References made in this Quarterly Report on Form 10-Q to "we," "our," "us," or
the "Company," refer to General Moly, Inc.
The following discussion and analysis of our financial condition and results of
operations constitutes management's review of the factors that affected our
financial and operating performance for the three and six months ended June 30,
2020, and 2019. This discussion should be read in conjunction with the
consolidated financial statements and notes thereto contained elsewhere in this
report and in our Annual Report on Form 10-K for the year ended December 31,
2019, which was filed on May 5, 2020.
We routinely post important information about us on our Company website. Our
website address is www.generalmoly.com. We do not incorporate the information on
our website into this document and you should not consider any information on,
or that can be accessed through, our website as part of this document.
Overview
We began the development of the Mt. Hope Project on October 4, 2007. During the
year ended December 31, 2008 we also completed work on a pre-feasibility study
of our Liberty Project, which we updated during 2014.
Outlook
The cash needs for the construction and development of the Mt. Hope Project are
significant and require that we arrange for financing to be combined with funds
anticipated to be received from POS-Minerals in order to retain its 20%
membership interest. The Company estimates the go-forward capital required for
the Mt. Hope Project, based on 65% completed engineering, to be approximately
$1,023 million, of which the Company's 80% capital requirement is $818 million.
There is no assurance that the Company will be successful in obtaining the
financing required to complete the Mt. Hope Project, or in raising additional
financing in the future on terms acceptable to the Company, or at all.
Based on our current operating forecast, which takes into consideration the fact
that we currently do not generate any revenue, we believe our existing capital
resources are only adequate to sustain our operations through September 30,
2020. In particular, we have insufficient cash to make required interest
payments on our outstanding Exchange Notes and Supplemental Notes through the
remainder of 2020. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. If we are unable to find an additional
source of funding before the end of September 2020, we will be forced to cease
operations and pursue restructuring or liquidation alternatives, including
filing for bankruptcy protection, in which event our common stock would likely
become worthless and investors would likely lose their entire investment in our
Company. In addition, holders of our outstanding convertible preferred stock and
senior notes would likely receive significantly less than the principal amount
of their claims and, possibly, no recovery at all. As of the date of the filing
of this report, the Company has no commitments for additional funding and there
can be no assurance that the Company will be successful in obtaining the
financing required to continue operations or complete the Mt. Hope Project, or
in raising additional financing in the future on terms acceptable to the
Company, or at all.
The Company is currently pursuing a number of options to extend its liquidity
beyond the third quarter of 2020 and into 2021. The Company's Board of Directors
retained on March 13, 2019 XMS Capital Partners, Headwall Partners, and
Odinbrook Global Advisors (collectively, the "Advisors"), as financial advisors
to assist the Board and management with evaluating and recommending strategic
alternatives. The Company has engaged the Advisors to assist in securing interim
financing and negotiating with potential stakeholders.
The range of strategic alternatives being evaluated include the potential
addition of new Mt. Hope Project partners, additional Corporate strategic
investors, merger opportunities, and/or the possible sale or privatization of
the Company. The Advisors assisted the Company in successfully restructuring the
Convertible and Non-Convertible Promissory Notes issued in a 2014 private
placement, extending maturity until December 2022 as well as providing an
additional $1.3 million in interim funding. The Company has engaged the Advisors
to assist in securing interim financing and negotiating with potential
stakeholders.
Additional potential funding sources for the Company include public or private
equity offerings, including the sale of other assets wholly-owned by the Company
or with EMLLC joint-venture partner POS-Minerals Corporation at the Mt. Hope
Project. However, there is no assurance that the Company will be successful in
securing additional funding in the future on terms acceptable to the Company, or
at all. This could result in further cost reductions, contract cancellations,
and potential delays which ultimately may jeopardize the development of the Mt.
Hope Project.
33
Total assets as of June 30, 2020 decreased to $101.4 million compared to
$344.2 million as of December 31, 2019 primarily due to a non-cash impairment
charge related to the Mt. Hope Project of $260.6 million and ongoing general and
administrative costs.
Project Ownership
From October 2005 to January 2008, we owned the rights to 100% of the Mt. Hope
Project. Effective as of January 1, 2008, we contributed all of our interest in
the assets related to the Mt. Hope Project, the Mt. Hope Lease, discussed above,
into Eureka Moly, LLC (the "LLC"), and in February 2008 entered into a joint
venture agreement ("LLC Agreement") for the development and operation of the Mt.
Hope Project with POS-Minerals Corporation ("POS-Minerals"). Under the LLC
Agreement, POS-Minerals owns a 20% interest in the LLC and General Moly, through
Nevada Moly, LLC ("Nevada Moly"), a wholly-owned subsidiary, owns an 80%
interest. The ownership interests and/or required capital contributions under
the LLC Agreement can change as discussed below.
Under the terms of the LLC Agreement, since commercial production at the Mt.
