# Comstock Inc.: Form 10-Q for the period ended Mar 31, 2016

- Company: [Comstock Inc.](/companies/lode.md) (CIK 1120970)
- Form: 10-Q
- Filed: 2016-05-05
- Accepted by EDGAR: May 4, 2016, 20:34 ET
- Period: 2016-03-31
- Accession: 0001120970-16-000101
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1120970/000112097016000101/lode-2016331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1120970/000112097016000101/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-01-01 to 2016-03-31 | $2.0m | us-gaap:Revenues |
| Operating income | 3 months, 2016-01-01 to 2016-03-31 | −$3.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2016-01-01 to 2016-03-31 | $553.6k | us-gaap:InterestExpense |
| Income tax | 3 months, 2016-01-01 to 2016-03-31 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-01-01 to 2016-03-31 | −$4.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-01-01 to 2016-03-31 | −$0.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-01-01 to 2016-03-31 | −$0.02 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-01-01 to 2016-03-31 | 162,851,273 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2016-01-01 to 2016-03-31 | −$705.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2016-01-01 to 2016-03-31 | $178.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2016-03-31 | $3.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-03-31 | $7.5m | us-gaap:AssetsCurrent |
| Total assets | at 2016-03-31 | $42.6m | us-gaap:Assets |
| Current liabilities | at 2016-03-31 | $10.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2016-03-31 | $22.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2016-03-31 | $19.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 56,594 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 three month periods ended March 31, 2016, as well as our future results. It should be read in conjunction with the condensed consolidated financial statements and accompanying notes also included in this Form 10-Q and our Annual Report on Form 10-K as of, and for the fiscal year ended December 31, 2015.

### Overview

Comstock Mining Inc. 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. We began acquiring properties and developing projects in the Comstock District in 2003. Since then, we have consolidated a substantial portion of the historic Comstock District, secured permits, built an infrastructure and brought exploration projects into production. We 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 us and 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 operations, to target geological prospective exploration areas and plan exploratory drilling programs, including expanded surface and underground drilling.

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. We also plan to develop longer-term exploration plans for the remaining areas, which include the Spring Valley, Northern Extension, Northern Targets, and Occidental Target areas, subsequent to and in some cases, concurrent to the exploration and development of Lucerne and Dayton.

We achieved initial production and held our first pour of gold and silver on September 29, 2012. We produced approximately 22,925 gold equivalent ounces in 2014, and 18,455 gold equivalent ounces in 2015. That is, we 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. During the first three months ended March 31, 2016, the Company produced 1,702 ounces of gold and 29,438 ounces of silver, that is, approximately 2,073 gold equivalent ounces. The recovery rate for gold increased from an estimated 85% to an estimated 87.5%.

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. The Company now owns or controls approximately 8,545 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) and surface parcels (private lands) and approximately 6,301 acres of unpatented mining claims, which the Bureau of Land Management (“BLM”) administers.

Our real estate segment owns significant non-mining properties, the Gold Hill Hotel and other lands, homes and cottages. The Gold Hill Hotel consists of an operating hotel, restaurant and a bar. In 2015, we 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.

### Current Projects

#### Storey County, Nevada

The Lucerne Resource area is located in Storey County, Nevada, approximately three miles south of Virginia City and 30 miles southeast of Reno. To date, the Lucerne Resource area has and continues to be the primary exploration and development target, including both surface and underground. Activity within the Lucerne Resource area includes both surface and underground exploration and underground drift (tunnel) development. The Company plans to conduct additional, near term exploration during 2016, within the Lucerne Resource area, including the Quartz Porphyry (PQ), Succor and Woodville targets.

#### Lyon County, Nevada

The Dayton Resource area is located in Lyon County, Nevada, approximately six miles south of Virginia City and is a concurrent exploration and development target. Activity within the Dayton Resource area has included geological studies, drilling, resource modeling and initial exploration permitting, near surface drilling and geological modeling of the area. The Company plans to conduct additional exploration drilling in this area during 2016.

#### Exploration

During the first quarter of 2016, the Company focused on exploration and development in the Lucerne Resource area, primarily in the Quartz Porphyry (PQ) and Succor geological target areas, and to a lesser extent, the Dayton Resource area. Lucerne activity included underground core drilling, underground drift (tunnel) development, and underground sampling. Dayton activity included surface and underground sampling. The Company plans to conduct additional, near term exploration within the Succor target area and the Dayton Resource area. Additional programs are planned to infill near term targets including the Succor and Woodville areas as well as northern development of the PQ. Longer-term exploration targets include the southern portion of the Dayton, Spring Valley, Occidental, and Northern (Gold Hill Group) Targets. (Figure 1)

The remaining phases of the road realignment and Lucerne reclamation activities, including the final waste dump removal, grading and drainage reestablishment are scheduled for completion in 2016.

Figure 1 - General overview of priority surface and underground targets.

#### Lucerne Area

As of March 2016, about 12,380 feet of HQ-3 and NQ core have been produced from the Harris Drift. The drilling configuration 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. A 3-D representation of the Harris Drift showing drill bays, drill fans, and the Succor crosscut.

The Company encountered longer mineralized intercepts (10 to 40 feet thick) from bays 3 through 6 as it moved north of the Silver City/Succor structural intersection and within and bordering the PQ mass. The configuration of the longer and higher grade intercepts occur along the hanging wall contact of the PQ intrusive mass within both the Alta Andesite and PQ host rocks. The intervals show continuity laterally and vertically along the structural contact.

Drill results from Bays 1 through 6 are summarized in Table 1 below.

| Drill Bay | Hole # | From (ft.) | To (ft.) | Length | Au opt (1) | Ag opt (2) | From (m) | To (m) | Interval (m) | Au Grams | Ag Grams | Au Equivalent Ounces (3) |
| ---: | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| 1 | LUGC15-001 | 283.0 | 293.0 | 10.0 | 0.175 | 1.427 | 86.3 | 89.3 | 3.0 | 6.00 | 48.90 | 0.193 |
| 1 | Includes | 288.0 | 293.0 | 5.0 | 0.268 | 1.753 | 87.8 | 89.3 | 1.5 | 9.19 | 60.10 | 0.290 |
| 1 | LUGC15-001(4) | 358.0 | 363.0 | 5.0 | 1.269 | 0.352 | 109.1 | 110.6 | 1.5 | 43.50 | 12.07 | 1.273 |
| 1 | LUGC15-002 | 157.0 | 161.0 | 4.0 | 0.137 | 2.564 | 47.9 | 49.1 | 1.2 | 4.70 | 87.90 | 0.170 |
| 1 | LUGC15-002 | 219.0 | 221.0 | 2.0 | 0.762 | 2.704 | 66.8 | 67.4 | 0.6 | 26.12 | 92.70 | 0.797 |

