Comstock Inc. (LODE) Q2 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Comstock Mining Second Quarter Results and Business Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Corrado De Gasperis. Please go ahead.

Thank you, Valerie. Excuse me, and good morning, everyone. It's Corrado here, President and CEO of Comstock Mining, and welcome to our 2016 second quarter conference call. Last night, as customary, we filed our 10-Q, and I'll provide a brief summary of the information included in both our 10-Q and our press release from this morning. We've accomplished a tremendous amount in the last few months -- excuse me, and I'm very happy to share it all with you today. Based on -- also based on positive and very constructive input from you all, we'll continue to keep the call to less than an hour. It's worked pretty well the last few times and if we can't get to everyone that's in the queue, I'll continue to be available for follow-up questions after the call, so we all certainly make all the right efforts to make sure we've spoken to everybody that wants to be spoken to. I would also acknowledge I've been pretty busy the last few months, and I've got some catching up to do with some of you out there, so I look forward to that, too. If you all don't have a copy of todays' release, you'll find a copy on our website at www.comstockmining.com under News/Press Releases. And please also let me remind you that in addition to the outlook, I'll be making forward-looking statements on this call. And any statements relating to matters that are not historical facts may constitute forward-looking statements. And 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 forward-looking statements made during the call are subject to those same and other risks that we can't identify. Okay, enough of that. So I'm going to focus my prepared remarks on 3 areas: First, our balance sheet; second, our cost structure and lowest cost position that we've really worked hard to establish; and third, our strategy and outlook for implementation, let's say, in the next, certainly, 12 to 18 months. So let's start where, I guess, we should always start, the strength of the balance sheet. Since April 1, we've dramatically strengthened the balance sheet by, first, fully paying off our revolving credit facility, and then effectively redefining or renegotiating essentially a reliability that we have from our equipment financing. So Caterpillar to smaller borrowings on our land purchases and other payables to a pretty remarkable positive outcome. In every case, we've been effective in reducing our obligations, improving or extending our terms and enhancing our liquidity and strengthening our overall financial position. We didn't do it in a crass or maverick way, we did it very methodically, working strategically and in connection with all of our trading partners. We did it with a remarkable outcome in the sense that all of the relationships are strengthened as we look forward to what we've tried to create as a company. And the outcome, overall, was that we reduced our obligations by almost $5 million since last year-end, $3.5 million of those were current liabilities. We reduced our bonding requirements by an astounding $4 million, mostly by accelerating and completing important projects and reclamations, most of which improved either our infrastructure and/or the communities. And we paid off fully the company's revolving credit facility. So last time we spoke, I was very focused on making sure that we were protecting the assets and protecting the company. And today, I feel that we're substantially complete. So the balance sheet's already stronger because of all these improvements. And I'm really proud that the team got it done, not only in absolute amounts, but in really the right way. We also progressed in listing two of our non-mining assets for sale. This process has been remarkable on two fronts. One, the interest that we're getting and the values that we're seeing are high. In fact, we're now expecting just from 2 of the non-mining asset sales alone to net proceeds of almost $5 million. These are very pristine assets that are marketable and have no direct or indirect implication to our core mining land position and/or the business strategy of our company going forward. In addition, we exercised an option that we secured last year and purchased the highly valuable track of land and with extra water rights in Silver Springs, Nevada, which is about 20 minutes down the road, for about $3.2 million. This land, which is flexibly zoned and then situated in the heart of Northern Nevada's current economic development boom, most of which are being driven by the Reno Tahoe Industrial Center and that whole quadrant accelerating because of the real-time construction of the USA Parkway connector that's currently being built from the Reno area straight through the Reno Tower Industrial Park and directly into Silver Springs. In fact, we -- in fact, emerging right where our new land position sits. This industrially-suited land also comes over 256 acre feet of the highest priority, most valuable commercial water rights in the basin. And we had negotiated last year when we acquired the rights to buy the land that those water rights would be re-characterized into quasi-municipal commercially available water rights, which, for our land and other lands all around us, are the highest and most valuable use. Today, the land and water rights alone are valued at over $10 million, and with ongoing appreciation as the USA Parkway continues to be constructed towards completion in the middle of next year. So the next 12 months is a remarkable zone in terms of the value of what's happening in this area. And what's happening is being well-coordinated, it's community-sensitive and it's really progressing exceptionally well. And I'm saying that for the entire Northern Nevada/Silver Springs/Tahoe Industrial Park area. Everyone's been cognizant of the industrial parks since the Tesla announcement, but really Tesla understates the incredible economic activity that's happening here today. I mean, we're seeing dozens and dozens of business licenses being issued weekly. We're seeing dozens and dozens of companies coming into the area routinely, monthly, bimonthly, all the time. And the governor announced a few months ago when they actually launched the USA Parkway construction that another company of a magnitude even greater than Tesla is in the final stages of committing to the park. So what's happening here is not only impressive and it's somewhat difficult to exaggerate. Overall, I'm certain that the excess water rights that we purchased with this option alone will be worth more than what we paid for the entire package. And so we're very excited about that. Just some of the properties that we've listed for sale and the water rights alone, we now expect we can monetize to almost $7 million for the company, which when we look at our tax position, is a fully-sheltered profit for us and incredibly strong net proceeds to us. The ultimate goal for us is not just to be debt-free, which will happen in this cycle with these land sales, but