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.
HYCROFT MINING HOLDING CORPORATION
Notes
to Consolidated Financial Statements
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.
HYCROFT MINING HOLDING CORPORATION
Notes
to Consolidated Financial Statements
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.
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.
HYCROFT MINING HOLDING CORPORATION
Notes
to Consolidated Financial Statements
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.
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.
HYCROFT MINING HOLDING CORPORATION
Notes
to Consolidated Financial Statements
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.
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.
HYCROFT
MINING HOLDING CORPORATION
Notes
to Consolidated Financial Statements
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.
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;
HYCROFT MINING HOLDING CORPORATION
Notes
to Consolidated Financial Statements
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.
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.
|
HYCROFT MINING HOLDING CORPORATION
Notes
to Consolidated Financial Statements
|
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.
|
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.
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
|
|
HYCROFT MINING HOLDING CORPORATION
Notes
to Consolidated Financial Statements
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.
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).
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial
Statements
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 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.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
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.
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.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
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).
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.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial
Statements
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.
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.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
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.
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.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
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.
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.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
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 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.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
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.
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.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
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):
|
|
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
|
|
$
|
—
|
|
|
$
|
—
|
|
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
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):
|
|
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
|
|
$
|
—
|
|
|
$
|
—
|
|
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
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 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
|
)
|
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
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.
HYCROFT MINING HOLDING CORPORATION
Notes
to Consolidated Financial Statements
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.
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.
HYCROFT MINING HOLDING CORPORATION
Notes to Consolidated Financial Statements
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
|
|
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
|
|
HYCROFT MINING HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
|
|
(unaudited)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
36,497
|
|
|
$
|
56,363
|
|
Accounts receivable
|
|
|
14
|
|
|
|
426
|
|
Inventories - Note 4
|
|
|
18,950
|
|
|
|
12,867
|
|
Ore on leach pads, current - Note 4
|
|
|
33,090
|
|
|
|
38,041
|
|
Prepaids and other - Note 5
|
|
|
4,565
|
|
|
|
4,303
|
|
Current assets
|
|
|
93,116
|
|
|
|
112,000
|
|
Ore on leach pads, non-current - Note 4
|
|
|
9,243
|
|
|
|
7,243
|
|
Other assets, non-current - Note 5
|
|
|
14,488
|
|
|
|
13,483
|
|
Plant, equipment, and mine development, net - Note 6
|
|
|
66,355
|
|
|
|
60,223
|
|
Restricted cash - Note 7
|
|
|
39,700
|
|
|
|
39,677
|
|
Total assets
|
|
$
|
222,902
|
|
|
$
|
232,626
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
14,990
|
|
|
$
|
12,280
|
|
Other liabilities, current - Note 8
|
|
|
4,980
|
|
|
|
4,157
|
|
Debt, net, current - Note 9
|
|
|
7,441
|
|
|
|
5,120
|
|
Royalty obligation, current - Note 10
|
|
|
124
|
|
|
|
124
|
|
Current liabilities
|
|
|
27,535
|
|
|
|
21,681
|
|
Other liabilities, non-current - Note 8
|
|
|
1,375
|
|
|
|
1,650
|
|
Warrant liabilities, non-current - Note 11
|
|
|
5,897
|
|
|
|
15,389
|
|
Debt, net, non-current - Note 9
|
|
|
145,844
|
|
|
|
142,665
|
|
Royalty obligation, non-current - Note 10
|
|
|
29,813
|
|
|
|
29,839
|
|
Asset retirement obligation, non-current - Note 12
|
|
|
4,887
|
|
|
|
4,785
|
|
Total liabilities
|
|
|
215,351
|
|
|
|
216,009
|
|
Commitments and contingencies - Note 21
|
|
|
|
|
|
|
|
|
Stockholders' equity: - Note 13
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 400,000,000 shares authorized; 59,901,306 issued and outstanding at March 31, 2021; and 59,901,306 issued and outstanding at December 31, 2020
|
|
|
6
|
|
|
|
6
|
|
Additional paid-in capital
|
|
|
537,992
|
|
|
|
537,370
|
|
Accumulated deficit
|
|
|
(530,447
|
)
|
|
|
(520,759
|
)
|
Total stockholders' equity
|
|
|
7,551
|
|
|
|
16,617
|
|
Total liabilities and stockholders' equity
|
|
$
|
222,902
|
|
|
$
|
232,626
|
|
The accompanying notes are an integral part
of these unaudited interim financial statements.
HYCROFT MINING HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in thousands, except per share amounts)
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
Revenues - Note 14
|
|
$
|
19,036
|
|
|
$
|
11,146
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
Production costs
|
|
|
17,817
|
|
|
|
8,957
|
|
Depreciation and amortization
|
|
|
1,041
|
|
|
|
1,334
|
|
Mine site period costs - Note 4
|
|
|
10,544
|
|
|
|
6,634
|
|
Write-down of production inventories - Note 4
|
|
|
—
|
|
|
|
6,965
|
|
Total cost of sales
|
|
|
29,402
|
|
|
|
23,890
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
3,794
|
|
|
|
2,006
|
|
Projects and development
|
|
|
493
|
|
|
|
—
|
|
Accretion - Note 12
|
|
|
102
|
|
|
|
93
|
|
Loss from operations
|
|
|
(14,755
|
)
|
|
|
(14,843
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense, net of capitalized interest - Note 9
|
|
|
(4,449
|
)
|
|
|
(19,887
|
)
|
Fair value adjustment to warrants - Note 19
|
|
|
9,493
|
|
|
|
—
|
|
Interest income
|
|
|
23
|
|
|
|
112
|
|
Loss before income taxes
|
|
|
(9,688
|
)
|
|
|
(34,618
|
)
|
Income taxes - Note 16
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(9,688
|
)
|
|
$
|
(34,618
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
Basic - Note 17
|
|
$
|
(0.16
|
)
|
|
$
|
(107.07
|
)
|
Diluted - Note 17
|
|
$
|
(0.16
|
)
|
|
$
|
(107.07
|
)
|
Weighted average shares outstanding(1):
|
|
|
|
|
|
|
|
|
Basic - Note 17
|
|
|
59,901,306
|
|
|
|
323,328
|
|
Diluted - Note 17
|
|
|
59,901,306
|
|
|
|
323,328
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Retroactively restated March 31, 2020 for the reverse recapitalization. Refer to Note 3 - Recapitalization
Transaction and Note 17 - Loss Per Share for further information.
|
The accompanying notes are an integral part
of these interim financial statements.
