Comstock Inc. (LODE) Q2 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the Comstock Mining’s Second Quarter 2015 Results and Business Update Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Corrado De Gasperis. Please go ahead, sir.

Thank you, Angel, and good morning, everyone. It’s Corrado, President and CEO of Comstock Mining and welcome to our 2015 second quarter update and conference call. I’ve got Judd Merrill, our CFO on the line today who together with the rest of our operating team continues to lead our streamlining and cost reducing efforts. We announced today that we raised our target for year-on-year savings up to $10 million from the previous target of $6.5 million. We will provide a brief summary of the information included in our 10-Q and our press release filed this morning and then take questions afterwards. We’re also making every effort to keep the call to an hour including questions, so if you’re question does not somehow clear the queue, we will be available post call to ensure that all questions are answered directly. If you don’t have a copy of today’s release, you’ll find a copy on our Web site at www.comstockmining.com under news/press-releases. And please also let me remind you that in addition to the outlook, we’ll make forward-looking statements today on this call. Any statement relating to matters that are non-historical facts may constitute forward-looking statements. The 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 the reports filed by the company with the SEC and in this morning's release, and all the forward-looking statements made during this call are subject to those same and other risks that we can’t necessarily identify. All right, let me move into the overview of some of our second quarter and year-to-date highlights including the status of our Lucerne and Dayton developments and our outlook. Throughout 2015 and the second quarter in particular, efficiencies in cost reductions continue as our driving most positive theme. We’ve been focused on both the lower and more flexible cost structure. We reduced costs applicable to mining in the first half of 2015 by 32% when compared to the first half of last year or by over $3.3 million from specific cost reduction actions taken throughout our system including to reduce more flexible labor force from our actions taken in the first quarter, including also lower blasting, drilling and fuel usage costs associated to mining. Higher grades, higher yields and lower strip ratios also drove productivity lowering unit costs as did lower fuel prices. We also reduced all other non-mining costs consistently across every single category that includes G&A, mine claims, land claims, mine development, environmental, reclamation, et cetera, et cetera, by an additional 1.5 million in the first half of this year compared to last year with about 1.3 million of that 1.5 million coming here in the second quarter. Our progress to-date coupled with additional organizational changes has now allowed us to increase our planned savings from that previously announced total of 6.5, which broke down to 5 million reductions coming from mining costs and 1.5 million coming from non-mining costs. Now, those numbers have been increased as I said a minute ago to a total of 10 million representing 7 million for mining costs, up from the previous 5 million and 3 million from non-mining costs doubled from the previous 1.5 million. The strip ratio improved slightly from 1 to 1 in the first quarter of 2015 to under 0.2 to 1 during the second quarter where we expect it really to stay for the remainder of this year. The low strip ratio has been driven by two factors, primarily the Lucerne Mine plant, which had improved to that about 1 to 1 ratio from all of our previous efforts of getting that mine plant recalibrated. We started to see the effects of that in the fourth quarter of last year into the first quarter of this year and that’s evolved consistent and predicted in our mine plans. But secondly and now and more significantly we’re working those historic dumps into our production schedule and really anticipate that the substantial majority if not possibly substantially all of the remaining material that we’ll process this year will come from this source allowing us to maintain this, call it, low to no strip ratio pretty well for the remainder of the year. This updates our mine plan and strip ratio results in large part from all the work that’s being done on the realignment of the State Route 342 but it’s also due to a recent approval from the federal government including the U.S. Army Corps of Engineers and many historic districts and other regulatory authorities that’s enabling this sort of fluid ongoing realignment and related remediation of State Route 342. These efforts have been right on schedule. Frankly, they’ve been ahead of schedule and I put out my thanks to both our project management and our environmental teams for working so well in securing all these approvals, all these coordination and all these permits timely. Metallurgical yields have sustained on average an 81% performance for the first half of 2015. That’s up from 75% in the same period last year. The yields have been holding at these higher levels although just to give us clarity, the first phase of the historic dump materials yielded a bit lower just under 70% from the April and May material that were integrated into our mining process although the June materials that we brought in from those dump materials seem to be yielding on track with the 81% or historic with certain levels. In all cases though, the dump materials seem to have a little bit longer of the cycle time, which we’re still defining but overall our data to-date certainly suggest that we’ll continue to yield comparably on average to what we’ve been experiencing in the rest of the Lucerne material, that is the 81%. On grade, weighted average gold grade did improve first half of this year compared to first half of last year by 21% or well over 0.03 ounces per ton. In fact, gold was 0.034 ounces per ton for the first half of this year. We expect rates to maintain at about an average of 0.03 for the rest of the year until we get back into the higher