Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion provides information that we believe is relevant to understanding and assessing the consolidated results of operations and the financial condition of the Company, as of and for the year ended December 31, 2019, and our future results. The information should be read in conjunction with the consolidated financial statements and accompanying notes included in this Form 10-K.
The Company is a Nevada-based, gold and silver mining exploration, development and mining company with extensive, contiguous property in the historic Comstock and Silver City mining districts (collectively, the "Comstock District") and is an emerging leader in sustainable, responsible mining and is currently commercializing environment-enhancing, precious-metal-based technologies, products, and processes for precious metal recovery.
The Company began acquiring properties in the Comstock District in 2003. Since then, the Company has consolidated a significant portion of the Comstock District, amassed the single largest known repository of historical and current geological data on the Comstock region, secured permits, built an infrastructure and completed two phases of test production. The Company continues evaluating and acquiring properties inside and outside the district, expanding its footprint and evaluating all our existing and prospective opportunities for further exploration, development and mining. The Company's goal is to grow per-share value by commercializing environment-enhancing, precious-metal-based products and processes that generate a rate of predictable cash flow (throughput) and increase the long-term enterprise value of our northern Nevada based platform.
The Company and its subsidiaries now own or control approximately 9,358 acres of mining claims and parcels in the broader Comstock District and surrounding area. The acreage includes approximately 2,396 acres of patented claims and surface parcels (private lands) and approximately 6,962 acres of unpatented mining claims (public lands), which the Bureau of Land Management ("BLM") administers. The Company's headquarters is on American Flat road, immediately north of the Lucerne resource area and just south of Virginia City, Nevada.
Because of the Comstock District's historical significance, the geology is well known and has been extensively studied by the Company, our advisors and many independent researchers. We have expanded our understanding of the geology through vigorous surface mapping and drill hole logging. The volume of geologic data is immense, particularly in the Lucerne and Dayton resource 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 integrate this data with information obtained from our recent mining 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, expanding its footprint and evaluating all 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 and develop mineralized and potentially mineralized properties, exploring, developing and validating qualified resources (measured, indicated and inferred) and reserves (proven and probable) that enable the commercial development of our properties through extended, long-lived mine and mercury remediation plans that are economically feasible and socially responsible, including mine plan development for both the Dayton and Lucerne resource areas, with both surface and underground development opportunities.
Our Dayton resource area and the adjacent Spring Valley exploration targets are located in Lyon County, Nevada, approximately six miles south of Virginia City. Access to the properties is by State Routes 341 and 342, both paved roads.
Our Lucerne resource area is located in Storey County, Nevada, approximately three miles south of Virginia City and 30 miles southeast of Reno. The Lucerne resource area was host to the Company's most-recent test mining operations from 2012 through 2015. The heap processing facility is in American Flat, approximately three quarters of a mile west of the Lucerne mine. Lucerne is the subject of ongoing assessment, exploration and development plans by Tonogold.
The Company achieved initial production and first poured gold and silver on September 29, 2012. The Company ceased mining in 2015 and concluded processing in 2016. From 2012 through 2016, the Company mined and processed approximately 2.6 million tons of mineralized material, and produced 59,515 ounces of gold and 735,252 ounces of silver.
The Company's district-wide exploration and development plans contemplate three specific, geological areas that the Company has reorganized into new wholly owned subsidiaries called Comstock Exploration and Development LLC, Comstock Northern Exploration LLC and Comstock Mining LLC. Comstock Exploration and Development LLC includes the Dayton and Spring Valley areas. Comstock Northern Exploration LLC includes the Occidental and Gold Hill exploration targets now leased to Tonogold, and Comstock Mining LLC includes the Lucerne properties, that Tonogold has agreed to acquire. These exploration targets represent over 7 miles of mineralized strike length, with current and historical grades of gold and silver, and significant historical mine production. Refer to Figure 1.
The Company retained royalties ranging from 1.5% to 3.0% on the Lucerne, Occidental and Gold Hill properties.
