Hycroft Mining Holding Corporation (HYMC) 2021 Q2 法說會逐字稿

Good day, and welcome to the Hycroft Second Quarter 2021 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Tracey Thom Vice President. Please go ahead, ma'am.

Thank you, and thank you, everyone, for joining us this morning. Today we'll be discussing our second quarter 2021 results for which we filed our Form 10-Q with the Securities and Exchange Commission and issued a press release. The press release can be found on our website at www. dot Hycroft mining.com. Please read the press release and listen to this call-in conjunction with reviewing the Form 10-Q, which contains additional disclosures.

Also, please note that some information provided during the call may include forward-looking statements that involve risks, uncertainties and assumptions. Even if these risks or uncertainties have been materialized or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward.

Looking discussion of such risks, uncertainties and assumptions are set forth in more detail in our press releases and SEC filings, including the most recently filed 10-Q and 10- K. We assume no obligation and do not intend to update such forward-looking statements.

I'll now turn the call over to [Diane Garrett, President and CEO.

Thank you, Tracy, and good morning, everyone, and thank you for participating today on our call to discuss our second quarter 2021 achievements. I am Diane Garrett, President and CEO of Hycroft Minings.

And along with me today and when I'm out and about is that Tracy who just spoke with you and others on the call are Jack Henris is our Executive Vice President, Chief Operating Officer; Stan Rideout; our Executive Vice President and Chief Financial Officer, and Mike Eiselein, our Vice President and General Manager.

After I make some initial remarks, I'm going to ask Stan Rideout to review the highlights of our first quarter financials, followed by Jack, who's going to provide a brief operational update, and then we'll be opening the call up for questions.

As we mentioned in some of our prior calls, 2021 is a defining year for Hycroft as we complete a lot of the necessary work in order to unlock the value of the Hycroft Mine, which, as a reminder, the largest silver resource in North America with over 700 million ounces.

And it's the second largest gold resource in the US with 21 million ounces of gold. We still have plenty of open areas for resource expansion, including both oxide and sulfide materials. That truly is a world-class asset with hundreds of millions of dollars of infrastructure on the site.

We have an operational mine and we are fully permitted and one of the very best jurisdictions for mining, not just for heap leach operation, should we decide that it makes sense. We're also permitted for mill operation also. It would take many, many years, and I'll talk a lot of money to duplicate what we have here at this site and to bring any mine to our current state of operations.

So we're very proud of the assets that we have, this world-class resource and what this team is doing to unlock the value at [Hycroft, our stock price in our opinion, in no way reflects the value of this asset. And by the way, many of us in management and Board are very engaged shareholders also, and we are committed to realizing the value that is inherent in this asset.

We can certainly appreciate the disappointment when we communicated that there was more work required to do at Hycroft before we reach commercial scale sulphide operations, but we hope that by having identified the gaps in the prior work and also the necessary components that are critical to commercial success and it in some way provides a level of comfort that this team is extremely capable and highly qualified and operational execution and in our approach to minimizing risk, which will all translate into shareholder value.

Before I recap the plans and visions for the remainder of this year and beyond. I want to address a couple of other important key areas. We've got a lot of positive things happening here at [Hycroft. And while they don't particularly make for newsworthy announcements on an interim basis, please know that this team is working diligently on many, many fronts, and we're delivering very good results.

We still have a lot of work to do over the rest of this year, but we're on schedule and we're on budget for delivery network. I'm extremely proud of the positive changes and accomplishments that we've made over the past year. A lot of the initiatives that we put into place in 2020 that we spoke about in the past, we're starting to see the results of all of that great work.

We've made remarkable improvements in our safety with an 83% decrease in the total recordable incident frequency rate for what we refer to as TRIFR over the last 12 months, we have gone from a 3.8 TRIFR rating to 0.62 and well below industry average. And I was just informed yesterday a sign that at the end of July, our TRIFR decreased again to 0.53.

So remarkable achievement by the team. We've also seen a dramatic improvement in the culture and morale on site. We recently conducted an employee engagement survey, which revealed from our employees' perspective that our company culture has transformed over this past year into one of teamwork and transparency, collaboration on operational improvements on a commitment towards excellence in all areas and the striving focus on keeping our employees safe every day and it was commented by many that they feel valued as an employee of Hycroft that they want to be part of the success of Hycroft, and they're recommending their friends at Hycroft being a great place to work. The improved engagement of this entire team is reflected in the operating performance numbers that we're seeing today.

In addition to our dramatically improved safety record, we're also driving performance for operating more efficiently, more cost effectively, and we're reducing cost of mining and processing. And I want to thank everybody at Hycroft for the role that you played in getting us to this point. It's really been a miraculous turnaround. The operations continue to hit their production targets.