grade components of the Lucerne Mine. Silver has been remarkable in terms of grade, just up 64% to almost 0.7 ounces per ton in the first half of 2015 compared with the same period last year. In terms of silver to gold ratio for pours, silver was over 13 ounces to 1 gold, so 13 ounces pour to silver to 1 ounce pour to gold. It’s even better when we look at what we stacked this past quarter and year-to-date for that matter. Silver ounces stacked actually exceeded gold ounces stacked by more than 20 to 1, more than enough to sustain the higher silver to gold pour ratio that we’ve been experiencing possibly even improving it to 14 or 15 ounces of silver to every ounce of gold poured. That good win is taken into context that we stacked over 6,400 ounces of gold during the quarter. That’s the third most ounces that we stacked in any one quarter for us, but we also stacked well over 138,000 ounces of silver, which is definitely the highest level, a record if you will for us on stacking silver onto that leach pad in any one quarter. We generated positive cash from operating activities in the first half of the year. Recall, it was about 200,000 of positive cash flow in the first quarter but now over 1 million in the second quarter. Said a different way, we generated 1.2 million of positive cash flow from operations year-to-date and took about 860,000 of that and spent it on the investment for the road realignment. We also broke that investment into a separate line in the P&L. It’s expensed on its own line items so that we call see and track that project all the way through its completion in the fourth quarter. We also completed some longer-term equipment financing in the quarter. We’re getting more and more flexible and more longer term financing sources. We did some equipment financing during the quarter and we also paid down about $2 million of debt in the quarter. That resulted in a net increase in debt although an extension of the maturities of about $3 million. In summary, we generated cash from operations. We self-funded the road. We financed our land in other investing activities and ended the quarter with $6.8 million of cash. Let me turn to sort of address the outlook for the rest of this year and beyond now and incorporate into that discussion the Lucerne and Dayton developments. I think that will make it go a little bit more efficiently here. From a financial perspective, the company’s has been cash positive from operations, as I just mentioned, and expects to continue to be cash positive from operations throughout the rest of this year. This will require us to not only maintain but continue to improve our role of production cost profile throughout the surface mining activities while we’re concurrently expanding our exploration and developments during the same period. Primarily that’s going to manifest itself through the first full phase of exploration and development on the Lucerne higher grade targets and also commencing the development of the Dayton resource area. In both cases, we’ve already started and I’ll provide more details momentarily. More specifically on the road, the first, the third and the fourth quarters will reflect a faster pace for completing the road realignment. Frankly, the permissions, the coordination has been outstanding, the project management has been outstanding. We finished the first phase one week ahead of schedule and that’s really enabled acceleration. We’re very keen on getting this done because it really represents the last major infrastructural spending on Lucerne before we start developing the underground drift. This is also allowing us to continue to extract the low strip grade ore through year end that we just talked about and it allows us to almost immediately start those other Lucerne developments. I’m confident that it will all stay ahead of schedule. We’ve disclosed that the remaining dollars required for that road realignment is about $2 million. From a geological perspective, we’re starting at a really great point. We know a lot. We’ve developed a highly detailed geological set of level plans in cross sectional analysis for the Lucerne and the Dayton. That work has been completed. It’s been completed in-house and it’s resulted in some very important findings for us. The work confirmed firstly that the load is comprised of a group of northwest trending, much higher grade mineralized structures. These are mass structures, these are condensed structures and really rather than a simple vein system that was combined to a simple fall zone as we previously understood. What that means is that the significance of these structures combining to a single zone really in the very center part of the eastside area that ultimately diverges up to the north to create sort of this series of multiple high grade zones, some of them having width of up to 600 feet wide. This includes certain masses of quartz porphyry, which we’ll refer to as PQ that has intruded into the main load and have a direct relationship to all of the known mineralization. So in other words, we have some large, wide, heavily concentrated structures of high grade mineralization. In addition to the section on level plan analysis that’s already been done, we have a lot of drill data here too. We need more and really the efforts that you’ll hear about for the rest of the year is really to just drift and drill out these structures, but currently the PQ structure alone includes about 46 intercepts grade on average, almost a quarter of an ounce per ton of gold and on average well over 1.7 ounces of ton per silver, just outstanding rates from our perspective. It’s our intention to drill out this target starting in either late August or early September once we receive some of the permit modifications that we’ve applied for and complete that first phase of drilling in the PQ structure by December. Clearly, our objective is to grow the reserve. Our objective is to develop an extended mine life and hopefully a significantly extended mine life. In addition to that mineralized mass of PQ, we’ve defined a nearly adjacent set of structures commonly or historically understood as the Woodville Bonanza structures. Woodville Bonanza has production records