Quarterly Report (10-q)

Date : 05/14/2019 @ 8:31PM
Source : Edgar (US Regulatory)
Stock : General Moly Inc (GMO)
Quote : 0.247  -0.004 (-1.59%) @ 8:49PM

Quarterly Report (10-q)

un

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                  

 

Commission File Number: 001-32986

 

General Moly, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

DELAWARE

 

91-0232000

(State or other jurisdiction

 

(I.R.S. Employer

of incorporation or organization)

 

Identification No.)

 

1726 Cole Blvd., Suite 115
Lakewood, CO 80401
Telephone:  (303) 928-8599
(Address and telephone number of principal executive offices)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒  NO ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒  NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer ☐

 

Accelerated filer ☐

 

 

 

Non-accelerated filer ☒

 

Smaller reporting company ☒

 

 

 

 

 

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES   NO ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

GMO

NYSE American and Toronto Stock Exchange

 

The number of shares outstanding of issuer’s common stock as of May 3, 2019, was 137,526,132.

 

 

 


 

1


 

PART I - FINANCIAL INFORMATIO N

 

ITEM 1. FINANCIAL STATEMENT S

 

GENERAL MOLY, INC.

CONSOLIDATED BALANCE SHEETS

 

(In thousands, except par value amounts)

 

 

 

 

 

 

 

 

 

 

    

March 31,

    

December 31,

 

 

 

2019

 

2018

 

 

 

(unaudited)

 

 

 

ASSETS:

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,098

 

$

2,016

 

Deposits, prepaid expenses and other current assets

 

 

253

 

 

62

 

Total Current Assets

 

 

1,351

 

 

2,078

 

Mining properties, land and water rights

 

 

229,748

 

 

229,175

 

Deposits on project property, plant and equipment

 

 

87,972

 

 

88,124

 

Restricted cash held at EMLLC

 

 

6,167

 

 

6,167

 

Restricted cash and investments held for reclamation bonds

 

 

417

 

 

834

 

Non-mining property and equipment, net

 

 

37

 

 

40

 

Other assets

 

 

3,104

 

 

3,076

 

TOTAL ASSETS

 

$

328,796

 

$

329,494

 

LIABILITIES, CRNCI, AND EQUITY:

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

877

 

$

574

 

Promissory Notes

 

 

1,340

 

 

1,340

 

Senior Convertible Promissory Notes

 

 

5,681

 

 

5,807

 

Accrued advance royalties

 

 

500

 

 

500

 

Total Current Liabilities

 

 

8,398

 

 

8,221

 

Provision for post closure reclamation and remediation costs

 

 

1,796

 

 

1,769

 

Accrued advance royalties

 

 

5,700

 

 

5,700

 

Accrued payments to Agricultural Sustainability Trust

 

 

5,500

 

 

5,500

 

Return of Contributions Payable to POS-Minerals

 

 

33,641

 

 

33,641

 

Other accrued liabilities

 

 

2,356

 

 

2,125

 

Total Liabilities

 

 

57,391

 

 

56,956

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES - NOTE 12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONTINGENTLY REDEEMABLE NONCONTROLLING INTEREST ("CRNCI")

 

 

172,225

 

 

172,261

 

CONVERTIBLE PREFERRED SHARES

 

 

300

 

 

 —

 

 

 

 

172,525

 

 

172,261

 

EQUITY

 

 

 

 

 

 

 

Common stock, $0.001 par value; 650,000,000 and 650,000,000 shares authorized, respectively, 137,526,132 and 137,114,804 shares issued and outstanding, respectively

 

 

137

 

 

137

 

Additional paid-in capital

 

 

291,290

 

 

291,266

 

Accumulated deficit during exploration and development stage

 

 

(192,547)

 

 

(191,126)

 

Total Equity

 

 

98,880

 

 

100,277

 

TOTAL LIABILITIES, CRNCI, AND EQUITY

 

$

328,796

 

$

329,494

 

 

The accompanying notes are an integral part of these consolidated financial statements.

2


 

GENERAL MOLY, INC. (“GMI”)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

(Unaudited — In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

    

March 31,

    

March 31,

 

 

 

2019

 

2018

 

REVENUES

 

$

 

$

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

Exploration and evaluation

 

 

103

 

 

159

 

General and administrative expense

 

 

1,299

 

 

2,472

 

TOTAL OPERATING EXPENSES

 

 

1,402

 

 

2,631

 

 

 

 

 

 

 

 

 

(LOSS) FROM OPERATIONS

 

 

(1,402)

 

 

(2,631)

 

 

 

 

 

 

 

 

 

OTHER INCOME/(EXPENSE):

 

 

 

 

 

 

 

Interest expense

 

 

(55)

 

 

(162)

 

TOTAL OTHER (EXPENSE)/INCOME, NET

 

 

(55)

 

 

(162)

 

 

 

 

 

 

 

 

 

(LOSS) BEFORE INCOME TAXES

 

 

(1,457)

 

 

(2,793)

 

 

 

 

 

 

 

 

 

Income Taxes

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

CONSOLIDATED NET (LOSS)

 

$

(1,457)

 

$

(2,793)

 

Less: Net loss attributable to CRNCI

 

 

36

 

 

184

 

NET LOSS ATTRIBUTABLE TO GMI

 

$

(1,421)

 

$

(2,609)

 

Basic and diluted net loss attributable to GMI per share of common stock

 

$

(0.01)

 

$

(0.02)

 

Weighted average number of shares outstanding — basic and diluted

 

 

137,471

 

 

126,757

 

 

 

 

 

 

 

 

 

COMPREHENSIVE (LOSS)

 

$

(1,421)

 

$

(2,609)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

3


 

GENERAL MOLY, INC.

CONSOLIDATED STATEMENTS OF EQUITY

 

(Unaudited — In thousands, except number of shares and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

Additional

 

Accumulated

 

 

 

 

 

    

Shares

    

Amount

    

Paid-In Capital

    

Deficit

    

Total

 

Balances, December 31, 2017

 

 125,802,023

 

$

126

 

$

288,041

 

$

(180,382)

 

$

107,785

 

Issuance of Units of Common Stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued pursuant to stock awards

 

195,000

 

 

 —

 

 

 —

 

 

 —

 

 

497

 

Stock-based compensation

 

 —

 

 

 —

 

 

290

 

 

 —

 

 

290

 

Restricted stock net share settlement

 

798,481

 

 

 1

 

 

(173)

 

 

 —

 

 

(173)

 

Issued under at-the-market trading mechanism

 

1,168,300

 

 

 1

 

 

495

 

 

 —

 

 

 —

 

Net loss for the period ended March 31, 2018

 

 —

 

 

 —

 

 

 —

 

 

(2,609)

 

 

(2,609)

 

Balances, March 31, 2018

 

127,963,804

 

$

128

 

$

288,653

 

$

(182,991)

 

$

105,790

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

Additional

 

Accumulated

 

 

 

 

 

 

Shares

 

Amount

 

Paid-In Capital

 

Deficit

 

Total

 

Balances, December 31, 2018

 

137,114,804

 

$

137

 

$

291,266

 

$

(191,126)

 

$

100,277

 

Issuance of Units of Common Stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued pursuant to stock awards

 

135,000

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 

25

 

 

 —

 

 

25

 

Restricted stock net share settlement

 

276,328

 

 

 —

 

 

(1)

 

 

 —

 

 

(1)

 

Public Offering

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

At-the-Market Offering

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Net loss for the period ended March 31, 2019

 

 —

 

 

 —

 

 

 —

 

 

(1,421)

 

 

(1,421)

 

Balances, March 31, 2019

 

137,526,132

 

$

137

 

$

291,290

 

$

(192,547)

 

$

98,880

 

 

 

4


 

GENERAL MOLY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited — In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

 

    

March 31,

    

March 31,

 

 

 

2019

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Consolidated net loss

 

$

(1,457)

 

$

(2,793)

 

Adjustments to reconcile net loss to net cash used by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 7

 

 

904

 

Non-cash interest expense

 

 

(126)

 

 

(23)

 

Income realized on lease of water rights

 

 

(13)

 

 

(4)

 

Stock-based compensation for employees and directors

 

 

24

 

 

251

 

Decrease (increase) in deposits, prepaid expenses and other

 

 

(191)

 

 

(8)

 

Decrease in accounts payable and accrued liabilities

 

 

519

 

 

(112)

 

(Decrease) increase in post closure reclamation and remediation costs

 

 

27

 

 

(38)

 

Net cash used by operating activities

 

 

(1,210)

 

 

(1,823)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchase and development of mining properties, land and water rights

 

 

(576)

 

 

(471)

 

Deposits on property, plant and equipment

 

 

152

 

 

(5)

 

Decrease in restricted cash

 

 

(17)

 

 

 —

 

Net cash used by investing activities

 

 

(441)

 

 

(476)

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Stock proceeds, net of issuance costs

 

 

299

 

 

324

 

Net cash provided/(used) by financing activities:

 

 

299

 

 

324

 

Net (decrease) in cash, cash equivalents and restricted cash

 

 

(1,352)

 

 

(1,975)

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

8,617

 

 

18,374

 

Cash, cash equivalents and restricted cash, end of period

 

$

7,265

 

$

16,399

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash paid for interest, net of capitalized

 

$

181

 

$

181

 

 

 

 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Equity compensation capitalized as development

 

$

1

 

$

39

 

Noncash change in deposits on property, plant and equipment

 

 

 —

 

 

86

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

5


 

GENERAL MOLY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — DESCRIPTION OF BUSINESS

 

General Moly, Inc. (“we,” “us,” “our,” “Company,” ”GMI,” or “General Moly”) is a Delaware corporation originally incorporated as General Mines Corporation on November 23, 1925.  We have gone through several name changes and on October 5, 2007, we reincorporated in the State of Delaware (“Reincorporation”) through a merger involving Idaho General Mines, Inc. and General Moly, Inc., a Delaware corporation that was a wholly owned subsidiary of Idaho General Mines, Inc.  The Reincorporation was effected by merging Idaho General Mines, Inc. with and into General Moly, with General Moly being the surviving entity.  For purposes of the Company’s reporting status with the United States Securities and Exchange Commission (“SEC”), General Moly is deemed a successor to Idaho General Mines, Inc.

 

The Company conducted exploration and evaluation activities from January 1, 2002 until October 4, 2007, when our Board of Directors (“Board”) approved the development of the Mt. Hope molybdenum property (“Mt. Hope Project”) in Eureka County, Nevada.  The Company is continuing its efforts to both obtain financing for and develop the Mt. Hope Project.  However, the combination of depressed molybdenum prices and challenges to our permits, including water rights, have further delayed ongoing development at the Mt. Hope Project. 

 

Additionally, in late 2018 we completed a 9-hole drill program on the Mt. Hope property, focused on the area where previously identified copper-silver-zinc-mineralized skarns have been identified, immediately adjacent to the Mt. Hope molybdenum deposit, and we are in the process of evaluating results from the program.

