Comstock Inc (LODE) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Comstock Mining announces 2012 year-end results and business update conference call. At this time all participants are in 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.

Thank you, Petelange. Good morning and afternoon, everyone. Good morning, I guess everyone; we are doing it a little earlier today. My name is Corrado De Gasperis, President and CEO of Comstock Mining, and welcome to our 2013 annual conference call.

I will provide a brief summary of the information included in our recent press release and also included in our current Form 10-K, which is scheduled to be filed timely, this Monday, on March 18. If you don't have a copy of today's release you will find a copy on our website, at www.comstockmining.com under News/Press Releases.

Please also let me remind you that I may make some forward-looking statements on this call. Any statement relating to matters that are not historical facts may constitute forward-looking statements. The statements are based on current expectations, and those statements are subject to the same risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in our reports filed by the Company with the SEC; they're also identified in this morning's press release. And all forward-looking statements made during this call are subject to those same risks and other risks that we cannot identify.

Okay, so let me briefly review production first, then I will talk just a bit about drilling and mine development, and wrap up with a few corporate highlights before we move on to the Q&A.

Regarding production, as all of you know by now, we have been pouring gold and silver since the last few days of September, and we have been pouring really ever since. During 2012 revenues totaled $5.1 million with gold-mining revenues of $4.5 million. Costs applicable to mining totaled $3.6 million net of the silver byproduct credits. In total terms, metal shipments including silver were $5.4 million in 2012.

From the commencement of smelting through last week the Company has poured and shipped 44,760 ounces of dore; that would be 4,264 ounces of gold and 40,176 ounces of silver. In addition, the Company delivered last year about 28 ounces of gold and almost 300 ounces of silver to the Northwest Territorial Mint, which facilitated the minting and the really incredible success of selling out our commemorative dore bars which celebrated our first pour.

Metallurgically, we have recovered 67% of the estimated recoverable gold and 51% of the estimated recoverable silver from the portion of the heap leach that has been under leach the longest. Basically that is telling us that our preliminary lab tests, our results, really suggest that the ultimate heap leach recovery is on expectation and we believe will certainly meet or exceed the estimated ounces of recoverable gold and silver that we have on the leach. So that is a very critical point at this juncture of our production startup and ramp up.

Through last week we have now crushed over 465,000 dry tons of mineralized material. The leach pad itself has an ultimate capacity of almost 4 million tons, and we will expand to that full capacity sometime later this year.

Our existing five cells will expand to eight full cells once we get our final -- our water pollution control permit modified, which is likely late this summer or early fall. We finalized that permit application; and that will not only authorize the leach expansion, but it will also allow us to sustain a production rate of well over 1 million tons per annum. In fact, the next category of permit modification goes from up to 1 million to a category of 1 million to 5 million.

We are now adding new pads of ore regularly, actually at a rate of about two new pads per month coming under leach, which compares to one per month when we initially started up our production.

During February, as I think most of you probably know now, we had a really significant breakthrough with the BLM when they made a determination to allow us to move forward with the Class 1 Color-of-Title claim with respect to what I guess is now the famous Lot 51, a 25-acre parcel of land up here on Gold Hill that was blocking our preferred access to our processing center.

The BLM is now allowing us to use the existing haul road segment that crosses Lot 51, providing a much, much, much more efficient connection for our previously granted right-of-way. To comply with that new allowance, that new authorization if you will, the Company is now using 10 brand-new 40-ton articulated Caterpillar haul trucks.

These essentially shorten the distance while carrying a larger load and decreasing the overall traffic on our haul road and eliminating the traffic on the state route. So these vehicles really have unblocked the mine area, if you will, from the logistical constraint that we had previously had imposed on us, increasing our throughput, increasing our hauls per trip and reducing costs significantly by reducing the length and number of overall trips.

The breakthrough does more than that for us. Really the breakthrough now presents us with an incredible opportunity that we are seizing to accelerate our planning, environmental, and engineering assessments to ultimately present full feasibility for an expanded Lucerne Mine plant operation.

We already have sufficient drilling and geology to do this, so we are currently pre-planning these activities. This should lead not only to an expanded mine plan with definitive economic feasibility for that bigger mine operation, but also to accelerate the planning and the federal permitting processes that would correspond with that extended plan. This was one of the major drivers for raising some of the additional capital this week so that we can much, much faster move from mining about 20,000-plus ounces per year to 75,000 to 80,000 ounces per year or more just from the Lucerne.

We are currently now mining and hauling at a higher rate, about 5,000 to 6,000 tons per day, which is a significant increase from just one month ago. We have actually stress tested the entire system and we have achieved sustainable rates of over 7,000 tons a day.

We are very near completing the staffing and the rescheduling of operations so that the mine can haul, crush, mine, stack seven days a week. This has all been enabled effectively, if you will, by the BLM breakthrough, but certainly by some absolutely outstanding operational management over the last three months on the ground.

I should introduce here at this juncture one of our new employees, Dave Thomas. He is newly appointed in our Company as Director of Mining and Processing and has made a profound impact on increasing the speed, reliability, and throughput of our system over the last quarter. He was most recently with Newmont as country manager for Canada and one of their senior executives, but he has been with us now for the last five months and I couldn't be happier having him on the team.

As most of you know, our plans have the leaching process building us up to 20,000 gold equivalent ounces as a run rate per annum by late April. That is on track.

Our grades are improving; and that is for me a great profile for not only improving production but improving our cash flow. We will be fully cash flow positive when we hit that 400 ounce per week run rate in April, enabling us to fund all the growth initiatives that we just discussed.

We have also updated our financial analysis for the Lucerne Mine, and we anticipate annual cash operating costs including all the mining and processing costs of about $15.9 million per annum. Now that number for us is on expectation, because it is important to highlight that that number was calculated enabling us to ramp up production greater than 1 million tons per annum. We are not actually at that run rate now, but we believe within that run rate we can ramp up to almost 50%, maybe 1.5 million ton per annum run rate.

So we are very excited about the more efficient infrastructure and the more productive throughput. We are ready, willing, able to deliver in this calendar year 18,000 to 20,000 gold equivalent ounces. And that means that we will be running at a rate of higher than 20,000 gold equivalent ounces as we go forward from April.

In summary, during our last call I said that to grow we needed to obtain a new BLM right-of-way and that we also needed to expand our existing water control permit, as these were the two factors that were limiting us to that 1 million tons per year. We had the breakthrough at the BLM, and we are now complete with the engineering and permit preparation to file our water control modification next week.

In fact we have already had multiple meetings with the relevant regulators once we have completed our internal engineering and our internal plan. And we feel very good about obtaining that modification timely, most certainly later this summer.

Let me turn to exploration now. I will be a little briefer on this point. The technical report was filed in February. We announced it; it was dated January 31.

The report declared a mineral resource of 2.15 million gold equivalent ounces of measured and indicated. It added another 870,000 of inferred, which put us at 3 million ounces of measured, indicated, and inferred and over 3.2 million total ounces in our resource deposit.

Most of the drilling that occurred in 2012 was infill and development in Lucerne. So Lucerne itself increased its measured and indicated resource by 25%. Very significant for our most significant resource area.

The drilling represented about 391 holes, almost 150,000 feet at a cost of about $4.9 million with an average cost per foot in that drilling of about $33 a foot. So that area, the Lucerne area, which of course we are mining in today, now has a modeled mineralization strike that covers over 5,400 feet or, said another way, over 1 mile of mineralized strike length.

So it is really tremendous to have Lucerne at the very, very nucleus of our property position -- very, very center of our property position. In so many ways we feel like we are just getting started here, including the fact that we have only drilled about 60 holes on the East side. And although we only drilled a limited number of those holes this year -- that is, 20 holes -- the results led to the discovery and interpretation of the Chute Zone by our geologists.

This intersection, which hosts a zone of incredibly enhanced mineralization, amounts to dimensions of anywhere from 100 to 150 feet by 100 to 450 feet, really has been recognized by our geological team and our Chief Geologist, Larry Martin, as enhanced grades of really incredible precious metal. It is just the beginning of what we are discovering on the East side.

We have had high-grade hits across the entire spectrum. But to start to see these kinds of concentrations and start to compare these kinds of discoveries to areas like the historic Woodville Bonanza could not be more exciting for us.

That technical report has been posted on our website fully. The actual report is 173 pages long. It is outstanding; I think everyone should read it.

I would just like to quote a few of the highlights from the report for you. On page 4 the report quotes a significant discovery of higher grade mineralization termed by CMI geologists as the Chute Zone. The intersection zone holds elevated grades of gold and silver that consistently average a tenth of ounce of gold over drill intercepts of anywhere from 50 to 270 feet, with dimensions mapped to the levels that I just described.

Page 5, substantial resources have been identified to the South at the Dayton property, and encouraging exploration results have been received at Spring Valley.