also to be funded such that our now lower-cost platform will have the wherewithal to operate well through 2019 in terms of just our base operating expenses. I'll get to that a little bit more specifically in a second, but basically, any of our land cost, environmental cost, G&A, everything other than mining development would be fully funded and covered to just a couple of select monetizations of these lands. So we're very thrilled, we've had a lot of dialogue about this over the last 6 to 9 months. We frankly underestimated the value of these properties even though we had very high regard for them and we couldn't be happier, not only to efficiently acquire what we've acquired, but selectively and opportunistically monetize it to the benefit of our overall business strategy. I'm also happy to report, getting back to #2, that our accelerated transformation and cost-reduction activities will exceed $8 million per annum for all non-mining operating expenses. And really, as I've started to better assess the landscape, the competitive landscape, the industry segment we're in, this puts us amongst the lowest, if not truly the lowest in our peer group. And when I say peer group, I mean the active U.S.-based junior miners that are in production or with a production-ready infrastructure. And just to be clear with my tone, the fact that we're pleased with this progress certainly doesn't mean we're anywhere near satisfied. We feel like we're at the very beginning of re-establishing an incredible platform, a safe platform, a funded platform, to really position ourselves to participate, for lack of a better word, in the value creation that's happening industry-wide. We know we've been held back a bit because of some of these issues and I am happy that we're putting these issues behind us. I mean, from one perspective, I've spent 90% of my time on this in the last 4 or 5 months and 10% of my time looking forward in terms of strategic growth and strategic opportunities. And that's flipping. I am now putting most of that in this effort of behind us and focusing 80%, 90% of my time on our growth initiatives and 10% of our time on the stability of the enterprise. It's frankly long bothered me, though overall, that publicly-listed junior miners in our segment had to carry so much overhead, so much fixed mining labor and fixed cost. Some of it obviously needed. When you're a public company, you have listing fees, you have to have quality effective audits, you have to have solid environmental compliance and environmental management and operating management to the degree necessary. But structurally, putting $8 million, $9 million, $10 million annually in what I would generally say our non-direct mining overheads or fixed cost versus development, exploration, investment dollars, it just isn't -- it's not palatable and certainly isn't sustainable in my mind in our industry. And then we saw the effect of that in the last downturn. In our case though now, not just by ensuring that we're streamlined and that we're operating at the lowest possible cost, but also by partnering with firms like American Mining & Tunneling, American Drilling, McClelland Laboratories, practical mining and engineering, these industry expert firms are partners with us in the strongest context. And it's allowed us to go further than we originally thought in transforming ourselves from a heavier, higher fixed-cost infrastructure to a production-ready variable cost, flexible, faster and more competent model. We actually have increased the connectivity to mining competencies, while lowering our cost. We've actually de-risked the notion of having a heavier fixed cost to a much more flexible and variable cost. And I know I've spoken to some of you individually about this, but it isn't as intuitive or obvious when you look at our financials or when you see our trends that we're creating a stronger competency, a safer competency, a stronger platform that we can use then to position us for growth. So when I think about our enterprise and I think about the ability that we have to manage complexity, the ability that we have to work through regulatory permitting, to work through mine planning and development, it's pretty remarkable that we have such a broad team yet now with a very low cost to administer it and to monitor it. For example, we just recently announced, and I'm very happy and relieved frankly to report, that we received BLM approval, and we're granted a major right-of-way permitting that gives us a dedicated and expanded haul road from Lucerne mine to the company's centralized processing facilities up at American Flat. The approval required the National Environmental Protection Act, or NEPA, for those familiar with some of our federal regulation and then included a very broad successful approval of an environmental assessment. And it was a long time coming because we did it the right way, we did it precisely, there was massive community input and support along the way and really resulted in a permit with the strongest possible foundation. We also recently announced that the BLM conveyed ownership to us for a permit private patent for Lot 51. This legally recognizes Lot 51 as our private property, which we contended all along even though there was dispute on it and really marks the successful completion of another multiyear process to acquire this strategic land and put another solid brick in the foundation of our platform. These are uncommon achievements for companies of our size, and I think most of you already recognize how difficult and important it was to us. The market seemed to respond to it very favorably, but frankly, I think it's just the beginning. It's really just the first few steps, these achievements both in the acquiring these lands and achieving these permits are just examples of what we're able to do with an enterprise, and more importantly, it's these first steps to getting the credibility back, getting the valuation back that we feel we stunted with some of the disruption in our transition. So we're in a transition. It's an important transition, it's an incredibly stable position, but from a balance sheet, cost and an organizational competency perspective, we have the best position that we've had in a very, very long time. When we talk to some of the larger participants in our industry, they comment that most of the projects that they're looking at are 7, 8, 10 years away from production with all the risks that come from permitting, from mine development, and even things like metallurgical yields. We've knocked everyone of those risk factors off of the table, and we're positioned very, very well for growth. Going to the third item, our entire board is focused on increasing our value per share for our shareholders and we are all focused on making sure that our mining assets, their exploration development and ultimately, production schemes are in line with maximizing that value for our shareholders. So to that end, on the third item, our strategy and outlook. I'd like to highlight 6 pretty critical points. Obviously, we'll complete the non-mining asset monetization, but beyond that, we've