HYCROFT MINING HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
|
|
Three months ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,688
|
)
|
|
$
|
(34,618
|
)
|
Adjustments to reconcile net loss for the period to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Non-cash portion of interest expense - Note 9
|
|
|
4,439
|
|
|
|
17,020
|
|
Non-cash gain on fair value adjustment for warrant liabilities - Note 11
|
|
|
(9,493
|
)
|
|
|
—
|
|
Write-down of production inventories - Note 4
|
|
|
—
|
|
|
|
6,965
|
|
Depreciation and amortization
|
|
|
1,568
|
|
|
|
1,876
|
|
Stock-based compensation - Note 15
|
|
|
538
|
|
|
|
365
|
|
Accretion - Note 12
|
|
|
102
|
|
|
|
93
|
|
Phantom share compensation
|
|
|
—
|
|
|
|
263
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
412
|
|
|
|
(754
|
)
|
Production-related inventories
|
|
|
(3,970
|
)
|
|
|
(10,935
|
)
|
Materials and supplies inventories
|
|
|
167
|
|
|
|
(332
|
)
|
Prepaids and other assets, current and non-current
|
|
|
(1,268
|
)
|
|
|
(1,604
|
)
|
Accounts payable
|
|
|
1,800
|
|
|
|
2,409
|
|
Other liabilities, current and non-current
|
|
|
632
|
|
|
|
254
|
|
Interest payable
|
|
|
—
|
|
|
|
(447
|
)
|
Net cash used in operating activities
|
|
|
(14,761
|
)
|
|
|
(19,445
|
)
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
Additions to plant, equipment, and mine development
|
|
|
(5,082
|
)
|
|
|
(2,090
|
)
|
Net cash used in investing activities
|
|
|
(5,082
|
)
|
|
|
(2,090
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayment of First Lien Agreement - Note 9
|
|
|
—
|
|
|
|
(632
|
)
|
Transaction and issuance costs
|
|
|
—
|
|
|
|
(2,610
|
)
|
Proceeds from debt issuances, net of debt issuance costs
|
|
|
—
|
|
|
|
24,900
|
|
Net cash provided by financing activities
|
|
|
—
|
|
|
|
21,658
|
|
Net (decrease) increase in cash and restricted cash
|
|
|
(19,843
|
)
|
|
|
123
|
|
Cash and restricted cash, beginning of period
|
|
|
96,040
|
|
|
|
48,967
|
|
Cash and restricted cash, end of period
|
|
$
|
76,197
|
|
|
$
|
49,090
|
|
Reconciliation of cash and restricted cash:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
36,497
|
|
|
$
|
6,566
|
|
Restricted cash - current
|
|
|
—
|
|
|
|
2,929
|
|
Restricted cash - non-current
|
|
|
39,700
|
|
|
|
39,595
|
|
Total cash and restricted cash
|
|
$
|
76,197
|
|
|
$
|
49,090
|
|
See Note 20 - Supplemental Cash Flow Information
for additional details.
The accompanying notes are an integral
part of these unaudited interim financial statements.
HYCROFT MINING HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) (UNAUDITED)
(dollars in thousands)
|
|
Common Stock(1)
|
|
|
Treasury Stock(1)
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital(1)
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance at January 1, 2020
|
|
|
345,431
|
|
|
$
|
—
|
|
|
|
22,103
|
|
|
$
|
—
|
|
|
$
|
5,187
|
|
|
$
|
(444,438
|
)
|
|
$
|
(439,251
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(34,618
|
)
|
|
|
(34,618
|
)
|
Balance at March 31, 2020
|
|
|
345,431
|
|
|
$
|
—
|
|
|
|
22,103
|
|
|
$
|
—
|
|
|
$
|
5,187
|
|
|
$
|
(479,056
|
)
|
|
$
|
(473,869
|
)
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance at January 1, 2021
|
|
|
59,901,306
|
|
|
$
|
6
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
537,370
|
|
|
$
|
(520,759
|
)
|
|
$
|
16,617
|
|
Stock-based compensation costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
507
|
|
|
|
—
|
|
|
|
507
|
|
Vesting of restricted stock units(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
115
|
|
|
|
—
|
|
|
|
115
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,688
|
)
|
|
|
(9,688
|
)
|
Balance at March 31, 2021
|
|
|
59,901,306
|
|
|
$
|
6
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
537,992
|
|
|
$
|
(530,447
|
)
|
|
$
|
7,551
|
|
(1)
|
Retroactively restated January 1, 2020 and March 31, 2020 for the reverse recapitalization as described in Note 3 - Recapitalization
Transaction, and the restated reclassification of the Company's 5-Year Private Warrants as described in Note 11 - Warrant Liabilities.
|
|
|
(2)
|
As of March 31, 2021, there were 16,441 unissued shares underlying
restricted stock units that had vested.
|
The accompanying notes are an integral part
of these unaudited interim financial statements.
HYCROFT MINING HOLDING CORPORATION
Notes to Unaudited Condensed 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
The Company restarted open
pit mining operations at the Hycroft Mine during the second quarter of 2019, and, began producing and selling gold and silver during the
third quarter of 2019. 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 mine 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 22 - 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 Hycroft Mining Corporation ("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. The 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 detailed in
the Hycroft Technical Report. Based upon the findings and results of this evaluation process, we may update or file a new 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 and reverse recapitalization transaction (the "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 consummation 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. For more information on
the outstanding warrants, see Note 11 - Warrant Liabilities.
