ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion, which has been prepared based on information available to us as of May 12, 2021, provides information that we believe is relevant to an assessment and understanding of our consolidated operating results and financial condition. As a result of the completion of the Recapitalization Transaction, the financial statements of Seller are now the financial statements of the Company. Prior to the Recapitalization Transaction, the Company had no operating assets but, upon consummation of the Recapitalization Transaction, the business and operating assets of Seller sold to the Company became the sole business and operating assets of the Company. Accordingly, the financial statements of Seller and its subsidiaries as they existed prior to the Recapitalization Transaction and reflecting the sole business and operating assets of the Company going forward, are now the financial statements of the Company. The following discussion should be read in conjunction with our other reports filed with the U.S. Securities and Exchange Commission (the “SEC”) as well as our consolidated financial statements (the "Financial Statements") and the notes thereto (the "Notes") included in this second amendment to our Annual Report on Form 10-K for the year ended December 31, 2020 ("Form 10-K/A"). Terms not defined herein have the same meaning defined in the Financial Statements and the Notes.
The following MD&A generally discusses our consolidated financial condition and results of operations for 2020 and 2019 and year-to-year comparisons between 2020 and 2019.
Introduction to the Company
We are a U.S.-based gold producer that is focused on operating and developing our wholly owned Hycroft Mine in a safe, environmentally responsible, and cost-effective manner. Gold and silver sales represent 100% of our operating revenues and the market prices of gold and silver significantly impact our financial position, operating results, and cash flows. The Hycroft Mine is located in the State of Nevada and the corporate office is located in Denver, Colorado. The Hycroft Mine had proven and probable mineral reserves of 11.9 million ounces of gold and 478.5 million ounces of silver at December 31, 2020, as determined by deducting mineral reserves mined through December 31, 2020 from the mineral reserves estimated in the Hycroft Technical Report at July 31, 2019.
Operations restart
During the second quarter of 2019, we restarted open pit mining operations at the Hycroft Mine, and, during the third quarter of 2019, produced and sold gold and silver, which we have continued to do on an approximate weekly basis since restarting. As part of the 2019 restart of mining operations, existing equipment was re-commissioned, including haul trucks, shovels and a loader, upgrades were made to the crushing system and leach pad space was added to the existing leach pads. During 2020, we added mobile equipment through rentals, began construction of additional leach pad space, and increased our total headcount in order to increase our mining rate and also initiated construction of a new leach pad for future production.
As discussed throughout this MD&A, including within the Hycroft Mine section, during the year ended December 31, 2020 we have been unable to fully achieve our internal operating, processing, sales, and production cost targets, which has resulted in net operating losses and negative cash flows before financing activities creating substantial doubt about our ability to continue as a going concern. Refer to the Going concern subsection of the Recent Developments section of this MD&A for additional details.
2020 Summary
We continued to ramp-up production at the Hycroft Mine in 2020 and to progress and develop our understanding of the requirements for implementing the proprietary two-stage sulfide heap oxidization and leach process on a commercial production scale. Following the May 29, 2020 Recapitalization Transaction, we also implemented a number of changes including hiring a new senior executive team and establishing a new leadership team at the mine with the technical talent and experience for implementing complex processing technologies. Additionally, as we operated pre-commercial test pads in 2020 we identified several important items as we worked to implement this novel processing technology.
•Senior management - We strengthened our executive management team with the addition of Diane R. Garrett, Ph.D., who was appointed as our President and Chief Executive Officer and as a director, effective as of September 8, 2020; Stanton Rideout, who was appointed as our Executive Vice President and Chief Financial Officer, effective as of October 20, 2020; Mike Eiselein, who was appointed as our Vice President, General Manager, effective as of October 27, 2020; and Jack Henris, who was appointed as our Executive Vice President and Chief Operating Officer, effective as of January 11, 2021. Refer to Executive management changes of the Recent Developments section for additional details.
•Senior operations management – We realigned our organizational structure and recruited several key individuals mostly in the last three months of 2020 to bolster the on-site technical, financial, and operational teams, including:
◦James Berry, VP Exploration and Geology (former Romarco, Barrick);
◦Kenji Umeno, Process Manager (former Kinross Gold Corp., Fluor, Freeport-McMoRan Inc. (“Freeport”));
◦Jeff Griffin, Sr. Metallurgist (former Phelps Dodge, Freeport);
◦Santiago Garcia, Chief Metallurgist (former Agnico Eagle Mines Ltd., Newmont); and
◦New Mine Manager, Safety Manager, HR Manager, Controller and Project Manager.
•Technical team – We established an independent technical team comprised of Hycroft personnel and industry-leading consultants including John O. Marsden (Metallurgium), Hazen Research Inc. and Forte Dynamics, Inc. (“Forte”) with expertise in metallurgy, mine plan optimization, and heap stacking designs to assist with the development of the mining and process plans and alternatives.
•Recapitalization Transaction – On May 29, 2020, we completed the Recapitalization Transaction, which as of the closing date, among other things, resulted in a cash balance of $68.9 million and 50,160,042 shares of our common stock issued and outstanding. In addition, upon closing, we had 34,289,999 outstanding warrants to purchase an equal number of shares of our common stock and 12,721,623 Seller Warrants to purchase 3,210,213 shares of common stock.
•Public offering - During the fourth quarter of 2020, we improved our financial position through an upsized public offering for 9,583,334 units, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at a price of $10.50 per share. The public offering closed on October 6, 2020, providing us with net proceeds of approximately $83.1 million.
•Ounces and realized prices - During 2020, the Hycroft Mine produced 27,392 ounces of gold and 178,836 ounces of silver and sold 24,892 ounces of gold (average realized price of $1,779) and 136,238 ounces of silver (average realized price of $20.30). Our 2020 production levels have been negatively impacted by mining inefficiencies and an inability to achieve consistent oxidation of sulfide ores consistent with the Hycroft Technical Report's commercial scale.
•Proprietary process – During 2020, we made operational, technical staffing, and reporting improvements for the two-stage, heap oxidation and subsequent leaching of transitional ores, which is discussed further in the Processing section of the Hycroft Mine section. We also continued to enhance our understanding of the results yielded from oxidizing transitional ores, which was the primary type of ore stacked on the pre-commercial leach pads during 2020.
•Leach pad construction – During 2020, we spent $29.3 million on the leach pad expansion project. As discussed in the 2021 Outlook section, due to strategic shifts in our focus for 2021, we have temporarily deferred completing the construction and commissioning of the leach pad expansion. We expect to complete construction to the appropriate point in which we believe there would be minimal risk of adverse impacts to the leach pad. We also plan to complete the purchase of certain long-lead time items and continue to evaluate and apply value engineering for the project in 2021 with completion of construction and commissioning of the project in 2022.
•Cash flows and liquidity – Our available cash balance on December 31, 2020 was $56.4 million, following year-to-date 2020 net operating cash outflows of $110.5 million, cash outflows from investing activities of $31.1 million, and cash inflows from net financing activities of $188.7 million.
•Going concern – As of December 31, 2020, substantial doubt existed about our ability to continue as a going concern as we may need additional capital, which is contemplated based on, among other things, our current estimates of production, costs, metal prices, capital expenditures, and debt service obligations over the next twelve months from the filing date of this 2020 Form 10-K.
Recent Developments
Recapitalization Transaction
As discussed in Note 1 - Company Overview and Note 3 - Recapitalization Transaction to the Notes to the Financial Statements, on May 29, 2020, we consummated the Recapitalization Transaction as contemplated by a purchase agreement dated January 13, 2020, as amended on February 26, 2020 (the “Purchase Agreement”), by and among us, Acquisition Sub (as such term is defined herein) and Hycroft Mining Corporation ("Seller"). Pursuant to the Purchase Agreement, Acquisition Sub acquired all of the issued and outstanding equity interests of the direct subsidiaries of Seller and substantially all of the other assets of Seller and assumed substantially all of the liabilities of Seller. In conjunction with the Recapitalization Transaction, Seller’s indebtedness existing prior to the Recapitalization Transaction was either repaid, exchanged for indebtedness of the Company, exchanged for shares of our common stock or converted into shares of Seller common stock, and our post-Recapitalization Transaction indebtedness included amounts drawn under the Sprott Credit Agreement and the assumption of the newly issued Subordinated Notes (as such term is defined herein). Upon closing of the Recapitalization Transaction, our unrestricted cash available for use totaled $68.9 million and the number of shares of our common stock issued and outstanding totaled 50,160,042. In addition, upon closing, we had 34,289,999 outstanding warrants (including 10,249,000 5-Year Private Warrants (as such term is defined herein) that are exercisable for cash or on a cashless basis, at the holder’s option, and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees) to purchase an equal number of shares of our common stock at $11.50 per share, and 12,721,623 warrants to purchase 3,210,213 shares of our common stock at a price of $44.82 per share (see Note 13 - Stockholders' Equity to the Notes to the Financial Statements for additional information). Upon closing of the Recapitalization Transaction and after giving effect to the terms of the business combination, the former holders of Seller’s indebtedness and common stock, including affiliated entities of such former holders, owned approximately 96.5% of our issued and outstanding common stock.
Going concern
As discussed in Note 2 - Summary of Significant Accounting Policies to the Notes to the Financial Statements, events and conditions exist that, when considered individually or in the aggregate, raise substantial doubt about our ability to continue as a going concern because without additional funding we may be unable to meet our obligations as they become due within one year after the date that the year-end 2020 financial statements were issued. Although we completed the Recapitalization Transaction during the 2020 second quarter and completed the underwritten public offering on October 6, 2020, for estimated proceeds net of discount and equity issuance costs of $83.1 million, using our internal forecasts and cash flow projection models, we currently project we will likely require additional cash from financing activities in less than 12 months from the date of this report to meet our operating and investing requirements and future obligations as they become due.
Our ability to continue as a going concern is contingent upon securing additional funding for working capital, capital expenditures and other corporate expenses so that we can increase sales by achieving higher cost-effective operating tonnages and recovery rates and generate positive cash flows.
COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic, which continues to spread throughout the United States. Efforts implemented by local and national governments, as well as businesses, including temporary closures, have had adverse impacts on local, national and global economies. We have implemented health and safety policies for employees, contractors, and visitors that follow guidelines published by the Center for Disease Control (CDC) and the Mine Safety and Health Administration (MSHA). During 2020, especially the fourth quarter, our operations were limited by COVID-19 related absences, however the impact did not significantly adversely affect our operations. The extent of the impact of COVID-19 on our operational and financial performance going forward will depend on certain developments, including but not limited to the duration and continued spread of the outbreak and strand mutations, the availability and use of vaccines, the development of therapeutic drugs and treatments, and the direct and indirect impacts on our employees, vendors, and customers, all of which are uncertain and cannot be fully anticipated or predicted. Since the Hycroft Mine represents the entirety of our operations, any further COVID-19 outbreaks at the mine site or any governmental restrictions implemented to combat the pandemic could result in a partial or an entire shutdown of the Hycroft Mine itself, which would negatively impact our financial position, operating results, and cash flows.
As a result of COVID-19, we have implemented numerous policies and initiatives, including, but not limited to:
•General travel and site access restricted to business-critical needs; discretionary travel strongly discouraged;
•Health and temperature checks required prior to boarding mine site transportation buses and prior to entering the mine site for all other employees and visitors;
•Increased cleaning and disinfecting of common areas, including mobile mining equipment cabs;
•Use of face coverings and social distancing, including limiting meetings to essential people with increased use of conference calls and webinars;
•Communications informing employees of their ability to take paid-leave for COVID-19-related matters;
•Employees who can have been permitted to work remotely; and
•Regularly monitoring local, state, and national publications and guidance for routine discussion among executives and management.
To date, COVID-19 related absences have limited our operations, but this did not materially disrupt our operations. Additionally, we have not experienced any material disruptions to our supply chain because of COVID-19. However, we can provide no assurance that as COVID-19 case spikes continue across the country, including in the vicinity of the Hycroft Mine, that our operations will not be materially adversely affected.
Executive management changes
Diane R. Garrett, Ph.D., was appointed as the Company’s President and Chief Executive Officer and as a director, effective as of September 8, 2020, succeeding Stephen Jones, the former interim CEO. Dr. Garrett has over 25 years of senior executive management experience in the mining industry and an exceptional track record for developing projects and building companies and received her Ph.D. in Engineering and her Masters in Mineral Economics from the University of Texas at Austin.
Stanton Rideout was appointed as the Company's Executive Vice President and Chief Financial Officer, effective as of October 20, 2020, succeeding Jeffrey Stieber, as former interim CFO. Mr. Rideout is a seasoned financial executive and has more than 30 years of senior executive experience in the mining and manufacturing industries and earned his Master’s in Business Administration from the University of Evansville and his Bachelor of Science, Business/Finance, from Western Kentucky University. Mr. Rideout is a Certified Public Accountant.
Jack Henris was appointed as the Company's Executive Vice President and Chief Operating Officer, effective as of January 11, 2021. Mr. Henris is a highly experienced mining operations executive with more than 35 years of experience in senior operations positions with major mining firms and holds a Bachelor of Science in Geological Engineering from the South Dakota School of Mines and Technology.
Technical review summary
The new leadership team established at the mine launched into an extensive and detailed review of the Hycroft Mine and took immediate steps to rectify operational shortcomings, significantly reduce costs, and put in place an operating team aligned with the Company’s long-term strategy to establish the Hycroft Mine as a long-life, low-cost gold and silver producer. To date, the team has made significant strides at the Hycroft Mine through elevating the safety performance, improving the culture at Hycroft, establishing operational improvements, reducing spend, and identifying several areas for continued enhancement. The 2020 actions were quickly implemented and, in the fourth quarter alone, we saw significant improvement in costs as we reassigned our workforce to reduce our reliance on contractors as well as improved safety performance with a more than 50% year-over-year reduction in the TRIFR alone. Incident and near miss reporting increased as expected as the team initiated numerous campaigns to recognize, report, and eliminate safety hazards. In 2021, we expect to continue to see additional benefits from these 2020 actions.
In the fourth quarter of 2020, we formed a technical team to support the new leadership team in ongoing data analysis, developing processing models for future larger-scale sulfide leach operations and incorporating data and results from the pre-commercial leach pads. The team is comprised of industry leading consultants with expertise in metallurgy, open pit mining and heap leach processing, heap leach stacking and modeling and other process technologies, and the team also has access to a leading research and development laboratory. The mine site’s process team and leadership in conjunction with the technical team focused its efforts on identifying and investigating opportunities for improvements in operating parameters in the sulfide heap oxidation and leach process resulting in additional work plans as described in the following 2021 Outlook section.
2021 Outlook
During 2021, we intend to focus our efforts on placing the Hycroft Mine in a position for a future ramp up of production at the appropriate time. Our focus for 2021 will entail mining and processing run-of-mine oxide and transitional ores aimed at maximizing ounce production and cash flows and preserving our cash. Compared to sulfide ore, run-of-mine oxide and transitional ore can be processed at a lower cost because this material does not require crushing, rehandling, or soda ash reagent application, and the shorter recovery cycle reduces working capital. The run-of-mine operating plan for 2021 will provide us the opportunity to complete and evaluate the results of the ongoing technical and optimization work for the proprietary two-stage heap oxidation and leach process. Based upon the findings and results of this evaluation process, we may update or file a new technical report. We currently have established goals and budgeted estimated costs for this work in 2021 or 2022.
Production outlook
Although the 2021 run-of-mine operating plan reduces annual mining activity from 2020, we expect to increase total annual production to 45,000 - 55,000 ounces of gold and 400,000 - 450,000 ounces of silver by drawing down inventory that has been previously stacked on the leach pads and stacking run-of-mine oxide and transitional material with a shorter recovery cycle. We anticipate that mining in the first four months of 2021 will be performed using the existing Hycroft fleet and a rental fleet, moving approximately 1.5 million tons per month of ore and waste. For the remainder of the year, we intend to mine approximately 500,000 tons of oxide and transitional ore and waste per month with a more cost-effective mining fleet. The run-of-mine operating plan will allow us to maintain our existing workforce while allowing time to optimize the mining plan, take additional steps to define the ore body, and resolve technical issues related to developing processes and procedures for the efficient and effective recovery of gold and silver from the two-stage heap oxidation and leaching of sulfide ore, thereby positioning the mine site for the first phase ramp up and future growth. At current metal prices, our full-year 2021 production costs are expected to exceed gold and silver revenues due to fixed costs and lower planned run-of-mine volumes. The run-of-mine volumes reflect the current processing capacity which is limited until we can complete expenditures necessary to refurbish the North Merrill-Crowe plant and construct the second refinery.
Technical activities
During the last few months of 2020 and into 2021, we have worked alongside our industry leading consultants to identify and investigate opportunities for improvements in operating parameters for the two-stage sulfide heap oxidization and leach process. The result of the work to date has identified a number of items that were not considered or included in the original plan and design but are critical to the success of this process. These findings included:
(1)adding a forced air injection system for the leach pad which is a key component of the oxidation process;
(2)developing a system for segregating solution flows to and from the heap leach pad to avoid co-mingling of solutions among heap lifts and ore processing stages that negatively impact recoveries and conditions on the leach pads;
(3)identifying that the finer crushed material requires agglomeration in order to achieve optimal permeability and gold and silver recoveries;
(4)understanding that higher soda ash, caustic soda, and cyanide consumption will be required which we experienced throughout the 2020 pre-commercial test pad programs and recently confirmed through the review of the test work;
(5)determining that some transitional ores are more economically attractive when processed as direct leach, run-of-mine material; and
(6)concluding that additional variability metallurgical and mineralogy studies will be required to better understand each of the geometallurgical domains in the ore body. While there was some variability work completed in the past, the recent test work has revealed that additional variability test work and compositing is necessary to fully understand the geometallurgy of each domain, and that additional sampling, including sampling below the water table where the predominance of the sulfide resources exist, is required given the complexity and variability of the large ore body.
The additional variability test work will also include detailed mineralogy studies as it is important to understand the role other minerals may play in the overall oxidation process and to enhance our ability to measure oxidation rates accurately and consistently. We have developed an approximate $10.0 million program for drilling and additional metallurgical and mineralogical studies in 2021. This program of work has been approved by our Board of Directors and is expected to be funded from existing cash and our current operating plans.
Based on our recent understanding of the two-stage heap oxidation and leach process, and consistent with our strategy to position the Hycroft Mine for a ramp up at the appropriate time, much of our technical efforts for 2021 will include focusing on achieving the below items:
•Pre-commercial leach pads – We expect to mine and stockpile at least 300,000 tons of sulfide ore in 2021 that, once sufficient additional work on the proprietary two-stage heap oxidation and leach process has been completed, will be available for testing to further refine operating parameters and measure its performance for large scale application of the oxidation heap leach.
•Leach pad expansion – We developed a stacking plan for the 2021 run-of-mine plan that utilizes existing leach pads, preserving the new leach pad for sulfide ores, and facilitates deferring the capital expenditures to complete and commission the new leach pad into 2022. During the upcoming year, in conjunction with the technical team, we plan to engage with engineering firms to assess value engineering opportunities and evaluate potential design changes to the current leach pad plans to better support the sulfide oxidation process.
•Technical analyses – The technical work programs taking place in 2021 may provide information for evaluating enhancements, updates, and opportunities for the novel process, while also considering processing technologies for certain ores that may generate enhanced value.
•Mine planning and exploration – The mining team was expanded to include a professional with expertise in geologic modeling and a track record for establishing successful exploration and geology programs. The mining team, together with Forte and the exploration team, are working to identify additional opportunities to explore areas with higher grade potential and identify mine plan enhancements for improved cash flows.
•Constraints to growth – The Hycroft Mine’s future ramp up is dependent on eliminating current mining and processing constraints. As it relates to mining, when we are ready to ramp up production, we will need to acquire a mining fleet capable of achieving targeted production, and recruit and train operators and maintenance staff. For processing, we will need to: (i) complete planned repairs to the Brimstone Merrill-Crowe plant and refinery; (ii) restore and recommission the North Merrill-Crowe plant, and complete detailed engineering, permitting, and installation for the adjacent refinery; (iii) ensure we have sufficient reagent availability and storage, handling, and application systems; and (iv) evaluate other supporting process plant and equipment required for future growth, namely material handling systems and crusher capacity.
Although the above items set forth our current expectations of focus during 2021, as information, test results, and data becomes available to us during the upcoming year, such findings may modify the scope, nature, and timing of technical, testing, engineering, and growth planning work actually performed.
Hycroft Mine
Operations
The following table provides a summary of operating results for the Hycroft Mine, which was restarted in April 2019:
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Year ended December 31,
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2020
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2019
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Ore mined - crusher feed
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(ktons)
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4,941
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3,147
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Ore mined - run of mine
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(ktons)
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1,873
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939
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Total ore mined
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(ktons)
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6,814
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4,086
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Waste mined
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(ktons)
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4,815
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321
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Total mined and rehandled
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(ktons)
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11,629
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4,407
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Waste tons to ore tons strip ratio
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(#)
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0.71
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0.08
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Ore grade mined - gold
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(oz/ton)
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0.014
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0.019
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Ore grade mined - silver
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(oz/ton)
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0.261
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0.122
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Production - gold
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(oz)
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27,392
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9,561
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Production - silver
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(oz)
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178,836
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70,332
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Ounces sold - gold
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(oz)
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24,892
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8,593
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Ounces sold - silver
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(oz)
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136,238
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52,036
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Average realized sales price - gold
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($/oz)
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$
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1,779
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$
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1,490
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Average realized sales price - silver
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($/oz)
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$
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20.30
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$
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17.41
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As shown above, tons mined, ounces produced, and ounces sold significantly increased during the year ended December 31, 2020, compared to the prior year due to restarting mining and operations in 2019. During the second quarter of 2019, we restarted open pit mining operations at the Hycroft Mine, and, during the third quarter of 2019, we produced and sold gold and silver, which we have continued to produce with sales occurring on an approximate weekly basis since restarting.
Mining
As shown in the table above, tons mined, ounces produced, and ounces sold significantly increased during the year ended December 31, 2020 compared with the prior year as we benefited from a full year of operations in 2020 and only eight months of mining in 2019. Operations were restarted in the second quarter of 2019 and, each quarter since restarting, generally there has been an increase in tonnage mined and placed on the leach pads, most notably in the second quarter of 2020 following the arrival and commissioning of mobile mining equipment rentals (nine haul trucks and one loader).
The gold grades of ore mined during 2020 were as planned and decreased from the comparable period of 2019 in which existing higher grade stockpile ore was mined prior to starting any drilling and blasting. During the first quarter of 2020, we commenced in-pit contractor drilling and blasting activities that continued through the fourth quarter of 2020, to provide fresh ore feed for the crusher, run-of-mine hauling, and waste removal in support of the full year plan.
Crushing
The crusher performed well during the second half of 2020, generally meeting internal targets for product fraction size, tonnage rates, and availability, as we continued to improve equipment and operating systems to ensure ongoing reliability. In the fourth quarter of 2020, tons crushed decreased as we moved to processing transitional ore as run-of-mine material and direct leaching.
