# Comstock Inc.: Form 10-Q for the period ended Sep 30, 2019

- Company: [Comstock Inc.](/companies/lode.md) (CIK 1120970)
- Form: 10-Q
- Filed: 2019-11-04
- Accepted by EDGAR: Nov 4, 2019, 06:07 ET
- Period: 2019-09-30
- Accession: 0001120970-19-000074
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1120970/000112097019000074/lode-20190930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1120970/000112097019000074/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-07-01 to 2019-09-30 | $48.4k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2019-01-01 to 2019-09-30 | $130.1k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2019-07-01 to 2019-09-30 | −$792.4k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2019-01-01 to 2019-09-30 | −$3.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2019-07-01 to 2019-09-30 | $179.6k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2019-01-01 to 2019-09-30 | $822.6k | us-gaap:InterestExpense |
| Income tax | 3 months, 2019-07-01 to 2019-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2019-01-01 to 2019-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-07-01 to 2019-09-30 | $386.9k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2019-01-01 to 2019-09-30 | −$3.5m | us-gaap:NetIncomeLoss |
| Operating cash flow | 9 months, 2019-01-01 to 2019-09-30 | −$2.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2019-07-01 to 2019-09-30 | $550.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 9 months, 2019-01-01 to 2019-09-30 | $1.6m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2019-09-30 | $276.6k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-09-30 | $12.4m | us-gaap:AssetsCurrent |
| Total assets | at 2019-09-30 | $35.4m | us-gaap:Assets |
| Current liabilities | at 2019-09-30 | $12.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-09-30 | $26.5m | us-gaap:Liabilities |
| Long-term debt | at 2019-09-30 | $6.6m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2019-09-30 | $323.4k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2019-09-30 | $8.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,946 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 nine month period ended September 30, 2019. It should be read in conjunction with the condensed consolidated financial statements and accompanying notes included in this Form 10-Q and our Annual Report on Form 10-K as of, and for the fiscal year ended December 31, 2018.

### Overview

The Company is a Nevada-based, gold and silver mining company with extensive, contiguous property in the Comstock District and is an emerging leader in sustainable, responsible mining and is currently commercializing environment-enhancing, precious-metal-based technologies, products, and processes for precious metal recovery.

The Company began acquiring properties in the Comstock District in 2003. Since then, the Company has consolidated a significant portion of the Comstock District, amassed the single largest known repository of historical and current geological data on the Comstock region, secured permits, built an infrastructure and completed two phases of test production. The Company continues evaluating and acquiring properties inside and outside the district, expanding its footprint and evaluating all of our existing and prospective opportunities for further exploration, development and mining. The Company’s goal is to grow per-share value by commercializing environment-enhancing, precious-metal-based products and processes that generate predictable cash flow (throughput) and increase the long-term enterprise value of our northern Nevada based platform.

The Company and its subsidiaries now own or control approximately 9,358 acres of mining claims and parcels in the broader Comstock District and surrounding area. The acreage includes approximately 2,396 acres of patented claims and surface parcels (private lands) and approximately 6,962 acres of unpatented mining claims (public lands), which the Bureau of Land Management (“BLM”) administers. The Company's headquarters is on American Flat road, immediately north of the Lucerne resource area and just south of Virginia City, Nevada.

Because of the Comstock District’s historical significance, the geology is well known and has been extensively studied by the Company, our advisors and many independent researchers. We have expanded our understanding of the geology through vigorous surface mapping and drill hole logging. The volume of geologic data is immense, particularly in the Lucerne and Dayton resource areas. We have amassed a large library of historical data and detailed surface mapping of Comstock District properties and continue to obtain historical information from private and public sources. We integrate this data with information obtained from our recent mining operations, to target geological prospective exploration areas and plan exploratory drilling programs, including expanded surface and underground drilling.

#### Figure 1 - Comstock Mining's Land Position in the Comstock District

During 2019, the Company’s Board of Directors approved a transformational strategy focused on high-value, cash-generating, precious metal-based activities, (the “Strategic Focus”) including, but not limited to, metals exploration, engineering, resource development, economic feasibility assessments, mineral production, metal processing and related ventures of environmentally friendly, and economically enhancing mining technologies.

The Company advanced the Strategic Focus by facilitating the formation of a qualified opportunity zone fund named Sierra Springs Opportunity Fund Inc. and a qualified opportunity zone business named Sierra Springs Enterprises Inc. Sierra Springs Enterprises, Inc. has formally agreed to acquire Comstock’s non-mining assets and has also secured over a dozen independent projects, including the development of the Silver Springs Airport, a centrally located regional airport, the acquisition of certain exceptionally well located and adjacent lands and water rights, and the rights to a number of conservation-based, non-mining businesses. These businesses include a Tahoe-based, high pH spring water, an agricultural-ready manufacturing and processing facility and a business to manufacture and sell a totally compostable green bottle and cap, designed to displace single-use petroleum-based plastics.

