Comstock Inc (LODE) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Comstock Mining Announces Third Quarter 2011 Results conference call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Corrado De Gasperis. Please go ahead, sir.

Thank you Pamela. Hello everyone. I'm going to start off by providing a brief summary of the information that's included in this morning's press release. If you don't yet have a copy of today's press release you'll find a copy on our website at www.ComstockMining.com under News/Press Releases. I also posted a blog last night that includes some photos of our progress towards production that you might find informative. The blog can be found at our web site, again, www.ComstockMining.com/corporate/CEOblog.

Let me remind you that I may make some forward-looking statements on this call. Any statement related to matters that are not historical facts may constitute forward-looking statements. The forward-looking statements are based on current expectations and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are he detailed in reports filed by the Company with the SEC. Those risks are also identified in this morning's press release and all forward-looking statements made during the call are subject to those risks and other risks that we haven't identified.

All right. So let me begin with an update on production including a brief update on our team, the recent approvals by the Nevada Department of Environmental Protection, also known as NDEP, and the status of the air quality permit. We previously announced that Steve Tucker joined the Company as Senior Mine Planner and Cindy Byrns joined as Director of Environmental and Regulatory Management. Both of these experienced employees have made immediate and meaningful impact on our project.

Steve and the broader team have developed and are currently optimizing the engineering of our starter mine. They've begun engineering scenarios that could extend the mineral resource potentially beyond the four years. Cindy, on the other hand, was primarily responsible for obtaining the recent approvals for commencing and accelerating construction of our new process solution pond and advanced preparation of our heap-leach pad, both of which I'll talk about in a little more detail. I blogged the topic yesterday, and we also again posted some very good pictures of the construction in progress of this 3 million-plus gallon pound.

Recall that in September we were informed that we could not begin these construction activities until we received our air quality permit. However, in October we were able to solicit an order from NDEP requiring us to construct this pond initially for storm water retention and ultimately, once we receive the final air quality permit, as our main expanded process solution pond. The pond will be completed this year and eliminates any artificial delay potentially caused by cold weather. It really was a mini breakthrough for us and it demonstrates constructive cooperation between us and NDEP in progressing our project, facilitated really by Cindy.

She's also been fully engaged with NDEP over the last month on the air quality permit itself. I know everyone is anxious to get an update on that. Over that time, we've iterated the air quality permit application several times with NDEP. This is very good, in that we're clearly on the priority sequence for them now and we're finally moving close to public notice. However, there were two important positive developments that occurred during this process. The first development is that the Nevada Mining Association made significant progress working with NDEP in better defining the new air quality permit parameters and how they would best apply to us and miners in general and I'll be happy to expound on this in Q&A if anyone's more interested. I assume that you will be.

But these better defined parameters are extremely beneficial to the Company. We believe the changes will result in a much more efficient measuring and monitoring process with both the state and ultimately the federal government. These changes that are now complete did contribute to some of the delay as they did again require changes to our process calculations and our designs. We now understand that we're still about a week or so away from the public notice. The public notice period will be 30 days with a public hearing prescheduled for the end of that 30-day period, likely in late December. In other words, there won't be successive 30 day periods. Some people have asked questions about that. Just one 30-day period ending with the scheduled public hearing.

We obviously can't guarantee that this will occur exactly that way, especially with the holidays in December, but we're very active in moving forward regardless. In fact, just last night I attended the Comstock Historical District Commission meeting in Virginia City where we received unanimous approval from the commissioners for the historically acceptable exterior design for the expanded Merrill Crowe building. For those of you who may not know, the Historical Commission Board includes as its members the Storey County Commissioner, actually the Chairman, the Lyon County Commissioner, a [Shipbo] Commissioner, a Gold Hill resident, et cetera, et cetera. There's I think nine commissioners that gave us unanimous approval last night.

We're also finalizing the expansion and testing of the Merrill Crowe facility within that building offsite and we're scheduled to take receipt of our mobile equipment on December 1. So the project is moving forward on all fronts. The second NDEP development which is as meaningful is that we have also received approval from them to commence ripping the heap in preparation for the addition of ore and solution.

