S-1 1 tm2022435-1_s1.htm FORM S-1

 

As filed with the Securities and Exchange Commission on July 13, 2020

 

Registration No. 333-         

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

FORM S-1

 

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

 

 

HYCROFT MINING HOLDING CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware   1040   82-2657796
(State or Other Jurisdiction of Incorporation
or Organization)
  (Primary Standard Industrial Classification
Code Number)
  (I.R.S. Employer Identification No.)

 

8181 E. Tufts Ave., Suite 510

Denver, Colorado 80237

(303) 253-3267

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Stephen M. Jones

President and Chief Executive Officer

Hycroft Mining Holding Corporation

8181 E. Tufts Ave., Suite 510

Denver, Colorado 80237

(303) 524-1947

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Neal, Gerber & Eisenberg LLP

2 N. LaSalle Street, Suite 1700

Chicago, IL 60602

Attention: David S. Stone, Esq.

Tel: (312) 269-8000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

 

 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer ¨ Accelerated filer x
  Non-accelerated filer ¨ Smaller reporting company x
    Emerging Growth Company x

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities
to be Registered
Amount to be
Registered(1)
Proposed
Maximum
Offering Price
Per Unit
Proposed
Maximum
Aggregate
Offering Price
Amount of
Registration Fee
Primary Offering        
Shares of Class A common stock, par value $0.0001 per share(2) 34,289,999 $11.50(3) $394,334,989 $51,185
Shares of Class A common stock, par value $0.0001 per share(4) 3,210,213 $44.82(5) $143,881,747 $18,676
Secondary Offering        
Class A common stock, par value $0.0001 per share(6) 60,867,645 $9.09(7) $553,286,893 $71,817
Warrants, each to purchase one share of Class A common stock, par value $0.0001 per share(8) 13,489,999 (8)
Total     $1,091,503,629 $141,678

 

(1)In the event of a stock split, reverse stock split, stock dividend or similar transaction involving our common stock, the number of shares of Class A common stock, par value $0.0001 per share (the “Common Stock”) registered shall automatically be adjusted to cover the additional shares of common stock issuable pursuant to Rule 416 under the Securities Act of 1933, as amended.

 

(2)Consists of (i) 20,800,000 shares of Common Stock that may be issued upon exercise of the public warrants (as such term is defined under “Selected Definitions”) based on the number of public warrants outstanding as of July 9, 2020; (ii) 7,740,000 shares of Common Stock that may be issued upon exercise of the private placement warrants (as such term is defined under “Selected Definitions”); (iii) 2,500,000 shares of Common Stock that may be issued upon exercise of the forward purchase warrants (as such term is defined under “Selected Definitions”) and (iv) 3,249,999 shares of Common Stock that may be issued upon exercise of the PIPE warrants (as such term is defined under “Selected Definitions”). The aggregate number of shares of Common Stock shall be adjusted to include any additional shares of Common Stock that may become issuable as a result of any stock dividend, stock split, recapitalization or other similar transaction.

 

(3)Based upon the exercise price per share of Common Stock issuable upon exercise of the public warrants, private placement warrants, forward purchase warrants and PIPE warrants.

 

 

 

(4)Consists of 3,210,213 shares of Common Stock that may be issued upon exercise of the Seller warrants (as such term is defined under “Selected Definitions”). The aggregate number of shares of Common Stock shall be adjusted to include any additional shares of Common Stock that may become issuable as a result of any stock dividend, stock split, recapitalization or other similar transaction.

 

(5)Based upon an exercise price, as of July 1, 2020, of $44.82 per share. Each of the 12,721,623 Seller warrants is exercisable into approximately 0.2523 shares of Common Stock.

 

(6)

Consists of (i) 1,688,180 shares of Common Stock converted from founder shares (as such term is defined under “Selected Definitions”); (ii) 20,871,236 shares of Common Stock issued to the 1.5 Lien Note Holders (as such term is defined under “Selected Definitions”) pursuant to the terms of the Exchange Agreement (as such term is defined under “Selected Definitions”) and to the Excess Note Holders (as such term is defined under “Selected Definitions”) pursuant to the terms of the Exchange Agreement (as such term is defined under “Selected Definitions”) upon the consummation of the business combination; (iii) 14,595,892 shares of Common Stock distributed to the Initial Subscribers (as such term is defined under “Selected Definitions”) by the Seller pursuant to its plan of dissolution immediately following issuance to the Seller in the business combination; (iv) 7,596,309 shares of Common Stock issued pursuant to the Subscription/Backstop Agreements (as such term is defined under “Selected Definitions”) upon the consummation of the business combination; (v) 3,125,000 shares of Common Stock issued pursuant to the terms of the Forward Purchase Contract (as such term is defined under “Selected Definitions”) upon consummation of the business combination; (vi) 44,395 shares of Common Stock issued to Cantor (as such term is defined under “Selected Definitions”) pursuant to the Underwriting Agreement, dated as of February 7, 2018, between the Company and Cantor, as amended; (vii) 437,940 shares of Common Stock issued to Lender (as such term is defined under “Selected Definitions”) pursuant to the Sprott Credit Agreement (as such term is defined under “Selected Definitions”); (viii) 31,604 shares of Common Stock issued to Lender and transferred to Prisma Pelican Fund as a participating lender in the Sprott Credit Agreement; (ix) 4,515 shares of Common Stock issued to Lender and transferred to Ninepoint Credit Opportunities Fund as a participating lender in the Sprott Credit Agreement; (x) 9,030 shares of Common Stock issued to Lender and transferred to Natural Resource Income Investing Limited Partnership, a Limited Partnership, as a participating lender in the Sprott Credit Agreement; (xi) 13,545 shares of Common Stock issued to Lender and transferred to Sprott Private Resource Streaming and Royalty (Collector), LP. as a participating lender in the Sprott Credit Agreement; (xii) 6,700,000 shares of Common Stock issuable upon exercise of the sponsor private placement warrants; (xiii) 2,500,000 shares of Common Stock issuable upon exercise of the forward purchase warrants; and (xiv) 3,249,999 shares of Common Stock issuable upon exercise of the PIPE warrants. The aggregate number of shares of Common Stock shall be adjusted to include any additional shares of Common Stock that may become issuable as a result of any stock dividend, stock split, recapitalization or other similar transaction. 

 

(7)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) of the Securities Act, based upon the average of the high and low sales prices of the Registrant’s common stock as reported on the NASDAQ Capital Market on July 6, 2020.

 

(8)Consists of (i) 7,740,000 private placement warrants, (ii) 2,500,000 forward purchase warrants and (iii) 3,249,999 PIPE warrants. Pursuant to Rule 457(g), no separate registration fee is required for the warrants. The applicable registration fee has been allocated to the common stock underlying the warrants.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

 

The information contained in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JULY 13, 2020

 

Preliminary Prospectus

 

 

HYCROFT MINING HOLDING CORPORATION 

60,867,645 shares of Common Stock

13,489,999 Warrants

37,500,212 shares of Common Stock Issuable upon Exercise of the Warrants

 

This prospectus relates to: (1) the issuance by us of up to (i) 34,289,999 shares of Class A common stock, par value $0.0001 per share (“Common Stock”), of Hycroft Mining Holding Corporation, a Delaware corporation (the “Company,” “we,” “our”), that may be issued upon exercise of warrants, including the public warrants, private placement warrants, forward purchase warrants and PIPE warrants (as such terms are defined under “Selected Definitions”) at an exercise price of $11.50 per share of Common Stock, and (ii) 3,210,213 shares of Common Stock that may be issued upon exercise of the Seller warrants (as such term is defined under “Selected Definitions”) at an exercise price, determined as of July 1, 2020 pursuant to the Seller Warrant Agreement (as such term is defined under “Selected Definitions”), of $44.82 per share upon the exercise of 12,721,623 Seller warrants, each currently exercisable into approximately 0.2523 shares of Common Stock, which exercise price and number of shares may fluctuate under the terms of the Seller Warrant Agreement; and (2) the offer and sale, from time to time, by the selling security holders identified in this prospectus (the “Selling Securityholders”), or their permitted transferees of up to (i) 60,867,645 shares of Common stock, (ii) up to 13,489,999 warrants to purchase shares of Common Stock, including the private placement warrants, forward purchase warrants and PIPE warrants.

 

This prospectus provides you with a general description of such securities and the general manner in which we and the Selling Securityholders may offer or sell the securities. More specific terms of any securities that we and the Selling Securityholders may offer or sell may be provided in a prospectus supplement that describes, among other things, the specific amounts and prices of the securities being offered and the terms of the offering. The prospectus supplement may also add, update or change information contained in this prospectus.

 

We will not receive any proceeds from the sale of the securities under this prospectus, although we could receive up to approximately $538.2 million for the issuance by us of the Common Stock registered under this prospectus assuming the exercise of all of the outstanding public warrants, private placement warrants, forward purchase warrants, PIPE warrants and Seller warrants, to the extent such warrants are exercised for cash. However, we will pay the expenses associated with the sale of securities pursuant to this prospectus. Any amounts we receive from such exercises will be used for working capital and other general corporate purposes.

 

Information regarding the Selling Securityholders, the amounts of shares of Common Stock and warrants that may be sold by them and the times and manner in which they may offer and sell the shares of Common Stock and warrants under this prospectus is provided under the sections entitled “Selling Securityholders” and “Plan of Distribution,” respectively, in this prospectus. We have not been informed by any of the Selling Securityholders that they intend to sell their securities covered by this prospectus and do not know when or in what amount the Selling

 

 

 

 

Securityholders may offer the securities for sale. The Selling Securityholders may sell any, all, or none of the securities offered by this prospectus.

 

The Selling Securityholders and intermediaries through whom such securities are sold may be deemed “underwriters” within the meaning of the Securities Act of 1933, as amended, with respect to the securities offered hereby, and any profits realized or commissions received may be deemed underwriting compensation. We have agreed to indemnify certain of the Selling Securityholders against certain liabilities, including liabilities under the Securities Act.

 

You should read this prospectus and any prospectus supplement or amendment carefully before you invest in our securities.

 

Our Common Stock and our public warrants, which are not being registered hereunder, are listed on the Nasdaq Capital Market, or NASDAQ, under the symbol “HYMC” and “HYMCW” respectively. We will use our commercially reasonable best efforts to list the Seller warrants on NASDAQ as soon as reasonably practicable subject to applicable listing requirements. On July 10, 2020, the last reported sale prices of our Common Stock was $10.97 per share and the last reported sales price of our public warrants was $1.60 per share. The warrants registered hereunder are not currently listed or quoted on any exchange or marketplace and, other than the Seller warrants, we do not intend to apply for listing or quotation of such warrants on any exchange or marketplace in the future.

 

We are an “emerging growth company” under federal securities laws and are subject to reduced public company reporting requirements. Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 8 of this prospectus.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

You should rely only on the information contained in this prospectus. We have not authorized any dealer, salesperson or other person to provide you with information about the Company, except for the information contained in this prospectus. The information contained in this prospectus is complete and accurate only as of the date on the front cover page of this prospectus, regardless of the time of delivery of this prospectus or the sale of any securities. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. The information contained in this prospectus may change after the date of this prospectus. Do not assume after the date of this prospectus that the information contained in this prospectus is still correct.

 

For investors outside the United States: We have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering and the distribution of this prospectus outside the United States.

 

The date of this prospectus is July 13, 2020

 

 

 

TABLE OF CONTENTS

 

About this Prospectus   ii
Market, Raking and Other Industry Data   iii
Selected Definitions   iii
Cautionary Notes Regarding Forward-Looking Statements   1
Prospectus Summary   2
The Offering   6
Risk Factors   8
Use of Proceeds   26
Selling Securityholders   26
Description of Business   30
Description of Property   40
Legal Proceedings   56
Market Price and Dividends on Common Equity and Related Stockholder Matters   57
Management’s Discussion and Analysis of Financial Condition and Results of Operations   58
Management   79
Executive Compensation   84
Certain Relationships and Related Transactions   94
Security Ownership of Certain Beneficial Owners and Management   98
Plan of Distribution   100
Description of Securities to be Registered   108
Interest of Named Experts and Counsel   116
Legal Matters   116
Where You Can Find Additional Information   116
Change in Auditor   116
Index to Financial Statements   F-1

 

 

 

ABOUT THIS PROSPECTUS

 

This prospectus is part of a registration statement on Form S-1 that we filed with the Securities and Exchange Commission (the “SEC”) using a “shelf” registration process. Under this shelf registration process, from time to time, the Selling Securityholders may offer and sell, and we may offer, issue and sell, as applicable, any combination of the securities described in this prospectus in one or more offerings We may use the shelf registration statement to issue up to an aggregate of 37,500,212 shares of Common Stock upon exercise of the public warrants, private placement warrants, forward purchase warrants, PIPE warrants and Seller warrants. The Selling Securityholders may use the shelf registration statement to sell up to an aggregate of 60,867,645 shares of Common Stock, and 13,489,999 warrants, from time to time through any means described in the section entitled “Plan of Distribution.” Additional terms of any securities set forth herein that the Selling Securityholders offer and sell may be provided in a prospectus supplement that describes, among other things, the specific amounts and prices of the Common Stock and warrants being offered and the terms of the offering.

 

A prospectus supplement may also add, update or change information included in this prospectus. Any statement contained in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in such prospectus supplement modifies or supersedes such statement. Any statement so modified will be deemed to constitute a part of this prospectus only as so modified, and any statement so superseded will be deemed not to constitute a part of this prospectus. You should rely only on the information contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus. See “Where You Can Find More Information.”

 

Neither we nor the Selling Securityholders have authorized anyone to provide any information or to make any representations other than those contained in this prospectus, any accompanying prospectus supplement or any free writing prospectus we have prepared. We and the Selling Securityholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby and only under circumstances and in jurisdictions where it is lawful to do so. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus. This prospectus is not an offer to sell securities, and it is not soliciting an offer to buy securities, in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any prospectus supplement is accurate only as of the date on the front of those documents only, regardless of the time of delivery of this prospectus or any applicable prospectus supplement, or any sale of a security. Our business, financial condition, results of operations and prospects may have changed since those dates.

 

This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under “Where You Can Find More Information.”

 

On May 29, 2020, the Company, formerly known as Mudrick Capital Acquisition Corporation, consummated the transactions contemplated by the Purchase Agreement, dated as of January 13, 2020, by and among the Company, MUDS Acquisition Sub, Inc., (“Acquisition Sub”) and Hycroft Mining Corporation, a Delaware corporation (the “Seller”), as amended by that certain Amendment to Purchase Agreement, dated as of February 26, 2020 (the “Purchase Agreement”). Pursuant to the Purchase Agreement, Acquisition Sub acquired all of the issued and outstanding equity interests of the direct subsidiaries of the Seller and substantially all of the other assets and assumed substantially all of the liabilities of the Seller, a US-based gold and silver producer operating the Hycroft Mine located in the mining region of northern Nevada. In connection with the completion of the business combination transaction contemplated by the Purchase Agreement, the Company changed its name from Mudrick Capital Acquisition Corporation to Hycroft Mining Holding Corporation. The above description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by the full text of the Purchase Agreement, which is included as Exhibit 2.1 to the registration statement of which this prospectus forms a part and is incorporated herein by reference. Common terms and their meaning are set forth below under the heading “Selected Definitions.”

 

ii

 

 

MARKET, RANKING AND OTHER INDUSTRY DATA

 

Certain market, ranking and industry data included in this prospectus, including the size of certain markets and our size or position and the positions of our competitors within these markets, including its products and services relative to its competitors, are based on estimates of our management. These estimates have been derived from our management’s knowledge and experience in the markets in which we operate, as well as information obtained from surveys, reports by market research firms, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate, which, in each case, we believe are reliable.

 

We are responsible for all of the disclosure in this prospectus and while we believe the data from these sources to be accurate and complete, we have not independently verified data from these sources or obtained third-party verification of market share data and this information may not be reliable. In addition, these sources may use different definitions of the relevant markets. Data regarding our industry is intended to provide general guidance, but is inherently imprecise.

 

Assumptions and estimates of our future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk factors—Risks Related to Our Business.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Cautionary Statement Regarding Forward-Looking Statements.”

 

SelectED DEFINITIONS

 

Unless stated in this prospectus or the context otherwise requires, references to:

 

1.25 Lien Exchange” means the exchange by the 1.25 Lien Noteholders of the outstanding 1.25 Lien Notes for New Subordinated Notes.

 

1.25 Lien Exchange Agreement” means that certain note exchange agreement, dated as of January 13, 2020, by and among the Seller and certain investment funds affiliated with or managed by Mudrick Capital, Whitebox, Highbridge, Aristeia and Wolverine, as amended, pursuant to which the 1.25 Lien Exchange occurred immediately prior to the consummation of the business combination.

 

1.25 Lien Notes” means the notes issued pursuant to the Note Purchase Agreements, dated as of February 22, 2019, May 21, 2019, June 27, 2019, August 6, 2019, August 29, 2019, September 25, 2019, October 16, 2019, November 21, 2019, December 17, 2019, January 17, 2020, February 7, 2020, March 12, 2020, April 16, 2020 and May 7, 2020 between the Seller, the guarantors and the purchasers named therein and WBox 2015-5 Ltd., as collateral agent.

 

1.25 Lien Noteholders” means the holders of the 1.25 Lien Notes and, subsequent to the 1.25 Lien Exchange, the holders of the New Subordinated Notes.

 

1.5 Lien Notes” means the notes issued pursuant to the Note Purchase Agreements, dated as of May 3, 2016, July 29, 2016, September 22, 2016, November 30, 2016, February 2, 2017, April 12, 2017, June 30, 2017, July 14, 2017, December 20, 2017, March 8, 2018, May 10, 2018, July 10, 2018, August 22, 2018, November 1, 2018, and December 19, 2018 between the Seller, the guarantors and the purchasers named therein and WBox 2015-5 Ltd., as collateral agent.

 

1.5 Lien Noteholders” means certain investment funds affiliated with Mudrick Capital, Whitebox, Highbridge, Aristeia and Wolverine that hold the 1.5 Lien Notes.

 

Amended and Restated Registration Rights Agreement” means that certain Amended and Restated Registration Rights Agreement entered into at the closing of the business combination, by and among the Company and the restricted stockholders.

 

Acquisition Sub” means MUDS Acquisition Sub, Inc., a Delaware corporation and an indirect, wholly-owned subsidiary of the Company.

 

Aristeia” means Aristeia Capital, LLC.

 

iii

 

 

Assumed New Subordinated Notes” means $80,000,000 in aggregate principal amount of New Subordinated Notes assigned to, and assumed by, the Company in connection with the business combination, on a pro rata basis across holders of New Subordinated Notes.

 

Board” means the board of directors of Hycroft Mining Holding Corporation.

 

business combination” means the transactions contemplated by the Purchase Agreement, the Exchange Agreement and the Second Lien Conversion Agreement consummated on May 29, 2020.

 

business day” means a day, other than Saturday, Sunday or such other day on which commercial banks in New York, New York are authorized or required by applicable laws to close.

 

Cantor” means Cantor Fitzgerald & Co.

 

“Common Stock” means the Class A common stock, par value $0.0001 per share, of the Company.

 

DGCL” means the General Corporation Law of the State of Delaware.

 

debt and warrant assumption” means the assignment by Seller and the assumption by the Company of (x) $80,000,000 in aggregate principal amount of New Subordinated Notes, (y) the Sprott Credit Agreement and (z) Seller’s liabilities and obligations under the Seller Warrant Agreement.

 

effective time” means 9:00 a.m. New York time on May 29, 2020.

 

employee benefit plan” means any material “employee benefit plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended.

 

Excess Noteholders” means the holders of the Excess Notes.

 

Excess Notes” means the $48,459,232 in aggregate principal amount of New Subordinated Notes exchanged pursuant to the Exchange Agreement.

 

note exchange” means the exchange of the 1.5 Lien Notes and the Excess Notes, if any, for shares of Common Stock valued at $10.00 per share and/or cash payment pursuant to the terms of the Exchange Agreement.

 

Exchange Act” means the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder.

 

Exchange Agreement” means that certain Exchange Agreement, dated as of January 13, 2020, by and among the Seller, Acquisition Sub, the 1.5 Lien Noteholders and the 1.25 Lien Noteholders, as amended.

 

Feasibility Study” means the NI 43-101 Technical Report: Heap Leaching Feasibility Study prepared by M3 Engineering and Technology Corporation with an effective date of July 31, 2019, which formed the substantive basis for the Hycroft Technical Report that was prepared to comply with subpart 1300 of Regulation S-K.

 

First Lien Credit Agreement” means the first lien term loan credit agreement between the Seller and The Bank of Nova Scotia, as administrative agent, and other lenders.

 

First Lien Notes” means the notes under the First Lien Credit Agreement.

 

Forward Purchase Contract” means the Forward Purchase Contract, dated January 24, 2018, by and between the Company and sponsor, pursuant to which sponsor purchased 3,125,000 shares of Common Stock and 2,500,000 forward purchase warrants exercisable at $11.50 per share, for gross proceeds of $25,000,000, concurrently with the consummation of the business combination.

 

forward purchase warrants” means the warrants to purchase one share of Common Stock at a price of $11.50 per share issued to the sponsor upon consummation of the business combination pursuant to the Forward Purchase Contract.

 

iv

 

 

founder shares” means shares of Class B common stock, par value $0.0001 per share, of the Company initially purchased by sponsor which were redeemed or converted into shares of Common Stock upon the consummation of the business combination.

 

GAAP” means generally accepted accounting principles in the United States.

 

Highbridge” means Highbridge Capital Management, LLC.

 

HRD” means Hycroft Resources & Development, LLC, a Delaware limited liability company and an indirect, wholly-owned subsidiary of the Seller.

 

Hycroft,” “Company,” “we,” “our,” or “us,” means Hycroft Mining Holding Corporation, a Delaware corporation.

 

Hycroft Mine” means the Hycroft Open Pit Mine, located in Winnemucca, Nevada that produces gold and silver using a heap leach mining process.

 

Hycroft Technical Report” means that certain Technical Report Summary, Heap Leaching Feasibility Study prepared for the Seller with an effective date of July 31, 2019 by M3 Engineering and Technology Corporation and other qualified persons, prepared in accordance with the requirements of the Modernization of Property Disclosures for Mining Registrants set forth in subpart 1300 of Regulation S-K.

 

Incentive Plan” means the HYMC 2020 Performance and Incentive Pay Plan.

 

initial stockholders” means holders of founder shares prior to the IPO.

 

Initial Subscribers” means investment funds affiliated with or managed by Mudrick Capital, Whitebox, Highbridge, Aristeia and Wolverine (together with any permitted assigns under the Subscription/Backstop Agreements).

 

IPO” means the Company’s initial public offering, consummated on February 12, 2018, through the sale of 20,800,000 public units (including 800,000 units sold pursuant to the underwriters’ partial exercise of their overallotment option) at $10.00 per unit.

 

Lender” means Sprott Private Resource Lending II (Collector), LP.

 

Mudrick Capital” means Mudrick Capital Management, L.P., a Delaware limited partnership, an affiliate of sponsor.

 

NASDAQ” means the National Association of Securities Dealers Automated Quotations Capital Market.

 

New Subordinated Notes” means the 10% payment-in-kind subordinated notes of the Seller issued pursuant to the 1.25 Lien Exchange Agreement.

 

Parent Sponsor Letter Agreement” means that certain letter agreement, dated as of January 13, 2020, by and between the Company and sponsor, as amended from time to time.

 

PIPE warrants” means the warrants to purchase one share of Common Stock at a price of $11.50 per share issued to the Initial Subscribers in the private investment.

 

private investment” means the equity financing through a private placement of equity securities in the Company pursuant to Section 4(a)(2) of the Securities Act, for gross proceeds to the Company in an aggregate amount of approximately $76.0 million funded in accordance with the terms of the Subscription/Backstop Agreements.

 

private placement warrants” means the warrants issued to sponsor and Cantor in a private placement simultaneously with the closing of the IPO.

 

v

 

 

 

public shares” means shares of Common Stock sold as part of the units in the IPO.

 

public units” means one share of Common Stock and one redeemable public warrant of the Company, whereby each public warrant entitles the holder thereof to purchase one share of Common Stock at an exercise price of $11.50 per share of Common Stock, sold in the IPO.

 

public warrants” means the warrants included in the units issued in the IPO, where one warrant entitles the holder thereof to purchase one share of Common Stock at an exercise price of $11.50 per share of Common Stock in accordance with the terms of the Warrant Agreement.

 

Purchase Agreement” means that certain Purchase Agreement, dated January 13, 2020, as amended on February 26, 2020, by and among the Company, Acquisition Sub and the Seller.

 

representatives” means a Person’s officers, directors, employees, accountants, consultants, agents, legal counsel, and other representatives.

 

restricted stockholders” means, collectively, sponsor, Cantor, certain directors and officers of the Company (as set forth in the Amended and Restated Registration Rights Agreement), the 1.5 Lien Noteholders, certain stockholders of the Seller that receive Common Stock in the business combination, the Initial Subscribers pursuant to the private investment, and Lender.

 

SEC” means the United States Securities and Exchange Commission.

 

Second Amended and Restated Charter” means the Second Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on May 29, 2020.

 

Second Lien Conversion Agreement” means that certain note conversion and consent agreement by and among Seller and the Second Lien Noteholders, dated January 13, 2020.

 

Second Lien Notes” means the notes issued pursuant to (a) that certain Note Purchase Agreement, dated as of October 22, 2015, by and among the Seller, certain of its affiliates and the purchasers named therein and (b) that certain Note Purchase Agreement, dated as of December 2, 2015, by and among Seller, certain of the Seller’s subsidiaries and the purchasers named therein, in each case, entered into pursuant to the 15% Senior Secured Convertible Notes Due 2020 Indenture, dated as of October 22, 2015, by and among Seller, the guarantors (as defined therein) and Wilmington Trust, National Association, as trustee and collateral agent as of January 6, 2016 and March 24, 2016.

 

Second Lien Noteholders” means certain funds affiliated with Mudrick Capital, Whitebox, Highbridge, Aristeia and Wolverine and two additional noteholders.

 

Securities Act” means the Securities Act of 1933, as amended.

 

Seller” means Hycroft Mining Corporation, a Delaware corporation.

 

Seller common stock” means Seller’s common stock, par value $0.001 per share.

 

Seller warrants” means a warrant to purchase shares of Common Stock issued pursuant to the Seller Warrant Agreement following the assumption of the Seller Warrant Agreement by the Company pursuant to the Purchase Agreement and effective as of the consummation of the business combination.

 

Seller Warrant Agreement” means that certain warrant agreement, dated as of October 22, 2015, by and between Seller and Computershare Inc., a Delaware corporation, and its wholly-owned subsidiary Computershare Trust Company, N.A., a federally chartered trust company, collectively as initial warrant agent; such warrant agreement was assumed by the Company pursuant to the Purchase Agreement and Continental Stock Transfer & Trust Company, LLC is the successor warrant agent.

 

sponsor” means Mudrick Capital Acquisition Holdings LLC, a Delaware limited liability company, which is 100% owned by investment funds and separate accounts managed by Mudrick Capital.

 

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Sprott Credit Agreement” means that certain amended and restated credit agreement, dated as of May 29, 2020, between Hycroft Mining Holding Corporation, as borrower, MUDS Acquisition Sub, Inc., MUDS Holdco, Inc., Hycroft Resources & Development, LLC, a Delaware limited liability company, and Allied VGH LLC, a Delaware limited liability company, as guarantors, Sprott Private Resource Lending II (Collector), LP, as lender, and Sprott Resource Lending Corp., as arranger.

 

Sprott Royalty Agreement” means that certain royalty agreement between the Company, Hycroft Resources & Development, LLC, a Delaware limited liability company and Sprott Private Resource Lending II (Co), Inc.

 

Subscription/Backstop Agreements” means those certain Subscription/Backstop Agreements, dated as of January 13, 2020, by and among the Company and the Initial Subscribers, as amended on May 28, 2020.

 

Treasury Regulation” means the regulations promulgated by the U.S. Department of the Treasury pursuant to and in respect of provisions of the U.S. Tax Code.

 

trust account” means the trust account of the Company that held the proceeds from the IPO.

 

U.S. Holder” means a beneficial owner of the Company’s securities who or that is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized in or under the laws of the United States, any state thereof of the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source, or (iv) a trust, if (a) a court within the United States is able to exercise primary supervision over the administration of the trust or one or more U.S. persons (as defined in the U.S. Tax Code) have authority to control all substantial decisions of the trust or (b) it has a valid election in effect under Treasury Regulations to be treated as a U.S. person.

 

U.S. Tax Code” means the Internal Revenue Code of 1986, as amended.

 

Warrant Agreement” means the Warrant Agreement, dated February 7, 2018, by and between Mudrick Capital Acquisition Corporation and Continental Stock Transfer & Trust Company, LLC

 

Warrants” means unless the context indicates otherwise the public warrants, private placement warrants, forward purchase warrants, PIPE warrants and Seller warrants.

 

Whitebox” means Whitebox Advisors, LLC.

 

Wolverine” means Wolverine Asset Management, LLC.
 

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CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTS

 

We make “forward-looking statements” in the “Summary,” “Risk Factors,” “Description of Business,” “Description of Properties,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and elsewhere throughout this prospectus. All statements, other than statements of historical facts, included in this prospectus and in press releases and public statements by our officers or representatives, that address activities, events or developments that our management expects or anticipates will or may occur in the future, are forward-looking statements, including but not limited to such things as future business strategy, plans and goals, competitive strengths and expansion and growth of our business.

 

The words “estimate”, “plan”, “anticipate”, “expect”, “intend”, “believe” “target”, “budget”, “may”, “schedule” and similar words or expressions identify forward-looking statements. These statements involve known and unknown risks, uncertainties, assumptions and other factors which may cause our actual results, performance or achievements to be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on current expectations. Although our management believes that its expectations are based on reasonable assumptions, we can give no assurance that these expectations will prove correct. Please see “Risk Factors” below for more information about these and other risks. Potential investors are cautioned against attributing undue certainty to forward-looking statements. Although we have attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that our forward-looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in the statements. We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

 

 

PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus. It does not contain all the information that you may consider important in making your investment decision. Therefore, you should read the entire prospectus carefully, including, in particular, the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes.

 

As used in this prospectus, unless the context otherwise requires or indicates, references to “Hycroft,” “Company,” “we,” “our,” and “us,” refer to Hycroft Mining Holding Corporation and its subsidiaries. “Seller” refers to Hycroft Mining Corporation prior to the business combination.

 

Overview

 

We are a U.S.-based gold producer that has historically focused on mining, developing, and exploring properties in the state of Nevada in a safe, environmentally responsible and cost-effective manner. Gold and silver sales have historically represented 100% of the Seller’s operating revenues and are expected to represent 100% of our operating revenues in the future. Accordingly, the market prices of gold and silver significantly impact our financial position, operating results and cash flows.

 

The mailing address of our principal executive office is 8181 E. Tufts Ave., Suite 510, Denver, CO 80237. The telephone number of Hycroft is (303) 253-3267. For more information about Hycroft, please see the sections entitled “Description of Business,” “Description of Property,” “Management’s Discussion and Analysis of Financial Conditions and Results of Operation,” “Management” and “Executive Compensation” in this prospectus.

 

Company History

 

The Seller was incorporated as Allied Nevada Gold Corp. under the laws of the State of Delaware on September 14, 2006 and commenced operations on May 10, 2007. The Seller suspended mining operations at the Hycroft Mine on July 8, 2015 to maximize cash flow and minimize spending through the remainder of the chapter 11 process and changed its name from Allied Nevada Gold Corp. to Hycroft Mining Corporation on October 9, 2015 in connection with its restructuring and emergence from federal bankruptcy proceedings. The Seller continued to process and produce gold and silver through the operation of the heap leach pads and Merrill-Crowe processing plants located on the property, but in 2017, with revenue no longer covering the cost of the reagents necessary for production, the Hycroft Mine was placed into care and maintenance mode to minimize expenditures and conserve cash. While in care and maintenance, gold and silver production was a byproduct of maintenance activities.

 

Effective July 31, 2019, M3 Engineering and Technology Corporation (“M3 Engineering”), in conjunction with SRK Consulting (U.S.), Inc. (“SRK”) and the Seller, completed the Hycroft Technical Report Summary, Heap Leaching Feasibility Study prepared for Seller with an effective date of July 1, 2019, prepared in accordance with the requirements of the Modernization of Property Disclosures for Mining Registrants set forth in subpart 1300 of Regulation S-K, for a two-stage, heap oxidation and subsequent leaching of transition and sulfide ores.

 

Our Business

 

As of June 30, 2019, based on the Hycroft Technical Report, the Hycroft Mine had proven and probable mineral reserves of 12.0 million ounces of gold and 481.4 million ounces of silver, which are contained in oxide, transition and sulfide ores. Pursuant to the current 34-year life of mine plan in the Hycroft Technical Report, once fully operational, mining will range from approximately 85 – 100 million tons per year. As set forth in the Hycroft Technical Report, we expect mining will be performed by a contract mining company or we will primarily use a short-term equipment rental fleet during the initial five-year ramp-up using customary truck and shovel open pit mining methods. After the initial ramp-up, we expect to self-perform mining with our own equipment fleet.

 

Our Properties

 

All of our mining properties are located in Nevada. We currently have one Operating Property, namely the Hycroft Mine as discussed herein.

 

 

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Recent Developments

 

On May 29, 2020, we completed the business combination described above in the Section entitled “Description of Business”.

 

Risk Factors

 

An investment in our common stock involves substantial risk. The occurrence of one or more of the events or circumstances described in the section entitled “Risk Factors,” alone or in combination with other events or circumstances, may have a material adverse effect on our business, cash flows, financial condition and results of operations. Important factors and risks that could cause actual results to differ materially from those in the forward-looking statements include, among others:

 

Industry-related risks including:

 

·Fluctuations in the price of gold;

 

·Uncertainties concerning estimates of reserves and mineralized material;

 

·Uncertainties relating to the COVID-19 pandemic;

 

·The intense competition within the mining industry;

 

·The inherently hazardous nature of mining activities;

 

·Our insurance may not be adequate to cover all risks associated with our business;

 

·Potential effects on our operations of U.S. federal and state governmental regulations, including environmental regulation and permitting requirements;

 

·Cost of compliance with current and future government regulations;

 

·Uncertainties relating to obtaining or retaining approvals and permits from governmental regulatory authorities;

 

·Potential challenges to title in our mineral properties;

 

·Risks associated with proposed legislation in Nevada that could significantly increase the costs of our operations; and

 

·Changes to the climate and regulations and pending legislation regarding climate change.

 

Business-related risks including:

 

·Risks related to the heap leaching process at the Hycroft Mine and estimates of production;

 

·Our ability to achieve our estimated production and sales rates and stay within our estimated operating and production costs;

 

·Risks related to our limited experience with a largely untested process of heap leaching Sulfide ores;

 

·The decline of our gold and silver production;

 

·Risks related to our reliance on one mine with a new process;

 

·Uncertainties and risks related to our reliance on contractors and consultants;

 

·Uncertainties related to our ability to replace and expand our ore reserves;

 

·The costs related to our land reclamation requirements;

 

·Availability and cost of equipment, supplies, energy or commodities;

 

·The commercial success of, and risks relating to, our development activities;

 

·Risks related to slope stability;

 

·Our ability to raise capital on favorable terms or at all;

 

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·Risks related to our substantial indebtedness, including cross acceleration and our ability to generate sufficient cash to service our indebtedness;

 

·Uncertainties resulting from the possible incurrence of operating and net losses in the future;

 

·Risks related to disruption of our business due to the historical chapter 11 proceedings;

 

·The loss of key personnel or our failure to attract and retain personnel;

 

·Risks related to technology systems and security breaches;

 

·Risks related to current and future legal proceedings;

 

·Our current intention or future decisions whether or not to use streaming or forward-sale arrangements;

 

·Risks associated with possible future joint ventures; and

 

·Risks that our principal stockholders will be able to exert significant influence over matters submitted to stockholders for approval.

 

Risks related to our Common Stock and warrants and this offering, including:

 

·Volatility in the price of our Common Stock;

 

·Risks related to a lack of liquidity in the trading of our Common Stock;

 

·Potential declines in the value of our Common Stock due to substantial future sales of our Common Stock and/or warrants;

 

·Dilution of your investment;

 

·We do not intend to pay cash dividends; and

 

·Anti–takeover provisions could make a third party acquisition of us difficult.

