Comstock Inc. (LODE) Q4 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the Comstock Mining 2016 Year End 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, Ron, and good morning everyone. It’s Corrado here, and welcome to our 2016 year end conference call. Last night, we filed our 10-K and I'll provide a brief summary of the information included both in our 10-K from last night and our press release from this morning. 2016 was a difficult year from a number of perspectives and I think I said more than once on past calls that we really have to first protect our line and asset platform, but before we could resume growing it. I'm reporting today that we've not only completed that work, but we strengthened our financial position, improved our liquidity and further consolidated and acquired valuable land. But also beyond that, we've completed a pretty dramatic restructuring of our cost, delivering one of if, not the lowest operating cost infrastructures for a production ready junior miner. We also dramatically reduced first and then refinanced our obligations with an outstanding strategic partner in GF Capital and now have removed and put behind us all of the obstacles that were impeding our growth. It's the clearest path we've had in a long time and we just obviously completed our audit with Deloitte and Touche, again resulting in a clean opinion and a quality yet efficient system of internal control, so all systems are green. I will keep my comments concise and I will be available for Q&A during this one hour call, and certainly for the rest of today and this week, we've been in a blackout period for a little bit longer than extended so I definitely look forward to catching up with all of you. I'm certain that we will address all of your questions, if you don't have a copy of today's release, you can certainly find a copy on our website at www.comstockmining.com under new/press releases, and please also let me remind you that in addition to the outlook conversation that we'll have today, I may also make forward looking statements on this call. Any statement relating to matters that are not historical facts can 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 our company with the SEC and in this morning's release and all forward looking statements made during this call are subject to the same and other risks that we can't identify, okay. I will focus my prepared remarks on our cost structure and what we've accomplished on our balance sheet and what we've accomplished there including the non-mining land sales that are really keyed up for some excellent result and the most importantly resumption you know of our growing and development activities and the outlook associated with what we hope to achieve with those growing activities, most specifically in the day in research area and the feasibility and reserves and production schedules that we like to develop from there, and then we'll turn it to questions. So just first in terms of our cost, our financial statements that we filed last night, the audited financial statement, you're going to see dramatically reduced costs literally in every single category when comparing year on year, especially so in the areas of G&A and all the other fixed overhead costs or fixed costs that we have in the system. From a production perspective we did stop leaching in December and we concluded the Lucerne first phase of mining, yielding an almost remarkable 90% on gold and 60% on silver, those yields are not just remarkable from a company specific perspective they bode extremely well, as we look forward on our feasibilities in Lucerne and Dayton, especially Dayton where in fact the preliminary metallurgical test that we did preproduction actually yielded better than what we expected in Lucerne, which we now know yielded almost 90%. It's not uncommon in Nevada for leaching processes to yield 60%, 70%, in some cases less, so hitting 90% on goal is truly significant. More significantly from the non-mining cost perspective, G&A alone declined over 50%, we had an almost 6 million decline in 2016 as compared to 2015, and more significantly the run rates that were achieved by the end of the year well resulted in 8.2 million reduction when comparing 2017 to 2015. So, just thinking about it from a G&A perspective, I think 2015 we had about 6.8 million, 2016 was 3.5 million, the current run rate is well below 2.5 million closer to 2.3 million. So those changes are completed, they're finished, they're behind us, yet we retained all of our critical team competencies including geology, engineering, metallurgy, environmental, land, financial etc., so we're in very-very lean, but strong shape. Since early 2016, our focus had also been on eliminating our liability. The outcome there has also been significant. We made dramatic reductions in our total obligations throughout 2016 going from about 13.5 million to about 9.5 million. It's more significant when you consider the 9.5 million about 3.2 million that we borrowed for purchasing the industrial properties and water rights and so over spring. Those properties are lone and water rights have evaluation of over $10 million, and we're looking to sell those lands in addition to some of the other properties that we have for debt proceeds of over 40 million, those net proceeds will be tax free, those net proceeds will eliminate our remaining debt profile, and really position us and propel us to grow. We also reduced our bonding obligations during the year by over $4 million, that was because of the completion of certain concurrent reclamation activities and really it's not only saved us money, it not only reduces liabilities, but it bodes extremely well for low to no future obligations when it comes to reclamations in those area. So we're doing that right, and we're doing it more efficiently. Just to spend a couple of minutes on the non-mining land sales and further specifically to the Silver Springs property that I just mentioned that we purchased. Most of you already know this property is in the immediate vicinity of the Tahoe-Reno Industrial Park and the major connecting variable in this whole equation is the new USA Parkway. We anticipate that our Silver Springs property will be certified as shovel ready, it's almost done in that context within the next month, just as these developers are coming into the area and preparing their