Hope Project was not achieved by December 31, 2011, the LLC will be required to
return to POS-Minerals $36.0 million, since reduced to $33.6 million as
discussed below, of its capital contributions ("Return of Contributions"), with
no corresponding reduction in POS-Minerals' ownership percentage. Effective
January 1, 2015, as part of a comprehensive agreement concerning the release of
the reserve account described below, Nevada Moly and POS-Minerals agreed that
the Return of Contributions will be payable to POS-Minerals on December 31,
2020; provided that, at any time on or before November 30, 2020, Nevada Moly and
POS-Minerals may agree in writing to extend the due date to December 31, 2021;
and if the due date has been so extended, at any time on or before November 30,
2021, Nevada Moly and POS-Minerals may agree in writing to extend the due date
to December 31, 2022. If the repayment date is extended, the unpaid amount will
bear interest at a rate per annum of LIBOR plus 5%, which interest shall
compound quarterly, commencing on December 31, 2020 through the date of payment
in full. Payments of accrued but unpaid interest, if any, shall be made on the
repayment date. Nevada Moly may elect, on behalf of the Company, to cause the
Company to prepay, in whole or in part, the Return of Contributions at any time,
without premium or penalty, along with accrued and unpaid interest, if any.
The original Return of Contributions amount due to POS-Minerals is reduced,
dollar for dollar, by the amount of capital contributions for equipment payments
required from POS-Minerals under approved budgets of the LLC, as discussed
further below. As of December 31, 2019, this amount has been reduced by $2.4
million, consisting of POS-Mineral's 20% share of equipment purchases, such that
the remaining amount due to POS-Minerals is $33.6 million. If Nevada Moly does
not fund its additional capital contribution in order for the LLC to make the
required Return of Contributions to POS-Minerals set forth above, POS-Minerals
has an election to either make a secured loan to the LLC to fund the Return of
Contributions or receive an additional interest in the LLC estimated to be 5%.
In the latter case, Nevada Moly's interest in the LLC is subject to dilution by
a percentage equal to the ratio of 1.5 times the amount of the unpaid Return of
Contributions over the aggregate amount of deemed capital contributions (as
determined under the LLC Agreement) of both parties to the LLC ("Dilution
Formula"). At June 30, 2020, the aggregate amount of deemed capital
contributions of both parties was $1,091.2 million.
Furthermore, the LLC Agreement permits POS-Minerals to put/sell its interest in
the LLC to Nevada Moly after a change of control of Nevada Moly or the Company,
as defined in the LLC Agreement, followed by a failure by us or our successor
company to use standard mining industry practice in connection with the
development and operation of the Mt. Hope Project as contemplated by the parties
for a period of twelve (12) consecutive months. If these circumstance should
occur, POS-Minerals may exercise its option to put or sell its interest, and
thereafter, Nevada Moly or its transferee or surviving entity would be required
to purchase the interest for 120% of POS-Minerals' total contributions to the
LLC, which, if not paid timely, would be subject to 10% interest per annum.
The LLC Agreement requires the Company and POS-Minerals to make monthly pro rata
capital contributions to the LLC to fund costs incurred. The interest of a party
in the LLC that does not make its monthly pro rata capital contributions to fund
costs incurred is subject to dilution based on the Dilution Formula. All
required monthly contributions have been made by both parties in accordance with
the terms of the agreements between the parties.
34
Asset Impairment
Due to the Company's inability to obtain financing to date and inadequate cash
to continue operations past the third quarter of 2020, the impact of COVID-19 on
capital markets during the second quarter of 2020, and the decrease in the
current and forecasted price of molybdenum, among other factors, the Company
recognized an impairment charge reducing the carrying value of the Mt. Hope
assets by $260.6 million as of June 30, 2020. The impairment charge does not
alter the Company's underlying assets or rights and the Company continues to
pursue strategic alternatives as discussed above.
Management evaluated the circumstances of the July 30, 2019 AMER default and
concluded the default was a triggering event in the third quarter of 2019 which
continues to exist at June 30, 2020. As of June 30, 2020, we evaluated and
determined the carrying value of the asset group for the Liberty project was
recoverable as the probability-weighted undiscounted cash flows exceeded the
carrying value of that asset group. We determined the carrying value of the
asset group for the Mt. Hope project was not recoverable as the carrying value
exceeded the probability-weighted undiscounted cash flows of that asset group.
The Company has recorded an impairment charge of $260.6 million which represents
the difference between the book value and the estimated fair value of the assets
utilizing estimated market prices. Factors leading to the impairment include,
but are not limited to, the Company's inability to obtain financing to date and
inadequate cash to continue operations past the third quarter of 2020, the
impact of COVID-19 on capital markets and demand for molybdenum during the
second quarter of 2020, and the decrease in the current and forecasted price of
molybdenum.
In the calculation of the impairment charge, management estimated the fair value
of the asset group using the estimated salvage value using a range based on an
immediate sale model and a sale in an improved commodity market model, basing
the estimated fair value of the asset group on the midpoint of these two
estimates. Given current market conditions and considering our need for
near-term liquidity, management determined that the midpoint was the most
appropriate point in the range for the fair value estimate. The estimated range
of fair values was approximately $28 million to $53 million. Salvage values were
used to determine fair value of the Mt. Hope asset group because the current
discounted cash flows was negative due to current molybdenum prices. The
carrying value of the Mt. Hope asset group, whichincludes directly associated
liabilities, prior to impairment was approximately $299.3 million. During the
third quarter of 2020, management will continue to refine the calculation using
formal appraisals of tangible assets which could materially change the
impairment calculation.