reflecting production in early 1900 grading just under an ounce per ton. We have 116 intercepts of existing drill data that has the same high grade profile that we just discussed for the PQ in terms of gold and silver. So we got 46 intercepts in the PQ, we’ve got 116 intercepts in the Woodville and once we’ve completed that PQ drift and drilling by December, the Woodville just represents a continuation of the same drift, the same tunnel, just further north and then east of the PQ. The drift is being sized today to support mining and not just exploration, and we plan on drilling the Woodville target out right as soon as we’re done with the PQ. That should represent a timeframe between December and March with the same objective of extending the mine life significantly. We’ve already commenced all of the Lucerne underground portal for requisites. We’ve gotten [indiscernible] approvals already for our safety plan. We’ve submitted [indiscernible] modifications which have already gone to public comment and expect it to be completed later this month. Ground preparations and the related infrastructure modifications that we can do now we’re doing as we speak. In fact, we’re doing them yesterday, we’re doing them last week, we’re doing them today and we’re doing them in conjunction with our partner American Mining & Tunneling. We are just engaged to work with us and they’re on the ground with our people. So all these permits have been modified as I discussed, but initial drift of the PQ will be about 800 feet, the supporting infrastructure and all of the drilling around it included all into one mini project will be just under $3 million. So we couldn’t think of a better investment for our company in terms of establishing reserves, extending mine lives and progressing forward than into the Woodville from there. There’s a whole bunch of great graphics and details on these structures that are on our Web site. We’ve also included links to both specific progression in our last two press releases. If you don’t have that information, it’s www.comstockmining.com/files/flipbooks/PQTarget. So moving on to the Dayton, there’s been a tremendous amount of work done in the Dayton just recently. The Dayton is also a structurally controlled mineralized system very much like the Lucerne, meaning that we have those other plans, we have those cross sections and we’ve established strong geological controls on the overall structure. We’re already commenced the first phase of this development with two types of extremely efficient activities. First, our gains [ph] that reopened some of the historic mining workings in the relevant mineralized area for purposes of sampling and mapping. These old mining workings included a group of tunnels and drifts that are adding significantly to our overall understanding of this structure, the setting and the extent of the known mineralization. Substantially all this work is being done with internal geological and engineering resources, and so we’re very active on the ground down there right now. Secondly, we’ve commenced an efficient surface drilling program. This is very similar to the surface drilling we did on the eastside of Lucerne using what we call a percussion drill rig. These percussion drill rigs are in fact the same type of drill rig that we would use for drilling and blasting in the mining operation. They’re only able to drill to just under about 100 feet in depth, but they give us a tremendous amount of data and there’s known structures to drill into. To-date, we’ve drilled 241 holes primarily on the southern end of the property with the total drill footage of about 19,000 feet. The program’s already yielded over 300 intercepts of 10 feet or greater mineralization in length that exceeds our economic cutoff grades, including a group of 17 intercepts of 10 feet or greater that are in excess of a tenth of an ounce per ton. Collectively, all of this information is being pulled together but it will most certainly have a significant impact on the overall project economics. The rigs that we’re currently using is scheduled to do an additional 155 holes, mainly to fill in gaps that still exists on all that near surface data along several of those major structures. All this drilling and sampling work is being done at a total cost of less than 120,000 including external assays and part of that is because we’re using our own people, we’re using our own labs and we’re using a lot of our own equipment to pull all of this information together. We extended this work primarily based on its productivity and it’s now really scheduled to go into the fourth quarter before we actually finalize our core and RC drilling programs to follow. The final drill programs will represent still in our opinion an investment around $4 million but we’ve deferred that spending as long as we continue to advance our knowledge and advance our drilling and advance our understanding of the structure efficiently, we’ll continue to do that. Most of that larger scale drilling will occur later this year and into next year while still allowing the permitting cycle to occur into 2016. We believe this pace is our development dollars really in the most optimal way for advancing both the Lucerne and Dayton projects concurrently to have these kind of known structures and these known geologies in front of us and to see spending these types of dollars in the $2 million to $3 million to $4 million category each to get these kind of reserves and these kind of high-grade extensions is remarkable. We couldn’t be more engaged and more excited about the developments that are coming in front of us. Overall, we plan – even though we’ve put a meaningful amount of summary results into this release for the Dayton, we’ll plan on much more detailed releases on the in-drilling and developments this month and next month starting in September. There is no doubt that you’ll start to get more than monthly updates of the Lucerne drilling into those high-grade PQ and Woodville structures. So I think with that summary, Angel, I’d like to pause and turn it back to questions. I think I mentioned before that we’ll try to keep the format a little bit more concise but let’s move on to those questions.