 

We also continue to evaluate our Liberty molybdenum and copper property (“Liberty Project”) in Nye County, Nevada.

 

The Mt. Hope Project

 

From October 2005 to January 2008, we owned the rights to 100% of the Mt. Hope Project.  Effective as of January 1, 2008, we contributed all of our interest in the assets related to the Mt. Hope Project, including the Mt. Hope Lease, into Eureka Moly, LLC (“EMLLC” or “the LLC”), and in February 2008 entered into a joint venture agreement (“LLC Agreement”) for the development and operation of the Mt. Hope Project with POS-Minerals Corporation (“POS-Minerals”).  Under the LLC Agreement, POS-Minerals owns a 20% interest in the LLC and General Moly, through Nevada Moly, LLC (“Nevada Moly”), a wholly-owned subsidiary, owns an 80% interest.  The ownership interests and/or required capital contributions under the LLC Agreement can change as discussed below.

 

Pursuant to the terms of the LLC Agreement, POS-Minerals made its first and second capital contributions to the LLC totaling $100.0 million during the year ended December 31, 2008 (“Initial Contributions”).  Additional amounts of $100.7 million were received from POS-Minerals in December 2012, following receipt of major operating permits for the Mt. Hope Project, including the Record of Decision (“ROD”) from the U.S. Bureau of Land Management (“BLM”).

 

In addition, under the terms of the LLC Agreement, since commercial production at the Mt. Hope Project was not achieved by December 31, 2011, the LLC will be required to return to POS-Minerals $36.0 million, since reduced to $33.6 million as discussed below, of its capital contributions (“Return of Contributions”), with no corresponding reduction in POS-Minerals’ ownership percentage.  Effective January 1, 2015, as part of a comprehensive agreement concerning the release of the reserve account described below, Nevada Moly and POS-Minerals agreed that the Return of Contributions will be payable to POS-Minerals on December 31, 2020; provided that, at any time on or before November 30, 2020, Nevada Moly and POS-Minerals may agree in writing to extend the due date to December 31, 2021; and if the due date has been so extended, at any time on or before November 30, 2021, Nevada Moly and POS-Minerals may agree in writing to extend the due date to December 31, 2022.  If the repayment date is extended, the unpaid amount will bear interest at a rate per annum of LIBOR plus 5%, which interest shall compound quarterly, commencing on December 31, 2020 through the date of payment in full.  Payments of accrued but unpaid interest, if any, shall be made on the repayment date.  Nevada Moly may elect, on behalf of the Company, to cause the Company to prepay, in whole or in part, the Return of Contributions at any time, without premium or penalty, along with accrued and unpaid interest, if any.

 

The original Return of Contributions amount due to POS-Minerals is reduced, dollar for dollar, by the amount of capital contributions for equipment payments required from POS-Minerals under approved budgets of the LLC, as discussed further below.  During the period January 1, 2015 to March 31, 2019, this amount has been reduced by $2.4 million, consisting of 20% of an $8.4 million principal payment made on milling equipment in March 2015, a $2.2 million principal payment made on electrical

6


 

transformers in April 2015, and a $1.2 million principal payment made on milling equipment in April 2016, such that the remaining amount due to POS-Minerals is $33.6 million.  If Nevada Moly does not fund its additional capital contribution in order for the LLC to make the required Return of Contributions to POS-Minerals set forth above, POS-Minerals has an election to either make a secured loan to the LLC to fund the Return of Contributions, or receive an additional interest in the LLC estimated to be 5%.  In the latter case, Nevada Moly’s interest in the LLC is subject to dilution by a percentage equal to the ratio of 1.5 times the amount of the unpaid Return of Contributions over the aggregate amount of deemed capital contributions (as determined under the LLC Agreement) of both parties to the LLC (“Dilution Formula”).  At March 31, 2019, the aggregate amount of deemed capital contributions of both parties was $1,088.5 million.

 

Furthermore, the LLC Agreement authorizes POS-Minerals to put/sell its interest in the LLC to Nevada Moly after a change of control of Nevada Moly or the Company, as defined in the LLC Agreement, followed by a failure by us or our successor company to use standard mining industry practice in connection with the development and operation of the Mt. Hope Project as contemplated by the parties for a period of twelve (12) consecutive months.  If POS-Minerals exercises its option to put or sell its interest, Nevada Moly or its transferee or surviving entity would be required to purchase the interest for 120% of POS-Minerals’ total contributions to the LLC, which, if not paid timely, would be subject to 10% interest per annum.

 

Effective January 1, 2015,  Nevada Moly and POS-Minerals signed an amendment to the LLC Agreement under which a separate $36.0 million owed to Nevada Moly, held by the LLC in a reserve account established in December 2012, is being released for the mutual benefit of both members related to the jointly approved Mt. Hope Project expenses through 2021.  In January 2015, the reserve account funded a reimbursement of contributions made by the members during the fourth quarter of 2014, inclusive of $0.7 million to POS-Minerals and $2.7 million to Nevada Moly.  The remaining reserve account funds are now being used to pay ongoing jointly approved expenses of the LLC until the Company obtains full financing for its portion of the Mt. Hope Project construction cost, or until the reserve account is exhausted.  Any remaining funds after financing is obtained will be returned to the Company.  The balance of the reserve account was $6.2 million and $6.2 million at March 31, 2019 and December 31, 2018, respectively.

 

Agreement with AMER International Group (“AMER”) 

 

Private Placement

 

In April 2015, the Company and AMER entered into a private placement for 40.0 million shares of the Company’s common stock and warrants to purchase 80.0 million shares of the Company’s common stock, priced using the trailing 90-day volume weighted average price (“VWAP”) of $0.50 on April 17, 2015, the date the Investment and Securities Purchase Agreement (“AMER Investment Agreement”) was signed. General Moly received stockholder approval of the transaction at its 2015 Annual Meeting, and of material amendments to the transaction at a special meeting held in December 2017.

 

On November 2, 2015, the Company and AMER entered into an amendment to the AMER Investment Agreement, utilizing a three-tranche investment.  The first tranche of the amended AMER Investment Agreement closed on November 24, 2015 for a $4.0 million private placement representing 13.3 million shares, priced at $0.30 per share, and warrants (“the AMER Warrants”) to purchase 80.0 million shares of common stock at $0.50 per share, which will become exercisable upon availability of an approximately $700.0 million senior secured loan (“Bank Loan”). The funds received from the $4.0 million private placement have been divided evenly between general corporate purposes and an expense reimbursement account available to both AMER and the Company to cover anticipated Mt. Hope financing costs and other jointly sourced business development opportunities. In addition, A MER and General Moly entered into a Stockholder Agreement allowing AMER to nominate a director to the General Moly Board of Directors and additional directors following the close of Tranche 3, discussed below, and drawdown of the Bank Loan.  The Stockholder Agreement also governs amer ’s acquisition and transfer of General Moly shares.  Prior to closing the first tranche the parties agreed to eliminate certain conditions to closing.  Following the closing, AMER nominated Tong Zhang to serve as a director of the Company, and he was appointed by the Board of Directors on December 3, 2015.  Mr. Zhang was nominated by the Board of Directors to stand for election at the 2018 General Meeting of Stockholders and was elected by the stockholders to serve as a Class II director for a three (3) year term expiring in 2021, subject to re-election.

 

On October 16, 2017, the Company and AMER announced the closure of the second tranche of the parties’ three-tranche financing agreement.  At the close of Tranche 2, General Moly issued 14.6 million shares to AMER, priced at the volume weighted average price (“VWAP”) for the 30-day period ending August 7, 2017 (the date of the parties’ Amendment No. 2 to the Investment and Securities Purchase Agreement) of $0.41 per share for a private placement of $6.0 million by AMER.  $5.5 million of the equity sale proceeds were available for general corporate purposes, while $0.5 million was held in the expense reimbursement account established at the first tranche 1 close to cover costs related to the Mt. Hope Project financing and other jointly sourced business development opportunities.

7


 

 

The third tranche of the amended investment agreement will include a $10.0 million private placement representing 20.0 million shares, priced at $0.50 per share.  Closing of the third tranche is conditioned upon the earlier of the reissuance of water permits for the Mt. Hope Project or completion of a joint business opportunity involving use of 10.0 million shares of General Moly stock. After the third tranche of the agreement closes, AMER may nominate a second director to General Moly’s Board of Directors.

 

The further amended AMER Investment Agreement reaffirms continuation of the strategic partnership formed between the Company and AMER to assist in obtaining full financing for the Mt. Hope Project.  The issuance of shares in connection with the third tranche of the AMER Investment Agreement was approved by General Moly stockholders in December 2017 at a Special Meeting of Stockholders.

 

The Company and AMER have jointly evaluated other potential opportunities, ranging from outright acquisitions and privatizations, or significant minority interest investments with a focus on base metal and ferro-alloy prospects, where the Company would benefit from management fees, minority equity interests, or the acquisition of both core and non-core assets.  The Company and AMER have considered but not completed any such transactions to date and we have taken a temporary break in the evaluation of potential opportunities with AMER.  From commencement of the AMER Investment Agreement in 2015 to March 31, 2019, the Company and AMER have spent approximately $2.5 million from the expense reimbursement account described above in connection with such evaluations.

 

Bank Loan

 

AMER has agreed to work cooperatively with the Company upon the return of sustained improved molybdenum prices and the receipt of our water permits to procure and support a senior secured term loan (“Bank Loan”) of approximately $700 million from a major Chinese bank or banks for the development of the Mt. Hope Project, and to provide a guarantee for the Bank Loan.

 

When documentation is complete and drawdown of the approximately $700 million Bank Loan becomes available, pursuant to the amended warrant agreement described below, the AMER Warrant will become exercisable at $0.50. After drawdown of the Bank Loan, AMER will also be entitled to nominate a third Director to General Moly’s Board of Directors. All conditions under the warrant agreement were originally required to be completed no later than April 17, 2017 in order for the AMER warrant to vest and become exercisable.  As the Bank Loan was not available on this date, on April 17, 2017, and again subsequently on June 16, 2017, July 16, 2017 and August 7, 2017, the Company and AMER entered into the First Amendment, the Second Amendment, Third Amendment, and Fourth Amendment (the “Warrant Amendments”) to the AMER Warrant. With the Fourth Amendment, the Company and AMER agreed to extend the deadline for satisfaction of all conditions to vesting of the AMER Warrant to the third anniversary of the re-issuance of the ROD for the Mt. Hope Project, anticipated in mid-2019.

 

Molybdenum Supply Agreement

 

The Company and AMER have agreed on the substantive terms of a definitive agreement that would provide a one-time option exercisable simultaneously with Bank Loan execution to purchase the balance of the Company’s share of Mt. Hope molybdenum production, estimated to be approximately 16.5 million pounds annually, for the first five years of production, and 70% of the Company’s annual share of Mt. Hope molybdenum production thereafter at a cost of spot price less a slight discount.

