Comstock Inc. (LODE) Q3 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the Comstock Mining’s Third 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 on the line, President and CEO of Comstock Mining and welcome to our 2015 third quarter conference call. I also have Judd Merrill, our CFO on the line with me today and we have a significant number of positive updates for you. Before that let me remind you that we may make and most certainly 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 and 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 identify. We were also very successful last quarter in keeping the call to an hour including questions, if your question does not clear the queue, I will repeat that we will be available post call to ensure that all questions are answered directly and throughout the course of the week. If you don’t have a copy of today’s release, you’ll find a copy on our website at www.comstockmining.com under news/press-releases. And in an overall effort to be more concise I’ve organized my comments into five specific topics. Number one, I want to talk about the strength of our balance sheet resulting from both a tremendously positive restructuring that we completed a few months ago and the cleanup of the capital structure that resulted from that, as well as recent capital raise funding to very outstanding phases of mine development. Number two, the tremendous progress in cost reductions in production flexibility have not only achieved the cash costs per ounce for mining of less than $600 per ounce, $584 actually this quarter, but we've already eliminated millions of dollars of additional future obligations and cost beyond that, which I’ll talk about a little bit more. Third, I’ll give an update on the Lucerne underground development. We’re already 500 feet into our 800 foot target for our phase 1 drift and progressing rapidly. Number four, update on the Dayton development where we discovered more significant grade and thicknesses than we expected that was recently announced and even more surprisingly another quartz porphyry mass similar to Lucerne. And lastly, our outlook and how we’re settling everything up here for 2016. Okay. So let me start with number one, our balance sheet. I think we understand and we know from hearing from you all that the substantial majority of our investors understand that mining companies and I guess I would say that means juniors through majors have three very critical success factors to be successful. First, a great asset; you know a great asset, a great foundational asset being number one; secondly, a low cost position and we mean both cash cost to operate and all-in sustaining costs over time and a strong balance sheet. So we don't –we've been focused on building the company based on those premises and those are most strategically important variables. Many investors have begun highlighting to me that it’s clear that we begin delivering on those lower costs. We’ve maintained this for long and now exceptionally clean balance sheet, and we’ve developed and continuing to develop geologically the land position in all of those ounces embedded in it. So I am going to speak to those three briefly just in reverse order. I just want to highlight a few salient points. And the first is that we've always regulated our borrowings to be of smaller size and lower risk profile. I know through discussions most people really do appreciate that and I want to make sure that we all do. We have only borrowed through a small revolver and/or with some equipment financings that have always structurally been designed not to put the enterprise at risk. It’s been a priority for us. So it's important to understand that you know, it’s not only lower debt, but it's the right type of debt that’s localized compartmentalized if you will to the equipment and/or activities that we’re adding to the equation. And really a fundamental difference between us and the overleveraged minors who are frankly in trouble due to this management, we've avoided that. We've also strategically added to that land position this year acquiring lands that are adjacent to the Lucerne, adjacent to the Dayton and adjacent to our processing area. They’ve been acquired almost always with flexible owner financing. And again structure so that it only increases our footprint, increases our position, increases our value, but does not increase the enterprise risk. Additionally when our land yields multiple high grade targets as we’re experiencing and we’ll talk about in a few minutes we’ll fund them first from our cash flow and we won’t over fund them from debt other than the facilities that we talked about, and that's really what prompted us to do the recent equity raise dedicating a strong balance sheet and ensuring that we fund these developments the right way that are right in front of us. We did it and we were prompted to do it based on some of the development and as they evolved, the Dayton in particular was exciting. So you know, we’re very happy with the progress that's been done on the ground and the support that we’ve got. We also had some insider participation in this race, so you can look forward to a few form floors, certainly one for me and Bob Coppell, one of our directors in terms of insider bidding. On top of that, we’ve permanently eliminated over $21 million in obligations associated with land purchases and deferred payment on remaining $9.75 million obligations with significant flexibility. We've also eliminated all future dividends and macro royalties over any of those target land positions, which already has further eliminated over $3 million of additional annual cost, and certainly from our view millions more beyond that. And that's all in addition to savings that we've already banked and delivered through our operational changes. These are huge changes for our future. It’s the very first time we can say we own and/or 100% control all of our land position and that they are all zoned properly for our intended uses in mining, and that we don't have macro royalty percentages over that, meaning they’re free and clear for our progression and our economic development, especially Lucerne and Dayton where we now are fully permitted in Lucerne for the mining activities that we want to do and we’re permitted in Dayton for all the expiration and development activities that we're looking to do. So we’ve established, in our view the strongest possible asset position and the safest possible balance sheet in that regard. I'm pretty sure the market hasn't fully digested all these changes because there's been an incredible amount of achievement I feel that’s occurred just in the last couple of months, but we're out communicating them meticulously and I believe that there is a growing interest from institutional investors in our company and I’ll continue to increase my communications along that front. The bottom line is that for us the balance sheet is strategic and we’re really now positioned to capitalize on a number of these exciting developments. Number two, our cost structure. Cost applicable to mining were $10.4 million for the nine months ended September 30 compared to $14.6 million for the same period in 2014, a focused effort that resulted in almost 30% decrease in overall cost, primarily due to mining cost reductions and operational streamline. This resulted in a year-to-date margin of 34% and from my perspective much more importantly a cash cost to mine a 584 per ounce for the quarter is five point, a little less than 4,700 gold equivalent ounces