The 10Q filed by the company on November 10, 2011 disclosed a total issued and outstanding share count of 116,517,096.  Assuming no more shares have been issued since November 7th, this pegs the Lone Star Gold, Inc’s market cap today at $96,709,189 but scrolling down to the financial statement reveals a company with a grand total of $126,519 in assets against $61,477 in liabilities.

Further down the Lone Star Gold’s 10Q, the profit and loss statement shows the expected $0 in revenues and $805,628 in total expenses including quarterly management fees of $259,179.   While much of the expenses are in stock being issued, the total economic picture seems a little light for a company that is trading at close to $100 million.

Looking at the employment agreement between the company and Dan Ferris, the President of Lone Star Gold discloses a modest cash salary of $120,000 a year but a stock compensation of another 1,000,000 shares of stock each year starting in 2012.  The stock was apparently trading at $1 at the time the deal was sealed as it reports the value of the stock at $3,000,000… not a bad deal for Mr. Ferris.  At the time he took over the company, Dan purchased 15 million shares for under $.0048 per share.  Dan is based out of London.  He has a background in public relations and promotion and has no apparent experience in any kind of essential geological disciplines such as mining or geology… another big red flag.

Subsequent to Mr Farris purchasing control of the corporation, the company acquired some Mexican property near other gold fields and raised cash, through transaction involving offshore companies, making this whole thing even more mysterious and then someone invested an enormous amount of money into stock promotions.   Mermaid Finance got $200,000 to spread a highly promotional piece written by copywriter John Myers and his John Myers Letter proclaiming neighboring gold companies could “gobble” up Lone Star Gold at $125 a share or $146 Billion.  Yeah.. that’ll happen..  AnotherWinningTrade.com got another $12,500 from the company to shoot the promo out to its subscribers.

While it’s difficult to determine the value of the rights acquired by Lone Star Gold a few months ago, for 425,000 shares of stock, a commitment to spend $150k per year on development of the property for 3 years and an obligation to pay an additional $125,000 in cash, I can say with a high degree of certainty that it isn’t $146 Billion 6 months later.  What I can say with equal confidence is that, when you see this kind of outrageous promotion, the promotion is not to bring awareness to the market but rather to facilitate some major dumpage of stock at the expense of the suckers who believe this  kind of crap.

Myers goes so far as to call this fantasy takeover “imminent and near-certain. ”   Times must be tough as Myers apparently sold his well documented copywriting talent for only $7,500 to create this gem of  a pump piece.

I’d do more research on the property and management structure but as far as I can see, there has been no meaningful exploration or development to this time.  This brings the timing of the pump into greater question.

There’s really no reason to spend any more time on Lone Star Gold, Inc.  Day traders should enjoy the volume and volatility of LSTG but as far as investing in it…. don’t bother.  It’s got a cool name, a credit to Dan’s promotional background but beyond that, it’s a loser start to finish for everyone but the folks who are cashing in on the volatility created by this heavy promotion.

Disclaimer: We have financial interest or stock position in LSTG either long or short nor do we know anyone who does have a financial interest in the company or its stock.  Neither have we been paid to write this article.

The Obama administration, in a move displaying epic stupidity and overarching shortsightedness agreed to rev up the printing presses and print more US Dollars in order to put a band-aid on the Euro Zone financial crisis and allowing Andrea Merkel, Nicolas Sarkozy and the rest of the European Socialists to kick the reform can down the road a few months.

Having lived in Europe for 3 years, I can say with a high degree of confidence, European leaders have less stomach for reform than our current batch of Congress men and women do.  Yet without reform, the crisis in Europe will only continue to escalate until it collapses.  The Germans have the discipline to accept austerity measures necessary but there is no way the French, Spanish, Portuguese or Greek ever will and while the Swedes  are once again operating at a budget surplus thanks to a conservative government that believes in keeping its promise to its people, it’s doubtful they will want to underwrite the addiction to entitlements and lack of discipline displayed by the rest of the EU.

The US Dollar bandage won’t hold back the impending doom more than a few months and when the you-know-what hits the proverbial fan, you can expect gold to move up sharply.  Whether it will reach $5,000 an ounce is a subject for serious conversation but well beyond $2,000 is a given when the EURO collapses.

If I were looking for the worst possible gold stock to buy, worse even than Silverado Gold Mines (OTCBB: SLGLF), Portage Resources Inc (Pink Sheets: POTG) would definitely be on my short list. There is no explanation for the stock trading over 34 million shares yesterday and shooting up from $.11 to $.29 nor for its continued trading today, already over 9 million shares.

I don’t want to waste a lot of my time or yours on this but, given the activity, I thought it appropriate to give it a mention here.  So, allow me to give you some basics.

From the Portage Resources 10Q the issued and outstanding shares are 637,200,000 as of April 11, 2011.

• Market cap at $.29 is $184.788,000
• Cash in bank as of Feb 28, 2011 – $533
• Total Assets as of Feb 28, 2011 – $533
• Total mining claims – NONE
• Total properties owned – NONE

This is nothing more than a dormant public shell that has recently changed hands through the transfer of 480 million shares to Paul Luna Belifiore.  He paid $20,000 for the stock.  Here is his official resume.

