Q2 2024 Comstock Inc Earnings Call
Speaker Change: Thank you for watching.
Trevor Bucrato: the Maze, Corrado Gasperis, Fortunato Villamagna, Matt Liteplo, Trevor Brucato,
Michael Lindelof: and Michael Lindelof.
Michael Lindelof: [inaudible]
Speaker Change: Subs by www.zeoranger.co.uk
Trevor Brucato: Ladies and gentlemen, welcome to Comstock's second quarter 2024 results and business update. This is Trevor Brucato with RB Milestone Group, Comstock's U.S.-based investor relations firm.
Speaker Change: Comstock is listed on the NYSE American under the symbol LODE. Joining us today is the company's Executive Chairman and CEO Corrado de Gasperis and its COO William McCarthy.
Speaker Change: At the end of the prepared remarks, we'll be opening up to Q&A. We've received questions from registration, most of which have been addressed by today's announcements, but if any new questions surface throughout the presentation, please submit them in the Zoom Q&A module.
Speaker Change: and then we'll do our best to address them all.
Speaker Change: In the next day or so, we'll be opening up the surveying for Comstock's Q3 Stakeholder Perception Analysis Report. The final report will include trends on Comstock's perceived strengths, weaknesses, and milestones, and will be published shortly after the end of the quarter, ending in September .
Speaker Change: Your participation will be much appreciated as it will help strengthen Comstock's investor communications efforts, especially with all the recent accomplishments, and help guide the focus of our upcoming events.
Speaker Change: Please note today's presentation may contain forward-looking statements that are subject to risks and uncertainties.
Speaker Change: that may be out of Comstock's control and should not be construed as a recommendation or a solicitation to buy or sell any security. For Comstock's full disclaimer, please visit their website at Comstock.inc.
Speaker Change: Also, this presentation is being recorded today, August 8, 2024, and will be made available on the company's website.
Speaker Change: Lastly, RV Milestone is not a registered investment advisor or broker dealer. For more information on us, please visit rvmilestone.com. And now it is my pleasure to turn it over to Comstock Executive Chair and CEO , Corrado de Gasperis. Corrado, the stage is yours.
Speaker Change: Thanks, Trevor.
Speaker Change: [inaudible]
Speaker Change: Dr. Johnson, Unknown Executive,
Speaker Change: And hello everyone, and welcome to our second quarter update. I'm sure you're going to like the substance of our update today, as we've made tremendous amount of progress in all three of our businesses and at corporate.
Speaker Change: Plus our strategic investments have really advanced their causes too. So there's quite a bit to update everybody on.
Speaker Change: We're going to ensure sufficient time for the Q&A session as well, so you have time to answer as many questions as possible.
Speaker Change: Let me start off by congratulating both Leon Ferrant and the Green Line team and Deep Prasad and the GEMMAT team for achieving the all-important milestone of commercial success in their respective companies.
Speaker Change: As you may have read, GreenLine commissioned its first commercial battery remanufacturing operation in Atoka, Oklahoma.
Speaker Change: where I recently attended the ribbon cutting along with Leon and a contingent of Oklahoma VIPs, including their governor, Kevin Stitt, as well as quite a few Green Line's existing suppliers and potential customers.
Speaker Change: The Greenline system makes precursor cathode active materials, also known as PCABs.
Speaker Change: as well as lithium carbonate from fully recycled batteries.
Speaker Change: And we are certainly not aware of anyone doing that effectively in the market yet today.
Speaker Change: So the Atoka operation will prove Green Line's full technical and economic feasibility, and we understand that the resulting materials from their operations so far are showing extremely encouraging and very high battery-grade purities.
Speaker Change: So it does really seem to be coming all together for GreenLion, very pleased with that.
Speaker Change: Turning to GENMAT, as most of you already know, last year GENMAT developed and deployed its proprietary imaging satellite, the GENMAT-1, into orbit.
Speaker Change: In that process, they also had to develop encryption software for security and ultimately they had to develop an entire mission control software system for managing their own operations.
Speaker Change: What you might learn during this process is that their entire that the this entire space industry is so nice and so fragmented that they really had to develop a lot of the satellite and supporting systems by themselves.
Speaker Change: which, by the way, is also one of the reasons why everything is taking so much longer than originally anticipated. But remarkably, now, the industry is asking if it can leverage Genmat's proprietary infrastructure for their needs.
