refer to the relevant portions of Note 19 of the Financial Section of this report for additional information on legal proceedings. From time to time, we are involved in lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. We maintain insurance to mitigate losses related to certain risks. There are no matters pending or threatened that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flow. ## Management's discussion and analysis As filed, 89,297 characters. The following discussion provides information that we believe is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company as of and for the year ended December 31, 2015, as well as our future results. It should be read in conjunction with the consolidated financial statements and accompanying notes also included in this Form 10-K. ### Overview The Company is a producing, Nevada-based, gold and silver mining company with extensive, contiguous property in the historic Comstock and Silver City mining districts (collectively, the “Comstock District”) and is an emerging leader in sustainable, responsible mining, including concurrent and accelerated reclamations, soil sampling, voluntary air monitoring, cultural asset protection and historical restorations. The Company began acquiring properties in the Comstock District in 2003. Since then, the Company has consolidated a significant portion of the Comstock District, rezoned its properties consistent with mining uses, built an infrastructure, and brought an exploration project into production. The Company received the 2015 Nevada Excellence in Mine Reclamation award, voted on unanimously by five participating Federal and State of Nevada agencies. The Company continues acquiring additional properties in the district, expanding its footprint and creating opportunities for further exploration, development and mining. The near term goal of our business plan is to deliver stockholder value by validating qualified reserves (proven and probable) and developing longer-lived mine plans from our first two resource areas, Lucerne and Dayton, and significantly grow the commercial development of our operations through extended, long-lived mine plans that are economically feasible and socially responsible. The Comstock District is located within the western portion of the Basin and Range Province of Nevada, between Reno and Carson City. The Company’s headquarters, mine operations and heap leach processing facility are in Storey County, Nevada, at 1200 American Flat Road, approximately three miles south of Virginia City, Nevada and 30 miles southeast of Reno, Nevada. Our Lucerne Resource area is located in Storey County, Nevada, approximately three miles south of Virginia City. Our Dayton Resource area is located in Lyon County, Nevada, approximately six miles south of Virginia City. Access to the properties is by State Route 342, a paved route. 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 of the project area through vigorous surface mapping, geophysical analysis, exploration drilling, drill hole logging and extensive mine development and planning, including geological level plans and cross-sectional analysis. The volume of geologic data is immense, and thus far the reliability has been excellent, particularly in the various Lucerne Mine areas. We have amassed a large library of historic data and detailed surface mapping of Comstock District properties and continue to obtain historic information from private and public sources. We use such data in conjunction with information obtained from our current operations, to target geologically prospective exploration areas and plan exploratory programs, including expanded surface and underground drilling. The Company achieved initial production and held its first pour of gold and silver on September 29, 2012. The Company produced approximately 22,925 and 18,455 gold equivalent ounces in 2014 and 2015, respectively. That is, the Company produced 19,601 ounces of gold and 222,416 ounces of silver in 2014, and 15,451 ounces of gold and 221,723 ounces of silver in 2015. The Company reduced its strip ratio from a 2014 average of 4.83 to less than 1.0 in 2015. Grade remained strong at 0.031 ounces of gold per ton and 0.659 ounces of silver per ton or higher, continuing the grade improvement trend started in 2014. The recovery rate estimate for gold, for the life of the Lucerne mine to date, has increased to 85%. We continue expanding our property footprint and creating opportunities for further exploration, development and mining. The Company now owns or controls approximately 8,546 acres of mining claims and parcels in the Comstock and Silver City Districts. The acreage is comprised of approximately 2,245 acres of patented claims (private lands), surface parcels (private lands), and approximately 6,301 acres of unpatented mining claims, which the “BLM” administers. ### Our Team We believe we have exceptional mine engineering, geological, geo-statistical, metallurgical, safety, regulatory, environmental, financial and operating competencies on our management team. As of December 31, 2015, we have 53 full-time employees. In addition, we have strengthened our system through agreements and relationships with certain key partners. ***Corrado De Gasperis*** has been President and CEO of the Company since April 2010, and appointed to the Board of Directors in June 2011. In September, 2015, Mr. De Gasperis also assumed the role of Executive Chairman of the Board. He brings over 27 years of industrial metals and mining manufacturing, operational and financial management, and capital markets experience. Previously, he served as the Chief Executive Officer of Barzel Industries Inc. (formerly Novamerican Steel Inc.) from April 2006 through September 2009. Barzel operated a network of 15 manufacturing, processing and distribution facilities in the United States and Canada that offered a wide range of metal solutions to a variety of industries, including construction, infrastructure development and mining. From 2001 to 2005, he served as Chief Financial Officer of GrafTech International Ltd., a global manufacturer of industrial graphite and carbon-based materials, in addition to his duties as Vice President and Chief Information Officer, which he assumed in 2000. He served as Controller of GrafTech from 1998 to 2000. From 1987 to 1998, Mr. De Gasperis was a certified public accountant with KPMG LLP. As a Senior Assurance Manager in the Manufacturing, Retail and Distribution Practice, he served major clients like General Electric and Union Carbide Corporation. KPMG announced his admittance, as a Partner, effective July 1, 1998. Mr. De Gasperis holds a BBA from the Ancell School of Business at Western Connecticut State University, with honors. 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 Director of Comstock Real Estate, Inc. (formerly Gold Hill Hotel, Inc.), and a Director of Nevada Works, furthering Northern Nevada’s economic development plans. He is also a Member of the NYSE Markets Advisory Committee, the Northern Nevada Development Authority, and the Northern Nevada Network. ***Judd B. Merrill*** became Chief Financial Officer of the Company in January 2015, and had been our Chief Accounting Officer since 2014, and our Controller since 2011. Mr. Merrill brings strong mining-based financial and capital resource planning, treasury and cash management experience in addition to his broader financial accounting, reporting and internal control experience, having worked as Controller of Fronteer Gold Inc. and Assistant Controller at Newmont Mining Corp., both in Nevada. He also worked for Meridian Gold Company and Deloitte & Touche LLP. Mr. Merrill holds a Bachelor of Science in Accounting from Central Washington University and a Masters of Business Administration from the University of Nevada, Reno and is a Certified Public Accountant. ***Laurence G. Martin*** has been the Director of Exploration & Mineral Development since 2010, and Chief Geologist since 2008. He brings over 31 years of successful precious metals exploration, mine development and production experience. He participated and supervised exploration projects in Northwest Territories, Canada, Liberia, West Africa, Mexico, Honduras, and areas within the western region of the United States. Mr. Martin’s production experience is exemplified by supervisory positions in 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 instrumental in the evaluation of geologic design parameters at the proposed nuclear repository site located at Yucca Mountain, Nevada. Mr. Martin participated in the geo-technical evaluation of the environmentally sensitive sites of Hanford Nuclear Reservation, Washington and Anniston military depot, Alabama; and the rock product dam project, East Side Reservoir Project, California. Most recently, Larry’s focus has been in Nevada precious metals exploration projects including: the Sleeper Gold Project and, currently, the Comstock Mine Project. 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). Mr. Martin is a certified expert witness by the 9th District Appellate United States Federal Court in the categories of Exploration and Structural Geology. ***Stephen J. Russell*** has been Senior Mine Geologist since 2010. He has over 35 years of experience in precious metal mine planning, grade control, open pit mine production, including extensive heap leaching processing, and exploration. Mr. Russell has extensive Nevada mine planning and production experience and is a recognized authority in the Comstock District. He also has international exploration experience in Chile and China. Mr. Russell’s career includes extensive and specific project work in the Comstock District as a Mine Geologist, Exploration Geologist, and Mine Project Planning, including direct experience in the Company’s near term production areas including the Lucerne, Dayton and Spring Valley Projects. Mr. Russell is a graduate of California State University in Fresno, where he obtained a B.A. in Industrial Technology in 1971, a B.A. in Geology in 1974, and a Masters in Geology in 1976, with a thesis on stratigraphy and structure of Mesozoic meta-volcanic rocks. He is an industry-published author of unique Western U.S. structural geology. ***Tammy J. Harding*** joined the Company in 2015 as Director of Safety. Ms. Harding has over 20 years of mining experience in fields of Materials Management and the Safety Management Systems. She has worked with mining organizations such as Getchell Gold, Goldcorp Marigold Mine, Barrick Turquoise Ridge and most recently with Allied Nevada Hycroft Operation in Winnemucca. Ms. Harding is a member of the Nevada Mining Association, Women In Mining and a volunteer at Humboldt General Hospital EMS/Rescue. Her safety training certifications include Certified Mine Safety Professional by the International Society of Mine Safety Professionals, State of Nevada EMS Instructor, National Safety Council Advanced Safety Certificate, DELTA Safety Leadership and she is currently enrolled in Columbia Southern University completing her Occupational, Safety and Health Degree. ***Timothy