Page 9 Behre Dolbear says that they believe the Comstock Mine Project represents a well-explored epithermal precious metal deposit with a world-class mining district. The geology of the project area is well described and understood through vigorous surface mapping and drill hole logging. The density of the geological data is high and the reliability is excellent.

It goes on and on. Even though it was just a resource report, they also quote on page 127 -- and validate the current calculated metallurgical recovery rates, and that they are hitting and exceeding the initial metallurgical recoveries.

And then they also speak on cost. They said that they verified the grades in our resource model, and they also said forecasted operating costs were compared with the very preliminary results in the first three months of actual operations -- which they are talking about the fourth quarter of last year -- and are considered by the author to be reasonable and that future operating costs should result in a strong profit margin for the Lucerne Mine at current metal prices.

So just a tidbit of 172 pages, and from our perspective just an absolutely outstanding representation of this geologic district. So let me just summarize and conclude with some corporate comments.

Now that we are fully transitioned in 2012 from an exploration and development company to a full production company in 2013, our net loss for last year was $30.8 million or a loss of about $0.87 per share. Cash used by operating activities in 2012 was extremely productive, over $22 million -- going into primarily costs applicable to mining, $3.6 million, and mine development, $13.3 million.

Cash used in investment activity is also productive, over $13 million -- $10 million of which was for the building of the crushing, processing, and metallurgical lab equipment; $2.2 million for land and building; $1.2 million for mining vehicles.

So our cash on hand at the end of the year was $6 million. We had inventory of just about $5 million; that is gold and silver inventory, on top of the cash and receivables of just over $0.5 million. Our current cash is fluctuating between about $2 million to $3 million at our current pour rates, which is now increasing.

Yesterday, as most of you already know, we raised $10 million through an underwritten public offering. We didn't use an investment bank; we did not incur any material administrative fees. But we added an outstanding class of primarily new US-based institutional capital.

The proceeds to us is almost the entire amount, over $9.8 million. As we said in the disclosure, that we intend on using these monies to accelerate these prerequisite environmental studies, engineering, and permitting for the growth production through the commercial development of an expanded Lucerne Mine. But what we are also going to do is commence certain pre-permitting activities for the Dayton mine as well.

So from our perspective the priority is very clear -- to grow production of the existing operation and to commence now the lead-time activities required to grow both the existing mine and our second mine. Some of that ramp-up will occur immediately, if it's not already been occurring over the last few weeks.

Our debt at the end of the year was $13.7 million. Through March, through today we have already repaid $3 million of those debt obligations. And we expect paying off a total of approximately $9 million in debt obligations this year including the entirety of our revolving secured facility.

We anticipate spending about $2 million to $3 million in capital this year, substantially all for the heap leach expansion that I mentioned earlier and some for related metal extraction processes, primarily some enhancements and upgrades that we are looking at in the Merrill-Crowe facility.

We have also calculated as part of this year-end audit -- we are an accelerated filer this year, by the way, because of the growth of our business. We are required to file, as I said, by this Monday our Form 10-K. But as part of that audit and as part of our accounting processes, we have also completed our tax provision.

We won't pay any cash taxes this year that we see, but we also have federal net operating loss tax carryforwards now in excess of $100 million. These NOLs don't even begin expiring until 2023.

So let me summarize. In closing, our balance sheet and liquidity is very strong; our cash flow is ramping up; and there is a tremendous amount of positive activity throughout the network, as we invested substantially all of our time over the last five or six months in debugging our new production system, stabilizing, and now increasing its capacity. We are fully commenced in all of the pre-planning activity for accelerating the expansions, again, both for Lucerne and Dayton, including feasibility for an expanded Lucerne operation in 2013.

I think that is a good stopping point, Petelange, for maybe moving to questions and answers.

(Operator Instructions). [Robert Schecker].

Hi, Corrado. I just noticed you said your team of geologists. How many geologists do you employ? And are they full time or just on a consultation basis?

We have six full-time employees. We have four senior geologists; we have two junior geologists; and in addition to that we have one person that is fully dedicated to -- he would be a mine engineer, not a geologist -- but fully dedicated to the district-wide geological model, geo-statistical model.

When we are in a full drilling mode we also would have up to two, usually one to two, geologists that would help us in all of our logging and cataloging of our results. Those resources are variable, so they are not on staff as we are -- they are on staff when we are drilling, they are not on staff as we are not drilling.

So it is really six full-time guys led by our head of Exploration, Larry Martin.

That's -- I think you have really got something there, if you have got that many people.

Yes, you know the --

I am really confident. That increases my confidence. I know it is a lot of money, but --

No. Yes, I mean the way that we approach the drilling is that every drill rig that is out in the field we have a senior geologist logging every 5 feet, assessing every 5 feet. Obviously our productivity has been incredible from my perspective, hitting on literally every hole. But the way that they work in terms of the interpretations and the assessments is really outstanding.

It is probably important to point out that, as we are not currently drilling, Larry is fully engaged, as is Bill Mitchell, as is Steve Russell, as is the entire team, supporting mine and mine development. So what I like the most about the group is that they are integrated into the system completely.

When we are exploring and developing with drill rigs, obviously they are 99% dedicated to that activity. But as we are mining now, we have two geologists fully dedicating themselves just to ore control in the pit.

So the same guys that were discovering the metal, the same guys that were cataloging the metal are controlling the grades at every blast and at every hole, which gives you -- it is not just dedicated experience which we acknowledge, but there is an intimacy across the whole process. So when I see Steve Russell walking out of the metallurgical lab, or Will or Steve or Larry going over grade processes it does give you a sense of confidence.

That's really great. Thank you so very much.

Thank you, Robert.

Brian Post.

Good morning. A few quick questions if I may. First, you detailed some plans about the expansion of the leach pad. I just want to get your interpretation on -- if there was no expansion, is the capacity of the current plant, is that sufficient to meet these run rates, the 18,000 to 20,000 annual production?

It is. Yes, because those rates are equivalent really to targeting the 1 million tons of run rate. We ensured ourselves that when we built the initial five cells we would have at least two years at that run rate.

To the extent that we can anticipate expanding the water pollution control permit, and anticipate and schedule ramping up to higher tonnages, obviously we would incorporate into the schedule the most timely expansion of the cells. And it is not a very disruptive process, because it is literally just the prepared extension of the existing pad.

Okay. Then somewhat related, on the cost guidance you gave there was a little bit of delta from the numbers you put out earlier this year. You mentioned that it was reflective of just the ramped increase in production.

Is there any other underlying change to those assumptions? Or is it just simply more volume there?

No. Yes, well, there's a couple of modifications. We were guiding somewhere in the mid $13 millions without these temporary haulage costs. So effectively we have eliminated those temporary haulage costs, which we couldn't be more relieved about. But we reconfigured the fleet, partly to accommodate what the BLM was allowing us to do; so we do have an increase in our operating cost for our truck fleet.

But we effectively went from six trucks to 10. So there was some slight increase in terms of those new operating vehicles.

But then we incorporated the capacity, the human capacity to ramp up to these higher rates. So I think that from my assessment at the higher rates we will be at or slightly below the cost per ton rate, if you will, for the operation.

So it is a little awkward to give the full guidance for the higher operating rate, but it sort of indicates that is where we are heading. That is where we are heading and that is where we are going to be.

Okay, great, that's helpful. One last question, as far as when you are looking at '13. What direction -- higher, lower, the same -- are your head grades going? Is this going to be a higher-grade year, middle-of-the-road, lower?

No, I think it is going to end up to be slightly higher if you are talking from a base of the average of 0.03. So we will say 0.03 ounces per ton; 1 gram per ton is the average for the resource of a mine. The initial mine plan, except for some of the most immediate ore that we took out, most of December, January, and February averaged slightly below 0.02.

The March to -- let's say March to August time frame gets much better than that, ramping to 0.025, 0.026, 0.027 kind of thing. And then it gets a little bit stronger even in the year. I think we would end the year just under 0.03 gold, and certainly over 0.03 gold on average with the silver content.

So I think the profile is right in the middle. But I think the most positive aspect is that it is an improving grade profile.

We have one bench -- well, not one bench, but one section of the mine that we call the Hartford that had a meaningful amount of tons that were net relatively below the average, and we have been working through that very effectively. It's obviously good ore and it is obviously profitable for us to do it. But once we get it through, it starts getting better and better.

Great. I appreciate the detail, and I will yield the floor to other questions.

Thank you, Brian.

[James Dell].

Thank you. Hey, Corrado, could you give us a comment on the current state of relationships with the CRA, Comstock Residents Association, and other local groups?

