Comstock Mining Inc

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Comstock Mining Inc
Financial Snapshot

Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion provides information that we believe is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company as of and for the year ended December 31, 2016, as well as our future results. It should be read in conjunction with the consolidated financial statements and accompanying notes also included in this Form 10-K.

Overview

The Company is a Nevada-based, gold and silver mining exploration, development and production company with extensive, contiguous property in the historic Comstock and Silver City mining districts (collectively, the “Comstock District”). The Comstock District is located within the western portion of the Basin and Range Province of Nevada, between Reno and Carson City. The Company began acquiring properties and developing projects in the Comstock District in 2003. Since then, the Company has consolidated a substantial portion of the historic Comstock District, secured permits, built an infrastructure and brought exploration projects into production.

The Company’s headquarters, mine operations and heap leach processing facility are in Storey County, Nevada, at 1200 American Flat Road, approximately three miles south of Virginia City, Nevada and 30 miles southeast of Reno, Nevada. Our Lucerne Resource area is located in Storey County, Nevada, approximately three miles south of Virginia City. Our Dayton Resource area is located in Lyon County, Nevada, approximately six miles south of Virginia City. Access to the properties is by State Route 342, a paved route.

Because of the Comstock District’s historical significance, the geology is well known and has been extensively studied by us, our advisors and many independent researchers. We have expanded our understanding of the geology of the project area through vigorous surface mapping and drill hole logging. The volume of geologic data is immense, and thus far the reliability has been excellent, particularly in the various Lucerne Mine areas. We have amassed a large library of historic data and detailed surface mapping of Comstock District properties and continue to obtain historic information from private and public sources. We use such data in conjunction with information obtained from our current operations, to target geological prospective exploration areas and plan exploratory drilling programs, including expanded surface and underground drilling.

The Company continues evaluating and acquiring properties inside and outside the district expanding its footprint and exploring all of our existing and prospective opportunities for further exploration, development and mining. The near-term goal of our business plan is to maximize intrinsic stockholder value realized, per share, by continuing to acquire mineralized and potentially mineralized properties, exploring, developing and validating qualified resources and reserves (proven and probable) that enable the commercial development of our operations through extended, long-lived mine plans that are economically feasible and socially responsible, including both the Lucerne and Dayton Mine plans, with both surface and underground development opportunities. We also plan to develop longer-term exploration plans for the remaining areas, which include the Spring Valley, Occidental, Northern Extension and Northern Targets areas, subsequent to and in some cases concurrent with the exploration and development of Lucerne and Dayton.

The Company achieved initial production and held its first pour of gold and silver on September 29, 2012. The Company produced approximately 18,455 and 5,099 gold equivalent ounces in 2015 and 2016, respectively. That is, the Company produced 15,451 ounces of gold and 221,723 ounces of silver in 2015, and 4,086 ounces of gold and 75,657 ounces of silver in 2016. Grade remained at 0.025 ounces of gold per ton and 0.436 ounces of silver per ton. The Company achieved recovery rate of 88.5% for gold and 59.5% for silver.

We continue expanding our property footprint and creating opportunities for further exploration, development and mining. The Company now owns or controls approximately 8,631 acres of mining claims and parcels in the Comstock and Silver City Districts. The acreage is comprised of approximately 2,266 acres of patented claims (private lands), surface parcels (private lands), and approximately 6,365 acres of unpatented mining claims, which the “BLM” administers.

Exploration & Development

District-wide

During the first half of 2016, the Company focused on exploration and development in the Lucerne Resource area, primarily underground core drilling, underground drift (tunnel) development, and underground sampling into the Quartz Porphyry (PQ) and Succor geological targets. The Company has also developed specific plans for further Lucerne exploration activities to define the extent of known mineralization in the Succor, Woodville and Chute target areas.