 

You should carefully review and consider the risk factors set forth under the section entitled “Risk Factors” beginning on page 8 of this prospectus.

 

Implications of Being an Emerging Growth Company

 

We qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, or the “JOBS Act.” An emerging growth company may take advantage of specified reduced requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:

 

·we may present only two years of audited financial statements and only two years of related Management's Discussion & Analysis of Financial Condition and Results of Operations;

 

·we are exempt from the requirement to obtain an attestation report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;

 

·we are permitted to provide less extensive disclosure about our executive compensation arrangements; and

 

·we are not required to give our stockholders non-binding votes on executive compensation or "golden parachute" arrangements.

 

We may take advantage of these provisions for up to five full fiscal years or such earlier time that we are no longer an emerging growth company. We may choose to take advantage of some but not all of these reduced burdens. We would cease to be an emerging growth company if we have more than $1 billion in annual revenues, have more than $700 million in market value of our shares of common stock held by non-affiliates, or issue more than $1 billion of non-convertible debt over a three-year period.

 

 

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Additionally, although the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, we have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

Corporate Information

 

We were incorporated on August 28, 2017 as a Delaware corporation under the name “Mudrick Capital Acquisition Corporation” and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On May 29, 2020, in connection with the consummation of the business combination, we changed our name to “Hycroft Mining Holding Corporation”.

 

Our principal executive offices are located at 8181 E. Tufts Ave., Suite 510, Denver, Colorado, and our telephone number is (303) 253-3267. Our website is www.hycroftmining.com. The information found on, or that can be accessed from or that is hyperlinked to, our website is not part of this prospectus.

 

 

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THE OFFERING

 

We are registering the issuance by us of up to 37,500,212 shares of our Common Stock that may be issued by us upon exercise of warrants to purchase Common Stock, including the public warrants, private placement warrants, forward purchase warrants, PIPE warrants and Seller warrants. We are also registering the resale by the Selling Securityholders or their permitted transferees of (i) up to 60,867,645 shares of Common Stock, and (ii) up to 13,489,99 warrants to purchase Common Stock, including the private placement warrants, forward purchase warrants and PIPE warrants. Any investment in the securities offered hereby is speculative and involves a high degree of risk. You should carefully consider the information set forth under “Risk Factors” on page 8 of this prospectus.

 

As of July 9, 2020, we had 50,160,042 shares of Common Stock outstanding. The following information is as of July 9, 2020 and does not give effect to issuances of shares of our Common Stock or warrants after such date, or the exercise of warrants after such date.

 

Issuance of Securities - Common Stock and Warrants
 
Shares of Common Stock to be issued upon exercise of all public warrants, private placement warrants, forward purchase warrants, PIPE warrants and Seller warrants   37,500,212 shares
     
Use of proceeds   We will receive up to an aggregate of approximately $538.2 million from the exercise of all public warrants, private placement warrants, forward purchase warrants, PIPE warrants and Seller warrants assuming the exercise in full of all such warrants for cash. Unless we inform you otherwise in a prospectus supplement or free writing prospectus, we intend to use the net proceeds from the exercise of such warrants for general corporate purposes which may include acquisitions or other strategic investments or repayment of outstanding indebtedness.
     
Resale of Common Stock and Warrants    
     
Shares of Common Stock offered by the Selling Securityholders   60,687,645
     
Warrants offered by the Selling Securityholders    
     
Private placement warrants, forward purchase warrants and PIPE warrants   13,489,999
     
Exercise Price   $11.50 per share of Common Stock
     
Use of proceeds   We will not receive any proceeds from the sale of the Common Stock and warrants to be offered by the Selling Securityholders. With respect to shares of Common Stock underlying the warrants, we will not receive any proceeds from the sale of such shares except with respect to amounts received by us upon exercise of such warrants to the extent such warrants are exercised for cash.
     
Restrictions to Sell   Pursuant to the Amended and Restated Registration Rights Agreement the restricted stockholders agreed

 

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    not to sell, transfer, pledge or otherwise dispose of certain securities they hold or receive, for certain time periods specified therein. For more information, please see the section entitled “Plan of Distribution – Restrictions to Sell.”

 

NASDAQ Ticker Symbols1  

Common Stock: HYMC

Public Warrants: HYMCW

 

 

 

1 We will use our commercially reasonable best efforts to list the Seller warrants for trading on NASDAQ as soon as reasonably practicable subject to applicable listing requirements.

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RISK FACTORS

 

Investing in our securities involves a high degree of risk. Investors should carefully consider the risks described below and all of the other information set forth in the registration statement of which this prospectus forms a part, including our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our Common Stock or warrants. If any of the events or developments described below occur, our business, financial condition, or results of operations could be materially or adversely affected. As a result, the market price of our Common Stock and warrants could decline, and investors could lose all or part of their investment. The risks and uncertainties described below are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. See “Cautionary Notes Regarding Forward-Looking Statements” below.

 

Risks Related to Our Industry

 

The market prices of gold and silver are volatile. A decline in gold and silver prices could result in decreased revenues, decreased net income, increased losses and decreased cash inflows which may negatively affect our business.

 

Gold and silver are commodities. Their prices fluctuate and are affected by many factors beyond our control, including interest rates, expectations regarding inflation, speculation, currency values, central bank activities, governmental decisions regarding the disposal of precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors. The prices of gold and silver, as quoted by The London Bullion Market Association on July 9, 2020, December 31, 2019 and December 31, 2018, were $1,812, $1,515 and $1,279 per ounce for gold, respectively, and $18.84, $18.04 and $15.46 per ounce for silver, respectively. The prices of gold and silver may decline in the future. A substantial or extended decline in gold or silver prices would adversely impact our financial position, revenues, net income and cash flows, particularly in light of our current strategy of not engaging in hedging transactions with respect to gold or silver. In addition, sustained lower gold or silver prices may:

 

·reduce revenue potential due to cessation of the mining of deposits, or portions of deposits, that have become uneconomic at the then-prevailing gold or silver price;

 

·reduce or eliminate the profit, if any, that we currently expect from mining operations;

 

·halt, delay, modify, or cancel plans for the mining of oxide and sulfide ores or the development of new and existing projects;

 

·make it more difficult for us to satisfy and/or service our debt obligations;

 

·reduce existing reserves by removing ores from reserves that can no longer be economically processed at prevailing prices; and

 

·cause us to recognize an impairment to the carrying values of mineral properties and long-lived assets.

 

Reserve and other mineralized material calculations are estimates only, and are subject to uncertainty due to factors including metal prices, inherent variability of the ore and recoverability of metal in the mining process.

 

The calculation of mineral reserves, mineral resources and grades are estimates and depend upon geological interpretation and statistical inferences or assumptions drawn from drilling and sampling analysis, which may prove to be unpredictable. There is a degree of uncertainty attributable to the calculation of mineral reserves and mineral resources, and corresponding grades. Until mineral reserves and mineral resources are actually mined and processed, the quantity of ore and grades must be considered as an estimate only. In addition, the quantity of mineral reserves and mineral resources may vary depending on metal prices, which largely determine whether mineral reserves and other mineralized materials are classified as ore (economic to mine) or waste (uneconomic to mine). A decline in metal prices may result in previously reported mineral reserves (ore) becoming uneconomic to mine (waste). Current reserve estimates were calculated using a $1,200 per ounce

 

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gold price and $16.50 per ounce silver price. A material decline in the current price of gold or silver could require a reduction in our reserve estimates. Any material change in the quantity of mineral reserves, mineral resources, mineralization, grade or stripping ratio may affect the economic viability of our properties. In addition, we can provide no assurance that gold and silver recoveries experienced in small-scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production.

 

Our activities may be adversely affected by the COVID-19 pandemic, whether those effects are local, nationwide or global. Matters outside our control may prevent us from executing on our mining operations, limit travel of Company representatives, adversely affect the health and welfare of Company personnel or prevent important vendors and contractors from performing normal and contracted activities, including mining operations.

 

The current COVID-19 pandemic is significantly impacting the national and global economy and commodity and financial markets. The full extent and impact of the COVID-19 pandemic is unknown and to date has included extreme volatility in financial markets, a slowdown in economic activity, extreme volatility in commodity prices (including precious metals) and has raised the prospect of a global recession. The response to COVID-19 has led to significant restrictions on travel, temporary business closures, quarantines, global stock market volatility and a general reduction in consumer activity, globally. Matters outside our control have affected our business and operations and may continue to prevent us from executing on our mining operations; limit travel of our representatives, including between our corporate headquarters in Colorado and the Hycroft Mine in Nevada; adversely affect the health and welfare of our personnel; or prevent important vendors and contractors from performing normal and contracted activities, including mining operations. If significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures or other restrictions in connection with the COVID-19 pandemic, our operations will likely be adversely impacted. It is possible that the continued spread of COVID-19 could also further cause disruption in our supply chains, adversely affect our business partners, delay our mining operations or cause other unpredictable events.

 

We, our people, investors, contractors or other stakeholders, have been and may continue to be limited or prevented from travel or normal attendance to activities in conducting our business, including mining operations, and conducting presentations, meetings or other activities. The spread of COVID-19 throughout Colorado and Nevada may result in our employees being forced to work from home or missing work if they or a member of their family contract COVID-19, which could harm our operations and negatively impact our financial condition. We have and may continue to also be limited or prevented from receiving goods or services from contractors. Decisions beyond our control, such as canceled events, restricted travel, barriers to entry or other factors may affect our ability to accomplish drilling programs, mining operations, equity raising activities, and other needs that would normally be accomplished without such limitations. The extent to which the COVID-19 outbreak will impact our operations, our business and the economy is highly uncertain. We cannot predict the impact of the COVID-19 pandemic, but it may materially and adversely affect our business, financial condition and results of operations.

 

We face intense competition in the mining industry.

 

The mining industry is intensely competitive. As a result of this competition, some of which is with large established mining companies with substantial mining capabilities and with greater financial and technical resources than ours, we compete with other mining companies in the recruitment and retention of qualified managerial and technical employees and in acquiring attractive mining claims. If we are unable to successfully attract and retain qualified employees, our development programs and/or our operations may be slowed down or suspended, which may adversely impact our development, financial condition and results of operations.

 

Mining development and processing operations pose inherent risks and costs that may negatively impact our business.

 

Mining development and processing operations involve many hazards and uncertainties, including, among others:

 

·metallurgical or other processing problems;

 

·ground or slope failures;

 

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·industrial accidents;

 

·unusual and unexpected rock formations or water conditions;

 

·environmental contamination or leakage;

 

·flooding and periodic interruptions due to inclement or hazardous weather conditions or other acts of nature;

 

·fires;

 

·seismic activity;

 

·organized labor disputes or work slow-downs;

 

·mechanical equipment failure and facility performance problems; and

 

·the availability of critical materials, equipment and skilled labor.

 

These occurrences could result in damage to, or destruction of, our properties or production facilities, personal injury or death, environmental damage, delays in mining or processing, increased production costs, asset write downs, monetary losses and legal liability, any of which could have an adverse effect on our results of operations and financial condition and adversely affect Our projected development and production estimates.

 

Our insurance may not cover all of the risks associated with our business.

 

The mining business is subject to risks and hazards, including, but not limited to, construction risks, environmental hazards, industrial accidents, the encountering of unusual or unexpected geological formations, slide-ins, flooding, earthquakes and periodic interruptions due to inclement or hazardous weather conditions. These occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, reduced production and delays in mining, asset write-downs, monetary losses and possible legal liability. Insurance fully covering many of these risks is not generally available to us and if it is, we may elect not to obtain it because of the high premium costs or commercial impracticality. We do not currently carry business interruption insurance and have no plans to obtain such insurance in the future. Any liabilities incurred for these risks and hazards could be significant and could adversely affect our results of operation, cash flows and financial condition.

 

Environmental regulations could require us to make significant expenditures or expose us to potential liability.

 

To the extent we become subject to environmental liabilities, the payment of such liabilities or the costs that we may incur, including costs to remedy environmental pollution, would reduce funds otherwise available to us and could have a material adverse effect on our financial condition, results of operations, and liquidity. If we are unable to fully remedy an environmental violation or release of hazardous substances, we might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy or corrective action. The environmental standards that may ultimately be imposed at a mine site can vary and may impact the cost of remediation. Actual remedial costs may exceed the financial accruals that have been made for such remediation. The potential exposure may be significant and could have a material adverse effect on our financial condition and results of operations.

 

Moreover, governmental authorities and private parties may bring lawsuits based upon damage to property or natural resources and injury to persons resulting from the environmental, health and safety impacts of our past and current operations, which could lead to the imposition of substantial fines, remediation costs, penalties, injunctive relief and other civil and criminal sanctions. Substantial costs and liabilities, including those required to restore the environment after the closure of mines, are inherent in our operations. We cannot provide any assurance that any such law, regulation, enforcement or private claim will not have a negative effect on our business, financial condition or results of operations.

 

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Our operations are subject to extensive environmental regulations, which could result in the incurrence of operational delays, penalties and costs.

 

All phases of our operations are subject to extensive federal and state environmental regulation, including those enacted under the following laws:

 

·Comprehensive Environmental Response, Compensation, and Liability Act;

 

·The Resource Conservation and Recovery Act;

 

·The Clean Air Act;

 

·The National Environmental Policy Act;

 

·The Clean Water Act; and

 

·The Safe Drinking Water Act.

 

Additional regulatory authorities also have jurisdiction over some of our operations and mining projects including the Environmental Protection Agency, the Nevada Division of Environmental Protection, the U.S. Fish and Wildlife Service, the U.S. Bureau of Land Management (the “BLM”), and the Nevada Department of Wildlife.

 

These environmental regulations require us to obtain various operating permits, approvals and licenses and also impose standards and controls relating to development and production activities. For instance, we are required to hold a Nevada Reclamation Permit with respect to the Hycroft Mine. This permit mandates concurrent and post-mining reclamation of mines and requires the posting of reclamation bonds sufficient to guarantee the cost of mine reclamation. Changes to the amount required to be posted for reclamation bonds for our operations at the Hycroft Mine could materially affect our financial position, results of operations, cash flows and liquidity. Also, the U.S. Fish and Wildlife Service may designate critical habitat and suitable habitat areas it believes are necessary for survival of a threatened or endangered species. A critical habitat or suitable habitat designation could result in further material restrictions to land use and may materially delay or prohibit land access for our development. For example, we had to obtain certain permits associated with mining in the area of an eagle habitat. Failure to obtain such required permits or failure to comply with federal and state regulations could also result in delays in beginning or expanding operations, incurring additional costs for investigation or cleanup of hazardous substances, payment of penalties for non-compliance or discharge of pollutants, and post-mining closure, reclamation and bonding, all of which could have an adverse impact on our financial performance, results of operations and liquidity.

 

Compliance with current and future government regulations may cause us to incur significant costs.

 

Our operations are subject to extensive federal and state legislation governing matters such as mine safety, occupational health, labor standards, prospecting, exploration, production, exports, toxic and hazardous substances, explosives, management of natural resources, land use, water use, air emissions, waste disposal, environmental review and taxes. Compliance with this and other legislation could require us to make significant financial outlays. The enactment of new legislation or more stringent enforcement of current legislation may increase costs, which could have a negative effect on our financial position, results of operations, and liquidity. We cannot provide any assurances that we will be able to adapt to these regulatory developments on a timely or cost-effective basis. Violations of these laws, regulations and other regulatory requirements could lead to substantial fines, penalties or other sanctions, including possible shut-down of the Hycroft Mine or future operations, as applicable.

 

Changes in environmental regulations could adversely affect our cost of operations or result in operational delays.

 

The regulatory environment in which we operate is evolving in a manner that will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. New environmental laws and regulations or changes in existing environmental laws and regulations could have a negative effect on exploration activities, operations, production levels and methods of production.

 

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We cannot provide any assurance that future changes in environmental laws and regulations will not adversely affect our current operations or future projects. Any changes to these laws and regulations could have an adverse impact on our financial performance and results of operations by, for example, requiring changes to operating constraints, technical criteria, fees or surety requirements.

 

Our operations are subject to numerous governmental permits that are difficult to obtain and we may not be able to obtain or renew all of the permits we require, or such permits may not be timely obtained or renewed.

 

In the ordinary course of business we are required to obtain and renew governmental permits for our operations, including in connection with our plans for heap leaching our transition and sulfide ores at the Hycroft Mine. We will also need additional governmental permits to accomplish our long-term plans to mine sulfide ores, including without limitation, permits to allow construction of additional leach pad space. Obtaining or renewing the necessary governmental permits is a complex and time-consuming process involving costly undertakings by us. The duration and success of our efforts to obtain and renew permits are contingent upon many variables not within our control, including the interpretation of applicable requirements implemented by the permitting authority and intervention by third parties in any required environmental review. We may not be able to obtain or renew permits that are necessary to our operations on a timely basis or at all, and the cost to obtain or renew permits may exceed our estimates. Failure to comply with the terms of our permits may result in injunctions, fines, suspension or revocation of permits and other penalties. We can provide no assurance that we have been, or will at all times, be in full compliance with all of the terms of our permits or that we have all required permits. The costs and delays associated with compliance with these permits and with the permitting process could alter the mine plan, delay or stop us from proceeding with the operation or development of the Hycroft Mine or increase the costs of development or production, any or all of which may materially adversely affect our business, results of operations, financial condition and liquidity.

 

There are uncertainties as to title matters in the mining industry. Any defects in such title could cause us to lose our rights in mineral properties and jeopardize our business operations.

 

Our mineral properties consist of private mineral rights, leases covering private lands, leases of patented mining claims and unpatented mining claims. Areas of the Hycroft Mine are unpatented mining claims located on lands administered by the BLM, Nevada State office to which we have only possessory title. Because title to unpatented mining claims is subject to inherent uncertainties, it is difficult to determine conclusively ownership of such claims. These uncertainties relate to such things as sufficiency of mineral discovery, proper location and posting and marking of boundaries, and possible conflicts with other claims not determinable from descriptions of record. We believe a substantial portion of all mineral exploration, development and mining in the United States now occurs on unpatented mining claims, and this uncertainty is inherent in the mining industry.

 

The present status of our unpatented mining claims located on public lands allows us the right to mine and remove valuable minerals, such as precious and base metals, from the claims conditioned upon applicable environmental reviews and permitting programs. We also are generally allowed to use the surface of the land solely for purposes related to mining and processing the mineral-bearing ores. However, legal ownership of the land remains with the United States. We remain at risk that the mining claims may be forfeited either to the United States or to rival private claimants due to failure to comply with statutory requirements. Prior to 1994, a mining claim locator who was able to prove the discovery of valuable, locatable minerals on a mining claim, and to meet all other applicable federal and state requirements and procedures pertaining to the location and maintenance of federal unpatented mining claims, had the right to prosecute a patent application to secure fee title to the mining claim from the Federal government. The right to pursue a patent, however, has been subject to a moratorium since October 1994, through federal legislation restricting the BLM from accepting any new mineral patent applications. If we do not obtain fee title to our unpatented mining claims, we can provide no assurance that we will be able to obtain compensation in connection with the forfeiture of such claims.

 

There may be challenges to title to the mineral properties in which we hold a material interest. If there are title defects with respect to any properties, we might be required to compensate other persons or perhaps reduce our interest in the affected property. Also, in any such case, the investigation and resolution of title issues would divert our management’s time from ongoing production and development programs.

 

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Legislation has been proposed periodically that could, if enacted, significantly affect the cost of our operations on our unpatented mining claims or the amount of Net Proceeds of Mineral Tax we pay to the State of Nevada.

 

Members of the U.S. Congress have periodically introduced bills which would supplant or alter the provisions of the Mining Law of 1872. Such bills have proposed, among other things, to either eliminate or greatly limit the right to a mineral patent and to impose a federal royalty on production from unpatented mining claims. Such proposed legislation could change the cost of holding unpatented mining claims and could significantly impact our ability to develop mineralized material on unpatented mining claims. A majority of our mining claims are unpatented claims. Although we cannot predict what legislated royalties might be, the enactment of these proposed bills could adversely affect the potential for development of our unpatented mining claims and the economics of our existing operating mines on federal unpatented mining claims. Passage of such legislation could adversely affect our financial performance and results of operations.

 

We pay Net Proceeds of Mineral Tax (“NPT”), to the State of Nevada on up to 5% of net proceeds generated from the Hycroft Mine. Net proceeds are calculated as the excess of gross yield over direct costs. Gross yield is determined as the value received when minerals are sold, exchanged for anything of value or removed from the state. Direct costs generally include the costs to develop, extract, produce, transport and refine minerals. From time to time Nevada legislators introduce bills which aim to increase the amount of NPT mining companies operating in the state pay. If legislation is passed that increases the NPT we pay to the state of Nevada, our business, results of operations, and cash flows could be negatively impacted.

 

Regulations and pending legislation governing issues involving climate change could result in increased operating costs, which could have a material adverse effect on our business.

 

A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to various climate change interest groups and the potential impact of climate change. Legislation and increased regulation regarding climate change could impose significant costs on us and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such regulations. Given the emotion, political significance and uncertainty around the impact of climate change and how it should be dealt with, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry could harm our reputation.

 

Climate change could have an adverse impact on our cost of operations.

 

The potential physical impacts of climate change on our operations are highly uncertain and would be particular to the area in which we operate. These climate changes may include changes in rainfall and storm patterns and intensities, water shortages and changing temperatures. These changes in climate could adversely affect our mining operations, including by affecting the moisture levels and pH of ore on our leach pads, increase the cost of production at the Hycroft Mine and adversely affect the financial performance of our operations.

 

Risks Related to Our Business

 

The estimation of the ultimate recovery of gold and silver from the Hycroft Mine, although based on standard industry sampling and estimating methods, is subjective. Our results of operations, liquidity, and financial position may be negatively impacted if actual recoveries are lower than initial estimations.

 

The Hycroft Mine historically utilized a heap leach process to extract gold and silver from ore. Our new plans outlined in the Hycroft Technical Report are also based on a heap leach process. The heap leach process extracts gold and silver by placing ore on an impermeable pad and applying a dilute cyanide solution that dissolves a portion of the contained gold and silver, which are then recovered in metallurgical processes. We use several integrated steps in the process of extracting gold and silver to estimate the metal content of ore placed on the leach pad. Although we refine our estimates as appropriate at each step in the process, the final amounts are not determined until a third-party smelter refines the doré and/or metal-laden carbon and determines the final ounces of gold and

 

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silver available for sale. We then review this end result and reconcile it to the estimates we developed and used throughout the production process. Based on this review, we adjust our estimation procedures when appropriate. Due to the complexity of the estimation process and the number of steps involved, among other things, actual recoveries can vary from estimates, and the amount of the variation could be significant and could have a material adverse impact on our financial condition, results of operations and liquidity.

 

We may not achieve our production and/or sales estimates and our costs may be higher than our estimates, thereby reducing our cash flows and negatively impacting our results of operations and liquidity.

 

We prepare estimates of future production, sales, and costs for our operations. We develop our estimates based on, among other things, mining experience, mineral reserve and resource estimates, assumptions regarding ground conditions and physical characteristics of ores (such as hardness and presence or absence of certain metallurgical characteristics), costs to construct new leach pads and estimated rates and costs of mining and processing. All of our estimates are subject to numerous uncertainties, many of which are beyond our control. Our actual production and/or sales may be lower than our estimates and our actual costs may be higher than our estimates, which could negatively impact our cash flows and results of operations. While we believe that our estimates are reasonable at the time they are made, actual results will vary and such variations may be material. These estimates are speculative in nature, and it may be the case that one or more of the assumptions underlying such projections and estimates may not materialize. You are cautioned not to place undue reliance on the projections and estimates set forth in this prospectus.

 

Cost estimates of operating the Hycroft Mine are uncertain, which may adversely affect our expected production and profitability.

 

The expenditures to implement our new two-stage pre-oxidation and leach process, and access our transition and sulfide ores, are considerable and changes in costs, construction schedules, commodity prices and other factors can adversely affect project economics and expected production and profitability. There are a number of factors that can affect costs and construction schedules and result in our assumptions and estimates about the anticipated benefits of a project being incorrect, including, among others:

 

·changes in input commodity prices and labor costs;

 

·recovery rates of gold and silver from the ore;

 

·availability and terms of financing;

 

·availability of labor, energy, transportation, equipment, and infrastructure;

 

·changes in anticipated tonnage, grade and metallurgical characteristics of the ore to be mined and processed;

 

·difficulty of estimating construction costs over a period of years;

 

·delays in completing any environmental review or in obtaining environmental or other governmental permits;

 

·weather and severe climate impacts; and

 

·potential delays related to social and community issues.

 

We have previously recovered gold and silver from oxide and transition ores at the Hycroft Mine through our heap leach operations. In connection with our restarted mining operations, in addition to mining oxide ore, we are also mining gold and silver from transition and sulfide ores using a modified heap leach process, in which soda ash is being used to manage pH and alkalinity in a two-stage oxidation and leach process, in accordance with the Hycroft Technical Report. However, it is important to note that the economic parameters described in a Feasibility Study, such as the Hycroft Technical Report, include a number of assumptions and estimates that could prove to be incorrect. We use feasibility studies to make a reasoned determination of whether to proceed with a project and to support the required financing for a project but you should not assume that the economic analysis contained in a Feasibility Study is a guarantee of future performance or that the estimated net present value or internal rates of return will be achieved. Actual results may differ materially. In particular, the processing of sulfide ore and additional transition ore at the Hycroft Mine is uncertain and, therefore, the costs and timing of the commencement

 

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of the production of sulfide ore and additional transition ore operations at the Hycroft Mine could vary greatly from our estimates.

 

There is only limited experience of recovering gold and silver from sulfide ores using a heap leaching process and we may not be able to economically recover gold and silver.

 

Under our current mine plan, we have begun to mine and extract gold and silver from transition and sulfide ores using a two-step pre-oxidation process on transition and sulfide ores using soda ash to manage pH and alkalinity during the oxidation process in accordance with the methods set forth in the Hycroft Technical Report. However, the economic parameters described in the Hycroft Technical Report include a number of assumptions and estimates that could prove to be incorrect. Additionally, this two-step process to oxidize transition and sulfide ores before heap leaching to extract gold and silver is a new and relatively untested process, is used only on a limited basis worldwide and has not been widely accepted as a viable process. We cannot provide any assurance that the development and advancement of the Hycroft Mine transition and sulfide ores leaching operations will result in economically viable mining operations, yield new mineral reserves or other mineralized material, enable us to convert other mineralized material (included within mineral resources identified by the Feasibility Study), or be implemented on an economic and profitable basis.

 

We currently depend on a single mine and there is no assurance that after restarting operations we will not incur any interruptions or stoppages in our mining activities which would have a material adverse effect on our results of operations and financial condition.

 

The Hycroft Mine is our only mining property. We can provide no assurance that we will be successful in profitably operating the Hycroft Mine using the sulfide leaching process. Further, any interruption in our ability to operate the Hycroft Mine, such as, but not limited to, a natural disaster, pandemic (such as COVID-19), loss of material permits, processing interruptions or difficulties or labor strike would have a materially adverse effect on our ability to produce gold and silver and to generate revenue.

 

Our reliance on third party contractors and consultants to conduct our operations and construction projects exposes us to risks.

 

In connection with the operation of the Hycroft Mine, we will contract and engage third party contractors and consultants to assist with aspects of our operations and related construction projects, including construction of the new leach pad, repair of the crushing facility, and mining of our ore and waste. As a result, our operations and construction projects are subject to a number of risks, some of which are outside our control, including:

 

·negotiating agreements with contractors and consultants on acceptable terms;

 

·the inability to replace a contractor or consultant and their operating equipment in the event that either party terminates the agreement;

 

·reduced control over those aspects of operations which are the responsibility of the contractor or consultant;

 

·failure of a contractor or consultant to perform under their agreement or disputes relative to their performance;

 

·interruption of operations or increased costs in the event that a contractor or consultant ceases their business due to insolvency or other unforeseen events;

 

·failure of a contractor or consultant to comply with applicable legal and regulatory requirements, to the extent they are responsible for such compliance; and

 

·problems of a contractor or consultant with managing their workforce, labor unrest or other employment issues.

 

In addition, we may incur liability to third parties as a result of the actions of our contractors or consultants. The occurrence of one or more of these risks could decrease our gold and silver production, increase our costs, interrupt or delay our mining operations or our ability to access our ores, and adversely affect our liquidity, results of operations and financial position.

 

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Our lack of exploration activities will lead to our inability to replace depleted reserves.

 

To maintain production levels over time we must replace depleted reserves by exploiting known ore bodies and locating new deposits. Pursuant to the Seller’s emergence from bankruptcy, all exploration properties other than those associated with the Hycroft Mine were sold in the chapter 11 proceedings. We have no current plans to continue further exploration other than related to the mining and processing of gold and silver contained in ore within the Hycroft Mine, and there can be no assurance that such projects will be successful. Our mineral base will decline if reserves are mined without adequate replacement, and we may not be able to sustain production beyond the currently contemplated mine life, based on projected production rates.

 

Land reclamation requirements for the Hycroft Mine may be burdensome and expensive.

 

Land reclamation requirements are generally imposed on companies with mining operations in order to minimize long-term effects of land disturbance. Reclamation may include requirements to control dispersion of potentially deleterious effluents; treat ground and surface water to drinking water standards; and reasonably re-establish pre-disturbance land forms and vegetation.

 

In order to carry out reclamation obligations imposed on us in connection with our activities, we must allocate financial resources that might otherwise be spent on further development programs. We have established a provision for our reclamation obligations on the Hycroft Mine property, as appropriate, but this provision may not be adequate. If we are required to carry out unanticipated reclamation work, our financial position could be adversely affected.

 

The sale of our mineral properties and suspension of acquisition and exploration activities greatly limit our ability to generate new reserves or identify other mineralized materials to replace or expand our current reserves.

 

Because the Hycroft Mine has a limited life based on proven and probable mineral reserves and resources, we have previously sought to replace and expand our mineral reserves and resources. Identifying promising mining properties is difficult and speculative. As part of our emergence from federal bankruptcy proceedings, pursuant to our plan of reorganization, we sold our remaining exploration properties. The sale of our mineral properties greatly limits our ability to develop or grow our reserves or identify new mineral resources. As a result, our revenues from the future sale of gold and silver may decline, resulting in lower income and reduced growth. Further, we expect to encounter strong competition from other mining companies in connection with the acquisition of properties producing or capable of producing gold and silver.

 

Although we have currently suspended our acquisition and exploration activities, if or when those activities are resumed, we will face competition from many of these companies that have greater financial resources than we do. Consequently, we may be unable to replace and expand current ore reserves through the acquisition of new mining properties or interests therein on terms we consider acceptable.

 

A shortage of equipment and supplies and/or the time it takes such items to arrive at the Hycroft Mine could adversely affect our ability to operate our business.

 

We are dependent on various supplies and equipment to engage in mining and development operations. The shortage of such supplies, equipment and parts and/or the time it takes such items to arrive at the Hycroft Mine could have a material adverse effect on our ability to carry out our operations and develop the Hycroft Mine, and therefore limit or increase the cost of production. Such shortages could also result in increased construction costs and cause delays in expansion projects.

 

The inability to obtain soda ash or delays in obtaining soda ash could adversely affect our ability to profitably operate our business.

 

There are a limited number of suppliers that produce and supply soda ash and to our knowledge, such suppliers do not typically mine soda ash in excess of what they believe they can sell. We have entered into a three-year agreement with a soda ash supplier to provide soda ash for our operations. However, if the contracted supplier cancels the contract, is unable to produce and supply enough soda ash or ceases operations because of the large

 

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quantities of soda ash required in our operations, we may have to temporarily stop mining until we can obtain a new contract to purchase soda ash. Further, we cannot provide any assurance as to the costs that we might incur in obtaining soda ash from a substitute supplier which could adversely affect the profitability and cash flow of our mining operations.

 

Changes in the cost or supply of energy or commodities used in operations may adversely affect the profitability of our operations and our financial condition.

 

Our mining operation is an intensive user of energy. Our principal energy sources are electricity and diesel fuel. We rely upon third parties for our supply of energy resources consumed in our mining activities. Energy prices can be affected by numerous factors beyond our control, including global and regional supply and demand, political and economic conditions, including the impact of global public health crises such as the spread of the novel coronavirus, COVID-19, on the global economy, and applicable regulatory regimes. The prices of various sources of energy may increase significantly from current levels. An increase in energy prices could materially and adversely affect our results of operations and financial condition.

 

Disruptions in the supply of our energy resources could temporarily impair our ability to produce gold and silver or delay any expansion projects or plans. Our mining operation is in a remote location requiring the long distance transmission of power. A disruption in the transmission of energy, inadequate energy transmission infrastructure or the termination of any of our energy supply contracts could interrupt our energy supply and adversely affect our operations or expansion projects.

 

Our production costs are also affected by the prices of commodities we consume or use in our operations, such as diesel fuel, sodium cyanide, soda ash, lime, tires, and explosives. The prices of such commodities are influenced by supply and demand trends affecting the mining industry in general and other factors outside our control. Increases in the price for materials consumed in our mining and production activities could materially and adversely affect our liquidity, results of operations, financial condition and cash flows.

 

We cannot be certain that our future development activities will be commercially successful.

 

Substantial expenditures are required to construct additional leach pads to extract gold and silver from our transition and sulfide ore utilizing the new metallurgical processes to extract gold and silver from the transition and sulfide ores described in the Hycroft Technical Report, to further develop the Hycroft Mine to identify new mineral reserves and resources, and to expand or establish mineral reserves and resources through drilling and analysis. We cannot provide assurance that our process to extract gold and silver from transition and sulfide ores using a heap leach process can be maintained on an economic and profitable basis, that any mineral reserves or resources discovered will be in sufficient quantities to justify commercial operations or that the funds required for development can be obtained on a timely or economic basis. A number of factors, including costs, actual mineralization, consistency and reliability of ore grades and commodity prices affect successful project development. The efficient operation of processing facilities, the existence of competent operational management, as well as the availability and reliability of appropriately skilled and experienced consultants also can affect successful project development. We can provide no assurance that the development and advancement of the Hycroft Mine sulfide leaching operations will result in economically viable mining operations or yield new mineral reserves or resources.

 

We may be adversely affected by challenges relating to slope stability.

 

Our open pit mine gets deeper as we mine it, presenting certain geotechnical challenges including the possibility of slope failure. If we are required to decrease pit slope angles or provide additional road access to prevent such a failure, our stated mineral reserves could be negatively affected. Further, hydrological conditions relating to pit slopes, renewal of material displaced by slope failures and increased stripping requirements could also negatively affect our stated mineral reserves. We cannot provide any assurances that we will not have to take additional action to maintain slope stability in the future or that our actions taken to date will be sufficient. Unexpected failure or additional requirements to prevent slope failure may negatively affect our results of operations and financial condition, as well as have the effect of diminishing our stated ore reserves.

 

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We may need to raise additional capital but such capital may not be available on favorable terms or at all.

 

The continuing operation of the Hycroft Mine under the new mine plan will require significant investment. Failure to obtain sufficient financing may result in the delay or indefinite postponement of development or production at the Hycroft Mine. The covenants in the Sprott Credit Agreement the Sprott Royalty Agreement, could significantly limit our ability to secure new or additional credit facilities, increase our cost of borrowing, and make it difficult or impossible to raise additional capital on favorable terms or at all.

 

Our primary future cash requirements will be to fund working capital as we ramp up operations at the Hycroft Mine and to fund future and sustaining capital. As of May 29, 2020, we had cash and cash equivalents of $68.8 million. Using current metal price levels and our estimates of future metal sales and costs, under our new mine plan described in the Hycroft Technical Report to mine sulfide and transition ore using a heap leach process, we currently expect our future net cash used in investing activities during the fiscal years ending December 31, 2019 and 2020 to exceed our cash flows provided by operating activities during the same periods. You are cautioned that management’s expectations regarding our liquidity and capital resources are based on a number of assumptions that we believe are reasonable but could prove to be incorrect. For example, our expectations are based on assumptions regarding commodity price levels, gold and silver recovery percentages and rates, production estimates, anticipated costs and other factors that are subject to a number of risks, many of which are beyond our control. If our assumptions prove to be incorrect, we may require additional financing sooner than we expect to continue to operate our business, which may not be available on favorable terms or at all and which could have a material adverse effect on our results of operations, financial condition and liquidity.