### Comstock Mining's Corporate Realignment

#### Figure 2 - Comstock's Corporate Realignment

### Current Projects

The Company completed the realignment during 2019, such that the new corporate structure is now well aligned with the Strategic Focus. Comstock Mining Inc. remains as the parent company that wholly owns the realigned subsidiaries. Comstock Mining LLC owns or controls the Lucerne properties, including those contained in the Northern Comstock Joint Venture. Comstock Processing LLC owns the American Flat processing facility and additional land for potential expansion. Comstock Northern Exploration LLC owns or controls the remaining Storey County mining claims and exploration targets, primarily located north of the Lucerne properties, including the Gold Hill targets and the Occidental Lode. Comstock Exploration & Development LLC owns or controls the Lyon County mining claims and exploration targets, including the Dayton Resource Area and the Spring Valley target. Comstock Industrial LLC owns the Silver Springs properties and water rights. Comstock Real Estate Inc. owns the Daney Ranch and the Gold Hill Hotel assets.

#### Exploration and Development

The Company has identified many exploration targets on its land holdings in the Comstock District, but has focused, to date, on the Dayton resource area and, through our collaboration with Tonogold Resources Inc. (“Tonogold”) the Lucerne resource area (including surface and underground exploration). We have also leased the remaining Storey County mineral claims, including the Occidental group and the Gold Hill group of exploration targets, to Tonogold, who has plans for near-term exploration and ultimately development towards economic feasibility on those assets. We are developing exploration plans for the remaining areas, primarily the Spring Valley group that we view as an extension of the Dayton resource area.

The Company's district-wide plans contemplate the exploration and development of specific, identified geological target areas across the District, that the Company has organized into Comstock Exploration and Development LLC, the Company’s wholly owned subsidiary representing the Dayton and Spring Valley areas, Comstock Northern Exploration LLC representing the Occidental and Gold Hill groups of exploration targets now leased to Tonogold, and Comstock Mining LLC representing the Lucerne resource area that Tonogold has agreed to acquire. These exploration targets represent over 7 miles of mineralized strike length, with current and historical grades of gold and silver.

The Company retained royalties ranging from 1.5% to 3.0% on the Lucerne and Northern Exploration properties.

#### Figure 3 - General Overview of Priority Exploration Targets

### Comstock Processing LLC (100% owner of the American Flat Processing Facility)

#### Figure 4: American Flat Processing Facility

The processing facility is in the American Flat area of Gold Hill, NV, less than a mile west of Lucerne, and operated 24 hours per day, seven days per week, for substantially all of 2013 through 2016. During 2019, Comstock formed Comstock Processing LLC ("CPL"), a newly realigned, wholly-owned subsidiary that owns all of the property, plant, equipment and permits for the crushing, agglomerating, leaching, Merrill Crowe processing, mercury retort, refining, and metallurgical operations located at 1200 American Flat, Virginia City, NV. The facilities represent a fully permitted platform, best positioned for implementing our Strategic Focus on high-value, cash-generating, precious metal-based activities, including, but not limited to, metals exploration, engineering, resource development, economic feasibility assessments, mineral production, metal processing and related ventures of environmentally friendly, and economically enhancing mining technologies. To date, Comstock Processing has entered into two agreements that leverage its platform for nearer-term cash generation; the definitive agreement with Mercury Clean Up LLC (“MCU”) and the option to lease the facilities to Tonogold.

#### CPL’s Venture with Mercury Clean Up LLC

The first agreement is with MCU, to pilot test new, cleaner technologies, in collaboration with Oro Industries Inc. (“Oro”), for the manufacture and global deployment of mercury remediation systems with proprietary mechanical, hydro, electro-chemical and oxidation processes to reclaim and remediate mercury from soils, waste and tailings. MCU has the exclusive, world-wide rights to four patentable technologies and equipment that we believe will demonstrate feasible, economic mercury remediation. Comstock provides the platform for testing the mercury remediation system and MCU will conduct the trials that prove scalable feasibility. MCU plans to deploy the solution globally and is working on at least one major, international remediation project. Comstock’s award-winning mercury reclamation experience coupled with MCU’s technology and processing know-how positions a new growth opportunity consistent with the Company’s Strategic Focus.

Worldwide unregulated activity has released thousands of tons of mercury into the environment. The continued worldwide use of mercury in unregulated activities, primarily outside of the United States, is polluting air, soils, and waters and poisoning marine life and endangering lives. Ongoing, unregulated artisanal mining outside of the U.S. represents more than 40% of the ongoing mercury contamination and represents a tremendous opportunity for cleaning up the environment in a sustainable, profitable manner. Mercury will not go away by itself and must be removed to stop the pollution. Mercury can’t be broken down or destroyed, and MCU, in collaboration with Oro and the Company, is pioneering an effective solution.