During the second quarter of 2016, the Company expanded its exploration planning to include longer-term exploration targets across the broader Comstock District where multiple miles of additional mineralized strike zones have been identified and added to the Company’s exploration planning activities. This includes the southern portion of the Dayton Resource area, extending further south into the Spring Valley Group (refer to Figure 1), the Company’s Northern properties referred to as the Gold Hill Group and also northeastern properties within the Occidental Group.

During the third quarter of 2016, the exploration planning effort was focused on the Dayton Resource area. A draft plan has been designed for an expanded drilling program that would include Reverse Circulation (RC) and diamond core drill holes to place the Dayton Resource into a mine planning stage. The mine planning would incorporate the existing data and would be expanded by the additional infill, geotechnical and definition drilling.

Fourth quarter exploration and development efforts were focused upon the hydrological model of the Dayton Resource area. A Reverse Circulation (RC) drill program was designed to initially test the hydrologic regime within the proposed mine and process facility. After completion of the RC program, the data collected would be updated and modeled for targeting the optimal drill site locations for an additional diamond core drill program. The diamond hole locations would be specifically selected to define the hydrological, geotechnical and metallurgical properties during 2017, drilling programs.

The Company plans to advance the Dayton Resource area to full feasibility, with a production ready mine plan within the next two years. The volcanic host rocks and structural controls of the mineralization defined to date for the Dayton Resource area are projected south into Spring Valley. Economic gold mineralization has been intercepted in several wide spaced drill holes conducted during numerous prior Spring Valley drilling programs. Over the past several months, the technical staff has identified multiple drill targets within several specific locations that encompass the Dayton Resource area and Spring Valley. The new targets are based on the Company's latest review of previous geophysical studies and current interpretation of the geology. Reference to the Company's quarterly activity, the Company's long term plan is to further develop the remaining historic mining areas, which include: the Gold Hill Group (Northern Extension and Northern Targets areas), the Occidental Group, while continuing the exploration and development of the Lucerne Group.
image001
Figure 1 - General overview of priority surface and underground targets.

Lucerne Exploration Targets

The Company has designed additional exploration drilling programs within the Lucerne Group.  This includes the Succor vein target, the Woodville area and the northern development of the PQ underground.  During the development of the PQ underground target the Company drilled approximately 12,380 feet of HQ-3 and NQ core drilling and mineralized intervals were sampled from the Harris Drift. The drilling configuration is in the form of ‘fans’ that comprise a group of holes, with each drill bay having two or three fans of drill holes extending into the primary target. The core locations and orientations were specifically designed to infill and expand the areas of known, underground economic grade mineralization identified from previous surface drilling programs. (Figure 2)

image002
Figure 2 - 3D representation of the Harris Drift showing drill bays, drill fans, and the Succor crosscut.

The Company encountered contiguous mineralized intercepts (10 to 40 feet) from bays 3 through 6 as it moved north of the Silver City/Succor structural intersection and within and bordering the quartz porphyry (PQ) mass. The configuration of the longer and higher grade intercepts occur along the hanging wall contact of the PQ intrusive mass within both the Alta Andesite and PQ host rocks. The intervals show continuity laterally and vertically along the structural contact.

Drill results from 2016 are summarized in Table 1 below

Bay

Hole #

From (ft.)

To (ft.)

LengtDrillh

Au opt (1)

Ag opt (2)

From (m)

To (m)

Interval (m)

Au Grams

Ag Grams

Au Equivalent Ounces (3)

5

LUGC16-042

5.0

10.0

5.0

0.240

7.500

1.5

3.0

1.5

8.23

257.11

0.336

 

5

LUGC16-044

106.0

111.0

5.0

0.098

2.284

32.3

33.8

1.5

3.36

78.30

0.127

5

LUGC16-044

116.0

120.0

4.0

0.094

1.908

35.4

36.6

1.2

3.22

65.41

0.118

5

LUGC16-044

161.0

167.0

6.0

0.178

1.936

49.1

50.9

1.8

6.10

66.36

0.203

 