 

The Sprott Credit Agreement and Sprott Royalty Agreement impose significant operating and financial restrictions that may limit our ability to operate our business.

 

The Sprott Credit Agreement and the Sprott Royalty Agreement impose significant operating and financial restrictions on us and our restricted subsidiaries. These restrictions limit our ability and the ability of our restricted subsidiaries to, among other things, as applicable:

 

·incur additional debt;

 

·pay dividends or make other restricted payments, including certain investments;

 

·create or permit certain liens;

 

·sell assets;

 

·engage in certain transactions with affiliates; and

 

·consolidate or merge with or into other companies, or transfer all or substantially all of our assets or the assets of our restricted subsidiaries.

 

These restrictions could limit our ability to finance our future operations or capital needs, make acquisitions or pursue available business opportunities.

 

In addition, the Sprott Credit Agreement and the Sprott Royalty Agreement require us to comply with a number of customary covenants, including:

 

·covenants related to the delivery of monthly, quarterly and annual financial statements, budgets and annual projections;

 

·maintaining required insurance;

 

·compliance with laws (including environmental);

 

·compliance with ERISA;

 

·maintenance of ownership of 100% of the Hycroft Mine;

 

·restrictions on consolidations, mergers or sales of assets;

 

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·limitations on liens;

 

·limitations on issuance of certain equity interests;

 

·limitations on issuance of additional indebtedness;

 

·limitations on transactions with affiliates; and

 

·other customary covenants.

 

We cannot assure you that we will satisfy these covenants or that our lenders will waive any future failure to do so. A breach of any of the covenants under the Sprott Credit Agreement and the Sprott Royalty Agreement could result in a default. If a default occurs under the Sprott Credit Agreement and the Sprott Royalty Agreement, the lenders could elect to declare the debt, together with accrued interest and other fees, to be immediately due and payable and proceed against the collateral securing that debt, which, in the case of the Sprott Credit Agreement and the Sprott Royalty Agreement, constitutes all or substantially all of our assets.

 

Our substantial indebtedness could adversely affect our financial condition.

 

We have a significant amount of indebtedness. As of the closing of the business combination on May 29, 2020, we had outstanding indebtedness of $150 million, including $70 million in aggregate principal amount of indebtedness under the Sprott Credit Agreement and $80 million in aggregate principal amount of New Subordinated Notes assumed by us on May 29, 2020. Subject to the limits contained in the Sprott Credit Agreement and the Sprott Royalty Agreement, if we are able to incur additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes, then the risks related to our high level of debt could intensify. Our high level of debt and royalty payment obligations could:

 

·make it more difficult for us to satisfy our obligations with respect to our outstanding debt;

 

·require a substantial portion of our cash flows to be dedicated to debt service and/or royalty payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;

 

·limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

 

·increase our vulnerability to commodity price volatility, including increases in prices of commodities that we purchase and decreases in prices of gold and silver that we sell, each as part of our operations, general adverse economic and industry conditions;

 

·limit our flexibility in planning for and reacting to changes in the industry in which we compete;

 

·place us at a disadvantage compared to other, less leveraged competitors; and

 

·increase our cost of borrowing.

 

Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations under our debt, and the price of our Common Stock and warrants. The Sprott Credit Agreement and the Sprott Royalty Agreement each contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of nearly all of our debt.

 

If we default on our obligations to pay any of our indebtedness or otherwise default under the agreements governing our indebtedness, lenders could accelerate such debt and we may be subject to restrictions on the payment of our other debt obligations or cause a cross-acceleration.

 

Any default under the agreements governing our indebtedness that is not waived by the required lenders or holders of such indebtedness, and the remedies sought by the holders of such indebtedness, could prevent us from paying principal, premium, if any, and interest on other debt instruments. If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness and royalty payment obligations, or if we otherwise fail to comply with the various

 

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covenants in any agreement governing our indebtedness, we would be in default under the terms of the agreements governing such indebtedness and other indebtedness under the cross-default and cross-acceleration provisions of such agreements. In the event of such default:

 

·the lenders or holders of such indebtedness could elect to terminate any commitments thereunder, declare all the funds borrowed thereunder to be due and payable and, if not promptly paid, in the case of our secured debt, institute foreclosure proceedings against our assets; and

 

·even if these lenders or holders do not declare a default, they may be able to cause all of our available cash to be used to repay indebtedness owed to them.

 

As a result of such default and any actions the lenders may take in response thereto, we could be forced into bankruptcy or liquidation.

 

We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

 

Our ability to make scheduled payments on our debt and royalty obligations or refinance our debt obligations (if necessary) depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control, including the market prices of gold and silver. We may be unable to maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness and our royalty obligations.

 

If our cash flows and capital resources are insufficient to fund our debt service obligations and our royalty obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The Sprott Credit Agreement and the Sprott Royalty Agreement restrict our ability to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise debt to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service and royalty payment obligations then due.

 

In addition, we conduct a substantial portion of our operations through our subsidiaries, certain of which in the future may not be guarantors of our indebtedness. Accordingly, repayment of our indebtedness is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of our indebtedness, our subsidiaries do not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity, and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.

 

Our inability to generate sufficient cash flows to satisfy our debt and royalty obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations and our ability to satisfy our obligations.

 

If we cannot make scheduled payments on our debt, we will be in default and the lenders under the Sprott Credit Agreement and the Sprott Royalty Agreement could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation.

 

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Hycroft Mining Corporation’s history of operations included periods of operating and net losses, and we may incur operating and net losses in the future. Hycroft Mining Corporation’s significant net losses and Hycroft Mining Corporation’s significant amount of indebtedness led Hycroft Mining Corporation to declare bankruptcy in 2015.

 

Prior to Hycroft Mining Corporation’s emergence from bankruptcy proceedings on October 22, 2015, Hycroft Mining Corporation generated operating losses of $368.9 million for period from January 1, 2015 through October 22, 2015 and $480.1 million for the year ended December 31, 2014. In the years ended December 31, 2018 and 2017 Hycroft Mining Corporation generated operating losses of $8.2 million and $32.9 million, respectively, and net losses of $55.8 million and $74.1 million, respectively. In connection with the restart of operations beginning in 2019, in the year ended December 31, 2019, Hycroft Mining Corporation generated operating losses of $33.9 million and net losses of $98.9 million. If we continue to suffer operating and net losses, our business, financial condition, results of operations and cash flows may be negatively impacted.

 

We have material indebtedness. We may not generate sufficient revenues in future periods to cover our payment obligations under the Sprott Credit Agreement, the Assumed New Subordinated Notes, and the Sprott Royalty Agreement to pay for all of our operating or other expenses, which could have a material adverse effect on our business, results of operations and financial condition.

 

The chapter 11 proceedings may have disrupted our business relationships, which may materially and adversely affect our operations.

 

The chapter 11 reorganization that Hycroft Mining Corporation went through in 2015 may have created a negative public perception of us in relation to our competitors and adversely impacted our relationships with our employees, suppliers, customers and other parties. Consequently, our relationships with our customers, suppliers, certain liquidity providers and employees may have been adversely impacted and our operations, currently and going forward, could be materially and adversely affected, such as if we are not extended customary business credit or payment terms.

 

If we lose key personnel or are unable to attract and retain additional personnel, we may be unable to develop our business.

 

Our development in the future will be highly dependent on the efforts of key management employees, and other key employees that we may hire in the future. We will need to recruit and retain other qualified managerial and technical employees to build and maintain our operations. If we are unable to successfully recruit and retain such persons, our development and growth could be significantly curtailed.

 

We are dependent upon information technology systems, which are subject to disruption, damage, failure and risks associated with implementation and integration.

 

We are dependent upon information technology systems in the conduct of our operations. Our information technology systems are subject to disruption, damage or failure from a variety of sources, including, without limitation, computer viruses, security breaches, cyber-attacks, natural disasters and defects in design. Cybersecurity incidents, in particular, are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, extortion to prevent or the unauthorized release of confidential or otherwise protected information and the corruption of data. Given the unpredictability of the timing, nature and scope of information technology disruptions, we could potentially be subject to production downtimes, operational delays, extortion, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and networks or financial losses from remedial actions, any of which could have a material adverse effect on our cash flows, financial condition or results of operations.

 

We could also be adversely affected by system or network disruptions if new or upgraded information technology systems are defective, not installed properly or not properly integrated into our operations. System modification failures could have a material adverse effect on our business, financial position and results of operations and could, if not successfully implemented, adversely impact the effectiveness of our internal controls over financial reporting.

 

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We may be subject to legal proceedings.

 

Due to the nature of our business, we may be subject to regulatory investigations, claims, lawsuits and other proceedings in the ordinary course of our business. The results of these legal proceedings cannot be predicted with certainty due to the uncertainty inherent in litigation, including the effects of discovery of new evidence or advancement of new legal theories, the difficulty of predicting decisions of judges and juries and the possibility that decisions may be reversed on appeal. We can provide no assurances that these matters will not have a material adverse effect on our business.

 

We are not currently a party to any forward sale or other significant hedging arrangements to protect against gold and silver prices and commodity prices and, as a result, our operating results are exposed to the impact of any significant decrease in the price of gold or silver or any significant increase in commodity prices.

 

We are not currently a party to any forward sales or other hedging arrangements to reduce the risk of exposure to volatility in commodity prices. Accordingly, our future operations will be exposed to the impact of any significant decrease in gold or silver prices and any significant increase in commodity prices. If such prices adversely change significantly, we will realize reduced revenues and increased costs.

 

Further, we cannot provide any assurance that the use of hedging techniques will always be to our benefit. Hedging instruments that protect against gold and silver market price volatility may prevent us from realizing the full benefit from subsequent increases in market prices with respect to covered production, which would cause us to record a mark-to-market loss, decreasing our profits. Hedging contracts also are subject to the risk that the other party may be unable or unwilling to perform its obligations under these contracts. Any significant nonperformance could have a material adverse effect on our financial condition, results of operations and cash flows.

 

Joint ventures and other partnerships may expose us to risks.

 

In the future, we may enter into joint ventures or other partnership arrangements with other parties in relation to the exploration, development and production of certain properties. Joint ventures can often require unanimous approval of the parties to the joint venture or their representatives for certain fundamental decisions such as an increase or reduction of registered capital, merger, division, dissolution, amendments of constituting documents, and the pledge of joint venture assets, which means that each joint venture party may have a veto right with respect to such decisions which could lead to a deadlock in the operations of the joint venture or partnership. Further, we may be unable to exert control over strategic decisions made in respect of such properties. Any failure of such other companies to meet their obligations to us or to third parties, or any disputes with respect to the parties’ respective rights and obligations, could have a material adverse effect on the joint ventures or their properties and therefore could have a material adverse effect on our results of operations, financial performance and cash flows.

 

Our four largest stockholders will be able to exert significant influence over matters submitted to stockholders for approval, which could delay or prevent a change in corporate control or result in the entrenchment of management of our Board, possibly conflicting with the interests of our other stockholders.

 

As of July 9, 2020, Mudrick Capital, Whitebox, Highbridge and Aristeia beneficially own approximately 53.5%, 25.5%, 14.7% and 9.9% of the outstanding shares of our Common Stock (including shares acquirable within 60 days upon exercise of outstanding warrants), respectively. Because of their significant stockholdings, each of Mudrick Capital, Whitebox, sponsor and Highbridge could exert significant influence in determining the outcome of corporate actions requiring stockholder approval and otherwise influence our business. This influence could have the effect of delaying or preventing a change in control or entrenching management of our Board, which could conflict with the interests of other stockholders and, consequently, could adversely affect the market price of the Common Stock.

 

Risks Related to Our Common Stock and Warrants

 

The price of our Common Stock may be volatile, and you could lose all or part of your investment.

 

The trading price of our Common Stock and warrants following this registration may fluctuate substantially. This may be especially true for companies with a small public float. The trading price of our Common Stock and

 

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warrants following this registration will depend on several factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our Common Stock or warrants since you might be unable to sell your shares or warrants at or above the price you paid for them, if any. Factors that could cause fluctuations in the trading price of our Common Stock or warrants include:

 

·price and volume fluctuations in the overall stock market from time to time;

 

·volatility in gold and silver commodity prices and in the market prices and trading volumes of gold mining stocks;

 

·changes in operating performance, including challenges to our ability to economically and profitably recover gold and silver through heap leaching of sulfide ores, and stock market valuations of other mining companies generally, or those in our industry in particular.

 

·sales of shares of our Common Stock or warrants by us or our stockholders;

 

·the public’s reaction to our press releases, other public announcements and filings with the SEC;

 

·rumors and market speculation involving us or other companies in our industry;

 

·actual or anticipated changes in our operating results or fluctuations in our operating results; actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;

 

·litigation involving us;

 

·developments; or disputes concerning our mining rights;

 

·new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

 

·changes in accounting standards, policies, guidelines, interpretations or principles;

 

·any major change in our management; and

 

·other events or factors, including those resulting from war, global pandemics, incidents of terrorism or responses to these events.

 

In addition, the stock market in general, and the market for mining companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors, as well as general economic, political and market conditions such as recessions or interest rate changes, may seriously affect the market price of our Common Stock or warrants, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our Common Stock or warrants shortly following this registration.

 

In addition, in the past, following periods of volatility in the overall market and the market prices of particular companies’ securities, securities class action litigations have often been instituted against these companies. Litigation of this type, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments.

 

If securities or industry analysts issue an adverse opinion regarding our stock or do not publish research or reports about our company, our stock price and trading volume could decline.

 

The trading market for our Common Stock and warrants will depend in part on the research and reports that equity research analysts publish about us and our business. Currently, we do not have any analyst coverage and we may not obtain analyst coverage in the future. If we obtain analyst coverage, we would have no control over such analysts or the content and opinions in their reports. Securities analysts may elect not to provide research coverage of our company, and such lack of research coverage may adversely affect the market price of our Common Stock and warrants. The price of our Common Stock or warrants could also decline if one or more equity research analysts downgrade our Common Stock or if those analysts issue other unfavorable commentary or cease publishing reports

 

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about us or our business. If one or more equity research analysts cease coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline.

 

Substantial future sales of shares of our Common Stock or warrants could cause the market price of our Common Stock or public warrants to decline.

 

The market price of shares of our Common Stock or public warrants could decline as a result of substantial sales of our Common Stock or warrants, particularly sales by our significant stockholders, a large number of shares of our Common Stock or warrants becoming available for sale or the perception in the market that holders of a large number of shares or warrants intend to sell their shares or warrants. As of July 9, 2020, we had outstanding 50,160,042 shares of Common Stock and 34,289,999 warrants exercisable at a price of $11.50 per share (not including the Seller warrants which, with an exercise price of $44.82 per share, are significantly out of the money).

 

We may issue additional shares of Common Stock and warrants or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of our Common Stock.

 

We may issue additional shares of Common Stock and warrants or other equity securities of equal or senior rank in the future in connection with, among other things, future acquisitions, repayment of outstanding indebtedness or our equity incentive plan, without stockholder approval, in a number of circumstances.

 

Our issuance of additional shares of Common Stock and warrants or other equity securities of equal or senior rank would have the following effects:

 

·our existing stockholders’ proportionate ownership interest in us will decrease;

 

·the relative voting strength of each previously outstanding share of Common Stock may be diminished; and

 

·the market price of our shares of our Common Stock and warrants may decline.

 

We do not intend to pay cash dividends for the foreseeable future.

 

We have agreed to restrictions against paying cash dividends in the Sprott Credit Agreement. We intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. As a result, you may only receive a return on your investment in our Common Stock if the market price of our Common Stock increases. Our Board retains the discretion to change this policy at any time subject to the restrictions to which we have agreed.

 

Anti-takeover provisions in our organizational documents and under Delaware law could make a third party acquisition of the Company difficult.

 

Our second amended and restated certificate of incorporation contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. We are subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together, these provisions may make it more difficult to remove management by our Board and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. These provisions include:

 

·no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

·the right of our Board to appoint a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director in certain circumstances, which prevents stockholders from being able to fill vacancies on our Board;

 

·a prohibition on stockholders calling a special meeting and the requirement that a meeting of stockholders may only be called by members of the our Board, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

 

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·the ability of the our Board to determine whether to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

·limiting the liability of, and providing indemnification to, our directors and officers; and

 

·advance notice procedures that stockholders must comply with in order to nominate candidates to our Board or to propose matters to be acted upon at a meeting of stockholders, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of Hycroft.

 

As an "emerging growth company," we cannot be certain if the reduced disclosure requirements applicable to "emerging growth companies" will make our shares of Common Stock and warrants less attractive to investors.

 

We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to the following:

 

·exemption from the auditor attestation requirements under Section 404 of the Sarbanes-Oxley Act of 2002;

 

·reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements;

 

·exemption from the requirements of holding non-binding stockholder votes on executive compensation arrangements; and

 

·exemption from any rules requiring mandatory audit firm rotation and auditor discussion and analysis and, unless the SEC otherwise determines, any future audit rules that may be adopted by the Public Company Accounting oversight Board.

 

We could be an emerging growth company until the last day of the fiscal year following the fifth anniversary after our initial public offering, or until the earlier of (i) the last day of the fiscal year in which we have annual gross revenue of $1 billion or more, (ii) the date on which we have, during the previous three year period, issued more than $1 billion in non-convertible debt or (iii) the date on which we are deemed to be a large accelerated filer under the federal securities laws. We will qualify as a large accelerated filing as of the first day of the first fiscal year after we have (i) more than $700 million market value in outstanding common equity held by our non-affiliates and (ii) been public for at least 12 months. The value of our outstanding common equity will be measured each year on the last day of our second fiscal quarter.

 

We cannot predict if investors will find our Common Stock or warrants less attractive if we rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock or warrants and our stock price may be more volatile.

 

Pursuant to the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we are an "emerging growth company."

 

Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we filed with the SEC after our IPO, and generally requires a report by our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until we are no longer an "emerging growth company." We could be an "emerging growth company" for up to five fiscal years.

 

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USE OF PROCEEDS

 

We are not selling any securities under this prospectus and we will not receive any proceeds from the sale of securities by the Selling Securityholders, although we could receive up to approximately $538.2 million assuming the exercise of all of the outstanding warrants, including the Seller warrants, for cash. Any amounts we receive from such exercises will be used for working capital and other general corporate purposes. The holders of the warrants are not obligated to exercise the warrants and we cannot assure you that the holders of the warrants will choose to exercise any or all of the warrants.

 

SELLING SECURITYHOLDERS

 

The Selling Securityholders may from time to time offer and sell any or all of our securities set forth below pursuant to this prospectus. When we refer to “Selling Securityholders” in this prospectus, we mean the persons listed in the table below, and the pledgees, donees, permitted transferees, assignees, successors and others who later come to hold any of the Selling Securityholders’ interests in our securities other than through a public sale.

 

The following table sets forth, as of the date of this prospectus:

 

·the name of the Selling Securityholders for whom we are registering shares of Common Stock and warrants for resale to the public,

 

·the number of shares of Common Stock and warrants that the Selling Securityholders beneficially owned prior to the offering for resale of the securities under this prospectus,

 

·the number of shares of Common Stock and warrants that may be offered for resale for the account of the Selling Securityholders pursuant to this prospectus, and

 

·the number and percentage of shares to be beneficially owned by the Selling Securityholders after the offering of the resale securities (assuming all of the offered shares of Common Stock and warrants are sold by the Selling Securityholders).

 

Shares of Common Stock

 

   Beneficial
Ownership Before
the Offering
   Shares to be Sold in
the Offering
   Beneficial
Ownership After  
the Offering
 
Name of Selling Securityholder  Number of Shares  %(1)   Number of Shares  %   Number of Shares  % 
Mudrick Capital Management, L.P.(2)  32,477,130  53.5%  32,477,130  53.5%  0  * 
Whitebox Advisors LLC(3)  13,012,516  25.5%  13,012,516  25.5%  0  * 
Highbridge Capital Management, LLC(4)  7,427,412  14.7%  7,427,412  14.7%  0  * 
Aristeia Capital, L.L.C.(5)  4,989,085  9.9%  4,989,085  9.9%  0  * 
Wolverine Asset Management, LLC(6)  2,420,473  4.8%  2,420,473  4.8%  0  * 
Sprott Private Resource Lending II (Collector), LP(7)  437,940  1.0%  496,634  1.0%  0  * 
Cantor Fitzgerald & Co(8)  244,395  *   44,395  *   200,000  * 
Prisma Pelican Fund(9)  31,604  *   31,604  *   0  * 
Ninepoint Credit Opportunities Fund(10)  4,515  *   4,515  *   0  * 
Natural Resource Income Investing Limited Partnership(11)  9,030  *   9,030  *   0  * 
Sprott Private Resource Streaming and Royalty (Collector), LP.(12)  13,545  *   13,545  *   0  * 

 

 

 

*Less than 1%

 

(1)Based on 50,160,042 shares of Common Stock issued and outstanding on July 9, 2020

 

(2)Includes: (i) 14,013,180 shares of Common Stock (including 9,200,000 shares of Common Stock underlying warrants) held by Mudrick Capital Acquisition Holdings LLC (the “Sponsor”); (ii) 7,952,541 shares of Common Stock (including 381,348 shares of Common Stock underlying warrants) held by Mudrick Distressed Opportunity Fund Global L.P.; (iii) 1,858,052 shares of Common Stock (including 40,493 shares of Common Stock underlying warrants) held by Mudrick Distressed Opportunity Drawdown Fund, L.P.; (iv) 866,762 shares of Common Stock (including 213,920 shares of Common Stock underlying warrants) held by Mudrick Distressed Opportunity Drawdown Fund II, L.P.; (v) 640,297 shares of Common Stock (including 45,263 shares of Common Stock underlying warrants) held by Mudrick Distressed Opportunity Specialty Fund, LP; (vi) 49,132 shares of Common Stock (including 14,722 shares of Common Stock underlying warrants) held by Mudrick Distressed Senior Secured Fund Global, L.P.; and (vii) 7,097,166 shares of Common Stock (including 600,146 shares of Common Stock underlying warrants) held by certain accounts managed by Mudrick Capital Management, L.P. (collectively the “Mudrick Funds”). Mudrick Capital Management, L.P. is the investment manager of the Mudrick Funds other than the Sponsor and is the managing member of the Sponsor. Mudrick Capital Management, L.P. holds voting and dispositive power over the shares of Common Stock held by the Mudrick Funds and the Sponsor. Mudrick Capital Management, LLC is the general partner of Mudrick Capital Management, L.P., and Jason Mudrick is the sole member of Mudrick Capital Management, LLC. As such, Mudrick Capital Management, L.P., Mudrick Capital Management, LLC and Jason Mudrick may be deemed to have beneficial ownership of the shares of Common Stock held by the Mudrick Funds. Each such entity or person disclaims any beneficial ownership of the reported shares other than to the extent of any pecuniary interest they may have therein, directly or indirectly. The business address of such holders is 527 Madison Avenue, 6th Floor, New York, New York 10022.

 

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(3)Includes (i) 638,377 shares of Common Stock held by Whitebox Asymmetric Partners, LP; (ii) 1,661,147 shares of Common Stock held by Whitebox Credit Partners, LP; (iii) 404,352 shares of Common Stock held by Whitebox Institutional Partners, LP; (iv) 1,398,282 shares of Common Stock held by Whitebox Multi-Strategy Partners, LP; and (v) 8,910,358 shares of Common Stock (including 913,017 shares of Common Stock underlying warrants) held by WBox 2015-5 Ltd. Whitebox Advisors LLC is the investment manager of, and WBox 2015-5 Ltd.is the collateral agent for, Whitebox Asymmetric Partners, LP, Whitebox Credit Partners, LP, Whitebox Institutional Partners, LP, Whitebox Multi-Strategy Partners, LP (collectively, the “Whitebox Funds”) and holds voting and disposable power over the shares of the Company held by the Whitebox Funds. Whitebox Advisors LLC is owned by Robert Vogel, Paul Twitchell, Jacob Mercer, Paul Roos, and Mark Strefling and such individuals disclaim beneficial ownership of the securities referenced herein except to the extent of its or his direct or indirect economic interest in Whitebox Advisors LLC or such Whitebox Funds. The address of these persons is 3033 Excelsior Blvd., Suite 500, Minneapolis, Minnesota 55416.

 

(4)Includes (i) 2,295,708 shares of Common Stock (including 167,050 shares of Common Stock underlying the warrants) held by Highbridge Tactical Credit Master Fund, L.P. (“TCF”); and (ii) 5,131,704 shares of Common Stock (including 353,482 shares of Common Stock underlying warrants) held by Highbridge MSF International Ltd. (“MSF” and, together with TCF, the “Highbridge Funds”). Highbridge Capital Management, LLC (“HCM”), the trading manager of the Highbridge Funds, may be deemed to be the beneficial owner of the shares held by the Highbridge Funds. Mark Vanacore is responsible for the investment and voting decisions made by HCM with respect to the shares held by MSF, and Jonathan Segal and Jason Hempel are responsible for the investment and voting decisions made by HCM with respect to the shares held by TCF. The Highbridge Funds and the foregoing individuals disclaim any beneficial ownership of these shares. The business address of HCM is 277 Park Avenue, 23rd Floor, New York, NY 10172 and the business address of the Highbridge Funds is c/o HedgeServ (Cayman) Ltd., Cricket Square, Floor 6, George Town, Grand Cayman KY1-1104, Cayman Islands.

 

(5)Includes (i) 2,164,791 shares of Common Stock (including 152,086 shares of Common Stock underlying warrants) held by ALSV Limited; (ii) 607 shares of Common Stock held by Windermere Ireland Fund PLC; and (iii) 2,823,687 shares of Common Stock (including 198,487 shares of Common Stock underlying warrants) held by APSV, LLC (collectively, the “Aristeia Funds”). Aristeia Capital, L.L.C. (“Aristeia”) may be deemed the beneficial owner of the securities described herein in its capacity as the investment manager of the Aristeia Funds, which are the holders of such securities. As investment manager of each Aristeia Fund, Aristeia has voting and investment control with respect to the securities held by each Aristeia Fund. Anthony M. Frascella and William R. Techar are the Co-Chief Investment Officers of Aristeia. Each of Aristeia and such individuals disclaim beneficial ownership of the securities referenced herein except to the extent of its or his direct or indirect economic interest in the Aristeia Funds. The business address of such holders is One Greenwich Plaza, Third Floor, Greenwich, Connecticut 06830.

 

(6)Includes 2,420,473 shares of Common Stock (including 169,985 shares of Common Stock underlying warrants) held by Wolverine Flagship Fund Trading Limited (the “WF Fund”). Wolverine Asset Management, LLC (“WAM”) is the investment manager to WF Fund and has voting and investment power over these securities. The sole member and manager of WAM is Wolverine Holdings, L.P. (“Wolverine Holdings”). Robert R. Bellick and Christopher L. Gust may be deemed to control Wolverine Trading Partners, Inc. (“WTP”), the general partner of Wolverine Holdings. Each of Robert R. Bellick, Christopher L. Gust, Wolverine Holdings, WTP, and WAM disclaims beneficial ownership of the securities held by the WF Fund. The business address of such holders is 175 W. Jackson Blvd., Suite 340, Chicago, Illinois 60604.

 

(7)Sprott Resource Lending Corp. is the investment manager of Sprott Private Resource Lending II (Collector), LP and may be deemed to be the beneficial owner of the shares held by Sprott Private Resource Lending II (Collector), LP . Peter Grosskopf, Jim Grosdanis, Narinder Nagra and Varinder Bhathal are responsible for the investment and voting decisions made by Sprott Resource Lending Corp. The business address of such holders is 200 Bay Street, Suite 2600, Toronto, ON, Canada, M5J 2J1.

 

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(8)The business address of Cantor Fitzgerald& Co. is 110 East 59th Street, New York, NY 10022.

 

(9)Prisma Capital Partners LP is the investment manager of Prisma Pelican Fund LLC and may be deemed to be the beneficial owner of the shares held by Prisma Pelican Fund LLC. The business address of such holders is 9 West 57th Street, Suite 2600, New York, NY 10019.

 

(10)Ninepoint Partners LP is the investment manager of Ninepoint Credit Income Opportunities Fund and may be deemed to be the beneficial owner of the shares held by Ninepoint Credit Income Opportunities Fund. The business address of such holders is 200 Bay Street, Suite 2700, Toronto, ON, Canada, M5J 2J2.

 

(11)Resource Capital Investment Corp. is the investment manager of Natural Resource Investing LP and may be deemed to be the beneficial owner of the shares held by Natural Resource Investing LP. Arthur Rule, Varinder Bhathal and Thomas Ulrich are responsible for the investment and voting decisions made by Resource Capital Investment Corp. The business address of such holders is 1910 Palomar Point Way, Suite 200, Carlsbad, CA 92008.

 

(12)Sprott Resource Streaming and Royalty Corp. is the investment manager of Sprott Private Resource Streaming and Royalty (Collector), LP and may be deemed to be the beneficial owner of the shares held by Sprott Private Resource Streaming and Royalty (Collector), LP. Michael Harrison and Varinder Bhathal are responsible for the investment and voting decisions made by Sprott Resource Streaming and Royalty Corp. Michael Harrison disclaims beneficial ownership of such shares. The business address of such holders is 200 Bay Street, Suite 2600, Toronto, ON, Canada, M5J 2J1.

 

Warrants

 

   Beneficial
Ownership Before
the Offering
   Shares to be Sold in
the Offering
   Beneficial
Ownership After 
 the Offering
 
Name of Selling Securityholder  Number of Shares   %(1)   Number of Shares   %   Number of Shares   % 
Mudrick Capital Management, L.P.(2)   10,495,892    30.6%   10,495,892    30.6%   0    * 
Whitebox Advisors LLC(3)   913,017    2.7%   913,017    2.7%   0    * 
Highbridge Capital Management, LLC(4)   520,532    1.5%   520,532    1.5%   0    * 
Aristeia Capital, L.L.C.(5)   350,573    1.0%   350,573    1.0%   0    * 
Wolverine Asset Management, LLC(6)   169,985    *    169,985    *    0    * 
Cantor Fitzgerald & Co(7)   1,040,000    3.0%   1,040,000    3.0%   0    * 

 

 

*Less than 1%

 

(1)Based on 34,289,999 warrants issued and outstanding on July 9, 2020 with an exercise price of $11.50 per share but excluding the Seller warrants which are significantly out of the money with an exercise price of $44.82 per share.

 

(2)Includes (i) 9,200,000 warrants held by the Sponsor, (ii) 381,348 warrants held by Mudrick Distressed Opportunity Fund Global L.P.; (iii) 40,493 warrants held by Mudrick Distressed Opportunity Drawdown Fund, L.P.; (iv) 213,920 warrants held by Mudrick Distressed Opportunity Drawdown Fund II, L.P.; (v) 45,263 warrants held by Mudrick Distressed Opportunity Specialty Fund, LP; and (vi) 14,722 warrants held by Mudrick Distressed Senior Secured Fund Global, L.P., and (vii) 600,146 warrants held by certain accounts managed by Mudrick Capital Management, L.P. (collectively, the “Mudrick Funds”). Mudrick Capital Management, L.P. is the investment manager of the Mudrick Funds other than the Sponsor and is the managing member of the Sponsor. Mudrick Capital Management, L.P. holds voting and dispositive power over the securities held by the Mudrick Funds. Mudrick Capital Management, LLC is the general partner of Mudrick Capital Management, L.P., and Jason Mudrick is the sole member of Mudrick Capital Management, LLC. As such, Mudrick Capital Management, L.P., Mudrick Capital Management, LLC and Jason Mudrick may be deemed to have beneficial ownership of the warrants held by the Mudrick Funds. Each such entity or person disclaims any beneficial ownership of the reported warrants other than to the extent of any pecuniary interest they may have therein, directly or indirectly. The business address of such holders is 527 Madison Avenue, 6th Floor, New York, New York 10022.

 

(3)WBox 2015-5 Ltd. is the record holder of such warrants and is the collateral agent for the Whitebox Funds. Whitebox Advisors LLC is the investment manager of the Whitebox Funds and holds voting and disposable power over the warrants of the Company held by the Whitebox Funds. Whitebox Advisors LLC is owned by Robert Vogel, Paul Twitchell, Jacob Mercer, Paul Roos, and Mark Strefling and such individuals disclaim beneficial ownership of the securities referenced herein except to the extent of its or his direct or indirect economic interest in Whitebox Advisors LLC or such Whitebox Funds. The address of these persons is 3033 Excelsior Blvd., Suite 500, Minneapolis, Minnesota 55416.

 

(4)Includes (i) 167,050 warrants held by TCF and (ii) 353,482 warrants held by MSF. HCM, the trading manager of the Highbridge Funds, may be deemed to be the beneficial owner of the warrants held by the Highbridge Funds. Mark Vanacore is responsible for the investment and voting decisions made by HCM with respect to the warrants held by MSF, and Jonathan Segal and Jason Hempel are responsible for the investment and voting decisions made by HCM with respect to the warrants held by TCF. The Highbridge Funds and the foregoing individuals disclaim any beneficial ownership of these warrants. The business address of HCM is 277 Park Avenue, 23rd Floor, New York, NY 10172 and the business address of the Highbridge Funds is c/o HedgeServ (Cayman) Ltd., Cricket Square, Floor 6, George Town, Grand Cayman KY1-1104, Cayman Islands.

 

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(5)Includes (i) 152,086 warrants held by ALSV Limited and (ii) 198,487 warrants held by APSV, LLC. Aristeia may be deemed the beneficial owner of the securities described herein in its capacity as the investment manager of the Aristeia Funds, which are the holders of such securities. As investment manager of each Aristeia Fund, Aristeia has voting and investment control with respect to the securities held by each Aristeia Fund. Anthony M. Frascella and William R. Techar are the Co-Chief Investment Officers of Aristeia. Each of Aristeia and such individuals disclaim beneficial ownership of the securities referenced herein except to the extent of its or his direct or indirect economic interest in the Aristeia Funds. The business address of such holders is One Greenwich Plaza, Third Floor, Greenwich, Connecticut 06830.

 

(6)WF Fund is the record holder of such warrants. WAM is the investment manager to WF Fund and has voting and investment power over these securities. The sole member and manager of WAM is Wolverine Holdings. Robert R. Bellick and Christopher L. Gust may be deemed to control WTP, the general partner of Wolverine Holdings. Each of Robert R. Bellick, Christopher L. Gust, Wolverine Holdings, WTP, and WAM disclaims beneficial ownership of the securities held by the WF Fund. The business address of such holders is 175 W. Jackson Blvd., Suite 340, Chicago, Illinois 60604.

 

(7)The business address of Cantor Fitzgerald& Co. is 110 East 59th Street, New York, NY 10022.

 

Each of the Selling Securityholders that is a broker-dealer or an affiliate of a broker-dealer has represented to us that it purchased the securities offered by this prospectus in the ordinary course of business and, at the time of purchase of those securities, did not have any agreements, understandings or other plans, directly or indirectly, with any person to distribute those shares.

 

Material Relationships with the Selling Holders

 

For a description of our relationships with the Selling Securityholders and their affiliates see the section entitled “Certain Relationships and Related Transactions” and “Description of Securities to be Registered.

 

Other Material Relationships

 

David Kirsch, the Chairman of our Board, has no pecuniary interest in shares of our Common Stock or warrants and disclaims any beneficial ownership of the shares of our Common Stock or warrants beneficially owned by Mudrick Capital Management, L.P. and its affiliates.

  

Michael Harrison, a member of our board of directors, has an indirect pecuniary interest in shares of our Common Stock beneficially owned by Sprott Private Resource Streaming and Royalty (Collector), LP. and Sprott Private Resource Lending II (Collector), LP as chief executive officer of Sprott Resource Streaming and Royalty Corp. and/or through his fiduciary role as a Managing Partner of Sprott Private Resource Streaming and Royalty (Collector), LP. Mr. Harrison disclaims any beneficial ownership of the shares of our Common Stock beneficially owned by Sprott Private Resource Streaming and Royalty (Collector), LP. and Sprott Private Resource Lending II (Collector), LP.

 

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DESCRIPTION OF BUSINESS

 

Overview

 

We are a U.S.-based gold producer that has historically focused on mining, developing, and exploring properties in the state of Nevada in a safe, environmentally responsible, and cost-effective manner. Gold and silver sales have historically represented 100% of our operating revenues and are expected to represent 100% of our operating revenues in the future. Accordingly, the market prices of gold and silver significantly impact our financial position, operating results and cash flows.