Figure 1 - General Overview of Priority Exploration Targets
Comstock Mining LLC (100% owner of the Lucerne Resource Area)
Our Lucerne resource area is located in Storey County, Nevada, approximately three miles south of Virginia City and 30 miles southeast of Reno, and has been the primary focus of the Company's exploration and development efforts since 2003. Lucerne includes the previously mined Billie the Kid, Hartford and Lucerne mining patents, and extends east and northeasterly to the area of the historic Woodville (southern-most of the historic Comstock bonanzas), Succor and Lager Beer patents and north to the historic Justice and Keystone mines. The Lucerne resource area is approximately one mile along strike, with explored widths from 600 to 1,800 feet, representing approximately 845 acres of the land holdings controlled by the Company. The Lucerne is the site of our previous mining activities and ongoing exploration and development by Tonogold, the company that has agreed to acquire Comstock Mining LLC. The Company holds the key mining permits required to resume surface or underground mining in this area.
The Company's prior exploration activities in the Lucerne area included open pit gold and silver test mining from 2004 through 2006, and from late 2012 through 2015. As defined by the Securities Exchange Commission ("SEC") Industry Guide 7 and by the 2018 amendments to Regulation S-K, the Company has not yet established any proven or probable reserves at the Lucerne mine. From 2012 to 2016, the Company processed approximately 2.6 million tons of mineralized material, producing 59,515 ounces of gold and 735,252 ounces of silver.
In December, 2018, the Company received unanimous approval from the Storey County Board of Commissioners to extend its landmark Special Use Permit ("SUP") for mining and processing for the Lucerne Mine Project for the maximum allowable, 20-year term, extending the original, 10-year permit until September 2, 2034. The permit applies to both surface and underground mining, processing, milling, exploration and development, and other ancillary uses and represents one of the most significant, progressive and collaborative permit approvals in the Company's history, and its extension strengthens the foundation for the future growth of the Company and its Lucerne-partner, Tonogold.
On January 24, 2019, the Company entered into a Purchase Agreement to sell its interests in CML, a wholly-owned subsidiary of Comstock whose sole assets are the Lucerne properties and related permits, to Tonogold. The Purchase Agreement requires a total purchase price and fees of $ 17.6 million, comprised of $11.5 million in cash and $6.1 million in Tonogold CPS. Tonogold will also guarantee the Company's remaining financial responsibility for its membership interest in Northern Comstock LLC, which owns and leases certain mineral properties in the Lucerne area, and also assume certain reclamation liabilities, both totaling approximately $7.0 million. The Company also retains a 1.5% NSR royalty on the Lucerne properties.
At closing on November 18, 2019, Tonogold received 50% of the membership interests of CML, representing the ownership contractually granted based on the cash and CPS consideration paid to date. Tonogold will receive the remaining 50% of the membership interests after it has delivered the remaining cash consideration. The Company will retain all management control and authority over CML until Tonogold has made all cash payments in full. Accordingly, Tonogold's membership interest in CML is accounted for as a noncontrolling interest shown in the consolidated balance sheets.
Over the past two years, Tonogold, aided by the independent mining advisory firm of Mine Development Associates ("MDA"), has evaluated and remodeled the Lucerne resource estimate, and plans further exploration, development and economic feasibility assessments.
Comstock Processing LLC (100% owner of the American Flat Processing Facility)
The processing facility is in the American Flat area of Gold Hill, NV, less than a mile west of Lucerne, and operated 24 hours per day, seven days per week, for substantially all of 2013 through 2016. During 2019, Comstock formed Comstock Processing LLC ("CPL"), a newly realigned, wholly-owned subsidiary that owns all of the property, plant, equipment and permits for the crushing, agglomerating, leaching, Merrill Crowe processing, mercury retort, refining, and metallurgical operations located at 1200 American Flat, Virginia City, NV. The facilities represent a fully permitted platform, best positioned for implementing our Strategic Focus on high-value, cash-generating, precious metal-based activities, including, but not limited to, metals exploration, engineering, resource development, economic feasibility assessments, mineral production, metal processing and related ventures of environmentally friendly, and economically enhancing mining technologies. To date, Comstock Processing has entered into two agreements that leverage its platform for nearer-term cash generation; first with Tonogold for the Lease-Option Agreement to lease and operate the facilities and second, with Mercury Clean Up LLC ("MCU") for the commercial pilot of the MCU mercury remediation system.
CPL's Lease Option with Tonogold
The Lease Option Agreement (the "Lease-Option"), between the Company and Tonogold, represents an option to lease the permitted American Flat mining property, plant and equipment to Tonogold for crushing, leaching and processing material from the Lucerne mine. Under the Lease-Option, Tonogold has already commenced reimbursing the Company approximately $1.1 million per year to reimburse the costs of maintaining the facility. If the option is exercised, Tonogold would then pay the Company a rental fee of $1 million per year plus $1 per processed ton, in addition to all the costs of operating and maintaining the facility. After the first $15 million in rental fees are paid, the rental fee would step down to $1 million per year and $0.50 per processed ton for the next $10 million paid to the Company.