6

LUGC16-043

156.0

163.5

7.5

0.157

0.488

47.5

49.8

2.3

5.38

16.72

0.163

6

LUGC16-043

175.0

188.0

13.0

0.323

0.700

53.3

57.3

4.0

11.08

24.01

0.332

6

Includes

181.0

188.0

7.0

0.506

0.668

55.2

57.3

2.1

17.35

22.89

0.515

6

LUGC16-043

198.0

218.0

20.0

0.384

0.858

60.4

66.4

6.1

13.17

29.41

0.395

6

Includes

198.0

213.0

15.0

0.473

0.865

60.4

64.9

4.6

16.22

29.65

0.484

 

6

LUGC16-045

61.0

66.0

5.0

0.091

0.309

18.6

20.1

1.5

3.12

10.59

0.095

6

LUGC16-045

145.0

149.0

4.0

0.126

0.887

44.2

45.4

1.2

4.32

30.39

0.137

 

6

LUGC16-047

92.0

95.0

3.0

0.894

0.280

28.0

29.0

0.9

30.65

9.60

0.898

6

LUGC16-047

203.0

223.5

20.5

0.149

0.604

61.9

68.1

6.2

5.11

20.71

0.157

6

LUGC16-047

241.5

245.5

4.0

0.332

0.793

73.6

74.8

1.2

11.38

27.19

0.342

6

LUGC16-047

248.0

249.0

1.0

0.290

0.805

75.6

75.9

0.3

9.94

27.60

0.300

6

LUGC16-047

251.0

252.0

1.0

0.248

1.138

76.5

76.8

0.3

8.50

39.01

0.263

6

LUGC16-047

305.0

318.5

13.5

0.160

0.314

93.0

97.1

4.1

5.49

10.77

0.164

6

Includes

305.0

309.0

4.0

0.267

0.394

93.0

94.2

1.2

9.15

13.51

0.272

 

6

LUGC16-048

96.5

101.5

5.0

0.321

11.550

29.4

30.9

1.5

10.99

395.95

0.469

6

Includes

96.5

99.0

2.5

0.404

17.700

29.4

30.2

0.8

13.85

606.79

0.631

6

LUGC16-048

149.5

167.0

17.5

0.346

0.737

45.6

50.9

5.3

11.85

25.28

0.355

6

Includes

149.5

159.5

10.0

0.352

0.623

45.6

48.6

3.0

12.07

21.34

0.360

6

Includes

164.5

167.0

2.5

0.640

0.666

50.1

50.9

0.8

21.94

22.81

0.649

6

LUGC16-048

176.0

181.0

5.0

0.169

0.788

53.6

55.2

1.5

5.79

27.01

0.179

6

LUGC16-048

280.0

286.0

6.0

0.126

1.015

85.3

87.2

1.8

4.32

34.78

0.139

 

6

LUGC16-049

134.0

135.0

1.0

0.266

10.200

40.8

41.1

0.3

9.12

349.67

0.397

6

LUGC16-049

177.5

183.0

5.5

0.236

0.515

54.1

55.8

1.7

8.09

17.66

0.243

6

LUGC16-049

185.0

195.0

10.0

0.716

1.003

56.4

59.4

3.0

24.56

34.40

0.729

Reported values are from American Assay Labs (AAL) and Inspectorate American Corporation (Inspectorate) owned by Bureau Veritas both located in Sparks, NV.  AAL and Inspectorate lab methods include standard fire assay with ICP finish and gravimetric finish per each labs internal protocols.

(1) Au opt - Gold ounces per ton
(2) Ag opt - Silver ounces per ton
(3) Gold Equivalent ratio based on gold to silver price ratio of 78:1 Ag:Au
(4) Value reported is average of original and check assay
(5) A separate assay on a 0.1 foot sample of material was analyzed by total digestion (in triplicate) with the result of 6.7 opt Au and <0.030 opt Ag

Throughout the PQ drill program, geologic cross sections oriented along the drill fans and level plans on 20 foot spacing were fashioned for the target area. With completion of drilling, core logging and assaying through Drill Bay 6, cross sections and level plans were prepared, reviewed, updated and digitized. The model was further refined as these sections were tied together to form a three-dimensional triangulation using Maptek Vulcan software.