Sure, James. Thank you very much. Just right off of my cuff, last night I did a presentation in Silver Springs to about 150 people. The presentation was actually on the macro gold industry and its implications to Nevada, which fit very, very well. But then a one-hour presentation turned into two hours of very, very productive discussion. I mean, very exciting economically developing discussion with a lot of ideas about how a mine becomes the hub of a much bigger economic network.

A couple of the folks from the Comstock Residents attended -- we always welcome that -- and had a very civil, engaged discourse throughout the whole thing. There was -- from my perspective it couldn't have been a more positive meeting.

I think overall there was some realignment, because there seemed to be some common objective almost by everyone to get our smaller trucks off that state route. So the last two or three public scopings and public hearings that the BLM had have been very productive.

I just think from a broader community -- and now I'm talking about the broader individual communities of Lyon County, be it Silver Springs where we were last night, be it [DNV] at Mound House, be it Fernley, be it Fallon, we have been tremendously engaged in all corners of the county. We have been more engaged in Yerington as we start to think about actually engaging in some permitting processes for the Dayton.

And I would say in Storey County, where today substantially all of our operations are, we could not have had a better engagement and better support. There's just been two new commissioners that have been elected and just across the board very vocal and very strong support.

And especially as we were getting close to convincing the BLM about Lot 51, these commissioners engaged the BLM directly, urging, encouraging, even problem-solving with them. What do you need from us to fix this?

And we could not have felt better over the last two or three months. So I think that the substance of the operation is growing, but the substance of the support in the community is growing.

I spent a couple hours just last Saturday with the sheriff and a dozen other guys moving some boxes out of the Fourth Ward School into the sheriff's basement in the jailhouse. We have been very, very engaged. And the commentary is actually -- joyous is probably too strong of a word, but it may not be because people were so happy with the decision to let us use our haul road again.

Okay. So in general you think they're -- particularly the Comstock Residents Association seems to be, let's put it -- say, meeting your (inaudible) their objections?

I think that the pervasiveness of that is less. I don't -- we certainly haven't been engaged by tens and tens and tens of people in opposition. At the public scoping it seemed like there was less than 10 in each case.

And even last night there were a few of the community from them in attendance. So I think that in that regard it is certainly significantly less.

I think that the six to eight folks that are really concerned that what we do here is safe, that what we do here is productive, that what we do here is not destructive, they continue to remain vocal. But I just don't feel that there is anything negative about that. I think in some ways it makes it better.

Okay, good.

[Carl Frankson].

Hi Corrado, how are you doing?

Hey, Carl, how are you? Been a long time. Nice to talk to you.

No, I always listen in. A question for you. I certainly like the projections, and I have heard the numbers, and I like the 400 ounces in April, cash flow, etc.

A question that almost -- I think it would be about two years this June that you had an investor meeting at the hotel. And at the time you put up the 20,000 ounces a year, etc., etc., and you multiplied times the price of gold and came up with financial projections.

And I asked if cash flow would be sufficient to fund things that the firm wanted to do forward, and you said yes. And since then I have lost track. There have probably been three or four equity transactions since then.

Is there any end to the dilution? Are you through with equity raising? Is there more to come to fund other things?

Good question, Carl. Thank you very much. Yes, so the initial comment about getting cash flow and those initial concepts -- about the $20,000 and that revenue being sufficient -- for certain remains our thesis. Probably before I make the next point let me say that the state of the union, the state of the system, I have never felt better about today, and allow me just to elaborate on that a little bit.

When we started that production we had one face open in the mine to ore. And even though we have an outstanding strip ratio, 1-to-1 or better most often, it is not always linear or consistent. In other words, you might spend three or four days going through waste, and then you get three or four days of ore rather than 1-to-1, 1-to-1.

So we did -- over the last few months we have opened up three different ore faces ensuring us a most consistent stream of ore to the crusher. These are common startup and common optimization things.

We have rescheduled the crusher to be working optimally 12 hours a day and maintenance being done off-peak, so that the crusher really has not constrained us in the last month at all. We have had instances where we've had well over 7,000 tons a day crushed, with the capacity to do more.

Of course the BLM getting us back on the haul road unblocked a huge constraint. And frankly the last three or four weeks, the focus has been almost entirely on optimizing the Merrill-Crowe and the metal extraction.

We have worked on increasing the pump's capacities. We have worked on improving the filter efficiencies. And I feel like today we have unblocked -- some people might think of these things as normal startup things. Some of them were, some of them weren't. But today we feel like the system has been stress tested and capable.

So I would not only reiterate the projection of cash positive with 20,000 ounces, but the capability of it is here. We are sitting on it now. So now the variation most likely just comes with the normal sequence of grades that come through.

Now having said that, come back to your real question. So the real question is -- is that sufficiency sufficient to not require the raising of more equity? And the answer is yes, because we are on top of that.

So the reality of the situation otherwise has been that we have invested in more assets than we had originally planned, for certain. We have built some bigger facilities, and we have expanded and bought more land than we had originally planned those couple of years ago.

We have also have spent more money over a longer period of time in drilling than we had originally planned with, I believe, productive results. We are still driving towards our ounces, but we are going to achieve those ounces in just the first two resource areas alone. In fact I have revised our goal statement to make it clear that we will get more ounces from less coverage of property, and that is very exciting for us.

There's other parts of it too that aren't as productive, in the sense that we did have some months of delay in getting our air quality permit, back a year and half ago. We had obviously the derailment that came with the BLM, and it did also require us to reconfigure our fleet.

So to be fair to the whole picture, we haven't been exactly on plan at every point. But at the same time we are now not talking about getting the crusher built or getting the system in place to do 20,000 ounces. We are literally talking about expanding that footprint, even tacking on some lands that we have an option on that gives us -- really opens the door to do the 80,000 to 100,000 ounces from Lucerne in a more immediate fashion.

So I think that there is no question that some of this capital deployed puts us beyond the original objective of 20,000 ounces and $3.25 million. And when you talk about going from 20,000 ounces to 80,000 ounces the increase in cash flow and the return on that capital deployed is breathtaking, frankly.

So I think that it is a very fair question. I think that we are very, very strong fiduciaries and I don't feel -- I have worked for three companies; I think they have all had outstanding governance; I think that they have all had a particularly good financial acumen. But I don't think I have ever been involved in a group that is as strong a set of fiduciaries in the sense of Bob Reseigh and Dan Kappes visiting the mine at least once a month, checking technically the metallurgy, checking operationally the logistics, the cycle times, the fuel rates. To have Bill Nance reviewing weekly cash flow, checking in, being supportive. And to have John insistent that we don't want to dilute, but as fiduciaries we have to have access to capital markets.

Being public, some people say -- oh, it is automatic. It is not automatic. It is not automatic.

Junior miners are not raising capital efficiently. They are raising capital disastrously, if they are able to at all.

So frankly I am sincere when I say we don't have plans to raise equity capital. But that doesn't mean we don't want to be positioned if we need it, God forbid, to be able to do it efficiently or if an opportunity presents itself.

I mean the BLM knocking us off our haul road for me was the worst thing that happened in the almost four years now -- I am in the fourth year that I have been here. It cost us, it delayed us.

But now because we have had -- I have to believe we have been engaged with the BLM more than any other mine in Nevada for the last six months, and there is a positive result of that. The relationship at the state level, the relationship at the national level, and the relationship at the local level today could not be stronger.

The fact that we are proactively planning on a weekly basis not only the existing activities that we are doing with them today, for either drill notices or right-of-way permits, we are proactively planning with them how we accelerate the next steps. And I don't think that is so common. It certainly wasn't common in our -- a little before.

So I believe that ultimately these activities will be accretive. I believe that just looking at historical valuation comps and looking at 75,000 to 80,000 ounce run rates, we're in a scenario, just from what we can achieve with Lucerne, that the valuation will be over $1 billion. That is easily validated with historical comps.

On the flip side, we are at all-time lows for comps. So the opportunity to have a cash producer with real substantive, growth, cash flow profile I think is going to be tremendously accretive. I really, really feel good not only about the ability to ramp up the operation, but the strength of the balance sheet as it sits today.

I really think that that is going to give us a combination that will differentiate us materially. Frankly, I think it already is now differentiating ourselves in just the quality of our shareholder base. I'm ready to put it up against anyone now, with the interest that we are getting.

And maybe more than the interest, with the real intimate understanding that those institutions are showing in what we're doing. For me, we already have an intimate understanding of what we are doing; but it is gratifying for others to be seeing it as well.

So I think I take the point with the right constructive criticism. I think I take the point very, very seriously. I think that with hindsight there are a few things we would have and could have done better.

But we are not static. We are improving the team. We are learning from these activities in an accretive way.

In other words, you can have an engagement with the BLM that isn't desirable; but if the result is you have one of the strongest relationships with that federal agency from Washington to Carson City, well, that is pretty good. That is a very good outcome.