The impairment charge by asset type was as follows:
Asset Impairment Charges
(In thousands)
Mining properties, land and water rights $200,303
Deposits on project property, plant and equipment 57,630
Other assets 2,620
Total $260,553While at June 30, 2020, we have not identified any impairment of our long-lived
assets for the Liberty project, there can be no assurance that there will not be
asset impairments for the Liberty project or additional impairments for the Mt.
Hope project if commodity prices experience a sustained decline and/or if there
are significant downward adjustments to estimates of recoverable quantities to
be produced from proven and probable mineral reserves or production quantities,
and/or upward adjustments to estimated operating costs and capital expenditures,
all based on life-of-mine plans and projections. Additionally, should we be
unable to secure additional financing, we may be required to modify our
probability-weighted undiscounted cash flow projections which could result in
additional impairment to our assets.
The Reserve Account
Effective January 1, 2015, Nevada Moly and POS-Minerals signed an amendment to
the LLC Agreement under which a separate $36.0 million belonging to Nevada Moly,
held by the LLC in a reserve account established in December 2012, is being
released for the mutual benefit of both members related to annual jointly
approved Mt. Hope Project expenses into 2021. In January 2015, the reserve
account funded a reimbursement of contributions made by the members during the
fourth quarter of 2014, inclusive of $0.7 million to POS-Minerals and $2.7
million to Nevada Moly. The remaining reserve account funds are now being used
to pay ongoing jointly approved expenses of the LLC until the Company obtains
full financing for its portion of the Mt. Hope Project construction cost, or
until the reserve account is exhausted. Any remaining funds after financing is
obtained will be returned to the Company. The balance of the reserve account was
$2.8 million and $3.4 million at June 30, 2020 and December 31, 2019,
respectively.
35
Permitting Considerations
In the ordinary course of business, mining companies are required to seek
governmental permits for expansion of existing operations or for the
commencement of new operations. The LLC is required to obtain approval, in the
form of a Record of Decision ("ROD"), from the BLM to implement the Mt. Hope
Project Plan of Operations ("PoO"). The LLC is also required to obtain various
state and federal permits including, but not limited to, water protection, air
quality, water rights and reclamation. In addition to requiring permits for the
development of the Mt. Hope Project, we will need to obtain and modify various
mining and environmental permits during the life of the Mt. Hope Project.
Maintaining, modifying, and renewing the necessary governmental permits is a
complex and time-consuming process involving numerous jurisdictions and often
involving public hearings and substantial expenditures. The duration and success
of the LLC's efforts to obtain, modify or renew permits will be contingent upon
many variables, some of which are not within the LLC's control. Increased costs
or delays could occur, depending on the nature of the activity to be permitted
and the interpretation of applicable requirements implemented by the permitting
authority. All necessary permits may not be obtained and, if obtained, may not
be renewed, or the costs involved in each case may exceed those that we
previously estimated. In addition, it is possible that compliance with such
permits may result in additional costs and delays.
History of Record of Decision (ROD)
On November 16, 2012, the BLM issued its initial ROD authorizing development of
the Mt. Hope Project. The ROD was subsequently vacated by the U.S. Court of
Appeals for the Ninth Circuit in December 2016, discussed below. Also, on
April 23, 2015, the BLM issued a Finding of No Significant Impact ("FONSI")
supporting their Decision to approve an amendment to the PoO. The initial ROD
and FONSI/Decision approved the PoO and amended PoO, respectively, for
construction and operation of the mining and processing facilities and also
granted the Right-of-Way, and amended Right-of-Way, respectively, for a 230kV
power transmission line, discussed below. Monitoring and mitigation measures
identified in the initial ROD and FONSI, developed in collaboration with the
regulatory agencies involved throughout the permitting process, will avoid,
minimize, and mitigate environmental impacts, and reflect the Company's
commitment to be good stewards of the environment. Ongoing changes to permits
and the PoO during the life of mining operations are typical as design evolves
and operations are optimized.
On February 15, 2013, Great Basin Resource Watch and the Western Shoshone
Defense Project ("Plaintiffs") filed a Complaint against the U.S. Department of
the Interior and the BLM ("Defendants") in the U.S. District Court, District of
Nevada ("District Court"), seeking relief under the National Environmental
Policy Act ("NEPA") and other federal laws challenging the BLM's issuance of the
initial ROD for the Mt. Hope Project, and on February 20, 2013 filed a Motion
for Preliminary Injunction. The District Court allowed the LLC to intervene in
the matter.
On August 22, 2013, the District Court denied, without prejudice, Plaintiffs'
Motion for Preliminary Injunction based on a Joint Stipulation to Continue
Preliminary Injunction Oral Argument, which advised the District Court that as a
result of economic conditions, including the Company's ongoing financing
efforts, all major ground disturbing activities had ceased at the Mt. Hope
Project.
On July 23, 2014, the District Court denied Plaintiffs' motion for summary
judgment in its entirety and on August 1, 2014 the Court entered judgment in
favor of the Defendants and the LLC, and against Plaintiffs regarding all claims
raised in the Complaint.
