Comstock Inc. (LODE) Earnings Call Transcript

Welcome to today's fireside chat with Comstock Inc., New York Stock Exchange ticker LODE. I'm your host, Peter Gastreich, Managing Director of Energy Transition and Sustainable Investing at Water Tower Research. Today, I'm very pleased to welcome Corrado De Gasperis, who is Chief Executive Officer of Comstock Inc. Comstock is a Nevada-based renewable metals and energy company with breakthrough technologies that unlock critical supply chain constraints in metals and fuels. Today, we will ask Corrado to outline the strategy, bring us up to speed on recent developments and help investors understand where we are on asset monetizations and critical metals recovery ramp. So before we introduce Corrado and bring him in, I'd like to point out that the company's safe harbor statements can be found on its Investor Relations tab on its website. This fireside chat may not be reproduced or written transcript distributed without the expressed written consent of Water Tower Research. Also, this conversation is being recorded, so you can access it again in the future and share it with others. So finally, investors can submit their questions during this live fireside chat. And if we do not get to your questions, we'll be happy to deliver those to Corrado and his team after the chat. So with those housekeeping notes out of the way, let's get started. So Corrado, it's always great to have you back. So welcome, and thanks so much for joining us today.

My pleasure. Thanks for having us, Peter.

So Corrado, in our fireside chat that we had about 6 months ago, we discussed Comstock's system-based strategy -- and before we move further downfield today, I think it'd be really foundational for any investors who may be new to the company to hear your philosophy about this and really -- I really see this thinking as at the heart of Comstock, and it puts this company's diverse related sectors into some perspective.

Yes, for sure. I mean systems theory and working systemically for us, it's really all about -- and it's profound. It's all about focusing mechanism like what is the goal? What is the system that we're designing, deploying to achieve a particular goal? And what is the constraint like a last system. So what it does is it takes what are generally very complex systems. It takes what are generally very complex solutions and simplifies and focuses them on the 1 thing that if not solved for if not managed effectively makes the rest of it irrelevant. So that is constraint-based thinking that is systemic thinking. To us, it's 1 and the same thing. And so when you think about it from a process perspective, system can only move as fast as the slowest part -- so therein lies the foundation of the theory, right? The system can only move as fast as the slowest part. If you define a system as something that has a precise goal, right? And you're doing it for that purpose and that purpose only, hopefully, right, then why aren't you measuring the rate at which the system would achieve the goal yet most people don't do that, right? Their focus is diluted, distracted, right? They're going like this. instead of going like this. And then if it's a project rather than a process, same exact philosophy, it's the same exact theory, a project is a series of steps to achieve a goal. A process is a series of steps to achieve a goal. Therein, why aren't you measuring the rate at which you're taking steps towards the goal. So that's how we think -- that's how we act. That's how we measure. And frankly, that's what drives all of our prioritization it's been a schedule but in social medias that certain people, hey, show up on Monday, what's the biggest bottleneck that the company is facing. And I want to be a dog on a bone and resolve it. And then I want to go to the next biggest bottleneck that the company, well, that's how we think. I mean, formally, sophisticatedly practically like that's how we think. So yes, in a nutshell.

So with this system thinking in mind, could you give us a high-level overview across Comstock business and how the systems-based strategy is kind of playing out for you?