This procedure basically loosens the top six feet or so on the heap-leach pad to allow for the best penetration when we actually start applying solution. We plan on starting that activity next week. The ripping activity, not the applying the solution. So once the air quality permit is received we can move forward more quickly with the expansion of the Merrill Crowe facility and these expanded heap-leach processes.

Let me now also highlight that our recently published technical report provided the results, the full results of our metallurgical testing that simulated our heap-leach process. McClelland Labs designed and performed column heap-leach tests in conjunction with our people on composites of high- and low-grade materials that simulated and provided data that fed into the final design of these new facilities that we're talking about. Gold recoveries from these tests averaged over 72%, and silver recoveries averaged almost 50%, both above our previous expectations.

Finally, we've also made tremendous progress in the last few months updating our reclamation plan for all of these expended activities and for the full entirety of our three-year plan. We're now expecting our expansion of the starter mine and heap-leach processing will increase the reclamation bond, not by $5 million, as previously communicated, but somewhere in the range of $2 million to $4 million, lower than expected from our last discussion, really because we're making improvements on how we're engineering the reclamation design for the heap-leach.

In summary, for production, with the strong production team, better than expected metallurgical testing, pond construction and heap-leach preparation well in process, most all of our equipment procured and the air quality permit much more imminent, we anticipate producing in the second quarter of next year. Let me turn briefly to exploration. I won't be too redundant here since we had the call last month and hopefully you've all by now read the 43-101. But I'll also provide a brief update on some related land purchases and exploration permitting.

As most of you know, total gold equivalent ounces increased from 1.6 million to just under 3 million ounces. We just about doubled the Company's measured indicated and inferred ounces from 1.4 million to just under 2.8 million. All these ounces are coming from our two resource areas, the Lucerne and the Dayton. The Lucerne Resource Area's measured indicated inferred ounces alone, increased over 1 million ounces to 2.3 million from just 1.2 million last year and Dayton increased from the 200,000 ounces to over 500,000 ounces with outstanding geology and mineral concentrations well-defined, despite the fact that we were limited to 5 acres of surface disturbance, preventing us last year from further expanding that drilling.

Overall, measured and indicated resource for the Company increased by 72% from just over 1 million to 1.8 million ounces. Despite, again, reporting nearly 3 million total gold equivalent ounces, we feel like we're just scratching the surface of the Comstock. Our exploration team worked together to develop a structurally controlled model that targeted specific trends and rock types throughout the entire district, bringing us these results. We continue connecting these dots especially from the recent knowledge obtained in the Lucerne, Hartford, Billy the Kid and Dayton patent. Based on those results, the Company moved to secure three large claim groups in Lyon County.

In early October we closed escrow on the Oest properties, representing about 70 acres that are contiguous to both the west side of the Dayton and southwest of the Lucerne. And we also exercised our purchase option on the Dondero property, just south of and contiguous to the Dayton and our Spring Valley claims. The Dondero property consists of over 84 acres of mining patents and surface lots. And then in mid-October we elected to exercise our purchase option on the Dayton, securing all four patented load claims and town lots, totaling 95 acres. These mineral claims are contiguous with our Spring Valley mineral holdings, effectively connecting everything from the Lucerne right down to the Spring Valley, and of course, we already defined over 500,000 ounces on the Dayton.

Now, these three transactions represent properties that we had previously secured but with the knowledge of the mineralization and the results of our drilling we moved to consummate and exercise those options and secure those properties. Also in mid-October, our permit for expanded drilling in Lyon County was finally offered for public comment by NDEP with a public hearing scheduled for tomorrow.

This permit significantly expands our authorization for exploration drilling on the Dayton and Spring Valley areas and we anticipate final approval of this permit later this year. When combined with the Storey County permit that we received unanimous approval for on October 4, these two exploration permits provide the required approvals for all of our planned exploration in the Lucerne, Dayton and Spring Valley areas. We really have come quite a long way in this area since last summer.

All right. So, let me just wrap up with a few corporate matters and then we can go to questions and answers. Over the past 12 months we used $19.8 million of cash, and had cash on hand at September 30 of $15.9 million. That number was just under $15 million at the end of October. Specifically, we expended $6 million for exploration and mine development and $2.4 million for mineral and other property purchases. To date, we spent approximately $4 million in capital expenditures, primarily for the crusher, Merrill Crowe and rolling stock equipment purchases. During the next 12 months we anticipate procuring and paying for the rest of this equipment with substantially all of those assets being either leased or financed, resulting in an additional $3 million of remaining net cash outlays for capital, just $3 million of remaining net cash outlays for capital.

