Hycroft Mining Holding Corporation — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2022; filed August 4, 2022. Hycroft is a Nevada-based gold and silver exploration and development company focused on the Hycroft Mine. Pre-commercial-scale mining ceased in November 2021, while recovery from existing leach-pad inventory continued.
Financial position and key metrics
| Metric | Q2 2022 | Six months 2022 | Comparable 2021 period |
|---|---|---|---|
| Revenue | $3.8 million | $13.0 million | $36.0 million / $55.0 million |
| Loss from operations | $8.5 million | $20.5 million | $3.8 million / $18.5 million |
| Net loss | $9.0 million | $31.0 million | $8.4 million / $18.1 million |
| Loss per share | $0.05 | $0.22 | $0.14 / $0.30 |
| Net cash used in operating activities | $22.1 million | $21.3 million |
- Q2 revenue declined 89% year over year and first-half revenue declined 76%, primarily because mining ceased in November 2021. Gold and silver ounces sold fell to 1,966 and 5,940 in Q2, respectively, from 17,060 and 189,766 in Q2 2021.
- Total cost of sales was $6.8 million in Q2 and $23.8 million for the first half, producing gross losses of $3.0 million and $10.8 million, respectively. Approximate gross margins were negative 78% and negative 83%.
- Q2 operating loss included $5.2 million of general and administrative expense and $2.6 million of mine-site period costs. The six-month operating loss included $9.0 million of mine-site period costs.
- Q2 net loss included a $3.7 million non-cash gain from warrant fair-value adjustments; the six-month period included a $1.6 million non-cash warrant loss.
- Cash was $157.8 million at June 30, 2022, compared with $12.3 million at December 31, 2021. Cash and restricted cash totaled $191.3 million. Net working capital was $165.5 million.
- Restricted cash was $33.5 million, primarily collateral for reclamation and other surety bonds. Total surety bonds were $58.7 million, including $58.3 million related to the Hycroft Mine.
- Debt, net, totaled $142.2 million, including $2.3 million current and $139.9 million non-current. The Sprott facility maturity was extended to May 31, 2027, and the 10% Senior Secured Notes maturity was extended to December 1, 2027. Debt fair value was estimated at $121.4 million.
- Financing activities provided $164.0 million in the first half, principally from $133.6 million of net ATM proceeds and $53.7 million of net private-placement proceeds, partly offset by approximately $24.4 million of debt-related prepayments and interest.
Material changes versus the prior comparable period
- Operations shifted from active mining to processing existing leach-pad inventory, materially reducing production and sales volumes.
- The Company raised approximately $194.4 million of gross equity proceeds in March 2022: $55.9 million through a private placement and $138.6 million through an ATM offering. Shares outstanding increased to 197.4 million at June 30, 2022 from 60.4 million at December 31, 2021.
- The Company strengthened near-term liquidity but remains cash-flow negative. Operating cash outflow was $22.1 million versus $21.3 million in the first half of 2021, despite substantially lower revenue.
- Inventories increased to $17.0 million from $11.1 million, while previously recorded ore on leach pads of $10.1 million was fully recovered or reclassified by June 30, 2022.
- The 2022 Hycroft Technical Report Summary 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.
Outlook, commentary, risks and unusual items
- Management expected leach-pad processing to continue through the end of 2022, with immaterial residual recovery potentially continuing into the first quarter of 2023. The Company does not expect net positive operating cash flow for the foreseeable future.
- The operating plan focuses on exploration, metallurgical and variability testing, and advancing an Acid POX milling study for sulfide ore toward a pre-feasibility or feasibility level. A 2022–2023 exploration program was initiated in July, targeting approximately 100,000 feet of reverse-circulation drilling and 25,000 feet of core drilling.
- Management stated that Acid POX currently has significantly better economics than the alternative processing methods studied; however, no completed feasibility study or commercially operating sulfide mill exists.
- The Company expects to spend cash on exploration, technical studies and development while liquidating non-core assets. It states that additional financing may be required and may not be available on acceptable terms.
- Debt agreements require compliance with financial and other covenants. The Company reported compliance at June 30, 2022, including a $15.0 million minimum unrestricted-cash requirement under the amended Sprott agreement.
- Contractual and contingent obligations include approximately $149.6 million of debt principal repayments, $21.6 million of interest payments, estimated $70.1 million of reclamation and remediation expenditures, and a perpetual 1.5% net-smelter royalty. Timing and amounts are estimates based on mine plans and commodity-price assumptions.
- Subsequent events included a $3.5 million settlement with a financial advisor, paid half in cash and half through issuance of 1,714,678 shares, and an adjustment to Seller Warrant terms that increased potential shares issuable upon exercise.
- Key risks include commodity-price volatility, uncertain mineral-resource estimates, the lack of a completed feasibility study, the ability to establish commercially viable mining operations, substantial indebtedness, future dilution, permitting and environmental obligations, reclamation costs, and reliance on future financing.
Important facts for investors to verify
- Whether cash on hand will be sufficient to fund projected operating, exploration, development, debt-service and reclamation obligations before commercial operations resume.
- The assumptions, costs, recovery rates, production schedule and economic sensitivity supporting the Acid POX concept and the 2022 resource estimate.
- The timing and results of metallurgical testing, silver-assay updates, exploration drilling and any future pre-feasibility or feasibility study.
- The maturity profile and cash-versus-in-kind interest burden of the Sprott facility and 10% Senior Secured Notes, including the large 2027 debt obligations.
- Potential dilution from outstanding warrants, restricted stock units, future equity offerings and the July 2022 advisor settlement.
- The recoverability and sale proceeds of metal inventories and assets held for sale, as well as the status of the $6.3 million dual-pinion ball-mill sale.
- Commodity prices, permitting, environmental liabilities, surety-bond collateral and the Company's ability to maintain debt covenants and obtain additional capital.