HYCROFT MINING HOLDING CORPORATION
Notes to Unaudited Condensed Consolidated
Financial Statements
Restatement of Previously Issued Financial
Statements
As previously disclosed in
our Annual Report on Form 10-K/A, as filed on May 14, 2021 (“2020 Form 10-K/A”), the Company has restated its previously issued
consolidated financial statements as of and for the year ended December 31, 2020, to make the necessary accounting corrections related
to warrant accounting and to recognize certain warrants as a liability instead of as equity, in accordance with Accounting Standards Codification
(“ASC”) 815-40, Contracts in Entity’s Own Equity. The Company has also restated related amounts within the accompanying
footnotes to the consolidated financial statements. As a small reporting company, the Company is not obligated to, and has not, included
quarterly financial information in its 2020 Form 10-K/A. Consequently, the Company does not intend to amend its previously issued Quarterly
Reports on Form 10-Q for the three months and six months ended June 30, 2020 and the three months and nine months ended September 30,
2020, but in accordance with the statement issued on April 12, 2021, by the Acting Director of the Division of Corporation Finance and
Acting Chief Accountant of the Securities and Exchange Commission (the "SEC") 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”), the Company will restate
the condensed consolidated financial statements for the three month and six month periods ended June 30, 2020 and the three month and
nine month periods ended September 30, 2020 in Quarterly Reports on Form 10-Q filed subsequent to the 2020 Form 10-K/A for the comparable
2021 periods. Investors should not rely on any previously issued or filed reports, earnings releases or similar communications relating
to periods prior to December 31, 2020.
HYCROFT MINING HOLDING CORPORATION
Notes to Unaudited Condensed Consolidated Financial
Statements
2. Summary of Significant Accounting Policies
Basis of presentation
These condensed consolidated
interim financial statements of the Company have been prepared, without audit, in accordance with U.S. generally accepted accounting principles
(“GAAP”) and pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations
of the SEC for interim financial reporting. Accordingly, these financial statements do not include all information and footnotes necessary
for a comprehensive presentation of financial position, results of operations, or cash flows. These unaudited condensed consolidated financial
statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto as of and
for the year ended December 31, 2020. The Company continues to follow the accounting policies set forth in those audited consolidated
financial statements. In the opinion of management, the accompanying unaudited condensed consolidated interim financial statements include
all adjustments that are necessary for a fair presentation of the Company's interim financial position, operating results and cash flows
for the periods presented.
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.
Risks and Uncertainties
The Company has a single
mine with its revenue, profitability, and cash flows substantially dependent on prevailing prices for gold and silver and its ability
to mine sufficient volumes cost effectively. Historically, the commodity markets have been very volatile, and there can be no assurance
that commodity prices will not be subject to wide fluctuations in the future. A substantial or extended decline in commodity prices could
have a material adverse effect on the Company’s financial position, results of operations, cash flows, access to capital and the
quantities of reserves that the Company can economically produce.
In addition to changes in
commodity prices, other factors such as changes in mine plans, increases in costs, geotechnical failures, changes in social, environmental
or regulatory requirements, the ability to successfully implement new technologies for processing ore, timely financing for development,
impacts of global events such as the COVID-19 pandemic, and management’s decision to expand production to commercial levels can
adversely affect the Company’s ability to recover its investment in certain assets and result in impairment charges.
For more information on risks
associated with the Company’ s business, please see Item 1A. Risk Factors in the 2020 Form 10-K/A.
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 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 were appointed
as the senior management of 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 Unaudited Condensed 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 three months ended March 31, 2021, the Company recorded a net loss of $9.7 million, which included a gain from Fair value adjustments
to warrants of $9.5 million, and net cash used in operating activities was $14.8 million. As of March 31, 2021, the Company
had available cash on hand of $36.5 million, working capital of $65.6 million, Total liabilities of $215.4 million, and an
Accumulated deficit of $530.4 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; estimates of the fair value of liability classified
warrants, 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.
Inventories
The Company’s production-related
inventories include: (i) ore on leach pads; (ii) in-process inventories; and (iii) doré and off-site carbon and slag finished goods.
Production-related inventories are carried at the lower of average cost or net realizable value per estimated recoverable gold ounce,
which is computed for each category of production-related inventories at each reporting period.
Net realizable value
represents the estimated future gold revenue of production-related inventories after adjusting for silver by-product revenue and
deductions for further processing, refining, and selling costs. The estimated future revenue is calculated using sales prices based
on the London Bullion Market Association’s (“LBMA”) quoted period-end metal prices. Estimates for silver revenue
by-products credits and deductions for estimated costs to complete reflect the Company’s historical experience for expected
processing, refining and selling plans. Actual net realizable values for gold sales may be different from such estimates. Changes to
inputs and estimates resulting from changes in facts and circumstances are recognized as a change in Management estimate on a
prospective basis.
HYCROFT MINING HOLDING CORPORATION
Notes to Unaudited Condensed Consolidated
Financial Statements
Ore on leach pads
Although the quantities of
recoverable metal placed on the leach pads are reconciled by comparing the grades of ore placed on pads to the quantities of metal actually
recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels.
As a result, the metallurgical balancing process is constantly monitored, and estimates are refined based on actual results over time
and changes in future estimates. 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.
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.
Warrant liabilities
The Company accounts for
certain warrants to purchase shares of the Company’s common stock issued to the SPAC sponsor and/or underwriter in a private placement
and/or pursuant to a forward purchase contract (the “5-Year Private Warrants”) that are not indexed to the Company’s
own stock as warrant liabilities at fair value on the consolidated balance sheet. These 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) on the consolidated statement
of operations. The Company will continue to adjust the liability for changes in fair value 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 warrant liability will be reclassified to Additional paid-in capital on the consolidated balance sheet.
Projects and development
Costs incurred to enhance
our understanding of the recovery and processing of the current ore body to sustain production at existing operations that do not qualify
for capitalization are expensed within Projects and development, which is included in Operating expenses on the Condensed
Consolidated Statement of Operations. Evaluation and development costs include expenditures for: (i) analyzing established feasibility
studies; (ii) conducting geological studies; (iii) oversight and project management; and (4) drilling, engineering, and metallurgical
activities.