CPL's Venture with Mercury Clean Up LLC
The second agreement is with MCU, to pilot test new, cleaner technologies, in collaboration with Oro Industries Inc. ("Oro"), for the manufacture and global deployment of mercury remediation systems with proprietary mechanical, hydro, electro-chemical and oxidation processes to reclaim and remediate mercury from soils, waste and tailings. MCU has the exclusive, world-wide rights to four patentable technologies and equipment that we believe will demonstrate feasible, economic mercury remediation. Comstock provides the platform for testing the mercury remediation system and MCU will conduct the trials that prove scalable feasibility. MCU plans to deploy the solution globally and is working on at least one major, international remediation project. Comstock's award-winning mercury reclamation experience coupled with MCU's technology and processing know-how positions a new growth opportunity consistent with the Company's Strategic Focus.
Worldwide unregulated activity has released thousands of tons of mercury into the environment. The continued worldwide use of mercury in unregulated activities, primarily outside of the United States, is polluting air, soils, and waters and poisoning marine life and endangering lives. Ongoing, unregulated artisanal mining outside of the U.S. represents more than 40% of the ongoing mercury contamination and represents a tremendous opportunity for cleaning up the environment in a sustainable, profitable manner. Mercury will not go away by itself and must be removed to stop the pollution. Mercury can't be broken down or destroyed, and MCU, in collaboration with Oro and the Company, is pioneering an effective solution.
Pursuant to the MCU Agreement, the Company committed $2.0 million of capital contributions payable in cash of $1.15 million and stock of $0.85 million, in exchange for 15% of the fully-diluted equity ownership of MCU and 50% of the equity of any future joint ventures formed with MCU. Through December 31, 2019, the Company has invested $0.75 million in cash and $0.75 million in stock out of the $2 million commitment for MCU to demonstrate the feasibility of the Mercury Remediation System on CPL's permitted platform. Upon successful feasibility, the Company and MCU would create a new, 50-50 venture called Comstock Mercury Remediation LLC for pursuing global business opportunities. The Company has the rights to invest in up to 25% of MCU and separately, 50% of the joint venture and expects to close on these transactions during the second and third quarters of 2020.
Over the past seven years, Comstock has implemented several approved plans, by the Nevada Division of Environmental Protection ("NDEP"), intended to address NDEP's and the U.S. Environmental Protection Agency ("EPA") protocols, guidance and goals for sampling, characterizing, transporting and managing mercury within the Carson River Mercury Superfund Site. These plans and CPL's existing, permitted infrastructure provide an ideal platform for evaluating the efficacy of the MCU process. MCU and the Company will work closely with NDEP for any additional approvals or permits.
MCU has delivered sampling and testing equipment to the American Flat site in February 2020, and has begun taking samples of tailings at locations in the Carson River Mercury Superfund Site ("CRMSS") to locate suitable material to commence bulk testing. The remaining equipment is scheduled for arrival in April 2020.
CPL and Development of Clean Technologies
The ongoing testing of alternative technologies aligns with the Company's Strategic Focus on responsible development. A breakthrough with cleaner technologies could result in higher, faster recoveries with reduced waste, shorter permitting cycle times and lower reclamation costs.
The Company continues exploring other partners and ventures that can leverage this fully-permitted platform for the development of cash-generating, precious metal-based activities, including, but not limited to, metals exploration, engineering, resource development, economic feasibility assessments, mineral production, metal processing and related ventures of environmentally-friendly, and economically enhancing mining technologies.
Comstock Northern Exploration LLC (Occidental Lode and Other Northern Target Mineral Claims)
Tonogold has commenced further, detailed analysis of our northern targets that correlates historical data with modern geological assessments and reveals a potentially much larger exploration opportunity. Accordingly, the Company signed a new Mineral Exploration and Mining Lease (the "Exploration Lease") with Tonogold for certain mineral properties in Storey County, Nevada. The lease is for an initial term of 5 years, with options to renew for an additional 15 years, so long as specific commitments are met, including spending at least $1 million per year on exploration and progressively validating technical reports. The lease has a quarterly fee of $10,000 in the first year, escalating 10% per year thereafter. Tonogold is also required to reimburse all claim maintenance costs and other costs associated with owning the properties. The Company retains a 1.5% to 3.0% NSR royalty on future mineral production from the properties.