 

NOTE 2 — LIQUIDITY

 

Our current working capital is negative and the senior notes issued in 2014 will become due in December 2019.  Based on our current operating forecast, which takes into consideration the facts and circumstances described above, and the fact that we currently do not generate any revenue, the Company does not expect to be able to fund its current operations and meet its financial obligations for a period of at least 12 months from the issuance of these financials.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  If we are unable to meet our obligations, we would be forced to cease operations, in which event investors may lose their entire investment in our company

 

As the Company currently does not generate any revenues and the cash needs for the development of the Mt. Hope Project are significant, we and/or the LLC will be required to arrange for financing to be combined with funds anticipated to be received from POS-Minerals in order to retain its 20% membership interest.  If we are unsuccessful in obtaining financing, we will not be able to proceed with the development of the Mt. Hope Project.

 

8


 

On April 12, 2017, the Company filed a prospectus supplement in both Canada and the United States which enabled the Company, at its discretion from time to time, to sell up to $20 million worth of common shares by way of an “at-the-market” offering (the “ATM”).  Since the effectiveness of the prospectus supplement by the SEC on April 26, 2017 to March 31, 2019, a total of 1,168,300 common shares have been sold under the ATM, for net proceeds to the Company of $0.5 million.  In conjunction with the public offering in October 2018, the Company agreed to suspend the ATM facility for a period of 2 years.

 

On October 16, 2017, the Company and AMER announced the closure of the second tranche of the parties’ three-tranche financing agreement, resulting in a $6.0 million cash inflow to the Company.  $5.5 million of the equity sale proceeds were available for general corporate purposes, while $0.5 million was held in the loan procurement account to cover costs related to the Mt. Hope Project financing and other jointly sourced business development opportunities.  Based on our current operating forecast, our current cash on hand, and the convertible preferred share purchase agreement implemented in March 2019, discussed below, the Company expects to be able to fund its operations and meet its financial obligations late into the second quarter of 2019.  However, there can be no assurance that the Company will be successful in achieving its forecast, obtaining the financing required to complete the Mt. Hope Project, or in raising additional financing in the future on terms acceptable to the Company, or at all.

 

On March 13, 2019, the Company announced that its Board of Directors has retained XMS Capital Partners, Headwall Partners, and Odinbrook Global Advisors (collectively, the “Advisors”), as financial advisors to assist the Board and management with evaluating and recommending strategic alternatives.

The range of strategic alternatives being evaluated include sourcing of potential incremental capital financing, sale of interest(s) in the assets of the Company or the Company, and restructuring of the senior notes issued in a December 2014 private placement, which mature in December 2019.

Additionally, on March 28, 2019, the Company executed a Securities Purchase Agreement (the “Series A Purchase Agreement”) with Bruce D. Hansen, the Company’s Chief Executive Officer, and Robert I. Pennington, the Company’s Chief Operating Officer (collectively the “Investors”), effective as of March 21, 2019.  Pursuant to the Series A Purchase Agreement, the Investors have agreed to  purchase up to $900,000 of convertible shares of Series A Preferred Stock, par value $0.001 per share (the “Convertible Preferred Shares”), of the Company.  The Company may request up to three separate closings of sales of Convertible Preferred Shares to the Investors between the date of the Series A Purchase Agreement and June 30, 2019.  Each closing may be in an amount up to $300,000 of Convertible Preferred Shares and must occur at least 30 days after the previous closing.  On March 28, 2019, the Company and the Investors completed the first closing of $300,000 of Convertible Preferred Shares, or 3,000 shares.

The Convertible Preferred Shares are priced at $100.00/preferred share, convertible at any time at the holder’s discretion into common shares whereby one preferred share converts at a price of $0.27/common share to 370.37 common shares. The conversion price was set as the closing price of the common stock on March 12, 2019, which was the day before announcement of the private placement. Upon maturity or full repayment of the $7.1 million convertible debt currently outstanding, there will be mandatory redemption of the preferred shares into equivalent cash for the principal invested, plus any accrued and unpaid dividends. The Company believes this transaction will provide the liquidity necessary for the Company to operate through the anticipated receipt of the water permits.  However, this does not alleviate the substantial doubt about our ability to continue to operate as a going concern.

We continue to work with our long-lead vendors to manage the timing of contractual payments for milling equipment.  The following table sets forth the LLC’s remaining cash commitments under these equipment contracts (collectively, “Purchase Contracts”) at March 31, 2019 (in millions):

 

 

 

 

 

 

 

    

As of

 

 

 

March 31,

 

Year

 

2019 *

 

2019

 

$

 —

 

2020

 

 

0.6

 

Total

 

$

0.6

 


* All amounts are commitments of the LLC, and as a result of the agreement between Nevada Moly and POS-Minerals are to be funded by the reserve account, now $6.2 million as discussed above in Note 1, until such time that the Company obtains financing for its portion of construction costs at the Mt. Hope Project or until the reserve account balance is exhausted, and thereafter are to be funded 80% by Nevada Moly and 20% by POS-Minerals.  POS-Minerals remains obligated to make capital contributions for its 20% portion of equipment payments required by approved budgets of the LLC, and such amounts

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contributed by the reserve account on behalf of POS-Minerals will reduce, dollar for dollar, the amount of capital contributions that the LLC is required to return to POS-Minerals, described under Note 1 above.

 

If the LLC does not make the payments contractually required under these purchase contracts, it could be subject to claims for breach of contract or to cancellation of the respective purchase contract.  In addition, the LLC may proceed to selectively suspend, cancel or attempt to renegotiate additional purchase contracts if necessary to further conserve cash.  If the LLC cancels or breaches any contracts, the LLC will take all appropriate action to minimize any losses, but could be subject to liability under the contracts or applicable law.  The cancellation of certain key contracts could cause a delay in the commencement of operations, and could add to the cost to develop the Company’s interest in the Mt. Hope Project.

 

Through March 31, 2019, the LLC has made deposits and/or final payments of $88.0 million on equipment orders.  Of these deposits, $71.7 million relate to fully fabricated items, primarily milling equipment, for which the LLC has additional contractual commitments of $0.6 million noted in the table above.  The remaining $16.3 million reflects both partially fabricated milling equipment, and non-refundable deposits on mining equipment.  As discussed in Note 12, the mining equipment agreements remain cancellable with no further liability to the LLC.  The underlying value and recoverability of these deposits and our mining properties in our consolidated balance sheets are dependent on the LLC’s ability to fund development activities that would lead to profitable production and positive cash flow from operations, or proceeds from the sale of these assets. There can be no assurance that the LLC will be successful in generating future profitable operations, selling these assets or that the Company will secure additional funding in the future on terms acceptable to us or at all.  Our consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded assets or liabilities.

 

All Mt. Hope Project related funding is payable out of the reserve account, the balance of which was $6.2 million and $6.2 million at March 31, 2019 and December 31, 2018, respectively.  As of May, 1, 2019, the balance of the reserve account was $5.6 million.  However, corporate general and administrative expenses and costs associated with the maintenance of the Liberty Project are not covered by the Reserve Account.  Additional potential funding sources include public or private equity offerings, including closing or a negotiated acceleration of tranche 3 with respect to the remaining $10.0 million investment from AMER described in Note 1, or sale of other assets owned by the Company, although a portion of any major asset sales may be owed to POS-Minerals and the senior note holders.  There is no assurance that the Company will be successful in securing additional funding or reobtaining our water permits in order to access existing funding sources.  This could result in further cost reductions, contract cancellations, and potential delays which ultimately may jeopardize the development of the Mt. Hope Project.  .

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The interim consolidated financial statements (“interim statements”) of the Company are unaudited.  In the opinion of management, all adjustments and disclosures necessary for a fair statement of these interim statements have been included.  All such adjustments are, in the opinion of management, of a normal recurring nature.  The results reported in these interim statements are not necessarily indicative of the results that may be presented for the entire year.  These interim statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (“SEC”) on March 21, 2019.

 

This summary of significant accounting policies is presented to assist in understanding the financial statements.  The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity.  These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and have been consistently applied in the preparation of the financial statements.

 

Accounting Method

 

Our financial statements are prepared using the accrual basis of accounting in accordance with GAAP.  With the exception of the LLC, all of our subsidiaries are wholly owned.  In February 2008, we entered into the LLC Agreement, which established our ownership interest in the LLC at 80%.  The consolidated financial statements include all of our wholly owned subsidiaries and the LLC.  The POS-Minerals contributions attributable to their 20% interest are shown as Contingently Redeemable Noncontrolling Interest on the Consolidated Balance Sheet.  The net loss attributable to contingently redeemable noncontrolling interest is reflected separately on the Consolidated Statement of Operations and reduces the Contingently Redeemable Noncontrolling Interest on the Consolidated Balance Sheet.  Net losses of the LLC are attributable to the members of the LLC based on their respective ownership percentages in the LLC.  During the first quarter of 2019, the LLC had a $179,000 loss primarily associated with accretion of its reclamation obligations, of which $36,000 was attributed to the Contingently Redeemable Noncontrolling Interest.

 

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Contingently Redeemable Noncontrolling Interest (“CRNCI”)

 

Under GAAP, certain noncontrolling interests in consolidated entities meet the definition of mandatorily redeemable financial instruments if the ability to redeem the interest is outside of the control of the consolidating entity.  As described in Note 1 — “Description of Business”, the LLC Agreement permits POS-Minerals the option to put its interest in the LLC to Nevada Moly upon a change of control, as defined in the LLC Agreement, followed by a failure by us to use standard mining industry practice in connection with the development and operation of the Mt. Hope Project as contemplated by the parties for a period of 12 consecutive months.  As such, the CRNCI has continued to be shown as a separate caption between liabilities and equity based on accounting standards which require equity instruments with redemption features that are not solely within the control of the issuer to be classified outside of permanent equity (referred to as mezzanine equity).  The carrying value of the CRNCI has historically included the Return of Contributions, now $33.6 million, that will be returned to POS-Minerals in 2020, unless further extended by the members of the LLC as discussed above.  The expected Return of Contributions to POS-Minerals was carried at redemption value as we believed redemption of this amount was probable.  Effective January 1, 2015, Nevada Moly and POS-Minerals agreed that the Return of Contributions will be due to POS-Minerals on December 31, 2020, unless further extended by the members of the LLC as discussed above.  As a result, we have reclassified the Return of Contributions payable to POS-Minerals from CRNCI to a non-current liability at redemption value, and subsequently reduced it by $2.4 million, consisting of 20% of an $8.4 million principal payment made on milling equipment in March 2015, a $2.2 million principal payment made on electrical transformers in April 2015, and a $1.2 million principal payment made on milling equipment in April 2016, such that the remaining amount due to POS-Minerals is $33.6 million.

 

The remaining carrying value of the CRNCI has not been adjusted to its redemption value as the contingencies that may allow POS-Minerals to require redemption of its noncontrolling interest are not probable of occurring.  Under GAAP, until such time as that contingency has been eliminated and redemption is no longer contingent upon anything other than the passage of time, no adjustment to the CRNCI balance should be made.  Future changes in the redemption value will be recognized immediately as they occur and the Company will adjust the carrying amount of the CRNCI to equal the redemption value at the end of each reporting period.

