Getting it right at Comstock

Struggling with broken balance sheets and non-progressive management philosophies is part of his DNA, Corrado DeGasperis says.

So when a group of investment bankers in New York approached him four years ago for help with a flailing mining company called Goldspring, which had quietly amassed 2,428 hectares of land in the historic Comstock mining district of Nevada, he was intrigued.

After more than a decade working as a certified public accountant at KPMG and well over another decade in industrial metals including graphite and steel, DeGasperis was looking for a new challenge, and accepted the job as chief executive of the troubled mining company in early 2010.  

The first thing he did was reorganize the management team and present a new business plan to the board. Recapitalizing the company came next, along with a more production-oriented plan and a disciplined exploration and development program. After consolidating its land package in the historic Comstock Lode district, he renamed the company Comstock Mining (LODE-X) and over the course of the next twenty months grew the junior’s total resource footprint from zero to nearly 3 million gold-equivalent ounces. Comstock listed in New York in June 2011 and poured its first gold from the Lucerne mine in September 2012.

The Lucerne mine — about 4.8 km south of Virginia City— is part of what Comstock calls its Lucerne Resource Area, which includes the previously operated Hartford and Billie the Kid open pits, and the historic Justice and Keystone surface cuts and underground mines, including the historic Woodville bonanza. 

DeGasperis says the plan is to get cash flow from initial, smaller scale production at the Lucerne mine, where it has a permit to mine up to 1 million tonnes of ore per year or about 20,000 gold-equivalent oz., while the company does more drilling to expand and develop the resource and apply for an expanded mining permit.

Over the last month the Lucerne pit has produced an average of 300 gold-equivalent ounces per week and hopes to lift that to 400 gold-equivalent ounces per week in the second quarter of the year.

Currently the Lucerne Resource Area, including the producing pit, has measured and indicated resources of 48.57 million tonnes grading 1.01 grams gold per tonne and 9.81 grams silver per tonne for 1.59 million ounces of contained gold and 15.33 million ounces of contained silver. Inferred resources add 23.86 million tonnes averaging 0.72 gram gold and 6.06 grams silver for 552,000 ounces of contained gold and 4.66 million ounces of silver.

Comstock has six other major targets in the district, two of which it has started drilling. The most advanced is Dayton, about 7.2 km south of Virginia City, and the second, Spring Valley, lies about 10 km south of Virginia City.

At Dayton, Comstock has defined a measured and indicated resource of 7.55 million tonnes grading 0.98 gram gold and 7.29 grams silver for 238,000 ounces of contained gold and 1.77 million ounces of contained silver.

There’s plenty of exploration upside in the district, too, he believes. The company’s open pits were initially designed to be mined down to depths of about 60 metres, DeGasperis explains, but historically the Comstock district was mined underground to depths of up to 914 metres.

“We can assume for now that eventually there will be underground mining again but we’ll first be looking to mine surface areas,” he says. 

“The initial ore at Lucerne and Dayton is all near-surface, oxide ore, and it is very conducive to heap leach and open pit mining but we’ve drilled to date to depths of about 1,000 feet (305 metres) at Dayton and about 1,400 feet (426 metres) at Lucerne and we continue to hit mineralization.”

“In the immediate term, going into production, growing the cash flow, and becoming self-sustaining is very rewarding for us,” he continues. “But in the longer term it’s hard not to be even more excited about the exploration upside. It’s the historic Comstock Lode so it has an absolutely tremendous resource potential.”

A total of 33 bonanzas, or large concentrated deposits, were identified by miners during Comstock’s nineteenth century heyday, he says, and there is no reason to believe that more can’t be found.  “It’s remarkably rich geology, so in our mind this thing has a tremendously long runway for millions and millions of ounces of gold and silver.”

Comstock’s US$5 million drill program for 2013 will start in the early summer and focus on drilling out the rest of Dayton in order to create a mine plan that would allow it to start the permitting process. If all goes well it shouldn’t take more than about fifteen months, or until the end of 2014, he says, to permit Dayton.

Meanwhile, once the Lucerne heap-leach operation reaches a steady run rate of 400 gold-equivalent ounces per week, Comstock will restart drilling down-dip and along strike to the north, south and east of the pit and in the East Side and Chute zones, where assays have returned promising intercepts. Highlighted recent results from step-out drilling on the east side of the pit include 36.58 metres grading 1.71 grams gold and 9.16 grams silver in hole 12-05; 10.67 metres of 2.02 grams gold and 19.6 grams silver in hole 12-03; and 3.05 metres of 17.31 grams gold and 15.03 grams silver in hole 12-02.

Comstock is also working on a permit from Nevada’s Bureau of Land Management for a shorter haul route from the mine to its processing plant. If it is successful the new route will save the company about US$3 million annually.

“These guys are really smart, process-oriented guys,” says Mike Niehuser of BeaconRockResearch in Portland, Oregon. “When you look at what they’ve accomplished from the prior company, they’ve done really well. They’ve established a resource, they’ve built a heap leach processing facility which is very classy, they’re working at the BLM to redirect the haulage road to the benefit of the community and shareholders and people who work on the project. There’s value there that is not understood in the market.”

In the fourth quarter Comstock’s metal shipments totaled US$5.4 million, with gold revenues of US$4.5 million and silver revenues of US$0.9 million. (The ratio of silver to gold at the project is about 10:1 and silver is accounted for as a by-product credit for financial reporting purposes.)  

The company has a market capitalization of US$220 million. At presstime in New York, the junior producer was trading at US$2.04 per share within a 52-week range of US$1.59-3.42 per share.