Comstock Inc (LODE) 2020 Q2 法說會逐字稿

Good day, and welcome to the Q2 update conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Corrado De Gasperis.

Thank you, Casey, and good morning, everyone. This is Corrado, CEO of Comstock Mining on the line with Zach Spencer, our Director of External Relations and Treasurer. And we welcome you to the Comstock Mining Second Quarter of 2020 Conference Call.

I'll provide a brief summary of the information included in our press release from this morning, including our progress on our strategic initiatives, especially with the mercury remediation business. If you don't have a copy of today's release, you'll find a copy on our new website at www.comstockmining.com. And please just click on the Press Releases tab on the main menu bar. We will file our quarterly report on Form 10-Q next month on time, most likely on or before August 14, as we finalize our full Q2 financial statements.

Please also let me remind you that we will make forward-looking statements on this call, including an update on our 2020 outlook. But any statements relating to matters that are not historical facts may also constitute forward-looking statements. These statements are based on current expectations and are subject to the same risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in previous reports filed by the company with the SEC and in this morning's press release. And all forward-looking statements made during this call are subject to the same and other risks that we can't necessarily identify.

Okay. Let's jump in. Our realignment, which we've been really working hard at over the last year, is complete. And really now all of our daily activities are designed to simplify, focus and accelerate our business activity. So we're starting to see already, in the last few communications, movements. And we are driven to identify and develop only economically feasible gold and silver in the ground, validate it through our technical reporting and our analysis, and communicate it in a way that the market can better value and then grow that value from there.

Despite some of the COVID delays, mainly relating to the MCU equipment manufacturing over the past few months and some of our coordination on international travel and shipments relating to the Philippines, we feel like we are now fully driving gold and silver developments forward toward our goal without any other delays.

Our goal is to grow our intrinsic value to $500 million with an immediate objective of realizing $120-plus million or $4-plus per share in the near term by advancing all of the known components of our business plan. Those components are: one, MCU's Comstock deployment, which is starting this week; number two, MCU's Philippines deployment, which is starting next week; number three, Dayton's stand-alone resource estimate, which will actually occur under the new SEC S-K 1300 Regulations, which represent newly enhanced and modernized disclosure requirements for U.S. mining registrants. We may -- we will likely represent one of the first, if not the first, U.S. publicly listed mining companies to actually disclose our resource estimates in our U.S. filing. So this is long overdue. I'll talk about that a little bit more later. Number four, Lucerne's updated independent resource estimate, ultimately coming from Tonogold; number five, Tonogold's exploration and development work on Lucerne, on the Occidental and on the other northern exploration targets that they've put in the scope of their next development plan, which is very exciting; next, Sierra Springs Opportunity Zone and the advancements thereto, including the sale of our nonmining assets overall. Those assets that we are selling to the Opportunity Fund are valued at $10 million under contract. But our total nonmining assets are valued at $25 million, and that's actually net of subtracting our $5 million of debt, so net $25 million of nonmining assets and then royalty holdings and equity holdings on all of the above and more.

So ultimately, we are driving towards the goal of $500 million of realized value by implementing many more instances of these cash-generating, mercury-remediating, gold and silver projects and expanding our existing gold and silver holdings. The outreach that we're getting in regard to mercury remediation from other companies, from governments, from NGOs is almost unbelievable. We've recently reallocated some of our internal resources to more mercury and environmentally expert resources, subject matter experts for managing this growth, if you will.

So let me start by elaborating on MCU. As you know, we've partnered and launched MCU, Mercury Clean Up LLC, our clean mercury remediation high-growth venture, with our first 2 projects now finally becoming operational. Yesterday, supporting equipment began arriving on site, and we expect the core mercury remediation system to start arriving tomorrow. We've included pictures in our press release. And as you can see from those pictures, the system is impressive. It's not a toy. This is an incredibly sophisticated, 20-foot-high extensive alluvial mining system with state-of-the-art mercury centrifuges, mercury reactors, some of the most precise spirals and separators in the industry. And all put together, a remarkable system.

MCU has also worked very diligently, me personally and the partners with MCU on the front line, enhancing our definitive joint venture agreement with our Philippine partner, Clean Ore Solutions, to partner and lead in the cleanup of the Naboc River in the Philippines with permits secured and now legally formed a new entity called MCU Philippines Inc. So we've -- we formed the entity. We've provided initial funding. We've completed the first mercury-controlled, enhanced sand and gravel system that's being prepped as we speak for international shipment. Ultimately, Comstock will own 50% of this new entity, MCU Philippines Inc., and 25% overall of the parent company, MCU, sticking to the model of us participating in 62.5% of the overall economics -- MCU's overall economics, certainly in the case of the Philippines.

We plan on having 2 systems deployed in the Philippines this year, and that is still subject to some potential COVID delays. There are still quarantines and other things in effect that is making it difficult for us to get over there as timely as we want. But ultimately, we're going to ship very soon here, up to 70 ton per hour mercury system that I just mentioned. And then -- I'm sorry, 150 ton per hour mercury system that I just mentioned and then another 75 ton per hour mercury system. And each one of these systems is being custom-designed and sized for the specific application that we're sending it over to perform.