Paul Luna Belfiore. Mr. Belfiore is a metallurgical engineer with over 20 years of experience in the mining industry.  He has been the director of Alto Petroleo (“Alto”) in Canada since October 2007. As Director, Mr. Belfiore has been in charge of the major agreements  and projects  for Alto.   During the first half of his career, Mr. Belfiore  worked in several roles including production contracting and negotiating in various countries in South America with a focus on precious metals. Mr. Belfiore has been a General Manager of Cotomaran Energy, a Peruvian company which is conducting a 500 MW hydroelectric  feasibility project on rivers in Peru, since August 2004.   From June 2005 to December 2007, Mr. Belfiore was the general manager of Ironman Mining in Peru, where he was in charge of contract negotiations and major drilling programs. From March 2003 until April 2008, Mr. Belfiore  was General  Manager  of Goldmarca  in Peru, participating  in the Condor  project drilling program where Goldmarca drilled one of the best intercepts in gold history with 50 Mts. of 18yrs. In 1996, Mr. Belfiore was promoted to Executive  Director  of El Misti Gold working  in the acquisitions  area, where  he was responsible  of the Sinchao  project (USD$12 Billion in metal content) amalgamation and Santa Rosa project.  Mr. Belfiore then worked for Brazilian Goldfields as Vice-president  of Corporate  development  and was responsible  for identifying,  evaluating,  and negotiating  primarily  in the Belem  gold belt, Brazil.  As an executive  officer  and director,  Mr. Belfiore  brings  a wealth  of management  and leadership experience to Portage Resources Inc. and will lead the Company to acquire exploratory geological operations and mineral assessment. Mr. Belfiore is fluent in English and Spanish.

To date his only action has been to indicate he thinks Peru would be a good place to look for gold.  That’s it folks.

As a shell, this company is worth around $500k.  That would make the stock worth around $.0008 I have no idea what’s up and frankly, I don’t care.  This is a play for day traders only.  If your not a day trader and preferably a short seller, you want to simply stay away from this. There is nothing here folks…. time to move on.

UPDATE: One of the original properties being used in this pump and dump scheme was known as “Linderos #4.”  The company recently revealed in a press release that it had acquired this property from Nilam Resources, Inc. (OTC: NILA).  Now it has announced the acquisition of a second Linderos property from Nilam Resources.  What they failed to tell you was that in 2010, Nilam resources wrote off their Linderos properties as “impaired”, an accounting term for worthless.   Here is how they reported it in their 10Q filed on 3/18/2011.

“On February 10, 2009, the Company issued 20,000,000 shares of common stock on the acquisition of Linderos property. The property was considered to be impaired and accordingly, was written off during fiscal 2010.”

Equally interesting is how Nilam describes itself in its 10Q after it acquired the Linderos property but before it wrote it down to nothing as impaired.   “These consolidated financial statements inclusive of the accounts of the Nilam Resources Inc. and its Peruvian subsidiary Nilam Resources Peru SAC. Nilam Resources Inc. (an exploration stage company) (the “Company”) was incorporated under the laws of the State of Nevada on July 11, 2005. The Company is a natural resource exploration company with the objective of acquiring, exploring and if warranted and feasible, developing natural resource properties.   On November 23, 2007, the Company incorporated Nilam Resources Peru SAC, in Peru, as a wholly-owned subsidiary.  The purpose of the new subsidiary is to hold the Company’s Peruvian properties and to carry on such business in Peru as is necessary to maintain, explore and develop the Company’s properties.  Nilam Resources Peru SAC. holds the Company’s rights in respect of the Llippa and Linderos properties.  The continuation of the Company is in the exploration stage of its mineral property development and to date has not yet established any proven mineral reserves on its existing properties. The continued operations of the Company and the recoverability of the carrying value of its assets is ultimately dependent upon the ability of the Company to achieve profitable operations.”

The similarity is uncanny really…. and they both came from Quebec… quelle surprise.  Day traders continue to enjoy this stock riding it up and now down while those who thought it was something real find themselves on the horns of a dilemma.  Should they hold and hope or worse yet, buy more, or should they grab their disappearing profits or growing losses and walk away.  Never a fun place to be.

Disclosure: I have no equity interest in Portage Gold either long or short nor have I been compensated in any way to write this article.  As always, consult an investment professional prior to investing in any stock.

Virginia City, Nevada – (Our-Street 6/9/2011) – Opponents of Comstock Mining’s (AMEX:  LODE) plan to initiate open pit mining activities throughout the historic Comstock Mining areas near Virginia City, Silver City and Gold Hill scored a minor victory as their objection that the permitting process was being “unnecessarily rushed” given the size and scope of the requested Special Use Permit (SUP), caused the County Planning Commission to delay the hearing until at least the July meeting.

In a letter dated May 27, 2011, submitted by attorney John L Marshall on behalf of the Comstock Residents Association, it was claimed that “the SUP application is for an unlimited and unspecified amount of exploratory drilling and trenching over 5,000 plus acres over a five year period of time.  As described in the attachment, the application is devoid of meaningful detail describing the location, intensity, timing and affect of proposed activity.”

click to download

In response, the Storey County Planning Department tabled the application, which was originally scheduled for consideration on June 2, and tentatively rescheduled for hearing the matter on July 5th.

Following the tabling of the application, Comstock Mining, Inc amended its SUP application along with a new map showing a greatly reduced affected area approximately half the size of the original application.  Removed were areas covering the Gold Hill area and the company’s mining claims approaching and into the Southern end of Virginia City itself.  Comstock Mining also amended the application to include the proposed hours of operation between 7:00 AM and 7:00 PM for any areas within 1,000 feet of any residence.

It’s difficult to determine how or if this reduced area map will affect the company’s overall plans.  If they are granted the SUP and keep their noses clean, it would seem likely that the momentum would be on their side when they apply to expand the permit areas down the road.

Speaking of keeping their noses clean, we have received two unconfirmed reports that the company has already been required to move their drill rigs 1,000 feet away from residences in order to comply with their prior SUP’s.  Additionally, we’ve learned that the company has been cited by the Nevada Department of Environmental Protection for a waterway violation.

These developing events, however, highlight two more significant realities which should concern or at least be considered by shareholders and potential shareholders.  We have heard conflicting reports as to the size and power of the Comstock Residents Association and the rest of the opposition to Comstock Mining in general.  Depending upon the source, one can get the impression that the entire region is up in arms with pitchforks and torches ready to do battle or that the opposition is actually just a few disgruntled residents and that the majority of the folks in Virginia City and Silver City and Gold Hill are squarely behind Comstock Mining’s attempt to dig those open pit mines.

click to download

One could presume the truth lies somewhere in between but one thing cannot be denied; the opposition’s success in getting this matter tabled and forcing Comstock to significantly reduce their permit request suggests that, regardless of size, the opposition is dead serious at limiting or stopping Comstock Mining’s attempt to initiate open pit mining near their homes and, more importantly, they’ve got some traction.  My conclusion is that, while the odds still favor Comstock Mining, this is by no means a slam dunk and, given the elevated risk, one would be wise to guide their investment in LODE stock accordingly.