Yes. It's -- if you think of a problem in the industry, and this is the way we have to answer this question for -- if you're an innovator, okay? If you're an innovator, that means you're trying to solve something new, something novel, something innovative, something that's pressing in in contact metals, you have a literal surname of end-of-life solar panels coming out of the market. And without a solution, they will otherwise contaminate our ecosystem. They will go into landfills. They will go into and/or bad environmental implications. So that's I mean, that's literally the constraint of the -- that's the macro problem. That's the undesirable effect that will wash us away if we don't solve for it, okay? So the first point is when you focus on the singular largest problem that is unsolved, we don't believe in attacking problems that someone else has already solved. People do that all the time, but we don't think that, that's a thing. We should solve problems that are not yet soft. Why? Because it's meaningful and there's a tremendous amount of economic value that comes when you solve that kind of a problem. There's no one else to solve it yet, okay? So in that case, the ability to receive and process panels for reuse has to be that has to be solved for. That's the bottleneck that has to be solved for. And so we create an entire company and we create an entire supply chain, and we create for lack of a better description, an entire system around renewing those metals. That's how we approached it. If you have thousands of acres of land that no one can do anything with because the bottleneck is power, what do you focus your time on? getting permits, getting infrastructure No, you solve for the power. If you don't solve for the power, don't spend another minute or another dollar doing anything else because that dollar and that minute can be lost forever. And that's -- we don't believe in that, right? So and then lastly, if renewable fuels our mandated if energy is in demand universally. And there's no feedstock to produce these fuels, the technology, the hydrocrack oil into fuel exists, but there's no feedstock to make more oil than focus on that problem and procure the highest yielding, fastest-growing, lowest-cost feedback that you can put anywhere and create an oil well that will sustain for you. So hopefully, that gives you a little bit of insight as to how we think and how we approach. We also use the term frequently, Peter, minimum sufficiency. Without a little bit more color, it might come across to someone that were minimalist it's the exact opposite, right? We need sufficiency. We need sufficiency, which means technical and economic feasibility and capability to deploy and operate the system, okay? Minimum sufficiency is a focusing word, but it means you must have a complete solution -- many of the innovators that die in the valley of death, they are very smart. They're very good engineers. They're very good innovators. Sometimes they're good capitalists and not technical. Sometimes were great technicals and not good capitalist. Sometimes they are good people, people. Sometimes they're terrible people, people, right? So -- but sufficiency means you meet all of the minimum requirements to do what deliver. It means you must have sufficiency. It also means don't do anything more than what's sufficient because that takes away your capacity, focus only on the thing that matters.

So you've had quite a transformation at the company from that innovation perspective, but you're also going through a transformation in terms of your capitalization and would note you've had really quite a notable upgrade in terms of your investor base. Could you talk a bit about how that investor base has been evolving, especially recently?

Yes. I mean, my background comes from a much more bulge bracket banking and much more high high-caliber institutional investors. Now we've been devoid of that for a very, very long time. And the reason primarily is our fault that 5, 6 years ago, we embarked on this transformational activity to start taking the sum total of our knowledge, to some total of our experience in renewable materials and attack some big problems in some big industries. In fairness, we maybe should have just attacked one, okay? So we attacked more than 1. Maybe that wasn't well thought out. We weren't pursuing more than 1 but the opportunities cross and they fit, and so we took them on. With hindsight, taking on more than one and having some additional legacies, be it real estate and mining, really created a perspective of there's a lot going on here. And meaning a lot going on here in not a good way. And meaning you're not even remotely capitalized to take this on. So are we -- I think the only thing that we may be could be proud of is that we survived it. We should never do that again. okay? We wouldn't be true to what I just described to you if we weren't focused. So now that we have an opportunity to create a global industrial enterprise in renewable metals. What we really want to do is maintain that focus and simplify the entity. But we were able to convince an extraordinary group of institutional investors who I believe, more often than not, would write bigger checks and want to invest in bigger companies, not bigger opportunities. I think they see us as just as big an opportunity as there is anywhere else. But they might typically step in at a later point or a more mature point in the cycle. We were able to convince them with the help of our bankers that we are focused. This is a huge opportunity and it would be worth your time, even though you like writing $15 million checks and $30 million checks, it would be worth your time to write a $1.5 million check or a $3 million check. And that resulted in us being able to transform is the right word because there was nothing incremental about this. We went from having 3 to 4 recognizable institutions in our top 50 to having 35 million to 40 million in our top 50. And we really feel good about that. But how do we really feel about that? We feel that all the burden all the obligation, all the onus is on us to execute. If we do that, we're going to be in an extraordinary place because not only will we have proven to these earlier risk-taking institutions to give us a shot, right? Then the extrapolated population of institutional investors around there, hopefully will join, right? We'll join and we'll just build from a very strong capital base to something really, really strong.