HYCROFT MINING HOLDING CORPORATION
Notes to Unaudited Condensed Consolidated
Financial Statements
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 December of 2019, the
FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), as
part as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining
or improving the usefulness of the information provided to users of financial statements. Amendments include removal of certain exceptions
to the general principles of ASC 740, Income Taxes and simplification in several other areas such as accounting for a franchise
tax (or similar tax) that is partially based on income. For emerging growth companies, the new guidance is effective for annual periods
beginning after December 15, 2021. 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 assessing the impact on its consolidated financial statements
and disclosures.
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 Unaudited
Condensed Consolidated Financial Statements
3. Recapitalization Transaction
On May 29, 2020, the
Company, formerly known as Mudrick Capital Acquisition Corporation, 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 the Company,
MUDS Acquisition Sub, Inc. (“Acquisition Sub”) and 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
terms 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, 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.
|
|
b.
|
Pursuant to a forward purchase contract, the Company issued 0.625 million
shares of common stock and 2.5 million 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 gross cash proceeds of $25.0 million. The warrants included in the units
have substantially the same terms as the private placement warrants. 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.
Refer to Note 11 - Warrant Liabilities and Note 13 - Stockholders' Equity for further detail on the warrants issued.
|
|
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 28.5 million warrants to purchase shares of common stock at a price of $11.50 per share that were issued
to the Company's public stockholders at the time of the SPAC’s initial public offering (see Note 11 - Warrant Liabilities
and Note 13 - Stockholders' Equity for further detail on the warrants issued).
|
|
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 of $44.82 per share. 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, 2021, 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.
|
HYCROFT MINING HOLDING CORPORATION
Notes to Unaudited
Condensed Consolidated Financial Statements
Seller’s pre-Recapitalization Transaction
indebtedness
|
a.
|
Seller’s $125.5 million First Lien Agreement with the Bank of
Nova Scotia, as agent, and a $6.9 million promissory note plus accrued and unpaid interest were repaid with cash.
|
|
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 in aggregate principal amount of Seller’s 1.25
Lien Notes were exchanged for $80.0 million in aggregate principal amount of new Subordinated Notes of the Company.
|
|
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.
|
|
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. 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%. 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 and paid $7.4 million of cash for additional transaction costs.
|
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.
|
HYCROFT MINING HOLDING CORPORATION
Notes to Unaudited
Condensed Consolidated Financial Statements
4. Inventories
The following table provides the components of
Inventories and the estimated recoverable gold ounces therein (dollars in thousands):
|
March 31, 2021
|
|
December 31, 2020
|
|
Amount
|
|
Gold Ounces
|
|
Amount
|
|
Gold Ounces
|
Materials and supplies
|
$
|
6,282
|
|
|
—
|
|
|
$
|
6,449
|
|
|
—
|
|
Merrill-Crowe process plant
|
5,753
|
|
|
3,300
|
|
|
4,810
|
|
|
2,587
|
|
Carbon-in-column
|
2,750
|
|
|
1,703
|
|
|
299
|
|
|
166
|
|
Finished good (doré and off-site carbon)
|
4,165
|
|
|
2,489
|
|
|
1,309
|
|
|
710
|
|
Total
|
$
|
18,950
|
|
|
7,492
|
|
|
$
|
12,867
|
|
|
3,463
|
|
As of March 31, 2021
and December 31, 2020, in-process inventories and finished goods inventories included $0.7 million and $0.3 million, respectively
of capitalized depreciation and amortization costs.
The following table summarizes
Ore on leach pads and the estimated recoverable gold ounces therein (dollars in thousands):
|
March 31, 2021
|
|
December 31, 2020
|
|
Amount
|
|
Gold Ounces
|
|
Amount
|
|
Gold Ounces
|
Ore on leach pads, current
|
$
|
33,090
|
|
|
20,140
|
|
|
$
|
38,041
|
|
|
21,869
|
|
Ore on leach pads, non-current
|
9,243
|
|
|
5,626
|
|
|
7,243
|
|
|
4,164
|
|
Total
|
$
|
42,333
|
|
|
25,766
|
|
|
$
|
45,284
|
|
|
26,033
|
|
As of March 31, 2021
and December 31, 2020 (net of write-downs discussed below), Ore on leach pads, current included $2.4 million and $1.8 million,
respectively, of capitalized depreciation and amortization costs. Additionally, as of March 31, 2021 and December 31, 2020 Ore
on leach pads, non-current included $2.3 million and $0.4 million respectively, of capitalized depreciation and amortization costs.
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). The Company did not record a Write-down of production inventories
during the three months ended March 31, 2021.
During the three months ended
March 31, 2020, based on metallurgical balancing results, the Company determined that 3,980 ounces of gold that had been placed on
the leach pads were no longer recoverable and recognized a Write-down of production inventories
on the consolidated statements of operations, which included Production costs of $6.5 million, and capitalized depreciation and
amortization costs of $0.5 million. The write-offs of ounces during the three months ended
March 31, 2020 were 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.
Mine site period costs
During the three months ended
March 31, 2021 and 2020, the Company incurred $10.2 million and $6.6 million, respectively of Mine site period costs (which
included $0.6 million and $0.5 million of capitalized depreciation and amortization, respectively) 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 recurring or significant downtime or delays, unusually high levels of repairs, inefficient operations, overuse of processing reagents,
inefficient cost-volume structures, or other unusual costs and activities, and cannot be recorded to production-related inventories based
on the threshold established by the calculation of the estimated net realizable value per ounce of gold, which incorporates estimated
future processing, refining, and selling costs, as well as the value for by-product silver.