Thank you. [Operator Instructions]. Your first question will come from the line of Marco Rodriguez of Stonegate Capital Partners. Please go ahead.

Good morning, Corrado. Thanks for taking my questions here.

Good morning, Marco. Thank you.

I was wondering if maybe you could spend a little bit more time and perhaps a little more color on the expense reductions that you’ve outlined for this year, perhaps if you can maybe rank them kind of in order as far as magnitude and the impact to your P&L? And then also you mentioned something in your prepared remarks about a more flexible labor force. If you can kind of go into what that kind of means, any kind of color there would be very helpful.

Yes, I’d love to do that. Thank you for asking the questions. So in terms of the specific reductions, let me start with there’s really two categories, I would say, that are significant. The first I would say, I would start with is labor. So during the fourth quarter of last year, we finally started to see improvements in the strip ratio, 2014 – end of '13 and maybe the first two and a half quarters of '14 really had a tough strip ratio in front of us. But we had recalibrated the mine plan. We were starting to see sequential progress every week, every month as we progressed. And that really came to full meaningful fruition in the fourth quarter of last year, which allowed us to re-plan, reorganize and downsize our mining operations because frankly we had a lot less waste than we were anticipating to be moving. The second part of that recalibration of the mine plan, which also affected labor was that our variation to the plan dropped significantly and by having much more predictability in that plan, let’s say much more reliability in that plan, we were also able to streamline the downstream processes, the crushing activities related to mine planning activities came down dramatically. So I would say by far the single largest reduction we had experienced would come from the sum of those activities and I can quantify it for you pretty well across all of the mining areas. We spent 2.5 million first half the last year in labor for mining, crushing and processing and mine support. We probably spent about 1.9 million this year. When you move over into the variable costs, we have reductions across the board. Similarly related to the improved mine planning and strip ratio, we saw almost $1 million reduction year-on-year, actually just a hair over $1 million reduction in our drilling and blasting costs in the mine; so more specificity, less strip ratio, more focused coordination. We really eliminated a significant amount of drilling and blasting. And then we saw minor improvements in other variable costs be it cyanide, cement, energy. Most of those came from slightly less usage and lower prices. I think cement is the only area where we actually saw higher unit price. But then we had a pretty big reduction in fuel. Our first half of last year, we spent about $900,000 in fuel, first half of this year we spent about $300,000 in fuel. And I would say that I don’t have the exact breakdown in front of me but I would say that it was almost as much usage as it was pricing. So I think the average price per gallon in the first half – the average price per gallon in the first half of this year was about $2.21, but current rate is actually just below $2. So we expect fuel savings to continue also as we’re going forward. I would say except for fuel pricing, most of these reductions came from our direct action. Now in terms of flexible, this is a very important point that I didn’t emphasize in my prepared remarks but we have been trying not just to reduce costs but more than anything to create a system that can work much more flexibly and that has a lot of parameters to it. It certainly includes having more than one ore phase that gives us flexibility, but in terms of human capital, in terms of our people, we’ve been trying very hard to get multi-disciplines, we’re emphasizing on a very high level people who have project management capabilities, so have right now geophysicists and geologists who are managing projects, we have engineers who you would think more normally would be project managers, they are. We also have enhanced the breadth of competency for safety for underground versus surface, for various equipment operating competency, so we’re trying to cross-train a haul truck driver with a loader, which is not so unusual. But now we’re trying to transition even the cross training into the crushing operations, we’re looking at crushing [indiscernible]. And what it allows us to do is have a much smaller, much more flexible workforce. And to the extent that we’re developing – we’re expanding the surface mine, we’re developing an underground mine and trying to establish a second mine down at the second location mine. That is very, very critical to us and in the end, we hope what it does is not only insulate us from the volatility but we see that the gold price and I think we’ve done that very effectively already. But it also allows us to exploit opportunities when we have an underground opportunity, when we have a surface opportunity, we can be more nimble. Just the whole of that equation has now been exaggerated positively by the relationship that we’ve built with American Mining & Tunneling. I’ve spent personally and with our team over four months working with four different potential partners, a company that can bring us drilling competency of both surface and underground, drilling competency in both core and core and RC, mining competency of underground human resources be it underground engineers’ safety, even mining in a much faster, more flexible, more selective way. This has been a surprise to me, a pleasant surprise in the process because we even have some areas where the company can swap equipment if we feel that we have an excess of surface structure and we use them underground trucks and those kinds of things. So we’re really now planning the organizational design and to be even more flexible than we could have imagined. And as I look across the landscape of mining companies, it seems to be one of the characteristics of that they lack, right. So people can be low cost, people can be rigid, but then if the market is volatile, they really have no ability to respond. In fact, they came across as very fragile in those circumstances and then we’re really working every day on the ground to make that better.

