Business Context and Reporting Period
Hycroft Mining Holding Corporation is a U.S.-based gold and silver producer operating its wholly owned Hycroft Mine in Nevada. This unaudited Form 10-Q covers the three months ended March 31, 2021, with comparisons to March 31, 2020. Gold and silver sales represented all operating revenue. The company operates a single mine and completed its SPAC-related recapitalization on May 29, 2020.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $19.0 million | $11.1 million | Up 70.8% |
| Cost of sales | $29.4 million | $23.9 million | Up 23.1% |
| Loss from operations | $14.8 million | $14.8 million | Broadly unchanged |
| Net loss | $9.7 million | $34.6 million | Improved by $24.9 million |
| Basic and diluted loss per share | $0.16 | $107.07 | Improved; prior period was retroactively restated |
| Cash used in operating activities | $14.8 million | $19.4 million | Improved by $4.7 million |
| Capital expenditures and investing cash use | $5.1 million | $2.1 million | Up $3.0 million |
Revenue increased primarily from higher ounces sold and higher realized metal prices. Gold revenue was $17.5 million on 9,830 ounces sold at an average realized price of $1,784 per ounce. Silver revenue was $1.5 million on 57,236 ounces sold at $26.12 per ounce.
The company reported a gross loss of approximately $10.4 million, or an approximate negative gross margin of 54.5%, and an operating loss margin of approximately 77.5%. Cost of sales included $10.5 million of mine site period costs, reflecting downtime, repairs, inefficient cost-volume structures and other costs that could not be capitalized into inventory.
The net loss included a $9.5 million non-cash gain from the fair-value remeasurement of warrant liabilities. Interest expense declined to $4.4 million from $19.9 million, mainly because the 2020 recapitalization exchanged or converted most legacy debt into equity.
Financial Position, Debt and Liquidity
- Cash was $36.5 million at March 31, 2021, down from $56.4 million at December 31, 2020.
- Cash and restricted cash totaled $76.2 million, including $39.7 million of restricted cash pledged as collateral for reclamation surety bonds.
- Working capital was $65.6 million. Total assets were $222.9 million and total liabilities were $215.4 million.
- Debt, net, was $153.3 million, including $7.4 million current and $145.8 million non-current. Contractual debt principal and additional interest obligations are substantial, with approximately $21.0 million due within one year under the broader contractual-obligations presentation.
- The company had $5.9 million of warrant liabilities at quarter-end, down from $15.4 million at December 31, 2020.
- Management stated that the company has not generated positive operating cash flow and does not expect positive operating cash flow for full-year 2021.
Material Changes Versus the Prior Comparable Period
- Gold production increased to 13,858 ounces from 6,972 ounces, while silver production increased to 94,845 ounces from 41,911 ounces.
- Gold and silver ounces sold increased from 6,560 and 49,373, respectively, to 9,830 and 57,236.
- Average realized prices increased from $1,577 to $1,784 per gold ounce and from $16.16 to $26.12 per silver ounce.
- No production inventory write-down was recorded in Q1 2021, compared with a $7.0 million write-down in Q1 2020 related to 3,980 ounces of gold deemed unrecoverable.
- Production costs increased to $17.8 million from $9.0 million, and production cost per gold ounce sold increased to approximately $1,813 from $1,365.
- General and administrative expense increased to $3.8 million from $2.0 million, primarily due to higher public-company legal, professional and consulting costs and increased corporate compensation.
- Mining shifted toward run-of-mine oxide and transitional ore. Crushing did not operate during the quarter, and sulfide ore was stockpiled.
Guidance, Outlook, Risks and Unusual Items
Management expects 2021 production of approximately 45,000 to 55,000 ounces of gold and 400,000 to 450,000 ounces of silver. The company expects full-year production costs to exceed gold and silver revenues at current metal prices because of fixed costs and lower planned run-of-mine volumes. Management also expects to defer completion and commissioning of the expanded leach pad until late 2022 or 2023, while using existing leach-pad capacity for approximately three years.
The company plans an approximately $10 million 2021 program for drilling, metallurgical testing and mineralogical studies. Its longer-term ramp-up depends on proving and optimizing the proprietary two-stage sulfide heap oxidation and leach process, refurbishing processing facilities, adding refinery capacity, securing equipment and personnel, and resolving other mining and processing constraints.
The financial statements contain a going-concern disclosure. Management concluded that substantial doubt exists because additional financing may be required within 12 months to fund operations, capital expenditures and obligations, including approximately $9.1 million of projected cash payments under the Sprott Credit Agreement. No assurance is provided that additional financing will be available on acceptable terms.
- Commodity-price volatility, production shortfalls, higher costs and the company's reliance on one mine could materially affect liquidity and results.
- COVID-19-related absences affected operations during the quarter and could cause further disruption.
- The company reported a material weakness in internal control over financial reporting involving the accounting for complex financial instruments and the 5-Year Private Warrants. Previously issued financial statements were restated, and management's disclosure controls were not effective as of March 31, 2021.
- The filing states that investors should not rely on previously issued reports or communications for periods before December 31, 2020 because of the warrant-accounting restatement.
- The company was in compliance with its debt covenants at March 31, 2021, including requirements related to minimum working capital and unrestricted cash.
- Approximately 96.5% of Q1 revenue was attributable to one customer.
Facts Investors Should Verify
- Availability, timing and terms of any financing needed to address the disclosed going-concern uncertainty.
- Actual cash burn, debt service requirements and compliance with Sprott Credit Agreement minimum-cash and working-capital covenants.
- Progress toward the stated 2021 production guidance and whether production costs continue to exceed revenue.
- Results of metallurgical testing and the commercial viability of the proprietary sulfide heap oxidation and leach process.
- Completion timing and cost of processing-plant repairs, refinery construction and leach-pad expansion.
- Remediation of the material weakness and the effect of future warrant fair-value changes on reported earnings.
- Exposure to gold and silver prices, COVID-19 disruptions, regulatory and environmental obligations, reclamation costs, royalties and customer concentration.