Speaker Change: Accordingly, I'm like, I'm just genuinely thrilled to report that GenMat just announced its first commercial customer agreement. It's very big, a very important milestone with Geometric Energy Corporation for managing the assembly, launch, deployment, and the ongoing operations management of two new satellites.
Speaker Change: in addition to their own.
Speaker Change: what effectively will be a fully managed orbiting, I guess, constellation of satellites.
Speaker Change: These new customer satellites, one is called Astentis-1 and the other is called Noclip.
Speaker Change: We'll also generate additional recurring revenues for GenMat once they're successfully deployed and operating.
Speaker Change: Jiment now plans on adding more satellite customers to this emerging line of business and leveraging his proprietary mission control, proprietary remote sensing, and proprietary material science technology and all the supporting expertise around all of those things
Speaker Change: to enable this rapidly growing segment of the space economy.
Speaker Change: So, from my perspective, it's a huge congratulations to both teams, and it's extremely gratifying for us here at Comstock to see these milestones achieved, and as importantly, what they imply for the future growth of these two companies and our investments in them.
Speaker Change: Starting up a new co, especially one with brand new tech, is not easy. It's not easy at all, so we're going to give big kudos to Deep and Leon and their teams.
Speaker Change: Okay, so just considering the breadth of the press releases from both this morning and this afternoon, including the sale of our not the announcement on the sale of our non mining assets, and the investments directly into our three businesses.
Speaker Change: I'm going to jump right into the overview of the entire $325 million that we announced this morning, while also updating you on each business as I go along. So let me start with the asset sales of $50 million. Then I'll move to discuss the $275 million of direct investments into our three subs and the corporation.
Speaker Change: First, let me clarify that all the amounts that I'm referencing on this call are going to be in gross dollars, even though the ultimate proceeds will be net of some transaction fees, and we expect those to be about 3% or more, depending on which tranche of capital we're talking about.
Speaker Change: Speaking of net proceeds, though, we do not expect any material tax leakage from any of these transactions, primarily due to our existing NOLs, and we'll always work as smart as possible, as well as possible, to optimize our tax assets.
Speaker Change: So again, I'm referencing gross numbers just to keep it simple and clear as possible. I'm truly gratified to announce that we have secured a term sheet working with a U.S.-based, globally positioned private equity group led by SBC Commerce LLC.
Speaker Change: SVC represents significant capital.
Speaker Change: that we have validated and it works and runs a global network of private equity professionals and funds.
Speaker Change: We worked very hard to diligence, validate and structure this capital to ensure execution and minimize dilution while maximizing the value for all of our shareholders.
Speaker Change: There's a number of ways we could have gone with this. But we spent a lot of time thinking about what unlocked the most value and what advanced business in the most expedient way. And I'm absolutely thrilled with the progress. And I'm absolutely dedicated to the outcome.
Speaker Change: SBC also has expertise across a number of industry sectors especially in oil and gas and biofuels.
Speaker Change: But all this started over a year ago.
Speaker Change: with discussions directly around our properties in Silver Springs and the Sierra Springs Opportunity Zone Fund, also known generally in our circles as SSOF.
Speaker Change: with their main principal, Lori Sosa, and some of her associates at SBC's Off-Market Real Estate Group.
Speaker Change: They truly have deep expertise in arranging the development of not-so-ordinary real estate and major real estate development projects, which is exactly what our properties and positions in Silver Springs represent.
Speaker Change: We've conducted extensive due diligence on SBC Commerce over the past several months.
Speaker Change: There are specific funding sources for SBC's investment in our business. I've met with the principals and directly engaged those funding sources and interacted with them directly and extensively during this whole process.
Speaker Change: I personally believe we have found
Speaker Change: a long-term capital partner that will transcend this transaction for many years to come.
Speaker Change: So, accordingly,
Speaker Change: This week, we signed a term sheet for selling Comstock's non-mining land in Silver Springs. That's our 98 acres of industrial land, and that's our 160 acres of commercial land, plus certain associated water rights for $50 million.
Speaker Change: We expect to recognize a gain of about $40 million on this transactional loan. And again, with our existing NOLs and some tax planning, expect that this gain will be well covered in terms of us not incurring, not paying any cash taxes.