HYCROFT MINING HOLDING CORPORATION
Notes to Unaudited
Condensed Consolidated Financial Statements
As a result of the Company’s
decision to direct leach its run-of-mine ore, estimates for further processing leach pad ore were updated to reflect reduced reagent costs
for oxidizing and rinsing ore, as well as reduced overhead and other direct costs. Had these estimated costs been applied to inventory
as of December 31, 2020, the net realizable value of inventory would have been increased by approximately $2.4 million, or $0.07
per share.
5. Prepaids and Other
The following table provides
the components of Prepaids and other and Other assets, non-current (dollars in thousands):
|
March 31,
2021
|
|
December 31,
2020
|
Prepaids and other
|
|
|
|
Prepaids
|
$
|
3,458
|
|
|
$
|
3,198
|
|
Deposits
|
1,107
|
|
|
1,105
|
|
Total
|
$
|
4,565
|
|
|
$
|
4,303
|
|
|
|
|
|
Other assets, non-current
|
|
|
|
Equipment not in use
|
$
|
12,238
|
|
|
$
|
12,238
|
|
Consignment inventory - supplies
|
1,770
|
|
|
885
|
|
Royalty - advance payment
|
480
|
|
|
360
|
|
Total
|
$
|
14,488
|
|
|
$
|
13,483
|
|
Prepaids
The following table provides
the components of prepaids included in the above table (dollars in thousands):
|
March 31,
2021
|
|
December 31,
2020
|
Prepaid insurance
|
$
|
2,549
|
|
|
$
|
1,847
|
|
Mining claims and permitting fees
|
282
|
|
|
417
|
|
Subscription and license fees
|
280
|
|
|
259
|
|
Property taxes
|
177
|
|
|
—
|
|
Equipment mobilization
|
—
|
|
|
423
|
|
Other
|
170
|
|
|
252
|
|
Total
|
$
|
3,458
|
|
|
$
|
3,198
|
|
Deposits
Deposits include payments
for rental equipment mobilization.
Equipment not in use
As of March 31, 2021,
equipment not in use was classified as Other assets, non-current and included ball mills, SAG mills, regrind mills, and
related motors and components that were previously purchased by a predecessor of the Company. During the second quarter of 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. In the fourth quarter of 2020, the Company began reevaluating the best use of
this equipment previously marketed for sale, while it continues to develop the proprietary two-stage sulfide heap oxidation and leaching
process technology for its large-scale operation, and the Company paused the marketing of this equipment while it continues to develop
the technology and process for a large-scale operation. As a result, equipment not in use is included in Other assets, non-current.
HYCROFT MINING HOLDING CORPORATION
Notes to Unaudited
Condensed Consolidated Financial Statements
Consignment inventory - supplies
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 March 31, 2021,
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 21 - Commitments and Contingencies
for further detail.
6. Plant, Equipment, and Mine Development,
Net
The following table provides
the components of Plant, equipment, and mine development, net (dollars in thousands):
|
Depreciation Life
or Method
|
|
March 31,
2021
|
|
December 31,
2020
|
Leach pads
|
Units-of-production
|
|
$
|
17,432
|
|
|
$
|
17,432
|
|
Process equipment
|
5 - 15 years
|
|
17,459
|
|
|
16,065
|
|
Buildings and leasehold improvements
|
10 years
|
|
10,507
|
|
|
10,507
|
|
Mine equipment
|
5 - 7 years
|
|
6,707
|
|
|
5,961
|
|
Vehicles
|
3 - 5 years
|
|
1,227
|
|
|
991
|
|
Furniture and office equipment
|
7 years
|
|
341
|
|
|
322
|
|
Mine development
|
Units-of-production
|
|
1,096
|
|
|
756
|
|
Mineral properties
|
Units-of-production
|
|
37
|
|
|
37
|
|
Construction in progress and other
|
|
|
37,683
|
|
|
33,185
|
|
|
|
|
$
|
92,489
|
|
|
$
|
85,256
|
|
Less, accumulated depreciation and amortization
|
|
|
(26,134)
|
|
|
(25,033)
|
|
Total
|
|
|
$
|
66,355
|
|
|
$
|
60,223
|
|
During the three months ended
March 31, 2021, new process equipment was placed into service ($1.4 million), new mine equipment was placed into service ($0.7 million),
and construction of a new larger leach pad continued through February 2021 at which time construction was suspended ($3.2 million,
including $0.7 million of capitalized interest), resulting in construction costs for the new larger leach pad of $34.1 million
since commencing construction in 2020, which was the primary project included in construction in progress as of March 31, 2021. For
the three months ended March 31, 2021 and the year ended December 31, 2020, 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.
Mineral properties
As of March 31, 2021,
and December 31, 2020, Mineral properties included an asset retirement 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.
7. Restricted Cash
The following table provides
the components of Restricted cash (dollars in thousands):
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Reclamation surety bond cash collateral
|
|
$
|
39,700
|
|
|
$
|
39,677
|
|
HYCROFT MINING HOLDING
CORPORATION
Notes to Unaudited
Condensed Consolidated Financial Statements
As of March 31, 2021,
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.
8. Other Liabilities
The following table summarizes the components
of Other liabilities, current and Other liabilities, non-current (dollars in thousands):
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Other liabilities, current
|
|
|
|
|
|
|
|
|
Accrued compensation
|
|
$
|
2,106
|
|
|
$
|
1,560
|
|
Salary continuation payments
|
|
|
1,533
|
|
|
|
1,215
|
|
Restricted stock units
|
|
|
837
|
|
|
|
913
|
|
Deferred payroll tax liability
|
|
|
471
|
|
|
|
436
|
|
Accrued directors fees
|
|
|
33
|
|
|
|
33
|
|
Total
|
|
$
|
4,980
|
|
|
$
|
4,157
|
|
|
|
|
|
|
|
|
|
|
Other liabilities, non-current
|
|
|
|
|
|
|
|
|
Salary continuation payments
|
|
$
|
904
|
|
|
$
|
1,145
|
|
Deferred payroll tax liability
|
|
|
471
|
|
|
|
505
|
|
Total
|
|
$
|
1,375
|
|
|
$
|
1,650
|
|
Salary continuation payments
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.