The mineral lease includes the Occidental group and Gold Hill group of exploration targets, which contains many historic mining operations, including the Overman, Con Imperial, and Yellow Jacket mines. The Company believes this will accelerate the development of these targets and enhance the value of its mineral property and royalty portfolio. Tonogold is current permitting an exploration drilling program for these areas, and expects to begin drilling in the second quarter of 2020.
Comstock Exploration & Development (100% owner of the Dayton Resource and Spring Valley Exploration Areas)
The Company plans to advance the Dayton to full feasibility, towards a production ready mine plan. The plan includes expanding the current resource at the Dayton and continuing southerly into Spring Valley, with incremental expansion programs that include 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 (see Figure 2).
The Company previously estimated a mineral resource for Dayton as part of a broader technical report for the Comstock Mine Project. Since our last Dayton resource estimate, the Company has:
The new information is supporting the development of a completely updated, detailed, three-dimensional model of the Dayton project. The Company's technical staff is currently compiling a detailed structural interpretation of the Dayton resource area, which will provide the framework for the new resource model. The detailed interpretation is leading to a list of highly prospective drill targets to further define and expand the mineral resource.
Figure 2 - Dayton and Spring Valley Magnetic Geophysics with Interpreted Veins and Structures
In-house Dayton engineering and mine planning efforts have resulted in profiling various economic shells with multiple cutoff grade scenarios. Various layouts for the mine and corresponding processing facilities have been conceptually developed and located on lands 100% privately held by the Company, thus simplifying and shortening the critical permitting chain.
The Company has retained the independent mining advisory firm of Behre Dolbear to produce a new, standalone National Instrument 43-101 ("NI 43-101") compliant technical report for the Dayton resource area that supports the subsequent scope of publishing a Preliminary Economic Assessment ("PEA") for the Dayton. The new technical report will provide a new resource estimate, and a phased drilling plan for better defining and expanding the resource for sustainable, profitable mining.
The Dayton mineralized material has been subjected to metallurgical testing by independent laboratories and in the Company's on-site lab. Column tests were conducted by McClelland Laboratories in 2011 on medium-grade and high-grade composites from the Dayton area, at both 1" and ½" crush sizes. The gold recovery after 154 days averaged 86.7% for gold and 47.4% for silver. The final report stated that at the end of the test, the curves had flattened, but recovery was still increasing.
In early 2018, the Company's in-house lab ran column tests on bulk samples from three different locations in the Dayton resource area: Glory Hole mid-grade, Glory Hole high-grade, and the Dayton Adit. Two columns were loaded from each bulk sample. The recovery after 74 days averaged 84% for gold and 55% for silver. The metal recovery had not stopped after 74 days, but the daily incremental increases were below the Company's analytical detection limits.
The Company is working with strategic partners to test alternative, greener technologies for processing the mineralized material from the Dayton resource area. This includes trials by Cycladex, Inc., a strategic investee, funded, in part, by the National Science Foundation, for extensive testing of their patented, cycladextrin lixiviant, and Itronics, Inc. to test their KAM-Thio metallurgical recovery process on the Dayton mineralized material. Both partners represent potential alternatives to traditional cyanide heap leaching.
The ongoing testing of alternative technologies underpins the Company's commitment to responsible development of the Dayton resource. A breakthrough with any of these cleaner technologies could result in higher, faster recoveries with reduced waste, as well as a streamlined permitting process and lower long-term reclamation costs.
Dayton - Spring Valley Group Targets
Spring Valley lies adjacent to the south of the Dayton resource area, extending to the south and east of State Route 341, trending south toward the southern-most end of the Comstock District that includes the southern portion of the Kossuth patented claim and the Dondero, Daney and New Daney claims and all of the Company's placer mining claims in Spring Valley and Gold Canyon. The Spring Valley mineralized structures lie mostly concealed beneath a veneer of sediment gravels and the volcanic host rocks and the structural controls of the mineralization defined for the Dayton resource area are known to continue south into Spring Valley. Potentially economic gold mineralization has been intercepted in several widely spaced holes drilled during prior Spring Valley drilling programs.