As important is the fact that, despite Comstock Mining’s attentiveness to issuing press releases promoting their shareholder meeting and barbecue and their attendance at the World Resource Investment Conference in Vancouver, they didn’t find these material developments worthy of disclosure.  Their lack of transparency means Our-Street.com and others have to pick up the slack so that the market can be fully informed and that is never a good sign.

Disclosure: I have no equity interest, either long or short in LODE nor do I know anyone who does.  Neither have I been compensated in any way to write this article. As always, consult an investment professional before investing in any stock.

(Serious Speculator – May 31, 2011) – As I wade through the stacks of 10K’s and 10Q’s of gold stocks on my desk searching for those companies worthy of writing an article about…. OK, maybe I don’t have stacks of printed documents on my desk but the image is a lot better than that of me squinting at my monitor for hours and hours reading them online.   Anyway, as I digitally wade through the gold stock disclosure documents on many companies in search of the few worth writing about, it seems appropriate that I publish the names of the ones I look at and decide didn’t make the cut.

There’s a lot of reasons a gold stock might not make the cut.  It could be that the gold stock appears to me to just be a vehicle for insiders and/or promoters to make a lot of cash at the expense of the shareholders.  It could also be that the operating company inside the gold stock just hasn’t developed enough to make the risk worth the possible reward.  It could also be that the company’s disclosure is either insufficient or non-existent.

If someone thinks that a gold stock they like has been unfairly mentioned here, please contact me and give me your best reasons why I should feature it in an article.  I am always willing to reconsider my decisions, especially since, over time, company profiles change considerably, either for the better or the worse.

So, here’s my list of gold stocks that I have decided that, except for day traders, they are ones to avoid.  Day traders are, always the exception because they aren’t investing in a company, they are only trading on the movement of the stock.   They don’t care if the company behind the gold stock is good or a total scam, so long as the stock is volatile and liquid.

So, without further adieu, here is the list of gold stocks to date that have not made the cut and should be labeled “Caution, For Day Traders Only!”  I will update this list from time to time so check back.

Silverado Gold Mines (OTCBB: SLGLF)

American Goldfields (OTCBB: AGFL)

Argentex Mining Corp (OTCBB: AGXM)

Asian Dragon Group Inc. (OTCBB: AADG.OB)

Black Tush Minerals  (OTCBB:  BKTK.OB )

Colorado Gold Fields (Pink Sheets:  CGFIA)

Can Cal Resources, Ltd (OTCBB: CCRE)

Dutch Gold Resources (Pink Sheets: DGRI).

Constitution Mining Corp (OTCBB: CMIN)

Denarii Resources, Inc (OTCBB: DNRR)

Virginia City – (Serious Speculator – 5/23/2011)  Comstock Mining, Inc’s (OTCBB: LODE) plans for long-term mining at the scene of one of the world’s greatest gold and silver bonanzas have raised concerns from neighbors.

A citizen’s group calling itself the Comstock Residents Association has formed to fight Comstock Mining Inc.’s plans to mine for gold and silver near the historic town of Virginia City over the next 30 years, the Reno Gazette-Journal reported.

To date, Comstock Mining  has acquired property and mining claims encompassing about 6,100 acres from Virginia City to Dayton, including, most notably, historic Gold Hill and Silver City.

Corrado De Gasperis, Comstock Mining’s  CEO, said test drilling has identified deposits of gold and silver worth more than $2 billion, and claims the mining operations will provide jobs and a boost to the local economy.  “We’re hitting tremendous amounts of gold and silver.  We’re hitting bonanza grade,” De Gasperis said,  “We’re going to mine.”

But opponents say the company’s open-pit mines will destroy a quiet rural lifestyle and forever alter one of the West’s most historic places.  “We’re not opposed to mining.  We’re opposed to pit mining in the historic district,” said David Toll, an author and organizer of the Comstock Residents Association.  “This is a National Historic Landmark.  It belongs to everybody.”

The landmark commemorates one of the world’s greatest bonanzas ever: a massive, underground pocket of silver and gold around Virginia City known as the “Comstock Lode”, about 20 miles southeast of Reno.  Discovered in 1859, the lode has yielded a total of about 9 million ounces of gold and 220 million ounces of silver, worth about $12 billion in today’s prices.

With most needed state and county permits already secured, Comstock Mining hopes to start digging at a 180-acre site south of Gold Hill late this summer. The pit mine there is expected to be about 30 acres in size and between 300 and 450 feet deep.

The company also is considering another pit mine at an 88-acre site just outside Silver City, a town of about 200. Residents fear heavy truck traffic and mining activity will ruin the area’s charm.

“It would destroy this community,” 30-year resident Darlene Cobbey told the Gazette-Journal.  “Open-pit mining does not belong in a residential community.”

Comstock Mining officials said they will work to minimize impacts to residents, including routing truck traffic away from neighborhoods.  Still, they acknowledged mining operations would affect residents.

“There’s no mining activity that won’t have some level of disruption,” De Gasperis said.  “Some people don’t want to live that close to this kind of activity.  We understand that.  That’s why we’ve been up front and transparent.”

Reclaiming disturbed areas both from the company’s mining as well as historic mining done by others  will be a top priority, he added.  De Gasperis said the company’s primary investor, John V. Winfield, is “environmentally conscious and socially responsible.” Winfield’s company, InterGroup Corp. Inc., owns the San Francisco Hilton.

On June 2, at 6 pm Comstock Mining, Inc will apply to the Storey County Planning Board for a Special Use Permit to allow five years of drilling all the way up Gold Canyon and under Virginia City.  He also said that “notices have just gone out to property owners and people are waking up.  It will be a HUGE meeting, the first real battle in an official arena.”