And this is the first time since we restarted the operations the Hycroft Mine has not only met its targets. It is domiciled for 30 consecutive quarters. As I mentioned, we've driven costs down in both mining and processing areas, made a lot of improvements to equipment efficiency and utilization. And that in and of itself is very remarkable given the age of our fleet.

And we've also improved the overall plant efficiency. Moreover, since this team has been put into place. We've had no write-downs of mineral inventory from the leach pads. I'm very pleased to say that the initiatives undertaken in 2020 are starting to come to fruition through out the organization and the operations. So now let's talk about some of the activities that we've been conducting this year, which are going to be completed by year end, followed by an internal review of that work with the team, and then we'll be presenting those results to the market during the first quarter of 2022.

Availability drilling in that program is well underway and it's on budget. It's on schedule. Samples are being sent to the lab; analyses are ongoing. We're doing a suite of metallurgical tests of each domain that we've been drilling and submitting for the lab. And this work is important, not just for the two-stage sulfide oxidation and late process, but any milling process or any process that we would be implementing on a commercial scale here at Hycroft. We have initiated column touched on site; we are using the sulfide material that we've been mining this year.

And this is going to give a clear picture of oxidation and chemistry management so that we can mimic the precise conditions of the commercial application prior to spending considerable time and money on pesky. We've conducted a range of internal scoping analyses on a variety of processing methods. And the result of the work that we've been doing in that regard indicates that one with respect to the novel sulfide oxidation and leach process, we have identified and also previously reported to the market, several items that are critical to any successful commercial application of this process, which will likely lead us to update our capital costs and operating costs as they're better defined.

You'll recall that some of those items include the need for an agglomeration circuit forced air injection circuit. And through some of the work that we've been doing this year, we now know that the best option for handling multi solutions on a multi-leaf keep will be on off pads. So that's a critical component to the process [facility to determine what we will require in terms of material handling components for, of course, the size of the on-off pad. With respect to a milling process, we have completed scoping level economics and to make internal evaluations on multiple milling process options at various throughput rates with associated mine plans.

There was a feasibility study on the AML process in 2014 for the Hycroft mine. And then subsequent to that, what was the feasibility study in 2016 based on smaller tonnage throughput and also reduce capital progress. At the time of the 2016 feasibility study, the company was private. So that report was not filed or disclosed publicly, and we have with the same engineering reviewed the past technical work and the very successful 10 tonne per day mill demonstration plant to follow during the fall of the 2016 feasibility study.

Based on that work that our team has done in connection with the Ausenco engineering, we have determined that we should advance to a feasibility study for the mill AAO process. And we've engaged Ausenco Engineering to complete this work. This doesn't negate any other process that we're working on. We've just identified a lot of areas within this process that is important to complete the feasibility study on it. We're going to also be utilizing independent mining consultants.

Many of you know them as I am saying, they're going to be developing the mine planning as a subcontractor for us. And so we expect to have the feasibility completed in the first quarter of 2022. In addition to that, we plan to kick off a pre-feasibility study very soon on pressure oxidation process.

This is a process that would yield significantly higher recoveries for both gold and silver at any of the processes that we've studied to date, previous test work indicates that high-cost ores performed very well when subjected to alkaline pressure oxidation conditions. This work is also going to be completed by year end with the results expected to be announced from the first quarter's 2022, who are in the process of receiving bids from engineering firms and expect to make that selection shortly.

So a lot of work to do on the technical studies and the work for the two-stage process for AAO mill feasibility and for the pressure oxidation pre-feasibility, all of which will be completed by year end reviewed by our team and available just to disclose to the market in the first quarter of 2022. While we've been doing all of that work, we've also been working on developing a run a mine plan for 2022 and beyond with the idea of bridging the run of mine operations to commercial sulfide production, while we optimize our cash.

The run of mine plan has an important secondary objective of removing the run-of-mine oxide and transition material in a manner to expose the commercial scale sulfides. To recall that we have around 40 million tonnes of material that needs to be made before we could get into commercial scale sulfide operations. This work is ongoing on the mine plan, and we expect to have it completed by the end of the year and coincide with the results of our other technical reports.

Now let's talk about cash because that is always on everybody's mind, and we know that there's a lot of speculation regarding the timing of any potential financing. First of all, we have a lot of work to do for the remainder of this year and in the first quarter of next year. And that work is going to give us a lot of valuable and necessary information that we're going to use to help us determine what our mine plans are going to be and any capital needs associated with a specific mine plan.