Using the geologic model and assay data as a base, multiple grade shells were produced in the same manner. Starting with cross sections and level plans, the shells were digitized and then refined as they were tied together to form three-dimensional triangulations. These shells form the base of the block model used for internal planning and resource development. (Figure 3)

image003
Figure 3 - Current grade shells: colored red for 0.12 opt Au cutoff (averaging 0.31 opt Au) and magenta 0.25 opt Au cutoff (averaging 0.61 opt Au), with PQ, Succor, and Woodville proposed drill programs.

Although the grade intercepts were promising, they have not yet yielded sufficient continuity for mining. The Company considers the initial 800 feet of advance within the Harris Drift as a first phase of development toward a longer-term exploration and development objective targeting a three-quarter-mile long mineralized corridor that includes the Lucerne (including the PQ target), Succor, Woodville and Chute zone systems (see Figure 4). Most of these systems remain open to the north and east and particularly at depth. A second phase of development was completed by advancing a crosscut originating from Drill Bay 2 to a total length of 450 feet toward the structural intersection of the Silver City fault zone and Succor vein zone. The design of the crosscut is geared toward favorable underground drilling position. The Succor represents an important target in conjunction with the PQ zone based on its location (perpendicular and adjacent to the PQ), past production history and the results from the Company’s 2011 and 2012 reverse circulation drill programs.

image004
Figure 4 - Underground target areas highlighting the exploration drift and drill bays.

The Succor Vein Target has a strike length of greater than 1000 feet, an average true width of 15 feet and an average dip of 55 degrees. The structure has reported historic mining grades of approximately 0.620 ounces per ton of recovered gold equivalent grade and is open to the east and at depth, along the entire structure. The proposed drill holes shown in Figure 5 are designed to extend the depth of known mineralization identified by surface drilling.

image005
Figure 5 - Woodville, PQ, and Succor target areas with proposed Succor target drilling.

Future drill programs are being developed with a phased approach to extend the PQ mineralization and scope the Succor and Woodville targets.

The remaining phases of the road realignment, drainage establishment and seeding were completed during the third and fourth quarter of 2016.

Dayton Resource Area

Dayton planning continued with conceptual layout of the Dayton Mine and processing facility (Figure 6).  This layout places the mine and facilities 100% on ground privately held by the Company while avoiding future drill targets.  This simplifies and shortens the critical permitting chain.

In addition to infrastructure and drill planning, we performed due diligence assisted by SRK Consulting.  The due diligence resulted in confirmation of the scoping level mine plans and agreement on the conceptual processing layout.

 image006
Figure 6 - Dayton Conceptual Mine and Processing Area

The Company plans to conduct definition drilling and geotechnical core programs within the Dayton Resource area, as previously described, and advance this area to full feasibility, with a production ready mine plan within the next two years.  The Dayton and southern expansion programs includes exploration and definition drilling of targets identified by the prior conventional percussion, RC and diamond core drill programs and  magnetic, IP and resistivity geophysical surveys (Figure 7).

The geologic and engineering team completed underground mapping, sampling, and surveying in a number of historic mine tunnels on and near the Dayton Resource area. Several historic mines operated in the Dayton area, leaving access to multiple structures from underground. Some historic adits have remained open or have been uncovered by the Company. Where accessible, the workings were inspected; geology mapped and mineralized material sampled.  Once sampling was completed, the workings were surveyed to document the size of the mine workings, the location of the openings and location of the samples. The samples were then assayed at the Company’s in house metallurgical laboratory for gold and silver.

