LODE: Out of the Hole with Multiple Upsides

JARED STURDIVANT, O-Cap Management The Gold Report Interview with Jared Sturdivant (04/04/2011)
"We look for two underlying components in an investment: Value and a catalyst. Typically, the catalyst is a restructuring of some sort. One company on the gold-/silver-mining side is Comstock Mining. What was interesting about Comstock (formerly known as GoldSpring) is that it had assembled a large area of land around the historic Comstock Lode Mining District in Nevada. Since the 1800s, that district has produced 8 Moz. of gold and 190 Moz. silver. Comstock put this big property together through debt financing. An investor by the name of John Winfield. . .effectively transitioned [LODE's] debt to a preferred stock. . .Shortly thereafter, the company did a major refinancing. It financed US$35M of new convertible preferred stock to outside investors. This, along with hiring new CEO Corrado De Gasperis, was a major game-changer. It saved the company from bankruptcy. Corrado laid out three aggressive targets, which we thought were very attractive. The first was to increase the Au Eq. from 1 Moz. to +3 Moz. The second was to enter production in the second half of 2011. And, the third was to get 2012 production up to 24 Moz. Au Eq.

What we really like about the situation is that you're buying an exploration company that is converting to a producing company that's growing resources substantially. We think it will have cash costs of $450–$500/oz., so Comstock could do US$20M in cash flow next year very easily. And, the company's got two projects. The Dayton Phase 1 drilling program is now hitting bonanza-type grades, so there's a lot of resource upside as the property continues to get drilled. We looked at this and said, 'Wow this is interesting.' Not only do you have a company going from an explorer to a producer, but also you have a new management team with great plans for a resource upgrade. Comstock also has an AMEX listing coming in May, which is another tangible catalyst. When you look at the valuation, if Comstock gets valued like a producer, you've got multiple upsides from here. If the company continues to grow the resource base, once it starts producing 3, 4 or 5 Moz., Comstock really starts showing up on the radar of acquirers. We think that's attractive." View Entire Article: Jared Sturdivant: Distressed Companies Offer Gold Lining

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