Speaker Change: These proceeds will extinguish all of our debt, as well as certain other obligations, and mostly be available to ensure that we're funded for all of our corporate development activities without having to sell more stock.
Speaker Change: The agreement contemplates a $5 million non-refundable deposit on the land, and that's expected within two weeks or sooner, and we look to close that transaction within 60 to 75 days.
Speaker Change: Before turning to the businesses, let me just address the liquidity and dilution head on. As I just said,
Speaker Change: We peened in how we structured these transactions. We were being lobbied to do leveraged buyouts, and we weren't interested in that.
Speaker Change: We were interested in doing what maximized the value, what maximized the speed of the creation of new value, and what minimized the dilution.
Speaker Change: Between certain other minor asset sales and the $3 million in equity by SBC Direct Leans Corporation, our cash position is stable.
Speaker Change: But it's about to become very robust.
Speaker Change: While our outstanding shares are now over 175 million, the SBC equity placement will bring that number to about 183 million. And depending on where the converts end up, we're likely to finish right around or a little bit over 200 million shares.
Speaker Change: Frankly, our business plans have always supported the goal of creating multi-billions of dollars in value. And now we're starting to get a little bit of a sneak peek.
Speaker Change: of the reality of that. And I'll break it down by business for each one of them in just a few minutes. But a $200 million, 200 million share flow.
Speaker Change: Starting with about a half a billion dollars evaluation is a solid starting capital base for us and supports our efforts for attracting more institutional investors and providing and ensuring liquidity for those who require it.
Speaker Change: Let me turn to the other $275 million now in investments.
Speaker Change: And again, one of the most meaningful aspects of this work.
Speaker Change: of these commitments.
Speaker Change: of what we were able to negotiate and agree on were the business valuations.
Speaker Change: Pre-money valuation is negotiated for just our three businesses alone.
Speaker Change: totaled just under half a billion dollars.
Speaker Change: And I must say, represents a very strong outcome because it recognizes real value for existing investors today in the form of cash.
Speaker Change: and capitalizes our ability to deliver and exponentially grow that value.
Speaker Change: so that we can deliver remarkable future returns for all of our existing and new shareholders. Let's break the numbers down one at a time. Let's start with Comstock Metals. And as I said, I'm going to give you a little update for each business. There's a lot of update here.
Speaker Change: So metals, mining, fuels. Starting with metals. This is our recycling business.
Speaker Change: where we just proved we can recover and reuse 100% of the solar panel materials recycled, including surprisingly, joyfully, very high grades of silver.
Speaker Change: We've agreed to issue 20% of the equity from our recycling subsidiary, Comstock Metals Corporation, to SBC for $22 million.
Speaker Change: This reflects a pre-money valuation of $88 million, or $110 million post-money.
Speaker Change: That commitment alone enables us to accelerate the site selection and deployment of three industry-scale facilities.
Speaker Change: right along the California and Arizona borders and ensures that we fortify our early mover advantage and positions ourselves to capture the majority of these projected end-of-life panels over the next five years.
Speaker Change: Each one of our facilities can handle 100,000 tons of primarily industrial-use panels. And these panels, unlike the smaller ones used in residential applications, tend to weigh about 60 pounds each.
Speaker Change: That means that 100,000 tons per year, one facility alone.
Speaker Change: can handle 3.3 million panels per year in a market projecting to be 10 times that size by 2030.
Speaker Change: This recycling system was designed for scale. This is Fortunato's baby, designed for scale. And I really don't believe there's anything like it in the market today.
Speaker Change: Our system is designed to process one panel in less than eight seconds.
Speaker Change: That's over seven panels a minute.
Speaker Change: And with almost 450,000 minutes in a 300-day year, that's over 3.3 million panels a year. And remarkably,
Speaker Change: as big as that number is.
Speaker Change: That only equates to about 20 trucks a day.
Speaker Change: So logistically, it's easily manageable for such a big machine with room for even more capacity. And that's why we keep referring to these things as industry scale, we don't see anybody else.
Speaker Change: out there that has the ability to ramp up the way that we're about to.
Speaker Change: As the end-of-life waste materializes and makes this new market, we can add even more capacity to the existing network of facilities.