Processing
During the second half of 2020, we made the following progress on the existing pre-commercial leach pad operations: (1) improved the reagent island including upgrading the agitator system to allow for more soda ash concentration in solution thereby increasing the application rate; (2) technical staffing additions; and (3) improved leach pad data gathering and reporting protocols. These improvements combined with the new technical leadership resulted in improved control and management of the leach pads during the second half of 2020. Accordingly, we did not experience any metallurgical balancing write-downs of recoverable gold ounces on the leach pads, which was an improvement from the first half of 2020 in which we wrote-off 10,492 ounces of gold.
During 2020, a majority of the ore placed on the pre-commercial leach pads was transitional ore, which based on studies and processing results in the second half of 2020, indicate this ore is more amenable to direct leach, as the costs and time associated with oxidizing transitional ore do not yield significantly better recoveries than routing transitional ore as direct leach. We expect a substantial portion of the ore mined over the next twelve months to be run-of-mine oxide ore and transitional ore before entering larger sulfide ore mining phases. Our recent understanding resulted in the decision to route transitional ore as run-of-mine direct leach.
Production and sales
Our 2020 production and sales levels increased over 2019 due to higher operating levels after renting nine haul trucks and a shovel in April 2020. Production and sales in 2020 were negatively impacted by the write-off of 10,492 ounces of gold during the first half of 2020. Average realized gold prices per ounce increased during 2020 and combined with the higher volumes resulted in revenue of $47.0 million as compared to $13.7 million in 2019.
Leach pad expansion project
During the second quarter of 2020, we commenced a leach pad expansion project on the north side of the Hycroft Mine property to provide us with leach pad space required for future operations. The initial stage of the leach pad project is being constructed in two phases by a contractor, with the first phase consisting of approximately 4.0 million square feet of pad space and infrastructure for ponds, pipes, and electrical controls, and the second phase consisting of approximately 4.6 million square feet. With respect to the first phase, we initially expected construction and commissioning to be completed by the end of 2020, but due to shifts in our focus for 2021, we have pushed back completing construction and commissioning of the leach pad expansion project.
During 2020 we spent $29.3 million on the leach pad expansion project, and now expect total phase one leach pad project spending to approximate $41.0 million, which is $5.0 million higher than our previous estimate. The leach pad expansion project represented approximately 87.7% of our total capital spending during the year ended 2020 and is expected to represent the largest percentage of capital spending for the first half of 2021. We expect to complete construction of the leach pad to the appropriate point in which we believe there would be minimal risk of adverse impacts to the leach pad.
2019 Hycroft Technical Report
M3 Engineering and Technology Corporation (“M3 Engineering”), in conjunction with SRK and the Company, completed the Hycroft Technical Report for a two-stage, heap oxidation and subsequent leaching of sulfide ores. The Hycroft Technical Report projects the economic viability and potential future cash flows for the Hycroft Mine when mining operations expand to levels presented in the Hycroft Technical Report.
The Hycroft Technical Report provides the results of the Hycroft Mine heap leach feasibility study that evaluated the possibility of oxidizing and leaching transitional and sulfide ores in a heap leach application. The feasibility analyzes a full-scale operation including construction of new leach pads and expanded mining activities. Key components of the process that currently exist onsite include heap leach pads, a crushing facility consisting of primary, secondary, and tertiary crushing, two Merrill-Crowe plants having a total capacity of 26,000 gallons per minute, and associated support facilities.
The Hycroft Technical Report presents a mineral reserve estimate as of June 30, 2019 of 12.0 million ounces of gold and 481.4 million ounces of silver contained in oxide, transitional and sulfide ores, which is projected to be mined over 34 years using typical truck and shovel open pit mining methods. The mine plan presented in the Hycroft Technical Report requires a range of approximately 85 to 100 million tons per year to be mined (both ore and waste) through the mine life. Over the course of the contemplated mine plan, 1.1 billion tons of ore are mined with a strip ratio of 1.17.
The Hycroft Technical Report outlines the test work done to demonstrate the viability of the two-stage, heap oxidation and subsequent leaching of sulfide ores. As outlined in the Hycroft Technical Report, a significant portion of the ore is crushed to a P80 of ½” and then mixed with soda ash to induce an alkaline oxidation process. After the ore has been oxidized to the desired extent, we will rinse the ore with fresh water and saturated lime solution and then cyanide leach the ore to extract the gold and silver. This process is the subject of a pending patent application.
The crushing system is initially designed to run at nominal capacity of 2.0 million tons per month ramping up to 3.0 million tons per month with the addition of two additional tertiary crushers. Soda ash is added during the crushing circuit to begin the oxidation process. The ore proceeds through three stages of crushing and exits into the fine ore stockpile, which is then hauled to leach pads.
The pH and alkalinity of the ore is managed on the leach pad using a soda ash solution that is applied to the material to achieve alkalinity levels for optimal oxidation characteristics. The process solutions are regularly sampled for reagent addition control and the soda ash solution in the heap is replenished on a regular basis to offset evaporation and carbonate consumption. The duration of the pre-oxidation is expected to take between 30 and 120 days, which is determined by the characteristics of the ore and the measured extent of oxidation based upon sulfate production.
When the pre-oxidation cycle has been completed, we rinse the ore first with fresh water and then with a saturated lime solution prior to the commencement of cyanidation leach. This is necessary to remove sulfate and bicarbonate from the heap and reduce cyanide loss during leaching. The alkalinity of the solution in the heap is monitored to ensure rinse completion prior to the start of cyanidation. The pH is controlled during cyanidation using lime. As the ore has already been oxidized and rinsed, it undergoes a nominal 60-day primary leach cycle.
Due to the high silver content of the pregnant solution, gold and silver are recovered by zinc cementation. We have two existing Merrill-Crowe plants that are used to process pregnant solution from the heap leach operation. The older plant has a capacity of 4,500 gallons per minute. The newer plant is considerably larger, with a nameplate capacity of 21,500 gallons per minute.
Overall, the Hycroft Technical Report shows 7.8 million ounces of payable gold and 344.1 million ounces of payable silver produced and sold.
Results of Operations
Revenues
Gold revenue
The table below summarizes gold sales, ounces sold and average realized prices for the following periods (dollars in thousands, except ounce amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Gold revenue
|
$
|
44,279
|
|
|
$
|
12,803
|
|
Gold ounces sold
|
24,892
|
|
|
8,593
|
|
Average realized price (per ounce)
|
$
|
1,779
|
|
|
$
|
1,512
|
|
During the year ended December 31, 2020, our gold revenue was $44.3 million, compared to $12.8 million for the comparable period of 2019. The significant increase in revenue during the 2020 period was attributable to the mine operating for the entire period, whereas in 2019 revenue was first recorded in the third quarter following the operations restart. We also benefited from favorable gold prices, which increased $267 per ounce, or 18% for the year ended December 31, 2020, compared to the prior year period. While production increased and we benefited from favorable gold prices, gold revenues were adversely affected during the year ended December 31, 2020 by write-downs of recoverable gold ounces on the leach pads during the first half of 2020.
Silver revenue
The table below summarizes silver sales, ounces sold and average realized prices for the following periods (dollars in thousands, except ounce amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Silver revenue
|
$
|
2,765
|
|
|
$
|
906
|
|
Silver ounces sold
|
136,238
|
|
|
52,036
|
|
Average realized price (per ounce)
|
$
|
20.30
|
|
|
$
|
17.41
|
|
During the year ended December 31, 2020, our silver revenue was $2.8 million compared to $0.9 million for the comparable period of 2019. Similar to gold revenue, the increase in silver revenue during 2020 compared to the 2019 period was primarily attributable to mining operations ongoing for the full year of 2020. We also benefited from favorable silver prices, which increased $2.89 per ounce for the year ended December 31, 2020, compared to the prior year. During 2020, silver revenue was negatively impacted from write-downs of recoverable silver ounces on the leach pads during the first half of 2020.
Total cost of sales
Total cost of sales consists of Production costs, Depreciation and amortization, Mine site period costs, and Write-down of production inventories. The table below summarizes total cost of sales for the following periods (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
Production costs
|
|
$
|
41,688
|
|
|
$
|
11,041
|
|
Depreciation and amortization
|
|
2,894
|
|
|
1,011
|
|
Mine site period costs
|
|
47,115
|
|
|
2,174
|
|
Write-down of production inventories
|
|
17,924
|
|
|
16,443
|
|
Total cost of sales
|
|
$
|
109,621
|
|
|
$
|
30,669
|
|
Production costs
For the year ended December 31, 2020, we recognized $41.7 million in Production costs, or $1,675 per ounce of gold sold, compared to $11.0 million in Production costs or $1,285 per ounce of gold sold during 2019. The increase in total production costs was due to an increase in gold ounces sold of 16,299 during the year ended December 31, 2020 compared to the same period of 2019 in conjunction with higher cost per ounce produced, which was primarily driven by an increase in contracted labor and equipment costs to meet the operational needs of the mine. Throughout 2020, and as discussed below, our high operating cost structure and low levels of production have resulted in write-downs to the inventory value per ounce of gold that approximate the net realizable value per ounce of gold after considering costs to complete and sell as determined in accordance with our accounting policies. Accordingly, our inventory value per ounce has been partially limited for the impact of recognizing Mine site period costs, which lowers the carrying value of leach pad inventories.
Depreciation and amortization
Depreciation and amortization was $2.9 million, or $116 per ounce of gold sold for the year ended December 31, 2020, compared to $1.0 million, or $118 per ounce of gold sold for year ended December 31, 2019. The increase in total depreciation and amortization costs was due to an increase in gold ounces sold of 16,299 during the year ended December 31, 2020 compared to the same period of 2019, in which incremental equipment was placed into service during the year, and existing equipment incurred a full year of depreciation, as compared to depreciation in 2019 that was only incurred after the restart of the mine in April of 2019.
Mine site period costs
During the year ended December 31, 2020, inclusive of depreciation and amortization, we recorded $47.1 million of Mine site period costs for costs that were in excess of net realizable value per ounce of gold less costs to complete. During the year ended December 31, 2019, inclusive of depreciation and amortization, we recorded $2.2 million of Mine site period costs. Such period costs are generally the result of recurring or significant downtime or delays, unusually high levels of repairs, inefficient operations, overuse of processing reagents, or other unusual costs and activities.
Write-down of production inventories
As discussed in Note 2 - Summary of Significant Accounting Policies and Note 4 - Inventories to the Notes to the Financial Statements, based on metallurgical balancing results, during the year ended December 31, 2020, we determined that 10,492 ounces of gold that had been placed on the leach pads were no longer recoverable and wrote-off these ounces. As a result, during 2020, the Company recognized a Write-down of production inventories on the consolidated statements of operations, which included Production costs of $16.7 million, and capitalized depreciation and amortization costs of $1.3 million. During the first half of 2020, we (1) were unable to consistently maintain leach pad conditions required to produce all of the estimated recoverable ounces placed on the leach pads, and (2) experienced instances of solution mismanagement in which pregnant metal-bearing solutions were circulated to areas of leach pads not currently in operation, thus making such ounces unrecoverable. During the second half of 2020, we did not experience any metallurgical balancing write-downs of recoverable gold ounces on the leach pads.
During the 2019 fourth quarter, based on metallurgical balancing results, the Company determined that 11,680 ounces of gold that had been placed on the leach pads were no longer recoverable and wrote-off these ounces. As a result of the write-off the Company recognized a Write-down of production inventories on the consolidated statements of operations of $16.4 million. Cash production costs written-off were $15.1 million and capitalized depreciation and amortization costs written-off were $1.3 million. The write-off of these ounces was primarily a result of mismanagement of solution flows. The lost gold and silver ounces were leached and captured in solution. However, prior to the solution being processed through the Merrill-Crowe plant, it was inadvertently commingled with barren solution and pumped to leach pads no longer in use, which will prevent it from being recovered in the future.
General and administrative
General and administrative totaled $21.1 million and $6.1 million during year ended December 31, 2020 and 2019, respectively. The increase of $15.0 million during 2020 was primarily due to: (1) an increase of $5.4 million in bonus compensation, largely related to the completion of the Recapitalization Transaction; (2) a $3.1 million increase in additional compensation related to salary continuation costs for severance and separation agreements to our former executives; (3) $3.4 million of insurance costs primarily related to a directors and officers run-off policy for Seller as a result of the Recapitalization Transaction; and (4) $3.0 million of additional legal and professional service fees associated with general corporate matters and obligations as a public company.
Accretion
We recorded $0.4 million of Accretion during the year ended December 31, 2020 and 2019, which related to our asset retirement obligation and future reclamation costs. Refer to Note 12 - Asset Retirement Obligation within the Notes to the Consolidated Financial Statements for further detail.
Project and development
For the year ended December 31, 2019, Project and development was $7.7 million, while no such costs were incurred for the year ended December 31, 2020. In late 2018, the Company began the process of restarting mining operations and restarted active mining at the Hycroft Mine in April 2019. During 2019, project and development costs were incurred related to the restart of the Hycroft Mine, such as maintenance and repair of mobile mining equipment and processing equipment (crusher, and Merrill-Crowe facility), to prepare for use after sitting idle for several years. During 2019, project and development costs also related to the preparation of the feasibility study and metallurgical test work, including costs incurred to prepare the Hycroft Technical Report.
Pre-production depreciation and amortization
Pre-production depreciation and amortization represents expense recognized prior to the restart of mining operations at the Hycroft Mine and for the year ended December 31, 2019 was $1.1 million. Upon the April 2019 restart of the Hycroft Mine, we began capitalizing to inventory depreciation and amortization for ore on the leach pads. Due to the restart of the Hycroft Mine, no pre-production depreciation and amortization costs were incurred during the second half of 2019 or in 2020.
Care and maintenance
Care and maintenance totaled $3.5 million for the year ended 2019 was incurred from January to March of 2019 prior to the Hycroft Mine’s April 2019 restart, after which we no longer recorded such costs.
Interest expense, net
As discussed and detailed in Note 9 - Debt, Net to the Notes to the Financial Statements, Interest expense, net of capitalized interest totaled $43.5 million and $64.8 million during the years ended December 31, 2020 and 2019, respectively. Interest expense decreased by $21.3 million during the year ended December 31, 2020 from the prior year. The year-over-year decrease was a result of completing the Recapitalization Transaction on May 29, 2020, which caused the exchange or conversion of the majority of Seller's $627.8 million debt outstanding to equity, thus resulting in post-Recapitalization Transaction indebtedness totaling $159.8 million for the Sprott Credit Agreement and Subordinated Notes. For the year ended December 31, 2020, our average debt balance was $350.9 million compared to $492.3 million for the prior year period.
Fair value adjustment to Warrants
For the year ended December 31, 2020, we recorded $3.8 million of expense resulting from the adjustment in the fair value of Warrant liabilities.
Interest income
Interest income totaled approximately $0.2 million and $0.8 million during 2020 and 2019, respectively. Interest income was lower in 2020 primarily due to decreases in interest rate yields from the comparable periods of 2019.
Reorganization items
On March 10, 2015, the predecessor to Seller filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) and incurred legal and professional fees of $0.9 million for the year ended December 31, 2019 related to such matters. No such costs were incurred during the year ended December 31, 2020.
Income taxes
There was no income tax benefit or expense, net, recognized during the year ended December 31, 2020 or 2019. Seller’s gain from the Recapitalization Transaction was fully offset by the use of Seller’s deferred tax assets. We have not recorded any future income tax benefits for net losses generated after the completion of the Recapitalization Transaction, due to a full valuation allowance recorded against our net operating loss carryforward earned after the Recapitalization Transaction. For additional details, refer to Note 16 - Income Taxes to the Notes to the Financial Statements.
Net loss
For the reasons discussed above, we recorded a net loss of $136.4 million for the year ended December 31, 2020, compared to a net loss of $98.9 million for the year ended December 31, 2019, which included a $3.8 million loss attributable to the change in fair value of the warrant liability.
Liquidity and Capital Resources
General
Prior to the closing of the Recapitalization Transaction, our primary source of liquidity was proceeds received from the issuance of related-party debt instruments, which were used to finance the 2019 restart of mining operations at the Hycroft Mine and all working capital and capital expenditures thereafter. During the second half of 2019, we began to produce and sell gold and silver at the Hycroft Mine that provided a source of revenue and related cash flow. On May 29, 2020, we completed the Recapitalization Transaction that provided cash available for use of $68.9 million. As part of the Recapitalization Transaction, Seller’s indebtedness existing prior to the Recapitalization Transaction was either repaid, exchanged for indebtedness of the Company, exchanged for shares of our common stock or converted into shares of Seller common stock, and our post-Recapitalization Transaction indebtedness included amounts drawn under the Sprott Credit Agreement and the assumption of the newly issued Subordinated Notes. Additionally, on October 6, 2020, the Company issued 9,583,334 units in an underwritten public offering at an offering price to of $9.00 per unit (the "Public Offering"), with each unit consisting of one share of our common stock and one warrant to purchase one share of our common stock at an exercise price of $10.50 per share, for total proceeds net of discount and equity issuance costs of $83.1 million.
Our future liquidity and capital resources management strategy entails a disciplined approach to monitor the timing and amount of any operational tonnage ramp-up of the Hycroft Mine while attempting to remain in a position that allows us to
respond to changes in our business environment, such as a decrease in metal prices or lower than forecasted future cash flows, and changes in other factors beyond our control.
Our primary cash requirements during 2020 related to the leach pad expansion project, of which $29.3 million of the revised estimated total cost of $41.0 million has been spent, and $110.5 million of cash was used in the operations of the Hycroft Mine, which was higher than planned due to leach pad inventory write downs and higher production costs, the mechanical limitations for mixing soda ash, and corporate and transactional expenses associated with becoming a public entity and completing the Recapitalization Transaction. We have yet to generate positive cash flow from operations and we do not expect to do so for the full year 2021.
As discussed in the Going concern subsection of the Recent Developments section of this MD&A, using estimates of future production costs, and operational metrics, at current metal spot prices, we do not expect the Hycroft Mine to generate positive net operating monthly cash flows during 2021. However, we have undertaken efforts aimed at managing our liquidity and preserving our capital resources by, among other things: (1) monitoring metal prices and the impacts (near-term and future) they have on our business; (2) developing plans and forecasts that we expect to be reliable and achievable considering historical operational and processing challenges encountered to date; (3) controlling our working capital and managing discretionary spending; and (4) planning the timing and amounts of capital expenditures at the Hycroft Mine and deferring such items that are not expected to benefit our near term operating plans.
Cash and liquidity
We have placed substantially all of our cash in operating accounts with a well-capitalized financial institution, thereby ensuring balances remain readily available. Due to the nature of our operations and the composition of our current assets, our Cash, Accounts receivable, and Metal inventories represent substantially all of our liquid assets on hand. Additionally, we are provided with additional liquidity as ounces are recovered from the Ore on leach pads, current, processed into finished goods, and sold at prevailing spot prices to our customers.
The following table summarizes our projected sources of future liquidity, as recorded within our financial statements (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Cash
|
$
|
56,363
|
|
|
$
|
6,220
|
|
Accounts receivable
|
426
|
|
|
97
|
|
Metal inventories(1)
|
6,418
|
|
|
1,894
|
|
Ore on leach pads, current(2)
|
38,041
|
|
|
22,062
|
|
Total projected sources of future liquidity
|
$
|
101,248
|
|
|
$
|
30,273
|
|
(1)Metal inventories contained approximately 3,463 recoverable ounces of gold that are expected to be sold within the next 12 months. Assuming a gold selling price of $1,888 per ounce (the December 31, 2020 P.M. fix) and excluding any proceeds from silver sales, the sale of all gold ounces estimated to be recovered from our metal inventories would provide us with $6.5 million of revenue. See Note 4 - Inventories to the Notes to the Financial Statements for additional information.
(2)Ore on leach pads, current contained approximately 21,869 ounces of gold that are expected to be processed into finished goods and then sold within the next 12 months. Assuming a gold selling price of $1,888 per ounce (the December 31, 2020 P.M. fix) and excluding any proceeds from silver sales, the sale of all gold ounces estimated to be recovered from our ore on leach pads would provide us with $41.3 million of revenue. We also have ore on leach pads that is not expected to be processed into finished goods within the next 12 months of $7.9 million; accordingly, we exclude this inventory from our projected sources of future liquidity. See Note 4 - Inventories to the Notes to the Financial Statements for additional information.
Twelve months ended December 31, 2020 compared to the twelve months ended December 31, 2019
The following table summarizes our sources and uses of cash for the following periods (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
|
|
(as restated)
|
|
|
Net loss
|
$
|
(136,392)
|
|
|
$
|
(98,895)
|
|
Net non-cash adjustments
|
76,809
|
|
|
76,099
|
|
Net change in operating assets and liabilities
|
(50,925)
|
|
|
(36,975)
|
|
Net cash used in operating activities
|
(110,508)
|
|
|
(59,771)
|
|
Net cash used in investing activities
|
(31,124)
|
|
|
(12,296)
|
|
Net cash provided by financing activities
|
188,705
|
|
|
68,173
|
|
Net increase (decrease) in cash
|
47,073
|
|
|
(3,894)
|
|
Cash and restricted cash, beginning of period
|
48,967
|
|
|
52,861
|
|
Cash and restricted cash, end of period
|
$
|
96,040
|
|
|
$
|
48,967
|
|
Cash used in operating activities
For the year ended December 31, 2020, we used $110.5 million of cash in operating activities primarily attributable to a net loss of $136.4 million, the cash impact of which was equal to $59.6 million, and $50.9 million used for working capital, largely due to the $43.8 million used to increase production related inventories. The largest non-cash items during the year ended December 31, 2020 included the non-cash portion of interest expense of $38.8 million, and write-downs of production inventories of $17.9 million, which is discussed in Note 4 - Inventories to the Notes to the Financial Statements.
For the year ended December 31, 2019, we used $59.8 million of cash for operating activities primarily attributable to a net loss of $98.9 million, a reduction in the asset retirement obligations of $1.9 million, the cash impact of which was equal to $22.8 million, and $37.0 million used for working capital largely due to increases in the following operating assets; production-related inventories ($38.6 million), materials and supplies inventories ($1.0 million) and prepaids and other, current and non-current ($0.5 million). The cash outflows caused by the items described above were partially offset by certain non-cash expenses such as $54.8 million non-cash portion of interest expense, $18.6 million write-down of production inventories, $2.1 million depreciation and amortization, $1.1 million stock-based compensation and $0.4 million of accretion. There were also increases in accounts payable ($3.4 million) that partially offset the cash outflows.
Cash used in investing activities
For the year ended December 31, 2020 and 2019, we used $31.1 million and $12.3 million, respectively, in investing activities. For 2020, expenditures primarily related to construction of a large leach pad expansion project and totaled $29.3 million. For 2019, the vast majority of the costs related to (1) construction of new leach pad space for the restart of $6.2 million, (2) the purchase and installation of four new cone crushers for $4.0 million and (3) replacement and significant repairs of existing processing equipment for $0.8 million.