this quarter that was down from 5,400 gold ounces in each of the last two quarters, but very consistent with our plan as we’re transitioning out of the first phase of Lucerne mining and into these new developments. It’s important to understand that our costs are not only structurally and permanently down, but they are becoming more and more flexible. We’ve consolidated our mining, hauling and crushing activities into one much more flexible group that actually does more than just mine, haul and crush, these folks are flexible across those disciplines, but they're also leading in construction effort including the heap leach expansion activities of past including the road realignment activities of current and including reclamation activity around the Lucerne mine and the road concurrent and ongoing. So this will not only result in a much lower cost structure and higher productivity, but it also – it reduces our reclamation liabilities, it reduces our future bonding requirements faster than you would normally see because we’re tackling the stuff concurrently, because we’re tackling the stuff with internal resources it all just adds to the strengthening of our balance sheet, our credit profile and our company. Just as a couple of examples we recently consolidated the metallurgical lab and the Merrill-Crowe teams into one. For people who have visited the site they know that the metallurgical laboratories and the Merrill-Crowe are essentially adjacent to each other. As we've gotten more mature with our metallurgical competencies, we’ve found flexibility both in terms of a column testing, assays, as well as the processing of the leach materials. So we have a smaller team, a more flexibility team. I would say net-net a higher competency from that group. We also recently organized all of our technical team and that would be the geological and engineering team members into one project team, fully subordinating those resources to mine development, mine planning and production scheduling. And so we’ve put our best people onto our most critical chain and we’re just moving faster. So we’re not even operating as departments, but really as one system one project team driving these mine developments, these drilling programs, these production scheduling programs and it's all synchronizing and coordinated, and it’s is not only saved us millions in terms of third-party technical consulting, we’re starting to move faster and faster with all the work that we’re doing. It’s also allowed us to safely manage the transition from one mining activity to the drilling and development of the new activities because we have the flexibility not only to be managing activities with one focused group, in other words not tripping over multiple activities synchronizing activity, sequencing activities, but it also allows us not to waste money. In other words, most mines have to produce because they have rigid high fixed cost structures. In our case, we’ve tremendously lowered the fixed cost structure and increase the flexibility and competencies that we now have. So if we’re not mining, we’re not spending those dollars. If we’re drilling and developing, we’re investing those dollars. So it's a transformation that took quite a bit of time, but it's really coming into a remarkable fruition. Year-to-date we’ve generated positive cash from operations including the funding of $1.7 million in the last two quarters cumulatively for the road realignment. So that activity is being funded from our cash flow to realign the road, we’re positive despite that including that we were very positive in terms of those activities. And we’re certain we’ll finish out the full year with a very, very low cost structure. Certainly our cost will be well below 700 or obviously below 600, I’m just saying the average for the full year as we've sort of come down every quarter. We’ll even look very good, and more importantly we've created the flexibility to manage these things as we’re developing. We’re accelerating the Lucerne development. I mentioned that we’re already 500 feet into the 800 feet development, but now we’re even looking at the possibility of stacking some high-grade material in December, really more in a test mode than any kind of full operation mode, that's for sure. But the flexibility as a team and the speed of its activities is allowing for some of these things. Number three is the update on the Lucerne underground development. I just mentioned we’re 500 into the 800 foot target for the phase 1 tunnel. It certainly will repeat everything in the press release, but I do want to highlight some of the progresses that we’ve made. The 500 feet now includes three fully developed drill stations. We have two of those drill stations man hand drilling with diamond core drilling rigs. We've already drilled almost 2,100 feet of diamond core drilling. We will be expecting the third rig to come into the third bay within two weeks. And we are on track for all of that drilling to be completed by the end of this year. We would start to expect to see assay results coming in as early as next week and we will be a very transparent beyond that in terms of updating the progress. It’s very exciting for us the rate at which we’re moving forward. This ore that we’re talking about is coming from that known quartz porphyry, that PQ mineral host, it’s offsite ore, it’s known metallurgical characteristics, it’s not very different other than the higher grades that we’re seeing from the material that we’ve processed to date. I’ve said repeatedly that that means we don't have to change the backend of the system. Our engineers are working very, very hard as this data starts to come back to update the mine planning, update the production scheduling. The PQ host alone could allow us to deliver a 300 to 500 ton a day type of operation. We obviously have drilling to do. We have mine engineering and planning to do, but we’re very excited about the rate of those developments. The second structure, the Woodville is adjacent to the Lucerne structure. That's one of the reasons we wanted to raise a little bit of equity this past week because by the end of November, the first phase is that drift will be done for the PQ, that tunnel will be done at 800 feet and we want to just continue into the next structure. For all of the data that we know, we don't see why the Woodville wouldn’t replicate the success of the Lucerne, again, contingent on getting the development done and the drilling done, but we’re very excited about what this could yield from a number of perspectives. One; the rate of mining that could result from this, we certainly expect to be much higher than the rate that we've been mining before. But the rate of tonnage that we expect from this would be much lower. So you're talking about less stress on the system, fewer trucks, fewer people, fewer dollars to be spent on the back end. There certainly are some increased dollars as we’re spending now on the development front and ultimately on the underground component, but we look for that all to come together very, very nicely. We need to finish all that as I said, that’s why we’re investing the money that we are. Ultimately $3 million for phase 1, which will take us to that PQ structure and all the way through this quarter; Phase 2 will be another $3 million, substantially all targeted to be done in the set first quarter of 2016. So that’s very strongly, the Lucerne activities, it's predominantly what's happening at the mine site. We have about three or four weeks left to do, you know in terms of completing