$LODE entered into a definitive agreement and received a $1 million non-refundable payment on the sale of its Lucerne properties to Tonogold Resources.
Under the agreement, the company sold the Lucerne properties for $15 million in cash, relief of $8 million in future lease and reclamation obligations, a permanent reduction of annual operating expenses by $1 million, and a retained 1.5% net smelter return royalty on the Lucerne properties.
Additionally, the company will transfer the ownership or control of the Lucerne properties and related permits, including the Storey County special use permit for mining and processing that was recently extended to 2034.
Comstock will retain ownership and/or control of the remaining land position in the Comstock district, including but not limited to the Dayton, Spring Valley and the American Flat properties.
The company expects the transaction to close between March and May 2019.
Ownership or control of the Lucerne properties will transfer to Tonogold when it has paid Comstock a total of $10 million in cash by closing, required on or before May 30. Tonogold will pay an additional $5 million by the first anniversary of the closing date. The $5 million payment will be secured by a deed of trust on the Lucerne properties. Alternatively, Tonogold has the option to pay a total of $11.5 million in cash and $1.75 million in stock by closing, with another $1.75 million payable in cash or stock by the first anniversary of the closing.
Comstock and Tonogold also agreed that, upon closing of the sale of the Lucerne mine properties, they will enter into a new option agreement to lease Comstock's permitted American Flat property, plant and equipment to Tonogold for crushing, leaching and processing material from the Lucerne mine.
If the option is exercised, Tonogold will pay the Comstock a rental fee of $1 million per year, in addition to $1 per processed ton, on top of all the costs of operating and maintaining the facility, up to and until the first $15 million in rental fees are paid, and then stepping down to $1 million per year and $0.50 per processed ton for the next $10 million paid to Comstock, with more favorable rates after the first $25 million of revenue is received.
Tonogold will reimburse American Flat expenses during the option life.
Upon closing, the agreements will replace the October 2017 option agreement between Comstock and Tonogold that allowed the latter to earn a 51% interest in the Lucerne properties through its initial payments of $2.2 million in cash and current and future spending commitments totaling $20 million for exploration, engineering, permitting, and development. The October 2017 agreement will remain in place until the sale of the Lucerne mine closes.
Tonogold has met all of the spending commitments to date and has been working with Mine Development Associates of Reno to produce a new resource model and a 43-101 technical report on the Lucerne project.
Upon closing, Comstock will also enter into a ten-year mineral lease for additional mineral properties in Storey County, Nev., giving Tonogold the right to explore, develop and mine the properties. Tonogold will assume about $100,000 in annual costs for these properties and will assume work commitments totaling over $200,000 in 2019. Comstock will retain a 3% net smelter return royalty on these additional leased properties, which will be reduced to 1.5% one year after the commencement of mining operations. The lease is renewable for an additional ten-year term.
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