Comstock Inc (LODE) 2022 Q3 法說會逐字稿

Ladies and gentlemen, welcome to Comstock's 2022 Third Quarter Business Results Webcast. Here is Comstock's Executive Chairman and CEO, Mr. Corrado De Gasperis.

Good afternoon, everyone, and welcome to Comstock Inc.'s third quarter update. I'll provide a business update, including the information from today's press release and our recently filed third quarter report on Form 10-Q. If you don't have a copy of today's press release, you'll find a copy on our website at www.comstock.inc at the top of the Investor page in the Newsroom section. Our Form 10-Q is also available on the website on the Investor page under SEC filings and also via EDGAR on www.sec.gov.

Please let me remind you that we will make forward-looking statements on this call and that any statements relating to matters that are not historical facts may constitute forward-looking statements. Our statements are based on our most 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 and the SEC and in our most recent press release, and all forward-looking statements made during this call are subject to those same and other risks that we can't identify.

Once we complete the prepared remarks, Zach will accept and direct all questions. Let me start today with a corporate update, including our financial position as there's a number of valuable developments that I really want to cover first.

Our recently reported assets totaled over $160 million, while our market valuation is barely $35 million. All of our work, transactionally and operationally, is now focused on unlocking an incredible amount of existing value while also working very hard to creating much, much more. We closed on the Daney Ranch last quarter, and that was great to finally complete. We recorded a gain of well over $1 million and validated what we see happening in this region in terms of real estate values.

Let me break down the progress we have recently made on monetizing other assets and on working more of these values. First, regarding the Sierra Springs Opportunity Fund. I've been spending a substantial amount of time on a transaction that fully capitalizes Sierra Springs Opportunity Fund and simultaneously results in over $18 million in proceeds to Comstock. This transaction has now been approved by the Sierra Springs Board and the investors all now -- is also now directly engaged with a prominent local developer. This is not only derisking our transaction, but we are now seeing multiple large companies and multiple large investors also engaging the Sierra Springs for both investment and property development.

Although I'm a little disappointed that the closing is slipping into Q1, it's doing so because of the size and scale of the investment and the development plans that are prerequisite to closing. Our confidence in these transactions was high and has only increased with these recent developments. We will, of course, announce these transactions as soon as they close.

Comstock's equity investment in Sierra Springs alone will be monetized for almost $4 million, representing an 11x return to us. Additionally, we've received interest in monetizing another one of our equity investments. That could quickly result in another $7 million to $10 million more in cash proceeds likely this year, increasing our expectations of nondilutive cash proceeds to be in excess of $25 million. When you consider the ridiculously low values that these assets are recorded on our balance sheet for these investments, you can start to better appreciate the magnitude of value that we're starting to unlock.

The most significant of all of these, of course, is our mineral and mining assets, representing the entire Comstock District. I mentioned on our last call that we're evaluating specific strategic opportunities for our mining assets that are designed to unlock and recognize significant values. I'm happy to say that we have now completed our internal work on our S-K 1300 technical report for the Dayton gold and silver resource estimates that Behre Dolbear is now finalizing to publish this month. We really like how the resource came out, and Behre Dolbear has agreed that we can share some of the results on today's call.

Coincidentally, Tonogold has also posted their S-K 1300 technical report on the Lucerne. That report was completed for Tono by Mine Development Associates, a very reputable Reno-based mining firm. These 2 reports represent and support our company's combined mineral assets and are going to reflect over 600,000 ounces of measured and indicated gold resources alone. That's under the new more stringent S-K 1300 standard. The reports will also quantify an additional 300,000 ounces of gold in the inferred resource category.

As you can all appreciate, reporting nearly 1 million ounces of just gold resource is, needless to say, beyond exciting for us. These 2 resource areas also show many millions of ounces of silver resources with over 2.1 million in measured indicated silver in the Dayton resource and over 3.7 million in measured indicated silver in the Lucerne resource. There's also an additional 2.5 million of inferred silver ounces in the 2 combined resources. This represents well over 8 million ounces of silver resources in all categories in our properties.

These technical reports were the prerequisite for us to validate, improve the potential value of these properties, and we now have multiple avenues for unlocking this value. And I also want to be clear that we are committed to realizing these value for our shareholders. We will be methodical. We will be strategic with these assets. And there will be much more to come as we're working on this around the clock full time over the next few months.