Cash provided by financing activities
For the year ended December 31, 2020, Seller issued $44.8 million in aggregate principal amount of 1.25 Lien Notes (net of issuance costs) which were used to fund the operations and capital needs through May 29, 2020. The remainder of the financing activities primarily related to the Public Offering of units, which was comprised of one share of our common stock and one warrant to purchase one share of our common stock. The Public Offering was completed on October 6, 2020, and resulted in proceeds net of discount and equity issuance costs of approximately $83.1 million. Additional financing activities primarily related to the Recapitalization Transaction, which provided $210.0 million in net cash flows and was used to repay Seller’s $125.5 million First Lien Agreement, a $6.9 million promissory note, and transaction costs and other issuance costs. See Note 3 - Recapitalization Transaction to the Notes to the Financial Statements for further discussion.
The amount of cash provided by financing activities was $68.2 million for the year ended December 31, 2019, which was due to $71.8 million in aggregate principal amount of 1.25 Lien Notes (net of issuance costs) issued to fund the restart of mining operations. Seller spent $2.9 million for legal and consulting fees related to the Recapitalization Transaction and $0.8 million to extend the maturity of the First Lien Credit Agreement.
Future capital and cash requirements
The following table provides our gross contractual cash obligations as of December 31, 2020, which are grouped in the same manner as they were classified in the cash flows in order to provide a better understanding of the nature of the obligations and to provide a basis for comparison to historical information. We believe the following provides the most meaningful presentation of near-term obligations expected to be satisfied using current and available sources of liquidity (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Total
|
|
Less than
1 Year
|
|
1 - 3
Years
|
|
3 - 5
Years
|
|
More than
5 Years
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
Net smelter royalty(1)
|
$
|
345,558
|
|
|
$
|
1,316
|
|
|
$
|
5,270
|
|
|
$
|
16,042
|
|
|
$
|
322,930
|
|
Remediation and reclamation expenditures(2)
|
62,032
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
62,032
|
|
Interest payments(3)
|
15,707
|
|
|
3,728
|
|
|
9,676
|
|
|
2,303
|
|
|
—
|
|
Operating lease requirements(4)
|
4,957
|
|
|
4,947
|
|
|
10
|
|
|
—
|
|
|
—
|
|
Crofoot royalty(5)
|
4,870
|
|
|
240
|
|
|
480
|
|
|
480
|
|
|
3,670
|
|
Consignment inventory(6)
|
2,188
|
|
|
1,355
|
|
|
833
|
|
|
—
|
|
|
—
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Repayments of debt principal(7)
|
212,974
|
|
|
3,756
|
|
|
37,558
|
|
|
171,660
|
|
|
—
|
|
Additional interest payments(8)
|
9,348
|
|
|
1,650
|
|
|
4,399
|
|
|
3,299
|
|
|
—
|
|
Total
|
$
|
657,634
|
|
|
$
|
16,992
|
|
|
$
|
58,226
|
|
|
$
|
193,784
|
|
|
$
|
388,632
|
|
(1)Under the Sprott Royalty Agreement, we are required to pay a perpetual royalty equal to 1.5% of the Net Smelter Returns from our Hycroft Mine, payable monthly. Amounts presented above incorporate estimates of our current life-of-mine plan, and are based on consensus pricing for gold and silver. See Note 10 - Royalty Obligation to the Notes to the Financial Statements for additional information.
(2)Mining operations are subject to extensive environmental regulations in the jurisdictions in which they are conducted and we are required, upon cessation of operations, to reclaim and remediate the lands that our operations have disturbed. The estimated undiscounted cash outflows of these remediation and reclamation obligations are reflected here. In the above presentation, no offset has been applied for the $59.9 million of our collateralized reclamation bonds.
(3)Under the Sprott Credit Agreement, we must pay interest beginning in the 13th month after the initial advance on May 29, 2020 to Sprott Private Resource Lending II (Collector), LP. See Note 9 - Debt, Net to the Notes to the Financial Statements for additional information.
(4)As noted below in the Off-balance sheet arrangements section of this MD&A, we have operating leases for mine equipment and office space.
(5)We are required to pay a 4% net profits royalty, including advance royalty payments of $120,000 in any year where mining occurs on the Crofoot claims and an additional $120,000 if tons mined from the Crofoot claim blocks exceed 5.0 million tons. See Note 22 - Commitments and Contingencies. Amounts shown represent our current estimates of cash payment timing using consensus pricing for gold and silver.
(6)As noted below in the Off-balance sheet arrangements section of this MD&A, and as discussed in Note 5 - Prepaids and Other to the Notes to the Financial Statements, we have future purchase obligation for consignment inventory.
(7)Repayments of principal on debt consists of amounts due under the Sprott Credit Agreement and the Subordinated Notes. Included in the repayment of the Subordinated Notes principal is interest that has been capitalized as payable in-kind on a quarterly basis, and on a monthly basis for the Sprott Credit Agreement for the first 12 months after the initial advance. See Note 9 - Debt, Net to the Notes to the Financial Statements for additional information.
(8)Additional interest payments consist of repayments of additional interest under the Sprott Credit Agreement, commencing February 28, 2021 and ending on the maturity date. See Note 9 - Debt, Net to the Notes to the Financial Statements for additional information.
Debt covenants
Our debt agreements contain representations and warranties, events of default, restrictions and limitations, reporting requirements, and covenants that are customary for agreements of these types.
The Sprott Credit Agreement (as defined herein) contains covenants that, among other things, restrict or limit the ability of the Company to enter into encumbrances (other than Permitted Encumbrances), incur indebtedness (other than Permitted Indebtedness), dispose of its assets (other than Permitted Disposals), pay dividends, and purchase or redeem shares, as such terms are defined in the Sprott Credit Agreement. The Sprott Credit Agreement requires the Company to ensure that, at all times, both its Working Capital and Unrestricted Cash are at least $10.0 million, as such terms are defined in the Sprott Credit Agreement, and that at least every six months we demonstrate our ability to repay and meet all present and future obligations as they become due with a financial Model that uses consensus gold prices discounted by 5.0%, as such terms are defined in the Sprott Credit Agreement. The Subordinated Notes (as defined herein) include customary events of default, including those relating to a failure to pay principal or interest, a breach of a covenant, representation or warranty, a cross-default to other indebtedness, and non-compliance with security documents.
As of December 31, 2020, the Company was in compliance with all covenants.
Off-balance sheet arrangements
As of December 31, 2020, our off-balance sheet arrangements consisted of operating lease agreements (see Note 22 - Commitments and Contingencies to our Notes to the Financial Statements), a net profit royalty arrangement (see Note 22 - Commitments and Contingencies to the Notes to the Financial Statements), and a future purchase obligation for consignment inventory (see Note 5 - Prepaids and Other to the Notes to the Financial Statements).
Accounting developments
For a discussion of any recently issued and/or recently adopted accounting pronouncements, see Note 2 - Summary of Significant Accounting Policies to the Notes to the Financial Statements.
Critical Accounting Estimates
MD&A is based on our Financial Statements, that have been prepared in accordance with GAAP. The preparation of these statements requires us to make assumptions and estimates that affect the reported amounts. We base our assumptions and estimates on historical experience and various other sources that we believe to be reasonable at the time our estimates are made. Actual results may differ from amounts estimated in these statements, and such difference could be material. As such, future events and their effects cannot be determined with certainty.
Although other estimates are used in preparing our financial statements, we believe that the following accounting estimates are the most critical to understanding and evaluating our reported financial results. For information on all of our significant accounting policies, see Note 2 - Summary of Significant Accounting Policies to the Notes to the Financial Statements.
Ore on leach pads
Estimate Required:
The recovery of gold and silver at the Hycroft Mine is accomplished through a proprietary two-stage heap oxidation and leach process, the nature of which limits our ability to precisely determine the recoverable gold ounces in ore on leach pads. We estimate the quantity of recoverable gold ounces in ore on leach pads using surveyed volumes of material, ore grades determined through sampling and assaying of blastholes, and estimated recovery rates based on ore type and domain and level of oxidation actually achieved or expected to be achieved prior to leaching. The quantity of recoverable gold ounces and recovery rates varies based on ore mineralogy, steps in the leach process, ore grade, ore particle sizes and the percentage of cyanide soluble gold. The estimated recoverable gold ounces placed on the leach pads are periodically reconciled by comparing the related ore to the actual gold ounces recovered (metallurgical balancing). The ultimate recoverable gold ounces or life-of-mine recovery rate is unknown until mining operations cease. A change in the recovery rate or the quantity of recoverable gold ounces in our stockpiles or ore on leach pads could materially impact our financial statements.
Impact of Change in Estimate:
Changes in recovery rate estimates or estimated recoverable gold ounces that do not result in write-downs are accounted for on a prospective basis. If a write-down is required, ore on leach pads would be adjusted to market values before prospectively accounting for the remaining costs and revised estimated recoverable gold ounces. During the year ended December 31, 2020, based on our metallurgical balancing results, we determined that 10,492 ounces of gold that had been placed on the leach pads were no longer recoverable and wrote-off these ounces, which resulted in write-downs of production costs of $16.7 million and capitalized depreciation and amortization of $1.3 million. During the second half of 2020, we determined that no metallurgical balancing adjustment was needed and as such did not recognize write-downs of production inventories. The write-off of these ounces in the first and second quarters of 2020 was primarily due to the mismanagement of the oxidation process including inadequately adjusting variables in the oxidation process for changes in the ore type based on domain. As a result, we determined that we would recover fewer ounces than planned from those affected sections of the leach pads.
At December 31, 2020, if our estimate of recoverable gold ounces on the leach pad decreased by 2.5% or 5.0%, recoverable gold ounces in ore on leach pads would decrease by approximately 651 ounces or 1,302 ounces, respectively, which would require a write-down of $1.1 million or $2.3 million, respectively, of our ore on leach pad costs before prospectively accounting for the remaining costs. A 2.5% or 5.0% increase to our estimate of recoverable gold ounces in ore on leach pads would increase the estimated recoverable ounces by the aforementioned amounts and reduce our weighted average cost per ounce by approximately $42 per ounce or $83 per ounce, respectively, which would be accounted for on a prospective basis.
Proven and probable mineral reserves
Estimate Required:
Proven and probable mineral reserves are the part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. Our mineral reserve estimates are calculated in accordance with subpart 1300 of Regulation S-K under the Modernization of Property Disclosures for Mining Registrants of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Estimated recoverable gold ounces in our proven and probable mineral reserves at the Hycroft Mine are used in units-of-production amortization calculations and are the basis for future cash flow estimates utilized in impairment calculations. When determining proven and probable mineral reserves, we must make assumptions and estimates of future commodity prices and demand, the mining methods we use and intend to use in the future, and the related costs incurred to develop, mine, and process our mineral reserves. Our estimates of recoverable gold ounces in proven and probable mineral reserves are prepared by and are the responsibility of our employees. Any change in estimate or assumption used to determine our proven and probable mineral reserves could change our estimated recoverable gold ounces in such mineral reserves, which may have a material impact on our financial statements.
Impact of Change in Estimate:
Our proven and probable mineral reserves are periodically updated, usually on an annual basis. Estimated recoverable gold ounces used in our units-of-production amortization and impairment calculations are based on proven and probable mineral reserves that were determined as of December 31, 2020 using gold and silver selling prices of $1,200 per ounce and $16.50 per ounce, respectively. Resulting changes in estimates of recoverable gold ounces are used in our units-of-production calculations and impairment calculations on a prospective basis.
Impairment of long-lived assets
Estimate Required:
Our long-lived assets consist of plant, equipment, and mine development. We review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Events that may trigger a test for recoverability include, but are not limited to, significant adverse changes to projected revenues, costs, or future expansion plans or changes to federal and state regulations (with which we must comply) that may adversely impact our current or future operations. An impairment is determined to exist if the total projected future cash flows on an undiscounted basis are less than the carrying amount of a long-lived asset group. An impairment loss is measured and recorded based on the excess carrying value of the impaired long-lived asset group over fair value.
To determine fair value, we use a discounted cash flow model based on quantities of estimated recoverable minerals and incorporate projections and probabilities involving metal prices (considering current and historical prices, price trends, and related factors), production levels, operating and production costs, and the timing and capital costs of expansion and sustaining projects, all of which are based on life-of-mine plans. The term “recoverable minerals” refers to the estimated amount of gold and silver that will be sold after taking into account losses during ore processing and treatment. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. Our estimates of future cash flows are based on numerous assumptions that are consistent or reasonable in relation to internal budgets and projections, and actual future cash flows may be significantly different than the estimates, as actual future quantities of recoverable gold and silver, metal prices, operating and production costs, and the timing and capital costs of expansion and sustaining projects are each subject to significant risks and uncertainties.
Impact of Change in Estimate:
The estimates and assumptions used in our impairment test as of December 31, 2020 were based on the Hycroft Technical Report. The Hycroft Technical Report was prepared using prices of $1,200 per ounce for gold and $16.50 per ounce for silver, which when using sales prices of $1,300 per ounce for gold and $17.33 per ounce for silver, resulted in an after tax net present value of $2.1 billion. We compared the estimated after tax net present value of $2.1 billion to the carrying value of our plant, equipment, and mine development of $60.2 million, and given the large surplus between the estimated after tax net present value of the Hycroft Mine and the carrying value of our plant, equipment, and mine development a change in the estimates used in the Hycroft Technical Report would be unlikely to result in an impairment as of December 31, 2020.
Asset retirement obligation ("ARO")
Estimate Required:
We will be required to perform reclamation activity at the Hycroft Mine in the future. As a result of this requirement, an ARO has been recorded on our consolidated balance sheets that is based on our expectation of the costs that will be incurred years in the future. Any underestimate or unanticipated reclamation costs or any changes in governmental reclamation requirements could require us to record or incur additional reclamation costs. ARO liabilities are accrued when they become known, are probable and can be reasonably estimated. Whenever a previously unrecognized ARO liability becomes known, or a previously estimated reclamation cost is increased, the amount of that liability and additional cost will be recorded at that time and could materially reduce our consolidated net income attributable to stockholders.
Impact of Change in Estimate:
Based on our current proposed 34-year mine plan set forth in the Hycroft Technical Report, no significant reclamation activity will be made until 2047. However, if the significant reclamation activity were to begin in 2042 or 2045 our reclamation liability would increase by approximately $1.8 million and approximately $0.7 million, respectively.
Warrant liability
Estimate Required:
We account for the 5-Year Private Warrants to purchase shares of our common stock that are not indexed to our own stock as liabilities at fair value on the balance sheet. The warrants are subject to remeasurement at each balance sheet date, and any change in fair value is recognized as a component of Other income (expense), net on the statement of operations. We will continue to adjust the liability for changes in fair value of the 5-Year Private Warrants until the earlier of the (i) exercise or expiration of the 5-Year Private Warrants or (ii) the transfer of any 5-Year Private Warrants to any person who is not a permitted transferee, at which time the applicable warrant liability will be extinguished. The terms of the 5-Year Private Warrants are substantially identical to the 5-Year Public Warrants except the 5-Year Private Warrants, while held by the SPAC sponsor and/or SPAC underwriter and their permitted transferees, are precluded from mandatory redemption and are entitled to exercise on a cashless bases at the holder’s election. Accordingly, we use a Black-Scholes model with an appropriate estimate of volatility considering volatility of the 5-Year Public Warrants and using a Monte Carlo simulation model to incorporate the redemption and cashless exercise features in the 5-Year Private Warrants. Increases (decreases) in the assumptions result in a directionally similar impact to the fair value of the warrant liability.
Impact of Change in Estimate:
A $0.01 increase or decrease in the fair value estimate of 5-Year Private Warrants would increase or decrease the warrant liability, by $0.3 million with the offset in Other income (expense).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As the Company qualifies as smaller reporting company under Item 10(f) of Regulation S-K, quantitative and qualitative disclosures about market risk are not required, and such are omitted from this filing.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
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|
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|
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Page
|
Consolidated Financial Statements
|
|
Report of Independent Registered Public Accounting Firm
|
|
Consolidated Balance Sheets at December 31, 2020 and 2019
|
|
Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019
|
|
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2020 and 2019
|
|
Notes to Consolidated Financial Statements
|
|
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Hycroft Mining Holding Corporation
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Hycroft Mining Holding Corporation (the “Company”) as of December 31, 2020 and 2019, the related statements of operations, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Restatement to Correct 2020 Misstatement
As discussed in Note 25 to the financial statements, the 2020 financial statements have been restated to correct a misstatement.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company’s significant recurring operating losses, lack of liquidity and capital, and significant capital needed to expand operations raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Emphasis of Matter
As discussed in Note 3 Recapitalization Transaction and Note 23 Related Party Transactions to the financial statements, the Company completed a significant recapitalization transaction involving related parties. Our opinion is not modified with respect to this matter.
/s/ Plante & Moran PLLC - We have served as the Company’s auditor since 2015
Denver, Colorado
March 24, 2021, except as to the effect of the restatement described in Note 25, which is dated May 14, 2021
HYCROFT MINING HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
|
(as restated)
|
|
|
Assets:
|
|
|
|
Cash
|
$
|
56,363
|
|
|
$
|
6,220
|
|
Accounts receivable
|
426
|
|
|
97
|
|
Inventories - Note 4
|
12,867
|
|
|
4,453
|
|
Ore on leach pads, current - Note 4
|
38,041
|
|
|
22,062
|
|
Prepaids and other - Note 5
|
4,303
|
|
|
2,648
|
|
Restricted cash - Note 6
|
—
|
|
|
3,270
|
|
Current assets
|
112,000
|
|
|
38,750
|
|
Ore on leach pads, non-current - Note 4
|
7,243
|
|
|
—
|
|
Other assets, non-current - Note 5
|
13,483
|
|
|
24,886
|
|
Plant, equipment, and mine development, net - Note 7
|
60,223
|
|
|
31,524
|
|
Restricted cash - Note 6
|
39,677
|
|
|
39,477
|
|
Total assets
|
$
|
232,626
|
|
|
$
|
134,637
|
|
Liabilities:
|
|
|
|
Accounts payable
|
$
|
12,280
|
|
|
$
|
10,746
|
|
Other liabilities, current - Note 8
|
4,157
|
|
|
3,939
|
|
Debt, net, current - Note 9
|
5,120
|
|
|
553,965
|
|
Royalty obligation, current - Note 10
|
124
|
|
|
—
|
|
Interest payable
|
—
|
|
|
846
|
|
Current liabilities
|
21,681
|
|
|
569,496
|
|
Other liabilities, non-current - Note 8
|
1,650
|
|
|
—
|
|
Warrant liabilities, non-current - Note 11
|
15,389
|
|
|
18
|
|
Debt, net, non-current - Note 9
|
142,665
|
|
|
—
|
|
Royalty obligation, non-current - Note 10
|
29,839
|
|
|
—
|
|
Asset retirement obligation, non-current - Note 12
|
4,785
|
|
|
4,374
|
|
Total liabilities
|
216,009
|
|
|
573,888
|
|
Commitments and contingencies - Note 21
|
|
|
|
Stockholders' (deficit) equity:(1) - Note 13
|
|
|
|
Common stock, $0.0001 par value; 400,000,000 shares authorized; 59,901,306 issued and outstanding at December 31, 2020; and 345,431 issued and 323,328 outstanding at December 31, 2019
|
6
|
|
|
—
|
|
Additional paid-in capital
|
537,370
|
|
|
5,187
|
|
Accumulated deficit
|
(520,759)
|
|
|
(444,438)
|
|
Total stockholders' equity (deficit)
|
16,617
|
|
|
(439,251)
|
|
Total liabilities and stockholders' equity (deficit)
|
$
|
232,626
|
|
|
$
|
134,637
|
|
(1)Retroactively restated for the reverse recapitalization as described in Note 2 - Summary of Significant Accounting Policies.
The accompanying notes are an integral part of these consolidated financial statements.
HYCROFT MINING HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
|
(as restated)
|
|
|
Revenues - Note 14
|
|
$
|
47,044
|
|
|
$
|
13,709
|
|
Cost of sales:
|
|
|
|
|
Production costs
|
|
41,688
|
|
|
11,041
|
|
Depreciation and amortization
|
|
2,894
|
|
|
1,011
|
|
Mine site period costs - Note 4
|
|
47,115
|
|
|
2,174
|
|
Write-down of production inventories - Note 4
|
|
17,924
|
|
|
16,443
|
|
Total cost of sales
|
|
109,621
|
|
|
30,669
|
|
Operating expenses:
|
|
|
|
|
General and administrative
|
|
21,084
|
|
|
6,072
|
|
Impairment on equipment not in use - Note 5
|
|
5,331
|
|
|
63
|
|
Accretion - Note 12
|
|
374
|
|
|
422
|
|
Project and development
|
|
—
|
|
|
7,708
|
|
Pre-production depreciation and amortization
|
|
—
|
|
|
1,067
|
|
Care and maintenance
|
|
—
|
|
|
3,529
|
|
Reduction in asset retirement obligation
|
|
—
|
|
|
(1,880)
|
|
Loss from operations
|
|
(89,366)
|
|
|
(33,941)
|
|
Other income (expense):
|
|
|
|
|
Interest expense, net of capitalized interest - Note 10
|
|
(43,458)
|
|
|
(64,846)
|
|
Fair value adjustment to Warrants - Note 19
|
|
(3,767)
|
|
|
—
|
|
Interest income
|
|
199
|
|
|
797
|
|
Loss before reorganization items and income taxes
|
|
(136,392)
|
|
|
(97,990)
|
|
Reorganization items
|
|
—
|
|
|
(905)
|
|
Loss before income taxes
|
|
(136,392)
|
|
|
(98,895)
|
|
Income taxes - Note 16
|
|
—
|
|
|
—
|
|
Net loss
|
|
$
|
(136,392)
|
|
|
$
|
(98,895)
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
Basic - Note 17
|
|
$
|
(3.92)
|
|
|
$
|
(327.95)
|
|
Diluted - Note 17
|
|
$
|
(3.92)
|
|
|
$
|
(327.95)
|
|
Weighted average shares outstanding(1):
|
|
|
|
|
Basic - Note 17
|
|
34,833,211
|
|
|
301,559
|
|
Diluted - Note 17
|
|
34,833,211
|
|
|
301,559
|
|
(1)Retroactively restated for the reverse recapitalization. Refer to Note 2 - Summary of Significant Accounting Policies and Note 17 - Loss Per Share for further information.
The accompanying notes are an integral part of these consolidated financial statements.
