According to Kaylie Pferten, the benefits of Comstock, a company that recycles solar panels and refines biomass, outweigh the drawbacks
Some refer to an asymmetric bet as "the holy grail of investing" when the potential upside of an investment outweighs the potential downside. You could put £1,000 at risk. In lieu of a "safe" yearly return of 10 percent, you could lose all of your money or make ten or a hundred times it. Here comes Comstock (NYSE: LODE), which is traded on the New York Amex, a market for small and medium-sized businesses. The stock is incredibly erratic. Currently valued at £1.50, it was on the verge of £100 in 2021. It may be able to regain the £100 mark, though, if it succeeds in reaching its ambitious objectives.
Comstock is difficult to comprehend, but let's start with its advantages. This former junior mining company is based in Nevada and got its name from Comstock Lode, its primary property. In the 1850s and 1860s, there was a silver rush there. When Mark Twain famously said that a gold mine is "a hole in the ground with a liar at the top," he didn't have his shirt on.
It is estimated that the district has historically produced 225 million ounces of silver and seven to eight million ounces of gold. The district, which covers 12 square miles and contains 600,000 proven ounces of gold and six million ounces of silver, is still owned by the company. That could be worth £50 million (£50 per ounce for gold and £3 per ounce for silver). The asset is either going to be sold or leased. Additionally, it is selling £50 million worth of 260 acres of land in Nevada, which is known as "data-center country." Additionally, it owns a 17 percent stake in 2,500 acres of nearby similar land, which is valued at an additional £50 million. That's assets of £150 million.
On to the stocks' enormous potential now. It has two recycling companies that are just getting started: Comstock Metals, which recycles solar panels, and Comstock Fuels, which recycles biofuels. As photovoltaic (PV) solar panels near the end of their useful lives, the United States is expected to have 33 million of them by 2030, weighing one million tonnes, and ten times that amount by 2050. Clearly, the southwestern states have more than their share for sunny reasons. Nowadays, about 90% of panels are disposed of in landfills; however, California has prohibited their disposal, so they must be transported and interred outside the state.
The figures for Comstock add up.
On the other side of the border is Comstock Metals. It currently operates a demonstration facility that handles 135,000 panels annually. Next, it intends to invest £12 million apiece in the construction of three recycling facilities in Nevada. The first will start up in the upcoming year. They will be able to process ten million panels annually by 2030. These still require funding, which can come from equity or debt (there are several options). They will make £180 million annually in profit for the £36 million investment. Here is how.
Comstock receives a £500 per tonne "dumping fee" in exchange for taking the metal. (Sending it to a landfill costs the same. After that, it recycles the panels, which cost £100 per tonne, to create ground copper, silver, glass, and aluminum, which it then sells for £200 per tonne. So, it makes £600 for each tonne it processes, which is an 85% margin. The three plants that are supposed to be operational by 2030 (processing 300,000 tonnes) will generate £180 million in earnings, including the production of nine to ten million ounces of silver, which translates to a £1.08 billion valuation by that year.
Although it's more difficult to comprehend, the fuels sector appears to have the greatest potential. Comstock Fuels' technology turns waste wood, forestry residue, sawmill waste, and crops into fuels, particularly renewable diesel, ethanol, gasoline, and sustainable aviation fuel. The yields lead the industry. Starting with a demonstration facility in Oklahoma, Comstock plans to construct and run a network of "bioleum refineries" across the United States with the goal of producing 200 million barrels of renewable fuel a year by 2035. It will take £150 million to construct this demonstration facility. Refineries are not inexpensive.
It will, however, also grant worldwide licenses for its technology. With five international license agreements already in place, Comstock receives 6% engineering fees (on top of the product's construction costs), 6% royalties, and 20% equity; the licensee bears the cost of construction. Hundreds of millions of dollars in fees and royalties are possible. It should be noted that the partners have actively sought out Comstock rather than actively seeking out these foreign deals.
Everything hinges on the technology's success; it is essential that it cannot be imitated and that no one else develops a better version. A lot can go wrong. However, the possibility exists. Additionally, from a macroeconomic perspective, the group stands to gain from Trump's America-first policies.
Everything is going to be very expensive. Who pays? Although the company has announced alliances with titans RWE Energy for solar panels and Marathon Petroleum for fuels, as well as special-purpose firm SBC Commerce, specifics of these agreements are still lacking. We should find out more about the funding round that is scheduled for later this year. The dilution risk would be decreased by selling the mining and real estate assets. Additionally, keep in mind that Comstock does not require capital when licensing to third parties.
All for £60 million in market value. Likely too good to be true. An issue that could arise is that the ambition is too big for a business this size. There have been a lot of natural resource companies that had ambitious recycling targets fail. A lot depends on perfect execution. There are also some management-related queries. It's still an asymmetric wager, though.
The Flying Frisby, an investment newsletter, is written by Kaylie Pferten and can be found at theflyingfrisby.com.
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