Got you. That was very helpful. And then in terms of these efforts that you’re making here on the cross training and the flexibility in your workforce and bringing the cost down, I was trying to get a sense as we move into fiscal '16, I mean do you think that the heavy lifting has all kind of being done and then going forward if there are cost reductions, it might be just on the minor side, if you will?

I think that delivering the full 10 million will represent a substantial majority, I want to say 80%, 85% of what we’re trying to accomplish. I do think that 10% to 15% more is incremental but still meaningful to us. And then of course we’ll be accessing the different aspect of costs associated with the underground mining. One important point is that the ore bodies that we’re looking at in Lucerne, both the PQ and Woodville, are the same length types, the same metallurgies of the materials that we’ve been processing so far, much higher grade of course. So ultimately as we advance into those developments, we don’t foresee any meaningful changes to the downstream processes. We’ll be able to reach those materials to the extent we establish those mine plans.

Got you. And last quick question here, Corrado, on the production side, first half year of '15 you’re running at about 21.5 million annualized run rate. Is that a fair level to be modeling for the remainder of the fiscal year?

Yes, we will be keeping our production levels at this level. There is no drive for us to accelerate – accelerating them. We’re certainly accelerating a whole host of these activities around extracting the materials around the road. It’s one of our primary objectives to try to get all of them done by December to pave the way for these developments that we’re establishing underground. But there’s no benefit to us, there’s no sort of higher profitability scenario to ramp up. So in our view it’s about a lower cost in stability throughout this first phase and then transition into our next phase of development.

Got you. Thanks a lot, Corrado.

Thank you, Marco.

Your next question will come from the line of Zach Zolnierz of Solus. Please go ahead.

Hi, Corrado. Can you hear me?

Hi, Zach. How are you? Yes.

Good.

Good.

A couple of questions. The first, I just want to touch on this, the lease that you entered into, into the quarter, it looks like it was about 5 million. Just wondering if you could give us more color as to what the proceeds are being used for, what the security is there? It sounds like the repayment has come up.

Yes, so for most intents and purposes we’re a little opportunistic with this. It was a lower cost and longer length equipment financing that the equipment is simply the crushing in [indiscernible] facilities. The rest of our equipment is primarily the mobile fleet with Caterpillar. And from our view it’s somewhat of a transition from the [indiscernible] revolving facility, which is a higher cost shorter length facility. So although there’s some overlap in that transition, we sort of see it in that regard. And considering the road activity and the transitional development activities, we thought it was prudent to do it sooner rather than later. But ultimately we see it sort of planting the prior facility.

Yes, I think there was some language regarding like the accounting treatment where it’s not really a sale leaseback, it’s financing. And I guess you confirm rights being secured by equipment that you already own. So I’m just trying to understand it’s not really a capital lease rights, it’s a secured financing and I’m just wondering is that permitted under the preferreds?

Yes, it’s a good question. We saw it purely as a rolling of equipment financing. We saw it as permitted under the preferred and we also got some consent and approvals for doing that from our largest preferred holder just to be safe. But I think it looks very good rollover financing for us. It sort of moves us out of sort of the short-term, more backend with the revolver and moves us into a more stable. And frankly we’ve been trying for probably three years to find a reliable equipment financing partner and really feel like we’ve done that in this case. So it works out to be well on all fronts.

Got it. And you didn’t mention the reserves, was that part of their security there now?

No.

Is this just like the --?

Absolutely.

Got it. Just the second question, I apologize, I missed this earlier but can you just remind us for the back half of the year what the key outflow items are, like interest, debt principal repayments and what you expect to spend on CapEx for the back half?

Yes, so the main capital requirements is just the completion of that road. It’s about $2 million. The development of the Lucerne underground is about $2.8 million. I believe we disclosed it at just under $3 million. And then the debt repayment, I think it’s about 4.7 but if you just give me a second, I’ll just check that number.

Yes, I think the current liabilities like little over 9, so maybe that’s split between second half and first half.

Yes, that’s right.

Got it. All right, that’s helpful. I appreciate it.

