Comstock Mining Inc.

Issue FallWint12


As home to the Comstock Lode – the first major U.S. discovery of silver ore – Virginia City, Nev., has seen its share of wealth and mining industry excitement, starting in the late 1850s. That historic heyday brought about exceptional wealth for many as well as major advances in mining technology, processes and law at the time, but it lasted only until the mid-1870s, when then-current mining practices assumed most of the ore was mined. Comstock Mining Inc., however, began consolidating the Comstock Lode District about a decade ago. With its now extensive, contiguous property in the district, today’s advanced technology, a smart strategy and the area’s rich history on its side, the company has not only validated a large gold and silver deposit but is marching back into production.

Comstock Mining was established in 2003 with the purpose of acquiring some mining claims in the Comstock Lode District of Nevada, according to President and CEO Corrado De Gasperis. Within a year, the operation acquired a small-scale processing company and began a more aggressive consolidation of fragmented properties.

“Chairman John Winfield took a leading role and invested at an early stage, seeing much bigger opportunities for this historic district and its resilient brand,” De Gasperis says. “He got the company on a path of land and data acquisition. He was very curious, almost obsessed about consolidating any and all of the old geological data that we could get our hands on.

“We wondered what the true potential would be if we looked at this district as a global, sole entity.”

In 2008, Comstock Mining began conducting geophysical scans of the entire district, and the company was happy with what it found. “We realized that the structure that defined the Comstock Lode extended much further and was much more interconnected than anyone had previously understood,” De Gasperis relates.

The company made a big discovery in late 2008, at the district’s southernmost point, establishing a more certain notion that the mineralized trend of the lode was much longer – approximately six miles long – than previously understood. Equipped with this new knowledge, the company spent the next two years further consolidating its land position through acquisitions. By November 2010, it had consolidated the southern areas called Dayton and Spring Valley and the company also acquired 26 unpatented lode-mining claims along the northern Occidental Lode, a parallel trend to the original Comstock Lode. Its land position in the Comstock District now totals 5,869 acres (or almost 10 square miles).

“At the end of 2010, we recapitalized the company, converting our debt to equity and raising new capital to fund this more aggressive strategy,” De Gasperis explains. “John Winfield became our largest shareholder and formally joined the board, as chairman. Our business plan is to validate our gold and silver resources and reserves of at least 3.25 million gold-equivalent ounces by 2013. We expect to have an annual production rate of 20,000 gold-equivalent ounces by the end of this year. Last year we validated almost 2-million-gold-equivalent ounces of the highest categories, contributing to our 3.25-million-gold-equivalent ounce goal by the end of next year.”

The First Pours
The rate that Comstock Mining is discovering gold is what has impressed De Gasperis the most. “The market sees, maybe, one new 3-million-ounce entrance every year, but the rate that we’re hitting is almost unprecedented,” he says. “The industry is estimating the cost of finding a new ounce of gold to be greater than $100 an ounce. But with us, last year, we added resources of over 1-million-gold-equivalent ounces, in the highest categories, at less than $6 an ounce.

“We’re discovering new ounces at a staggering rate, so efficiently, and we’re still in just a small portion of our land position and so much of these resources are near surface,” he adds.

In September, Comstock Mining’s Merrill-Crowe Plant was fully commissioned. The company had spent nearly $20 million to upgrade and expand the facility by adding new crushing and heap leaching capabilities. The company began smelting the plant’s precipitate on Sept. 28, and by that month’s end, it had poured its first gold and silver doré – six doré bars totaling 3,743 ounces of gold and silver. The doré was sold in September for more than $700,000, representing a gold price of $1,777.25 per ounce and a silver price of $34.61 per ounce. De Gasperis notes one bar was held in reserve to produce commemoratives celebrating the first pour. “The Comstock Commemorative Doré Bar was the best-selling non-bullion item on our website in the short time it was offered,” stated Don Routh, general manager at Northwest Territorial Mint, Lyon County, Nev.