J. George*** joined the Company in 2014, as Senior Mine Engineer and brings nearly 10 years of experience in mine design, modeling and optimization. Mr. George has evaluated blast and loading designs in copper mining, coordinated production and maintenance activities in coal mines and has extensive long-term, strategic mine design, phasing and near term production scheduling, including geological and block model manipulation, fleet simulations and optimizations for surface mining as well as engineering design and boundary optimization for underground mining. Mr. George holds a Bachelor of Science Degree in Mining Engineering, Cum Laude, from the University of Arizona. ***Elaine D. Barkdull-Spencer*** joined the Company in 2013, as Director of External Relations and brings nearly 15 years of experience in economic, business and community development, government relations, and stakeholder management. Prior to joining Comstock Mining, Ms. Spencer worked directly with the Nevada mining industry, as President of the Barkdull Spencer Agency, LLC, providing community and stakeholder management services and facilitating sustainability plans and projects for mining dependent communities. Prior to that, Ms. Spencer was Executive Director at the Elko County Economic Diversification Authority and Chief Executive Officer of the Elko Chamber of Commerce. Ms. Barkdull-Spencer holds an Advanced Professionalism Certificate from University of Nevada, Reno. She also holds various independent professional certifications. ### Exploration #### Exploration and Development of Lucerne Surface and Underground Targets During 2015, the Company focused on exploration in the Lucerne Resource area, the Dayton Resource area, and the Succor/Holman Target area. Activity within the Lucerne Resource area included both surface mining and underground exploration and underground drift (tunnel) development. The Company plans to conduct additional, near term exploration within the Lucerne Resource area, including the Quartz Porphyry (PQ), Woodville and recently extended Succor targets, as well as the Dayton Resource Area. Longer-term exploration targets include the Spring Valley, Occidental, and Northern (Upper Gold Hill) Targets. Surface production commenced from the Lucerne Mine in 2012 and was substantially completed in 2015. This included the removal of historic mine dump materials adjacent to both the Lucerne Mine and State Route 342 (SR342) and the completion of the SR 342 realignment by December 2015. The removal of approximately 300,000 tons of older waste dump material suitable for heap leaching primarily occurred between May and September 2015, with final materials removed and stacked during December 2015, and January 2016. The remaining phases of the realignment project, including the final waste dump removal, grading, and drainage reestablishment are scheduled for completion during the first quarter of 2016. On September 5, 2015, the Company began construction of the Harris Portal and Drift on the floor of the Lucerne Mine (Pit), with approximately 1,250 feet of total drifting completed as of January 26, 2016. (Figure 1) Figure 1 - Underground target areas highlighting the exploration drift and drill bays. The Harris Drift represents the first substantial underground development in the Comstock District in over thirty years, and marks a turning point for the Company. The first phase of drifting has two main objectives. First, the Harris Drift provides a central platform, within Lucerne’s broader geological corridor, for conducting an underground drilling and exploration program. Second, the Harris Drift could also serve as a central haulage level depending on the overall drill results and resultant mine plans. The initial phase of drilling includes approximately 20,000 feet of diamond core and reverse circulation (RC) definition drilling. As of January 26, 2016, about 12,000 feet of HQ-3 and NQ core have been produced from a drilling configuration that is in the form of ‘fans’ that comprise a group of holes having the same azimuth but different dips (between -50 and +40 degrees from horizontal). Each drill bay has two or three fans of drill holes extending into the primary target. The core locations and orientations were specifically designed to infill and expand the areas of known, high-grade mineralization identified from previous surface drilling programs. (Figure 2) Figure 2. 3-D representation of the Harris Drift showing drill bays, drill fans, and the 300-foot long crosscut The Harris Drift was driven in stable footwall rocks adjacent to an 800-foot long section of the Silver City branch of the Comstock Lode that has been intruded by a mass of quartz porphyry (PQ). The Company has 46 previous surface drill holes that had outlined the potential high-grade target within and bordering the dike-like mass of PQ. Proximity of the PQ target to the pit floor, both in terms of elevation and horizontal distance, were also crucial factors in the development of the exploration plan. The core holes from the first four drill bays were designed to evaluate the southern lobes of the quartz porphyry, and the extent of the fractured and veined environment lying beyond and to the south. The initial drill bays also included a group of holes that targeted and penetrated the Silver City/Succor structural intersection. In general, these more southerly oriented drill holes intersected more narrow (2 to 10 feet thick) zones of high-grade mineralization. One of the most significant aspects of the intercepts is that they tend to lie along the margins of a second, previously un-described intrusive mass of intermediate composition. The Company then began encountering longer mineralized intercepts (10 to 40 feet thick) as it moved northerly toward the Silver City/Succor structuralized interaction and within or bordering the PQ mass further north. Drill results from Bays 1 through 4 are summarized in Table1 below. | Drill Bay | Hole # | From (ft.) | To (ft.) | Length | Au opt (1) | Ag opt (2) | Au Grams | Ag Grams | Au Equivalent Ounces (3) | | ---: | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | 1 | LUGC15-001 | 283.0 | 293.0 | 10.0 | 0.175 | 1.427 | 6.00 | 48.90 | 0.193 | | 1 | Including | 288.0 | 293.0 | 5.0 | 0.268 | 1.753 | 9.19 | 60.10 | 0.290 | 36 | | | | | | | | | | | | ---: | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | 1 | LUGC15-001 (4) | 358.0 | 363.0 | 5.0 | 1.269 | 0.352 | 43.50 | 12.07 | 1.273 | | 1 | LUGC15-002 | 157.0 | 161.0 | 4.0 | 0.137 | 2.564 | 4.70 | 87.90 | 0.170 | | 1 | LUGC15-002 | 219.0 | 221.0 | 2.0 | 0.762 | 2.704 | 26.12 | 92.70 | 0.797 | | 1 | LUGC15-003 | 44.0 | 49.0 | 5.0 | 0.319 | 0.373 | 10.94 | 12.79 | 0.324 | | 1 | LUGC15-005 | 81.5 | 86.5 | 5.0 | 0.096 | 3.100 | 3.29 | 106.27 | 0.136 | | 1 | LUGC15-005 | 114.0 | 122.0 | 8.0 | 0.115 | 0.415 | 3.94 | 14.22 | 0.120 | | 1 | Including | 114.0 | 116.0 | 2.0 | 0.290 | 0.790 | 9.94 | 27.08 | 0.300 | | 1 | LUGC15-005 | 268.0 | 270.0 | 2.0 | 0.354 | 1.875 | 12.14 | 64.28 | 0.378 | | 1 | LUGC15-005 | 302.0 | 307.0 | 5.0 | 0.171 | 0.212 | 5.86 | 7.27 | 0.174 | | 1 | LUGC15-005 | 312.0 | 317.0 | 5.0 | 0.107 | 0.426 | 3.67 | 14.60 | 0.112 | | 1 | LUGC15-005 | 322.0 | 327.0 | 5.0 | 0.096 | 0.181 | 3.29 | 6.21 | 0.098 | | 1 | LUGC15-005 | 370.0 | 374.0 | 4.0 | 0.093 | 0.904 | 3.19 | 30.99 | 0.105 | | 1 | LUGC15-005 | 382.0 | 387.0 | 5.0 | 0.083 | 0.312 | 2.85 | 10.70 | 0.087 | | 1 | LUGC15-005 | 441.0 | 447.0 | 6.0 | 0.094 | 1.143 | 3.22 | 39.18 | 0.109 | | 1 | LUGC15-007 | 119.0 | 123.5 | 4.5 | 0.391 | 0.484 | 13.40 | 16.59 | 0.397 | | 1 | LUGC15-007 | 209.0 | 214.0 | 5.0 | 0.083 | 2.088 | 2.85 | 71.58 | 0.110 | | 1 | LUGC15-008 | 187.9 | 193.0 | 5.1 | 0.147 | 0.099 | 5.04 | 3.39 | 0.148 | | 2 | LUGC15-006 | 331.0 | 339.0 | 8.0 | 0.141 | 1.452 | 4.82 | 49.77 | 0.159 | | 2 | Including | 331.0 | 333.5 | 2.5 | 0.318 | 1.771 | 10.90 | 60.71 | 0.341 | | 2 | LUGC15-006 | 358.5 | 365.5 | 7.0 | 0.121 | 0.549 | 4.16 | 18.80 | 0.128 | | 2 | LUGC15-010 | 159.0 | 164.0 | 5.0 | 0.100 | 0.598 | 3.43 | 20.50 | 0.108 | | 2 | LUGC15-010 | 168.0 | 173.0 | 5.0 | 0.090 | 0.446 | 3.09 | 15.29 | 0.096 | | 2 | LUGC15-010 | 176.5 | 181.0 | 4.5 | 0.126 | 0.785 | 4.30 | 26.89 | 0.136 | | 2 | LUGC15-012 | 158.0 | 163.0 | 5.0 | 0.083 | 0.192 | 2.85 | 6.58 | 0.085 | | 2 | LUGC15-013 | 118.0 | 122.0 | 4.0 | 0.104 | 4.000 | 3.57 | 137.13 | 0.155 | | 2 | LUGC15-015 | 42.0 | 45.0 | 3.0 | 0.104 | 1.161 | 3.57 | 39.80 | 0.119 | | 2 | LUGC15-015 | 117.5 | 121.0 | 3.5 | 0.198 | 0.076 | 6.79 | 2.61 | 0.199 | | 2 | LUGC15-015 (5) | 169.5 | 171.0 | 1.5 | 1.416 | 0.848 | 48.56 | 29.08 | 1.427 | | 2 | Including | 169.5 | 170.6 | 1.1 | 1.602 | 0.933 | 54.92 | 31.98 | 1.614 | | 2 | LUGC15-015 | 260.0 | 280.0 | 20.0 | 0.345 | 1.140 | 11.83 | 39.09 | 0.360 | | 2 | Including | 260.0 | 263.0 | 3.0 | 0.424 | 1.466 | 14.54 | 50.26 | 0.443 | | 2 | Including | 264.5 | 270.5 | 6.0 | 0.446 | 1.169 | 15.30 | 40.08 | 0.461 | | 2 | Including | 273.0 | 280.0 | 7.0 | 0.386 | 0.882 | 13.24 | 30.25 | 0.397 | | 2 | LUGC15-015 | 287.0 | 288.5 | 1.5 | 0.132 | 1.782 | 4.53 | 61.09 | 0.155 | | 2 | LUGC15-015 | 298.0 | 308.0 | 10.0 | 0.087 | 0.904 | 2.99 | 31.00 | 0.099 | 37 | | | | | | | | | | | | ---: | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | 2 | LUGC15-015 | 317.0 | 318.0 | 1.0 | 0.599 | 1.897 | 20.53 | 65.03 | 0.623 | | 2 | LUGC15-015 | 325.0 | 333.0 | 8.0 | 0.093 | 0.732 | 3.17 | 25.11 | 0.102 | | 2 | LUGC15-017 | 116.0 | 121.0 | 5.0 | 0.159 | 0.501 | 5.45 | 17.18 | 0.165 | | 2 | LUGC15-017 | 248.0 | 252.0 | 4.0 | 0.092 | 0.094 | 3.15 | 3.22 | 0.093 | | 2 | LUGC15-017 | 256.0 | 261.0 | 5.0 | 0.199 | 0.499 | 6.82 | 17.11 | 0.205 | | 2 | LUGC15-017 | 478.0 | 483.0 | 5.0 | 0.528 | 7.100 | 18.10 | 243.40 | 0.619 | | 2 | LUGC15-020 | 15.0 | 20.0 | 5.0 | 0.113 | 0.086 | 3.87 | 2.95 | 0.114 | | 3 | LUGC15-018 | 90.0 | 95.0 | 5.0 | 0.092 | 0.609 | 3.15 | 20.88 | 0.100 | | 3 | LUGC15-018 | 166.5 | 174.5 | 8.0 | 0.096 | 2.451 | 3.30 | 84.02 | 0.128 | | 3 | LUGC15-018 | 181.5 | 185.0 | 3.5 | 0.479 | 1.100 | 16.42 | 37.71 | 0.493 | | 3 | LUGC15-018 | 194.0 | 198.0 | 4.0 | 0.092 | 1.205 | 3.15 | 41.31 | 0.107 | | 3 | LUGC15-018 | 225.0 | 228.0 | 3.0 | 0.094 | 2.360 | 3.22 | 80.91 | 0.124 | | 3 | LUGC15-018 | 232.5 | 242.5 | 10.0 | 0.094 | 4.220 | 3.23 | 144.67 | 0.148 | | 3 | LUGC15-018 | 270.0 | 275.0 | 5.0 | 0.131 | 2.882 | 4.49 | 98.80 | 0.168 | | 3 | LUGC15-021 | 173.0 | 182.5 | 9.5 | 0.159 | 1.188 | 5.43 | 40.74 | 0.174 | | 3 | LUGC15-021 | 203.0 | 204.0 | 1.0 | 0.344 | 1.080 | 11.79 | 37.02 | 0.358 | | 3 | LUGC15-021 | 217.0 | 218.0 | 1.0 | 0.347 | 1.755 | 11.90 | 60.16 | 0.370 | | 3 | LUGC15-021 | 238.0 | 243.0 | 5.0 | 0.160 | 0.508 | 5.47 | 17.42 | 0.166 | | 3 | LUGC15-021 | 258.0 | 263.0 | 5.0 | 0.346 | 0.315 | 11.86 | 10.80 | 0.350 | | 3 | LUGC15-021 | 306.5 | 311.0 | 4.5 | 0.112 | 0.223 | 3.84 | 7.64 | 0.115 | | 3 | LUGC15-025 | 77.0 | 87.0 | 10.0 | 0.143 | 1.564 | 4.90 | 53.60 | 0.163 | | 3 | LUGC15-025 | 102.0 | 107.0 | 5.0 | 0.110 | 0.356 | 3.77 | 12.20 | 0.115 | | 3 | LUGC15-028 | 120.0 | 128.0 | 8.0 | 0.109 | 2.790 | 3.72 | 95.63 | 0.144 | | 3 | LUGC15-034 | 85.5 | 98.5 | 13.0 | 0.743 | 2.140 | 25.47 | 73.35 | 0.770 | | 3 | Including | 85.5 | 93.0 | 7.5 | 0.977 | 2.428 | 33.48 | 83.24 | 1.008 | | 3 | LUGC15-034 | 104.0 | 113.0 | 9.0 | 0.148 | 1.663 | 5.06 | 57.00 | 0.169 | | 3 | LUGC15-034 | 138.0 | 152.0 | 14.0 | 0.441 | 1.908 | 15.13 | 65.40 | 0.466 | | 3 | Including | 138.0 | 144.0 | 6.0 | 0.287 | 1.212 | 9.84 | 41.55 | 0.303 | | 3 | Including | 149.0 | 152.0 | 3.0 | 1.209 | 3.542 | 41.45 | 121.43 | 1.254 | | 4 | LUGC15-011 | 53.0 | 58.0 | 5.0 | 0.386 | 0.320 | 13.23 | 10.97 | 0.390 | | 4 | LUGC15-011 | 217.0 | 220.0 | 3.0 | 0.158 | 2.615 | 5.42 | 89.65 | 0.192 | | 4 | LUGC15-011 | 249.0 | 251.5 | 2.5 | 0.137 | 1.939 | 4.70 | 66.47 | 0.162 | | 4 | LUGC15-014 | 99.0 | 102.5 | 3.5 | 0.155 | 0.443 | 5.31 | 15.19 | 0.161 | | 4 | LUGC15-014 | 287.0 | 292.5 | 5.5 | 0.162 | 0.384 | 5.55 | 13.16 | 0.167 | | 4 | LUGC15-016 | 134.0 | 139.0 | 5.0 | 0.162 | 7.600 | 5.55 | 260.54 | 0.259 | | 4 | LUGC15-016 | 213.0 | 219.0 | 6.0 | 0.146 | 0.805 | 5.01 | 27.60 | 0.156 | 38 | | | | | | | | | | | | ---: | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | 4 | LUGC15-016 | 339.0 | 343.0 | 4.0 | 0.124 | 0.076 | 4.25 | 2.61 | 0.125 | | 4 | LUGC15-019 | 115.0 | 117.0 | 2.0 | 0.142 | 4.700 | 4.87 | 161.12 | 0.202 | | 4 | LUGC15-022 | 138.0 | 178.0 | 40.0 | 0.391 | 1.635 | 13.39 | 56.06 | 0.412 | | 4 | Including | 138.0 | 150.0 | 12.0 | 0.475 | 1.501 | 16.27 | 51.47 | 0.494 | | 4 | Including | 165.0 | 178.0 | 13.0 | 0.636 | 2.467 | 21.82 | 84.58 | 0.668 | | 4 | LUGC15-024 | 112.0 | 117.5 | 5.5 | 0.438 | 2.897 | 15.01 | 99.32 | 0.475 | | 4 | Including | 112.0 | 114.7 | 2.7 | 0.749 | 2.522 | 25.68 | 86.46 | 0.781 | | 4 | LUGC15-024 | 217.5 | 220.0 | 2.5 | 0.194 | 1.199 | 6.63 | 41.10 | 0.209 | | 4 | LUGC15-024 | 250.0 | 255.0 | 5.0 | 0.093 | 0.085 | 3.19 | 2.91 | 0.094 | #### Reported values are from American Assay Labs (AAL) and Inspectorate American Corporation (Inspectorate) in Reno, NV #### AAL and Inspectorate lab methods include standard fire assay with ICP finish and gravimetric finish per each labs internal protocols (1) Au opt - Gold ounces per ton (2) Ag opt - Silver ounces per ton (3) Gold Equivalent ratio based on gold to silver price ratio of 78:1 Ag:Au (4) Value reported is average of original and check assay (5) Pending additional total digestion assay on a portion of the interval The Company considers the initial 800 feet of advance within the Harris Drift as a first phase of development towards a longer-term exploration and development objective targeting a three quarter mile long mineralized corridor that includes the Lucerne (including the PQ target), Woodville, Succor/Holman and high-grade Chute zone systems. Most of these systems remain open to the north and east and particularly at depth. A second phase of development has already commenced by advancing a crosscut out of Drill Bay 2, toward the structural intersection of the Silver City and Succor zone. The design of the crosscut is geared toward a favorable underground drilling geometry that should enable access to one or more of the historic Succor mine levels. The Succor represents an important target in conjunction with the PQ zone based on its location (perpendicular and adjacent to the PQ), past production history and the results from the Company’s 2011, and 2012, reverse circulation drill programs. In addition, a near surface (less than 80 feet deep) drill program was completed in 2015, within the Succor/Holman claim areas that suggests that vein environments between the crosscut elevation (5110) and the surface have potential to host significant lengths of potentially high-grade mineralized resources. Drill results from the 2015 program are summarized in Table 2 below. | | Succor | Holman | | --- | ---: | ---: | | No. of holes drilled | 80 | 39 | | No. of 10' intervals with intercepts \>.015 Au opt | 166 | 55 | | No. of 10' intervals with intercepts \>.100 Au opt | 22 | 3 | | Average gold grades for drill intercepts \>.015 Au opt | 0.056 | 0.047 | | Average silver grades for drill intercepts \>.015 Au opt | 0.259 | 0.333 | Table 2: Summary of drill intercepts from the 2015 Succor and Holman shallow drill hole programs. The general spatial relationships between the Woodville, Lucerne, and Succor target areas are depicted in Figure 3. The Succor Vein Target has a strike length of greater than 1000 feet, an average true width of 15 feet and an average dip of 55 degrees. The structure has reported historic mining grades of approximately 0.620 ounces per ton of recovered gold equivalent grade and is open to the east and at depth, along the entire structure. The proposed drilling holes shown in Figure 3 are designed to extend the depth of known mineralization. Figure 3. 3-D representation showing relationships between the Woodville, PQ, and Succor target areas. #### Exploration and Development of Dayton Surface and Underground Targets Additional surface drilling on the Company’s Dayton property, located in the southern part of the Comstock district, commenced in the first quarter of 2015. The program consisted of 408 holes totaling 30,818 feet of drilling that was completed in late September 2015. Of the 408 holes drilled, 245 contained intercepts of 10 feet or more in length with gold grades exceeding or equal to 0.015 ounces per ton (opt.), and with an overall weighted average grade of 0.035 opt Au and 0.323 opt Ag. Out of those same 245 holes, a total of 32 contained intercepts of 10 feet or more in length with an average Au grade exceeding or equal to 0.100 opt Au, and with an overall average weighted grade of 0.148 opt Au and 0.694 opt Ag. The geologic and engineering staff also completed underground mapping, sampling, and surveying in a number of historic mine tunnels. Figure 4 below depicts the location of the drill holes and significant geographic features. Figure 4 - The location of the drill holes and significant geographic features. The main objective of the program was to pinpoint the major surface structures (faults) and then explore these structures for mineralization. This then enabled efficient infill drilling that further refined and resolved areas of structural complexity in the geologic models. The underground mapping and sampling effort, together with the drilling, resulted in several important discoveries. The most significant was defining mineralization along a previously un-drilled, 600-foot segment of the Grizzly Hill Fault and additional mineralization at an intersection of the Grizzly Hill and Alhambra Faults with the Silver City fault. The Company also discovered additional dike-like masses of quartz porphyry, similar to the Lucerne area, that generally host significant mineralization. Finally, the drilling also helped to define extended mineralization along a 550-foot segment of the Mill Fault. The Company commenced metallurgical test-work on representative samples of mineralized rock types that are currently ongoing. All samples, both from drilling and underground, were analyzed for gold and silver at the existing, on-site, industry standard, production assay lab. Table 4 summarizes the results of the drill program with an emphasis on drill holes with intercepts greater than 0.015 opt Au, and those with intercepts greater than 0.100 opt Au. Table 4 - Summary of drill intercepts for Dayton Property surface drilling program | | | | --- | ---: | | No. of holes drilled | 408 | | No. of 10' intervals with intercepts \>.015 Au opt | 245 | | Average gold grades for drill intercepts \>.015 Au opt | 0.035 | | Average silver grades for drill intercepts \>.015 Au opt | 0.323 | | No. of 10' intervals with intercepts \>.100 Au opt | 32 | | Average gold grades for drill intercepts \>.100 Au opt | 0.148 | | Average silver grades for drill intercepts \>.100 Au opt | 0.694 | The Company has recently updated its internal geologic model based on the results of this drilling program and permitting activities have also been initiated for the Dayton Property for both mining and transportation. These tasks will be ongoing through 2016 and 2017. ### Production The Company both completed and initiated a number of important projects during the fiscal year 2015. Surface production commenced from the Lucerne Mine in 2012 and was substantially completed in 2015. This included the removal of historic mine dump materials adjacent to both the Lucerne Mine and State Route 342 (SR342) and the completion of the SR 342 realignment by December 2015. The removal of approximately 300,000 tons of older waste dump material suitable for heap leaching primarily occurred between May and September 2015, with final materials removed and stacked during December 2015, and January 2016. The remaining phases of the realignment project, including the final waste dump removal, grading, and drainage reestablishment are scheduled for completion during the first quarter of 2016. The Harris Portal and Lucerne underground tunnel were established concurrently, during the third and fourth quarters on the north wall of the Lucerne floor at an elevation of 5120 feet, while the historic mine dumps were extracted and processed. The Company completed comprehensive, shallow surface drilling program on the Succor and Holman patents lying about one-quarter mile east of the Lucerne open cut, and a similar, but even more extensive drill program on the Dayton property situated in the southern end of the Comstock District. Additionally, the Company is scheduled to complete the first phase of the Lucerne underground drill program in February 2016. The Company completed the planned mining for the Billie the Kid, Hartford and Justice patents during 2014, while continuing to mine the Lucerne patent through 2014 and 2015. During the second and third quarters of 2015, the Company further expanded its activities to include a more significant amount of extraction from the historic mine dumps adjacent to and underneath the existing portion of SR-342, into the daily production schedule. Substantially all of the operations for the second half of 2015 were focused on surface activity, including the extraction of the mineralized material contained in those remaining mine dumps while also completing the realignment of SR-342, establishing a drift into the higher-grade PQ, Woodville and Succor targets, and developing those targets, through diamond core drilling, towards the establishment of reserves for potential future mining. The Company operates a heap leach based, gold and silver production system, including a zinc-precipitate based Merrill-Crowe processing plant. The Company, under the existing water pollution control permit with the State of Nevada, has the crushing and processing capacity to operate at a rate of up to 4.0 million tons of material crushed and stacked, per annum. The Merrill-Crowe system facilitates that capacity with an operating fluid processing rate of over 1,000 gallons per minute. In March 2015, the Company completed construction of a ninth heap leach pad cell. The Company’s nine cells continue under solution until the target gold and silver recovery rates have been achieved. The following table presents mining operations