This also includes expanding the existing heap-leach to a capacity of about 4 million tons, but that's something we don't need to do immediately. We are funded for production and we have more than sufficient cash. Also during the nine months ended September 30, 2011, a total of 6,235 shares of Series A2 and Series B stock was converted into a total of 5.4 million shares of common stock. With that, we currently have 28.2 million common shares outstanding and $60.5 million of preferred stock outstanding. When you look at it in total it means that only 80% of the total preferred shareholders have voluntarily converted since October 2010. We sincerely thank all our shareholders for their strong support, not to mention some understandable bitching over the last couple of months. With that, I'm very happy to open it all up for questions.

Thank you.

(Operator Instructions)

Don Phillips.

Thanks for moving along nice. I see we're looking probably about May towards loading, right?

Yes, our schedule's targeting the May, June timeframe. There's actually still quite a lot of activity with the assembly and the construction of the crusher, the offsite testing, shipment and assembly of the Merrill Crowe facility, but really our ability to construct this massive solution pond and prepare the heap leach frankly was what so disappointing to us in September. So we're happy in October to be able to really get that behind us before the winter. The items that we just talked about, crusher, Merrill Crowe, et cetera, are not weather sensitive. Right? So they'll be a very methodical march once we do get that air quality permit, even if it is still a little bit more delayed.

Okay. I've got a question on the [Bardomar] -- their first recommendation was a preliminary pre-feasibility, it sounds like something you'd have an office temp do. But if you're going to get into the Toronto, for instance, it's a requirement. How is that coming along?

Yes, so technically we're not required on the TSX to have a -- let me just clarify this. We have a fully compliant NI 43-101 report that covers a resource and the disclosure thereof. So, that meets the TSX requirement, although in fairness, some of the Canadian investors prefer more, I would say more than American investors, a more formal feasibility study completed. [Barrie Gilbert] always recommends that and we receive that very well.

We recently had some discussions internally because we're hitting maturity on our mine plan with the economics. We're not 100% there but we're very close and a couple of our directors had said to me last month -- it would maybe a little bit more than an office temp Don -- but it would take not very much effort for us to just formalize that and get validation from Barrie Gilbert. Mike Norred is coordinating with Barrie Gilbert. It is our intention to do that.

I just want to set expectations the right way in that we have almost 3 million gold-equivalent ounces, 2.5 million of gold and 25 million of silver in our resource. The starter mine is looking to carve out certainly, ultimately less than 200,000, probably closer to 100,000, 150,000 ounces. It is that operation that we would nail economic feasibility to. I will admit, though, that people receive that information well and our Board's notion was that if you have it, you might as well validate it and deliver it and so we're keen to do that.

We don't have an exact schedule for it. We need to first finish our work and then very efficiently bring Barrie Gilbert in to do it. I think I mentioned this before. That doesn't preclude our ultimate intention once we drill out and have a final mine plan for the expanded Lucerne mine and once we drill out and have a mine plan for the final Dayton mine, we would most certainly deal with economic feasibility on both of those as well, almost like three steps.

There's no accounting for John Q Public but looks like the reason [$0.50] or so rise might be going in the right direction for a change, Corrado. Thank you.

Thank you, Don. Thanks.

Carl Frankson.

Thanks. Hi Corrado. Thanks very much. A question for you, I'm probably as old a shareholder, as long a shareholder in Gold Spring Comstock as anybody on the call, including probably John Winfield. It's always been about opening the mine.

Right.

And it's never been about just exploration. Mining has always been the focal point. Why haven't the permits, necessary permits been in place previously or in a more timely fashion? Why are we still waiting on permits?

Very good question. Very good question. We're waiting on the air quality one, right, so let me sort of address the question in that context and I won't be too long-winded here but very, very quickly, to explain. At the end literally -- at this point, 14 months ago, we applied for the air quality permit with the understanding of a seven-and-a-half month lead time which would have put us in May or June of 2011.