This underground sampling program has provided a wealth of assay information and provided critical information for furthering the geologic understanding of the Dayton area. In some cases structures identified on the surface were traced underground and in other cases new structures were identified underground were surface expressions were absent or obscured.

image007
Figure 7 - Dayton and Spring Valley Magnetic Geophysics.

Dayton Hydrologic Study

A Reverse Circulation (RC) drill program was designed to support the Water Pollution Control Permit application.
The initial program would require fourteen (14) drill sites to evaluate the hydrological regime of the mine location and an additional five (5) drill holes for the process facility.

The RC drilling would identify water levels and flow direction throughout the Dayton Project's hydrologic regime by testing multiple inner structurally bounded hydraulic cells. The measured static water levels, rate of flow and direction would be added to the mine model with respect to economic mineralization,  proposed design mining depths and provide the initial mine water management requirements.

Several specific drill holes will provide multiple engineering attributes of the hydrologic and rock properties, including the potential of identifying additional economic resources. The completion of the RC drill holes will be used to position surgical core holes for geo-technical and metallurgical properties, acid/base accountability of waste rock and work indices of mineralized material.

A minimum of six (6) RC drill holes will have three (3) vibrating piezometers cemented down hole.  One piezometer located within the top of the static water level. Another piezometer positioned mid-range within the water column and the third piezometer located at the contact of the Miocene volcanic rocks and the Paleozoic basement rocks. The data collected from the placement of the piezometers will be used to better position monitor well locations.

Spring Valley

Spring Valley is located south of the Dayton Resource area and south of State Route 341. Ground magnetic geophysical surveys identified a linear anomalous corridor, defined by a series of relative magnetic lows. Altered volcanic host rocks have been intercepted by limited drilling and identified several mineralized zones. Selected drill hole intercepts are highlighted (see Figure 6). The exploration of Spring Valley will include phased drilling programs that will continue southerly from SR341 to the historic Daney mine site (see Figure 1), with a total a strike length of approximately 8,000 feet.

Gold Hill Group

The northern Comstock underground targets of the Gold Hill Group will be prioritized and exploration proposals will follow.  Several locations in the Gold Hill Group have been selected for a focused underground development evaluation. The historic mining record of the area has multiple accounts of mining activity and production prematurely halted. The reasons for halting the mining activity may have been litigation, unfavorable rock conditions and economic mineralization crossing claim boundaries owned by other mining companies of the time. The Company now has an opportunity to explore the mineral potential of this area more cost effectively by utilizing knowledge gained from the review of the historic records.

Occidental Group

The Occidental vein (a sub parallel vein system to the Comstock) is considered by the Company to be underexplored and recognized potentially as a significant exploration target, with historic, high grade ( > 0.3 optAu) production mined near surface in localized pods. The Occidental vein system has a measured strike length of over 7,600 feet, on land controlled by the Company. Detailed geologic assessment and mapping is ongoing to best define future drilling and development of this exploration target.

Production
The Company operated a heap leach based, gold and silver production system, including a zinc-precipitate based Merrill-Crowe processing plant. The Company, under the existing water pollution control permit with the State of Nevada, has the crushing and processing capacity to operate at a rate of up to 4.0 million tons of material crushed and stacked, per annum. The Merrill-Crowe system facilitated that capacity with an operating fluid processing rate of over 1,000 gallons per minute.

The Company completed the extraction of mineralized material from the mine and additional mineralized material for the historic dump materials adjacent to the Lucerne Mine during the third quarter of 2015, and stacked those materials on the leach pads where the mineralized material continued under solution until the target gold and silver recovery rates had been achieved.  The Company completed the leaching process from its leach pads in December 2016. The Company also stacked over 13,000 tons of mineralized material during May 2016.  The final metallurgical yield estimates for all materials were approximately 88.5%, for gold and 60% for silver.

