Hycroft Mining: Financial & Operations Update

Since our initial report on Hycroft Mining (A Nevada focused gold and silver producer, with very substantial upside if it can execute on the multi-year phase expansion at its Hycroft mine), the company has taken some significant steps installing a capable management team, raising financing for the next 12-24 months and coming closer toward completing Phase I (leach pad expansion).  

Key personnel changes:

• August 31^st, 2020: The company appointed Diane R. Garret as President, CEO, and Director. Dr. Garrett was President, CEO, and Director of Romarco Minerals. She built and led the team that developed the multi-million-ounce Haile Gold Mine from discovery to final feasibility, permitting, and construction. OceanaGold acquired Romarco in 2015, and she was appointed to the Board of OceanaGold and a member of the Steering Committee for the Haile Gold Mine. Dr. Garrett was most recently the President and Chief Executive Officer of Nickel Creek Platinum Corp., a mining exploration and development company, since June 2016. Dr. Garrett is also a Director of NovaGold Resources Inc. Before her time at Romarco, Dr. Garrett held numerous senior positions in public mining companies, including VP of Corporate Development at Dayton Mining Corporation and VP of Corporate Development at Beartooth Platinum Corporation. Dr. Garrett has also served as a director of TriStar Gold, Inc. and Revival Gold.
• October 20^th, 2020: Hycroft appointed Stanton Rideout as the company’s VP and CFO. Mr. Rideout has more than 30 years of senior executive experience in the mining and manufacturing industries, including Romarco Minerals Inc. and Phelps Dodge. He was the Senior VP and CFO of Romarco from 2010 to 2015, where he arranged the project debt financing for the Haile Gold Mine in South Carolina. Since OceanaGold Corporation acquired Romarco, he has provided debt and equity consulting services for many mining companies.  Mr. Rideout held various senior finance and accounting positions over 25 years with Phelps Dodge, a publicly-traded mining and manufacturing company.
• October 27^th, 2020: Hycroft appointed Mike Eiselein as VP & GM of the Hycroft mine. Mr. Eiselein has spent his almost 30 years of experience focused on process operations at some of the world's largest mining companies, including Barrick Gold Corporation, Newmont Mining, and most recently McEwen Mining Inc. He started his career at Barrick's Goldstrike Mine, working with the mill and autoclave operations groups. At Newmont, He led the process and metallurgical departments at the Cripple Creek & Victor Mine and was also Director of Full Potential Maintenance and Reliability for Newmont’s Nevada operations.

On September 29^th, Hycroft announced its intention to raise capital via equity financing, offering (selling) 7.22m units (each unit consisting of one share of common stock and one full warrant). A few days later, on October 2^nd, 2020, Hycroft announced it was upsizing the offering to 8.33m units at $9.00/share and a warrant with a $10.50/ strike price. Each warrant entitles the holder to purchase one share of common stock at the aforementioned price for a period of 5yrs from the closing date. On October 6^th, 2020, Hycroft Mining announced closing the upsized $86m public offering, including full exercise of the over-allotment option. The total offering (inclusive of the over-allotment) totaled 9.583m units. Hycroft raised gross proceeds (after expenses) of $83.1m.

Should Hycroft execute on its multi-year expansion at Hycroft, this will, in the not too distant future, will be an excellent asset of scale as it will begin exploiting one of the world’s largest resources: 2P reserves of 18m AuEq oz. and total resources of 31m AuEq oz. (ranks among the top 25 in the world and 2^nd in the U.S.). What makes this more interesting is that approx. 40% of AuEq reserve and resource is from silver.

Hycroft recently provided an update of operations in its Q3 earnings release. Operational performance improved in Q3. It achieved crushing targets averaging 438 tons/month by advancing effective maintenance and reliability practices, creating favorable conditions for oxidizing ore on some pre-commercial pads through equipment improvements, enhanced operational measures, and changes to key operations and technical staffing.

Q3 was more or less in line with previous quarters (production-wise), which should continue to be the case until the completion of Phase I of the new Hycroft Leach pad (end Q1 2021). Construction continued during the quarter; however, due to engineering and design changes and delays in delivery of electrical components and pumping infrastructure, construction and commissioning completion are now expected before the end of Q1 2021. Once completed, production and, in turn, cash flow will increase, which, combined with the recent financing, will allow the company to advance the expansion over the next 12-18+ months (dependent on when/if the $11.50/strike warrants are exercised early per the acceleration clause, gold and silver prices (on-going cash flow generation), and the timing of additional expansionary capital. We will update our NAV calculation once we see the impact on financial performance following the Phase I leach pad expansion. The NAVPS could be lower than our initial report following the recent financing; unless gold and silver prices increase to a certain level. The 2025 Hycroft warrants (HYMCW) remain an excellent speculative instrument.