With the improvements that we have made and the efficiency of our mining fleet, our plans are to continue utilizing the current fleet until all of our technical work is completed. We will continue to drive unit costs lower to reduce the negative burn until we have clarity on what our commercial operation plan will be and how we are going to implement it because until we net it out until the mine plan is finalized for the most suitable process or combination of processes, we don't know what size haul trucks are going to need or how many we're going to need and what's going to be required specifically for the type of sulfide operation that we're going to be presenting.

So we do have a plan to recommission the North Merrill-Crowe plant and do a phased installation commissioning of the new refinery there. We spoke to you about that upgrade in the past. We've also spent considerable effort to mechanically and operationally improve the existing Brimstone Merrill-Crowe plant facility and the plant flows and recoveries that we're seeing from Brimstone are the highest the sizes experienced in many, many years.

We also filed a S-3 in July that not only allows us to incorporate S1 filings by reference, but it also provides for universal shelf, but to provide flexibility for the company. A shelf is prudent for any company, including Hycroft as we continue to monitor and evaluate opportunities to appropriately fund the company once we have clarity on the mine plan and processing methods, however, we currently do not have any agreements or understandings to issue any securities under the shelf.

At current prices and with the current plans we have and utilizing our own equipment, we expect to remain comfortably above our $10 million cash threshold, which is required under our debt covenants to the second quarter of 2022. This is going to help us and enable us to complete the necessary technical work, generate mine plans, finalize the plant flowsheet and then be able to assess any capital requirements. I'm extremely pleased with this team and what we've been able to achieve over the past 9 to 12 months.

We have a very full year with technical studies to be completed on three different processes, and we will continue to update the market on developments as they arise. And we look forward to providing an update on the results of this work and also to providing a coherent executable mine plan for the successful development of the commercial sulfides on the operations. And with that, I'll turn it over to Stan Rideoout after I clear my throat.

Thank you, Diane, and good morning. In terms of ounces sold revenue and cash constant for cash preservation, our second Quarter 2021 was our best quarter since we restarted pre-commercial scale operations in the second quarter of 2019. Since the new management and operating team came on board in the second half of 2020, the operational improvements that have been implemented, including the excellent management of our run-of-mine leach pads that have resulted in no ounces written off since the second quarter of 2020 are making a positive impact on our financial performance.

Second Quarter 2021 sales of 17,060 gold ounces and 189,766 silver ounces for $36 million of revenue was nearly double the first quarter of 2021 and nearly five times second quarter of a year ago, and that was due mostly to the higher sales volume from increased ore tonnages on the leach pad.

Second Quarter 2021 average realized gold price of $1,811 gross per ounce was 5% higher than the same quarter last year and year to date 2021average realized gold price per ounce per ounce was about 10% higher than the comparable six months of 2020. White product benefit from silver was significant during the second quarter of 2021, as we were able to sell some previously produced net bars containing 55,000 silver ounces.

In addition to higher silver sales volumes, second quarter 2021 average realized silver price of 26 88 per ounce was 62% higher than second quarter of a year ago and year to date 2021 average realized silver price of 26 70 per ounce was 64% higher than the same period a year ago. In the second quarter of 2021, we narrowed our loss from operations to $3.8 million and our net loss was $8.4 million after other net expenses, which was mainly interest expense, while our cash burn was reduced in the second quarter of 2021.

Because of our continuing pre-commercial scale volumes and associated higher relative operating cost profile, we've not been able to generate positive net income or positive cash flows from our operating activities. At the end of the second quarter of 2021, we had $30 million in unrestricted cash, which represents a $26 million decrease from the beginning of the year. Year to date 2021, cash used in operations was $21 million and cash used in investing activities accounted for another $9 million, but you'll note the significant decrease in the second quarter.

We also began making cash payments on the Sprott Credit Agreement in the second quarter of 2021, that was approximately $600,000. Included in our $30 million of unrestricted cash was approximately $5 million that we were able to free up from restricted cash as we replaced existing surety bonds with new surety bonds that required less cash collateral. While we complete the necessary work required for commercial skills sulphide operations, we will continue to focus on managing our cash through operational improvements and appropriate mining plans that keep us onside with our debt covenants. With that, I'll turn the conversation over to Jack.

Thank you, Stan, and good morning, everyone. And all of my years in the mining industry have not seen such a marked improvement in safety culture, operational performance and process plant efficiency in less than a year. This team has to be congratulated. We will continue to drive our costs down and enhance our operating performance. The technical team has been working on developing an oxide and transition ROM plan for 2022 and beyond. The ultimate ROM plan will be designed to coincide with the start of commercial scale operations, which of course, will be determined following the ongoing technical studies with the goal of improving our cash position and to keep the outstanding operating team in place.