The following table presents mining operations and gold and silver production by quarter for 2016 and 2015:

 

4Q 2016

3Q 2016

2Q 2016

1Q 2016

Total 2016

4Q 2015

3Q 2015

2Q 2015

1Q 2015

Total 2015

 

Mining Operations

                   

Tons Mined

- - - - -

17,851

140,415

254,856

316,199

729,321

 

Processing

                   

Tons Crushed

- -

13,197

-

13,197

17,851

104,286

211,942

157,612

491,691

 

Weighted Average Grade Per Ton Au

- -

0.025

-

0.025

0.023

0.021

0.030

0.039

0.031

Weighted Average Grade Per Ton Ag

- -

0.436

-

0.436

0.564

0.573

0.654

0.734

0.659

 

Estimated Au Ounces Stacked

- -

336

-

336

404

2,240

6,438

6,083

15,165

Estimated Ag Ounces Stacked

- -

5,758

-

5,758

10,072

59,717

138,639

115,689

324,117

Estimated Au Equivalent* Ounces Stacked

- -

413

-

413

540

3,034

8,344

7,669

19,587

 

Au Ounces Poured and Sold

276

853

1,255

1,702

4,086

2,334

3,847

4,575

4,695

15,451

Ag Ounces Poured and Sold

6,578

17,510

22,131

29,438

75,657

42,649

62,480

60,112

56,482

221,723

Au Equivalent* Ounces Poured

368

1,110

1,548

2,073

5,099

2,907

4,678

5,400

5,470

18,455

 

* Au Equivalent ounces = Au ounces (actual) + (Ag ounces (actual) Ö the ratio of average gold to silver prices)

70.89

68.05

75.09

79.68

73.43

74.04

75.27

72.73

72.91

73.77

The Company produced 18,455 and 5,099 gold equivalent ounces in 2015 and 2016, respectively. The Company estimated recovery reached approximately 88.5% of the recoverable gold and 59.5% of the recoverable silver from the heap leach

For the quarter ended December 31, 2016, the Company realized an average sales price of $1,250.08 per ounce of gold and $17.54 per ounce of silver. In comparison, commodity market prices averaged $1,217.99 per ounce of gold and $17.18 per ounce of silver.

For the year ended December 31, 2016, the Company realized an average sales price of $1,241.27 per ounce of gold and $18.02 per ounce of silver. In comparison, commodity market prices in 2016 averaged $1,248.36 per ounce of gold and $17.10 per ounce of silver.

Operating Costs

During fiscal year 2016, actual cost applicable to mining revenue was $5.7 million, $4.5 million net of silver by-product credits as compared to $14.2 million, $10.7 million net of silver by-product credits in 2015. This 60% reduction of cost applicable to mining revenue is primarily a result of significantly lower labor and processing costs due to the Company’s transition from surface mining to underground exploration and development and higher experienced metallurgical yields. Costs applicable to mining revenue include processing labor, processing maintenance, processing reagents and assaying costs, among others. Cost applicable to mining revenue also includes $2.6 million and $5.4 million of depreciation for 2016, and 2015.

During the year ended December 31, 2016, the Company also focused on reducing non-mining costs. The Company has aggressively implemented organizational changes consistent with our transition from mining the Lucerne surface mine to growing our resource portfolio and related exploration and development activities toward production-ready mining projects. Accordingly, general and administrative costs and other non-mining costs, including mine claims and land costs, other real estate operating costs and environmental costs, have already declined $7 million as compared to 2015.  In addition, the Company eliminated royalties on both the Dayton and Lucerne Resource areas and simplified the capital structure, saving an additional $5.5 million over 2015, in dividends and payments associated with the former preferred share structure. The Company incurred approximately $0.3 million in severance costs during the year ended December 31, 2016, in mining, mine support and general and administrative expenses, associated with organizational cost reductions.