The other thing that we have done is we have done a tremendous amount of soil sampling that wasn't in the plan, and that was a breakthrough from an environmental standpoint. So the relationship with the Nevada Department of Environmental Protection and even frankly the national, federal Environmental Protection Agency could not be stronger. So as a corps, I think we really have something special here.

That's great. The projections sound great, and that is a good explanation, and I appreciate that.

I think, Carl, it is a great question; and it is also great every once in a while to just reflect on the journey and what it has been. But there is --

Well, it is, as you mentioned, the capital raising -- I don't follow this all that closely. But I am told the Toronto Venture Exchange, the companies up there, the index is down, what, 50% or 70% or something? And the companies are just starving up there because they can't raise capital.

I think that -- it was very funny that I didn't go to PDAC this year in part because the junior miners have had a gloomy year. I think that in that context I don't -- I am not very analogical, but without question if you compare us to the junior index, we are doing better.

I am not happy with where we are. I am not happy with where the share price is. And I think we've got a foundation to really show and showcase to the right type of long-term, the right type of permanent capital, that this is a good company to invest in. I think that has already started.

The question is, someone said -- do you think that this is going to be survival of the fittest? And the response was no; it is going to be the survival of the finest. Because if somebody has an outstanding resource and somebody has an outstanding management team, the capital is there. Those projects will fund, and those projects will have tremendous return on equity.

But the days of a car salesman selling you a mine, they are long gone. Those are long gone. They are not going to be financed.

So I think frankly there is going to be some very exciting industry activity with the majors and the intermediates generating cash flow, and valuations being at such a low point I think it is going to break. I think it is going to break positive for all of us, and I am pretty excited about the position that we are in, in that context.

That's great. Well, thank you. That is a good explanation. I appreciate it.

[Lawrence Stanny].

Hi, Corrado. The second mine, I think that is the Dayton, when do you expect to have that starting up?

That's a great question. Thank you. I didn't elaborate more specifically on that.

Let me say that where we sit today, although we have some drilling that we are very excited to get to on the Dayton, we actually sit today with sufficiency of geological data -- and I would say this both for the Lucerne expansion and for the Dayton to commence. Obviously we talked at length about accelerating the assessment, the engineering, and the permitting for Lucerne, and that is very immediate and exciting.

But the Dayton also has sufficiency in the sense that we have enough geology, we have enough measured and indicated resource, we have enough scoping of those claims, in how we have drilled the fences around that territory to be able to define a conceptual mine plan and to be able to commence, and I'd say the permitting and pre-permitting activities. I should say that for now it is just resource constraint, which is only maybe like a month or two of work before we can get to that.

So to answer your question, if we started permitting activities in the middle of this year for the Dayton, it is only a 15- to potentially 18-month process. The Dayton does not have any federal land positions on them.

But I think what we are going to do in the next couple of months is fully engineer and assess the Lucerne. We are going to push the envelope on what is truly possible there. And I will tell you what it looks like is very exciting.

We don't see a connection between Lucerne and Dayton, but we are assessing everything from an operating and processing perspective. Then at the end of those couple of months. with Lucerne defined and understood, and some of the interdependencies assessed, we are going to move right into the Dayton permitting process.

So long story short, 15 to 18 months that thing could be operational. And that is very exciting for us, too, because in the grand scheme of things, by not having to sequence six to eight months of drilling in front of that, it can go a lot faster.

So the drilling that we want to do for Dayton and the drilling that we want to do to expand the resource will occur before the mining starts. But it does not have to occur before the permitting starts, which is the longest lead-time item. Which is -- it is not a scientific breakthrough, but it is sort of a mini-breakthrough for us in terms of the speed at which we can move forward.

Thanks. Now, you touched on the seven days a week production. When do you think that is going to begin?

Well, in concept, the Merrill-Crowe has always operated continuously, so just to make a plan about some subsets of the system. We have already moved to a seven-day cycle for the crusher.

Right now the crusher is just an animal. It is like an alligator; it just consumes everything that is brought to it, and we love that.

So we're in the final stages of breaking the mining team to a 4/3 schedule or a 3.5/3.5 schedule. We are working out the final details. But we are talking about just a couple of weeks before we are actually capable of doing it.

So it is -- we have been on that. We have been -- Dave has been really, really pushing the system to become more reliable, more productive. And the changes are being made on a daily basis.

One last thing. In terms of dollars, know that before the favorable BLM development, I think it was costing you about $250,000 a month to hire outside contractors and use their leased equipment, trucks. So how much do you think -- I know you had to ramp up and you bought some more vehicles, but how much do you think it will save you, given the recent development, on a monthly basis?

There is no question that it was costing us $250,000 a month, $10,000 a day to $12,000 a day using those extra vehicles. Okay? So those are gone. They are eliminated from the system.

But it is also right to acknowledge that we had inefficiencies in addition to that. So let me use the best example. We were using our Caterpillars in the pit, and we were mining and wasting material. But the material we were mining, the ore had to be loaded in a pickup point, and then had to be reloaded onto those smaller trucks.

So not only did you go from large to small, but you had a redundancy even right out of the chute. So I can't -- I don't have it off the top of my head, but there was at least $1 million of inefficiency that we were incurring just because of double handling, if you will, and shortened, slower cycle times.

So now the Caterpillars are going right -- as soon as the ore is loaded it goes right to the crusher. So not only do we have larger loads, shorter cycles, but going right to the crusher.

And we measure the loads, we measure the cycles in minutes. So we just had another mini-breakthrough where we are looking to take 9 minutes off of a cycle. That's huge.

So if we were at $13.5 million plus $3 million, and that was sort of $16.5 million, you might have had another hidden $1 million -- $17.5 million. We are pulling that down to $15.9 million.

But that number is going to be able to do a lot more tons. So it is really getting better. It is really getting better.

But in terms of the out-of-pocket, I know you had to hire your own guys to drive now, and you had to ramp up with the purchase of the vehicles. But in terms of that $250,000, is that eliminated? Or is half of it eliminated? Or how do we look at that?

No, it is eliminated. It is eliminated because we didn't reduce our crew. We didn't reduce our crew when we had to bring those trucks on, because we had to have the double handling. So we had our crew mining and wasting; and then we had a whole 'nother variable cost to pick up and run. So that has been eliminated.

Now, we have increased since then some of our human resource to have the seven days a week and we have increased the fleet. But those increases are going to give us more production.

So I am not sure if I am being clear, but the $250,000 a month, the $3 million a year, we are not spending one penny of that money anymore. I mean, it ceased two weeks ago.

Well, that is a relief.

It is a huge relief. It is not just a relief dollars, it is a relief productivity-wise, which it is a complete different point. We are spending less money and we are moving more tons.

And it is a relief community wise. You know, less anxiety, less interdependency, less disruption.

Great. Thanks so much.

[Joseph Regal].

Hey, Corrado. Thanks for taking my call. I just wanted to get some more clarity on Dayton. You said 15 to 18 months once you get begin permitting for it. So are we talking a 2015 startup or 2016?

Yes. No, it depends on when we start. In an ideal situation you can start these activities in May or June and be ready before the end of '14, beginning of '15. That would be ideal.

There is some notions of shared facility that are very nascent that we are going to really study and engineer through in the next few months. So I think that three months from now we will have a lot more clarity to that question.

In the worst-case scenario I think you would be middle of 2015. I don't see Dayton as a 2016 scenario in almost any scenario.

Okay. Then just a little bit on like initial size of production there, how many thousands of tons a year should we be thinking about on a (multiple speakers) basis? And whatever you guys are thinking, capital cost wise?

Sure. So today, today we have 6 million tons of ore; and that would compared to 5.5 million tons of ore in the starter mine in Lucerne. Just today, right?

And that is not the entire resource; right? That is just carving out small economic shell, because we have only drilled about 63 of our own holes into the resource. So ultimately -- let me say, ultimately we expect there to be and we know there is going to be a lot more of reserves to be mined.

But initially there is really no reason to think that the Dayton couldn't start out anywhere from a 2.5 million to 4 million ton a year operation. Let's say 2.5 million to 3.5 million ton a year operation, which puts you -- we like to think in terms of 70,000 to 80,000 ounces.

We started smaller on Lucerne for specific reasons, because we already had an existing infrastructure which we are now ramping up and expand including, if you will, the heap leach. The heap leach that we have, as Brian Post was pointing out earlier, it is just as efficient for the small startup mine that we carved out.

That it is not coincidental. We looked at the existing footprint; we said -- hey, we've got 4 million tons of capacity, let's carve out 4 million tons, let's start going, let's start getting cash flow, and then let's design this thing to be not 4 million tons total or 1 million a year, but 4 times that and sustainable. So 3 million to 4 million tons a year.

So that is what we are working on right now for the Lucerne expansion, to get it to be a 3 million to 4 million ton a year operation, sustainably. Why? We wouldn't design Dayton to start small for any unnatural reason. We have a white piece of paper; how will we do it?