 

Estimates

 

The process of preparing consolidated financial statements requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses.  Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements.  Accordingly, upon settlement, actual results may differ from estimated amounts.

 

Asset Impairments

 

We evaluate the carrying value of long-lived assets to be held and used, using a fair-value based approach when events and circumstances indicate that the related carrying amount of our assets may not be recoverable.  Significant declines in the overall  economic environment, molybdenum and copper prices may be considered as impairment indicators for the purposes of these impairment assessments.  Additionally, failure to secure our mining permits, including our water rights, or revocation of our permits, may be considered as impairment indicators for the purposes of these impairment assessments.  In accordance with U.S. GAAP, the carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is less than its carrying value.  In that event, an impairment charge will be recorded in our Consolidated Statement of Operations and Comprehensive Loss based on the difference between book value and the estimated fair value of the asset computed using discounted future cash flows, or the application of an expected fair value technique in the absence of an observable market price.  Future cash flows include estimates of recoverable quantities to be produced from estimated proven and probable mineral reserves, commodity prices (considering current and historical prices, price trends and related factors), production quantities and capital expenditures, all based on life-of-mine plans and projections.  In estimating future cash flows, assets are grouped at the lowest level for which identifiable cash flows exist that are largely independent of cash flows from other asset groups.  Generally, in estimating future cash flows, all assets are grouped at a particular mine for which there are identifiable cash flows.  While at March 31, 2019, we have not identified any impairment triggering events that would indicate any of our long-lived assets are impaired, there can be no assurance that there will not be asset impairments if commodity prices experience a sustained decline and/or if there are significant downward adjustments to estimates of recoverable quantities to be produced from proven and probable mineral reserves or production quantities, and/or upward adjustments to estimated operating costs and capital expenditures, all based on life-of-mine plans and projections.  The September 2017 denial of our water rights applications is not considered to be an impairment trigger as we have processes in place to seek replacement of these applications and secure the water permits needed for the Mt. Hope Project.

 

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Cash and Cash Equivalents and Restricted Cash

 

We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s cash equivalent instruments are classified within Level 1 of the fair value hierarchy established by FASB guidance for Fair Value Measurements because they are valued based on quoted market prices in active markets.

 

We consider all restricted cash, inclusive of the reserve account discussed above, the loan procurement account and reclamation surety bonds, to be long-term. 

 

 

 

 

 

 

 

    

March 31, 2019

December 31, 2018

 

 

(in thousands)

Cash and cash equivalents

 

1,098
2,016

Restricted cash held at EMLLC

 

6,167
6,167

Restricted cash and investments held for reclamation bonds

 

434

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

 

7,265
8,617

 

As of March 31, 2019, the LLC had $0.3 million in cash deposits associated with reclamation bonds, which are accounted for as restricted cash.  Another $0.1 million in cash collateral is associated with surety bonds at the Liberty Project.  These amounts are considered investments and are not included in cash and cash equivalents for purposes of the Statement of Cash Flows.  As of December 31, 2018, the LLC had an additional $0.4 million in a long-term funding mechanism, which was accounted for as restricted cash.  The $0.4 million held in a long-term funding mechanism was redeemed and is included in cash and cash equivalents as of March 31, 2019.

 

Basic and Diluted Net Loss Per Share

 

Net loss per share was computed by dividing the net loss attributable to the Company by the weighted average number of shares outstanding during the period. The weighted average number of shares was calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. Outstanding awards as of March 31, 2019 and December 31, 2018, respectively, were as follows:

 

 

 

 

 

 

 

 

    

March 31, 2019

    

December 31, 2018

 

Warrants

 

98,686,000

 

98,686,000

 

Shares Issued upon conversion of Senior Notes

 

5,910,000

 

5,910,000

 

Unvested Stock Awards

 

2,001,268

 

2,401,268

 

Stock Appreciation Rights

 

938,667

 

938,667

 

 

These awards were not included in the computation of diluted loss per share for the three and twelve months ended March 31, 2019 and December 31, 2018, respectively, because to do so would have been anti-dilutive.  Therefore, basic loss per share is the same as diluted loss per share.

 

Mineral Exploration and Development Costs

 

All exploration expenditures are expensed as incurred.  If no economic ore body is discovered, previously capitalized costs are expensed in the period the property is abandoned.  Expenditures to develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operating mines, are capitalized and amortized on a units-of-production basis over proven and probable reserves.

 

Should a property be abandoned, its capitalized costs are charged to operations.  The Company charges to the consolidated statement of operations the allocable portion of capitalized costs attributable to properties sold.  Capitalized costs are allocated to properties sold based on the proportion of claims sold to the claims remaining within the project area.

 

Mining Properties, Land and Water Rights

 

Costs of acquiring and developing mining properties, land and water rights are capitalized as appropriate by project area.  Exploration and related costs and costs to maintain mining properties, land and water rights are expensed as incurred while the property is in the exploration and evaluation stage.  Development and related costs and costs to maintain mining properties, land and water rights are capitalized as incurred while the property is in the development stage.  When a property reaches the production stage, the related capitalized costs are amortized using the units-of-production basis over proven and probable reserves.  Mining

12


 

properties, land and water rights are periodically assessed for impairment of value, and any subsequent losses are charged to operations at the time of impairment.  If a property is abandoned or sold, a gain or loss is recognized and included in the consolidated statement of operations.

 

The Company has capitalized royalty payments made to Mt. Hope Mines, Inc. (“MHMI”) (discussed in Note 12 below) during the development stage.  The amounts will be applied to production royalties owed upon the commencement of production.

 

Depreciation and Amortization

 

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Property and equipment are depreciated using the following estimated useful lives:

 

 

 

 

 

Field equipment

    

Four to ten years

 

Office furniture, fixtures, and equipment

 

Five to seven years

 

Vehicles

 

Three to five years

 

Leasehold improvements

 

Three years or the term of the lease, whichever is shorter

 

Residential trailers

 

Ten to twenty years

 

Buildings and improvements

 

Ten to twenty seven and one-half years

 

 

Senior Convertible Promissory Notes and other Long-Term Debt

 

In December 2014, the Company sold and issued $8.5 million in units consisting of convertible promissory notes (the “Convertible Notes”) and warrants to purchase shares of our common stock (the “Notes Warrants”) to accredited investors, including several directors and officers of the Company, pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 thereunder. The Notes are unsecured obligations and are senior to any of the Company’s future secured obligations to the extent of the value of the collateral securing such obligations.

 

The Convertible Notes bear interest at a rate of 10.0% per annum, payable in cash quarterly in arrears on each March 31, June 30, September 30, and December 31. The Convertible Notes are convertible at any time in an amount equal to 80% of the greater of (i) the average volume weighted average price (“VWAP”) for the 30 Business Day period ending on the Business Day prior to the date of the conversion, or (ii) the average VWAP for the 30 Business Day period ending on the original issuance date of the Convertible Notes.  Each Note will convert into a maximum of 100 shares per note, resulting in the issuance of up to 8,535,000 shares. General Moly’s named executive officers and board of directors who participated in the offering are restricted from converting at a price less than $0.32, the most recent closing price at the time that the Convertible Notes were issued. The Convertible Notes are mandatorily redeemable at par plus the present value of remaining coupons upon (i) the availability of cash from a financing for the Mt. Hope Project or (ii) any other debt financing by the Company. In addition, 50% of any proceeds from the sale of assets cumulatively exceeding $250,000 will be used to prepay the Convertible Notes at par plus the present value of remaining coupons. The Company has the right to redeem the Convertible Notes at any time at par plus the present value of remaining coupons. The Private Placement was negotiated by independent members of General Moly’s board of directors, none of whom participated in the transaction.  As of March 31, 2019, an aggregate of $2.6 million of Convertible Notes had been converted into 2,625,000 shares of common stock and $1.3 million of non-convertible Senior Promissory Notes, resulting in a $0.2 million annual reduction in interest payments made by the Company in the servicing of the Convertible Notes, as further discussed in Note 6 below.

 

The Company evaluates its contracts for potential derivatives.  See Note 6 for a description of the Company’s accounting for embedded derivatives and the Convertible Notes.

 

Debt issuance costs are costs incurred in connection with the Company’s debt financings that have been capitalized and are being amortized over the stated maturity period or estimated life of the related debt, using the effective interest method.

 

Provision for Taxes

 

Income taxes are provided based upon the asset and liability method of accounting.  Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end.  In accordance with authoritative guidance under Accounting Standards Codification (“ASC”) 740,  Income Taxes , a valuation allowance is recorded against the deferred tax asset if management does not believe the Company has met the “more likely than not” standard to allow recognition of such an asset.

 

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Reclamation and Remediation

 

Expenditures for ongoing compliance with environmental regulations that relate to current operations are expensed or capitalized as appropriate.  Future obligations to retire an asset, including reclamation, site closure, dismantling, remediation and ongoing treatment and monitoring, are recorded as a liability at fair value at the time of construction or development.  The fair value determination is based on estimated future cash flows, the current credit-adjusted risk-free discount rate and an estimated inflation factor.  The value of asset retirement obligations is evaluated on a quarterly basis or as new information becomes available on the expected amounts and timing of cash flows required to discharge the liability.  The fair value of the liability is added to the carrying amount of the associated asset and   this additional carrying amount will be depreciated or amortized over the estimated life of the asset upon the commencement of commercial production.  An accretion cost, representing the increase over time in the present value of the liability, will also be recorded each period as accretion expense.  As reclamation work is performed or liabilities are otherwise settled, the recorded amount of the liability is reduced.  Certain collateral amounts associated with our reclamation obligations are held in investment accounts, for which the fair value is estimated based on Level 1 inputs.

 

Stock-based Compensation

 

Stock-based compensation represents the fair value related to stock-based awards granted to members of the Board, officers and employees.  The Company uses the Black-Scholes model to determine the fair value of stock-based awards under authoritative guidance for Stock-Based Compensation .  For stock-based compensation that is earned upon the satisfaction of a service condition, the cost is recognized on a straight-line basis (net of estimated forfeitures) over the requisite vesting period (up to three years).  Awards expire five years from the date of vesting.

 

Further information regarding stock-based compensation can be found in Note 9 — “Equity Incentives.”

 

Warrants

 

The Company has issued warrants in connection with several financing transactions and uses the Black-Scholes model or a lattice to determine the fair value of these transactions based on the features included in each.

 

Leases

 

The Company adopted Accounting Standards Codification (“ASC”) 842, Leases, on January 1, 2019. Changes to the Company’s accounting policy as a result of adoption are discussed below.

The Company determines if a contractual arrangement represents or contains a lease at inception. Operating leases are included in  Deposits, prepaids and other Current Assets  and  Other   accrued liabilities  in the Consolidated Balance Sheets. No finance leases have been identified to date.

