Q2 2021 Hycroft Mining Holding Corporation Earnings Call
Good day and welcome to the Hycroft second quarter 2021 earnings call. Today's conference is being recorded and this time I'd like to turn the conference over to Tracy Krumme Vice President. Please go ahead ma'am.
Thank you and thank you everyone for joining us this morning.
And they will be discussing our second quarter 2021 results for which we filed our form 10-Q, and the Securities and Exchange Commission and issued a press release and.
Press release can be found on our website at www Dot Hycroft mining dot com.
Please read the press release and listen to this call in conjunction with you and the form 10-Q, which contains additional disclosures also please note that some information provided during this call may include forward looking statements that involve risks uncertainties and assumptions, even if these risks or uncertainties have been materialize or the assumptions prove incorrect. These results may differ materially from those expressed or implied.
Such forward looking statements all statements other than statements of historical fact are statements there could be deemed forward looking discussion is from less uncertainties and assumptions are set forth and 1 detailed in our press releases and SEC filings, including the most recently filed 10-Q and 10-K.
And no obligation and do you 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 and she says I am Brian Garrett <unk>, President and CEO of Hycroft mining and along with me today and when I'm talking about it is that Tracy just stuck with you and others on the call are Jack Henry sorry.
Secular vice President and Chief operating Officer, Stan ride out, our executive Vice President and Chief Financial Officer and me.
Hi, guys align our vice President and general manager after I make some initial remarks I'm Gonna Outstand right out to review the highlights of our first quarter financials and all its my job and he's going to provide a brief operational update and that will be opening the call up for questions.
And we mentioned and some of our prior calls 2.
2021.
As a defining year for hi, crush because we can play a lot of the necessary work in order to unlock the value and the high Kraft and <unk>, which as a reminder.
Largest silver resource and North America with over 700 million ounces and.
It's the second largest gold resource and the U S with 21 million ounces adult.
We still have plenty of open areas for resource expansion, including both oxide and sulfide material. It truly is a world class assets with hundreds of millions of dollars of infrastructure on the site, we have and operational mine and we are fully permitted and 1 of the very best jurisdictions from mining not just for heap Leach operation and shall we just.
But it makes sense and we're also permitted from El operation also.
It would take many many years and awful lot of money to duplicate what we have here at the site and to bring any mind you. Our current state of operations and we're very proud of the assets and we have this world class resource.
And what this team is doing to unlock the value and hycroft.
Our stock price and our opinion and no way reflects the value of those assets.
By the way and many of US and 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 reached commercial scale sulfide operations, but we hope that by having identified gaps on the prior work and also the necessary components that are critical to commercial and it.
And in some way it provides a level of comfort that this team is extremely capable and highly qualified and operational execution and then 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 wanted to drop a couple of other important key areas. We have a lot of positive things happening here at high crop and Wow, They don't particularly like for news worthy announcements on an interim basis. Please note that this team is working diligently on many many fronts.
And we're delivering very good results.
I'll 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've put into place and 2020 that we spoke about and the path. We're starting to see the results and all of that and great work, we've made remarkable improvements and our safety and 83% decrease.
Total reportable incident frequency rate or what we referred to as Trevor over the last 12 months, we have gone from a 3.8 triple a rating to 0.62.
And well below industry average and I was just informed yesterday at site and at the end of July our tripled decreased down to 0.53, so remarkable achievement by the team. We've also seen a dramatic improvement and the culture and morale on site, we recently conducted and employee engagement survey.
Which revealed from our employees perspective and.
Our company culture has transformed over the past year and to 1 of teamwork and transparency and collaboration on operational improvements on our commitment towards excellence in all areas and a strike and focus on keeping our employees safe every day and it was commented by many that they feel valued as an employee of Hycroft.
And they want to be part of the success of Microsoft and Theyre recommending their friends and high cross being a great place to work.
Improved engagement and this entire team is reflected and the operating performance numbers that we're seeing today.
And in addition to our dramatically improved safety record. We're also driving performance, we're operating more efficiently more cost effectively and we are reducing cost and the mining and processing and I want to thank everybody at high cost with the goal that you played and 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 the restart of the operations that the high crop minds has not only met its targets.
