Hycroft Mining Holding Corporation (HYMC) Q1 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Hycroft First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be question-and-answer session. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ms. Tracey Thom, Vice President, Investor Relations. Please go ahead.

Thank so much. Good morning. Thanks everyone for joining us today. Today we will be discussing our first quarter 2021 results for which we filed our Form 10-Q with the Securities and Exchange Commission and issued a press release this morning. The press release can be found on our website at www.hycroftmining.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.

Thank you, Tracy. Good morning everybody and thank you for participating on our call today. I'm Diane Garrett, President and CEO of Hycroft Mining, along with Tracy. Others that are on the call today are Jack Henris, our Executive Vice President and Chief Operating Officer COO; Stan Rideout, our Executive Vice President and Chief Financial Officer; and Mike Eiselein, our Vice President and General Manager. After my initial remarks, I'll then ask Stan Rideout to review the highlights of the first quarter financials and then followed by Jack Henris who will provide a brief operational update. After that, we will open the call up for questions from our audience. First, I'd like to congratulate the entire Hycroft team for their dedication to improving our health and safety culture at Hycroft. When I joined last September, our total reportable incident frequency rate, otherwise known as TRIFR, was well above the industry average. We've worked diligently with a top down approach to institute and improve our safety culture in addition to our corporate work culture overall. With additions to the operating team at site and at the corporate level, combined with a motivated workforce, we saw the benefits of that work very quickly. And by the end of 2020, we saw more than 50% reduction in that TRIFR rate and a significant decline in the frequency and seriousness of incidents. As we all know, safety performance leads to less incidents, which leads to operational efficiencies and productivity. We've continued seeing improvements into the first quarter of this year with another decrease in our TRIFR rate, which now places us below the industry average of 1.22. And I'm extremely pleased to report that the trend continues, and as of April, our TRIFR rate is 0.93. In addition, operating performance is at the best level since the restart of operations in 2019.

Thank you, Diane, and good morning. During Q1 2021, the Hycroft mine continued operate at a pre-commercial scale with operations focused on the run-of-mine ore. Top line revenue was in line with our plan, and we're on track to meet full-year ounce sales targets. Sales in Q1 2021 were 9,830 ounces of gold, at an average realized price of $1,784 per ounce, and 57,236 ounces of silver, at an average realized price of $26.12 per ounce. In Q1 2021, ounces sold increased from the first quarter of 2020 by 50% for gold, and for silver, as more ore tons are out on the pads under leach compared to a year ago. While we are making progress and achieved our Q1 2021 sales plans, Hycroft has not been able to generate positive net income or positive cash flows due to the low gold equivalent ounce production and sales volumes in a high operating cost profile. At the end of the first quarter of 2021, we had 36.5 million in cash, which represents a 20 million decrease from December 31, 2020. The cash balance at that time was 56.4 million. Cash used in operations was 15 million and cash used in investing activities accounted for another 5 million as we wrapped up the spending on the leach pad. While there were no financing activities during Q1, we will begin making cash payments on the in the second quarter. Additionally, a recent development and meaningful to the operations is that we expect to start improving our cost metrics as we experienced the arrival of the new Caterpillar 994K wheel loader. It started – parts started arriving in March and commissioning is expected to be completed soon. This unit will eliminate an expensive rental loading unit and we expect that it will improve our loading capabilities and cost structure. And as always, we continue to focus on controlling our spending and managing our cash.

Thank you, Stan. Good morning, everyone. We've been working diligently on our mine planning optimization work. As Diane indicated, we've identified 50 million tons of oxide and transitional ores. Our goal is to get the free cash flow positive as quickly as possible. We began this work in January and we expect to complete it in Q3. As Stan indicated, our 994 parts began arriving in March. Commissioning is ongoing and we expect to complete the commissioning of that new 994K in May. It has replaced a high cost rental loading unit and it will help reduce our unit loading costs as we continue to focus on lowering mining costs. Our variability drilling program is underway. We have a reverse circ drill on site. 34 pre-collar holes have been completed of a planned 98 holes total. Two core rigs continue to operate on site as well and we've completed 12 core tails. The work today has been completed in the camel and . We're currently drilling in South Brimstone and our next move will be to North Brimstone. We expect that program to continue throughout the year with variability testing completed early next year. And finally, we're following up on high grade mineralization. This is an area we've identified to the south and adjacent to the Vortex pit. We'll be following up in these areas in Q3 and Q4. In addition, we've already followed up on some inferred blocks adjacent to current and planned mining areas and the camel area. The idea is to convert them from inferred to indicative blocks with some additional drilling. And our assays are pending as some of that work has already been completed. On that note, I'll turn it back over to Diane.

All right. Thank you, Stan. Thank you, Jack. Appreciate that very much. I just want to say on behalf of the whole Hycroft team, we really appreciate the continued support of all of our shareholders as we continue to develop and unlock the value of this amazing asset. We know we're on the right path to achieving that goal. And we wouldn't be able to do that without your support. So, we really do appreciate it. It's a very busy year for us. And everything is on track. And we look forward to reporting back to the market once we have the final information on the heap leach run-of-mine plan, as well as the work that comes in from our variability test work for the two state sulfide oxidation and any updates we may have on the mill. And then if necessary, we'll be updating our technical report as well. So, a lot on the go. We're very excited about what we see with Hycroft and where we're going for our shareholders this year.

Your first question comes from Vincent Anderson with Stifel. Your line is open. You may ask a question.

Yeah. Good morning and sounds like the process group did a particularly nice job this quarter. So, well done there. Can you help us bridge the financial impact of the 1Q mining disruptions versus those improvements you made to the solution management system, the Merrill-Crowe plant, I mean, just kind of thinking as it relates to the cadence of operating cash flows to the balance of the year.

So operationally, you know, early in the year, we had issues with COVID and COVID management that was impacting the mine ops crews primarily. We also did some safety, stand downs to correct some issues there, but, you know, those impacts, you know, were often not felt immediately, because the way you stack a pad, and we kind of knew that, you know, we want to set ourselves up for, you know, a strong first half performance in this year, in the latter part of 2020. So, we did a lot of work on coordinating our ore placement stacking on the pad. We also undertook a conversion of a contractor pad operations crew and took that over internally and self-performed. And the result was, you know, I think much better coordination and operation of solution flows and application, the pad, which improved the ounce profile. So – in heap leach, obviously, you know, solution flow is directly attributable to your ounce profile. And, you know, it was in the way we coordinated our stacking and getting more material under leach quicker. It just improved the ounce profile, which translates to, you know, ounce production and revenue relatively quickly on this path. So, from an operational perspective, that's what we're doing there.

Vincent, this is Stan.

Yeah, go ahead.

I would just add briefly. You know, the challenge was, you know, because of the COVID impacts, you know, we weren't able to put, as Mike said, as much material on the leach pads. So, we're going to have to run the rental fleet or the larger size rental fleet a little longer to catch up, you know, because of the missing folks in the seats there. So that, you know, so the cost kind of came through, but we'll see some of those costs roll through in the second quarter as we start, you know, stacking ore again.

Okay. All right. Thank you. That's a perfect clarification there. And then I, you know, just kind of balancing that, those comments, you know, you had gold and silver production in the quarter ran pretty well ahead of ounces sold. Not too much of an impact to working capital or unit costs in aggregate. So, how should we think about that against a balance of some of those higher costs from the 1Q disruptions, just kind of flowing through the next couple of quarters?

You know, our expectation is that we'll be able to operate more efficiently and keep our costs in line, but they will be higher as we stack on the pad. And so those ounces will, you know, come out probably more in the third quarter than being available to us in the second quarter. So, you know, that's kind of the impact. So, I don't know, Mike or Jack, if you want to add anything.

No, that's spot on Stan. That's exactly hits – it’s kind of a delayed effect. But as long as we're – one thing we're focusing on, we're – and we're picking up on it, picking up steam on, I should say, pretty rapidly this quarter is that consistency in getting material to the pad, and working through our mine, active mine plan, and making sure that we're emphasizing, you know, the ROM tons as they become available, and really setting up our ore and in the mine to be as efficient as possible and take advantage. And looking at rental truck hours, you know, can we optimize our own fleet, and reduce rental hours, you know, anything that moves the needle on costs and efficiency, huge effort underway right now in the mine to really, you know, do a deep dive and get that extra margin of savings.