Operating and finance lease right-of-use ("ROU") assets and lease liabilities are recognized at the commencement date based on the present value of the future lease payments over the lease term. When the rate implicit to the lease cannot be readily determined, the Company utilizes its incremental borrowing rate in determining the present value of the future lease payments. The incremental borrowing rate is derived from information available at the lease commencement date and represents the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment. The ROU asset includes any lease payments made and lease incentives received prior to the commencement date. Operating lease ROU assets also include any cumulative prepaid or accrued rent when the lease payments are uneven throughout the lease term. The ROU assets and lease liabilities may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. 

Recently Adopted Accounting Pronouncements

 

Leases (Topic 842)

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842).  The update provides a comprehensive update to the lease accounting topic in the Codification intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  The amendments in ASU 2016-02 include a revised definition of a lease as well as certain scope exceptions.  The changes primarily impact lessee accounting, while lessor accounting is largely unchanged from previous

14


 

GAAP.  The amendments in ASU 2016-02 are effective for public entities for annual reporting periods beginning after December 15, 2018, and for interim periods within that reporting period.   

 

The Company adopted this standard as of January 1, 2019 using the modified retrospective approach with a cumulative effect adjustment on January 1, 2019.  The adoption had no effect on the opening balance of retained earnings at January 1, 2019.  The comparative information has not been adjusted and continues to be reported under the accounting standard in effect for those periods.

The new standard offers a number of optional practical expedients of which the Company elected the following:

Transition elections:   The Company elected a package of practical expedients, applied consistently to all leases that commenced prior to January 1, 2019, that allowed the Company (i) to not reassess whether a contract is or contains a lease, (ii) to not reassess the lease classification of the lease, and (iii) to not reassess initial direct costs for the lease.  The Company elected the land easements practical expedient whereby existing land easements were not reassessed under the new standard.

Ongoing accounting policy elections : The Company elected the short-term lease recognition exemption whereby ROU assets and lease liabilities will not be recognized for leasing arrangements with terms less than one year. The Company elected the practical expedient to not separate lease and non-lease components for all of its underlying asset classes.

Based on leases outstanding at January 1, 2019 and March 31, 2019, the adoption of the new standard resulted in the recognition of operating lease ROU assets and lease liabilities of $0.2 million and $0.2 million, respectively.  Certain of our leases include payments that vary based on the Company’s level of usage and operations.  These variable payments are not included within ROU assets and lease liabilities and are recognized as expense when incurred.  For the three months ended March 31, 2019, operating lease costs were $20K and variable lease costs were $1K.  Cash paid for amounts in the measurement of lease liabilities which are reflected in operating cash flows relating to operating leases for the three months ended March 31, 2019 were $20K. The weighted average life remaining for the operating leases is 1.8 years and the weighted average discount rate is 10%.  Adoption of this standard did not have a material impact to the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows.   

 

NOTE 4 — MINING PROPERTIES, LAND AND WATER RIGHTS

 

We currently have interests in two mining properties that are the primary focus of our development, the Mt. Hope Project and the Liberty Project.  We also have certain other, non-core, mining properties that are being evaluated for future development or sale.

 

The Mt. Hope Project.  We are currently in the process of developing the Mt. Hope Project. In January 2014, the Company published an updated Technical Report on the Mt. Hope Project using Canadian Instrument NI 43-101 guidelines, which provided data on the viability and expected economics of the project.  In early 2017, we re-examined the Mt. Hope proven and probable mineral reserves and updated the reserve and resource estimates using an $8.40/lb molybdenum (“Mo”) three-year backward average price.  No further adjustments have been required.

The Company has identified a potential high-grade, copper-silver exploration target along with a significant zinc mineralized area at the Mt. Hope Project site, southeast of the Mt. Hope’s molybdenum deposit in central Nevada.

A high-intensity, ground-based Induced Polarization (“IP”) survey completed in February 2018 by Quantec Geoscience indicates a fairly continuous group of high chargeability anomalies that appear aligned with the recently identified Cu-Ag Target. These anomalies lie between 100 feet and 1,000-plus feet from the surface and trend northeast for over 1,000 feet. The IP survey indicates that the anomalies could continue further to the north-northeast and to the south where they appear to dip to the east.

To date the preliminary exploration work was undertaken solely by General Moly. The Company has presented the promising findings to its 20% joint venture partner at the Mt. Hope Project, POS-Minerals Corporation a subsidiary of POSCO, a large South Korean steel company, and the parties are discussing value-sharing investment options. Any mining operation to exploit economic mineralization will require the approval of POS-Minerals.

Geological review of historic logs and core was completed by Mine Mappers, LLC of Tucson, Arizona to update the geologic interpretation of the skarn area.  Mine Mappers reviewed the geologic interpretations in conjunction with the IP results and recommended a 10-hole, 9,400 foot drilling confirmation and exploration program. 

15


 

 

In September 2018, the Company commenced a 9 hole drill program on the patented claims at the Mt. Hope Project.  The drilling program is focused on copper-silver-zinc mineralized skarns and designed to confirm and extend the target defined by historical drilling as well as test for extensions of zinc mineralization horizons which were historically mined.  The drill program is was completed in late 2018 and the Company is evaluating assay results to determine if said results warrant completion of a Preliminary Economic Assessment.   

 

Liberty Project.  We are currently continuing to evaluate the Liberty Project.  In July 2014, the Company published an updated NI 43-101 compliant pre-feasibility study, which more closely examined the use of existing infrastructure and the copper potential of the property.  In February 2017, Liberty Moly entered into a lease agreement with WK Mining Ltd. (“WK”) for the lease of water rights for the purpose of mining and milling.  The term of the lease is six years which WK can extend for an additional four years.  As compensation for the leased water rights, WK has issued $124,000 in common shares to Liberty Moly, consisting of $100,000 at signing of the agreement and shares equal to $12,000 in both its first and second annual installments, and is required to pay an annual fee on the anniversary date of the lease in either cash or WK common shares.

 

The Nevada Division of Environmental Protection (“NDEP”) has identified environmental concerns with some Liberty Project facilities acquired with the property.  NDEP’s concerns are related to aspects of previously approved closure plans required by Nevada regulation.  We have proposed options to NDEP to address these concerns.  In July 2018, we addressed one of those concerns by successfully completing a program, as approved by NDEP, to neutralize the acidic Liberty pit lake by adding hydrated lime to raise the pH.  We will continue to work with NDEP to evaluate ongoing options to address any future concerns, and additional costs may be required to meet NDEP’s closure requirements.  However, a reasonable estimate cannot be determined at this time as it is not possible to reasonably predict the outcome of our negotiations with NDEP.

 

On August 1, 2017, the Company through its wholly owned subsidiary Liberty Moly entered into an Option Agreement and Land Lease Agreement (if the option is exercised) with SRPV, a subsidiary of SolarReserve, LLC of Santa Monica, California for photovoltaic solar energy development.  The Agreement provides for a three-year option to lease a minimum of 500 acres and easements associated with vacant land.  If the option is exercised, the parties will enter into a 30-year lease for up to 700 acres of land, with an option to extend for an additional five years at the end of the initial lease term.  The vacant land parcel is wholly owned by the Company, and its use by the photovoltaic solar project will not impact the Liberty Project’s future proposed mining plans.  On May 6, 2019, SolarReserve, LLC provided notice to the Company that they were electing to terminate the Option Agreement effective immediately.

 

Other Mining Properties.  We also have mining claims and land purchased prior to 2006 which consist in part of (a) approximately 107 acres of fee simple land in the Little Pine Creek area of Shoshone County, Idaho, (b) six patented mining claims known as the Chicago-London group, located near the town of Murray in Shoshone County, Idaho, (c) 34 unpatented mining claims in Marion County, Oregon, known as the Detroit property and (d) 83 unpatented mining claims in Sanders and Madison County, Montana.  The costs associated with these claims and properties are minimal and primarily relate to claim fees and property taxes.

 

Summary. The following is a summary of mining properties, land and water rights at March 31, 2019 and December 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

    

At

    

At

 

 

 

March 31,

 

December 31,

 

 

 

2019

 

2018

 

Mt. Hope Project:

 

 

 

 

 

 

 

Development costs

 

$

176,866

 

$

176,292

 

Mineral, land and water rights

 

 

11,324

 

 

11,324

 

Advance royalties

 

 

31,800

 

 

31,800

 

Total Mt. Hope Project

 

 

219,990

 

 

219,416

 

Total Liberty Project

 

 

9,677

 

 

9,678

 

Other Properties

 

 

81

 

 

81

 

Total

 

$

229,748

 

$

229,175

 

 

Development costs of $176.9 million as of March 31, 2019 include hydrology and drilling costs, expenditures to further the permitting process, capitalized salaries, project engineering costs, and other expenditures required to fully develop the Mt. Hope Project.  Deposits on project property, plant and equipment of $88.0 million as of March 31, 2019 represent ongoing progress

16


 

payments on equipment orders for the custom-built grinding and milling equipment, related electric mill drives, and other processing equipment that require the longest lead times.

 

NOTE 5 — ASSET RETIREMENT OBLIGATIONS

 

Asset retirement obligations (“ARO”) arise from the acquisition, development, construction and normal operation of mining property, plant and equipment due to government controls and that protect the environment, and are primarily related to closure and reclamation of mining properties.  The exact nature of environmental issues and costs, if any, which the Company or the LLC may encounter in the future are subject to change, primarily because of the changing character of environmental requirements that may be enacted by governmental authorities.

 

The following table shows asset retirement obligations for future mine closure and reclamation costs in connection with the Mt. Hope Project and within the boundaries of the Plan of Operations (“PoO”):

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

At January 1, 2018

 

 

$

1,568

 

Accretion Expense

 

 

 

103

 

Adjustments*

 

 

 

(38)

 

At December 31, 2018

 

 

$

1,633

 

Accretion Expense

 

 

 

27

 

Adjustments*

 

 

 

 —

 

At March 31, 2019

 

 

$

1,660

 


* Includes additions, annual changes to the escalation rate, the market-risk premium rate, or reclamation time periods.

 

The estimated future reclamation costs for the Mt. Hope Project have been discounted using a rate of 8%, which is the rate that existed at the time the liability was originally measured.  The total inflated and undiscounted estimated reclamation costs associated with current disturbance under the PoO at the Mt. Hope Project were $5.8 million at March 31, 2019, inclusive of $2.6 million for mitigation of sage grouse habitat that would be affected by development of the Mt. Hope Project.  Increases in ARO liabilities resulting from the passage of time are recognized as accretion expense.

 

As of March 31, 2019, the LLC had provided the appropriate regulatory authorities with $2.8 million in reclamation financial guarantees through the posting of surety bonds for reclamation of the Mt. Hope and had $0.3 million in cash deposits associated with these bonds which are specific to the PoO disturbance and accounted for as restricted cash and are unrelated to the inflated and undiscounted liability referenced above.  The LLC posted an additional $0.3 million as a cash bond with the BLM in April 2019 as a result of a required three-year update to the reclamation bond calculation.