portfolio for these spring and summer developments. This will be only the second industrial park, so in northern Nevada to have received such a shovel ready certification by the county and the local development authorities, so we're quite well positioned when it comes to immediate access marketability and salability of those lands. I think you guys also know most of you certainly that the industrial park is just nine miles from Reno and the new U.S. Parkway will become the main thoroughfare and crosses right through the heart as this industrial park for about 16 million and very, very soon this August, it will be spending all the way to and through US50, which puts it an immediate proximity of our property and our water rights. The current industrial park resident include, as some people are very familiar with Tesla, but in the Gigafactory, but it also includes Switch and FedEx and Toys "R" Us and Wal-Mart. We understand that Wal-Mart's distribution center there is one of the largest, but Wal-Mart is also actively looking in Silver Springs just reside ready store. So, there is just a tremendous amount of activity that was already begun, battery cell production this year. By 2018, the plan supposed to be at full capacity with continued investments of up to 4 billion to 5 billion through 2022. Less known is Switch, which is the global technology data solution provider. People don’t realize that this data center which I guess that was named to Citadel campus, opened up in February, literally just last month and the facility is the largest most advanced data center in the world. It supposed to be up to 7 million square feet on a 2,000 acre campus. So, there is this whole Silicon Valley like evolution happening here in Northern Nevada and its very, very real. Just recently local media reported and this was the first time we have actually seen in front although the rumors have been circulating for couple of months, that there is an upcoming announcement of the third anchor company, presumably bigger then Tesla and/or Switch that’s committed to the industrial part, but that’s among dozens of other ancillary businesses, hotel, infrastructures that are all being announced that seems now, almost like weekly basis. At a recent ground breaking for the USA Parkway, which again is scheduled to be done by August, Governor Sandoval specifically cited Highway 50 Silver Springs in Lyon County as the huge beneficiaries of the new parkway in this economic development. So just to summarize all that, we have industrial land, we have water rights and we a residential ranch that we're looking to sell, to monetize for excess of $14 million. So, we feel that the exercise of successfully protecting our optionality on our golden silver assets is done. The properties are all, the end to the properties are on titled, the properties all have clean and strong titled. And now with the obligation and the cost structure where they are, we can focus on quickening our work to create real value through gold and silver development in our properties. And really, we’re not just focused on recapturing our disappointing market value, but truly growing it beyond that. And so, with that I’d like to turn to what we're planning this year, which is not only exciting, but to be much funnier than last year. As you all know, the day in resource area is in the South West Area of the compact district South West actually of Silver City, it's in Lyon County and it represents about 0.5 million gold equivalent ounces in our resource statement about a quarter of the million is in the measured and indicated category. And internally, we've now developed economic shales and a preliminary mine plan that curves out about 80,000 to let's say almost a 100,000 in minable reserves, depending on the cut off scenario that we're looking at. Most of the drilling for those ounces fits in the northern Dayton Resource area with tremendous potential for growing the resource at resource as it extends to the south, and that's now only to the southern portion of the Dayton area, but for another mile and half south of that into the Spring Valley. In today's release, we depicted the geophysics associated with the Dayton and Spring Valley to give some sense of the remarkable magnitude of this strike of the grades both gold and silver and the widths that we've already discovered there. The current economic shale even with the lower end of the mineable ounce range shows an average grade of over 0.05 ounces per ton that's 1.75 grams per ton and that compares very, very favorably the Lucerne, which we've been mining from over five years at an average less than 0.03 ounces per ton or slightly less than 1 gram. So, you are talking about 75% to 80% higher grade, much lower strip ratio in our preliminary plan 2.5 to 1 which is excellent, and it cost to produce of less than $600 on ounce for mining. Our preliminary assessment shows the first two years alone, we've generated almost 40 million in cash from that projects and our drill plan targets is doubling of both the resources and the reserves initially just moving into the Southern Dayton and publishing a full feasibility study with economics and time frames over the next two years, which will also include the Permitting that's necessary to come online and then ultimately continuing that drilling into the Spring Valley. This was really all enabled, if you will when in January of 2014, the Lyon County Board of Commissioners unanimously approved, the zoning changes for these Dayton claims and these Dayton properties. Most of you know that, that excellent decision was appealed, but just this past December the Nevada Supreme Court moved in our favor, affirming all three of the District Court's decision associated with our zoning on the property and the ways that it was done. So, these decisions enable us to safely progress our exploration and development plans. We weren’t necessarily precluded from doing it, but certainly now we can do it safely towards full feasibility and production planning. Somebody plans to advance the Dayton Resource to full feasibility as I mentioned with reports throughout the rest of this year and then the production where the mine plan within the next two years. So, were very excited about breaking the ice and moving forward here. In addition to all of that and in conjunction with some of the due diligence that we