The Spring Valley exploration program is designed to target areas that have similar magnetic signatures of known economic grade mineralization. The magnetic geophysical survey was further studied and a structural interpretation was developed that illustrated multiple cross cutting structures (colored green) that are oblique to the southerly projected north/south vein trend (colored red), refer to Figure 2. Though rare due to alluvial cover, the outcropping quartz veins and outcropping crosscutting structures had definitive diagnostic magnetic signatures. The interpretation of the vein structures were derived by connecting specific magnetic attributes as identified on each 25-meter spaced survey lines. Similar structures have been identified in the Dayton area and were important components for the development of economic grades of mineralization. The exploration of Spring Valley will include phased drilling programs that will continue southerly from SR 341 to the historic Daney mine site (Figure 3), with a potential strike length of approximately 9,600 feet.
Figure 3 - Dayton and Spring Valley Group Targets
The technical staff reviewed historic geologic and geophysical studies and prior drill programs that focused upon the Dayton resource area and extensions south into Spring Valley. The few drill holes that were completed in Spring Valley intercepted altered Miocene volcanic rock known to host the economic mineralization of the Dayton. Specific drill holes that encountered highly mineralized zones are highlighted on Figure 2. Collectively, several specific locations were selected and are targeted for future drilling. The Dayton has open ended economic mineralization requiring additional drill holes to delineate the geometry for mine planning. South of the Dayton, the limited drilling coupled with the geophysical interpretation indicates the targeted exploration model extends an additional 8,000 feet (length of geophysical magnetic survey) into Spring Valley.
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 2). The mid-level magnetic lows define a zone (up to 500 feet wide) beginning at the Dayton and continuing southerly approximately 8,000 feet (length of geophysical magnetic survey) towards the Daney patent. The zone is further defined by the trace of interpreted north/south trending vein swarms depicted on Figure 2. In the Dayton the increased density of the vein swarms with intersecting cross structures has been indicative to host the higher grades and larger volumes of economic mineralization. This scenario has generated a multiple drill target environment.
The Spring Valley exploration program is designed to target areas that have similar magnetic signatures of known economic grade mineralization. The magnetic geophysical survey was further studied, and a structural interpretation was developed that illustrated multiple cross cutting structures (colored green) that are oblique to the southerly projected north/south vein trend (colored red), refer to Figure 2. Though rare due to alluvial cover, the outcropping quartz veins and outcropping crosscutting structures had definitive diagnostic magnetic signatures. The interpretation of the structures and veins were derived by connecting these specific magnetic attributes as identified on each 25-meter spaced survey line. Similar structures have been identified in the Dayton and are important components for the development of economic mineralization.
Pelen-Sutro Tunnel Company Acquisition
In January of 2018, the Company issued 295,082 shares of restricted common stock as initial payment to acquire 25% of the total membership interests of Pelen, LLC. Pelen LLC is the 100% owner of the historic Sutro Tunnel Company that owns the Town of Sutro, the historic 6-mile Sutro Tunnel, the federal land grants and mining rights spanning 1,000 feet on each side of the 6-mile span, the rights to the tunnel's water and the patented mining claims and private lands on Gold Hill.
The Company issued 351,637 additional shares in November, 2018, and set the closing of the purchase of the membership interests by December 31, 2019, once the seller of the membership interests has received total cash proceeds of at least $585,000 either through sale of the restricted common stock received or through additional cash payments made by the Company. If all of the shares of restricted common stock have been sold by the seller of the membership interests and the aggregate proceeds received are less than $585,000, then the Company is required to pay the shortfall in either additional shares of the Company's common stock or cash, at the Company's election.
In December 2019, the agreement was amended to revise the "Cut-Off" date to March 31, 2020, for closing the transaction. The Company paid $11,700 of interest payable as of December 31, 2019. The Company also agreed to prepay $5,850 of interest payable with respect to the period between December 31, 2019, and March 31, 2020.
Non-mining Real Estate
On September 26, 2019, the Company entered into new agreements, with Sierra Springs Enterprises Inc., a qualified opportunity zone business, to sell the industrial land and senior water rights in Silver Springs, NV, (the "98 acres") for $6.5 million and to sell its rights in the membership interests in Downtown Silver Springs, LLC ("DTSS") for $3.6 million. The agreements anticipate the transactions to close in the first quarter of 2020. On September 15, 2019, and effective September 25, 2019, the Company terminated prior agreements to sell the 98 acres and DTSS to another third party.
