Hycroft Mining Holding Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Hycroft operates the single Hycroft gold and silver mine in Nevada; gold and silver sales represented all operating revenue. The mine remained at a pre-commercial operating scale while the company evaluated sulfide-processing technologies.
Financial results and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $36.0 million | $7.6 million | $55.0 million | $18.8 million |
| Cost of sales | $33.5 million | $31.9 million | $62.9 million | $55.7 million |
| Gross profit (loss) | $2.5 million | $(24.2) million | $(7.9) million | $(37.0) million |
| Approximate gross margin | 6.9% | (317.5%) | (14.3%) | (197.3%) |
| Loss from operations | $(3.8) million | $(34.8) million | $(18.5) million | $(49.6) million |
| Net loss | $(8.4) million | $(50.7) million | $(18.1) million | $(85.3) million |
| Loss per share | $(0.14) | $(2.76) | $(0.30) | $(9.12) |
| Cash flow from operations | Not separately presented for the quarter | $(21.3) million | $(57.6) million |
- Q2 production was 16,776 ounces of gold and 139,351 ounces of silver; sales were 17,060 ounces of gold and 189,766 ounces of silver. Average realized prices were $1,811 per gold ounce and $26.88 per silver ounce.
- Six-month production totaled 30,637 gold ounces and 234,462 silver ounces. Production costs were $1,759 per gold ounce sold for the six-month period, compared with $1,521 in the prior-year period.
- At June 30, 2021, cash was $30.2 million and restricted cash was $34.9 million. Working capital was $63.6 million, as disclosed by management.
- Total debt, net, was $157.5 million, comprising $9.6 million current and $147.9 million non-current debt. The company also reported $29.9 million of royalty obligations and $5.0 million of asset-retirement obligations.
- Total liabilities were $219.6 million versus total stockholders’ equity of only $0.4 million. The accumulated deficit was $538.9 million.
- The six-month operating cash outflow included $6.3 million used to increase production-related inventories. Investing cash outflow was $9.1 million, primarily for equipment, technical studies and leach-pad construction.
Material changes versus the prior comparable period
- Revenue increased 372% in Q2 and 193% for the six-month period, driven by higher production and sales volumes following the mine’s operating ramp-up and by higher realized metal prices.
- Q2 operating loss improved by $31.0 million, and six-month operating loss improved by $31.1 million. Net losses also narrowed substantially.
- The company recorded no production-inventory write-downs in 2021, compared with $11.0 million in Q2 2020 and $17.9 million in the first half of 2020. Mine-site period costs declined to $2.4 million in Q2 and $13.0 million for the six months, from $12.9 million and $20.1 million, respectively.
- Interest expense declined to $5.3 million in Q2 and $9.7 million for the six months, compared with $15.1 million and $35.0 million, largely because the 2020 recapitalization exchanged or converted substantial predecessor debt.
- A non-cash warrant fair-value gain of $0.7 million in Q2 and $10.1 million for the six months reduced reported losses. Warrant liabilities declined to $5.0 million from $15.4 million at December 31, 2020.
- General and administrative expense declined to $5.2 million in Q2 and $9.0 million for the six months, partly because 2020 included recapitalization-related bonus compensation.
- Restricted cash declined by approximately $4.8 million after the company replaced certain surety bonds with bonds requiring lower cash collateral.
Outlook, liquidity, risks and unusual items
- Going concern: Management stated that substantial doubt exists regarding the company’s ability to continue as a going concern without additional funding. The company expects to require additional financing within 12 months and does not expect positive net operating cash flow during the following 12 months at current metal prices and operating assumptions.
- The company filed a $500 million universal shelf registration statement, declared effective July 13, 2021, but had no agreement or commitment to issue securities under it at the filing date.
- Full-year 2021 production guidance was maintained at 45,000–55,000 ounces of gold and 400,000–450,000 ounces of silver. Capital and project spending was expected at the high end of guidance, or approximately $18–$20 million.
- Management expects 2021 production costs to exceed gold and silver revenue because operations remain at a pre-commercial scale with significant fixed costs.
- The company is evaluating proprietary two-stage sulfide heap oxidation and leach, atmospheric alkaline oxidation mill and pressure oxidation processes. An AAO feasibility study and a POX pre-feasibility study were targeted for completion in the first quarter of 2022, with an update on the commercial sulfide path expected by the second quarter of 2022.
- Debt agreements require, among other conditions, minimum working capital and unrestricted cash of $10 million. The company reported compliance with all debt covenants at June 30, 2021. Contractual debt principal and additional-interest payments total approximately $222.7 million before discounts and costs, based on the filing’s schedule.
- Primary risks include dependence on one mine, volatile gold and silver prices, unproven or developing sulfide-processing technology, production and recovery uncertainty, substantial debt, future financing needs, environmental and reclamation obligations, permitting, COVID-19 impacts and equipment or labor constraints.
- The company restated prior-period financial statements for SPAC warrant accounting and classified certain warrants as liabilities. Disclosure controls were ineffective at June 30, 2021 because of a material weakness in accounting for complex financial instruments; remediation was ongoing.
- The filing states that pending litigation is not currently expected to have a material adverse effect, although particular matters could affect results or cash flows in a given period.
Investor verification points
- Verify the company’s ability to raise financing promptly and the liquidity impact of operating cash burn, planned capital spending and debt service.
- Reconcile production, recoveries, inventory ounces and realized metal prices to determine whether operations can reach commercial scale and positive cash flow.
- Assess the technical, permitting and capital requirements—and feasibility-study results—for AAO, POX and the proprietary sulfide process.
- Review debt covenants, maturity schedules, royalty obligations, surety-bond collateral and reclamation commitments.
- Monitor warrant fair-value volatility, potential dilution from approximately 56.5 million anti-dilutive warrants, and the company’s remediation of its material weakness.
- Confirm the basis for mineral-reserve estimates and the recoverability of leach-pad and stockpile inventories, which depend on metallurgical assumptions and future metal prices.