HYCROFT MINING HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
(as restated)
|
|
|
Cash flows from operating activities:
|
|
|
|
Net loss
|
$
|
(136,392)
|
|
|
$
|
(98,895)
|
|
Adjustments to reconcile net loss for the period to net cash used in operating activities:
|
|
|
|
Non-cash portion of interest expense - Note 10
|
38,843
|
|
|
54,810
|
|
Write-down of production inventories - Note 4
|
17,924
|
|
|
18,617
|
|
Impairment on equipment not in use - Note 5
|
5,331
|
|
|
63
|
|
Depreciation and amortization
|
5,886
|
|
|
2,078
|
|
Stock-based compensation - Note 15
|
2,380
|
|
|
1,102
|
|
Salary continuation and compensation costs
|
2,116
|
|
|
—
|
|
Fair value adjustment to Seller Warrants - Note 19
|
3,767
|
|
|
—
|
|
Accretion - Note 12
|
374
|
|
|
422
|
|
Phantom share compensation
|
225
|
|
|
706
|
|
Amortization reduction of Sprott Royalty Obligation - Note 10
|
(37)
|
|
|
—
|
|
Reduction in asset retirement obligation
|
—
|
|
|
(1,880)
|
|
Change in value of phantom shares
|
—
|
|
|
181
|
|
Changes in operating assets and liabilities:
|
|
|
|
Accounts receivable
|
(329)
|
|
|
(97)
|
|
Production-related inventories
|
(43,756)
|
|
|
(38,627)
|
|
Materials and supplies inventories
|
(3,891)
|
|
|
(977)
|
|
Prepaids and other assets, current and non-current
|
(2,946)
|
|
|
(507)
|
|
Accounts payable
|
372
|
|
|
3,384
|
|
Other liabilities, current and non-current
|
443
|
|
|
52
|
|
Interest payable
|
(818)
|
|
|
(203)
|
|
Net cash used in operating activities
|
(110,508)
|
|
|
(59,771)
|
|
Cash flows used in investing activities:
|
|
|
|
Additions to plant, equipment, and mine development
|
(33,439)
|
|
|
(12,296)
|
|
Proceeds from sales of equipment
|
2,315
|
|
|
—
|
|
Net cash used in investing activities
|
(31,124)
|
|
|
(12,296)
|
|
Cash flows from financing activities:
|
|
|
|
Proceeds from Public Offering
|
83,515
|
|
|
—
|
|
Proceeds from private placement - Note 3
|
75,963
|
|
|
—
|
|
Proceeds from Sprott Credit Agreement - Note 3 and 9
|
68,600
|
|
|
—
|
|
Proceeds from Sprott Royalty Obligation - Note 3 and 10
|
30,000
|
|
|
—
|
|
Proceeds from forward purchase contract - Note 3
|
25,000
|
|
|
—
|
|
Proceeds from Recapitalization Transaction - Note 3
|
10,419
|
|
|
—
|
|
Proceeds from 1.25 Lien Note Issuances
|
44,841
|
|
|
71,831
|
|
Proceeds from warrant exercise
|
1
|
|
|
—
|
|
Repayment of First Lien Agreement - Note 9
|
(125,468)
|
|
|
—
|
|
Repayment of First Lien Agreement from permissible disposal proceeds
|
(1,158)
|
|
|
—
|
|
Transaction and issuance costs
|
(16,094)
|
|
|
(3,658)
|
|
Repayment of Promissory Note - Note 3
|
(6,914)
|
|
|
—
|
|
Net cash provided by financing activities
|
188,705
|
|
|
68,173
|
|
Net increase (decrease) in cash and restricted cash
|
47,073
|
|
|
(3,894)
|
|
Cash and restricted cash, beginning of period
|
48,967
|
|
|
52,861
|
|
Cash and restricted cash, end of period
|
$
|
96,040
|
|
|
$
|
48,967
|
|
Reconciliation of cash and restricted cash:
|
|
|
|
Cash
|
$
|
56,363
|
|
|
$
|
6,220
|
|
Restricted cash - current
|
—
|
|
|
3,270
|
|
Restricted cash - non-current
|
39,677
|
|
|
39,477
|
|
Total cash and restricted cash
|
$
|
96,040
|
|
|
$
|
48,967
|
|
See Note 20 - Supplemental Cash Flow Information for additional details. The accompanying notes are an integral part of these consolidated financial statements.
HYCROFT MINING HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(U.S. dollars in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock(1)
|
|
Treasury Stock(1)
|
|
Additional
Paid-in
Capital(1)
|
|
Accumulated
Deficit
|
|
Total
Stockholders'
Equity (Deficit)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
Balance at January 1, 2019
|
307,831
|
|
|
$
|
—
|
|
|
17,927
|
|
|
$
|
—
|
|
|
$
|
5,187
|
|
|
$
|
(345,543)
|
|
|
$
|
(340,356)
|
|
Shares issued
|
37,600
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Share repurchased
|
—
|
|
—
|
|
4,176
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(98,895)
|
|
|
(98,895)
|
|
Balance at December 31, 2019
|
345,431
|
|
|
$
|
—
|
|
|
22,103
|
|
|
$
|
—
|
|
|
$
|
5,187
|
|
|
$
|
(444,438)
|
|
|
$
|
(439,251)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock(1)
|
|
Treasury Stock(1)
|
|
Additional
Paid-in
Capital(1)
|
|
Accumulated
Deficit
|
|
Total
Stockholders'
Equity (Deficit)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
(as restated)
|
|
(as restated)
|
|
(as restated)
|
Balance at January 1, 2020
|
345,431
|
|
|
$
|
—
|
|
|
22,103
|
|
|
$
|
—
|
|
|
$
|
5,187
|
|
|
$
|
(444,438)
|
|
|
$
|
(439,251)
|
|
Conversion of Seller's 2.0 Lien Notes to common shares of Seller and distribution of HYMC common stock(2)
|
14,795,153
|
|
|
2
|
|
|
(22,103)
|
|
|
—
|
|
|
146,217
|
|
|
74,640
|
|
|
220,859
|
|
Exchange of Seller's 1.5 Lien Notes for HYMC common stock
|
16,025,316
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
160,252
|
|
|
(14,569)
|
|
|
145,685
|
|
Common shares issued in private placement
|
7,596,309
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
75,962
|
|
|
—
|
|
|
75,963
|
|
Exchange of Seller's 1.25 Lien Notes for HYMC common stock
|
4,845,920
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48,459
|
|
|
—
|
|
|
48,459
|
|
Shares issued pursuant to forward purchase agreement with SPAC sponsor, including conversion of Class B shares, less fair value of 5-Year Private Warrants(3)
|
4,813,180
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,814
|
|
|
—
|
|
|
12,814
|
|
Unredeemed SPAC shares of MUDS public stockholders
|
1,197,704
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,723
|
|
|
—
|
|
|
3,723
|
|
Common shares issued pursuant to Sprott Credit Agreement
|
496,634
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,282
|
|
|
—
|
|
|
6,282
|
|
Common shares issued to underwriter
|
44,395
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
444
|
|
|
—
|
|
|
444
|
|
Vesting of restricted stock(4)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,802
|
|
|
—
|
|
|
1,802
|
|
Equity issuance costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,255)
|
|
|
—
|
|
|
(8,255)
|
|
Shares issued
|
101
|
|
|
—
|
|
—
|
|
|
—
|
|
|
1
|
|
—
|
|
1
|
|
Stock-based compensation costs
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
388
|
|
|
—
|
|
388
|
|
Shares issued pursuant to Public Offering
|
9,583,334
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
83,513
|
|
|
—
|
|
|
83,514
|
|
5-Year Private Warrants transferred to 5-Year Public Warrants(5)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
581
|
|
|
—
|
|
|
581
|
|
Shares issued under stock-based compensation program
|
157,829
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(136,392)
|
|
(136,392)
|
|
Balance at December 31, 2020
|
59,901,306
|
|
|
$
|
6
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
537,370
|
|
|
$
|
(520,759)
|
|
|
$
|
16,617
|
|
(1)Retroactively restated for the reverse recapitalization as described in Note 2 - Summary of Significant Accounting Policies.
(2)Includes 3,511,820 shares of HYMC common stock received by Seller that were surrendered by the Company.
(3)Includes forward purchase contract proceeds of $25.0 million less $12.2 million for the fair value of 5-Year Private Warrants.
(4)As of December 31, 2020 there were 21,256 unissued shares underlying restricted stock units that had vested.
(5)5-Year Private Warrants totaling 351,585 warrants were transferred to an Unrelated Third-Party (as such term is defined herein) in the 2020 third quarter. The terms of the warrant once transferred to the Unrelated Third Party are substantially the same as 5-Year Public Warrants and were reclassified from a liability to Stockholders’ Equity.
The accompanying notes are an integral part of these consolidated financial statements.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
1. Company Overview
Hycroft Mining Holding Corporation (formerly known as Mudrick Capital Acquisition Corporation ("MUDS")) and its subsidiaries (collectively, “Hycroft”, the “Company”, “we”, “us”, “our”, "it", "HYMC") is a U.S.-based gold producer that is focused on operating and developing its wholly owned Hycroft Mine in a safe, environmentally responsible, and cost-effective manner. Gold and silver sales represent 100% of the Company’s operating revenues and the market prices of gold and silver significantly impact the Company’s financial position, operating results, and cash flows. The Hycroft Mine is located in the State of Nevada and the corporate office is located in Denver, Colorado.
Restart of the Hycroft Mine
During the second quarter of 2019, the Company restarted open pit mining operations at the Hycroft Mine, and, during the third quarter of 2019, produced and sold gold and silver, which it has continued to do on an approximate weekly basis since restarting. As part of the 2019 restart of mining operations, existing equipment was re-commissioned, including haul trucks, shovels and a loader, upgrades were made to the crushing system and new leach pad space was added to the existing leach pads. During 2020, the Company continued to increase its operations by mining more tons, procuring additional mobile equipment rentals, and increasing its total headcount. Through May 29, 2020, the Company obtained all of its financing from related party debt issuances (see Note 23 - Related Party Transactions), which were extinguished in connection with the Recapitalization Transaction with MUDS (discussed below).
M3 Engineering and Technology Corporation (“M3 Engineering”), in conjunction with SRK Consulting (U.S.), Inc. (“SRK”) and the Seller, completed the Hycroft Technical Report, Heap Leaching Feasibility Study, prepared in accordance with the requirements of the Modernization of Property Disclosures for Mining Registrants, with an effective date of July 31, 2019 (the “Hycroft Technical Report”), for a two-stage, heap oxidation and subsequent leaching of sulfide ores. The Hycroft Technical Report projects the economic viability and potential future cash flows for the Hycroft Mine when mining operations expand to levels presented in the Hycroft Technical Report.
Recapitalization Transaction with MUDS
As discussed in Note 3 - Recapitalization Transaction, on May 29, 2020, pursuant to the Purchase Agreement (defined herein), Seller completed a business combination Recapitalization Transaction with MUDS, a publicly traded blank check special purpose acquisition corporation or “SPAC,” and Acquisition Sub (as each of such terms are defined herein). The Recapitalization Transaction was completed upon receiving regulatory approvals and stockholder approvals from each of MUDS and Seller. Following the close of the Recapitalization Transaction, MUDS and the entities purchased from Seller were consolidated under Hycroft Mining Holding Corporation, by amending and restating the Company's certificate of incorporation to reflect the Company’s change in name. Pursuant to the consummation of the Recapitalization Transaction, the shares of common stock of Hycroft Mining Holding Corporation were listed on the Nasdaq Capital Market under the ticker symbol “HYMC”. Upon closing of the Recapitalization Transaction, the Company’s unrestricted cash available for use totaled $68.9 million, and the number of shares of common stock issued and outstanding totaled 50,160,042. In addition, upon closing, the Company had 34,289,999 outstanding warrants to purchase an equal number of shares of common stock at $11.50 per share and 12,721,623 warrants to purchase 3,210,213 shares of common stock at a price of $44.82 per share.
For more information on the consummation of the Recapitalization Transaction with MUDS, see Note 3 - Recapitalization Transaction.
Restatement of Previously Issued Financial Statements
The Company has restated its financial statements as of and for the year ended December 31, 2020, and will be prospectively restating the unaudited consolidated condensed financial statements for the three and six month periods ended June 30, 2020 and the three and nine month periods ended September 30, 2020, to correct misstatements in those prior periods primarily related to misstatements identified in improperly applying accounting guidance on certain warrants, recognizing them as equity instead of a warrant liability, under the guidance of Accounting Standards Codification (“ASC”) 815-40, Contracts in Entity’s Own Equity.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
See Note 25 - Restatement of Previously Issued Financial Statements for additional information regarding the misstatements identified and the restatement adjustments made to the financial statements.
COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States. Efforts implemented by local and national governments, as well as businesses, including temporary closures, have had adverse impacts on local, national and global economies. The Company has implemented health and safety policies for employees that follow guidelines published by the Center for Disease Control (CDC) and the Mine Safety and Health Administration (MSHA). While our operations during 2020 were impacted by COVID-19, the impact did not significantly adversely affect our operations. The extent of the impact of COVID-19 on our operational and financial performance going forward will depend on certain developments, including the duration and continued spread of the outbreak, and the direct and indirect impacts on our employees, vendors, and customers, all of which are uncertain and cannot be fully anticipated or predicted. Since the Company's Hycroft Mine represents the entirety of its operations, any COVID-19 outbreak at the mine site or any governmental restrictions implemented to combat the pandemic could result in a partial or entire shutdown of the Hycroft Mine itself, which would negatively impact the Company's financial position, operating results, and cash flows. As of the date of these financial statements, the extent to which COVID-19 may impact our financial condition, results of operations or cash flows is uncertain, but could be material and adverse.
2. Summary of Significant Accounting Policies
Basis of presentation
These consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
Certain reclassifications have been made to the prior periods presented in these financial statements to conform to the current period presentation, which had no effect on previously reported total assets, liabilities, cash flows, or net loss.
References to “$” refers to United States currency.
Recapitalization Transaction
The Recapitalization Transaction (see Note 3 - Recapitalization Transaction) was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, for financial reporting purposes, MUDS has been treated as the “acquired” company and Hycroft Mining Corporation (“Seller”) has been treated as the “acquirer”. This determination was primarily based on (1) stockholders of Seller immediately prior to the Recapitalization Transaction having a relative majority of the voting power of the combined entity; (2) the operations of Seller prior to the Recapitalization Transaction comprising the only ongoing operations of the combined entity; (3) four of the seven members of the Board of Directors immediately following the Recapitalization Transaction were directors of Seller immediately prior to the Recapitalization Transaction; and (4) executive and senior management of Seller comprises the same for the Company.
Based on Seller being the accounting acquirer, the financial statements of the combined entity represent a continuation of the financial statements of Seller, with the acquisition treated as the equivalent of Seller issuing stock for the net assets of MUDS, accompanied by a recapitalization. The net assets of MUDS were recognized at historical cost as of the date of the Recapitalization Transaction, with no goodwill or other intangible assets recorded. Comparative information prior to the Recapitalization Transaction in these financial statements are those of Seller and the accumulated deficit of Seller has been carried forward after the Recapitalization Transaction. The shares and net loss per common share prior to the Recapitalization Transaction have been retroactively restated as shares reflecting the exchange ratio established in the Recapitalization Transaction to effect the reverse recapitalization (1 Seller share for 0.112 HYMC share). See Note 3 - Recapitalization Transaction for additional information.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Going concern
The financial statements of the Company have been prepared on a “going concern” basis, which contemplates the presumed continuation of the Company even though events and conditions exist that, when considered individually or in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern because it is probable that, without additional capital injections, the Company may be unable to meet its obligations as they become due within one year after the date that these financial statements were issued.
For the year ended December 31, 2020, the Company incurred a net loss of $136.4 million and net cash used in operating activities was $110.5 million. As of December 31, 2020, the Company had available cash on hand of $56.4 million, working capital of $90.3 million, total liabilities of $216.0 million, and an accumulated deficit of $520.8 million. Although the Company completed the Recapitalization Transaction during the second quarter of 2020 and the Public Offering (as defined herein) on October 6, 2020, for proceeds net of discount and equity issuance costs of approximately $83.1 million, based on its internal cash flow projection models, the Company currently forecasts it will likely require additional cash from financing activities in less than 12 months from the issuance of this report to meet its operating and investing requirements and future obligations as they become due, including the estimated $9.1 million in cash payments required pursuant to the Credit Agreement among MUDS, MUDS Holdco Inc., Allied VGH LLC, Hycroft Mining Holding Corporation, Hycroft Resources and Development, LLC Sprott Private Resource Lending II (Collector) Inc., and Sprott Resources Lending Corp. (“Sprott Credit Agreement”).
The Company’s ability to continue as a going concern is contingent upon securing additional funding for working capital, capital expenditures and other corporate expenses so that it can increase sales by achieving higher cost-effective operating tonnages and recovery rates and generate positive free cash flows.
These financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of any liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern. As such, recorded amounts in these financial statements (including without limitation, stockholders’ equity) have been prepared in accordance with GAAP on a historical-cost basis, as required, which do not reflect or approximate the current fair value of the Company’s assets or management’s assessment of the Company’s overall enterprise or equity value.
Use of estimates
The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in these financial statements and accompanying notes. The more significant areas requiring the use of management estimates and assumptions relate to: recoverable gold and silver on the leach pads and in-process inventories; timing of near-term ounce production and related sales; the useful lives of long-lived assets; probabilities of future expansion projects; estimates of mineral reserves; estimates of life-of-mine production timing, volumes, costs and prices; current and future mining and processing plans; environmental reclamation and closure costs and timing; deferred taxes and related valuation allowances; and estimates of fair value for asset impairments and financial instruments. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable at the time the estimate is made. Actual results may differ from amounts estimated in these financial statements, and such differences could be material. Accordingly, amounts presented in these financial statements are not indicative of results that may be expected for future periods.
Cash
Cash consisted of cash balances as of December 31, 2020. The Company has not experienced any losses on cash balances and believes that no significant risk of loss exists with respect to its cash. As of December 31, 2020, and December 31, 2019, the Company held no cash equivalents.
Restricted cash is held as collateral to provide financial assurance that the Company will use to fulfill obligations and commitments related to reclamation activity (see Note 10 - Asset Retirement Obligation for further detail) that is excluded from cash and is listed separately on the consolidated balance sheets. As of December 31, 2020, and December 31, 2019, the Company held $39.7 million and $42.7 million in restricted cash, respectively. See Note 6 - Restricted Cash for additional information.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Accounts receivable
Accounts receivable consists of amounts due from customers for gold and silver sales. The Company has evaluated the customers’ credit risk, payment history and financial condition and determined that no allowance for doubtful accounts is necessary. The entire accounts receivable balance is expected to be collected during the next twelve months.
Ore on leach pads and inventories
The Company’s production-related inventories include: ore on leach pads; in-process inventories; and doré finished goods. Production-related inventories are carried at the lower of average cost or net realizable value. Cost includes mining (ore and waste); processing; refining costs incurred during production stages; and mine site overhead and depreciation and amortization relating to mining and processing operations. Corporate general and administrative costs are not included in inventory costs. Net realizable value represents the estimated future sales price of production-related inventories computed using the London Bullion Market Association’s (“LBMA”) quoted period-end metal prices, less any further estimated processing, refining, and selling costs.
In-process inventories
In-process inventories represent gold-bearing concentrated materials that are in the process of being converted to a saleable product using a Merrill-Crowe plant or carbon-in-column processing method. As gold ounces are recovered from in-process inventories, costs, including conversion costs, are transferred to precious metals inventory at an average cost per ounce of gold.
Precious metals inventory
Precious metals inventory consists of doré and loaded carbon containing both gold and silver, which is ready for offsite shipment or at a third party refiner before being sold to a third party. As gold ounces are sold, costs are recognized in Production costs and Depreciation and amortization in the consolidated statements of operations at an average cost per gold ounce sold.
Materials and supplies
Materials and supplies are valued at the lower of average cost or net realizable value. Cost includes applicable taxes and freight.
Ore on leach pads, current and non-current
Ore on leach pads represents ore that is being treated with a chemical solution to dissolve the contained gold and silver. Costs are added to ore on leach pads based on current mining costs, including reagents, leaching supplies, and applicable depreciation and amortization relating to mining operations. As gold-bearing materials are further processed, costs are transferred from ore on leach pads to in-process inventories at an average cost per estimated recoverable ounce of gold.
Prepaids and other assets, non-current
Equipment not in use
From time to time, the Company may determine that certain of its property and equipment no longer fit into its strategic operating plans and may either contemplate or commence activities to sell such identified assets. The Company evaluates equipment not in use for held-for-sale classification in accordance with ASC Topic 360 Property, Plant, and Equipment ("ASC 360"). If property and equipment do not meet the held-for-sale criteria in ASC 360, but have been taken out of service for sale or were never placed into service, the carrying value of such assets is included in Other assets, non-current. In accordance with its impairment policy, the Company reviews and evaluates its equipment and facilities not in use for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. During the year ended December 31, 2020, the Company determined that the fair value of equipment not in use was less the carrying amount and recorded an impairment loss of $5.3 million.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Plant, equipment, and mine development, net
Expenditures for new facilities and equipment, and expenditures that extend the useful lives or increase the capacity of existing facilities or equipment are capitalized and recorded at cost. Such costs are depreciated using either the straight-line method over the estimated productive lives of such assets or the units-of-production method (when actively operating) at rates sufficient to depreciate such costs over the estimated proven and probable mineral reserves as gold ounces are recovered. For equipment and facilities that are constructed by the Company, interest is capitalized to the cost of the underlying asset while being constructed until such asset is ready for its intended use. See Note 7 - Plant, Equipment, and Mine Development, Net for additional information.
Mine development
Mine development costs include the cost of engineering and metallurgical studies, drilling and assaying costs to delineate an ore body, environmental costs, and the building of infrastructure. Additionally, interest is capitalized to mine development until such assets are ready for their intended use. Any of the above costs incurred before mineralization is classified as proven and probable mineral reserves are expensed. The Company established proven and probable mineral reserves during the second half of 2019.
Drilling, engineering, metallurgical, and other related costs are capitalized for an ore body where proven and probable reserves exist and the activities are directed at obtaining additional information on the ore body, converting non-reserve mineralization to proven and probable mineral reserves, infrastructure planning, or supporting the environmental impact statement. All other exploration drilling costs are expensed as incurred. Drilling costs incurred during the production phase for operational ore control are allocated to production-related inventories and upon the sale of gold ounces are included in Cost of sales on the consolidated statements of operations.
Mine development costs are amortized using the units-of-production method based upon estimated recoverable ounces in proven and probable mineral reserves. To the extent such capitalized costs benefit an entire ore body, they are amortized over the estimated life of that ore body. Capitalized costs that benefit specific ore blocks or areas are amortized over the estimated life of that specific ore block or area. Recoverable ounces are determined by the Company based upon its proven and probable mineral reserves and estimated metal recoveries associated with those mineral reserves.