Let me now come back to our battery metal recycling and cellulosic fuels technology. Our 9-month operating results include $5.1 million in R&D investments to date with $1.3 million representing the most recent 3 months ended September 2022. These R&D amounts include our material extraction test work, engineering, design, fabrication and commissioning activities associated with both of our pilots. Our cellulosic fuels portfolio holds 12 patents currently, representing over 300 claims. And our recent filings represent a significant expansion of this IP, including for Bioleum and the new pathways to produce renewable drop-in fuels from woody biomass.

Comstock also has 3 patent filings representing over 45 claims for battery metal recycling and extraction. This includes the whole recycling system for producing black mass as well as our lithium and graphite recovery and extraction processes. The past quarter was extremely busy for battery metal recycling as we received our written determination permit. That is the main operating permit for lithium-ion battery crushing and separating that also authorizes within this permit lithium extraction and precursor cathode active material processing in that facility. That was a big accomplishment.

We also received a first-of-its-kind county-level permit from Lyon County to operate a battery storage and transfer facility at our nearly 200-acre industrial campus also here in Northern Nevada. We submitted our air quality permit last quarter, covering Comstock's crushing and separating process, with expectations of receiving that permit in the first half of next year.

We advanced also a broad series of lithium extraction test work internally in our Wisconsin facility and in collaboration with outside labs from our own pure black mass samples. And lastly, we recently saw a meaningful increase in the activity and the value of our investment in Green Li-ion, our partner for precursor cathode active materials, as they deployed their first commercial pCAM system in North America.

Fundamentally, our ability to produce a uniquely pure black mass represents the enabling technology for what we believe will be a very efficient lithium extraction process. The conventional recycling processes that are currently deployed suffer from extremely high, if not total losses of lithium. We're solving that problem by producing the black mass conducive to extracting lithium immediately and efficiently and in a manner that maximizes the recovery.

Remarkably, we also just had the LiNiCo recycling facility appraised for well over $25 million in property value, positioning us with 2 prime assets here in Northern Nevada: first, that recycling facility; and now the permitted nearly 200-acre battery storage and material transfer facility with a great footprint here for expansion. Our major near-term objectives include completing the design and upgrading our enhanced crushing and separating system, completing the validation of our lithium extraction processes, reviewing our -- receiving, sorry, our modified air quality permit in the first half of 2023 and deploying the commissioning of those systems in Nevada as soon as the permits are received.

The quarter was also extremely busy for cellulosic fuels. In addition to expanding our IP, we also filed a grant application with the U.S. Department of Energy to demonstrate one of our unique new pathways to producing drop-in renewable fuels from woody biomass. And we also engaged multiple clients in both the renewable fuels and carbon-neutral pulp and paper industries for engineering, technology and equipment sales using our technology for the deployment of those solutions.

As I mentioned on our last call, the DOE grant application facilitated a world-class coalition of industry-leading partners and complementary technologies that adds to and accelerates our pipeline for producing these renewable fuels. We have since publicized that coalition, including Topsoe Inc., the largest catalyst company in our industry; Marathon Petroleum, one of, if not the largest renewable fuel producers in the United States; Novozyme, the largest enzyme producer in the world; and a handful of the most exciting and complementary companies, researchers, universities and technologies for enabling another breakthrough woody biomass pathway for producing drop-in fuels.

Again, just to be clear, we already have the technology today to produce cellulosic ethanol and byproducts there, too, profitably. As we recently announced, we're already engaged in the corn ethanol industry with the ability to enhance and expand their solution into woody biomass. Using cellulosic sugar as a feedstock will have an extraordinary impact for corn ethanol producers. The woody biomass is dramatically less expensive, it's readily available, and it delivers substantially higher revenue because of the much better life cycle carbon impacts once compared to corn. We are targeting corn ethanol producers that are well situated to exploit these advantages.

Commercializing and leveraging our technology in these existing segments like corn ethanol, like bamboo-based, carbon-neutral pulp and paper represents our fastest commercial opportunities and revenues because they're ready to go now. In the meantime, we're developing multiple pathways as we discussed with Bioleum, including the additional pathway proposed by the DOE grant that all produce higher-yielding, higher-value drop-in fuels from that 1 single abundant feedstock source.

Our major near-term objectives for fuels are to finalize multiple strategic collaborations with a number of industry-leading partners for developing these fuels, that's deep in progress as we speak; commercializing our solution into corn and carbon-neutral pulp and paper, that's engaged as we speak; and complete and announce our first commercial Bioleum development agreements with industry-leading partners; and upgrade and operationalize our Bioleum-enhanced pilot system by the second half of next year. These first commercial agreements will clearly demonstrate our capabilities and our potential and prove out the long-term value of this technology. The industry response to us so far has been highly motivated, highly engaged as they all face a common constraint, which is insufficient feedstock.

