Comstock Mining (LODE) is a high risk/high reward gold producer with a market capitalization of $107 million (with a fully diluted market capitalization of roughly $217 million).
Recently, while gold mining companies have plummeted in value, Comstock Mining‘s share price has held up incredibly well. Consider the following two charts. The first is of Comstock Mining since the summer of 2010. The second is Comstock Mining in terms of the Market Vectors Junior Gold Miner ETF (GDXJ) over the same time frame.
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In this article I give a detailed analysis of Comstock Mining from which it becomes evident that the company’s strong stock performance is justified.
1: Company Overview
Comstock Mining holds a single property in Nevada on which it holds eight projects in various stages of the mining cycle (exploration, mine development, production). The company commenced production on its Lucerne mine in the second half of 2012. Production is limited to 20,000 ounces in 2013 but it is expected to increase over the next couple of years. The company also expects to build a mine at the Dayton resource area on its property that it plans to have in production starting in 2015. The rest of the property is comprised of several regions that all have exploration potential, although investors should not expect production in these regions for several years.
2: The Numbers
Comstock Mining appears to be relatively expensive when compared to other small mining companies using many key metrics. This reflects investors’ confidence in the company’s ability to extract its gold out of the ground profitably. It also reflects investors’ confidence in management’s ability to explore the Comstock property successfully and to find more gold.
Currently the company has roughly 3.2 million ounces of gold equivalent resources (some of this is silver expressed in gold equivalent ounces), which means that the company is valued at roughly $33 per gold equivalent ounce, or about twice that looking at the fully diluted market capitalization.
The company intends to grow its resources through exploration to nearly 5 million ounces of gold. While this may appear to be a vacuous claim (every mining company with an exploration budget can make a similar claim) Comstock Mining‘s management has a proven exploration track record, having grown its resources to 3.2 million ounces as of January, 2013 from around 1 million ounces since May, 2010. Most of these resources are located in just two of eight regions on Comstock Mining‘s property, and so it wouldn’t be surprising to see the company’s reserves exceed its 5 million ounce goal over the coming years.
Comstock’s Lucerne mine began production in 2012. As a small company with only one producing mine, Comstock’s production is currently rather small compared to its current market capitalization at an estimated 20,000 ounces in 2013. However the company expects production to grow rapidly over the next couple of years, especially once its Dayton mine goes into production in 2015.