Hycroft Mining Holding Corporation — FY2021 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2021. Hycroft owns and operates the Hycroft gold and silver mine in Nevada and is currently a development-stage, single-property mining company. Pre-commercial open-pit mining operations were discontinued in November 2021 because of reagent and consumable cost pressures and the need to complete updated technical studies. The company continued processing existing leach-pad inventory where economic.
The February 2022 Initial Assessment Technical Report Summary replaced the 2019 technical report. It evaluates heap leaching for oxide and transition ores and milling with acid pressure oxidation for sulfide ores. The Initial Assessment is not a feasibility study, and the company has no comparable mineral reserves disclosed for the prior period.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $110.7 million | $47.0 million | +135.4% |
| Cost of sales | $163.3 million | $109.6 million | +49.0% |
| Gross loss | $52.6 million | $62.6 million | Improved |
| Gross margin | (47.5%) | (133.1%) | Improved |
| Loss from operations | $83.9 million | $89.4 million | Improved |
| Net loss | $88.6 million | $136.4 million | Improved |
| Basic loss per share | $1.47 | $3.92 | Improved |
| Net cash used in operating activities | $37.0 million | $110.5 million | Lower outflow |
| Net cash used in investing activities | $6.9 million | $31.1 million | Lower outflow |
Gold revenue was $100.5 million from 56,045 ounces sold at an average realized price of $1,794 per ounce. Silver revenue was $10.2 million from 397,546 ounces sold at an average realized price of $25.66 per ounce. Gold represented approximately 91% of total revenue and silver 9%.
Gold production increased to 57,668 ounces from 27,392 ounces, while silver production increased to 355,967 ounces from 178,836 ounces. Production costs increased to $102.8 million, or $1,833 per gold ounce sold, from $41.7 million, or $1,675 per ounce. Mine-site period costs were $38.2 million, and inventory write-downs were $13.9 million.
Significant 2021 charges included a $6.7 million impairment of previously capitalized mine development costs, a $5.9 million reserve for obsolete or slow-moving supplies, a $5.5 million write-down of leach-pad inventory costs, a $2.1 million loss on a crusher-liner commitment, and a $0.9 million write-off of an equipment deposit. These items were partly offset by a $14.4 million non-cash gain from fair-value changes in warrant liabilities and a $1.5 million income-tax benefit.
Liquidity, debt and capital resources
- Unrestricted cash was $12.3 million at December 31, 2021, down from $56.4 million. Working capital was $6.1 million.
- Restricted cash was $34.3 million, primarily collateral for reclamation surety bonds. Total surety bonds were $59.3 million.
- Debt, net, totaled $160.3 million, consisting principally of the Sprott Credit Agreement and 10% subordinated notes. The company also had a perpetual 1.5% net-smelter-return royalty and a 4% net-profit royalty capped at $7.6 million.
- Management stated that the company does not expect positive operating cash flow for the foreseeable future and will depend on cash on hand, metal sales, asset sales and financing.
- Operating cash outflows were $37.0 million, capital expenditures were approximately $7.0 million, and financing activities used $5.5 million, primarily for debt repayments.
After year-end, the company raised approximately $194.4 million of gross equity proceeds in March 2022: approximately $55.9 million from a private placement of 46.8 million units and approximately $138.6 million from an at-the-market offering of 89.6 million common shares. The financings materially increased share count and potential dilution.
The March 2022 amendments extended the Sprott facility maturity to May 31, 2027, required $23.9 million of principal prepayments, eliminated specified prepayment premiums, and increased the minimum unrestricted-cash covenant to $15.0 million. After the prepayments, estimated Sprott principal was approximately $57.9 million, including approximately $7.1 million of unpaid additional interest.
Material changes versus the prior comparable period
- Revenue, production and ounces sold increased substantially as more ore was placed under leach and recovery performance improved.
- Despite higher revenue, the company remained structurally unprofitable because its pre-commercial operating scale and cost structure produced substantial mine-site period costs.
- Mining operations ceased in November 2021, shifting the near-term business toward leach-pad processing, technical studies and exploration.
- The company abandoned the 2019 technical-report processing assumptions after concluding that the Novel Process was not economic as designed. Acid pressure oxidation became the primary sulfide-processing focus.
- Cash and total assets declined materially, while stockholders’ equity moved from positive $16.6 million to a deficit of $68.5 million.
- Warrant liabilities declined from $15.4 million to $0.7 million, generating a $14.4 million non-cash gain in 2021.
- Safety performance improved: the total reportable injury frequency rate declined to 0.64 from 2.30.
Guidance, outlook, risks and unusual items
Management’s 2022 plan was to continue processing leach-pad inventory while economic, complete metallurgical and variability testing, conduct targeted exploration drilling, and advance the Acid POX technical work toward a pre-feasibility or feasibility study. Metallurgical testing was expected to continue through the third quarter of 2022, subject to laboratory delays.
The company reported measured and indicated resources of approximately 9.6 million ounces of gold and 446.0 million ounces of silver, plus inferred resources of approximately 5.0 million ounces of gold and 150.4 million ounces of silver. These are mineral resources, not mineral reserves, and do not demonstrate economic viability. No production restart date or commercial mining plan was provided.
- Key risks include the inability to re-establish commercially feasible mining, the absence of a completed feasibility study, uncertain recoveries and processing costs, and the need for substantial additional capital.
- Commodity-price, inflation, reagent, energy, labor, equipment, permitting, environmental, reclamation and COVID-19 risks could materially affect future economics.
- Debt agreements impose restrictive covenants, minimum liquidity requirements and potential cross-default or acceleration provisions. Substantially all company assets secure the Sprott facility.
- The company has significant long-term obligations, including estimated undiscounted net-smelter royalty payments of $241.2 million and reclamation and remediation expenditures of $70.1 million under its current assumptions.
- Management disclosed a material weakness in internal control over financial reporting related to accounting for complex warrant instruments. Disclosure controls were ineffective as of December 31, 2021; remediation was underway but had not operated long enough to be considered complete.
- Common-stock and warrant prices experienced extreme volatility in early 2022, including trading dynamics potentially unrelated to operating fundamentals. Nasdaq minimum-bid compliance had been regained by March 24, 2022, but future compliance is not assured.
Most important facts for investors to verify
- Whether Acid POX processing can achieve commercially viable recoveries, capital costs and operating costs.
- The timing and cost of a pre-feasibility or feasibility study and any decision to restart commercial mining.
- Post-financing cash balances, required minimum unrestricted cash, debt maturities, interest obligations and compliance with amended Sprott covenants.
- The extent of dilution from the March 2022 equity offerings, warrants, restricted stock units and other potential share issuances.
- Whether reported mineral resources can ultimately be converted into mineral reserves and economically mined.
- Progress in remediating the material weakness in internal controls and the effectiveness of the company’s enhanced accounting procedures.
- Actual leach-pad recoveries, remaining saleable inventory and the cash runway after debt prepayments and ongoing technical expenditures.