In summary, we have a clear pathway in commercializing these solutions, and they're advancing nicely. We're also monetizing over $25 million in cash from noncore, nonmining assets in the near term to position our balance sheet for this growth and enable faster progress. We have a very strong foothold for all of our 2023 objectives. The technology is novel, protected by the IP and exceptionally well positioned for us to grow.

Zach, I'm going to stop there and let's just go ahead and turn to questions. Do you have our first question?

Yes, Corrado, I do. It's in regards to our mining. And this -- first, I would like to know what the projected value of our mining asset is. And what is the next step for our mining properties?

So -- thank you for the question. So the very next step will be the publication of the S-K 1300 report. I was thrilled to be able to give you highlights, especially those resource numbers and ounces. That report will be published this month, for sure. Putting a stake in the ground, we will put out a very nice communication that puts a very, very large report into very nice context and summarizes not only the ounces that now have been validated in the ground.

But from the Dayton resource, the exploration potential for 2 miles of continuous strike to the south of that resource. And in Lucerne's case and the Occidental case, 1.5 miles of continuous strike to the north. So we've gotten already significant direct inquiry about the acquisition of those assets, and we're evaluating other alternatives to unlock those assets should we fail to be able to recognize the value in our share price. If you ask me what the value is, I'll leave it to say, it's not 8 figures, it's 9 figures plus.

Our next question is on lithium battery recycling. Why is LiNiCo's lithium battery recycling process better than others in the marketplace?

Yes. It's a great question. I want to emphasize that what we're developing in crushing and separating, what we're developing in conditioning of the black mass and what we're then correlating to efficient extraction of lithium is novel. And so we have the ability to crush safely, efficiently batteries that haven't been previously discharged. We have the ability to crush all sizes of batteries. The technology is remarkably scalable up and down.

We process the materials in a dry environment. The dry environment avoids any cross-contamination, and then we burn off all of the contaminants at a temperature that gives us an extremely pure black mass material without burning off and losing any of the lithium content. So we do not see anyone in the marketplace having this, let's say, amalgamation compilation of technology all working together to give such an efficient result. And the scalability is something that we really, really are looking at.

We've already announced that we can do large-scale crushing and separating. We could do very small-scale crushing and separating. So we're learning quite a bit as we develop this system. It's novel. It's protected by IP. And I believe it's going to be very valuable to us. And I think it could be very valuable to the industry and certain partners in the industry with us.

Okay. And then pivoting to Bioleum. What is the difference with your process working with Bioleum and renewable fuels? And why is that process better?

So fundamentally, right, we do not see anybody that can efficiently take woody biomass of any nature. We're talking hardwoods, softwoods, willow, bamboo. We do not see anybody that's able to efficiently process. We can already today use half of that feedstock to produce cellulosic ethanol. Cellulosic ethanol is molecularly identical to corn ethanol. There's 2 big differences. One, the feedstock is much, much less expensive, costs much, much less, and it's abundant. So there's 3 differences. The feedstock is much less expensive, and it's abundant, and it has a much better carbon impact.

The carbon score of using cellulosic ethanol versus corn ethanol is 4 to 5x greater, which means we get much, much more revenue at a much lower feedstock cost for the same product. Now currently, that's profitable at scale, and the other half of the wood can be used as a substitute for burning natural gas. This gives you an even higher carbon impact and even better carbon impact score. However, our breakthrough is now being able to process and treat the other half of that feedstock into what we're calling Bioleum, which will then produce drop-in fuels.

Drop-in fuels, like drop-in diesel, like sustainable aviation fuel, like marine fuel, goes directly into the existing infrastructure, into the existing gas tank. What that means is you get 100% of the carbon impact of that fuel as opposed to having to blend the ethanol 10%, 15% with fossil fuels. So the breakthrough with Bioleum enhances the yield from the same kind of wood, but exponentially impacts the carbon reduction.

So from a decarbonization standpoint, we think we have the breakthrough solution. From a yield and cost, we think we have the best advantage. And from revenue, we get the most out of the least. And so as we're developing the drop-in fuel from the Bioleum, the breakthrough, we can produce Bioleum. It is a biointermediary. The EPA and the government are now giving carbon credit for selling biointermediaries. So this is so exciting to us because we could produce these biointermediaries and sell them to partners who could then produce the drop-in fuels. This will all result in a monstrous acceleration of decarbonization.