conducted at the end of last year with GF Capital, in support of our recent financing, we had SRK Denver come into our sets the work that we've done in the Dayton so far including our economic shell, verifying almost 100%, certainly 100% in terms of the bottom line of the profiles that we've engineered and we've design. So the platform and the foundation for what we're starting to do here is solid. We've also now designed and expanded the drilling program based on all of that work and it's going to include some reverse circulation in core drilling holes, so that we can get this resource much and much closer to proving reserves and a mine plan. It's based on the latest reviews of all of this data, all of the geophysical studies and the current interpretations of the geology with great third-party input. We are going to start drilling as soon as it's practical certainly in the second quarter, but it's looking more likely in late April possibly early day depending on some of the weather issues in the coordination, but it's going to get going post dates here, and we feel like we're finally back in the Seattle, when it comes to all of that. If you look at some of the geophysical characteristic and the mineralization that we published in the press release today, especially as it projects out into the Spring Valley there's some remarkably high grades and some incredible widths that we're identifying over a very wide-based long area, that says that the mineralization is there and the potential to infill and grow it is really outstanding. I guess it's probably also worth noting that over the last nine to 12 months, we had multiple overtures from large and intermediate mining companies about joint venturing some of our projects including the Lucerne and the Dayton and the Dayton Spring Valley. Our board has taken all of those approaches very carefully, we're active in discussions, I would say all the discussions are amicable, all the discussions are favorable. Ultimately, it comes down to our assessment of the speed and magnitude of growing equity value and the notions that really we can safely and confidently generate higher better values, either on our own or with a partner. We like having partners, I don't want to give anybody the wrong impression, if they can increase value that would otherwise be difficult for us to accomplish or that it can be done faster and more effectively. We're very open to it, I can tell you the whole board is very open to it, and so I guess the good news is, there's interest, there's conversations, there's engagement, but frankly it's not appropriate for us to talk about it more specifically until these things become definitive, so just wanted to insert that into the conversation. Let me just wrap up with our outlook and then we can move right on to questions. Just really in summary of everything that I've just said, we're going to get really on this progress in terms of selling the non-mining related land, buildings and water rights. We expect proceeds of $14 million. Our cost basis is closer to just under 6. So, we literally represent cash of 14 since it’s sheltered from tax, and profit of more than 8 million, so we're excited about that. We're not certain we can do it all in the next seven-eight-nine months but it’s more than possible, if not likely because everything's heating up with this USA Parkway progress. As I also just mentioned during the second quarter, we'll commence the drilling in Dayton sufficient to finalize the parameters of a mine plan and also commence the permitting. Infill drilling is expected to significantly expand the reserve potential, and we look forward to publishing all that with full feasibility, full production schedule and full plan as we progress through it here in late 2017, and ultimately over the course of the next two years. The Lucerne mine is fully permitted, it requires additional drilling and development for advancing the feasibility in establishing reserve for the next phase of mining, but we're still in the evaluation phase of what's the best way for us to proceed in doing that, but we're still confident about it and we're still liking it. With our restructuring, we now are operating with 10 employees, but covering all of the competencies that I mentioned earlier. Our total operating expenses including the drilling cost that we're looking at, it will be about 3.5 million this year, less than 2.5 million is essentially the infrastructure cost which you know for a public company, for U.S. based junior minor with a fully permitted infrastructure and platform really is in my opinion an outstanding result. We did consolidate all of our debt obligations, so we will have interest expense this year. If there were no pay downs of any of this debt, it would be about 1.25 million. I'm certainly expecting the debt to come down, so I'm expecting that number will be coming down hopefully faster. We'll get on reporting on the Dayton results as they come. And so I look forward to a much more positive flow of progress as it comes to the Dayton plant. I also look forward to being freed up to really communicate our plans, communicate our progress and really get out into the investor market much more actively than the last 12 months, which have been much more difficult. Just to close, I'd like to summarize our position again just one last time. We've an unprecedented land and mineral position, but that's not consolidated, but properly characterized, entitled, permitted, zoned -- on the Comstock we've a solid network of mining competencies and a growing list of partners that -- from technical to financial to strategic is just creating more-and-more opportunities for us; we've the leanest overhead and soon to be debt free balance sheet that allows us to capitalize on these opportunities. It also goes unsaid, but we have this substantial NOL position which enhances our cash flows as we get to those positive production scenarios and a corporate competency for identifying and advancing these developments. So we're looking forward to getting to all that; the bottom line is that we're finally stable after a tough 2016; we've de-risked almost every single aspect of the near term, intermediate and long term prospects for our properties and so now we can just focus on growing the platform. So, let me pause there for questions. Ron, if you're okay we can turn it to the Q&A.