Speaker Change: The plan on funding metals is really going to be in two tranches, with the first 10 million planned this month. That'll allow us to initiate all the remaining activities around the buildout of our first industry-scale facility, and the remaining 12 million within 90 days, which will fund the acceleration of site selections, permits, and buildouts.
Speaker Change: of facility number two and facility number three.
Speaker Change: Look, we discussed the metals business plan and financial model many months ago, but just to repeat it, we see annual revenues increasing to $150 million within four years.
Speaker Change: cash profit margins of more than 80%.
Speaker Change: and an NPV of about a quarter of a billion dollars. And that's just three facilities. That's just three sites. That's a minority market share, less than 30% based on where we see the market going, and no perpetuity assumptions. In other words, we just cut it off and said, how much money can we make?
Speaker Change: It's truly robust, and we'll most certainly do better. But it's a remarkable thing that we've established here. And I guess it's also important to add that we did record revenue this quarter. And we did as of last week. No, as of this week.
Speaker Change: Ship our first reusable materials out the door. I posted the I posted the pictures on Twitter today
Speaker Change: So both revenue on the front end and revenue on the back end.
Speaker Change: which is truly outstanding and it's all happening today. Genman announces its first customer, Greenline commissions its first machine.
Speaker Change: And it's producing high purity materials, no less. And our very own recycling business is now receiving and shipping from an entirely new supply chain.
Speaker Change: Alright, so let me move on to mining, and then I'm going to cover fuels.
Speaker Change: for Mining.
Speaker Change: We have separately advanced our monetization plans for the northern part of the district, primarily in Story County.
Speaker Change: including those northern targets that are currently under lease. To be clear, we've been trying to sell those assets because the southern part of the district has emerged as a much more production ready
Speaker Change: Gold and Silver Resource. And with an updated mine plan at $2,300 gold, I know we're at like $2,425 today, up $40 today, but at $2,300 gold, our day in resource presents almost a quarter of a billion dollars.
Speaker Change: of pre-tax net cash flow over a six-year mine life.
Speaker Change: and that discounts to over $100 million in net present value. People are wondering how I was able to get these capital commitments.
Speaker Change: It's the substance of the business plan that we've been working our asses off to pull together.
Speaker Change: These updated plans, and yeah, with a little friendly help from the gold and silver prices in this case, enabled us to secure $50 million in commitments for 40% of these mining interests.
Speaker Change: That will allow us to expand the resource, acquire some incremental land in and around the property, finalize a mine plan, deploy infrastructure, and within four years...
Speaker Change: Deliver an incredibly valuable, as I said, six-year mine life that generates about $250,000 in net cash flows. And that net cash flow is after all the investment, capital, etc., to build out that mine and get it up and running. And it also presents an opportunity.
Speaker Change: to design a reclamation and restoration plan that could leave the community in Comstock with an incredibly valuable series of sustainable property developments. We still have more work to do on this part. It wasn't even relevant to getting the capital commitment.
Speaker Change: But this part could actually double the value of everything we're doing.
Speaker Change: especially when we think about what's happening with property values all across northern Nevada. So look, we've always been bullish on gold and silver, and we're absolutely thrilled that these commitments can enable our plans now.
Speaker Change: The 40% represents a $75 million pre-money valuation and a $125 million post-money valuation.
Speaker Change: So an incredible deal indeed for all of our shareholders.
Speaker Change: [inaudible]
Speaker Change: Last, and certainly not least, possibly most, let's wrap up my prepared remarks before we go to Q&A with our fuels business.
Speaker Change: We've advanced our discussion with strategic partners and our ongoing due diligence and our ongoing trials and our resulting oil samples that we've been sending out to our customers. They've been shipped, they're being analyzed, and it's really to great effect.
Speaker Change: Great effect in terms of what our customers are appreciating and how far they're advancing their work and what they get and what they see and what they like.
Speaker Change: but also...
Speaker Change: in terms of our extended trials, our extended work ended up
Speaker Change: resulting in much, much higher yields than we even originally communicated as 100 gasoline gallon equivalents. This was our hope all along, of course, but it's always great when you can get that validation and get that outcome.
Speaker Change: But we finalized the full business and financial plan based on a hundred gasoline gallon equivalents, and that plan includes building a profitable, commercial-scale demonstration facility.