So for 30 consecutive quarters.
Mentioned, we've driven cost down and both mining and processing areas.
And lot of improvements to equipment efficiency and utilization and.
But in another itself is very remarkable given the age of our fleet and we've also improved the overall plant efficiency.
Moreover, 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 throughout 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 and then turn it over to you of that work with the team and then we will be presenting those results to the market during the first quarter of 'twenty 2.
The variability of drilling and that program is well underway on budget on schedule and samples are being sent to the lab analyses are ongoing we're doing a suite of metallurgical tests.
And of each domain that we've been drilling and somebody from the lab and this work is important not just for the few stages outside oxidation and late process.
And even selling process or any process that we would be implementing on a commercial scale here at HEICO.
We have initiated column charts on site, we are using the sulfide material that we've been mining this year and this is going to give us a clearer picture of oxidation and chemistry management. So that we can limit 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 we've been doing in that regard and indicates that 1.
With respect to the Marvell qualified oxidation and leach process.
We have identified and also previously reported to the market. Several items that are critical for any successful commercial application of this process, which will likely lead us to update our capital costs and operating costs better defined.
Recall that some of those items include the need for an agglomeration circuit forced air injection start yet.
Some of the work we've been doing this year, we now know that the best option for handling multi solutions automobile and he will be an offset so that's a critical component to the process and we'll either.
Determine what we will require in terms of material handling components.
And of course, the size of the off cash.
With respect to our milling process, we have completed scoping level economics.
Usually internal evaluation multiple milling process options and various throughput rates with associated mine plans.
There was a feasibility study on the ALLL process and 2014 for the high Cross mine and then subsequent to that there was a feasibility study and 2016 based on smaller tonnage throughput and also reduce capital progress.
And time from the 2016 feasibility studies the company was private and so that report was not filed or disclosed publicly and we.
We have with the thing so engineering reviews, the past technical work and very successful peloton per day mill demonstration plant that followed that followed the 2016 feasibility study.
Based on that work that our team has done in connection with the St. Joe Engineering, we have determined that we should advance to a feasibility study for the mill process and we've engaged I think our engineering to complete this work.
And again any other process that we're working on and we just identified a lot of areas within this process and it's 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 and the first quarter of 'twenty 2.
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 and <unk>.
<unk> says that we've studied to date.
Previous test work and the case that high current <unk> performed very well with projected the alkaline pressure observation conditions.
Work is also going to be completed by year round with results expected to be announced from the first quarter of 'twenty 2.
And the process of receiving bids from engineering firms and expect to make that selection shortly.
So lot of work to do on the <unk>.
Nicole studies and the work with a 2 stage process for the day, you'll know feasibility and further pressure oxidation pre feasibility all of which will be completed by year and reviewed by our team and available to you.
<unk>.
Disclosed to the market and the first quarter of 'twenty 2.
While we've been doing all of that work. We've also been working on developing the run of mine plan for 2022 and beyond with the idea of bridging the run of mine operations to commercial sulphide production, while we optimize our cash but rather mine plans has an important secondary objective of moving the amount of mine oxide.
Transitional material and a manner to expose the commercial scale sulfides and you'll recall that we have around 40 million pounds from material that needs to be made before we could get into commercial scale sulfide operations.
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.
So now let's talk about cash because that is always on everybody's mind and.
And we know that Theres 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 and the first quarter of next year and that work is going to give up a lot of valuable and necessary information that we're going to use to help us determine what our mine plans and we're gonna be and any capital.
<unk> associated with those specific mine plans.
The improvements that we've made and the efficiency of our mining fleet.
Our plans are to continue utilizing the current fleet and sell 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 operations plan will be and.
We are going to implement it because until we know that until the mine plan is finalized for the most suitable process or combination of process and we don't know what size haul trucks, and we're going to need or how many we're going to need and what's going to be required specifically for the type of sulfide operations that were.
Going to be presenting.
So we do have a plan to Recommissioned and North Merrill Crowe plant and do a phased installation and commissioning of the new refinery. There we spoke to you about that upgrade and the past.
And also spent considerable effort to mechanically and operationally improve the existing gross and Merrill Crowe plant facility and the plant flow and recovery that we're seeing from brimstone are the highest decide who is experienced and many many years.