Deferred Payroll tax liability
Under the Coronavirus Aid,
Relief, and Economic Security Act (the “CARES Act”), the Company has deferred payment of certain employer payroll taxes, with
50% due December 31, 2021 and 50% due December 31, 2022.
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.
As of March 31, 2021,
the Company was in compliance with all covenants under its debt agreements.
HYCROFT MINING HOLDING
CORPORATION
Notes to Unaudited
Condensed Consolidated Financial Statements
Debt balances
In February 2021, the Company
financed the $0.4 million purchase of a rental fuel/lube truck with a note payable to the vendor with an interest rate of 0.99%, requiring
equal monthly payments for 48 months.
The following table summarizes
the components of debt (dollars in thousands):
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Debt, net, current:
|
|
|
|
|
|
|
|
|
Sprott Credit Agreement(1)
|
|
$
|
7,753
|
|
|
$
|
5,274
|
|
Note payable
|
|
|
99
|
|
|
|
—
|
|
Less, debt issuance costs
|
|
|
(411
|
)
|
|
|
(154
|
)
|
Total
|
|
$
|
7,441
|
|
|
$
|
5,120
|
|
|
|
|
|
|
|
|
|
|
Debt, net, non-current:
|
|
|
|
|
|
|
|
|
Subordinated Notes
|
|
$
|
86,917
|
|
|
$
|
84,797
|
|
Sprott Credit Agreement, net of original issue discount ($13.6 million, net)
|
|
|
61,901
|
|
|
|
61,894
|
|
Note payable
|
|
|
307
|
|
|
|
—
|
|
Less, debt issuance costs
|
|
|
(3,281
|
)
|
|
|
(4,026
|
)
|
Total
|
|
$
|
145,844
|
|
|
$
|
142,665
|
|
(1)
|
Amount includes: (i) $2.2 million of Additional Interest, as defined in the Sprott Credit Agreement, and
(ii) $5.6 million scheduled principal payments under the Sprott Credit Agreement, all due in the next twelve months.
|
The following table summarizes
the Company's contractual payments of long-term debt, including current maturities, for the five years subsequent to March 31, 2021 (dollars
in thousands):
2021
|
|
$
|
7,698
|
|
2022
|
|
|
20,821
|
|
2023
|
|
|
24,516
|
|
2024
|
|
|
24,508
|
|
2025
|
|
|
93,020
|
|
Total
|
|
|
170,563
|
|
Less, original issue discount, net of amortization ($3.4 million)
|
|
|
(13,586
|
)
|
Less, debt issuance costs, net of amortization ($0.4 million)
|
|
|
(3,692
|
)
|
Total debt, net, current and non-current
|
|
$
|
153,285
|
|
HYCROFT MINING HOLDING
CORPORATION
Notes to Unaudited
Condensed Consolidated Financial Statements
Interest expense, net of capitalized interest
The following table summarizes
the components of recorded Interest expense, net of capitalized interest (dollars in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Sprott Credit Agreement
|
|
$
|
2,640
|
|
|
$
|
—
|
|
Subordinated Notes
|
|
|
2,120
|
|
|
|
—
|
|
Amortization of debt issuance costs
|
|
|
335
|
|
|
|
672
|
|
Other interest expense
|
|
|
8
|
|
|
|
—
|
|
2.0 Lien Notes
|
|
|
—
|
|
|
|
7,816
|
|
1.5 Lien Notes
|
|
|
—
|
|
|
|
5,139
|
|
1.25 Lien Notes
|
|
|
—
|
|
|
|
3,352
|
|
First Lien Agreement
|
|
|
—
|
|
|
|
2,867
|
|
Promissory Note
|
|
|
—
|
|
|
|
85
|
|
Capitalized interest
|
|
|
(654
|
)
|
|
|
(44
|
)
|
Total
|
|
$
|
4,449
|
|
|
$
|
19,887
|
|
The Company capitalizes interest
to Plant, equipment, and mine development, net on the condensed 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 is required to remit royalty payments to the Payee free and clear and without
any present or future deduction, withholding, charge or levy on account of taxes, except Excluded Taxes as such term is 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 three months ended
March 31, 2021, the Company recorded amortization of the royalty obligation of approximately $0.03 million and made payments of $0.4
million. As of March 31, 2021, $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 Unaudited
Condensed Consolidated Financial Statements
11. Warrant Liabilities
The following table summarizes
the Company's outstanding warrants (dollars in thousands):
|
|
5-Year Private Warrants
|
|
|
Seller Warrants
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Balance at January 1, 2021
|
|
|
9,888,415
|
|
|
$
|
15,326
|
|
|
|
12,621,623
|
|
|
$
|
63
|
|
|
|
22,510,038
|
|
|
$
|
15,389
|
|
Fair value adjustments
|
|
|
—
|
|
|
|
(9,459
|
)
|
|
|
—
|
|
|
|
(34
|
)
|
|
|
—
|
|
|
|
(9,493
|
)
|
Balance at March 31, 2021
|
|
|
9,888,415
|
|
|
$
|
5,867
|
|
|
|
12,621,623
|
|
|
$
|
28
|
|
|
|
22,510,038
|
|
|
$
|
5,897
|
|
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 March 31, 2021 and 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 included
in 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. The Seller Warrants are listed on the Nasdaq Capital Market
under the symbol "HYMCZ". See Note 19 - Fair Value Measurements for further detail on the Seller Warrants.
HYCROFT MINING HOLDING
CORPORATION
Notes to Unaudited
Condensed Consolidated Financial Statements
12. Asset Retirement Obligation ("ARO")
During the three months ended
March 31, 2021 and 2020, the Company incurred $0.1 million of Accretion related to the ARO. Additionally, as of March 31,
2021 and December 31, 2020, the Company's ARO liability base was $4.9 million and $4.8 million, respectively. The Company did
not incur any reclamation expenditures during the three months ended March 31, 2021 and 2020. As of March 31, 2021, 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. During the three months ended March 31, 2021, there were no events or changes to the Company's regulatory
environment that would require a change to the Company's ARO. As a result, the Company did not record any adjustments to the ARO due to
changes in estimates.