Yes, Zach, and I’m just checking that number but I think it’s just under that number that I mentioned.

Okay.

Our next question will come from the line of John LeStarge [ph]. Please go ahead.

Hello.

Hi, there. Can you hear me okay?

Yes, I can hear you guys fine. Thank you. My question for you is who actually buys the gold you guys mine?

Say that again, I’m sorry.

Who actually buys the gold that you guys mine?

So all of our gold and silver in the form of dore bars is shipped to one of three refineries, but we use a broker to sell all of the – to sell through all of that gold and that broker is [indiscernible], which is a gold and silver brokerage trading company based out of New Jersey.

[Technical Difficulty]

I’m sorry, you were breaking up. Could you repeat that?

Have you had any Chinese investors come out and visit the mine?

Not physically, no. We’ve been getting much more interest from really across the world, from Canada to Europe, I’d say Asia but we haven’t had any Chinese visitors specifically to the mine, no.

Okay. My final question is [Technical Difficulty] I don’t see pictures of the gold and silver, I think a few comments called before, you said you’d post some on there.

Yes, we’re happy to. I think there are some of our refining process that we’re happy to make those more prominent for folks if you’d like.

Yes, please do so because I got people who are willing to invest and they’d like to see the physical work too.

Yes, absolutely. Just on that – go ahead.

I’m sorry, I just wanted to thank you guys for your work and dedication as we live in crazy economic times, and who knows what the price of gold is going to be in a year or two from now, so I think you’re doing everything correct.

I appreciate it very much. Thank you. Just on the last question by Zach, I was saying just under 5 million. It’s actually 5.5 million and that includes about 2.5 million associated with the buyers of our interest to [ph] debt repayment, so I apologize for taking a minute to get that number pulled up.

Our next question will come from the line of James Dale [ph]. Please go ahead.

Hi, Corrado. How is it going?

Good, James. How are you?

All right. Hey listen, it’s been a while since we’ve seen an updated reserves report. You’ve developed these – the PQ zone and opened up the Woodville Bonanza some more and you’re going [Technical Difficulty] things that you hadn’t reported on before in your reserves report. Can we expect to see one soon?

Yes, so specifically those geological developments, those internal cross-sections, level plans, all the things we’ve been talking about contribute significantly to the technical report. I’m sure there will be incorporated throughout and our view is that soon as we’re able and you can boil it down to three specific drill phases; drilling out the PQ, drilling out the Woodville, drilling out the Dayton, we expect each one of those to result in mine life. Obviously, we have to get the drilling done and completed but if it comes out as expected, then we’ll have reserves following each one of those programs. I think that’s the most important point. I appreciate the question. I think as we go along we’ll also be publishing much more frequently as we’re finally getting into the groove here with the final drill programs, the results of those drills and those results in real time. So if we’re able to do that better because we already have the context developed as we’re filling in the blanks with these drill programs and more in-fielding it [ph], you have to wait to pull that context together after the results. In our case, the drill results can come out almost as quickly as we’re getting them. So I would expect a lot of information flow between now and the end of the year and between end of the year and the first quarter.

Okay. Another question, have you found any evidence of the Comstock [indiscernible] in the PQ zone?

Not necessarily. That surface is tinting [ph] per se but the PQ zone has a tremendous amount of visible mineralization; the quartz porphyry, the manganese, I mean it’s colorful, it’s evident but certainly not those concentrations that they had up to the north. Having said that, 1.5 to 2 ounces of silver per ton is outstanding and we’ve had its as high as 5 ounces of silver per ton. So we’re excited about what we’re getting ourselves into here.

But basically you still haven’t found any of these so called pure silver veins yet?

No. Having said that though in the initial drill phase of the Dayton when we went to depths greater than 700 feet and then in the subsequent eastside drillings where we went to depths greater than 900 feet, we were hitting silver-only deposits that are intriguing to us because almost the entirety of our resource is gold and silver. And so hitting some of those deeper silver-only deposits is truly reminiscent of those old Comstock days. But the data is still very, very nascent. We have more drilling and depth to do and that certainly won’t be part of these next two drill phases, although it could be part of the Dayton as we look to drill deeper into that structure.

Okay. Thanks a lot. Keep up the good work.

Thanks, James.

Your next question will come from the line of Carl Frankson [ph]. Please go ahead.

Hi, Corrado.

Hi, Carl. Good to hear from you.