Well, sticking with your balance sheet, let's turn to your recently announced legacy mining asset sales to MachaiPrecious Metals. And it really feels like a defining moment for the company. how does that structure of that transaction reflect both sort of a clean exit, but also it looks like a deliberate decision to keep some skin in the game.

Yes. I think the decision was really based on if we believe that renewable metals this industrial metal and material supply chain, this debottlenecking of this solar panel problem that we're affecting is the highest return on our capital. Then as fiduciaries, it's incumbent on us to take any capital that's tied up, that's nonproductive, right, and redeploy it in. So that -- so I hope that the message that's coming across is we are more disciplined in our capital allocation. We are more serious about doing something extremely well. And I think fundamentally, though, we just -- we wanted to get enough liquidity, enough of that capital out right away that could be redeployed productively into another metal recycling asset, either a second or a third facility or acceleration and enhancement of the metal extraction, which is the next phase from there. Frankly, if we got a lot more cash, which we would have happily taken, we couldn't quite get more upfront, I'm not sure what we would have immediately done with it. So it was okay, right? So $20 million cash upfront, 2 million shares in addition upfront, that was an effort to maximize the value. Yes, if we can't get all the cash upfront, we'll take some later when 18 months. Okay, we'll take that. We want you to unload all of our liabilities day 1 as well though, okay? So take those as well. What else can we get? What else can we get, right? We'll get another 1.5% royalty, which could be worth tens of millions of dollars. So it really wasn't, I don't know that it was it wasn't. I'm going to tell you, it wasn't an explicit desire to keep skin in the game. It was an explicit desire to maximize the value that we got that can be redeployed into the renewable metals.

Okay. Understood. So -- and beyond the mining assets, you're also planning to monetize the Silver Springs real estate holdings. Where there appears to be quite a lot of interest coming from those data centers. So how are you thinking about unlocking that value? And what does it mean for funding the growth ahead?

Yes. I think the only -- there's 2 differences in that portfolio when we compare it to the mining portfolio. One is it's much, much, much bigger. It's bigger in value, right? And so monetizing it we hope will be extraordinarily more valuable. It's also a little more complex in that perfecting that asset required us first to secure full ownership of all the lands, which we -- and then second empowered, you're not hearing this -- the data community, the compute community talking about land, you're hearing them talk about power. Powered land megawatts, that's what people are interested in acquiring, right, to power their their system, their solution. And so the only real negative implication of us moving harder on this -- it's not a negative implication overall. It's a hugely positive implication overall, but that we had to deploy some capital, right, to get it to where it needed to be for the bigger monetization. Now we didn't deploy capital in a negative way, we deployed capital in a way that did 2 things: Significantly enhance the value of the property by bringing the power and significantly increased our ownership. So not only did we make a bigger pie, we get a much, much bigger percentage of the pie. Believe it or not, the return on that capital, it's not it's not the same sustainable model of our renewable metals, right, where we can build facilities all over the world. But in the time period we're talking about the returns are even higher. So then it says we have this asset, we must maximize the return for our investors. And then we can then talk about, again, redeploying that capital into this focused global industrial material business that we're building here.

And at the moment, you're just beginning the ramp in terms of your solar panel recycling and critical minerals extraction, it looks like a great opportunity. Could you walk our listeners through why the time is right for this opportunity?