When it comes to MCU, all of the models that we initially built were based on $1,200-plus gold. So again, we cannot think of a better time to begin deploying these systems, to begin processing and cleaning up these contaminated materials and extracting the gold, obviously, now $700 higher than when we first started evaluating this process. So we certainly expect positive cash from this first Philippines system being deployed this year.

Let me turn now to Dayton. We're expanding Dayton's economic resource, meaning that we're in the process of completing the geological interpretations, and then ultimately, the engineering for an expanded pit shell. We have mentioned before that we retained Behre Dolbear to provide a stand-alone, updated technical report, but now we are discussing directly with them. The project is a U.S.-compliant S-K-1300 technical report that will include an updated resource estimate.

As an aside, the U.S. government, meaning the SEC, has come out now with modernized reporting requirements under S-K -- Reg S-K 1300. This is long overdue. Most of the rest of the world, including Canada, with the National Instrument 43-101, had taken the lead in ensuring that there is sound and strong guidelines for reporting resource estimates and reserves and mining projects. The U.S. had always been deficient in this regard, sort of falling back on the oil and gas Guide 7 standard. But now with the new rules, which can be early adopted this year, we will actually be able to not only update our technical reports, but unprecedented for the United States include those technical details, including resource estimates in our filings. Our filings, meaning our 10-Ks, our 10-Qs, our S-3s, all of our required SEC filings. So this is a massive market shift in my mind. And we look to be a leader to provide more substantive, more clear and more transparent technical reporting through our filings as we go forward.

Even before the technical report updates and the updated resource estimate, we based the current valuation of Dayton Resource, which is what we're talking about here, based on an economic shell that was developed quite a few years ago, using an $800 gold equivalent cutoff. We have not yet reengineered or expanded that pit shell. That's what we're in the progress of working on and working towards. But we have shown that if we use current gold prices on that economic shell, the old economic shell -- and I'm not even suggesting reengineering the economics of that shell, just literally taking the old shell and putting the $1,950 gold price on it, which is where we are as we sit right now, it shows a cash value of over $100 million. So I'll hold that thought with you with Dayton as I turn to the Lucerne.

As everyone knows, on Lucerne, we partner with Tonogold. They've reworked the Lucerne Resource estimate. I believe that they will and should fully report that under the Canadian standards, NI 43-101, which is outstanding, and they'll be updating those standards as well based on the current environment, which makes the Lucerne Resource quite compelling. They also expanded some of the clean groupings east of Lucerne, so that the actual footprint of Lucerne is bigger. And they've also started a very incredible, good focus on some of the southern extensions of the Occidental Lode, which are adjacent to the Lucerne and of course, the other claims that have been leased in Storey County.

So Tono has put together an incredibly well-planned, well-conceived and expansive drill program. I think these are going to be very exciting over the next few years, and I think things are going to be very exciting this summer. As they get moving, they've lined up the capital. They've lined up some of the initial required permits. They are working very effectively with our team and their team and the community. So it's just a matter of time before rigs start turning again here in the Comstock. We've actually had some deliveries of drilling supplies start to arrive last week. So things are getting active and they are moving forward.

Of course, we're still owed just under $5 million from Tonogold on Lucerne, who recently paid us about $0.5 million early in June. We've also retained 1.5% NSR royalty on Lucerne, as most people are aware. And we also own about $5 million worth of Tono preferred stock and over 6 million shares of their common stock. So at June 30, the equity holdings of those Tono instruments was valued at over $10 million. And as far as I can perceive, everything that's happening with Tono's work efforts, Tono's liquidity, Tono's advancement, it's all positive and it's all improving. If we valued that stock just at today's current share price, it would be worth over $13 million, not $10 million as we reported at June 30. So from our perspective, it's still fair, very fair to say that with all the work that Tono's lined up and planned, they're exceeding expectations with much more to come from here.

If we summarize all of these resources, we're layering in the value of Dayton, we're layering in potential values to us of Lucerne, MCU, the Opportunity Fund and our nonmining assets. As you can see from information that we've published previously, that delineates and adds up to quickly over $120 million. If we just realize half of that value in the market, we'll get well over $2 a share on our way to over $4 a share. All of our efforts to date have been to better detail who we are, better delineate what we think those values are, and I think we are starting to see -- it's slow, it's painful, but we're starting to see some of that value get unlocked in our share price.

But from our perspective, once the mercury systems are turning, once our nonmining assets begin to close on those sales, once our debt is gone, we'll start to see, in my opinion, an acceleration of that value recognition. I can tell you, from my perspective, and I'll repeat this, I don't expect us to have our debenture at the end of this quarter. And I would ask you to mark my words on that, we're going to get rid of that debt and we're going to move these business projects forward.

So having said that, let me turn to our financial position and outlook, and then we could turn to Q&A. At June 30, we had total assets of almost $42 million, that's the highest that our balance sheet has reflected that I can recall. Clearly, we are trading well below our net book value, as I just mentioned, which is ridiculous, when you consider the gold and silver resources that we have in the ground and the $5 million -- about $5 million receivable from Tono are not even reflected on our balance sheet. We also are going to show meaningful profit here in the second quarter, and that's driven primarily by a total of about $1.7 million in gains that's realized during the quarter on our equity in Tono. So when their share price improves, the value of those instruments on our books get marked to market and it gets recorded in the P&L. So we are going to show a profit.