Okay.
We also filed a form S..3 and July that not only allows us to incorporate S..1 filings by reference but it also provides for a universal shelf, which provides flexibility for the company a shelf, it's prudent for any company, including Hycroft because we can.
Continue to monitor and evaluate opportunities to appropriately fund.
Once we have clarity on the mine plan and processing methods. However, we do we currently do not have any agreements or understanding the 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.
The second quarter of 2022.
And that's going to help us and enable us to complete the necessary technical work generate mine plans and finalize the plant flow sheet, and then be able to assess.
And the 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 here with technical studies to be completed on 3 different processes.
And we'll continue to update the market on developments as they arise and we look forward to providing an update on the results moving forward and also to providing a coherent executable mine plan and the successful development of the commercial sulfides on the operations and with that.
Ill turn it over to Stan right after I clear my throat.
Thank you Diane and good morning.
In terms of ounces sold revenue and cash constant cash preservation and second quarter 2021 was our best quarter since we restarted and pre commercial scale operations and the <unk>.
Second quarter of 2019.
Since the new management and operating team came on board and 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 and no..1 ounce was written off since the second quarter of 2000, and we're making a positive impact on our financial performance.
Second quarter, 'twenty, 1 trails, and 17006 gold ounces and 189 per hour.
766, silver ounces from <unk> $36 million of revenue was nearly double the first quarter of 2021 and nearly 5 times the 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 $1811 gross per ounce was 5% higher than the same quarter last year and year to date 2021 average realized gold price per ounce per ounce was about 10% higher than the comparable 6 months of 2020, the wide product benefit from.
Silver was significant during the second quarter of 2021, as we were able to sell from previously produced net bars containing.
Silver ounces and in addition to higher silver sales volume second quarter 2021 average realized silver price was 26.88 per ounce.
52% higher than second quarter of a year ago and year to date 2021 average realized silver price was $26.70 per ounce.
64% higher than the same period a year ago.
And the second quarter of 2021, we've narrowed our loss from operations to $3.8 million and our net loss was $8.4 million after other net.
<unk>, which was mainly interest expense, while our cash burn was reduced from the second quarter of 2021.
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 flow from our operating activities at the end of the second quarter of 2021, where you had $30 million and unrestricted cash which represents a $26 million decrease from.
Beginning of the year year to date 2021 cash used in operations was $21 million and cash used in investing activities accounted for another million and 9.
<unk> 9 million and Youll note the significant decrease and the second quarter. We also began making cash payments on the credit agreement and the second quarter of 2021 and that was approximately 600 barrels and dollars.
Included in our $30 million of unrestricted cash was approximately $5 million that we were able to free up from restricted cash as we replace the existing surety bonds with new surety bonds that required less cash collateral.
While we complete the necessary work required for commercial skills sulphide and operations, we will continue to focus on managing our cash through operational improvements and <unk>.
Mining plans that keep us alongside with our debt covenants.
With that I'll turn the conversation over to Josh.
Thank you Dan good morning, everyone.
And all of my ears and.
The mining industry.
Theme, especially and marked improvement and safety culture operational performance.
And so as plant efficiency and less than a year. This team is to be congratulated.
We will continue to drive our costs down and enhance our operating performance.
The technical team has been working on developing and oxide and transition Rob plant from 2022 and beyond.
The ultimate Rob plant will be designed to coincide with the start of commercial scale operations, which of course will be determined following the ongoing technical studies.
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 31000 feet. This.
And this drill program is.
And as Diane already noted.
Please go necessary variability and metallurgical work geologic domains.
Were not tested and the past representing a significant portion over the life of mine production.
1 thing I'm, particularly excited about is that throughout our mine planning work and net drilling we've identified a number of robust targets, including chance Hades default gamble, south and south vortex.
These areas have both oxide and sulfide targets and south vortex and particular is a very high grade silver deposits, which remains open to the south.
We have verified the prior drilling and that area and we will soon be including that and our corporate presentation on our website.
Yes.
While we currently remain focused on commercial scale sulfide operations, we look forward to be able to explore the untapped potential and high crop.
As a reminder, theres been no exploration drilling and hycroft from 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 and driving future success of hydro.
