LODE CEO on Silver & Gold: Profiting from Precious Metals Recycling, Refining, and Mining

Welcome to the WTR SmallCap Spotlight Podcast. I'm your host Tim Gurdeman, Vice Chair and Co-Founder and Chief Marketing Officer of Water Tower Research. In today's podcast episode, I am joined by Karato DeGasparis, CEO of Comstock Inc, NYSE Ticker Symbol LODE, as well as my WTR Equity Research colleague, Peter Gastric. Comstock is a Nevada-based, renewable and sustainable metals company with additional investments in renewable fuels, mineral properties, and real estate. It's high-volume solar panel recycling technology diverts end-of-life solar panels from landfills and recycles on 100% of the commodities that go into them to include, importantly, silver, aluminum, and other valuable and sometimes scarce resources. For more on Comstock's comprehensive business strategy and outlook, investors can look at Peter's recent initiation of coverage report. For today's discussion, we'll go straight into Karato's strategy for Comstock to capture value from the precious metals market. So, gentlemen, without further ado, good morning and thanks for joining the podcast. -Earing Tim, thanks for having us. Pleasure to be here. -Good morning. -Karato, I'll kick off the first question before passing it over to Peter for further Q&A. Let's start with a macro backdrop. Sans, some very note where they volatility in recent trading sessions, silver has broken out in a way we've not seen in years. From your vantage point, what is driving a surge and do you see it as a structural shift and given where prices are today, how are you positioning the company to capture that value through your metals recycling platform? -Yeah, I do think it's structural, Tim. So, I mean, historically, silver has followed the gold thesis of investment in jewelry. To that extent, it's always considered the poor cousin with the gold and silver ratio being often debated. The historical, historical, historical, 16-to-1 ratio that during COVID hit, I think, 125-1. People were squawking at why is silver so undervalued, why is silver so undervalued? But something meaningful changed about four years ago as well. That was when the demand for the industrial applications, especially in electronics, via electronics, photovoltaics, and evolving now into robotics, data compute, the electronic explosion, the electrification that's going on globally, resulted in, for the first time that I know of, that the demand for silver exceeded the mine supply. And these demands for that are tied to electrification today are more than double the historical demand for investment and/or jewelry, which is also increasing. So this structural change we saw four years ago, 2021-2022, where the world is using two to 300 million more ounces of silver per year than the mines are producing. And on average, generally speaking, rounded, those numbers are produced about 900 million ounces of year globally from the mines or less. And now using 1.1 to 1.2 billion ounces per year. And so what seems to have happened, that is structural, that is foundational macroeconomics, supply and demand. But it's also in its way through all the derivatives and all the trading and all the, you know, to get to the foundation of, we don't have the silver we need to make our products. You know, and so I think from our view, and volatility has increased to your point, some people say, in a breathtaking way, but it's still remarkable where you have, let's say, a huge drop in silver and you're still looking at $75, $80 an ounce. So I think we're going to see much bigger numbers. It's always difficult to predict, you know, how it evolves, but it's foundational. And it is critical, it is absolutely critical to the effective use of these products. And when people start talking about putting, you know, solar arrays in space, you know, you can't, you begin to fathom, you know, the magnitude of silver that's required for that. Yeah, that all makes sense. And I will say, despite the brutal sell-off in recent days, a couple of very high profile Wall Street market strategists in the last day or two have suggested that silver is in the very, very, very early innings of rallying. So, so with that I'll turn it over to Peter. Thank you. Thank you, Tim. Okay, thanks, Tim. So yeah, just moving on a bit further, continuing with Tim's question, could you talk a little bit about just kind of, you know, broadly speaking, how calm stock is positioning to capture the value that you've just talked about in terms of pressure metals through your metals recycling platform? Yeah, absolutely. I didn't get into that part, so I appreciate to follow up. So with us, you know, the biggest dilemma that we see in our markets is that these solar panels came to end of life fully a decade earlier than expected. Each solar panel on average could have an out, I have an ounce of silver in it, okay? And when you look at some of the other people trying to recycle or reuse these materials, it's very ineffective. It's very slow. It doesn't scale, right? So one production line for us can produce three-point, reproduce, reprocess if you will recycle 3.3 million panels per year. And you're talking about