Thank you. [Operator Instructions] We'll now take the first question from the line of John Richard [ph], Private Investor. Please go ahead sir.

My question is, when is your next 43-101 coming out?

So, the timing with our Dayton production schedule, we'd really put at the end of this year. I think that what we're looking to do is not only drill to the magnitude of doubling the resource that we have there, but also establishing formally for the first time reserves. If you're picking up on my earlier comments, 80,000 to 100,000 ounces internally is right across here. If we can double that number to 150,000 to 200,000, we're going to be having a lot fun in terms of proven and probable, but recall that the measured and indicated and inferred resources 0.5 million, so you start to get into seven figures with the 1 million ounces. So, this thing will be really exciting. The timing of that -- it does depend on the success of the drilling and I mean that in a positive way; if it's more successful, we'll continue to do more of it, but there seems to be a very larger cutoff around October-ish in terms of the drill plans that our geologists have laid out, so you can be talking about late this year for the next with 43-101.

We'll now take the next question in queue from the line of Alex Gordon with Gordon Brothers. Please go ahead.

All sounds very good and very nice. We invested in the dollar longer drill that I'd like to remember in gold mine or gold situation. That was supposed to arrive, to eventually to increase proven reserves and to profitability and then just grow. We did increase reserves. We did arrive just about the profitability and then it's just stopped. Now, for a time being where a real estate operation, the news all along during this last years were always wonderful and everything is going wonderfully. So, why should I feel that we’re really going to achieve that and we're already going to start to mine again and leach again and actually be selling gold and silver?