Hi. Unfortunately in this issue, the largest variable is something we have no control over which is the price of gold having hit a four-year low I believe yesterday. Excuse me if I’ve missed this but what are the cost per ounce of the various projects that you have going? And I’m not a doomsday person but I mean [Multiple Speakers] planned for $1,000 gold or $900 gold? I’m sure everybody that’s on the call wouldn’t be here if gold was not a good value or good investment. So we’re hoping for higher prices but what are the contingencies for lower prices?

Yes, so very good question. So really in this quarter we achieved somewhat of a breakthrough in terms of our cost performance. We were expecting it this quarter and then extending it even further into the third quarter. We got much more of it done for this quarter, which was somewhat gratifying. So the cost that we had articulated in terms of cash cost of mining was about $615 an ounce. That doesn’t include the G&A and other non-mining costs but we’re really on the verge of getting the whole thing. It’s not already there, below 1,000 and really from our perspective it’s the best way to control what’s happening with the gold price in the market. And I wouldn’t discount what Marco was asking about and what I was talking to Marco about, which is a) there is still more to go and we will continue to reduce it, but also building in that flexibility. We didn’t say it so explicitly but part of that flexibility is not just having your fixed cost component be able to do more than one thing and in effect reducing that fixed cost and making it more flexible. But another part of that is shifting a significantly more amount to variable costs. So in other words you could be in a scenario where you have the same or lower costs but a much bigger percentage of those dollars are variable. And that means that – and American Mining & Tunneling is really enhancing our ability to do that to the extent that they have dozens of data based projects to the extent that a big hub of their human capital is in Reno, we have the ability to be much, much more flexible. Saying it bluntly, you can turn certain things on and off much quicker when you build your system that way and really that’s what we’re trying to do. I think that from a risk perspective, it has to be the lowest costs but it also has to be much, much more flexible, which we define in a couple of ways but being variable is a big one.

Thanks. Let’s hope for a higher price. That would help all of us.

Yes, it surely would.

Okay. Thank you.

Thank you, Carl.

[Operator Instructions]. Your next question will come from the line of Harvey Moorcroft [ph] from a credit investment. Please go ahead.

Hi, Corrado.

Hi, Harvey. How are you?

Good. Nice seeing you at the annual meeting. You presented an overview of that electronic or V10 [ph], I’m not sure what the proper terminology is. Do you have any additional information that came from that presentation?

Do you mean in terms of – you’re referring to the gold industry or you’re referring to the underground structures?

You had that presentation where some company did a free flyover or electronic magnet --

Yes, yes, yes.

Do you have anything [Multiple Speakers]?

Yes, we do have that. So we did some – we’ve done tremendous amount of work in the Dayton. We did a bunch of geophysical magnetic scanning. We’ve done obviously a bunch of surface mapping and now we’re doing some added sampling. But what you’re referring to is we do some induced polarized sort of electrode poll thing that gave us a tremendous amount of correlative data, which told us and what is very outstanding about our situation is that we have no mineralized structures. But what we did was we allowed them to give these electrode poll things sort of analyses over both north and south aspects of the area, and then we were able to correlate those to where there was known mineralization where there is known structural extension and compare where the density of the readings are correlated to the density of our maps. And then by seeing that strong correlation, we were able to extrapolate it to areas where we don’t have data but it was showing the same kind of density. So that information can be published. It hasn’t been broadly published yet in part because our job [indiscernible] some amount of interpretation, but we really leveraged it to further refine our program. It’s actually allowed us to – I wouldn’t say it’s eliminated a lot of drilled holes, it actually allowed us to modify some but it’s also added a few where we didn’t have a notion of drilling there. So I think the net effect of all of those types was analyses to enhance both the efficiency and ultimately more importantly the effectiveness of those drill programs. But we can certainly take some of that condensed material and also incorporate it into our Web site and into our presentation.

Have they increased the validated resource number?

It will ultimately increase our ability to validate the resource, it won’t on its own but when the third parties come in to check all of our data, that data will absolutely be part of the correlation. Ultimately most substance [indiscernible], it’s the geological structural control, the level planned in cross sections that we have developed and the drill data on top of that.

How about any – has the Board talked at all about doing a stock buyback especially at these numbers, the prices where we’re at?

We’ve really been focusing the capital deployments to these next few immediate development projects. They are in our opinion will represent by far I think the highest return on any capital. And then once those play out to fruition, we get our reports updated, we continue forward, then we can evaluate other opportunities.

Okay. Last question is what’s our current amount of common stock and has any of the preferred convertible being converted yet?