the road. There is about 100,000 tons of material that was trapped under the old portion of the road that has to be both reclaimed out, as well as put on to the heap leach pad for our plans there. I mentioned we might put some high-grade material on, and reasonably certainly will before the end of this year. But if you asked me what percentage of the company's time is being sent on the Lucerne, the road, those ores, the development, the underground drilling, and the reclamation around that, today it's over 95%. One of the reasons for that and the segue for me to turning to the Dayton is that when we were preparing for all this in the spring, we had some excess capacity both in terms of geological resources and in terms of a percussion drill rig. This is not a diamond core drill rig like we’re using underground right now, this is not even a reverse circulation drill rig that we've used historically to drill to depths of greater than the 1,000 feet. This is a very near surface rig that's primarily used for mining, for drilling and blasting to depths of about 80 feet, 85 feet maximum when you’re mining. But because we have the capacity we deployed one of our senior geologists and one of our project managers, and we started drilling down the known surface structures, primarily to the South of the core Dayton area, but more than that. And we were surprised, we were expecting mineralization for sure, very high probabilities of what we were looking to drill there, but we were still surprised, not only by some of the great grades that we discovered, but also the thicknesses. Typically when you 30, 40, 50, 60 feet of thickness, you're very, very excited. But when you're hitting that kind of thickness and only drilling to 80 feet, it’s even more remarkable. So true to our recent form, we use internal technical resources only and this extremely efficient drill rig, the total program cost was about $200,000 or $6.50 per foot. I mean, almost an unheard of low level of investment for that level of discovery. We think now that our final drilling program – our next full phase of drilling program for the Dayton will be almost $2 million less than we had originally planned because this drilling resulted in some remarkable pieces of knowledge that filled in a lot of blanks for us. We also as part of that program completed a tremendous amount of underground mapping and sampling from a number of historic mine tunnels. This is something we always had aspirations to do in Lucerne, but never quite was able to, but in Dayton it proved extremely effective and corroborating the prior drill programs to the current surface drilling, to these underground mappings also ended up in a defining an additional mass of course porphyry, very, very similar to what we see in Lucerne and what we’re currently drilling in Lucerne right now. That was one of the biggest surprises for me. It was very exciting; it was joyous frankly, when I saw the original level plans for some of those course porphyry structures. And from my perspective, it really prompted, it really enabled the acceleration of our preparation and development for all of these remarkable gold and silver resources for both the Lucerne and the Dayton. We will absolutely update our geological model based on those Dayton results. From that drilling program it will most certainly increase the gold and silver resource estimate that we have there, but I think most importantly it helps us refine and define that final phase of drilling that will give us a true look at what mine plans could be for the Dayton. So lastly, let me round it out with the outlook for the rest of this year and beyond. From a financial perspective, we’ve been cash positive from operations year-to-date 2015. We expect that to continue throughout all of 2015, really driven almost solely from our lower production cost profile and that increased flexibility that we've now built into the system. In the fourth quarter of this year, that’s now, we will complete the road realignment ahead of schedule. It will be under budget, completing the project well under $3 million that we had originally indicated. The actual budget was about – just under 3.2 million. I think we’re going to be $400,000 if not $500,000 below that level. We will complete all of the surface mining in the quarter and the tremendous amount of reclamation activities around that mining and the road realignment. I mentioned that we’re planning to stack some high-grade ore, not a lot, just on a test basis. We’ll certainly complete the Lucerne drilling by the end of the year, and the Phase 1 mine planning by January. We will complete the Phase 2 drilling for the Woodville structure by April, and complete the Phase 2 mine planning by May. We don’t want to commence on the Dayton drilling – we want to commence the Dayton drilling as soon as practical, but we prefer not to commence it until the Lucerne drilling is complete that would target April in our schedule so that it can be completed by October. Those plans are certainly not final, but they're fundamentally being driven by the reliability of the Lucerne activities. We plan on commencing the Dayton permitting activities as that mine planning and information becomes relevant. We’re very open about that. It’s been a long time coming, but we're really trying to get all of that work completed by the end of 2016, if not early in 2017. So all of these efforts now pulled together to our main objective, which is to have a very stable and growing underground mining activity in the Lucerne, much better grades and have ultimately established a second mining activity in the Dayton. If you have those pieces up, you know it can be tremendous, I mean, you can be looking at a first phase of 35,000 ounce of production, the second phase doubling that, and then adding the Dayton for June real proximity to becoming 100,000 producer, but with tremendously less stress in the system. I have to caveat that we have a lot of good work ahead of us, but in terms of the past of establishing that foundation having the targets, having the permits we’ve never had a clear one. We’ve positioned ourselves now to transition safely meaning that our revolver would be undrawn when we complete the Woodville development work. We don't have any other financial plans in terms of raising capital, but we remain vigilant to have a strong balance sheet and lower costs, which were my opening remarks. I’d just like to close before going to question by acknowledging overall the strength of our land position, the quality of our targets, the elimination of the preferred stock, the elimination of the preferred dividends, the elimination of the royalty, the continuing lower cost and the quality of our team. The recent date and results and the recent first place award that were receive from Nevada for Excellence in Mine Reclamation was just a huge milestone for us. We started out this process five, six years ago saying that was our objective, and to get first place award for from mine reclamation in Nevada is not a small accomplishment, we couldn’t be more proud. And it's really for us a result of having quality people and a quality system. So with that Angel, I would love to just go to questions and answers. I mentioned it briefly that the format is a little more concise limiting callers to a few questions in an effort to keep the call in an hour. If we don't get to all questions we’ll certainly follow up afterwards and make sure everyone questions are answered. So Angel, if we could move to the question that would be great.