“With the successful completion of the first pours, mining has responsibly returned to the Comstock, one of the largest and most historic mining and industrial centers in the world during the mid-19th century,” De Gasperis says. “This historic achievement comes from the extraordinary effort of our entire Nevada team and represents our first revenue from mining this year. We appreciate the support of the community and all of our stakeholders.”

He mentions the “responsible” return of mining to the area because of Comstock Mining’s extensive efforts to safely advance the overall economic and social potential of the Comstock area, create positive and diverse opportunities for the greater community and respect the history of the Comstock District. De Gasperis stresses that the company wants to productively use the land, but in a way that the land remains productive post-mining.

“We have done unprecedented things in sustainability,” he says. “You need predictable, stable systems to operate sustainably, and that’s what we’re creating. We do not believe in destructive activities. We would not engage in an activity that creates scarcity.”

For example, throughout its vast property holdings, Comstock Mining spent $2 million to test the soil and ensure it is safe and free of unsafe mercury and lead, he notes. Additionally, throughout the Comstock Historic District, many of the original streets and buildings have fallen into decay, so the company has implemented programs and is establishing an ongoing community organization to facilitate the protection, preservation and restoration of many of the historically significant structures. De Gasperis stresses that the company is only interested in “genuine integration” with the community.

“None of this was inspired by the need to get a permit or to charm a local politician – it was inspired by our method of being an interconnected piece of the entire community,” he says. “We do not see any conflict in what we do every single day versus our long-term goals. Sustainability is a huge buzzword in the industry, but there is a lot of variation in what that means.”

Encouraging Alignment
De Gasperis attributes Comstock Mining’s success to an uncommonly strong alignment toward a common and clear goal. This alignment is founded on the leadership and planning of its management team, the quality of its people and processes and a project-based discipline emphasizing positive change. The approach is defined by “the Decalogue,” its operating methodology and is founded on quality, speed and sustainability. This methodology guides the company on how it defines its system, the goal and its operational measurements. The system is supported by a “playbook” that thoroughly maps all of the interdependent processes, defining all roles, responsibilities and operational measurements. This management theory is based on Dr. Eliyahu M. Goldratt’s Theory of Constraints and Dr. W. Edwards Deming’s Theory of Profound Knowledge.

“A system can only move as fast as its slowest part. The Decalogue is an algorithm or method that takes the management thinking of Deming and uses statistical process control to understand how the process works,” he explains. “We define our system and its measurements so that we truly and intimately understand the rate that we generate throughput, that is, the rate that we generate cash.”

In the 1990s, he says, two professionals that had devoted their lives to understanding and implementing these systemic management processes – Domenico Lepore and Oded Cohen – developed the Decalogue as an integration of Deming’s and Goldratt’s theories to create one cohesive process, tools and software that bring the work of these two thinkers to a more practical and productive level of accessibility. Comstock Mining used this thinking to plan its future, establish its goals, design and implement its system and ensure the ability to predictably deliver on all of its objectives.

“It’s not common in this industry for companies to adopt this method fully from the boardroom to the shop floor, but that’s what we’ve done,” De Gasperis says. “It ultimately focuses the whole enterprise on a finite resource. If we don’t ensure that point – the point the constraint defined – is running 24/7 on the best possible product mix, the opportunities are lost and can never be recovered. It creates a tremendous focus, intimate understanding and clear sense of urgency.”

Comstock Mining uses this method to statistically monitor the entire system “in intimate detail,” he stresses. The Decalogue guides how it plans its business strategies and how the company schedules its activities. De Gasperis says the system requires “selfless people who are more interested in the system’s goal than individual goals,” but the individual goals can all be met, as well, if the company puts the right people in the right positions.

“Everyone in the operation has to subordinate to the system, and that’s not at all a bad thing,” he adds.

De Gasperis admits it is not common for companies to work this way, but without a structure like this in place, many operations deal with “misalignment, lack of clarity with goals and faulty measurements.” Comstock Mining engaged Lepore to help train its entire organization in this way of operating, and its success is ongoing.

“With this system, we know what we want to do, how we want to do it and how much time it will take,” he says. EMI


Comstock Mining Inc.