While history suggests that corporations and government regularly run over citizens when money is concerned, there is a lot riding on the permitting process.  In order to generate the desired revenues, Comstock Mining must necessarily disrupt lives and gut the landscape and citizens have to hope that Comstock Mining is more faithful in living up to their custodial responsibilities when it comes to reclamation than many noteworthy public companies in the past.

With this much at stake, we still like the view from the sidelines but day traders can have a blast with the liquidity and volatility.

Disclosure: We do not have any equity interest in Comstock Mining, Inc stock or the company nor were we compensated in any way to write this article.

The acquisition of the historic Gold Hill Hotel outside Virginia City demonstrates, in our opinion, a significantly greater involvement of 38% stakeholder John Winfield through his Winfield Group LLC than we originally concluded.  In addition to the Winfield Group LLC, John Winfield is also the CEO of Portsmouth Square, Inc  (OTCBB: PRSI) which is engaged in the ownership, development, and lease of real state properties and are the primary owner of the San Francisco Hilton.  Winfield is also Chairman, President and CEO of Santa Fe Financial Corp. (Pink Sheets: SFEF).

Despite Winfield’s decision not to take an official position in Comstock Mining Inc, the Gold Hill Hotel purchase suggests that Winfield is not just a passive investor in the company, as originally thought.  The purchase does not appear to us to be based upon income potential of the property as much as it seems to be a strategic move to ingratiate the company with the residents of the communities adjacent to the various properties Comstock Mining is focused on.  We think this is in response to the push-back by local residents as Comstock Mining reactivated their exploration activities.

As a result of these new conclusions, we have added Mr. Winfield to the management section and upgraded the rating accordingly.  At the same time, since Winfield Group is the primary owner of the Series A convertible preferred stocks, and since Winfield has no history as a penny stock player who would enter a stock with the intent of dumping out of it, we have also upgraded our rating on the Stock and Market section.  As a result our total rating on Comstock Mining, Inc has been raised from 44 to 54.

Disclosure: We do not have any equity or financial interest in Comstock Mining or its stock. As always, consult a qualified financial advisor before purchasing any stock.

I have received several requests from readers to have a look at Comstock Mining, Inc (OTCBB: LODE) and, given that the company just got reorganized and recapitalized resulting in the company having $25 million in cash in the bank, while simultaneously reducing its debt from around $23 million to $5.5 million, and given that the stock is being actively promoted, this seemed like a very good time to do just that.

According to the company’s website, “Comstock Mining Inc. is a well-capitalized, Nevada-based gold and silver mining company with extensive, contiguous property in the Comstock Lode District.  The Company began acquiring properties in the Comstock in 2003.  Since then, the Company has consolidated a significant portion of the Comstock Lode District, amassed the single largest known repository of historical and current geological data on the Comstock Lode region, secured permits, built an infrastructure and brought the exploration project into test mining production.  The goal of its strategic plan is to deliver stockholder value by validating qualified resources (at least measured and indicated) and reserves of 3,250,000 gold equivalent ounces by 2013, and commencing commercial mining and processing operations in 2011, with annual production rates of 20,000 gold equivalent ounces.”

To date the company lists a total of  424 mining claims (by our count) in their most recent 10K so they certainly have been busy amassing, that’s for sure.

A look back at the historic filings of Comstock Mining, Inc (fka Goldspring, Inc) shows that the company actually was producing mining revenues from 2004 through 2007 but had to discontinue mining operations due to lack of cash, the result of ongoing multi-million dollar losses every year, despite the revenues.

Over the course of the next few years, the company kept projecting the eminent restart of mining operations, only to keep moving the goal posts further away in each subsequent quarter.

Next, the company implemented some revisionist history and slowly modified their disclosure to suggest their shut down in 2007 was strategic in order to expand their holdings while furthering their testing and drilling exploration.

Of course, in April 2010 there was a change of management, with Corrado De Gasperis taking the CEO reigns so one can remain hopeful that, with Corrado at the helm, a new era of success may have dawned.  The only thing dampening our enthusiasm in this regard is this simple statement from the company’s 10K, “we have not established proven or probable reserves, there can be no assurance that we will be able to produce sufficient quantities of gold or other mineralized material to recover our investment and operating costs.”

So, despite a long series of promising sounding press releases hailing drilling and exploration successes, the company has yet to identify any proven or even probable reserves in any of their 424 mining claims, a sad state of affairs for a company that has been focused on acquisition and exploration for the past 4 years.  Without proven reserves, initiating production possesses far greater risk and chance that the mining operation will be a losing proposition from the get-go.  We think this also calls into question the company’s projections of mining operations commencing in 2011.

We think it’s too soon to determine if the new management team is following the old penny stock concept that it’s easier to promote a stock and raise money on the promise of exploration than it is to find funding when your mining at a loss.  But, given the price of gold these days, its really a pity that the company has apparently squandered tens of millions of dollars on property and exploration and yet doesn’t have a single ounce of proven or probable reserves to show for it.

An additional consideration is that a majority of the Comstock Mining claims are on Bureau of Land Management (BLM) land which means that the regulations regarding permitting, mining restrictions and reclamation requirements are onerous and discouraging.  Still, the company has more than enough non-BLM claims to give them ample opportunity to demonstrate they can locate and extract meaningful amounts of gold and silver at a profit and to prove the value of the company, so that isn’t a material detractor for me.

Finally, while it’s true that large mining operations can mine concentrations far below the 899.00  ounces of measured and indicated resources at 0.03 oz/ton claimed by Comstock Mining but with the company’s processing plant several miles from the Silver City mine and even farther from the Dayton mine, their costs per ton to extract, deliver and process the ore will be necessarily higher, not only because of the time and costs involved but the fact the company is not in a position to use the normal economies of scale that are available to open pit mining companies where the processing plant is on site and they can use the 300+ ton ore trucks that are typically used in large open pit mining operations.   This is not to say that the company can’t mine profitably both at a gross but as a net to the shareholders as well.  The point here is that, at a current market cap (fully diluted) around the $300 million mark, I think it’s important that the company demonstrate what it can actually deliver in order to justify that kind of market cap.

Still, until I can see some material developments in the way of proven reserves in EDGAR filings or profitable mining operations, I can’t justify a rating of the business strategy above an 8 out of 20.

Potential for Exponential Growth
As much as I’d like to believe new management means new opportunity, the stock is currently trading at a market cap of around $270 million fully diluted  and, in order to experience exponential growth from here, the company is going to have to either prove a significant amount of reserves or they are going to have to turn in some attention grabbing quarterly revenues after they resume mining operations.

While any development and exploration operation possesses the possibility of hitting the mother-load, until Comstock Mining Inc can produce some real definitive results, over a few promising core testing results and some management additions, I’m going to hold a skeptical eye toward the idea of exponential potential for Comstock Mining stock and give it a rating of 4 out of 10.

Financial Statements
Despite a $60 million loss in 2010, accumulated primarily around the reorganization of the company, as it sits today, Comstock Mining  has a very appealing balance sheet. According to the 10K “On October 20, 2010, we raised approximately $35.75 million in gross proceeds (approximately $33.2 million, net of issuance costs, by issuing shares of our newly created Series B Convertible Preferred Stock (the “Series B Preferred Stock”). Special attention should be paid to the heavily dilutive effect of these Preferred shares which are covered further in the Financial Statements segment of this report. With $31.8 million in current assets against only $5.57 million in current liabilities, Comstock Mining  seems set, at least for the near future… certainly sufficiently funded to launch the promised mining operations should they choose to do so.  However the company does have a burn rate exceeding $5 million a year and perhaps even higher so, if the company steps up its game, we could be looking at funding for no better than a few years at best.  Still, that’s a far cry better than most micro cap mining companies so their financial statements, today, are definitely a Comstock Mining  strong suit.  I give the company’s financial statements a 20 out of 30.

Stock and the Market
Since the stock began to gain support in November (following a necessary reverse split) and, as the reorganization finished up, the stock has shown signs of stability, trading between a high of $4.30 and a low of $2.85.  I like the trading level as it lends an air of legitimacy to the market that a stock under a nickle simply can’t project.  The stock has decent liquidity and enough volatility to encourage day trading as well as investing.  These are the good points.

I can’t say I’m thrilled with the idea of the company having 3.9 billion shares authorized but, as long as the company treats the stock as precious, it shouldn’t be a problem.

Of some concern, however, is the Convertible Preferred shares issued and outstanding. The Series A-1 and Series A-2 are convertible into 1,536 shares of common stock each at $.65.  With 30,157 issued, this represents 46,321,152 new shares of common stock, more than twice the current issued and outstanding number of common shares.

The Series B Preferred shares are convertible into 606 shares each of common stock at $1.65 and force conversion if the stock stays over $4.50 for more than 20 out of 30 consecutive trading days.  With 35,749 shares Series B issued, that represents another 21,663,894 shares. However with a cost basis for the shares of an additional $1.64, these shares don’t represent a significant overhang at the current prices.

Combined this represents an additional $65.85 million in funding, when converted but, with the Preferred A stock in the money nearly $3 per share, it’s natural to expect the holders could execute a “cashless exercise” whereby, they sell stock into the market to fund the conversion, thereby being able to convert all their Preferred shares into common stock without having to invest another dime of their own money.  Depending on the mood and intent of the Preferred shareholders, this overhang could theoretically drive the stock down by more than 50% from its current levels.  With the Winfield Group owning the lions share of the Series A Preferred and since the Winfield Group doesn’t have a history as penny stock players, I think the risk of a wholesale dumping is far less than it’s potential suggests.

Still, the 67,985,046 common shares, represented by the Preferred stock, represents significant dilution to common shareholders once they are converted and the outstanding shares rises to a whopping 89,712,112.

With this kind of  staring the shareholders in the face, I can’t rate the Stock and Market at higher than a 12 out of a possible 20.

Management
If there was a single overriding characteristic that best describes the management of Comstock Mining, Inc, I would have to say it was the overall lack of relevant mining experience found in the majority of the Officers and Directors.

Company CEO, Corrado De Gasperis was trained as a CPA and has a varied history in various manufacturing situations but anyone looking at his resume, would never naturally conclude this was a mining man.   His resume does mention mining twice and, thus, should be noted here  He was previously the CEO of Barzel Industries, Inc, a publicly traded steel manufacturing company he ran from its beginning in 2006 until its liquidation in Bankruptcy in 2009.  His bio suggests Barzel had mining activities but a quick check of the company’s last 10K reveals this sole mention of mining.  “We intend to accelerate our growth by identifying and pursuing additional market segments in which we can sell our production capacity. We have identified numerous end markets and we intend to incrementally exploit these market segments to fully utilize our existing capacity. For example, we intend to expand our sales end markets to transportation, non-residential construction, energy, aerospace and defense, railroad manufacturing and mining machinery.” In our opinion, this does not qualify as relevant mining experience.

Additionally, Mr. De Gasperis lists his directorship on GBS Gold international.  Checking SEDAR, Canada’s equivalent of EDGAR, indicates that during his tenure as Director from 2006 until 2009, the company went from being “an emerging gold producer with 2.1M oz of Measured and Indicated Resources and 1.5Moz of Inferred Resources of gold at its Union Reefs Operations Centre located in historically productive goldfields in the Northern Territory of Australia” to having its shares suspended then delisted by Canadian authorities and its assets liquidated.  While it is true that he was connected to the mining industry through this role as Director, I  can choose to weigh this as relevant but very negative mining experience or I can conclude his involvement was limited and therefore he wasn’t responsible for the company’s failure but, as a result he didn’t gain a material amount of relevant experience.  I think the latter is more appropriate in this situation.