a high-speed high-scale system where you're feeding in a panel every seven seconds, it's fully automated. You know, and so in that context, one facility, even if you're thinking about maybe 90% recovery of the silver, you know, using conservative numbers, you're probably going to be producing over 1.3 million ounces of silver per year. Two facilities in Nevada would be 2.6 million ounces of silver per year. And then it becomes very, very critical because it's, you know, you could do the math very quickly, 1.3 million times 75 or 80 dollars. There's a very, very big value there. Then going down stream ultimately to refine those metals, you know, and actually capture this substantial majority, you know, of that metal rather than paying someone else to refine it. Is our two bastions, right? So a, capture the market, process as many of these panels as possible, reusing 100% of the materials, including in especially the silver, and then going downstream and further refining those metals so that you're not only getting all the silver, then you're getting the copper, you're getting the silicon, you're getting the gallium, you're getting the telarium, you're getting all of these precious and critical minerals that would otherwise be landfilled and lost forever. Okay, thanks very much. That's a great introduction. Let's move in a little bit about the, into the economics of the solar panel recycling, you know, Comstock in your IR presentation, you really, very clearly lay out these economics. You know, the model blends, tipping fees, very low variable costs and commodity sales. For our listeners who may not be as familiar, could you please walk us through how the economics look at full scale, especially now that, you know, high silver prices have increased the value of those silver rich tailings? Yeah, absolutely. So with one facility, and nearly to be more pedantic, you know, one production line within one facility, we deploy about $12 million of capital for that production line. And we can produce, you know, we can process, as I mentioned, 3.3 million panels. Now that's a hundred thousand tons, Peter. So, so let's use a hundred thousand tons as the simple rounded, you know, basis for everything that we're going to say. These upfront fees, tipping fees, as most people will refer them to, we're providing a remarkable environmental service. We are immediately and completely eliminating a liability. And we're not eliminating it for our customers. We're eliminating it off the face of the earth. Yes, for our customers, but it's gone. You know, we eliminate the liability and we get paid for that environmental service. You know, I think there's a better word than tipping fee because it has certain connotations to it. We're providing a very valuable service quickly, expediently, completely. So that's $500 a ton. So that's $50 million of revenue right there. Previously, when we were capturing aluminum at $1,300 a scrap ton, and we were capturing silver at $35 an ounce and only recovering about half of it because the refiner's charged us to process that stuff out and discount it accordingly, we were getting another $250 a ton. So 125 for aluminum, 125 for silver. So that's another 25 million revenue. Put all of that $75 million dollars against all in cost of $15 million. That's 4 million of totally variable cost. These extremely low variable cost result because the process of eliminating these contaminants, the process of processing these materials cleanly is super efficient. And so we use natural gas and we use electricity. which is about, I mean it's substantially all of those totally variable costs. There's a couple other minorities in there, but I would easily say 92, 93, 94% of our variable costs is electricity and natural gas. So then about 11 million of fixed operating expenses, if you're doing the 100,000 tons, that's $150. So 750 minus 150 is 600, which is equivalent to about 60 million of cash flow per year from one production line to one facility. Now if you wanted to be conservative, say well, let's operate it at 90% rather than 100% 55 billion. So it's a big number. Now that assumed $35 silver, where we're barely getting 50% of the value. At $60 silver, we're getting more than 50% of the value plus the higher price. So more yield, more price. And that adds another $25 million a year in revenue. Literally another equivalent of $250 a ton. Now most people say, whoa, you're talking about 80 to 85 million dollars cash flow from a $12 million investment. That is absolutely real. That is exactly what we're talking about. But in the same exact context, as much of the, every time you think of well a $20 million increase or $25 million increase because of silver prices, you should immediately be thinking we're leaving at least that much on the table by not refining the metals ourselves. So from a macro perspective, if you had a potential of creating, let's just say 7580 million a cash flow per facility. And we have a business plan to roll out seven facilities. That's remarkable. Now then we want to refine from there. Okay, that's very compelling. But we'll come back to the refining in just a moment here. You recently announced that Comstock secured