19

|  |  |  |  |  |  |  |  |  |  |  |  |  |
| ---: | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| 1 | LUGC15-003 | 44.0 | 49.0 | 5.0 | 0.319 | 0.373 | 13.4 | 14.9 | 1.5 | 10.94 | 12.79 | 0.324 |
| 1 | LUGC15-005 | 81.5 | 86.5 | 5.0 | 0.096 | 3.100 | 24.8 | 26.4 | 1.5 | 3.29 | 106.27 | 0.136 |
| 1 | LUGC15-005 | 114.0 | 122.0 | 8.0 | 0.115 | 0.415 | 34.7 | 37.2 | 2.4 | 3.94 | 14.22 | 0.120 |
| 1 | Includes | 114.0 | 116.0 | 2.0 | 0.290 | 0.790 | 34.7 | 35.4 | 0.6 | 9.94 | 27.08 | 0.300 |
| 1 | LUGC15-005 | 268.0 | 270.0 | 2.0 | 0.354 | 1.875 | 81.7 | 82.3 | 0.6 | 12.14 | 64.28 | 0.378 |
| 1 | LUGC15-005 | 302.0 | 307.0 | 5.0 | 0.171 | 0.212 | 92.0 | 93.6 | 1.5 | 5.86 | 7.27 | 0.174 |
| 1 | LUGC15-005 | 312.0 | 317.0 | 5.0 | 0.107 | 0.426 | 95.1 | 96.6 | 1.5 | 3.67 | 14.60 | 0.112 |
| 1 | LUGC15-005 | 322.0 | 327.0 | 5.0 | 0.096 | 0.181 | 98.1 | 99.7 | 1.5 | 3.29 | 6.21 | 0.098 |
| 1 | LUGC15-005 | 370.0 | 374.0 | 4.0 | 0.093 | 0.904 | 112.8 | 114.0 | 1.2 | 3.19 | 30.99 | 0.105 |
| 1 | LUGC15-005 | 382.0 | 387.0 | 5.0 | 0.083 | 0.312 | 116.4 | 118.0 | 1.5 | 2.85 | 10.70 | 0.087 |
| 1 | LUGC15-005 | 441.0 | 447.0 | 6.0 | 0.094 | 1.143 | 134.4 | 136.2 | 1.8 | 3.22 | 39.18 | 0.109 |
| 1 | LUGC15-007 | 119.0 | 123.5 | 4.5 | 0.391 | 0.484 | 36.3 | 37.6 | 1.4 | 13.40 | 16.59 | 0.397 |
| 1 | LUGC15-007 | 209.0 | 214.0 | 5.0 | 0.083 | 2.088 | 63.7 | 65.2 | 1.5 | 2.85 | 71.58 | 0.110 |
| 1 | LUGC15-008 | 187.9 | 193.0 | 5.1 | 0.147 | 0.099 | 57.3 | 58.8 | 1.6 | 5.04 | 3.39 | 0.148 |
| 2 | LUGC15-006 | 331.0 | 339.0 | 8.0 | 0.141 | 1.452 | 100.9 | 103.3 | 2.4 | 4.82 | 49.77 | 0.159 |
| 2 | Includes | 331.0 | 333.5 | 2.5 | 0.318 | 1.771 | 100.9 | 101.7 | 0.8 | 10.90 | 60.71 | 0.341 |
| 2 | LUGC15-006 | 358.5 | 365.5 | 7.0 | 0.121 | 0.549 | 109.3 | 111.4 | 2.1 | 4.16 | 18.80 | 0.128 |
| 2 | LUGC15-010 | 159.0 | 164.0 | 5.0 | 0.100 | 0.598 | 48.5 | 50.0 | 1.5 | 3.43 | 20.50 | 0.108 |
| 2 | LUGC15-010 | 168.0 | 173.0 | 5.0 | 0.090 | 0.446 | 51.2 | 52.7 | 1.5 | 3.09 | 15.29 | 0.096 |
| 2 | LUGC15-010 | 176.5 | 181.0 | 4.5 | 0.126 | 0.785 | 53.8 | 55.2 | 1.4 | 4.30 | 26.89 | 0.136 |
| 2 | LUGC15-012 | 158.0 | 163.0 | 5.0 | 0.083 | 0.192 | 48.2 | 49.7 | 1.5 | 2.85 | 6.58 | 0.085 |
| 2 | LUGC15-013 | 118.0 | 122.0 | 4.0 | 0.104 | 4.000 | 36.0 | 37.2 | 1.2 | 3.57 | 137.13 | 0.155 |
| 2 | LUGC15-015 | 42.0 | 45.0 | 3.0 | 0.104 | 1.161 | 12.8 | 13.7 | 0.9 | 3.57 | 39.80 | 0.119 |
| 2 | LUGC15-015 | 117.5 | 121.0 | 3.5 | 0.198 | 0.076 | 35.8 | 36.9 | 1.1 | 6.79 | 2.61 | 0.199 |
| 2 | LUGC15-015(5) | 169.5 | 171.0 | 1.5 | 1.416 | 0.848 | 51.7 | 52.1 | 0.5 | 48.56 | 29.08 | 1.427 |
| 2 | Includes | 169.5 | 170.6 | 1.1 | 1.602 | 0.933 | 51.7 | 52.0 | 0.3 | 54.92 | 31.98 | 1.614 |
| 2 | LUGC15-015 | 260.0 | 280.0 | 20.0 | 0.345 | 1.140 | 79.2 | 85.3 | 6.1 | 11.83 | 39.09 | 0.360 |
| 2 | Includes | 260.0 | 263.0 | 3.0 | 0.424 | 1.466 | 79.2 | 80.2 | 0.9 | 14.54 | 50.26 | 0.443 |
| 2 | Includes | 264.5 | 270.5 | 6.0 | 0.446 | 1.169 | 80.6 | 82.4 | 1.8 | 15.30 | 40.08 | 0.461 |
| 2 | Includes | 273.0 | 280.0 | 7.0 | 0.386 | 0.882 | 83.2 | 85.3 | 2.1 | 13.24 | 30.25 | 0.397 |
| 2 | LUGC15-015 | 287.0 | 288.5 | 1.5 | 0.132 | 1.782 | 87.5 | 87.9 | 0.5 | 4.53 | 61.09 | 0.155 |
| 2 | LUGC15-015 | 298.0 | 308.0 | 10.0 | 0.087 | 0.904 | 90.8 | 93.9 | 3.0 | 2.99 | 31.00 | 0.099 |
| 2 | LUGC15-015 | 317.0 | 318.0 | 1.0 | 0.599 | 1.897 | 96.6 | 96.9 | 0.3 | 20.53 | 65.03 | 0.623 |
| 2 | LUGC15-015 | 325.0 | 333.0 | 8.0 | 0.093 | 0.732 | 99.1 | 101.5 | 2.4 | 3.17 | 25.11 | 0.102 |
| 2 | LUGC15-017 | 116.0 | 121.0 | 5.0 | 0.159 | 0.501 | 35.4 | 36.9 | 1.5 | 5.45 | 17.18 | 0.165 |
| 2 | LUGC15-017 | 248.0 | 252.0 | 4.0 | 0.092 | 0.094 | 75.6 | 76.8 | 1.2 | 3.15 | 3.22 | 0.093 |

