Hycroft Mining Holding Corporation — Q1 2023 Form 10-Q
Business context and reporting period
Hycroft is a Nevada-based gold and silver exploration and development company focused on its approximately 64,085-acre Hycroft Mine. The company ceased active mining in November 2021 and completed processing previously stockpiled ore by December 31, 2022. This unaudited Form 10-Q covers the three months ended March 31, 2023.
The company is currently advancing exploration, metallurgical testing, technical studies, and potential redevelopment of the mine. Its March 2023 initial assessment technical report incorporated a pressure oxidation process for sulfide mineralization and heap leaching for oxide and transition mineralization.
Financial results and key metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $0 | $9.2 million |
| Loss from operations | $11.5 million | $12.0 million |
| Net loss | $13.9 million | $22.1 million |
| Basic and diluted loss per share | $0.07 loss | $0.27 loss |
| Cash used in operating activities | $8.8 million | $6.9 million |
| Capital expenditures and other investing cash use | $0.3 million | $1.6 million provided |
| Cash used in financing activities | $0.6 million | $165.7 million provided |
Interest expense was $4.4 million, down from $5.3 million, while interest income was $1.9 million, primarily from U.S. Government money market funds, restricted cash, and the equipment sale receivable. A $0.1 million non-cash gain resulted from warrant fair-value adjustments, compared with a $5.3 million non-cash loss in Q1 2022. No income tax expense or benefit was recorded.
At March 31, 2023, cash and cash equivalents were $132.0 million, compared with $142.0 million at December 31, 2022. Including $34.3 million of restricted cash, total cash, cash equivalents, and restricted cash were $166.3 million. Total assets were $235.3 million and stockholders’ equity was $50.5 million.
Debt, net, totaled $137.4 million including current maturities. Contractual debt payments total $149.3 million before original issue discounts and debt issuance costs, with approximately $144.1 million of principal payments scheduled in 2027. The company was in compliance with its debt covenants at March 31, 2023, including minimum working capital and unrestricted cash requirements of $15.0 million.
Material changes versus the prior comparable period
- Revenue and production ceased: Q1 2023 included no gold or silver sales, compared with $9.2 million of revenue from 4,773 gold ounces and 10,934 silver ounces sold in Q1 2022.
- Operating cost presentation changed effective January 1, 2023. Mine site period costs and depreciation and amortization are now reported as operating expenses rather than cost of sales because the mine is not producing.
- Mine site period costs were $3.8 million, compared with $6.5 million included in Q1 2022 cost of sales.
- Projects, exploration, and development expense increased to $3.5 million from $1.0 million, primarily due to the 2022–2023 exploration drill program.
- Net loss improved by $8.2 million, primarily because Q1 2022 included a $5.3 million warrant fair-value loss and higher operating costs; the improvement was partly offset by the absence of revenue.
- Q1 2022 financing included approximately $190.2 million of net proceeds from equity offerings. No equity financing proceeds were recorded in Q1 2023.
- During Q1 2023, the company purchased a 50% undivided interest in patented mining claims for approximately $0.05 million.
- Approximately 6.2 million private warrants transferred into public warrant classification, reducing liability-classified warrant fair value from $0.8 million to $0.1 million.
Guidance, outlook, risks, contingencies, and unusual items
Management does not expect gold or silver revenue until the Hycroft Mine is developed and mining operations recommence. The 2023 plan is to conduct Phase 2 of the exploration drill program, complete metallurgical and variability testing, evaluate Phase 1 drilling results, and advance the pressure oxidation process.
The exploration program comprises approximately 30,000 meters of reverse-circulation drilling and 7,500 meters of core drilling. The 2023 technical report estimated measured and indicated resources of 10.6 million ounces of gold and 360.7 million ounces of silver, plus inferred resources of 3.4 million ounces of gold and 96.1 million ounces of silver. These are mineral resource estimates, not proven economic reserves, and the company has not completed a feasibility study.
Liquidity is a significant risk. Management expects no net positive cash flow for the foreseeable future and states that the company will depend on unrestricted cash and other sources of financing. Projected contractual obligations total $488.8 million, including $144.4 million of debt principal, $76.8 million of remediation and reclamation expenditures, $17.9 million of interest payments, and a modeled $240.5 million perpetual net smelter royalty obligation. These amounts depend on future mine development, production, metal prices, and other assumptions.
Restricted cash of $34.3 million collateralized reclamation and other surety bonds totaling $58.7 million. The asset retirement obligation was $10.5 million, with no significant reclamation expenditures expected until 2026 and reclamation work expected to continue through 2065.
The company held equipment for sale with a carrying value of $7.1 million under an amended agreement totaling $13.6 million. The buyer had paid $1.1 million, with the remaining $12.5 million for the ball mill and SAG mill extended to June 30, 2023, subject to interest.
A Delaware Chancery Court action challenged the calculation of adjustments to 16 expired warrants; the company has moved to dismiss and recorded no liability because a loss was not considered probable or reasonably estimable. Separately, on April 24, 2023, the court validated the company’s prior charter amendments increasing authorized shares and the shares and securities issued in reliance on those amendments.
The company obtained a lender waiver relating to a proposed reverse stock split of between 1-for-10 and 1-for-25. The split required stockholder approval and could be abandoned by the board. Key risks include financing availability, substantial indebtedness, interest rates, metal prices, permitting, environmental and reclamation obligations, technical and metallurgical uncertainty, mine redevelopment feasibility, dilution, Nasdaq listing compliance, and warrant volatility.
Important facts for investors to verify
- Whether the company can develop a commercially feasible mine and when, if ever, production and revenue will resume.
- Remaining unrestricted cash, cash burn rate, minimum liquidity covenant compliance, and the timing of any required external financing.
- The maturity and refinancing risk associated with approximately $144.1 million of scheduled debt principal payments in 2027.
- Assumptions supporting the 2023 technical report, including resource estimates, pressure oxidation economics, metallurgical test results, capital requirements, and permitting.
- Collection of the remaining equipment sale consideration and the buyer’s ability to complete payment by the contractual deadline.
- The potential cash impact of reclamation obligations, surety bonds, royalties, and the modeled long-term contractual obligations.
- Resolution and potential dilution implications of outstanding warrants, including approximately 87.7 million equity-classified warrants and 2.9 million liability-classified private warrants at March 31, 2023.
- Any developments in the warrant-holder litigation, the reverse stock split, and related Nasdaq listing or trading-liquidity consequences.