And in February the federal government settled a lawsuit that knocked most air quality regulation out of the state's hands, into federal hands, and if it wasn't for the Nevada NDEP coming up with a real permit for us to apply for in the meantime, which is this operating permit to construct with air quality, we would have had an even longer delay, so we were appreciative that there was a viable mechanism. Obviously, it was a new area for them because basically, what was happening is the state was going to permit you and then you would be shielded under that permit for the ultimate federal permitting and just recently, and this is the breakthrough that I referred to earlier, the Nevada Mining Association has had success in limiting what's regulated by the Feds to the most substantive parts of the operation.

We literally had to write a permit that covered everything that we did from air quality perspective under the federal guidelines which were very, very stringent. But there were only two real areas of our process that were major cause areas that really allowed for that and now the state is allowing us to split the permitting between federal and state, which really makes our process more efficient, removes a lot of monitoring in areas that just don't require it and makes it much more effective. Now, having said that, unfortunately we feel like we were on the very, very front line of the iteration that the state was going through from fully federal compliant, part federal, part state, plus they're busy as hell and so we're hitting almost the maximum delay.

It's also fair to say that for this air quality permit, we could not apply for it until we had the sufficient results from our metallurgical testing to be able to design the crusher in the Merrill Crowe facility, mainly the crusher. And so we actually designed our crushing operation before we had the full and final data to try to accelerate it. But there were just prerequisites that required. Now, prior to all of that, Carl, right, we didn't have a mine plan. We didn't have metallurgical testing. We didn't have sufficiency to get this last permit.

We did have an air quality permit before which was basically obsolete because of all the upgrades and changes that we made to the process. Now, my hope is we're going to have -- we have real sound base of knowledge, metallurgically and mechanically, right, and geologically from the starter mine to start very, very well. And I know it's not consolation for people who waited this long, but really we see the last obstacle being this permit and we talked about a month or so ago -- when I was talking to you then, we had about six or seven weeks of silence from NDEP. We were getting frustrated. Over the last five or six weeks there's been almost -- certainly weekly but in some cases almost daily iteration with them, so we are actively moving to the finish line here.

Okay, great.

Sorry for the long-winded response.

No, that answers the question. I appreciate it. And therefore, I take it you're comfortable with the new timeline for opening the mine and getting things rolling?

Yes, we're comfortable. If you just do the math, NDEP should be at public hearing late December. You have to acknowledge the holidays, right? So you've got to be giving or taking a few weeks. The good news now is that we're busy constructing the pond and preparing the heap leach and organizing the equipment right through the beginning of January. So we don't -- we're not being held up at this point because we've had these two breakthroughs with NDEP.

Thank you.

Thank you, sir.

James Peck.

Thank you. I think you pretty well answered my questions but I talked and joked with you before that I think the 49ers had a lot easier, all they had was a shovel and a pick, but no regulations, no permits to get all the time.

I think that they had it by far easier from a regulatory perspective, although their rule of law tended to be a gunshot in the back. 40% of the miners on the Comstock died a violent death. So I think there's a balance there.

We hope that we'll make that a little smaller percentage.

I hope I don't get shot.

It's my understanding in listening that you expect to get that first dollar of income coming out, in other words, something coming out of the mines about the, what, second quarter of 2012?

Yes. I mean, just to give color on that, I think that activity's starting now, right, and activity will continue fully now right through May and June. What we're targeting -- I guess everyone can define it a little differently, when we say production, we're talking about the entire system operating. Right? So May or June, the entire system's operating where we've excavated, we've started pulling out of the mine, we've built a buffer or stockpile, whichever way you want to think about it. We've started crushing. We've started treating.

But usually from the point that you lay the material on to the heap leach, it could be about 45 days before the full solution process starts pouring out the other end. So I think in the grand scheme of things, all that's correct. And when we get closer to that -- we'll be announcing -- I think there bill will be a lot more communication now because we're having heavy activities, certainly monthly, but almost on a weekly basis and once the system sort of gets connected we'll have a better ability to predict the first pour. It will all be in the context of production.

I think there will be a number of us who are looking for a party at that time.

People are asking for invitations. I think it's a little premature but we're getting close.

Well, best of luck to you and us.

Thank you.

Marshall Berol, Encompass Fund.

Hi. Thank you. Good job. Keep it up.

Thank you.