20

|  |  |  |  |  |  |  |  |  |  |  |  |  |
| ---: | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| 2 | LUGC15-017 | 256.0 | 261.0 | 5.0 | 0.199 | 0.499 | 78.0 | 79.6 | 1.5 | 6.82 | 17.11 | 0.205 |
| 2 | LUGC15-017 | 478.0 | 483.0 | 5.0 | 0.528 | 7.100 | 145.7 | 147.2 | 1.5 | 18.10 | 243.40 | 0.619 |
| 2 | LUGC15-020 | 15.0 | 20.0 | 5.0 | 0.113 | 0.086 | 4.6 | 6.1 | 1.5 | 3.87 | 2.95 | 0.114 |
| 3 | LUGC15-018 | 90.0 | 95.0 | 5.0 | 0.092 | 0.609 | 27.4 | 29.0 | 1.5 | 3.15 | 20.88 | 0.100 |
| 3 | LUGC15-018 | 166.5 | 174.5 | 8.0 | 0.096 | 2.451 | 50.7 | 53.2 | 2.4 | 3.30 | 84.02 | 0.128 |
| 3 | LUGC15-018 | 181.5 | 185.0 | 3.5 | 0.479 | 1.100 | 55.3 | 56.4 | 1.1 | 16.42 | 37.71 | 0.493 |
| 3 | LUGC15-018 | 194.0 | 198.0 | 4.0 | 0.092 | 1.205 | 59.1 | 60.4 | 1.2 | 3.15 | 41.31 | 0.107 |
| 3 | LUGC15-018 | 225.0 | 228.0 | 3.0 | 0.094 | 2.360 | 68.6 | 69.5 | 0.9 | 3.22 | 80.91 | 0.124 |
| 3 | LUGC15-018 | 232.5 | 242.5 | 10.0 | 0.094 | 4.220 | 70.9 | 73.9 | 3.0 | 3.23 | 144.67 | 0.148 |
| 3 | LUGC15-018 | 270.0 | 275.0 | 5.0 | 0.131 | 2.882 | 82.3 | 83.8 | 1.5 | 4.49 | 98.80 | 0.168 |
| 3 | LUGC15-021 | 173.0 | 182.5 | 9.5 | 0.159 | 1.188 | 52.7 | 55.6 | 2.9 | 5.43 | 40.74 | 0.174 |
| 3 | LUGC15-021 | 203.0 | 204.0 | 1.0 | 0.344 | 1.080 | 61.9 | 62.2 | 0.3 | 11.79 | 37.02 | 0.358 |
| 3 | LUGC15-021 | 217.0 | 218.0 | 1.0 | 0.347 | 1.755 | 66.1 | 66.4 | 0.3 | 11.90 | 60.16 | 0.370 |
| 3 | LUGC15-021 | 238.0 | 243.0 | 5.0 | 0.160 | 0.508 | 72.5 | 74.1 | 1.5 | 5.47 | 17.42 | 0.166 |
| 3 | LUGC15-021 | 258.0 | 263.0 | 5.0 | 0.346 | 0.315 | 78.6 | 80.2 | 1.5 | 11.86 | 10.80 | 0.350 |
| 3 | LUGC15-021 | 306.5 | 311.0 | 4.5 | 0.112 | 0.223 | 93.4 | 94.8 | 1.4 | 3.84 | 7.64 | 0.115 |
| 3 | LUGC15-025 | 77.0 | 87.0 | 10.0 | 0.143 | 1.564 | 23.5 | 26.5 | 3.0 | 4.90 | 53.60 | 0.163 |
| 3 | LUGC15-025 | 102.0 | 107.0 | 5.0 | 0.110 | 0.356 | 31.1 | 32.6 | 1.5 | 3.77 | 12.20 | 0.115 |
| 3 | LUGC15-028 | 120.0 | 128.0 | 8.0 | 0.109 | 2.790 | 36.6 | 39.0 | 2.4 | 3.72 | 95.63 | 0.144 |
| 3 | LUGC15-034 | 85.5 | 98.5 | 13.0 | 0.743 | 2.140 | 26.1 | 30.0 | 4.0 | 25.47 | 73.35 | 0.770 |
| 3 | Includes | 85.5 | 93.0 | 7.5 | 0.977 | 2.428 | 26.1 | 28.3 | 2.3 | 33.48 | 83.24 | 1.008 |
| 3 | LUGC15-034 | 104.0 | 113.0 | 9.0 | 0.148 | 1.663 | 31.7 | 34.4 | 2.7 | 5.06 | 57.00 | 0.169 |
| 3 | LUGC15-034 | 138.0 | 152.0 | 14.0 | 0.441 | 1.908 | 42.1 | 46.3 | 4.3 | 15.13 | 65.40 | 0.466 |
| 3 | Includes | 138.0 | 144.0 | 6.0 | 0.287 | 1.212 | 42.1 | 43.9 | 1.8 | 9.84 | 41.55 | 0.303 |
| 3 | Includes | 149.0 | 152.0 | 3.0 | 1.209 | 3.542 | 45.4 | 46.3 | 0.9 | 41.45 | 121.43 | 1.254 |
| 4 | LUGC15-011 | 53.0 | 58.0 | 5.0 | 0.386 | 0.320 | 16.2 | 17.7 | 1.5 | 13.23 | 10.97 | 0.390 |
| 4 | LUGC15-011 | 217.0 | 220.0 | 3.0 | 0.158 | 2.615 | 66.1 | 67.1 | 0.9 | 5.42 | 89.65 | 0.192 |
| 4 | LUGC15-011 | 249.0 | 251.5 | 2.5 | 0.137 | 1.939 | 75.9 | 76.7 | 0.8 | 4.70 | 66.47 | 0.162 |
| 4 | LUGC15-014 | 99.0 | 102.5 | 3.5 | 0.155 | 0.443 | 30.2 | 31.2 | 1.1 | 5.31 | 15.19 | 0.161 |
| 4 | LUGC15-014 | 287.0 | 292.5 | 5.5 | 0.162 | 0.384 | 87.5 | 89.2 | 1.7 | 5.55 | 13.16 | 0.167 |
| 4 | LUGC15-016 | 134.0 | 139.0 | 5.0 | 0.162 | 7.600 | 40.8 | 42.4 | 1.5 | 5.55 | 260.54 | 0.259 |
| 4 | LUGC15-016 | 213.0 | 219.0 | 6.0 | 0.146 | 0.805 | 64.9 | 66.8 | 1.8 | 5.01 | 27.60 | 0.156 |
| 4 | LUGC15-016 | 339.0 | 343.0 | 4.0 | 0.124 | 0.076 | 103.3 | 104.5 | 1.2 | 4.25 | 2.61 | 0.125 |
| 4 | LUGC15-019 | 115.0 | 117.0 | 2.0 | 0.142 | 4.700 | 35.1 | 35.7 | 0.6 | 4.87 | 161.12 | 0.202 |
| 4 | LUGC15-022 | 138.0 | 178.0 | 40.0 | 0.391 | 1.635 | 42.1 | 54.3 | 12.2 | 13.39 | 56.06 | 0.412 |

