Commitments and Contingencies

6 Months Ended

Jun. 30, 2021

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

From time to time, the Company is involved in various legal actions related to its business, some of which are class action lawsuits. Management does not believe, based on currently available information, that contingencies related to any pending or threatened legal matter will have a material adverse effect on the Company’s financial statements, although a contingency could be material to the Company’s results of operations or cash flows for a particular period depending on the results of operations and cash flows for such period. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.

The Company has deductible-based insurance policies for certain losses related to general liability, workers’ compensation and automobile coverage. The Company records accruals for contingencies related to its insurance policies when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using historical loss development factors and actuarial assumptions followed in the insurance industry.

Financial commitments not recorded in the financial statements

As of June 30, 2021 and December 31, 2020, the Company's off-balance sheet arrangements consisted of operating lease agreements, a net profit royalty arrangement, and a future purchase obligation for consignment inventory.

Operating leases

During the year ended December 31, 2020, the Company signed two leases for the rental of mining equipment. The operating leases for mobile mining equipment are used to supplement the Company’s own fleet. Each lease has less than a year remaining as of June 30, 2021. The total remaining minimum lease payments for the two leases was approximately $0.9 million as of June 30, 2021.

During the first quarter of 2021, the Company executed an operating lease agreement for a new large wheel loader with equal monthly payments of $0.1 million payable over four years, in addition to monthly maintenance payments based upon a fixed rate per service maintenance units. The total remaining minimum lease payments for this lease was approximately $8.5 million (including maintenance payments of $3.7 million) as of June 30, 2021.

The Company also holds operating leases for office buildings. Rent expense is $0.1 million annually and the leases expire between July 2021 and January 2022.

Net profit royalty

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 certain patented and unpatented mining claims. The mining lease also requires an annual advance payment of $120,000 every year mining occurs on the leased claims. All advance annual payments are credited against the future payments due under the 4% net profit royalty. An additional payment of $120,000 is required for each year total tons mined on the leased claims exceeds 5.0 million tons. As of June 30, 2021, total tons mined from the leased claims did not exceed 5.0 million tons. The total payments due under the mining lease are capped at $7.6 million, of which the Company has paid or accrued $2.8 million and included $0.5 million in Other assets, non-current in the consolidated balance sheets as of June 30, 2021.

Consignment inventory

As of June 30, 2021, the Company has prepaid $1.9 million towards un-replenished consignment stock inventory, which is included in Prepaids and other on the condensed consolidated balance sheets. Additionally, during the first quarter of 2021, the Company purchased $0.5 million of replenished consignment stock inventory, payable monthly in 12 equal payments which began in March 2021. Replenished stock inventory is included in Other assets, non-current on the condensed consolidated balance sheet, with an offsetting payable included in Accounts payable on the condensed consolidated balance sheet.