From: Doug Thomas
To: [Client Name Deleted]
Date: 12 February 2012
Subject: No Gold Yet, Just Golden Showers

We are dropping coverage of Comstock Mining (NASDAQ - LODE - $1.95) following the company's ill-conceived decision to go ahead with a secondary offering last week. Management had consistently maintained that it would not need to raise cash, since its 2010 recapitalization
On February 12th Doug Thomas, a Pennsylvania investment research counselor, blew his stack. His firm had been covering Comstock Mining Inc — meaning they'd been following its activities and including it in recommendations to clients — for a considerable period.

But when CMI put thousands more shares of stock on the market to raise cash, he'd had enough. In a blistering email to a client Jet Investment Research announced it was dropping Comstock Mining Inc. from coverage.

"Corrado De Gasperis and John Winfield told me many things that turned out to be untrue. I've been in this business 25 years and this is the first time I've been purposely misled," he told CRA in a telephone interview. "I think Corrado is basically a decent person who failed to step away when he realized what he was being drawn into," he said.
provided it with three years worth of funding (why, there it is, smack dab in last year's 10K: "the company intends to use the net proceeds to meet its initial capital and operating needs for the first three years of its strategic plan to accelerate mine development and production and continued exploration"). It's been barely 16 months. What became of that plan?

Besides, they said repeatedly, they had absolutely no intention of diluting themselves or fellow shareholders. There is no shortage of good miners and producers with solid cash flows and trading at reasonable valuations, that don't treat their shareholders with such contempt.

We were willing to give Comstock's management the benefit of the doubt following its failure to keep to its production schedule last year, because of delays in securing the requisite air pollution permits. But while we can live with regulatory delays, one of the reasons we recommended LODE in the first place was because of management's consistent promise that there would be no near-term stock sales. Why don't these small company managements understand the importance of building credibility by honoring their commitments, doing what they say they'll do and not screwing their shareholders? Was this all about Comstock's management worrying that its gravy train was going to end and it better do something to make sure it had plenty of cash for salaries and bonuses? Have they no shame?

It may eventually turn out that Comstock has the 5 million or more gold equivalent ounces it says. It may, for all I know, be the second coming of the whole damn California gold rush. But if they're really finding as much gold and silver as they say, why the hurry to sell nearly 10 percent of the company for $13.5 million? These guys swore up and down the stock was worth $12 to $15, and then they go and give it away at $1.90. What gives?

Investment counselor Doug Thomas of JET Investment Research Inc. is a respected analyst, as is evident from this video. He appears at the 1:30 mark in this CNBC program and discusses the market for Hanesbrand cotton underwear knowledgeably and with aplomb.
Was it just plain boredom brought on by a long, quiet winter? When we first recommended the stock last May, the company had $26 million in cash and estimated it would take $12 million to get to production. What happened to all the money? What I am I missing?

Why couldn't they just wait until production starts, if they're only months away? Wouldn't they have gotten a better deal (how could they not)? Why couldn't they figure out a creative way to forward sell some of the gold, or how about just finding someone to borrow the money from? And if you're going to do a deal, why pay a fortune to bunch of no-name underwriters? Why not use this as an opportunity to get some real coverage and sponsorship? Why not call us up and ask our advice?

We tried to get some answers to our questions last week from CEO Corrado De Gasperis, who maybe on account of his embarrassment, wouldn't answer his phone and never returned our calls. For now, we're reminded of that famous quote, sometimes attributed to Mark Twain, "A gold mine is a hole in the ground with a liar standing next to it."

Doug Thomas

JET Investment Research Inc.