modified our strategy to ensure that our goals are achievable, that they're achieved and they're more than sufficient to deliver the value that we're looking to deliver to our shareholders. We will of course, for Number 2, advance the Lucerne development, albeit at a slower pace. We've already slowed that down. Our next phase of drilling will be the scope drilling of the Succor, but we've not yet approved that until some of this land monetization is complete. We very much are happy with the grades, the intercepts and some of the initial development that we have there, but we've commented last few conference calls, there's more to do there. And we just need to be methodical about how we do it. I've commented that once we start doing some of this drilling, there's about 7 to 9 months worth of it to be done, and then a couple of months of final mine development before we could transition back. So we're a year out, but in a very stable way. The ore, the ounces aren't going anywhere in an improving market environment, with a fully permitted and ready-to-go infrastructure, we can pace ourselves the right way without losing any of that opportunity. Number three, we're going to advance the Dayton development. In this context, we'll probably going to go faster, not slower, including commencing the Dayton permitting activities this year. In Dayton's case, we already have an economically feasible mine plan. It's only going to grow and with the Lucerne permitting complexities and let's call it remaining stringing items behind us, we can be much more focused on thwarting the Dayton permitting in the latter part of this year, starting now. We want to extend out a bit with our district-wide plan. In today's press release, I re-emphasize the entire district and the mineralized strike. It's not just the 6 miles that goes from Gold Hill all the way down to into the Spring Valley, but we've also got the parallel strikes in the Occidental and in the other northern quadrants that we really have put very little attention to. I'm going to talk about Spring Valley and Occidental, just as 2 examples in just a bit. But I also mentioned them earlier in the press release. Fifth, we are evaluating and this is really more a market-driven factor. Other opportunities for adding mineralized assets to our portfolios with the stability that we achieved and the internal funding that we have on tap, we're really seeing the wherewithal to evaluate a niche that we see is really underserved and underexploited, and that's the junior exploration and development companies here in Nevada that can't seem to maneuver efficiently through this technical regulatory maze and complexities that you really need to, to get to profitable production. Most of these are private projects and, really, more from a market perspective than a company-driven perspective, we have some opportunities there in front of us that we're currently evaluating. Ultimately though, it's all to a goal of achieving a company that can produce at least 100,000 ounces per year, and more preferably up to 200,000 ounces a year. We believe that the Comstock is an incredibly large district with an incredible potential. And then we believe with adding some additional opportunities opportunistically to that, we can assure ourselves to be a vast scope in that scale in the future. And we really have debated at length about what that size should be because we want to ensure that it re-rates us up into the next category of intermediate junior valuations. So from our perspective, what drives that strategic outlook? It's an unprecedented land and mineral position, all properly zoned and characterized now in the Comstock. Two, a corporate competency for identifying, acquiring and advancing land-based mineral developments. We're very good at it and we're going to continue to do it. Three, a network of mining competencies that's second to none, including our existing partners that we've talked about. Four, the leanest overhead and soon-to-be debt-free balance sheet that allows us to capitalize on our own and other opportunities. And fifth, the substantial net operating loss tax position that really positions us for superior enhanced cash flows from our operating assets. And now that those NOLs are incredibly young in design, we want to get moving to that profitability so that we can use them. Just regarding our land positioning, coming back to the Comstock for a minute. Our focus, of course, has been with Lucerne and Dayton, and for great reason. But we've barely advanced any of our other claims at all. And just a minute to talk about Spring Valley and the Occidental for those who aren't familiar. Spring Valley is located south, but continues with our Dayton property with a remarkable total strike length of almost 8,000 feet. So you're talking about 1.5 miles just in the Spring Valley alone, where we've only had limited drilling despite having structurally identified extremely favorable structural mineralized zones and even with the drilling that we've done, I think high-grade intercepts very near surface. So we're salivating at the ability eventually to start stepping out down into the Spring Valley as we move the Dayton forward. And then on the flip side of the district, the Occidental vein is actually a parallel vein system to the original Comstock Lode. It has historic mining of exceptional grade, but very limited in near-surface. The Occidental vein system that we already have documented has a strike length of over 7,600 feet, almost as long -- or just about as long as the Spring Valley and in both cases, on lands that we fully control and own. So we started with some of our internal technical teams advancing the geological assessment and mapping, as we go forward to best position that. But our own people and outsiders as well have assessed the potential of both these districts for adding millions of ounces to the portfolio. And I don't like to be promotional and I'm not technical, so I'm just listening very carefully to what the structural controls and the experts say about the potential of these properties and we absolutely love it. But the bottom line is that we're now stable, de-risked, and I say de-risked with most -- every single perspective with both near-term, intermediate-term and long-term prospects. We don't see any of our peers sitting in the same situation, controlling the entire district, being fully zoned, having near-term, intermediate-term and long-term prospects. And ironically, the Dayton mine plans are actually now ahead of the Lucerne's and we think that's a strong positive. So we've got 2 mines that are heading towards production at different paces. We've got a stable and strong balance sheet. In September, we'll have made meaningful progress on monetizing some of these assets advancing the Dayton and laying out a much more specific time frame for the next 2 years as we move our strategy forward. I'm going to pause at that point, Valerie, and move on to the Q&A section. As I mentioned in the beginning, we're still going to limit the call in time but we'll be available regardless to make sure we get to all of the questions. Valerie?