13. Stockholders' Equity
As of March 31, 2021,
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 March 31, 2021,
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 March 31, 2021,
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.
Public Offering Warrants
On October 6, 2020,
the Company issued 9,583,334 units in an underwritten public offering at an offering price 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 (the "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 Company has certain abilities to call
such Public Offering Warrants if the last reported sale price of common stock equals or exceeds $17.00 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. The shares of common stock and 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 "HYMCL".
HYCROFT MINING HOLDING
CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
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
similar 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"). 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 March 31, 2021 and December 31, 2020, the Company had 24,401,483 5-Year Public Warrants
outstanding as 351,585 of the 5-Year Private Warrants were transferred to an Unrelated Third Party during the year ended December 31,
2020 and are therefore included in 5-Year Public Warrants. 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 (dollars in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
Amount
|
|
|
Ounces
Sold
|
|
|
Amount
|
|
|
Ounces
Sold
|
|
Gold sales
|
|
$
|
17,541
|
|
|
|
9,830
|
|
|
$
|
10,348
|
|
|
|
6,560
|
|
Silver sales
|
|
|
1,495
|
|
|
|
57,236
|
|
|
|
798
|
|
|
|
49,373
|
|
Total
|
|
$
|
19,036
|
|
|
|
|
|
|
$
|
11,146
|
|
|
|
|
|
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 of the three months ended
March 31, 2021 and 2020 were to the same customer. For the three months ended March 31, 2021 and 2020, approximately 96.5% and
96.6%, 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 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 1,146,784 shares available for issuance under the PIPP. There are no equity compensation plans
not approved by stockholders.
As of March 31, 2021, 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. Certain restricted stock units granted to non-employee directors vested immediately while others vest in equal
installments over a two to three year period.
HYCROFT MINING HOLDING
CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
For restricted stock units
granted in the first quarter of 2019 that had not vested as of March 31, 2021 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 (dollars in thousands):
|
|
|
Performance and Incentive Pay
|
|
|
|
|
Three months ended March 31, 2021
|
|
|
|
Three months ended March 31, 2020
|
|
Non-vested at beginning of year
|
|
$
|
2,870
|
|
|
$
|
2,509
|
|
Granted
|
|
|
4,804
|
|
|
|
—
|
|
Canceled/forfeited
|
|
|
(158
|
)
|
|
|
(1,339
|
)
|
Vested
|
|
|
(581
|
)
|
|
|
(583
|
)
|
Non-vested at end of period
|
|
$
|
6,935
|
|
|
$
|
587
|
|
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.
During the three months ended
March 31, 2021 and the year ended December 31, 2020, the Company reclassified $0.1 million and $1.8 million from Other
liabilities, current to Additional paid-in capital for 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.
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.
16. Income Taxes
The Company's anticipated
annual tax rate is impacted primarily by the amount of taxable income associated with each jurisdiction in which its income is subject
to income tax, permanent differences between the financial statement carrying amounts and tax bases of assets and liabilities.
During the three months ended
March 31, 2021, and 2020, the Company incurred no income tax expense or benefit. The effective tax rate for the three months ended
March 31, 2021, and 2020, was 0%. The effective tax rates differed from the statutory rate during each period primarily due to changes
in the valuation allowance established to offset net deferred tax assets.
HYCROFT MINING HOLDING
CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
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):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Net loss
|
|
$
|
(9,688
|
)
|
|
$
|
(34,618
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
59,901,306
|
|
|
|
323,328
|
|
Diluted
|
|
|
59,901,306
|
|
|
|
323,328
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share
|
|
$
|
(0.16
|
)
|
|
$
|
(107.07
|
)
|
Diluted loss per common share
|
|
$
|
(0.16
|
)
|
|
$
|
(107.07
|
)
|
The weighted-average shares
of common stock outstanding for the three months ended March 31, 2020 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 2020 period exclude the common share effects from
certain of Seller's debt instruments, which are reflected in the 2021 period.
Due to the Company's net
loss during the three months ended March 31, 2021 and 2020, there was no dilutive effect of common stock equivalents because the
effects of such would have been anti-dilutive. For the three months ended March 31, 2020, using the treasury stock method, the
weighted-average common stock equivalents excluded from diluted loss per share calculation was 3.2 million shares related to warrants.
Additionally, for the three months ended March 31, 2021, due to the anti-dilutive impact on income per common share, the weighted-average
common stock equivalents excluded from the diluted income per share calculation was 57.6 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 Unaudited Condensed 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 (dollars in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
Hycroft Mine
|
|
|
Corporate and Other
|
|
|
Total
|
|
2021
|
|
|
|
|
|
|
|
|
|
Revenue - Note 14
|
|
$
|
19,036
|
|
|
$
|
—
|
|
|
$
|
19,036
|
|
Cost of sales
|
|
|
29,402
|
|
|
|
—
|
|
|
|
29,402
|
|
Other operating costs
|
|
|
595
|
|
|
|
3,794
|
|
|
|
4,389
|
|
Loss from operations
|
|
|
(10,961
|
)
|
|
|
(3,794
|
)
|
|
|
(14,755
|
)
|
Interest expense - Note 9
|
|
|
—
|
|
|
|
(4,449
|
)
|
|
|
(4,449
|
)
|
Fair value adjustment to warrants - Note 19
|
|
|
—
|
|
|
|
9,493
|
|
|
|
9,493
|
|
Interest income
|
|
|
23
|
|
|
|
—
|
|
|
|
23
|
|
Income (loss) before income taxes
|
|
|
(10,938
|
)
|
|
|
1,250
|
|
|
|
(9,688
|
)
|
Income taxes - Note 16
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss)
|
|
$
|
(10,938
|
)
|
|
$
|
1,250
|
|
|
$
|
(9,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue - Note 14
|
|
$
|
11,146
|
|
|
$
|
—
|
|
|
$
|
11,146
|
|
Cost of sales
|
|
|
23,890
|
|
|
|
—
|
|
|
|
23,890
|
|
Other operating costs
|
|
|
93
|
|
|
|
2,006
|
|
|
|
2,099
|
|
Loss from operations
|
|
|
(12,837
|
)
|
|
|
(2,006
|
)
|
|
|
(14,843
|
)
|
Interest expense - Note 9
|
|
|
(85
|
)
|
|
|
(19,802
|
)
|
|
|
(19,887
|
)
|
Fair value adjustment to warrants - Note 19
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest income
|
|
|
112
|
|
|
|
—
|
|
|
|
112
|
|
Loss before income taxes
|
|
|
(12,810
|
)
|
|
|
(21,808
|
)
|
|
|
(34,618
|
)
|
Income taxes - Note 16
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(12,810
|
)
|
|
$
|
(21,808
|
)
|
|
$
|
(34,618
|
)
|
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 (dollars in
thousands).