The Gold Hill Hotel is listed for sale for $1.0 million. The Gold Hill Hotel has been consistently profitable and cash positive over the past two years. The Daney Ranch is listed for sale, in two components, for a total of $3.8 million.
Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as "COVID-19," has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, including the implementation of travel bans, quarantine periods and social distancing, have caused material disruptions to global business and an economic downturn. Global equity markets have experienced significant volatility and weakness. Governments and their central banks have reacted with significant fiscal and monetary interventions designed to mitigate the impacts and stabilize economic conditions. The impact and ultimate duration of the COVID-19 outbreak is currently unknown, as is the efficacy of these governmental and central bank interventions. On March 12, 2020, Nevada Governor Stephen Sisolak issued a Declaration of Emergency to facilitate the State's response to the COVID-19 pandemic. The Governor's guidance for the mining industry includes limiting gatherings to no more than 10 people, maintaining social distancing protocols where 10 or less are gathered, limiting travel, and working remotely when possible.
The Company is currently operating in alignment with these guidelines for protecting the health of our employees, partners, and suppliers, and limiting the spread of COVID-19, that could potentially result in delays to the Company's plans for developing our Dayton Resource, MCU's plans for commencing mercury recovery testing, and Tonogold's plans for exploration drilling during the second quarter of 2020. It is not currently possible to reliably estimate the length and severity of these developments and the impact on the financial results and conditions of the Company, and its operating subsidiaries and partners, or in future periods.
During the first quarter of 2020, the Company expects to receive approximately $1.35 million in cash for expense reimbursements required under the Tonogold agreements. During the last nine months of 2020, and the first nine months of 2021, the Company expects to receive monthly interest payments of $54,750 from Tonogold toward its purchase of 100% of the membership interest in Comstock Mining LLC, the entity that owns the Lucerne properties. As of December 31, 2019, Tonogold has earned 50% of the membership interest after making payments of over $6.0 million in cash and $6.1 million in CPS. The Company plans on monetizing a portion of the CPS during the second half of 2020, depending on price performance and liquidity.
During the first half of 2020, the Company expects to close on the agreed upon sale of certain non-mining assets located in Silver Springs, NV, to Sierra Springs Enterprises Inc., for total net proceeds of $10.1 million. The agreements were signed in September 2019, with $0.4 million of non-refundable deposits made and released to the Company from escrow. The Company will use the remaining $9.7 million of proceeds to extinguish the entirety of its outstanding Senior Secured Debenture obligation, principal and make-whole of approximately $4.9 million, plus accrued interest of approximately $0.3 million.
Our annual operating expenses, including other income and expenses and excluding depreciation, are planned at $4.9 million, with approximately $2.3 million of that amount currently being reimbursed under the Tonogold Purchase Agreement, Lease-Option Agreement, and Mineral Exploration and Mining Lease Agreement, resulting in net operating expenses for 2020, excluding exploration spending, of $2.6 million.
Tonogold is currently planning and permitting a drilling program for the Storey County exploration targets, including the leased mineral claims, just north of the Lucerne area, and expects to begin drilling in the second quarter of 2020. Under the Mineral Exploration and Mining Lease, Tonogold must spend at least $1.0 million per year on exploration.
The Company's 2020 plans also include obtaining the local permits for Dayton, expanding Dayton's current resource and continuing southerly into Spring Valley with incremental exploration programs that include exploration and definition drilling of targets identified by geophysical surveys, surface mapping, prior drilling and deeper geological interpretations that all lead to publishing an updated, NI 43-101 compliant, mineral resource estimate for the Dayton.
For 2020, the Company's plans also include advancing the investment in and the commercialization of MCU's mercury remediation processing technologies. The Company expects to close on the MCU transactions during the second and third quarters of 2020. Oro has commenced manufacturing the 2-to-25 ton per hour mercury recovery plant and recently completed the critical "reverse-helix spiral concentrator" component of the system. The mercury remediation system includes a 200 gallon-per-minute dissolved air flotation ("DAF") water treatment plant and a fully operational, mercury-specific metallurgical laboratory. The entire system will be mounted on three separate trailers and will be set up on the Company's fully contained, double-lined processing area during the fourth quarter with the first equipment delivered to the processing site during March 2020. During the first quarter of 2020, MCU identified sample locations within the Carson River Mercury Superfund Site ("CRMSS") that are currently being sampled per an EPA-approved and updated Sampling and Analysis Plan ("SAP"). Once suitable sites have been identified, bulk samples will be extracted and transported to the MCU mercury remediation system located at the Company's American Flat processing facility.