[Operator Instructions] And our first question from the line of Marco Rodriguez, Stonegate Capital Markets.

A couple of clarification-type questions, if you will. You there?

Sure. Yes, sure. I didn't hear you at first, but I hear you now.

Okay, there we go. So the P&L here in your June quarter is showing total cost and expenses of $3.8 million. So I'm just trying to make sure I'm understanding your commentary about, obviously, reducing all of your costs across the corporation. And if this $3.8 million run rate is kind of a good number that we should be thinking about going forward.

Yes. So break now -- so break the $3.8 million into two pieces, right? Costs applicable to mining is $1.3 million of that, okay? And really all other is $2.5 million of that. Now of that $2.5 million, we're going to take out $0.9 million for exploration and development, and that leaves you with $1.6 million for all other non-mining costs, okay? And really, that's the number that you'll still see declining from the current position, you'll see declining, and you'll see year-on-year, when comparing '16 to '15 and then ultimately, '17 to '15, $8 million of annualized savings coming out primarily of G&A, real estate operating, mine claims, environmental, et cetera, right? So we really have made an effort to make the non-mining costs not only the lowest possible but as variable and as flexible as they could be. So then you have -- what you have remaining is costs applicable to mining, which relative to revenue will track consistent, but the revenue is projecting right now to go into the fourth quarter but on a declining basis for what's currently on the leach pad. And then the only other cost is exploration and mine development, which ultimately, we want to spend on the Dayton and spend on the Lucerne.

Okay. So -- I'm sorry, go ahead.

No, no, no. That's right. Sorry.

Okay. So that $1.6 million for all other cost that you mentioned, I understand that year-over-year, you're going to be showing declines, but the $1.6 million, that's kind of -- if we're modeling going forward, that's probably a pretty good quarterly run rate then, if I understood you correctly.