Couple questions. One, following on what was just asked. I assume that you remain completely unhedged. Any production you have will be sold as you see fit. Stockpiled or into the marketplace at current prices?

That's correct sir, yes.

And secondly, with regards to the land and you've made a number of these fill-in and tuck-in acquisitions, is there much of the land within the district, within the area that you are or want to operate, that you don't have? Is there much land left to be acquired?

No. I'll answer that three ways. The three things that we consummated in October which total 240 acres were previously optioned and controlled by us from a mineral perspective. I highlighted them because they all were mineralized areas that we're very keen on. The total of our position still remains just an acre under 6,100 acres, second part of the answer. The third part, though, is that there are some areas that we've now secured some option on that relate to maybe longer term planning on the notion of expanded processing area.

So in summary, 6100 acres, we have all the mineralized strike, and we are tucking in, purchasing if you will, finalizing transactions where either our knowledge suggests it's time to do that or, frankly, like in the Dayton's case we had until this year to exercise that option so we had no choice but to do it. We're happy that we're able to do it with such a good knowledge base of the minerals but there are a few more parcels that we've already put stakes into if you will, that will frankly that will allow us to expand production future, not just for American Flats and the Lucerne area but ultimately for second mine in Dayton.

Okay. Thanks.

[Alan Goede].

First, good morning. Tried to reach you several times but I understand that you're a very busy guy. You can't get to all the investors who call you on the phone regardless of how important they think it is.

Well, I apologize for not -- you did call me last week and when we get really close to this call I not only get constrained but I get blacked out a little bit too. So please go ahead, ask your question.

And I like numerous people on the call go back to the days of Gold Spring in the original days. So it's been a very long, long process, especially for the long investor, as I am and a fairly large and astute investor in what's been going on. I'm concerned because of the amount of time going on and moving forward with your burn rate as far as cash flow. Are you going to have enough cash flow to sustain you through the holidays and through up until spring when you start producing gold and silver?

Absolutely, and beyond. I mean, the plan to get into production is reasonably solid. We're looking still about seven more months before we get to the points that we talked about. We have sufficient cash to go well beyond that. I think people are aware that we sort of not only from a schedule perspective but almost from a DNA perspective, we switched from being an exploration company to a production company and 99% of our activities right up and through the pour is either production or production related, even the drilling that we're doing still continues to support the starter mine and the expansion there, too.

The burn rate that we had went from a high number of dollars for exploration to a specific number of dollars for capital and we have not staffed up yet. We have the management team in place, right, so all the decisions and all the schedules are moving forward. But it won't be until later in the process that we'll hire about 15, 16 more miners, blasters, supervisors, haulers, et cetera, to actually enable the full system. So we're solid on that point.

Have all the equipment been purchased yet?

All of it's been procured in the sense that, yes, it's all been purchased. The crushing facility's ready offsite up in Nevada at Good Fellows. The rolling stock will be delivered December 1. It's all in Reno at Cashman Caterpillar. The Merrill Crowe facility, I understand is about a week and-a-half away from being fully assembled and tested.

We slowed that down a little bit when we learned about the delay but we're looking out to getting out to Salt Lake City and observing ourselves the whole facility operating offsite. As soon as there's a schedule, that is soon as that air quality permit gets communicated to us, we trigger and then all of the construction activities and the hiring, the a assembling of the system, the testing of it, et cetera, will occur. That's when I meant too, when I said there will be a lot of communication over the next six or seven months just simply because a lot will be happening.

Thank you. Could you also go into what prompted the trip to Europe and what happened because of that trip?

Really, we had one of our bankers excited about us communicating the 43-101 results. So it sort of started out as being a notion of just updating some people in New York and maybe Toronto but then there was some inquiry from London so we popped over there. And I spent two days in London, one day in Zurich. I think we met with the right kind of accounts, the kind of people that frankly hadn't heard the story at all before and I think longer term type of investors that tend to do a little bit of homework before they start investing. So I thought it was constructive. It was in a period of time where there was a little lull so I had the time to get away, typically it wouldn't -- I wouldn't really have the ability to do that. I think it was positive.

