Comstock: Reverse Split is Causing Angst, but Investors are Missing the Progress
Article #7 (LODE)
LODE previously announced a series of strategic transactions expected to inject $325 million into the parent company and its subsidiaries—counterintuitively, we believe it’s a positive development that these deals are not likely to proceed under the original terms.
LODE still requires capital to advance its fuels business and finalize solar panel recycling equipment purchases and are pursuing alternative sources of funding.
Solar panel recycling operations are on track to begin generating cash in 2025, with the first commercial facility recycling panels in 2026.
We still believe SBC, or another party, is likely to acquire LODE’s 260+ acres of unused land unlocking value for the company.
Comstock Fuels has made remarkable progress, now boasting nine licenses advancing—all under the same favorable terms as the initial agreement.
Intro
This is a follow-up to our previous article, which we published on Substack in August 2024, shortly after the term sheet with SBC was announced. Unfortunately, the SBC deal has not closed, and we no longer anticipate that it will proceed as originally envisioned. For the most part, we see this as a positive development, and we will explain why as we go through this article. If you haven’t read our previous work, we encourage you to do so, as much of the context for what we discuss here is built upon that article.
That said, we still believe SBC represents an excellent partner and capital source for LODE. However, they have been unable to close the deal in a timely manner. In the time since the original term sheet was signed, the fuels business has made significant progress. Comstock Fuels has signed numerous international license agreements, announced a new headquarters, and will receive up to $3 million in grants from the state of Oklahoma. It has also integrated a new technology that pushes FGE to over 140 gallons per ton of dry woody biomass, secured an exclusive agreement with Hexas Biomass for the use of Xanograss, and, perhaps most notably, signed a term sheet for an investment and partnership with Marathon Petroleum.
With each of these developments, the value of Comstock’s fuels subsidiary has increased considerably. Corrado, LODE’s CEO, has indicated as much, stating that the valuation has risen to the point where SBC has been outbid by strategic partners such as Marathon. Since the fuels business represented the majority of the initial term sheet, we now expect that any future investment from SBC will be significantly smaller than originally planned.
We believe LODE is on the cusp of commercializing two revolutionary technologies: the silver mine that never depletes and the oil well that never runs dry. These are bold claims, no doubt, but we believe the evidence supports both. If we are correct, the value that will ultimately accrue to LODE shareholders is extraordinary, and we will attempt to highlight that throughout this article.
We will end the introduction to this second article the same way we began the first—words that we believe ring even truer today. In nearly 20 years of investing in small and micro-cap companies, we may have encountered one of the largest disconnects between market capitalization and asset value that we’ve ever seen.
Reverse Split – Much Ado About Something
On February 14th, LODE shareholders approved a 10-for-1 reverse split, meaning that for every 10 shares currently outstanding, shareholders will receive one share once the split is executed, likely by the end of February. Additionally, the company has chosen to maintain the total share authorization at approximately 240 million. This decision has sparked differing reactions between retail and institutional investors. While retail shareholders have expressed considerable concern over the share authorization, institutional investors, by contrast, largely view the split and the additional capacity as a positive development.
The primary fear surrounding the reverse split stems from the continued authorization of 240 million shares. The argument from skeptics is essentially: "Look at the dilution that has happened before—they’ll just do it again." However, this reasoning overlooks a key difference. Previous dilution occurred when the company had no near-term prospects for revenue and earnings. That is no longer the case.