No, sorry. Right. So I think that number is going to annualize to be closer to $3 million and that quarterly run rate's going to drop to like $750,000. Remarkably lower, yes.

Got you. And timing of that?

The actions -- 95% of the actions have been taken. So you're going to see a meaningful change in the third quarter and the full run rate by the fourth quarter. So maybe $1 million, $1.1 million in Q3, $800,000 in Q4.

Got you. And then, I believe in your filings, you said you would probably have an additional $1 million or so in revenues in Q3.

In the quarter.

Yes. And you mentioned it will decline here in Q4. Is Q4 going to be the last quarter where we see a revenue flow from mining?

From the existing leach pad, yes. I'm pretty amazed when we first were finishing up the ore stacking on the leach pad, we were targeting the second quarter quite frankly. And our yields have just been remarkable. And so we're going strong. This week's pour was higher than last week's pour. Surprised me. Typically, they just inch down every week. But we're seeing the robust resilience to the yields will go well into the fourth quarter, but at some point, we'll pause it because it just won't make sense to continue even running the variable cost through that facility relative to the ounces poured. We won't lose the ounces, they'll stay on the pad, and then when we resume the whole thing will come back up again. But yes, most likely I'm thinking October, early November.

Got you. And then clarifying the assets that you have for sale, I thought I heard two different numbers in your prepared remarks. I heard, one, for $5 million of net proceeds for your assets held for sale, and then I think I heard you say something that you're going to get $7 million?

Yes. So you heard two numbers, and I'm very appreciative that you asked for a clarification. So think of it this way, we really have 4 assets for sale, okay? And the $5 million came from, really, just 2 assets that we have in the district. We have a hotel and we have a large ranch. They have little-to-no debt obligations associated and they have little-to-no strategic implication to our business strategy. We acquired them opportunistically, we care about then, we care about the whole community and the district, but with the increase in valuations, we now look to sell them. We believe with the current valuations, we could net almost $5 million just from those 2 assets, okay? That was the first number that I said. So there's specifically a ranch and a hotel, okay. And then secondly, we acquired, we exercised an option that we had secured a year ago and we acquired 98 acres of land in Silver Springs, Nevada and excess water rights associated with that purchase. And so the whole package was purchased last week for $3.2 million. We had secured the option a year ago. The valuation today for water rights are at a minimum, $10,000 an acre foot. So with 257 acre feet, and they're detachable, they're separable deeds, they're an asset class amongst themselves, they trade all the time, and they're scarce. That's $2.5 million just for the water rights alone. And we see water rights going in Dayton recently for $14,000 and we see people secure some options on water rights on numbers that I don't even want to say out loud because I'll set expectations too high. But I said also though, is that I am certain that the water rights alone will value in excess of what we paid for the land and the water. Now the land, it's 98 acres of absolutely perfectly situated real estate sitting right alongside Highway 50, right alongside the local airport, but most importantly, right at the mouth where USA Parkway is going to connect to Highway 50. And so land values on a square foot basis are going up and even using midpoints of recent comps, the land's worth $7 million to $8 million. And so we did a lot of work with the seller to recharacterize the water rights to where we got them, which is industrial use. They're called quasi-municipal water rights and they're of the highest seniority in the basin and we also worked with the county in terms of assuring that the master plan designations were right for the industrial intentions of the community plan. So we're sitting in an ideal situation with this property. And what I said earlier was just if we sold those lands and the water rights, we could do excess of $7 million. So those were the two numbers. Does that help? And that would not include the acreage that we still own there in Silver Springs.

Got you. That's helpful. And that kind of actually leads me to the next question, just trying to understand this new acquisition of land -- let me back up there first just to make sure I understood some of your comments there in regard to that. So you got $2.5 million of value for the water rights and the land, at between $7 million to $8 million and I think I heard you say something about an excess of $10 million for the exercise of the option [indiscernible]

That's it. Just the sum of those 2 numbers, perfect.

Got you. Okay, and then just trying to understand -- I understand, obviously, the arithmetic as far as what you bought and what you could potentially sell it for. But just given the strategy of reducing debt, of making your balance sheet a little cleaner and just focusing on your strategic core assets, is the idea to buy this additional land here to basically kind of flip it short term? Can you kind of help me understand this?