Metallurgical drilling continued through the second quarter of 2021 with 31 holes drilled to date totaling approximately 31,000 feet. This drill program, as Diane already noted, just to complete the necessary variability and metallurgical work on geologic domains that were not tested in the past, but that represent a significant portion of the life of mine production.

One thing I'm particularly excited about is that throughout our mine planning work and met drilling. We've identified a number of robust targets, [including chance it is East Fault, Camel South and South of Vortex]. These areas have both oxide and sulfide targets and South vortex in particular is a very high-grade silver deposit, which remains open to the south. We have verified the prior drilling in that area and will soon be including that in our corporate presentation on our website.

While we currently remain focused on commercial-scale sulphide operations, we look forward to be able to explore the untapped potential at Hycroft. As a reminder, there's been no exploration drilling at Hycroft for more than a decade. We have a lot of work to do for the remainder of this year. And I can say that we have a team passionate about driving future success of Hycroft. Back to you, Diane.

Thanks, Jack. Appreciate it. Thank you, Stan. Also, I just before we open it up for questions. I just wanted to say that we truly appreciate the support and patience of patients of all of our shareholders as we are hard at work, investing all of the necessary work to develop the most economical long-term plan for Hycroft. This game is very passionate and very excited about what we're doing here and the opportunity to work on this world-class asset. So it�s in good hands with the team. We look forward to delivering the plans you soon early in the new year that helps provide the best value for all of our shareholders. So with that, I will turn it back to Tracey that we can open up for questions.

Please open the call for Q&A.

(Operator Instructions) Vincent Anderson, Stifel.

Thanks. Good morning. Nice job again this quarter. So yes, I think the focus here to start things off would certainly be around AAO. You're doing a little bit of background reading. The name is unique, but does this really differ significantly from other flotation processes?

Yes, this is Mike Eiselein. On the front end, I know it's a pretty straightforward, a grind flotation circuit. The oxidation piece, you know, the chemistry works. It's just a matter of designing a reactor system that it's the same retention and oxidation performance under atmospheric alkaline conditions versus a little bit higher pressure temperature in an autoclave.

Okay, that checks out. And then in that case, the one thing I'm still kind of trying to figure out it would just be utilizing your existing grind capacity or does this need to build integrated grinding?

No. So the beauty of now that we own the notes, we own the capital equipment on the front end, which is a huge peak sales are long-lead high high capital item. That's already some Boston sitting in a warehouse. So and as you know, the rest of the circuit in the plant, obviously you have a few parts and pieces, but the hard part is already sitting on the ground.

Great. And so I guess the question then becomes this isn't maybe this isn't fair, but your assessment of and maybe why this wasn't pursued more aggressively by the original--basically prior to all your involvement in the company. Why was this maybe not visited in more detail in the original mine plan?

So it comes down to the price of gold and capital all at the I think in those previous environments, you're looking at a $1,400 gold and a significant capital that they were looking for on circuit design, which I think was a little bit bloated and they lack the efficiency. It was marginal with the grade profile that currently exists.

There's a lot of ways to skin that cat. We're tackling it from, you know, the design perspective, knowing that we have that give the milling equipment already on the ground. There's a lot we can do to conserve capital with plant design on the on the back end all the way through. And we have an $1,800 gold environment to further bolster that. So it could look very attractive in a lot of different aspects.

Vincent and I would add on to what Mike said is absolutely correct that we weren't there at the time. So we don't know. But you know, as we all know, in 2015, kind of 16-time frames, all this lighting actually back closer to $1,200 gold and was looking fairly weak at the time. But also, there was a sense of, you know, seeing if they can take that chemistry and applying the heap leach setting and get into operations very quickly at even a lower capital.

And, you know, our view is that the ore body is going to tell you the best way to process this material. And we think there's some optimization and efficiencies that can be looked at in the prior work that was done. In fact, we're doing it now with Mike and his team and I think go engineering. So we definitely think it's a time to be looking at that again.

Perfect. I really appreciate the candor on that. And so if I think about it again, not to get ahead of whatever the results of the of the feasibility report are. But in your mind, is this something that bridges you and gets you a little bit more time to work on the traditional pad leach and then becomes a supplementary process thereafter. Do you think that you could get this to scale efficiently. I'm just trying to think about how this could look in the overall mine plan if the visibility comes back positive.

Yes. I think you hit the nail on the head. You know, most of the operations in Northern Nevada here are complex ore bodies right there, either refractory or double refractory ore bodies require a myriad of different process applications, you know, to expect that value, this is really no different. And so yes, this kind of gives us the time to really fine-tune the performance of the of the different metallurgical domains and then tailor the appropriate approach processing and mining approach to that, that mineralogy and you got to get that right, you got to take the time to get that right? Or it's just stuck in functionality in it.