all final permits for the Silver Springs facility. You have equipment arriving. You know, where does commissioning on this facility, this first facility stand today? And how should investors think about the ramp up of this facility as well as your other planned locations, you know, Nevada, California, Ohio? There's been a few announcements elsewhere. Yeah, absolutely. So we're on schedule. We had originally guided that we would have the permits, you know, by the end of 2025, we would be commissioning during the first quarter of 2026, which is right now, which is what's happening. And we would be up and running in the second quarter. Now in terms of that ramp up, we have a very, very precise view of getting to about 25,000 ton, run rate, which of course is only about 25% of 100,000 tons, getting to a 25,000 ton rate as quickly as possible. The third quarter would be great. You know, just get get that up to that run rate. Why is that run rate relevant? Because we are profitable at over 20% utilization. So getting to 25%. We can prove, look at the system, look at the way that it operates and look at the money that it's generating. That's that's unequivocal, absolute validated proof of concept. Then ramping it up from that point forward, we would be happy if we exited the year, you know, 35,000,000 tons and then exiting 2027 running full running full meaning typically somewhere between 90 and 95% utilization. So it's very, very exciting for us. What we just did was accelerate facility number two, which will also be in Nevada. And I want to make a very salient point on these permits. These permits were first of a kind. Nevada has a very, very robust environmental regulatory infrastructure primarily because it's the number one mining jurisdiction in the world. So they're very knowledgeable about the complexities of air quality, water pollution and all these kinds of things. But this was a first of its kind. And it's a state interpreting the federal rules. And so Nevada was very strict and stringent in interpreting the rules, which initially, quite frankly, was annoying. But with hindsight, it was remarkable because they basically held us to a standard that you're a recycler if you're not generating hazardous waste. So therein, the bar is set that you cannot generate hazardous waste. And therein having a zero landfill solution puts us in an extremely verified space. Like we don't know anyone today that has a zero landfill solution. Hence we don't technically know anyone today that could qualify for the permits that we qualified for. And why is that especially important because Nevada, California and Arizona represent easily 50% of the end of life market and easily by far no one comes close. The biggest market in the United States. So we've, we've established a beachhead right right on the California borders, California and Arizona borders to take all of California, all of Arizona, all of Nevada into the most efficient, most expedient, most scalable infrastructure for solar panel recycling. Now we, we did announce the California site as you mentioned and that was really in in response to the myriad of customers in California and to be able to service them better, you know, more intimately and ultimately give us some efficiency in how we coordinate our logistics back to Nevada, because there's a lot, you know, you don't want to be sending quarter trucks and half trucks, you want to consolidate, you know, aggregate, you know, and then bring it over when that's appropriate bigger customers, that's not an issue, of course. So then, then when we look, then we look out to Texas, Florida, Georgia, North Carolina, Ohio, even Minnesota, as the hubs of where you see the most concentration of deployed solar panels worth, worth letting the audience know there's 1.4 billion solar panels deployed in the United States last year, we saw about 3.5 million come to end of life. This year, 4.5 million, but in 2030 that number is projected to be 30 to 35 million. It's a literal tsunami, but then you pause and say 35 million relative to 1.4 billion is a tiny tip of the iceberg of what's coming over the next 20 or 30 years. So we, it's hard to exaggerate the magnitude of this market and the speed at which we capture market share frankly to us is the number one critical success factor now proving the tech was previously commissioning and getting the first facility deployed very critical we're doing it right now, but ultimately getting that market share and making sure our customers understand this is the fastest, most efficient and most effective way to terminate their environmental lives. And keep domestic critical minerals in the United States as a as a strategic supply chain. I just want to step back to the silver content and you brought up the refining as well. And there has been a little bit of an investor misunderstanding about how much silver can actually be extracted from these panels at today's rates. And of course you have your newly announced domestic silver refining strategy, which should help to unlock additional value, but maybe we can kind of walk us through exactly where those recovery rates look today and where we could be going in the future with the refining strategy. It's it is. I apologize for any confusion because there is there's there's really three variables here that we're talking about and they're all relevant right the first one is how much silver is in each panel. And you see a lot of scuttle but about oh they're using less silver per cell that's true they're putting a lot more cells in each panel. These panels used to be 150 watts and other up 600 watts you know they're getting more and less real estate you know so frankly we see on average more than half an ounce of silver per panel. And we don't see any any drop off in that as we project forward certainly not any material timeframe that we can see forward. The second thing is what we're doing now is producing very clean aluminum selling it all very clean glass pearls selling it all and then these silver rich tailings and these tailings when we sell them to a refiner. We're only getting about 45 to 50% of the silver value net so they say well we'll give you 75% of the silver value but we're going to deduct transportation costs we're going to deduct refining cost which quite frankly they dictate to us we don't know what they're finding costs are so you're getting about half of the silver value now. Back to our earlier discussions very very profitable for us in the current environment very profitable for us. But so the idea though is instead of yielding 45 or 50% of the silver value and because of the way the math works the higher the silver price the higher the yield but you know you're getting 60% at best. Instead of that we would then like to deploy you know this integrated refining solution and we wouldn't want to be refining at every recycling site so we had seven recycling sites around the world. You'd only need one centralized industrial scale refinery to handle all of the tailings that are coming out of our plants. Typically, the tailings represent 10 to 15 percent of the mass balance. So even if you used 12 and a half percent, the midpoint, you're talking about when you had seven facilities up and running, you're talking about 80 to 100,000 tons of material. That would be a nice, very, very nice centralized refining operation. Now you could have two, you could have one, let's say on the west coast and one on the east coast, and that would be nice too. Because the capex that we're anticipating for the refining is not very high at all. It's a very well-known series of processes. What we're doing new is we're integrating it all into under one roof. Because we're not just recovering silver. We're then going to be recovering the silicon metal. As I said earlier, the copper, the gallium, the philirium, the various elements. There's about 10 or 12 depending on the solar panel composition. That's what's kind of new. It's very standard to extract silver from ore or tailings. It's very standard to extract copper from ore. But when you have a dozen of those elements, then you need to sequence the process and you need to optimize the recoveries in a slightly different way. That's what we're talking about. Maximize the yield from the recycling center. Be tolerate or suffer a lower recovery by having to sell the stuff to refiners. See optimize maximize recovery by self refining. I'd like to pivot from your urban mining, so-called urban mining, with the silver and metals recycling. To your traditional mining assets. You have a legacy mining portfolio. That's obviously become very interesting where gold prices are at today. With your date and looser in assets fully permitted and highly sensitive to gold prices, how are you thinking about the timing, partnerships, and ultimately monetization of those assets? There's an interesting compare and contrast. From a first perspective, if you compare to the metal price lift of gold hitting or pushing 5,000 silver being the $75 range, these assets become very, very valuable. I mean, the mine plans show robust cash flows over the mine lives. Even at 2250 and 252650, that's when it started to get very interesting to us. It hasn't been that long though. It's been 12 months since then. Over the last three to five months, we've been getting a lot more serious, a lot more sophisticated inquiries about monetizing these assets. People will say, "Why don't you just mine them? What are you doing?" You could generate 100 million a year just from the date and mine alone. What are you doing? The response is, it is very profitable. It is very lucrative. But compared to the solar recycling, the capital allocation is still highly, highly, highly prioritized to solar recycling. I was just saying this recently to someone that I just mentioned to you. If we can do 1.3 million ounces of silver per facility and we have two facilities in Nevada, that's 2.6 million ounces of silver produced every single year. Now, this lucrative date and mine, and I say that very sincerely. We couldn't be more thrilled at the cash flow profile of that mine. It only has 2.6 million ounces in situ. You're talking about a seven-year mine plan to extract 2.6 million ounces of silver. There's a lot of gold in there too. Don't get me wrong. 