Sure. Yes, so in the case of the water rights, let's start with that. The water rights that would be sufficient, let's say, more than sufficient, to go with the existing land, to stay with the land is maybe a better way over say it, is at most 20 to 25 acre-feet. So we're sitting with about 230 acre-feet of water rights that are absolutely incremental and discretionary, and we absolutely will sell those into the basin and this is very positive because that will accelerate economic development in the basin because the water rights are so scarce and it will make us a lot of money. In terms of the other 2 assets, first, before we come back to the core of the Silver Springs asset, we -- they're just discretionary so we're selling them. With the core of Silver Springs land, we're working with the local business development group and we're working with the community to ensure -- and we're working with literally weekly inflow of people looking to invest in Northern Nevada, with the right complement of deals with that, let's call it that -- to yes, monetize for us and ensure that, that land development goes forward in the way most consistent with the community. So I would put flip, the tag of flip on the water rights, and I would put the tag of a reasonably expedient economic advancement, which will lead to us monetizing it on the land. And the reason you don't say flip for both because is there's a little bit of marketing and a little bit of cooperating to maximize that value for us and for the use of the community, which is a win-win. So if you ask me, "So all right, Corrado, so what does that mean?" That means the water rights will most likely be sold in the next 6 months and the land will be developed and monetized within the next 12 to 18 months.

[Operator Instructions] And we'll take our next question from the line of Chip Unsworth of Legend.

So let me just ask the obvious. I think everybody looks at the junior minor index and sees what that has been doing since the being of the year, which is pretty much a double, right?

Yes, yes.

And Comstock, not comparing well to the junior miners, [indiscernible] so but I think in the -- I think a couple of things that you've been doing, optically, the market's starting to pick up on, and -- that you have demonstrated other assets that give you liquidity in order to push this thing forward. I forwarded to you the top 10 holdings in the junior miner index. Some of them are the obvious names that are out there. Alamos, B2 gold, First Majestic, Hecla, Pretium, Silver Standard, IAMGOLD. A lot of them -- I mean, some are in production, some aren't in production. Some are optically increasing their reserves. I mean, have you compared yourselves to these other junior miners or maybe this, like, counts for 40-some-odd percent of the move in the index itself? So how would you compare yourself to some of these?

Yes, great question. So first, let me say that I think that our frustration at not having participated in the value moving the sector, notwithstanding our joy of watching gold and silver move up, right, and those valuations move up for others. We're highly frustrated that we haven't participated in that. In the last call, I think we were very pedantic in saying, "Look, our balance sheet, right, and our pace of development has disappointed." And so we wanted to highlight that we understand the problem, that we understand we're part of the problem. But that we've got a solution. The first solution was fix the balance sheet. And I know it won't be immediately intuitive to everybody, but as I have this call and as I start marketing very, very hard with these changes, I already know that it's attractive to many. And the first point on that, and then it will segue into your second point. The first point is that we have stability, we have liquidity, and we're not going anywhere. So that's first. The fact that we can opportunistically profit and fund from this -- some of this not extraneous, we're not going way outside our strategic competency here with these lands. I mean, our #1 core competency is consolidating a land position, zoning it, permitting it and developing it. So it's not so obvious, but we're extremely competent even with the Silver Springs acquisition, we know everyone in the community. We know everyone in the regulatory and political spectrum. And what they care about and see have happened there. And we're participating and we're going to profit. When that becomes more obvious, I think the balance sheet will go from -- it's moving now from negative to neutral, and it's going to move very quickly to positive very weekly in the next few weeks, if not few months, number one. Number two, when we look then at the land position for the mining, the resources, the zoning, we compare very favorably and we have uniquenesses. In some cases, just being Nevada-based is the plus. In other cases, having the entire district is the plus. When you go further the fact that you've zoned it all and permitted already is an astronomical plus. And then even some of our peers have scratched their head and said, "You guys have even de-risked the metallurgy. You don't have to worry about what your yields are going to be." So we compare substantively very favorably, but I would be remiss if I didn't point out that our resource position is favorable, but we haven't yet delivered the final mine plan and the final reserves. Now even though we're light years ahead of most in that category and I can name 5 or 6 junior miners that are highly favored today that are nowhere near a proximity of reserves that we're...

That's what I'm saying. At this point in time, a lot of stuff is behind you at this point. So going forward, can we point out, can we have that comparison with those 4 or 5 that shows to me and my investors, "Wow, there's a lot of upside if they continue to value these things this way." And if that's the case, I mean, we're not valuing the same way.