The reason that we haven't finalized our financials for the quarter as of today is that we believe that we also have some additional gains on the note receivable that we formalized with Tonogold on March 20. So we're actually certain that we are going to have additional gains. And so the valuation experts and the auditors need to properly review and audit all of those estimates and those calculations, which is totally in progress. If it ends up the way that we are calculating everything now, we may actually even end up with a profit year-to-date, not just for the quarter based on these gains, which really are driven from the favorable conversion features that are embedded both in the equity and the receivable instruments. From the equity instruments, we've been accounting for it all along because they've been around for over a year, but this receivable was just formalized at the end of March, right? So it's a new thing for us, and it will all get wrapped up, and it will all be positive for us.

I guess I'll just conclude on that point that even as a former expert accountant, this derivative accounting stuff, even though it's favorable to us, both economically and from an accounting perspective, it makes my head hurt. And I wish I didn't have to think about it.

Our Silver Springs asset sales are now moving forward again. The fund, Sierra Springs Opportunity Fund, spent most of the last 3 or 4 months working on local economic development, bringing in companies into the manufacturing facility. We just had our first tenant at the Silver Springs Airport. Break ground, building a new hangar and bringing in a new business, which will be retrofitting king jet air (sic) [King Air jet] planes. So that's very exciting. There's a tremendous amount of non-U.S. interest coming to the fund, which is not -- wasn't intuitive in the beginning. We've got interest from Canada. We've got interest from Mexico. We've got interest from Australia. And there just seems to be a big interest in non-U.S. money coming back into the U.S., and that would be in addition to the huge inflows that we continue to see in both people and businesses coming in from California. So it feels like things are back in the saddle and things are moving forward. We've got meaningful investors looking at the fund. So hopefully, that will all get done in the next 45 days, and those asset sales to the fund will be completed. That will be landmark for us because $10 million of proceeds, obviously, wipes out our debt and funds us in a very, very strong way.

So let me just summarize the 6 bullet points for our outlook very quickly and then just turn to questions. So number one, we will monetize nonmining assets this quarter. Again, mark my words, extinguish our debenture, that's happening, and it's going to happen one way or another.

Number two, MCU will land the mercury remediation system this week. We'll spend the next 2 weeks assembling, training, commencing test operations. This will be documented photographically, from a video perspective as well. And to the extent appropriate, we'll be sharing it as much as possible, so people can see and feel what's happening.

Number three, MCU Philippines will ship. It will be the first unit to go out internationally. We look it to be operational this quarter. That's our second overall unit, our first unit to the Philippines, and we expect that unit to have positive cash flow before the year's out over there. So that's very exciting for us.

Number four, Tono has received drilling permits. They've got more in the queue. Everything is going very well there. Their drilling and development plans for this quarter, as I mentioned, are exciting, and they will commence in due course as everything comes together. I don't see any negatives there. A lot of coordination, a lot of planning and a lot of good things coming.

Number five, we may be the first public company to adopt S-K 1300. Just to be precise, the requirement is not to have to adopt it for 2020 but to have to adopt it for 2021. We may be in a position to be the early adopter in 2020 regarding our 100%-owned Dayton Resource. Timing is kind of perfect for us. We were planning 43-101 update, but this will supplant that. It will be better -- or equal to or better but certainly better for us, and to the extent that we are prohibited -- we were prohibited, U.S. companies are prohibited from including any of those resource disclosures previously, that will change now for people following S-K 1300. So that, in my mind, will provide the highest level of disclosure, the highest value of transparency to our investors and the community.

Number six, lastly, despite finally getting some signs of our improvement in our stock this past quarter, which we take, we're not upset about, it's still ridiculously undervalued by any measure that we can imagine. We are going to drive towards this intermediate plan of $120 million, that's over 9x where we are now, by accomplishing the prior 5 objectives that I just mentioned and being as clear and concise about that. We are focused. We are focused on just realizing this value based on these activities. And we look forward to filing the full 10-Q in August on time, of course, as I mentioned, as we finalize some of this derivative accounting stuff.

And I think that's it, Casey. I think I'll stop there, and we can turn to questions.

(Operator Instructions) We will take our first question from Carl Frankson, a private investor.

Yes, I would like to ask a question. Several weeks ago, there was an SEC EDGAR filing with Leviston Resources and Triton Funds. Could you please elaborate on that? And it appears that it's your option to sell them stock. Could you comment in terms of future dilution? You're talking about getting rid of the debt. Is it going to be necessary for -- to draw down on these funds and dilute us?

Yes. Thank you, Carl, for the question. So there were 2 filings. The first one was -- well, the first one I'll mention was Leviston Resources. This is an equity facility that we've had variations of it in place over the last few years. We've hardly used the facility during 2020, which is very good, a very welcome change, but it's important for us to have the facility in place. That was $2.5 million. And it would only be our intention to use that facility as it was absolutely needed, and it wasn't put in place for the purpose of drawing down to pay down debt. Certainly, it would be available for that if that was required, but we don't see that, that would be required. So that's number one.

So that's a facility that's in place, that we've always had in place. I guess we always will have in place. And hopefully, the trend will continue that our reliance will go from being heavy on those facilities in '18 and '19 to be very, very light, in '20, to hopefully, ultimately, not being required at all. So the trend is our friend, I guess, but there will always be that facility in place.