Thank you, Alex. I mean first of all your support has been second to none and I don’t mean that only in the duration, but you've always had some of the most constructed input, not only in terms of how you think that the operation, but also communications to the market. And to answer your question, I think, it's important to acknowledge the disappointment, but the initial intention was to get Lucerne started at that smaller level, prove ourselves and then expand it. And really the hiccup and the disappointment which was about a year ago, was that the transition from the initial surface mining to underground, was more complex more involved. We have a lot of people, who have set the Lucerne including potential joint venture partners who want to develop it. It's very high on the list, in terms of continued development for the next phase of mining, but it proved a little bit more complex involved such that our capital resources made us pause, and hence the restructuring and hence the cleaning up and what we did last year. Have been said that, the Dayton Resource, the Lucerne Resource, the Spring Valley and even the northern properties including the Occidental are now all consolidated, all acquired, all entitled, all zoned; and there is a disappointment that we couldn’t transition seamlessly. But I honest don’t think that it takes away at all, the near term potential that we have and I would like to see two things to that point. One is some of the people who have come and offered to venture with us have made the comment that, most of the development projects that they are looking at and they are good one, seven to ten years from production and that can be within two years is remarkable, relatively speaking. It's disappointing from the expectation that we should be there today and I have to accept that. But it's still relatively very, very strong when you're looking at the landscape of gold and silver mining potential. Secondly, I've had very significant investor said to us, if you put your productions aside just for a minute, which we like off course, you're probably are one of the best exploration potential company. That we see in terms of not just the geology degrade and the expanse of it, 6, 7 miles straight. But the de-risking that has occurred from a zoning permitting and entitlement prospective, so my challenge now which is your direct challenge back to me is how do we convey that we are safely in medium-term in terms of moving into development and production yet explosive. In terms of the exploration potential on an asset that is fully owned and controlled by us which doesn’t mean we wouldn’t partner it just means we have all the flexibility to determine that future and I'd like to I'll get some more feedback it's including some of the land development, but the lands we're focused now to just be mining and to have a strong as balance sheet going into this next phase. So our investor base including you especially you has been long-term and there is a pain with that, that comes with our current valuation but there is also an intimacy that our base really understand what we have and what we're trying to do and I think that's created a tremendous equity foundation. When I look at our top 10 investors, they are all solidly in place and then over the last year we've just strengthened that base as the valuation sucks but the strength of the position is there. So if we can start growing that reporting the direct progress towards these reserves which is exactly your question, when are we going to get there, and it's public and it’s clear I think the equity attraction is going to be very, very strong.

When do you think, we can start producing again?

So, I think that when we looked at it with SRK, which is one of the top mining consultants. We validated that we have a less than two year profile. So to me that means active drilling, active results, active progress towards reserve, production schedule, permits production, so end of 2018 beginning of 2019.

We will now take the next question from the line of Thom Calandra with TCR Network. Please go ahead.

So, I mean I have the same concerns, but I've have been there good times now and I know that there has been a lot of the things going on in the courts and administratively differently counties. Is there a chance here that the Company could become two companies, one commercial real estate and one mining?

So, yes, so let me answer it both ways. So first of all our non-mining assets have now all been put into a subsidiary called Comstock Real Estate, Inc. So, the answer is yes. Because it's already sort of been delineated the beauty of it is as those non-mining assets are not integrated into the mining assets and mining assets are all consolidated and contiguous and the non-mining assets are on the peripheral on the outskirts, on outside of that. So, it's very separable. Secondly, to your point, all of the administrative things be it the long tail that we had with the BLM to get a new dedicated haul road and right away which is a 100% complete. The rezoning and entitlement of the Dayton, which opens the door to this near-term production plan that I just spoke about. I never thought it would go to the Supreme Court, but to go there and be reaffirmed, it's a brick foundation, it's not a sand foundation, and I got to tell you that the most impactful thing to me is the percentage of my time I could say roughly using the 80-20 rule. I am spending 80% of my time you know managing all these things and now they're done. They're done in an irreversible way, right. So, I feel I don't know maybe liberated is the right word to really start you know growing this value rather than protesting it.

Yes, and then the other thing Corrado that's fairly exciting about having that commercial real estate in a separate unit, something that most investors don't realize. You know the SRK, is it just going to be at Dayton or is it going to be across other properties on the mine development, increased resource and so on?

So, it'll be across all the properties including Lucerne, including Occidental. But the near term effort would be to -- so, let me say it differently, when we update to 43-101, you'll get full updates on Lucerne. You'll get full updates on all that's happened over the last three or four years, but what will be I think central and meaningful is the growth of the Dayton Resource, the establishment of Dayton reserves and a straight path to proven and plausible feasibility. And with SRK, SRK really came in with GF Capital because they saw it as really a huge value center, especially in terms of near term development, and they wanted to get a really independent view, and we were thrilled with the outcome. We're essentially reaffirming all the work that we've done so far, I mean that really kicks out a big question mark of us in terms of the first step to this feasibility. The remaining drilling and metallurgical work will get us to the second set and I want to be specific on metallurgy. When we did our column test in 2011 and 2012 even though we were focused on Lucerne, we also did Dayton. The Lucerne averaged about 74% yield for gold. Dayton was higher. Lucerne actually came out closer to 90% full, so we're absolutely thrilled with that. That's usually one of the most certain variable that you'll get even in feasibility and prefeasibility studies is metallurgy, and to have an evidence foundation on such high yield it’s outstanding and SRK looked at that work. We were using 80% in our preliminary estimate. I think they use 84% based on the evidence that was available, so we're being even conservative in that regard.