Thereafter, on September 22, 2014, the Plaintiffs filed their notice of appeal
to the U.S. Court of Appeals for the Ninth Circuit ("Ninth Circuit") of the
District Court's dismissal. Oral argument of the parties before the Ninth
Circuit was completed on October 18, 2016. On December 28, 2016, the Ninth
Circuit issued its Opinion rejecting many of the arguments raised by the
Plaintiffs challenging the Environmental Impact Statement ("EIS") completed for
the Mt. Hope Project, but issued a narrow reversal of the BLM's findings related
to air quality analysis and information related to potential public water
resources. Because of this technical deficiency, the Court vacated the initial
ROD.
Re-Issuance of Record of Decision Approving Supplemental Environmental Impact
Statement ("SEIS")
On remand from the Ninth Circuit to the BLM, the agency conducted additional
evaluation of air quality impacts and resulting cumulative impact analysis under
NEPA in preparation of a Supplemental Environmental Impact Statement ("SEIS").
The SEIS disclosed additional information to the public related to the selection
of appropriate background concentrations to use for dispersion modeling of air
pollutants and information related to potential public water reserves. Because
the SEIS must be prepared in accordance with NEPA guidelines, the SEIS process
included three publications in the Federal Register: the first was the Notice of
Intent ("NOI") which was published on July 19, 2017; the second, the Notice of
Availability ("NOA") of the Draft SEIS ("DSEIS") was published on March 6, 2019;
and on September 27, 2019, the third, an NOA of the final SEIS, was published
announcing that the BLM had re-issued the ROD marking completion of the NEPA
process and approval of the SEIS. On October 31, 2019, a Complaint was filed
against the U.S. Department of Interior and the BLM in the U.S. District Court
in Nevada, challenging the re-issuance of the ROD. On March 11, 2020, the LLC
filed its unopposed Motion to Intervene in the U.S. District Court on behalf of
the Mt. Hope Project. The District Court approved the LLC's intervention on
March 19, 2020 and the LLC's Answer to the Complaint was filed on March 20,
2020. The LLC will work closely with the BLM and DOI to defend the claims filed
by Great Basin Resource Watch and Western Shoshone Defense Project.
36
Reclamation Considerations
Environmental regulations related to reclamation require that the cost for a
third party contractor to perform reclamation activities on the minesite be
estimated. In October 2015, we submitted a request to the BLM to reduce our
reclamation liability to current surface disturbance. Simultaneously, we
submitted an application to the Nevada Division of Environmental Protection
("NDEP") Bureau of Mining Regulation and Reclamation ("NDEP-BMRR") to modify the
Reclamation Permit to reflect this reduced reclamation liability. On October 26,
2015, NDEP-BMRR approved the proposed permit modification, including the reduced
reclamation liability amount. On December 21, 2015, BLM approved the updated
reclamation liability estimate, reducing the reclamation liability to
approximately $2.8 million. In early 2019, the Company submitted, and BLM
approved a required 3-year update to the reclamation liability estimate,
resulting in an increased liability of approximately $3.1 million. We worked
with the LLC's reclamation surety underwriters to satisfy the $2.8 million
financial guarantee requirements under the approved amended PoO for the Mt. Hope
Project and funded the $0.3 million increase in cash directly with the BLM in
April 2019. As of June 30, 2020, the surety bond program was funded with a cash
collateral payment of $0.3 million.
Water Rights Considerations
History of Mt. Hope Water Permits
In July 2011, the Nevada State Engineer ("State Engineer") initially approved
our applications for new appropriation of water for mining and milling use, and
applications to change existing water from agricultural use to mining and
milling use for the Mt. Hope Project. Subsequently, the State Engineer granted
water permits associated with the approved applications and approved a
Monitoring, Management and Mitigation Plan ("3M Plan") for the Mt. Hope Project.
Eureka County, Nevada and two other parties comprised of water rights holders in
Diamond Valley and Kobeh Valley appealed the State Engineer's decision approving
the applications and granting the water permits to the Nevada State District
Court ("District Court") and then filed a further appeal to the Nevada Supreme
Court challenging the District Court's decision affirming the State Engineer's
decision to approve the applications and grant the water permits. In June 2013,
the appeal was consolidated by the Nevada Supreme Court with an appeal of the
State Engineer's approval of the 3M Plan filed by two water rights holders. The
District Court previously upheld the State Engineer's approval of the 3M Plan
and the two parties subsequently appealed the District Court's decision to the
Nevada Supreme Court.
On September 18, 2015, the Nevada Supreme Court issued an Order that reversed
and remanded the cases to the District Court for further proceedings consistent
with the Order. On October 29, 2015, the Nevada Supreme Court issued the Order
as a published Opinion. The Nevada Supreme Court ruled that the State Engineer
did not have sufficient evidence in the record at the time he approved the
applications and granted the water permits to demonstrate that successful
mitigation may be undertaken so as to dispel the threat to existing water rights
holders.
On September 27, 2017, the Nevada Supreme Court affirmed a March 4, 2016
District Court Order vacating the 3M Plan, denying the water applications and
vacating the permits issued by the State Engineer in July 2011 and June 2012.
This decision of the Nevada Supreme Court was final, and not subject to further
appeal.
