Comstock Inc. (AMEX:LODE) Q4 2022 Earnings Call Transcript

Comstock Inc. (AMEX:LODE) Q4 2022 Earnings Call Transcript March 16, 2023

Zach Spencer: Ladies and gentlemen, welcome to Comstock’s 2022 Year-End Business Results Webcast. Here is Comstock’s Executive Chairman and CEO, Mr. Corrado De Gasperis.

Corrado De Gasperis: Thanks, Zach. Good morning, everyone, and welcome to Comstock’s 2022 full year report. I’ll provide a business update, including the information from today’s press release and our recently filed Annual Report on Form 10-K. I appreciate the e-mails and the increase for many of you, and in response, we’re being much more specific today about the nature and extent of our results and our 2023 outlook, in this afternoon’s release, in our Annual Report and on our Form 10-K and on this call. We also made a real effort to define clearly and precisely how we define Technological Readiness Levels or in our terminology, TRLs, so you can better understand and measure us because, frankly, this is how our partners, our customers and even the government evaluates us.

TRLs are measured on a scale from one to nine and with TRL6 representing a critical milestone for anyone serious about commercialization, and we’re solidly on that now. 2021 and 2022 were about integration and technology development and its readiness. 2023 is all about commercialization. By certain relative measures, we’ve been fast but not relative to the expectations that we have set and we’re correcting that by setting very specific and clear objectives. We will be transparent and accountable with these smart objectives with Fuels and GenMat already leading the way. If you don’t have a copy of today’s press release, you’ll find a copy on our website at www.comstock.inc, at the top of the Investor page in the Newsroom section. Our Form 10-K is also available on the website on the Investor page under SEC filings and also via EDGAR at www.sec.gov.

You may have noticed the expansion of the website to www.comstofuel.com, with Fuels also launching their own social media sites as well. Please let me remind you that we will make forward-looking statements on this call and that any statements relating to matters that are not historical facts may contribute — may constitute — sorry, forward-looking statements. Our statements are based on the most current expectations and are subject to the same risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in previously reports filed by the company with the SEC and in our most recent press release and all of these forward-looking statements made during this call are subject to the same and other risks that we can’t identify.

Once we complete our prepared remarks, Zach will accept and direct all questions. We’ll also extend the Q&A. Based on input received from our last call, you can be sure that I’m listening to your input and looking forward to all of these questions. We can also be available for follow-up after the call. Let me briefly highlight for each one of our businesses, the most achievements for 2022, and the smart objectives that we set for 2023. I’ll start with Comstock Fuels. The Fuels team has now demonstrated technological and commercial readiness that is at least TRL6 in a remarkable way with extraordinary yields now approaching 100 gasoline gallon equivalents of renewable fuels per tried ton of Woody biomass. We believe these levels are unprecedented and dramatically higher than what we acquired from this business less than just 18 months ago.

I can tell you, when you’re engaged with a globally recognized company and you’re demonstrating TRL 6 or TRL 7 as in our recent experiences, you’re engaging in months of real diligence, productive advancements, and that’s what’s happening with us right now in the fuels business. We’ve upgraded and commissioned our demonstration system in Wisconsin and commence production and shipping of biointermediate product samples to exactly these type of prospective customers, and we are actively engaged in discussions with multiple of the renewable fuel producers towards the execution of new licensing agreements. We have recently hosted one such company in Wisconsin with great reception over two days as they could now see, touch and feel our capabilities and test our samples.

Our demonstration facility is integral to these commercialization efforts. We are now both actively commercializing that we — what we have proven, while also advancing additional fuel pathways, both within the award-winning DOE grant process, as well as multiple other enhancing pathways outside of the DOE grant process and positioning for the potential to increase these leading yields well beyond to 100 gallons per dry time. In our opinion, this would extend an already significant market-leading performance. This year, we will execute at least one commercial license agreement and to be clear, each license agreement for one of our potential customers, commercial production facilities will create at least 15 years to 20 years of recurring royalty revenue for the company.

This is in addition to millions of dollars of upfront fees for design and engineering and support. Just as an aside, when our technology is adopted by a customer like this, the likelihood of it being only for one facility within these global and national companies is pretty low. We will also complete in 2023, an independent life cycle carbon analysis to prove the carbon emission reduction benefits from using the fuels produced with our patented processes. Our customers value and, frankly, demand that these leading decarbonizing activities are independently documented and so do we. 2023 will also see continuous operation of the integrated buyer intermediate production process in Wisconsin for sufficient enough time to achieve and broadly demonstrate TRL.

Now let me turn to GenMat, who as of yesterday and quite dramatically has come out of stealth mode in large part because they’ve announced the achievement of their first three major objectives and are now well on their way to the first commercial use of their breakthrough software solutions. I’m going to try to convey the profound importance of what they’ve already demonstrated, which is a successful creation and operation of a truly generative artificial intelligence. Just to repeat that, GenMat has now created and operates a proprietary generative AI that they’ve named ZENO. ZENO can simulate known and new materials in an exponentially shorter time than traditional R&D methods are capable of. This includes simulating and predicting crucial properties such as electrical conductivity, thermal conductivity, heat capacity, formation energies, band gap, magnetic properties and more, all at the atomic level.