 

The LLC has a smaller liability at the Mt. Hope Project for disturbance associated with exploration drilling which occurred outside the PoO boundaries.  The LLC has not discounted this reclamation liability as the total amount is less than $0.1 million.

 

Total restricted cash for surety bond collateral requirements and other long-term reclamation obligations at the Mt. Hope Project equal $0.6 million.  Another $0.1 million in cash collateral is associated with surety bonds at the Liberty Project.

 

The Company’s Liberty Project is currently in the exploration stage. As the Company is not currently performing any exploration activity at the Liberty Project, the reclamation liability incurred for historical operations and exploration of approximately $0.1 million has not been discounted as shown in the table below.

 

 

 

 

 

 

 

 

 

    

Mt. Hope Project

    

 

 

 

 

 

outside PoO

 

 

 

 

 

 

boundary

 

Liberty

 

 

 

(in thousands)

 

At January 1, 2018

 

$

15

 

$

121

 

Adjustments *

 

 

 —

 

 

 —

 

At December 31, 2018

 

$

15

 

$

121

 

Adjustments *

 

 

 —

 

 

 —

 

At March 31, 2019

 

$

15

 

$

121

 


* Includes reduced / reclaimed disturbance

 

17


 

NOTE 6 — CURRENT DEBT

 

In December 2014, the Company sold and issued 85,350 Units of Convertible Notes (the “Notes”) with warrants (the “Notes Warrants”) to qualified buyers pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, of which 23,750 Units were sold and issued to related parties, including several directors and each of our named executive officers. The Convertible Notes are unsecured obligations and are senior to any of the Company’s future secured obligations to the extent of the value of the collateral securing such obligations.

 

The transaction value of $8.5 million was allocated between debt for the Convertible Notes and equity for the Notes Warrants based on the relative fair value of the two instruments.   This resulted in recording $0.8 million in Additional Paid In Capital for the relative fair value of the Warrants and $7.7 million as Convertible Notes.  The Company received net proceeds from the sale of the Convertible Notes of approximately $8.0 million, after deducting offering expenses of approximately $0.5 million, which was allocated between debt and equity. As a result, the Company recognized $0.4 million as Debt Issuance Costs to be amortized over the expected redemption period, and $0.1 million recognized as a reduction to Additional Paid in Capital. Net proceeds from the sale are being used to fund ongoing operations until the Company’s portion of project financing is obtained.

 

The Convertible Notes bear interest at a rate of 10.0% per annum, payable in cash quarterly in arrears on each March 31, June 30, September 30, and December 31. The Convertible Notes mature on December 26, 2019 unless earlier redeemed, repurchased or converted. The Company may redeem the Convertible Notes for cash, either in whole or in part, at any time, in exchange for the sum of (i) a cash payment equal to the unpaid principal plus all accrued but unpaid interest through the date of redemption and (ii) the present value of the remaining scheduled interest payments discounted to the maturity date at the annual percentage yield on U.S. Treasury securities with maturity similar to the notes plus 25 basis points (the “Optional Redemption”). The Convertible Notes are mandatorily redeemable at par plus the present value of remaining coupons upon (i) the availability of cash from a financing for Mt. Hope and (ii) any other debt financing by the Company. In addition, 50% of any proceeds from the sale of assets cumulatively exceeding $250,000 will be used to prepay the Convertible Notes at par plus the present value of remaining coupons (the “Mandatory Redemption”).

 

The Convertible Notes are convertible at any time in an amount equal to 80% of the greater of (i) the average VWAP for the 30 Business Day period ending on the Business Day prior to the date of the conversion, or (ii) the average VWAP for the 30 Business Day period ending on the original issuance date of the note.  Each Convertible Note will convert into a maximum of 100 shares per note, resulting in the issuance of 8,535,000 shares, or 9.3% of shares outstanding as of December 31, 2014 (the “Conversion Option”). General Moly’s executive management team and board of directors who participate in the offering will be restricted from converting at a price less than $0.32, the most recent closing price at the time that the Notes were issued.

 

If the Company undergoes a “fundamental change”, the Convertible Notes will be redeemed for cash at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased plus accrued and unpaid interest, including contingent interest and additional amounts, if any. Examples of a “fundamental change” include the reclassification of the common stock, consolidation or merger of the Company with another entity or sale of all or substantially all of the Company’s assets.

 

During the year ended December 31, 2015, certain holders of the Convertible Notes, including both directors and named executive officers of the Company, elected to convert notes totaling $2.6 million, reducing the principal balance of the Convertible Notes to $5.9 million. Upon conversion, the Convertible Notes holders received 2,625,000 shares of common stock, at conversion prices ranging from $0.3462 to $0.5485, and were issued non-convertible Senior Promissory Notes (“Promissory Notes”) of $1.3 million, pursuant to the terms of the share maximum provision of the Conversion Option.  The Promissory Notes have identical terms to the Convertible Notes, with the exception that the holder no longer has a Conversion Option. Accordingly, the Promissory Notes bear interest equal to 10.0% per annum, payable in cash quarterly in arrears on each March 31, June 30, September 30, and December 31 and mature on December 26, 2019.  The conversions resulted in a $0.2 million annual reduction in interest payments made by the Company in the servicing of the Notes. 

 

Based on the redemption and conversion features discussed above, the Company determined that there were embedded derivatives that require bifurcation from the debt instrument and should be accounted for under ASC 815. Embedded derivatives are separated from the host contract, the Convertible Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. The Company has concluded that the Mandatory Redemption and Conversion Option features embedded within the Convertible Notes meet these criteria and, as such, must be valued separate and apart from the Convertible Notes as one embedded derivative and recorded at fair value each reporting period (the “Embedded Derivatives”).

 

18


 

A probability-weighted calculation was utilized to estimate the fair value of the Mandatory Redemption. 

 

The Company used a binomial lattice model in order to estimate the fair value of the Conversion Option in the Convertible Notes. A binomial lattice model generates two probable outcomes, arising at each point in time, starting from the date of valuation until the maturity date. A lattice was initially used to determine if the Convertible Notes would be converted or held at each decision point. Within the lattice model, the Company assumes that the Convertible Notes will be converted early if the conversion value is greater than the holding value.

 

As of March 31, 2019 and December 31, 2018, respectively, the carrying value of the Convertible Notes, absent the embedded derivatives, was $5.8 million and $5.8 million inclusive of an unamortized debt discount of $0.1 million and $0.1 million, all of which is considered long term debt. The fair value of the Convertible Notes was $3.8 million and $4.0 million at March 31, 2019 and December 31, 2018, respectively.

 

As of March 31, 2019 and December 31, 2018, the carrying value of the Promissory Notes was $1.3 million and $1.3 million, respectively. The fair value of the Promissory Notes was $0.9 million and $0.9 million at March 31, 2019 and December 31, 2018, respectively.

 

The embedded derivatives recorded in Convertible Notes at fair value were ($175,000) and ($14,000) at March 31, 2019 and December 31, 2018, respectively. The changes in the estimated fair value of the embedded derivatives during the three months ended March 31, 2019 resulted in a net loss of approximately $161,000.  Gain or loss on embedded derivatives is recognized as Interest Expense in the Statement of Operations.

 

The Company has estimated the fair value of the Convertible Notes and embedded derivatives based on Level 3 inputs. Changes in certain inputs into the binomial lattice valuation models can have a significant impact on changes in the estimated fair value. For example, the estimated fair value of the embedded derivatives will generally decrease with: (1) a decline in the stock price; (2) increases in the estimated stock volatility; and (3) an increase in the estimated credit spread.

 

The following inputs were utilized to measure the fair value of the Notes and embedded derivatives: (i) price of the Company’s common stock; (ii) Conversion Rate (as defined in the Convertible Note); (iii) Conversion Price (as defined in the Convertible Notes); (iv) maturity date; (v) risk-free interest rate; (vi) estimated stock volatility; (vii) estimated credit spread for the Company; (viii) default intensity; and (ix) recovery rate.

 

The following tables set forth the inputs to the models that were used to value the embedded derivatives:

 

 

 

 

 

 

 

 

 

 

    

March 31, 2019

    

December 31, 2018

 

Stock Price

 

$

0.22

 

$

0.22

 

Maturity Date

 

 

December 31, 2019

 

 

December 31, 2019

 

Risk-Free Interest Rate

 

 

2.42%

 

 

2.63%

 

Estimated Stock Volatility

 

 

40.00%

 

 

40.00%

 

Default Intensity

 

 

2.00%

 

 

2.00%

 

Recovery Rate

 

 

30.00%

 

 

30.00%

 

 

 

 

 

 

 

 

Type of Event

    

Expected Date

    

Probability of Event

 

Mandatory Redemption

 

October 17, 2019

 

10%

 

Conversion Option

 

March 31, 2019

 

0%

 

Note Reaches Maturity

 

December 31, 2019

 

90%

 

 

 

NOTE 7 — COMMON STOCK UNITS, COMMON STOCK AND COMMON STOCK WARRANTS

 

During the three months ended March 31, 2019, we issued 411,328 shares of common stock pursuant to stock awards under the 2006 Equity Incentive Plan.

 

During the year ended December 31, 2018, 993,481 shares of common stock were issued pursuant to stock awards under the 2006 Equity Incentive Plan and 1,168,300 shares under our at-the-market offering facility.

 

We currently have 98,686,000 warrants outstanding at an exercise price between $0.35 and $5.00 per share. 

19


 

 

On December 26, 2014, the Company issued 8.5 million Notes Warrants in connection with the private placement of its Convertible Notes at a price of $1.00 per share and having a relative fair value of $0.8 million.  In addition, the $0.8 million value placed on the Notes Warrants was considered a debt discount and is being amortized over the expected redemption period.

 

On November 2, 2015, the Company issued a warrant for  80.0 million common shares to AMER in connection with the closing of tranche 1 of the amended AMER Investment Agreement at a price of $0.50 per share and a relative fair value of $0.5 million, resulting in an entry to additional paid-in capital. 

 

On April 12, 2017, the Company filed a prospectus supplement in both Canada and the United States to its U.S. base shelf prospectus and U.S. registration statement on Form S-3 which enabled the Company, at its discretion from time to time, to sell up to $20 million worth of common shares by way of an at-the-market offering.  Since the effectiveness of the prospectus supplement by the SEC on April 26, 2017 to March 31, 2019, a total of 1,168,300 common shares have been sold under the ATM, for net proceeds to the Company of $0.5 million.  In conjunction with the public offering discussed below, the Company agreed to suspend the ATM facility for a period of 2 years. 

 

On October 17, 2018, the Company announced an underwritten public offering of 9,151,000 units at a price of $0.25 per share, with each unit consisting of one share of common stock accompanied by one warrant exercisable for one share of common stock immediately upon closing at a price of $0.35 per share.  The offering provided net proceeds of approximately $2.0 million after underwriting commissions and expenses.  Mr. Bruce Hansen, Chief Executive Officer of the Company and a related party, participated in the offering for a total of $0.5 million.  The Company used the proceeds for general corporate purposes, including the ongoing preliminary drilling program for the exploration of zinc, copper and silver mineralization at the southeast area of the Mt. Hope Project.