[Operator Instructions] We will start with our first question from Barry Kitt of Pinnacle Fund. Please go ahead.

Good morning, Corrado. How are you doing?

I’m doing great, thank you.

Good. So I have to apologize, I missed the first few minutes of the call. So if you’ve already covered this, pardon me. Now that you moving more to underground or towards underground do you have excess equipment, trucks and equipment et cetera that you might be able to sell that will reduce some of the debt?

Thank you for that question. Yeah, so that’s a very good question. We have – most of our equipment financing is tied directly to that caterpillar equipment fleet. Clearly from surface mining perspective it’s now oversized we have actually nine caterpillar haul trucks and the associated equipment around it. I think that we’ll see something like 70% to 80% reduction because of the equity that we have in the equipment and because of the nature of the equipment, it’s actually geared toward the construction industry than it is to the mining industry oddly enough, and because of all of the activity that's happening in our region, we’re very confident that in fact we’ve got a lot of increase already that some of that equipment will transition out and meaningfully reduce that debt financing, I would say at least $3 million to $4 million reduction which is a substantial percentage. So that’s some very important to us. We also with our new partnership with American Mining & Tunneling because they are involved in dozens of Nevada projects, they have on indicated an ability even the slop certain types of equipment. So that – I talked about the flexibility of our people in our system, but I didn’t talk about the flexibility that also comes from those kinds of partnerships, but it's all very constructive to that end.

Okay. And since you’ll be reducing your debt and now that you’ve raised cash and you’re positive cash flow, would you say that you’re fully funded at this point to carry out the business plan you have currently?

Yes we are.

Okay. Thank you very much. Appreciate it.