In terms of the other filing, that was a direct placement. That's not a facility. That was a direct placement of $1.25 million with a fund that we used substantially all of those proceeds for funding the mercury business. Ultimately, we had hoped to have some of our asset sales done a little bit sooner. COVID kind of delayed that on us. Unfortunately, we're still driving very, very hard on that.

But the Philippine opportunity, frankly, it's a double-edged sword. The government has been really driving us hard to get over there. We could not feel more support, more alignment, more motivation with us to get those systems up there. I think the Philippines will ultimately be recognized as a leader in sort of embracing the Minamata Convention and really working hard to stop artisanal and small-scale mining use of mercury. This is the UN's biggest push.

We didn't initially expect to be deploying our first project outside of the Comstock until at least a year after we were operating the first system on the Comstock. So it was somewhat unplanned, if you want to say it that way. It's a good problem, but that money from that fund was a direct placement. And that money is already going towards the Philippine unit that was already built. Some of those -- some of that building was done in advance of the funding, which we were grateful for because it allowed us to stay on track. And the rest of it will go there as well.

So does that answer the question, Carl?

Yes. So Triton is already done. That's past tense?

It was done. It was closed. It was funded. Substantially, all the money goes to the Philippine -- the unit first, if you will, which is completed. So that one is the one that kind of was advanced funded, and then we put some -- we put the money in. And then for the working capital, to ship the unit, establish the camp over there, get some of the local equipment organized around it and get up and running. And I think that unit is going to be cash positive within a couple of months of it being set up and run.

The only thing about that is we need our team to get over there. We ship it -- let's say, we ship it next week or the week after, within the next 2 weeks. It's going to take 3 or 4 weeks to get over there, landed, released through customs. At that point, we need to be on the ground there, setting up and training and operating. And Philippines, like Nevada, still has 2-week quarantine. When you fly into Manila, we can't go over there and get stuck in Manila for 2 weeks. We have to actually get to Davao and then -- and get the team. Now we have local partners there that are doing a lot of the supporting work with the JV, but ultimately, Paul Clift has to be there himself to set up the equipment, train the team and get it up and running fully.

So no, it's -- I'm sounding kind of monotone, but it's one of the most exciting things I've been involved in a long, long time. And it seems routine now. Like every other night, I have 7 to 8 p.m. calls with the Philippines, and it's the next day, not just me, the whole MCU team. We're -- both our attorneys, our partners, everyone over there is just working together. And everyone feels behind schedule because of the government's real motivation to make this happen. So it's very good, positive.

No, that sounds fine. The -- I'm just concerned about the -- when they get stocked, are they getting 144 stock? Or are they getting free market stock? I mean after these 2 announcements, the stock got hammered pretty good from like $1.05, down to about $0.60. And it kind of coincided with these 2 announcements, and they all get -- they kind of listed as discount to a weighted average and stuff. And I'm certainly not casting aspersions, I don't know either group.

No, no, no. So let's just comment. Yes, let's just comment. I mean the...

If they benefit from a lower stock price, they would get more shares. And...

Yes. No. So in both cases, the -- we direct the pricing. In other words, we do not -- we won't do a deal if we don't know what the price is. We won't subject ourselves to that. And we didn't in both those cases, number one.

Number two, it seems like any time we file a pro supp, and I understand this, there is a negative reaction. But I feel like both counterparties are people that we vetted and that we -- certainly in Leviston's case, we know very, very well. And in Triton's case, they're scheduling to come out and bring some of their investors to tour the site, et cetera. So our feeling always is that we want to build a stronger base of capital that stays here. But when we file a pro supp, it's registered stock, Carl. It's not restricted stock, to answer that question. So you don't know for sure, but we do our best to be positive. It was...

Again, I'm not casting aspersions, but Wall Street's not as benevolent. So if you can make a book, [you've got to make a book].

Yes, yes. You're preaching to the choir on that one. I'm with you 100%. So we're just trying to be as careful and as diligent as possible. Our goal, not through registration statements or stock sales, but our goal through our investor initiatives are that when we look at our top 20 shareholders, we like what we see, but they're necessary, they're committed with us, but they're not sufficient. So what we would like to see, 4 months from now, 6 months from now, is additions to that top 20 by people really believing in the $120 million that we're intermediately driving to and then the bigger number that we will continue to pursue after that and that we just slowly but surely, hopefully faster, add more and more shareholders to the base, right?

And hopefully, those shareholders who are -- have their arms wrapped around $22 million of value will have their arms wrapped around $120 million, $220 million, $320 million, and we'll just keep growing it from there. But we need a stronger base. So there's a lot of short money that somehow migrates around certain industries, and we're doing everything in our power to avoid it.

We will take our next question from investor [Harvey Morta].

Have you copyrighted the term "environmental miner"?

I love that term. I'm writing it down. That's a great term.

I think that may be a good play for us to be using, considering what we're doing now.

Yes. I am -- it's funny, like I've never heard the term before, but I feel that's who we are, not because of MCU, by the way, right? We've gotten 3 of the top state of Nevada, county and federal government awards for environmental excellence, I mean, top of the food chain. I believe that those activities not only attracted the MCU team to us, but also the Nevada Department of EPA, who we worked very closely with on the Carson River Mercury Superfund, directing people to us, almost like a partner feeder because we are environmental-minded.