New Change Applications for Water Use at Mt. Hope Project
After the Company received the September 2017 decision from the Nevada Supreme
Court, it proceeded with new applications to change existing agricultural
irrigation and mining/milling water rights owned by the Company to use at the
Mt. Hope Project. These new change applications had been filed with the State
Engineer in 2015 and 2016 while the above described appeals were pending before
the Nevada Supreme Court. Originally, these applications and other new
appropriation applications were to be addressed at a pre-hearing conference
scheduled on August 25, 2016 before the State Engineer. These applications were
the subject of a Writ of Prohibition or Mandamus ("Writ") filed by Eureka County
on August 23, 2016 to the Nevada Supreme Court seeking the Supreme Court's
intervention to stop further action by the State Engineer while the appeals
discussed above were pending. On December 22, 2017 the Nevada Supreme Court
denied Eureka County's Writ Petition. As a result, the State Engineer allowed a
pre-hearing conference held on January 24, 2018. At the pre-hearing conference
the State Engineer and his hearing officer scheduled review of the new change
applications for a September 11, 2018 hearing in Carson City, Nevada.
On January 2, 2018, Eureka County, and later joined by the other two protestants
representing a rancher in Kobeh Valley and a ranching group in Diamond Valley,
filed a motion to dismiss with the State Engineer asserting that our
applications were precluded from review and approval asserting that they were
repetitive of the applications denied previously by the Nevada Supreme Court in
its September 2017 decision. On March 26, 2018, the State Engineer issued a
non-final order denying the motion to dismiss finding that the applications to
be reviewed at the upcoming hearing were not identical issues and that further
consideration of the motion could be taken at the hearing. On May 14, 2018,
Eureka County, joined by the other protestants filed a Writ to the Nevada
Supreme Court and later a Motion to Stay the September hearing date, asserting
that the denial of the Motion to Dismiss was erroneous and that the Nevada
Supreme Court should order that the applications be denied and/or the September
2018 hearing should be delayed until the Nevada Supreme Court can consider the
Writ and underlying motion to dismiss. The Company filed its objection on June
27, 2018, and on August 30, 2018, the Nevada Supreme Court denied the Writ,
permitting the September 2018 hearing before the Nevada State Engineer to
proceed.
37
On the second day of the September hearing, all protest issues raised by Eureka
County and the Diamond Natural Resources Protections & Conservation Association
("DNR") concerning the Mt. Hope water rights applications were resolved through
a Stipulation, Settlement Agreement and Withdrawal of Protest ("Settlement").
After Eureka County and DNR were excused, the hearing continued with evidence
addressing concerns raised by another protestant representing a Kobeh Valley
ranching family and cattle company that refused to participate in the
Settlement. At the public hearing, the Company presented expert testimony in
support of its augmentation and monitoring plan to the Nevada State Engineer,
which will protect senior water rights in the Kobeh Valley basin when the
Company commences construction and operation of its proposed Mt. Hope molybdenum
project near the town of Eureka, Nevada. The hearing concluded on September 21,
2018.
Effective April 30, 2019, the Company, through its wholly owned subsidiary Kobeh
Valley Ranch LLC ("KVR") entered into a settlement agreement with a Kobeh
Valley, Nevada ranching family ("Ranchers"), resolving the last set of protests
pending before the Nevada State Engineer pertaining to the Mt. Hope Project's
water rights applications.
On June 6, 2019, the Nevada State Engineer issued Ruling 6464 granting the
Company's water rights applications for mining purposes. The water right permits
for the Mt. Hope Project were issued on July 24, 2019. With receipt of and in
compliance with the terms of the water permits, the water is available for
consumptive use at the Mt. Hope Project. Neither the issuance of Ruling 6464 nor
the issuance of the water permits were challenged, and the deadline for filing
any appeal has expired.
Key Terms of Settlements
Eureka County and the DNR
Under the terms of the Settlement with Eureka County and the DNR, the Company
and the LLC agreed to convey all related water rights for Mt. Hope Project at
the future cessation of all mining activity to assist Eureka County and the
DNR's efforts to mitigate the pre-existing effects of agricultural groundwater
pumping in Diamond Valley. Furthermore, upon construction of certain power
infrastructure and grants of right of way by the LLC at the Mt. Hope Project,
the Company and the LLC will work cooperatively with Eureka County to allow use
of and access to such infrastructure to lessen the pre-existing effects of
Diamond Valley groundwater pumping. Eureka County, and the Company and the LLC,
also agreed to work cooperatively to seek opportunities to improve and implement
groundwater monitoring efforts.
In addition, the Company withdrew its protests to Eureka County's pending
applications with the Nevada State Engineer to appropriate water from the Kobeh
Valley basin, and at the request of DNR, the Company also agreed to publicly
support the proposed Diamond Valley Ground Water Management Plan, which was
subsequently approved by the Nevada State Engineer.
With receipt of the water permits, the LLC increased its financial contributions
to the existing Agricultural Sustainability Trust Agreement, discussed above,
with the Eureka Producers' Cooperative ("EPC") in Diamond Valley with an
additional $50,000 to EPC. Initially, upon execution of the Settlement, the LLC
made a payment of $50,000.
The LLC will make additional contributions of $750,000 each after the
commencement of molybdenum production at the Mt. Hope Project and on the one
year anniversary of production, for a total contribution obligation to the
Sustainability Trust of $5.6 million, an increase of $1.6 million related to the
terms of the Settlement. The amount has been accrued under mining properties,
land, and water rights in the Company's financial statements in addition to the
previously accrued $4.0 million resulting in a total accrual of $5.6 million.