21

|  |  |  |  |  |  |  |  |  |  |  |  |  |
| ---: | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| 4 | Includes | 138.0 | 150.0 | 12.0 | 0.475 | 1.501 | 42.1 | 45.7 | 3.7 | 16.27 | 51.47 | 0.494 |
| 4 | Includes | 165.0 | 178.0 | 13.0 | 0.636 | 2.467 | 50.3 | 54.3 | 4.0 | 21.82 | 84.58 | 0.668 |
| 4 | LUGC15-024 | 112.0 | 117.5 | 5.5 | 0.438 | 2.897 | 34.1 | 35.8 | 1.7 | 15.01 | 99.32 | 0.475 |
| 4 | Includes | 112.0 | 114.7 | 2.7 | 0.749 | 2.522 | 34.1 | 35.0 | 0.8 | 25.68 | 86.46 | 0.781 |
| 4 | LUGC15-024 | 217.5 | 220.0 | 2.5 | 0.194 | 1.199 | 66.3 | 67.1 | 0.8 | 6.63 | 41.10 | 0.209 |
| 4 | LUGC15-024 | 250.0 | 255.0 | 5.0 | 0.093 | 0.085 | 76.2 | 77.7 | 1.5 | 3.19 | 2.91 | 0.094 |
| 5 | LUGC15-023 | 23.0 | 33.0 | 10.0 | 0.183 | 1.419 | 7.0 | 10.1 | 3.0 | 6.27 | 48.63 | 0.201 |
| 5 | Includes | 23.0 | 28.0 | 5.0 | 0.271 | 2.149 | 7.0 | 8.5 | 1.5 | 9.29 | 73.67 | 0.299 |
| 5 | LUGC15-026 | 245.0 | 253.5 | 8.5 | 0.130 | 4.164 | 74.7 | 77.3 | 2.6 | 4.45 | 142.73 | 0.183 |
| 5 | LUGC15-030 | 133.0 | 141.5 | 8.5 | 0.120 | 4.782 | 40.5 | 43.1 | 2.6 | 4.11 | 163.95 | 0.181 |
| 5 | LUGC15-030 | 194.5 | 210.0 | 15.5 | 0.116 | 0.482 | 59.3 | 64.0 | 4.7 | 3.98 | 16.52 | 0.122 |
| 5 | LUGC15-030 | 250.0 | 254.0 | 4.0 | 0.115 | 0.965 | 76.2 | 77.4 | 1.2 | 3.94 | 33.08 | 0.127 |
| 5 | LUGC15-030 | 261.0 | 264.0 | 3.0 | 0.174 | 0.207 | 79.6 | 80.5 | 0.9 | 5.97 | 7.10 | 0.177 |
| 5 | LUGC15-030 | 267.0 | 275.5 | 8.5 | 0.136 | 1.620 | 81.4 | 84.0 | 2.6 | 4.66 | 55.55 | 0.157 |
| 5 | Includes | 267.0 | 269.0 | 2.0 | 0.317 | 2.315 | 81.4 | 82.0 | 0.6 | 10.87 | 79.35 | 0.347 |
| 5 | LUGC15-030 | 313.0 | 317.0 | 4.0 | 0.099 | 0.843 | 95.4 | 96.6 | 1.2 | 3.39 | 28.90 | 0.110 |
| 5 | LUGC15-030 | 319.0 | 322.0 | 3.0 | 0.100 | 0.219 | 97.2 | 98.1 | 0.9 | 3.43 | 7.51 | 0.103 |
| 5 | LUGC15-033 | 124.0 | 129.0 | 5.0 | 0.085 | 2.456 | 37.8 | 39.3 | 1.5 | 2.91 | 84.18 | 0.116 |
| 5 | LUGC15-033 | 136.0 | 140.0 | 4.0 | 0.144 | 4.607 | 41.5 | 42.7 | 1.2 | 4.94 | 157.94 | 0.203 |
| 5 | LUGC15-033 | 198.0 | 210.0 | 12.0 | 0.276 | 1.422 | 60.4 | 64.0 | 3.7 | 9.47 | 48.74 | 0.294 |
| 5 | Includes | 198.0 | 206.0 | 8.0 | 0.310 | 1.399 | 60.4 | 62.8 | 2.4 | 10.61 | 47.94 | 0.327 |
| 5 | LUGC15-035 | 99.5 | 103.0 | 3.5 | 0.450 | 7.000 | 30.3 | 31.4 | 1.1 | 15.43 | 239.97 | 0.540 |
| 5 | LUGC15-035 | 167.0 | 185.0 | 18.0 | 0.711 | 1.858 | 50.9 | 56.4 | 5.5 | 24.37 | 63.70 | 0.735 |
| 5 | Includes | 167.0 | 180.0 | 13.0 | 0.939 | 2.414 | 50.9 | 54.9 | 4.0 | 32.20 | 82.74 | 0.970 |
| 5 | LUGC15-037 | 20.0 | 25.0 | 5.0 | 0.113 | 1.473 | 6.1 | 7.6 | 1.5 | 3.86 | 50.50 | 0.131 |
| 5 | LUGC15-038 | 221.5 | 258.0 | 36.5 | 0.823 | 0.820 | 67.5 | 78.6 | 11.1 | 28.23 | 28.12 | 0.834 |
| 5 | Includes | 226.0 | 235.0 | 9.0 | 0.487 | 0.756 | 68.9 | 71.6 | 2.7 | 16.71 | 25.91 | 0.497 |
| 5 | Includes | 240.0 | 253.0 | 13.0 | 1.831 | 1.117 | 73.2 | 77.1 | 4.0 | 62.77 | 38.30 | 1.845 |
| 5 | Includes | 251.0 | 252.0 | 1.0 | Void |  | 76.5 | 76.8 | 0.3 |  |  |  |
| 5 | LUGC15-040 | 7.0 | 8.0 | 1.0 | 0.626 | 1.493 | 2.1 | 2.4 | 0.3 | 21.46 | 51.18 | 0.645 |
| 5 | LUGC15-040 | 194.5 | 200.0 | 5.5 | 0.290 | 2.407 | 59.3 | 61.0 | 1.7 | 9.94 | 82.51 | 0.321 |
| 5 | Includes | 194.5 | 197.5 | 3.0 | 0.340 | 3.900 | 59.3 | 60.2 | 0.9 | 11.66 | 133.70 | 0.390 |
| 5 | LUGC15-040 | 223.5 | 228.0 | 4.5 | 0.531 | 0.507 | 68.1 | 69.5 | 1.4 | 18.20 | 17.38 | 0.538 |
| 5 | LUGC15-040 | 252.0 | 265.5 | 13.5 | 0.154 | 0.130 | 76.8 | 80.9 | 4.1 | 5.29 | 4.45 | 0.156 |
| 5 | LUGC16-042 | 5.0 | 10.0 | 5.0 | 0.240 | 7.500 | 1.5 | 3.0 | 1.5 | 8.23 | 257.11 | 0.336 |
|  |  |  |  |  |  |  | 0.0 | 0.0 | 0.0 |  |  |  |