We'll now take our next question from the line of David Brigham with Brigham Investments. Please go ahead.

Along the line of some previous comments, you've alluded to a number of investors who are interested in joint venturing and so forth. But what's holding things back I guess? What's the principle objection what slows it down from their point of view? And are these countries required the same man disclosure agreements and so forth. I think that one thing that's holding your company back is the low stock price. You just don't have a lot of options there. And would be a good thing, if rather than having a sign confidentiality agreement and standstill agreements let them buy some stock for heaven sake, if they feel like it; let them rumor to their friends that they so choose above the grade opportunity at Comstock, it seems to me -- we're saddled with the lack of visibility, the assumptions everybody makes is that if it's $0.50 stock it can't be worth very much?

So, your comments are very good. So, let me say that in the two principle cases where we're discussing specific possibilities, we do have non-disclosure agreements, I do think it's important that the work is done to a proper conclusion and it's definitive before -- now having said that, I don't think that precludes us from creating much better visibility and frankly we had two overhangs, one were these obligation that we've now really refinanced and then gave us ourselves headroom on, and then secondly the hiccup that I mentioned to Alex Gordon on the Lucerne, really I think did give us a hit in credibility in terms of mine development. So even though we've produced for four years and we ultimately delivered a very low cost profile and we had great metallurgical yields and before we permitted people were expecting -- and I said the expectation frankly of a more seamless transition and when it hiccupped it hurt our credibility having said that the Dayton and Lucerne and some of these partners were very strongly reestablished that, I have no doubt. So, in part we need to explain it to new and potentially new investors and in part we do need to get to it, and I think both are going to happen right here right now in 2017.

We'll now take our next question from the line of James Bell [ph], Private Investor. Please go ahead.

We've been talking about this joint venturing stuff. Is that often doing to the joint venturing on the northern targets to -- coming from production transfer?

Yes, there is. It's been less direct. But there's a series of claims in the northern extensions, the Yellow Jacket and Kentuck, which are just absolutely tremendous high grade targets, and actually the Yellow Jacket was one of the more famous Comstock mines that never got developed because of a sort of catastrophic fire that occurred there and killed some 37 miners, so we loved that one. And then the Occidental which is sort of this evolving parallel trend that the original Comstock Lode is garnering some interest as well. So, I don't think that you're limited, and that was one of my points, if we have a plan that could accelerate Dayton Spring Valley and we've a 100% on our own then you don't need a partner in that context. If there's constraints in resources maybe the Occidental we jump started if there's complexities that may take some more horsepower, maybe a partner helps us get to Lucerne going, so that's really what we're deliberating, it’s the best way to put the pieces of the puzzle but it should -- the opportunities are tremendous, so, up until now, I guess in fairness we were still adding to the land package we were still consolidating and entitling up through and including the Supreme Court. It sounds like an excuse, so I fell bad even saying it, but I feel better saying it’s a 100% done in behind us. So, I really want to be spending my time value creating activities individually or with partners but let's get it moving.

We will now our next question from the line of Harvey Morca [ph], Private Investor. Please go ahead.

Few questions for you. You've gone to a couple of conferences back in September. You went to Precious Metal and then in January went to Vancouver. Can you give us a little insight into what there is anything was yielded from those?

Yes. So, I didn’t make it to the Red Creek for the Precious Metal Conference because we were embroiled in some of the refinancing work and some of the local activities that we had. I did have some proxies there that said that, that it was one of the more robust conferences. It's actually my favorite one to go to because the institutional representation. So, it was quite robust. Vancouver is more of a retail conference and the feedback from Vancouver is guess, positive on two fronts right. One, there isn't really a lot of institutional investor represented, I would say almost none. The traffic from the retail investor was over whelming. I mean it was standing room only everywhere even when I presented at on our company, full room. When the key notes speakers were talking, people were standing in the hallways. And for me personally, I was able to reconnect with a lot of industry players, some peers, some potential partners et cetera. But I did leave there thinking, there has been volatility of interest, but it seems to be consolidating and strengthening. So, our calendar for '17 is robust. Our calendar for '16 was almost zero. So, I look forward to this year.