and production by quarter for 2015 and 2014: | Mining Operations | 4Q 2015 | 3Q 2015 | 2Q 2015 | 1Q 2015 | Total 2015 | 4Q 2014 | 3Q 2014 | 2Q 2014 | 1Q 2014 | Total 2014 | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Tons Mined | 17,851 | 140,415 | 254,856 | 316,199 | 729,321 | 1,061,233 | 1,131,985 | 944,166 | 947,852 | 4,085,236 | | **Processing** | | | | | | | | | | | | Tons Crushed | 17,851 | 104,286 | 211,942 | 157,612 | 491,691 | 182,029 | 191,013 | 122,026 | 205,686 | 700,754 | | Weighted Average Grade Per Ton Au | 0.023 | 0.021 | 0.030 | 0.039 | 0.031 | 0.039 | 0.026 | 0.034 | 0.024 | 0.030 | | Weighted Average Grade Per Ton Ag | 0.564 | 0.573 | 0.654 | 0.734 | 0.659 | 0.680 | 0.564 | 0.546 | 0.345 | 0.527 | | Estimated Au Ounces Stacked | 404 | 2,240 | 6,438 | 6,083 | 15,165 | 7,110 | 4,926 | 4,191 | 5,016 | 21,243 | | Estimated Ag Ounces Stacked | 10,072 | 59,717 | 138,639 | 115,689 | 324,117 | 123,692 | 107,822 | 66,607 | 70,989 | 369,110 | | Estimated Au Equivalent\* Ounces Stacked | 540 | 3,034 | 8,344 | 7,669 | 19,587 | 8,806 | 6,584 | 5,205 | 6,140 | 26,735 | | Au Ounces Poured and Sold | 2,334 | 3,847 | 4,575 | 4,695 | 15,451 | 5,329 | 5,002 | 4,763 | 4,507 | 19,601 | | Ag Ounces Poured and Sold | 42,649 | 62,480 | 60,112 | 56,482 | 221,723 | 63,336 | 61,096 | 48,626 | 49,358 | 222,416 | | Au Equivalent\* Ounces Poured | 2,907 | 4,678 | 5,400 | 5,470 | 18,455 | 6,200 | 5,936 | 5,499 | 5,290 | 22,925 | | \* Au Equivalent ounces = Au ounces (actual) + (Ag ounces (actual) ÷ the ratio of average gold to silver prices) | 74.04 | 75.27 | 72.73 | 72.91 | 73.77 | 72.93 | 65.03 | 65.69 | 63.14 | 66.7 | 43 The following table presents weighted average grades of gold and silver by quarter: | | Weighted Average per ton Gold | Weighted Average per ton Silver | | --- | ---: | ---: | | Q1, 2014 | 0.024 | 0.345 | | Q2, 2014 | 0.034 | 0.546 | | Q3, 2014 | 0.026 | 0.564 | | Q4, 2014 | 0.039 | 0.680 | | **2014** | **0.030** | **0.527** | | Q1, 2015 | 0.039 | 0.734 | | Q2, 2015 | 0.030 | 0.654 | | Q3, 2015 | 0.021 | 0.573 | | Q4, 2015 | 0.023 | 0.564 | | **2015** | **0.031** | **0.659** | The Company produced 22,925 and 18,455 gold equivalent ounces in 2014 and 2015, respectively. Overall during 2015, the Company crushed and stacked 491,691 dry tons of mineralized material, delivering 15,165 estimated ounces of recoverable gold and 324,117 estimated ounces of recoverable silver to the leach pads. Material placed on the heap leach pads remains under solution until the target recovery rates are achieved. Throughout this period, the recovery of gold and silver continues, but the most effective economic recovery of gold and silver takes between 45 to 60 days to complete. The Company estimates it will recover 85% of the recoverable gold and 57% of the recoverable silver from the portion of the heap, which stays under leach the longest. Preliminary laboratory metallurgical test results suggest that ultimate heap leach recovery will meet or exceed the estimated ounces of recoverable gold and silver. For the quarter ended December 31, 2015, the Company realized an average sales price of $1,106.71 per ounce of gold and $14.97 per ounce of silver. In comparison, commodity market prices averaged $1,104.40 per ounce of gold and $14.76 per ounce of silver. For the year ended December 31, 2015, the Company realized an average sales price of $1,195.10 per ounce of gold and $15.78 per ounce of silver. In comparison, commodity market prices in 2015 averaged $1,160.11 per ounce of gold and $15.70 per ounce of silver. During the fourth quarter of 2014, and further again in January 2015, the Company received unanimous approval to significantly modify and expand permitted and allowable uses, under its existing Storey County Special Use Permit No. 2000-222-A-3 (“Storey SUP”), throughout the entire Lucerne Resource Area, containing the Company’s largest, classified gold and silver resources and the American Flat processing area. The amendments applied to local county, state and federal permits. The most significant expansion of permitted uses applies to both surface and underground mining; processing and milling; mine definition; exploration; development and other ancillary uses. Some of the more salient features are highlighted below. The Storey SUP expanded the overall permitted boundary to over 1,280 acres (from 185 acres), allowing for substantial expansion of mining and processing operations. Additionally it expanded the permitted private property boundary to approximately 400 acres (from 78 acres) for processing to the south and west of the existing processing facility in American Flat, consistent with strategic acquisitions of adjacent private lands. The permit allows for ongoing mine definition and exploration for the assessment of mineral deposits, including their location, extent, depth, and grade, for the subsequent phasing of the active mine, both surface and underground opportunities and it allowed for the re-alignment of State Route 342, enabling access to significant resources both under and just east of the current alignment. The permit established new and best practices for environmentally responsible mining, including concurrent land reclamation, restoration and preservation of one of the most historically significant and progressive mining districts in Nevada. This permit supports the ongoing development of the county’s significant mineral resources without impeding the growth of the tourism-based economy of the Comstock Lode. The Company also received a five-year renewal of its Water Pollution Control Permit (“WPCP”), NEV2000109, from the NDEP BMRR. The permit, effective October 22, 2014, authorizes construction, operation, and closure of the approved heap leaching facilities in Storey County. Additionally, the permit allows for the construction of an additional cell to the existing heap leach facility. The Company currently has nine active cells and anticipates construction of an additional cell in the future. The Water Pollution Control permit also allows processing rates of up to 4 million tons of mineralized material to be placed on the leach pad per annum. On November 6, 2014, the Company received a revised NDEP Bureau of Air Pollution Control permit, allowing for longer operating hours and increased throughput. The Company submitted an application to revise its existing OPTC, AP1041-2761. The revisions allow the Company to increase the maximum allowable throughput of gold bearing material to 7,300,000 tons per 12-month rolling period and increase the hours of operation from 12 to 20 hour per day . The Company has submitted an application to amend Right-of-Way (“ROW”) grant NVN 091237, submitted to the BLM’s Sierra Front Field Office along with a draft Plan of Development. The existing ROW expires on December 31, 2017. The ROW amendment would provide an expanded roadway that can accommodate oversized haul trucks, and allow the Company to deliver material from the mine to the processing facility, both located on private land. To evaluate this proposal, the BLM has prepared the American Flat Road/Lucerne Access Right-of-Way Draft Environmental Assessment (“EA”). This analysis has been prepared to comply with the National Environmental Policy Act and National Historic Preservation Act. The draft EA analyzes the following activities: - Modifications to the American Flat Road to facilitate safe use of the roadway; - Realignment of a portion of the American Flat Road to segregate public traffic from haul traffic; and - Use of several “wedges” of public land in the Lucerne Pit for haul-through purposes. The Lucerne Haul Road would be used exclusively for haul-through purposes by the Company. Concurrently, the BLM and consulting parties are preparing a Memorandum of Agreement (“MOA”) under the National Historic Preservation Act to resolve potential adverse effects to nine historic properties in the project area. The BLM will hold a separate workshop on the MOA. #### SR-342 Realignment and Extraction of Existing Mine Dumps In early February, the Nevada Department of Transportation, (“NDOT”, closed an approximate two-mile section of State Route 342 (“SR-342”), south of Gold Hill, as a safety precaution following roadway cracking and area specific sinking during a weekend of heavy rains. The area of sinking is above a historic mine-shaft dating back to the early 1900’s, and that portion of the road sits on old mine dumps and looser fill that has a history of instability and, in some cases, failure. The Company owns the land, with NDOT granted prescriptive rights to operate the state roadbed over that private land. Storey County, NDOT, the Company, and other applicable regulatory agencies evaluated several remedies for the realignment of SR-342. On December 4, 2015, the Company announced that the realignment of SR-342 was completed in collaboration with the NDOT, U.S. Army Corp. of Engineers (“USACE”), the Nevada Division of Environmental Protection (“NDEP”) and the U.S. Environmental Protection Agency (“EPA”). SR-342 passed all relevant NDOT inspections and has been reopened for public use. The completion of the SR-342 realignment, including the capping of the historic Silver Hills Mine shaft, provides a better route from Carson City to Virginia City and also allows for a safer and more efficient passage for ongoing mining operations. The Company also achieved significant environmental and reclamation objectives and completed the project under the original $3 million budget. In addition, during the latter part of 2014, the geological and environmental teams undertook a systematic evaluation of historic mine dumps throughout most of the central part of the Comstock District. Quantifying and understanding the nature of possible legacy contaminants and identifying the extent of mineralization with the potential to increase mineable resources were the two primary objectives. Overall, we identified approximately 604,000 tons of mineralized dump materials. Of that total, approximately 450,000 tons are located underneath and to the east of SR-342, with an average grade between 0.025-0.035 opt Au. As part of the SR-342 re-alignment, 304,000 tons of the material located underneath SR-342 was extracted and stacked onto the leach pad for processing providing a significant environmental remediation and a meaningful contribution to operations and production schedule. The remaining tons not yet extracted and processed have been targeted for later in 2016, in conjunction with the final transition into underground mining production. ### Operating Costs During fiscal year 2015, actual Lucerne Mine cost applicable to mining revenue was $14.2 million, $10.7 million net of silver by-product credits as compared to $23.3 million, $19.1 million net of silver by-product credits in 2014, a 39% reduction of cost applicable to mining when comparing 2015 to 2014. Cost applicable to mining revenue include mining and processing labor, maintenance, drilling, blasting and assaying, hauling, crushing and related maintenance cost, among others. Cost applicable to mining revenue also includes $5.4 million