Is it copyrighted? Oh, I would certainly jump on it right away.

Yes. It's a great idea. Let me also say to you that we've been reached out to. When I say we, I want to say MCU. We've been reached out to by the United States Environmental Protection Agency policy group in Washington. We've been -- had full conversations with the state department and then -- about what we're doing in mercury remediation, and the conversations could not be more positive.

The UN adopted the Minamata Convention in late 2017 with an objective of removing mercury from -- and this is an important term that we'll hear more and more, artisanal and small-scale mining, the acronym is either ASM or ASCM, depending on who you talk to. And the world through the UN has rallied around eliminating mercury, certainly, overall, but in particular, from artisanal and small-scale mining.

Our system is not only fully designed to do that, it's not only Paul Clift and Oro Industries' core competency, building these smaller-scale mining systems, and they're not small, they're not toys, but the -- there's not a lot of people. We don't know of anybody that could both clean up the environment with our systems, like we're doing on the Comstock, like we're going to do in the Naboc River. But actually then, the systems can, on a go-forward basis, mine chemical-free without the use of mercury. And so this is what raised the eyebrows of -- not the regulators. We worked very well with the U.S. EPA District 9, District 8 and the Nevada EPA regulators. They're good people. We are partners. But the policymakers saying that the goal is to implement Minamata. And we're -- we believe we're the best solution, for sure, but we're not even sure we see anybody else doing it. So this is going to get very exciting.

We hired an archeologist who worked for many, many years with abandoned mines in Nevada, the federal government, BLM Abandoned Mines group. There are literally thousands of abandoned mines in Nevada, of which a very large percentage of them have mercury contamination. So the -- I can't even get my head around the size of the market. It's just global. So we're very, very excited about what's happening. We're working our asses off -- I shouldn't swear. We're working our butts off because we're having a hard time keeping up with it all, and that's why -- we're not adding cost actually to our system, we're redeploying some of the costs, we're reallocating. So we've hired a new environmental manager, who's run mine sites. We've hired the archeologist, who was looking at the markets for mercury. And of course, the MCU team is working 24/7 to get these systems built and deployed.

Okay. Is Mark Reichman from NOBLE Capital on this call? Do you know?

I think Zach would know. I don't -- I would suspect the answer is yes. But assume he is and say what you're going to say and then I'll convey the message if he wasn't.

I've been reading over the research report that NOBLE put out, and they've got a target price of $4.50. Is that to be understood to be within a year?

I don't have the report in front of me. Typically, there's 12-month targets, but I don't know if that's what Mark meant. I got to be honest, I have to double check that and get back to you. I know that...

What is your target?

Yes. My feeling is we're going after the $120 million that we've delineated as fast as possible. And it's not going to be linear, right? I think what's going to happen is when we pay off our debt, you're going to see a step up. When we -- the first unit is operating and people can see videos of it operating, you're going to see a step up. When the first unit generates cash, people are going to start to project, holy (expletive), like what if we have 20 of these units deployed? So I would say within a year, yes.

Okay. What is your role with the opportunity fund, Silver Springs opportunity fund?

So I have a huge role, right? So when -- 1.5 years ago, the Board of Comstock approved me to coordinate the facilitation of setting up the fund, the facilitation of building a governance team around it and then management team. And I was working very, very hard to do that. And one of the things that became evident is that -- and what -- that was driven almost singularly by Comstock wanting to monetize its Silver Springs assets at the highest possible value, so that was why I was commissioned to do that.

What became obvious, I knew but it became much more obvious, was that there wasn't a lot of interest in the investors in just buying one piece of property, frankly, or even buying 2 pieces of property. You had some real estate developers that showed some interest, but the project is on a much bigger scale. And there's positives and negatives to that. The positive is there's so much flowing into Northern Nevada. It's hard to exaggerate. The negative is Silver Springs requires some infrastructure. And if you were going to do one project, you might not be inclined to build roads and build sewer systems. You can -- it'd be hard to justify with just one project.

And so as we were forming the fund and bringing in some really good people -- I mean the people that invested in the fund are world-class as far as I'm concerned. And so the thesis expanded to let's not just acquire a couple of really good real estate development projects, let's consolidate the district. And in a way, we're carrying a page out of what we did here at the Comstock, consolidate the whole district instead of consolidating around one of the most historic silver discoveries on the planet. We're consolidating around massive state infrastructure in terms of USA Parkway, Highway 50 and much, much more.

So then I was intimate with all that, so I started negotiating on behalf of the fund. And then ultimately, we formed the fund with me. I had to go back to the Board, of course, taking a leadership role in the fund. So we have management. We have a Board. It's independent. Comstock will benefit not just in getting a very, very great premium value for its property but also a retained ownership. So we ultimately expect that we'll have about 9% of the fund. And that fund potentially could be worth a couple of billion dollars with what's being pulled together here. So both in my role at Comstock and my role in the fund, it's to create maximum value for our shareholders. And I think that's what we're doing.

So to answer your question, I'm running the fund, I'm not running the businesses underneath it, right? So I'm responsible for pulling together the consolidation and helping to raise the capital to fund it, if that's clear. And we'll be -- it's -- the fund, by the way, is exempt from registration under what's called Regulation D, so it will raise up to $50 million privately. But it's the only fund that I'm aware of, opportunity zone fund, I mean, that has committed to registering the stock and listing publicly. So if there's anybody, anyone interested in investing in that fund, you could reach out to me directly. That's not a solicitation or anything like that, it's just an expression of information.