22

|  |  |  |  |  |  |  |  |  |  |  |  |  |
| ---: | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| 5 | LUGC16-044 | 106.0 | 111.0 | 5.0 | 0.098 | 2.284 | 32.3 | 33.8 | 1.5 | 3.36 | 78.30 | 0.127 |
| 5 | LUGC16-044 | 116.0 | 120.0 | 4.0 | 0.094 | 1.908 | 35.4 | 36.6 | 1.2 | 3.22 | 65.41 | 0.118 |
| 5 | LUGC16-044 | 161.0 | 167.0 | 6.0 | 0.178 | 1.936 | 49.1 | 50.9 | 1.8 | 6.10 | 66.36 | 0.203 |
| 6 | LUGC15-029 | 62.0 | 63.0 | 1.0 | 1.598 | 16.200 | 18.9 | 19.2 | 0.3 | 54.78 | 555.37 | 1.806 |
| 6 | LUGC15-032 | 233.0 | 237.5 | 4.5 | 0.102 | 1.896 | 71.0 | 72.4 | 1.4 | 3.50 | 65.00 | 0.126 |
| 6 | LUGC15-032 | 247.0 | 253.0 | 6.0 | 0.173 | 2.909 | 75.3 | 77.1 | 1.8 | 5.93 | 99.72 | 0.210 |
| 6 | Includes | 250.5 | 253.0 | 2.5 | 0.299 | 3.600 | 76.4 | 77.1 | 0.8 | 10.25 | 123.41 | 0.345 |
| 6 | LUGC15-032 | 263.0 | 300.0 | 37.0 | 0.429 | 1.217 | 80.2 | 91.4 | 11.3 | 14.72 | 41.73 | 0.445 |
| 6 | Includes | 263.0 | 270.0 | 7.0 | 1.116 | 2.496 | 80.2 | 82.3 | 2.1 | 38.26 | 85.55 | 1.148 |
| 6 | Includes | 286.0 | 294.0 | 8.0 | 0.668 | 1.141 | 87.2 | 89.6 | 2.4 | 22.88 | 39.13 | 0.682 |
| 6 | LUGC15-039 | 170.5 | 185.0 | 14.5 | 0.092 | 1.835 | 52.0 | 56.4 | 4.4 | 3.16 | 62.92 | 0.116 |
| 6 | LUGC15-039 | 212.0 | 216.5 | 4.5 | 0.100 | 0.359 | 64.6 | 66.0 | 1.4 | 3.43 | 12.29 | 0.105 |
| 6 | LUGC15-039 | 224.0 | 248.0 | 24.0 | 0.184 | 0.500 | 68.3 | 75.6 | 7.3 | 6.29 | 17.14 | 0.190 |
| 6 | Includes | 234.0 | 237.0 | 3.0 | 0.414 | 0.671 | 71.3 | 72.2 | 0.9 | 14.19 | 23.00 | 0.423 |
| 6 | LUGC16-043 | 156.0 | 163.5 | 7.5 | 0.157 | 0.488 | 47.5 | 49.8 | 2.3 | 5.38 | 16.72 | 0.163 |
| 6 | LUGC16-043 | 175.0 | 188.0 | 13.0 | 0.323 | 0.700 | 53.3 | 57.3 | 4.0 | 11.08 | 24.01 | 0.332 |
| 6 | Includes | 181.0 | 188.0 | 7.0 | 0.506 | 0.668 | 55.2 | 57.3 | 2.1 | 17.35 | 22.89 | 0.515 |
| 6 | LUGC16-043 | 198.0 | 218.0 | 20.0 | 0.384 | 0.858 | 60.4 | 66.4 | 6.1 | 13.17 | 29.41 | 0.395 |
| 6 | Includes | 198.0 | 213.0 | 15.0 | 0.473 | 0.865 | 60.4 | 64.9 | 4.6 | 16.22 | 29.65 | 0.484 |
| 6 | LUGC16-045 | 61.0 | 66.0 | 5.0 | 0.091 | 0.309 | 18.6 | 20.1 | 1.5 | 3.12 | 10.59 | 0.095 |
| 6 | LUGC16-045 | 145.0 | 149.0 | 4.0 | 0.126 | 0.887 | 44.2 | 45.4 | 1.2 | 4.32 | 30.39 | 0.137 |
| 6 | LUGC16-047 | 92.0 | 95.0 | 3.0 | 0.894 | 0.280 | 28.0 | 29.0 | 0.9 | 30.65 | 9.60 | 0.898 |
| 6 | LUGC16-047 | 203.0 | 223.5 | 20.5 | 0.149 | 0.604 | 61.9 | 68.1 | 6.2 | 5.11 | 20.71 | 0.157 |
| 6 | LUGC16-047 | 241.5 | 245.5 | 4.0 | 0.332 | 0.793 | 73.6 | 74.8 | 1.2 | 11.38 | 27.19 | 0.342 |
| 6 | LUGC16-047 | 248.0 | 249.0 | 1.0 | 0.290 | 0.805 | 75.6 | 75.9 | 0.3 | 9.94 | 27.60 | 0.300 |
| 6 | LUGC16-047 | 251.0 | 252.0 | 1.0 | 0.248 | 1.138 | 76.5 | 76.8 | 0.3 | 8.50 | 39.01 | 0.263 |
| 6 | LUGC16-047 | 305.0 | 318.5 | 13.5 | 0.160 | 0.314 | 93.0 | 97.1 | 4.1 | 5.49 | 10.77 | 0.164 |
| 6 | Includes | 305.0 | 309.0 | 4.0 | 0.267 | 0.394 | 93.0 | 94.2 | 1.2 | 9.15 | 13.51 | 0.272 |
| 6 | LUGC16-048 | 96.5 | 101.5 | 5.0 | 0.321 | 11.550 | 29.4 | 30.9 | 1.5 | 10.99 | 395.95 | 0.469 |
| 6 | Includes | 96.5 | 99.0 | 2.5 | 0.404 | 17.700 | 29.4 | 30.2 | 0.8 | 13.85 | 606.79 | 0.631 |
| 6 | LUGC16-048 | 149.5 | 167.0 | 17.5 | 0.346 | 0.737 | 45.6 | 50.9 | 5.3 | 11.85 | 25.28 | 0.355 |
| 6 | Includes | 149.5 | 159.5 | 10.0 | 0.352 | 0.623 | 45.6 | 48.6 | 3.0 | 12.07 | 21.34 | 0.360 |
| 6 | Includes | 164.5 | 167.0 | 2.5 | 0.640 | 0.666 | 50.1 | 50.9 | 0.8 | 21.94 | 22.81 | 0.649 |
| 6 | LUGC16-048 | 176.0 | 181.0 | 5.0 | 0.169 | 0.788 | 53.6 | 55.2 | 1.5 | 5.79 | 27.01 | 0.179 |
| 6 | LUGC16-048 | 280.0 | 286.0 | 6.0 | 0.126 | 1.015 | 85.3 | 87.2 | 1.8 | 4.32 | 34.78 | 0.139 |
| 6 | LUGC16-049 | 134.0 | 135.0 | 1.0 | 0.266 | 10.200 | 40.8 | 41.1 | 0.3 | 9.12 | 349.67 | 0.397 |
| 6 | LUGC16-049 | 177.5 | 183.0 | 5.5 | 0.236 | 0.515 | 54.1 | 55.8 | 1.7 | 8.09 | 17.66 | 0.243 |
| 6 | LUGC16-049 | 185.0 | 195.0 | 10.0 | 0.716 | 1.003 | 56.4 | 59.4 | 3.0 | 24.56 | 34.40 | 0.729 |