Thank you, Barry. Thank you very much.

And your next question will come from the line of Heiko Ihle of Rodman & Renshaw. Please go ahead.

Hey Heiko, how are you?

Hey Corrado, it’s Jake in for Heiko.

Oh, hey Jake how are you?

Good, good. How are you? Quick question, the 450,000 tons of high-grade ore from the road realignment is that already stacked?

So we had we had about 450,000 tons of that material in and around know the road and underneath, about 350,000 has been cleared and moved over to the heap leach pad and we have 100,000 to go.

Got you. Okay. And then you mentioned paying down some debt, can you just walk me through kind of your expectations for the balance sheet at the end of the year?

Absolutely. So two material points; the revolver today has about 2.8 million drawn, the revolver is 5 million expandable to 8 million. We have an expectation that by December it will be 1.5 million drawn. And by I think effectively the end of the March it might be the 1st week of April it will be underdrawn, okay so that’s the revolver. The rest of our debt really comes to Barry’s question in about $9 million of equipment financing of which half, more than half I’m sorry is tied to the caterpillar capital equipment. And we expect actually to see a significant reduction of that here in the fourth quarter as we transition from let’s call it the higher volume surface activity to the lower volume activity.

Got you, perfect.

Yeah, both cases very positive in terms of positioning the balance sheet.

Fantastic. Thanks Corrado.

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

Hi Corrado, how is it going?

Going very well. How are you?

Thank you. Hey listen, could you layout a little more concisely your projected increases in production let’s say for the next half and the half beyond that and the half beyond that and so forth, so I can sort of like visualize for myself. How you are ramping up here and also to – or do you see any dips in production because you’re transitioning from one phase of mine to another?

Yeah absolutely. So let caveat first to say that you know we can only be precise with those kinds of productions.

I know, it’s just the projection that’s all.

But I'm very happy to talk openly about where we’re heading. So first and foremost, right we've been effectively on a mission right to exhaust this phase of mining literally to finish up the surface mining this year and we would include in that activity the realignment of the road and we would include in that activity the removal of all of the upgraded materials that are in and around the road and/or you know otherwise in the pit. So it was a critical part of our plan to accelerate that to that end right. We expect to see lower production and lower revenue in the fourth and first quarters. If you look at our profile, we did stack more ounces in the first quarter and the second quarter to that end, right? We really – I think we probably broke records in terms of the amount of ounces we stacked in the first and second quarter, which will continue to benefit from less in the third quarter and then similar, you know in the fourth quarter. Now to answer your question, all of that was synchronized towards affecting the development of the Lucerne drilling and drifting such that we didn't have redundancy. So the trick in the schedule was to exhaust the higher volume activities as we shifted into some of the realignment construction reclamation and mining activities that were lower tonnages as we shifted into drifting and developing. So the way that it's working American Mining & Tunneling is fully staffed you know in the things that are happening underground. So think of that as the tunnel development and the drilling development, and then our team much, much smaller, more flexible is managing all the material, as it comes out, you know and either – obviously either goes to the leach patter would be waste. So we have to finish the drilling and development to be more precise, but the direction, the target that we believe are meaningful is to establish a about 300 ton a day type of activity. I don't have precision in that or how we would ramp it up and then ultimately 500 ton activity coming from let’s say from the first structure and then replicating that in the second structure. In terms of timing, we’re looking for mine plans for Phase 1 in January, we’re looking for mine plans for Phase 2 in late April early May. So everything derives from the mine plan. And so you would see the activity I think in 2016 being very methodical, very continual. There isn't any kind of mass spike or anything like that, it’s just a continuous gradual improvement. At the same time there's a lot of excitement about the Dayton, right. We just have to be methodical in terms of doing the right plan and the right drilling, and then ultimately the right community and permitting processes. And we don't really see that effectively coming on line until 2017 in terms of mining activity from our perspective as soon as, but that translates to a very nice potential progression Phase 1, Phase 2, you can think of Dayton as Phase 3, it's really not a Phase 3 per se. So is that helpful or am I – it might not helping with those…

Yeah, I’m just sort of saying, you’re projecting the process 30,000 – 35,000 of all gold ounces this year. Where do you see yourself in production rate nine months from now, 15 months from now and at the end of the next year and so forth?

Yeah, so if we – I would say if we found everything we wanted to find in this phase of development for Lucerne you could be up to 500, by the middle of next year you completed everything in Phase 2. You could be up to 1,000 by the end of the year next year, so that gives you some good bench post for progression and then the Dayton coming on line in 2017. It’s really the only thing the company is focused on, which is something else that I like is that we've never had a narrower stronger focused and that's resulting speed, right? We’re doing things faster because it's right in front of us. I think in fairness having all the permits eliminates in Lucerne, eliminate significant complexity in scheduling right. So whereas before the schedule always had to be tweaked and deferred and recalibrated for when you get the permit really now it's just everyday executing our tasks and marching down that that task.