Speaker Change: It's going to be sized for 50,000 dry tons of woody biomass per year. That only produced about 5 million gasoline gallon equivalents per year, but then that enables us.
Speaker Change: just like we did with metals.
Speaker Change: to move forward and build three more industry-scale facilities and finance those facilities. A big part of lining up a capital partner wasn't $325 million. It was ensuring that we had the capital resources behind us when we're deploying industry-scale facilities.
Speaker Change: and industry-scale facilities, in this case,
Speaker Change: is up to 1 million dry tons of woody mass per year. That's over 100 plus million gasoline gallon equivalents of fuel per year from one facility.
Speaker Change: The $200 million commitment is the direct subsidiary, the direct subsidiary that is Comstock Fuels Corporation.
Speaker Change: for 40% of that entity represents a $300 million pre-money valuation and a $500 million post-money valuation. You can imagine the amount of work that we've been enthralled in over the last three or four months.
Speaker Change: Our financial models are robust here. That's how we got the approvals. That's how we got the commitments.
Speaker Change: but it still assumes we're only producing 100 GGEs per ton. And in that model, from just these three industry-scale facilities alone, we generate an NPV of nearly $1 billion. Three facilities.
Speaker Change: Somebody asked me, well, how many facilities could the U.S. market handle?
Speaker Change: 16 billion gallons of advanced renewable fuels. That's 160 of these facilities. We're talking about building three to start.
Speaker Change: with nearly a $1 billion NPV. If we throw in our plans for licensing more facilities, which we absolutely want to do, the NPV quickly jumps over 1.5 on its way to 2 billion. It's an incredibly robust plan.
William McCarthy: 150 million.
Speaker Change: of that $200 million investment is dedicated.
Speaker Change: to the deployment of that first facility. That includes site selection, final engineering, permitting, construction, and operating the first facility.
Speaker Change: We already have multiple sites in our crosshairs, we have multiple feedstock contracts in our crosshairs, and we've got off-take contracts in our crosshairs. We're pulling it all together.
Speaker Change: as you read in our press release.
Speaker Change: We've now validated higher yields, not 100 GGEs, but 125 GGEs from a ton of wood. That's done, signed, sealed, delivered. All that testing was done with our strategic partner in Oklahoma, in Tulsa.
Speaker Change: And we couldn't be happier.
Speaker Change: But we're also in the final stages of securing what some are calling a bolt-on technology.
Speaker Change: Something very different than our core tech, our core IP, it's a gas-to-liquids technology. But they've perfected the ability, TRL 9,
Speaker Change: to capture our own carbon dioxide emissions from our own facilities, convert that gas to liquid, convert that liquid into directly sustainable aviation fuel, pushing our yields.
Speaker Change: Up another 25 GGEs to 150 GGEs per ton and ultimately lowering our CI score.
Speaker Change: So, at 100 GGEs, we were fond of highlighting to most of the people that we were engaged in the industry, and it was very effective, that we're double our next competitor, at 100 GGEs.
Speaker Change: Think about it, 150 GGEs, a 50% increase from an already profitable model and an already commanding lead, but we're not stopping there.
Speaker Change: There's another $50 million of capital.
Speaker Change: that we dedicated to the development by our own innovations team.
Speaker Change: that will increase our yields even further, lower our costs dramatically, lower our CapEx, and improve already leading CI scores with the ultimate goal, as you heard me say before.
Speaker Change: of Achieving Cost Parity with Petroleum.
Speaker Change: We didn't need that to finance the business. We didn't need that to finance the first facility.
Speaker Change: We're already past what we needed to do that and we're going for more. Look, we understand that cost parity with petroleum is a real stretch goal.
Speaker Change: But the plans to get there have already been developed.
Speaker Change: It's going to require real innovations. It can't be done today.
Speaker Change: But we've designed the experiments for those innovations already, and we didn't do it alone.
Speaker Change: We're doing it with extraordinary partners.
Speaker Change: and, if successful, positions us to truly, practically, and sustainably, effectively decarbonize mobility.
Speaker Change: We'll share more about those innovation plans and our partners.
Speaker Change: Once all the agreements and the communications are finalized amongst all the relevant parties.
Speaker Change: Those things are happening in parallel now.
Speaker Change: By getting the committed financing, we can start moving forward on facility number one, but those other development activities are far advanced in terms of their design and their approvals.