23

#### 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) A separate assay on a 0.1 foot sample of material was analyzed by total digestion (in triplicate) with the result of 6.7 opt Au and \<0.030 opt Ag

Throughout the PQ drill program, geologic cross sections oriented along the drill fans and level plans on 20 foot spacing were fashioned for the target area. With completion of drilling, core logging and assaying through Drill Bay 6, these cross sections and level plans were reviewed, updated and digitized. The model was further refined as these sections were tied together to form a three dimensional triangulation using Maptek Vulcan software.

Using the geologic model and assay data as a base, multiple grade shells were produced in the same manner. Starting with cross sections and level plans, the shells were digitized and then refined as they were tied together to form three dimensional triangulations. These shells form the base of the block model used for internal planning and resource development. (Figure 3)

The block model uses the grade shells to constrain grade estimation and sample selection to specific areas. Grades are then estimated in those areas keeping grades in ranges seen by statistical analysis of the drill assays.

Figure 3 - Current gradeshells: red 0.12 opt Au cutoff (averaging 0.31 opt Au) includes magenta 0.25 opt Au cutoff (averaging 0.61 opt Au), with PQ, Succor, and Woodville proposed drill programs.

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), Succor, Woodville, and Chute zone systems. (Figure 4) Most of these systems remain open to the north and east and particularly at depth. A second phase of development was completed by advancing a crosscut out of Drill Bay 2 to a total length of 450 feet, toward the structural intersection of the Silver City fault zone and Succor vein zone. The design of the crosscut is geared toward favorable underground drilling position. 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.

Figure 4 - Underground target areas highlighting the exploration drift and drill bays.

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 drill holes shown in Figure 5 are designed to extend the depth of known mineralization identified by surface drilling.

Figure 5. Woodville, PQ, and Succor target areas with proposed Succor target drilling.

The Company is currently evaluating the results of the core program. Future drill programs are being developed with a phased approach to extend the PQ mineralization and scope the Succor and Woodville targets.

Additionally a series of cyanide bottle roll tests have been completed using assay pulp reject material. The results of the bottle roll testing help determine how quickly and completely the gold and silver will leach from the material.

The test results were used to identify similar rock types suitable for column leach tests. Using the remaining half core, composite samples were assembled to meet the material requirements. In total five composite columns tests have been started. These tests are being performed by McClelland Laboratories of Reno, NV. The columns are 4 inches in diameter, 10 feet tall and the rock is crushed to ¾ inches. The leach test will last 90 days. Column tests mimic the conditions in a leach pad to determine 90 day recovery of gold and silver as well as test the physical stability of the stacked leach material.

#### Exploration and Development of Dayton Surface and Underground Targets

The geologic and engineering staff also completed underground mapping, sampling, and surveying in a number of historic mine tunnels on and near the Dayton Resource area. Several historic mines operated in the Dayton area leaving access to multiple structures from underground. Some adits have remained open or have been uncovered by the Company. Where accessible, the workings were and are being inspected and mineralized material sampled. Geologic mapping is also done at this time. Once sampling is completed, the workings are surveyed to model the size and location of the openings as well as locate the samples. The samples are then assayed at the Company’s own metallurgical laboratory for gold and silver.

This underground sampling program has not only provided a wealth of assay information but it has also provided critical information for furthering the geologic understanding of the Dayton. In some cases structures identified on the surface can be traced underground and in other cases structures that do not have obvious surface expression are identified.

#### Production

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.

During 2014, the Company completed the transition from the Billie the Kid and Hartford patented claims in the Lucerne West-side Mine to the higher-grade Justice and Lucerne patents, also in the Lucerne West-side Mine. During the first and second quarters of 2015, the Company, in preparation for underground development, substantially completed mining of those Lucerne West-side surface patents. Substantially all of the operations for the second half of 2015 were focused on the extraction of the mineralized material contained in historic mine dumps while also completing the realignment of SR-342, establishing a drift into the higher-grade PQ and Woodville targets, and developing those targets towards the establishment of reserves for potential future mining.

The Company substantially completed the extraction and remediation of the historic dump materials during the third quarter of 2015, and stacked the material on the leach pads where the mineralized material continues under solution until the target gold and silver recovery rates have been achieved. The Company has not mined or crushed any material during the first quarter of 2016, but anticipates continued gold and silver recovery through at least the end of the third quarter of 2016.

The following table presents production for the three month periods ended March 31, 2016 and 2015:

|  | 1Q 2016 | 1Q 2015 |
| --- | ---: | ---: |
| Au Ounces Poured and Sold | 1,702 | 4,695 |
| Ag Ounces Poured and Sold | 29,438 | 56,482 |
| Au Equivalent\* Ounces Poured | 2,073 | 5,470 |
| \* Au Equivalent ounces = Au ounces (actual) + (Ag ounces (actual) ÷ the ratio of average gold to silver prices) | 79.68 | 72.91 |

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 YTD** | **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 YTD** | **0.031** | **0.659** |

During the first quarter of 2016, the Company poured 1,702 ounces of gold and 29,438 ounces of silver.

Throughout the first three months of 2016, the Company realized an average price of $1,184.91 price per ounce of gold and a $13.37 average sales price per ounce of silver. In comparison, commodity market prices in the first three months of 2016 averaged $1,181.21 per ounce of gold and $14.83 per ounce of silver.

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.