The LLC has contributed $0.1 million into the Trust as of June 30, 2020.
The Sustainability Trust is tasked with developing and implementing programs
that will serve to slow groundwater drawdown and thereby improve the
sustainability of the agricultural economy in the Diamond Valley Hydrographic
Basin.
Kobeh Valley Ranching Family
At the execution of the settlement agreement, the LLC funded an initial payment
of $1 million into a trust account; distribution to the Ranchers occurred when
the water permits were issued on July 24, 2019. Upon receipt of the initial
$1,000,000 into the trust account, the Ranchers withdrew their protests and
forfeited any judicial review of Ruling 6464 and the water applications and
issuance of the water permits issued on July 24, 2019 by the Nevada State
Engineer.
When conditions exist for the LLC to secure project financing, additional
consideration of $14,000,000 will be payable to the Ranchers. As the LLC had not
secured Mt. Hope Project financing within 12 months of the executed settlement
agreement or April 2020, the LLC began making monthly payments of $10,000 to the
Ranchers and will continue to do so until financing is achieved, at which time
the remaining consideration will be paid to the Ranchers.
38
Pursuant to an April 29, 2019 Consent Agreement, the members of the LLC agreed
that funding for the $1 million was advanced to the LLC by the Company, to
preserve the joint venture's existing reserve account. General Moly sourced
$500,000 from its available cash, and received the remaining $500,000 from
closing a sale of Series A Convertible Preferred Shares in a private placement
with Mount Hope Mines Inc. ("MHMI"), the Mt. Hope Project's claim/land lessor,
discussed in Items 1 and 2 above and later in Note 7 to the consolidated
financial statements contained elsewhere in this report.
In exchange for General Moly advancing the $1,000,000 initial settlement
funding, the LLC members have agreed to repay the $1 million advance from the
proceeds of ongoing sales of non-critical LLC assets and lands. On September 27,
2019, the Company and POS-Minerals entered into a further Consent Agreement for
a reimbursement schedule concerning the approximately $700,000 owed to the
Company by the LLC in return for the Company's advance of funding to settle
protests related to the water right applications for the Mt. Hope Project. Under
the September Consent Agreement, $200,000 was reimbursed from the Reserve
Account to the Company on September 30, 2019 and an additional $200,000 was
reimbursed in early November. The remaining approximately $300,000 was
reimbursed once the LLC sold a minimum of $400,000 in non-critical Mt. Hope
Project related equipment in March 2020.
Capital & Operating Cost Estimates
Presently, the development of the Mt. Hope Project has a Project Capital
Estimate of $1,312 million, which includes development costs of approximately
$1,245 million and $67 million in cash financial guaranty/bonding requirements,
advance royalty payments, and power pre-payment estimates. These capital costs
were updated in the third quarter of 2012, and were then escalated by
approximately 3% in the third quarter of 2013, for those items not yet procured
or committed to by contract. The Mt. Hope Project has not materially changed in
scope and remains currently designed at approximately 65% engineering
completion, with solid scope definition. The pricing associated with this
estimate remains subject to escalation associated with equipment, construction
labor and commodity price increases, and project delays, which will continue to
be reviewed periodically. The Project Capital Estimate does not include
financing costs or amounts necessary to fund operating working capital and
potential capital overruns, is subject to additional holding costs as financing
activities for construction of the Mt. Hope Project are delayed, and may be
subject to other escalation and de-escalation as contracts and purchase
arrangements are finalized at then current pricing. From October 2007 through
the quarter ended June 30, 2020, the LLC spent approximately $298.9 million of
the estimated $1,312 million on development of the Mt. Hope Project.
The LLC's Project Operating Cost Estimate forecasts molybdenum production of
approximately 41 million pounds per year for the first five years of operations
at estimated average direct operating costs of $6.16 per pound based on a
$8.00/lb reserve and $50 per barrel oil equivalent energy prices. The Costs
Applicable to Sales ("CAS") per pound, including anticipated royalties
calculated at a market price of approximately $13 per pound molybdenum, are
anticipated to average $6.84 per pound for the first 5 years. These cost
estimates are based on 2013 constant dollars and are subject to cost inflation
or deflation. We expect that these cost estimates will increase in the future
upon completion of an engineered re-estimate of capital costs.
Equipment and Supply Procurement
Through June 30, 2020, the LLC has made deposits and/or final payments of $88.0
million on equipment orders.
In 2012, the LLC issued a firm purchase order for eighteen haul trucks. The
order provides for delivery of those haul trucks required to perform initial
mine development, which will begin several months prior to commercial
production. Non-refundable down-payments of $1.2 million were made in 2012, with
pricing subject to escalation as the trucks were not delivered prior to
December 31, 2013. Since that time, the LLC has renegotiated the timelines for
truck delivery and delayed deliveries into December 2020. The contract is
cancellable with no further liability to the LLC.
Also in 2012, the LLC issued a firm purchase order for four mine production
drills with a non-refundable down-payment of $0.4 million, and pricing was
subject to escalation if the drills were not delivered by the end of 2013. Since
that time, the LLC has renegotiated the contract to further delay delivery into
December 2020. The contract remains cancellable with no further liability to the
LLC.
On June 30, 2012, the LLC's contract to purchase two electric shovels expired.
