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Gold at $6 an ounce

Bob Moriarty
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Jun 29, 2012

I went out to Reno, rented a car and drove down to see the nice folks at Comstock Mining in Virginia City recently. The company was holding their annual meeting and decided to hold a mining tour for interested shareholders the day before.

Company President Corrado De Gasperis briefed us before the tour. One thing he said stuck out. He claimed that they could drill and find a gold equivalent ounce for about $6. When I got home, I sent him an email and insisted he showed me how he came up with that number.

He lied. It doesn’t cost them that much to find an ounce of gold. According to his numbers, they increased the Measured and Indicated ounces by 720,000 with a drill program that cost $4.3 million. Those numbers work out to $5.97 per gold equivalent ounce. But you really do need to include internal costs, geological and resource modeling staff costs and that adds about $1 million to the $4.3 million so now your cost of discovering a gold equivalent ounce increases to $7.36,

But if you are going to do that, you also should allow the inclusion of the 610,000 gold equivalent ounces in the inferred category and that brings you to a final price of $3.98.

That’s about the lowest cost of adding an ounce I know of. When you take into account their 98% hit rate on mineralization and figure in a cost of $4 an ounce to add ounces, LODE starts looking pretty attractive. I know that, I wrote about it in 2010.

The Comstock played a giant role in American history. Discovered in 1857, it is considered a silver discovery but in fact, for most of the last 150 years, it produced more value in gold than in silver. The Comstock produced 192 million ounces of silver and 8.2 million ounces of gold.

John Winfield began putting together what is now Comstock Mining almost 9 years ago. His intention has always been to go into production. John is a very bright guy and he’s quite willing to hire very bright people. He has put together a very impressive team.

The company will be in production shortly. Initial plans are to produce at a small-scale rate of 20,000 ounces gold equivalent a year. The market ignores companies producing at that scale but you should not. I wasn’t kidding when I said John Winfield hires bright people. They intend to start small and comfortable and scale up over a couple of years to 100,000 ounces.

Virginia City is one of the most developed tourist areas in all of Nevada. While not powerful, there is a small vocal minority of people squawking at the idea of an open pit mine so near the town. That in itself is pretty surprising. I rented a car when I arrived in Reno and stayed at one of the big casinos. Virginia City is a nice 45-minute drive from Reno.

Reno is your garden-variety disaster. The number of closed businesses, restaurants and shops is pretty scary. We are in a depression and in Nevada it shows. Unemployment stands at 11.5% officially; it’s twice that if you measure those who have dropped off the government numbers. Nevada needs jobs and Nevada needs employment.

Comstock plans on putting ore on the pad in July and pouring their first Dore bar in the next 60 days or so. The rate they are aiming for is an annual rate of 20,000 gold equivalent ounces but I don’t think they will make it. The company has a fetish about understating results and I think the grade will be higher than they are admitting. As bugs get worked out of the system and local opposition realizes jobs are a good thing, not a bad thing, Comstock will ramp up production.

Comstock shares aren’t being given away the way Rio Alto shares were being given away at $.44. They are almost $4 now. They went into production and those astute investors who got it had their hands on a ten bagger.

You could buy any piece of crap gold stock right now and have an excellent chance of it increasing in value. But if you want to buy dollar bills for pennies, focus on the underpriced and unloved companies about to go into production.

LODE has excellent management, brilliant properties with a 98% success rate on drilling, almost 4 million ounces of gold equivalent in all categories and is going into production in the next month.

It doesn’t get any better than that.

Comstock is an advertiser. We are biased. Take some responsibility for your own investment decisions. The company is happy to tell their story to those who communicate with them.

Comstock Mining Inc
LODE-NYSE-Amex $2.21 (Jun 28, 2012)
39.5 million shares 102.5 fully diluted
Comstock website

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Bob Moriarty
President: 321gold
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