Through September 30, 2019, the Company has invested $1.2 million out of a total $2 million committed into MCU to demonstrate the feasibility of the Mercury Remediation System on CPL’s permitted platform. Upon successful feasibility, the Company and MCU would create a new, 50-50 venture called Comstock Mercury Remediation LLC for pursuing global business opportunities. The Company has the rights to invest in up to 25% of MCU and separately, 50% of the joint venture.

Over the past seven years, Comstock has implemented several approved plans, by the Nevada Division of Environmental Protection (“NDEP”), intended to address NDEP’s and the U.S. Environmental Protection Agency (“EPA”) protocols, guidance and goals for sampling, characterizing, transporting and managing mercury within the Carson River Mercury Superfund Site. These plans and CPL’s existing, permitted infrastructure provide an ideal platform for evaluating the efficacy of the MCU process. MCU and the Company will work closely with NDEP for any additional approvals or permits.

#### CPL’s Lease Option with Tonogold

The second agreement, commencing upon the closing of the sale of CML, represents an option to lease (the “Lease-Option”) the permitted American Flat mining property, plant and equipment to Tonogold for crushing, leaching and processing material from the Lucerne mine. Under the Lease-Option, Tonogold has already commenced reimbursing the Company $1.1 million per year to specifically reimburse the costs of maintaining the facility. If the option is exercised, Tonogold would then pay the Company a rental fee of $1 million per year plus $1 per processed ton, in addition to all the costs of operating and maintaining the facility. After the first $15 million in rental fees are paid, the rental fee would step down to $1 million per year and $0.50 per processed ton for the next $10 million paid to the Company.

#### CPL and Development of Clean Technologies

The ongoing testing of alternative technologies aligns with the Company’s Strategic Focus on responsible development. A breakthrough with cleaner technologies could result in higher, faster recoveries with reduced waste, shorter permitting cycle times and lower reclamation costs.

The Company continues exploring other partners and ventures that can leverage this fully-permitted platform for the development of cash-generating, precious metal-based activities, including, but not limited to, metals exploration, engineering, resource development, economic feasibility assessments, mineral production, metal processing and related ventures of environmentally-friendly, and economically enhancing mining technologies.

### Comstock Exploration & Development (100% owner of the Dayton Resource and Spring Valley Exploration Areas)

Our Dayton resource area and the adjacent Spring Valley exploration targets are located in Lyon County, Nevada, approximately six miles south of Virginia City. Access to the properties is by State Routes 341 and 342, both paved roads. The Dayton includes the historic Dayton, Kossuth and Alhambra patents, and the old Dayton Consolidated mine workings. The historic Dayton mine was the last meaningful underground mining operation in the Comstock District, before being closed after the War Act in October 1942, which closed down all gold mining operations in the United States and its territories.

The Dayton resource area ranks as the Company’s top exploration and development targets. In January 2014, the Lyon County Board of Commissioners approved strategic master plan and zoning changes on the Dayton, Kossuth and Alhambra mining patents and other properties located in the Dayton resource area, enabling a more practical, comprehensive feasibility study for mining. Geological studies and development planning are currently underway utilizing data from extensive metallurgical testing and assessment during 2017, an additional 30,818 feet of drilling completed in 2015, geophysical analysis and interpretation completed in 2013, and extensive geological data from pre-2013 drill programs.

For the Dayton resource, Comstock previously discovered a newly recognized, mineralized, cross-cutting shear zone. An assay sample of the material identified three feet of 0.246 ounces per ton (OPT) gold and 3.553 OPT silver. Sampling was expanded and exposed another 90.8 feet of mineralized shear zone, beginning just 245 feet inside the Dayton adit. This overall sampling program identified precious metals averaging 0.043 OPT gold and 0.404 OPT silver for the entire zone, including 7.5 feet averaging 0.121 OPT gold and 0.753 OPT silver.

The Company plans to advance the Dayton Project to full feasibility, with a production ready mine plan within two years of commencing that work. This work has not yet commenced. The plan includes expanding the current resource at the Dayton resource area and continuing southerly into Spring Valley with incremental expansion programs that include exploration and definition drilling of targets identified by the prior conventional percussion, RC and diamond core drill programs and magnetic, IP and resistivity geophysical surveys. Ground magnetic geophysical surveys identified a linear anomalous corridor, defined by a series of relative magnetic lows (see Figure 5).

The Spring Valley group of exploration targets lies adjacent to the Dayton resource area, trending south toward the southern-most end of the Comstock District that includes the southern portion of the Kossuth patented claim and the Dondero, Daney and New Daney claims and all of the Company’s placer mining claims in Spring Valley and Gold Canyon. The Spring Valley mineralized structures lie mostly concealed beneath a veneer of sediment gravels and the volcanic host rocks and the structural controls of the mineralization defined for the Dayton resource area are known to continue south into Spring Valley.

#### Figure 5 - Dayton and Spring Valley Magnetic Geophysics with Interpreted Veins and Structures

The Spring Valley exploration program is designed to target areas that have similar magnetic signatures of known economic grade mineralization. The magnetic geophysical survey was further studied and a structural interpretation was developed that illustrated multiple cross cutting structures (colored green) that are oblique to the southerly projected north/south vein trend (colored red), refer to Figure 5. Though rare due to alluvial cover, the outcropping quartz veins and outcropping crosscutting structures had definitive diagnostic magnetic signatures. The interpretation of the vein structures were derived by connecting specific magnetic attributes as identified on each 25-meter spaced survey lines. Similar structures have been identified in the Dayton and were important components for the development of economic grades of mineralization. The exploration of Spring Valley will include phased drilling programs that will continue southerly from SR 341 to the historic Daney mine site (Figure 6), with a potential strike length of approximately 9,600 feet.

In-house Dayton engineering and mine planning have resulted in profiling economic shells with multiple cutoff grade scenarios. Multiple layout plans for the mine and corresponding processing facilities have been conceptually developed and located on lands 100% privately held by the Company, thus simplifying and shortening the critical permitting chain.

The Company is proceeding to publish a separate NI 43-101 compliant, updated technical report for the Dayton resource that supports the subsequent scope of publishing a Preliminary Economic Assessment (“PEA”) for the Dayton project. The new technical report will provide not only a new resource estimate, but also a phased drilling plan for further defining and expanding the resource for sustainable, profitable mining.

#### Figure 6 - Dayton and Spring Valley Group Targets

### Comstock Northern Exploration LLC (Occidental Lode and Other Northern Target Mineral Claims)

Tonogold has commenced further, detailed analysis of our northern targets that correlates historical data with modern geological assessments and reveals a potentially much larger exploration opportunity. Accordingly, the Company signed a new mineral exploration lease with Tonogold that commits Tonogold to a minimum of $5.0 million towards the exploration of the Company’s Storey County mineral claims and an additional minimum of $5.0 million for exploration and economic feasibility development. The agreement also retains rights to a 1.5 to 3.0% NSR royalty, a $10 thousand per quarter lease revenue that escalates 10% per annum, and eliminates the Company’s related claim maintenance costs. The Company believes this will accelerate the development of these targets and enhance the value of its mineral property and royalty portfolio.

The mineral lease includes the Occidental group and Gold Hill group of exploration targets, which contains many historic mining operations, including the Overman, Con Imperial, and Yellow Jacket mines.

### Comstock Mining LLC (100% owner of the Lucerne Resource Area)

Our Lucerne resource area is located in Storey County, Nevada, approximately three miles south of Virginia City and 30 miles southeast of Reno, and has been the primary focus of the Company’s exploration and development efforts since 2007. Lucerne includes the previously mined Billie the Kid, Hartford and Lucerne mining patents, and extends east and northeasterly to the area of the historic Woodville (southern-most of the historic Comstock bonanzas), Succor and Lager Beer patents and north to the historic Justice and Keystone mines. The Lucerne resource area is approximately one mile along strike, with explored widths from 600 to 1,800 feet, representing approximately 845 acres of the land holdings controlled by the Company. The Lucerne is the site of our previous mining activities and ongoing exploration and development by Tonogold, the company that has agreed to acquire Comstock Mining LLC, the entity that owns 100% of the Lucerne properties. The Company holds the key mining permits required to resume surface or underground mining of this area and processing.

In December, 2018, the Company received unanimous approval from the Storey County Board of Commissioners to extend its landmark Special Use Permit (“SUP”) for mining and processing for the Lucerne Mine Project for the maximum allowable, 20-year term, extending the original, 10-year permit until September 2, 2034. The permit applies to both surface and underground mining, processing, milling, exploration and development, and other ancillary uses and represents one of the most significant, progressive and collaborative permit approvals in the Company’s history, and its extension strengthens the foundation for the future growth of the Company and its partner in Lucerne’s exploration and development, Tonogold.

Over the past two years, exploration activities have been focused on Tonogold evaluating and remodeling the Lucerne resource, and planning further exploration and development and economic feasibility assessments. The Company’s prior exploration activities in the Lucerne area included open pit gold and silver test mining from 2004, through 2006, and from late 2012 through 2015. As defined by the Securities Exchange Commission (“SEC”) Industry Guide 7 and by the 2018 amendments to Regulation S-K, the Company has not yet established any proven or probable reserves at the Lucerne mine. From 2012 to 2016, the Company processed approximately 2.6 million tons of mineralized material, producing 59,515 ounces of gold and 735,252 ounces of silver.