and $5.4 million of depreciation for 2015 and 2014. During the year ended December 31, 2015, the Company realized $8.5 million of savings from reduced labor, drilling, and blasting and fuel in 2015, as compared to 2014. The Company also realized $2.0 million savings from other non-mining activities including environmental, mine claims and real estate segment. In total, the Company reduced costs by $10.5 million from 2015 as compared to 2014, exceeding the total annual target of $10 million. In addition, the Company also reduced future mine claim costs by approximately $1.5 million per annum, eliminated all future preferred stock dividends, resulting in additional future savings of approximately $3.5 million per annum and eliminated royalties directly associated with future production from the Lucerne resource areas, saving millions more depending on production rates and ensuring a lower cost operation by eliminating those royalties. The Company incurred approximately $0.7 million in severance costs during the year ended December 31, 2015, in mining and general and administrative expenses, associated with organizational cost reductions. ### Outlook The Company commenced the underground drift tunnel and drilling, associated with the first underground exploration phase of a PQ geological target in September 2015, and expects to complete drift-sampling, drilling and ongoing metallurgical test work of the PQ target by February 2016. The Succor vein system is being considered as an easterly extension of the first phase of development beyond the high-grade PQ target. This will positively expand the scope of Phase 1, through the first half of 2016. The drift tunnels are designed to conduct an underground exploration program directed at a series of geological targets in the Silver City Branch of the Comstock Lode, including the PQ target, the Succor vein systems and the historic Woodville Bonanza system. These initial targets represent the core of a broader geological corridor where the Company is currently drilling. Previous surface drilling in the area, including the Succor-Holman drilling from 2015 had suggested that a greater than 1,000 feet of mineralized strike in the Succor zone lying generally adjacent to and below the Lucerne Cut has the potential to yield high-grade gold and silver. The current program has been geared toward defining that potential. Drill results from the PQ drilling have begun yielding wider and longer high-grade intercepts. These results will be released as they are received and analyzed through February of 2016. During the first quarter of 2016, the Company will complete, analyze and assess the results of the PQ drilling toward its potential contribution toward mineral reserves and a mine plan. The Company will also complete the drifting to the Succor vein system in early February, and commence geological sampling and limited scope drilling in March 2016, on the Succor target to assess its potential for adding to a potential Lucerne mine plan. The Company will also complete similar scope drilling on the Woodville target during the second quarter, to further assess its potential for Lucerne mine planning. Ultimately, these efforts are designed to develop mine plans of sufficient grade and quantities for longer-lived production plans for the Lucerne mine. During the second quarter of 2016, the Company will commence limited core drilling in Dayton, sufficient to finalize the parameters of a mine plan and commence the permitting for the Dayton Mine. This drilling should be completed in the second quarter and allow for permitting during the second half of 2016. The Company has developed grade shells with higher average grades and believes the Dayton to have economically feasible potential and plans on developing those mine plans in the later half of 2016. Infill drilling is expected to expand the reserve potential for the Dayton mine plans. Production during 2016 is currently limited to processing of existing leach pad materials and limited stacking of new mineralized material during January and February of 2016. Considering the improved estimates of gold and silver recoveries, that is, 85% for gold and 57% for silver, the current leach cycle will continue well into the second quarter, likely through May 2016, or later. All operating costs associated with hauling, crushing and other ancillary activities have been reduced or eliminated as we transition the full organizational focus to toward the discovery, development and establishment of reserves from Lucerne and Dayton, for future mining. During our exploration and development activities in 2016, we expect to operate with less than 25 employees. General and administrative costs are also expected to decline significantly during the first quarter of 2016, resulting in savings in all non-mining costs of over $3 million during 2016, as compared to 2015. The Company will report the results of the Lucerne and Dayton exploration and development programs, when available, during both the first and second quarters of 2016. The industry is experiencing a difficult downturn with many participants shutting down or deferring project activities. Exploration is down significantly, industry wide, and new discoveries are even scarcer. Cost reductions are pervasive and the Company has led in both reducing and transitioning to lower, more flexible systems and expanding exploration. The Company believes exploration and development for new resources and reserves for future production, with higher yields (and during potentially higher metal prices), will deliver higher returns for us and to our investors. The Company also believes the evaluation of potential acquisitions of resources and reserves, especially in Nevada and the western United States, during this period of lower mining equity values, represents a good opportunity to grow and deliver additional returns to our investors. This is the focus of our 2016 business plans. #### Recent Developments In January 2016, NDEP-BMRR completed public comment on a proposed major modification to the Company’s Water Pollution Control Plan for various expansions of the heap leach facility. This modification, through a final Notice of Decision would authorize construction of “Cell 10,” located adjacent and north of the existing Cell 1 through 4 pads, and also identifies multiple future heap leach pad expansions, on privately held land, south and southwest of the existing heap leach pad and existing facilities. The modification would also authorizes the processing of underground material. Once approved, the Cell 10 expansion, the Company’s largest design to date, would provide an estimated 2.9 million tons of additional capacity. Unique to this modification is the identification and inclusion of future expansions for Cell 11 and Cell 12, located adjacent to and southwest of the existing facilities. Those potential expansions would be on approximately 90 acres located entirely within the Company’s private property. The Company expects a final authorization and the issuance of the final Notice of Decision late February, 2016. ### Equity Raises In October 2015, the Company raised $6.0 million (approximately $5.9 million net of issuance cost) through an underwritten public offering of 10,169,492 shares of common stock at a price per share of $0.59. ### Land and Mineral Right Acquisitions The Company continues to increase its footprint in the Comstock District through strategic acquisitions. The Company considers the historic Comstock District central to its growth strategy. During the year ended December 31, 2015, the Company completed various purchases of land and buildings totaling over 897 acres of land in Gold Hill, Nevada, including properties adjacent to the mining and processing operation, with purchase prices totaling approximately $5.6 million, including the issuance of 1,553,462 restricted shares of common stock as part of the purchase of two properties. ### Comparative Financial Information Below we set forth a summary of comparative financial information for the twelve months ended December 31, 2015, 2014 and 2013. | | 2015 | 2014 | 2013 | Difference 2015 versus 2014 | Difference 2014 versus 2013 | | --- | ---: | ---: | ---: | ---: | ---: | | Revenue - mining | $18,245,633 | $24,736,929 | $24,103,013 | $(6,491,296) | $633,916 | | Revenue - real estate | 247,217 | 846,432 | 723,574 | (599,215) | 122,858 | | Costs applicable to mining revenue | 10,652,372 | 19,126,632 | 26,495,665 | (8,474,260) | (7,369,033) | | Real estate operating costs | 342,634 | 1,260,972 | 1,117,225 | (918,338) | 143,747 | | Exploration and mine development | 6,958,636 | 2,658,473 | 3,012,790 | 4,300,163 | (354,317) | | Mine claims and costs | 1,299,823 | 2,393,722 | 2,596,650 | (1,093,899) | (202,928) | | Environmental and reclamation | 2,054,447 | 2,464,314 | 2,895,552 | (409,867) | (431,238) | | Land and road development | 2,857,720 | — | — | 2,857,720 | — | | General and administrative | 6,752,731 | 6,371,954 | 9,641,507 | 380,777 | (3,269,553) | | Loss from Operations | (12,425,513) | (8,692,706) | (20,932,802) | (3,732,807) | 12,240,096 | | OTHER INCOME (EXPENSE) | | | | | | | Change in fair value of derivatives | — | (963,169) | 454,681 | 963,169 | (1,417,850) | | Interest expense | (1,216,887) | (997,112) | (1,157,535) | (219,775) | 160,423 | | Other income | 3,187,973 | 1,014,214 | 2,101 | 2,173,759 | 1,012,113 | | Gain on settlement of debt obligation | — | — | 286,535 | — | (286,535) | | Net Loss | $(10,454,427) | $(9,638,773) | $(21,347,020) | $(815,654) | $11,708,247 | 48 Mining revenue decreased by $6.5 million in 2015 as compared to the year ended 2014. This decrease is primarily the result of lower ounces produced in 2015 and by a lower gold price in comparison to 2014 and 2013. In addition, the Company began developing and investing in the Lucerne underground exploration and underground drift development representing the geological targets, along with the Dayton, planned for the Company’s future production growth. In the year ended 2015, the Company produced and shipped 15,451 ounces of gold at the average selling price of $1,195. In comparison, the Company produced and shipped 19,601 ounces of gold at the average selling price of $1,272 and 17,739 ounces of gold at the average selling price of $1,362 for the years ended 2014 and 2013, respectively. Real estate revenue was $0.2 million and for the year ended December 31, 2015. This represents a decrease of $0.6 million from 2015 to 2014. Effective April 1, 2015, the Company entered into an agreement to lease the Gold Hill Hotel to independent operators. The Company retains ownership to the land and Gold Hill Hotel properties while leasing the facilities and business to independent operators. Real estate revenue increased $0.1 million from 2014 to 2013 and was primarily the result of focused marketing and improvement activities as the Company transitioned out of hospitality and into real estate management. Real estate operating costs decreased $0.9 million for the year ended December 31, 2015, as compared to the year ended December 31, 2014. This