So yes, it could be very more likely going to be a continuing oxide. Conventional heap leach will continue to work on the sulfide oxidation piece for the heap leach as well. That may have a very a a definitive impact as well as unveiling a milling circuit milling flotation and oxidation circuit as well for some of the higher-grade.

And when we look at these are all the silver price environments, Vincent, I mean, you just want to capture as much of that recovery of that gold and silver you can. And we see that in the milling scenario, you know, or definitely generates far more value in that scenario than it does in a heap leach setting. But yes, to Mike's point, it is very likely going to look like a hybrid operation so what we're doing right now and testing a duties metallurgical geologic domains to help us understand which one generates the best economic value and best recoveries under which process and router or accordingly.

Yes. And then I guess, you know that one conversation that we haven't had to have, which is great has been permitting, but maybe just walk us through what permits would be in place and what would be needed under AAO ore pox?

Yes. So yes, another huge benefit is the bulk of the permitting for the process is complete and clean tails down. Where the process is permitted, there's a couple of tails dam locations that are actually permitted. We're in this feasibility study. We're looking at those and then actually putting a plan in place to it's dewatering and everything else just tighten those up and ready to go in conjunction in parallel with as we advance the study study work on on a different plane as well.

So yes, whether it's all there. It's the previous work done at Hycroft on the permitting piece is huge. You can say whether that's going to really benefit the work we're doing now and advancing any process that we put in after autoclaves was never looked at the permitted previously, but I don't know that will be really much of the heavy lift and that honestly, it's a hydrometallurgical process. It exists in a couple other operations in Northern Nevada. It's known to the regulators. So you know, and I don't see that being a huge obstacle.

All right. Great. I'll give you a break. I'm just going to ask a couple of quick questions on cash flow. I really appreciate it. So I think I missed this line. You discussed your covenants minimum cash balance and how you felt about that. Could I just get that again?

Sure, Bart, we have two financial covenants that we focus on and they're both about a $10 million threshold. One is absolute cash and the other is net current assets of which the requires that we take a haircut of 50% on our leach pad inventory in the calculation. So we feel very good about it. The team, everybody is aware of our covenants and all of our plans are targeted toward keeping us comfortably above both threshold levels.

Okay, excellent. So that kind of informs the follow-up question, which is just yes, I know everybody is focused on the mine plan, but if we just think about the next 12 months in very broad terms. You know, it sounds like you're comfortable with those covenants just based on the run of [mine plan, but you know, as we get into 2022, what are you comfortable with continuing to operate? I've run of mine and feel comfortable producing positive operating cash flows, at least out of that before basically taking any kind of funding considerations for the go forward mine plan out of the equation?

Yes, that is exactly our plan is to continue to maximize cash generation out of the ROM plan as Jack and all of us have commented on a component of that is continuing to drive down costs. I truly believe the teams up to the task. You've seen the progress and are being more creative by the day. So no, we're optimistic. That's the plan, but information will come in later in the year and we'll reassess at that point. But as we said right now, the plan is to get as deep into 2022 being late in the second quarter with the existing cash and plan.

Perfect. And just last one from me. You maintained guidance, certainly prudent, but you have been doing quite well year to date. Was there anything exceptional about the first half of the year that you just want to make us aware of in terms of maybe just timing of what kind of grades are on the pads right now or labor constraints? I'm just being cautious into the back half of the year, but what kind of keeps you from hitting? Yes, sort of the high end of that range, let's say, based on the current trajectory.

So pad management, it's always a good process. Person doesn't really reveal all his tricks. So frankly, a lot of it's timing. And what we're seeing is really the result of that process group and of maximizing and squeezing every ounce out of that, that is getting advancing the leach front just as soon as they get it released from the mine and get a risked in our flows to the pad are the highest that I've seen since I've been here.

And recovery plant is performing well, extremely well, those are all those are all positives that are affecting our bottom line, and the rest of it is just how we manage the inventory on and off the pad throughout the rest of the year stacking placement.

And we've got a few tricks up our sleeves. We're actually bond some levers out there now on-site slopes and releasing some old areas in or even releasing roads in excess. And so those are all tricks of the trade that are really helping in our ounce profile.

All right. Perfect. Well, thanks. Thanks, everyone on the call for all the color and best of luck on the rest of the year.

Okay. Thanks, Vincent. Thank you, everybody, and we look forward to reporting back to you in the very near future.

This concludes today's call. Thank you for your participation. You may now disconnect.