Yes, so we will show them immediately as soon -- and it's a great point, I thank you for it. So when we show them immediately why, once there is substance and the potential. But then what we do is we bring the Dayton reserves online through feasibility. We enhance the Lucerne and bring reserves online through facility -- feasibility. Then we add new resources from the Spring Valley. We add new resources from the Occidental, then people are going to be saying, "Holy crap," right? And so but I have to -- but the point is very important that we have to show that, right, we have to show that. And so we're going to do a better job at explaining the geology, a better job at explaining the development and being more precise with the schedule of how we get there. Now in fairness, the schedule is slower than before and that's a missed expectation. But it's stronger. It's stronger because we've de-risked it all, including the balance sheet. So you can look at it as a detriment that were undervalued and you can look at it as opportunity that we're undervalued. I'm hearing a lot of people call and say we think this is an opportunity. And so I think that means better days ahead. And I do think we worked through some of that in April, May and even June, but I agree with you. It's -- we've -- I think we're really starting to see a turn, both in terms of quality and quantity of the volumes that were seeing come through for us.

And we'll take our next question from the line of John Richard, a private investor.

I've been watching your company for years now and I'd like to thank you for the progress and there are exciting times in the gold and silver prices. With that being said, I got a quick question for you. Are you a target for acquisition from any of the other bigger miners?

Okay. Thank you for the question. So I think the answer would obviously be yes. The industry has been in a very brutal rationalization and restructuring mode for almost 3.5, 4 years, seemingly through the end of 2015. And there's been a remarkable shift in sentiment. And most of that rationalization resulted in the majors and intermediates shedding off bad assets, improving cost performance and good assets and being more disciplined in capital. I can tell you, intimately, right now that board rooms across the country in the last 8 weeks have been approving expansions and exploration drilling and development. And they're meaningful. And I can also tell you that we've gotten inquiry and it's meaningful about anything from developing a project together to events that could be change of control, okay? It's very nascent, right? And we have been and continue to be much more focused in developing our asset and improving the value of our asset because we feel overall as a board, we're at the very front-end of this change in sentiment. It's been only 8 months since January and even though a lot's happened, it's miniscule compared to what will be happening as we go forward. So we're bullish on it. We believe our best value comes from our asset growth and on our asset safety. In this industry, the assets being safe, being in a good jurisdiction, be already permitted, being geologically proven out, metallurgically proven out, it's exponentially more critical. So the fact that we have that base, we want to just keep building on it, and then let's see what happens.

Would a buy-out or acquisition accelerate your mine plan, would it make you guys start bringing out gold and silver a lot quicker, do you think?

I think to the extent that you're pacing yourself based on capital resources, the answer is absolutely yes. Yes, to the extent that there's no physical reason you couldn't be drilling Lucerne, drilling Dayton, drilling Spring Valley and drilling Occidental at the same time. But you would need more technical resources and more capital to do it that way.

I'd love to see Newmont Mining buy you guys out, or I'd love to see Barrick Gold as well to say, "Hey, we're taking you over. We're accelerating it." And boom, that'd be amazing.

Yes. Well, there's a lot of multibillion dollar companies that are not Barrick or Newmont. It's quite shocking, right? And they all have the same issue: depleting resources and depleting reserves and diminishing grade. So when you talk about having a high-grade district, that's controlled, permitted and ready to go, and when you're looking at projects that have 8- to 10-year lead times, and then all of a sudden, you're looking at something that has 18- to 30-month lead time, oh, that's a whole different context, right? So I think we're well-positioned to move forward and I think -- I don't think the market fully appreciates it and I think we need to better communicate, to Chip's point, how we fit relative to these others.

My last comment is, I just hope you guys do a better job with updates and marketing. Because I've got investors that go -- they don't see an update for you guys for like a whole month or 2 months and if you, I'm just saying, if you can just do more updates...

Yes, no. It's very constructive and I have to say that after the April call, I shuttered my windows, shut the door and went to work, rolled up our sleeves. That's why we made the announcement June 30 because we have made so much progress. But that's only the beginning. We need to get out. It's not just updating better and more often the existing -- which I commit personally to do, but we're getting a lot of new inquiries, right? So we really got to get to it. So I appreciate the comment and we will absolutely do that.

And we'll take our next question from the line of Jerry Ronan, private investor.

I was wondering if you could tell us the units produced for the fourth quarter, first quarter and second quarter. It seems to me, production is down given that gold price, stock price went up about 10% during the quarter.

Yes, fourth quarter last year versus first quarter this year and second quarter this year?