So to answer your question, there are so many scenarios that are possible. One that we have talked about is if you just replicate it, the existing footprint, at least design wise, so that you had a crusher, a heap leach pad, and a Merrill-Crowe, you might be talking about $35 million to $45 million. Now, the metallurgy has already been tested in the Dayton and so we already know that that is feasible.

So that is tremendous return with just the ores that we have. I mean, it already justifies itself.

We expect with about $4 million accruing we are going to define out a much, much bigger resource there. But then we have to think about -- how are we going to expand Lucerne? And is the expansion of Lucerne something that could also support the Dayton ore? Or maybe initially support the Dayton ore?

So I think that there is a lot of opportunity to enhance from just the base idea. And the base idea is not only feasible, it is not only something we are already doing, but it is economically attractive.

Now if we can enhance from back and get synergies from that -- maybe we can't; maybe they will be two separate attractive mines that make a lot of money. But maybe it will be better than that. So that is exactly the kind of thing we want to roll up our sleeves now and do the right geological, the right environmental, and the right engineering study and design to accomplish.

Okay. Sounds good. Thanks a lot.

[Richard Desjardins].

Good morning. Thank you very much. You've mentioned the Chute Zone with significant mineralization. When do you expect that that -- does that have to wait for the Dayton Mine? Or when do you expect the development of that area?

Yes, it's a great question. The Chute Zone is on the East side of the Lucerne Resource Area. So as we sit today, we are mining on the West side of the Lucerne Resource Area.

So I think that we couldn't be more excited about the thickness of the concentrations of that mineralization. The potential -- frankly, just from the physical landscape, the potential of the East side, it's not unlimited but it is enormously so that it seems that it is unlimited.

And as we are engineering now the expanded West side mine, the larger Lucerne Mine, we are going to consider how and what on the East side could be accessible. So that will all be part of the study.

I think there's really two outcomes. Some meaningful amount of ore can be accessible in the immediate expansion; and the rest that isn't we would still like to scope that territory into the federal permit so that we could ultimately expand. But we would have to drill some more and we have to develop out some more of the East side -- comparable, frankly, in concept to the Dayton but much, much bigger in terms of at least geographic span.

I know I didn't answer you precisely, but I don't know exactly yet how we will access it. But it is going to be accessible at some point, and we are going to push hard now to see how much sooner rather than later.

What processing facility would you go to?

I think that for almost all of the ore that we have hit, substantially all of it, 98-plus-% has been oxide ores with known metallurgy. So we are still talking about our existing American Flat facility, crushing, heap leaching, Merrill-Crowe processing.

There has been some speculation that, as we continue to hit higher and higher grades, that we will be considering a mill versus a heap leach processing sequence. And we're going to study that now, too, as part of this expansion process.

But we have more than sufficient space at Lucerne to build those facilities right there. So it is all connected; as the crow flies it is 1.5 mile, maybe maximum 1.75 mile from Lucerne East up to American Flat, where we would do all of our processing.

You would be going across the existing highway?

Yes. Part of the engineering, when you talk about the East side is -- are there other vein structures like the Chute that you could access underground, under the road? Is there surface mineral that you would want by moving the road? Those are all the consider -- and what is the logical sequence of doing that as you move from West to East?

We don't know exactly yet, but as far as we are concerned they are all feasible. We just have to think of what the most optimum one would be.

So what is the timing on that situation?

The timing that we are putting forth now is that in the next two to three months we're going to do all of that studying and all of that planning and all of that engineering. And the solution will give us an economic and geologic model that will then go to permit with the federal government, most likely.

We have to finish the planning before that is certain. But we are trying to get that done as quickly as we can here.

So again, that is out 15 to 18 months or so?

Yes. I mean, well technically if we kick into a federal permitting process we would expect it to be 2 to 2.5 years. So that is -- it is different than the Dayton because in Dayton you're talking about 15 to 18 months to start something. In Lucerne, you're talking about 2 to 2.5 years to expand to something.

And that is exactly why our initial approach was to get at least 4 years of mine life, so that you could allow for the time to, A, analyze what the expansion most optimally would be; and then permit it so that you could, in a nondisruptive way, expand into the bigger operation. So in other words, the East side is not -- I don't perceive it as a third mine. I see that as adjacent, coincident, with the expansion of the Lucerne Mine.

Okay. Thank you very much.

[James Paine].

Thank you. In terms of processing, what is your maximum capacity as of today? And what is the limiting factor here?

Great question. I think that today the constraint would be the amount of fluid that we can process through on the Merrill-Crowe, from the Merrill Crowe up on to the heap leach pad. So it is the square footage of the heap leach pad.

If you -- and it is probably where you want the constraint to be, I think, in our situation. Because the Merrill-Crowe facility is the least expensive and the easiest to expand.

So said another way, I think we could mine, I think we could haul, and I think we could crush without question in my mind up to 3 million tons a year, 2.5 million to 3 million tons a year today. And with just a modification of the crusher permit I think we could ultimately get to 4 million tons a year.

That is exactly what we wanted to design, which was an infrastructure, a hard infrastructure, that would allow for that level of operation. So that is all in place.

Even with the trucks we have now, just looking at it, we could probably do that. Which is a big statement. It's a very important statement.

The only thing that we'd have to expand outside of fluid capacity -- so it is a question of, do you do 1,000 gallons per minute? Do you do 1,300 gallons per minute? Do you do 2,000 gallons per minute? It is just a question of having that fluid capacity, and that is pumps and water containment.

The heavy stuff, the trucks, the crusher, etc., even the infrastructure of the roads, the wells, the water it is all in place. It is all in place.

The only thing that we would really have to expand would ultimately be the heap leach capacity. And that is why it is also an optimal time to think about heap versus mill in the overall equation, just because it is prudent to do that.

And to us, there is no bias which gives you the most return on investment, which gives you the fastest, largest cash return on investment. It will tell us. It will tell us based on us now knowing all the other variables.

Got it. For the extended Lucerne Mine, you can talk about -- and [maybe] with Dayton estimated production and capital cost that will take to get that up?

Yes. The expanded Lucerne Mine really is consistent with what we were just talking about. So I think that if you just assume that we're going to stay with the heap leach and existing metallurgical process that we have today, to get to 4 million tons a year I think mainly the number-one thing you need will be a new, much, much, much bigger heap leach pad. And we have talked on, depending on how you want to size that thing, it is anywhere from just $6 million to $10 million.

So literally for $6 million to $10 million, you can increase this thing's production to 3 million, 3.5 million, 4 million tons a year. And that is just a tremendous leverage in terms of cash flow on the system.

The only other constraint would be, obviously, expanding the permit onto federal lands in order to be able to access that magnitude of ore for that length of time. So in that regard, that is the essence of this production/cash growth profile. That's it, in a nutshell.

Almost everything else is already in place and all we need is more leach capacity and the federal permit conceptually to open this thing up. Substantively, that means you have to do some environmental studies, you have to do some engineering studies, and you have to determine feasibility economically of what is the best. And that is exactly what we are doing right now -- or we are kicking off like next week. But it is exactly what we are getting to now.

Great, thank you.

[Joe Lannon].

Just a couple questions, and it goes back to the dilution, potential dilution by continuing [on] issue more shares (technical difficulty).

The fleet, the current fleet that you have, is that leased, operating lease? Or is that -- were those items purchased?

Yes, so we had purchased five Caterpillar haul trucks. And because of this diversion by the BLM we made the decision to sell those trucks and rent these articulated 40-ton Caterpillars. Pictures of the fleet is on our website if you want to see it.

Yes, I noticed it.

So one of the reasons to do that was, obviously, it was much more capital sensitive. Secondly, Caterpillar and Volvo got into a brutal bidding war because this was a segment of the market that Volvo was actually making some pretty incredible head roads into Caterpillar, and they didn't like that very well. So we feel we got a great, great rate.

But more importantly, as we are about to do a couple or three months of studying for what we want the ultimate mine plan to look like, we didn't want to lock ourselves into a smaller truck fleet; rather maintain the flexibility of this one. It was the most capital sensitive and I think most intelligent way to approach this until we knew what the full final answer will be.

Would probably more efficient too, with your NOL stand status, too. Then secondly, did I understand you correctly to say that you are projecting to pay most of the debt off by the end of (technical difficulty) this year?

Yes, that is correct.

I would ask the question why you would take that approach, with where interest rates are and in terms of protecting dilution, not degrading the dilution of shares. And the reason I raise that is I think I recall earlier, when you filed a shelf registration, there was a statement made that there wasn't any anticipation made to actually use it; you just wanted to have it there in case you needed it. And then suddenly out of the blue we get an e-mail advising us there is a press release earlier this week talking about the press -- or the current offering.