MCU plans to commence trial operations in the second quarter of 2020, at the Company's American Flat processing facility, to validate and fine-tune the mercury extraction and remediation process, with the objective of reclaiming and remediating the Company's existing properties within the Carson River Mercury Superfund Site ("CRMSS"), enhancing the values of, and evaluating the potential economic feasibilities for, these properties and creating new global growth opportunities in mercury remediation by demonstrating MCU's technological and operational effectiveness, efficiency, and feasibility.
MCU has agreed and plans to commence reclamation operations in the third quarter 2020, in the Philippines. MCU has signed a joint venture agreement with Clean Ore Solutions, a Philippine Company, for mercury extraction and remediation of Mount Diwalwal and the Naboc River, one of the most mercury polluted, gold mining regions in the world. This representing the first real international opportunity for large-scale mercury remediation and environmental reclamations, using MCU's system, with the objective of establishing MCU as the global leader in large scale, mercury remediation projects.
On March 20, 2020, Philippines Department of Transportation (PDOT) announced "a temporary travel ban on foreigners" entering the Philippines starting midnight March 22, 2020, the ultimate durations of which are currently unpredictable, potentially resulting in delays to MCU's and the Company's plans for commencing operations in the Philippines during third quarter of 2020.
During the years ended December 31, 2019, and 2018, the Company issued 12,168,834 and 5,620,434 shares, respectively. During 2019, 10,015,443 common shares were issued through equity issuance agreements, issuance of common stock for convertible preferred, and private placement agreements, at an average price per share of $0.52 for gross proceeds of $5.2 million ($4.9 million, net of cash issuance costs). During 2018, 4,243,371 common shares were issued through the Company's equity issuance and private placement agreements at an average price per share of $1.06, for gross proceeds of approximately $4.5 million ($4.2 million, net of cash issuance costs). Common shares outstanding at December 31, 2019, and 2018, totaled 27,236,489 and 15,067,655, respectively.
Liquidity and Capital Resources
The financial statements are prepared on the going concern basis of accounting which assumes the realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company's current capital resources include cash and cash equivalents and other net working capital resources, planned investment sales of Tonogold securities, and proceeds from the planned sale of Lucerne mineral properties and non-mining assets.
The Company has recurring net losses from operations and an accumulated deficit of $235.9 million as of December 31, 2019. For the year ended December 31, 2019, the Company incurred a net loss of $3.8 million and used $2.3 million of cash in operations. As of December 31, 2019, the Company had cash and cash equivalents of $1.0 million. The Company also has long-term debt of $4.9 million that matures in January 2021, for which it does not currently have the ability to repay. Such condition raises substantial doubt regarding the Company's ability to continue as a going concern.
The Company intends to finance its operations over the next twelve months through its existing cash, the sale of common stock through its existing equity agreements to issue securities, proceeds from the planned sale of its Lucerne mineral properties, non-mining assets, and Tonogold securities. These plans are outside of the control of management, and therefore, substantial doubt exists about the Company's ability to continue as a going concern through 12 months from the issuance date of the financial statements.
On February 18, 2019, the Company filed a new shelf registration statement on Form S-3 (the "S-3 Shelf"), for the sale of up to $50.0 million of the Company's securities, from time to time, and used $4.5 million of that capacity during 2019, leaving an aggregate unused capacity of $45.5 million as of December 31, 2019. So long as the aggregate market value of the Company's voting and non-voting common equity held by non-affiliates is less than $75 million, the aggregate market value of securities sold by or on behalf of the Company pursuant to the S-3 Shelf during the period of 12 calendar months immediately prior to, is limited from being no more than one-third of the aggregate market value of the Company's non-affiliated voting and non-voting common equity. On March 15, 2020, these limitations resulted in approximately $2.1 million of unrestricted, available S-3 Shelf capacity.