 

On May 29, 2020, we consummated the transactions contemplated by the Purchase Agreement pursuant to which Acquisition Sub, our indirect wholly owned subsidiary, acquired all of the issued and outstanding equity interests of the direct subsidiaries of the Seller and substantially all of the other assets and assumed substantially all of the liabilities of the Seller. In connection with the completion of the business combination contemplated by the Purchase Agreement, we changed our name from Mudrick Capital Acquisition Corporation to Hycroft Mining Holding Corporation.

 

The Hycroft Mine, our sole operating property, is located outside of Winnemucca, Nevada. Our corporate headquarters is located at 8181 E. Tufts Avenue, Suite 510, Denver, Colorado 80237, and our telephone number is (303) 253-3267. Our website is www.hycroftmining.com. Information on our website is not incorporated by reference into this prospectus.

 

Recent History of the Hycroft Business

 

As indicated above, the Company completed the business combination with the Seller on May 29, 2020, in accordance with the terms of the Purchase Agreement.

 

In accordance with the Purchase Agreement, Allied VGH Inc., a Nevada corporation (“Allied VGH”) and Allied Nevada Delaware Holdings Inc., a Delaware corporation (“Allied Delaware”) were converted into Delaware limited liability companies prior to the consummation of the business combination. Pursuant to the business combination, Acquisition Sub (a) acquired from the Seller (i) all of the issued and outstanding equity interests of Allied Nevada Gold Holdings, LLC, a Nevada limited liability company, Allied VGH (as converted), and Allied Delaware (as converted), the direct subsidiaries of Seller and (ii) substantially all of the remaining assets of the Seller subject to specified retained assets and (b) assumed substantially all of the liabilities of the Seller.

 

The value of the aggregate consideration was estimated at approximately $615.0 million, which amount was inclusive of the value of the 15,140,584 shares of the Company’s Common Stock issued as consideration to the Seller in the business combination (and promptly distributed pro rata to the Seller’s stockholders), the value of Seller’s debt assumed by the Company at the closing of the business combination, and the value of Seller’s debt paid off or exchanged for shares of Common Stock and cancelled by the Seller at the closing of the business combination.

 

On May 29, 2020, immediately prior to the consummation of the business combination, the Company issued pursuant to the private investment an aggregate of 7,596,309 shares of Common Stock and 3,249,999 million PIPE warrants for an aggregate purchase price of approximately $76.0 million to the Initial Subscribers, pursuant to the terms of separate Subscription/Backstop Agreements. In addition, on May 29, 2020, immediately prior to the consummation of the business combination, sponsor surrendered to the Company 3,511,820 founder shares in accordance with the terms of the Purchase Agreement and the Parent Sponsor Letter Agreement.

 

At the consummation of the business combination, the Company, sponsor, Cantor, Excess Noteholders and 1.5 Lien Noteholders that received shares of Common Stock upon exchange of Excess Notes and 1.5 Lien Notes, certain stockholders of the Seller that received shares of Common Stock in the business combination and may be affiliates of the Company after consummation of the business combination, the Initial Subscribers and Lender, and such persons or entities, collectively, as the restricted stockholders, entered into the Amended and Restated Registration Rights Agreement, pursuant to which the restricted stockholders are entitled to, among other things, customary registration rights, including demand, piggy-back and shelf registration rights, subject to cut-back provisions. The restricted stockholders have agreed in the Amended and Restated Registration Rights Agreement not to sell, transfer,

 

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pledge or otherwise dispose of shares of Common Stock they hold or receive for certain time periods, ranging from between 30 days after the consummation of the business combination for warrants purchased in the private investment to six months for shares received in the note exchange, to one year after the consummation of the business combination for converted founder shares, subject to certain exceptions. Pursuant to the terms of the Amended and Restated Registration Rights Agreement, the Company is filing the registration statement of which this prospectus forms a part.

 

Concurrently with the consummation of the business combination, sponsor also purchased 3,125,000 shares of Common Stock and 2,500,000 forward purchase warrants to purchase one share of Common Stock for $11.50 per share, in accordance with the terms of the Forward Purchase Contract.

 

On October 4, 2019, the Seller, as borrower, certain subsidiaries of the Seller, as guarantors, Lender, and Sprott Resource Lending Corp., as arranger, executed a secured multi-advance term credit facility pursuant to which Lender committed to make, subject to certain conditions set forth therein, term loans in an aggregate principal amount up to $110.0 million (the “Initial Sprott Credit Agreement”). On May 29, 2020, the Company and certain of its subsidiaries, as guarantors, entered into the Amended and Restated Credit Agreement (the “Sprott Credit Agreement”) to update the conditions precedent and effect certain other changes to conform the terms of the Initial Sprott Credit Agreement to the details of the business combination. At the consummation of the business combination, the Company assumed the Initial Sprott Credit Agreement pursuant to the terms of the Purchase Agreement, entered into the Sprott Credit Agreement, borrowed $70.0 million under such facility and issued to Lender 496,634 shares of Common Stock equal to approximately 1% of the Company’s post-closing shares of Common Stock outstanding. In addition, concurrently with the consummation of the business combination, the Company and HRD entered into the Sprott Royalty Agreement with Lender, pursuant to which, among other things, HRD received $30.0 million in cash consideration in exchange for a 1.5% net smelter perpetual royalty payment relating to the Hycroft mine, the principal asset of HRD acquired in the business combination.

 

On May 28, 2020, in connection with the closing of the business combination, the Seller, Acquisition Sub, the 1.25 Lien Noteholders and the 1.5 Lien Noteholders entered into an Omnibus Amendment to the Note Purchase Agreements and Exchange Agreement (the “Omnibus Amendment”), which effected certain technical changes, and added certain representations and warranties to, the Exchange Agreement.

 

On May 29, 2020, in connection with the consummation of the business combination, the Company amended and restated its existing amended and restated certificate of incorporation (the “Second Amended and Restated Charter”) to:

 

(a) change the name of the Company to Hycroft Mining Holding Corporation;

 

(b) increase the total number of authorized shares of all classes of capital stock from 111,000,000 shares to 410,000,000 shares, consisting of (i) 400,000,000 shares of Common Stock and (ii) 10,000,000 shares of preferred stock;

 

(c) remove or amend those provisions of existing certificate of incorporation which terminated or otherwise ceased to be applicable following the completion of the business combination, including removal of certain provisions relating to the Company’s prior status as a blank check company and the Company’s Class B Common Stock that no longer apply;

 

(d) clarify the exclusive forum provision to provide the Court of Chancery of the State of Delaware as the exclusive forum for certain stockholder litigation shall not apply to any action to enforce any liability or duty under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended, for which there is exclusive federal or concurrent federal and state jurisdiction;

 

(e) permit stockholder action by written consent;

 

(f) provide that the Company will not be governed by Section 203 of the DGCL, and included a provision that is substantially similar to Section 203 of the DGCL, but excludes the investment funds affiliated with sponsor and their respective successors and affiliates and the investment funds affiliated with or managed by the Initial Subscribers from the definition of “interested stockholder,” and

 

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(f) declassify the board of directors.

 

Upon consummation of the business combination, the Company assumed the Seller’s liabilities and obligations under the Seller Warrant Agreement. Each Seller warrant outstanding and unexercised immediately prior to the effective time of the business combination is exercisable to purchase shares of our Common Stock at an exercise price of $44.82 per share, and each warrant is exercisable into approximately 0.2523 shares of our Common Stock for a total of 3,210,213 shares of our Common Stock.

 

The foregoing descriptions of the Sprott Credit Agreements, the Sprott Royalty Agreement the Seller Warrant Agreement, the Subscription/Backstop Agreements, the Amended and Restated Registration Rights Agreement, the Omnibus Amendment, and the Second Amended and Restated Charter do not purport to be complete and are subject to and qualified in their entirety by reference to such documents, copies of which are included as Exhibits 10.1, 10.2, 4.1, 10.3, 10.4, 10.5, 10.12 and 3.1, respectively, of the registration statement of which this prospectus forms a part.

 

Hycroft Business

 

Historically, gold and silver sales from the Hycroft Mine have represented 100% of the Seller’s operating revenues and are expected to represent 100% of our operating revenues in the future. Due to declines in the price per gold and silver ounce in 2014 and 2015 the Seller’s predecessor filed voluntary petitions for relief under the Bankruptcy Code with the United States Bankruptcy Court for the District of Delaware and on July 8, 2015, the Seller’s predecessor announced that it had suspended mining operations. On October 22, 2015, the Seller’s predecessor completed its financial restructuring process and emerged from the chapter 11 process.

 

Since suspending mining operations in July 2015, the Hycroft Mine’s operating cash flows have been limited and have related primarily to gold and silver produced from the previously mined ore that had been placed on leach pads. At the end of the first quarter of 2017, with the revenue from the gold and silver produced from the leach pads no longer covering the cost of the reagents necessary for production, the Hycroft Mine was placed into care and maintenance mode to minimize expenditures and conserve cash. Gold and silver production in care and maintenance is a byproduct of maintenance activities and not considered as sales revenues. The Hycroft Mine restarted mining operations during the first half of 2019. As part of its restart of mining operations, the Seller obtained a Feasibility Study as of July 31, 2019 for the heap leaching process for transition and sulfide ores.

 

Our sole operating mine, the Hycroft Mine, is an open-pit heap leach operation located approximately 54 miles west of Winnemucca, Nevada. Historically, gold and silver sales have represented 100% of our operating revenues and the market prices of gold and silver significantly impact our financial position, operating results and cash flows. Beginning in early 2019, with additional funding in the form of the 1.5 Lien Notes and 1.25 Lien Notes, repairs to the crushing system commenced and mining operations were again started at the Hycroft Mine. The first pour of gold and silver occurred in August 2019.

 

As reflected in the Hycroft Technical Report completed by M3 Engineering and Technology (“M3 Engineering”), SRK Consulting US (“SRK”) and the Seller, compliant with the recently adopted Modernization of Property Disclosures for Mining Registrants (the “New Mining Rules”), which we have voluntarily adopted early, as of June 30, 2019, the Hycroft Technical Report reflected proven and probable mineral reserves of 11.996 million ounces of gold and 481.4 million ounces of silver, which were contained in oxide, transition and sulfide ores. The Hycroft Technical Report also reported, as of June 30, 2019, the following measured, indicated and inferred mineral resources of gold and silver contained in oxide, transition and sulfide ores (in 000’s):

 

Mineral Resources(1)  Gold (Oz)   Silver (Oz) 
Measured(2)   649    15,554 
Indicated(2)   3,050    93,438 
Inferred   5,769    129,754 

 

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(1)Under SEC standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time of the reserve determination. The term “economically,” as used in the SEC’s New Mining Rules, means that profitable extraction or production has been established or analytically demonstrated in a feasibility study to be viable and justifiable under reasonable investment and market assumptions. The term “legally” as used in the New Mining Rules definition of reserves, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for a reserve to exist, we must have a justifiable expectation, based on applicable laws and regulations, that issuance of permits or resolution of legal issues necessary for mining and processing at a particular deposit will be accomplished in the ordinary course and in a timeframe consistent with our current mine plans. In accordance with the New Mining Rules, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” used in this prospectus are defined in the New Mining Rules.

 

(2)The measured and indicated mineral resources are exclusive of those mineral resources modified to produce the reported mineral reserves.

 

The Hycroft Technical Report does not include any assumptions for the conversion of mineral resources to mineral reserves.

 

You are specifically cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into mineral reserves, as defined by the SEC. You are also cautioned that mineral resources do not have demonstrated economic value. Inferred mineral resources have a high degree of uncertainty as to their existence as to whether they can be economically or legally mined. Under the New Mining Rules, estimates of inferred mineral resources may not form the basis of an economic analysis. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. A significant amount of exploration must be completed in order to determine whether an inferred mineral resource may be upgraded to a higher category. Therefore, you are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be economically or legally mined, or that it will ever be upgraded to a higher category. Likewise, you are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be upgraded to mineral reserves.

 

Prior to the suspension of mining operations on July 8, 2015, the Seller’s predecessor recovered metals contained in oxide and transition ores through heap leach operations. As discussed below, the Hycroft Mine’s current mining plan and operations involve oxidizing and leaching transition and sulfide material in a heap leach application. As of July 31, 2019, based upon the findings in the Hycroft Technical Report, about 94% of the Hycroft Mine’s ore contains enough refractory gold to economically justify pretreatment by pre-oxidation prior to cyanide leaching.

 

Historical Test Work

 

Beginning in 2007, the Seller’s predecessor examined milling options to expand production, including direct cyanidation of high-grade oxide ore, and production of a flotation concentrate from sulfide ore, followed by an oxidative treatment of the concentrate. The original focus was on oxidation methods primarily employed in the Nevada gold industry, including pressure oxidation and roasting. Test work on these processes showed that each of these options could work well.

 

In 2013, the Seller’s predecessor began testing a suite of alternative oxidation methods, including chlorination, ambient pressure alkaline oxidation, fine-grinding with intense cyanidation, and a procedure similar to the patented Albion Process. The goal was to develop an economically viable process that would be less expensive to build and operate than autoclaves and that would eliminate the need for offsite concentrate sales.

 

Batch test results were positive and indicated that the Hycroft Mine’s concentrates were amenable to oxidation under atmospheric conditions, using trona as the acid neutralizing agent. Continuous pilot plant testing on three main domains was completed at Hazen Research to confirm these results.

 

In 2016, the viability of the atmospheric oxidation process using trona was demonstrated in a 10 ton-per-day integrated pilot plant at the mine site. This plant included primary grinding of 3/8” material, followed by flotation, atmospheric oxidation, cyanide leaching, counter-current decantation and Merrill-Crowe precipitation.

 

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Previous testing and analysis of the Hycroft Mine indicated that transition and sulfide ore can be oxidized in a heap leach operation prior to irrigation with cyanide solution and previous studies have all contributed to the development of the proposed process for the two-stage, heap oxidation and subsequent leaching of sulfide and transition ores. Aside from offering an extensive characterization of the ore, our past test work has served to demonstrate the relationship between oxidation and recovery, to quantify the carbonate consumption requirements for oxidation and to establish reaction rates under varying operating conditions. Knowledge of the oxidation mechanism that was established in past work has favorably assisted the advancement of the pre-oxidation process that we are using at the Hycroft Mine.

 

The Hycroft Technical Report prepared by M3 Engineering, in association with SRK and Seller was issued effective July 31, 2019 and followed the requirements of the New Mining Rules. The Hycroft Technical Report provides the results of the heap leach Feasibility Study that evaluated the possibility of oxidizing and leaching transitional and sulfidic material in a heap leach application. The Hycroft Technical Report presents a mineral reserve and resource estimate, a supporting life-of-mine plan and the results of metallurgical testing to determine the applicability of oxidizing and leaching transition and sulfide ore in a heap leach process. The metallurgical testing includes three phases of the ongoing test program using extensive column and bottle roll test work. The objective of the Hycroft Technical Report was to determine if soda ash, a refined form of trona, can be used to oxidize sulfides in a heap leach operation prior to irrigation with cyanide solution. This process, which is the subject of a pending patent application, is intended to accomplish two goals, namely, the liberation of gold and silver in the sulfides by oxidation, thereby increasing its recovery, and the reduction of the heap’s potential to turn acidic during cyanide leaching.

 

Over a decade of research into various carbonate oxidation systems has laid the foundation for the pre-oxidation and cyanidation process. A history of processes that have contributed to the development of this technology is included in the Hycroft Technical Report to show the progression of the mechanism used for oxidation as well as the logic that lead to current operating procedures.

 

The metallurgical test programs conducted on the Hycroft Mine deposit consisted of a series of comminution, flotation, concentrate oxidation, and cyanide leaching tests on whole ore, flotation tailing, and oxidized sulfide concentrate. The samples were mostly derived from drill cores.

 

Ore is classified as “oxide,” “transitional,” or “sulfide,” depending on the solubility of its gold content in cyanide solution (refractoriness). Ores having cyanide soluble gold contents of 70% or higher are classified as oxide ore. Those with cyanide-soluble gold contents below 30% are considered sulfide. The remainder, with cyanide-soluble contents between 30 to 70% are considered transition ores. The classification has been shown to have no strong correlation with sulfide sulfur content.

 

Heap Leach Test Work

 

In October 2015, the Seller began testing the possibility of oxidizing (using trona to manage the pH) and leaching the transition and sulfide ores in a heap leach scenario in order to reduce the capital intensity of recovering the gold and silver ounces contained in such ores. Heap leach oxidation and cyanide leach tests began with traditional column lab work. Core samples for metallurgical testing were selected to represent the most significant domains within the orebody, Central, Brimstone and Vortex, will be the main sources of ore going forward. Tests were conducted in plexiglass cylindrical columns that were 1-ft diameter and 4-ft high. Ore samples were crushed to 1/2”, blended and loaded into the columns.

 

Between the oxidation and leach stages, the columns were rinsed with water followed by lime-saturated water. The objective of the water rinse was to remove as much of the sulfate produced and excess carbonate alkalinity as practicable from the ore column. Sulfate that remains will react with calcium in the leach solution to precipitate CaSO4, which could form a passivation layer over the solids that are being leached. Bicarbonate has been shown to react with cyanide resulting in high cyanide consumptions. The objective of the lime-water rinse was to neutralize residual bicarbonate after the water rinse. Depending on the efficiency of the water rinse, the lime-saturated rinse may not be required but this will have to be tested to determine the trade-off between the cost of lime-water rinse and the cyanide loss.

 

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Oxidation was performed for different periods ranging from 60 days to 180 days, by adding soda ash to the ore column and applying just enough solution to the column to keep the ore wet. This status was maintained to ensure that the interstices in the ore column are filled with oxygen-supplying air and not flooded with solution. A small amount of solution was allowed to drain at the bottom of the column, enough to collect at least 50 ml of sample each day for pH analysis, and to create a weekly composite for sulfate analysis. Oxidation was tracked by the amount of sulfate produced.

 

The results of the column oxidation followed by leach tests in general supported the hypothesis that higher oxidation levels of transition and sulfide ores produce better gold and silver recoveries in the subsequent cyanide leach process. From the overall trend observed in the test results, it appears that gold recoveries of 70% are possible for all the domains if the conditions are right. It is recommended that testing be continued using optimal conditions to provide experimental support for this recovery target. These optimal conditions include soda ash dosage, crush size, oxidation time, maintaining moist conditions during oxidation and ensuring access to air. During operations, testing of ore is likewise recommended to fine tune the conditions to be used in the heap. The duration of the oxidation cycle is variable and dependent on parameters found in the head assay.

 

While trona was initially used in testing to manage the pH and alkalinity during oxidation, for commercial production the Seller determined to use soda ash, a trona product, as they believed that soda ash can deliver higher carbonate concentrations than trona and requires less mass to be moved and stored in order to provide the same total alkalinity.

 

As reported in the Hycroft Technical Report, operating parameters and expected recoveries for heap leaching were as follows:

 

Domain  Nominal* Target
Oxidation, %
   CN — Leach Time,
days
   Au Recovery, %   Ag Recovery, % 
Northwest (Bay)   31    60    55    55 
West (Central)   40    60    70    70 
Southwest (Camel) Above Water Table   40    60    70    70 
Southwest (Camel) Below Water Table   40    60    65    70 
Brimstone   40    60    65    70 
Vortex   40    60    65    70 

 

The Hycroft Technical Report indicated that maximum recoveries can be attained if the correct operating conditions are observed, including the following:

 

1.It is essential that pH be maintained above 9.5 during the oxidation process but not higher than 11. This ensures that the catalytic action of the ferrous-ferric carbonate redox pair is prevailing.

 

2.The total carbonate alkalinity must be maintained at a minimum of 20,000 parts per million, preferably up to 60,000 ppm to stabilize enough iron in solution.

 

3.During oxidation, the ore must be maintained wet.

 

4.However, the heap must not be saturated with solution to allow oxygen to migrate to the oxidation sites.

 

5.When the desired oxidation level is attained, excess carbonate and bicarbonate must be rinsed out of the heap. This may be followed by a lime water rinse to neutralize any residual carbonate.

 

Maintaining permeability in the heap is important during both oxidation and leach stage.

 

Hycroft Business Strategy

 

Based on the test work outlined above, we have developed a mine plan to profitably produce gold and silver at the Hycroft Mine (in a stable jurisdiction) that focuses on two-stage, heap leach oxidation of transition and sulfide ores using soda ash to manage the pH and alkalinity during oxidation and subsequent cyanidation of the oxidized ores. The following simplified schematic outlines the process that we intend to use, which is further described in the Hycroft Technical Report.

 

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Mining

 

Under the mine plan that was developed by the Seller, we currently intend to mine using typical truck and shovel open pit mining methods.

 

We plan to ramp up production over five years to the design crushed ore tonnage of 36 million tons per year, starting with 4.5 million tons in 2019, increasing to 12.6 million tons in 2020, 23.3 million tons in 2021, and reaching the target 36 million tons per year by 2024. The yearly tonnage will be supplemented by a small percentage of ore that will be placed and leached as run-of-mine ore. In connection with the restart of mining operations, we made repairs to the crushing system and in July 2019 received approval of an amendment to our permits for construction of a new leach pad.

 

Processing

 

A significant portion of gold in the Hycroft Mine ore is refractory due to its association with pyrite, marcasite and other sulfides. About 94% of the ore contains enough refractory gold to economically justify pretreatment by pre-oxidation prior to cyanide leaching.

 

The heap leach operation is designed to treat three categories of ore, classified as described below, using the following methods:

 

·Ore Category 1 (ROM ore) — lower grade ore with high cyanide soluble gold is routed directly to the leach pad and cyanide leached to extract gold and silver. This accounts for 4% of the ore over the life of mine. The gold contents are highly soluble and the remaining refractory gold contents are not projected to justify the time and expense of a pre-oxidation step, therefore it will be stacked as run of mine, or ‘ROM’. The ore in this category is typically defined as ‘ROM oxide’ or ‘ROM transition’.

 

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·Ore Category 2 (3/4” Crushed ore) — higher grade ore with high cyanide soluble gold is crushed to a P80 of 3/4” and cyanide leached to extract gold and silver. This accounts for 2% of the ore over the life of mine. The gold contents are highly soluble, but additional size reduction is expected to increase gold and silver recovery enough to justify the additional expense. The remaining refractory gold contents are not projected to justify the time and expense of a full pre-oxidation cycle. The ore in this category is typically defined as ‘3/4” crushed oxide’ or ‘3/4” crushed transition’.

 

·Ore Category 3 (1/2” Crushed ore) — low cyanide soluble ratio ores are crushed to a P80 of 1/2”. The crushed ore is mixed with soda ash to induce an alkaline ‘pre-oxidation’ process. After the oxidation process has been completed to the desired extent, the ore will be rinsed sequentially with water and saturated lime solution, and then leached with cyanide to extract gold and silver. This accounts for 94% of the ore over the life of mine. The ore in this category is typically defined as ‘1/2” crushed sulfide’ or ‘1/2” crushed transition’. This process is the subject of a pending patent application.

 

Crushing Plant

 

The crushing system is designed to run a nominal capacity of 65,750 tons per day ramping up to 98,630 tons per day with the addition of two more tertiary crushers. The existing crushing system includes one primary crusher, two secondary crushers, and two tertiary crushers. The existing facility will be sufficient during the ramp-up period, but will require the addition of two more tertiary crushers to attain the design capacity.

 

Category 2 and Category 3 ores will be transported to the primary crusher dump pocket via haul truck. Prior to the primary crusher, the ore that is being routed as Category 3 will pass under a soda ash silo where a pre-determined amount of soda ash will be added to the ore to begin the pre-oxidation process. The ore will proceed through three stages of crushing and exit the tertiary crushers routed as either 3/4” crushed or 1/2” crushed. It will then be hauled to and stacked on the leach pads.

 

Pre-Oxidation

 

Pre-oxidation of the Category 3 ore will begin at the crusher using in-situ moisture and solid soda ash. The amount of soda ash required for the ore is relative to the percent sulfide-sulfur content of the ore. We will regularly sample the mined ore for reagent addition control.

 

After placing Category 3 ore on the heap, additional soda ash solution will be applied to bring the ore to field capacity (8 – 10% moisture). The solution in the heap will be replenished on a regular basis using soda ash solution in order to offset evaporation and carbonate consumption.

 

The dissolved oxygen required for the reaction will be replenished through solution to air contact; the oxygen will be monitored inside the heap using embedded recoverable sensors. If required, air inflow can be aided by installing large perforated piping at the bottom of each panel, with ends protruding out of the heap.

 

Pre-oxidation duration will be determined by the characteristics of the ore and the measured extent of oxidation based upon sulfate production. The extent of oxidation will be determined by the target recoveries for each domain and the initial cyanide soluble gold, which is translated to degrees of oxidation already achieved. The number of days required to attain target oxidation is dependent upon the sulfide-sulfur content of the ore with, higher sulfide-sulfur corresponding to longer oxidation cycles. The majority of the ore is expected to take between 30 and 120 days to finish pre-oxidation. This is measured between the day that soda ash is introduced to the ore at the crusher and the day that the ‘rinse’ cycle begins for the panel.

 

Rinse Cycle

 

When the pre-oxidation cycle has been completed, the Category 3 ore will be rinsed first with water, then with a saturated lime solution prior to the commencement of cyanidation leach. This is necessary to remove bicarbonate from the heap and prevent cyanide loss during leaching. The alkalinity of the solution in the heap is monitored to ensure rinse completion prior to the start of cyanidation.

 

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Heap Leach Cyanidation

 

The cyanidation conditions for all placed ore will be the same regardless of crush size or the use of pre-oxidation. The pH will be controlled using lime. Category 1 and Category 2 ores, those ores not going through pre-oxidation or rinse are expected to undergo a 200-day primary leach cycle. Category 3 ore, having already been oxidized and rinsed, is expected to undergo a nominal 60-day primary leach cycle.

 

Merrill-Crowe and Refinery

 

Due to the high silver content of the pregnant solution, gold and silver is recovered by zinc cementation. We have two existing Merrill-Crowe plants, which are used to process pregnant solution from the heap leach operation. The older plant has a capacity of 4,500 gallons per minute. The newer plant is considerably larger, with a present capacity of 21,500 gallons per minute.

 

The wet filter cakes from the Merrill-Crowe circuits are transferred to retort pans, which are then put into a retort furnace to remove water and mercury. Water and then mercury are sequentially volatilized from the precipitate by heating the precipitate under a partial vacuum. The dried filter cake is mixed with flux, a clarifying agent used to remove certain impurities and reduce the melting point of elements in the precipitate, and then transferred to an electric arc furnace where it is smelted to produce doré.

 

Project Infrastructure

 

The future infrastructure for the Hycroft Mine heap leach project includes the existing infrastructure and the requirements of the project. Currently on site are administrative buildings, mobile equipment maintenance shops, two Merrill-Crowe processing plants, a three-stage crushing system, a refinery and heap leach pads. The site also has a modern communications system provided by microwave facilities, including cellular communications. Major infrastructure categories to be constructed for the project include:

 

·Additional leach pad space and associated ponds, piping and other facilities;

 

·Conveying and stacking;

 

·Crushing system refurbishments; and

 

·Rail siding.

 

Fresh water will be obtained from existing active and inactive production wells in a field west of the mine, and from mine dewatering. Plant water requirements are projected to fall below the current permitted water rights.

 

A rail siding will be constructed that will access the nearby main east-west rail line, which is operated by Union Pacific. The rail siding will be used to receive large quantities of bulk commodities such as soda ash and lime at a reduced cost of transportation versus trucking, while reducing the potential environmental and safety hazards associated with truck transportation. M3 Engineering has provided the design for the rail unloading and materials handling facilities at the rail siding.

 

Currently the final crushed ore product is loaded to trucks and transported to the heap. A conveyor stacking system is planned for 2024 which will directly convey the ore to the heap and eliminate the need for the truck haul.

 

Principal Products and Market Overview

 

The principal products that the Hycroft Mine produces are unrefined gold bars (doré) and in-process inventories (metal-laden carbon), both of which are sent to third party refineries before being sold, generally at prevailing spot prices, to financial institutions or precious metals traders. Doré bars and metal-laden carbon are sent to refineries to produce bullion that meets the required market standards of 99.95% pure gold and 99.90% pure silver. Under the terms of our refining agreements, doré bars and metal-laden carbon are refined for a fee, and our share of the refined gold and the separately-recovered silver are credited to our account or delivered to our buyers. As noted above, due to the expected higher silver content, we anticipate producing doré and not relying on the carbon-in-columns to produce the metal-laden carbon except in limited circumstances.

 

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Product Revenues and Customers

 

For the year ended December 31, 2018 and the portion of 2019 prior to the Seller resuming mining operations, the Seller did not record revenues, with any sales of gold and silver recovered from care and maintenance of the leach pads and not reflecting material production amounts. Accordingly, they were deemed to be a byproduct (and a net expense) of the care and maintenance activities. We expect gold and silver sales to be our only source of future revenues. Even at full production levels, however, we do not believe we have any dependencies on any customers of our gold and silver due to the liquidity of the metal markets and the availability of metal traders and financial institutions. For the year ended December 31, 2019, gold and silver sales of 8,593 ounces and 52,036 ounces, respectively, were reported as revenue as the Hycroft Mine was operating. All gold and silver sales during the year ended December 31, 2019 were to the same customer. However, Hycroft is not obligated to sell all of its gold and silver to one customer.

 

Gold Uses

 

Gold has two main categories of use: fabrication and investment. Fabricated gold has a variety of end uses, including jewelry, electronics, computers, dentistry, industrial and decorative uses, medals, medallions and coins. Gold investors that want to own physical gold generally buy gold bullion, coins and jewelry.

 

Gold Supply

 

The supply of gold consists of a combination of current production from mining and metal recycling and the draw-down of existing stocks of gold held by governments, financial institutions, industrial organizations and private individuals. Based on publicly available information, gold production from mines was flat for 2019 compared to 2018 totaling approximately 3.46 metric tons (or 111 million troy ounces) and represented approximately 73% of the 2019 global gold supply.

 

Gold Prices

 

The price of gold is volatile and is affected by many factors beyond our control, such as the sale or purchase of gold by central banks and financial institutions, inflation or deflation and monetary policies, fluctuation in the value of the US dollar and foreign currencies, global and regional demand, and the political and economic conditions of major gold producing countries throughout the world. The following table presents the annual high, low, and average afternoon fixing prices for gold over the past ten years on the London Bullion Market (in US dollars per ounce).

 

Year  High   Low   Average 
2009   1,213    810    972 
2010   1,421    1,058    1,225 
2011   1,895    1,319    1,572 
2012   1,792    1,540    1,669 
2013   1,694    1,192    1,411 
2014   1,385    1,142    1,266 
2015   1,296    1,049    1,160 
2016   1,366    1,077    1,251 
2017   1,346    1,151    1,257 
2018   1,355    1,178    1,268 
2019   1,540    1,270    1,393 
2020 (through July 9, 2020)   1,812    1,474    1,653 

 

On July 9, 2020, the afternoon fixing price for gold on the London Bullion Market was $1,812 per ounce.

 

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Employees

 

We have 202 employees, of whom 195 are currently employed at the Hycroft Mine. None of our employees are represented by unions.

 

Competition

 

We compete with other mining companies in connection with hiring and retaining qualified employees. There is substantial competition for qualified employees in the mining industry, some of which is with companies having substantially greater financial resources and a more stable history. As a result, we may have difficulty hiring and retaining qualified employees.

 

Our management believes that no single company has sufficient market power to affect the price or supply of gold in the world market.

 

Please see “Risk Factors — Risks Related to Our Industry — We face intense competition in the mining industry”, for additional discussion related to our current and potential competition.

 

DESCRIPTION OF PROPERTY

 

Our sole property is the Hycroft Mine. The Hycroft Mine is an open-pit (surface) gold and silver mine with a long history of operations as discussed below. Beginning in July 2015, mining operations at the Hycroft Mine were suspended and the Hycroft Mine was operated solely in a care and maintenance mode through December 31, 2018. Commencing in January 2019, efforts to ramp up and restart mining operations began. During the first quarter of 2019, the Seller worked to bring our six haul trucks, two hydraulic shovels and one wheel loader back into operation. In addition, the Seller began the rehabilitation of our crushing system and the construction of leach pad space to enable mining operations to begin in the second quarter of 2019. Initial gold and silver production occurred in August 2019.

 

Historically, the Seller’s predecessors held as many as 75 mineral exploration properties, all of which were sold in 2015 as part of the Seller’s bankruptcy process.

 

Operating Properties

 

Hycroft Technical Report

 

The information that follows relating to the Hycroft Mine is derived, for the most part, from, and in some instances is an extract from, the Hycroft Technical Report prepared with respect to the heap leaching Feasibility Study in compliance with the SEC’s New Mining Rules. Portions of the following information are based on assumptions, qualifications and procedures which are not fully described herein. Reference should be made to the full text of the Hycroft Technical Report, filed with the SEC as an exhibit to this prospectus. The Hycroft Technical Report is incorporated herein by reference and made a part hereof.

 

Overview and Highlights

 

The Hycroft Mine is a senior-scale asset with an expected average annual production of approximately 366,000 ounces of gold equivalents, based on a 34 year mine life for mining and processing mineral reserves, and the following chart illustrates the current projected production schedule for the Hycroft Mine as outlined in the Hycroft Technical Report:

 

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The Hycroft Technical Report sets forth a revised process for mining that significantly reduces capital expenditures when compared to the prior plans to build a mill to process sulfide ores. A summary of the estimated capital expenditures for the first five years of operations at the Hycroft Mine based upon the Hycroft Technical Report is set forth below:

 

 

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Hycroft Open Pit Mine

 

The following shows where the Hycroft Mine is located.

 

 

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Additionally, the below map shows the current property and facilities layout.

 

 

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The Hycroft Mine and related facilities are located 54 miles west of Winnemucca, Nevada. Winnemucca, a city with a population of approximately 7,000, is a commercial community on Interstate 80, 164 miles northeast of Reno. The mine property straddles Townships 34, 35, 3512 and 36 North and Ranges 28, 29 and 30 East (MDB&M) with an approximate latitude 40°52’ north and longitude 118°41’ west.

 

The town is served by a transcontinental railroad and has a municipal airport. Access to the mine from Winnemucca is by Jungo Road, formerly designated as State Route 49, a good-quality, unpaved road, and a short access road to the main entrance of the mine. Well-maintained mine and exploration roads provide access throughout the property. Access is also possible from Imlay, Gerlach and Lovelock by unpaved roads intersecting Interstate 80 and Nevada State Route 447. The majority of our employees live in the Winnemucca area. The site receives electrical power provided by NV Energy from the northwestern Nevada power grid. Initial surveys indicate that the town of Winnemucca has the required infrastructure (shopping, emergency services, schools, etc.) to support the maximum workforce and dependents. The Hycroft Mine currently has water rights which are adequate to support our planned future heap leach operations. The mine is situated on the eastern edge of the Black Rock Desert and on the western flank of the Kamma Mountains between Winnemucca and Gerlach, Nevada. There are no streams, rivers or major lakes in the general area. Elevations in the mine area range between 4,500 and 5,500 feet above sea level.

 

The climate of the region is arid, with precipitation averaging 7.7 inches per year. Average temperatures during the summer range from 50°F to 90°F and average winter temperatures range from 20°F to 40°F.

 

We hold 30 private patented claims and 3,247 unpatented mining claims that constitute our Hycroft Mine operating property. The total acreage covered by unpatented claims is approximately 68,759 acres and an additional 1,912 acres is covered by patented claims. Combining the patented and unpatented claims, total claims cover approximately 70,671 acres. Our Hycroft Mine patented claims occupy private lands and our unpatented claims occupy public lands, administered by the BLM. These claims are governed by the laws and regulations of the U.S. federal government and the state of Nevada. To maintain the patented claims in good standing, we must pay the annual property tax payments to the county in which the claims are held. To maintain the unpatented claims in good standing, we must file a notice of intent to maintain the claims within the county and pay the annual mineral claim filing fees to the BLM. Such filing fees amounted to $0.6 million in 2019. As long as we file the annual notice and pay the claim filing fees, there is no expiration date for our unpatented claims.

 

A portion of Hycroft Mine is subject to a mining lease requiring us to pay 4% net profit royalty to the owner of certain patented and unpatented mining claims, subject to a maximum of $7.6 million, of which $5.1 million remained payable as of December 31, 2019. There is no expiration date on the net profit royalty.

 

Hycroft Mine was formerly known as the Crofoot-Lewis open pit mine, which was a small heap leaching operation that commenced in 1983. Vista Gold Corp., a corporation incorporated under the laws of the Yukon Territory (“Vista”), acquired the Crofoot-Lewis claims and mine in 1987 and 1988. During this first operating period the mine produced over 1.0 million ounces of gold and 2.5 million ounces of silver. The mine production continued until it was placed on a care and maintenance program in December 1998 due to low gold prices. The Seller acquired the Hycroft Mine in 2007 pursuant to an arrangement agreement where Vista transferred its Nevada mining properties to our predecessor . The Seller restarted the Hycroft Mine in 2008 and suspended mining operations on July 8, 2015. During 2016 they were actively processing and producing gold from the ore within the heap leach pads. On January 1, 2017, the Seller went into a care and maintenance mode when it stopped adding lime to the leach pads and continued to operate in a care and maintenance mode throughout 2017 and 2018. Prior to restarting operations, production of gold and silver was a byproduct of the Seller’s maintenance activities on the Hycroft Mine. In January 2019 the Seller began the restart of mining operations. During the first quarter of 2019 the Seller began operations again with six haul trucks, two hydraulic shovels and one wheel loader. In addition, the Seller began the rehabilitation of its crushing system and the construction of new leach pad space to enable mining operations to begin in the second quarter of 2019. Initial gold and silver production occurred in August, 2019.

 

On site facilities include an administration buildings, mobile maintenance shop, light vehicle maintenance shop, warehouse, leach pads, crushing system, two Merrill-Crowe process plants and a refinery. The components for a second refinery are on-site and will be constructed as part of the expansion of mining activities. The crushing system is being refurbished as part of the restart activities and all other facilities are operational. The gross book value of property, plant and equipment associated with the Hycroft Mine as of December 31, 2019, was $68.4 million.

 

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Geology

 

The Hycroft Mine is located on the western flank of the Kamma Mountains. The deposit is hosted in a volcanic eruptive breccia and conglomerates associated with the Tertiary Kamma Mountain volcanics. The volcanics are mainly acidic to intermediate tuffs, flows and coarse volcanoclastic rocks. Fragments of these units dominate the clasts in the eruptive breccia. The Central Fault and East Fault control the distribution of mineralization. A post-mineral range-front fault separates the ore-body from the adjacent Pleistocene Lahontan Lake sediments in the Black Rock Desert. The geological events have created a physical setting ideally suited to the open-pit, heap-leach mining operation at the Hycroft Mine. The heap leach method is widely used in the southwestern United States and allows the economical treatment of oxidized low-grade ore deposits in large volumes.

 

The deposit is typically broken into six major zones based on geology, mineralization, and alteration. These zones include Brimstone, Vortex, Central, Bay, Boneyard, and Camel. Breaks between the zones are major faults.

 

Mineralization at Hycroft has been deposited through multiple phases. An early silica sulfide flooding event deposited relatively low-grade gold and silver mineralization, generally along bedding. This mineralization is cross cut by later, steeply dipping quartz alunite veins. Late stage silver bearing veins are found in the Vortex zone and at depth in the Central area. Late to present supergene oxidation along faults has liberated precious metals from sulfides and further enriched gold and silver mineralization, along water table levels.

 

The known gold mineralization extends for a distance of three miles in a north-south direction by 1.5 miles in an east-west direction. Mineralization extends to a depth of less than 330 feet in the outcropping to near-outcropping portion of the deposit on the northwest side to over 2,500 feet in the Vortex deposit in the east.

 

Proven and Probable Mineral Reserves

 

Our mineral reserve estimates are calculated in accordance with subpart 1300 of Regulation S-K under the New Mining Rules of the Exchange Act. Proven and probable reserves may not be comparable to similar information regarding mineral reserves disclosed in accordance with the guidance of other countries. We conduct ongoing studies of our ore bodies to optimize economic values and to manage risk. We revise our mine plans and estimates of proven and probable mineral reserves as required and in accordance with the latest available studies. Our estimates of proven and probable reserves are prepared by and are the responsibility of our employees.

 

Our estimated proven and probable reserves are as of June 30, 2019, using prices of $1,200 per ounce for gold and $16.50 per ounce for silver. The gold and silver prices used in estimating reserves are lower than the trailing 3-year average price of $1,272.66 per ounce for gold and $16.53 per ounce for silver. The average London Bullion Market spot metal prices for each of the years ended December 31, 2019, 2018 and 2017 was $1,393, $1,268 and $1,257 per ounce for gold, respectively, and $16.21, $15.71 and, $17.04 per ounce for silver, respectively. Below is a summary of our estimated proven and probable ore reserves as of June 30, 2019.

 

   Tons   Grades, oz/t   Contained Oz (000s) 
   (000s)   Au   Ag   Au   Ag 
Proven (Heap Leach)                         
Oxide ROM   12,476    0.009    0.230    205    5,211 
Transition ROM   4,095    0.008    0.190    32    759 
Oxide 3∕4” Crushed   15,252    0.012    0.720    184    10,926 
Transition 3∕4” Crushed   4,399    0.005    0.310    24    1,367 
Transition 1∕2” Crushed   90,206    0.011    0.450    948    40,365 
Sulfide 1∕2” Crushed   250,906    0.012    0.470    2,940    116,818 
Total Proven Heap Leach   387,334    0.011    0.450    4,333    175,446 
Probable (Heap Leach)                         
Oxide ROM   13,145    0.005    0.230    71    3,005 
Transition ROM   3,660    0.005    0.140    20    505 
Oxide 3∕4” Crushed   3,001    0.010    0.690    29    2,063 
Transition 3∕4” Crushed   1,304    0.004    0.490    5    644 
Transition 1∕2” Crushed   52,467    0.010    0.460    504    24,043 

 

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Sulfide 1∕2” Crushed   663,071    0.010    0.410    6,936    272,271 
Total Probable Heap Leach   736,648    0.010    0.410    7,565    302,531 
Total Probable Sulfide Stockpile 1∕2” Crushed   9,079    0.011    0.380    98    3,422 
TOTAL PROVEN & PROBABLE MINERAL RESERVES   1,133,061    0.011    0.425    11,996    481,399 
Waste   1,321,853                     
Total Tons   2,454,914                     
Strip Ratio   1.17                     

 

·Mineral Reserves estimated according to the New Mining Rules definitions.

·Mineral Reserves estimated at $1,200/oz Au and $16.50/oz Ag.

·Cut-off grades used a Net Smelter Return (NSR) calculation.

·Numbers in the table have been rounded to reflect the accuracy of the estimate and may not sum due to rounding.

 

We did not use metal or equivalent metal cut-off grades in estimating proven and probable mineral reserves set forth in the table above and the complexity of the ore body resulted in the use of multiple metallurgical recovery factors by domain and process method, as reflected in the NSR calculations contained in Section 12 of the Hycroft Technical Report. NSR calculations were used as the basis of proven and probable mineral reserve estimations and for decisions influencing operating strategy, mine planning and design, because of differing mining and processing costs, recoveries, and the influence of both gold and silver. Factors including the variable ore types and mineralogy, different process streams and metallurgical recoveries, and related haulage distance can all cause variability in mining and processing costs and block value. Consequently, calculation of the breakeven NSR contained no profit assumptions and breakeven NSR cut-off as used in the mine plan has been determined to be US$0/t. Metallurgical recovery factors used to estimate proven and probable mineral reserves set forth in the table above are variable based upon the domain and processing method applied. Detailed domain specific metallurgical recoveries used to estimate proven and probable mineral reserves are set forth in Table 12-3 in Section 12 of the Hycroft Technical Report, including Au and Ag recoveries by domain for ROM Heap Leach Recovery, ¾” Crushed Heap Leach Recovery, and 12” Crushed Heap Leach Recovery.

 

The reference point for mineral reserves is ore delivered to the leach pad and does not include reductions attributed to anticipated leach recoveries. In the case of the Hycroft Mine’s open pit, all costs are accounted for during the optimization phase of pit limit planning. Once the optimum pit extents have been determined, the decision to mine the material has been made and the cost incurred; the only task remaining then is to determine the optimal routing of the material. General and administrative expenses, as applied at Hycroft, are a fixed cost and do not vary by the tons mined or processed. As such, general and administrative costs are applied as an annual cost in the mine planning and not applied as a dollar to ton of ore processed. All material routing is based on optimal destination determination accounting for all applicable costs, recoveries, and limits (i.e., crushing capacity).

 

Typical break-even individual single metal cut-off grade listed for informational reference in the Hycroft Technical Report (Table 12-7) is as follows:

 

Process Method  Au (opt)   Ag (opt) 
ROM Oxide Leach Recovery   0.006    0.938 
ROM Transitional Leach Recovery   0.008    1.115 
3/4” Crushed Oxide Leach Recovery   0.005    0.793 
3/4” Crushed Transitional Leach Recovery   0.007    0.835 
1/2” Crushed Transitional Leach Recovery   0.006    0.420 
1/2” Crushed Sulfide Leach Recovery   0.007    0.519 

 

The NSR calculation incorporates more than the typical single metal cutoff grades shown above, and the cutoff grades above, while typical, are not utilized in the estimation or reporting of mineral reserves. The NSR calculation covers all fixed and variable costs including mining, processing, sustaining capital deemed to be directly proportional to ore tonnage, general and administration, gross royalties, transport and shipping costs, smelting and refining costs, limits to payable metals, and refining penalties for deleterious metals. The following is an example of the method used to calculate the NSR expressed in US dollars per ton (US$/t):

 

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NSR (US$/t) is calculated from the following equation:

 

NSR = (((Au Price - Au Selling) * Au Grade * Recovery Au * Au Refine) + ((Ag Price - Ag Selling) * Ag Grade * Recovery Ag * Ag Refine)) * (1 - Royalty) - Mine Cost - Process Cost - Soda Ash Cost - Sustaining Cost - G&A Cost

 

Where:

 

NSR = Net Smelter Return
Au Price = Au selling price in $ per troy ounce
Au Selling = bullion treatment and refining cost in $ per troy ounce
Au Grade = Au fire grade in troy ounces per ton
Recovery Au = % metallurgical recovery of Au by process route& domain
Au Refine = % payable for Au refining losses and deductions
Ag Price = Ag selling price in $ per troy ounce
Ag Selling = bullion treatment and refining cost in $ per troy ounce
Ag Grade = Ag fire grade in troy ounces per ton
Recovery Ag = % metallurgical recovery of Ag by process route& domain
Ag Refine = % payable for Ag refining losses and deductions
Royalty = % royalty (note due to very limited royalty remaining, no royalty has been included)
Mine Cost = mining cost per ton by material type
Process Cost = process cost per ton by process type& domain
Soda Ash Cost = soda ash cost per ton
Sustaining Cost = sustaining cost per ton
G&A Costs = general and administrative cost per ton

 

In addition to the factors listed above, methods, material assumptions and criteria used for estimating mineral reserves, as set forth in Section 12 of the Hycroft Technical Report, are as follows:

 

·Costs were generated by Hycroft personnel, metallurgical recoveries were developed by M3 Engineering, and slope inputs supplied by Call and Nicholas and Golder Associates.

 

·An NSR was generated for each 40 ft x 40 ft x 40 ft block for each of the processing methods available at Hycroft, which are the following:

 

·Run-of-Mine (ROM) Heap Leaching of oxide and transitional material;

 

·34” Crushed Heap Leaching of oxide and transitional material;

 

·12” Crushed Heap Leaching of transitional and sulfide material; and

 

·Assumed gold and silver prices of $1,200 and $16.50 per ounce, respectively.

 

·Economic pit limits were determined with Geovia Whittle® Strategic Planning software.

 

·Open pit designs were completed utilizing Maptek Vulcan 3D mine design software.

 

·Mine planning was completed using Minemax strategic and operational mine planning software and selected the processing method that returned the highest net value was selected. If all processing methods returned a negative value, the block was classified as waste.

 

Soda ash assumptions set forth in Table 12-4 in Section 12 of the Hycroft Technical Report were as follows:

 

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Soda Ash Cost = Cost of Soda Ash x Soda Ash Required
Cost of Soda Ash = $0.11 per pound
Soda Ash Required = % Oxidation x 2000 x%Sulfide Sulfur x 1.57
% Oxidation = (Target Oxidation — ratio_au) / Liberation Rate
Target Oxidation : Bay = 55%; All Others = 70%
ratio_au = aucn block grade / aufa block grade
Liberation Rate   if (ratio_au le 0.05) then = 1.77
    if (ratio_au le 0.10) then = 1.89
    if (ratio_au le 0.15) then = 1.99
    if (ratio_au le 0.20) then = 2.09
    if (ratio_au le 0.25) then = 2.18
    if (ratio_au le 0.30) then = 2.27
    if (ratio_au le 0.35) then = 2.36
    if (ratio_au le 0.40) then = 2.44
    if (ratio_au le 0.45) then = 2.53
    if (ratio_au le 0.50) then = 2.60
    if (ratio_au le 0.55) then = 2.68
    if (ratio_au le 0.60) then = 2.70
    if (ratio_au le 0.70) then = 2.78

 

Additional parameters used to calculate NSR included: (i) Whittle input parameters of the heap leach for oxide, transitional and sulfide ores and multiple cost and recovery factors by domain, as set forth in Table 12-2 of the Hycroft Technical Report; and (ii) heap leach metallurgical recoveries utilized in the Whittle optimization in mineral reserve determinations varying by redox, domain and process method, as set forth in Table 12-3 of the Hycroft Technical Report.

 

Measured, Indicated and Inferred Mineral Resources

 

Our mineral resource estimates are calculated in accordance with subpart 1300 of Regulation S-K under the New Mining Rules of the Exchange Act and are exclusive of mineral reserves. Measured, indicated and inferred mineral resources may not be comparable to similar information regarding mineral resources disclosed in accordance with the guidance of other countries. The estimates of Mineral Resources may be materially affected if mining, metallurgical, or infrastructure factors change from those currently anticipated at the Hycroft Mine. Estimates of inferred mineral resources have significant geological uncertainty and it should not be assumed that all or any part of an inferred mineral resource will be converted to the measured or indicated categories. Mineral resources that are not mineral reserves do not meet the threshold for reserve modifying factors, such as estimated economic viability, that would allow for conversion to mineral reserves.

 

Our most recent resource estimated measured, indicated and inferred mineral resources, as reflected in the Hycroft Technical Report as prepared by SRK as of June 30, 2019, used prices of $1,400 per ounce for gold and $18.00 per ounce for silver. Below is a summary of our estimated measured, indicated and inferred resources as of June 30, 2019.

 

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          Contained Grade   Contained Metal 
Classification  Material  Tons (kt)   AuFa OPT   AuCn OPT   AgFa OPT   S%   Au (koz)   Ag (koz) 
Measured  Oxide   5,650    0.011    0.008    0.224    1.79    60    1,267 
Mineral  Transition   21,746    0.011    0.005    0.186    1.80    232    4,038 
Resources  Sulfide   37,512    0.010    0.002    0.273    1.85    356    10,248 
       64,908    0.010    0.004    0.240    1.83    649    15,554 
Indicated  Oxide   2,619    0.006    0.005    0.229    1.89    17    599 
Mineral  Transition   16,293    0.007    0.003    0.329    1.79    117    5,369 
Resources  Sulfide   310,102    0.009    0.002    0.282    1.81    2,916    87,470 
       329,014    0.009    0.002    0.284    1.81    3,050    93,438 
Measured and  Oxide   8,268    0.009    0.007    0.226    1.82    77    1,867 
Indicated Mineral  Transition   38,039    0.009    0.004    0.247    1.80    349    9,407 
Resources  Sulfide   347,614    0.009    0.002    0.281    1.81    3,272    97,718 
       393,922    0.009    0.002    0.277    1.81    3,699    108,992 
Inferred  Oxide   6,191    0.007    0.005    0.267    1.72    44    1,651 
Mineral  Transition   20,148    0.008    0.004    0.276    1.74    156    5,570 
Resources  Sulfide   568,704    0.010    0.002    0.214    1.76    5,516    121,930 
   Fill   4,018    0.013    0.008    0.150    0.63    53    603 
       599,062    0.010    0.002    0.217    1.76    5,769    129,754 

 

·Mineral Resources are not Mineral Reserves and do not meet the threshold for reserve modifying factors, such as estimated economic viability, that would allow for conversion to mineral reserves. There is no certainty that any part of the Mineral Resources estimated will be converted into Mineral Reserves and no Mineral Resources are assumed to be converted into Mineral Reserves in the Hycroft Technical Report.

 

·Open pit mineral resources stated as contained within a potentially economically minable open pit; pit optimization was based on assumed prices for gold of $1,400/oz, and for silver of $18/oz, variable Au and Ag Recoveries based on geo-metallurgical domains, a mining cost of $1.45/ton, variable ore processing costs based on geo-metallurgical domains, and G&A cost of $0.65/ton, and a pit slope of 45 degrees;

 

·Open pit mineral resources are reported based on calculated NSR block values and the cutoff therefore varies from block to block. The NSR incorporates Au and Ag sales costs of $0.75/oz beyond the costs used for pit optimization;

 

·Numbers in the table have been rounded to reflect the accuracy of the estimate and may not sum due to rounding.

 

·Mineral Resources are reported exclusive of Mineral Reserves.

 

We did not use metal or equivalent metal cut-off grades in estimating measured, indicated or inferred mineral resources set forth in the table above, as no mining of mineral resources has been incorporated into the Hycroft Mine plan, and the complexity of the ore body resulted in the use of multiple metallurgical recovery factors by ore body, as reflected in the NSR calculations contained in Section 11 of the Hycroft Technical Report. NSR block calculations were used as the basis for measured, indicated and inferred mineral resources estimations and open pit mineral resources are reported based on calculated NSR block values and the cutoff therefore varies from block to block. SRK worked with our predecessor to construct updated three dimensional wireframes for alteration and oxidation zones uses geo software. Estimation of gold, silver, sulfur and rock hardness in a three dimensional block model was completed by Tim Carew, P. Geo. of SRK and is reflected in Section 11 of the Hycroft Technical Report.

 

Metallurgical recovery factors used to estimate measured, indicated or inferred mineral resources set forth in the table above, are variable based upon the domain and processing method applied. Detailed domain specific metallurgical recoveries used to estimate measured, indicated or inferred mineral resources are set forth in Table 11-21 in Section 11 of the Hycroft Technical Report, including Au and Ag recoveries by domain for ROM Heap Leach Recovery, 3∕4” Crushed Heap Leach Recovery, and 1∕2” Crushed Heap Leach Recovery.

 

Measured, indicated and inferred mineral resources were estimated based upon an open pit optimization utilizing the following assumptions:

 

·assumed prices for gold of $1,400/oz and for silver of $18/oz;

 

·variable Au and Ag Recoveries based on geo-metallurgical domains;

 

·mining cost of $1.45/ton;

 

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·variable ore processing costs based on geo-metallurgical domains;

 

·G&A cost of $0.65/ton;

 

·pit slope of 45 degrees; and

 

·NSR incorporates Au and Ag sales costs of  $0.75/oz beyond the costs used for pit optimization.

 

Please see Table 11-21 in Section 11 of the Hycroft Technical Report for a more detailed tabular presentation of the resource pit optimization parameters for oxide, transitional and sulfide ores and multiple cost and metallurgical recovery factors by domain that were also used in the calculation of block NSR values for reporting purposes.

 

Information concerning our mineral properties in the Hycroft Technical Report and in this prospectus includes information that has been prepared in accordance with the requirements of the New Mining Rules set forth in subpart 1300 of Regulation S-K which we have elected to early adopted. These disclosures differ in material respects from the requirements set forth in Industry Guide 7, which remains applicable to U.S. companies subject to the reporting and disclosure requirements of the SEC that have not early adopted the New Mining Rules. These standards differ significantly from the disclosure requirements of Industry Guide 7 in that mineral resource information contained herein may not be comparable to similar information disclosed by U.S. companies that have not early adopted the New Mining Rules promulgated by the SEC.

 

Under SEC standards, mineralization, such as mineral resources, may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time of the reserve determination. The term “economically,” as used in the SEC’s Industry Guide 7 definition of reserves, means that profitable extraction or production has been established or analytically demonstrated in a Feasibility Study to be viable and justifiable under reasonable investment and market assumptions. The term “legally” as used in the SEC’s Industry Guide 7 definition of reserves, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for a reserve to exist, we must have a justifiable expectation, based on applicable laws and regulations, that issuance of permits or resolution of legal issues necessary for mining and processing at a particular deposit will be accomplished in the ordinary course and in a timeframe consistent with our current mine plans. As used in this prospectus, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined and used in accordance with the New Mining Rules set forth in subpart 1300 of Regulation S-K, even though such terms are not recognized under Industry Guide 7 which the New Mining Rules will replace beginning January 1, 2021 for companies that do not early adopt the New Mining Rules. You are specifically cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into mineral reserves, as defined by the SEC.

 

You are cautioned that, except for that portion of mineral resources classified as mineral reserves, mineral resources do not have demonstrated economic value. Inferred mineral resources have a high degree of uncertainty as to their existence as to whether they can be economically or legally mined. Under the New Mining Rules, estimates of inferred mineral resources may not form the basis of an economic analysis. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. A significant amount of exploration must be completed in order to determine whether an inferred mineral resource may be upgraded to a higher category. Therefore, you are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be economically or legally mined, or that it will ever be upgraded to a higher category. Likewise, you are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be upgraded to mineral reserves.

 

For the above reasons, certain of the information contained in this prospectus may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under Industry Guide 7 of and that have not early adopted the New Mining Rules.

 

Internal Controls and Material Assumptions

 

The HMC drill hole database has been validated by the Hycroft exploration group. A review and validation of the Hycroft collar coordinate, down-hole survey, and geology data was completed in the third quarter of 2014 by the Seller’s predecessor’s geologists.

 

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SRK completed data verification and validation in advance of geological modeling and resource estimation, first between May and July 2017, for gold, silver, sulfide sulfur, and total sulfur analytical results, and for logged geological data. During this review, the analytical databases were found to be incomplete. SRK worked with our predecessor to extract all available analytical data from the acQuire database. This resulted in a 58% increase in the sulfide sulfur dataset. The compilation of gold and silver assay values in parts per million (PPM) units resulted in more intervals with valid Au CN:FA values for oxide modeling, and greater precision for grade estimation. SRK completed data verification for the new analytical database in September 2017.

 

Model validation was approached through visual and statistical methods. Visual comparison was done on sections and in plan for each area of the deposit. Statistical comparison was achieved using comparative population statistics and swath plots. Reconciliation of the model, excluding fill, to available production data was completed. Material mined by Seller’s predecessor between 2008 and 2015 was compared to blocks in the mined volume. Model and production data are summarized in the Hycroft Technical Report. The model compared well to historical production records for total gold ounces. The model has about 5% more tonnage, and about 4% lower gold grade, than the reported production. Reported silver grade was about 7% lower than what was predicted by the model and resulted in silver ounces produced about 12% less than what was predicted from the block model.

 

A visual inspection of the model in plan and section confirmed that grades were well correlated between the blocks and the composite data in each area.

 

Statistics by interpolation domain (grade shell) were used to compare the Au and Ag NN (polygonal) and OK and IDW, where applicable, grades against each other. The NN interpolation method provides a declustered representation of the sample grades and therefore, the resulting mean grades of any other method should be similar to the mean grade of the NN estimate at a zero-cutoff grade. For Au, the OK estimates were within acceptable tolerances of the NN; approximately ±3% for each domain. The global mean estimated OK grade at zero cut-off was within ~1% of the NN estimate. For Ag, the OK and IDW estimates were within acceptable tolerances of the NN; approximately ±5% for each domain, with the higher variances corresponding to the poorly sampled Bay and Lewis domains. The global mean estimated grade at zero cut-off was within ~1.2% of the NN estimate.

 

A swath plot is a graphical display of the grade distribution derived from a series of bands, or swaths, generated in several directions through the deposit. Using the swath plot, grade variations from the OK and IDW (where applicable) model are compared to the distribution derived from the NN grade model.

 

On a local scale, the NN model does not provide reliable estimations of grade, but on a much larger scale it represents an unbiased estimation of the grade distribution based on the underlying data. Therefore, if the OK/IDW model is unbiased, the grade trends may show local fluctuations on a swath plot, but the overall trend of the OK/IDW data should be similar to the NN distribution of grade.

 

Swath plots were generated along east-west and north-south directions, and also for elevation. Swath widths were 200 feet wide for both east-west and north-south orientations, and 80 feet wide in the vertical. Au grades were plotted by OK/IDW (red traces) and NN (blue traces) for all estimated blocks.

 

Based on the swath plots, it was concluded that there is a reasonable correlation between the modeling methods. The degree of smoothing in the OK/IDW model is evident in the peaks and valleys shown in some swath plots; however, this comparison shows close agreement between the OK/IDW and NN models in terms of overall grade distribution as a function of easting, northing, and elevation; especially where there are high tonnages (as shown by the vertical bars on the plots).

 

Given that process recoveries and costs in the resource model are grade and/or domain dependent, the application of standard cut-off grades for resource reporting purposes is not feasible. The resources are, therefore, reported with respect to a block NSR value which is calculated on a block-by-block basis. The resource is also constrained by an optimized (Whittle) resource pit, in order to demonstrate that the defined resources have reasonable prospects of eventual economic extraction, a part of the New Mining Rules criteria. All classification categories were considered in the resource pit optimization. The estimation of the NSR values and development of the Whittle resource pit requires assumptions around technical and economic parameters such as process recoveries, mining methods and operating costs.

 

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Drilling

 

Our exploration model includes data from 1981 to December 2018 and includes 5,501 holes, representing 2.5 million feet of drilling. Exploration drilling was started in 1974 by Duval Corporation, and continued through various owners. Our predecessors commenced systematic exploration and resource development drilling starting in late 2006. Drilling has been focused on oxide reserve delineation, sulfide resource definition, sulfide exploration, condemnation drilling for facilities, silver data and both geotechnical and metallurgical core samples. A combination of rotary, reverse circulation and core drilling techniques has been utilized to verify the nature and extent of mineralization. From late-2006 to August 31, 2016, the Seller and its predecessor completed 1,970 exploration holes, totaling approximately 1.45 million feet.

 

The Seller drilled an additional 54 holes, totaling 4,644 feet starting in December 2018 through April 2019 confirming the grades of the previously mined sulfide ore stockpiles, which we have been using as the initial ore feed for the Seller’s restart operations.

 

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Drill hole collar locations are shown in the figure below.

 

 

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Consistent with the Seller’s suspension of mining operations and conducting only care and maintenance activities on the Hycroft Mine, during 2017 and through December 2018, they did not conduct additional drilling activities, other than to obtain ore for testing purposes. In December 2018, the Seller began confirmation drilling of certain sulfide ore stockpiles that we planned to mine.

 

Any expansion of the Hycroft Mine necessary to exploit any additional reserves that may be established through our exploration drilling program that are not located within our current mine plan, will require us to obtain all permits, approvals and consents of regulatory agencies responsible for the use and development of mines in Nevada.

 

Government Regulation of Mining-Related Activities

 

Government Regulation

 

Mining operations and exploration activities are subject to various federal, state and local laws and regulations in the United States, which govern prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous substances and other matters. We have obtained or have pending applications for those licenses, permits or other authorizations currently required to conduct our mining, exploration and other programs. We believe that we are in compliance in all material respects with applicable mining, health, safety and environmental statutes and the regulations passed thereunder in Nevada and the United States. Although we are not aware of any current claims, orders or directions relating to our business with respect to the foregoing laws and regulations, changes to, or more stringent application or interpretation of, such laws and regulations in Nevada, or in jurisdictions where we may operate in the future, could require additional capital expenditures and increased operating and/or reclamation costs, which could adversely impact the profitability levels of our projects.

 

Environmental Regulation

 

Our mining projects are subject to various federal and state laws and regulations governing protection of the environment. These laws and regulations are continually changing and, in general, are becoming more restrictive. They, among other things:

 

·impose strict, joint and several liability on current and former owners and operators of sites and on persons who disposed of or arranged for the disposal of hazardous substances found at such sites (the Comprehensive Environmental Response, Compensation, and Liability Act);

 

·govern the generation, treatment, storage and disposal of solid waste and hazardous waste (the Federal Resource Conservation and Recovery Act);

 

·restrict the emission of air pollutants from many sources, including mining and processing activities (the Clean Air Act);

 

·require federal agencies to integrate environmental considerations into their decision-making processes by evaluating the environmental impacts of their proposed actions, including the issuance of permits to mining facilities and assessing alternatives to these actions (the National Environmental Policy Act);

 

·regulate the use of federal public lands to prevent undue and unnecessary degradation of the public lands (the Federal Land Policy and Management Act of 1976 );

 

·restrict and control the discharge of pollutants and dredged and fill materials into waters of the United States (the Clean Water Act); and

 

·regulate the drilling of subsurface injection wells (the Safe Drinking Water Act and the Underground Injection Control program promulgated thereunder).

 

At the state level, mining operations in Nevada are regulated by the Nevada Department of Conservation and Natural Resources, Division of Environmental Protection, which has the authority to implement and enforce many of the federal regulatory programs described above as well as state environmental laws and regulations. Compliance with these and other federal and state laws and regulations could result in delays in obtaining, or failure to obtain, government permits and approvals, delays in beginning or expanding operations, limitations on production levels,

 

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incurring additional costs for investigation or cleanup of hazardous substances, payment of fines, penalties or remediation costs for non-compliance, and post-mining closure, reclamation and bonding.

 

It is our policy to conduct business in a way that safeguards public health and the environment. We believe that our operations are, and will be, conducted in material compliance with applicable laws and regulations. However, our past and future activities in the United States may cause us to be subject to liability under such laws and regulations noted above. For information about the risks to our business related to environmental regulation, see “Risk Factors — Risks Related to Our Industry.”

 

During the years ended December 31, 2019 and 2018, there were no material environmental incidents or non-compliance with any applicable environmental regulations on the properties now held by us, except as follows: On March 19, 2019, the Seller’s predecessor executed an Administrative Order of Consent and agreed to a payment of $11,521 to the State of Nevada acting by and through the Division to settle a Finding of Alleged Violation and Order issued November 7, 2018 for non-compliance with the Resource Conservation and Recovery Act requirements to remove hazardous waste within 90 days of accumulation of such waste. The Seller did not incur material capital expenditures for environmental control facilities during 2018 and 2019. Additionally, on December 11, 2019, the Division held an enforcement conference with our management (then employed by our predecessor) to determine whether the issuance of Notices of Alleged Air Quality Violation Order No 2701 was or was not warranted. The Division issued a formal warning and has indicated that it does not intend to take any further action.

 

Reclamation

 

We are required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping and re-vegetating various portions of a site after mining and mineral processing operations are completed. These reclamation efforts will be conducted in accordance with detailed plans, which must be reviewed and approved by the appropriate regulatory agencies. Our reclamation liability is related to the Hycroft Mine and is fully secured by surface management surety bonds that meet the financial bonding requirements of the BLM. Our most recent reclamation cost estimate was approved by the BLM in a May 2017 decision letter and totaled $58.3 million. At December 31, 2019, our surface management surety bonds totaled $59.9 million, which were partially collateralized by restricted cash of $39.5 million. Based on the December 31, 2019 estimate, no significant reclamation expenditures will be incurred until 2047 and the reclamation work will be completed by 2065. If we were to carry out unanticipated reclamation work in the future, our financial position could be adversely affected or our posted bonds may be insufficient.

 

Mine Safety and Health Administration Regulations

 

Safety and health is our highest priority which is why we have mandatory mine safety and health programs that include employee and contractor training, risk management, workplace inspection, emergency response, accident investigation and program auditing. We consider these programs to be essential at all levels to ensure that our employees, contractors, and visitors only operate in the safest and healthiest environment possible.

 

Our operations and exploration properties are subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”), under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), issuers are required to disclose specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities in periodic reports. MSHA inspects our Hycroft Mine on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. The number of citations and orders charged against mining operations, and the dollar penalties assessed for such citations, have generally increased in recent years. When the MSHA issues a citation or order, it generally proposes a civil penalty, or fine, as a result of the alleged violation, that the operator is ordered to pay. Citations and orders can be contested and appealed, and as part of that process, are often reduced in severity and amount, and are sometimes dismissed. With respect to the Hycroft Mine, the Seller received aggregate fines of $3,000 and less than $2,000 during the years ended December 31, 2019 and 2018.

 

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Property Interests and Mining Claims

 

Our development activities are conducted in the State of Nevada. Mineral interests may be owned in Nevada by the United States, Nevada or private parties. Where prospective mineral properties are held by the United States, mineral rights may be acquired through the location of unpatented mineral claims upon unappropriated federal land. Where prospective mineral properties are owned by Nevada or private parties, some type of property acquisition agreement is necessary in order for us to explore or develop such property. Mining claims are subject to the same risk of defective title that is common to all real property interests. Additionally, mining claims are self-initiated and self-maintained and, therefore, possess some unique vulnerabilities not associated with other types of property interests. It is impossible to ascertain the validity of unpatented mining claims solely from an examination of the public real estate records and, therefore, it can be difficult or impossible to confirm that all of the requisite steps have been followed for location and maintenance of a claim. For information about the risks to our business related to our property interests and mining claims, see “Risk Factors — Risks Related to Our Industry.”

 

LEGAL PROCEEDINGS

 

On February 7, 2020, a purported class action complaint was filed by a purported holder of Seller warrants, in the Court of Chancery of the State of Delaware against the Company and the Seller. The complaint seeks a declaratory judgment that the transactions consummated by the Purchase Agreement constituted “Fundamental Change” under the terms of the Seller Warrant Agreement and thereby requiring that the Seller warrants be assumed by us as part of the transactions, in addition to asserting claims for (i) breach or anticipatory breach of contract against the Seller, (ii) breach or anticipatory breach of the implied covenant of good faith and fair dealing against the Seller, and (iii) tortious interference with contractual relations against us. The complaint sought unspecified money damages and also sought an injunction enjoining the Seller and us from consummating the transactions. On February 26, 2020, the Company and the Seller entered into an Amendment to the Purchase Agreement whereby the Seller's liabilities and obligations under the Seller Warrant Agreement were included as an assumed liability under the Purchase Agreement. On March 27, 2020, the Company and the Seller filed a motions to dismiss the complaint. On May 15, 2020, a hearing was held and the complaint was dismissed. On May 21, 2020, Plaintiff filed a motion to alter or amend the Court’s order so that the Court would retain jurisdiction to hear an application for a mootness fee, to which the Company and the Seller, while disputing factual assertions and characterizations, did not oppose. On June 30, 2020, the motion was granted and the Court retained jurisdiction over the action to hear any mootness fee application.

 

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MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK
AND RELATED STOCKHOLDER MATTERS

 

Prior to the completion of the business combination on May 29, 2020, Mudrick Capital Acquisition Corporation’s publicly-traded units, Class A common stock and warrants were listed on NASDAQ under the symbols “MUDSU”, “MUDS” and “MUDSW”, respectively. The Company listed its publicly-traded Common Stock and warrants effective upon the consummation of the business combination on NASDAQ under the symbols “HYMC” and “HYMCW”, respectively. The Company is registering the shares of our Common Stock underlying the Seller warrants on this registration statement and will use its commercially reasonable best efforts to apply to list the Seller warrants for trading on NASDAQ, as soon as reasonably practicable, subject to applicable listing requirements.

 

The Company has not paid any cash dividends on its Common Stock to date. The payment of cash dividends in the future will be dependent upon the Company’s revenues and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends subsequent to the business combination will be within the discretion of the Company’s board of directors at such time, but is subject to restriction imposed by the Sprott Credit Agreement. In addition, the Company is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future as it is currently expected that available cash resources will be utilized in connection with our ongoing operations, evaluation programs and development projects.

 

As of July 10, 2020, there were 62 record holders of our Common Stock.

 

The Company has no equity compensation plans currently in effect that were in effect as of December 31, 2019. The information in the table below reflect the issuance of replacement equity incentive awards under the Incentive Plan in the form of an equivalent value of restricted stock units convertible into shares of Common Stock to holders of the Seller’s equity awards granted in 2019.

