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Rebirth of the Comstock

Bob Moriarty
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Oct 08, 2012

I wrote a piece about Comstock Mining back in June when the shares were going for $2.21. The stock responded with the rest of the junior market and hit a high of $3.42 a month later. It has settled down and was $3 as of last Friday.

The long awaited first Dore pour occurred early in the morning of September 29th at 5:15 AM. I know because I was there at the birth pour. The furnace took longer to warm up than the company expected and as a result it was either be up at zero-dark-early or miss the pour. Actually it was quite exciting. They did two melts: the total of the metal, gold and silver, was 3743 ounces. There were about ten ounces of silver for each ounce of gold.

I note with great pleasure that Comstock is making an effort to maximize the return on their gold and silver. They are creating a limited edition 1 troy ounce bar of the metal from the first Dore bars poured on September 29th. The bars cost only $500 and that may be a hell of a bargain down the road. Comstock intends to produce their own bars and commemorative coins. Why not? They are in the heart of the historic mining Comstock Lode at Virginia City with thousands of visitors passing through daily.

Comstock is aiming at producing about 20,000 ounces of gold equivalent per year. I see them upping the production sooner rather than later. There is a small local contingent of vocal but shrill opponents of mining or anything else that creates high paid jobs. Comstock is taking an approach of easing into production and increasing as they get a handle on the technical issues.

I've never discussed chat boards before but if you are looking for accurate information about any mining company, stay away from the chat boards. They are about as close to a total waste of your time as you can find. People go there to show how big they are by trying to make others feel small. Recently someone sent me a piece written by yet another CHATBOARD GURU. In it he recommended not buying Comstock because in his expert opinion, the old timers somehow managed to mine all the gold and silver and there was no more.

If you ever have a chance to talk to a mining engineer, they will tell you there are two kinds of rock and only two kinds: ore and waste. Waste is everything that is uneconomic and ore is everything that is economic. Obviously the price of the commodity determines if a rock can be mined at a profit or be economic.

There are things that we understand automatically about mining. We have a variety of mining techniques and equipment today that didn't exist yesterday. If you go back to the heyday of the Comstock, the bulk of the 8 million ounces of gold and 200 million ounces of silver were mined between about 1860 and 1890.

Just as an aside, I've always thought of the Comstock as a silver district and indeed Nevada prints "The Silver State" on their license plates. But at a ratio of 17-1, silver was worth three times what it is today in terms of gold. So what was a silver district then is a gold district today.

Since we are far more efficient today, we consider rock "ore" that the Comstock miners would have considered, "waste". The early Comstock miners would have probably needed 8 ounce silver or half ounce gold to even bust a rock. The sub-8 ounce silver "waste" and sub-1/2 ounce gold "waste" is wildly economic today. Given the ratio of rich ore to less rich ore, it's easy to predict that the old timers left far more gold and silver in their waste dumps than they extracted.

While I was in Virginia City I bought an old mining book written in 1889 about mining camps in Nevada, Arizona, and California. I spent a few hours reading up on the Comstock from the point of view of an expert from that time. Much to my great surprise, some of the original claim holders only owned 10 feet of mining claim and still sold them for what would be millions in today's dollars. Compare the value of 10 feet of original claim back then to Comstock's 7 miles of strike length today.

I like Comstock, even at a market cap of over $300 million. This isn't going to be one of those Penny Dreadfuls at $.06 that goes up ten-fold on one drill hole. It's an elephant that moves slowly. But a base has been put under the stock in the way of production. Given the extremely dangerous state of the world today, owning part of a producing gold and silver mine in a relatively safe mining jurisdiction is probably a really good idea.

I am leery of the price of both gold and silver right now. We did have a major correction that ended in Mid-May and had a retest in June/July but nothing goes straight up forever. I'd be a lot more comfortable if gold, silver and the mining shares paused to regain their breath.

Comstock is really in a world of their own. There are investors who are only comfortable in either Canada or the US, even though there are issues with both countries, just less issues than with Peru or Tanzania or Ghana or Equator. But you have a mining history going back 150 years, the surface rock is wildly economic and they have barely scratched the district.

The company has drilled over 300 holes and 40,000 meters and had mineralization in all but one. They don't need to find gold and silver, that was done 150 years ago. All they need to do is extract it at a profit.

Comstock is coming out with an updated 43-101 resource in December. It will do nothing but confirm what we already know. There is a lot of gold and silver left in the Comstock.

It's unclear to me from their financials just how they stand on cash. They have entered into two lines of credit. One for yellow gear and the other for gold and silver. Cash flow has started and I anticipate in excess of $36 million flowing through the company in the next year.

I do see them making one big mistake and I hope they spend some time discussing it. When you start mining an oxide surface deposit, you have two choices of how to process. You can use a heap leach pad if the ore is suitable or you can use a mill. The heap leach pad has the advantage of lower costs but the mill and flotation has the advantage of higher recoveries.

It would take someone far more technical than I am to express it perfectly but basically the higher grade ore you have, the bigger the case for putting in a mill and flotation or cyanide processing. At some point they are going to be leaving a lot of gold and silver on the pad that could have been recovered. It's a grade issue and some of their ore is pretty high grade. As they go deeper, it will be more and more of an issue.

I've visited the project three times already. I like the project and the people. John Winfield and Corrado De Gasperis have put together a brilliant technical team. They have a resource, they are mining, they are producing cash flow and things should get a lot better. The time leading up to the first pour was stressful for everyone but the baby popped out on September 29th and the Comstock has been reborn.

Comstock is an advertiser and as such, I am biased. I think the shares will be rewarding to shareholders and this will be one of the big stories of mining over the next few years.

I would like to encourage all the fools on the chat boards to stop whining about pumping and dumping. They believe people do that because that's what they would do if they had the chance. It's far more of a commentary on their lack of ethics than anyone they are saying is doing a pump and dump. The TSX and SEC monitor every single trade and if someone wants to pump and dump, the shares will be promptly halted. It's never happened with any company I wrote up.

Take some minor responsibility for your own actions and do your own due diligence.

Comstock Mining Inc
LODE-NYSE-Amex $3.00 (Oct 05, 2012)
39.5 million shares 102.5 fully diluted
Comstock website
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Bob Moriarty
President: 321gold
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