Good. On the mercury cleanup where you said we paid about $1.7 million in cash and stock, so $1.25 million of it was cash. What was the value of the stock that we put in?

No. So yes, so let me answer that question very, very carefully and clearly. So the first agreement, which was done in June of 2019, committed $2 million, okay? And that $2 million, [Harvey], gets us 15% of the mother company, MCU, right, and the right to 50% of the first U.S. joint venture, which most likely would be formed with the equipment that's landing here this week, okay? So now of that $2 million commitment we put in, so far, has been monetized, $1.7 million of cash has gone into MCU, the holding -- the parent company, and they're holding 625,000 shares of LODE that were -- that are restricted, okay? That restriction will lift in November, and their goal will be to monetize an additional $250,000 from that 625,000. Obviously, given today's share price, that 625,000 will well exceed the $250,000 sort of remaining requirement, if you will. And that money either would come back to us or we would put it towards the commitment that we've made to the Philippines, okay? So that's number one.

Number two, we've secondarily committed up to $3 million in MCU and MCU Philippines that will give us an additional 10% interest in the parent company. So we will end up with 25% interest in MCU and 50% interest directly in the joint venture in the Philippines. So the way this was structured was that we would have -- we would end up with 25% of MCU, which is the parent. And then -- and it's our choice but then, ultimately, the right to invest in -- directly into 50% of any project. So that's where I come up with the 62.5% of the economics. If it plays out the way we intended to, we'll have 50% of the project as a joint venture. And then we will have 25% of the other 50% through MCU, which is 62.5%. If that's the way it plays out, which is our expectation, we would actually consolidate MCU's results into Comstock's results, which I think is correct. It's the way it should be based on our economic interest in what we're planning to do.

Now let me say one other thing. In the Philippines' case, right, we've committed up to $3 million in equity and debt to ensure that 2 units get deployed in the Philippines, 2 operations are up and running in the Philippines, and that they turn cash positive. Based on our models, where we used -- I'm trying to recall, but I think I'm going to say 1,400 gold, maybe 1,450 gold, but we use a number like that, our payback is about 16 months on that $3 million. But more exciting -- not just the fact that we get paid back that quickly, that means it's generating that level of cash. If it's generating that level of cash, the intention would be to deploy unit 3, deploy unit 4, deploy unit 5 from cash flow, okay? So this is the model that we want to pursue once these first 2 projects are up and running cash positive, I mean, we can grow to kingdom come. That's the idea.

So we have the right to pick up 50% of every one of the projects?

Correct. That's right. We have the right of first refusal on each project. We have the right of first refusal on any capital that comes into the entity. And I got to tell you, the people that we are working with, Paul Clift, the owner of Oro, Tom Manz, Brad Heuberger, I mean they're world-class people in my opinion in terms of their competency. Paul's -- Paul might be one of the last breeds of truly expert alluvial/surface mining people, but the fact that he builds all of his equipment himself -- and I was joking with them the other day, I go, "You don't build Chevys. You build Cadillacs." And I offended him. He's like, "Dude, we build Maseratis." And when you see the first system, you'll know what he means. It's so precise and so specific.

And let me just say, besides the engineering and the equipment, it's customer intimate. Like Paul's whole life has been to know who his customer is and build exactly what they need, then go camp out with them until it works the way it's supposed to. And so I just think we're -- and we all like each other, which is kind of unusual in business. So I'm having a lot of fun with it.

But that's how it's structured, [Harvey]. And it's -- I'm telling you, it will be as big as we let it, is my opinion. I was talking to Arnold the other day, and he was like, "How big can it get?" And I couldn't answer the question because there's just -- everywhere we turn, there's mercury contaminations.

We'll take our next question from [Jeremy Aden], private investor.

I'm not sure if this question was addressed. I just wanted to know for the real estate sales, the current potential buyers, seemed like they've been on the table for a long time. If you feel that they're able to step to the plate or if it's something that should be considered with another potential buyer.

Yes. So no. So they -- it's the fund that's buying the assets. The fund raised over $11 million last year, owns a 150,000 square foot manufacturing facility, owns and operates the Silver Springs Airport, has no debt and has a lot of investment interest in this thesis of consolidating this Northern Nevada enterprise zone, if you want to call it that. So I truly believe that the COVID thing sort of paralyzed the markets. There's a positive and a negative there. The big, big drop in March, which was a big sell-off, paralyzed everybody, but it also triggered a lot of capital gains. Then the market rebounded, which was kind of shocking.

But -- so there's a lot of people now that are feeling more stable in terms of their portfolios, but they've got capital gains that they need to deal with, and they also are concerned about the go forward. So the conversations are very positive. The fund is qualified as an opportunity zone, meaning if you have a U.S. source capital gain and you put big money in the fund, it's automatically deferred for up to 5 years. And then if you keep your money in there for the full duration, which is 10 years, then any new appreciation is tax-free. So there's a tremendous amount of interest in investing in this kind of thesis.