Okay. Is there any more – more mine dumps that you can easily access to fill those gaps in production as you transition from a Lucerne surface stuff to the underground?

There are some. And well let me say it differently, there are a lot of mined ups. I mean we've quantified maybe 1 million tons of mined ups throughout the district that are on property that we own or control. They're not always as easily accessed and that sounds counterintuitive because they’re on the surface by definition.

Properties that has no roads.

Well what it is, is we have to clear the environmental issues first which were very experienced at sort of sampling et cetera, that's a prerequisite to do. And then in some of the cases it’s on federal land versus a private land. And so we've been working with the BLM on environmental project. So it’s a plethora of sort of items, but they’re – in the longer term there's a lot, in the shorter-term there's a bit right, and we’ll do that as it makes sense for us.

Okay. Thank you very much.

Thank you.

And your next question will come from the line of Peter Epstein of Epstein Research. Please go ahead.

I think my question is, I like the 30,000 [indiscernible] 35,000, 70,000 tons, do you see a significant tonnage down all in cost.

Yeah, I mean, so I think you mean ounces in both cases and these are the notions that we’re targeting and they're very good. And there is absolutely no question, right, if we got to a level of 500, 600, 800 even the 1,000 tons the leverage would be tremendous. And that’s exactly why our engineers are focused on that kind of the target. Obviously it has also come from the ore, but when we calibrate the two is what we believe is really the significant thought for us. Having said that we could produce because of the flexibility in the cost structure at a much lower level profitably, which is the same thing, the same thing backwards right. So absolutely we want those leverages where could those costs go, I mean again we have to wait and see, but below 600, below 500, yes and yes. We just have to finish the work and get it going.

Thank you. Just one other question. So I saw somewhere that you were talking about I guess drilling for eight times a grade, tunnel to mining, is that an accurate…

Yeah. So let me be precise, so we've published, I didn’t say this, I didn’t repeat this on the call, thank you for bringing it up. We published that the drilling today, I mean I’m not talking about the 2,000 feet we just diamond core drilled over the last few weeks, I'm talking about in past years had 46 intercepts in the PQ structure alone grading higher than a tenth of an ounce, averaging something like just under a quarter of an ounce. In the Woodville those numbers are almost triple, like 118 intercepts drilled by us greater than a 10th of an ounce averaging 0.23, 0.24 kind of numbers. And the Woodville was the most southerly bonanza mined on the Comstock. We’d just add that in South continuing south from the old-timers, but the production records from the Woodville bonanza showed almost an ounce per ton mine, something like 0.9 something. So the zone is incredibly attractive, the targets are incredibly attractive. And we have a good foundational base of knowledge to start from. We just need to finish all the development and drilling work that’s ongoing as we speak.

Okay. That’s great. One last question, just conceptually, if you’re in production from Dayton and Lucerne, sometime in 2017, do you consider that two mine operation or is it too close to get one mine operation?

Technically there are two separate mines. We have to define exactly how we’re going to mine them. But I think technically there are two central lines, substantively this one centralized processing capability. I think for us they’re so close together, we think of it, we think of it certainly as one operation. I’m merely not trying to dodge the question, I think it’s a great question for people who have visited the mine, I mean it’s less than a mile and a half just in terms of the actual mineralized zones and then they’re both in close proximity to the central processing facilities. I mean, Klondex is operating a centralized mill with two mines, but there's hundreds of miles in between them and they're doing phenomenally, you know our package is much tighter in terms of geometry – geography.

Okay. I’ll turn it off to someone else. Thank you.

Thank you, Peter.

And your next question comes from [indiscernible].

Looking at the annual targets, assuming that we get up to the 100,000 ounces a year at what point do you envision doing dividends to shareholders?

We’re philosophically aligned with cash dividends from profits at a future date. The only caveat I would make to that is we've only drilled on a tiny fraction of our existing mineralized strike, so there is some real value and real excitement about deploying some of that cash flow into the Spring Valley development, south of Dayton and then also some of the deeper higher grade targets north of Lucerne. But frankly, if we get anywhere near the 100,000 we will be in a very strong position to be doing that right. So I think it's a very fair question. I personally believe the best kind of company to invest in is a hard asset company that owns its underlying land and assets in a safe jurisdiction with precious metals enhancing that asset value, producing cash and paying dividends. So to me, if I was going to define the kind of company I want to invest in that fits. So I think it's important for us to have sustained positive cash flow, strong balance sheet dividend paying. And I guess I would say and obviously this is ultimately a board decision, but I would say you know when we start approaching those levels of cash flow they are really big. We would be absolutely a key candidate to pay dividends. We need to get there first obviously, but we’re on our away.