Still, given his accomplishments over the past year in reorganizing and recapitalizing the company, his organizational skills are evident but one can’t presume that his experience thus far has given him the intuitive ability to comprehend and respond effectively to the complex nature when geology, and exploration and governmental regulations collide.  Since failure is often the best education, I don’t think his past failures are an indication of future failure but neither is it an indication of future success.  Accordingly, I find no compelling reason to conclude he either can or can’t bring Comstock Mining to profitability.

Combined, Robert Reseigh and Scott Jolcover, Directors of Comstock Mining, Inc do bring relevant experience to the board room but, given they were both also part of the previous management team, we must temper our desire to find confidence in the value of their potential contribution to the company’s future success.

While Robert Reseigh’s bio indicates extensive experience in mine construction, his expertise suggests his core competency is more in the area of underground construction (40 years) than it is in extraction of precious minerals.  The 10K also fails to reveal that Mr. Reseigh is currently working in Bozeman, Montana for Barnard Construction which limits his ability to contribute to the day to day operations of the company.  Still, despite the fact that Comstock Mining’s operations to date are of the open pit variety, since the company has stated that it has not ruled out underground mining in the future, his experience could be considered relevant and substantial when it comes to the underground tunnel based segments of the company’s possible future mining plans.

Likewise Scott Jolcover is the other director with relevant experience.  According to the 10K, he “has over 30 years experience in Nevada mining, land and mine acquisitions and divestitures, mineral leasing, royalty and commercial real estate.  Mr. Jolcover is also a consultant to the Company, providing critical land and mine acquisition and management services.  Prior to the Company’s acquisition of the Plum Mine in 2003 and until 2006, Mr. Jolcover also served as General Manager of the Plum Mine.  Mr. Jolcover’s knowledge of the Nevada mining industry, state and local practices and agencies and the Nevada real estate industry, provides insight to the Board and support to the management team.”  Given the resistance being mounted by local residents as indicated in the Virginia City News this would seem both relevant and important.  This lengthy article in the Virginia City News further lays out a local perspective and contains more information.

The only other corporate officer, Robert Faber, the company’s Chief Accounting Officer’s background is in waste management.  He has no relevant mining experience beyond his time with Comstock Mining.  He also is a Director for LODE.  Finally, Chairman of the Board, William Nance is the President and CEO of Century Plaza Printers, Inc., a company he founded in 1979 and is also active in the real estate business in Southern California but, aside from LODE has no apparent, relevant mining experience.

With three of the five executives of the company being trained as CPA’s, we know they are absolutely capable at accounting for the company’s profits or losses and, and if the company ever needs any beans counted, they’ve got that covered in spades as well.  As to whether than can bring Comstock Mining to profitability remains to be seen but should be come clearer by the end of the year and beyond.

I also can’t say I’m thrilled with the Director’s decision to all pay themselves $100,000 each from the proceeds for “all the additional work that went into restructuring and recapitalization of the Company.”  It seems to me that three of them were part of the problem long before they had to work so hard at being part of the solution.  Still, it tells us  where the Directors place their priorities and that’s always a good thing.

Finally, the recent acquisition of the Gold Hill Hotel near Virginia City (see news article) suggests significant influence (control?) of John Winfield, CEO of Portsmouth Square, Inc  (OTCBB: PRSI) and holder of the Series A preferred giving him a 38% equity interest and 75% voting control.  Despite the fact that Mr. Winfield is neither a director nor officer of the company, his 75% voting interest gives him the ability to influence and affect the company going forward.  Accordingly,  I will include his resume in forming my rating of management as I think think his influence is a good thing.

While everyone involved has a serious resume, but none more impressive than John Winfield. However, based upon the lack of heavy relevance to the mining business along with their willingness to wet their respective beaks at the expense of the shareholders, I am going to rate Management at a 10 out of 20.

Summary
On the surface, Comstock Mining, Inc looks like a promising company.  It has lots of acreage under its control and boasts, literally, hundreds of mining claims.  Having just completed a complete reorganization and recapitalization, the company’s balance sheet says this company is ready, willing and able to march toward revenues and profitability unfettered by economic concerns.  With gold hovering over $1.500 it’s hard to imagine a company with a brighter future.

However, like mining, due diligence requires digging and, when one digs into Comstock Mining, Inc, one discovers that all that glitters isn’t necessarily gold.  Promises of resumed mining operations within the year are tempered by a history of similar promises that died unkept.

The 21.7 million shares outstanding, a rational number to be sure, turns into 89+ million as the terms of the Preferred shares are revealed and, despite providing another $65 million in funding.  Hence, when considering the true value versus market cap of this company one should use the 89 million figure.

New management may well prove to be just what this company needed and they could turn this company into something to be really be proud of but it’s not going to happen today or tomorrow for that matter.  I think the near term risk of downside today outweighs the potential of any possible short term upside.  I further think that, assuming the company actually resumes mining operations later this year, there will be ample opportunity to judge their success before jumping into the stock for the long haul.  Our combined rating of  54 out of 100 further justifies our opinion. Still, this rating would likely change for the better or worse over the course of the next 8 months depending upon developments.  We wish them and Comstock Mining Inc shareholders good luck as your combined futures unfold.

Disclosure:  We do not have an equity interest in Comstock Mining, Inc stock either long or short nor have we been compensated in any way to write and publish this article.  As always, consult a professional before investing in any stock.

Reno, Nevada (OUR-STREET) 4/7/11 – I have received several requests from followers to review Coyote Resources Inc so I spent a little time on their website and EDGAR filings and this is my unbiased conclusion.    This is a relatively new company with modest capital resources (around $400k in cash as of 12/31) and some recently acquired properties which were acquired for $10k down and a note for $950k.

Here is what it says about the property in the recently filed 10K.

The Tonopah Extension Mine is without known reserves and is an exploration property. There are no current formal detailed plans to conduct exploration on the property, although we are current assessing the property to determine our plans to conduct exploration on the property. As of December 31, 2010, we have incurred costs on this property in addition to payments made pursuant to the Tonopah Agreement. We are not able to currently ascertain the amount of any future costs related to the exploration of this property.