Impairment of long-lived assets
The Company’s long-lived assets consist of plant, equipment, and mine development. The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Events that may trigger a test for recoverability include, but are not limited to, significant adverse changes to projected revenues, costs, or future expansion plans or changes to federal and state regulations (with which the Company must comply) that may adversely impact the Company’s current or future operations. An impairment is determined to exist if the total projected future cash flows on an undiscounted basis are less than the carrying amount of a long-lived asset group. An impairment loss is measured and recorded based on the excess carrying value of the impaired long-lived asset group over fair value.
To determine fair value, the Company uses a discounted cash flow model based on quantities of estimated recoverable minerals and incorporates projections and probabilities involving metal prices (considering current and historical prices, price trends, and related factors), production levels, operating and production costs, and the timing and capital costs of expansion and sustaining projects, all of which are based on life-of-mine plans. The term “recoverable minerals” refers to the estimated amount of gold and silver that will be sold after taking into account losses during ore processing and treatment. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. The Company’s estimates of future cash flows are based on numerous assumptions, which are consistent or reasonable in relation to internal budgets and projections, and actual future cash flows may be significantly different than the estimates, as actual future quantities of recoverable gold and silver, metal prices, operating and production costs, and the timing and capital costs of expansion and sustaining projects are each subject to significant risks and uncertainties. See Note 7 - Plant, Equipment, and Mine Development, Net for additional information.
During the year ended December 31, 2020, as part of the Company's recurring quarterly analysis, the Company determined a triggering event had occurred, as the Company's operations have continued to generate operating cash flow losses. As a result, the Company performed a recoverability test for the carrying value of its plant, equipment, and mine development at December 31, 2020, and determined that no impairments were necessary.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Mineral properties
Mineral properties are tangible assets recorded at cost and include royalty interests, asset retirement costs, and land and mineral rights to explore and extract minerals from properties. Once a property is in the production phase, mineral property costs are amortized using the units-of-production method based upon the estimated recoverable gold ounces in proven and probable reserves at such properties. Costs to maintain mineral properties are expensed in the period they are incurred. As of December 31, 2020 and 2019, there was $0.04 million and $0 recorded for mineral properties, respectively, which was included in Plant, equipment, and mine development, net in the consolidated balance sheets.
Royalty obligation
The Company's royalty obligation is carried at amortized cost with reductions calculated by dividing actual gold and silver production by the estimated total life-of-mine production from proven and probable mineral reserves. Any updates to proven and probable mineral reserves or the estimated life-of-mine production profile would result in prospective adjustments to the amortization calculation used to reduce the carrying value of the royalty obligation. Amortization reductions to the royalty obligation are recorded to Production costs which is included in Cost of sales. A portion of the Company’s royalty obligation is classified as current based upon the estimated gold and silver expected to be produced over the next 12 months, using the current proposed 34-year mine plan, and current proven and probable mineral reserves. The royalty obligation and its embedded features do not meet the requirements for derivative accounting.
Asset retirement obligation
The Company’s mining and exploration activities are subject to various federal and state laws and regulations governing the protection of the environment. The Company’s asset retirement obligation (“ARO”), associated with long-lived assets are those for which there is a legal obligation to settle under existing law, statute, written or oral contract or by legal construction. The Company’s ARO relates to its operating property, the Hycroft Mine, and was recognized as a liability at fair value in the period incurred. An ARO, which is initially estimated based on discounted cash flow estimates, is accreted to full value over time using the expected timing of future payments through charges to Accretion in the consolidated statements of operations. In addition, asset retirement costs (“ARC”) are capitalized as part of the related asset’s carrying value and are depreciated on a straight-line method or units of production basis over the related long-lived asset’s useful life. The Company’s ARO is adjusted annually, or more frequently if necessary, to reflect changes in the estimated present value resulting from revisions to the timing or amount of reclamation and closure costs. Estimated mine reclamation and closure costs, may increase or decrease significantly in the future as a result of changes in regulations, mine plans, cost estimates, or other factors.
Revenue recognition
The Company recognizes revenue for gold and silver sales when it satisfies the performance obligation of transferring finished inventory to the customer, which generally occurs when the refiner notifies the customer that gold has been credited or irrevocably pledged to their account, at which point the customer obtains the ability to direct the use and obtain substantially all of the remaining benefits of ownership of the asset. The transaction amount is determined based on the agreed upon sales prices and the number of ounces delivered. Concurrently, the payment date is agreed upon, which is usually within one week of the sale date. The majority of sales are in the form of doré bars, but the Company also sells loaded carbon and slag, a by-product. All sales are final.
Mine site period costs
The Company evaluates its mine site costs incurred, which are normally recorded to the carrying value of production-related inventories, to determine if costs incurred during the period qualify as Mine site period costs, the Company performs an analysis to determine the net realizable value of its inventory and determines whether costs incurred that are in excess of future estimated revenues are a result of recurring or significant downtime or delays, unusually high levels of repairs, inefficient operations, overuse of processing reagents, or other costs or activities that significantly increase the cost per ounce of production-related inventories and are considered unusual. If costs are determined to meet the criteria and, therefore, cannot be recorded to the carrying value of production-related inventories, then the Company recognizes such costs in the period incurred as Mine site period costs, which is included in Cost of sales on the consolidated statements of operations.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Write-down of production inventories
The recovery of gold and silver at the Hycroft Mine is currently accomplished through a heap leaching process, the nature of which limits the Company’s ability to precisely determine the recoverable gold ounces in ore on leach pads. The Company estimates the quantity of recoverable gold ounces in ore on leach pads using surveyed volumes of material, ore grades determined through sampling and assaying of blastholes, crushed ore sampling, solution sampling, and estimated recovery percentages based on ore type and domain. The estimated recoverable gold ounces placed on the leach pads are periodically reconciled by comparing the related ore gold contents to the actual gold ounces recovered (metallurgical balancing). Changes in recovery rate estimates from metallurgical balancing that do not result in write-downs are accounted for on a prospective basis. When a write-down is required, production-related inventories are adjusted to net realizable value with adjustments recorded as Write-down of production inventories, which is included in Cost of sales in the consolidated statements of operations. See Note 4 - Inventories for additional information on the Company's write-downs.
Stock-based compensation
Stock-based compensation costs for non-employee Directors and eligible employees are measured at fair value on the date of grant. Stock-based compensation costs are charged to General and administrative on the consolidated statements of operations over the requisite service period. The fair value of awards is determined using the stock price on either the date of grant (if subject only to service conditions) or the date that the Compensation Committee of the Board of Directors establishes applicable performance targets (if subject to performance conditions). The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods through the final vesting date. See Note 15 - Stock-Based Compensation for additional information.
Phantom shares
Non-employee members of Seller’s Board of Directors received phantom shares of stock pursuant to a Non-Employee Director Phantom Stock Plan. For grants issued during the years ended 2015 and 2016, the cash payment was equal to the fair market value of one share of common stock of Seller at the date of payment. Under the grant agreements, each phantom share vested on the date of grant and entitled the participant to a cash payment. For grants issued during 2020, 2019 and 2018, the cash payment was equal to the greater of the (1) grant date value, or (2) the fair market value of one share of common stock of Seller at the date of payment. All phantom shares issued by Seller were terminated and paid in connection with the Recapitalization Transaction. See Note 15 - Stock-Based Compensation and Note 19 - Fair Value Measurements for additional information.
Reorganization items
On March 10, 2015, a predecessor of the Company filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). Expenses directly associated with finalizing the Chapter 11 cases before the Bankruptcy Court are reported as Reorganization items in the consolidated statements of operations.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Income taxes
The Company accounts for income taxes using the liability method, recognizing certain temporary differences between the financial reporting basis of the Company’s liabilities and assets and the related income tax basis for such liabilities and assets. This method generates either a net deferred income tax liability or asset for the Company, as measured by the statutory tax rates in effect at the anticipated time of reversal. The Company derives its deferred income tax provision or benefit by recording the change in either the net deferred income tax liability or asset balance for the year. See Note 16 - Income Taxes for additional information.
The Company’s deferred income tax assets include certain future tax benefits. The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized. Evidence evaluated includes past operating results, forecasted earnings, estimated future taxable income, and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates used to manage the underlying business.
As necessary, the Company also provides reserves against the benefits of uncertain tax positions taken on its tax filings. The necessity for and amount of a reserve is established by determining, based on the weight of available evidence, the amount of benefit that is more likely than not to be sustained upon audit for each uncertain tax position. The difference, if any, between the full benefit recorded on the tax return and the amount more likely than not to be sustained is recorded as a liability on the Company’s consolidated balance sheets unless the additional tax expense that would result from the disallowance of the tax position can be offset by a net operating loss, a similar tax loss, or a tax credit carryforward. In that case, the reserve is recorded as a reduction to the deferred tax asset associated with the applicable net operating loss, similar tax loss, or tax credit carryforward.
Derivative instruments
The Company recognizes all derivatives as either assets or liabilities and measures those instruments at fair value. Changes in the fair value of derivative instruments, together with any gains or losses on derivative settlements and transactions, are recorded in earnings in the period in which they occur. In estimating the fair value of derivative instruments, the Company is required to apply judgments and make assumptions that impact the amount recorded for such derivative instruments. The Company does not hold derivative instruments for trading purposes.
As of December 31, 2020, the Company’s only recorded derivatives were for the Seller Warrants and Private Warrants (as defined herein) (see Note 19 - Fair Value Measurements for additional detail).
Fair value measurements
Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements, defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis;
Level 2 – Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Certain financial instruments, including Cash, Restricted cash, Accounts receivable, Prepaids and other, Accounts payable, and Interest payable are carried at cost, which approximates their fair value due to the short-term nature of these instruments. See Note 19 - Fair Value Measurements for additional information.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Recently adopted accounting pronouncements
In August 2018, the FASB issued Accounting Standards Update ("ASU") 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements (“ASU 2018-13”), which amends the disclosure requirements for fair value measurements in Topic 820 based on the considerations of costs and benefits. Under ASU 2018-13, certain disclosures were modified or eliminated, while other disclosures were added. The Company's adoption of ASU 2018-13 on January 1, 2020 did not materially affect its financial statement disclosures.
Accounting pronouncements not yet adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statements of operations and classification within the consolidated statement of cash flows. In October 2019, the FASB issued ASU No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) ("ASU 2019-10") that amends the effective date of ASU 2016-02 for emerging growth companies, such that the new standard is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. As the Company qualifies as an emerging growth company, the Company has elected to take advantage of the deferred effective date afforded to emerging growth companies. A modified retrospective transition approach is required to either the beginning of the earliest period presented or the beginning of the year of adoption. The Company has compiled its leases and is in the process of estimating the impact of adopting this ASU.
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies guidance on accounting for convertible instruments and contracts in an entity’s own equity including calculating diluted earnings per share. For emerging growth companies, the new guidance is effective for annual periods beginning after December 15, 2022. As the Company qualifies as an emerging growth company, the Company plans to take advantage of the deferred effective date afforded to emerging growth companies. The Company is currently evaluating the impact that adopting this update will have on its consolidated financial statements and related disclosures.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
3. Recapitalization Transaction
On May 29, 2020, the Company, formerly known as Mudrick Capital Acquisition Corporation, consummated a business combination transaction (the “Recapitalization Transaction”) as contemplated by a purchase agreement dated January 13, 2020, as amended on February 26, 2020 (the “Purchase Agreement”), by and among the Company, MUDS Acquisition Sub, Inc. (“Acquisition Sub”) and Hycroft Mining Corporation (“Seller”). Pursuant to the Purchase Agreement, Acquisition Sub acquired all of the issued and outstanding equity interests of the direct subsidiaries of Seller and substantially all of the other assets of Seller and assumed substantially all of the liabilities of Seller. In conjunction with the Recapitalization Transaction, Seller’s indebtedness existing prior to the Recapitalization Transaction was either repaid, exchanged for indebtedness of the Company, exchanged for shares of common stock or converted into shares of Seller common stock, and the Company’s post-Recapitalization Transaction indebtedness included amounts drawn under the Sprott Credit Agreement and the assumption of the newly issued Subordinated Notes (as such are defined herein). Upon closing of the Recapitalization Transaction, the Company’s unrestricted cash available for use totaled $68.9 million, and the number of shares of common stock issued and outstanding totaled 50,160,042. In addition, upon closing, the Company had 34,289,999 outstanding warrants to purchase an equal number of shares of common stock at $11.50 per share and 12,721,623 warrants to purchase 3,210,213 shares of common stock at a price of $44.82 per share.
Prior to the Recapitalization Transaction, the Company was a blank check special purpose acquisition corporation (“SPAC”) with no business operations and on May 29, 2020 had assets and liabilities consisting primarily of $10.4 million of cash and $6.9 million of liabilities for accounts payable, accrued expenses, and deferred underwriting fees. As described in Note 2 - Summary of Significant Accounting Policies, the Company accounted for the Recapitalization Transaction as a reverse recapitalization in which the Company’s financial statements reflect a continuation of Seller.
The material financial effects and actions arising from the Recapitalization Transaction, which are described in detail elsewhere in these financial statements, were as follows (the defined terms that follow are included elsewhere in these financial statements):
Common stock and warrant transactions
a.The Company issued, in a private placement transaction, an aggregate of 7.6 million shares of common stock and 3.25 million warrants to purchase shares of common stock at a price of $10.00 per share for aggregate gross cash proceeds of $76.0 million. The warrants were exercisable into 3.25 million shares for $11.50 per warrant. These warrants are included with the 5-Year Public Warrants because they may be mandatorily redeemed under the terms in the warrant agreement. Refer to Note 13 - Stockholders' Equity for further detail.
b.Pursuant to a forward purchase contract, the Company issued 3.125 million shares of common stock and 2.5 million warrants to purchase shares of common stock having substantially the same terms as the private placement warrants for gross cash proceeds of $25.0 million. The Company also converted 5.2 million shares of MUDS Class B common stock into the same number of shares of common stock, of which 3.5 million shares were surrendered to Seller as transaction consideration. The 2.5 million warrants were exercisable into 2.5 million shares at an exercise price of $11.50 per warrant. These warrants are included with the 5-Year Private Warrants because they cannot be mandatorily redeemed under the terms of the warrant agreement. Refer to Note 11 - Warrant Liabilities for further detail.
c.The Company received $10.4 million of cash proceeds from the SPAC trust associated with the 1.2 million shares of common stock that were not redeemed by the Company's public stockholders. Additionally, the Company has outstanding 27.9 million warrants to purchase shares of common stock at a price of $11.50 per share that were issued in a unit offering to the Company's public stockholders at the time of the SPAC’s initial public offering and the Company has outstanding 7.74 million warrants to purchase shares of common stock at a price of $11.50 per share that were sold to the Sponsor and underwriter, Cantor Fitzgerald & Co. These warrants are included with the 5-Year Private Warrants because they cannot be mandatorily redeemed under the terms of the warrant agreement. Refer to Note 11 - Warrant Liabilities for further detail.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
d.The Company assumed the obligations with respect to 12.7 million Seller Warrants (as defined herein), which Seller Warrants became exercisable to purchase shares of common stock at an exercise price as of July 1, 2020 and December 31, 2020, of $44.82 per share (see Note 11 - Warrant Liabilities). Since July 1, 2020, each Seller Warrant was exercisable into approximately 0.2523 shares of common stock for a total of 3,210,213 shares of common stock. The exercise price and the conversion factor were further adjusted during the year ended December 31, 2020 to an exercise price of $41.26 per share and each Seller Warrant was exercisable for 0.27411 shares of common stock for a total of 3,487,168 shares of common stock. Subsequently, as of January 19, 2020, the Seller Warrants were subject to a further adjustment to an exercise price of $40.31 per share and each Seller Warrant was exercisable for 0.28055 shares of common stock for a total of 3,569,051 shares of common stock. Refer to Note 11 - Warrant Liabilities for further detail.
Seller’s pre-Recapitalization Transaction indebtedness
a.Seller’s $125.5 million First Lien Agreement with the Bank of Nova Scotia, as agent, and $6.9 million promissory note plus accrued and unpaid interest were repaid with cash (see Note 9 - Debt, Net).
b.$48.5 million of Seller’s 1.25 Lien Notes were exchanged, and subsequently cancelled, for 4.85 million shares of common stock and the remaining $80.0 million of Seller’s 1.25 Lien Notes were exchanged for $80.0 million in aggregate principal of new Subordinated Notes of the Company (see Note 9 - Debt, Net).
c.After giving effect to the 1.5 Lien Notes’ 110% repurchase feature, $145.7 million of Seller’s 1.5 Lien Notes plus accrued and unpaid interest were exchanged, and subsequently cancelled, for 16.0 million shares of common stock (see Note 9 - Debt, Net).
d.Prior to close, a total of $221.3 million of Seller’s 2.0 Lien Notes were converted into 132.8 million shares of Seller common stock and, together with the existing 2.9 million shares of Seller’s common stock issued and outstanding, received transaction consideration of 15.1 million shares of common stock distributed by Seller, including 3.5 million surrendered shares received by Seller from the Company (see Note 9 - Debt, Net). The consideration initially received by Seller was promptly distributed to the its stockholders on a pro rata basis pursuant to Seller’s plan of dissolution.
Sprott entity transactions
a.The Company assumed the amended Sprott Credit Agreement and was advanced $70.0 million of cash, subject to an original issue discount of 2.0% (see Note 9 - Debt, Net). Pursuant to the Sprott Credit Agreement, the Company issued approximately 0.5 million shares of common stock to the Lender, which was equal to 1.0% of the Company’s post-closing shares of common stock issued and outstanding.
b.The Company entered into the Royalty Agreement among Hycroft Mining Holding Corporation, its wholly subsidiary Hycroft Resources and Development, LLC and Sprott Private Resource Lending II (CO) Inc. ("Sprott Royalty Agreement"), pursuant to which the Company received $30.0 million of cash proceeds and incurred a 1.5% net smelter royalty payment obligation, payable monthly, relating to the Hycroft Mine’s monthly production (see Note 10 - Royalty Obligation).
Other items
a.Seller retained a reserve of $2.3 million in cash for use in the dissolution of Seller.
b.A $2.5 million cash payment was made and approximately 0.04 million shares of common stock were issued to the Company’s underwriter, Cantor Fitzgerald & Co. (“Cantor”), pursuant to an underwriting agreement. Additionally, a $2.0 million payment was made to Cantor at closing in connection with shares of common stock held by Cantor, which were not redeemed from the SPAC trust balance prior to closing.
c.The Company remitted $1.8 million of cash to holders of Seller’s deferred phantom units (see Note 19 - Fair Value Measurements) and paid $7.4 million of cash for additional transaction costs.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Upon closing of the Recapitalization Transaction and after giving effect to the terms of the business combination, the former holders of Seller’s indebtedness and common stock, including affiliated entities of such former holders, owned approximately 96.5% of the issued and outstanding common stock. The following table summarizes the ownership of the Company’s common stock issued and outstanding upon closing of the Recapitalization Transaction:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Ownership %
|
Former Seller stockholders and affiliated entities
|
48,421,309
|
|
|
96.5
|
%
|
Former MUDS public stockholders(1)
|
1,197,704
|
|
|
2.4
|
%
|
Lender to Sprott Credit Agreement
|
496,634
|
|
|
1.0
|
%
|
Cantor Fitzgerald & Co.
|
44,395
|
|
|
0.1
|
%
|
Total shares issued and outstanding
|
50,160,042
|
|
|
100.0
|
%
|
(1)Includes 200,000 shares held by Cantor.
4. Inventories
The following table provides the components of inventories and the estimated recoverable gold ounces therein (in thousands, except ounces):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Amount
|
|
Gold Ounces
|
|
Amount
|
|
Gold Ounces
|
Materials and supplies
|
$
|
6,449
|
|
|
—
|
|
|
$
|
2,559
|
|
|
—
|
|
Merrill-Crowe process plant
|
4,810
|
|
|
2,587
|
|
|
1,004
|
|
|
691
|
|
Carbon-in-column
|
299
|
|
|
166
|
|
|
478
|
|
|
474
|
|
Finished good (doré)
|
1,309
|
|
|
710
|
|
|
412
|
|
|
278
|
|
Total
|
$
|
12,867
|
|
|
3,463
|
|
|
$
|
4,453
|
|
|
1,443
|
|
As of both December 31, 2020 and December 31, 2019, in-process Inventories included $0.3 million of capitalized depreciation and amortization costs.
The following table summarizes Ore on leach pads and the estimated recoverable gold ounces therein (in thousands, except ounces):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Amount
|
|
Gold Ounces
|
|
Amount
|
|
Gold Ounces
|
Ore on leach pads, current
|
$
|
38,041
|
|
|
21,869
|
|
|
$
|
22,062
|
|
|
17,019
|
|
Ore on leach pads, non-current
|
7,243
|
|
|
4,164
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
45,284
|
|
|
26,033
|
|
|
$
|
22,062
|
|
|
17,019
|
|
As of December 31, 2020 and December 31, 2019 (net of write-downs discussed below), Ore on leach pads, current included $1.8 million and $1.8 million, respectively, of capitalized depreciation and amortization costs. Additionally, as of December 31, 2020 and December 31, 2019 Ore on leach pads, non-current included $0.4 million and $0 respectively, of capitalized depreciation and amortization costs.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Write-down of production inventories
The estimated recoverable gold ounces placed on the leach pads are periodically reconciled by comparing the related ore contents to the actual gold ounces recovered (metallurgical balancing). During the year ended December 31, 2020, based on metallurgical balancing results, the Company determined that 10,492 ounces of gold that had been placed on the leach pads were no longer recoverable and wrote-off these ounces. As a result, during the year ended December 31, 2020, the Company recognized a Write-down of production inventories on the consolidated statements of operations, which included production costs of $16.7 million, and capitalized depreciation and amortization costs of $1.3 million. The write-off of ounces during the year ended December 31, 2020 was primarily due to mismanagement of the oxidation process, improper adjustments to variables in the oxidation process for changes in the ore type based on domain, and improper solution management. As a result, the Company determined it would recover less gold ounces than planned for those sections of the leach pads.
During the 2019 fourth quarter, based on metallurgical balancing results, the Company determined that 11,680 ounces of gold that had been placed on the leach pads were no longer recoverable and wrote-off these ounces. As a result of the write-off the Company recognized a Write-down of production inventories on the consolidated statements of operations of $16.4 million. Cash production costs written-off were $15.1 million and capitalized depreciation and amortization costs written-off were $1.3 million. The write-off of these ounces was primarily a result of mismanagement of solution flows. The lost gold and silver ounces were leached and captured in solution. However, prior to the solution being processed through the Merrill-Crowe plant, it was inadvertently commingled with barren solution and pumped to leach pads no longer in use, which will prevent it from being recovered in the future.
Mine site period costs
During the year ended December 31, 2020, the Company incurred $46.7 million (which included $3.0 million of capitalized depreciation and amortization incurred in 2020) of Mine site period costs (inclusive of depreciation and amortization expenses) that did not qualify for allocation to the Company's production-related inventories and, therefore, were expensed as incurred. Such period costs are generally the result of significant downtime or delays, abnormally high levels of repairs, inefficient operations, overuse of processing reagents, or other unusual costs and activities.