 

Of the warrants outstanding at March 31, 2019, 8.5 million are exercisable at $1.00 per share at any time from June 26, 2015 through their expiration on December 26, 2019, 1.0 million are exercisable at $5.00 per share once General Moly has received financing necessary for the commencement of commercial production at the Mt. Hope Project and will expire one year thereafter, and the 80.0 million shares of the amended AMER Warrant will become exercisable upon availability of the Bank Loan, should such availability occur prior to the third anniversary of the issuance of the ROD for the Mt. Hope Project, discussed below in Note 12, and will expire five years thereafter. 

 

Pursuant to our amended Certificate of Incorporation, approved by the stockholders at the general meeting of June 30, 2015, we are authorized to issue 650.0 million shares of $0.001 par value common stock.  All shares have equal voting rights, are non-assessable and have one vote per share.  Voting rights are not cumulative and therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company. 

 

NOTE 8 — REDEEMABLE PREFERRED STOCK

 

Pursuant to our Certificate of Incorporation we are authorized to issue 10,000,000 shares of $0.001 per share par value preferred stock, of which 55,000 shares are designated as Series A Preferred Stock (“Series A”).  The authorized but unissued shares of preferred stock may be issued in designated series from time to time by one or more resolutions adopted by the Board.  The Board has the authority to determine the preferences, limitations and relative rights of each series of preferred stock. 

 

In March 2019, the Company issued 3,000 shares of Series A to two holders in a private placement agreement.  The Series A shares are priced at $100.00/ share and are convertible at any time at the holder’s discretion into common shares whereby one preferred share converts at a price of $0.27/common share to 370.37 common shares. The conversion price was set at the closing price of the Company’s common stock on March 12, 2019, which was the day before announcement of the private placement. Upon maturity or full repayment of the Senior Convertible Notes and Promissory Notes currently outstanding, there will be mandatory redemption of the preferred shares in exchange for equivalent cash for the principal invested, plus any accrued and unpaid dividends.  The holders of the Series A shares are entitled to receive, when and if declared by the Board of Directors and in preference to the common stock, cumulative cash or in-kind dividends at a rate per annum of 5% of the original issue price.   In the event of a liquidation, dissolution, or winding up of the Company, the proceeds would be distributed first to the holders of Series A prior to any distributions to holders of other stock in an amount per share equal to the original issue price plus any declared but unpaid dividends.  The holders of Series A are entitled to vote, together with the holders of common stock, as if the Series A had been converted to common stock on all matters submitted to stockholders for vote.  In addition, the Series A contains certain protective rights that require the vote or consent of the holders of at least a majority of the shares of Series A. 

 

20


 

As the Series A is redeemable upon maturity or full repayment of the Senior Convertible Notes and Promissory Notes, it has been classified as mezzanine equity in our Consolidated Balance Sheets.  The Company recognizes change in the redemption value as they occur by adjusting the carrying amount of the mezzanine equity at each reporting date.  The change in the redemption value of the Series A due to accrued and unpaid dividends since its issuance is insignificant.

 

At December 31, 2018, no shares of preferred stock were issued or outstanding .

 

NOTE 9 — EQUITY INCENTIVES

 

In 2006, the Board and shareholders of the Company approved the 2006 Equity Incentive Plan (“2006 Plan”), and in May 2010, our shareholders approved an amendment and restatement of the 2006 Plan increasing the number of shares that may be issued under the plan by 4,500,000 shares to 9,600,000 shares and extend the expiration date of the 2006 Plan to May 2020, as well as making other technical changes related to tax law and accounting rule changes, and to make administrative clarifying changes.  More recently, in June 2016, our shareholders approved an additional amendment to the 2006 Plan increasing the number of shares that may be issued under the plan by 5,000,000 shares to 14,600,000 shares.  The 2006 Plan authorizes the Board, or a committee of the Board, to issue or transfer up to an aggregate of 14,600,000 shares of common stock, of which 3,449,058 remain available for issuance as of March 31, 2019.  Awards under the 2006 Plan may include incentive stock options, non-statutory stock options, restricted stock units, restricted stock awards, and stock appreciation rights (“SARs”).  At the option of the Board, SARs may be settled with cash, shares, or a combination of cash and shares.  The Company settles the exercise of other stock-based compensation with newly issued common shares.

 

Stock-based compensation cost is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes option pricing model and is recognized as compensation ratably on a straight-line basis over the requisite vesting/service period.  As of March 31, 2019, there was $0.3 million of total unrecognized compensation cost related to share-based compensation arrangements, which is expected to be recognized over a weighted-average period of 2.0 years.

 

Stock Options and Stock Appreciation Rights

 

All stock options and SARs are approved by the Board prior to or on the date of grant.  Stock options and SARs are granted at an exercise price equal to or greater than the Company’s closing stock price on the date of grant.  Both award types vest over a period of zero to three years with a contractual term of five years after vesting.  The Company estimates the fair value of stock options and SARs using the Black-Scholes valuation model.  Key inputs and assumptions used to estimate the fair value of stock options and SARs include the grant price of the award, expected option term, volatility of the Company’s stock, the risk-free rate and the Company’s dividend yield.

 

At March 31, 2019, the outstanding and exercisable (fully vested) SARs had an aggregate intrinsic value of was nil and had a weighted-average remaining contractual term of 1.4 years.  No SARs were exercised during the three months ended March 31, 2019.

 

Restricted Stock Units and Stock Awards

 

Grants of restricted stock units and stock awards (“Stock Awards”) have been granted as performance based awards, earned over a required service period, or to Board members and the Company Secretary without any service requirement.  Performance based grants are recognized as compensation based on the probable outcome of achieving the performance condition.  Stock Awards issued to members of the Board of Directors and the Company Secretary that are fully vested at the time of issuance are recognized as compensation upon grant of the award.

 

The compensation expense recognized by the Company for Stock Awards is based on the closing market price of the Company’s common stock on the date of grant.  For the three months ended March 31, 2019, the weighted-average grant date fair value for Stock Awards was $0.24.  The total fair value of stock awards vested during the three months ended March 31, 2019 is $0.1 million.

 

21


 

Summary of Equity Incentive Awards

 

The following table summarizes activity under the Plans during the three months ended March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SARs

 

Stock Awards

 

 

    

Weighted

    

Number

    

Weighted

    

 

 

 

 

Average

 

of Shares

 

Average

 

 

 

 

 

Strike

 

Under

 

Grant

 

Number of

 

 

 

Price

 

Option

 

Price

 

Shares

 

Balance at January 1, 2019

 

$

3.19

 

938,667

 

$

1.18

 

2,401,268

 

Awards Granted

 

 

 —

 

 —

 

 

0.24

 

135,000

 

Awards Exercised or Earned

 

 

 —

 

 —

 

 

0.63

 

(535,000)

 

Awards Forfeited

 

 

 —

 

 —

 

 

 —

 

 —

 

Awards Expired

 

 

 —

 

 —

 

 

 —

 

 —

 

Balance at March 31, 2019

 

$

3.19

 

938,667

 

$

1.34

 

2,001,268

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2019

 

$

2.14

 

56,523

 

 

 

 

 

 

 

A summary of the status of the non-vested awards as of March 31, 2019 and changes during the three months there ended is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SARs

 

Stock Awards

 

 

    

Weighted

    

Number

    

Weighted

    

 

 

 

 

Average

 

of Shares

 

Average

 

 

 

 

 

Fair

 

Under

 

Fair

 

Number of

 

 

 

Value

 

Option

 

Value

 

Shares

 

Balance at January 1, 2019

 

$

3.26

 

882,144

 

$

1.18

 

2,401,268

 

Awards Granted

 

 

 —

 

 —

 

 

0.24

 

135,000

 

Awards Vested or Earned

 

 

 —

 

 —

 

 

0.63

 

(535,000)

 

Awards Forfeited

 

 

 —

 

 —

 

 

 —

 

 —

 

Balance at March 31, 2019

 

$

3.26

 

882,144

 

$

1.34

 

2,001,268

 

 

 

 

NOTE 10 — CHANGES IN CONTINGENTLY REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Activity for

 

 

 

Quarter Ended

 

 

    

March 31,

    

March 31,

 

Changes CRNCI (Dollars in thousands)

 

2019

 

2018

 

Total CRNCI December 31, 2018 and 2017, respectively

 

$

172,261

 

$

172,633

 

Net Loss Attributable to CRNCI

 

 

(36)

 

 

(184)

 

Total CRNCI March 31, 2019 and 2018, respectively

 

$

172,225

 

$

172,449

 

 

 

 

 

 

 

 

 

 

 

Activity for

 

 

Quarter Ended

 

    

March 31,

    

March 31,

Changes Redeemable Preferred Stock (Dollars in thousands)

 

2019

 

2018

Total Redeemable Preferred Stock  December 31, 2018 and 2017, respectively

 

$

 —

 

$

 —

Redeemable Preferred Stock Issued

 

 

300

 

 

 —

Total Redeemable Preferred Stock  March 31, 2019 and 2018, respectively

 

$

300

 

$

 —

 

 

 

 

NOTE 11 — INCOME TAXES

 

At March 31, 2019 and December 31, 2018 we had deferred tax assets principally arising from the net operating loss carry-forwards for income tax purposes multiplied by an expected rate of 21%. As management of the Company cannot determine that it is more likely than not that we will realize the benefit of the deferred tax assets, a valuation allowance equal to the net deferred tax asset has been established at March 31, 2019 and December 31, 2018. 

 

22


 

At March 31, 2019 and December 31, 2018, we had net operating loss carry-forwards of approximately $277.1 million and $275.7 million, respectively, which expire in the years 2021 through 2038.  The change in the allowance account from December 31, 2018 to March 31, 2019 was an increase of $1.4 million.

 

As of March 31, 2019 and December 31, 2018, the Company had no unrecognized tax benefits.  There was no change in the amount of unrecognized tax benefits as a result of tax positions taken during the year or in prior periods or due to settlements with taxing authorities or lapses of applicable statues of limitations. 

 

The Company and/or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state jurisdictions.  Without exception, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2015.  The Company is open to federal and state tax audits until the applicable statutes of limitations expire.

 

NOTE 12 — COMMITMENTS AND CONTINGENCIES

 

Mt. Hope Project

 

The Mt. Hope Project is owned/leased and will be operated by the LLC under the LLC Agreement.  The LLC currently has a lease (“Mt. Hope Lease”) with Mount Hope Mines, Inc. (“MHMI”) for a period of 30 years from October 19, 2005 and for so long thereafter as operations are being conducted on the property.  The lease may be terminated earlier at the election of the LLC, or upon a material breach of the agreement and failure to cure such breach.  If the LLC terminates the lease, termination is effective 30 days after receipt by MHMI of written notice to terminate the Mt. Hope Lease and no further payments would be due to MHMI.  If MHMI terminates the lease, termination is effective upon receipt of a notice of termination due to a material breach, representation, warranty, covenant or term contained in the Mt. Hope Lease and followed by failure to cure such breach within 90 days of receipt of a notice of default.  MHMI may also elect to terminate the Mt. Hope Lease if the LLC has not cured the non-payment of obligations under the lease within 10 days of receipt of a notice of default.  In order to maintain the Lease Agreement, the LLC must pay certain minimum advance royalties as discussed below.