In January 2019, the Company and Tonogold entered into a sales agreement that immediately values Lucerne at more than $24 million ($11.5 million in cash, $4.75 million in stock and $8 million in assumed liabilities) plus a 1.5% NSR royalty on Lucerne’s future production while already delivering over $2 million in annualized savings. The Company’s recent agreements require additional cash payments at closing, scheduled during November 2019, of $3.625 million, bringing total cash payments to over $7.55 million, providing Tonogold a majority membership interest of 50.3% in Comstock Mining LLC. The remaining $4.0 million in cash owed represents a secured obligation of Tonogold with scheduled monthly payments of at least $650 thousand each starting in January 2020, through June 2020. Upon the satisfaction of such payments, Tonogold will own 100% of Comstock Mining LLC.

Comstock also terminated its previous option agreement with Tonogold, resulting in prior option payments of $2.2 million being recorded as income during the third quarter of 2019.

### Sierra Springs Opportunity Zone Fund Inc. and Sierra Springs Enterprises Inc.

During 2018, the U.S. Treasury confirmed that all of Storey County, NV, and significant parts of Silver Springs, NV, had been certified as Qualified Opportunity Zones. We are actively engaged in plans to enhance our mining and non-mining assets and core competencies in these locations, to maximize the value of our platform, first by selling our non-mining assets.

Sierra Springs Opportunity Fund Inc. was formed to capitalize on the extraordinary, explosive growth of high-tech industries in northern Nevada and its qualified zones and has already secured the rights to thousands of developable acres of land and more, including an agreement to purchase Comstock’s Silver Springs properties and water rights, all within the immediate proximity of the Tahoe Reno Industrial (TRI) Center and its over 100 businesses, including high-tech companies such as Google, Panasonic, Switch, Tesla, Walmart, Zulily and Blockchains LLC. Comstock will passively own approximately 9.5% of the Sierra Springs Opportunity Fund Inc. The Company’s CEO and a diverse team of qualified financial, capital markets, real estate and operational professionals will plan on governing, leading and managing the fund, its investments and operations.

### Non-mining Real Estate

On September 26, 2019, the Company entered into new agreements, with Sierra Springs Enterprises Inc., a qualified opportunity zone business, to sell the industrial land and senior water rights in Silver Springs, NV, (the “98 acres”) for $6.5 million and to sell its rights in the membership interests in Downtown Silver Springs, LLC (“DTSS”) for $3.6 million. The agreements require the transactions to close before December 15, 2019. On September 15, 2019, and effective September 25, 2019, the Company terminated agreements to sell the 98 acres and to sell DTSS to another third party.

The Gold Hill Hotel is listed for sale for $1.0 million. The Gold Hill Hotel has been consistently cash positive over the past two years. The Daney Ranch is listed for sale for $3.9 million.

### Outlook

The Company’s 2020 gross operating expenses are planned at approximately $4.0 million, excluding depreciation and discretionary exploration expenses. As of June 1, 2019, the Company has been and expects to continue receiving monthly reimbursements from Tonogold totaling approximately $2.2 million for the full year 2020, resulting in net operating expenses of approximately $2.8 million. The Company plans on eliminating its debt through announced asset sales, and does not expect any interest expense for the full year 2020.

During 2019, total gross operating expenses are expected at approximately $5.0 million, with Tonogold reimbursements expected at $1.6 million for the full year, plus $0.3 million in interest reimbursements since June 1, 2019.

For the remainder of 2019, the Company’s plans include advancing the commercialization of MCU’s mercury remediation processing technologies. Oro has commenced manufacturing the 2-to-25 ton per hour mercury recovery plant and recently completed the critical “reverse-helix spiral concentrator” component of the system. The entire system will be mounted on three separate trailers and will be set up on the Company’s fully contained, double-lined processing area during the fourth quarter with an expected start date in January 2020. During the fourth quarter, MCU will also identify sample locations within the Carson River Mercury Superfund Site (“CRMSS”) that will be sampled per an EPA-approved and updated Sampling and Analysis Plan (“SAP”). Once suitable sites have been identified, bulk samples will be extracted and transported to the MCU mercury remediation system located at the Company’s American Flat processing facility. MCU has also ordered the 200 gallon-per-minute dissolved air flotation (“DAF”) water treatment plant, also scheduled for delivery in December 2019.

The Company plans on commencing trial operations in January 2020, to validate and fine-tune MCU’s process, which has the potential for reclamation and remediation of its existing properties, enhance the values of, and potential economic feasibilities for, these properties and present new global growth opportunities in mercury remediation by demonstrating MCU’s technological effectiveness and efficiency.

During the fourth quarter of 2019, the Company expects to close on the agreed upon sale of certain non-mining assets located in Silver Springs, NV, to Sierra Springs Enterprises Inc., for total net proceeds of $10.1 million. The agreements were signed in September 2019, with deposits currently in escrow. The Company also expects to close on the sale of 50.3% of the membership interest in Comstock Mining LLC, owner of the Lucerne properties, after receiving an additional $3.625 million in cash from Tonogold in October 2019. The agreement allows them to earn up to 100% of Comstock Mining LLC, after receiving an additional $3.95 million in installment payments in 2020.