In addition to the write-down related to metallurgical balancing during 2019, the Company incurred $2.2 million (which included $0.2 million of capitalized amortization incurred in 2019) of Mine site period costs (inclusive of depreciation and amortization expenses) that did not qualify for allocation to the Company's production-related inventories and, therefore, were expensed as incurred.
HYCROFT MINING HOLDING CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
5. Prepaids and Other
The following table provides the components of Prepaids and other and Other assets, non-current (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
Prepaids and other
|
|
|
|
Prepaids
|
$
|
3,198
|
|
|
$
|
2,109
|
|
Deposits
|
1,105
|
|
|
539
|
|
Total
|
$
|
4,303
|
|
|
$
|
2,648
|
|
|
|
|
|
Other assets, non-current
|
|
|
|
Equipment not in use
|
$
|
12,238
|
|
|
$
|
19,683
|
|
Prepaid supplies consignment inventory
|
885
|
|
|
—
|
|
Royalty - advance payment
|
360
|
|
|
120
|
|
Deferred future financing costs
|
—
|
|
|
5,083
|
|
Total
|
$
|
13,483
|
|
|
$
|
24,886
|
|
Prepaids
As of December 31, 2020, prepaids primarily consisted of prepaid insurance ($1.8 million), mining claims and permitting fees ($0.4 million), prepaid equipment ($0.4 million), and subscription and license fees ($0.3 million). As of December 31, 2019, prepaids primarily consisted of prepaid insurance ($1.5 million), mining claims and permitting fees ($0.4 million), and subscription and license fees ($0.1 million).
Equipment not in use
As of December 31, 2020, equipment not in use classified as Other assets, non-current included ball mills, SAG mills, regrind mills, and related motors and components that were previously purchased by a predecessor of the Company. During the year ended December 31, 2020, the Company engaged an international equipment broker to advertise equipment not in use for potential sale. There is a limited market for the Company's equipment not in use and any potential purchase would likely be subject to technical and commercial due diligence by the purchaser, as well as approval by the Company's Board of Directors. As such, equipment not in use is not classified as held-for-sale, as it is uncertain if the Company will sell any of the equipment within one year, or if the Company will elect to sell such equipment at all. As a result, equipment not in use is included in Other assets, non-current. During the year ended December 31, 2020, the Company determined that the carrying amount of certain equipment not in use was higher than its fair value and such assets were written down to estimated fair value less costs to sell, resulting in an impairment loss of $5.3 million, which is reported as Impairment on equipment not in use on the consolidated statements of operations. In the fourth quarter of 2020, the Company began reevaluating the best use of its equipment previously marketed for sale, while it continues to develop the sulfide oxidation technology process for its large-scale operation. Additionally, in the fourth quarter of 2020, the Company has paused the marketing of this equipment while it continues to develop the technology and process for a large-scale operation.
Prepaid supplies consignment inventory
The Company has an inventory consignment agreement with a supplier of crusher parts that requires the supplier to maintain a specified inventory of replacement parts and components that are exclusively for purchase and use at the Hycroft Mine. As part of the agreement, the Company is required to make certain payments in advance of receiving such consignment inventory at the mine site. The Company records advance payments as prepaid supplies inventory within Other assets, non-current until such inventory is received, at which point, the amounts are reclassified to Inventories.
Royalty - advance payment
As of December 31, 2020, royalty-advance payments include annual advance payments for a portion of the Hycroft Mine that is subject to a mining lease requiring a 4% net profit royalty be paid to the owner of certain patented and unpatented mining claims. Refer to Note 22 - Commitments and Contingencies for further detail.
HYCROFT MINING HOLDING CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
6. Restricted Cash
The following table provides the components of restricted cash (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
Reclamation surety bond cash collateral
|
$
|
39,677
|
|
|
$
|
39,477
|
|
First Lien Agreement restricted cash - Note 10
|
—
|
|
|
3,270
|
|
Total
|
$
|
39,677
|
|
|
$
|
42,747
|
|
As of December 31, 2020, the Company's BLM reclamation obligation was secured with surety bonds totaling $59.9 million, which were partially collateralized by the restricted cash shown above. Restricted cash from Seller's First Lien Agreement was released on May 29, 2020 when such indebtedness was repaid in conjunction with the Recapitalization Transaction (see Note 3 - Recapitalization Transaction).
7. Plant, Equipment, and Mine Development, Net
The following table provides the components of plant, equipment, and mine development, net (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation Life
or Method
|
|
December 31,
2020
|
|
December 31,
2019
|
Leach pads
|
Units-of-production
|
|
$
|
17,432
|
|
|
$
|
17,419
|
|
Process equipment
|
5 - 15 years
|
|
16,065
|
|
|
14,770
|
|
Buildings and leasehold improvements
|
10 years
|
|
10,507
|
|
|
10,507
|
|
Mine equipment
|
5 - 7 years
|
|
5,961
|
|
|
4,716
|
|
Vehicles
|
3 - 5 years
|
|
991
|
|
|
136
|
|
Furniture and office equipment
|
7 years
|
|
322
|
|
|
129
|
|
Mine development
|
Units-of-production
|
|
756
|
|
|
119
|
|
Mineral properties
|
Units-of-production
|
|
37
|
|
|
—
|
|
Construction in progress and other
|
|
|
33,185
|
|
|
936
|
|
|
|
|
$
|
85,256
|
|
|
$
|
48,732
|
|
Less, accumulated depreciation and amortization
|
|
|
(25,033)
|
|
|
(17,208)
|
|
Total
|
|
|
$
|
60,223
|
|
|
$
|
31,524
|
|
During the year ended December 31, 2020, new process equipment was placed into service ($1.2 million), new mobile equipment was placed into service ($1.2 million), and construction of a new larger leach pad began ($30.9 million), which was the primary project included in construction in progress as of December 31, 2020. During the years ended December 31, 2020 and 2019, certain leach pads ($11.2 million) were not actively used in the leaching process, and accordingly, the Company did not record any depletion for these leach pads. Additionally, during the years ended December 31, 2020 and 2019, the Company did not acquire any plant, equipment, or mine development through non-cash capital leases.
Mineral properties
As of December 31, 2020, Mineral properties included an ARC asset of $0.04 million that is being depreciated on a straight-line basis over the life of the Company’s only operating property, the Hycroft Mine.
HYCROFT MINING HOLDING CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
8. Other Liabilities
The following table summarizes the components of Other liabilities, current and Other liabilities, non-current (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
|
(as restated)
|
|
|
Other liabilities, current
|
|
|
|
Accrued compensation, benefits, continuation obligation, and bonus
|
4,157
|
|
|
2,349
|
|
Accrued compensation for phantom shares - Note 15
|
—
|
|
|
1,590
|
|
Total
|
$
|
4,157
|
|
|
$
|
3,939
|
|
|
|
|
|
Other liabilities, non-current
|
|
|
|
Compensation and benefits continuation obligation
|
$
|
1,145
|
|
|
$
|
—
|
|
Payroll tax liability
|
505
|
|
|
—
|
|
Total
|
$
|
1,650
|
|
|
$
|
—
|
|
|
|
|
|
Compensation and benefits continuation obligation
The Company has entered into separation agreements with former executives that provide for, among other things, continuation of such former executives' salaries and certain benefits for periods of 12-24 months from the date of separation.
9. Debt, Net
Debt covenants
The Company’s debt agreements contain representations and warranties, events of default, restrictions and limitations, reporting requirements, and covenants that are customary for agreements of these types.
The Sprott Credit Agreement (as defined herein) contains covenants that, among other things, restrict or limit the ability of the Company to enter into encumbrances (other than Permitted Encumbrances), incur indebtedness (other than Permitted Indebtedness), dispose of its assets (other than Permitted Disposals), pay dividends, and purchase or redeem shares, as such terms are defined in the Sprott Credit Agreement. The Sprott Credit Agreement requires the Company to ensure that, at all times, both its Working Capital and Unrestricted Cash are at least $10.0 million, as such terms are defined in the Sprott Credit Agreement, and that at least every six months the Company demonstrate its ability to repay and meet all present and future obligations as they become due with a financial Model that uses consensus gold prices discounted by 5.0%, as such terms are defined in the Sprott Credit Agreement. The Subordinated Notes (as defined herein) include customary events of default, including those relating to a failure to pay principal or interest, a breach of a covenant, representation or warranty, a cross-default to other indebtedness, and non-compliance with security documents.
As of December 31, 2020, the Company was in compliance with all covenants.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Debt balances
The following table summarizes the components of debt (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
Debt, net, current:
|
|
|
|
Sprott Credit Agreement(1)
|
$
|
5,274
|
|
|
$
|
—
|
|
2.0 Lien Notes
|
—
|
|
|
208,411
|
|
1.5 Lien Notes
|
—
|
|
|
137,050
|
|
First Lien Agreement
|
—
|
|
|
125,468
|
|
1.25 Lien Notes
|
—
|
|
|
77,212
|
|
Promissory Note
|
—
|
|
|
6,773
|
|
Less, debt issuance costs
|
(154)
|
|
|
(949)
|
|
Total
|
$
|
5,120
|
|
|
$
|
553,965
|
|
|
|
|
|
Debt, net, non-current:
|
|
|
|
Subordinated Notes
|
$
|
84,797
|
|
|
$
|
—
|
|
Sprott Credit Agreement
|
61,894
|
|
|
—
|
|
Less, debt issuance costs
|
(4,026)
|
|
|
—
|
|
Total
|
$
|
142,665
|
|
|
$
|
—
|
|
(1)Amount represents $1.6 million of Additional Interest (as defined in the Sprott Credit Agreement) plus 5.0% of the Company's outstanding debt balance as of December 31, 2020 under the Sprott Credit Agreement.
The following table summarizes the Company's contractual payments of long-term debt, including current maturities, for the five years subsequent to December 31, 2020 (in thousands):
|
|
|
|
|
|
2021
|
$
|
5,274
|
|
2022
|
16,698
|
2023
|
23,948
|
2024
|
23,948
|
2025
|
96,771
|
Total
|
166,639
|
Less, original issue discount
|
(14,674)
|
Less, debt issuance costs
|
(4,180)
|
Total debt, net, current and non-current
|
$
|
147,785
|
|
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Sprott Credit Agreement
On October 4, 2019, the Company, as borrower, certain subsidiaries of the Company, as guarantors, and Sprott Private Resource Lending II (Collector), LP. (“Lender”), as arranger, executed a secured multi-advance term credit facility pursuant to which Lender committed to make, subject to certain conditions set forth therein, term loans in an aggregate principal amount up to $110.0 million. On May 29, 2020, the Company entered into the Amended and Restated Credit Agreement (the “Sprott Credit Agreement”) to update the conditions precedent and effect certain other changes to conform to the details of the business combination. On May 29, 2020, at the consummation of the Recapitalization Transaction, the Company borrowed $70.0 million under the Sprott Credit Agreement, which was equal to the amount available under the first and second tranches, and issued to Lender 496,634 shares of common stock, which was equal to 1.0% of the Company’s post-closing shares of common stock outstanding. The Company paid an original issuance discount equal to 2.0% ($1.4 million) of the amount borrowed. The Company does not believe it is currently able to borrow under the third and final $40.0 million tranche of the Sprott Credit Agreement due to its inability to satisfy applicable conditions and production milestones required by certain conditions precedent to borrowing.
As it relates to the $62.3 million initially recorded for the Sprott Credit Agreement on the May 29, 2020 closing of the Recapitalization Transaction, the Company recorded $70.0 million for the stated amount of the borrowing itself, $9.3 million for the additional interest payment obligation, and a $17.0 million discount (inclusive of the $1.4 million original issuance discount), which will be amortized to Interest expense, net of capitalized interest using the effective interest method over the term of the Sprott Credit Agreement. As of December 31, 2020, the interest rate charged on the outstanding principal balance of the Sprott Credit Agreement was 8.5%. Using the closing price of $12.65 per share of common stock on the Recapitalization Transaction date, the Company also recorded $6.3 million to Additional paid-in capital for the 496,634 shares of common stock issued to the Lender.
Advances under the Sprott Credit Agreement bear interest monthly at a floating rate equal to 7.0% plus the greater of (i) U.S. Dollar three-month LIBOR and (ii) 1.5%, per annum, accruing daily and compounded monthly. For a period of twelve months following the May 29, 2020 initial advance date, no cash payments of interest or principal will be due, with 100% of interest accruing and being capitalized on a monthly basis to the outstanding principal balance of the Sprott Credit Agreement. Additionally, for each three-month period commencing on February 28, 2021 and ending on the maturity date, the Company shall pay Lender additional interest on the last business day of such three-month period, calculated according to a formula set forth in the Sprott Credit Agreement and currently equal to $0.5 million per quarter ($9.3 million in total over the life of the Sprott Credit Agreement). Upon a prepayment of the entire Sprott Credit Agreement, all remaining additional interest payments and all remaining and yet unpaid additional interest must be prepaid as well.
The Company is required to make principal repayments beginning on August 31, 2021 and on the last business day every three months thereafter. The first four principal repayments are equal to two and one-half percent (2.5%) of the outstanding principal amount of the Sprott Credit Agreement on May 31, 2021 (including all capitalized interest thereon, if any, but excluding the principal repayment then due). All subsequent principal repayments are equal to seven and one-half (7.5%) of the outstanding principal amount of the Sprott Credit Agreement on May 31, 2021 (including all capitalized interest thereon, if any, but excluding the principal repayment then due). The entire outstanding balance of the Sprott Credit Agreement, together with all unpaid interest and fees (including all capitalized interest, if any), is due on the day that is five years from the last day of the month of the initial closing date, which shall be no later than May 31, 2025, the maturity date. The Company reviewed the features of the Sprott Credit Agreement for embedded derivatives, and determined no such instruments exist.
The Sprott Credit Agreement may be repaid in whole or in part, at any time prior to the maturity date. Each prepayment or cancellation of the Sprott Credit Agreement (including capitalized interest, if any), whether in whole or in part, voluntarily or mandatory, subject to certain exceptions, that occurs on or prior to the fourth anniversary of the date of the initial advance is subject to a prepayment premium between 3.0% and 5.0%. The obligations of the Company under the Sprott Credit Agreement are guaranteed by Credit Parties and secured by a lien on all properties and assets now owned, leased or hereafter acquired or leased by any Credit Party, as such terms are defined and further detailed in the Sprott Credit Agreement.
The Company is required to make prepayments of its outstanding principal balance equal to 50% or 100% of the proceeds received as outlined in the Sprott Credit Agreement. On October 31, 2020, the Company completed the sale of a SAG mill that was not in use for net proceeds of $2.3 million, of which $1.2 million was repaid in accordance with the Sprott Credit Agreement.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Subordinated Notes
In connection with the business combination and pursuant to a 1.25 Lien Exchange Agreement, on May 29, 2020, the Company assumed $80.0 million in aggregate principal amount of Seller’s 1.25 Lien Notes that were exchanged as part of the Recapitalization Transaction (the "Subordinated Notes”). The Subordinated Notes are secured and subordinate in priority to the obligations under the Sprott Credit Agreement. The Subordinated Notes bear interest at a rate of 10.0% per annum, payable in-kind on a quarterly basis. The principal on the new Subordinated Notes is due December 1, 2025.
2.0 Lien Notes
As discussed in Note 3 - Recapitalization Transaction, on May 29, 2020, $221.3 million of Seller's 2.0 Lien Notes were converted into shares of Seller common stock which, along with all of Seller's other stockholders, as part of Sellers's plan of dissolution, received a pro rata distribution of common stock from Seller that was received by Seller as consideration from the Company. The Company recorded $74.6 million directly to retained earnings upon Seller's distribution of 14,795,153 shares of common stock to Seller's former 2.0 Lien Note holders, which represented the difference between the carrying value of the 2.0 Lien Notes and the value of the common stock received as consideration by Seller's former 2.0 Lien Note holders. The 2.0 Lien Notes bore interest at a rate of 15.0% per annum, payable in-kind on a quarterly basis, through the issuance of additional 2.0 Lien Notes. The 2.0 Lien Notes were converted into Seller common stock at a conversion price of $1.67 per share in accordance with the 2.0 Lien Agreement. While outstanding, the obligations under the 2.0 Lien Notes and the guarantees by the guarantors in respect thereof were secured by liens on substantially all assets of the Company and the guarantors, subject to the priority of the liens that secured the obligations under the First Lien Agreement, the 1.25 Lien Notes and the 1.5 Lien Notes.
1.5 Lien Notes
As discussed in Note 3 - Recapitalization Transaction, on May 29, 2020, after giving effect to the 1.5 Lien Notes’ 110.0% repurchase feature, $145.7 million of Seller’s 1.5 Lien Notes plus accrued and unpaid interest were exchanged, and subsequently cancelled, for 16,025,316 shares of common stock. The Company recorded a $14.6 million loss directly to retained earnings upon such exchange, which represented 10.0% of the $145.7 million aggregate principal amount of 1.5 Lien Notes balance at the time of exchange. While outstanding, the 1.5 Lien Notes bore interest at a rate of 15.0% per annum, which was payable in-kind on a quarterly basis, through the issuance of additional 1.5 Lien Notes. While outstanding, the obligations under the 1.5 Lien Notes and the guarantees by the guarantors in respect thereof were secured by liens on substantially all assets of Seller and the guarantors, subject to the priority of the liens that secured the obligations of the First Lien Agreement and the 1.25 Lien Notes, but superior in priority to the liens that secured the obligations of the 2.0 Lien Notes and the unsecured obligations of Seller.
1.25 Lien Notes
As discussed in Note 3 - Recapitalization Transaction, on May 29, 2020, $48.5 million in aggregate principal amount of Seller’s 1.25 Lien Notes, which bore interest at 15.0% per annum, payable in-kind, were exchanged, and subsequently cancelled, for 4,845,920 shares of common stock and the remaining $80.0 million aggregate principal amount of Seller’s 1.25 Lien Notes were exchanged for $80.0 million in aggregate principal amount of new Subordinated Notes that were assumed in the Recapitalization Transaction by the Company, bearing interest at a rate of 10.0% per annum, payable-in-kind. The 1.25 Lien Notes bore interest at a rate of 15.0% per annum, which was payable in-kind on a quarterly basis, through the issuance of additional 1.25 Lien Notes. While outstanding, the obligations under the 1.25 Lien Notes and the guarantees by the guarantors in respect thereof were secured by liens on substantially all assets of Seller and the guarantors, subject to the priority of the liens that secured the obligations of the First Lien Agreement, but superior in priority to the liens that secured the obligations of the 1.5 Lien Notes, the 2.0 Lien Notes and the unsecured obligations of Seller.
First Lien Agreement
As discussed in Note 3 - Recapitalization Transaction, on May 29, 2020, $125.5 million of outstanding principal under the First Lien Agreement with the Bank of Nova Scotia as agent, plus accrued interest, was repaid. Most recently, from January 31, 2020 through the repayment date, the First Lien Agreement bore interest at either LIBOR plus 7.5% or an Alternate Base Rate Canada plus 7.5%, as such terms were defined in the First Lien Agreement. The repayment of the First Lien Agreement and other obligations under the First Lien Agreement were guaranteed by all of the direct and indirect domestic subsidiaries of Seller. While outstanding, the obligations under the First Lien Agreement, the guarantees by the guarantors in respect thereof were secured by liens on substantially all of the assets of the Company and its subsidiaries. Upon repayment of the First Lien Agreement, $3.3 million of restricted cash was released to the Company (see Note 6 - Restricted Cash).
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Promissory Note
As discussed in Note 3 - Recapitalization Transaction, on May 29, 2020, a $6.9 million promissory note was repaid, the obligation of which related to a 2014 settlement with a vendor of a predecessor of Seller.
Interest expense, net
The following table summarizes the components of recorded interest expense (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
2.0 Lien Notes
|
|
$
|
12,902
|
|
|
$
|
28,537
|
|
1.5 Lien Notes
|
|
8,635
|
|
|
18,763
|
|
1.25 Lien Notes
|
|
6,218
|
|
|
5,241
|
|
First Lien Agreement
|
|
4,575
|
|
|
10,022
|
|
Sprott Credit Agreement
|
|
6,009
|
|
|
—
|
|
Subordinated Notes
|
|
4,797
|
|
|
—
|
|
Amortization of debt issuance costs
|
|
1,972
|
|
|
2,048
|
|
Promissory Note
|
|
141
|
|
|
786
|
|
Other interest expense
|
|
40
|
|
|
—
|
|
Capitalized interest
|
|
(1,831)
|
|
|
(551)
|
|
Total
|
|
$
|
43,458
|
|
|
$
|
64,846
|
|
The Company capitalizes interest to Plant, equipment, and mine development, net on the consolidated balance sheets for construction projects in accordance with ASC Topic 835, Interest. Except for the First Lien Agreement and other interest expense, amounts shown in the table above represent non-cash interest expense charges.
10. Royalty Obligation
On May 29, 2020, the closing date of the Recapitalization Transaction, the Company and Sprott Private Resource Lending II (Co) Inc. (the “Payee”) entered into a royalty agreement with respect to the Hycroft Mine (the “Sprott Royalty Agreement”) in which Payee paid to the Company cash consideration in the amount of $30.0 million, for which the Company granted to Payee a perpetual royalty equal to 1.5% of the Net Smelter Returns from its Hycroft Mine, payable monthly. Net Smelter Returns for any given month are calculated as Monthly Production multiplied by the Monthly Average Gold Price and the Monthly Average Silver Price, minus Allowable Deductions, as such terms are defined in the Sprott Royalty Agreement.
The Company has the right to repurchase up to 33.3% (0.5% of the 1.5% royalty) of the royalty on each of the first and second anniversaries from May 29, 2020. The Sprott Royalty Agreement is secured by a first priority lien on certain property of the Hycroft Mine, including: (1) all land and mineral claims, leases, interests, and rights; (2) water rights, wells, and related infrastructure; and (3) stockpiles, buildings, structures, and facilities affixed to, or situated on, the Hycroft Mine, which ranks senior to security interests and liens granted pursuant to the Sprott Credit Agreement. In addition to the terms generally described above, the Sprott Royalty Agreement contains other terms and conditions commonly contained in royalty agreements of this nature.