It is kind of disheartening to me. It is kind of like me going to listen and my local property tax board saying -- this is the last levy that we are going to use; and then six months later they are coming back asking for more money.

Yes. So that's -- I appreciate you saying it, and saying it openly and bluntly. Let me just make a couple of comments there.

I don't think that as fiduciaries of the Company that we would ever file a registration shelf and make a statement that we would never use it. Okay? I am certain I never made that statement.

We certainly didn't have any current plans to use it at all when we filed it. And that was also true when we filed our first shelf over two years ago; and almost a year went by before we even thought about using it.

So the point is that we are a capital-intensive industry that is in a ramp-up and a startup. And there is a dynamic set of activities, not the least of which is the BLM, impacting in some ways the speed and cost of our plan and in other ways the opportunities that are being presented.

So just to be very specific about your first point, there is no desire to prepay debt. The Caterpillar financing that we have is very low interest cost. Not only will we see it out through to maturity, the full 30 months, but we have also been advised by Caterpillar now that we have additional credit that they are allotting us -- in fact, they delivered $5 million worth of trucks three weeks ago with no money down. So we like that very well.

The Aurament net debt, the revolver if you will, was short-term bridge debt that we did last July, that is due to be repaid by this July. So it is good liquidity in the sense that it is a revolver, but it was expensive.

And we have -- with where our balance sheet is today and where our production is today, I would expect that we would have every financing alternative available to us going forward. And I would agree with you 1,000% that if there was a need now, going forward from this point, low-cost debt financing would avail itself to us much more readily.

And that just strengthens us. That just gives us more flexibility, and I think that is where we want to be.

So I may have misspoke. I did not suggest that we were going to accelerate or prepay debt; but I made the point that we are going to pay off the debt that is due. And that debt in particular was expensive. So it served its purpose, we will pay it. We will pay it as we are supposed to, and we will have a stronger balance sheet when we are done.

Okay. I guess that pretty much addresses it. Just one comment, just an aside. I was just hoping that maybe there could be a little bit more communication, because I do get notices of press releases but they are very infrequent. I would think that you can use that facility to keep shareholders a little bit more informed.

Yes, I think that is a very good point. I think that I personally feel like my capacity is growing. I think that is tied directly to the great work that is now being done on the ground in terms of stabilizing the system. I think it is tied to the fact that we have such good community support. I think it is tied to the fact that the elections last year are behind us, and we had from at least our preference we think success for the people who came in.

So human capacity grows to look more externally, to have better, clearer, more engaged investor relations. And I think I would like to deliver on what you are asking, which is more frequent communications about operating results.

We did have sort of an unusual period where we go from the first pour to a long blackout period with year-end. And I think the combination of where we are operationally and where we are in the calendar is going to result in much more frequent communications, like you're suggesting.

I look forward to that. But I also look forward to being out on the road and giving people more direct updates. We are going to be at the ROTH conference Monday and Tuesday of next week, so I look very much forward to doing that as well. But it is a point that is very, very well taken.

Well, thanks, and we are looking -- I'm really excited about the growth.

[Regis Monsieur].

We may have lost him.

[Jack Albright].

Good morning. Very interesting, I need to say. I've got a couple of questions here. On the recovery of the ore, I think you mentioned that you get 80% return on what you -- of the ore that you get a stockpile.

We have -- our metallurgical tests on average for the entire Lucerne Resource was about 73% for gold and just under 50% for silver, on average. Obviously, there's ranges depending on the ore types; and we certainly do have ores that get in excess of 80%.

So far the ore that we have been processing, we have been expecting about 68%. We have been -- all of our processing to date, and mainly for the pads that have been on the longest, is coming out almost right on that for gold and a bit higher for silver. So I think metallurgically we are feeling pretty good that all of the test work that was done in advance of starting up production is proving correct.

The ore that you don't recover, what happens to it?

The ore that we don't recover remains in the heap leach pad. So that is a very interesting point. Typically, our economic assessment tells us that at 70% gold and 50% silver we make a lot of money; so it meets a minimum threshold.

There is a notion that if we are putting higher grade ores on to the heap leach pad that we will segment them into a separate cell, with the idea that if ever the Company, for just some reason, made the decision to go to milling, in milling you can get anywhere from low to high 90% recoveries. I think our ore was tested at 96%.

Then there is the economic idea to reprocess some of that ore and get almost all of it. But we don't have that in the plan at this moment. The 70-plus'% is the expectation of the business plan. Everything else, although it resides there, there is not a plan to get it.

Though someday it might be recoverable?

Yes, I mean there is two ways. If you had a mill, either you would -- at these prices you do want to instantly recover it. And if gold prices keep going up someone else might want to take it away and recover it.

What is the chance of gold prices going up?

My personal opinion is very high. I don't see anything structural in the world, either from a monetary or fiscal policy perspective or frankly from a supply and demand perspective yet, that shows any indication of relief.

Obviously there is a lot of psychology that also overlays the fundamentals. But the fundamentals from our perspective in the longer term, we are very bullish. In the short term, it has always been impossible to predict.

Okay. Now last conference call you have -- oh, by the way, the press release this morning, I opened that about five minutes before the call. I wish I would have gotten that --

A little bit sooner? Okay, that is a point well taken. We will try to be more advanced.

Okay. Now, we spoke last call, last one of these we had, about dividends. You said -- since we have the gold in the ground we don't see any reason why we shouldn't be paying dividends.

Right.

The stock prices just haven't been there for Comstock, unfortunately, and it has been really quite low and don't see seem to be going up or down too much. What is the chance of the Company paying dividends for all us poor stockholders to recover some of our earnings somehow?

Sure, sure. Yes. Philosophically I think that we are certainly not opposed to the concept of dividends. I think the prerequisites would have to be solid, stable, sustainable cash flow in excess of the investments that we need to make to grow to the size that we have grown.

So certainly in our view of the world, that will occur someday. In other words, that we will have enough cash flow to invest in our facilities and our production growth, enough cash flow to invest in our exploration and development growth, and some left over. And when we get to the point where we have "and some left over," we would love nothing more than to distribute it to shareholders either as a cash dividend or maybe -- you never know, we could have some fun and maybe there's some gold and silver that will come back.

When do you think that date will be? (multiple speakers) a far-reaching question.

It is not that far reaching. We have -- you look at the horizon, if we are just talking about getting Lucerne and Dayton online, and you are talking about producing 150,000 ounces per year, we have been talking in terms of Dayton in late 2014 or mid 2015; the Federal permitting pushes the Lucerne expansion to late 2015 or 2016. So you mature those growths out, and all other things being equal, you will have excess cash flow.

So I didn't just declare a dividend in 2017, but what I did say is that there is a horizon where we will have excess cash flow and we are excited about it. And we will have positive cash flow immediately. The difference means that we want to put a meaningful amount of those dollars into the ground, either in production facilities to grow, or in development of gold and silver in the ground.

Because that is the other side of this discussion, is we are sitting at the very front end of a very, very long runway. We have built on a tiny fraction of the Comstock, and we expect that the ounces don't -- the 3 million to 5 million is a very, very nascent, very intermediate step to something much, much bigger. So all that is relevant.

Okay. Now the Chute area sounds very interesting, very exciting. Exactly what is it?

It is a vein. It is a concentrated vein representing the cross-sectioning of two structures, two geological structures that come together and create a channel, if you will, for what was once hydrothermal activity, material flowing and depositing gold and silver. So there is a concentration on a vein that has thicknesses in one dimension, width from 100 to 150 feet, the length of up to 450 feet.

It has got a lot of local excitement lately, because it compares to one of the historic bonanzas, the Woodville Bonanza that also was in the Lucerne Resource Area on the Comstock. So substantively it is a rich concentration of ore. We have only drilled a tiny number of holes, yet our structural understanding of the geology and the holes that we have drilled to validate it tell us there is already something big there.

But how big? We have no idea, because it is a vast area and we only drilled just a little bit. So the potential is huge.

But it already rates with the Woodville Bonanza. So if we had a lot more holes and a lot more measured resource there, we would be calling it a bonanza very loudly. But we need to do a little bit more work. But we already know the size of the resource is equal to greater than the Woodville. So it is very, very exciting.

Okay, you said about 150 feet wide and 150 feet long?

100 to 150 feet wide and up to 450 feet. And that is what we know, Jack. Right?

We haven't drilled that extensively. That is only what we have been able to identify. That is identified, but it's in a vast area.

How deep?

I think from the road level it was about 400 feet, 400 to 500 feet. So it is not that deep either.

So the Woodville Bonanza, where was that located at?

It was in the -- if you are thinking about the Lucerne area, it was just in the Northern end of the Lucerne area in between Devil's Gate and the New York Mine.

Okay.

And in the context of the historical Comstock, it would be one of the more Southerly. It may have been the most Southerly Bonanza, coming down just to the Northern tip of our Lucerne Resource Area.