The Dayton resource area is the Company’s top wholly-owned exploration and mine development target. The Company is developing a completely new geological interpretation for a new resource estimate. The new geological interpretation is also being used to design phased drilling programs in higher potential for additional mineral resources. The Company plans to issue a new, stand-alone Dayton resource technical report, followed by a preliminary economic assessment in the fourth quarter 2020.

### Equity Raises

For the nine months ended September 30, 2019, the Company issued 31,594,805 common shares through the 2019 Equity Agreement, the 2018 Sales Agreement, and the Securities Purchase Agreement with Temple Tower Group. Gross proceeds were approximately $3.8 million at an average share price of $0.12.

Following is a reconciliation of the common stock-based transactions as of September 30, 2019:

|  | Nine Months Ended September 30, 2019 | 2018 |
| --- | ---: | ---: |
| Shares outstanding as of beginning of period | 75,338,273 | 47,236,103 |
| Shares issued for: |  |  |
| Equity issue agreements | 20,392,599 | 18,489,583 |
| Preferred shares converted to common stock | 11,202,206 | — |
| Purchase of Pelen, LLC membership interest | — | 1,475,410 |
| Payment for equity issue costs | 1,065,778 | 877,233 |
| Payment for mineral rights | 3,731,347 | 2,774,490 |
| Investment in Mercury Clean Up LLC | 4,500,000 | — |
| Shares outstanding as of end of period | 116,230,203 | 70,852,819 |

On June 28, 2019, the Company issued 1,083 preferred shares with gross proceeds of $1.1 million, which was received on July 1, 2019. The company also issued 191 preferred shares as a due diligence fee. During third quarter 2019, 1,274 preferred shares were converted to 11,202,206 common shares.

Subsequent to quarter-end and through October 25, 2019, the Company issued 10,740,012 common shares through the Leviston Equity Agreement including 1,424,262 shares in payment for equity issue costs. Gross proceeds were approximately $0.8 million at an average share price of $0.09.

### Comparative Financial Information

The Company had two operating segments as of September 30, 2019: mining and real estate.

The comparative financial information is reflected in the following table:

#### Three Months Ended:

|  | September 30, 2019 | September 30, 2018 | Change |
| --- | ---: | ---: | ---: |
| Revenue - mining | $— | $— | $— |
| Revenue - real estate | 48,350 | 32,281 | 16,069 |
| Costs applicable to mining revenue | 318,537 | 717,155 | (398,618) |
| Real estate operating costs | 8,651 | 12,887 | (4,236) |
| Exploration and mine development | 109,189 | 241,902 | (132,713) |
| Mine claims and costs | (324,027) | (291,602) | (32,425) |
| Environmental and reclamation | 30,590 | 88,612 | (58,022) |
| General and administrative | 697,793 | 801,157 | (103,364) |
| Total costs and expenses | 840,733 | 1,570,111 | (729,378) |
| Loss from operations | (792,383) | (1,537,830) | 745,447 |
| OTHER INCOME (EXPENSE) |  |  |  |
| Interest expense | (179,588) | (340,548) | 160,960 |
| Other income (expense) | 1,358,868 | (166,732) | 1,525,600 |
| NET INCOME (LOSS) | $386,897 | $(2,045,110) | $2,432,007 |

38

The Company ceased processing material from its leach pad in December 2016, resulting in no mining revenues for the three months ended September 30, 2019, and 2018, respectively.

Real estate revenues for the three months ended September 30, 2019 increased $16,069 as compared to the same period ended September 30, 2018, primarily related to additional rentals of buildings at the Company's processing site, including the metallurgical labs.

Real estate operating costs were essentially flat for the three months ended September 30, 2019, as compared to the same period ended September 30, 2018.

Costs applicable to mining revenue decreased by $0.4 million during the three months ended September 30, 2019, as compared to the same period ended September 30, 2018, as a result of certain assets becoming fully depreciated. These costs consist solely of depreciation expense on temporarily idled mining equipment, processing facilities and heap leach pads.

Exploration and mine development costs decreased by $0.1 million during the three months ended September 30, 2019, as compared to the same period ended September 30, 2018, primarily due to higher Tonogold reimbursements in 2019.

Mine claims and costs decreased by $32,425 during the three months ended September 30, 2019, as compared to the same period ended September 30, 2018, primarily due to higher Tonogold reimbursements in 2019.

Environmental and reclamation decreased by $0.1 million during the three months ended September 30, 2019, as compared to the same period ended September 30, 2018, primarily due to slightly higher Tonogold reimbursements in 2019.

General and administrative expenses decreased by $0.1 million during the three months ended September 30, 2019, as compared to the same period ended September 30, 2018, primarily due to lower legal fees.

Interest expenses decreased by $0.2 million, during the three months ended September 30, 2019, as compared to the same period ended September 30, 2018, a result of lower average debt balances from the pay-down on the Senior Secured Debentures in 2019, and interest reimbursements from Tonogold that began in June 2019, somewhat offset by an increase in additional make-whole expense and fees expense recognized as a result of those pay-downs.