During the year ended December 31, 2020, the Company recorded amortization of the royalty obligation of approximately $0.04 million and made payments of $0.5 million. As of December 31, 2020, $0.1 million of the royalty obligation was recorded as a current liability based upon the estimated gold and silver expected to be produced over the next 12 months, using the current mine plan, and current proven and probable mineral reserves.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
11. Warrant Liabilities
The following table summarizes the Company's outstanding warrants (U.S. dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5-Year Private Warrants
|
|
Seller Warrants
|
|
Total
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
Balance at January 1, 2020
|
—
|
|
|
$
|
—
|
|
|
12,621,623
|
|
|
$
|
18
|
|
|
12,621,623
|
|
|
$
|
18
|
|
Additions
|
10,240,000
|
|
|
12,185
|
|
|
—
|
|
|
—
|
|
|
10,240,000
|
|
|
12,185
|
|
Transfers
|
(351,585)
|
|
|
(581)
|
|
|
—
|
|
|
—
|
|
|
(351,585)
|
|
|
(581)
|
|
Fair value adjustments
|
—
|
|
|
3,722
|
|
|
—
|
|
|
45
|
|
|
—
|
|
|
3,767
|
|
Balance at December 31, 2020
|
9,888,415
|
|
|
$
|
15,326
|
|
|
12,621,623
|
|
|
$
|
63
|
|
|
22,510,038
|
|
|
$
|
15,389
|
|
5-Year Private Warrants
Prior to the Recapitalization Transaction, MUDS issued 7,740,000 warrants to purchase 7,740,000 shares of common stock at an exercise price of $11.50 per share for a period of five years from the May 29, 2020 Recapitalization Transaction, and concurrently with the Recapitalization Transaction, the Company issued 2,500,000 private placement warrants as part of a forward purchase unit offering at an exercise price of $11.50 per share for a period of five years from the issuance date (collectively, the "5-Year Private Warrants"). The 5-Year Private Warrants cannot be redeemed and can be exercised on a cashless basis if the 5-Year Private Warrants are held by the initial purchasers or their permitted transferees. If the 5-year Private Warrants are transferred to someone other than the initial purchasers or their permitted transferees ("Unrelated Third Party"), such warrants become redeemable by the Company under substantially the same terms as the 5-Year Public Warrants. As of December 31, 2020, the Company had 9,888,415 5-Year Private Warrants outstanding, as 351,585 of such warrants were transferred to an Unrelated Third Party during the year ended December 31, 2020 and are therefore considered 5-Year Public Warrants. See Note 3 - Recapitalization Transaction for additional details on transactions to which these warrants were issued.
Seller Warrants
As part of the Recapitalization Transaction, the Company assumed the obligations and liabilities under that certain warrant agreement, dated as of October 22, 2015, by and between Seller and Computershare Inc., a Delaware corporation, and its wholly owned subsidiary Computershare Trust Company, N.A., a federally chartered trust company, collectively as initial warrant agent; and Continental Stock Transfer & Trust Company, LLC was named as the successor warrant agent (the “Seller Warrant Agreement”). Pursuant to the assumption of the Seller Warrant Agreement, the warrants issued thereunder (the “Seller Warrants”) became exercisable into shares of common stock. Upon assumption by the Company, the Seller Warrants were exercisable into 3,210,213 shares of common stock at an exercise price determined as of October 1, 2020 pursuant to the Seller Warrant Agreement of $44.82 per share upon exercise of the 12,721,623 outstanding Seller Warrants, with each warrant exercisable into 0.2523 shares of common stock, which exercise price and number of shares were subject to adjustment from time to time under the terms of the Seller Warrant Agreement. Seller Warrants have a seven-year term that expires in October 2022.
As discussed below in the Public Offering warrants section, in connection with the Public Offering, the Company determined that certain adjustments were required to be made to the terms of the Seller Warrants as a result of the issuance by the Company in the Public Offering of 4,951,388 units to “Restricted Persons” under the Seller Warrant Agreement. As a result of the adjustments required under the Seller Warrant Agreement, (1) the exercise price of each Seller Warrant decreased from $44.82 per share of common stock to $41.26 per share of common stock; and (2) the number of shares of common stock issuable upon exercise of each Seller Warrant increased from 0.25234 to 0.27411. Accordingly, as adjusted, the aggregate number of shares of common stock issuable upon full exercise of the 12,721,623 outstanding Seller Warrants increased from 3,210,213 shares to 3,487,168 shares of common stock. As a result of the Company authorizing the issuance of up to 2,508,002 shares under the Hycroft Mining Holding Corporation Incentive and Performance Plan (“Incentive Plan”), as of January 19, 2021, the Company elected to treat all shares issuable under the Incentive Plan as deemed issued to Restricted Persons and elected to prospectively reduce the exercise price of each Seller Warrant to $40.31 per share of common stock and increase the number of shares of common stock issuable upon exercise of each Seller Warrant to 0.28055. As a result, an aggregate of 3,569,051 shares of common stock are issuable upon exercise of the 12,721,623 outstanding Seller Warrants. See Note 19 - Fair Value Measurements for further detail on the Seller Warrants.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
12. Asset Retirement Obligation
The following table summarizes changes in the Company’s ARO (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Balance at January 1,
|
$
|
4,374
|
|
|
$
|
5,832
|
|
Accretion expense
|
374
|
|
|
422
|
|
Changes in estimates
|
37
|
|
|
(1,880)
|
|
Balance at December 31,
|
$
|
4,785
|
|
|
$
|
4,374
|
|
The Company did not incur any reclamation expenditures during the years ended December 31, 2020 and 2019. For the year ended December 31, 2020, the changes in estimates were due to construction of the new leach pad along with increases in equipment and labor costs. Changes in estimates during the year ended December 31, 2019 were driven by increased equipment and diesel costs but were more than offset by an increase in our credit adjusted risk-free rate, which is used to discount the future reclamation costs. As of December 31, 2020, the Company estimates that no significant reclamation expenditures associated with the ARO will be made until 2047 and that reclamation work will be completed by the end of 2065.
13. Stockholders' Equity
Following the May 29, 2020 Recapitalization Transaction, as of December 31, 2020, the total number of shares of all classes of capital stock that the Company has authority to issue is 410,000,000, of which 400,000,000 are common stock, par value $0.0001 per share, and 10,000,000 are preferred stock par value $0.0001 per share. The designations, powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect to each of our class of capital stock are discussed below.
Common stock
As of December 31, 2020, there were 59,901,306 shares of common stock issued and outstanding. Each holder of common stock is entitled to one vote for each share of common stock held by such holder. The holders of common stock are entitled to the payment of dividends and other distributions as may be declared from time to time by the Board of Directors in accordance with applicable law and to receive other distributions from the Company. Subject to the terms of the Recapitalization Transaction and as of May 29, 2020, certain new and existing holders of common stock of the Company are subject to lock-up periods, which ranged from six to twelve months or were dependent on the Company's filing of a registration statement, deemed effective by the SEC.
Preferred stock
As of December 31, 2020, there were no shares of preferred stock issued and outstanding.
Dividend policy
The Company’s credit facility under the Sprott Credit Agreement contains provisions that restrict its ability to pay dividends. For additional information see Note 9 - Debt, Net.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Warrants
In addition to the 5-Year Private Warrants and the Seller Warrants discussed above, the Company has Public Offering Warrants and 5-Year Public Warrants. The Company had a total of 56,494,855 warrants outstanding as of December 31, 2020.
Public Offering Warrants
On October 6, 2020, the Company issued 9,583,334 units in an underwritten public offering at an offering price to of $9.00 per unit (the "Public Offering"), with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at an exercise price of $10.50 per share (“Public Offering Warrants”). Of the 9.6 million units issued, 5.0 million units were issued to Restricted Persons, as defined under the Seller Warrant Agreement. After deducting underwriting discounts and commission and offering expenses, the proceeds net of discount and equity issuance costs to the Company were $83.1 million. The Public Offering Warrants are immediately exercisable and entitle the holder thereof to purchase one share of common stock at an exercise price of $10.50 for a period of five years from the closing date of the Public Offering. The shares of common stock and the Public Offering Warrants were separated upon issuance in the Public Offering. The Public Offering Warrants are listed for trading on the Nasdaq Capital Market under the symbol "HYCML".
5-Year Public Warrants
Prior to the Recapitalization Transaction, MUDS issued 20,800,000 units, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at an exercise price of $11.50 per share for a period of five years from the May 29, 2020 Recapitalization Transaction (the "IPO Warrants"), and concurrently with the Recapitalization Transaction, the Company issued 3,249,999 warrants upon substantially the same terms as part of a backstop unit offering at an exercise price of $11.50 per share for a period of five years from the issuance date (the "Backstop Warrants" and collectively with the IPO Warrants, the "5-Year Public Warrants"). During 2020, 351,585 5-Year Private Warrants were transferred from a 5-Year Private Warrant holder to an Unrelated Third Party and, accordingly those warrants are now included with the 5-Year Public Warrants. The Company has certain abilities to call the 5-Year Public Warrants if the last reported sale price of common stock equals or exceeds $18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period. As of December 31, 2020, the Company had 24,401,483 5-Year Public Warrants outstanding. The 5-Year Public Warrants (other than the Backstop Warrants) are listed for trading on the Nasdaq Capital Market under the symbol "HYMCW". See Note 3 - Recapitalization Transaction for additional details on transactions to which the 5-Year Public Warrants were issued.
14. Revenues
The table below is a summary of the Company’s gold and silver sales (in thousands, except ounces sold):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
|
Amount
|
|
Ounces
Sold
|
|
Amount
|
|
Ounces
Sold
|
Gold sales
|
|
$
|
44,279
|
|
|
24,892
|
|
|
$
|
12,803
|
|
|
8,593
|
|
Silver sales
|
|
2,765
|
|
|
136,238
|
|
|
906
|
|
|
52,036
|
|
Total
|
|
$
|
47,044
|
|
|
|
|
$
|
13,709
|
|
|
|
Following the 2019 restart of the Hycroft Mine, the Company began recording revenue from gold and silver sales during the third quarter of 2019. While the Company is not obligated to sell any of its gold and silver to one customer, the majority of gold and silver sales during both 2019 and 2020 were to the same customer. For the years ended December 31, 2020 and 2019, approximately 79.1% and 100.0%, respectively, of revenue was attributable to sales to one customer.
15. Stock-Based Compensation
Performance and Incentive Pay Plan
The Company's Performance and Incentive Pay Plan (the “PIPP”), which was approved on February 20, 2019 and amended on May 29, 2020 in connection with the Recapitalization Transaction, is a stock-based compensation plan to attract, retain and
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
motivate employees and directors while directly linking incentives to increases in stockholder value. Terms and conditions (including performance-based vesting criteria) of awards granted under the PIPP are established by the Board of Directors or the Compensation Committee of the Board of Directors, who administer the PIPP. Awards may be granted in a variety of forms, including restricted stock, restricted stock units, stock options, stock appreciation rights, performance awards, and other stock-based awards. The number of shares of common stock made available for award under the PIPP is equal to 5.0% of the issued and outstanding shares of the Company's common stock immediately after the close of the Recapitalization Transaction, or 2,508,002 shares. There are currently 1,819,814 shares registered and available to grant under the PIPP. There are no equity compensation plans not approved by stockholders.
As of December 31, 2020, all awards granted under the PIPP were in the form of restricted stock units to employees or consultants of the Company. Restricted stock units granted to employees under the PIPP without performance-based vesting criteria typically vest in either equal annual installments over two to three years, or in entirety on the fourth anniversary after the grant date. Awards granted to employees with performance-based vesting criteria typically vest in annual installments over two or three years subject to the achievement of certain financial and operating results of the Company. Restricted stock units granted to non-employee directors vested immediately while others vest in equal installments over a two to three year period.
For restricted stock units granted in the first quarter of 2019 that had not vested as of December 31, 2020, a price per share was not determined as of the grant date. The number of shares of common stock of the Company to be issued upon vesting is to be calculated on the vesting date, which is either the second or third anniversary of the date of the grant, or the annual date the compensation committee determines the achievement of the corporate performance targets. Such unvested restricted stock unit awards are included in Other liabilities, non-current. Refer to Note 8 - Other Liabilities for further detail.
The following table summarizes the Company’s stock-based compensation cost and unrecognized stock-based compensation cost by plan (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
Performance and Incentive Pay
|
|
Number of Units
|
|
Weighted Average Grant Date Fair Value
|
Non-vested at beginning of year(1)
|
|
339,271
|
|
$
|
10.96
|
|
Granted
|
|
517,234
|
|
8.11
|
|
Canceled/forfeited
|
|
(131,724)
|
|
11.32
|
|
Vested
|
|
(179,085)
|
|
11.05
|
|
Non-vested at end of year
|
|
545,696
|
|
$
|
8.12
|
|
(1)The weighted average grant date fair value for non-vested restricted stock units at the beginning of the year was not determined because a price per share was not determined as of the grant date. The number of shares of common stock of the Company to be issued upon vesting is to be calculated on the vesting date.
In connection with the closing of the Recapitalization Transaction on May 29, 2020, approximately 0.1 million restricted stock units, which were granted in 2019, vested at an average price of $12.65 per share, the closing price of common stock on the date of the Recapitalization Transaction. On June 1, 2020, approximately 0.1 million restricted stock units vested at an average price of $11.50 per share, the closing price of common stock on such vesting date. Additionally, in connection with the 2020 annual grant to the Company’s directors, approximately 0.03 million restricted stock units were granted on December 4, 2020, which immediately vested at $7.43 per share, the closing price on the Nasdaq Capital Market of the Company's common stock on December 4, 2020.
During the year ended December 31, 2020, the Company reclassified $1.8 million from Other liabilities, current to Additional paid-in capital for the restricted stock units that vested. Shares of the Company’s common stock were issued for the vested restricted stock units held by former employees as of December 31, 2020; however, shares of common stock for such awards will not be issued to current employees until the Conversion Date, as defined in the equity award agreements.
The total intrinsic value of restricted stock units (calculated as the product of price per share on the vesting date times the number of restricted stock units vested) vested during the year ended December 31, 2020 was $2.0 million. No restricted stock units vested during the year ended December 31, 2019.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Total compensation expense relating to restricted stock awards was $2.4 million and $1.2 million for the years ended December 31, 2020 and 2019, respectively. Our recognized tax benefit from this expense for the years ended December 31, 2020 and 2019 was $0.4 million and $0.3 million, respectively.
As of December 31, 2020, $2.9 million of total unrecognized compensation cost related to restricted stock units was expected to be recognized as an expense by the Company in the future over a weighted-average period of approximately 2.2 years.
Non-Employee Director Phantom Stock Plan
Non-executive members of Seller's Board of Directors received phantom shares pursuant to the Hycroft Mining Corporation Non-Employee Director Phantom Stock Plan (the “Phantom Plan”) as part of their annual compensation pursuant to phantom stock award agreements. For grants issued during the years ended 2015 and 2016, the cash payment was equal to the fair market value of one share of common stock of Seller at the date of payment. Under the grant agreements, each phantom share vested on the date of grant and entitled the participant to a cash payment. For grants issued during 2018, 2019, and 2020, the cash payment was equal to the greater of the (1) grant date value, or (2) the fair market value of one share of common stock of Seller at the date of payment. The cash payments were to be made to participants upon certain Payment Events, as such term is defined in the Phantom Plan, which was triggered by the closing of the Recapitalization Transaction. In connection with the closing of the Recapitalization Transaction, a $1.8 million cash payment was made to the participants to satisfy the 1,237,500 phantom shares that were vested and outstanding.
During the years ended December 31, 2020 and 2019, non-employee members of Seller’s Board of Directors were granted a total of 157,500 and 315,000 phantom shares of stock, respectively, that vested upon grant. During the years ended December 31, 2020 and 2019, the Company recorded $0.2 million and $0.7 million, respectively, in compensation expense related to the vesting and valuation adjustments of the Seller's phantom shares, which is included in General and administrative on the consolidated statements of operations. Historically, the Company included amounts for Seller's outstanding phantom awards at fair value within Other liabilities, current (see Note 19 - Fair Value Measurements for additional information).
16. Income Taxes
For the years ended December 31, 2020 and 2019, the Company recorded no income tax benefit or expense based upon the annual effective tax rate of 0.0% for each period. The annual effective tax rate for each period was driven by losses for each period. The gain related to the Recapitalization Transaction was excluded from the estimated annual effective tax rate calculation for the 2020 period as it is considered a discrete item. The Company reversed a portion of the valuation allowance based on the net operating loss expected to be used, in order to offset Seller's taxable gain related to the Recapitalization Transaction.
The Company is subject to state income tax in Colorado, which is the location of its corporate office, but did not incur any income tax expense related to Colorado due to continued net operating losses. The Company is subject to mining taxes in Nevada, which are classified as income taxes as such taxes are based on a percentage of mining profits, but did not incur any mining tax expense due to continued mining losses. The Company is not subject to foreign income taxes as all of the Company’s operations and properties are located within the United States.
The Company’s loss before income taxes was attributable solely to domestic operations in the United States. The components of the Company’s income tax expense (benefit) were as follows (in thousands):
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
2020
|
|
2019
|
|
|
(as restated)
|
|
|
Current
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
|
|
|
|
Federal
|
|
146,794
|
|
|
(24,609)
|
|
Change in Valuation Allowance
|
|
(146,794)
|
|
|
24,609
|
|
Income Tax Benefit
|
|
$
|
—
|
|
|
$
|
—
|
|
The following table provides a reconciliation of income taxes computed at the United States federal statutory tax rate of 21% in 2020 and 2019 to the income tax provision (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
2020
|
|
2019
|
|
|
(as restated)
|
|
|
Loss before income taxes
|
|
$
|
(136,392)
|
|
$
|
(98,895)
|
United States statutory income tax rate
|
|
21%
|
|
21%
|
Income tax (benefit) at United States statutory income tax rate
|
|
$
|
(28,642)
|
|
$
|
(20,768)
|
Change in valuation allowance
|
|
(146,794)
|
|
24,609
|
Recapitalization transaction
|
|
157,855
|
|
—
|
Cancellation of debt income
|
|
15,360
|
|
—
|
State tax provision, net of federal benefit
|
|
1,263
|
|
(3,847)
|
Warrant fair value adjustment
|
|
790
|
|
—
|
Other
|
|
168
|
|
6
|
Income Tax Benefit
|
|
$
|
—
|
|
|
$
|
—
|
|
For the year ended December 31, 2020, the effective tax rate was a result of a decrease in the valuation allowance of $146.8 million which offset a $157.9 million net write-off and usage of certain deferred tax assets as a result of the Recapitalization Transaction and $15.4 million of cancellation of debt income related to the Recapitalization Transaction.
For the year ended December 31, 2019, the effective tax rate was driven by an increase in the valuation allowance of $24.6 million that was partially offset by adjustments related to the apportionment of taxable loss to the state of Colorado. The apportionment of taxable loss caused state return to provision adjustments of $3.8 million.
The components of the Company’s deferred tax assets are as follows (in thousands):
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
(as restated)
|
|
|
Net operating loss
|
|
$
|
7,675
|
|
|
$
|
146,382
|
|
Mineral properties
|
|
39,555
|
|
|
—
|
|
Plant, equipment, and mine development
|
|
30,767
|
|
|
60,840
|
|
Intangible assets
|
|
21,710
|
|
|
—
|
|
Royalty
|
|
6,292
|
|
|
—
|
|
Interest expense carryforward
|
|
1,935
|
|
|
24,369
|
|
Asset retirement obligation
|
|
997
|
|
|
927
|
|
Stock-based compensation
|
|
405
|
|
|
257
|
|
Accrued compensation
|
|
197
|
|
|
—
|
|
Inventories
|
|
191
|
|
|
15,438
|
|
Reorganization costs
|
|
—
|
|
|
7,701
|
|
Other liabilities
|
|
—
|
|
|
609
|
|
Credits and other
|
|
—
|
|
|
(6)
|
Valuation allowance
|
|
(109,724)
|
|
(256,517)
|
Total net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
Based on the weight of evidence available as of both December 31, 2020, and 2019, which included recent operating results, future projections, and historical inability to generate operating cash flow, the Company concluded that it was more likely than not that the benefit of its net deferred tax assets would not be realized and, as such, recorded full valuation allowances of $109.7 million and $256.5 million, respectively, against its net deferred tax assets.
The Company had net operating loss carryovers as of December 31, 2020 and 2019 of $36.6 million and $683.8 million, respectively, for federal income tax purposes. The accumulated net operating loss carryovers as of December 31, 2019 were not transferred from the Seller to the Company upon consummation of the Recapitalization Transaction, which caused the decrease in the balance. The carryforward amount as of December 31, 2020 can be carried forward indefinitely and can be used to offset taxable income and reduce income taxes payable in future periods, pending any potential limitation pursuant to Internal Revenue Code (“IRC”) section 382. Additional analysis of the IRC section 382 limitations will be performed in the future and could result in an annual limitation applied to the $36.6 million of net operating losses.
Immediately prior to the Recapitalization Transaction, Seller had estimated net deferred tax assets of approximately $193.0 million, which were primarily comprised of net operating losses and offset by a full valuation allowance. As a result of the Recapitalization Transaction, Seller, which sold all of its issued and outstanding equity interests of its direct subsidiaries and substantially all of its other assets, to Acquisition Sub, which also assumed substantially all of the liabilities of Seller, had a taxable gain and cancellation of indebtedness of approximately $128.5 million before considering Seller's net operating loss carryforwards. In connection with the Recapitalization Transaction, Seller used approximately $27.2 million of its deferred tax assets to offset the taxable gain in full, resulting in remaining net deferred tax assets of approximately $94.1 million immediately after the Recapitalization Transaction. The remaining net deferred tax assets balance of Seller did not transfer to the Company as a result of the Recapitalization Transaction. For U.S. tax purposes, the sale of Seller's disregarded subsidiaries interests and other assets was considered a sale of assets. The acquired assets have a carryover basis for U.S. GAAP purposes and the Company has stepped up the fair market value basis in the assets acquired for tax purposes.
As necessary, the Company provides a reserve against the benefits of uncertain tax positions taken in its tax filings that are more likely than not to not be sustained upon examination. Based on the weight of available evidence, the Company does not believe it has taken any uncertain tax positions that require the establishment of a reserve. The Company has not recorded any income tax reserves or related interest or penalties related to income tax liabilities as of December 31, 2020. The Company's policy, if it were to have uncertain tax positions, is to recognize interest and/or penalties related to unrecognized tax benefits as part of its income tax expense. With limited exception, the Company is no longer subject to U.S. federal income tax audits by
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
taxing authorities for tax years 2017 and prior; however, net operating loss and credit carryforwards from all years are subject to examinations and adjustments for at least three years following the year in which the attributes are used.
17. Loss Per Share
The table below summarizes the Company's basic and diluted loss per share calculations (in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
|
(as restated)
|
|
|
Net loss
|
|
$
|
(136,392)
|
|
|
$
|
(98,895)
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
Basic
|
|
34,833,211
|
|
|
301,559
|
|
Diluted
|
|
34,833,211
|
|
|
301,559
|
|
|
|
|
|
|
Basic loss per common share
|
|
$
|
(3.92)
|
|
|
$
|
(327.95)
|
|
Diluted loss per common share
|
|
$
|
(3.92)
|
|
|
$
|
(327.95)
|
|
The weighted-average shares of common stock outstanding for the year ended December 31, 2019 have been retroactively restated as shares reflecting the exchange ratio established in the Recapitalization Transaction to effect the reverse recapitalization (1 Seller share for 0.112 HYMC share). Basic and diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Loss per share amounts in the 2019 period exclude the common share effects from certain of Seller's debt instruments, which are reflected in the 2020 period.
Due to the Company's net loss during the years ended December 31, 2020 and 2019, there was no dilutive effect of common stock equivalents because the effects of such would have been anti-dilutive. Using the treasury stock method, the weighted-average common stock equivalents excluded from diluted loss per share calculations were 47.7 million shares (47.4 million shares related to warrants, and 0.3 million shares related to restricted stock units), for the year ended December 31, 2020. For the year ended December 31, 2019, the weighted-average common stock equivalents excluded from diluted loss per share calculations using the treasury stock method were 3.2 million shares related to warrants. Unvested restricted stock units granted in 2019 were excluded from common stock equivalent calculations because the number of shares required to settle such stock-based compensation awards is not known until the future vesting date.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
18. Segment Information
The Company's reportable segments are comprised of operating units that have revenues, earnings or losses, or assets exceeding 10% of the respective consolidated totals, and are consistent with the Company’s management reporting structure. Each segment is reviewed by the executive decision-making group to make decisions about allocating the Company's resources and to assess their performance. The tables below summarize the Company's segment information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Hycroft Mine
|
|
Corporate and Other
|
|
Total
|
|
|
|
|
(as restated)
|
|
(as restated)
|
2020
|
|
|
|
|
|
|
Revenue - Note 14
|
|
$
|
47,044
|
|
|
$
|
—
|
|
|
$
|
47,044
|
|
Cost of sales
|
|
109,621
|
|
|
—
|
|
|
109,621
|
|
Other operating costs
|
|
5,705
|
|
|
21,084
|
|
|
26,789
|
|
Loss from operations
|
|
(68,282)
|
|
|
(21,084)
|
|
|
(89,366)
|
|
Interest expense - Note 10
|
|
(141)
|
|
|
(43,317)
|
|
|
(43,458)
|
|
Fair value adjustment to Warrants - Note 19
|
|
—
|
|
|
(3,767)
|
|
|
(3,767)
|
|
Interest income
|
|
199
|
|
|
—
|
|
|
199
|
|
Loss before reorganization items and income taxes
|
|
(68,224)
|
|
|
(68,168)
|
|
|
(136,392)
|
|
Reorganization items
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss before income taxes
|
|
$
|
(68,224)
|
|
|
$
|
(68,168)
|
|
|
$
|
(136,392)
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
177,298
|
|
|
$
|
55,328
|
|
|
$
|
232,626
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
Revenue - Note 14
|
|
$
|
13,709
|
|
|
$
|
—
|
|
|
$
|
13,709
|
|
Cost of sales
|
|
30,669
|
|
|
—
|
|
|
30,669
|
|
Other operating costs
|
|
10,909
|
|
|
6,072
|
|
|
16,981
|
|
Loss from operations
|
|
(27,869)
|
|
|
(6,072)
|
|
|
(33,941)
|
|
Interest expense - Note 10
|
|
(786)
|
|
|
(64,060)
|
|
|
(64,846)
|
|
Fair value adjustment to Warrants - Note 19
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest income
|
|
797
|
|
|
—
|
|
|
797
|
|
Loss before reorganization items and income taxes
|
|
(27,858)
|
|
|
(70,132)
|
|
|
(97,990)
|
|
Reorganization items
|
|
—
|
|
|
(905)
|
|
|
(905)
|
|
Loss before income taxes
|
|
$
|
(27,858)
|
|
|
$
|
(71,037)
|
|
|
$
|
(98,895)
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
119,789
|
|
|
$
|
14,848
|
|
|
$
|
134,637
|
|
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
19. Fair Value Measurements
Recurring fair value measurements
The following table sets forth by level within the fair value hierarchy, the Company’s liabilities measured at fair value on a recurring basis (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hierarchy
Level
|
|
December 31,
2020
|
|
December 31,
2019
|
|
|
|
(as restated)
|
|
|
Liabilities:
|
|
|
|
|
|
Other liabilities, current
|
|
|
|
|
|
Accrued compensation for phantom shares
|
3
|
|
$
|
—
|
|
|
$
|
1,590
|
|
Other liabilities, non-current
|
|
|
|
|
|
5-Year Private Warrant liability - Note 11
|
2
|
|
$
|
15,327
|
|
|
|
Seller Warrant liability - Note 11
|
2
|
|
62
|
|
|
$
|
18
|
|
Total
|
|
|
$
|
15,389
|
|
|
$
|
1,608
|
|
Accrued compensation for phantom shares
Certain of Seller's phantom shares, which were satisfied in full upon closing of the Recapitalization Transaction, were carried at fair value due to holders of such awards being entitled to variable cash payments based upon valuations of Seller's common stock. The historical fair value of such obligation was computed using inputs and assumptions that were significant and unobservable as Seller was a privately held entity and, as such, were classified within Level 3 of the fair value hierarchy. The inputs and assumptions included estimates of consideration to be received by holders of phantom shares based on the estimated fair value of the consideration that may be allocated to such holders from the various financing transactions Seller was considering at such time based on the implied equity value.
5-Year Private Warrants
The 5-Year Private Warrants are valued using a Black-Scholes model that requires a variety of inputs including the Company's stock price, the strike price of the 5-Year Private Warrants, the risk-free rate, and the implied volatility. As the terms of the 5-Year Private Warrants are identical to the terms of the 5-Year Public Warrants except that the 5-Year Private Warrants have certain restrictions against redemptions and rights to exercise on a cashless basis when such warrants are held by the initial purchasers or their permitted transferees, the implied volatility used in the Black-Scholes model is calculated using a Monte-Carlo model of the 5-Year Public Warrants that factors in the restrictive redemption and cashless exercise features of the 5-Year Private Warrants. The Company updates the fair value calculation on at least a quarterly basis, or more frequently if changes in circumstances and assumptions indicate a change from the existing carrying value.
Seller Warrant liability
As part of the Recapitalization Transaction, the Company assumed Seller's obligations under the Seller Warrant Agreement and the 12.7 million Seller Warrants outstanding became exercisable into shares of the Company's common stock. The Seller Warrant Agreement also contains certain terms and features to reduce the exercise price and increase the number of shares of common stock each warrant is exercisable into. As a result, Seller Warrants are considered derivative financial instruments and carried at fair value. The fair value of Seller Warrants was computed by an independent third-party consultant (and validated by the Company) using a Monte Carlo simulation-based model that requires a variety of inputs, including contractual terms, market prices, exercise prices, equity volatility and discount rates. The Company updates the fair value calculation on at least an annual basis, or more frequently if changes in circumstances and assumptions indicate a change from the existing carrying value. See Note 13 - Stockholders' Equity for additional information on the Seller Warrants.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Items disclosed at fair value
Debt
The Sprott Credit Agreement and the Subordinated Notes are privately held and, as such, there is no public market or trading information available for such debt instruments. As of December 31, 2020, the fair value of the Company’s debt instruments was $154.9 million. The fair value of the principal of the Company’s debt instruments, including capitalized interest, was estimated using a market approach in which pricing information for publicly traded, non-convertible debt instruments with speculative ratings were analyzed to derive a mean trading multiple to apply to the December 31, 2020 balances. As of December 31, 2019, Seller determined that certain of its debt instruments' carrying value exceeded the estimated fair value, which was based on the estimated fair value of the consideration that may be allocated to such debt instruments from the various financing transactions Seller was considering at such time. Accordingly, as of December 31, 2019, Seller estimated that the fair value of the 2.0 Lien Notes and 1.5 Lien Notes was approximately $262.4 million, compared to the carrying value of $345.5 million.
Royalty obligation
As of December 31, 2020, the estimated net present value of the Company’s royalty obligation was $148.4 million, compared to the carrying value of $30.0 million. The net present value of the Company's royalty obligation was modeled using the following level 3 inputs: (1) market consensus inputs for future gold and silver prices; (2) a precious metals industry consensus discount rate of 5.0%; and (3) estimates of the Hycroft Mine’s life-of-mine gold and silver production volumes and timing.
20. Supplemental Cash Flow Information
The following table provides supplemental cash flow information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Cash paid for interest
|
$
|
5,366
|
|
|
$
|
10,239
|
|
|
|
|
|
Significant non-cash financing and investing activities:
|
|
|
|
Exchange of Seller's 1.5 Lien Notes for HYMC common stock
|
160,254
|
|
|
—
|
|
Exchange of Seller's 1.25 Lien Notes for Subordinated Notes
|
80,000
|
|
|
—
|
|
Exchange of Seller's 1.25 Lien Notes for HYMC common stock
|
48,459
|
|
|
—
|
|
Write-off of Seller's debt issuance costs
|
8,202
|
|
|
—
|
|
Plant, equipment, and mine development additions included in accounts payable
|
1,229
|
|
|
2,458
|
|
Private Warrants transferred to Public Warrants
|
581
|
|
|
—
|
|
Accrual of deferred financing and equity issuance costs
|
94
|
|
|
1,025
|
|
In addition to the supplemental cash flow information shown above, Note 3 - Recapitalization Transaction and Note 9 - Debt, Net provide additional details on non-cash transactions that were part of the Recapitalization Transaction, as well as information on non-cash interest charges.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
21. Employee Benefit Plans
401(k) Plan
The Hycroft Mining Corporation 401(k) Plan (the “401(k) Plan”) is a defined contribution plan that is available to all employees of the Company upon their date of hire. The 401(k) Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and Section 401(k) of the Internal Revenue Code. Administrative fees of the 401(k) Plan are paid by the Company. The assets of the 401(k) Plan are held and the related investments are executed by the 401(k) Plan’s trustee.
Participants in the 401(k) Plan exercise control and direct the investment of their contributions and account balances among various investment alternatives. The Company matches a percentage of employee deferrals to the 401(k) Plan up to certain limits. For the years ended December 31, 2020 and 2019, the Company’s matching contributions totaled $0.9 million, and $0.5 million, respectively.
22. Commitments and Contingencies
From time to time, the Company is involved in various legal actions related to its business, some of which are class action lawsuits. Management does not believe, based on currently available information, that contingencies related to any pending or threatened legal matter will have a material adverse effect on the Company’s financial statements, although a contingency could be material to the Company’s results of operations or cash flows for a particular period depending on the results of operations and cash flows for such period. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.
On February 7, 2020, a purported class action complaint was filed by a purported holder of the Seller Warrants, in the Court of Chancery of the State of Delaware against Seller and the Company. The complaint sought a declaratory judgment that the Recapitalization Transaction constitutes a “Fundamental Change” under the terms of the Seller Warrant Agreement and thereby requiring that Seller Warrants be assumed by the Company as part of the Recapitalization Transaction, in addition to asserting claims for: (1) breach or anticipatory breach of contract against Seller; (2) breach or anticipatory breach of the implied covenant of good faith and fair dealing against Seller; and (3) tortious interference with contractual relations against the Company. The complaint sought unspecified money damages and also sought an injunction enjoining Seller and the Company from consummating the Recapitalization Transaction. On February 26, 2020, the Company and Seller entered into an amendment to the Purchase Agreement whereby Seller’s liabilities and obligations under the Seller Warrant Agreement were included as an assumed liability under the Purchase Agreement. On March 27, 2020, the Company and Seller filed motions to dismiss the complaint. On May 15, 2020, a hearing was held and the complaint was dismissed. On May 21, 2020, Plaintiff filed a motion to alter or amend the Court’s order in order to retain jurisdiction in order to file application for a mootness fee, to which the Company and Seller, while disputing factual assertions and characterizations, did not oppose. On June 30, 2020, the motion was granted and the Court retained jurisdiction over the action to hear any mootness fee application. The matter was settled and a $0.1 million mootness fee was paid on September 8, 2020.
Financial commitments not recorded in the financial statements
As of December 31, 2020 and December 31, 2019, the Company's off-balance sheet arrangements consisted of operating lease agreements, a net profit royalty arrangement, and a future purchase obligation for consignment inventory.
Operating leases
During the year ended December 31, 2020, the Company signed two leases for the rental of mining equipment. The operating leases for mobile mining equipment were used to supplement the Company’s own fleet. Each lease had less than a year remaining as of December 31, 2020. The total remaining minimum lease payments for the two leases was approximately $4.8 million as of December 31, 2020.
The Company also holds operating leases. Rent expense is $0.2 million annually and the leases expire between March 2021 and January 2022.
As the Company has elected to take advantage of the extended transition period for complying with new or revised accounting standards, the Company will not adopt ASU 2016-02 until January 2022, or it no longer qualifies as an emerging growth company, and no right of use asset or liability will be recorded on the balance sheet for existing operating leases.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
Net profit royalty
A portion of the Hycroft Mine is subject to a mining lease that requires a 4% net profit royalty be paid to the owner of certain patented and unpatented mining claims. The mining lease also requires an annual advance payment of $120,000 every year mining occurs on the leased claims. All advance annual payments are credited against the future payments due under the 4% net profit royalty. An additional payment of $120,000 is required for each year total tons mined on the leased claims exceeds 5.0 million tons. As of December 31, 2020, total tons mined from the leased claims exceeded 5.0 million tons, requiring an incremental amount of $120,000 due to the owner of the mining claims. The total payments due under the mining lease are capped at $7.6 million, of which the Company has paid or accrued $2.7 million and included $0.4 million in Other assets, non-current in the consolidated balance sheets as of December 31, 2020.
Consignment inventory
During the first quarter of 2020, Hycroft entered into an agreement with a spare parts supplier that requires the supplier to maintain a specified inventory of replacement parts and components that are exclusively for purchase by Hycroft. Pursuant to the agreement, the Company is required to purchase all of the un-replenished consignment stock inventory, totaling $2.5 million, over the two-year life of the Inventory Consignment agreement. As of December 31, 2020, the Company had prepaid $0.8 million towards the un-replenished consignment stock inventory, which is included in Prepaids and other in the consolidated balance sheets. See Note 2 - Summary of Significant Accounting Policies and Note 5 - Prepaids and Other for additional detail.
23. Related Party Transactions
Certain amounts of the Company's indebtedness disclosed in Note 9 - Debt, Net have historically, and with regard to the $80.0 million of Subordinated Notes, are currently, held by five financial institutions. As of December 31, 2020, three of the financial institutions, Highbridge Capital Management, LLC (“Highbridge”), Mudrick Capital Management, L.P (“Mudrick”) and, Whitebox Advisors, LLC (“Whitebox”), held more than 10% of the common stock of the Company and, as a result, each are considered a related party (the "Related Parties") in accordance with ASC 850, Related Party Disclosures. For the years ended December 31, 2020 and 2019, Interest expense, net of capitalized interest included $31.3 million and $57.6 million, respectively, for the debt held by Related Parties. As of December 31, 2020 and 2019, the Related Parties held a total $71.2 million and $497.2 million, respectively, of debt. Additionally, the Company's Compensation Committee and Board of Directors approved annual Director compensation arrangements for non-employee directors, of which $0.2 million is payable to Mudrick. During the year ended December 31, 2020, the Company paid $0.1 million to Mudrick and Mudrick vested in 5,047 restricted stock units that will convert into the same number of shares of the Company's common stock upon the Mudrick representative no longer serving on the Company's Board of Directors.
In connection with the closing of the Public Offering on October 6, 2020, Highbridge and Mudrick acquired 833,333, and 3,222,222 of the units, consisting of shares of common stock and warrants to purchase common stock, issued in the Public Offering, respectively. Refer to Note 13 - Stockholders' Equity for further information.
24. Subsequent Events
Appointment of Chief Operating Officer
John William Henris was appointed as the Company's Executive Vice President and Chief Operating Officer, effective as of January 11, 2021. The Company entered into an employment agreement dated as of January 11, 2021 with Mr. Henris, and issued him 33,423 restricted stock units vesting on the fourth anniversary of the grant date, subject to his continued employment.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
25. Restatement of Previously Issued Audited Financial Statements
As previously mentioned in Note 1 - Company Overview, the Company has restated previously issued financial statements after considering newly released guidance by the SEC staff regarding the accounting and reporting for warrants.
On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the Securities and Exchange Commission together issued a statement regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies (“SPACs”) entitled "Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies” (the “SEC Statement”). Specifically, the SEC Statement clarified guidance for all SPAC-related companies regarding the accounting and reporting for “certain features of warrants issued in SPAC transactions” that “may be common across many entities” and are related to warrants of a kind similar to those issued by the Company. The SEC Statement focused in part on provisions in warrant agreements that provide for potential changes to the settlement amounts dependent upon the characteristics of the warrant holder, and because the holder of such warrants would not be an input into the pricing of a fixed-for-fixed option on equity shares, such provision would preclude such warrants from being classified in equity and thus such warrants should be classified as a liability. Based on ASC 815-40, Contracts in an Entity’s Own Equity, warrant instruments that do not meet the criteria to be considered indexed to an entity’s own stock shall be initially classified as liabilities at their estimated fair values. The misstatements that caused the Company to conclude that its financial statements should be restated are the result of a misapplication of the guidance on accounting for certain of its issued warrants, which came to light following issuance of the SEC Statement. In periods subsequent to issuance, changes in the estimated fair value of the derivative instruments should be reported in the statement of operations and comprehensive income (loss).
The following presents the restated consolidated condensed financial statements as of and for the year ended December 31, 2020. The consolidated Statement of Stockholders' Equity reflects the restatement adjustments presented in the consolidated Balance Sheets presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HYCROFT MINING HOLDING CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(U.S. dollars in thousands, except share amounts)
|
|
|
December 31, 2020
|
|
|
As Previously Reported
|
|
Restatement Adjustment
|
|
As Restated
|
Total Assets
|
|
$
|
232,626
|
|
|
$
|
—
|
|
|
$
|
232,626
|
|
Liabilities:
|
|
|
|
|
|
|
Current Liabilities
|
|
$
|
21,681
|
|
|
$
|
—
|
|
|
$
|
21,681
|
|
Other liabilities, non-current
|
|
1,712
|
|
|
(62)
|
|
|
1,650
|
|
Debt, net, non-current
|
|
142,665
|
|
|
—
|
|
|
142,665
|
|
Royalty obligation, non-current
|
|
29,839
|
|
|
—
|
|
|
29,839
|
|
Asset retirement obligation, non-current
|
|
4,785
|
|
|
—
|
|
|
4,785
|
|
Warrant Liability, non-current
|
|
—
|
|
|
15,389
|
|
|
15,389
|
|
Total Liabilities
|
|
$
|
200,682
|
|
|
$
|
15,327
|
|
|
$
|
216,009
|
|
Stockholders' (deficit) equity:
|
|
|
|
|
|
|
Common stock
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
6
|
|
Additional paid-in capital
|
|
548,975
|
|
|
(11,605)
|
|
|
537,370
|
|
Accumulated deficit
|
|
(517,037)
|
|
|
(3,722)
|
|
|
(520,759)
|
|
Total stockholders' equity (deficit)
|
|
$
|
31,944
|
|
|
$
|
(15,327)
|
|
|
$
|
16,617
|
|
Total liabilities and stockholders' equity (deficit)
|
|
$
|
232,626
|
|
|
$
|
—
|
|
|
$
|
232,626
|
|
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HYCROFT MINING HOLDING CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except share amounts)
|
|
|
December 31, 2020
|
|
|
As Previously Reported
|
|
Restatement Adjustment
|
|
As Restated
|
Revenue
|
|
$
|
47,044
|
|
|
$
|
—
|
|
|
$
|
47,044
|
|
Total cost of sales
|
|
(109,621)
|
|
|
—
|
|
|
(109,621)
|
|
Operating Expenses
|
|
(26,789)
|
|
|
—
|
|
|
(26,789)
|
|
Loss from Operations
|
|
(89,366)
|
|
|
—
|
|
|
(89,366)
|
|
Other Income and Expense:
|
|
|
|
|
|
|
Interest expense, net of capitalized interest
|
|
(43,458)
|
|
|
—
|
|
|
(43,458)
|
|
Fair value adjustment to Warrants
|
|
(45)
|
|
|
(3,722)
|
|
|
(3,767)
|
|
Interest Income
|
|
199
|
|
|
—
|
|
|
199
|
|
Loss before reorganization items and income taxes
|
|
(132,670)
|
|
|
(3,722)
|
|
|
(136,392)
|
|
Reorganization items
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss
|
|
$
|
(132,670)
|
|
|
$
|
(3,722)
|
|
|
$
|
(136,392)
|
|
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HYCROFT MINING HOLDING CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands, except share amounts)
|
|
|
December 31, 2020
|
|
|
As Previously Reported
|
|
Restatement Adjustment
|
|
As Restated
|
Net loss
|
|
$
|
(132,670)
|
|
|
$
|
(3,722)
|
|
|
$
|
(136,392)
|
|
Adjustments to reconcile net loss for the period to net cash used in operating activities:
|
|
|
|
|
|
|
Non-cash portion of interest expense - Note 10
|
|
38,843
|
|
|
—
|
|
|
38,843
|
|
Write-down of production inventories - Note 4
|
|
17,924
|
|
|
—
|
|
|
17,924
|
|
Impairment on equipment not in use - Note 5
|
|
5,331
|
|
|
—
|
|
|
5,331
|
|
Depreciation and amortization
|
|
5,886
|
|
|
—
|
|
|
5,886
|
|
Stock-based compensation - Note 15
|
|
2,380
|
|
|
—
|
|
|
2,380
|
|
Salary continuation and compensation costs
|
|
2,116
|
|
|
—
|
|
|
2,116
|
|
Fair value adjustment to Warrants
|
|
45
|
|
|
3,722
|
|
|
3,767
|
|
Accretion - Note 12
|
|
374
|
|
|
—
|
|
|
374
|
|
Phantom share compensation
|
|
225
|
|
|
—
|
|
|
225
|
|
Amortization reduction of Sprott Royalty Obligation - Note 10
|
|
(37)
|
|
|
—
|
|
|
(37)
|
|
Reduction in asset retirement obligation
|
|
—
|
|
|
—
|
|
|
—
|
|
Change in value of phantom shares
|
|
—
|
|
|
—
|
|
|
—
|
|
Changes in operating assets and liabilities
|
|
(50,925)
|
|
|
—
|
|
|
(50,925)
|
|
Net cash used in operating activities
|
|
(110,508)
|
|
|
—
|
|
|
(110,508)
|
|
Net cash used in investing activities
|
|
(31,124)
|
|
|
—
|
|
|
(31,124)
|
|
Cash flows from financing activities:
|
|
188,705
|
|
|
—
|
|
|
188,705
|
|
Net increase (decrease) in cash and restricted cash
|
|
47,073
|
|
|
—
|
|
|
47,073
|
|
Cash and restricted cash, beginning of period
|
|
48,967
|
|
|
—
|
|
|
48,967
|
|
Cash and restricted cash, end of period
|
|
$
|
96,040
|
|
|
$
|
—
|
|
|
$
|
96,040
|
|
Total cash and restricted cash
|
|
$
|
96,040
|
|
|
$
|
—
|
|
|
$
|
96,040
|
|