400 different mining companies once fought to extract high-grade
silver and gold ore from the Comstock
Lode in Virginia
City, Nevada, one company exists today. The company owns six
miles of the seven-mile strike length where claims were priced per
running foot of strike.
didn’t produce the most silver in US history. That would actually
be the Silver Valley in Idaho. The Comstock only produced 192 million
ounces of silver. Nevada’s motto is The Silver State and most of
the silver produced in Nevada came from the Comstock. But the Comstock
has to be the most famous silver strike in history. Few of us remember
the Comstock also produced 8.2 million ounces of gold. It paid for
the Union victory of the Civil War, built San Francisco and bought
most of Southern California.
the Comstock a silver district because the gold/silver ratio favored
silver at 17 ounces to an ounce of gold. Today the Comstock is going
to be considered a gold district simply because the gold/silver
ratio favors gold at 56 ounces of silver to one ounce of gold.
prices, the Comstock produced $4.5 billion in silver and $10.8 billion
in gold. You have to ask yourself, how much did they take out in
terms of the total gold and silver in the ground and better yet,
how much did they leave? Is there two times or three times or four
times that much still left in the ground? Probably.
Mining (LODE-OTCBB) Catchy name and no one is going to forget
it any time soon. This company is going to be the Diamond
Fields of Voisey Bay fame. That was the giant find in 1993 that
lit the market on fire. The project was sold in 1996 for $4.3 billion.
This is the big Kahuna.
This is the company that is going to ignite the junior market in
this cycle. It will be sold for a lot more than $4.3 billion when
it hits the auction block.
Then as now,
people lost millions and for the same reasons. They waited too late
to buy and then sold too early. It’s been said that history doesn’t
repeat but it does rhyme. In this case, it repeats.
Since the initial
discovery of silver in Virginia City in 1859, litigation was the
name of the game and lawyers made their fortunes right up until
recent times. There were too many claims, too many companies. No
one knew if there was one giant gold/silver vein or many veins.
We know today there are many veins.
Some of the
greatest names in US history got their start in Virginia City associated
with the Comstock Lode. Samuel Clemens otherwise better known as
began his writing career for the Territorial
Enterprise newspaper after a failed career as a miner. George Hearst, father
of the famous William
Randolph Hearst, made the family fortune from his Comstock Lode
Ralston, founder of the Bank of California got his start here.
ago, a self-made Southern California investor named John Winfield
began buying up land in the area to allow the wild mustangs a safe
haven. Local ranchers, who felt free to shoot them when found on
their land, threatened the mustangs. That relatively minor contribution
on the part of John Winfield evolved into something much greater.
The sheer number
of mining companies always limited rational development of the Comstock
Lode. The legal conflicts surrounding a swarm of veins acted as
a millstone around the neck of miners for 150 years. Basically,
if you discover a vein and develop it, you own it even if it goes
onto another claim according to the 1872
Mining Act. So the simple issue of how many veins there are
has always crippled mining in the Comstock and made a lot of lawyers
It’s been the
dream of many mining companies to rationalize the Comstock but there
were simply too many mining claims and conflicts. And if a big mining
company came in and started buying up claims, the price would skyrocket
The key to
the success of the giant De
Beers Company was the rationalization of the hundreds of tiny
diamond claims at the Kimberley
diamond pipe in South Africa. It made the fortunes of Cecil
Rhodes and Ernest
Oppenheimer. Kimberley didn’t work and couldn’t as a series
of small mining claims. When put together by Cecil Rhodes, it financed
the growth and prosperity of entire countries.
one already in the mining business could tie up the valley. But
a rich investor from Southern California who understood the importance
of gold in today’s financial environment could.
spent 7 years buying up claims quietly. Often he would buy both
sides to a lawsuit and fire the bloodsucking lawyers. He had the
resources privately to accomplish something that no mining company
of any size or individual associated with the mining industry could
privately a small heap leach operation on a property once owned
by Howard Hughes.
Hughes tried and failed to tie up the mining claims in the valley
during the 1960s and 1970s up until his death. Where Howard Hughes
failed with all his billions in resources, John Winfield succeeded.
Winfield wanted to actually produce gold because he wanted to prove
his theory was valid. He built a small plant on Hughes’ ground and
produced 10,000 ounces of gold and 50,000 ounces of silver just
to prove he could.
building built by Howard Hughes still serves as their
is going to change the mining business in the United States and
North America. Maybe the world. John Winfield is self-made. He’s
rich already and he’s not married to doing things the way they have
always been done. I went out to Virginia City to meet him and his
team. He had never heard of either Diamond Fields or Voisey’s Bay.
That’s a good thing. He can think for himself.
millions of his own money, Winfield determined that it was time
to finance the company on a public exchange. It’s a US OTCBB stock
for now but the company has a timeframe for moving to both the New
York and the Toronto Stock Exchange.
the company through an unusual move. After watching the Vancouver
and Toronto sharks hammer company after company by unloading their
shares received as commissions 4 months after a deal was done, John
didn’t want any part of it. His deal called for exchanging the debt
owed to him for preferred shares and the issuance of new preferred
shares to raise $35.75 million in new cash.
shares pay 7.5% interest and after 20 days of trading above a price
of $4.50, the preferred shares are force converted into common shares.
There is no new money brought in during the conversion. The investment
houses in Vancouver and Toronto wanted no part of the financing
and they are going to be sorry.
No one has
had any metric for valuing the company up until now because, frankly,
the structure was confusing. Once the financing was finished things
has about 20.5 million shares outstanding. With the conversion of
the preferred shares, however, the number of shares outstanding
goes up to about 87 million depending on when the preferred gets
converted. There is a provision for a forced conversion when the
common trades over $4.50 for more than 20 days. There is no exchange
of cash upon conversion so it’s not as if the company gets any more
money at conversion time.
What it means
is that preferred shareholders get a 7.5% payment yearly and can
convert at any time. It’s very important for any pending investor
to understand that the number of shares outstanding should be thought
of as 87 million but the float for now is only 20.5 million.