VIRGINIA CITY, Nevada -- Comstock Mining is, well, on the lode.
Comstock carries the LODE ticker in the U.S. market. The company (OTC:BB: LODE, Stock Forum) just consolidated most of the mineralized property in Nevada’s historic Comstock Lode District, just south of Virginia City and 25 miles from the city of Reno.
Comstock recapitalized via a financing transaction in late 2010, yielding about $32 million of capital and eliminating debt. The transaction appears to have benefited participants in the complex transaction, as well as given existing common shareholders higher-priced equity. Time will tell how lasting the benefits are.
Comstock Mining has done what most industry observers thought difficult: consolidated claims from some 6,500 acres of property at the “Comstock Lode.”
During the late 1800s, the Comstock district produced more than eight million ounces of gold and nearly 200 million ounces of silver. Activity in the area stopped in the early 1900s after a series of negative political and economic events. The landscape in what is known as The Silver State was exacerbated by the legal wrangling of roughly 400 companies staking claims on what was a three-mile long, bonanza-rich tract of land.
In 1862, a young writer, Samuel Clemens, moved to Virginia City, the boozy, bustling and brawling capital of the silver and gold rush. At that time started signing his columns “Mark Twain.” He rather unsuccessfully tried his hand at mining, but his writings on the subject remain a valuable and integral part of the area’s history.
Mining ceased in the early 1900s and the district was nearly dormant for decades, the only remnants of its glorious past being the historically preserved towns of Virginia City and Gold Hill, as well as dozens of decayed mine workings. The Comstock silver and gold rush was so powerful, 
and so gripping in the minds of Americans and foreigners alike, that in many ways it took on a mysterious, if not mythic status. Many people, even in the mining industry, remain incredulous about the massive wealth extracted in such a short period of time. The silver jump-started many a fortune, including that of the Sutro and Hearst families.
Comstock Mining’s lead investor, 40 percent shareholder John Winfield, was first introduced to Stockhouse.com viewers after Thom Calandra’s tour of the properties. That was in August 2010, but in terms of stock price, it seems like a decade ago. See:Thom’s coverage via Stockhouse and Ticker Trax.
Mr. Winfield, a Los Angeles businessman, had a decidedly contrarian vision nearly a decade ago: that by consolidating the dozens of adjoining land positions in the Comstock district, he could one day enable the whole to be greater than the sum of its disparate parts. Acquiring 6,500 acres of land took nearly eight years to accomplish for Mr. Winfield, a charismatic, 60-something property developer and value-oriented investor. Cheap gold and silver prices and weak precious metals sentiment initially made the task easier, but the minefield of property debts and legal entanglements made it as much a labor of love as a commercial venture.
His goal was multi-faceted: to revitalize the Comstock’s commercial mining business, preserve its unique, historic culture, and support the protection of nature, particularly endangered wild mustangs.
Winfield’s gambit might be starting to pay off. In the Virginia Range of high desert mountains, Comstock Mining’s property spans as far as the eye can see, covering more than 90 percent of the known mineralized land in the district, as well as numerous, adjacent property blocks. Driving across the property, one can see myriad remnants of the historic work of “old timer” mining from picks, shovels and century-old technology.
It is common to see large quartz “swarm” veins in the surface rocks aside the road, following the Comstock trend from its Northern Extension (where the majority of historic mining occurred) to the Spring Valley region at its southernmost tip, now estimated to be nearly seven miles away.
In the past 12 months, Comstock Mining has completed roughly 25,000 meters of exploration and delineation drilling, at an astounding mineralization hit rate of roughly 95 percent, generally at grades of between one and 10 grams per tonne.
Most of the historical resources occur at shallow depths no more than 170 meters below the surface, particularly in the Lucerne and Dayton areas where the current drilling program is focused. Except in the Northern-most part of the property, where the majority of old timer mining occurred, nearly all the historical workings were at shallow depths. Company management believes the shallow areas may house just a portion of the entire Comstock resource, and initial forays to depth have been quite promising thus far.
The company is fully funded to complete another 30,000 meters or so of drilling the next 24 months in a quest to triple its NI 43-101 compliant measured and indicated resources from a current 1.1 million gold equivalent ounces (excluding 500,000 ounces of inferred and historical resources) to at least 3.25 million ounces.