I will show it to you next time you're here. I will show you the Woodville shaft. It is visible.

Okay. I would like to see that (inaudible) map on it. I have some maps, so I will check this when we get done here.

Sure, yes, sure.

How is the Gold Hill Hotel doing?

It is doing really good. It is doing actually a heck of a lot better. It is getting warmer and there is a tremendous amount of visitation occurring now, so it is fine.

Making a profit or still in a loss (multiple speakers)?

It has been cash positive for the last few months, so we will see how the year goes. We are minimizing any need for cash there. So it is ramping up much, much better.

I know it costs a lot more. You run that thing. I [hate] to be an [optimist], but I think you are costing too much. If you're making a profit in that, okay.

I appreciate that. Thank you.

Now in the Sky, what are we doing with that thing?

The Cabin in the Sky?

Cabin in the Sky.

Yes, so that's -- it is funny to say it. We are now expanding -- well, let me say it better. We are now planning to expand the heap leach pad and we are planning to expand the operation, as we have just been talking about for an hour. And the Cabin might be an ideal location, not just for the front end, being a visitors' center, but the back being some of our administrative offices and workspace. So we are going to fully utilize the space (multiple speakers).

How much land do you have?

I think it is about 4 acres, 4 or 5 acres. It is about -- it is over 3,000 square feet in terms of the facility.

Okay. My last question is the convention. (inaudible) where and --?

The annual meeting?

Yes.

It absolutely will be here on the Comstock, and it might be a little earlier this year. I think we have done it in June traditionally; we might try to do it in either late May or early June.

We will probably be setting a date for that in the next couple of weeks. Once we get the 10-K filed our guys will get focused on the record date of the proxy and the annual meeting.

Okay.

We will let you know for sure.

Okay, we're looking forward at being there again.

Yes. Love to have you.

Enjoyed last year, it was wonderful. Okay.

Thank you so much. Have a great day.

Keep up the good work.

[Paul Sonz].

Good morning. A few quick questions. What is your estimate for consulting and professional fees for this year?

Well, it is significantly less. We have only -- we added -- okay. I think that in total the number was going to be about $900,000; and that would include primarily audit fees. We are actually an accelerated filer this year. We have actually been through a full Sarbanes-Oxley compliance audit and those kinds of things. Also we had to establish a lot of new work processes this year, including things like inventory and inventory costing that are brand-new to the Company.

But for most intents and purposes, the dollars there will be significantly less, because last year we dealt with the BLM, last year we dealt with the BLM appeals, there was this tremendous community development push that was incredibly successful. But most all that is behind us.

Where the nature of those dollars are going to change is more towards environmental and engineering work. And we budgeted about $1.2 million just for the Lucerne expansion and activities that we were just talking about.

(inaudible) right.

So meaningfully less. But I think in terms of the color of the money, much, much more productive prospectively.

Great. General and administrative last year was $5.5 million. What is your estimate for this year?

Say that again?

General and administrative expenses last year was $5.5 million. What do you expect this year?

Yes, it is closer to $4 million.

Okay, great. In terms of selling the gold forward, do you have any plans to sell production forward to lock in the price?

We don't currently have any plans to do that, although we are always assessing the ability to optimize price. Right now we are open.

We did fund the revolving loan by selling gold forward at about $1,600. So to the extent that gold is below $1,600 it does effectively hedge us. So we deliver the metal at the $1,600 rate for us, which is better. But other than that we haven't done any forward selling.

All right. In terms of exceeding the production estimates of 18,000 to 20,000 ounces this year, what kind of capital expenditures, above and beyond what you have got planned, would be necessary to take you above that 20,000 level?

We are going to spend about $2 million expanding the heap leach; and really only about $700,000, $800,000 of what I would call capital improvements. Nothing individually material.

So this year, that will give us the expanded heap leach for the continuity of the existing operation; but it will also allow us to ramp up the rate a bit above the 20,000, potentially to the 30,000 rate, so that is intermediate. The only other capital would be the establishment of a larger permanent -- a larger, longer heap leach, which I said earlier, depending on the size, could be $6 million to $10 million.

Right.

the important point -- I don't know if it is not coming across as strong as it should -- is that all of the capital that we need is already in the ground, except for the management of the heap leach capacity.

When you say the management of the heap leach capacity --

Expanding it as we need it. So there is a little expansion this year, which is a couple million. And then ultimately and coincident with the expanded mine plan we would want to have something that is synchronized.

With the first heap leach, which just requires a minor expansion this year, it was designed to the initial mine plan. The next heap leach will be designed to the ultimate or the bigger mine plan. But other than that, the crusher, the fleet, the water, the electricity, the generation, it is all in place.

Yes, so in terms of making a jump from 20,000 to 30,000, is that dependent on getting the water permit sometime this summer?

It does. Yes, it does, because that will allow us to do a rate of more than 1 million per annum.

Got it. Okay. Let me just see here. In terms of the management team that you are dealing with at the BLM, has that changed over the last year?

Yes. The management of the BLM?

In other words, there is a national level, then I guess there is a regional level and a local level.

Yes, the state level has been most stable. Amy Lueders is the Nevada State Director, and so we know her very well.

Neil Kornze, who is actually a Nevadan, believe it or not, is acting as the head of the BLM nationally. His dad was and still is very much engaged in the mining industry up in the Carlin trend.

And the local management changed in May. I am only laughing because that is what happened when we got knocked off our haul road. It was a new relationship. It was a surprise circumstance.

And now we would say it is a very strong relationship. By way of electrical shock we engaged in it very, very directly and in that regard came out much stronger in the end. But there was a little bit of a bumpy road there, no pun intended.

No pun intended, all right. Thank you very much.

[Alexander Gruen].

Hi, Corrado. Lucerne, Dayton, Spring Valley, what percent does it represent of the total land mass?

Yes, good question. It's a tiny percentage. Let me answer it two ways, as I am doing the calculation in my head.

I would say Lucerne, Dayton has been -- Dayton, Spring Valley, geez, it is like maybe less than 20%. Lucerne is 10%, 15%.

We have only drilled though, Alex, we have only drilled on a tiny, tiny fraction of that percentage. Probably in surface context, much less than 10%. And when you consider depth, gosh, I know it is miniscule, but you can say certainly less than the 4% or 3%.

Because we have only drilled to depths of, on average, 500 to 600 feet. And we know in the North the old Comstock miners went to depths of well below 3,000. We have hit ore at 1,400 feet already, and that was the deepest hole that we have drilled. So not even half of what the old-timers were mining at.

So this is a very profoundly rich, profoundly deep ore body, and [on] the discovery of another bonanza. It is just what the potential is and we are shy to even try to quantify it. But we shouldn't be shy just to talk about the geometrical dimensions. They're huge.

If we talk of the Northern Target, the Northern Expansion, the Occidental Area, etc., when do you envision -- how many years that you may be developing those?

Yes, good question. Let me make a different point before I answer it. We have 10, what we call 10 highest-grade bonanza targets. We have 10 defined, okay? That is just based on what we know. 10.

One of them was near the Woodville, right? One is in Dayton. And the remaining 8 are in the North.

So the impression that most people have is that -- oh, the North was mined out and you guys are now heading South and you are hitting on every hole. The reality is they missed more in the North than they found, as far as we can tell from the mining.

So the reason we started in the center and are moving South is that there is mineralized evidence immediately at the surface. And drilling 50-foot, 100-foot, 200-foot holes is very, very efficient. In other words, inexpensive rates of discovery.

In the North, where we have more concentrations of higher-grade targets and there is more information, there is more data, so that is why we have most of our targets up there. I would never suggest there couldn't be an equal number to the South; it is just that we have more data to the North.

The geology dips down and some of the targets start at 700 feet, 800 feet. So the drilling is more expensive, but no less probable, because we have more data there.

So it was really capital sensitivity that led us to try to validate first the most nearer surface, most mineable ounces. And it remains capital sensitivity.

To answer your second question, like how fast can we go, structurally there is no reason we couldn't have six drill rigs deployed versus three drill rigs deployed, which is more normally what we would do. But once we are generating cash from these initial, we can go faster.

We have had a lot of investors say -- you have hit on every hole. Why don't you drill faster?

It is just a question of getting that cash flow, and then we would like to do that. But all in a very highly probable -- we are very -- we are not speculative in our DNA. We are very conservative. And what attracted me to this Company was that they spent so much time studying the geology before they started drilling, I just love the discipline.

You wouldn't care to speculate on possible ounces once it is all developed?

Okay, so I wouldn't care to speculate. But I have had geologists and even financial institutions with geologists saying rational extrapolations of what you already have should be at least 15 million to 20 million. Okay?

I don't know how I could support that with you today. But the geometry and the historical geology could easily support it. It is really, really exciting in that regard.