 

    (a)    (b)     (c)
            Number of securities
            remaining available for
    Number of securities to be   Weighted-average    future issuance under
    issued upon exercise of    exercise price of    equity compensation  plans
    outstanding options,    outstanding options,    (excluding securities
Plan category                  warrants and rights     warrants and rights    reflected in column (a))
Equity compensation plans approved by security holders(1)   196,841    N/A    2,311,161
Equity compensation plans not approved by security holders     --    --     --

 

 

(1)Includes the Incentive Plan and is based on the closing stock price on the date of the transaction of $12.65 to determine the number of shares to be issued. While the value of  the shares to be issued has been determined, the actual number of shares to be issued will be determined on the vesting dates using the closing prices on those dates.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

As a result of the completion of the business combination, the financial statements of the Seller are now the financial statements of the Company. Prior to the business combination, the Company had no operating assets but, upon consummation of the business combination, the business and operating assets of the Seller sold to the Company became the sole business and operating assets of the Company. Accordingly, the financial statements of the Seller and its subsidiaries as they existed prior to the business combination and reflecting the sole business and operating assets of the Company going forward, are now the financial statements of the Company. Thus, the following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes of the Seller set forth under the heading “Index to Financial Statements” elsewhere in this filing. The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes of the Seller. This discussion contains forward-looking statements reflecting the Company’s current expectations, estimates, plans and assumptions concerning events and financial trends that involve risks and may affect the Company’s future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors,” beginning on pages 1 and 8 of this prospectus, respectively.

 

General

 

Hycroft is a U.S.-based development stage gold mining company that mines oxide, transition and sulfide heap ore at our sole property, the Hycroft Mine. The Hycroft Mine is an open-pit heap leach operation located in Nevada. Gold and silver sales represent 100% of our revenues and the market prices of gold and silver significantly impact our financial position, operating results and cash flows.

 

The Hycroft Mine restarted mining operations during the first half of 2019 after being in a care and maintenance mode for more than two years. From the beginning of 2017 through the first three months of 2019, the Hycroft Mine was in a care and maintenance mode, which it entered when it was determined that it could no longer economically recover metal. While in care and maintenance, gold and silver production was a byproduct of maintenance activities.

 

Effective July 31, 2019, M3 Engineering in conjunction with SRK and the Seller, completed the Hycroft Technical Report Summary, Heap Leaching Feasibility Study prepared for the Seller with an effective date of July 1, 2019, prepared in accordance with the requirements of the Modernization of Property Disclosures for Mining Registrants set forth in subpart 1300 of Regulation S-K, which is filed as Exhibit 96.1 to the registration statement of which this prospectus forms a part, for a two-stage, heap oxidation and subsequent leaching of transition and sulfide ores. As of June 30, 2019, based on the Hycroft Technical Report, the Hycroft Mine had proven and probable mineral reserves of 12.0 million ounces of gold and 481.4 million ounces of silver, which are contained in oxide, transition and sulfide ores. Pursuant to the current 34-year life of mine plan in the Hycroft Technical Report, once fully operational, mining will range from approximately 85 – 100 million tons per year. As set forth in the Hycroft Technical Report, we expect mining will be performed by a contract mining company or that we will primarily use a short-term equipment rental fleet during the initial five-year ramp-up using customary truck and shovel open pit mining methods. After the initial ramp-up, we expect to self-perform mining with our own equipment fleet.

 

The Hycroft Technical Report classifies the ore into three categories based on how the ore will be processed. Category 1 ore, which is comprised of low-grade ore with high cyanide soluble gold, will not go through a pre-oxidation step nor will it be crushed due to its low-grade. Category 1 ore accounts for 4% of the ore over the current life of the mine. Category 2 ore, which is comprised of high-grade ore with high cyanide soluble gold, will be crushed, but will not go through a pre-oxidation step. Category 2 ore accounts for 2% of the ore over the current life of the mine. Category 3 ore, which is comprised of low cyanide soluble gold, will be crushed and go through a pre-oxidation step. Category 3 ore accounts for 94% of the ore over the current life of the mine. Categories 2 and 3 ore will each be crushed to increase surface area and will follow a slightly different process once crushed. As part of the crushing process, Category 3 ore will be mixed with soda ash to induce a pre-oxidation process, rinsed with fresh water and a saturated lime solution and then leached with lime and cyanide. The pre-oxidation period will vary based on the character of the ore. Once crushed, Category 2 ore will be leached using lime and cyanide. Category 1 ore will be stacked as run- of-mine (not crushed) and then leached using lime and cyanide. The focus of the Hycroft

 

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Technical Report was the test work done on the two-stage pre-oxidation and cyanide leaching of the Category 3 ores, which was determined to be economically effective.

 

Pregnant solution from the heap leach pads, which will include solution from each of the three ore types, will be processed at our two existing Merrill-Crowe zinc-cementation facilities. The gold and silver doré produced at the mine site will be further refined by a third party to meet the required market standards of 99.95% pure gold and 99.90% pure silver, which will then be sold at current spot gold and silver prices.

 

Recent Developments

 

On May 29, 2020, we completed the business combination described above in the Section entitled “Description of Business”.

 

COVID-19

 

In December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China. On January 30, 2020, the World Health Organization declared the outbreak to constitute a “Public Health Emergency of International Concern”. In February 2020, the first death due to the virus was reported in the United States. Subsequently, the virus has spread throughout the United States with a significant number of deaths reported. On March 13, 2020, President Trump declared a national state of emergency and issued guidelines including working from home whenever possible, avoiding social gatherings and discretionary travel and other protective measures of socially distancing to reduce the spread of COVID-19. The COVID-19 outbreak has disrupted and continues to disrupt supply chains and affect production and sales across a range of industries. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, and the direct and indirect impacts on our employees, vendors and customers all of which are uncertain and cannot be fully anticipated or predicted. As of the date of this prospectus the extent to which COVID-19 may impact our financial condition or results of operations is uncertain, but could be material and adverse.

 

Recently Issued Accounting Pronouncements

 

For a discussion of Recently Issued Accounting Pronouncements, see “Note 2 — Summary of Significant Accounting Policies” to the Seller’s Notes to Consolidated Financial Statements.

 

Critical Accounting Estimates

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these statements requires us to make assumptions, estimates, and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. We base our assumptions, estimates, and judgments on historical experience, current trends and other factors that we believe to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review our accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ, and such differences could be material.

 

We consider an accounting estimate to be critical if it requires significant management judgment and assumptions about matters that are highly uncertain at the time the estimate is made and if changes in the estimate that are reasonably possible could materially impact our consolidated financial statements. Although other estimates are used in preparing our consolidated financial statements, we believe that the following accounting estimates are the most critical to understanding and evaluating our reported financial results. For information on all of our significant accounting policies, see “Note 2 — Summary of Significant Accounting Policies” to our Notes to Consolidated Financial Statements.

 

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Ore on Leach Pads

 

Estimate Required

 

The recovery of gold and silver at the Hycroft Mine has been accomplished through a heap leaching process, the nature of which limits our ability to precisely determine the recoverable gold and silver ounces in ore on leach pads. We estimate the quantity of recoverable gold and silver ounces in ore on leach pads using surveyed volumes of material, ore grades determined through sampling and assaying of blastholes, and estimated recovery rates based on ore type, domain and level of oxidation actually achieved prior to leaching. The estimated recoverable gold and silver ounces placed on the leach pads and recovery rates are periodically reconciled by comparing the related ore processed to the actual gold and silver ounces recovered (metallurgical balancing) from such ore. The ultimate recoverable gold and silver ounces over the life-of- mine is unknown until mining operations cease. A change in the recovery rate or the quantity of recoverable gold and silver ounces in our ore on leach pads could materially impact our consolidated financial statements.

 

Impact of Change in Estimate

 

Changes in recovery rate estimates or estimated recoverable gold and silver ounces that do not result in write-downs are accounted for on a prospective basis; however, if a write-down is required, ore on leach pads would be adjusted to market values before prospectively accounting for the remaining costs and revised estimated recoverable gold ounces.

 

During the three months ended March 31, 2020, the Seller recognized a $6.9 million write-down of ore on leach pads as a result of metallurgical balancing. Cash production costs written-off were $6.4 million and capitalized depreciation and amortization costs written-off were $0.5 million. Based on metallurgical balancing results, the Seller determined that 3,980 ounces of gold that had been placed on the leach pads were no longer recoverable and wrote-off these ounces. The write-off of these ounces was primarily due to poor execution of maintaining the critical variables necessary for oxidation and ultimately recovery of a specific cell of the leach pads. As a result, the Seller determined that it would recover 20% less than planned of the mismanaged section of the leach pads.

 

During the year ended December 31, 2019, the Seller recognized a $16.4 million write-down of ore on leach pads as a result of metallurgical balancing. Cash production costs written-off were $15.1 million and capitalized depreciation and amortization costs written-off were $1.3 million. Based on metallurgical balancing results, the Seller determined that 11,680 ounces of gold that had been placed on the leach pads were no longer recoverable and wrote-off these ounces. The write-off of these ounces was primarily a result of mismanagement of solution flows. The lost gold and silver ounces were leached and captured in solution. However, prior to the solution being processed through the Merrill-Crowe plant, it was inadvertently commingled with barren solution and pumped to older leach pads, keeping it from being recovered in the future.

 

In addition to the write-off related to metallurgical balancing during 2019, we performed our lower of cost or net realizable value test for the Ore on leach pads at December 31, 2019, which resulted in a $2.2 million write-off of production inventories. Cash production costs written-off were $2.0 million and capitalized depreciation and amortization costs written-off were $0.2 million. The write-off was primarily driven by an increase in cost per gold ounce placed on the leach pads, particularly during the fourth quarter of 2019. The increase in cost was mainly due to higher maintenance costs as there were more mechanical issues than expected and higher contractor costs to supplement our workforce. The recognition of the write-off was based on the Seller’s application of the lower of cost or net realizable value accounting policy.

 

As of March 31, 2020, the balance of ore on leach pads was $26.1 million and as of December 31, 2019 and 2018, the balance of ore on leach pads was $22.1 million and $0, respectively. During the year ended December 31, 2019, the Seller resumed mining and, as a result, have a balance in ore on leach pads.

 

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Impairment of Long-Lived Assets

 

Estimate Required

 

Our long-lived assets, which consist of plant and equipment, are evaluated for recoverability annually and at interim periods if triggering events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is determined to exist if the total projected future cash flows on an undiscounted basis are less than the carrying amount of a long-lived asset group. An impairment loss is measured and recorded based on the excess carrying value of the impaired long-lived asset group over fair value.

 

To determine fair value, we use a discounted cash flow model based on quantities of estimated recoverable minerals and incorporate projections and probabilities involving metal prices (considering current and historical prices, price trends and related factors), production levels, operating and production costs, and the timing and capital costs of expansion and sustaining projects, all of which are based on life-of- mine plans. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. The assumptions, projections and probabilities used to determine estimates of future cash flows are consistent or reasonable in relation to internal budgets and projections. Any change in the assumptions, projections, or probabilities used in our impairment calculations could materially impact our consolidated financial statements.

 

Impact of Change in Estimate

 

There were no such impairments during the three months ended March 31, 2020 or 2019. During the year ended December 31, 2019, the Seller recorded impairments of long-lived assets of $0.1 million. The impairment recorded during 2019 related to a leach-pad expansion project that the Seller determined it would not utilize and, therefore, did not complete. There were no such impairments during the year ended December 31, 2018.

 

Reclamation Liability

 

Estimate Required

 

We will be required to perform reclamation activity at the Hycroft Mine in the future. As a result of this requirement, a reclamation liability has been recorded on our consolidated balance sheets that is based on its expectation of the costs that will be incurred years in the future. Any underestimate or unanticipated reclamation costs or any changes in governmental reclamation requirements could require us to record or incur additional reclamation costs. Reclamation liabilities are accrued when they become known, are probable and can be reasonably estimated.

 

Impact of Change in Estimate

 

Whenever a previously unrecognized reclamation liability becomes known, or a previously estimated reclamation cost is increased, the amount of that liability and additional cost will be recorded at that time and could materially reduce our consolidated net income attributable to stockholders. There were no such increases during the three months ended March 31, 2020 or 2019. For the years ended December 31, 2019 and 2018, the Seller recorded reductions in asset retirement obligation of $1.9 million and $17.0 million, respectively. The 2019 reduction was driven by an increase in the Seller’s credit-adjusted risk-free rate, which is used to discount the future estimated reclamation activity, but was partially offset by an increase in projected equipment and diesel costs. The reduction recorded in 2018 was primarily due to an increase of the estimated life of mine to 34 years. As a result of extending the life of mine, reclamation expenditures were delayed by approximately 25 years from the prior estimated schedule.

 

As of March 31, 2020, the Seller estimated that no significant reclamation expenditures will be made until 2047 and that reclamation work will be completed by the end of 2065.

 

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Proven and Probable Ore Reserves

 

Estimate Required

 

Proven and probable ore reserves are the part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. Our proven and probable reserves are periodically updated, usually on an annual basis. Estimated recoverable gold ounces in our proven and probable reserves at the Hycroft Mine are used in units-of-production amortization calculations and are the basis for future cash flow estimates utilized in impairment calculations. When determining proven and probable reserves, we must make assumptions and estimates of future commodity prices, the mining methods we use and intend to use in the future, and the related costs incurred to develop, mine, and process our reserves. Our estimates of recoverable gold and silver ounces in proven and probable reserves are prepared by and are the responsibility of our employees. Any change in estimate or assumption used to determine our proven and probable reserves could change our estimated recoverable gold and silver ounces in such reserves, which may have a material impact on our consolidated financial statements and/or our calculations of units-of-production amortization and impairment charges (if any).

 

Impact of Change in Estimate

 

Future changes in estimates of recoverable gold ounces will be used in our units-of-production calculations and impairment calculations on a prospective basis.

 

Income Taxes

 

Estimate Required

 

We account for income taxes using the liability method, recognizing certain temporary differences between the financial reporting basis of our liabilities and assets and the related income tax basis for such liabilities and assets. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future income, we make estimates about future gold and silver sales, metals prices and future production costs. Additionally, significant judgment must be used in determining how much weight to give each piece of evidence considered in determining realizability. Changes to any of these estimates or assumptions could change our conclusions regarding the realizability of deferred tax assets and corresponding income tax, which may have a material impact on our consolidated financial statements.

 

Impact of Change in Estimate

 

As of March 31, 2020 and December 31, 2019, based on the weight of available evidence, the Seller determined that it was more likely than not that the benefit of its net deferred tax assets would not be realized and recorded full valuation allowances against such assets. In considering the evidence, the Seller gave significant weight to recent operating results and future projections.

 

Hycroft Mine

 

Restart of Mining Activities

 

On July 8, 2015, the Seller suspended mining operations, but continued to operate the processing facilities to produce gold and silver from the ore that had been previously placed on the leach pads. At the beginning of 2017, the Hycroft Mine entered a care and maintenance mode to minimize expenditures and conserve cash. As part of the care and maintenance mode the Seller stopped the use of cyanide and lime on the leach pads.

 

In late 2018, the Seller began construction of new leach pads to demonstrate its recently developed heap oxidation and leach process, as discussed in the Hycroft Technical Report, in a commercial setting. Additionally, the Seller began preparing the mine, including its facilities and mining equipment for a restart. The Seller began mining in April 2019, with a focus on transition and sulfide ores, but supplemented with oxide ores to improve near-term

 

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cash flow and support crusher and equipment commissioning. Ore has been placed on the new leach pads and is in the active oxidation and leaching phase.

 

For the three months ended March 31, 2020, the Seller recovered and sold 6,560 ounces of gold and 49,373 ounces of silver, at average realized prices of $1,574 per ounce of gold and $16 per ounce of silver. During the three months ended March 31, 2019 there were no sales of gold or silver.

 

For the years ended December 31, 2019 and 2018 the Seller recovered and sold 8,593 and 145 ounces of gold and 52,036 and 124 ounces of silver, respectively, at average realized prices of $1,490 and $1,228 per ounce of gold and $17 and $16 per ounce of silver, respectively.

 

The Hycroft Mine’s proven and probable reserves are contained in oxide, transition and sulfide ores. The Seller has previously recovered metals contained in oxide and transition ores through our heap leach operations. Based on the Hycroft Technical Report, we intend to focus on heap leach oxidation of our transition and sulfide ores using soda ash to manage pH and alkalinity during the oxidation process and then subsequent cyanidation of the oxidized ores. The following simplified schematic outlines the process that is outlined in the Hycroft Technical Report.

 

 

Mining

 

We mine using typical truck and shovel open pit mining methods. The mine plan developed for the Hycroft Technical Report requires a range of approximately 85 – 100 million tons per year to be mined (both ore and waste) throughout the 34-year mine life. Production will ramp up gradually from 10 million tons in year two (2020) to 85 million tons in year six. Another ramp-up in production is projected to occur in year 10 to 100 million tons. We currently have a small existing fleet of mine equipment that we own and began using again during 2019 alongside a small fleet of leased equipment. We plan on using contract mining or leasing equipment during the ramp up through year six. After year six, we expect to begin to transition back to our own fleet, which we will need to purchase.

 

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Processing

 

The ore is being processed and will continue to be processed using the following methods:

 

Ore Category 1 — low-grade ore with high cyanide soluble gold will be cyanide leached to extract the gold and silver. This ore will not be pre-oxidized and will be stacked on the leach pads as run-of-mine ore. We expect this ore to account for 4% of the ore over the current life of the mine.

 

Ore Category 2 — high-grade ore with high cyanide soluble gold will be crushed to a P80 of 3∕4” and cyanide leached to extract the gold and silver. This ore will not be pre-oxidized. We expect this ore to account for 2% of the ore over the current life of the mine.

 

Ore Category 3 — low cyanide soluble ratio ores will be crushed to a P80 of 1∕2”. The crushed ore will be mixed with soda ash to induce an alkaline pre-oxidation process. After this ore has been oxidized to the desired extent, we will rinse the ore with fresh water and a saturated lime solution and then cyanide leach the ore to extract the gold and silver. We expect this ore to account for 94% of the ore over the current life of the mine. This process is the subject of a pending patent application.

 

Crushing Plant

 

The crushing system is initially designed to run a nominal capacity of 65,750 tons per day ramping up to 98,630 tons per day with the addition of two more tertiary crushers. Category 2 and Category 3 ores are transported to the primary crusher dump pocket via haul truck. Prior to the primary crusher, the ore that is being routed as Category 3 passes under a soda ash silo where a pre-determined amount of soda ash is added to the ore to begin the pre-oxidation process. The ore proceeds through three stages of crushing and exits the tertiary crushers routed as either 3∕4” crushed or 1∕2” crushed. It is then hauled to the leach pads.

 

Pre-Oxidation

 

We begin the pre-oxidation of the Category 3 ore at the crusher using in-situ moisture and solid soda ash. The amount of soda ash required for the ore is relative to the percent sulfide-sulfur content of the ore. We regularly sample the mined ore for reagent addition control.

 

Once we have placed Category 3 ore on the heap, additional soda ash solution is applied to bring the ore to field capacity (8 – 10% moisture). The solution in the heap is replenished on a regular basis using soda ash solution in order to offset evaporation and carbonate consumption.

 

We determine the pre-oxidation duration by the characteristics of the ore and the measured extent of oxidation based upon sulfate production. The extent of the oxidation will be determined by the target recoveries for each domain and the initial cyanide soluble gold, which is translated to degrees of oxidation already achieved. The number of days required to attain target oxidation is dependent upon the sulfide-sulfur content of the ore, with higher sulfide-sulfur corresponding to longer oxidations cycles. The majority of the Category 3 ore is expected to take between 30 and 120 days to complete pre-oxidation.

 

Rinse Cycle

 

When the pre-oxidation cycle has been completed, we rinse the Category 3 ore first with fresh water and then with a saturated lime solution prior to the commencement of cyanidation leach. This is necessary to remove sulfate and bicarbonate from the heap and reduce cyanide loss during leaching. The alkalinity of the solution in the heap is monitored to ensure rinse completion prior to the start of cyanidation.

 

Heap Leach Cyanidation

 

The cyanidation conditions for all placed ore is the same regardless of crush size or the use of pre- oxidation. The pH is controlled using lime. Category 1 and Category 2 ores, those ores not going through pre- oxidation or rinse, undergo a 200-day primary leach cycle. Category 3 ore, having already been oxidized and rinsed, undergo a nominal 60-day primary leach cycle.

 

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Merrill-Crowe and Refinery

 

Due to the high silver content of the pregnant solution, gold and silver are recovered by zinc cementation. We have two existing Merrill-Crowe plants, which are used to process pregnant solution from the heap leach operation. The older plant has a capacity of 4,500 gallons per minute. The newer plant is considerably larger, with a present capacity of 21,500 gallons per minute.

 

The wet filter cakes from the Merrill-Crowe circuits will be transferred to retort pans, which are then put into a retort furnace to remove water and mercury. Water and then mercury are sequentially volatilized from the precipitate by heating the precipitate under a partial vacuum. The dried filter cake is mixed with flux, a clarifying agent used to remove certain impurities and reduce the melting point of elements in the precipitate, and then transferred to an electric arc furnace where it is smelted to produce doré.

 

Results of Operations

 

Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

 

Metal sales

 

Gold sales

 

The table below summarizes changes in gold sales, ounces sold and average realized prices for the following periods:

 

   Three months ended March 31, 
   2020   2019 
   (dollars in thousands, except 
   ounce amounts)
Gold sales  $10,328   $- 
Gold ounces sold   6,560   $- 
Average realized price (per ounce)  $1,574   $- 
The change in gold revenue was attributable to: 2020 vs 2019          
Increase in ounces sold  $10,328      

 

During the three months ended March 31, 2020, the Seller’s gold sales were $10.3 million, which was included as Revenues on its consolidated statements of operations compared to $0 in gold sales during the same period in the prior year. The Seller did not restart mining operations until April 2019 and, accordingly, no gold ounces were sold during the first quarter of 2019.

 

Silver sales

 

The table below summarizes changes in silver sales, ounces sold and average realized prices for the following periods:

 

   Three months ended March 31, 
   2020   2019 
   (dollars in thousands, except 
   ounce amounts) 
Silver sales  $796   $- 
Silver ounces sold   49,373   $- 
Average realized price (per ounce)  $16   $- 
The change in silver revenue was attributable to: 2020 vs 2019          
Increase in ounces sold  $796      

 

 

During the three months ended March 31, 2020, the Seller’s silver sales were $0.8 million, which was included as Revenues on its consolidated statements of operations compared to $0 in silver sales during the same period in the

 

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prior year. The Seller did not restart mining operations until April 2019 and, accordingly, no silver ounces were sold during the first quarter of 2019.

 

Total cost of sales

 

Total cost of sales consists of production costs and depreciation and amortization. The table below summarizes changes in total cost of sales for the following periods:

 

   Three months ended March 31,
   2020   2019 
   (dollars in thousands, except 
   ounce amounts)
Production costs  $15,569   $- 
Depreciation and amortization   1,334   $- 
Write-down of production inventories   6,965   $- 
Total cost of sales  $23,868   $- 
The change in cost of sales was attributable to: 2020 vs 2019          
Increase in ounces sold  $10,003      
Write-down of production inventories due to metallurgical balancing   6,965      
Period costs directly expensed to cost of sales   6,900      
Total change in cost of sales, excluding write-down of production inventories  $23,868      

 

Production costs

 

For the three months ended March 31, 2020, the Seller recognized $15.6 million in production costs, or $2,373 per ounce of gold sold. The cost per ounce of gold sold was significantly higher than is expected in future periods primarily driven by (1) $5.3 million in contractors costs to supplement areas where manpower was lacking, (2) $3.8 million in maintenance costs primarily as a result of unplanned maintenance, and (3) $7.8 million in reagents, which was higher than expected primarily due to consuming more soda ash and lime than planned. The Seller made the decision to expense $6.4 million of these costs immediately. Excluding the $6.4 million of period costs, the production costs per ounce of gold sold decreased to $1,404, which was still higher than is expected in future periods and was primarily a result of (1) the use of contractors to supplement maintenance employees and (2) higher than anticipated consumption of reagents. Replacing contractors with full time employees has been a focus for us for more than six months and it is expected it to continue to be a focus for us during 2020 as it has proven challenging to hire qualified employees given the low unemployment levels across Northern Nevada and competition from other nearby mining companies.

 

Depreciation and amortization

 

Depreciation and amortization expense was $1.3 million, or $203 per ounce of gold sold for the three months ended March 31, 2020. Depreciation and amortization expense mostly related to buildings, processing equipment and the leach pad.

 

Write-down of production inventories

 

As discussed above in Critical Accounting Estimates, the estimated recoverable gold ounces placed on the leach pads are periodically reconciled by comparing the related gold ore contents to the actual gold ounces recovered (metallurgical balancing). Based on metallurgical balancing results, the Seller determined that 3,980 ounces of gold that had been placed on the leach pads were no longer recoverable and wrote-off these ounces. As a result of the write-off the Seller recognized a Write-down of production inventories on the consolidated statements of operations of $6.9 million. Cash production costs written-off were $6.4 million and capitalized depreciation and amortization costs written-off were $0.5 million. The write-off of these ounces was primarily due to poor execution of maintaining the critical variables necessary for oxidation and ultimately recovery of a specific cell of the leach pads. As a result, the Seller determined that it would recover 20% less than planned of the mismanaged section of the leach pads.

 

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Operating expenses

 

Care and maintenance, net

 

Care and maintenance, net decreased from $3.8 million for the three months ended March 31, 2019 to $0 for the 2020 period. The decrease in Care and maintenance, net was primarily driven by the restart of mining operations at the Hycroft Mine. Upon restarting in April 2019, the Seller no longer recorded any costs to care and maintenance, net.

 

Project and development

 

Project and development costs decreased from $2.2 million for the three months ended March 31, 2019 to $0 for the 2020 first quarter. In late 2018, the Company began the process of restating mining operations and, as noted above, restarted mining in April 2019. During 2019, the Seller completed all project and development of the mine and have not incurred any costs in 2020 that were classified as project and development now that the mine is in operation. During the 2019 first quarter, costs were incurred related to the restart of the Hycroft Mine, such as maintenance and repair of mobile mining equipment and processing equipment (crusher, Merrill-Crowe facility), to prepare for use after sitting idle for several years. During 2019, the Seller also incurred costs to prepare feasibility studies, including the Hycroft Technical Report.

 

Pre-production depreciation and amortization

 

Pre-production depreciation and amortization represents expense recognized prior to the restart of mining operations at the Hycroft Mine. For first quarter of 2019, pre-production depreciation and amortization was $0.8 million compared to $0 for the three months ended March 31, 2020. The decrease in pre-production depreciation and amortization was due to restarting mining operations and, therefore, recording depreciation and amortization to ore on the leach pads (beginning April 2019), which was recognized on the Consolidated Statements of Operations as part of Total cost of sales as ounces of gold are sold.

 

Accretion

 

For each of the three months ended March 31, 2020 and 2019, the Seller recognized $0.1 million in accretion expense.

 

General and administrative

 

General and administrative costs for the three months ended March 31, 2020 and 2019 were $2.0 million and $1.9 million, respectively. The increase in general and administrative costs was primarily driven by a $0.2 million increase in stock-based compensation costs, due to restricted stock units being granted in February 2019 and, therefore, the Seller only recognized expense for part of the quarter in 2019, whereas in 2020 the Seller recognized a full quarter of expense. Additionally, the cost of certain of the Seller’s insurance policies increased by $0.2 million from the prior year. The increases were partially offset by a $0.3 million decrease in expense recognition related to the Sellers phantom shares as a result of granting fewer shares in 2020.

 

Interest expense

 

For the three months ended March 31, 2020 and 2019, interest expense was $19.9 million and $14.4 million, respectively, an increase of $5.5 million, or 38%. The increase was primarily due to an increase in the average debt balance from $442.2 million for the 2019 first quarter to $574.7 million for the 2020 first quarter. The average debt balance increased due to PIK interest on the Seller’s Second Lien Notes, the 1.5 Lien Notes and the 1.25 Lien Notes. Additionally, the Seller issued 1.25 Lien Notes during 2019 and the first quarter of 2020, which were issued to fund the restart of mining operations and pay operating costs that were in excess of the Seller’s sales proceeds. The increase in the interest rate on the First Lien Credit Agreement also contributed to the increase in interest expense. Interest expense for the three months ended March 31, 2020 and 2019 was reduced by less than $0.1 million and $0.1 million, respectively, for interest that was capitalized to projects during each period.

 

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Reorganization items, net

 

On March 10, 2015, the Seller’s predecessor filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) in an effort to recapitalize the Seller’s balance sheet by reducing its debt balances while concurrently providing additional liquidity. Expenses directly associated with finalizing the chapter 11 cases before the Bankruptcy Court were reported as Reorganization items, net in the Consolidated Statements of Operations. The Seller incurred legal and professional fees of $0 and $0.3 million for the three months ended March 31, 2020 and 2019, respectively. The decrease was a result of the final claims being settled during the third quarter of 2019 and no additional costs being incurred after the settlements. On October 3, 2019, the Bankruptcy Court finalized the proceedings and closed the case.

 

Income tax expense and benefit

 

There was no income tax expense or benefit recognized during the three months ended March 31, 2020 or 2019.

 

Net loss

 

Due to the activity discussed above, the Seller realized net losses of $34.6 million and $23.4 million for the first quarters of 2020 and 2019, respectively.

 

Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

 

Metal sales

 

As a result of the suspension of mining operations in 2015 and entering a care and maintenance mode January 1, 2017, the Seller had nominal sales from the recovery of gold and silver in 2017, which further declined in 2018. While in care and maintenance, gold and silver production were considered a byproduct of maintaining the Hycroft Mine. Thus, beginning January 1, 2017, the Seller recorded all metal sales as a reduction to care and maintenance, net in the consolidated statements of operations. Due to not having any revenue, the Seller did not record any costs as cost of sales or production costs. Additionally, all depreciation and amortization were related to the Hycroft Mine being in care and maintenance.

 

During the year ended December 31, 2019, the Hycroft Mine restarted operating activities and, as a result, reported metal sales as revenue. Additionally, the Seller recorded production costs and depreciation and amortization related to the production of metal as costs of sales. Depreciation and amortization expense that were incurred during 2019, but prior to the restart of mining operations was included as Pre-production depreciation and amortization in the Consolidated Statements of Operations.

 

Gold sales

 

The table below summarizes changes in gold sales, ounces sold and average realized prices for the following periods:

 

    Year Ended  
    December 31,  
    2019     2018  
    (dollars in thousands  
    except ounce amounts)  
Gold sales   $ 12,803     $ 178  
Gold ounces sold     8,593       145  
Average realized price (per ounce)   $ 1,490     $ 1,228  
The change in gold sales was attributable to: 2019 vs. 2018                
Increase in ounces sold   $ 10,371          
Increase in average realized price     38          
Effect of average realized price increase on ounces sold increase     2,216          
Total change in gold sales   $ 12,625          

 

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During the year ended December 31, 2019, the Seller’s gold sales were $12.8 million, which was included as Revenues on its consolidated statements of operations, an increase of more than $12.6 million over the prior year. The increase was mostly driven by selling an additional 8,448 ounce of gold and, to a lesser extent, a 21% increase in the average realized price per ounce. As discussed above in Metal sales, operations were restarted during the 2019 period which drove the increase in gold ounces sold.

 

Silver sales

 

The table below summarizes changes in silver sales, ounces sold and average realized prices for the following periods:  

 

    Year Ended  
    December 31,  
    2019     2018  
    (dollars in thousands  
    except ounce amounts)  
Silver sales   $ 906     $ 2  
Silver ounces sold     52,036       124  
Average realized price (per ounce)   $ 17     $ 16  
The change in Silver sales was attributable to: 2019 vs. 2018                
Increase in ounces sold   $ 837          
Increase in average realized price     -          
Effect of average realized price increase on ounces sold increase     67          
Total change in gold sales   $ 904          

 

During the year ended December 31, 2019, the Seller’s silver sales were $0.9 million, which was included as Revenues on its consolidated statements of operations, compared to practically no sales during 2018. The increase was due to selling an additional 51,912 ounces of silver sold and, to a lesser extent, a 6% increase in the average realized price per ounce. As discussed above in Metal Sales, operations were restarted during the 2019 period which resulted in the increase in silver ounces sold.

 

Total cost of sales

 

Total cost of sales consists of production costs and depreciation and amortization. The table below summarizes changes in total cost of sales for the following periods:

 

    Year Ended  
    December 31,  
    2019     2018  
    (dollars in thousands)  
Production costs   $ 11,041     $ -  
Depreciation and amortization     1,011       -  
Write-down of production inventories     18,617       -  
Total cost of sales   $ 30,669     $ -  
The change in cost of sales was attributable to: 2019 vs. 2018                
Increase in ounces sold   $ 12,052          
Write-down of production inventories due to metallurgical balancing     16,443          
Write-down of production inventories due to net realizable value     2,174          
Total change in cost of sales, excluding write-down of production inventories   $ 30,669          

 

As discussed above in Metal Sales, operations were restarted during 2019 and, as a result, the Seller began to record Production costs and Depreciation and amortization as Cost of sales in the Consolidated Statements of Operations.

 

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Production costs

 

For the year ended December 31, 2019, the Seller recognized $11.0 million in production costs, or $1,285 per ounce of gold sold. The cost per ounce of gold sold was higher than expected in future periods and was driven by, (1) the use of contractors to supplement the mobile mine maintenance employees and crusher maintenance employees and (2) additional repair costs for the crushing and conveying system. Beginning in the third quarter of 2019, the Seller increased its focus on replacing contractors with full time employees and expects this to have a positive impact in future periods. However, given the low unemployment levels for mine workers in or near Nevada, limited availability of foreign workers and competition from other nearby mining companies, we anticipate that this will continue to be an area of focus and challenge for us in 2020. Unplanned crushing and conveying system repair resulted in unexpected downtime, inefficiencies in the Seller’s mining process, changes to its mining plan and additional expenditures. Due to unplanned crushing and conveying system repair, ounces produced was less than the Seller had budgeted and resulted in an increase in cost per ounce. With the assistance of the crusher manufacturer, a planned maintenance schedule was created for the crushing and conveying system which is expected to decrease the unplanned repairs and decrease expenditures in the future. However, we continue to expect that maintenance will continue to challenge us in 2020.

 

Depreciation and amortization

 

Depreciation and amortization expense was $1.0 million, or $118 per ounce of gold sold for the year ended December 31, 2019. Depreciation and amortization expense mostly relates to buildings, processing equipment and the leach pad. Construction on the leach pad for the initial restart began late in 2018 and was completed during 2019.

 

Write-down of production inventories

 

As discussed in “Note 2 — Summary of Significant Accounting Policies in the notes to the consolidated financial statements” the estimated recoverable gold ounces placed on the leach pads are periodically reconciled by comparing the related gold ore contents to the actual gold ounces recovered (metallurgical balancing). Based on metallurgical balancing results, the Seller determined that 11,680 ounces of gold that had been placed on the leach pads were no longer recoverable and wrote-off these ounces. As a result of the write-off the Seller recognized a write-down of production inventories on the consolidated statements of operations of $16.4 million. Cash production costs written-off were $15.1 million and capitalized depreciation and amortization costs written-off were $1.3 million. The write-off of these ounces was primarily a result of mismanagement of solution flows. The lost gold and silver ounces were leached and captured in solution. However, prior to the solution being processed through the Merrill-Crowe plant, it was inadvertently commingled with barren solution and pumped to older leach pads, keeping it from being recovered in the future.

 

As discussed in “Note 2 — Summary of Significant Accounting Policies in the notes to the consolidated financial statements” production-related inventories are carried at the lower of cost or net realizable value. As discussed above, the Seller incurred increased production costs due to various operating issues, which resulted in a $2.2 million net realizable value write-down of ore on leach pads.

 

Operating expenses

 

Project and development

 

Project and development costs increased by $2.8 million from $4.9 million for the year ended December 31, 2018 to $7.7 million for the year ended December 31, 2019. The increase was primarily driven by costs incurred in 2019 related to the restart of the Hycroft Mine, such as maintenance and repair of mobile mining equipment and processing equipment (crusher, Merrill-Crowe facility and refinery), to prepare for use after sitting idle for several years. Additionally, during both 2018 and 2019, the Seller incurred costs to prepare feasibility studies, including the Hycroft Technical Report, which were a large portion of the cost for each period.