On July 11, 2012, we signed a letter of intent with the same vendor providing
for the opportunity to purchase the electric shovels at prices consistent with
the expired contract, less a special discount in the amount of $3.4 million to
provide credit to the LLC for amounts paid as deposits under the expired
contract. The letter of intent provides that equipment pricing will remain
subject to inflation indexes and guarantees production slots to ensure that the
equipment is available when required by the LLC. Since that time, the parties
have agreed to extend the letter of intent through December 31, 2020.
39
Agreement with AMER International Group
Private Placement
As announced in April 2015, the Company and AMER International Group Co., Ltd
("AMER") entered into a private placement for 40.0 million shares of the
Company's common stock and warrants to purchase 80.0 million shares of the
Company's common stock, priced using the trailing 90-day volume weighted average
price ("VWAP") of $0.50 on April 17, 2015, the date the Investment and
Securities Purchase Agreement ("AMER Investment Agreement") was signed. General
Moly received stockholder approval of the transaction at its 2015 Annual
Meeting, and of material amendments to the transaction at a special meeting held
in December 2017.
On November 2, 2015, the Company and AMER entered into an amendment to the AMER
Investment Agreement, utilizing a three-tranche investment. The first tranche of
the amended AMER Investment Agreement closed on November 24, 2015 for a $4.0
million private placement representing 13.3 million shares, priced at $0.30 per
share, and warrants ("the AMER Warrants") to purchase 80.0 million shares of
common stock at $0.50 per share, which would have become exercisable upon
availability of an approximately $700.0 million senior secured loan ("Bank
Loan"). The funds received from the $4.0 million first tranche private placement
were divided evenly between general corporate purposes and an expense
reimbursement account available to both AMER and the Company to cover
anticipated Mt. Hope financing costs and other jointly sourced business
development opportunities. In addition, AMER and General Moly entered into a
Stockholder Agreement allowing AMER to nominate a director to the General Moly
Board of Directors and additional directors following the close of the third
tranche, discussed below, and drawdown of the Bank Loan. The Stockholder
Agreement also governed AMER's acquisition and transfer of General Moly shares.
Prior to closing the first tranche the parties agreed to eliminate certain
conditions to closing. Following the closing, AMER nominated Tong Zhang to serve
as a director of the Company, and he was appointed by the Board of Directors on
December 3, 2015. Mr. Zhang was nominated by the Board of Directors to stand for
election at the 2018 General Meeting of Stockholders and was elected by the
stockholders to serve as a Class II director for a three (3) year term expiring
in 2021, subject to re-election. On July 29, 2019, Mr. Zhang resigned from the
Board of Directors.
On October 16, 2017, the Company and AMER announced the closure of the second
tranche of the parties' three-tranche financing agreement. At the close of the
second tranche, General Moly issued 14.6 million shares to AMER, priced at the
volume weighted average price ("VWAP") for the 30-day period ending August 7,
2017 (the date of the parties' Amendment No. 2 to the AMER Investment Agreement)
of $0.41 per share for a private placement of $6.0 million by AMER. $5.5 million
of the equity sale proceeds were available for general corporate purposes, while
$0.5 million was held in the expense reimbursement account established at the
close of the first tranche to cover costs related to the Mt. Hope Project
financing and other jointly sourced business development opportunities.
The third tranche of the amended AMER Investment Agreement was to include a
$10.0 million private placement representing 20.0 million shares, priced at
$0.50 per share ("Tranche 3"). Closing of Tranche 3 was conditioned upon the
earlier of the reissuance of water permits for the Mt. Hope Project or
completion of a joint business opportunity involving use of 10.0 million shares
of General Moly stock. The issuance of shares in connection with the Tranche 3
was approved by General Moly stockholders in December 2017 at a Special Meeting
of Stockholders.
AMER Disputes Obligation to Close Tranche 3
The last closing conditions for Tranche 3 under the AMER Investment Agreement
included issuance of water permits for the Mt. Hope Project. The water permits
were issued by the Nevada State Engineer on July 24, 2019. On July 26, 2019, the
Company provided formal notice to AMER that the conditions to closing of Tranche
3 had been satisfied, and that AMER had two business days (until the close of
business on Tuesday, July 30, 2019) to close the transaction. On July 31, 2019,
the Company sent a Notice of Default to AMER, as AMER failed to fund and close
Tranche 3 by the July 30, 2019 deadline.
On August 1, 2019, the Company received a letter from AMER dated July 30, 2019,
purporting to terminate the AMER Investment Agreement, referencing its earlier
letter received by the Company on July 18, 2019, in which AMER alleged uncured
material adverse effects and alleged breaches of the AMER Investment Agreement
by the Company (which included concerns related to US/China relations, concerns
regarding the delay in obtaining environmental permits and solvency concerns).
The Company believed that such assertions were inaccurate and wholly without
merit under the terms of the AMER Investment Agreement. Additionally, as AMER
disputed its obligation to fund the close of Tranche 3, the Company believed
that AMER's attempted termination of the AMERInvestment Agreement was
ineffective. With AMER's failure to fund Tranche 3, the Company had inadequate
cash to continue operations and was forced to evaluate its options, including
pursuing asset sales, short-term financing options and, if such efforts were
unsuccessful in obtaining sufficient financing, the possibility of seeking
bankruptcy protection.