Yes. I think it is a really exciting time. So firstly, there are really 3 things going on, Peter, in terms of the building of this physical system, okay? So the first 1 is the big recycling machine, right? The actual core system where we take solar panels in, be it clean aluminum, clean glass, and these mineral-rich tailings coming out. That's the core system. That's the system that, frankly, we said we wanted to have by June 30 and that was yesterday. And this week, we said, look, we're going to be testing -- stress testing each part of the system. It's all in place. We're stress testing each part of the system literally as we speak. -- through July. And then by August, we want to have people literally visually seeing us put a panel in on 1 side and coming out the other. So if you myopically just looked at that 1 component, you'd say we're a little bit behind. That's fair. However, we also have deployed already stressed invested and are already operating an upgrade system for the glass. Why? Because we were able to get, and this was a big, big achievement. We were able to get a supplier willing to take all of our offtake, the glass/silica, right, that is one of those 3 streams that we just talked about. That's a good offtake. We never ever expressed aspirations of high values, but we always did express a notion that we had to get some value because we had to have a sustainable way to monetize and sell those materials. Otherwise, we'd have to dispose of them. And if we have to dispose of them, the math flips, right? It inverts to -- instead of being a revenue, it's a cost. Not only does the economic slip, the market perception that we've built, right, the credibility that we've built that we're a 0 landfill solution, but also, of course, we were never going to let that happen. Good news, we have an offtake better news we attract other large industrial glass manufacturers to the equation, and they said, "Well, let us test your materials. There's some metal in there. There's some dust in there. Okay. Now we have systems in place and we're meeting the highest level of specification, so not only do we have a certainty of offtake, we have a variety of offtake and the variety is of higher values, okay? It will take some time now, though, because that's effectively done, right? But these are big companies, right? We're just starting up. let us get started, let us get processing, let us start doing 50,000, 70,000, 80,000, 90,000 tons a year, right, then we'll be able to supply be extraordinary high specifications of glass and it's very exciting what we built. But that second part of the system, if you will, wasn't in the original plan. Wasn't even in -- we didn't have anything for it. No project schedule, nothing. We were going to produce glass, which we did produce in which we did produce tailings, which we did. Now we're upgrading those materials for higher value. The third part of it is we want to take those tailings and we want to extract the metals and achieve the highest yields and the highest values. And we were originally -- we did have a schedule for that originally. It was actually going to be starting in August of this year. Well, guess what, right? We've already launched that system. We're already pilot testing materials. And by the end of this year, we'd like to be in a position where we can show technically and economically, hopefully, with about a 1 tonne a day pilot that we can extract all the metals. Now how are we going to extract them all. We want to try to get the silver first, right, then we're going to get some form of some of the other memos. Then what do we do with the silica in the other materials. And then is there a dore that comes out. We don't know yet the exact configuration. But what we do know is we want to be able to sell cleanly all those metals. That is a major enhancement in the economic profile that we're striving for. And there's a possibility that we'll be announcing, right, that we can extract silver this year and a possibility that we'll be announcing that we could extract all the metals like this year. That is ahead of schedule. It was ahead of schedule. Again, partly external forces like the government offering some opportunity for funding that made us prioritize and move that forward in the schedule. I'm not saying look, we did the glass thing. We did the extraction thing, give us a break. We're a little bit behind on the recycling thing. I'm not saying that. But I am saying we have finite capacity, and we have to manage it within all 3 of these activities, while we're adding capacity and growing. So very, very exciting where I perceive this technology, these multiple innovations. You just talked about 3 innovations. One is recycling first of a kind. One is upgrading glass, not first of a kind, but unique tailored to our scenario. And then the third is metal extraction cleanly. That will be first of a kind, first of a kind, right? So we're talking about multiple innovations to build a complex industrial renewable industrial metal supply chain.

I'd be interested to hear your thoughts about the competitive positioning here and what's really proprietary about this the process. This is an emerging industry. Your first movers here in this competitive field -- it does appear to be largely populated. I think you've mentioned before about by convention recyclers and scrappers and who don't really have that meaningful technological edge, what does the company need to do to demonstrate itself as the industry leader?