I think the major concern that I have as well as the friends that I have that are invested heavily in LODE, in Comstock is the fact that when the stock was selling well over $3, and moving forward up to around $3.40, and then all of a sudden the option and plays was open, there was so many short positions and from my understanding naked short positions that it dropped the stock down to the level that it did. And there is some, obviously some large concern on our part that that in fact, could in fact happen again.

Right. I think that -- I mean, just as a general perspective, right, the market was brutal for a couple months there. And I do understand. We seem to be oversold from my perspective, at least, in part of that period of time and I also understood that there was some disappointment as I shared it with the delays in production. I really feel like there was never any kind of panic in that we worked very hard to keep ourselves on the ground, focused on production. And we tend to feel, although it's important to communicate properly and to update timely, that if we get the work done on the ground, we'll have a breakthrough. Right? And so I can't add that much more, unfortunately.

Can you provide any assurances to us, because Mr. Winfield is -- and I thank him for all the money that he put up originally, but he's taking a very, very nice 62% stake in this Company. At which, deservedly so, because of all his fortuitous appraisal of the situation and the money that he put forward. I don't begrudge him for taking the very large stake in the Company. But can you give us any indication as to his ability to be able to at this point not be selling large chunks of his stock and his ability to be able to maintain an aggressive approach to holding his stance? Have you had any discussions with him in this?

First of all, John is the Chairman of the Board now, so he has a very solid fiduciary position in terms of the entire stakeholder base which is delightful to us. He also frankly, with his position is in affiliate status and is required to file Form 13s immediate as well as inform the Company immediately. We know that none of that is happening at all. I think even more indicatively, because of his affiliate status, he's the only shareholder today of all the preferreds and all the common who is actually restricted and not fully and freely tradeable in his stock and last month for the third time since we did the deal, he's waived his registration rights.

In other words, when we raised the money last year, we committed and already have registered the shareholders that invested and John had piggyback registration rights. In other words, he had the right that if we register anybody else we would have to register him as well. On three occasions now already he's waived those rights. Frankly, we see John as the anchor. He's the Chairman but he's also the anchor investor in this Company. I speak to him at least twice a week and we feel nothing but support from the Board level in terms of our project schedules.

Okay. Well, I thank you very much for being so fortuitous and so honest in your appraisals of what's going on. I can say quite frankly, I'm a little disappointed that we're not going to be bringing in any metals until the spring. It's been a very long wait as you know.

Alan, I share that disappointment with you.

Yes. And for a lot of us who have been in with the Company for well over five years, especially with what could have been done with the market, it is disappointing. So it will be a long wait that will be very glorified at the end.

Yes. We'll make sure that all the intermediate steps are communicated so that people feel very close to all that's happening. I even had one investor, so I might as well say no to this on the call right now, ask if we could put up video cameras so they could monitor the construction progress. We will post pictures, et cetera, on the website as things meaningfully change.

[Dennis Vashqua].

Hi. Last conference call you indicated you might give us a rough order of magnitude of what it would cost to take the gold out of the ground.

Yes.

Are you able to give us a rough order or --?

Yes, I can give you a rough order. We have a preliminary mine plan. We have economic shells. If I can just give you a visual, literally the mine is designed in front of us. We're seeing haul road ramps and we're seeing high walls, et cetera. But it's not final. Right?

And I think it's good because we have sufficiency. We validated sufficiency for starting a while ago but the guys are really working hard, I mean really hard right now, optimizing it. Including -- so there's not obstacle to starting in that regard. I want to be clear. But there's certain artificial constraints even within the mine. And things like engineering and some approvals can really get us more optimal. That's what Steve Tucker, Mike Norred and the team are working on.

When we look at our cost for mining, and that would include definition drilling, blasting, load and hauling, all the roads and the dumps, equipment servicing, mine labor, you name it, all the components of mining on an annual basis for the starter we're looking at -- and I'm giving you approximates, right, about $5 million. When we look at processing, that's when you're going to have all the movement of your mobile equipment, the power, the maintenance, the operating labor, the electrical maintenance, the mechanical maintenance and all the consumables that comes with the processing, you're looking at $8 million. Right, on an annual basis.

Now, I'm going to be a little conservative when I talk about these numbers. I even throw in an extra $1 million of environmental. Because -- and when I say environmental, I mean community and environmental. We're taking great care to attend to the natural historic Comstock. We're not really doing anything unnatural, quite frankly. But we're still being very careful and we want to anticipate things.

