Hycroft Mining Holding Corporation — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2022. The filing was signed November 1, 2022. Hycroft is a Nevada-based gold and silver exploration and development company focused on its wholly owned Hycroft Mine.
Business Context and Reporting Period
- Pre-commercial open-pit mining ceased in November 2021. During 2022, the Company continued recovering metals from existing leach pads and drain-down solutions.
- In August 2022, management determined that continued application of cyanide solution was no longer economic. Substantially all recovery is expected to be completed by the end of 2022, with immaterial residual recovery potentially continuing into the first quarter of 2023.
- The Company is evaluating a future milling and acid pressure oxidation, or Acid POX, process for sulfide ore. It filed the 2022 Hycroft Technical Report Summary in February 2022 and commenced its largest exploration program in nearly a decade during the third quarter.
Financial and Operating Metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $8.8 million | $31.7 million | $21.8 million | $86.7 million |
| Net loss | $15.8 million | $23.2 million | $46.9 million | $41.3 million |
| Loss per share | $0.08 | $0.39 | $0.29 | $0.69 |
| Cash used in operating activities | Not separately provided | Not separately provided | $25.3 million | $27.1 million |
- Margins: Cost of sales was $11.2 million in Q3 and $35.0 million for nine months, producing gross margins of approximately negative 28% and negative 61%, respectively. Operating margins were approximately negative 144% and negative 152%, respectively.
- Production: Nine-month gold ounces sold declined to 11,557 from 43,244; silver ounces sold declined to 32,010 from 352,480. Average realized prices were $1,822 per ounce for gold and $21.82 per ounce for silver.
- Cash and liquidity: Cash and cash equivalents were $153.4 million at September 30, 2022, compared with $12.3 million at December 31, 2021. Net working capital was $155.2 million. Cash, cash equivalents, and restricted cash totaled $187.1 million, including $33.7 million of restricted cash primarily supporting reclamation and surety bonds.
- Financing: March equity financings generated $194.4 million of gross proceeds, consisting of a $55.9 million private placement and $138.6 million from an at-the-market offering. Net proceeds from issuance of common stock and warrants were $188.9 million for the nine-month period.
- Debt: Debt, net was $144.8 million at September 30, 2022, compared with $160.3 million at year-end 2021. The Sprott facility was amended to extend maturity to May 31, 2027, and the 10% Senior Secured Notes were extended to December 1, 2027. Approximately $151.7 million of debt principal is scheduled for payment in 2027.
- Equity: Shares outstanding increased to 199.8 million at September 30, 2022 from 60.4 million at December 31, 2021, primarily due to the March equity financings and other stock issuances.
Material Changes Versus the Prior Comparable Period
- Revenue fell 72% in Q3 and 75% for the first nine months, primarily because mining ceased in November 2021 and the Company was processing only previously placed ore and drain-down solutions.
- Gold and silver production and sales volumes declined substantially, while average realized gold pricing was modestly higher and silver pricing was lower.
- Net loss improved in Q3, but increased for the nine-month period. The prior-year nine-month results benefited from a $11.0 million non-cash warrant fair-value gain; 2022 included a $0.5 million non-cash warrant fair-value loss.
- Projects, exploration, and development expense increased to $7.0 million in Q3 and $8.2 million for nine months, reflecting the new exploration drilling program, technical studies, engineering, and metallurgical work.
- Operating cash use improved modestly year over year, while investing activities provided $2.5 million in 2022 versus $11.9 million of cash used in 2021, largely due to asset sales and reduced capital spending.
- Restricted cash declined slightly, and plant and equipment declined to $55.5 million from $58.5 million at year-end 2021. Assets held for sale totaled $10.2 million at September 30, 2022.
Guidance, Outlook, Risks, and Unusual Items
- Management does not expect net positive operating cash flow for the foreseeable future and expects to rely on unrestricted cash and other financing sources to fund operations, exploration, development, and obligations.
- The 2022-2023 exploration program had completed approximately 41,000 feet of reverse-circulation drilling and 2,300 feet of core drilling through September 30, 2022. Metallurgical variability testing is expected to continue through the first quarter of 2023.
- Management is focused on Acid POX process development, exploration drilling, resource-model improvements, and potential advancement of the 2022 Technical Report Summary toward a pre-feasibility or feasibility study.
- Approximately 28% of historical samples remained without silver fire-assay data. Management stated that the effect on the resource model cannot yet be determined and additional infill drilling may be required.
- Future contractual and estimated obligations totaled approximately $493.9 million, including $152.0 million of debt principal, $241.0 million of estimated net smelter royalty payments, $70.1 million of remediation and reclamation expenditures, and $20.1 million of interest payments. These estimates depend on metal prices, production assumptions, and timing.
- The Company was in compliance with its debt covenants at September 30, 2022. The Sprott agreement requires minimum unrestricted cash of $15.0 million.
- On October 3, 2022, Nasdaq notified the Company that its common stock did not meet the $1.00 minimum bid-price requirement. The initial compliance period ran through April 3, 2023, with a possible additional period subject to Nasdaq requirements.
- Other significant risks include gold and silver price volatility, permitting and environmental obligations, uncertainty regarding mineral resources and commercial feasibility, substantial indebtedness, future capital needs, potential dilution, LIBOR transition effects, and the absence of a completed feasibility study.
- Unusual items included a $1.1 million Q3 gain from warrant fair-value changes, $0.9 million of commissions related to a mill sale, and the issuance of 1.7 million shares to a financial advisor under a settlement agreement.
Key Facts Investors Should Verify
- Whether remaining drain-down recovery ends as expected and how quickly revenue declines after the end of 2022.
- The results of the 2022-2023 exploration program, missing silver assay work, metallurgical testing, and any updated resource estimate.
- The technical and economic progression of the Acid POX project, including the timing and cost of any pre-feasibility or feasibility study.
- Projected cash burn and whether $153.4 million of unrestricted cash is sufficient to fund planned exploration, development, debt service, and reclamation-related obligations.
- The Company’s ability to refinance or repay the approximately $151.7 million debt obligation scheduled for 2027.
- Compliance with Nasdaq’s minimum bid-price requirement and any resulting reverse stock split or delisting actions.
- Actual proceeds and timing from the sale of mills and other assets held for sale, including the buyer’s ability to defer the $11.0 million final mill payment through March 31, 2023.