Thank you Diane Thanks, Jack I 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 conducting all of the necessary work to develop the most economic long term plan for Hycroft. This team.
And it's very passionate and very excited about what we're doing here.
And the opportunity to work on this world class assets. So it's a it's in good hands with the team we look forward to delivery and the plan to you.
And you soon and early in the day here that helps to provide the best value for all of our shareholders. So with that I will turn it back to Tracy. So we can open up for questions and I need to please open the call for Q&A.
Thank you if you would like to ask a question. Please signal by pressing star 1 on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal that each of the equipment.
And then press star 1 to ask a question.
Well take our first question from Vincent Anderson with Stifel.
Please go ahead.
Thanks, Good morning, nice job again this quarter.
And so.
Think the focus here to start things off would certainly be around.
<unk>.
Yes, we're doing a little bit of background reading. The name is unique but does this really differ significantly from other for ore flotation processes.
Okay.
Yes. This is Mike guys Brian.
On the front and know, it's a pretty straightforward grind flotation circuit.
The oxidation fees the chemistry works its just a matter of.
Designing and reactor system that gets the same retention and observation performance under atmosphere alcohol and conditions versus a little bit higher pressure temperature.
And an autoclave.
Okay.
Checks out and then and.
And that case, the 1 thing I'm still kind of trying to figure out as well.
And would this be utilizing your existing grind capacity or does this need to build integrated grinding.
No. So the beauty of now that we own the mills, we own and capital equipments on the front end, which is a huge piece here those are long lead high high capital item that's already.
Cost and sitting in a warehouse so.
The rest of the circuit and the plant obviously when you have a few parts and pieces. The hard part is already sitting on the ground.
Great and so I guess the question then becomes and this isn't maybe this isn't fair, but your assessment of of maybe why this wasn't pursued more aggressively by the original basically prior to all your involvement and the company why was this maybe.
Not revisit it in more detail and.
And the original mine plan.
So.
Comes down to the price of gold and GAAP.
I think and those previous environments, you are looking at a 4 to $800 gold and.
And a significant capital that they were looking for on certain design, which I think was a little bit bloated and.
And lacked efficiency.
And it did it was marginal.
The grade profile that currently exists and then theres a lot of ways to skin that cat.
Worked back from that from the.
The design perspective.
And that we have.
Moving the equipment is already on.
The ground, there's a lot we can do to conserve capital with the plant design and on the on the pack and all the way through and.
We have and $1800 old environment to further bolster that.
<unk>.
And look very attractive and a lot of different aspects.
Yeah, and I would just Vince and I would add on to what Mike said and he's absolutely correct. I mean, you know we.
Werent there at the time, so we don't know, but you know as.
As we all know and the 2015 kind of 16 timeframe and all this lighting actually net closer to 1200 dollar gold and.
And was was looking fairly fairly weak at the time, but all said there was a.
A sense of you know.
I can take that chemistry, and apply it and heap leach setting and get into operations very quickly and even a lower capital and.
Our view is the <unk>.
Body is going to tell you the best way to process this material and.
And we think there's some optimization and efficiencies that can be looked at and the prior work that was done and in fact, we're doing it now with what Mike and his team and thank our engineering. So we definitely think its supply and if you're looking at that again.
No perfect day, I really appreciate the candor on that and so if I think about.
Again, not to get ahead of whatever the results of the well.
Usability report, our but in your mind is this is this something that bridges view and get.
You're 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 the scale efficiently I'm just trying to think about how this could look and the overall mine plan if the visibility comes back positive.
Yes, Yes, I think you hit the nail on the head.
Most of the operations in northern Nevada here are complex ore bodies are either refractory and double refractory ore bodies are required.
Myriad of different process applications, you know what to expect that value. This is really no different.
Yes. This is kind of gives the time to really fine tune the performance of the of the different metallurgical domains and then Taylor.
And the appropriate approach processing and mining approach to that.
And that mineralogy and you've.
And you got to get that right you got to take the time and get that right or.
Its stock and function the way you need it so yes.
It could be.
And very more likely going to be continued.
Continuing oxide conventional heap leach.
And we continue to work on the sulfide oxidation fees for the heap Leach as well does that mean.