Our pie chart on the annual report shows like shareholder known as HNW, they own 14%. Who are they?

So, no, it's not. So that stands for high-net-worth individuals, right. So, that just sort of a bucket where we put folks that aren’t professional, they are not necessarily professional money managers or institutions, but they're credited investors.

That's the people falling in today.

Yes, yes.

Another question is Sun Valley, was gold is our third largest holder? And back in February, they disclosed the 4.48% of their holdings. Was there a reason for that?

They disclosed it?

Yes.

Yes. So, I think that, I think it was a routine filing and I think there position didn’t change. So, I think it was may be just an update as filing. They were previously a preferred holder and then it was converted into common, so there may have been some clean up reporting to do. But the good news is there, they been one of our stalwart.

So, they're still strong, they didn’t disclose yet?

No, not at all.

Another comment was that, we're supposed to get up to 100,000 ounces per year production. When do we anticipate that?

The 100,000 target really was reflection of a combination of the Dayton in a 30,000 to 40,000 range, which we're seeing sort of materializing and manifested so very well with our plans that are in front of us. And then the Lucerne which we were looking to contribute let's say that 60,000 range. So, we really need the two in the near term to achieve that kind of level now the Dayton alone the Spring Valley is just a tremendously long potential but we don’t have anything in our immediate plans that would take it would still take a meaningful amount and a step out drilling for the Dayton it would be something bigger than let's say this 35,000 to 40,000 ounce range and it would take the combination of the two. And we don’t have any immediate plans to start drilling and on the Lucerne, so I would characterize it this way. If we had a partner, the Lucerne could accelerate as faster, faster than Dayton quite frankly because it's already permitted. If we were on our own, we would probably be waiting for some of the cash flows that the Dayton would generate to fund the Lucerne, right. So, in that context, you are either saying that Lucerne is also within the next two years similar to Dayton with the partner lying parallel or that was certain then gets prioritized behind the Dayton, which means it would be a much longer preposition three to four years on. So, squarely and across here of what we want to accomplish.

Okay, back to the potential partners in their confidentiality agreement. Are they precluded from being able to buy shares at this time and open last time?

No, it's just information confidentiality. There is no stand at all provisions or anything like that.

So being at to this excellent value that were at I guess I don’t understand why they are not coming and involving up all the systems get?

It's interesting because while I mean I think what you are going to see buying comment and I don’t -- if I look at our target list, it's much more institutional investor money than let's say strategic or partner money. There has been and in particular with one of these people there has been a history of making equity investments in their entire gets that's in the stock. Right, and I think part of the stop was when people were doing that in 2010, 2011 wonderful but then when 2013 and 2014 came around it wasn’t so wonderful and then in prioritizing their capital that really go into the ground. To produce ounces but it's not but having said that there is still plenty of amount there that do invest equity positions, you are seeing it happened or company like gold standard debentures and others are getting partnered that not only contribute to the drilling capital but also take stake. So it's still possible my focus sincerely to this year is targeting institutional investors and I think with the work that we have done now it's a tough sell when you are transitioning from one mode to another when you are restructuring cost and refinancing liability it's not at cost at all, but all rest have began and behind you. So I'm, that's really what I mean about sort of feeling liberated, not only to physically get it out there, but the story is strong.

Okay, last question. When is our Annual Meeting?

I just listen at the Board and I throughout the three days either the third or fourth week of May or the first week of June. Like June, It's the three Thursdays, the third week of May, fourth week away and having all that down within a week or so and then just get it out there, so people can get it on their calendars, it’s going to be good.

We'll now take our next question from the line of Jonathan Way with Wedbush Securities. Please go ahead.

What is your cost to hold that real estate, the commercial stuff?

It's like nil, like property taxes in Northern Nevada sector are almost nothing. So, the only one that had a clearing cost that one was a hotel when we were operating it, but we've leased it over the last two years and it’s cash positive, so I might probably saying that it's zero, but if it's anything $10,000, $15,000, $20,000 thousand.

Why is the $14 million pass through?

Because the characterization of the sale would be ordinary income and we have net operating losses that will fully cover that.

Why is this REIT perception of your so lethal?

I really think it has to do with you know what I was saying you know last March, we said look we're not transitioning quickly into the next stage of production, we're going to need to restructure these liabilities and reduce our cost and frankly 2016 was just pre-occupied with that. It's done and behind us now, and we can get out there and really start updating people and making sure that they really understand the price environment. I think that if there was concern about liabilities that the big overhang, you should have eliminated that now with the refinancing that we just did, but then what are you doing? Are you developing something, are you drilling, are the assets growing are the results coming, and now that we have a clear plan for that I think the story gets very-very interesting and from evaluation perspective it's very-very interesting, so I'm keen to get out there and start getting that traction.

What is your relationship with the Mr. Winfield, currently?

Very good, very good, I think John and I talk, in the beginning it used to be three-four times a week, now it's once every couple weeks but very good.

Would you ever consider have a reverse stock split?

So, that question's come up a couple of times, you know in the context of concerns about delisting, and we don't have any concerns about delisting, you know the New York Stock Exchange actually just modified their rules and we're still in a very-very good place when it comes to all of that, I don't really see us ever being at risk for a delisting. We talked about it at one of the last annual meeting if we would consider it and the answer was if it has some kind of a positive connotation or some kind of a positive marketing or it opened up new markets for us we would consider it. There's no plans or intentions to do it now. The good news for us is that if we were meaning to do it and reverse are authorized in the same proportion as our outstanding we can do it in a matter of days, right, so that that would have no impact on the capital structure and we be protective but we don't really see that as a need going forward but if we needed to we could do it quickly.

I've seen you work with some other companies, Resolute Energy for one, and it worked incredibly well?

So, in conjunction with the good business plan and the conjunction with a good catalyst I think I agree with you. I mean -- I agree, it worked very well. We don't need to do with any kind of defensive context which is probably the good news in the discussion.

We'll now take our next question from the line of Scott Van Den Berg with Century Management. Please go ahead.

This is Arnold Van Den Berg. Two questions. One, you were talking about 2018, 2019 production, how big do you think that production would be? And how much cost you need to get there?

So, the economics shale and the profile that we created for Dayton and which I mentioned earlier, was just about 80,000 to 100,000 ounces to start, but it's like a 36,000 to 37,000 ounce per year scheme. It's less than $600 cost to produce, and in part because of three important variables, good metallurgy yield over 80% estimated, low strip ratio and really-really good grades. I mentioned it, but it's worth repeating that the Dayton economics show as the 0.05 -- greater than 0.05 ounce per ton grade profile. The Lucerne was 0.028. It's a significantly higher grade which then drives much better cost performance.

So, the bottom line is what level of production would you expect in those two years and what would be the cost of actually doing?

35,000 to 40,000 ounces of production per year, cost of $585 per ounce, $590 per ounce, cash flow of about 18 million to 20 million per year.

And how much money would it take before you actually start producing the cash flow?

So, there's about -- and it's a little bit variable about 3 million to 5 million that could go into drilling and permitting and then there's a question of do we want to have a separate facility or use the central facility which even then is only about 10 million to 12 million. So, there's -- the main cost there is really the 3 million to 5 million of drilling and permitting.

So, you're saying that if you spent 3 million to 5 million you would be producing 36 ounces?

If we spent 3 million to 5 million our expectation was that we would grow the magnitude of that reserve, yes it would be 35 ounce to 40 ounce profile, and it would be permitted. So, that's right.

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.

So, I want to thank everyone for their time and attention. I want to let everybody know that I'm available for a follow-up, so please feel free to reach out and then I look forward to not only being out meeting with you and meeting with new investors, but also it won't be very long mid April, when we will be having our first quarter call. I look forward to some very positive update. Thank you everyone.

Ladies and gentleman this concludes today's call. Thank you for your participation. And you may now disconnect your line.