Now the negative is typically that they're in pretty tough areas, right? Like by definition, the zones were poor census tracks, needing economic development. So Silver Springs 100% qualifies as that, except with all the new highways that have been built and expanded around it has become literally Grand Central Station of Northern Nevada's economic activity. That's a little bit of an exaggeration. Reno really is the Grand Central Station and the Tahoe Reno Industrial Center is really the Grand Central Station, but we're the very first stop off of that.

And so no, I don't -- there's no question in my mind, they're going to raise tens and tens of millions of dollars. And -- but it's important to know also that the fund has massive access to economic development dollars, private activity bonds, USDA loans, new market credits. And so far, the fund is debt-free and has only raised equity. So it has operating assets, it's debt free, a very strong financial position, and it's looking to bring in one more round of equity before it starts accessing those very inexpensive economic dollars, if you will. So yes, I have no doubt. Yes. Thank you.

And I just had one more question there, actually. Does the potential buyer have any -- like do they have any skin in the game? Are you guys holding a nonrefundable deposit? Any kind of like...

All skin -- yes. So nonrefundable deposit is correct, but all of the Board and the management of the fund are direct investors. So not only are we holding nonrefundable deposits, but all of the money has come from the people that are either represented in management or by the Board. 100% skin in the game. Yes. Thank you.

We will take our next question from [Jeremy Harrison], an investor.

Corrado, this is another [Jeremy].

I'll keep it short because I know it's running pretty long. As far as the fund, can you clarify -- the last we've known is $11 million was raised initially. You can see the others there, the $18 million filings of -- I think about a couple of months ago. Can you clarify what -- has any other money been raised and secured? Or is it still waiting on commitments? Just if you have any [quintessential 50].

Yes, yes. So we've only gotten -- so in terms of like hard numbers, it's only a few hundred thousand, but we're literally talking to 3 lead investors right now, who combined make up more than the $18 million. So that's sort of a hybrid answer, which is hard commitments, no, not really, but like hard, serious interest. And I -- so I think what's going to happen is there are about 20 investors in the first raise of $11 million. We like that very well, right? Like it was a very strong group of people who -- I can't think of any one of them that doesn't want to be there the whole time, so that was a great start.

In this case, I think we're talking about -- it could be 20, it could be 5, right, like that. And then the base will be so strong, we believe that we will accelerate the listing and the registration. And then the third raise will probably be a public offering, which we would go out to the broad masses of people.

So it's coming together very nicely in that context. It's frustrating, but last 3 or 4 months, just -- it was just very, very hard to get traction. We -- anyone we reached out to was interested, but we got deferred. No one was saying no, but we just couldn't get the meetings and the attention because there's so many other things that they were having to deal with. But now we're getting the meetings. Like now we're -- like I want to be clear, we got meetings this week. We got meetings. I mean -- so people are doing the work, so it's -- it feels like we're -- again, we're back in the saddle.

Okay. As far as the $4.1 million of debt, that's, I think, everybody's main concern. Is there a backup plan for that, if it -- this does stretch out? If it did stretch out, is there a back -- can that be delayed? I know it's due in, I believe, January.

Yes, yes, yes. We've had great conversations. We have, I would say, at least 3 backup plans. And I prefer not to talk about them right now, but I think you'll hear very soon. You'll hear very soon, yes. There's no scenario where the debt gets us in trouble.

Got you. Will do. And then as far as -- with the Philippines, the first unit that's going in, that's the sand-and-gravel unit, correct?

Yes. So just to elaborate on that a little bit, right? We had plans. Each unit is different and typically designed purely for mercury remediation. But there's a 27-kilometer river, of which most of the mercury contamination sits at the top part of the river. It's up river, in elevation up the side of the mountain.

But the government was pushing us very hard to deploy a unit at the bottom of the river. And we were like, "No, that doesn't really make a lot of sense. We want to clean it from the top-down because, otherwise, how do you sustain the clean activity?" And they're like, "Well, what about sand and gravel?" And it took us a little while to get our head around what they were saying, but we finally got it, like that there was a huge demand for sand and gravel. There's probably less mercury contamination -- well, certainly to the extent that we've sampled, it seems like there's less mercury contamination down the lower parts of the river. We don't know that for certain. We know there's mercury contamination pretty much everywhere, but there's more at the top, less at the bottom. But when you factor in that you could actually have a salable product with sand and gravel, the amount of mercury and, by default, the amount of gold in the mercury becomes less important because you have a baseload.

So what we did was we took a pretty sophisticated -- not sophisticated but a pretty high-quality, as all Paul's equipment is, sand-and-gravel unit and we retrofitted it with the mercury centrifuges and controls. And so it's actually not something we're originally thinking we would be doing, but we're very excited to do it. So that one's going first. It's actually a simpler system overall, right? It's something that if you didn't have any mercury, it would kick butt in terms of sand-and-gravel processing. And so in a way, it's both a very conventional business that will generate a baseload of profit and revenue for us to get set up and running. But it will also -- if there's mercury in there, it will get it. And then it will be even more exciting. So yes, that's how we're doing it.

Okay. And does it recover the amount of gold as the other units? Or no?

It should. It's got the same type of centrifuges. But every situation is different, right? So we'll have to see the efficacy of it, but we're pretty confident it will get it clean enough with the controls that are in place that it needs to be. So we'll see how it does. But in all cases, these things will perform at very high levels.

Got you. And the Comstock unit, that one still has 25 tons per hour, correct?