Yes, sir.

Yes, absolutely. So let me just give you gold equivalent, right, because I just have it right at my fingertips and that simply means we took the silver ounces and translated them into gold. So we did just a hair under 3,000 ounces in the fourth quarter, 2,907 to be exact. We did 2,073 ounces in the first quarter and we did 1,550 in the second quarter. So I had communicated at the fourth quarter that we weren't intending to stack new tons of ore because we were transitioning from a full production scheme to a development scheme in Lucerne's case, to go from the initial open pit mine plan into an underground development. And in Dayton's case, we continue to develop the mine plant for the second mine. So we moved out of production. We actually expected that by now. We would have reached out all the ore that was stacked in 2015. But we're getting remarkable yield, so it's going to continue into the fourth quarter. But the reason for the decline in -- is simply that we're not stacking the ore by intention and we're preparing to develop and bring two lines on line, not one initial one. The stock price has some external factors on it, including the market sentiment, but it also has had some detrimental impact because we initially were hoping to transition Lucerne faster than we did. We've now got a more clearer view of that development plan. That's going to take a little bit longer but we're no less excited about the ultimate potential. So I just think you have a couple of variables. We're certainly not and we certainly shouldn't be tracking per share valuation with production. Because we're not -- we're in a transition out of production and into the next 2 phases of development. Having said that, that's one of Chip's points was that you've got a lot of mining companies and their peer group that never have and are not anywhere near production but are showing much better valuations as they track their development progresses forward. And so we have to do a better job comparing ourselves and showing how we are much further along in most instances than a lot of those peer groups' companies.

Okay. And then can you just briefly touch on how the cost associated with the joint venture are accounted for? Sharing of profits or do you actually pay them and account for those expenses?

Yes. So that's pretty straightforward. So we -- for almost all -- for all intents and purposes, we owner control 100% of the district land positions. In the case of the Northern Comstock joint venture, which is what I assume you are referring to because it's the only one that we have, we don't own fully the land. We fully control it. And we have about 8 years remaining with annual payments of about $800,000 per annum. And those expenses go into the mine claims and cost line item on our P&L. And represent a meaningful portion of those annualized costs. When we get to the end of that payment regimen, we will fully own the land and essentially dissolve the joint venture. So the venture is -- was more a mechanism to efficiently transfer the land while having immediate control rather than, let's say, a joint equity thing.

Okay. I'm sorry, maybe I misspoke, but I was more concerned with the underground shift of the open pit to the underground and in using of the tunneling company.

Oh, yes, yes, yes. Oh, sorry about that. So in that case, really, American Mining & Tunneling has committed to do $5 million worth of development for stock rather than for cash payments and really have enabled a tremendous flexibility for us to work with a partner, if you will, but that partnership is really fundamentally grounded on them being a preferred expert supplier for our underground contracting development and drilling needs, not from an ownership perspective. Certainly, they would get some ownership in the stock that they took but it's not -- that's not meaningful in any strategic sense.

Okay. And then one final because I don't want to consume everybody's time here. We just got the one leaching, so the Occidental on Gold Hill and Dayton will all be connected with Lucerne eventually as those go into production and then the process...

Yes. So the context of the district is that it's kind of 6 miles from north to south, Occidental being further North; spring Valley being further south; Lucerne being right in the middle; and our processing center is really centrally located just east of Lucerne. Ultimately, we have, I think, maximum flexibility in terms of leveraging the central processing facility. That would be always our first preference, yes. I think we have hit the 1-hour point, Valerie. So I know there's still a couple in queue, but I'll have to make it a point to circle back with them. I just really want to keep to our commitment to the 1-hour limit.

Thank you. Ladies and gentlemen, the time allotted for question and answer has come to a close. I would now like to turn the call back to Mr. De Gasperis for closing remarks. Please go ahead.

So I want to thank everybody, first of all, for their patience. I want to express, again, we're nowhere near close to what we need to achieve and we want to achieve, so we're not satisfied even a little bit. We're relieved and we're pleased with progress made both in terms of balance sheet, cost and permitting. But we're going to shift from spending 90% of our time doing that to spending 90% of our time acquiring, exploring, developing and moving our assets into production, so I look forward to more frequent updates. Certainly, we're going to be working all through August and September so you'll be hearing from us frequently. And I'll be on the road catching up with everyone and following up with everyone, and I look forward to our next conference call. Thank you very much.

This concludes today's call. Thank you for your participation. You may now disconnect.