The Tonopah Extension Mine is an exploration property located in south-central Nevada, midway between Reno and Las Vegas. Since 1930, we are not aware of any production or exploration on the Tonopah Extension Mine.  The Tonopah Extension Mine had been flooded and therefore no mining or drilling could be conducted on the property over the last 80 years. The Tonopah Extension mine is within the city limits of Tonopah and all water and power are available to the property. The Tonopah mining district is centered on the town of Tonopah in Nye and Esmeralda Counties near the intersection of two major highways, one north-south and the other east-west. U.S. Highway 95 crosses the property and access is available by all normal means of travel, such as automobile. Total land holdings comprise 958 acres of mineral rights and 368 acres of patented surface rights with additional holdings of 487 acres of patented surface rights for mining purposes within the Lambertucci Ranch holdings. No plant or equipment is present on the property with the exception of a steel head frame that appears to be in good condition.  There is no other equipment, infrastructure or facilities on the Tonopah Extension Mine.

According to Table 29, found on page 109 of Nevada Bureau of Mines and Geology Bulletin 92, Geology of the Tonopah, Lone Mountain, Klondike, and Northern Mud Lake Quadrangles, Nevada, which was authored by Harold F. Bonham, Jr. and Larry J. Garside in 1979, approximately 174 million ounces of silver (“Ag”) and 1.8 million ounces of gold (“Au”) were produced from 8.8 million tons of ore, primarily between 1900 and 1940, in the Tonopah mining district.  Production at the Tonopah Extension Mine was about 25.5 million ounces of silver and 264,000 ounces of gold from 1.8 million tons of ore, according to the 1953 report, University of Nevada Bulletin, Vol. XLVII, No. 1, January 1953, titled History of Fifty Years of Mining at Tonopah, 1900-1950. The report was authored by Jay A. Carpenter, Russell Richard Elliott and Byrd Fanita Wall Sawyer.

The property is also situated on BLM property which makes permitting and ecological compliance very challenging at best.  Remember, Coyote Resources will be working under Government guidance and supervision and regulations.  Never a fun thing.

So, you might ask yourself, if this is basically raw, unexplored property with the exception that this district was heavily mined in the early 1900′s, why in the world is it trading at a market cap exceeding $91 million? It’s simple really.   Someone is pushing a very heavy stock promotion making claims like “Buy COYR Now For Just $1.25 Before Shares Hit $10.21! and “Coyote Resources has acquired two land holdings that combined, hold an estimated $24.75 Billion in Gold.” It’s hard to determine which claim is more outrageous.

I think from those two examples, you get the idea.  To date Coyote Resources, in my opinion, is one to avoid unless you’re a day trader.  The liquidity of this stock should make it attractive to both longs and short sellers but if you want to know where the gold will be, it will be the gold coins and bars bought with the proceeds from the sale of COYR stock taking place right now in conjunction with the pump.

Our Conclusion: Coyote Resources is great for day traders but avoid if you’re looking for an investment in a good gold company.

Disclaimer: We don’t have any interest in Coyote Resources stock or the company nor are we being paid to write this article.  As always, consult an investment professional prior to investing in any stock.

Another gold mining company making big moves in the market and causing quite a stir these days is El Capitan Precious Metals, Inc (OTCBB: ECPN) following the November announcement of the acquisition of the privately held Gold and Minerals, Inc, the company’s partner in its primary gold properties.

The stock, which was stable with limited liquidity in the $08 to $.10 range from May 2009 until January 2010 when it popped up and stabilized in the $.15 range for a few months before beginning a steady climb to $.50 through the middle of December 2010.  That’s when things got really interesting.

Coincident to the company’s filing of a Prospectus disclosing the acquisition of Gold and Minerals, Inc, the stock took off, peaking momentarily at $1.57 before settling back as profit takers took over. With volume peaking over 3 million shares and sustaining over 1 million, we decided to take a look and see if the facts support the excitement in the market.

According to their website, El Capitan Precious Metals, “along with our partner Gold and Minerals Company, Inc., owns what we believe to be one of the largest undeveloped, surface mineable precious metals deposits in the continental United States.  ECPN and Gold and Minerals Company, inc. are currently working towards the completion of the merger of the two companies.

“While the El Capitan deposit comes with metallurgical challenges, the near-surface, pervasive nature of this deposit, all of which occurs above the regional water table, provides the potential for both a low mining cost and a long life operation. An investment in ECPN represents an investment in a late-stage exploration / early-stage development company with a gold, silver and platinum group metals discovery that has already seen almost 13,000 feet of successful core and reverse circulation drilling within a 200 acre resource block. In addition to developing a better understanding of the metallurgical issues associated with this deposit, the Company is focused on acquiring federal and state permits to conduct sub-surface exploration on a 2,000 acre claim block extending east, west and south of the current resource area.”

With the acquisition now complete, El Capitan Precious Metals has about 240,408,660 shares outstanding, making the current market cap well beyond a quarter of a billion dollars.  That’s a lot of market cap to sustain for a company without any current or historic revenues.

Looking at El Capitan’s website, it’s difficult to gain a comprehensive understanding of their business plan.  For years, they have been working on acquiring and/or testing El Capitan but never seem to get around to actually mining anything.  I would like to think with the four top executives in the corp paying themselves a combined total of more than $700,000 in cash and free trading stock plus another $80k worth of restricted stock per year, that they might actually produce some revenues.  We are strong proponents of the theory that development stage company executives show restraint when it comes to compensating themselves with investor dollars with the understanding that when the cash starts rolling in, they will be appropriately rewarded.