Yes, which is important to highlight that the Comstock unit was designed, more than anything, to -- I want to say perfect the process, right? Like we know that there's -- we've gotten high levels of cleanup, high level of efficacy coming from units that had one centrifuge. This unit coming to Comstock is like it is the Maserati because it's got 3 centrifuges. It has a full mercury reactor in addition to the centrifuges. This is something that will be -- we're in the process of patenting. And then it also has the spiral separators, dewatering, filtration units, et cetera, et cetera.

So this is where we sort of perfect the ultimate process, get the highest remediation, get the cleanest material out and then scale that up subsequently. The Philippines sort of leapfrogged us a little bit, to be honest, right? We were planning to do the Comstock thing first, but they'll both work.

Okay. So the -- I think that's it. That answers my questions. I really appreciate it. Oh, one last question. Are you still planning on doing [a blog] on the -- on just the funds coming up?

Yes, yes, yes. There's been a lot of activity going on, and so I just -- I was just trying to get some more things done before. But we'll give more transparency and more updates on that as we go forward for sure, [Jeremy].

And also a documentary in the Philippines would be great while you're doing that. I don't know if you guys would like that, [come and give me a call]...

Yes, yes. We've already been approached by a couple of folks, like the Discovery Channel-type folks about that. So yes, we'll see how that plays out. There will be something, I imagine, for sure.

We'll take our last question from [Charlie Patton], an investor.

My question is just regarding -- it was mentioned on previous calls, but not so much recently, I think. There was a PEA that was mentioned to get completed in the third quarter, I think. Just wondering if there was any more information on that.

Yes. So sort of 2 points on that. So on the Dayton Resource, our intention is to publish an updated resource estimate. I mentioned earlier, we're going to go under S-K 1300 guidelines for that. And although it won't get to the level of a preliminary economic assessment, there will be economic dialogue in that report around the resource estimate. So it will be more than resource estimate but less than a PEA. The intention is then that we would have one more -- or an intermediate drill program.

The biggest debate we've had is, do we drill before or after we published a report? I think the way we're going, it will probably going to be before. The report will lay out all of the new geological interpretation. It will lay out the intentions for the drill program. And then subsequent to that next round of drilling and updated engineering, then we could be very close, if not, on a preliminary economic assessment for the Dayton. So that's answer number one.

Number two, which may have been what you were referring to, the Tono team has done a tremendous amount of work on updating the resource estimate for Lucerne. And I know that they've done, similar to what I just mentioned, some amount of preliminary assessment on the economics, for sure. It's almost required to do that now with the new Canadian and U.S. standards, frankly. I don't know for certain if -- when they publish that resource estimate, if it will reach the level of PEA or it will be close, but there will also be economics there, too. So I don't want to speak for them, but I know that's the intention, right? Updated resource estimate, either in conjunction with or followed by preliminary economic assessment. So either way, we're getting a lot of good technical updates very soon.

And that's very important to -- and this is a good question to close off on. As we talk about the market, recognizing us getting to $120 million of value, delineating it, clearly describing it having, third parties like Mark Reichman provide some objective view of it, is all very, very, very important, right? And the more we have -- can do that and then the clearer we can be, the better. But ultimately, the technical reports that validate the geology, that validate the economic assessments are huge -- are a huge prerequisite, a huge engine to getting to those higher values.

So yes, absolutely, that's our intention. That's what is in the pipeline and that we're moving towards. With MCU, you'll have less technical report and more cash flow, right? So cash flow is the best thing. And in the absence of cash flow, someone else opining on what the cash flow should be is the second best thing, and that's what a PEA and ultimately, a prefeasibility and ultimately, full feasibilities give you. So we're being very disciplined on that approach. I think Tono is very disciplined on that approach, less promotional, more substance.

And then when -- and when -- and I think this is a very big thing. I don't think anyone appreciates how big it is yet. I don't think the Canadian investors even care, right, because they've already got their platform. But the Canadian capital markets are a pimple on the ass of the U.S. capital markets, okay? So when the U.S. modernizes its disclosure requirements for miners, and we can start disclosing in our 10-Ks, 10-Qs, S-1s, 8-Ks, resource estimates, you're now going to have the interest of an exponentially greater capital market base. And some people can say, "Yes, but not so true. Canadians can invest in the U.S., Americans can invest in Canada." Yes, you can say that, but it's not correct, right? There's a reason that Toronto has the largest share of mining stocks registered there. And it's because their disclosure requirements are better, and that's about to change.

So I don't know, maybe it won't make an impact on the Barricks and Newmonts of the world, but it sure as hell will make impacts on junior miners. So I think we're standing to benefit here greatly from better local disclosure and that we're going to be -- we're going to take the lead on that.

And do you still expect to release some numbers regarding the resource estimates this quarter? Or do you think it might be in the...

No, I think it will be this year. It will be this year. I think we're not far off, right? But I think with the S-K 1300 rules being new, we already started dialogue with Behre Dolbear on exactly how they're going to do it, right? They haven't done it yet, right? So I think that will have an impact a little bit on our timing. But we'll be out, hopefully, sooner rather than later, but certainly, before the end of this year.

Casey, I think that's it. Great call, great facilitation. I guess we could wrap it up.

Thank you. Ladies and gentlemen, this concludes today's presentation. You may now disconnect.