The Company was late in filing its quarterly report on Form 10-Q for the period ending March 31, 2019. The report was due to be filed on May 15, 2019, but was not filed until June 20, 2019. As a result, starting on the date of this 10-K filing, the Company is no longer permitted to issue securities pursuant to the S-3 Shelf (unless the Company files a post-effective amendment on Form S-1 that is declared effective by the SEC) until twelve months and any portion of a month subsequent to the late filing have lapsed (that is, permission to use the S-3 Shelf resumes on July 1, 2020), when the Company will once again be permitted to issue securities pursuant to the S-3 Shelf registration statement, assuming that the Company meets all other requirements of the Form S-3 at that time.
On October 1, 2019, and as amended and restated on October 9, 2019, the Company entered into a new equity purchase agreement (the "Leviston Equity Agreement") with Leviston Resources LLC ("Leviston") and filed a prospectus supplement to offer and sell shares of common stock at an aggregate offering price of up to $1.25 million, from time to time, to Leviston with aggregate unused capacity of $0.45 million as of December 31, 2019. In February 2019, the Company also entered into an equity purchase agreement (the "2019 Equity Agreement") with the Murray Family Office ("Murray FO") for the sale of up to $5.0 million in shares of the Company's common stock from time to time, at the Company's option, subject to certain restrictions and at a 10% discount to a volume weighted average price. On September 20, 2019, the Company filed a prospectus that terminated any remaining sales pursuant to the 2019 Equity Agreement after using $1.9 million of its capacity.
On September 26, 2019, as amended in November 30, 2019, and December 26, 2019, the Company entered into agreements with SSE to sell two properties in Silver Springs, NV, including 98 acres of industrial land and senior water rights (the "98 acres") for $6.5 million and 160 acres of commercial land contained with its rights in the membership interests in Downtown Silver Springs, LLC ("DTSS") for $3.6 million. As of February 28, 2020, the Company received $0.4 million in escrowed deposits for the purchase of these assets and expects the sales to close during the second quarter of 2020.
Net cash used in operating activities for the year ended December 31, 2019, was $2.3 million as compared to net cash used in operating activities of $4.0 million for the prior year. The Company's use of cash in 2019, and 2018, was primarily related to general and administrative, exploration, mine claim cost and environmental expenditures. The decrease resulted from a lower net loss due to lower operating expenses and a higher net source of cash from working capital. Net cash used in operating activities for the year ended December 31, 2018, was $4.0 million as compared to net cash used in operating activities of $6.5 million for the prior year. The Company's use of cash in 2018, and 2017, was primarily related to general and administrative, exploration, mine claim cost and environmental expenditures. The decrease in cash used in operations of $2.5 million resulted due to lower operating expenses and a higher net source of cash from working capital.
Net cash provided by investing activities for the year ended December 31, 2019, was $2.6 million, substantially all from $5.9 million of payments on the purchase of Comstock Mining LLC by Tonogold, offset by $2.4 million used for the purchase of properties, $0.8 million for investment in MCU, and $0.3 million for the investment in Sierra Springs Opportunity Fund. Net cash used in investing activities for the year ended December 31, 2018, was $1.6 million, substantially all from purchases of property. Net cash provided by investing activities for the year ended December 31, 2017, was $1.0 million, primarily driven by proceeds from the sale of equipment of $1.1 million offset by purchases of property for approximately $0.1 million.
Net cash provided by financing activities for the year ended December 31, 2019, was $0.2 million, primarily from net proceeds from the sale of common stock of $4.9 million, partially offset by principal payments on long term debt of approximately $4.7 million. Net cash provided by financing activities for the year ended December 31, 2018, was $4.1 million, primarily from net proceeds from the sale of common stock of $4.2 million and $2.0 million from the Tonogold option fee proceeds, offset by principal payments on long term debt of approximately $2.1 million. Net cash provided by financing activities for the year ended December 31, 2017, was $7.4 million, primarily from net proceeds from the sale of common stock of $7.1 million, proceeds from the Tonogold option fee of $0.2 million, and net proceeds from long term debt refinancing of approximately $0.1 million.
Future operating expenditures above management's expectations, including exploration and mine development expenditures, or in excess of amounts to be raised from the issuance of equity or new debt facilities, declines in the market value of properties held for sale, or declines in the share price of the Company's common stock, would adversely affect the Company's results of operations, financial condition and cash flows. If the Company was unable to obtain any necessary additional funds, the Company could be required to limit or discontinue certain business plans, activities or operations, reduce or delay certain capital expenditures and investments or sell certain assets or businesses. There can be no assurance that the Company would be able to take any such actions on favorable terms, in a timely manner or at all.