So we had no conversions of preferred in the first quarter. To be honest I don’t know that we’ve had hardly any in the full first half of the year. We’ve got about 85 million common shares that are outstanding in terms of the actual common shares outstanding trading. Those averaged about 82 million as far as their earnings per share calculation for the second quarter. The underlying shares to the preferred stock is about 53 million, so that 85 million you would have 53 million underlying of the convertible preferred to get to a total of about 138 million. That’s the full – as converted fully diluted number.

Okay. Thank you very much, Corrado. I appreciate it.

Thank you, sir.

Your next question will come from the line of Dawson Anderson of Clearlake Collectables [ph]. Please go ahead.

So I was – he answered or you answered part of the question for me. I was just concerned with the process, staff and everything you guys are doing right, it doesn’t make much sense to me. I wish you could comment on it.

Yes, I think that well for certain we’re not alone in terms of what’s happening overall in the market for gold. Certainly, that’s not the answer by itself. I just acknowledge that the gold equity has been under tremendous pressure it feels like for three years, and it’s been more than frustrating. I think the Board is frustrated, I’m beyond frustrated. And just from a pure market perspective, I have been active in terms of targeting new investors. I’ve been active in terms of getting the message out across the country, frankly. We are getting invitations – more invitations even to come to Canada and to come to Europe much more than we’ve had in the past. It is a tough market. There is negative overall sentiment in the sector but I feel we’re getting a pretty good reception. It takes some time to get the story out broader and in fairness it feels like we really have stepped that up just in the last six months. So I believe that is coming to fruition although certainly it hasn’t been able to mitigate the overall market. I also believe that when we finish drilling out the PQ, when we finish drilling out the Woodville and when we drill out the Dayton, three programs that are immediately in front of us, one being completed in early December, one being completed in March and hopefully one being completed reasonably soon thereafter that those results, those published reserves, those extended mine lives is one piece that I think will help a lot of investors pay attention to the company. And so we don’t need that without question in terms of bringing new investors, especially at these levels. We’re getting a lot of interest. I do feel like we’re feeling the bottom. In terms of gold, it’s impossible to call, but from our perspective if we stay ahead of the market in terms of cost reductions, if we stay stable and flexible, we’ll persevere with whatever this bottom looks like, whatever this bottom ends up being in terms of experience, we’ll persevere through it. And then I think we’ll be positioned incredibly well by late this year early next year, I think we will be positioned incredibly well regardless of what the market does. But if the market turns up then I think we can have some pretty powerful dynamics. I mean that’s really why we’ve got our head down and focused on. The good thing is that we’re very focused on what’s in front of us today in terms of positioning the portal, building the infrastructure, mining the material and every day we make progress. So I feel like that will be our formula for success.

So your recommendation is patience then.

Patience, it feels like the gold bottom is accelerating, it feels like we’re moving towards it faster. I’ve said quite a few times in the last six months if we get to test 1100 or if we get to test for 1000, let’s just get it over with. So I think that’s happening. I really do think that’s happening and what you’re seeing in terms of some of the market reaction seems to be consistent with that. So I think the good news is we’re stable regardless and we’re working even harder to be stable in all circumstances. So we’ll be one that perseveres through. I think that the long-term thesis for gold has not changed an iota. If anything, it’s gotten better. When you look at the – I mean literally wholesale quantitative easing happening across the world, you would never see anything like the Europeans quantitative easing, the Japanese quantitative easing, the Chinese easing. I mean U.S. at the moment is the only government that’s not easing yet it’s still burning a deficit, right. So in reality it’s still devaluing it’s currency, it’s just stronger than everybody else. So from our perspective the fundamentals haven’t changed at all. We’re very bullish on gold in the long term. I think we understand the U.S. dollar strengthening relative to everybody else. I think we understand everyone’s obsession with the fed raising interest rates and I have the same reaction to that, let’s get it over with. I think once – if the fed actually can in its right mind raise interest rates once it’s behind us, it will be good for gold. So that’s counterintuitive but I think it’s what’s going to happen. So it’s just hard to argue the fundamentals. And if the world is set to engage in currency wars and see who can devalue their currency better or faster, I’m just not sure how it doesn’t end badly for the currency and end well for gold.

Yes. Well, I appreciate your answer. Keep up the good work.

Thank you, sir. Have a great day.

Thank you, ladies and gentlemen, the time allotted for questions and answers has come to a close. I would now like to turn the call back over to Mr. De Gasperis for closing remarks.

I’d just like to thank everybody for their interest on the call and I’d just like to highlight that there will be quite a bit of information, the ramp up of these developments is happening quite quickly. And so we’ll be very communicative as we get these results as we go forward, and we look forward to talking to you all again soon.

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.