One more question. I think I read something some time ago that the state of Nevada was interested in selling some of the land.

Yes, there's two discussions going on. One I think is that 80-plus-% -- I don't know the exact percent -- of the land in Nevada is federal, BLM. And the BLM has launched programs to sell their land. They are just slow about it.

The state of Nevada just introduced a bill into its state senate to acquire from the federal government the land. Because it is slower to permit federal land than it is to permit the state land, and the state sees an opportunity to accelerate economic development if they could be more in control.

I don't have global mining acumen in every jurisdiction, and I don't want to, because in Nevada it's incredibly pro-business and pro-mining. They do it the right way. They do regulate it. But they do it with the intention of economic development, and so it is really, really a good place to be.

So consequently, we may be able to buy eventually some of this land?

Yes. The BLM offers programs to sell it. Harry Reid Senator Heller, the two Nevada senators, are very active in proposing land bills that convert the federal land to private land. They are actually doing it right now for a copper mine in Lyon County, which is where we also participate.

So there is almost like a grass roots movement coming from two or three different places to both federal and state, and I would say even local counties, to try to convert federal land to private land, so that the speed at which it can be used productively goes up. I think some of those things will actually start to bear fruit.

Okay. I imagine that will reduce the cost -- the difficulty of getting permits.

Oh, it would be exponentially faster for us. We are focused -- and I would say that despite our current size, we are growing, of course, our relationships at all levels of government including federal are very, very strong with very positive support behind us.

Any idea as to when we may expect to be in a position to be able to buy some of this land?

I think that in the next 2 or 3 months we could have some more relevant discussions about the opportunities. I do.

Because as part of our expansion planning, we are going to prioritize these kinds of opportunities. In other words, it is time now. If it is possible, it is time now to try to effect it.

Okay. Thank you very much.

Dr. [Dennis Foss].

Hi, you've done a really great job, I think, both giving us color and information about what you have been doing and what is going on, and I appreciate that very much.

Thank you, Dennis. I like to interject before you say your question that the nature of the questions and the number of questions to me is very heartwarming. It is a real serious interest across the spectrum, and I appreciate it very well.

Well, I would like you, if I could -- I know this is probably a general question about what is going on with precious metals and also with the miners, it is probably out of your wheelhouse. But I know you have an interest in it (multiple speakers) --

I do.

-- and some thoughts. First of all, I am sure you saw in the Wall Street Journal today that they are investigating manipulation of the worldwide level of spot gold and silver prices, much the way they did with LIBOR. There has been, of course, a lot of concern in this country about commercials pushing down prices when it suits them.

I was wondering if you had any gut-level feeling about precious metals, whether you think they are being manipulated and -- well from my view, maybe held down. Because in terms of a lot of global things going on, it is hard to understand the direction of precious metal prices.

Well, yes. I don't obviously have any knowledge of any (multiple speakers). But I do -- I am surprised with the recent lack of correlation to what is going on fundamentally. I think that when you look at the level of central bank buying, when you look at the persistence of negative interest rates against the US currency, when you look at the debasement of the US currency, when you look at the absolute lack -- now shifting from monetary and fiscal policy to supply and demand -- and you look at the absolute lack of the industry to get any kind of traction to grow production, okay? It is struggling mightily to grow production.

When you see eight of the 10 CEOs in the major ranks being replaced, when you see only 3 million ounce new discoveries in the last five years, so you're in an absolute net depletion mode. And the emerging economies of the world, including India with 1.2 billion people and China with 1.3 billion people, the demand, the appetite for the resource without question is only going up. The supply is very questionably not going up.

And the fiscal and monetary policies with, primarily in my opinion, the debasement of the US currency, which is -- I don't see how it could possibly be reversed. I don't understand.

I do understand, I do understand, the lack of correlation, yet it is all superficial. I think you're starting to see -- it is interesting. Why aren't -- there's a lot of physical gold funds, there is a lot of ability to buy metall. But there is a lot of paper moving around, too.

So I wonder, if everyone called their paper contracts and wanted metal delivery what the heck would happen tomorrow. Because I don't think you could get it.

I would also add that there is quite a contrast. You could say maybe that individual buyers are dumb money. But it is incredible the mints are having trouble keeping up with the demand for physical gold and silver.

The Northwest Territorial was short silver. They just couldn't get any. I was just stunned, right in our backyard.

So what is really going on? So let me ask a similar question then about the miners. As you have been playing out the junior miners have had a lot of difficulties, but it is not just in the junior miners; it's been all miners.

I notice that hedge funds have not only sold positions in miners, a lot of them have gone short. In fact hedge funds that are short-only or long-short, they have been getting their head handed to them in every sector that they have gone short, except for the miners.

And when I look at Level 2 quotations and I see the way the sell-side just balloons out as it moves down, it is obvious that it is not somebody simply trying to exit a position, which you try to do as carefully as possible. But rather they seem to be trying to force prices down because they are short.

Have you and your stocks seen any kind of a building of a short position?

Yes, so I think overall, we have had in the first quarter some building for a position. I don't think it is overwhelming. But the only read I can have on that is somebody betting against the Company making it. I think that is ridiculous, personally, in terms of context, and it doesn't distract us at all.

I do think that as a broader point of the industry there is a tremendous nucleus of quality, but it is absolutely the minority in terms of having very, very good resource definition with great potential. I think one of my guys just sent me a note saying that answering Alex's earlier question, just our Dayton and Lucerne Resource miles alone represent just under 10%. So that is mind-boggling in terms of what the potential of our already-good 3-plus-million ounce resource is.

But with good management, good project management, discipline, good coordination, those companies I think represent a tremendous upside value when they have assets that are historically at the lowest end of any valuation multiple. Full stop.

I'm not even talking about relative to gold. Everybody wants to say it relative to gold. It is just relative to themselves, full stop. Okay? They are at the bottom.

Right.

But all you need to do is to read through the guys that -- they just don't have a resource that will ever get into production. Or they don't have a management team that could ever get into production.

So in the first case, the resource that will never get into production, of course, it is just going to die. The resource that should have got into production but the management was incapable, it is going to get acquired, okay?

So the strong will get stronger, frankly. Because in fact the capital that is out there is going to be abundant for those guys and it is going to be scarce and nonexistent for the other guys. That is how I see it.

I think that there is some confusion in the market. If you are an index follower, if you are a GDXJ follower, you are sort of following the junior index. You have 1,000 companies and only a dozen are attractive.

Right.

So obviously you know where I am heading with this. I put us right at the top of that group, and that is why I like where we are. And biased, so draw your own judgment.

No, no, you are welcome to be biased, I would be disappointed if you weren't. Thank you very much. I appreciate your (multiple speakers) Those two issues do impact us and I think -- I am not a conspiracy theorist by nature, but in this case it makes me wonder.

You do want to wonder, and you don't even have to be a conspiracist to say if you were the CFO of the federal government, of course you want interest rates to be zero or negative. So that has to -- that ultimately to me, if you are devaluing the currency, if you are printing money and you are keeping interest rates low, why hasn't more capital flowed into the metal? It is flowing into the metal, and I think it is going to grow.

I predict at some point there will be a short squeeze that will be pretty significant and pretty incredible, but that is just my belief. My bias, I guess. All right. Thank you, sir.

[Don Phillips].

Hey, Corrado, how you doing?

Hey, you are a patient man. How are you?

I'm easy. When I want reassurance, I go buy the first pour bar.

(laughter) Great to talk to you. What's up?

My concern is always the horizon with the jigsaw puzzle on Route 342. It sounds like what you are saying with the Chute you can initially do anything you want by an underpass, correct?

No question. I don't even think we need a permit if we access the ore body from the existing mine. So we go right into it.

So if we engineer that, that geometry, there is no reason we shouldn't extract high-grade ore that way.

But eventually the long-term horizon would be a federal permit on the East side?

Yes, I think -- well, there is some pretty strong areas of resource there already that are on private land. But I think that the most optimal, efficient thing is get this preplanning done; draw the right economic feasibility conclusions; and that is going to put you into (inaudible) a broader place.

We've got to do the steps the right way; but what we are saying now is we want to move forward as fast as possible. Because then that gives you every flexibility and every option and you can be more optimal.

Okay. Well, looking good. You are at $2.07, 2.08, with 130,000 shares.

Thank you. There is no further question at this time. Please continue.

Well, I want to just thank everyone for the absolute amount of attention and consideration for the Company. I see it as a very positive sign.

I think we have turned a corner. I think operationally we are feeling the wind start to turn to our back. That is a good feeling, but we are no less dedicated every day.

And I do take the communication points very, very constructively. You will see a higher frequency from the Company, and you will see more direct communication from me. I very much look forward to that.

Thank you all. Have a great day and a great weekend ultimately after tomorrow.

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.