HYCROFT MINING HOLDING CORP quarterly report, Q1 FY2022

Hycroft Mining Holding Corporation — Q1 2022 Form 10-Q

Reporting period: Three months ended March 31, 2022; filed May 4, 2022. Hycroft is developing its wholly owned Nevada gold and silver mine. Open-pit mining ceased in November 2021 because the prior novel heap-oxidation process was not considered economic at prevailing or modeled metal prices. The company continued processing leach-pad inventory while evaluating milling and acid pressure oxidation (“Acid POX”) for sulfide ore.

Financial and Operating Highlights

Metric	Q1 2022	Q1 2021	Change
Revenue	$9.2 million	$19.0 million	Down 51.8%
Loss from operations	$(12.0) million	$(14.8) million	Improved by $2.7 million
Net loss	$(22.1) million	$(9.7) million	Worsened by $12.4 million
Basic and diluted loss per share	$(0.27)	$(0.16)	Worsened
Cash used in operating activities	$(6.9) million	$(14.8) million	Improved by $7.8 million
Cash and restricted cash	$207.1 million	$76.2 million	Increased by $130.9 million
Unrestricted cash	$172.8 million	$12.3 million at Dec. 31, 2021	Increased by $160.4 million

Gold sales were $8.9 million on 4,773 ounces sold, compared with $17.5 million on 9,830 ounces in Q1 2021. The average realized gold price increased to $1,866 per ounce from $1,784.
Silver sales were $0.3 million on 10,934 ounces sold, compared with $1.5 million on 57,236 ounces. The average realized silver price declined to $23.78 per ounce from $26.12.
Gold production was 5,358 ounces and silver production was 16,861 ounces, down from 13,858 and 94,845 ounces, respectively, primarily because mining had ceased.
Total cost of sales was $17.0 million, or approximately 185% of revenue, compared with $29.4 million, or approximately 154% of revenue, in Q1 2021. Production costs declined to $9.6 million, but production cost per gold ounce sold increased to $2,008 from $1,813.
General and administrative expense decreased to $3.1 million from $3.8 million; projects, exploration and development expense increased to $1.0 million from $0.5 million.
Interest expense increased to $5.3 million from $4.4 million. A $5.3 million non-cash warrant fair-value loss replaced a $9.5 million non-cash gain in the prior-year quarter.
Working capital was $175.0 million at March 31, 2022. Total assets were $293.4 million and total liabilities were $194.1 million.

Material Changes Versus the Prior Comparable Period

Revenue and production declined sharply following the November 2021 cessation of open-pit mining. The company expected leach-pad processing to continue through the second quarter of 2022, subject to economic viability.
The company raised approximately $194.4 million of gross equity proceeds in March: $55.9 million through a private placement with American Multi-Cinema, Inc. and an entity affiliated with Eric Sprott, and $138.6 million through an at-the-market offering. Net ATM proceeds were $133.6 million after commissions and fees.
Shares outstanding increased from 60.4 million at December 31, 2021 to 196.8 million at March 31, 2022, creating substantial dilution. The private placement also added 46.8 million warrants with a $1.068 exercise price and five-year term.
Debt, net declined to $139.7 million from $160.3 million at December 31, 2021, after $23.9 million of required Sprott prepayments, partly offset by in-kind interest and fees.
The amended Sprott facility maturity was extended to May 31, 2027, and the 10% Senior Secured Notes maturity was extended to December 1, 2027. The amended Sprott agreement requires minimum unrestricted cash of $15.0 million. The company reported compliance with all debt covenants at quarter-end.
Warrant liabilities increased to $6.0 million from $0.7 million because of fair-value remeasurement.

Outlook, Commentary, Risks and Unusual Items

Management’s operating plan is to process remaining heap-leach inventory while completing metallurgical testing, conducting exploration and advancing the Acid POX milling study toward a pre-feasibility or feasibility study.
The 2022 Hycroft Technical Report Summary, effective February 18, 2022, reported measured and indicated resources of 9.6 million ounces of gold and 446.0 million ounces of silver, plus inferred resources of 5.0 million ounces of gold and 150.4 million ounces of silver. The filing states that the project did not have a completed feasibility study or established mineral reserves.
Metallurgical test work was expected to continue through the third quarter of 2022, with laboratory delays attributed to staffing and equipment constraints. Only approximately 30% of 2021 drill-sample results had been received by March 31.
The company does not expect to generate net positive operating cash flow for the foreseeable future and will depend on unrestricted cash and additional financing or other sources of capital. Management states that unavailable financing could require material changes to business plans.
Major obligations include approximately $147.2 million of debt principal repayments, $22.7 million of interest payments, estimated $70.1 million of reclamation and remediation expenditures, and an estimated $292.2 million of future net smelter royalty payments based on current life-of-mine assumptions and consensus metal prices.
Restricted cash was $34.3 million, supporting surety bonds totaling $59.3 million. The asset retirement obligation was $5.3 million; significant reclamation expenditures are not expected until 2047, with work expected to be completed by 2065.
Key risks include gold and silver price volatility, the absence of a feasibility study, uncertainty regarding resource estimates and future processing economics, the ability to restart commercially feasible mining, substantial indebtedness, future capital needs, dilution, permitting and environmental obligations, labor and supply constraints, and mining and operational hazards.
A May 3, 2022 letter agreement clarified that certain additional interest under the amended Sprott agreement accrues only through May 31, 2025, rather than through the extended maturity date.
Management reported effective disclosure controls and procedures as of March 31, 2022. The filing did not include quarterly risk factors because the company qualifies as a smaller reporting company.

Investor Verification Checklist

Verify the economics, assumptions, recoveries, capital requirements and schedule in any subsequent Acid POX pre-feasibility or feasibility study; the current filing does not establish commercial viability.
Reconcile projected cash burn with the $172.8 million unrestricted cash balance, the $15.0 million minimum cash covenant and the company’s statement that operating cash flow is expected to remain negative.
Review debt maturity, in-kind interest, additional-interest provisions and covenant compliance, particularly the large 2027 repayment concentration.
Assess dilution from the March equity offerings, 46.8 million private-placement warrants and other outstanding warrants and restricted stock units.
Monitor leach-pad recovery rates, remaining recoverable ounces and the timing of the expected end of economic processing.
Validate mineral resource estimates, especially the potential underestimation of silver and the limited receipt of drill results.
Track reclamation, royalty, permitting and environmental obligations, including the $34.3 million restricted cash collateral and estimated long-term commitments.