### Operating Costs

During the first three months of 2016, actual costs applicable to mining revenue were approximately $1.8 million, $1.4 million net of silver credits, as compared to $4.9 million, $3.7 million net of silver credits, during the first three months of 2015. This 63% reduction of net costs applicable to mining revenue is primarily a result of significantly lower labor and processing costs due to the Company’s transition from surface mining to underground exploration and development and higher experienced metallurgical yields. Costs applicable to mining revenue include processing labor, processing maintenance, processing reagents and assaying costs, among others. Costs applicable to mining revenue for the first three months of 2016 and 2015 also include depreciation of $0.7 million and $1.5 million, respectively.

During the first three months of 2016, the Company continued reducing costs applicable to mining revenue, and also targeting $3 million in additional reductions in all non-mining costs this year as compared to 2015. The Company has already realized $1.6 million of cost reductions in non-mining costs and expenses, excluding exploration and mine development, but including $1.1 million from general and administrative expenses in the first three months of 2016, as compared to the same period in 2015. The Company incurred approximately $0.2 million in severance costs during the first three months of 2016, in mining and general and administrative expenses, associated with organizational cost reductions. General and administrative costs are also expected to decline significantly, resulting in savings in all non-mining costs of over $5.5 million during 2016, as compared to 2015, an increase of 80% over the previous disclosed target of $3 million.

### 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 completed drift-sampling, drilling and metallurgical test work of the PQ target during the first quarter. 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 second 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. 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 continued yielding wider and longer high-grade intercepts. These results were published via press releases throughout the first quarter of 2016. The Company also completed the drifting to the Succor vein system.

The Company will also complete similar scope drilling on the Woodville target during the fourth 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 half 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. The resulting mine plans should allow us to initiate 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 latter half of 2016. Infill drilling is expected to expand the reserve potential for the Dayton mine plans.

The Company will report the results of the Lucerne and Dayton exploration and development programs, as they become available.

Production during 2016 is currently limited to processing of existing leach pad materials. Considering the improved estimates of gold and silver recoveries, that is, 87.5% for gold and 59.5% for silver, the current leach cycle will continue well into the third quarter, likely through September 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 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 15 employees. General and administrative costs are also expected to decline significantly, resulting in savings in all non-mining costs of over $5.5 million during 2016, as compared to 2015, an increase of 80% over the previous disclosed target of $3 million.

#### Recent Developments

In February 2016, the Nevada Division of Environmental Protection Bureau of Mining Regulation and Reclamation (NDEP-BMRR) issued a Notice of Decision (NoD) approving a Major Modification to the Company's Water Pollution Control Plan for various expansions of the heap leach facility. This modification authorizes the construction of “Cell 10,” located adjacent to and north of the existing leaching operation, and also identifies multiple, future heap leach pad expansions, south and southwest of the existing heap leach pad and existing facilities. The modification also allows both surface and underground mine processing at the heap leach facility. This proactive permitting authorizes significant future heap leach capacity on Company's existing private lands. These approvals provide all of the leaching capacity needed for the foreseeable future. The approved Cell 10 addition, the Company’s largest leach pad design to date, will provide an estimated 2.9 million tons of additional capacity. It also allows for phased construction, at the Company’s preference, with an ultimate footprint of 12.27 acres. Unique to this modification is the identification and inclusion of future expansions for Cells 11 and 12, located adjacent to and southwest of the existing facilities. Those potential expansions would cover approximately 90 acres of land located entirely within the Company’s private property.

### Equity Raises

In March and April 2016, the Company raised $4.0 million (approximately $3.5 million net of issuance cost) through an underwritten public offering of 11,500,000 shares of common stock at a price per share of $0.35.

### Comparative Financial Information

The Company had two operating segments as of March 31, 2016, mining, and real estate.

The comparative financial information is reflected in the following table:

#### Three Months Ended:

|  | March 31, 2016 | March 31, 2015 | Change |
| --- | ---: | ---: | ---: |
| Revenue - Mining | $1,980,764 | $5,927,174 | $(3,946,410) |
| Revenue - real estate | 39,757 | 110,243 | (70,486) |
| Costs applicable to mining revenue | 1,415,921 | 3,717,911 | (2,301,990) |
| Real estate operating costs | 52,429 | 200,027 | (147,598) |
| Exploration and mine development | 2,627,592 | 603,194 | 2,024,398 |
| Mine claims and costs | 296,433 | 421,065 | (124,632) |
| Environmental and reclamation | 372,696 | 623,154 | (250,458) |
| General and administrative | 1,085,108 | 2,145,234 | (1,060,126) |
| Loss from operations | (3,829,658) | (1,673,168) | (2,156,490) |
| OTHER INCOME (EXPENSE) |  |  |  |
| Interest expense | (553,605) | (223,673) | (329,932) |
| Other income | 331,868 | 3,185,955 | (2,854,087) |
| NET INCOME (LOSS) | $(4,051,395) | $1,289,114 | $(5,340,509) |

29

Mining revenue in the three months ended March 31, 2016 was $2.0 million. The decrease of $3.9 million resulted from lower production and lower average price per ounce of gold realized of $1,184.91 versus $1,262.91 for the three months ended March 31, 2016 and 2015, respectively. The Company produced 1,702 ounces of gold (and 29,438 ounces of silver), during the three-month period of 2016, as compared to 5,002 ounces of gold (and 61,096 ounces of silver) in the three-month period of 2015.

Throughout the three months ended March 31, 2016, the Company realized an average price of $1,184.91 per ounce of gold and a $14.13 average sales price per ounce of silver. In comparison, commodity market prices in the first quarter of 2016 averaged $1,181.21 per ounce of gold and $14.83 per ounce of silver.

Real estate revenue decreased $0.1 million in the first quarter of 2016, as compared to first quarter of 2015. Hospitality and lease operating costs decrease $0.1 million in the first quarter of 2016, as compared to first quarter of 2015. 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.

Costs applicable to mining revenue were $1.4 million for the three months March 31, 2016, including $0.4 million of silver credits, as compared to $3.7 million for the three months March 31, 2015, including $1.2 million of silver credits. The reduction of $2.3 million, of net costs applicable to mining revenue resulted from lower processing costs and the reduction of 65 mining and processing staff.

Exploration and mine development costs increased by approximately $2.0 million during the three months ended March 31, 2016, as compared to the same period ended March 31, 2015. The increase is a result of costs related to underground exploration activities and the completion of the drift to the Succor vein system in early February 2016. In addition, the Company commenced 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.

General and administrative costs decreased by $1.1 million first quarter of 2016, as compared to first quarter of 2015. The decrease is a result of lower payroll costs of approximately $0.3 million, lower legal and consulting fees of approximately $0.3 million, and reduction of net proceeds tax liabilities of approximately $0.2 million, amongst others, all in line with targeted cost reductions.

Other income (expense) decreased approximately $2.9 million in the first quarter of 2016, as compared to the first quarter of 2015. The decrease resulted from a reduction in a loss contingency accrual of approximately $3.2 million that was included in other income in the condensed consolidated statements of operations in 2015, and did not recur in 2016.

Net loss was $4.1 million for the three months ended March 31, 2016, as compared to a net income of $1.3 million for the three months ended March 31, 2015. The $5.3 million increase in net loss primarily resulted from a $3.9 million decrease in revenue, a $3.1 million decrease in other income and a $2.3 million increase in costs resulting from underground and surface exploration and development costs somewhat offset by $2.3 million of lower production, $1.1 million of lower general and administrative costs and approximately $0.5 million of other costs including environmental, real estate and mine claims.

### Liquidity and Capital Resources

Total current assets were $7.5 million at March 31, 2016, including cash and cash equivalents of $3.6 million. Inventories, stockpiles, and mineralized material on leach pad totaled $1.0 million.

On March 6, 2015, the Company reached an agreement to draw on a restated $5 million revolving credit facility (the “Revolving Credit Facility”) with Auramet International, LLC (“Auramet”), pursuant to which the Company may borrow up to $5 million, subject to satisfying certain conditions and obtaining certain consents. 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. 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 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.

In March 31, 2016, the Company completed an underwritten public offering of 10,000,000 shares of its common stock. Gross proceeds to the Company from this offering are approximately $3.5 million before deducting underwriting commissions and other offering expenses paid by the Company. On April 13, 2016, the Company also completed the sale of additional 1,500,000 shares of the Company's common stock for additional gross proceeds of approximately $525,000.

Net cash used in operating activities was $0.7 million for the three months ended March 31, 2016, as compared to net cash generated by operating activities of $0.2 million for the three months ended March 31, 2015. The Company's use of cash in operating activities in the first three months of 2016, was primarily driven by Company's expenditures related to underground exploration, including the Succor and PQ targets. Our positive cash flow from operating activities in the first three months of 2015, was primarily from operating income associated with lower labor, blasting, fuel and equipment rental costs relative to production of mineralized material during the first quarter of 2015.

Net cash provided by investing activities was $0.6 million for the three months ended March 31, 2016, primarily from equipment sales of approximately $0.8 million, offset by land and properties deposits of approximately $0.2 million. Net cash used in investing activities for the three months ended March 31, 2015, was $3.1 million, primarily from $1.7 million for strategic land purchases and $1.1 million for the expansion of the processing facility, and approximately $0.3 million for other capital expenditures and bonding.

Net cash provided by financing activities for the three months ended March 31, 2016, was $2.0 million, comprised of proceeds of $3.0 million from sale of securities, $0.6 million proceeds from amended agreement with Auramet International and $0.3 million from proceeds from a short-term note with Hard Rock Nevada, offset by the pay-down of long-term debt obligations of approximately $1.8 million. Net cash provided by financing activities for the three months ended March 31, 2015 was $1.8 million, comprised of proceeds of $4.4 million from the revolving credit facility (the “Revolving Credit Facility”) with Auramet International, LLC, partially off-set by the pay-down of other long-term debt obligations of approximately $2.7 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 three months ended March, 2016, the Company continued reducing costs applicable to general and administrative, targeting $5.5 million of savings from reduced labor, legal, consulting and other general corporate expenditures, as compared to 2015. The Company incurred approximately $0.2 million in severance costs during the three months ended March 31, 2016, in mining and general and administrative expenses, associated with organizational cost reductions.

The accompanying unaudited condensed 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.

The Company had net losses from operations since 2012, and an accumulated deficit of $203.1 million at March 31, 2016. For the three-month period ended March 31, 2016 the Company realized net loss of $4.1 million and used $0.7 million of cash in operating activities. As of March 31, 2016, the Company had current assets of $7.5 million (including cash and cash equivalents of $3.6 million) and current liabilities of $10.8 million.

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 limited control over its costs and 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 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. 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, certain planned, non-core asset sales with expected net proceeds of up to $5 million 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.

On March 28, 2016, the Company entered into a Drilling and Development Services for Common Stock Investment Agreement (the "Stock Investment Agreement") between the Company and American Mining & Tunneling, LLC and American Drilling Corp, LLC (collectively "AMT"), pursuant to which the Company agreed to issue up to 9,000,000 shares of the Company's common stock to AMT in exchange for $5,000,000 in exchange for future drilling, mine development and underground mining services in connection with, but not limited to, the Company’s construction of an underground exploration portal, mining infrastructure and development of the Company’s Lucerne and Dayton Mine projects.

On April 1, 2016, the Company fully repaid the outstanding revolving credit facility with a payment of $1.2 million. The primary focus for the remainder of 2016, in addition to our exploration and development, is to reduce or eliminate the remaining obligations associated with land and equipment financing. The Company plans to sell non-core, non-mining related lands and buildings valued at approximately $10 million during the last three quarters of 2016, resulting in net proceeds of $5 million. These proceeds will pay down or eliminate current debt obligations and strengthen the financial position of the Company. The Company also plans to sell surface mining equipment, no longer required in our mine plans, valued at up to $3 million and eliminating the financing obligations associated with Caterpillar Finance. These actions should eliminate substantially all of the Company’s debt obligations in 2016. There is no assurance that the Company will be able to sell such assets on favorable terms, 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.

Future production rates and gold prices below management’s expectations would adversely affect the Company’s results of operations, financial condition and cash flows. Future asset sales could also take longer than expected. 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.

### Critical Accounting Policies and Estimates

There have not been any material changes to the critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

## Market risk

As filed, 942 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.

In the first quarter of 2016, Gold Bullion prices averaged approximately $1,181.21 per ounce, up from a quarterly low close of $1,077.00 on January 5, 2016. Gold has fluctuated from that low to a high of $1,277.50 during the quarter. Silver prices averaged $14.83 per ounce, also gaining from a quarterly low of $13.58 on January 28, 2016 to a high of over $15.94 per ounce during the first quarter. The outlook for these markets remains mixed, driven primarily by uncertainty over U.S. fiscal and monetary policy.

With the exception of the above, there have been no material changes in the market risks discussed in Item 7A of our Annual Report on Form 10-K.

## Controls and procedures

As filed, 2,565 characters.

### A. Disclosure

### Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, management performed, with the participation of our Principal Executive Officer and 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 Securities Exchange Act of 1934 (“Exchange Act”). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports 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 and 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. Each of our Principal Executive Officer and Principal Financial Officer concluded that, as of March 31, 2016, 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 March 31, 2016. 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 March 31, 2016, our internal control over financial reporting was effective based on those criteria.

### B. Internal Control over Financial Reporting

No change in our internal control over financial reporting, as such term is defined in Exchange Act Rule 13(a)-15 occurred during the fiscal quarter ended March 31, 2016, that materially affected or is reasonably likely to materially affect our internal control over financial reporting.

## Risk factors

As filed, 153 characters.

There have not been any material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

Filed May 5, 2016.
Source: SEC EDGAR, the filing index for accession 0001120970-16-000101. Last ingested by Listed: Nov 4, 2026, 17:20 ET. No prices; not investment advice.