decrease primarily resulted from costs savings related to the leasing of the facilities and business to independent operators. Real estate operating costs increased $0.1 million for the year ended 2014 compared to the same period in 2013. This increase primarily resulted from higher consulting and employee wages associated with increased marketing and sales, including severance costs associated with changes in the delivery model. Costs applicable to mining revenue decreased significantly by $8.5 million for the year ended December 31, 2015, as compared to 2014. The 44% reduction of net costs applicable to mining revenue is the result of lowered labor, equipment and drill and blast costs, primarily due to a lower strip ratio and lower fuel costs, from both lower consumption and lower fuel prices. The lower labor resulted from lower production and a reduction in the support labor force by 43 employees during the year. Costs applicable to mining revenue significantly decreased by $7.4 million for the year ended December 31, 2014, as compared to 2013. The decrease resulted from lower mining, maintenance, material costs from less variation associated with mining start up activities, production scheduling and includes a 2013, $1.5 million write down in the value of our inventory caused by then declining gold prices. The Company also effectively eliminated redundant costs associated with the temporary use of longer haul routes in the first quarter of 2013, eliminating outsourcing of hauling, processes and certain mining equipment. Exploration and mine development increased by $4.3 million in 2015, as compared to 2014. The increase is a result of exploration activities, including contract service fees associated with the commencement of the underground drift and drilling for the first underground exploration phase of a PQ target and the completion of a near surface drilling program at the Dayton Resource Area and the allocation of mine development costs. Exploration and mine development costs decreased by $0.4 million in 2014, as compared to 2013. The decrease primarily resulted from shifting the Company’s focus from exploration to production activities. Exploration activities in 2014 and 2013 primarily represented geological support, grade, and metallurgical analysis and assessment. Mine claim and costs decreased by $1.1 million for the year ended 2015, as compared to 2014. Mine claim costs consist of annual claim filing fees and annual payments related to the Northern Comstock joint venture. The operating agreement of Northern Comstock LLC was amended in the third quarter, resulting in significantly lower annual costs, from $1.9 million in 2014, to $0.8 million in 2015. Ongoing costs have been permanently reduced to $0.8 million per annum. Environmental and reclamation costs decreased by $0.4 million in 2015, as compared to year ended 2014. The decrease is the result of lower environmental consulting and lower third party expenses associated with engineering services and mine planning offset by an increase in costs of contract service fees to commence the underground drift and drilling, associated with the first underground exploration phase of a PQ target. Environmental and reclamation expenses decreased $0.4 million for the year ended 2014, as compared to the year ended 2013. The decrease is the result of lower environmental consulting costs as a result of completion of environmental studies. Land and road development costs were $2.9 million for the December 31, 2015, due to collaboration with Storey County, NDOT and other applicable regulatory agencies, to complete the project to realign SR-342. This project was started and completed in 2015. General and administrative expenses increased by $0.4 million for the year ended 2015, as compared to the year ended 2014. This increase is primarily due to higher property and net proceeds tax. This was offset by lower payroll costs, accounting and legal costs, and lower administrative costs. General and administrative expenses decreased by $3.3 million for the year ended 2014, as compared to the year ended 2013. This decrease is primarily the result of $3.6 million related to lower stock-based compensation expense, lower consulting and third party expenses and lower administrative costs. Change in fair value of derivatives decreased by $1.0 million for the year ended December 31, 2015, as compared to the year ended December 31, 2014. This change is primarily the result of the debt derivative obligation related to make whole provisions in the agreement with The Golden Goose Mine for the purchase of the properties in the Dayton Resource Area. The make whole provision and shares issued were replaced with a note payable. The change in the fair value of derivatives decreased by $1.4 million for the year ended December 31, 2014, as compared to the year ended December 31, 2013. This change is primarily the result of the decrease in stock prices during the year that caused an increase in the debt derivative obligation related to make whole provisions of the agreement with The Golden Goose Mine. The change in fair value of open gold call options, forward and shares for outstanding debt obligation is also accounted for in this change. Other income increased by $2.2 million in 2015, as compared by 2014. The Company exchanged all of its senior secured convertible and senior indebtedness owed to members of the Winfield Group, shareholders of the Company, for newly created Series A-1 preferred stock in 2010. As part of the exchange, the Company agreed to indemnify the Winfield Group for any amounts as part of the exchange that were determined to be taxable as ordinary income to each member of the Winfield Group. As a result of this transaction, the Company recorded an accrual loss contingency provision in 2010. In September 2014, a portion of the indemnity lapsed. During the year ended December 31, 2015, the remaining portion of the indemnity lapsed, and accordingly, the Company recognized a reduction in the loss contingency accrual of approximately $3.2 million, which is included in other income in the consolidated statements of operations. Other income increased by $1.0 million in 2014, as compared to 2013. During the year ended December 31, 2014, a portion of the tax indemnity liability lapsed, and accordingly, the Company recognized a reduction in the loss contingency accrual of approximately $1 million. Net loss was $10.5 million and $9.6 million for the years ended December 31, 2015, and 2014, respectively. The increase of $0.8 million from 2015, to 2014 was primarily the result of an increase of mine development and exploration costs and the road development costs associated with SR 342, offset by a decrease in cost applicable to mining expense due to focused costs reduction and savings activities in hauling, related maintenance, mining, consulting, and stock based compensation expense and slightly higher revenue from production. The decrease of $11.7 million from 2014, to 2013 was primarily the result of focused production and process improvements activities across entire operations during 2013. ### Liquidity and Capital Resources Total current assets were $5.6 million at December 31, 2015. Cash and cash equivalents on hand at December 31, 2015 totaled $1.7 million. Inventories, stockpiles, and mineralized material on leach pad totaled $1.8 million. On March 6, 2015, the Company reached an agreement to draw on a restated $10 million revolving credit facility (the “Revolving Credit Facility”) with Auramet International, LLC (“Auramet”), pursuant to which the Company may borrow up to $10 million, subject to satisfying certain conditions and obtaining certain consents. The proceeds from the Revolving Credit Facility were primarily used for an accelerated construction schedule for rerouting State Route 342, located in the Company’s Lucerne Resource Area, the first phase of which was completed in early June 2015, and the second phase was completed in November 2015. On March 6, 2015, the Company drew $5 million representing cash proceeds of approximately $4.4 million, net of prepaid interest of approximately $0.4 million, and other fees of approximately $0.2 million. On December 28, 2015, the Company and Auramet agreed to increase the facility up to $10.0 million and extend the facility from the current maturity of February 6, 2017 to April 28, 2018. On May 12, 2015, the Company entered into a master lease agreement with Varilease Finance Inc. in which the Company obtained capital financing under a sale-leaseback transaction in the amount of $5 million. Due to certain types of continuing involvement, the Company was precluded from applying sale leaseback accounting and has accounted for the transaction under the financing method. The Company’s obligations under the Varilease agreement are secured by an interest in the Company’s mining equipment in exchange for 24 monthly payments of $247,830 totaling the cash proceeds of $5,000,000 and applicable interest and taxes. In October 2015, the Company raised $6.0 million in gross proceeds (approximately $5.9 million net of issuance cost) through an underwritten public offering of 10,169,492 shares of common stock at a price per share of $0.59. Net cash used in operating activities for the twelve months ended December 31, 2015 was approximately $3.0 million as compared to $2.4 million for the year ended 2014. The Company’s use of cash in 2015 included $2.9 million for the SR-342 road realignment project, $3.3 million costs related to underground drift and exploration and $2.0 million for a reduction of accrued liabilities, offset by positive cash flow from revenues in excess of costs associated with mining revenue due to lower operating costs associated with lower labor, blasting, fuel and lower equipment costs. Our use of cash in 2014, was primarily from uses for working capital, including an increase of inventories of $1.0 million, the reduction of accounts payables and other accrued expenses of $2.1 million and increase in accounts receivable of $0.3 million. Net cash used in investing activities for the year ended December 31, 2015, was $5.1 million, primarily from $2.5 million for strategic land purchases and $2.3 million for the design and construction of the heap leach expansion, $1.0 million deposits towards the purchase of lands and bond deposit increases of $0.1 million, net of $0.8 million of proceeds received from the sale of equipment that was previously used in mining development and production activities. Cash used in investing for the year ended 2014, was approximately $3.3 million, primarily as the result of capital assets purchases of $2.6 million and bond deposit increases of $0.8 million, net of $0.2 million of proceeds received from the sale of equipment that was previously used in mining development and production activities. Net cash provided by financing activities for fiscal year 2015 was $4.5 million, comprised of proceeds of approximately $6.0 million from the sale of securities and proceeds of $4.4 million from the Revolving Credit Facility with Auramet and $5.0 million from the Varilease equipment lease agreement, partially off-set by the pay-down of our long-term debt obligations of approximately $10.9 million. Net cash provided by financing activities for the year ended 2014, was $8.6 million, comprised of proceeds of approximately $11 million from the sale of securities and proceeds of $4.6 million from the Revolving Credit Facility with Auramet, partially off-set by the pay-down of our long-term debt obligations of approximately $7.0 million. The Company was an exploration company for most of its existence and transitioned into production in the Lucerne Mine late in 2012, and accordingly, has incurred net operating losses since 2012. During the year ended December 31, 2015, the Company continued reducing costs applicable to mining revenue, achieving $8.5 million of savings from reduced labor, drilling, and blasting and fuel in 2015, as compared to 2014 and resulting in profit of approximately $7.5 million resulting from mining revenues of $18.2 million less costs applicable to mining of $10.7 million. The Company realized $2.0 million savings in all other non-mining activities, environmental, mine claims and real estate. The Company incurred approximately $0.7 million in severance costs during the year ended December 31, 2015, in mining and general and administrative expenses, associated with organizational cost reductions. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which considers the realization of assets and discharge of liabilities in the normal course of business and does not include any adjustments that might result from the outcome of uncertainties noted below. At December 31, 2015, the Company has cash and cash equivalents of $1.7 million. During 2015, the Company incurred a net loss of $10.5 million, used $3.0 million of cash in operations, primarily for working capital and used $10.9 million for debt repayments. The Company’s success depends on its ability to recover precious metals, process them, and successfully sell them for more than the cost of production. The Company has no ability to control the market prices. The costs of exploration and production may fluctuate as a result of a number of factors, such as the changing composition of ore grade or mineralized material production, and metallurgy and exploration activities in response to the physical shape and location of the ore body or deposit. In addition, costs are affected by the price of commodities, such as fuel and electricity. Such commodities are at times subject to volatile price movements, including increases that could make production unprofitable. A material increase in production costs or a decrease in the price of gold or other minerals could materially affect the Company’s ability to generate cash flow. Mineral exploration, particularly for gold and other precious metals, is highly speculative in nature, involves many risks, and frequently is nonproductive. If gold mineralization is discovered, it may take a number of years from the initial phases of drilling until production is possible, if ever, during which time the economic feasibility of production may change. Substantial expenditures are required to establish ore reserves through drilling and analysis, to develop metallurgical processes to extract metal from the mineralized material, and in the case of new properties, to develop the processing facilities and infrastructure at any site chosen for mineral exploration. There can be no assurance that any gold reserves or mineralized material that may be discovered or acquired in the future, if any, will be in sufficient quantities or of adequate grade to justify commercial operations or that the funds required for mineral production operation can be obtained on a timely or reasonable basis, if at all. In addition, any mineralized material or reserves that may be identified, if any, will be depleted by production. The capital expenditures and time required to develop and explore our properties are considerable and changes in costs, construction schedules, delays in such construction or both, can adversely affect project economics and expected production and profitability. The Company’s current capital resources include cash and cash equivalents and other working capital resources, cash generated through operations, and existing financing arrangements, including a lease financing agreement and a revolving credit facility (the “Revolving Credit Facility”) with Auramet International, LLC (“Auramet”). Under the Revolving Credit Facility, the Company may have borrowings up to $10 million outstanding at any given time, subject to satisfying certain conditions and obtaining certain consents. The Revolving Credit Facility has a maturity of April 28, 2018 and allows for re-advances on the facility up to the $10 million availability. The Company has financed its exploration, development, and start up activities principally from the sale of equity securities and, to a lesser extent, debt financing. While the Company has been successful in the past in obtaining the necessary capital to support its operations, including registered equity financings from its existing shelf registration, borrowings, or other means, there is no assurance that the Company will be able to obtain additional equity capital or other financing, if needed. The Company believes it will have sufficient funds to sustain its operations during the next 12 months as a result of the sources of funding detailed above. Future production rates and gold prices below management’s expectations would adversely affect the Company’s results of operations, financial condition and cash flows. If the Company was unable to obtain any necessary additional funds, this could have an immediate material effect on liquidity and could raise substantial doubt about the Company’s ability to continue as a going concern. In such case, the Company 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. The Revolving Credit Facility contains a covenant that requires the Company to maintain a minimum liquidity balance of $1 million (including cash and cash equivalents, plus 90% of the value of any doré that has been picked up by a secured carrier but not yet paid for, as of any date of determination). The Revolving Credit Facility additionally contains customary representations, warranties, affirmative covenants, negative covenants, and events of default, as well as conditions to borrowings. The Company is in compliance with all required covenants. #### Contractual Obligations Our contractual obligations at December 31, 2015 are summarized as follows: | Contractual Obligations | Payments Due by Period Total | Less than 1 Year | 1 - 3 Years | 4 - 5 Years | More Than 5 Years | | --- | ---: | ---: | ---: | ---: | ---: | | Long-term debt and capital lease obligations (1) | $13,928,191 | $8,996,952 | $4,730,964 | $62,424 | $137,851 | | Operating Leases (2) | 9,902,400 | 818,500 | 2,531,100 | 841,300 | 5,711,500 | | Reclamation and remediation obligations (3) | 6,827,568 | — | 6,827,568 | — | — | | | $30,658,159 | $9,815,452 | $14,089,632 | $903,724 | $5,849,351 | (1) Amounts represent principal of $13.3 million, and estimated interest payments of $0.6 million, assuming no early extinguishment. See Note 11 to the Consolidated Financial Statements. (2) The Company leases certain properties under operating leases expiring at various dates through 2027. See Note 19 to the Consolidated Financial Statements. Amounts include minimum rental and minimum advance royalty payments. (3) We are required to mitigate long-term environment impacts by stabilizing, contouring, resloping, and revegetating 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 State Environmental Commission and Division of Environmental Protection and other agencies have approved our most recent reclamation plans, as revised, of approximately $7.1 million. In addition, the Company placed a $4.5 million reclamation surety bond through the Lexon Surety Group (“Lexon”), which includes $3.0 million with Storey County related to the move of State Route 342 and a $1.5 million with Storey County related to reclamation as of December 31, 2015. See Note 8 to the Consolidated Financial Statements. ### Critical Accounting Estimates The SEC has requested that all registrants address their most critical accounting policies. The SEC has indicated that a “critical accounting policy” is one which is both important to the representation of the registrant’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on past experience and on various other assumptions our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results will differ, and may differ materially from these estimates under different assumptions or conditions. Additionally, changes in accounting estimates could occur in the future from period to period. Our management has discussed the development and selection of our most critical financial estimates with the audit committee of our Board of Directors. The following paragraphs identify our most critical accounting policies: #### Impairment of Mineral Rights and Properties, Plant and Equipment The Company assesses its mineral rights and properties, plant and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Such indicators include changes in the Company’s business plans, changes in precious metal prices and significant downward revisions of estimated mineralization quantities. If the carrying value of an asset exceeds the future undiscounted cash flows expected from the asset, an impairment charge is recorded for the excess of carrying value of the asset over its estimated fair value. Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation and technology improvements on operating expenses, and the outlook for global or regional demand conditions for gold and silver. However, the impairment reviews and calculations are based on assumptions that are consistent with the Company’s business plans and long-term investment decisions. #### Reclamation and Remediation Obligations Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and remediation costs. Reclamation obligations are based on when the spending for an existing environmental disturbance will occur. We review, on at least an annual basis, the reclamation obligation at each mine site in accordance with guidance for accounting for asset retirement obligations. Reclamation obligations for inactive mines are accrued based on management’s best estimate of the costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised. Accounting for reclamation and remediation obligations requires management to make estimates unique to each mining operation of the future costs we will incur to complete the reclamation and remediation work required to comply with existing laws and regulations. Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required. Any such increases in future costs could materially impact the amounts charged to earnings for reclamation and remediation. #### Stock-Based Compensation We measure share-based compensation cost at the grant date based on the value of the award and recognize the cost as an expense over the term of the vesting period. Judgment is required in estimating the fair value of share-based awards granted and their expected forfeiture rate. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted. #### Income Taxes Our income tax expense and deferred tax assets and liabilities reflect management’s best assessment of estimated future taxes to be paid. Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we develop assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates that we are using to manage the underlying businesses. Valuation allowances are recorded as reserves against net deferred tax assets by the Company when it is determined that net deferred tax assets are not likely to be realized in the foreseeable future. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. #### Derivative Instruments The Company has previously recorded derivatives relating to contingent dividend payments on our Preferred Shares and gold forwards, calls and puts. These derivatives are recorded on the balance sheet at fair market value. Changes in the fair market value of derivatives are recorded in the consolidated statements of operations. Management applies judgment in estimating the fair value of derivative instruments that are sensitive to assumptions that include various observable and unobservable market inputs. These inputs include variables such as volatility, stock price, expected life, probability of conversions, commodity prices, commodity volatilities, and interest rates. Variations in these factors could materially affect amounts credited or charged to earnings to reflect the changes in fair market value of derivatives. #### Inventories, Stockpiles and Mineralized Material on Leach Pads Inventories, including stockpiles and mineralized material on leach pads are carried at the lower of cost or net realizable value. Cost is comprised of production costs for mineralized material produced and processed. Production costs include the costs of materials, costs of processing, direct labor, stock-based compensation, mine site and processing facility overhead costs, and depreciation, depletion and amortization. **Stockpiles -** Stockpiles represent mineralized material that has been extracted from the mine and is available for further processing. Stockpiles are measured by estimating the number of tons added and removed from the stockpile. Stockpile tonnages are verified by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the material, including applicable overhead, depreciation, and depletion relating to mining operations, and removed at each stockpile’s average cost per ton. We record stockpiles at the lower of average cost or net realizable value (“NRV”) and carrying values are evaluated at least quarterly. NRV represents the estimated future sales price based on short-term and long-term metals prices, less estimated costs to complete production and bring the product to sale. The primary factors that influence the need to record write-downs of stockpiles include short-term and long-term metals prices and costs for production inputs such as labor, fuel and energy, materials and supplies, as well as realized mineralized material grades and actual production levels. If short-term and long-term metals prices decrease, the value of the stockpiles may decrease, and it may be necessary to record a write-down of stockpiles to NRV. Cost allocation to stockpiles and the NRV measurement involves the use of estimates and assumptions unique to each mining operation regarding current and future operating and capital costs, metal recoveries, production levels, commodity prices, engineering data and other factors. A high degree of judgment is involved in determining such assumptions and estimates and no assurance can be given that actual results will not differ significantly from those estimates and assumptions. **Mineralized Material on Leach Pads -** The Company utilizes a heap leaching process to recover gold from its mineralized material. Under this method, the mineralized material is placed on leach pads where it is treated with a chemical solution, which dissolves the gold contained in the material. The resulting gold-bearing solution is further processed in a facility where the gold is recovered. Costs are added to mineralized material on leach pads based on current mining and processing costs, including applicable depreciation and depletion relating to mining and processing operations. Costs are transferred from mineralized material on leach pads to subsequent stages of in-process inventories as the gold-bearing solution is processed. The value of such transferred costs of mineralized material on leach pads is based on the average cost per estimated recoverable ounce of gold on the leach pad. The estimates of recoverable gold on the leach pads are calculated from the quantities of material placed on the leach pads (measured tons added to the leach pads), the grade of material placed on the leach pads (based on assay data) and a recovery percentage. In general, leach pads recover approximately 95% of the recoverable ounces in the first six months of leaching, declining each month thereafter until the leaching process is complete. Although the quantities of recoverable material placed on the leach pads are reconciled by comparing the grades of material placed on pads to the quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to NRV are accounted for on a prospective basis. The significant assumptions in determining the NRV apart from production cost and capitalized expenditure assumptions include gold prices. If short-term and long-term metals prices decrease, the value of the material on leach pads may decrease, and it may be necessary to record a write-down of mineralized material on leach pads to NRV. **In-process Inventories -** In-process inventories represent mineralized materials that are currently in the process of being converted to a saleable product through the Merrill-Crowe process. The value of in-process material is measured based on assays of the material fed into the process and the projected recoveries of material. In-process inventories are valued at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs, including applicable depreciation relating to the process facilities incurred to that point in the process. At December 31, 2015 the Company’s estimate of recoverable gold ounces in stockpiles and on the leach pad increased from previously estimated 81% to 85%. This change increased our recoverable gold ounces in mineralized material placed on leach pad during the fiscal year 2015 by approximately 1,339 and as a result inventories and stockpiles and mineralized material on leach pad increased and costs applicable to mining revenue decreased by approximately $1.3 million. We evaluated the impact of potential recovery rate changes at December 31, 2015. The impact of such changes to recovery rate would change our estimate of recoverable gold ounces on the leach pad and change costs of goods sold. | | Increase of 1% | Increase of 2% | Decrease of 1% | Decrease of 2% | | --- | ---: | ---: | ---: | ---: | | Recovery rate | 86% | 87% | 84% | 83% | | Ounces remaining increase (decrease) | 670 | 1,340 | (669) | (1,339) | | COGS increase (decrease) | $(526,538) | $(998,405) | $596,175 | $1,288,794 | ## Market risk As filed, 953 characters. **Metal Price –** Changes in the market price of gold may significantly affect our profitability and cash flow. Gold prices fluctuate widely due to factors such as: demand, global mine production levels, investor sentiment, central bank reserves, and the value of the U.S. dollar. **Interest Rate Risk –** Our exposure to market risk is confined to our cash and cash equivalents, all of which have maturities of less than three months and bear and pay interest in U.S. dollars. Since we invest in highly liquid, relatively low yield investments, we do not believe interest rate changes would have a material impact on us. Our risk associated with fluctuating interest expense is limited to capital leases and other short-term obligations we may incur in our normal operations. The interest rates on our existing long-term debt borrowings are fixed and as a result, interest due on borrowings are not impacted by changes in market-based interest rates. ## Controls and procedures As filed, 5,419 characters. Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this Annual Report, management performed, with the participation of our Principal Executive Officer (who is also our Principal Financial Officer), an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Exchange Act and SEC’s rules, and that such information is accumulated and communicated to our management, including our Principal Executive Officer (who is also our Principal Financial Officer), to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Our Principal Executive Officer (who is also our Principal Financial Officer) concluded that, as of December 31, 2015, our disclosure controls and procedures were effective. Design and Evaluation of Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) and 15d-15(f). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria for effective internal control over financial reporting described in the “Internal Control-Integrated Framework” (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, management concluded that, as of December 31, 2015, our internal control over financial reporting was effective based on those criteria. Changes in Internal Control Over Financial Reporting During the quarter ending December 31, 2015, there was no change in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect our internal control over financial reporting. ### MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company in accordance with and as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 (“Exchange Act”). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized transactions. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management has evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. Management based its assessment on the framework set forth in COSO’s Internal Control – Integrated Framework (2013) in conjunction with Securities and Exchange Commission Release No. 33-8820 entitled “Commission Guidance Regarding Management’s Report on Internal Control Over Financial Reporting Under Section 13(a) or 15(d) of the Securities and Exchange Commission”. Based on the assessment, management concluded that, as of December 31, 2015, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. The concept of reasonable assurance is based on the recognition that there are inherent limitations in all systems of internal control. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We believe that internal control over financial reporting is effective as of December 31, 2015. /s/ Corrado De Gasperis Executive Chairman, Chief Executive Officer and President (Principal Executive Officer) Filed Jan 28, 2016. Source: SEC EDGAR, the filing index for accession 0001120970-16-000068. Last ingested by Listed: Nov 4, 2026, 17:20 ET. No prices; not investment advice.