Other income, net, increased by $1.5 million during the three months ended September 30, 2019, as compared to the same period ended September 30, 2018, primarily related to $2.2 million of income recognized from the cancellation of the 2017 Tonogold Option Agreement, partially offset by expenses associated with the mark down of Tonogold stock valuation of $0.3 million and make-whole contingencies with MCU and Pelen totaling $0.5 million.

Net income was $0.4 million for the three months ended September 30, 2019, as compared to a net loss of $2.0 million for the three months ended September 30, 2018. The $2.4 million improvement in net loss is a result of $2.2 million of income recognized from the cancellation of the 2017 Tonogold Option Agreement, $0.7 million decrease in operating expenses, $0.2 million decrease in interest expense, partially offset by approximately $0.8 million in other expenses including the mark down of Tonogold stock of $0.3 million and make-whole contingencies with MCU and Pelen of $0.4 million.

#### Nine Months Ended:

|  | September 30, 2019 | September 30, 2018 | Change |
| --- | ---: | ---: | ---: |
| Revenue - mining | $— | $— | $— |
| Revenue - real estate | 130,132 | 83,946 | 46,186 |
| Costs applicable to mining revenue | 1,329,322 | 2,174,618 | (845,296) |
| Real estate operating costs | 31,362 | 29,858 | 1,504 |
| Exploration and mine development | 576,594 | 700,088 | (123,494) |
| Mine claims and costs | (36,172) | (20,346) | (15,826) |
| Environmental and reclamation | (278,784) | 208,866 | (487,650) |
| General and administrative | 2,322,428 | 2,355,320 | (32,892) |
| Total costs and expenses | 3,944,750 | 5,448,404 | (1,503,654) |
| Loss from operations | (3,814,618) | (5,364,458) | 1,549,840 |
| OTHER INCOME (EXPENSE) |  |  |  |
| Interest expense | (822,632) | (1,054,775) | 232,143 |
| Other income (expense) | 1,111,338 | (526,113) | 1,637,451 |
| NET LOSS | $(3,525,912) | $(6,945,346) | $3,419,434 |

The Company ceased processing material from its leach pad in December 2016, resulting in no mining revenues for the nine months ended September 30, 2019, and 2018, respectively.

Real estate revenues for the nine months ended September 30, 2019 increased $46,186 as compared to the same period ended September 30, 2018, primarily resulting from higher occupancies of buildings at the Company's processing site, including the metallurgical labs and a deposit forfeiture on the termination of the sale of the Gold Hill Hotel.

Real estate operating costs increased slightly for the nine months ended September 30, 2019, as compared to the same period ended September 30, 2018.

Costs applicable to mining revenue decreased by $0.8 million during the nine months ended September 30, 2019, as compared to the same period ended September 30, 2018, as a result of certain assets becoming fully depreciated. These costs consist solely of depreciation expense on temporarily idled mining equipment, processing facilities and heap leach pads.

Exploration and mine development costs decreased slightly during the nine months ended September 30, 2019, as compared to the same period ended September 30, 2018, primarily due to higher Tonogold reimbursements in 2019.

Mine claim and costs decreased by $15,826 during the nine months ended September 30, 2019, as compared to the same period ended September 30, 2018, primarily due to higher Tonogold reimbursements in 2019.

Environmental and reclamation costs decreased $0.5 million during the nine months ended September 30, 2019, as compared to the same period ended September 30, 2018, primarily related to a reduction of $0.4 million in the long-term reclamation liability and slightly higher Tonogold reimbursements in 2019.

General and administrative expenses decreased by $32,892 during the nine months ended September 30, 2019, as compared to the same period ended September 30, 2018. Governance costs, including legal and audit fees, increased approximately $0.4 million, offset by lower costs in 2019, from lower personal property taxes, payroll and other costs.

Interest expenses decreased by $0.2 million, during the nine months ended September 30, 2019, as compared to the same period ended September 30, 2018, a result a result of lower average debt balances from the pay-down on the Senior Secured Debenture in 2019, and interest reimbursements from Tonogold that began in June 2019, somewhat offset by an increase in additional make-whole expense and fees expense recognized as a result of those pay-downs.

Other income, net, increased by $1.6 million, during the nine months ended September 30, 2019, as compared to the same period ended September 30, 2018, primarily related to $2.2 million of income recognized from the cancellation of the Tonogold Option Agreement from 2017, partially offset by other expenses associated with the MCU and Pelen make-whole contingencies of $0.4 million and the mark down of Tonogold stock of $0.3 million, as compared to other expense, net, of $0.5 million, for the period ended September 30, 2018, primarily from the Pelen make-whole contingencies of $0.4 million as well as $0.4 million costs of issuing preferred shares.