ZENO has been trained on solid-state metal oxides and can stimulate any metal oxide materials thermal connectivity, for example to 99% accuracies in minutes. We have seen it done with titanium dioxide. And frankly, we are stunned. For context, this is the type of material research that takes many months and millions of dollars if it were happening, let’s say, in the semiconductor or battery metal industries. GenMat’s already assembled a world-class team of material scientists and engineers, and they have also efficiently deployed a state-of-the-art remote high-performance computing platform with the capacity to conduct high-throughput material simulations at workloads comparable to many conventional supercomputers. They’ve been quite busy building this platform over the past two years.

And this means that today, GenMat’s scientists and engineers and ultimately, their customers can access ZENO remotely for generating breakthrough material solutions. ZENO operates similarly to the large language model Generative AI that are all the bugs today like ChatGPT. But instead of manipulating data, writing legal papers or generating code, which is revolutionary, ZENO has instead harnessed math and science to manipulate matter at the atomic and quantum mechanical level, enhancing and discovering new materials and engineering materials solutions in an exponentially shorter time than traditional methods allow. It’s going to take a while for people to digest this. It’s going to take a while for people to appreciate this. It’s going to take a while for people to start embracing this, but it’s going to happen.

To put in a little better perspective, new material discovery typically takes many years and millions of dollars and GenMat’s AI can simulate thousands of unique materials in minutes and ultimately, in seconds. In 2023, we expect GenMat to rapidly elevate these new material simulations to TRL 6 by generating synthesizing and directly testing many more simulated materials and continuing to confirm the precise — the precision and accuracy of those simulations. This positions the commercialization of their solutions with early adopter enterprise clients. The clients that they are already speaking with are the cutting edge globally leading materials and minerals companies. There’s also a remarkable crossover application and that ZENO’s ability to create new materials also extends to an ability to identify and discover new minerals.

If it recognizes material signature at an atomic level, it will also be able to identify known mineral signatures in the earth. And in our opinion, certainly better than any other known exploration method that we’re aware of. This is still developing, but coming from the same base and the same generative AI capability, this is also the reason that GenMat’s launching and making operational in 2023, an extremely powerful space-based hyperspectral imaging sensor for mineral discovery. Mineral discovery applications with the Comstock perfectly positioned as the base case. Speaking of the Comstock in 2022, we reconsolidated our mining assets and now control over 12 square miles of primarily patented and unpatented mining claims, covering 6.5 miles of continuous mineralized strike within the entire district, including full access now and productive use of our existing permitted crushing, processing and refining infrastructure.

We also significantly expanded our mineral resources. This was announced previously with the publication of two new S-K 1300 technical reports. We now report total published mineral resources of over 600,000 ounces of measured and indicated gold and nearly 6 million ounces of measured and indicated silver. We also have additional inferred gold and silver resources that increase those numbers by nearly 50%. With GenMat, we are now developing exploration plans that will leverage the hyperspectral imaging and AI-enabled high-precision mineral discovery analytics, so that we can efficiently expand, enhance and improve the value of these mineral resources. I’m sure this is going to make some people on this call very happy, since our 2023 objectives now include advancing our exploration and development and publishing a prefeasibility report with the Canadians call a preliminary economic assessment, or a PEA in the industry for both the Lucerne and Dayton Resource area.

We will also develop with GenMat, a next-generation geostatistical digital twin model of the Dayton Resource, using our extensive existing geologic and geophysical data and creating tremendous additional knowledge for expanding that resource. These 2023 efforts will certainly enhance our gold and silver resources while progressing toward ultimately publishing full economic feasibility reports. These reports would result in proven and probable reserves, although it would come after the prefeasibility reports that we just discussed. Look, when the world was in chaos and we have runs on our banks, we love having 12 square miles of entitled, permitted gold and silver mineral resources fully back in our portfolio with gold at well over $1,900 today and in our opinion, heading higher, that then represents billions of dollars in mineral revenues in the future.

This has also of course, increased outside increase and interest in these properties. Last and certainly not least, for Comstock Metals and our LiNiCo subsidiary, we have built and operated a pilot system validating our lithium-ion recycling technologies for use in efficiently crushing, conditioning and extracting high-purity black mass metal concentrates from these battery cells, elevating our technology to TRL 5. We just need to operate the system more extensively to achieve TRL 6, but we have certainly confirmed our ability to produce black math and these metal concentrate. As I believe most of you know, we have both opportunistically and strategically monetize the option facility in the Tahoe Reno Industrial for gross proceeds of $27 million.

This eliminated near-term liabilities of $12 million and generated immediate and near immediate net cash proceeds of over $12.5 million. When Microsoft and other tech companies recently announced billions and billions of dollars in investments in this area, we capitalized on the opportunity and we sold the asset. We also had a facility massively bigger than any of our immediate needs frankly, than any of our intermediate needs, plus new access to other properties more conveniently situated in our system. Frankly, we also see a longer horizon for LIB batteries, especially with the secondary and extended lives than most people seem to be acting against. Yet we do see other near-term opportunities for recycling other metals efficiently, profitably from other electronic devices.