In the current drilling program, anticipated to be completed around mid-year, Comstock is operating three Reverse Circulation (R/C) drill rigs and two Core drill rigs. We saw one R/C rig actively drilling in the Hartford/Lucerne resource area, and another preparing to drill imminently on the East-side of the Lucerne. Comstock is also preparing to commence production in the latter part of 2011, targeting an annual run rate of roughly 20,000 gold equivalent ounces by year-end (with the ratio of silver to gold ounces running as high as 18:1), and 25,000 ounces in 2012.
Nearly all the permitting, metallurgy, and engineering is complete, and the ore refining process is “off the shelf.” In other words, it has been repeated dozens of times by gold mining companies throughout history. Operating costs, the company insists, could rank among the industry’s lowest, although management declines to make hard-cost forecasts at this time.
“All due respect to our closest miner in these parts, Allied Nevada,” Mr. Winfield told Thom Calandra back in August, “but we think we have grades in many of our belts that are four times theirs – and we are doing all oxides to their higher-cost sulfides.” Mr. Calandra of Ticker Trax and Stockhouse says he intended to purchase Comstock shares after his August tour and September reports to investors “but the stock bolted; I think this was in part an anticipated melt-up in silver prices.” Thom never got in, and the over-the-counter stock rose above US$4 from about $1.40 in early September. It’s now back in the low $3’s.
I viewed the site where Comstock Mining initially ran a test-mine facility from 2004-2006, which produced roughly 50,000 ounces of silver and 12,000 ounces of gold in a successful attempt to demonstrate the viability of the ore refining process. Additionally, we saw some of the equipment that will be utilized at the Phase I “Starter Mine” at American Flats, which incidentally lies a few hundred yards from the company’s headquarters, the same location Howard Hughes operated from in the early 1900s.
What struck us was the vast size of the land position, essentially a major real estate roll-up operation. At a boardroom/onsite tutorial by the company’s Chief Geologist, Larry Martin, we saw that Comstock’s drill results stem from structural knowledge gathered from decades of drilling and geologic data. The company says it has the largest known geological database of the Comstock district, enabling it to generate an advanced geological model.
More than a century ago, old timers used primitive mining methods and faced physical constraints on their operations from the claim, and subsequently information, fragmentation in the district. They simply did not have the benefit of an industry-wide geologic picture, which Comstock Mining says it has. In the late 1800s, for example, just one geologic fault – the Silver City fault – ran through the central part of the district. Or did it? It is now believed there are FOUR northwest faults running through the middle of the district, and numerous intersecting northeast faults as well. At the easternmost section of the trend, it appears that an additional, large-scale northwest fault exists – the Occidental Fault – with potentially the same potential as the Comstock trend itself.
The company’s CEO, Corrado De Gasperis, and his team of geologists and engineers envision producing from multiple mines, with Dayton appearing to be the next potential mine site, followed by the Spring Valley region to the South and/or the Occidental to the East.
Disclosure: Andy Hoffman works for San Diego Torrey Hills Capital. The reader should verify all claims and complete his or her own due diligence before investing in any securities of profiled companies. San Diego Torrey Hills Capital has been retained to provide investor relations services for some of the companies mentioned in this profile/post and receives compensation for those services. San Diego Torrey Hills Capital/BabyBulls.com has the following compensation arrangements with the companies profiled in this Travel Dispatch: Comstock Mining Inc. six thousand five hundred dollars per month and options to purchase three hundred thousand shares of common stock at a strike price of $3.50. Further, San Diego Torrey Hills Capital and its employees and affiliates may own, or may purchase and sell, securities of the companies profiled. San Diego Torrey Hills Capital undertakes no obligation to inform readers about the ownership or trading activities of it or its employees or affiliates in the securities of the profiled companies. Neither San Diego Torrey Hills Capital nor anyone involved in the publication of this email is a registered investment adviser or broker/dealer. San Diego Torrey Hills Capital makes no recommendation that the purchase of securities of companies mentioned in this email is suitable or advisable for any person or that an investment in such securities will be profitable. In general, given the nature of the companies profiled and the lack of an active trading market for their securities, investing in such securities is highly speculative and carries a high degree of risk. An investor in such securities should be prepared and able to bear a loss of his or her entire investment. Nothing in this email should be construed as an offer or solicitation to buy or sell any securities of any profiled company.