Business Context and Reporting Period
Hycroft Mining Holding Corporation is a Nevada-based gold and silver producer operating its wholly owned Hycroft Mine. This unaudited Form 10-Q covers the three and nine months ended September 30, 2020. The May 29, 2020 business combination with Mudrick Capital Acquisition Corporation was accounted for as a reverse recapitalization; comparative periods reflect the predecessor Hycroft business.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 |
|---|---|---|
| Revenue | $12.3 million | $31.1 million |
| Cost of sales | $25.8 million | $81.5 million |
| Loss from operations | $24.6 million | $74.2 million |
| Net loss | $29.1 million | $113.5 million |
| Basic and diluted loss per share | $0.58 loss | $4.92 loss |
| Net cash used in operating activities | Not separately provided | $85.2 million |
Revenue consisted entirely of gold and silver sales. Gold revenue was $11.6 million for the quarter and $29.2 million year to date; silver revenue was $0.7 million and $1.8 million, respectively. Derived cost-of-sales margins were approximately negative 110% for the quarter and negative 163% year to date. Derived net margins were approximately negative 237% and negative 366%, respectively.
- Gold sold was 6,056 ounces in the quarter and 16,854 ounces year to date, at average realized prices of $1,919 and $1,735 per ounce.
- Silver sold was 27,251 ounces in the quarter and 97,954 ounces year to date, at average realized prices of $24.51 and $18.55 per ounce.
- At September 30, 2020, cash was $11.5 million and restricted cash was $39.7 million. Working capital was $42.7 million.
- Total assets were $173.2 million, total liabilities were $206.0 million, and stockholders’ deficit was $32.8 million.
- Debt, net, totaled approximately $143.9 million, comprising $62.7 million under the Sprott Credit Agreement, $82.7 million of Subordinated Notes, and $4.5 million of related debt issuance costs. The balance sheet also included a $30.0 million royalty obligation.
- Capital expenditures were $19.2 million year to date, primarily for the leach pad expansion.
Material Changes Versus Prior Comparable Period
- Quarterly revenue increased to $12.3 million from $2.7 million; year-to-date revenue increased to $31.1 million from $2.7 million, reflecting a full period of resumed mining operations in 2020 versus the 2019 restart.
- Quarterly net loss improved to $29.1 million from $32.1 million, while year-to-date net loss increased to $113.5 million from $77.5 million.
- Operating cash outflow increased to $85.2 million from $44.1 million, primarily due to a $71.8 million increase in production-related inventories, higher operating costs, and mine-site inefficiencies.
- Interest expense declined to $4.3 million for the quarter and $39.3 million year to date, compared with $16.7 million and $46.8 million, respectively, as approximately $627.8 million of predecessor debt was exchanged, converted, or repaid in connection with the recapitalization.
- During the first half of 2020, the Company wrote off 10,492 ounces of previously estimated recoverable gold and recognized $17.9 million of inventory write-downs. No metallurgical balancing write-down was recorded in the third quarter.
- Mine-site period costs were $14.2 million in the quarter and $34.3 million year to date, reflecting downtime, repairs, inefficient operations, reagent usage, and other unusual costs.
- General and administrative expense increased to $5.7 million for the quarter and $18.1 million year to date, driven by public-company costs, executive compensation and severance, insurance, and professional fees.
Guidance, Outlook, Risks, and Unusual Items
- Management expected fourth-quarter mining and production levels to be generally comparable with the third quarter, although certain transitional ore could be routed as run-of-mine material, reducing crushed tons.
- The first phase of the leach pad expansion was expected to be commissioned toward the end of the first quarter of 2021, later than initially planned. Estimated phase-one spending increased to approximately $37.0 million.
- Management expected mine-site net operating cash flow to reach approximately break-even by the end of the second quarter of 2021 at current metal prices, but stated that additional financing may be required.
- The filing states that substantial doubt existed about the Company’s ability to continue as a going concern. The Company had no commitment for additional financing at the filing date.
- The Sprott Credit Agreement requires at least $10.0 million of working capital and unrestricted cash and restricts additional debt, asset dispositions, dividends, and other activities. The Company reported compliance with its covenants at September 30, 2020.
- The Sprott facility’s third $40.0 million tranche was not currently available because applicable conditions and production milestones had not been met. Cash payments under the facility were expected to begin in 2021, with estimated payments of approximately $2.9 million over the following 12 months.
- On October 6, 2020, the Company completed a public offering of 9.6 million units for approximately $83.1 million of net proceeds. The offering caused adjustments to the Seller Warrants and increased potential dilution.
- On October 31, 2020, the Company sold a SAG mill for $2.3 million net proceeds; 50% was required to repay the Sprott facility.
- Key risks include gold and silver price volatility, reliance on a single mine, uncertainty regarding heap oxidation and leaching of sulfide ores, production and recovery shortfalls, COVID-19 disruptions, environmental and reclamation obligations, substantial debt, and future capital requirements.
Facts Investors Should Verify
- Whether the October 2020 equity offering materially extended liquidity and whether additional financing remains necessary.
- Actual fourth-quarter production, recovery rates, operating costs, and progress toward break-even mine-site cash flow.
- Commissioning timing and final cost of the first-phase leach pad expansion.
- The recoverability of the $46.5 million ore-on-leach-pad balance and the potential for further inventory write-downs.
- Compliance with Sprott liquidity and financial-model covenants as cash balances decline and debt payments begin.
- The fully diluted share count, including public warrants, Seller Warrants, restricted stock units, and the October 2020 offering.