|
|
Hierarchy
Level
|
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities, non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
5-Year Private Warrants
|
|
|
2
|
|
|
|
5,869
|
|
|
|
15,327
|
|
Seller Warrants
|
|
|
2
|
|
|
|
28
|
|
|
|
62
|
|
Total
|
|
|
|
|
|
$
|
5,897
|
|
|
$
|
15,389
|
|
HYCROFT MINING HOLDING CORPORATION
Notes to Unaudited Condensed Consolidated
Financial Statements
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, while held by the SPAC sponsor and/or SPAC underwriter
and their permitted transferees, are precluded from mandatory redemption and are entitled to be exercise on a "cashless basis"
at the holder’s election, 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 Warrants
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 11 - Warrant Liabilities for additional information on the Seller Warrants.
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 March 31, 2021 and December 31, 2020, the fair value of the Company’s debt instruments was $156.8 million and $154.9
million, compared to the carrying value of $153.3 million and $147.8 million as of March 31, 2021 and December 31, 2020, respectively.
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.
Royalty obligation
As of March 31, 2021
and December 31, 2020, the estimated net present value of the Company’s Royalty obligation was $117.8 million and $148.4 million,
respectively, compared to the carrying value of $30.0 million as of both March 31, 2021 and December 31, 2020. 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.
HYCROFT MINING HOLDING CORPORATION
Notes to Unaudited Condensed Consolidated
Financial Statements
20. Supplemental Cash Flow Information
The following table provides
supplemental cash flow information (dollars in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
3,313
|
|
|
|
|
|
|
|
|
|
|
Significant non-cash financing and investing activities:
|
|
|
|
|
|
|
|
|
Increase in debt from in-kind interest
|
|
|
3,671
|
|
|
|
16,420
|
|
Plant, equipment, and mine development additions included in accounts payable
|
|
|
911
|
|
|
|
364
|
|
Plant, equipment, and mine development acquired by note payable
|
|
|
407
|
|
|
|
—
|
|
Vesting of restricted stock units
|
|
|
115
|
|
|
|
—
|
|
Accrual of deferred financing and equity issuance costs
|
|
|
—
|
|
|
|
382
|
|
In addition to the supplemental
cash flow information shown above, Note 3 - Recapitalization Transaction provides additional details on non-cash transactions that
were part of the Recapitalization Transaction, as well as information on non-cash interest charges.
21. 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.
Financial commitments not recorded in the
financial statements
As of March 31, 2021 and
December 31, 2020, 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 March 31, 2021. The total remaining
minimum lease payments for the two leases was approximately $4.6 million as of March 31, 2021.
The Company also holds operating
leases. Rent expense is $0.1 million annually and the leases expire between July 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 Unaudited Condensed 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 March 31, 2021, total tons mined from the
leased claims did not exceed 5.0 million tons. The total payments due under the mining lease are capped at $7.6 million, of which
the Company has paid or accrued $2.8 million and included $0.4 million in Other assets, non-current in the consolidated
balance sheets as of March 31, 2021.
Consignment inventory
During the first quarter
of 2020, the Company 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 the Company (the "Consignment Inventory Agreement").
Pursuant to the Consignment Inventory 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 March 31, 2021, the Company had prepaid
$1.8 million towards the un-replenished consignment stock inventory, which is included in Prepaids and other on the condensed
consolidated balance sheets. Additionally, pursuant to the Inventory Consignment Agreement, in the first quarter of 2021, the Company
purchased $0.5 million of replenished consignment stock inventory, payable monthly in 12 equal payments beginning in March 2021.
The replenished stock inventory is included in Inventories on the condensed consolidated balance sheet, with an offsetting payable
included in Accounts payable on the condensed consolidated balance sheet. See Note 2 - Summary of Significant Accounting Policies
and Note 5 - Prepaids and Other for additional detail.
22. Related Party Transactions
Certain amounts of the Company's indebtedness have
historically, and with regard to the $80.0 million of Subordinated Notes, are currently, held by five financial institutions. As
of March 31, 2021, 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 three months ended March 31, 2021 and 2020, Interest expense, net of
capitalized interest included $1.8 million and $17.9 million, respectively, for the debt held by Related Parties. As of March 31,
2021 and December 31, 2020, the Related Parties held a total $73.0 million and $71.2 million, respectively, of debt. Additionally, during
2020, 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 as of March 31, 2021. During the three months ended March 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 Public Offering Warrants, issued in the Public Offering, respectively. Refer to Note 13 - Stockholders' Equity
for further information.
23. Subsequent Events
On April 12, 2021, the Company
executed an operating lease agreement for a new large wheel loader with equal monthly payments of $0.1 million payable over four
years, in addition to monthly maintenance payments based upon a fixed rate per service maintenance units.
HYCROFT MINING HOLDING CORPORATION
9,583,334 Shares of Class A Common Stock Issuable upon Exercise of the Warrants
PROSPECTUS
May 20, 2021
You should rely only
on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with
different information. You should not assume that the information contained or incorporated by reference in this prospectus is
accurate as of any date other than the date of this prospectus. We are not making an offer of these securities in any state where
the offer is not permitted.