 

The Mt. Hope Lease requires a royalty advance (“Construction Royalty Advance”) of 3% of certain construction capital costs, as defined in the Mt. Hope Lease.  The LLC is obligated to pay a portion of the Construction Royalty Advance each time capital is raised for the Mt. Hope Project based on 3% of the expected capital to be used for those certain construction capital costs defined in the Mt. Hope Lease.  Through March 31, 2019, we have paid $25.6 million of the total royalty advance.  Based on our Mt. Hope Project capital budget we estimate that a final reconciliation payment on the Capital Construction Cost Estimate (the “Estimate”) will be due following the commencement of commercial production, after as-built costs are definitively determined.  The Company estimates, based on the revised capital estimate discussed above and the current timeline for the commencement of commercial production, that an additional $4.2 million will be due approximately 24 months after the commencement of construction.  This amount has been accrued for all periods presented as accrued advance royalties.  The capital estimates may be subject to escalation in the event the Company experiences continued delays in achieving full financing for the Mt. Hope Project.

 

The LLC is also obligated to make a minimum annual advance royalty payment (“Annual Advance Royalty”) of $0.5 million each October 19 for any year wherein commercial production has not been achieved or the MHMI Production Royalty (as hereinafter defined) is less than $0.5 million.  As commercial production is not anticipated to commence before early-2022, the Company has accrued $2.0 million in Annual Advance Royalty payments which will be due in four $0.5 million installments in October 2019, 2020, 2021, and 2022, respectively.  The Estimate and the Annual Advance Royalty are collectively referred to as the “Advance Royalties.”  All Advance Royalties are credited against the MHMI Production Royalties once the mine has achieved commercial production.  After the mine begins production, the LLC estimates that the MHMI Production Royalties will be in excess of the Annual Advance Royalties for the life of the Mt. Hope Project.  Until the advance royalties are fully credited, the LLC will pay one half of the calculated Production Royalty annually.  Assuming a $12 molybdenum price, the Annual Advance Royalties will be consumed within the first five years of commercial production.

 

On February 28, 2018, the LLC) and MHMI entered into a Second Amendment dated effective January 15, 2018 (the “Lease Amendment”), to the Mt. Hope Lease.  The Lease Amendment provides that following commencement of commercial production of any non- molybdenum minerals at the Mt. Hope Project, the LLC will pay a production royalty to MHMI as follows:

 

·

For zinc, the production royalty shall be equal to (i) 4.0% of net returns when the average gross value for the calendar quarter is less than or equal to $2.00 per pound; (ii) 4.5% of net returns when the average gross value is between $2.01 and $2.49 per pound; and (iii) 5.0% of net returns when the average gross value is $2.50 per pound or greater; and

 

23


 

·

For all other non-moly minerals, the production royalty shall be equal to 4.0% of net returns.

 

If commercial production of non-moly minerals commences before commercial production of molybdenum, the Lease Amendment provides that the LLC’s obligation to pay the annual advance royalty under the Mt. Hope Lease will continue until the LLC has paid MHMI an aggregate of $3 million in non-moly production royalties in a three-year period.  After this threshold is met, then payment of the advance royalty may be deferred in whole or in part if the non-moly production royalty exceeds specified levels.  After non-moly production royalties have exceeded $10,000,000, future payments may be credited against future production royalties under certain circumstances.

 

Additionally, Exxon Corporation will receive a perpetual 1% royalty interest in and to all ores, metals, minerals and metallic substances mineable or recoverable from the Mt. Hope Project in kind at the mine or may elect to receive cash payment equal to 1% of the total amount of gross payments received from the purchaser of ores mined/removed/sold from property net of certain deductions.

 

The Liberty Project

 

The Nevada Division of Environmental Protection (“NDEP”) has identified environmental concerns with some Liberty Project facilities acquired with the property.  NDEP’s concerns are related to aspects of previously approved closure plans required by Nevada regulation.  We have proposed options to NDEP to address these concerns.  In July, 2018, we addressed one of those concerns by successfully completing a program, as approved by NDEP, to neutralize the acidic Liberty pit lake by adding hydrated lime to raise the pH.  Our 2018 projected costs were consistent with budgeted spend.  We will continue to work with NDEP to evaluate ongoing options to address any future concerns, and additional costs may be required to meet NDEP’s closure requirements.  However, a reasonable estimate cannot be determined at this time as it is not possible to reasonably predict the outcome of our negotiations with NDEP.

 

Deposits on project property, plant and equipment

 

As discussed in Note 2, the LLC has active orders with varying stages of fabrication on milling process equipment comprised of two 230kV primary transformers and substation, a primary crusher, a semi-autogenous mill, two ball mills, and various motors for the mills with remaining cash commitments of $0.6 million due on these orders. 

 

Equipment and Supply Procurement

 

Through March 31, 2019, the LLC has made deposits and/or final payments of $88.0 million on equipment orders and has spent approximately $207.4 million for the development of the Mt. Hope Project, for a total Mt. Hope Project inception-to-date spend of $295.4 million.

 

In 2012, the LLC issued a firm purchase order for eighteen haul trucks.  The order provides for delivery of those haul trucks required to perform initial mine development, which will begin several months prior to commercial production.  Non-refundable down-payments of $1.2 million were made in 2012, with pricing subject to escalation as the trucks were not delivered prior to December 31, 2013.  Since that time, the LLC has renegotiated the timelines for truck delivery and delayed deliveries into December 2019.  The contract is cancellable with no further liability to the LLC.

 

Also in 2012, the LLC issued a firm purchase order for four mine production drills with a non-refundable down-payment of $0.4 million, and pricing was subject to escalation if the drills were not delivered by the end of 2013.  Since that time, the LLC accepted a change order which delayed delivery into December 2019.  The contract remains cancellable with no further liability to the LLC.

 

On June 30, 2012, the LLC’s contract to purchase two electric shovels expired.  On July 11, 2012, we signed a letter of intent with the same vendor providing for the opportunity to purchase the electric shovels at prices consistent with the expired contract, less a special discount in the amount of $3.4 million to provide credit to the LLC for amounts paid as deposits under the expired contract.  The letter of intent provides that equipment pricing will remain subject to inflation indexes and guarantees production slots to ensure that the equipment is available when required by the LLC.  Since that time, the parties agreed to extend the letter of intent through December 31, 2019.

 

24


 

Obligations under capital and operating leases

 

We have contractual operating leases that will require a total of $0.3 million in payments over the next four years.  Operating leases consist primarily of rents on office facilities and office equipment.  Our expected payments are $0.1 million, $0.1 million, $0.1 million, and nil for the years ended December 31, 2019, 2020, 2021, and 2022, respectively.

 

Creation of Agricultural Sustainability Trust

 

On August 19, 2010, the LLC entered into an agreement with the Eureka Producers’ Cooperative (“EPC”), which was amended on October 15, 2018, whereby the LLC will fund a $5.6 million Sustainability Trust (“Trust”) in exchange for the cooperation of the EPC with respect to the LLC’s water rights and permitting of the Mt. Hope Project.  The Trust will be tasked with developing and implementing programs that will serve to enhance the sustainability and well-being of the agricultural economy in the Diamond Valley Hydrographic Basin through reduced water consumption.

 

The LLC has contributed $0.05 million into the Trust as of March 31, 2019.  The remaining contributions to the Trust may be funded by the LLC over several years based on the achievement of certain milestones, which are considered probable, and as such $5.5 million has been accrued in the Company’s financial statements and is included in mining properties, land, and water rights.

 

Permitting Considerations

 

In the ordinary course of business, mining companies are required to seek governmental permits for expansion of existing operations or for the commencement of new operations. The LLC was required to obtain approval, in the form of a Record of Decision (“ROD”), from the BLM to implement the Mt. Hope Project Plan of Operations (“PoO”).  The LLC was also required to obtain various state and federal permits including, but not limited to, water protection, air quality, water rights and reclamation.  In addition to requiring permits for the development of the Mt. Hope Project, we will need to obtain and modify various mining and environmental permits during the life of the Mt. Hope Project.  Maintaining, modifying, and renewing the necessary governmental permits is a complex and time-consuming process involving numerous jurisdictions and often involving public hearings and substantial expenditures.  The duration and success of the LLC’s efforts to obtain, modify or renew permits will be contingent upon many variables, some of which are not within the LLC’s control.  Increased costs or delays could occur, depending on the nature of the activity to be permitted and the interpretation of applicable requirements implemented by the permitting authority.  All necessary permits may not be obtained and, if obtained, may not be renewed, or the costs involved in each case may exceed those that we previously estimated.  In addition, it is possible that compliance with such permits may result in additional costs and delays.

 

On November 16, 2012, the BLM issued its initial ROD authorizing development of the Mt. Hope Project, since vacated by the U.S. Court of Appeals for the Ninth Circuit in December 2016.  On April 23, 2015, the BLM issued a Finding of No Significant Impact (“FONSI”) supporting their Decision to approve an amendment to the PoO.  The ROD and FONSI/Decision approve the PoO and amended PoO, respectively, for construction and operation of the mining and processing facilities and also grant the Right-of-Way, and amended Right-of-Way, respectively, for a 230kV power transmission line, discussed below.  Monitoring and mitigation measures identified in the ROD and FONSI, developed in collaboration with the regulatory agencies involved throughout the permitting process, will avoid, minimize, and mitigate environmental impacts, and reflect the Company’s commitment to be good stewards of the environment.  Ongoing changes to permits and the PoO during the life of mining operations are typical as design evolves and operations are optimized.

 

On February 15, 2013, Great Basin Resource Watch and the Western Shoshone Defense Project (“Plaintiffs”) filed a Complaint against the U.S. Department of the Interior and the BLM (“Defendants”) in the U.S. District Court, District of Nevada (“District Court”), seeking relief under the National Environmental Policy Act (“NEPA”) and other federal laws challenging the BLM’s issuance of the ROD for the Mt. Hope Project, and on February 20, 2013 filed a Motion for Preliminary Injunction.  The District Court allowed the LLC to intervene in the matter.

 

On August 22, 2013, the District Court denied, without prejudice, Plaintiffs’ Motion for Preliminary Injunction based on a Joint Stipulation to Continue Preliminary Injunction Oral Argument, which advised the District Court that as a result of economic conditions, including the Company’s ongoing financing efforts, all major ground disturbing activities had ceased at the Mt. Hope Project.

 

On July 23, 2014, the District Court denied Plaintiffs’ motion for summary judgment in its entirety and