And I'll just say for the record, and I know I've said this to a couple of you one-on-one, electrification is great. We're excited about the recycling of these metals. The notion that electrification is going to replace liquid fuels, we think, is nonsense. We also think that the notion that electrification is decarbonizing is nonsense, right? The huge decarbonizing impact that this enterprise will have is with these cellulosic fuels.

Okay. Thank you for that, Corrado. Our next question is an overall finance question. For 2023, what are your sources and uses of cash?

Thank you very much. So obviously, we are keen to monetize the sale of the Sierra Springs Opportunity Fund investment, and the assets that we're selling to them, that will be $18 million. We have another investment that we're monetizing. The amount could be much more significant, but we're banking on about $7 million to $10 million. Those 2 sums alone total to over $30 million -- $28 million, $30 million. And we think those will be the primary sources of our capital.

To the extent that we monetize those assets, and we're sitting on -- I'm going to offer this up because I've gotten bombarded by these inquiries. To the extent that we're sitting on $25 million, $30 million of cash and our share price doesn't respond, which I believe strongly it will given our market cap, then we would look to seriously buy back some of our stock if it doesn't respond. I think it will respond. I think our achievements and these monetizations will force a response. And if we're lucky, we'll get some turn in the market, which, of course, has been horrible this year. Hopefully will be a bit better next year, but we're not banking on the market.

We have had a few questions on this next topic. What is the time line for the grant application with the DOE?

Yes. So the grant, I think it's imminent. Like from what we understood in terms of their time frames, it was going to be -- or the latest that we understood was early November. So we expect to hear back any day now. We're very optimistic about it. I'll just repeat what I said on the last call. That grant, that funding opportunity was a catalyst for us. I mean it resulted in, initially, 10 to 12 engagements with industry partners and relevant parties. That number is easily over 2 dozen to maybe even 3 dozen.

We are fully engaged in the market now with the recognition that our technology is here and can do some things immediately and that our technology is here and has developments that are very near term to do even more. So it will be a nice validation from the government to win that grant. It's only 1 of about 7 pathways that are being developed. The other 6 are moving forward. And so hopefully, we'll hear very soon.

Okay. Corrado, shifting over to GenMat. There is an upcoming satellite launch. And people would also like you to elaborate a little further on the different milestones that you have with GenMat.

So thank you for that question. Look, with GenMat, we have said in the past that we're not a majority owner of GenMat, first of all. We're very, very close to the incredible work that they're doing. And I'm happy to speak at a very high level about what's happening there and what it might entail. We won't get into any specifics or details about their research and development. But I think it would probably be fair to clarify a few things. Look, GenMat, you asked about the objectives or the milestones, right?

Milestones, yes.

So GenMat's first objective is to validate through a proof of concept that their programs, their artificial intelligence, their artificially intelligent algorithms, if you will, can define certain critical properties of known materials. By known properties, I mean material characteristics, things like the band gap of a specific material or the electrical or the thermal conductivity of a material.

What's incredible is that they can take a simulation or an analysis that can take months upon months upon months worth of conventional research and development from some of the most advanced companies on the planet. And GenMat today can do that in just a few days. They can do it in just a few days with classical computing hardware. And they can do that today. I mean we believe GenMat's the first company in the world that can actually do this.

As this capability evolves, they'll be able to enhance these materials and ultimately generate new material capabilities and ultimately create even new materials, right, hence the name of the company, Quantum Generative Materials, GenMat for short. As their programs develop, as their AI evaluates these materials, and it evaluates these materials at atomic and the quantum mechanical level, right, so we're doing things at a level of precision heretofore not done before. And it's this capability, it's this artificial intelligence that ultimately will be able to enable other types of material dissemination such as mineral discovery.

So you asked, and I believe GenMat has already publicly disclosed, that they're launching a satellite that has one of the most powerful hyperspectral arrays and imagers from space. And what is it able to do? Well, hopefully, it's going to enable some high-precision prospecting of minerals, of minerals on mine sites, right? So we don't -- we haven't talked about our plans specifically. I guess there's more to come in that regard soon. But GenMat is pioneering. They're on the frontier of these developments in an absolutely tangible and real way. Like they're already achieving these objectives.

Corrado, that does it for our questions today. We did receive several questions on our various lines of business. So I definitely want to thank everyone for those questions.

Thank you, all. I really appreciate this update. I have to say that what our management team has scheduled and untapped for the next 2 or 3 months is more than I've seen in front of us. I say that in an exciting way, right? The opportunities are manifesting. The partners are engaging. The technology is developing. And we will be absolutely communicating the achievements as soon as they come online. Thank you, everyone, for your time.