All of this allows us to non-dilutively fund and physically reposition our platform here in Northern Nevada and make better use of the already permitted facilities for both storage and metal processing. As you know, we’ve already expanded our technical and operational leadership for Comstock Metals with Fortune Auto here with us today as we complete the planning for this new metals recycling platform and broaden more immediately the addressable markets for commercializing of our business. We also continue to advance the technology readiness, including some technology that Fortunato is adding to the equation for broader material recycling like, for example, photovoltaics and fuel cells. We’ve already identified these broader feedstock opportunities, revenue potentials and expanding high-growth markets, certainly including but well beyond just lithium-ion batteries.

This is a shift, this is the reposition. We want to be very, very clear. We will finish this repositioning plan and share much more specific objectives here for 2023 in the near coming months. We’ll also start hosting more frequent calls, highlighting a particular business each time, so you can get better exposure to the rest of our leadership team. This will get kicked off in mass at our upcoming Investor Day and then much more frequently thereafter. With major asset sales already delivering now more than 14 million in cash proceeds and an additional 20 million in pending and planned asset sales for this year, the company has alleviated the need for continued equity issuances at these levels. I know that’s also going to make some people happy.

Executing licenses for use of our biorefining technologies, our number one priority for 2023. While our metals and generative AI solutions have and continue making incredible leaps forward with the goal of readiness first and then securing partner and customer agreements in 2023. Just to restate before we take questions, 2021 and 2022 were about technology development and readiness, as you’re hearing in a pretty big way, 2023 is all about commercialization. Zach, let’s stop there and turn to questions. Do we have our first question?

A – Zach Spencer: Yes, we do Corrado. The first question is, what is the status of patents applied for in biofuels?

Corrado De Gasperis: So I think we announced about half a year ago, the filing of a very, very dramatic patent, hundreds of claims within the patent. We were internally referring to it as the umbrella patent. It’s still relatively young in terms of the filing, but we believe that the extent of it, the depth of it gives us freedom to operate with our technology, which philosophically is what we’re all about moving fast with our technology without any encumbrances.

Zach Spencer: Our next question is why haven’t insiders purchased any stock? Will they be purchasing stock in the near future?

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Q&A Session

Corrado De Gasperis: Thanks for the question Yes. So look, let me — let’s talk about that just for a bit. We’ve got a very, very strong senior team of people here that are deeply invested in the company, I think digging through each and every one of them, their investment in the company represents a substantial majority of their network, number one. Number two, they’ve all committed for a very long-term. And to me, that’s not even that consequential because most of our team has dedicated their lives to the objectives that we just went through with you. In addition to that, a lot of our people came in when we originally valued these transactions and we originally acquired these companies, at $1 equivalent of $5 a share. So when we think about alignment with our shareholders, when we think about our own investment and we think about how vested we are in this equation, we think there’s very, very strong alignment.

Having said that, I don’t want to dodge the question. If we have the opportunity, and frankly, we have the personal liquidity, we see this as an attractive step. And each person will make their own individual decision, but we would look forward to some positive actions there.

Zach Spencer: Okay. Next, we have a statement from one of our listeners today. First of all, let me say congratulations for everything the company has accomplished up to this point. And when will we be able to hear more about the collaborations that you have with the various entities that were listed on the DOE grant application.

Corrado De Gasperis: Thank you first for the congratulations. We’ve got a lot of wood to chop literally, figuratively. The grant application was energizing to the company when we were awarded frankly, it energized us even before we were awarded with the assembly of that world-class industry team. With the award, we’re engaged with every one of those parties on a frequent basis and with the DOE to finalize all aspects of the grant, finalize the agreements and kick it off. As a matter of transparency and currency, we’re planning to post the full grant application, which gives great detail to our technology and our processes and sort of indicates what the role of each one of our partners is. So I think it’s going very, very strong and it’s going very, very fast. We’re dealing with the government, but they’ve been actually remarkably responsive to all of our back and forth. And so I think we’re in a good place.

Zach Spencer: Corrado, can you please update us on the investment in Green Lion.

Corrado De Gasperis: Yes. So Green Lion, if you all recall, when LiNiCo was first formed and negotiating the contract for their downstream precursor cathode active material system. We made an investment in Green Lion. The investment was about $2 million and we got a little over 20% of the company. Maybe this question is being asked because Green Lion just last week announced their third offering — valuing the company at about $150 million. We were ecstatic to see that, to say the least. And — we understand that they have selected and are deploying their first system with another customer that was in part — at our request as well. And we have a very, very strong relationship with Green Lion, the investment was initially marked to about $4.5 million on our balance sheet at December 30, 2021, when we increased our ownership in LiNiCo. We no longer mark that investment to market. But given the recent offering, it’s worth much, much more than that amount of money.

Zach Spencer: Can you provide an update on the Mercury Clean Up business as well as the equipment that’s associated with it.