Okay. And then, so you're in the final stages of planning out that pre-commercial, kind of phase of operations, as you mentioned in the report, but you know, how should we think about capital expenditures this year, the balance between cash burn and investment in some of these more critical assets, like the refining facilities that you mentioned?

So, for the existing plan, in the guidance, you know, there’s minimal capital, the 994K wheel loader, we were able to lease that. So, with very little money down and then spread the payment over, you know, 48 months. So, it's a really efficient capital investment there. We're using the rental fleet. So, you know, the 10 million investment into the variability program is the biggest item as well as, you know, kind of the 5 million that we've already spent in the first quarter, you know, with the predominant amount on the new leach pad, which, you know, we're now deferring that into the future for future capital there. So, for the base plan, we're in good shape. As we transition, and work on the run-of-mine plan where we're really working on the capital at this point, we think, you know, we'll be able to finance a significant portion of that. Our game plan is to do it through leases, capital leases, with the operating equipment, and then there'll be some other investment in the process facilities. So, that's kind of the capital plan at this point.

Okay. And do you have a preliminary budget for the for the processing facilities?

Go ahead Stan. We're both jumping in.

I’m not trying to squeeze too much out of you. But just key bottleneck here.

Yeah, well, no, I mean, we've talked in the past. I mean, the upgrades to the North Merrill-Crowe plant have to happen in order for us to reach higher mining rates, and higher stacking rates. So, we need to be able for the plant to handle the solutions and the Brimstone plant while we made a lot of upgrades, and, you know, address some of the issues there. It's not going to be satisfactory for the larger scale operation. So, for the plant itself, the upgrades I think we've addressed in the past, it's about $3 million to do that. We'll also need – we've got the refinery and the various components and all of that on site that we need to put that into place, and that's about an equal amount of money as well. So, as far as you know, the larger scale operation when we go to higher tons, you know, there will be a component of additional haul trucks, which Stan is working with a number of equipment manufacturers right now on capital leases. And, but you know, with the work that Jack and his team are doing on the mining side with Forte, we're finalizing the mine plans over the next couple of weeks. And then we'll be able to properly size the trucks and the number of trucks that we will need for that. So, the capital items and things like that that we envision are to be delivered to the market. We're just finalizing our operational stuff right now, so we can make sure we have the appropriate sized equipment for that, but from the plant and stuff it's not significant dollars, anything you want to add Stan or Jack or Mike to any of that?

Nope, that was spot on?

No, I think it's spot on.

Well thank you for that. And then, so just finally, you know, have you been able to begin additional lab testing on the sulfide ore pre-oxidation? And should we expect to get interim updates on those results or should we just stay tuned for the full technical report?

Yeah, we're just getting rolling with the drilling. Samples will start trickling in here, relatively soon, over the next couple of weeks. It's going to take a long time. It's – we've got a, this is a very large campaign, and we should have started seeing some results, you know, probably end of third quarter, early fourth, but it's really going to, the whole suite of testing really won't be completed until, you know, the end of Q1 next year. So, we should have some indication, though, as we go on, but it's going to be several months here.

Okay. So, it sounds like, you kind of wanted to do this holistically. There's no one specific area of the mine that you plan to, you know, really take those test results through to completion, and kind of phase within?

No, well we’ve got a pretty detailed distribution of drill holes set up to well define all the geological domains, and then we're more importantly, the geo metallurgical domains. We just don't have enough information, you know one way or the other, what's more promising than the next, you know. So, it's really is going to take some time to get these core samples in and run them through some preliminary tests. And then really, it's a very – I have to hand it to the team. They've done a great job in really diving down and putting a plan together for this meant variability testing that should answer all the questions we need to answer, you know, with – across this mine as we do this drilling.

Alright. Well, thank you very much, and best of luck on the rest of the year.

Great, thank you, Vincent.

No further question at this time. I'll hand the call back to Diane Garrett.

Okay, thank you, operator. We have quite a few people on this call. So, I guess we've answered everybody's questions. But as always, you have our numbers, you have our emails, please reach out to us. We'd be happy to answer any of your questions at any time. So, very excited about the progress we've made, appreciate the support from all of our shareholders. And the team has just done an outstanding job and we look forward to continuing this upward momentum as we develop this amazing asset. So with that, everyone have a great day. Thank you again for joining us, and we'll be in touch soon.

That concludes today's conference. Thank you all for joining. You may now disconnect.