Outlook

Production during 2016 was limited to processing of existing leach pad materials. Considering the increased estimates of gold and silver recoveries, that is, 88.5% for gold and 59.5% for silver, the leach cycle continued well into the fourth quarter. The Company ceased processing material from its leach pad in December 2016. All operating costs associated with hauling, crushing and other ancillary activities have been eliminated or dramatically reduced as we transition the full organizational focus toward the discovery, development and establishment of reserves from Dayton and Lucerne, for future mining, and the exploration of our other targets, including the Spring Valley and the Occidental. The Company expects to operate with approximately 10 employees, including expert land, permitting, geology, engineering and metallurgical professionals. Total operating expenses for 2017 are expected to be $3.5 million, including Exploration and mine development, Mine claims, Environmental and reclamation, and General and administrative cost but excluding depreciation and amortization.  Interest expense is expected to be $1.3 million.

The Company plans to sell non-mining related lands, buildings and water rights, for expected net cash proceeds of more than $14 million during the next twelve to eighteen months resulting in net profit of more than $8 million. These proceeds will be free of income taxes, eliminate current debt obligations and strengthen the financial position of the Company.

During the second quarter of 2017, the Company also plans on commencing Reverse Circulation (RC) drilling in Dayton sufficient to finalize the parameters of a mine plan and commence the permitting for the Dayton Mine. Infill drilling is expected to significantly expand the reserve potential for the Dayton mine plans. The Company has developed grade shells with higher average grades and believes the Dayton to have economically feasible potential and plans on developing those mine plans toward full feasibility during 2017, and production within the next two years. The Lucerne mine is fully permitted and requires additional drilling and development for advancing feasibility and establishing reserves.

The Company will report the results of the Lucerne and Dayton exploration and development programs as they become available.

Recent Developments

On January 13, 2017, the Company issued an 11% Senior Secured Debenture (the “Debenture”) due 2021 in an aggregate principal amount of $10,723,000. The Debenture is secured by (1) the pledge of equity interests in the Company’s subsidiaries Comstock Mining LLC, Comstock Real Estate, Inc. and Comstock Industrial LLC (collectively, the “Subsidiaries”) and (2) substantially all of the assets of the Company and the Subsidiaries pursuant to the Pledge and Security Agreement (the “Security Agreement”) dated January 13, 2017. Hard Rock Nevada Inc., and employee owned entity, and another related party who is a significant shareholder of the Company participated in the debenture.The use of proceeds included refinancing substantially all of the Company’s then current obligations, certain drilling and development activities and general corporate purposes.

The Debenture has a term of four years. For the first two years following the initial issue date, interest on the Debenture will be payable in cash or in the form of additional Debentures to be issued by the Company (valued at face value) or a combination of the two types of consideration, at the Company’s option.

 Liquidity and Capital Resources

Total current assets were $8.0 million at December 31, 2016. Cash and cash equivalents on hand at December 31, 2016 totaled $0.2 million. The Company had no inventories, stockpiles, or mineralized material on leach pad.   Subsequent to December 31, 2016 the Company issued an 11% Senior Secured Debenture (the “Debenture”) due 2021 in an aggregate principal amount of $10,723,000, entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”). The Debenture is secured by (1) the pledge of equity interests in the Subsidiaries and (2) substantially all of the assets of the Company and the Subsidiaries pursuant to the Security Agreement. The use of proceeds included refinancing substantially all of the Company’s then current obligations, and provided over $1 million for certain drilling and development activities and general corporate purposes. The table below shows the effect of the deal on year end balances.

The Company’s current capital resources include cash and cash equivalents and other working capital resources, certain planned, non-mining asset sales with expected net proceeds of over $7 million and existing financing arrangements, including an at-the-market offering program with International Assets Advisory LLC (“IAA”) described below. While the Company has been successful in the past in obtaining the necessary capital to support its operations, including registered equity financings from its existing shelf registration, borrowings, or other means, there is no assurance that the Company will be able to obtain additional equity or other financing, if needed. The Company believes it will have sufficient funds to sustain operations during the next twelve months as a result of the sources of funding described above.