Net loss was $3.5 million for the nine months ended September 30, 2019, as compared to a net loss of $6.9 million for the nine months ended September 30, 2018. The $3.4 million improvement in net loss is primarily a result of $2.2 million of income recognized from the cancellation of the Tonogold Option Agreement from 2017, a decrease in operating expenses of $1.5 million, a decrease in interest expenses of $0.2 million, offset by an increase in all other expenses of $0.6 million consisting of an increase of $0.4 million for issuance costs for Preferred Shares, and $0.2 million for all other expenses, net.

### Liquidity and Capital Resources

The Company had total assets of $35.4 million, total current assets of $12.4 million, current liabilities of $12.3 million and net current assets of $0.1 million, including cash and cash equivalents of $0.3 million at September 30, 2019. The Company’s current capital resources include cash and cash equivalents and other net working capital resources, along with a loan commitment agreement with $10.0 million in unused capacity, before consideration of fees due at the time of borrowing and the 2019 Equity Agreement with Murray FO, LLC ("Murray"), with aggregate unused capacity of $4.3 million as of September 30, 2019, pursuant to the Company’s shelf registration statement on Form S-3, filed on February 26, 2019. These capital resources are in addition to certain planned non-mining asset sales and proceeds of the transaction contemplated by the Tonogold Agreement, including an additional $0.5 million received subsequent to September 30, 2019.

Net cash used in operating activities was $2.3 million for the nine months ended September 30, 2019, as compared to net cash used in operating activities of $3.5 million for the nine months ended September 30, 2018, a decrease of $1.2 million, resulting primarily from a decrease in costs, driven by the Tonogold reimbursements from the various Tonogold Agreements.

Net cash provided by investing activities for the nine months ended September 30, 2019, was $1.7 million, primarily relating to $3.9 million of deposits on the sale of the Lucerne mine properties to Tonogold, offset by $1.1 million in deposits and payments on the purchase of DTSS and the related non-refundable deposits on the option to purchase land, $0.4 million for the investments in Mercury Clean Up LLC and $0.23 million for the investments in Sierra Springs Opportunity Fund. Net cash used in investing activities for the nine months ended September 30, 2018, was $1.0 million, primarily a non-refundable deposit on the option to purchase land.

Net cash provided by financing activities for the nine months ended September 30, 2019, was $0.4 million, comprised of the pay-down of long-term debt of $3.2 million offset by the net proceeds of $3.6 million from the sale common shares. Net cash provided by financing activities for the nine months ended September 30, 2018, was $3.7 million, comprised of the $2.0 million payment received from Tonogold on the Option Agreement and the net proceeds of $3.7 million from the sale common shares, offset by the pay-down of long-term debt of $2.0 million.

The Tonogold Agreement is expected to provide a total of approximately $7.6 million in cash to the Company in 2019 and approximately $4.0 million in 2020, for the purchase of the membership interest in Comstock Mining LLC, the owner of the Lucerne properties. When received, the cash will be used to pay-down the Senior Secured Debenture. The Tonogold Agreement also relieves the Company of $8 million in long-term obligations, primarily $7.2 million for the Northern Comstock annual mine claims and $0.8 million of other Lucerne-specific reclamation liabilities with Storey County, Nevada and the State of Nevada. The Tonogold transaction and agreement subsidizes a total of approximately $2.2 million of annual costs.

On September 26, 2019, the Company entered into new agreements, with Sierra Springs Enterprises Inc., a qualified opportunity zone business, to sell the industrial land and senior water rights in Silver Springs, NV, (the “98 acres”) for $6.5 million and to sell its rights in the membership interests in Downtown Silver Springs, LLC (“DTSS”) for $3.6 million. The agreements require the transactions to close before December 15, 2019, and are expected to result in a gain of approximately $4 million. On September 15, 2019, and effective September 25, 2019, the Company terminated previous agreements to a different third party to sell the 98 acres and to sell DTSS.

The Company has recurring net losses from operations and an accumulated deficit of $235.6 million as of September 30, 2019. If the Company was unable to obtain any necessary additional funds, this could have an immediate material adverse 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 such actions on favorable terms, in a timely manner or at all. 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 statement, borrowings, or other means, there is no assurance that the Company will be able to obtain additional equity capital or other financing, if needed. However, the Company believes it will have sufficient funds to sustain its operations during the next 12 months from the date the financial statements were issued as a result of the sources of funding detailed above.

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplates continuation of the Company as a going concern.

### 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, 2018.

## Controls and procedures

As filed, 2,577 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 the 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. Our Principal Executive Officer and Principal Financial Officer concluded that, as of September 30, 2019, 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 Rules 13a-15(f) and 15d-15(f). Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2019. 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 September 30, 2019, 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 September 30, 2019, 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, 2018.

Filed Nov 4, 2019.
Source: SEC EDGAR, the filing index for accession 0001120970-19-000074. Last ingested by Listed: Nov 4, 2026, 17:20 ET. No prices; not investment advice.