So the validated qualified resources like 3.250 gold equivalent ounces, is that based just on the Lucerne and the Dayton, or does it include some of the other?

No, it’s just the Lucerne and the Dayton. And we always have to be more caution of the resource statement, it’s excellent, but we have only drilled –I can't even think of 30 holes that we’ve drilled outside of Lucerne and Dayton. There is about 14 in the Spring Valley, there is just handfuls sporadically in other places. So we don't have any quantified resources. Even though it's important to say that we have structural and geological extension and control for the entire 6 mile mineralized strikes off. So the structural control, the surface mapping, the geophysics all indicates mineralization. We just haven’t drilled enough outside of those two areas to quantify more. I think the Spring Valley is a natural extension of the Dayton and I think it would be absolutely the first place will go. Once we finish the Dayton drilling program think and I think we’re adding ounces for every one of our key target areas. What we’re focused on right now though is to translate those resources into mine life. What I love about our board and I love about our team is it's really evolved into a tremendous focus on mineable ounces, and now it's experienced, it's battle tested, you know and it's very technically focused on mine life, which is another way of saying proven and probable reserves. And I used Klondex as an example earlier, but I really like what Paul Huet did and he said yes we’ve got resources, but we’re going to deliver five, six years of mine life and then we’re going to continue to add to that as we mine. And from a capital deployment, capital return philosophy it's outstanding. I think that we’ll add more, but that’s – I’m not technical, and we need to wait for the drilling and the assays and the context to be done, but we are very excited about it. So I think ultimately you'll grow mine life for sure. I think ultimately you'll grow resources above and beyond Lucerne and Dayton, and I don’t think there is any question about that, I just think it's the sequence and timing of it.

So just based on Lucerne and Dayton, we’re looking at least the 30 year mine life is that correct?

Well that assumes you’re translating all of those resources in two reserves and you shouldn’t assume that. But even small percentages will give you tremendous rate, and the higher the grade the better. I think the trend – there is a remarkable trend happening in the industry where globally grades are being dilutive. I mean 20%, 25% dilution in grades in just the last ten years, what does that mean, while people are mining the easier stuff, they’re mining the higher grades, it's becoming increasingly more difficult to discover a new mineable deposits, economic deposits, it’s actually stunning that from 11 to 20 years ago the industry was discovering seven, eight, nine new deposits every year there were at least 3 million ounces. And in the last 10 years that average has dipped below 1 million ounces and in the last two or three years none. And there's two reasons for that, one is, obviously a lot of good stuff has been mined, but also there has been hardly any investment in drilling in the last two or three years as the industry has rationalized and reduced cost. I think cost reduction operationally is critical. I think focus on where you’re spending your investment dollars is critical, but to abandon drilling as a cost-saving measure is not smart. So I think we feel like we have a very good balance. We've been mining, but frankly what we've really been doing is developing a platform for sustainability, not just mining responsibly, not just proving metallurgy, proving grade, proving strip ratio, proving cost, but doing it in a responsible way that gives a socialite to continue responsibly. And yet we’re in a high-grade epithermal district with 150 years of production behind it. So I think going to more select, more targeted higher grades or a microcosm of what’s happening in the industry. So it's not massive open pit massive volume. It’s selected high-grade sustainable operation and that fits with the district that we’re in, but I think it's a bigger trend. So I think only good things can come from the platform that we’ve built, that’s why we will be – we’ll tend to be safer on our balance sheet, we’ll tend to be more strategic with our land position. The work that we did in eliminating liabilities and eliminating royalties, I mean the Dayton has no royalty associated with it, zero. The Lucerne had a big royalty and then two or three little ones, we eliminated the big one, so we eliminated the big in Lucerne, we eliminated the big one in the Dayton. These properties are free and clear for intelligent development, so I kind of rambled on a bit, I apologize, but I hope that's addressing your question.

It does, I appreciate it. The last question is, under the strategic highlights with American Mine & Tunneling and American Drilling, you used the term partnered, do they have an equity position now?