So we're looking at a total annualized cost that doesn't include exploration, but we're looking at a total annualized cost that gives us a quite exciting and profitable starter operation. I don't have the precise ounces. I don't have the precise grades. We now know the metallurgy. But we know we have sufficient ounces and we know that they're well above our cutoff. There's still a little bit more work to do. We have the time to do it here in the next five, six weeks. The guys are dedicated to that now.

Once the 43-101 was put out and once these obsessive permitting burdens were put behind us and I don't just mean air quality, that hasn't been a burden, frankly, until just about five or six weeks ago when we got really active. But over the summer and the fall we were working so hard on breaking through on these exploration activities from a permitting perspective. We now are dedicated to these final steps. So I hope that complies with the request of giving some insight. I know it's not everything. I tend to look at things on absolute dollar amounts. I'm an absolute dollar amount guy. Ultimately, people can translate it to cost per ounce and things like that on their own but we'll provide more information early next year when it's all final.

That gets a rough idea.

Yes.

Okay.

All right?

Thank you very much.

Thank you.

[Peter Tattleford].

Hi Corrado. What's this sending me e-mails at 930 at night. Don't you go home and sleep.

You'd asked a very specific question so I had to answer it. All the data was filed so I was actually allowed to.

I appreciate that. I appreciate you and what you've done. A lot of people, and I've qualified why I say this with you really need to know how much it takes and how many roadblocks can come up and turn you from your goals. You're virtually you're starting a new company basically and it does take a lot of effort to get there. All the work you've done is all the groundwork to get to where we're starting to see this now and it's not an easy road. It's difficult. Appreciate all the effort, all of the staff and you guys have put into this. It's a lot of work and I know that.

I wanted to pass on something that I had found out from NDEP to you, that since Cynthia has come on and that hiring of Cynthia, they have been very pleased with the process with you and working with you and they seem to really like her a lot. I think that's going to be a big asset for you coming, any of the people you've gotten, you've gotten great people though, in the future because permitting processes and doing these things and the environmental part of her being with the DERM of you it should be a big thing to make this Company be able to move along.

I think once you get to this area that you're in now, there's always a point when you're just about ready to go do what you've been fighting for to go do and that is to get production. There's always an interim period that really gets frustrating because things keep happening to stop you getting there. But good job. Wanted to let you know it's appreciated.

I thank you for the comments on Cindy and the whole team. I think the caliber of the people, all of them, is outstanding. I'd just make one comment to that end. Although in Cindy's case, we also get fully dedicated person on permitting where we didn't have that before, despite having good people. It's really been a game changer for us for sure.

But I'll give you an observation that I've had in meeting some of the peers in the industry and talking to people who are either exploration people or exploration moving to production. I get a sense often that they're afraid of production and that they really don't want to get into production, not from their words but from their actions and their tone and one thing I can assure you, right, is this group is hell-bent on getting into production. Cliff Nelson, Cindy Byrns, Steve Tucker, Mike -- I mean, the attitude is sort of, we won't be denied. Yet, with etiquette, because we're on the Comstock.

You can take a bull approach and we feel like we've got that kind of muscle but we have to be a little more considerate, a little more considerate because of the importance of the area that we're in and I feel like we've got that balance, bias towards the hell-bent part and bias towards not being denied. And I'm not saying that in any kind of exaggeratory way. I just feel it. I feel like it's come together. Frankly, I felt it since the summer but it felt like we didn't have anything to show for it which was frustrating as hell. Now we're starting to break through and if I could, just add one thing, because I know there's some people who know him personally.

Larry Martin, who was leading the charge on doubling the ounces and putting out the 43-101, took ill about four weeks ago. We thought he had gout. It turns out he had a staph infection and the poor man's been hospitalized for about three weeks. He's turned the corner; he's lost about 35 pounds. He's never been happier or more positive except for can't get up and walk around until they clear him. It was a little bit of a scare for us. And I'm very, very happy to report -- anybody who wasn't aware of that, I know he would appreciate if you wish him well. But he's been the guy, been here almost from the beginning too.