2.6 million ounces of silver. You're going to get, if you're really, really good, and we were when we were mining, 55 to 60% of that silver off of your leech pad. It's very hard to say we want to put a dollar into that development versus a dollar into the recycling development. There's no conflict there. We will be allocating the capital to the recycling. However, very sophisticated, very capable, very competent partners would be keen to come in and either acquire, outright, or partner, or deploy the capacity there needed to access that value and that cash flow. We're keen to do that. I think some of our investors love mining. Most of our investors are like, please, God, don't allocate capital to the mining assets when you have the solar recycling opportunity just sitting there waiting for that capital. I want to just reaffirm that. That's absolutely our view. God, I'll just put in one final question here before we get your closing remarks. You recently completed the Mekai transactions, including the sale of your remaining NSR royalty. What is that deal signal about the underlining value of the mining district and how should investors think about the economic leverage and strategic optionality that's embedded in your mining portfolio? You've touched on that a little bit already. I think it should be viewed as a very strong reinforcement. If you think about the entire Comstock District, the day in Spring Valley is the southern part, the Lusser and is the central part, and the properties that Mackie acquired are in the north. The north is, we had never had intentions of developing the north because it's deeper. It's more complex. It's actually also where most of the historic Comstock load underground mining activities occur in the late 1800s. Some would say it's a little treacherous up there. Is there gold and silver up there? There's absolutely gold and silver up there. But it would acquire a lot of exploration development dollars. For a sophisticated company, including their CEO, is a very sophisticated geologist with a long history of good discoveries and successes. They see that value and they're willing to make the investment to develop that value. For us, we ultimately, since 2023, we monetized almost $8 million in that claim set. But it would take tens of millions, if not hundreds, to develop that complexity of geological structure. They see real value in doing that. I think that's a strong testament to what people are seeing as possible. The Lusser and is near-surface mineralization and the date and is immediately at-surface mineralization. So from a production profile and an ability to just jump in and mine those ounces, those opportunities are immediate term. Near-term and immediate term, whereas the north is a much longer term play, but still very prospective. Okay, great. So, Karato, thanks for taking the time today. This has been an incredible deep dive into precious metals and it's just one aspect. So, multiple aspects that you have at ComSec, which we will definitely address in future podcasts. It would be great to have you back. I'll pass this to him in just a moment to wrap up. Just to see if there's anything that we missed today or would you like to leave any final thoughts with our listing investors. Yeah, I know I would say that what's really exciting for us is that we believe we have at least a two-year lead in the solar recycling markets. Especially the fact that we've been operating a facility for two years and now we're scaling it up. And now we've got these first of a kind permits that would be very, very difficult for others to achieve at least in the biggest territory. So, this recent capital raise was designed to accelerate the deployment of those recycling facilities, capture the vast majority of the market share of this rapidly growing market. And then lastly, get to it with fully designing and fully validating a refining solution. If the refining solution didn't come online for three years, that would be wonderful for us. Because in three years we'll have at least two, maybe three facilities that are able to feed that central machine to refine these metals for domestic production. So yeah, we're excited about the lead. We have, if we don't move faster, of course, we feel that lead will shrink. Right? Because it's a very big market. It's very attractive. You know, once people figure out a little bit better on how to do certain things, they'll start coming in and we don't want them to catch us. Thank you very much. Tim, over to you. Thanks, Peter and Karato for joining today. And I have to say, Karato, as I put on my former equity research cap, you got my attention when you started talking about the total addressable market. Those are real numbers for a firm your size. So a very exciting story and thanks for your time. Thanks to appreciate it. Thanks, Peter. Fantastic discussion. Thank you for listening and don't forget to subscribe as well as visiting www.watertowerresearch.com to stay up to speed on the company's small cap written research reports. podcast, Fireside chats, industry-specific symposiums, and conference schedules. We will see you next time for another edition of the WTR SmallCap Spotlight Podcast. Finally, a special thanks to the producer and editor of the podcast, Christa Fitzpatrick.