 

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Care and maintenance, net

 

Care and maintenance, net decreased from $9.0 million for the year ended December 31, 2018 to $3.5 million for 2019. The decrease in Care and maintenance, net on the consolidated statements of operations was primarily driven by the restart of mining operations at the Hycroft Mine. Upon restarting in April 2019, the Seller no longer recorded any costs to care and maintenance, net. The Hycroft Mine was in care and maintenance during all of 2018.

 

Pre-production depreciation and amortization

 

Pre-production depreciation and amortization represents expense recognized prior to the restart of mining operations at the Hycroft Mine. For the year ended December 31, 2019 pre-production depreciation and amortization was $1.1 million compared to $3.5 million for the prior year. The decrease in pre- production depreciation and amortization was due to restarting mining operation and, therefore, recording depreciation and amortization to ore on the leach pads (beginning April 2019), which was recognized on the Consolidated Statements of Operations as part of total cost of sales as ounces of gold are sold.

 

Accretion

 

For the years ended December 31, 2019 and 2018, the Seller recognized $0.4 million and $1.3 million, respectively, in accretion expense. The amount of accretion expense for 2019 was reduced as a result of the expectation of a longer mine life.

 

General and administrative

 

General and administrative costs for the years ended December 31, 2019 and 2018 were $6.1 million and $5.3 million, respectively. For 2019, the Seller incurred stock-based compensation expense of $1.1 million related to restricted stock units granted during 2019, while for 2018 there was no stock-based compensation expense. Also during 2019, the Seller’s expense recognition for phantom shares increased $0.5 million due to an increase in the fair value of the 2015 and 2016 grants, whereas during 2018 there was a decrease in the fair value of the phantom shares. The stock-based compensation and phantom share increases were partially offset by a $0.4 million decrease in legal fees and a $0.6 million decrease in compensation and benefits. During 2018, in order to comply with one of the Seller’s debt covenants, the Seller incurred legal fees related to confidential regulatory filings which resulted in increased legal fees. During 2019, compensation and benefits decreased because certain corporate employees were assisting with the restart of the mine rather than corporate matters, and their salaries were allocated accordingly.

 

Reduction in asset retirement obligation

 

The Seller recognized reductions in asset retirement obligations of $1.9 million and $17.0 million during the years ended December 31, 2019 and 2018. The 2019 reduction was primarily driven by an increase in the Seller’s credit-adjusted risk-free rate, which is used to discount its estimated future reclamation expenditures, but was partially offset by an increase in equipment and diesel costs. The Seller’s reduction recorded in 2018 was primarily due to its increase in the estimated life of the mine to 34 years. As a result of extending the life of mine, reclamation expenditures were delayed by approximately 25 years from the prior estimated schedule.

 

Impairment of long-lived assets

 

During the year ended December 31, 2019, the Seller recorded impairments of long-lived assets of $0.1 million. The impairments recorded during 2019 related to a leach pad expansion project that it determined would not be utilized and, therefore, did not complete.

 

Interest expense

 

For the years ended December 31, 2019 and 2018, interest expense was $64.8 million and $50.9 million, respectively, an increase of $13.9 million, or 27%. The increase was primarily due to an increase in the average debt balance from $397.8 million for 2018 to $492.3 million for 2019, an increase of 24%. The average debt balance increased due to PIK interest on the Seller’s Second Lien Notes and 1.5 Lien Notes and the issuance of 1.25 Lien Notes in 2019. The 1.25 Lien Notes were issued to fund the restart of mining operations. Interest expense for 2019 was reduced by $0.6 million for interest that was capitalized to projects during the year.

 

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Gain on retirement of debt

 

During the year ended December 31, 2018, the Seller paid $0.1 million to retire $3.4 million of Second Lien Notes resulting in a $3.3 million gain.

 

Reorganization items, net

 

Expenses directly associated with finalizing the chapter 11 cases before the bankruptcy court were reported as Reorganization items, net in the Consolidated Statements of Operations. The Seller incurred legal and professional fees of $0.9 million and $0.4 million for the years ended December 31, 2019 and 2018, respectively. The increase was driven by payments to the U.S. Trustee that were calculated based on a percentage of total disbursements, which increased as a result of restarting mining operations.

 

Income tax expense and benefit

 

For the year ended December 31, 2018, the Seller recorded an income tax expense of $0.1 million as a result of attribute reduction which eliminated a previously recorded income tax receivable. There was no income tax expense or benefit recognized during 2019.

 

Net loss

 

Due to the activity discussed above, the Seller realized net losses of $98.9 million and $55.8 million for the years ended December 31, 2019 and 2018, respectively.

 

Liquidity and Capital Resources

 

General

 

In the absence of profitable operations following the Seller’s emergence from chapter 11 bankruptcy proceedings, the Seller’s primary source of liquidity beginning in 2016 and through the end of 2018 was from the issuance of 1.5 Lien Notes to the Initial Subscribers. the Seller’s primary continuing liquidity needs prior to restarting operations were to finance its operational needs for care and maintenance of the leach pads, to continue to conduct test work related to the two-stage oxidation and subsequent leaching of its sulfide and transition ores, preparation of the Hycroft Technical Report, its general and administrative costs, and debt service, primarily interest payments pursuant to the First Lien Credit Agreement.

 

The Seller began the restart of mining operations in 2019. The Seller financed the restart with the issuance of 1.25 Lien Notes to the holders of the 1.5 Lien Notes. In connection with the business combination, we recapitalized our business with both debt and equity which will be used to finance the remaining cash requirements of the restart as operations and related gold and silver production and sales are ramped up.

 

During 2019, the Seller began to produce and sell gold from mining performed during 2019. Despite gold and silver sales in 2019 and 2020, the Seller continued to incur losses due to the costs expended on the restart in conjunction with operational missteps and inefficiencies. The Seller did not generate sufficient cash flow from its operations during either 2019 or the first quarter of 2020 to cover its operating costs, general and administrative costs, and capital project costs and the Seller was reliant upon additional debt funding to continue operations. The Seller was reliant on debt issuances to fund operations in 2019 through the closing of the business combination.

 

Upon closing the business combination, we received net cash proceeds of approximately $212.7 million, of which we will utilize approximately $39.0 million for capital expenditures through the remainder of 2020. This includes $30.0 million to $35.0 million to construct a new leach pad, $2.0 million to $3.0 million of capital expenditures associated with our cone crushers, and approximately $2.5 million of miscellaneous sustaining capital expenditures. Assuming we are able to ramp up operations and produce and sell the forecasted volumes, we believe that we will be able to meet our funding needs for at least the next twelve months.

 

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Sprott Credit Agreement

 

On October 4, 2019, the Seller, as borrower, and certain of its subsidiaries, as guarantors, entered into the Initial Sprott Credit Agreement with Lender for a secured multi-advance term credit facility with an original aggregate principal amount not in excess of $110.0 million. In connection with the consummation of the business combination, the Company assumed the Initial Sprott Credit Agreement pursuant to the terms of the Purchase Agreement, entered into an amended and restated credit agreement, (the “Sprott Credit Agreement”), with us becoming a party thereto, borrowed $70.0 million under such facility and issued to Lender 496,634 shares of Common Stock. As a result, we are the borrower under the Sprott Credit Agreement.

 

The obligations of the borrower under the Sprott Credit Agreement are guaranteed by (i) HRD and Allied VGH and their respective successors and permitted assigns and (ii) any existing or future subsidiary of the guarantors or the borrower (collectively, the “Credit Parties”), other than the guarantors, that acquires or holds any assets with a book value greater than $1.0 million other than certain equity interests disclosed to Lender. The obligations under the Sprott Credit Agreement are secured by a lien on all properties and assets now owned, leased or hereafter acquired or leased by any Credit Party including a security interest to Lender of all membership interest in HRD and Allied VGH.

 

The Sprott Credit Agreement is accessible by the borrower through one or more advances. The initial two advances were in the principal amounts of $55.0 million and $15.0 million, respectively, and the Lender may make a subsequent advance, assuming satisfaction of applicable conditions and production milestones, for up to an additional $40.0 million in aggregate principal amount. The Sprott Credit Agreement will be made available at an original issue discount of 2%. The Sprott Credit Agreement has been, and will be used for, (i) repayment of indebtedness and liabilities under the existing first lien secured facility with Scotia Bank, as administrator, and other payoff amounts, (ii) payment of costs and expenses to put the Hycroft Mine into commercial production and/or to maintain or increase commercial production, and (iii) payment of Lender’s fees and expenses incurred in connection with the Sprott Credit Agreement.

  

Advances under the Sprott Credit Agreement bear interest monthly at a floating rate equal to seven percent (7%) plus the greater of (i) US Dollar three month LIBOR and (ii) one and one-half percent (1.50%), per annum, accruing daily and compounded monthly. For a period of twelve (12) months following the initial advance, no cash payments of interest or principal will be due, with 100% of interest accruing being capitalized on a monthly basis and added to the outstanding principal balance of the Sprott Credit Agreement.

 

For each calendar quarter commencing on March 1, 2021 and ending on the maturity date, the borrower shall pay Lender additional interest on the last business day of such calendar quarter, calculated according to a formula set forth in the Sprott Credit Agreement. Upon the prepayment of the entire Sprott Credit Agreement, all remaining additional interest payments and all remaining and yet unpaid additional interest must be prepaid as well.

 

The borrower shall be required under the Sprott Credit Agreement to make principal repayments beginning on August 31, 2021 and on the last business day of each calendar quarter thereafter. The first four (4) principal repayments will be in an amount equal to two and one-half percent (2.50%) of the outstanding principal amount of the Sprott Credit Agreement on May 31, 2021 (including all capitalized interest thereon, if any, but excluding the principal repayment then due). All subsequent principal repayments shall be in an amount equal to seven and one-half (7.50%) of the outstanding principal amount of the Sprott Credit Agreement on May 31, 2021 (including all capitalized interest thereon, if any, but excluding the principal repayment then due). The entire outstanding balance of the Sprott Credit Agreement, together with all unpaid interest and fees (including all capitalized interest, if any), is due on the day that is five years from the last day of the month of the initial closing date, which shall be no later than May 31, 2025, the maturity date.

 

The Sprott Credit Agreement may be repaid in whole or in part, at any time prior to the maturity date. Each prepayment or cancellation of the Sprott Credit Agreement (including capitalized interest, if any), whether in whole or in part, voluntarily or mandatory, subject to certain exceptions, that occurs on or prior to the fourth anniversary of the date of the initial advance is subject to a prepayment premium, payable on the date of the prepayment or cancellation as follows:

 

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Prepayment Date  

Percentage of Principal

Amount Outstanding

Prior to 2nd anniversary of initial advance date   5.0%
After 2nd anniversary but prior to 4th anniversary of initial advance date   3.0%

 

In addition to the required quarterly repayment of principal beginning on August 31, 2021, the borrower will be required under the Sprott Credit Agreement to make a mandatory prepayment (A) if at any time after the date of the initial advance, any Credit Party (i) sells or otherwise disposes of certain assets other than those permitted by the Sprott Credit Agreement in one or more transactions, to the extent that cash proceeds of such sale or other disposal exceed $500,000 when aggregated with the proceeds of all other sales and disposals of the Credit Parties, or (ii) receives any insurance proceeds greater than $1.0 million which are not otherwise expended on the Hycroft Mine within one-hundred eighty (180) days, and (B) upon the occurrence of a change of control (in certain circumstances) other than any change of control resulting from the business combination. In addition to the amount of any such mandatory prepayment, borrower shall pay to the Lender an amount equal to the applicable prepayment premium unless otherwise excused by the Sprott Credit Agreement.

 

Sprott Royalty Agreement

 

The Company, HRD and Sprott Private Resource Lending II (Co) Inc., as the Payee, an affiliate of the Lender, entered into a royalty agreement with respect to the Hycroft Mine, or the Sprott Royalty Agreement, at the closing of the business combination. Pursuant to the terms of the Sprott Royalty Agreement, at the closing of the business combination, Payee paid to HRD cash consideration in the amount of $30.0 million, for which HRD granted to Payee a perpetual royalty equal to one and one-half percent (1.50%) of net smelter returns, payable monthly. Net smelter returns for any given month are calculated by monthly production multiplied by monthly average gold price or monthly average silver price, minus allowable deductions.

 

HRD has the right to repurchase a portion of the royalty on each of the first and second anniversary of the effective date of the Sprott Royalty Agreement. For the first anniversary, the repurchase right is in respect of up to 33.3% of the initial royalty in consideration of a purchase price calculated pursuant to a formula described in the Sprott Royalty Agreement. For the second anniversary, the repurchase right is in respect of any remaining portion of the initial royalty that was not acquired on the first anniversary up to the ceiling of 33.3% of the initial royalty plus up to 33.3% of the increased amount of the royalty in consideration of a purchase price calculated pursuant to a formula described in the Sprott Royalty Agreement.

 

In addition to the terms generally described above, the Sprott Royalty Agreement contains other terms and conditions commonly contained in royalty agreements of this nature.

 

New Subordinated Notes

 

In connection with the business combination, the Company assumed $80.0 million in aggregate principal amount of the New Subordinated Notes. The New Subordinated Notes are secured and subordinate in priority to the senior debt obligations under the Sprott Credit Agreement. The New Subordinated Notes bear interest at a rate of 10% per annum, payable in kind on a quarterly basis. The principal on the New Subordinated Notes is due December 1, 2025.

 

Cash and liquid assets

 

The Seller placed substantially all of its cash in operating accounts with two well-capitalized financial institutions, thereby ensuring balances remain readily available. Due to the nature of the Seller’s operations and the composition of our current assets, the Seller’s cash and metal inventories balances represented substantially all of our liquid assets on hand. As of March 31, 2020, the Seller had existing cash of $6.2 million, an increase of $0.3 million from $6.5 million at December 31, 2019.

 

Restricted cash

 

As of March 31, 2020, the Seller held $42.5 million in restricted cash accounts. The majority of the restricted cash, or $39.6 million, was held as collateral for the Seller’s surface management surety bonds while the remaining

 

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$2.9 million was held in accordance with certain of its debt covenants. All the restricted cash was held by well-capitalized financial institutions.

 

Available sources of liquidity

 

The following table summarizes our available sources of liquidity:

 

   Mar. 31   Dec. 31  
   2020   2019  
   (dollars in thousands) 
Cash  $6,566   $6,220 
Metal inventories(1)   2,098    1,894 
Ore on leach pads(2)    26,122    22,062 
Total liquidity sources  $34,786    $30,176  

 

 

 

(1)Metal inventories contained approximately 1,604 ounces of gold which are expected to be sold within the next 12 months. Assuming a gold selling price of $1,608.95 per ounce (the March 31, 2020 P.M. fix) and excluding any proceeds from silver sales, the sale of all gold ounces estimated to be recovered from the Seller’s metal inventories would provide it with $2.6 million of revenue.

 

(2)Ore on leach pads contained approximately 18,921 ounces of gold which are expected to be sold within the next 12 months. Assuming a gold selling price of $1,608.95 per ounce (the March 31, 2020 P.M. fix) and excluding any proceeds from silver sales, the sale of all gold ounces estimated to be recovered from the Seller’s ore on leach pads would provide it with $30.4 million of revenue.

 

Sources and uses of cash

 

Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

 

   Three Months Ended 
   March 31, 
   2020   2019  
   (dollars in thousands) 
Net loss  $(34,618)  $(23,440)
Net non-cash adjustments   26,040    13,503 
Net change in operating assets and liabilities   (10,867)   864 
Net cash used in operating activities   (19,445)   (9,073)  
Net cash used in investing activities   (2,090)   (4,498)
Net cash provided by financing activities   21,658    17,154  
Net decrease in cash   123    3,583 
Cash, beginning of period   48,967    52,861 
Cash, end of period  $49,090   $56,444  

 

Cash used in and provided by operating activities

 

For the three months ended March 31, 2020, the Seller used $19.4 million of cash for operating activities primarily attributable to a net loss of $34.6 million and increases in the following operating assets; production-related inventories ($10.4 million), prepaid and other ($1.5 million) and accounts receivable ($0.8 million), and a decrease in interest payable ($0.4 million). The cash outflows driven by the items described above were partially offset by certain non-cash expenses, including a $17.0 million non-cash portion of interest expense, $7.0 million write-down of production inventories, $1.3 million depreciation and amortization and $0.4 million stock-based compensation. There was also an increase in accounts payable ($2.4 million) that partially offset the cash outflows.

 

For the three months ended March 31, 2019, the Seller used $9.1 million of cash for operating activities primarily attributable to a net loss of $23.4 million and a decrease in interest payable ($0.4 million). The negative impact on cash flow from operations of the net loss and decrease in interest payable were partially offset by certain

 

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non-cash expenses, including a $11.9 million non-cash portion of interest expense, $0.8 million depreciation and amortization and $0.5 million of phantom share compensation. Additionally, there were increases in accounts payable ($1.6 million) that offset the negative impact on cash flow from operations of the net loss and interest payable.

 

Cash used in investing activities

 

For the three months ended March 31, 2020 and 2019, the Seller used $2.1 million and $4.5 million, respectively, in investing activities. For 2020, the costs primarily related to (1) construction of new leach pad space of $1.1 million, and (2) construction or purchases of processing equipment of $0.6 million. For the 2019 period the spend was mostly driven by (1) construction of new leach pad space for the restart of $2.2 million and (2) the purchase and installation of four new cone crushers for $1.9 million.

 

Cash used in and provided by financing activities

 

Cash generated by financing activities was $21.7 million for the three months ended March 31, 2020, which was mostly driven by net issuances of $24.9 million in aggregate principal amount of 1.25 Lien Notes (net of issuance costs). The 1.25 Lien Notes were used to fund operational costs and capital expenditures due to not generating enough cash from sales. The Seller spent $2.6 million for legal and consulting fees related to the business combination and $0.6 million for extending the maturity of the First Lien Credit Agreement, partially offsetting the net cash received from the issuance of 1.25 Lien Notes.

 

The amount of cash generated by financing activities was $17.2 million for the three months ended March 31, 2019, which was mostly driven by net issuances of $18.0 million in aggregate principal amount of 1.25 Lien Notes (net of issuance costs). The 1.25 Lien Notes were used to fund the restart of mining operations. The Seller spent $0.7 million for legal and consulting fees related to the business combination and the review of its other strategic alternatives and $0.1 million for extending the maturity of the First Lien Credit Agreement, partially offsetting the net cash received from the issuance of 1.25 Lien Notes.

 

Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

 

   Year Ended 
   December 31, 
   2019   2018  
   (dollars in thousands) 
Net loss  $(98,895)  $(55,803)
Net non-cash adjustments   75,393    26,059 
Net change in operating assets and liabilities   (36,269)   2,819 
Net cash used in operating activities   (59,771)   (26,925)  
Net cash used in investing activities   (12,296)   (1,146)
Net cash provided by financing activities   68,173    27,595  
Net decrease in cash   (3,894)   (476)
Cash, beginning of period   52,861    53,337 
Cash, end of period  $48,967   $52,861  

 

Cash used in and provided by operating activities

 

For the year ended December 31, 2019, the Seller used $59.8 million of cash for operating activities primarily attributable to a net loss of $98.9 million, a reduction in the asset retirement obligations of $1.9 million and increases in the following operating assets; production-related inventories ($38.6 million), materials and supplies inventories ($1.0 million) and prepaid and other ($0.4 million). The cash outflows driven by the items described above were partially offset by certain non-cash expenses such as $54.8 million non-cash portion of interest expense, $18.6 million write-down of production inventories, $2.1 million depreciation and amortization, $1.1 million stock-based compensation and $0.4 million of accretion. There were also increases in accounts payable ($3.4 million) and other liabilities ($0.8 million) that partially offset the cash outflows.

 

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For the year ended December 31, 2018, the Seller used $26.9 million of cash for operating activities primarily attributable to a net loss of $55.8 million and non-cash income or gains such as the reduction of our asset retirement obligation ($17.0 million) and the gain on retirement of debt ($3.3 million). The negative impact on cash flow from operations of the net loss, reduction in asset retirement obligation and gain on retirement of debt were partially offset by certain non-cash expenses, including a $40.8 million non-cash portion of interest expense, $3.5 million depreciation and amortization, $1.3 million accretion and $1.0 million write- down of mineral property. There were also several significant changes in assets and liabilities that offset the negative impact on cash flow from operations of the net loss, reduction in asset retirement obligation and gain on retirement of debt, such as the following, a $1.2 million increase in other liabilities, a $0.9 million decrease in prepaids and other, and a $0.5 million increase in interest payable.

 

Cash used in investing activities

 

For the years ended December 31, 2019 and 2018, the Seller used $12.3 million and $1.1 million, respectively, in investing activities. For 2019, the vast majority of the costs related to (1) construction of new leach pad space for the restart of $6.2 million, (2) the purchase and installation of four new cone crushers for $4.0 million and (3) replacement and significant repairs of existing processing equipment for $0.8 million. For the 2018 period the spend was mostly in the last quarter of the year as the Seller was beginning its restart preparations.

 

Cash used in and provided by financing activities

 

Cash generated by financing activities was $68.2 million for the year ended December 31, 2019, which was mostly driven by net issuances of $71.8 million in aggregate principal amount of 1.25 Lien Notes (net of issuance costs). The 1.25 Lien Notes were used to fund the restart of mining operations. The Seller spent $2.9 million for legal and consulting fees related to the business combination and the review of our other strategic alternatives and $0.8 million for extending the maturity of the First Lien Credit Agreement, partially offsetting the net cash received from the issuance of 1.25 Lien Notes.

 

The amount of cash generated by financing activities was $27.6 million for the year ended December 31, 2018, which was mostly driven by net issuances of $27.9 million in aggregate principal amount of 1.5 Lien Notes (net of issuance costs). The proceeds from the issuance of 1.5 Lien Notes was partially offset by cash outflows of $0.1 million each from refinancing issuance costs and retirement of convertible notes.

 

Future capital and cash requirements

 

The following table provides our gross contractual cash obligations as of March 31, 2020, which are grouped in the same manner as they were classified in the Condensed Consolidated Statements of Cash Flows in order to provide a better understanding of the nature of the obligations and to provide a basis for comparison to historical information. We believe the following provides the most meaningful presentation of our near-term obligations expected to be satisfied using our current and available sources of liquidity:

 

         Payments Due by Period
         Less Than              More Than
    Total     1 Year    1-3 Years    3-5 Years    5 Years
    (dollars in thousands)
Operating activities    
Interest related to debt(1)  $13,287   $13,287   $-   $-   $-
Operating lease requirements(2)   12,213    11,660    553    -    -
Remediation and reclamation expenditures(3)   62,213    -    -    -    62,213
Financing activities                        
Repayments of debt principal(4)   596,335    596,335    -    -    -
Repayment of pay-in-kind interest(5)   16,578    16,578    -    -    -
   $700,626   $637,860   $553   $        -   $$62,213

 

 

(1)Interest payments were calculated based on the debt outstanding as of March 31, 2020 and includes interest that will be paid at maturity, but not added to the principal balance as pay-in-kind interest.

 

(2)As noted below in Off-balance sheet arrangements, the Company has two operating leases which are included.

 

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(3)Mining operations are subject to extensive environmental regulations in the jurisdictions in which they are conducted and we are required, upon cessation of operations, to reclaim and remediate the lands that our operations have disturbed. The estimated undiscounted cash outflows of these remediation and reclamation obligations are reflected here.

 

(4)Repayments of principal on debt consists of amounts due under term obligations.

 

(5)Repayments of pay-in-kind interest will occur at debt maturity and only includes interest that will be added to the principal during 2020.

 

Off-balance sheet arrangements

 

As of March 31, 2020 and December 31, 2019, the Seller’s off-balance sheet arrangements consisted of an operating lease agreement and royalty agreements. During the first quarter of 2020, the Seller also signed a lease for mining equipment.

 

The operating lease for the Company’s office space in Denver, Colorado is $0.1 million annually and expires in January 2022. The one-year operating lease for mobile mining equipment will be used to supplement the Company’s own fleet. As of March 31, 2020, none of the equipment had been placed into service, but certain equipment was placed into service subsequent to the quarter end and before the date of this filing. Once all equipment is placed into service, the equipment lease is for $12.6 million, part of which was prepaid as of March 31, 2020.

 

As the Company has elected to take advantage of the extended transition period for complying with new or revised accounting standards, the liability for the Company’s operating leases will remain off of our balance sheet until the new lease accounting rules apply to privately-held companies in accordance with the JOBS Act or we are no longer an emerging growth company.

 

A portion of the Hycroft Mine is subject to a mining lease that requires a 4% net profit royalty be paid to the owner of patented and unpatented mining claims relating to the Hycroft Mine. The mining lease also requires an annual advance payment of $120,000 every year mining occurs on the leased claims. An additional advance payment is required in any year in which five million tons or more are mined from the property, subject to the 4% net profit royalty. This lease is classified as an off-balance sheet arrangement because the royalty payments are contingent upon mining activity and other events. All advance payments are credited against the future payments due under the 4% net profit royalty. The total payments due under the mining lease are capped at $7.6 million. Through March 31, 2020 and December 31, 2019, the Seller had paid $2.6 million and $2.5 million, respectively.

 

The Seller entered into a bonus plan which, upon the consummation of the business combination required it to pay certain senior level employees a total of $5.9 million, based upon the value of the transaction.

 

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MANAGEMENT

 

Management and Board of Directors

 

The below is a list of our executive officers and directors and their respective ages and a brief account of each of their business experience:

 

Name  Age  Position(s)
Stephen M. Jones  61   Interim President and Chief Executive Officer, as of July 1, 2020
Jeffrey Stieber  36   Interim Chief Financial Officer
Randy Buffington  60   Former Chairman of the Board, President and Chief Executive Officer, as of July 1, 2020
David Kirsch  40   Chairman of the Board
Eugene Davis  65   Director
John Ellis  84   Director
Michael Harrison  48   Director
Thomas Weng  51   Director
Marni Wieshofer  57   Director

 

Upon the consummation of the business combination, the size of the our board was increased from five directors to seven directors, and each of the above directors was elected by our stockholders at the special meeting of our stockholders held on May 29, 2020 to approve the business combination. Prior to being elected to our Board on May 29, 2020, Messrs. Buffington, Ellis, Kirsch and Harrison served on the Seller’s board of directors for the terms set forth in their bibliography below and Mr. Kirsch has served on our Board since February of 2018. We have determined that each of Messrs. Davis , Ellis, Harrison, Kirsch, and Weng and Ms. Wieshofer are “independent directors” under NASDAQ listing standards.

 

Stephen M. Jones since July 1, 2020, is serving as our interim President and Chief Executive Officer. Previously, Mr. Jones served as our Executive Vice President and Chief Financial Officer and Secretary since the consummation of the business combination and previously having been appointed in the position by the Seller in March 2012. Mr. Jones was formerly with EPM Mining Ventures, Inc., as the Chief Financial Officer from May 2011 to August 2011, the President and Secretary from March 2010 to May 2011, and a director from March 2010 to April 2012. Mr. Jones also served as Katanga Mining Limited’s Senior Vice President and Chief Financial Officer from June 2006 until December 2008.

 

Jeffrey Stieber since July 1, 2020, is serving as our interim Chief Financial Officer. Mr. Stieber joined the Company as its Vice President, Treasurer on May 29, 2020, when the Company and its subsidiaries acquired all of the assets and employees of Hycroft Mining Corporation. Mr. Stieber had rejoined Hycroft Mining Corporation in August 2018 as its Vice President, Treasurer, having previously served in senior finance and accounting roles with that company from 2010 to 2015.  From 2015 to 2018 Mr. Stieber held senior and executive positions at Tahoe Resources and Klondex Mines, until its acquisition by Hecla.  Mr. Stieber has more than ten years of finance and accounting experience within the mining industry, is a CPA, and graduated from the University of Nevada.

 

Randy Buffington served as the Executive Chairman of the Board, President and Chief Executive Officer of the Company from consummation of the business combination until July 1, 2020 and prior to that for the Seller since November 5, 2015. Mr. Buffington was also a member of the Sellers’s board of directors Technical Committee. He was appointed President and Chief Executive Officer of the Seller on July 8, 2013. Prior to his appointment, Mr. Buffington served as the Seller’s Executive Vice President and Chief Operating Officer from February 2013 until July 2013. Prior to joining the Hycroft Mining Corporation, Mr. Buffington was Senior Vice President of Operations of Coeur Mining, Inc. (formerly Coeur d’Alene Mines Corporation) (a silver mining company) from January 2012 to January 2013. Mr. Buffington also held various positions with Barrick Gold Corporation (a global mining company), including: Managing Director of Zambia from September 2011 to January 2012; General Manager of North American Operations for Barrick Goldstrike Mines, Inc. from August 2009 to September 2011; and General Manager for Barrick Ruby Hill Mine from August 2006 to August 2009. From September 2014 to November 2016, Mr. Buffington was a director of Rye Patch Gold Corp. (a gold exploration company listed on the TSX Venture Exchange).

 

On July 1, 2020, the Company announced that the Board and Randy Buffington agreed that Mr. Buffington would depart from the Company and transition and resign from his roles of Chairman of the Board, President and Chief Executive Officer and any and all other positions held by him with any direct or indirect subsidiary of the Company, effective as of July 1, 2020.

 

Effective as of July 1, 2020, the Board appointed Stephen M. Jones, the Company’s current Executive Vice President, Chief Financial Officer and Secretary, who has served in those roles since 2012, as President and Chief Executive Officer on an interim basis, effective upon Mr. Buffington’s departure. It is expected that Mr. Jones will serve in such roles until the appointment by the Board of a permanent president and chief executive officer. In connection with his appointment as interim President and Chief Executive Officer, Mr. Jones stepped down from his position as Executive Vice President, Chief Financial Officer and Secretary of the Company. The Company has no agreement or arrangement with Mr. Jones regarding any right to receive additional compensation from the Company for serving as the interim President and Chief Executive Officer.

 

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David Kirsch has been a member of the Seller’s board of directors since October 2015, and served as the Chair of the Audit Committee and a member of the Compensation and Nominating and Governance committees for the Seller’s board of directors. Mr. Kirsch was appointed as our Chairman of the Board effective upon Mr. Buffington’s resignation on July 1, 2020. Mr. Kirsch is a Managing Director and Senior Analyst at Mudrick Capital, where he is responsible for analyzing distressed credit and equity opportunities across a diverse range of industries. Prior to joining Mudrick, from 2008 to 2010 Mr. Kirsch was a Senior Analyst and Managing Director at Miura Global Management, a large global long-short equity hedge fund, where he was responsible for coverage of the financial and consumer industries across the Americas, Europe and Asia. Mr. Kirsch gained extensive restructuring experience as a Director at Alvarez & Marsal from 2003 to 2008. At Alvarez & Marsal, he held primary or lead management roles on an interim basis for distressed companies and advised creditors on balance sheet solutions to maximize the value of their investments. Selected assignments include representing Senior Secured Creditors in the Delphi and Oneida restructurings and overseeing the Tarragon (a public real estate development company) Finance Department during its restructuring. Mr. Kirsch began his Wall Street career as an Analyst in the Healthcare Industry Group in the Investment Banking Division of Banc of America Securities. He is currently serving on the board of directors of NJOY Holdings, a privately- held producer of e-cigs and vaping products to help adult smokers make the switch from tobacco products, Proenza Schouler, Targus Holdings and Nelson Education, where he is the Chairman of the Board. Mr. Kirsch received his B.S. magna cum laude in Economics from the Wharton School at the University of Pennsylvania. Mr. Kirsch’s qualifications to serve on our Board include his extensive leadership and board experience, his experience as Managing Director and Senior Analyst of Mudrick, his current board experience, including as Chairman of the Board of Nelson Education, and his network of contacts in the distressed investing field.

 

Eugene Davis currently serves as the Chairman and Chief Executive Officer of PIRINATE Consulting Group, LLC (“PIRINATE”), a privately held consulting firm specializing in turnaround management, merger and acquisition consulting, hostile and friendly takeovers, proxy contests and strategic planning advisory services for domestic and international public and private business entities. Since forming PIRINATE in 1997, Mr. Davis has advised, managed, sold, liquidated and served as a chief executive officer, chief restructuring officer, director, chairman or committee chairman of a number of businesses operating in diverse sectors. He was the President, Vice Chairman and a director of Emerson Radio Corporation, a consumer electronics company, from 1990 to 1997 and was the Chief Executive Officer and Vice Chairman of Sport Supply Group, Inc., a direct-mail marketer of sports equipment, from 1996 to 1997. Mr. Davis began his career in 1980 as an attorney and international negotiator with Exxon Corporation and Standard Oil Company (Indiana) and was in private practice from 1984 to 1998. During the past five years, Mr. Davis has been a director of the following public or formerly public companies: Montage Resources Corp., Seadrill Limited, VICI Properties Inc., Verso Corporation, ALST Casino Holdco, LLC, Atlas Air Worldwide Holdings, Inc., Atlas Iron Limited, The Cash Store Financial Services, Inc., Dex One Corp., Genco Shipping & Trading Limited, Global Power Equipment Group, Inc., Goodrich Petroleum Corp., Great Elm Capital Corp., GSI Group, Inc., Hercules Offshore, Inc., HRG Group, Inc., Knology, Inc., SeraCare Life Sciences, Inc., Spansion, Inc., Spectrum Brands Holdings, Inc., Titan Energy LLC, Trump Entertainment Resorts, Inc., U.S. Concrete, Inc. and WMIH Corp. In addition, Mr. Davis is and has been a director of several private companies in various industries. Mr. Davis is well-qualified to serve as a member of our Board because of his substantial knowledge about strategic planning, mergers and acquisitions, finance, accounting, capital structure and board practices and his extensive experience serving as a director of public and private companies in various industries.

 

John Ellis has been a member of the Seller’s board of directors since December 2017 and served as Chair of the Technical Committee of the Seller’s board of directors. Mr. Ellis is a seasoned mining professional with a more than 50-year history of large-scale mine development and operations globally and has provided consulting services to multiple mining companies for the past 18 years. Mr. Ellis began his career in operations with Kennecott Copper, where he progressed from operating roles to management roles before moving on to new opportunities. He has most recently held various senior management roles for CVRD-Inco, including Managing Director of Voisey Bay Nickel and VP Operations for PT Indonesia. Prior to that, he was Chairman and CEO of Anglo Gold North America, Independence Mining Company and Hudson Bay Mining and Smelting Company. He has also provided technical advice in a consulting capacity to major global producers such as CVRD-Inco, BHP (Australia), Queenstake Resources, AngloGold Ashanti and Anglo American. Mr. Ellis currently serves as a member of the board of directors of Jaguar Mining Inc. (JAG: TSX), a gold mining company. Mr. Ellis also served as a member of the board of directors of International Tower Hill Mines Ltd., a mineral exploration company (THM: NYSE American) from February 2014 to May 2019 and of Sunshine Silver Mines, a privately held silver mining company from September 2011 to November 2018 and of Jaguar Mines from June 2016 to present. Mr. Ellis is a graduate of the Haileybury School of Mines and holds a B.Sc. from Montana Tech University. Mr. Ellis brings extensive experience and knowledge of historic and current mining operations coupled with his leadership experience in the mining industry to the Board.

 

Michael Harrison has been a member of the Seller’s board of directors since December 2017 and is a member of the Audit and Technical Committees. Since January 2, 2020, Mr. Harrison has served as the CEO of Sprott Resource Streaming and Royalty Corp. From May 7, 2019 to June 23, 2020, Mr. Harrison served as the Interim President and Chief Executive Officer of Sprott Resource Holdings Inc. (“SRHI”) and prior to such date served as a Managing Director in the mining and metals group of SRHI since February 2017. Prior to joining SRHI, he held the position of President and CEO of Adriana Resources Inc. from October 2015 to February 2017, and Vice President, Corporate Development for Coeur Mining Inc. from February 2011 to August 2015. Mr. Harrison previously served on the Board of Directors of Corsa Coal Corp. (CSO: TSXV) from March 2011 to March 2017 and on the board of directors of Macusani Yellowcake (PLU:TSXV) from May 2011 to January 2013. He also previously worked for Cormark Securities Inc. and National Bank Financial in the mining investment banking groups raising funds and providing mergers and acquisition advice to listed and private mining companies, including the creation of Seller’s predecessor company. Previously, he worked internationally for BHP Billiton Exploration Division as a Project Geophysicist. Mr. Harrison holds a B.Sc.E (Honours) in Geophysics from Queen’s University, and an MBA (with Distinction) from the University of Western Ontario. Mr. Harrison brings over 25 years of executive, financial and technical knowledge in the mining industry to our Board and adds a valuable perspective.