They don’t right, but they've invested tremendously in the lead up of all of this operation. The amount of diligence that they did for us, the amount of mine planning and engineering that they did for us, the amount of the mobilization that they did for us was incredible. They are a private company, but they have over 350 employees, I believe 99.9% of their activity is in Nevada. I think they have a huge hub in Reno, a huge hub in Elco and a huge hub in [indiscernible], so it's just really, really well positioned. And when I say partnership, we’ve developed measurement so that performance is all that matters. We don't want to be structured in a situation where you are paying a supplier with no results right. So for the first phase it's feet, for the first phase it’s feet, we need feet in terms of the tunnel, we need feet in terms of the drilling. In the second phase it’s going to be how we mine, right. And so it's a measurement system that allows us to both win, if we do we have to do and avoid a situation where one person gets paid and the company fails right. So it’s more substantively that than anything else.

Well, I want to close with congratulations on the fantastic job you've done since the annual meeting through the present time. You certainly addressed a lot of issues that – some of the smaller shareholders have had.

Well I appreciate that, we still have some wood to chop, but it's a very clear path in front of us. Thanks for your questions.

Thanks so much.

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

Corrado, you kind of touched on this a little bit with the last couple of questions, but its regarding the resource statement. I remember the good old days one of the highlights we used to look forward to was updating, I’m a little rusty here, there was a Canadian standard, I think it’s 43-101, that would be updated, and we had somebody who was independent [indiscernible] or something like that. That would come in and verify, and these were actual reported numbers and we would look forward to what the proven and probable increases were and everything. It was an actual form. Do we still, is that still a viable thing. I know there was a US standard. There was a bit difference in the 43-101. Do you still have those or did I miss something?

No, let me comment. Thank you for the questions. So the US standard is Guide 7, Canadian Standard is National Instrument 43-101. The Canadian Standard is broader than the US standard and that allows you to report both resources and reserves, that’s the primary difference in my opinion. We published our last 43-101 technical report in January of 2013 and that did coincide with our last major drilling program. We are now – we have now started – we then, in reality we then turned our attention to the first phase of mining the Lucerne with really no exploration and development drilling to speak of. We are now deep into the heart of the drilling program, which will give us updates to that information and our intention is proven and probable reserves. We’ll have a second phase of that Carl after the first quarter drilling out the Woodville, which will do the same and then we’ll have a third phase when we finish the Dayton. Now internally, the drilling that we did with the Dayton without question increased resource estimate and with the next phase of drilling we’d like to get to a mine plan and a reserve. So ironically we had three or four very fast technical updates in a two-year period from 2010 to 2012. And I think you’re going to see something similar; three or four rapid drilling progressions that will result in update. So one thing that I also was saying before was that we will be transparent because we have a lot of context already with Lucerne and Dayton. And so as we fill in certain gaps in our knowledge, we can more quickly report what those mean. So I think you could look forward to drill results in the upcoming weeks, context in the upcoming weeks and months, and then sort of – there is a possibility that you can see, I would say certainly to technical updates in 2016, and possibly three with the Dayton or that might slip into the very beginning of 2017, but they're coming. They haven't disappeared at all.

Would they still be independently verified by [indiscernible] or somebody like that?

Yes, absolutely.

Okay, so that happens in a while, but you plan…

Well yes because we haven’t – we’ve been mining instead of drilling and expanding, right. So it's logically – the time is logically now to start expecting those to come back again and they will. And it will – unless something weird happened, I don't know I wouldn’t be [indiscernible]. They’re very knowledgeable about our project and have always done good work.

Thank you.

Thank you.

And our next question will come from the line of J. Gunn of RockPort Global Advisors. Please go ahead.

Good morning, Corrado.

Hey Jay, how are you?

Good. Can you just give us a quick update on the hotel and any other activities in Virginia City?

Yes I appreciate the question. I really didn’t address the hotel at all, and the whole notion of our – call it non-mining real estate, Crown Jewel that would be the hotel is been a great transition this year. We went from acquiring these properties, somewhat opportunistically to really professionalizing the management of them, in many cases including the hotel by having someone other than us operate it. I’m not only happy to report that the properties are in remarkably good condition, certainly significantly better than when we acquired them, but that on a standalone basis they’re profitable; profitable on a cash basis and profitable on an accounting basis as of the third quarter. So not only do we have a great land properties, but they're self-sustaining themselves. And frankly, that’s the first time I can say that too. So thanks for asking that question. I appreciate it.

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 attention. I’m thrilled that we can cover so much and keep it to an hour. I know that helps your schedules and helps you participate right till the end, so we’ll continue to do that. We are always available for direct outreach. We look forward to that, and I will be spending a meaningful amount of time updating the capital market community about our clean balance sheet, about our development projects and about all the good things we just talked about today. Thank you all.

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.