Hydroft Mining Holding Corporation Quarterly Report (Form 10-Q)

Hycroft Mining Holding Corporation: Navigating Challenges and Exploring Opportunities

Hycroft Mining Holding Corporation, a Nevada-based mining company, has recently released its financial results for the six months ended June 30, 2024. The report provides insights into the company’s operational and financial performance, as well as its plans for the future.

Exploration and Development Efforts The company’s primary focus during the first half of 2024 was on exploration and development activities at its Hycroft Mine. The 2024 Drill Program has been expanded to approximately 6,200 meters of core drilling, with around 4,000 meters completed so far. This program aims to define the structural framework of two newly discovered high-grade silver trends and explore areas that have not been drilled previously to establish the continuity of these trends. Additionally, the company has completed Induced Polarity (IP) geophysical surveys, with results expected in the third quarter of 2024. These exploration efforts are expected to help the company better understand the structural controls observed in the high-grade silver trends and potentially expand the Hycroft mineralization to the east.

Metallurgical and Variability Test Work During the first half of 2024, the company made progress in its metallurgical test and design work necessary for designing a sulfide milling operation. The company has been testing composite samples from around the ore body to represent the various material characteristics in the sulfide ore. This work has identified significant improvements in gold and silver recoveries compared to the current technical report, which could increase the economic benefits of the project. The company is also evaluating different processing options, including roasting and pressure oxidation, to determine the optimal process flow sheet for recovering gold and silver and generating potential additional by-product revenue streams.

2024 Outlook The company’s current plan is to operate safely while continuing exploration, technical studies, and trade-off analyses to determine the optimal process for the Hycroft Mine. The 2024 Drill Program is designed to test the lateral and depth extensions of the newly discovered high-grade silver trends, and the geophysical surveys and structural geology reviews have identified additional anomalous opportunities in and around the primary resource area that could indicate the presence of high-grade mineralization. The company is in the process of refining drill targets for these areas.

Financial Performance During the three and six months ended June 30, 2024, the company’s financial performance was as follows:

Projects, Exploration, and Development Costs

• Three months ended June 30, 2024: $5.1 million
• Six months ended June 30, 2024: $10.0 million
• Increase of $1.2 million during the six-month period due to ongoing assay results and analysis from the 2022-2023 Exploration Program and the expansion of the 2024 Drilling Program.

General and Administrative Expenses

• Three months ended June 30, 2024: $3.9 million
• Six months ended June 30, 2024: $6.8 million
• Relatively stable compared to the same periods in 2023.

Mine Site Period Costs

• Three months ended June 30, 2024: $2.5 million
• Six months ended June 30, 2024: $5.1 million
• Decrease in spending due to reduced activities associated with the mine site.

Asset Retirement Obligation Adjustment

• Three months ended June 30, 2024: $2.0 million increase
• Six months ended June 30, 2024: $4.0 million increase
• Reflects updated reclamation regulations, a revised engineering design change, and a change in timing to begin and complete reclamation work at the Crofoot Heap Leach Pad.

Depreciation and Amortization

• Three months ended June 30, 2024: $0.6 million
• Six months ended June 30, 2024: $1.2 million
• Decrease compared to the same periods in 2023.

Accretion

• Three months ended June 30, 2024: $0.3 million
• Six months ended June 30, 2024: $0.5 million
• Increase compared to the same periods in 2023 due to the company’s Asset Retirement Obligation and future reclamation costs.

Interest Expense

• Three months ended June 30, 2024: $3.2 million
• Six months ended June 30, 2024: $13.3 million
• Decrease of $1.4 million for the three-month period due to the January 2024 voluntary prepayment of $38.0 million on the first lien debt.
• Increase of $4.3 million for the six-month period due to $6.9 million of accelerated amortization of original issue discount and issuance costs related to the voluntary prepayments.

Interest Income

• Three months ended June 30, 2024: $1.1 million
• Six months ended June 30, 2024: $2.4 million
• Decrease compared to the same periods in 2023 due to lower investment balances.

Other Income, Net

• Three months ended June 30, 2024: $3.3 million
• Six months ended June 30, 2024: $4.6 million
• Increase of $4.3 million for the six-month period, including a $3.6 million gain on the sale of patents and a $1.6 million gain on a non-refundable deposit, partially offset by an unrealized loss on securities and a loss on the sale of equipment.

Liquidity and Capital Resources As of June 30, 2024, the company’s Cash and cash equivalents were $58.5 million, compared to $106.2 million at December 31, 2023. The decrease in cash was primarily due to the company’s net loss and the voluntary prepayment of $38.0 million on the first lien debt.

The company has undertaken various efforts to manage its liquidity and preserve its capital resources, including:

• Monitoring metal prices and their impacts on the business
• Ceasing open-pit mining operations to reduce net cash outflows
• Reducing the size of the workforce
• Controlling working capital and managing discretionary spending
• Reviewing contractor usage and rental agreements
• Decreasing Restricted cash balances that collateralize bonds
• Planning the timing and amounts of capital expenditures and costs
• Monetizing non-core equipment and excess supplies inventories
• Selling uninstalled mills that are not expected to be needed
• Working with existing debt holders to adjust debt service requirements

The company will continue to evaluate alternatives to raise additional capital necessary to fund the future development of the Hycroft Mine and explore other strategic initiatives to enhance stockholder value.

Debt Covenants and Off-Balance Sheet Arrangements The company’s debt agreements contain customary covenants, including restrictions on the company’s ability to incur additional debt, dispose of assets, and pay dividends. As of June 30, 2024, the company was in compliance with all debt covenants.

The company’s off-balance sheet arrangements consist of a net profit royalty arrangement and a net smelter royalty arrangement related to the Hycroft Mine.

Outlook and Risks The company’s future performance and success will depend on its ability to navigate the challenges it faces and capitalize on the opportunities presented. Key risks and uncertainties include:

• Ability to secure additional financing to fund future development
• Volatility in metal prices and their impact on the company’s operations
• Successful execution of exploration, technical studies, and process optimization
• Regulatory and environmental compliance requirements
• Potential changes in the competitive landscape or industry dynamics

Overall, Hycroft Mining Holding Corporation is working to position itself for long-term success by focusing on exploration, process optimization, and prudent financial management. The company’s efforts to manage its liquidity and preserve capital resources, while also exploring strategic alternatives, will be crucial in the coming years as it seeks to unlock the full potential of the Hycroft Mine.