Uh huh.
Have a very.
And of impact as well as our milling and milling circuit milling floatation and oxidation circuit as well for some of the higher grade so.
And what do we look at these gold and silver price environment I mean do you.
Just want to capture as much of that recovery of that gold and silver and she can and we see that and and the milling.
Scenario.
They are definitely generates far more value and not from the area than it does and.
And a heap leach I think but to Mike's point and I just was there.
Very likely going to look like a hybrid operation and so the work we're doing right now and testing each of these metallurgical debt geologic domains is to help us understand which 1 generates the best economic value and best recoveries under which process.
And while they are accordingly.
Yeah, and then I guess.
1 conversation that we haven't had to had have would just straight has been permitting but maybe just walk us through what what permits would be in place and what would be needed under a O or pax.
So yes.
Another huge benefit is the bulk of the permitting for the process is completed and clean sales down.
We're.
Process is permitted and Theres a couple of tails dam locations that are actually permitted.
We're and this feasibility study we're looking at those and then actually putting a plan in place.
Dewatering and and everything else, just tighten those up and get them ready to go and.
Junction in parallel with.
And advance the study.
<unk> worked on.
On a different plane as well so yes, it's all there and it's the previous work that's done and high cross on the Permian and piece is a huge huge and it really benefits. The work we're doing now and the dancing any process that we put in and out there. Other planning was never looked at the permitted previously.
I don't know if that'll be really much of the heavy lift and into that honestly, it's up it's a hydro and metallurgical process.
And as exists and a couple other operations and northern Nevada. It's.
It's known to the regulators so you know.
And I don't see that the and the huge obstacle.
Alright, great.
Have you a break and just ask a couple of quick questions on cash flow I really appreciate it.
So I think I missed this why and you discussed your covenants a minimum cash balance and how you felt about that could I could I just get that debt again.
Sure.
Total financial debt covenants, because we focus on and they are both from a $10 million threshold, 1 and as absolute cash and the other is.
Net current assets.
Which requires that we take a haircut and 50% on our leach pad inventory and the calculation. So we feel very good amount and the team everybody is aware of our covenants and all of our plans are targeted toward keeping us comfortably above those threshold levels.
Okay excellent and so that that kind of informs the follow up question, which is just yes.
And.
Everybody is focused on the mine plan, but if we just think about the next 12 months and very broad terms.
It sounds like you are comfortable with those covenants just based on the run of mine plan.
But as we get into 2022.
Are you comfortable with continuing to operate.
And 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 wrong plan.
As Jack and all of US have commented on a component of that is continuing to drive down cost per.
We believe the teams up to the task and you've seen and the progress.
And they are getting more creative by the day. So we're optimistic that's the plan.
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 us deeper into 'twenty, 2.2020 2.
Being late and the second quarter with the existing cash and plants.
Perfect and then just last 1 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 wanted to make us aware of in terms of maybe just timing of what kind of grades around the pads right now or labor constraints, and just being cautious and to the back half of the year, but what kind of keeps you from hitting.
Sort of the high end of that range, let's say.
Based on the current trajectory.
So Pat Pat management, it's always.
You know a good process person doesn't reveal all these tricks so and trade.
[laughter] frankly, there's a lot of its timing and what we're seeing is really the result of that process group and.
Maximizing and squeezing every every ounce out of that that is getting.
Lansing, the Leach front, just as soon as they get it released from the mining and get a rip and.
And our flows to the pad.
Yes.
I've seen since I've been here and and plant recovery plant is performing well.
Extremely well those are all those are all positives that are affecting our bottom line and then the rest of it is just how we manage the inventory on and off the pad throughout the rest of the years and stacking placements.
We got a few tricks up our sleeves, we're actually pulling some levers out there now on side slopes and releasing some old there is and you know.
Even re leaching roads and accessories and so those are all tricks of the trade that are really helping.
Our ounce profile.
Alright, perfect well. Thanks, thanks, everyone on the on.
On the call for all the color and best of luck on and the rest of the year.
Okay. Thanks, Pat. Thank you everybody, we look forward to reporting back to you to the very near future.
This concludes today's call. Thank you for your participation you may now disconnect.
Okay.