16. Commitments and Contingencies

 

The Company has third party minimum lease obligations with certain of its mineral properties and related party leases. For most of the mineral properties and leases, the Company is subject to a range of royalty obligations once production commences. These royalties range from 0.5% to 6% of net smelter revenues from minerals produced on the properties. Certain factors that will influence the amount of the royalties include ounces extracted and prices of gold.

 

Included in the related party leases is an operating agreement with a related party and member of the Board of Directors. The terms of this agreement provide that the Company will make annual payments in the amount of $862,500, in the form of Series A-1 convertible preferred stock or cash.

 

In May 2012, the Company received a Notice of Trespass (the "Notice") from the Carson City District Field Office of the Bureau of Land Management ("BLM"). After taking corrective action, including a new right of way grant which provides an alternative route for the transportation of materials from our mine to our processing facilities, the Company has been notified by the BLM that the matter has been officially resolved and that all conditions included in the Notice have been fully satisfied.

 

In July 2012, the Company placed a $4.67 million reclamation surety bond, through the Lexon Surety Group ("Lexon") with the State of Nevada's Bureau of Mining Regulation Reclamation ("BMRR"). The bond insures for the estimated costs required to safely reclaim the natural environment to the regulatory standards established by the State of Nevada's Division of Environmental Protection. The Company is required to post $2.3 million with Lexon as collateral on the surety bond by December 31, 2012.

 

On September 4, 2012, the Comstock Residents Association (the "CRA") filed a complaint in the First Judicial District Court of the State of Nevada against Storey County (the "County") in a matter involving the Company. In 2004, the County amended a Special Use Permit ("SUP") to allow substantial expansion of mining activities on certain property along Highway 342 by the Company. The County conditioned such amendment on a requirement that the trucking of ore from the property use off-road routes. In 2012, the Company filed an application with the County to remove such condition. The County decided not to enforce the condition in part because the Nevada Department of Transportation (the "NDOT") advised the County, and the County agreed that regulating the use of state highways is not within the jurisdiction of the County. The CRA complaint alleges that the County's original condition to the SUP was not illegal and that the failure of the County to enforce the condition was a derogation of its duties. The County filed a motion to dismiss the complaint. In October 2012, the Company filed a joinder in such motion of the County. Neither the motion nor the complaint have been ruled upon by the court at this time. The Company believes the complaint is without merit.

 

From time to time, we are involved in lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. There are no matters pending that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows.