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OFFON

HYCROFT MINING HOLDING CORPORATION

(HYMC)
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HYCROFT MINING : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/17/2021 | 07:28am EDT
The following discussion, which has been prepared based on information available
to us as of May 14, 2021, provides information that we believe is relevant to an
assessment and understanding of our consolidated operating results and financial
condition. As a result of the completion of the Recapitalization Transaction,
the financial statements of Seller are now the financial statements of the
Company. Prior to the Recapitalization Transaction, the Company had no operating
assets but, upon consummation of the Recapitalization Transaction, the business
and operating assets of Seller sold to the Company became the sole business and
operating assets of the Company. Accordingly, the financial statements of Seller
and its subsidiaries as they existed prior to the Recapitalization Transaction
and reflecting the sole business and operating assets of the Company going
forward, are now the financial statements of the Company. The following
discussion should be read in conjunction with our other reports filed with the
U.S. Securities and Exchange Commission (the "SEC") as well as our consolidated
financial statements (the "Financial Statements") and the notes thereto (the
"Notes") included in this Quarterly Report on Form 10-Q for the three months
ended March 31, 2021. Terms not defined herein have the same meaning defined in
the Financial Statements and the Notes.
The following MD&A generally discusses our condensed consolidated financial
condition and results of operations for 2021 and 2020 and year-to-year
comparisons between 2021 and 2020.
Introduction to the Company
We are a U.S.-based gold producer that is focused on operating and developing
our wholly owned Hycroft Mine in a safe, environmentally responsible, and
cost-effective manner. Gold and silver sales represent 100% of our operating
revenues and the market prices of gold and silver significantly impact our
financial position, operating results, and cash flows. The Hycroft Mine is
located in the State of Nevada and the corporate office is located in Denver,
Colorado. The Hycroft Mine had proven and probable mineral reserves of 11.9
million ounces of gold and 478.5 million ounces of silver at December 31, 2020,
as determined by deducting mineral reserves mined through December 31, 2020 from
the mineral reserves estimated in the Hycroft Technical Report at July 31, 2019.
Operations restart
During the second quarter of 2019, we restarted open pit mining operations at
the Hycroft Mine, and, during the third quarter of 2019, produced and sold gold
and silver, which we have continued to do on an approximate weekly basis since
restarting. As part of the 2019 restart of mining operations, existing equipment
was re-commissioned, including haul trucks, shovels and a loader, upgrades were
made to the crushing system and leach pad space was added to the existing leach
pads. During 2020, we added mine equipment through rentals, began construction
of additional leach pad space, and increased our total headcount in order to
increase our mining rate.
As discussed throughout this MD&A, including within the Hycroft Mine section,
during the three months ended March 31, 2021 we have been unable to fully
achieve our internal operating, processing, sales, and production cost targets,
which has resulted in net operating losses and negative cash flows before
financing activities creating substantial doubt about our ability to continue as
a going concern. Refer to the Going concern subsection of the Recent
Developments section of this MD&A for additional details.
Health and Safety
We believe that safety is a core value and we support that belief through our
philosophy of safe work performance. Our mandatory mine safety and health
programs include employee engagement and ownership of safety performance,
accountability, employee and contractor training, risk management, workplace
inspection, emergency response, accident investigation, and program auditing.
This integrated approach is essential to ensure that our employees, contractors,
and visitors operate safely.
During the first quarter of 2021, we reported no lost time accidents. The
Hycroft Mine's total reportable incident frequency rate for the trailing twelve
months ("TRIFR"), which includes other reportable incidents, is one of the
metrics we use to assess safety performance, and it is generally in line to
slightly elevated versus industry averages and significantly below historical
levels experienced at the Hycroft Mine. During the first quarter of 2021 we
continued our critical focus on safety, including allocating additional
personnel, resources, workforce time, and communications to mine safety. These
actions contributed to a reduction in our TRIFR to approximately 1.21 at March
31, 2021, compared with approximately 2.30 at December 31, 2020.
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We will continue our safety efforts to reach the level of safety we expect and
need to keep our workforce, contractors, and visitors safe.
For health and safety actions specific to COVID-19, refer to the Recent
Developments section of this MD&A.
Executive Summary
In the first quarter of 2021 we operated a conventional run-of-mine ("ROM")
operation with a mix of the Hycroft-owned mining fleet and a rental mining fleet
and our technical team continued to progress and develop our understanding of
the requirements for implementing the proprietary two-stage sulfide heap
oxidization and leach process on a commercial production scale. Highlights for
the first quarter of 2021 include:
•Ounces and realized prices -The Hycroft Mine produced 13,858 ounces of gold and
94,845 ounces of silver and sold 9,830 ounces of gold (average realized price of
$1,784) and 57,236 ounces of silver (average realized price of $26.12). During
the first quarter of 2021, we exceeded plan for ounce production and remain on
target for full year guidance.
•Leach pads - During the first quarter of 2021, we spent $3.2 million (inclusive
of $0.7 million in capitalized interest) on the leach pad expansion project for
completing construction to the appropriate point at which we believe there is a
low risk of adverse impacts to the leach pad and we also completed the purchase
of certain long-lead time items. As discussed in the 2021 Outlook section, due
to strategic shifts in our focus for 2021, we have temporarily deferred
completing the construction and commissioning of the leach pad expansion. We
also developed stacking plans that created sufficient capacity on the existing
Brimstone pad (approximately 34 million tons) to meet our production needs with
a conventional leach operating plan for approximately three years.
•Cash flows and liquidity - Our available cash balance on March 31, 2021 was
$36.5 million, following year-to-date 2021 net operating cash outflows of $14.8
million, and cash outflows from investing activities of $5.1 million.
•Going concern - As of March 31, 2021, substantial doubt existed about our
ability to continue as a going concern as we may need additional capital, which
is contemplated based on, among other things, our current estimates of
production, costs, metal prices, capital expenditures, and debt service
obligations over the next twelve months from the filing date of this Quarterly
Report on Form 10-Q for the period ended March 31, 2021.
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Recent Developments
Going concern
As discussed in Note 2 - Summary of Significant Accounting Policies to the Notes
to the Financial Statements, events and conditions exist that, when considered
individually or in the aggregate, raise substantial doubt about our ability to
continue as a going concern because without additional funding we may be unable
to meet our obligations as they become due within one year after the date that
the financial statements for the period ended March 31, 2021 were issued.
Although we completed the Recapitalization Transaction during the 2020 second
quarter and completed the underwritten public offering on October 6, 2020, for
estimated proceeds net of discount and equity issuance costs of $83.1 million,
using our internal forecasts and cash flow projection models, we currently
project we will likely require additional cash from financing activities in less
than 12 months from the date of this Quarterly Report on Form 10-Q to meet our
operating and investing requirements and future obligations as they become due.
Our ability to continue as a going concern is contingent upon securing
additional funding for working capital, capital expenditures and other corporate
expenses so that we can increase sales by achieving higher cost-effective
operating tonnages and recovery rates and generate positive cash flows.
COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel
coronavirus ("COVID-19") as a pandemic, which continues to spread throughout the
United States. Efforts implemented by local and national governments, as well as
businesses, including temporary closures, have had adverse impacts on local,
national and global economies. We have implemented health and safety policies
and protocols for employees, contractors, and visitors that follow guidelines
published by the Center for Disease Control (CDC) and the Mine Safety and Health
Administration (MSHA). During the first quarter of 2021, and the fourth quarter
of 2020, our operations were limited by COVID-19 related absences, however the
impact while negative, did not materially and adversely affect our operations.
The extent of the impact of COVID-19 on our operational and financial
performance going forward will depend on certain developments, including but not
limited to the duration and continued spread of the outbreak and strand
mutations, the availability and use of vaccines, the development of therapeutic
drugs and treatments, and the direct and indirect impacts on our employees,
vendors, and customers, all of which are uncertain and cannot be fully
anticipated or predicted. Since the Hycroft Mine represents the entirety of our
operations, any further COVID-19 outbreaks at the mine site or any governmental
restrictions implemented to combat the pandemic could result in a partial or an
entire shutdown of the Hycroft Mine itself, which would adversely impact our
financial position, operating results, and cash flows.
As a result of COVID-19, we have implemented numerous policies and initiatives,
including, but not limited to:
•General travel and site access restricted to business-critical needs;
discretionary travel strongly discouraged;
•Increased cleaning and disinfecting of common areas, including mobile mining
equipment cabs;
•Use of face coverings and social distancing, including limiting meetings to
essential people with increased use of conference calls and webinars;
•Communications informing employees of their ability to take paid-leave for
COVID-19-related matters;
•Employees who can have been permitted to work remotely; and
•Regularly monitoring local, state, and national publications and guidance for
routine discussion among executives and management.
To date, COVID-19 related absences have limited our operations, but did not
materially disrupt our operations. Additionally, we have not experienced any
material disruptions to our supply chain because of COVID-19. However, we can
provide no assurance that our operations will not be materially adversely
affected by the COVID-19 pandemic in the future that could result from any
worsening of the pandemic, the effect of mutating strains, additional outbreaks
of the pandemic, actions taken to contain the pandemic's spread or treat its
impact, continued availability of vaccines, and their distribution, acceptance
and efficacy, and governmental, business and individual personal actions taken
in response to the pandemic among others.
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Technical review summary
The new leadership team established at the mine launched into an extensive and
detailed review of the Hycroft Mine and took immediate steps to rectify
operational shortcomings, significantly reduce costs, and put in place an
operating team aligned with the Company's long-term strategy to establish the
Hycroft Mine as a long-life, low-cost gold and silver producer. To date, the
team has made significant strides at the Hycroft Mine through elevating the
safety performance, improving the culture at Hycroft, establishing operational
improvements, reducing spend, and identifying several areas for continued
enhancement. The 2021 actions were quickly implemented and, in the first
quarter, we saw significant improvement in safety performance and costs as we
continued to reduce our reliance on contractors. Incident and near miss
reporting increased as expected as the team initiated numerous campaigns to
recognize, report, and eliminate safety hazards. In 2021, we have seen and will
continue to see continued improvement in safe work performance.
In the fourth quarter of 2020, we formed a technical team to support the new
leadership team in ongoing data analysis, developing processing models for
future larger-scale sulfide leach operations and incorporating data and results
from the pre-commercial leach pads. The team is comprised of industry leading
consultants with expertise in metallurgy, open pit mining and heap leach
processing, heap leach stacking and modeling and other process technologies, and
the team also has access to a leading research and development laboratory. The
mine site's process team and leadership in conjunction with the technical team
focused its efforts on identifying and investigating opportunities for
improvements in operating parameters in the sulfide heap oxidation and leach
process resulting in additional work plans as described in the following 2021
Outlook section.
2021 Outlook
During 2021, we intend to focus our efforts on placing the Hycroft Mine in a
position for a future ramp up of production at the appropriate time. Our focus
for 2021 will entail mining and processing ROM oxide and transitional ores aimed
at maximizing ounce production and cash flows and preserving our cash. Compared
to sulfide ore, ROM oxide and transitional ore can be processed at a lower cost
because this material does not require crushing, rehandling, or soda ash reagent
application, and the shorter recovery cycle reduces working capital. The ROM
operating plan for 2021 will provide us the opportunity to complete and evaluate
the results of the ongoing technical and optimization work for the proprietary
two-stage heap oxidation and leach process. Based upon the findings and results
of this evaluation process, we may update or file a new technical report. We
currently have established goals and budgeted estimated costs for this work in
2021 or 2022.

Production outlook
Although the 2021 ROM budgeted operating plan reduces annual mining activity
from 2020, we expect to increase total annual production to 45,000 - 55,000
ounces of gold and 400,000 - 450,000 ounces of silver by drawing down inventory
that has been previously stacked on the leach pads and stacking ROM oxide and
transitional material with a shorter recovery cycle. We anticipate that mining
in the first seven months of 2021 will be performed using the existing Hycroft
fleet and a rental fleet, moving approximately 1.5 million tons per month of ore
and waste. For the remainder of the year, we intend to mine varying levels of
oxide and transitional ore and waste with a combination of the Hycroft mining
fleet and the rental mining fleet. The ROM operating plan will allow us to
maintain our existing workforce while allowing time to optimize the mining plan,
take additional steps to define the ore body, and resolve technical issues
related to developing processes and procedures for the efficient and effective
recovery of gold and silver from the two-stage heap oxidation and leaching of
sulfide ore, thereby positioning the mine site for the first phase ramp up and
future growth. At current metal prices, our full-year 2021 production costs are
expected to exceed gold and silver revenues due to fixed costs and lower planned
ROM volumes. The ROM volumes reflect the current processing capacity which is
limited until we can complete expenditures necessary to refurbish the North
Merrill-Crowe plant and construct the second refinery.

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Technical activities
During the first quarter of 2021, we continued to work alongside our industry
leading consultants to identify and investigate opportunities for improvements
in operating parameters for the Hycroft operation. Areas under review and
development include:
(1)finalizing diagnostic lab procedures for oxidation and leach amenability
testing, which is required to support the variability testing as well as
diagnose ongoing amenability characterization of sulfide ores;
(2)commencing a metallurgical drilling campaign that forms the basis of the
geo-metallurgical variability testing;
(3)assessing oxide-transition mining, stacking, and metal plans; and
(4)creating a dynamic leach pad model.
The additional variability test work will also include detailed mineralogy
studies as it is important to understand the role other minerals may play in the
overall oxidation process and to enhance our ability to measure oxidation rates
accurately and consistently. We have developed an approximate $10 million
program for drilling and additional metallurgical and mineralogical studies in
2021. This program of work has been approved by our Board of Directors and is
expected to be funded from existing cash and our current operating plan.
Based on our recent understanding of the two-stage heap oxidation and leach
process, and consistent with our strategy to position the Hycroft Mine for a
ramp up at the appropriate time, much of our technical efforts for 2021 will
include focusing on achieving the below items:
•Leach pad optimization - We developed a stacking plan for the 2021 ROM plan
that utilizes existing leach pads, preserving the new leach pad for sulfide
ores, and facilitates deferring the capital expenditures to complete and
commission the new leach pad into 2022.
•Technical analyses - The technical work programs taking place in 2021 may
provide information for evaluating enhancements, updates, and opportunities for
the novel process, while also considering processing technologies for certain
ores that may generate enhanced value.
•Mine planning and exploration - The mining team was expanded to include a
professional with expertise in geologic modeling and a track record for
establishing successful exploration and geology programs. The mining team,
together with the exploration team, and Forte Dynamics, Inc., a multi-faceted
engineering and consulting firm in open pit mining and heap leach processes, are
working to identify additional opportunities to explore areas with higher grade
potential and identify mine plan enhancements for improved cash flows.
•Constraints to growth - The Hycroft Mine's future ramp up is dependent on
eliminating current mining and processing constraints. As it relates to mining,
when we are ready to ramp up production, we will need to acquire a mining fleet
capable of achieving targeted production, and recruit and train operators and
maintenance staff. For processing, we will need to: (i) complete planned repairs
to the Brimstone Merrill-Crowe plant and refinery; (ii) restore and recommission
the North Merrill-Crowe plant, and complete detailed engineering, permitting,
and installation for the adjacent refinery; (iii) ensure we have sufficient
reagent availability and storage, handling, and application systems; and (iv)
evaluate other supporting process plant and equipment required for future
growth, namely material handling systems and crusher capacity.
Although the above items set forth our current expectations of focus during
2021, as information, test results, and data becomes available to us during the
upcoming year, such findings may modify the scope, nature, and timing of
technical, testing, engineering, and growth planning work actually performed.
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Hycroft Mine
Operations
The following table provides a summary of operating results for the Hycroft
Mine:
                                                                            

Three Months Ended March 31,

                                                                             2021                    2020
Ore mined - sulfide/crusher feed                   (ktons)                           419                    957
Ore mined - ROM                                    (ktons)                         2,466                    305
Total ore mined                                    (ktons)                         2,885                  1,262
Waste mined                                        (ktons)                         1,195                    165
Total mined and rehandled                          (ktons)                         4,080                  1,427

Waste tons to ore tons strip ratio                 (#)                              0.41                   0.13

Ore grade mined - gold                             (oz/ton)                        0.013                  0.018
Ore grade mined - silver                           (oz/ton)                        0.258                  0.150

Production - gold                                  (oz)                           13,858                  6,972
Production - silver                                (oz)                           94,845                 41,911

Ounces sold - gold                                 (oz)                            9,830                  6,560
Ounces sold - silver                               (oz)                           57,236                 49,373

Average realized sales price - gold                ($/oz)              $        1,784$       1,577
Average realized sales price - silver              ($/oz)              $    

26.12 $ 16.16



As shown above, tons mined, ounces produced, ounces sold and average realized
prices significantly increased during the three months ended March 31, 2021,
compared with the prior year due to ramping up mining and operations beginning
in the second quarter of 2020.
Mining
As shown in the table above, tons mined, ounces produced, ounces sold, and
average realized prices significantly increased during the three months ended
March 31, 2021. However, mining activity during the first quarter of 2021 was
negatively impacted by unfavorable levels of manpower due to recruiting
shortfalls, as well as absences due to indirect exposure to COVID-19 and
COVID-19 related illnesses, and operational issues from our new drill and blast
contractor.
The gold grades of ore mined during 2021 were as planned and decreased from the
comparable period of 2020 in which existing higher grade stockpile ore was mined
prior to starting any drilling and blasting.
Crushing
The crusher did not operate during the first quarter of 2021, as all our mined
ROM ore was routed to the Brimstone leach pad and sulfide ore was stockpiled.
Based on the current ROM plan for 2021 we do not plan to operate the crusher in
2021.
Processing
During 2021, ore placed on the pre-commercial leach pads was transitional ore,
which based on studies and processing results in the second half of 2020,
indicate this ore is more amenable to direct leach, as the costs and time
associated with oxidizing transitional ore do not yield significantly better
recoveries than routing transitional ore as direct leach. The ore mined over the
next twelve months will be predominantly ROM oxide ore and transitional ore and
we will stockpile sulfide ore that we encounter.
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Production and sales
Our first quarter 2021 production and sales levels increased over the comparable
2020 period due to increased quantities of ROM tons and ounces placed in the
fourth quarter of 2020. The recovered ounces realized in the first quarter of
2021 resulted from continued leach production of those inventory ounces, higher
leach solution flows to the pad and improving recovery performance from the
Brimstone plant. Average realized gold prices per ounce increased during the
first quarter of 2021 and combined with the higher volumes resulted in revenue
of $19.0 million as compared to $11.1 million in the comparable 2020 period.
Leach pad expansion project
In the fourth quarter of 2020 we developed a stacking plan for the 2021 ROM plan
that utilizes existing leach pads, preserving the new leach pad for sulfide
ores, and facilitates deferring the capital expenditures to complete and
commission the new leach pad into late 2022 or 2023. During the first quarter of
2021 we completed activities to the appropriate point at which we believe it
will reduce the risk of adverse impacts to the leach pad. We also completed the
purchase of certain long-lead time items and no further activity is planned for
2021. Sufficient capacity remains on the existing Brimstone pad (approximately
34 million tons) to meet our production needs with a conventional leach
operating plan for approximately three years.
2019 Hycroft Technical Report
M3 Engineering and Technology Corporation ("M3 Engineering"), in conjunction
with SRK and the Company, completed the Hycroft Technical Report for a
two-stage, heap oxidation and subsequent leaching of sulfide ores. The Hycroft
Technical Report projects the economic viability and potential future cash flows
for the Hycroft Mine when mining operations expand to levels presented in the
Hycroft Technical Report.
The Hycroft Technical Report provides the results of the Hycroft Mine heap leach
feasibility study that evaluated the possibility of oxidizing and leaching
transitional and sulfide ores in a heap leach application. The feasibility study
analyzes a full-scale operation including construction of new leach pads and
expanded mining activities. Key components of the process that currently exist
onsite include heap leach pads, a crushing facility consisting of primary,
secondary, and tertiary crushing, two Merrill-Crowe plants having a total
capacity of 26,000 gallons per minute, and associated support facilities.
The Hycroft Technical Report presents a mineral reserve estimate as of June 30,
2019 of 12.0 million ounces of gold and 481.4 million ounces of silver contained
in oxide, transitional and sulfide ores, which is projected to be mined over 34
years using typical truck and shovel open pit mining methods. The mine plan
presented in the Hycroft Technical Report requires a range of approximately 85
to 100 million tons per year to be mined (both ore and waste) through the mine
life. Over the course of the contemplated mine plan, 1.1 billion tons of ore are
mined with a strip ratio of 1.17.
The Hycroft Technical Report outlines the test work done to demonstrate the
viability of the two-stage, heap oxidation and subsequent leaching of sulfide
ores. As outlined in the Hycroft Technical Report, a significant portion of the
ore is crushed to a P80 of ½" and then mixed with soda ash to induce an alkaline
oxidation process. After the ore has been oxidized to the desired extent, we
will rinse the ore with fresh water and saturated lime solution and then cyanide
leach the ore to extract the gold and silver. This process is the subject of a
pending patent application.
The crushing system is initially designed to run at nominal capacity of 2.0
million tons per month ramping up to 3.0 million tons per month with the
addition of two additional tertiary crushers. Soda ash is added during the
crushing circuit to begin the oxidation process. The ore proceeds through three
stages of crushing and exits into the fine ore stockpile, which is then hauled
to leach pads.
The pH and alkalinity of the ore is managed on the leach pad using a soda ash
solution that is applied to the material to achieve alkalinity levels for
optimal oxidation characteristics. The process solutions are regularly sampled
for reagent addition control and the soda ash solution in the heap is
replenished on a regular basis to offset evaporation and carbonate consumption.
The duration of the pre-oxidation is expected to take between 30 and 120 days,
which is determined by the characteristics of the ore and the measured extent of
oxidation based upon sulfate production.
When the pre-oxidation cycle has been completed, we rinse the 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. The pH is controlled during cyanidation using lime. As the ore has
already been oxidized and rinsed, it undergoes a nominal 60-day primary leach
cycle.
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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 that
can be 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 nameplate capacity of 21,500 gallons per minute, but
is not operational at present.
Overall, the Hycroft Technical Report reflects 7.8 million ounces of payable
gold and 344.1 million ounces of payable silver produced and sold.
Results of Operations
Revenues
Gold revenue
The table below summarizes gold sales, ounces sold and average realized prices
for the following periods (dollars in thousands, except per ounce amounts):
                                             Three Months Ended March 31,
                                                  2021                    2020
Gold revenue                          $        17,541$ 10,348
Gold ounces sold                                9,830                     6,560
Average realized price (per ounce)    $         1,784                  $  

1,577



During the three months ended March 31, 2021, gold revenue was $17.5 million,
compared to $10.3 million for the comparable period of 2020. The significant
increase in revenue during the 2021 period was attributable to the mine having
more ore under leach as mining and processing operations increased beginning in
the second quarter of 2020, resulting in higher production-related inventory
balances and gold revenue during the first quarter of 2021. We also benefited
from favorable gold prices, which were $207 per ounce, or 13%, higher during the
three months ended March 31, 2021, compared to the same period of 2020. Gold
revenue was adversely affected during the three months ended March 31, 2020 due
to lower gold ounces available for sale as a result of write-downs of
recoverable gold ounces on the leach pads (see Note 4 - Inventories to the Notes
to the Financial Statements).
Silver revenue
The table below summarizes silver sales, ounces sold and average realized prices
for the following periods (dollars in thousands, except per ounce amounts):
                                              Three Months Ended March 31,
                                                    2021                   2020
Silver revenue                         $        1,495$   798
Silver ounces sold                             57,236                     49,373
Average realized price (per ounce)     $        26.12                    $ 

16.16



During the three months ended March 31, 2021, silver revenue was $1.5 million
compared to $0.8 million for the comparable period of 2020. Similar to gold
revenue, the increase in silver revenue during the first quarter of 2021 was
attributable to the mine having more ore under leach as compared to the same
2020 period. We also benefited from favorable silver prices, which were nearly
$10 per ounce higher during the three months ended March 31, 2021, compared to
the same period of 2020. Silver revenue was adversely affected during the three
months ended March 31, 2020 due to lower silver ounces available for sale as a
result of write-downs of recoverable ounces on the leach pads.
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Total cost of sales
Total cost of sales consists of Production costs, Depreciation and amortization,
Mine site period costs, and Write-down of production inventories. The table
below summarizes total cost of sales for the following periods (dollars in
thousands):
                                                 Three Months Ended March 31,
                                                      2021                    2020
Production costs                          $        17,817$  8,957
Depreciation and amortization                       1,041                   

1,334

Mine site period costs                             10,544                   

6,634

Write-down of production inventories                    -                     6,965
Total cost of sales                       $        29,402$ 23,890


Production costs
For the three months ended March 31, 2021, we recognized $17.8 million in
Production costs, or $1,813 per ounce of gold sold, compared to $9.0 million, or
$1,365 per ounce of gold, sold during the same period of 2020. The increase in
total production costs was due to an increase of 3,270 gold ounces sold at a
higher average cost per ounce during the three months ended March 31, 2021
compared to the same period of 2020. Higher gold prices during the three months
ended March 31, 2021 resulted in increased carrying values, and related
production costs per gold ounce sold, for production-related inventories
compared to same period of 2020. As discussed in the below Mine site period
costs section, throughout 2020 and the first quarter of 2021, a high operating
cost structure at current levels of production has resulted in write-downs to
ending inventory values per ounce of gold that approximate the net realizable
value per ounce of gold (after considering future costs to complete and sell) as
determined in accordance with our accounting policies. Accordingly, production
costs per ounce of gold sold has been partially limited by the impact of
recognizing Mine site period costs, which lowers the carrying value of
production-related inventories.
Depreciation and amortization
Depreciation and amortization was $1.0 million, or $106 per ounce of gold sold
for the three months ended March 31, 2021, compared to $1.3 million, or $203 per
ounce of gold sold, during the same period of 2020. The decrease in total
depreciation and amortization costs per ounce of gold sold was largely due to an
increase of 3,270 gold ounces sold during the three months ended March 31, 2021
compared to the same period of 2020.
Mine site period costs
During the three months ended March 31, 2021, inclusive of depreciation and
amortization, we recorded $10.5 million of Mine site period costs for costs that
were in excess of the net realizable value per ounce of gold inventories,
compared to $6.6 million during the same period of 2020. Such period costs are
generally the result of recurring or significant downtime or delays, unusually
high levels of repairs, inefficient operations, overuse of processing reagents,
inefficient cost-volume structures, or other unusual costs and activities, and
cannot be recorded to production-related inventories based on the threshold
established by the calculation of the estimated net realizable value per ounce
of gold.
Write-down of production inventories
We did not record any production-related inventory write-downs during the three
months ended March 31, 2021. As discussed in Note 4 - Inventories to the Notes
to the Financial Statements, based on metallurgical balancing results, during
the three months ended March 31, 2020, we determined that 3,980 ounces of gold
that had been placed on the leach pads were no longer recoverable and recognized
a $7.0 million Write-down of production inventories on the consolidated
statements of operations, which included production costs of $6.5 million, and
capitalized depreciation and amortization costs of $0.5 million.
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General and administrative
General and administrative totaled $3.8 million and $2.0 million during the
three months ended March 31, 2021 and 2020, respectively. The increase of $1.8
million during the three months ended March 31, 2021 was primarily due to: (i)
$0.9 million of additional legal, professional, and consulting fees associated
with general corporate matters and obligations as a public company and (ii) an
increase of $0.6 million in salary and compensation costs from increased
corporate headcount.
Projects and development
During the three months ended March 31, 2021, Projects and development costs
totaled $0.5 million and related to the following activities: (i) analyzing
established feasibility studies; (ii) conducting geological studies; (iii)
oversight and project management; and (iv) drilling, engineering, and
metallurgical activities. We did not incur any such costs during the three
months ended March 31, 2020.
Accretion
We recorded $0.1 million of Accretion during both the three months ended
March 31, 2021 and 2020, which related to our Asset retirement obligation and
future reclamation costs. Refer to Note 12 - Asset Retirement Obligation to the
Notes to the Financial Statements for further detail.
Interest expense, net of capitalized interest
As discussed and detailed in Note 9 - Debt, Net to the Notes to the Financial
Statements, Interest expense, net of capitalized interest totaled $4.4 million
and $19.9 million during the three months ended March 31, 2021 and 2020,
respectively, decreasing by $15.5 million during the three months ended
March 31, 2021. The substantial decrease in interest expense for the three
months ended March 31, 2021 compared to the same period of 2020 was a result of
completing the Recapitalization Transaction on May 29, 2020, which caused the
exchange or conversion of the majority of Seller's $627.8 million debt
outstanding to equity, thus resulting in post-Recapitalization Transaction
indebtedness totaling $159.8 million for the Sprott Credit Agreement and
Subordinated Notes.
Fair value adjustments to warrants
During the three months ended March 31, 2021, the Fair value adjustments to
warrants resulted in a non-cash gain of $9.5 million as the market trading
values of our publicly listed warrants decreased, which was primarily due to a
decrease in the underlying trading price of our common shares. We did not incur
any such warrant adjustment during the three months ended March 31, 2020. Refer
to Note 11 - Warrant Liabilities within the Notes to the Consolidated Financial
Statements for further detail.
Interest income
Interest income totaled approximately $23,000 and $0.1 million during the three
months ended March 31, 2021 and 2020, respectively. Interest income was lower
the three months ended March 31, 2021 primarily due to decreases in interest
rate yields from the comparable period of 2020.
Income taxes
There was no income tax benefit or expense, net, recognized during the three
months ended March 31, 2021 and 2020. We have not recorded any future income tax
benefits for net losses generated after the completion of the Recapitalization
Transaction, due to a full valuation allowance recorded against our net
operating loss carryforward earned after the Recapitalization Transaction. For
additional details, refer to Note 16 - Income Taxes to the Notes to the
Financial Statements.
Net loss
For the reasons discussed above, we recorded a net loss of $9.7 million for the
three months ended March 31, 2021, which included a gain from Fair value
adjustments to warrants of $9.5 million, compared to a net loss of $34.6 million
for the three months ended March 31, 2020.
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Liquidity and Capital Resources
General
Our primary cash requirements during the three months ended March 31, 2021
related to the $14.8 million of cash used in the Company's operations and $5.1
million of cash used in investing activities, including $2.5 million spent on
the leach pad expansion project (which excludes $0.7 million of capitalized
interest). We have yet to generate positive cash flow from operations and we do
not expect to do so for the full year 2021. Historically, we have been dependent
on various forms of debt and equity financing to fund our business and we
currently project we will likely require additional cash from financing
activities in less than 12 months from the date of this report to meet our
operating and investing requirements and future obligations as they become due.
We did not complete any financing activities during the three months ended
March 31, 2021.
On May 29, 2020, we completed the Recapitalization Transaction that provided
cash available for use of $68.9 million. As part of the Recapitalization
Transaction, Seller's indebtedness existing prior to the Recapitalization
Transaction was either repaid, exchanged for indebtedness of the Company,
exchanged for shares of our common stock or converted into shares of Seller
common stock, and our post-Recapitalization Transaction indebtedness included
amounts drawn under the Sprott Credit Agreement and the assumption of the newly
issued Subordinated Notes. Additionally, on October 6, 2020, the Company issued
9,583,334 units in an underwritten public offering at an offering price to of
$9.00 per unit (the "Public Offering"), with each unit consisting of one share
of our common stock and one warrant to purchase one share of our common stock at
an exercise price of $10.50 per share, for total proceeds net of discount and
equity issuance costs of $83.1 million. Prior to the closing of the
Recapitalization Transaction, our primary source of liquidity was proceeds
received from the issuance of related-party debt instruments, which were used to
finance the 2019 restart of mining operations at the Hycroft Mine and all
working capital and capital expenditures thereafter.
Our future liquidity and capital resources management strategy entails a
disciplined approach to monitor the timing and amount of any drilling,
metallurgical and mineralogical studies and operational tonnage ramp-up of the
Hycroft Mine while attempting to remain in a position that allows us to respond
to changes in our business environment, such as a decrease in metal prices or
lower than forecasted future cash flows, and changes in other factors beyond our
control. As discussed in the Going concern subsection of the Recent Developments
section of this MD&A, using estimates of future production costs, operational
metrics, and planned capital, project, drilling, and development costs, at
current metal spot prices, we do not expect the Hycroft Mine to report positive
net operating cash flows during the following 12 months from the issuance date
of this report. However, we have undertaken efforts aimed at managing our
liquidity and preserving our capital resources by, among other things: (i)
monitoring metal prices and the impacts (near-term and future) they have on our
business; (ii) developing plans and forecasts that we expect to be reliable and
achievable considering historical operational and processing challenges
encountered to date; (iii) controlling our working capital and managing
discretionary spending; (iv) reviewing contractor usage and rental agreements
for more economic options; and (v) planning the timing and amounts of capital
expenditures and drilling, metallurgical and mineralogical study costs at the
Hycroft Mine and deferring such items that are not expected to benefit our near
term operating plans.
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Cash and liquidity
We have placed substantially all of our cash in operating accounts with a
well-capitalized financial institution, thereby ensuring balances remain readily
available. Due to the nature of our operations and the composition of our
current assets, our Cash, Accounts receivable, and metal inventories represent
substantially all of our liquid assets on hand. Additionally, we are provided
with additional liquidity as ounces are recovered from the Ore on leach pads,
current, processed into finished goods, and sold at prevailing spot prices to
our customers.
The following table summarizes our projected sources of future liquidity, as
recorded within our financial statements (dollars in thousands):
                                                March 31, 2021       December 31, 2020
Cash                                           $        36,497      $           56,363
Accounts receivable                                         14                     426
Metal inventories(1)                                    12,668                   6,418
Ore on leach pads, current(2)                           33,090              

38,041

Total projected sources of future liquidity $ 82,269 $

101,248



(1)Metal inventories contained approximately 7,492 recoverable ounces of gold
that are expected to be sold within the next 12 months. Assuming a gold selling
price of $1,691 per ounce (the March 31, 2021 P.M. fix) and excluding any
proceeds from silver sales, the sale of all gold ounces estimated to be
recovered from our metal inventories would provide us with $12.7 million of
revenue. See Note 4 - Inventories to the Notes to the Financial Statements for
additional information.
(2)Ore on leach pads, current contained approximately 20,140 ounces of gold that
are expected to be processed into finished goods and then sold within the next
12 months. Assuming a gold selling price of $1,691 per ounce (the March 31, 2021
P.M. fix) and excluding any proceeds from silver sales, the sale of all gold
ounces estimated to be recovered from our ore on leach pads would provide us
with $34.1 million of revenue. We also have ore on leach pads that is not
expected to be processed into finished goods within the next 12 months of $9.5
million; accordingly, we exclude this inventory from our projected sources of
future liquidity. See Note 4 - Inventories to the Notes to the Financial
Statements for additional information.
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Three months ended March 31, 2021 compared to the three months ended March 31,
2020
The following table summarizes our sources and uses of cash for the following
periods (dollars in thousands):
                                                                    Three Months Ended March 31,
                                                                      2021                  2020

Net income (loss)                                               $       (9,688)$  (34,618)
Net non-cash adjustments                                                (2,846)             26,582
Net change in operating assets and liabilities                          (2,227)            (11,409)
Net cash used in operating activities                                  (14,761)            (19,445)
Net cash used in investing activities                                   (5,082)             (2,090)
Net cash provided by financing activities                                    -              21,658
Net (decrease) increase in cash                                        (19,843)                123
Cash and restricted cash, beginning of period                           96,040              48,967
Cash and restricted cash, end of period                         $       

76,197 $ 49,090



Cash used in operating activities
During the three months ended March 31, 2021, we used $14.8 million of cash in
operating activities primarily attributable to a net loss of $9.7 million, the
cash impact of which was equal to $12.5 million, and $2.2 million used for
working capital, which included $4.0 million used to increase production-related
inventories. The largest non-cash items included in net income during the three
months ended March 31, 2021 included a $9.5 million gain from Fair value
adjustments to warrants and Interest expense, net of capitalized interest of
$4.4 million.
For the three months ended March 31, 2020, we used $19.4 million of cash for
operating activities primarily attributable to a net loss of $34.6 million, the
cash impact of which was equal to $8.0 million, and $11.4 million used for
working capital, including the operational ramp up following the 2019 restart of
the Hycroft Mine using a net $10.9 million to increase production-related
inventory balances. Cash outflows during the three months ended March 31, 2020
were partially offset by certain non-cash expenses included in Net loss, such as
$17.0 million of non-cash interest expense and a $7.0 million Write-down of
production inventories.
Cash used in investing activities
For the three months ended March 31, 2021 and 2020, we used $5.1 million and
$2.1 million, respectively, in investing activities. For the three months ended
March 31, 2021, expenditures included $2.5 million (exclusive of capitalized
interest of $0.7 million) for the leach pad expansion project and $1.4 million
for purchased equipment. For the three months ended March 31, 2020, the majority
of the capital expenditures related to construction of new leach pad space.
Cash provided by financing activities
There were no cash financing activities during the three months ended March 31,
2021. Cash provided by financing activities was $21.7 million for the three
months ended March 31, 2020, which included $24.9 million in aggregate principal
amount of 1.25 Lien Notes issued to fund the Hycroft Mine restart and ramp up of
mining operations, net of $2.6 million for legal and consulting fees related to
the Recapitalization Transaction and $0.6 million in principal payments for the
First Lien loan.
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Future capital and cash requirements
The following table provides our gross contractual cash obligations as of
March 31, 2021, which are grouped in the same manner as they were classified in
the 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 near-term
obligations expected to be satisfied using current and available sources of
liquidity (dollars in thousands):
                                                                          

Payments Due by Period

                                                              Less than            1 - 3             3 - 5           More than
                                             Total              1 Year             Years             Years            5 Years

Operating activities:
Net smelter royalty(1)                    $ 448,454$   2,036$ 19,578$ 24,327$ 402,513
Remediation and reclamation
expenditures(2)                              62,032                  -                 -                 -             62,032
Interest payments(3)                         15,705              5,230             8,858             1,617                  -
Operating lease requirements(4)               4,733              4,733                 -                 -                  -
Crofoot royalty(5)                            4,750                240               480               480              3,550
Consignment inventory(6)                        833                833                 -                 -                  -
Financing activities:                             -
Repayments of debt principal(7)             213,381              5,734            41,526            28,263            137,858
Additional interest payments(8)               9,348              2,200             4,399             2,749                  -
Total                                     $ 759,236$  21,006$ 74,841$ 57,436$ 605,953


(1)Under the Sprott Royalty Agreement, we are required to pay a perpetual
royalty equal to 1.5% of the Net Smelter Returns from our Hycroft Mine, payable
monthly. Amounts presented above incorporate estimates of our current
life-of-mine plan, and are based on consensus pricing for gold and silver. See
Note 10 - Royalty Obligation to the Notes to the Financial Statements for
additional information.
(2)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. In the above presentation, no offset
has been applied for the $59.9 million of our reclamation bonds or for the $39.7
million of cash collateral for those bonds included in Restricted Cash.
(3)Under the Sprott Credit Agreement, we must pay interest beginning in the 13th
month after the initial advance on May 29, 2020 to Sprott Private Resource
Lending II (Collector), LP.
(4)As noted below in the Off-balance sheet arrangements section of this MD&A, we
have operating leases for mine equipment and office space.
(5)We are required to pay a 4% net profits royalty, including advance royalty
payments of $120,000 in any year where mining occurs on the Crofoot claims and
an additional $120,000 if tons mined from the Crofoot claim blocks exceed 5.0
million tons. See Note 21 - Commitments and Contingencies. Amounts shown
represent our current estimates of cash payment timing using consensus pricing
for gold and silver.
(6)As noted below in the Off-balance sheet arrangements section of this MD&A,
and as discussed in Note 5 - Prepaids and Other to the Notes to the Financial
Statements, we have future purchase obligation for consignment inventory.
(7)Repayments of principal on debt consists of amounts due under the Sprott
Credit Agreement and the Subordinated Notes. Included in the repayment of the
Subordinated Notes principal is interest that has been capitalized as payable
in-kind on a quarterly basis, and on a monthly basis for the Sprott Credit
Agreement for the first 12 months after the initial advance.
(8)Additional interest payments consist of repayments of additional interest
under the Sprott Credit Agreement, commencing February 28, 2021 (with the first
cash payment due three months after such date) and ending on the maturity date.
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Debt covenants
Our debt agreements contain representations and warranties, events of default,
restrictions and limitations, reporting requirements, and covenants that are
customary for agreements of these types.
The Sprott Credit Agreement contains covenants that, among other things,
restrict or limit the ability of the Company to enter into encumbrances (other
than Permitted Encumbrances), incur indebtedness (other than Permitted
Indebtedness), dispose of its assets (other than Permitted Disposals), pay
dividends, and purchase or redeem shares, as such terms are defined in the
Sprott Credit Agreement. The Sprott Credit Agreement requires the Company to
ensure that, at all times, both its Working Capital and Unrestricted Cash are at
least $10.0 million, as such terms are defined in the Sprott Credit Agreement,
and that at least every six months we demonstrate our ability to repay and meet
all present and future obligations as they become due with a financial Model
that uses consensus gold prices discounted by 5.0%, as such terms are defined in
the Sprott Credit Agreement. The Subordinated Notes (as defined herein) include
customary events of default, including those relating to a failure to pay
principal or interest, a breach of a covenant, representation or warranty, a
cross-default to other indebtedness, and non-compliance with security documents.
As of March 31, 2021, the Company was in compliance with all covenants under its
debt agreements.
Off-balance sheet arrangements
As of March 31, 2021, our off-balance sheet arrangements consisted of operating
lease agreements (see Note 21 - Commitments and Contingencies to our Notes
to the Financial Statements), a net profit royalty arrangement (see Note 21 -
Commitments and Contingencies to the Notes to the Financial Statements), and a
future purchase obligation for consignment inventory (see Note 5 - Prepaids and
Other to the Notes to the Financial Statements).
Accounting Developments
For a discussion of any recently issued and/or recently adopted accounting
pronouncements, see Note 2 - Summary of Significant Accounting Policies to the
Notes to the Financial Statements.
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Critical Accounting Estimates
This MD&A is based on our Condensed Financial Statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. The preparation of these statements requires us to make
assumptions, estimates, and judgments that affect the reported amounts of
assets, liabilities, revenues, and expenses. For information on the most
critical accounting estimates used to prepare the Condensed Financial
Statements, see the Critical Accounting Estimates section included in Part II -
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations in our Annual Report on Form 10-K/A for the year ended
December 31, 2020, as amended on May 14, 2021.
The following new critical accounting estimate was adopted during the three
months ended March 31, 2021, see Note 2 - Summary of Significant Accounting
Policies to the Notes to the Financial Statements for additional information.
Fair value of warrant liability
Estimate Required:

We account for the 5-Year Private Warrants to purchase shares of our common
stock that are not indexed to our own stock as liabilities at fair value on the
balance sheet. The warrants are subject to remeasurement at each balance sheet
date, and any change in fair value is recognized as a component of Other income
(expense), net on the statement of operations. We will continue to adjust the
liability for changes in fair value of the 5-Year Private Warrants until the
earlier of the (i) exercise or expiration of the 5-Year Private Warrants or (ii)
the transfer of any 5-Year Private Warrants to any person who is not a permitted
transferee, at which time the applicable warrant liability will be extinguished
and will be reclassified to additional paid-in capital. We use the closing
market price to estimate the fair value of our 5-Year Public Warrants and our
Public Offering Warrants. The terms of the 5-Year Private Warrants are
substantially identical to the 5-Year Public Warrants except the 5-Year Private
Warrants, while held by the SPAC sponsor and/or SPAC underwriter and their
permitted transferees, are precluded from mandatory redemption and are entitled
to exercise on a "cashless basis" at the holder's election. Accordingly, we use
a Black-Scholes model with an appropriate estimate of volatility considering
volatility of the 5-Year Public Warrants and using a Monte Carlo simulation
model to incorporate the redemption and cashless exercise features in the 5-Year
Private Warrants. Significant judgment is required in determining the expected
volatility of our common stock. Due to the limited history of trading of our
common stock, we determined expected volatility based on a peer group of
publicly traded companies. Increases (decreases) in the assumptions result in a
directionally similar impact to the fair value of the Warrant liability.

Impact of Change in Estimate:

A $0.01 increase or decrease in the fair value estimate per 5-Year Private Warrant would result in an increase or decrease to Warrant liabilities, non-current of $0.1 million with the offset in Fair value adjustment to warrants.


Cautionary Statement Regarding Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the
Exchange Act, and the Private Securities Litigation Reform Act of 1995 (the
"PSLRA") or in releases made by the SEC, all as may be amended from time to
time. All statements, other than statements of historical fact, included herein
or incorporated by reference, that address activities, events or developments
that we expect or anticipate will or may occur in the future, are
forward-looking statements, including but not limited to such things as:
The words "estimate", "plan", "anticipate", "expect", "intend", "believe",
"project", "target", "budget", "may", "can", "will", "would", "could", "should",
"seeks", or "scheduled to", or other similar words, or negatives of these terms
or other variations of these terms or comparable language or any discussion of
strategy or intentions identify forward-looking statements. These cautionary
statements are being made pursuant to the Securities Act, the Exchange Act and
the PSLRA with the intention of obtaining the benefit of the "safe harbor"
provisions of such laws. These statements involve known and unknown risks,
uncertainties, assumptions, and other factors that 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.
Important factors that could cause actual results, performance, or achievements
to differ materially from those in the forward-looking statements include, but
are not limited to:
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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. Although we base these forward-looking statements on
assumptions that we believe are reasonable when made, we caution you that
forward-looking statements are not guarantees of future performance and that our
actual results, performance or achievements may differ materially from those
made in or suggested by the forward-looking statements contained in this
Quarterly Report on Form 10-Q. In addition, even if our results, performance, or
achievements are consistent with the forward-looking statements contained in
this Quarterly Report on Form 10-Q, those results, performance or achievements
may not be indicative of results, performance or achievements in subsequent
periods.
Given these risks and uncertainties, you are cautioned not to place undue
reliance on these forward-looking statements. Any forward-looking statements
that we make in this Quarterly Report on Form 10-Q speak only as of the date of
those statements, and we undertake no obligation to update those statements or
to publicly announce the results of any revisions to any of those statements to
reflect future events or developments. Comparisons of results for current and
any prior periods are not intended to express any future trends or indications
of future performance, unless expressed as such, and should only be viewed as
historical data.
Please see "Risk Factors" in our other reports filed with the U.S. Securities
and Exchange Commission (the "SEC"), including our 2020 Form 10-K/A for more
information about these and other risks. These risks may include the following
and the occurrence of one or more of the events or circumstances 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 and silver;
•Uncertainties concerning estimates of mineral reserves and mineral resources;
•Uncertainties relating to the COVID-19 pandemic;
•The intense competition within the mining industry;
•The inherently hazardous nature of mining activities, including environmental
risks;
•Our insurance may not be adequate to cover all risks associated with our
business, or cover the replacement costs of our assets or may not be available
for some risks;
•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 or taxation of our operations; and
•Changes to the climate and regulations and pending legislation regarding
climate change.
Business-related risks including:
•Risks related to our liquidity and going concern considerations;
•Risks related to our ability to raise capital on favorable terms or at all;
•Risks related to the proprietary two-stage heap oxidation and leach 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 and capital expenditure
projections;
•Risks related to the decline of our gold and silver production;
•Our ability to successfully eliminate or meaningfully reduce processing and
mining constraints; the results of our planned 2021 technical efforts and how
the data resulting from such efforts could adversely impact processing
technologies applied to our ore, future operations and profitability;
•Risks related to our reliance on one mine with a new process;
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•Risks related to our limited experience with a largely untested process of
oxidizing and heap leaching sulfide ore.
•Uncertainties and risks related to our reliance on contractors and consultants;
•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;
•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 operation and net
losses in the future;
•Uncertainties related to our ability to replace and expand our ore mineral
reserves;
•The costs related to our land reclamation requirements;
•The loss of key personnel or our failure to attract and retain personnel;
•Risks related to technology systems and security breaches;
•Any failure to remediate any possible litigation as a result of a material
weakness in our internal controls over financial reporting; 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, including:
•Volatility in the price of our common stock and warrants;
•Potential declines in the value of our common stock and warrants due to
substantial future sales of our common stock and/or warrants;
•Risks that the warrants may expire worthless;
•The valuation of our 5-Year Private Warrants could increase the volatility in
our net income (loss).
•Anti-takeover provisions could make a third party acquisition of us difficult;
and
•Risks related to limited access to our financial information, as we have
elected to take advantage of the disclosure requirement exemptions granted to
emerging growth companies and smaller reporting companies.

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