 

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Thomas Weng has more than 25 years of experience in the financial services sector and is a Co-Founding Partner with Alta Capital Partners, a provider of financial advisory services (since February 2011). From February 2007 to January 2011, Mr. Weng was a Managing Director at Deutsche Bank and Head of Equity Capital Markets for Metals and Mining throughout the Americas and across all industry segments for Latin America. Prior to 2007, he held various senior positions at Pacific Partners, an alternative investment firm, and Morgan Stanley and Bear Stearns. Mr. Weng currently sits on the board of International Tower Hill Mines and Jaguar Mining Inc. Mr. Weng graduated from Boston University with a Bachelor of Arts in Economics. Mr. Weng is well-qualified to serve as a member of our Board because of his extensive knowledge of strategic planning, mergers and acquisitions, finance, and mining.

 

Marni Wieshofer has served as Head of Media and Managing Director in Houlihan Lokey’s TMT Corporate Finance Group, based out of Los Angeles, providing mergers and acquisitions, capital markets, financial advisory and financial restructuring services including the Weinstein Company and Relativity Media bankruptcies and subsequent sales. Before joining Houlihan Lokey, Ms. Wieshofer was Partner and Managing Director at MESA, a boutique advisory investment bank, where she spearheaded investment banking, strategy, and valuation engagements for companies throughout the media space. Her background also includes Chief Financial Officer and EVP of Corporate Development at Lionsgate Entertainment where she oversaw the company’s mergers, acquisitions, and other strategic financial initiatives including the acquisitions and integration of Trimark Pictures, Artisan Entertainment and Redbus Films Distribution U.K. to name a few, as well as the sale of Lionsgate Studios and the Canadian distribution business. Ms. Wieshofer’s experience also includes prominent roles at Media Rights Capital, Alliance Atlantis Communications and Coopers & Lybrand Chartered Accountants. Ms. Wieshofer is currently Lead Director at Thunderbird Entertainment Group Inc. (TSXV: TBRD, OTC: THBRF), a member of the Board of Directors of Film2Future, a member of the Dean’s Advisory Committee at the Rotman School of Management, Chair of the Women’s Volleyball Be Extraordinary Campaign at Western University (University of Toronto); and is a former Director and Chair of the Audit Committee of Takara Resources Inc. Ms. Wieshofer holds a BA from Western University, an MBA from the Rotman School of Management, is a Canadian Chartered Accountant and obtained the ICD.D designation in 2018. Ms. Wieshofer is well-qualified to serve as a member of our Board due to her expertise in mergers and acquisitions, capital markets, financial advisory and financial restructuring services across a range of industries.

 

Board of Directors

 

In accordance with our charter, as amended at the special meeting of stockholders on May 29, 2020, members of our Board serve one-year terms, or until their respective successors are duly elected and qualified, or until their earlier resignation, removal or death.

 

Committees of the Board of Directors

 

We have four standing committees. An Audit Committee, a Compensation Committee, and a Nominating and Governance Committee, composed solely of independent directors. In addition, we established a Safety, Sustainability and Technical Committee on May 29, 2020 upon the consummation of the business combination, composed of our President and two independent directors. Each of the committees reports to the Board as it deems appropriate and as the Board may request. The composition, duties and responsibilities of these committees are set forth below.

 

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Audit Committee

 

Eugene Davis, Thomas Weng and Marni Wieshofer (Chair) are the members of the Audit Committee. Under the NASDAQ listing standards and applicable SEC rules, the Audit Committee is required to have at least three members. Subject to phase-in rules and a limited exception, the rules of NASDAQ and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors. Mr. Davis, Mr. Weng and Ms. Wieshofer qualify as independent directors under applicable rules. Each member of the Audit Committee is financially literate and Ms. Wieshofer qualifies as an “audit committee financial expert” as defined under applicable SEC rules.

 

Under its charter, the functions of the Audit Committee will include:

 

·the appointment, compensation, retention, replacement, and oversight of the work of the independent auditors and any other independent registered public accounting firm engaged by the Company;

 

·the pre-approval of all non-audit services to be provided by the independent auditors or any other registered public accounting firm engaged by the Company;

 

·setting clear hiring policies for employees or former employees of the independent registered public accounting firm;

 

·obtaining and reviewing a report, at least annually, from the independent auditors describing (i) the independent auditor’s internal quality-control procedures and (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues;

 

·reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC;

 

·discussing with management and the independent auditor, as appropriate, any audit problems or difficulties and management’s response, and our risk assessment and risk management policies, including our major financial risk exposure and steps taken by management to monitor and mitigate such exposure; and

 

·reviewing our financial reporting and accounting standards and principles, significant changes in such standards or principles or in their application and the key accounting decisions affecting our financial statements, including alternatives to, and the rationale for, the decisions made.

 

Compensation Committee

 

John Ellis, David Kirsch (Chair) and Marni Wieshofer are the members of the Compensation Committee. All of the members of the Compensation Committee are independent directors and considered to be a “non-employee director” under Rule 16b-3 of the Exchange Act. Under its charter, the functions of the Compensation Committee will include:

 

·reviewing and approving annually corporate goals and objectives relating to the compensation of the Chief Executive Officer (“CEO”), evaluating the performance of the CEO in light of those goals and reviewing and establishing the CEO’s annual compensation and Incentive Plan participation levels and bases of participation; and

 

·reviewing and approving annually the evaluation process and compensation structure for the Company’s or its subsidiaries’ other officers; to evaluate, review and recommend to the our Board any changes to, or additional, stock-based and other incentive compensation plans; and to recommend inclusion of the Compensation Discussion and Analysis in the annual proxy statement and annual report on Form 10-K to be filed with the SEC.

 

In addition, on an annual basis, the Compensation Committee will conduct an in-depth, broad scope and detailed review of succession planning efforts at multiple levels of the our management team.

 

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The Compensation Committee charter also provides that the Compensation Committee shall have the sole authority to retain or obtain the advice of a compensation consultant, legal counsel or other adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the Compensation Committee will consider the independence of each such adviser, including the factors required by NASDAQ and the SEC.

 

Nominating and Governance Committee

 

Eugene Davis (Chair), David Kirsch and Thomas Weng are the members of the Nominating and Governance Committee. All of the members of the Nominating and Governance Committee are independent directors.

 

Under its charter, the functions of the Compensation Committee will include:

 

·identifying individuals qualified to become Board member and recommending to the Board the director nominees for the next annual meeting of stockholders;

 

·recommending to the Board the corporate governance guidelines applicable to the Company ;

 

·leading the Board in its annual review of the performance of (a) the Board; (b) its committees; and (c) management;

 

·recommending to the Board nominees for each Board committee; and

 

·reviewing and recommending annually for approval by the Board, the form and amount of non-management director compensation and benefits.

 

The Nominating and Governance Committee shall have the sole authority to retain and terminate any search firm to be used to identify director candidates and shall have sole authority to approve the search firm’s fees and other retention terms.

 

The Nominating and Governance Committee has not set specific minimum qualifications for director positions. Instead, the Nominating and Governance Committee will review nominations for election or re-election to the Board on the basis of a particular candidate’s merits and the Company’s needs after taking into account the current composition of the Board. When evaluating candidates annually for nomination for election, the Nominating and Governance Committee will consider an individual’s skills, diversity, independence, experience in areas that address the needs of the Board and ability to devote adequate time to Board duties. The Nominating and Governance Committee does not specifically define diversity, but values diversity of experience, perspective, education, race, gender and national origin as part of its overall annual evaluation of director nominees for election or re-election. Whenever a new seat or a vacated seat on the Board is being filled, candidates that appear to best fit the needs of the Board and the Company will be identified, interviewed and evaluated by the Nominating and Governance Committee. Candidates selected by the Nominating and Governance Committee will then be recommended to the full Board.

 

Safety, Sustainability and Technical Committee

 

John Ellis (Chair) and Michael Harrison are members of the Safety, Sustainability and Technical Committee.

 

Under its charter, the functions of the Safety, Sustainability and Technical Committee will include the authority to:

 

·investigate any activity of the Company or its subsidiaries relating to health, safety, loss prevention and operational security, sustainable development, environmental affairs, public policy and relations with communities and civil society, government relations, human rights and communication matters;

 

·review our developmental, construction and operational activities; and

 

·retain outside counsel, experts and other advisors as the Safety, Sustainability and Technical Committee may deem appropriate in its sole discretion to assist the Company in fulfilling its responsibilities.

 

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Director Independence

 

The Board has determined that Messrs. Ellis, Harrison, Kirsch, Davis and Weng and Ms. Wieshofer are “independent directors” under Nasdaq Capital Market listing standards. The Board reviews independence on an annual basis and has also determined that each current member of the Company’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee is independent as defined under the applicable Nasdaq Stock Market listing standards and SEC rules. The Board further determined that Ms. Wieshofer qualifies as an audit committee financial expert in accordance with applicable rules and guidance. In making these determinations, the Board found that none of these directors had a material or other disqualifying relationship with the Company.

 

EXECUTIVE COMPENSATION

 

None of the individuals who were our executive officers and directors prior to the consummation of the business combination received any cash compensation for services rendered to the Company. There were no agreements or understandings, whether written or unwritten, with our executive officers concerning the information specified in Item 402(t)(2) or (3) (i.e., any type of compensation, whether present, deferred or contingent, that is based on or otherwise relates to the business combination). We also have not, prior to the business combination, granted any stock options or stock appreciation rights or any other awards under long-term incentive plans.

 

The following disclosure concerns the compensation arrangements of our current named executive officers and directors for the fiscal years ended December 31, 2018 and 2019 (i.e., pre-business combination) while serving the Seller in a similar capacity. Such disclosure should be read together with the compensation tables and related disclosures provided below and in conjunction with the financial statements and related notes appearing elsewhere in this prospectus.

 

Seller Summary Compensation Table

 

The following table presents information regarding the compensation awarded to, earned by, or paid in the years ended December 31, 2019 and 2018 to Randy E. Buffington and Stephen M. Jones. These officers are referred to as our named executive officers, or “NEOs”. As an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies” as such term is defined in the rules promulgated under the Securities Act.

 

               Non-Equity         
           Stock   Incentive Plan   All Other     
           Awards(1)   Compensation(2)   Compensation(3)     
Name and Principal Position  Year   Salary ($)   Bonus ($)   ($)   ($)   ($)   Total ($) 
Randy E. Buffington   2019   $525,000                 $1,575,000    n/a(4)   $22,438   $2,122,438 
President and CEO   2018   $525,000           $150,000   $21,344   $696,344 
Stephen M. Jones   2019   $425,000       $1,062,500    n/a(4)   $23,628   $1,511,128 
EVP, CFO and Secretary   2018   $425,000           $100,000   $43,666   $568,666 

 

 

(1)As a result of the Seller’s reorganization pursuant to the chapter 11 cases, all of the stock-based compensation plans were eliminated and all prior awards granted pursuant to the plans were cancelled. We did not grant any stock awards in 2017 or 2018. In February 2019, the Seller authorized and approved time-based and performance-based equity incentive awards in the aggregate amount of $1,575,000 and $1,062,500 to Messrs. Buffington and Jones, respectively, in the form of restricted stock units convertible following vesting into shares of the Seller’s common stock. Under the terms of those agreements and as provided in the Purchase Agreement, the obligations under such equity awards have been assumed by us in connection with the business combination and mirror replacement equity awards in the form of substantially similar restricted stock units convertible into shares of our Common Stock have been issued in connection with the consummation of the business combination.

 

(2)The Seller provided incentive compensation in the form of an annual cash bonus, the payout amounts of which are at-risk, consistent with the Seller’s emphasis on using a pay-for-performance philosophy. The 2018 and 2019 annual cash incentive payments were contingent upon the attainment of the

 

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Seller’s goals and performance criteria, which were developed with the assistance of the Seller’s management and approved by the compensation committee of the Seller’s board of directors before being subsequently approved by the non-management members of the Seller’s board of directors.

 

(3)During 2018 and 2019, All Other Compensation consisted of the following:

 

       401K Plan   Life         
       Matching   Insurance   Moving     
Name  Year   Contributions ($)   Premiums ($)   Expenses ($)   Total ($) 
Randy E. Buffington   2019   $16,800   $5,638        $22,438 
    2018   $16,500   $4,844        $21,344 
Stephen M. Jones   2019   $16,800   $6,828        $23,628 
    2018   $16,500   $4,844   $22,322   $43,666 

 

(4)As of March 15, 2020, the non-equity incentive bonus payments for 2019 performance had not been paid.

 

2019 Outstanding Equity Awards at Fiscal Year-End Table

 

Under the Seller’s predecessor’s reorganization plan and in connection with the Seller’s emergence from bankruptcy proceedings, on October 22, 2015, all of the Seller’s stock-based compensation plans were eliminated and all prior awards pursuant to the compensation plans were cancelled. The Seller did not grant any equity awards in 2018.

 

Under the terms of employment agreements entered into with Messrs. Buffington and Jones, they were each entitled to an equity incentive award. In February 2019, the Seller granted time-based and performance-based equity incentive awards in the aggregate amount of $1,575,000 and $1,062,500 to Messrs. Buffington and Jones, respectively, in the form of restricted stock units convertible following vesting into shares of the Seller common stock. Under the terms of those agreements and as provided in the Purchase Agreement, the obligations under such equity awards were assumed by us in connection with the business combination and mirror replacement equity awards in the form of substantially similar restricted stock units convertible into shares of Common Stock were issued in connection with the consummation of the business combination.

 

      Stock Awards 
      Equity Incentive   Equity Incentive 
      Plan Award:   Plan Award: 
      Number of   Market of Payout 
      Unearned Shares,   Value of Unearned 
      Units, or Other   Shares, Units, or 
   Grant  Rights That Have   Other Rights That 
Name  Date  Not Vested (#)   Have Not Vested (#) 
Randy E. Buffington  February 20, 2019   (1)  $1,575,000 
Stephen M. Jones  February 20, 2019   (1)  $1,062,500 

 

 

(1)            The number of shares into which the equity awards granted will vest is not currently determinable.

 

Retention Bonus Plan

 

In connection with the Seller’s emergence from bankruptcy proceedings, the Seller implemented a management incentive plan, which was subsequently superseded by the Seller’s Retention Bonus Plan (the “Retention Bonus Plan”), that provided for the payment of cash and/or the issuance of shares of the Seller’s common stock to management, including our NEOs. The Seller previously paid two cash retention bonus payments under the Retention Bonus Plan to participants, including the NEOs, who remained employed as of December 29, 2017 and required the delivery to the Seller’s board of directors of the heap leach Feasibility Study for the profitable and feasible sulfide ore heap leach process, which was completed on June 29, 2018 and subsequently modified as of

 

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August 6, 2018. The Retention Bonus Plan also provides for a third retention bonus, equal to an aggregate amount of $250,000, plus an additional amount tied to a percentage share of an “award pool” (as described below), in the event of either of the following:

 

·a “sale transaction” defined generally as the consummation of a sale of all or substantially all of our consolidated assets; or at least a majority of our then issued and outstanding shares of common stock; or

 

·a “public offering” defined generally as an underwritten registered public offering pursuant to an effective registration statement covering a sale of shares of the Seller’s common stock to the public that results in the listing for trading of our Common Stock on a national securities exchange or quoted on the NASDAQ Stock Market.

 

The amount of the award pool under the Retention Bonus Plan is determined by either the purchase price in a sale transaction or the enterprise value in connection with a public offering. The award pool shall be equal to (i) 1% of the sale proceeds in a sale transaction or enterprise value in a public offering of up to, and including, $200.0 million, plus (ii) 2% of the sale proceeds in a sale transaction or enterprise value in a public offering, if any, above $200.0 million up to, and including, $300.0 million plus (iii) 3% of the sale proceeds in a sale transaction or enterprise value in a public offering, if any, above $300.0 million.

 

Sale proceeds are defined under the Retention Bonus Plan as:

 

(i)the total gross cash proceeds and the fair value of property other than cash actually received on the closing date of a sale transaction by our stockholders in consideration for the sale of their shares of our common stock or on account of the sale by the Company of its assets; plus

 

(ii)all indebtedness for borrowed money, guarantees and capitalized leases (but not any other liabilities) assumed, refinanced, retired or extinguished by the acquirer in connection with such sale transaction; plus

 

(iii)any contingent amounts, as defined in the Retention Bonus Plan; plus

 

(iv)in the case such sale transaction takes the form of a sale, exchange or purchase of shares, the value of any retained equity interest, if any, of our stockholders in the Company based on the value paid for or ascribed to the shares of our common stock transferred in such sale transaction.

 

The Retention Bonus Plan allowed participants to elect to receive payment in respect of the third retention bonus in either cash or a combination of cash and common stock. However, in connection with the business combination, executed waivers were obtained from the participants to eliminate the payment election right, such that the third retention bonuses shall be payable in cash.

 

The business combination constituted a “sale transaction” under the Retention Bonus Plan triggering both payment of the third retention bonus under the Retention Bonus Plan and an allocation under the award pool, as determined by the value of the sale transaction. The obligation to make the Retention Bonus Plan payments shall be assumed by us pursuant to the Purchase Agreement and shall be payable to the participants, including the NEO’s, upon consummation of the business combination, subject to the participants’ continued employment by the Seller from the date of grant of such award until the consummation of such sale transaction. Payments in the aggregate amount of approximately $5.9 million were made following consummation of the business combination.

 

Employment Arrangements

 

In March of 2019, in anticipation of the business combination, the Seller entered into new employment agreements with Randy E. Buffington and Stephen M. Jones. These new employment agreements superseded and replaced their prior agreements entered into by the Seller upon emergence from federal bankruptcy proceedings. Upon consummation of the business combination, pursuant to their terms and in accordance with the Purchase Agreement, the new employment agreements were assigned to and the obligations under such agreements assumed by the Company.

 

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Common Defined Terms Used in the Employment Agreements

 

For purposes of the employment agreements with our NEOs, the terms “Cause”, “Change in Control”, “Disability”, and “Good Reason” have the following definitions:

 

The term “Cause” shall mean that one or more of the following has occurred:

 

(i)the NEO is convicted of a felony or pleads guilty or nolo contendere to a felony (whether or not with respect to the Seller or any of its affiliates);

 

(ii)a failure of the NEO to substantially perform his responsibilities and duties to the Company which, to the extent curable, is not remedied within 10 days after the NEO’s receipt of written notice given by the appropriate senior officer or any member of the Board identifying the failure in reasonable detail and granting the NEO an opportunity to cure such failure within such 10 day period;

 

(iii)the failure of the NEO to carry out or comply with any lawful and reasonable directive of the Board (or any committee of the Board), which, to the extent curable, is not remedied within 10 days after the NEO’s receipt of written notice given by or on behalf of the Company identifying the failure in reasonable detail and granting the NEO an opportunity to cure such failure within such 10 day period;

 

(iv)the NEO engages in illegal conduct, any breach of fiduciary duty (if any), any act of material dishonesty or other misconduct, in each case in this clause (iv), against the Company or any of its affiliates;

 

(v)a material violation or willful breach by the NEO of any of the policies or procedures of the Company, including, without any limitation, any employee manual, handbook or code of conduct of the Company which, to the extent curable, is not remedied within 10 days after the NEO’s receipt of written notice given by or on behalf of the Company identifying the violation or breach in reasonable detail and granting the Executive an opportunity to cure such violation or breach within such 10 day period;

 

(vi)the NEO fails to meet any material obligation the NEO may have under any agreement entered into with the Company which, to the extent curable, is not remedied within 10 days after the NEO’s receipt of written notice given by any member of the Company identifying the failure in reasonable detail and granting the NEO an opportunity to cure such failure within such 10 day period;

 

(vii)the NEO’s failure to maintain any applicable license, permit or card required by the federal or state authorities or a political subdivision or agency thereof (or the suspension, revocation or denial of such license, permit or card); or

 

(viii)the NEO’s breach of any non-compete, non-solicit, confidentiality or other restrictive covenant to which the NEO may be subject, pursuant to an employment agreement or otherwise.

 

The term a “Change in Control” of the Company will be deemed to occur as of the first day that one or more of the following conditions is satisfied:

 

(i)The “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act) of securities representing more than 50% of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (“Company Voting Securities”), is accumulated, held or acquired by a “Person” (as defined in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, holders of capital stock of the Company as of the date hereof or a subsidiary thereof, any corporation owned, directly or indirectly, by the Company’s stockholders in substantially the same proportions as their ownership of stock of the Company); provided, however, that any acquisition from the Company or any acquisition pursuant to a transaction that complies with clauses (A), (B) and (C) of clause (iii) below will not be a

 

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 Change in Control; provided further, that immediately prior to such accumulation, holding or acquisition, such Person was not a direct or indirect beneficial owner of 15% or more of Company Voting Securities as of the date of this Agreement; or

 

(ii)Individuals who, as of the date of the Agreement, constitute the Board, or “Incumbent Board”, cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered as though such individual were a member of the Incumbent Board; or

 

(iii)Consummation by the Company of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets or stock of another entity, or “Business Combination”, in each case, unless immediately following such Business Combination: (A) more than 50% of the combined voting power of then outstanding voting securities entitled to vote generally in the election of directors of (x) the corporation resulting from such Business Combination, or “Surviving Corporation”, or (y) if applicable, a corporation that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries, or “Parent Corporation”, is represented, directly or indirectly by Company Voting Securities outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportions as their ownership, immediately prior to such Business Combination, of Company Voting Securities; (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 40% or more of the combined voting power of the then outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) except to the extent that (x) such ownership of the Company existed prior to the Business Combination or (y) that immediately prior to such Business Combination, such Person was a direct or indirect beneficial owner of 15% or more of the Company Voting Securities as of the date of the respective employment agreement, and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination.

 

Notwithstanding anything to the contrary in the foregoing, in no event will a Change in Control be deemed to have occurred with respect to the NEO (i) in connection with the initial public offering of the Parent Corporation’s Voting Securities; or (ii) if the NEO is part of a purchasing group that consummates the Change in Control transaction. The NEO will be deemed “part of a purchasing group” for purposes of the preceding sentence if the NEO is an equity participant in the purchasing company or group (except (i) passive ownership of less than two percent of the stock of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group that is otherwise not significant, as determined prior to the Change in Control by a majority of the nonemployee continuing directors; provided that, for purposes of the foregoing, participation as a management investor in such purchasing company will not be deemed to be within the exceptions provided for in these items (i) and (ii)); and/or (iii) in connection with the business combination transaction.

 

The term “Disability” means the NEO’s long-term disability as defined by and determined under the Company’s long-term disability plan, or if the NEO is not covered by a long-term disability plan sponsored by the Company, then the NEO’s inability (as determined by the Board or compensation committee thereof in its discretion) to engage in any substantial gainful activity by reason of any medically-determined physical or mental impairment that can be expected to result in death or to be of long-continued and indefinite duration.

 

The term “Good Reason” means the occurrence of any of the following without the NEO’s consent:

 

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(i)a material reduction or a material adverse alteration in the nature of the NEO’s position, responsibilities or authorities or the assigning of duties to the NEO that are materially inconsistent with those of the position of such NEO of a company of comparable size in a comparable industry;

 

(ii)the NEO’s becoming the holder of a lesser office or title than that previously held;

 

(iii)any material breach of this Agreement by the Company that causes an adverse change to the terms and conditions of the NEO’s employment;

 

(iv)the Company requires the NEO to relocate his principal business office to a location not within 75 miles of the Company’s principal executive office located in Denver, Colorado or the Hycroft Mine;

 

(v)any reduction in the NEO’s salary, other than a reduction in salary generally applicable to executive employees; or

 

(vi)failure of the Company to pay the NEO any amount otherwise vested and due under this Agreement or under any plan or policy of the Company following written notice by the NEO to the Seller identifying the failure and the basis for such payment and the Company’s failure to cure within 10 days following receipt of such written notice.

 

In no event will a resignation be deemed to occur for “Good Reason” unless the NEO provides notice to the Company, and such resignation occurs, within 90 days after the event or condition giving rise thereto. Upon receiving notice from the NEO, the Company shall have a period of 30 days during which it may remedy the event or condition.

 

Employment Agreement with Randy E. Buffington

 

The Seller entered into an employment agreement dated as of March 15, 2019 with Mr. Buffington, which was assumed by the Company, providing for a two-year term as President and Chief Executive Officer, following which he shall be deemed to be an at-will employee during the continuation of his employment by the Company. Under the terms of his employment agreement, Mr. Buffington is entitled to an annual base salary of $525,000, an annual cash incentive bonus initially set at 50% of his annual base salary at target, and long-term equity incentive awards initially awarded at 300% of his annual base salary at target. On February 20, 2019, the board of directors of the Seller authorized and approved the issuance of equity awards in the form of restricted stock units with a value of $1,575,000, which were also assumed by the Company. On July 1, 2020, the Company and Mr. Buffington agreed to terminate his employment with the Company and his service on the Board as described below in “Departure of Randy Buffington as Chairman, Chief Executive Officer and President.”

 

The initial performance metrics for the annual cash incentive bonus plan were based upon successful financing of the Hycroft Mine development costs, Hycroft Mine operational start up, safety and other metrics which were determined by the Seller’s board of directors. After commencement of mining operations, we anticipate establishing new performance metrics under the annual cash incentive bonus plan, including: (i) gold and gold equivalent production/sales, (ii) total cash costs of production per gold or gold equivalent ounce, (iii) health and safety, and/or (iv) such other metrics as are determined from time to time by the Board.

 

The long-term equity incentive awards are in the form of restricted stock units, subject to the terms and conditions set forth in the written award agreements. Fifty percent of such awards are performance-based equity awards with vesting tied to satisfaction of performance-based metrics which were determined by the Seller’s board of directors at the end of the performance period. The remaining 50% of such awards were in the form of time-based equity awards with vesting based upon continued employment. Fifty percent of the time-based equity awards vested upon the consummation of business combination and the remaining 50% of such time-based equity awards vested on the second anniversary of the effective date or June 1, 2020. The number of units awarded were determined by an enterprise value of $350 million, reflecting the anticipated value of the business combination. Under the terms of those equity award agreements and as provided in the Purchase Agreement, the obligations under such equity awards have been assumed by us in connection with the business combination and mirror replacement equity awards in the form of substantially similar restricted stock units convertible into shares of Common Stock have been issued in connection with the consummation of the business combination.

 

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The initial long-term equity incentive award agreements will also include “double trigger” accelerated vesting in the event of a Change in Control (which does not include the business combination), in addition to two accelerated vesting events involving liquidity transactions that would be mutually exclusive with the consummation of the business combination.

 

Mr. Buffington will be subject to ongoing restrictive covenants of non-disclosure of confidential information, and non-competition and non-solicitation for a period of 18 months following the termination of his employment with the Company.

 

On July 1, 2020, the Company announced that the Board and Randy Buffington agreed that Mr. Buffington would depart from the Company and would resign and transition from his roles of Chairman of the Board, President and Chief Executive Officer and any and all other positions held by him with any direct or indirect subsidiary of the Company, effective as of July 1, 2020.

 

On July 1, 2020, the Company and Mr. Buffington entered into a Transition and Succession Agreement (the “Transition Agreement”) pursuant to which Mr. Buffington resigned as Chairman of the Board, President and Chief Executive Officer and any and all other positions held by him with any direct or indirect subsidiary of the Company, and that provides, among other things, for Mr. Buffington to receive a continuation of his salary and the value of his insurance coverage for a period of 24 months following his departure, subject to the statutory revocation provisions set forth in the Transition Agreement. In recognition of Mr. Buffington’s successful efforts in developing a new process to economically and profitably recover gold from sulfide ores in a heap leach process and restarting mining operations at the Hycroft Mine and to reward and compensate him for transition assistance, the Company and Mr. Buffington also entered into a Restricted Stock Unit Agreement (Time-Vesting) (the “RSU Agreement”) pursuant to which the Company will grant a special discretionary equity bonus in the form of $1,300,000 in restricted stock units convertible into shares of common stock, vesting pro rata over a period of two years following expiration of the statutory revocation period set forth in the Transition Agreement. The Company also agreed to transfer title to the truck that Mr. Buffington used to travel to the Hycroft Mine. In addition and in order to facilitate the continued development and operation of the Hycroft Mine and the transition to his successor as President and Chief Executive Officer, the Company and Mr. Buffington have entered into a Consulting Agreement (the “Consulting Agreement”) pursuant to which the Company will pay Mr. Buffington $25,000 a month for 24 months for his performance of consulting services during that time.

 

Mr. Buffington’s decision to resign did not involve any disagreement relating to the Company’s operations, policies or practices. The foregoing summary of the Transition Agreement, the RSU Agreement and the Consulting Agreement does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of those agreements, copies of which are attached as Exhibits 10.27, 10.28 and 10.29, respectively, to the Registration Statement on Form S-1 of which this Prospectus forms a part and are incorporated by reference herein.

 

Employment Agreement with Stephen M. Jones

 

The Seller entered into an employment agreement dated as of March 15, 2019 with Mr. Jones, which was assumed by the Company, providing for a three-year term as Executive Vice President and Chief Financial Officer, following which he shall be deemed to be an at-will employee during the continuation of his employment by the Company. Under the terms of his employment agreement, Mr. Jones is entitled to an annual base salary of $425,000, an annual cash incentive bonus initially set at 50% of his annual base salary at target, and long-term equity incentive awards initially awarded at 250% of his annual base salary at target. On February 20, 2019, the Seller’s board of directors authorized and approved the issuance of equity awards in the form of restricted stock units with a value of $1,062,500, which were also assumed by the Company.

 

The initial performance metrics for the annual cash incentive bonus plan were based upon successful financing of the Hycroft Mine development costs, Hycroft Mine operational start up, safety and other metrics which were determined by the Seller’s board of directors. After commencement of mining operations, we anticipate establishing new performance metrics under the annual cash incentive bonus plan, including: (i) gold and gold equivalent production/sales, (ii) total cash costs of production per gold or gold equivalent ounce, (iii) health and safety, and/or (iv) such other metrics as are determined from time to time by the Board.

 

The long-term equity incentive awards are in the form of restricted stock units, subject to the terms and conditions set forth in the written award agreements. Fifty percent of such awards are performance-based equity awards with vesting tied to satisfaction of performance-based metrics which were determined by the Seller’s board of directors at the end of the performance period. The remaining 50% of such awards were in the form of time-based equity awards with vesting based upon continued employment. Fifty percent of the time-based equity awards vested upon the consummation of business combination and the remaining 50% of such time-based equity awards vested on the second anniversary of the effective date or June 1 , 2020. The number of units awarded were determined by an enterprise value of $350 million, reflecting the anticipated value of the business combination. Under the terms of those equity award agreements and as provided in the Purchase Agreement, the obligations under such equity awards have been assumed by us in connection with the business combination and mirror replacement equity awards in the form of substantially similar restricted stock units convertible into shares of Common Stock have been issued in connection with the consummation of the business combination.

 

The initial long-term equity incentive award agreements will also include “double trigger” accelerated vesting in the event of a Change in Control (which does not include the business combination), in addition to two accelerated vesting events involving liquidity transactions that would be mutually exclusive with the consummation of this offering.

 

Mr. Jones will be subject to ongoing restrictive covenants of non-disclosure of confidential information, and non-competition and non-solicitation for a period of 18 months following the termination of his employment by the Company without Cause, by him for Good Reason or due to his Disability, or in the event that he voluntarily terminates his employment without Good Reason prior to the expiration of the initial term of his employment agreement.

 

Payments Upon Termination

 

Each of the employment agreements with Messrs. Buffington and Jones contain provisions which entitle them to payments following termination of their employment in certain circumstances, as described below.

 

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Termination of Employment for any Reason

 

Pursuant to the employment agreements that we entered into with each of Messrs. Buffington and Jones, in the event their employment with the Company is terminated for any lawful reason or no reason, they (or their estate, as applicable) will be entitled to receive any earned but unpaid base salary, any earned but unpaid annual cash incentive bonus, any amounts that may be payable under any applicable executive benefit plan, expense reimbursements and COBRA benefits provided that a timely election for COBRA continuation coverage is made and the applicable amounts are paid.

 

Termination of Employment other than for Cause or Voluntary Termination by Executive for Good Reason

 

In the event that the Company terminates either of Messrs. Buffington and Jones without Cause or either of them terminates their employment for Good Reason, they would be entitled to (i) a cash amount equal to 1.5 multiplied by their annual base salary, payable in equal installments over the 18 month period following the date of termination, (ii) 18 months of continued coverage under the Company’s medical, dental, life and disability plans, at the same cost to the individual as in effect on the date of termination, and (iii) outplacement services until the earlier of (A) $15,000 in the aggregate having been paid by the Company to the outplacement firm or (B) 12 months following the date of termination.

 

Termination of Employment in the Event of Death or Disability

 

In the event that the employment of either of Messrs. Buffington and Jones with the Company is terminated due to his death or Disability, he (or their estate, as applicable) will be entitled to receive, the pro rata portion of any bonus payable to them under the Company’s annual cash incentive plan and/or Retention Bonus Plan for the year in which such termination for death or Disability occurs determined based on the actual bonus attained for the fiscal year in which such termination occurs.

 

Termination of Employment after a Change in Control

 

If within 90 days prior to, or one year after, a Change in Control, the Company terminates the employment of either of Messrs. Buffington or Jones for reasons other than for Cause, either of them incurs a Disability or either of them voluntarily terminates his employment for Good Reason, he will be entitled to (i) a cash amount equal to 2.0 multiplied by his annual base salary, payable in a lump sum on the 60th day following the date of termination, (ii) a cash amount equal to 2.0 multiplied by the greater of (A) the actual bonus paid for the fiscal year immediately preceding the date of termination, (B) the actual bonus attained for the fiscal year in which the date of termination occurs prior to the first anniversary of the employment agreement, or (C) the target bonus for the fiscal year in which the date of termination occurs, payable in a lump sum on the 60th day following the date of termination, (iii) 24 months of continued coverage under the Seller’s medical, dental, life and disability plans, at the same cost to the individual as in effect on the date of the Change in Control (or, if lower, as in effect at any time thereafter) and (iv) outplacement services until the earlier of (A) $15,000 in the aggregate having been paid by the Company to the outplacement firm or (B) 12 months following the date of termination.

 

Director Compensation

 

During the years ended December 31, 2018 or 2019, we did not pay our directors for their service and as of December 31, 2019, none of the directors held any options or other equity in the Company.

 

We intend to reconsider the amount and form of director compensation to be paid following the consummation of the business combination.

 

Phantom Stock Award Agreements

 

Each of the non-executive members of our Board who served on our predecessors board of directors received phantom shares pursuant to the Seller’s Non-Employee Director Phantom Stock Plan (the “Phantom Plan”). Non-employee members of the Seller’s board of directors received such phantom shares as part of their annual compensation pursuant to phantom stock award agreements. Under the Phantom Plan, a phantom share is an unfunded bookkeeping unit, entitling a participant to a cash payment equal to the fair market value of a share of the

 

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Seller’s common stock determined upon the date of the applicable “Payment Event” (as set forth below). Under the award agreements, each phantom share is vested upon the date of grant and is subject to forfeiture if the participant is removed from the Seller’s board of directors for reasons constituting “Cause” (as defined below). Directors who are affiliated with our significant stockholders, which include Mr. Kirsch, were entitled to be awarded a number of phantom shares equal to the greater of (i) $125,000 or (ii) the value of 75,000 phantom shares (subject to equitable adjustment for changes in capital or corporate structure). Directors who were not affiliated with our significant stockholders, which include Messrs. Ellis and Harrison, were entitled to be awarded annually $50,000 in cash payable quarterly and a number of phantom shares equal to the greater of (i) $75,000 or (ii) the value of 45,000 phantom shares (subject to equitable adjustment for changes in capital or corporate structure).

 

For purposes of the Phantom Plan, “Payment Event” means the first to occur of the following:

 

1)            the participant’s retirement from the Seller’s board of director;

 

2)            the participant’s resignation from the Seller’s board of directors;

 

3)            the participant’s failure to stand for re-election as a non-employee director of the Seller’s board of directors;

 

4)            the participant’s removal from the Seller’s board of directors for reasons other than “Cause” (as defined below);