Their plan, however, is revealed in a September 2010 announcement/letter to their shareholders and confirmed by the following disclosure about their plan for success: “The Company supplied with an economically feasible recovery model for the precious metals for the El Capitan property ore, we believe we can contract with an investment banking firm to sell the El Capitan property to a major mining company.” So the plan is not to mine the property but to develop a feasible mining plan then sell the property to a major mining company.  The possible flaw in this plan is that, they have been trying to come up with proof of significant recoverable resources since 2005 without noteworthy success.  We further note this disclosure: “Over the years, samples taken on the property, including samples taken by ECL, have given low-grade precious metal results when using standard fire assay methods”   This is not an encouraging piece of information.

From their 10K: “In September 2010, we announced that our team of chemists and metallurgists had developed a gold recovery process which uses “lead collection with silver inquarting.” This process was used by Copper State Analytical Lab (“CSAL”) to produce a certified report on metal recovered from samples that came from 3,000 tons of El Capitan head ore.  This report by CSAL states a value of 0.421 ounces of gold per ton of ore to be recovered from the El Capitan head ore.”

While .421 oz per ton could be encouraging, it’s not awe inspiring but it’s sure as heck not a quarter of a billion dollars exciting.  What’s more, much of El Capitan Precious Metals’ mining claims are subject to Bureau of Land Management regulations which could have a significant impact on the economic viability of the mines.

Additionally, the deal the company made with Planet Resource Recovery, Inc, seems to have hit a snag.

Rating: Based upon a business strategy calling for raising a lot of money on an ongoing basis to cover executive salaries equaling 4 times explorations costs and an all or none approach to sell the property to a major company thereby eliminating the possibility of revenue producing activities, I would rate the business strategy a 5 out of 20.

Potential for Exponential Upside

The only property that is currently being worked is the El Capitan property and given the above disclosures, we don’t see any substantive potential for exponential upside.  Still, there’s always the chance to stumble upon a mother load and that’s gotta count for something.

Rating: We rate El Capitan Precious Metals’ potential for exponential upside at 3 out of 10.

Financial Statements

Reviewing the combined proforma financial statement really raised some eyebrows as the company is booking the acquisition of the balance of the El Capitan property at a whopping $73,905,704.  While this might work in a private company, we doubt very much the auditors or SEC will let this one stand.  Look for it to be reduced to the actual amount of cash invested in the project or some other tangible number steeped in reality.

Looking at the just filed 10K, we see that prior to the acquisition the company has $1.8 million in assets against $493k in liabilities and a current asset to current debt ratio of about 2 to 1.  Not bad for a penny stock.  We would advise against any investment decisions based upon the $73 million evaluation until such time as it has been certified by an auditor.

The company has had no revenues since its inception in 2002 with none anticipated in the near future according to the 10K.  With expenses running at $1.2 million a year, the bulk of which is executive salaries and professional fees, there seems little doubt that shareholders will experience continuing dilution.

Rating: I rate El Capitan Precious Metals’ financial statements at a 9 out of 30 with a significant penalty for what we perceive to be an unjustified attempt to book the acquisition at an unrealistic figure in the proforma.

Stock and the market

Since mid December, El Capitan Precious Metals stock has been showing a significant increase in volume and price. Prior to the move up, the stock was relatively stable in the $.50 range.  The stock started its big move up when it filed the acquisition prospectus with the $73 million added to the balance sheet. The stock hit $1.58 before settling back down and is currently trading in the $1.20 range, still a nice gain from half a buck.   Still, the market is going to have a lot of trouble supporting a $280 million market cap on a stock with no revenues… ever… when that $73 million disappears off the balance sheet.

Volume, while still quite good, is declining and, with a declining volume, it would be unusual for the stock not to retrace more of the gains as well.

Rating: Given all the factors, I rate the El Capitan Precious Metals’ stock and the market at 8 out of 20

Management

Charles Mottley, age 76, is the President and CEO and the only executive with any relevant experience.  Prior to El Capitan, he was Chairman and CEO of the just acquired Gold and Minerals from 1978.  While there are no specific details yet on prior revenues, G & M does not have any indicated for 2009.  While it’s hard to imagine there have never been revenues generated by Mottley in his long career, it is disclosed that G & M has accrued losses of over $16 million since inception.  Apparently producing revenues has not been high on Mottley’s professional to-do list.

According to filings, Stephen Antol, the CFO, is only working part time despite his $153,256 compensation package for 2010.  In addition to acting as CFO for the company, he also is providing similar services as a “consultant chief financial officer for a number of small and medium size businesses requiring technical expertise on a limited or recurring basis.” He has no disclosed experience in mining beyond his work for El Capitan Precious Metals.

No other officers or Directors disclose any relevant mining experience.  The corporate offices are about 450 miles from the El Capitan mine.  This raises additional concerns about the amount of time and attention the operations are getting from the company’s employees.  I find no evidence that any of the executives are working anything approaching a 40 hour week on this project despite their generous compensation packages.

Given these facts, I rate Management at 5 out of 20.

Summary: There is little to like about El Capitan Precious Metals.  While they do appear to have claims and rights to a sizable area, there is little solid evidence to indicate that these mining sites possess exciting potential.  Management seems self possessed with completing an acquisition of property they already had significant equity interests in and their other focus is on raising cash and issuing stock to support their very generous compensation package without displaying much of anything to suggest they are working on making the corporation profitable through revenue creation.  The idea that they will find a legitimate buyer for El Capitan at a price beyond a quarter of a billion dollars flies in the face of all current evidence strikes us as being a plan that allows management to continually speak in future terms without having to address the lack of revenues.

Since, according to my due diligence, the stock seems significantly overvalued and I see nothing to suggest the stock can sustain these levels for the next few quarters, I am of the opinion that the forces of economic gravity (a powerful force indeed) will not be denied and the stock will retrace much of its gains.

Our rating of 30 out of 100 suggests that El Capitan Precious Metals isn’t a stock worth considering for a spot in your speculative portfolio.

NOTE: Always do your own due diligence and consult a professional advisor before investing in any stock, including this one.

Disclosure: We are not long or short El Capitan Precious Metals stock nor do we have any financial interest in the company or in writing this review.

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