Yes, Corrado, the only other thing I wanted to mention is if anybody was at the shareholder meeting and the caller that was concerned about John Winfield's actions in this Company, what they may be in the future, if you were to talk to him as I did, there is no way John Winfield wants to walk away from this project. He is dedicated to it. When you listen to him, I just got a total dedication there. He's not going to do something to harm this Company, believe me, or any of the shareholders. He believes they're part of the family.

I feel a great alignment from the Board down to all the people here in terms of what we're trying to do and I agree. We'll have another shareholder meeting. This one will actually be pretty exciting as I start to think about the timing where we're the full staff, Steve Tucker, Cindy and everyone else that was there last year will be front and center.

Thank you, Corrado. And we're going to try -- a couple of us want to try to come over the hill and, we don't live too far away, and see you, see what's going on there. We'll probably --

Give us a little call ahead. The mine site looks very different. It looks very different --

I can't wait to see it. Thank you.

-- than last time than last time you were here. Thank you.

Jack Albright

Thank you for taking my call. I'm a fairly new stock person here.

You're welcome, Jack.

I also have a slight speech impairment. So bear with me.

I can hear you okay.

All the mines so far are going to be open pit. Is that correct?

That is --

-- or will you be doing underground mining also?

Well, yes, so let me answer it this way. So far, the resource definitions that we have for the most part in both the Lucerne and Dayton are less than 500 feet from the surface and the rock type's very conducive to open pit. We have drilled deeper than that now in both Lucerne and Dayton but not hardly deeper than 900 or 1,000 feet. The historical Comstock geology was almost entirely known for deep underground mining going as far as 3,000 feet. So we know and we firmly believe that post the initial near-surface open-mining opportunities that we have, that there will certainly be deeper underground opportunities.

Some of our highest grade Bonanza targets, if you will, are deep and we've had a strategy of being most efficient and effective by targeting the best known, nearest surface minerals for open pit mining to start. But then ultimately -- and when I say ultimately, we don't even have a time horizon tied to this, certainly it's more than five to 10 years beyond where we could be very much back deep underground. So it's both in the long term. It's open pit in the immediate term.

Imagine any of that would be under the town?

No, not -- no. Because our -- there is -- we talk about controlling the entire district and the entire Comstock district in a specific context, that's completely true. Everything's south of Virginia City. Okay? And we don't have any claims -- well, everything south of Virginia City is where we're targeting and frankly, for any immediate areas, it's actually well south of Gold Hill.

There is another Company and/or gentleman who has claims in Virginia City and throughout Virginia City but we don't have any of that in our plans. We've extended the district much further south throughout the Dayton and then into the Spring Valley, which from a historical Comstock perspective is almost untouched, right, whereas most of the 700-miles of underground tunnels that were dug by the old timers was under Virginia City and just south of it.

I'm quite familiar with Virginia city.

Yes.

Okay. The next question I had. You bought the Gold Hill motel.

Yes, hotel, yes.

Hotel. And we were up there last fall, which we had dinner there, wonderful, fabulous, we had the prime rib. Next door to that, the old mine shaft, do you own that?

We have a lot of claims around the hotel. The [Kentuck], the Yellow Jacket, et cetera. Not sure which shaft you're referring to, though.

Just south of the building.

Yes.

Big head frame there. I assume there's a shaft that goes with it.

Yes, there's -- okay, I think it's the Crown Point Mill that you're referring to. It's owned by the Mitchell family. And they're very, very good friends of the Company, investors as well, but I don't think -- we certainly don't have that specific shaft. Just a comment on the hotel. We did hire a new chef and he's fabulous. I can't exaggerate how good he is and it's sort of gone viral in Virginia City. We're getting a lot of people coming to visit now because of that. And so we're happy, of course, by that.

We were there in September and there was nothing wrong with that chef.

Was it September when -- I think that was our new chef already. Yes.

Okay.

Yes. That was our new chef already.

You pretty much answered my questions.

Jack, thank you very much for the call.

Okay.

Thank you. There are no further questions at this time. You may continue.

All right. Well, if there's no questions I thank everyone for participating and if you have any individual questions you can always reach out and call and we look forward to talking sometime in the near future. I'm sure that we'll have an update call before the end of the first quarter, probably in the, sort of the February time frame and we will be more active in blogging as the activity picks up here. So thank you all and have a great day.

Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your line and have a great day.