40
On August 28, 2019, the Company engaged King & Spalding, an international
arbitration and litigation firm, to represent the Company in its Tranche 3
dispute with AMER. The Company also formally notified AMER that a Dispute, as
defined by the AMER Investment Agreement, existed between the parties as a
result of AMER's failure to close Tranche 3. The notification required that one
representative of each of the executive management of the parties be designated
and authorized to attempt to settle the Dispute and the representatives were to
meet in good faith to resolve the Dispute.
On October 14, 2019, the Company announced that it had entered into a Dispute
Negotiation Extension Agreement with AMER to extend the dispute negotiation
period ("Extension Agreement"). Under the terms of the Extension Agreement, the
Company received $300,000 from AMER in exchange for an extension of the
negotiation period to November 15, 2019, on which date the Company's CEO Bruce
Hansen and AMER Chairman Wang Wen Yin met to discuss settlement options. With
the payment, AMER had the right, at its option, to apply the Extension Fee among
the following: (1) credit against a final negotiated settlement; (2) credit
against any AMER payment obligation to the Company, pursuant to an arbitration
award; or (3) as consideration for the purchase of the Company's common stock,
priced at the 30-day volume weighted average price, as of the date immediately
prior to the date that AMER demands delivery of such shares.
On December 9, 2019, the Company and an affiliate of AMER announced the closure
of a $4.0 million private placement at a price of $0.40 per common share of
General Moly common stock under a new Securities Purchase Agreement ("SPA") and
amended and restated warrant agreement ("New AMERWarrant"), resolving the
Dispute. Additionally, the parties agreed to a mutual release, terminating the
previous AMER Investment Agreement, the prior Warrant, and the Extension
Agreement. The parties' previous Stockholder Agreement expired by its terms on
November 24, 2019. In addition to the 10.0 million shares issued by General Moly
to AMER in the private placement, AMER also received 1.1 million General Moly
common shares priced at $0.27/share, the 30-day volume weighted average price of
the Company's shares on December 6, 2019 utilizing the previously $300,000
extension fee, pursuant to the terms of the Extension Agreement. Additionally,
for every $100 million of sourced Chinese bank lending that AMER has assisted in
contributing to a completed $700 million project debt financing, AMER may
exercise 12 million warrants issued under the New AMERWarrant at an exercise
price of $0.50 per share, up to 80 million warrants.
Additionally, AMER nominated Mr. Siong Tek ("Terry") Lee to serve the remaining
term of AMER's previous director nominee (Tong Zhang) expiring at the Company's
annual meeting in 2021. AMER may nominate a second director to the Board so long
as its shareholding exceeds 20% of the Company's shares outstanding.
Bank Loan
Under the new SPA, AMER has agreed to use its reasonable best efforts to assist
the Company in obtaining a loan from one or more prime Chinese banks ("Bank
Loan"), for the Company's share of construction and development costs at the Mt.
Hope Project. As discussed above, for every $100 million of sourced Chinese bank
lending that AMER has assisted in contributing to a completed $700 million
project debt financing, AMER may exercise 12 million warrants issued under the
New AMER Warrant at an exercise price of $0.50 per share, up to 80 million
warrants.
Supply Agreement
Furthermore, upon closing of a minimum of $100 million from AMER's efforts
toward the completion of a Chinese bank $700 million project financing, AMER has
the option to enter into a molybdenum supply agreement with General Moly to
purchase Mt. Hope Project sourced molybdenum at a small discount to spot pricing
when the Mt. Hope Project achieves full commercial production. The saleable
amount of molybdenum to AMER escalates from an aggregate 3 million pounds per
year to 20 million pounds per year over the first five years of mine production
based on the level of project financing assisted by AMER towards the $700
million project financing.
Exploring Other Potential Joint Opportunities
The Company and AMER have jointly evaluated other potential opportunities,
ranging from outright acquisitions and privatizations, or significant minority
interest investments with a focus on base metal and ferro-alloy prospects, where
the Company would benefit from management fees, minority equity interests, or
the acquisition of both core and non-core assets. The Company and AMER have
considered but not completed any such transactions to date and we are not
currently evaluating potential opportunities with AMER. From commencement of the
AMER Investment Agreement in 2015 to December 31, 2019, the Company and AMER
spent approximately $2.5 million from the expense reimbursement account
described above in connection with such evaluations. There have been no further
joint evaluations and no further expenses incurred.
41
COVID-19
Beginning in early 2020, there has been an outbreak of coronavirus (COVID-19),
initially in China and which has spread to other jurisdictions, including
locations where the Company does business. The full extent of the outbreak,
related business and travel restrictions and changes to behavior intended to
reduce its spread continues to evolve globally. Therefore, the full extent to
which coronavirus may impact the Company's results of operations, liquidity or
financial position is uncertain. Management continues to monitor the impact that
the COVID-19 pandemic is having on the Company and the economies in which the
Company operates. The Company anticipates that its liquidity may be materially
impacted by the coronavirus outbreak.
On April 24, 2020, the Company received funding under a Paycheck Protection
Program ("PPP") loan (the "PPP Loan") from U.S. Bank, National Association (the
"Lender"). The principal amount of the PPP Loan is $365,034. The PPP was
established under the Coronavirus Aid, Relief, and Economic Security Act (the
"CARES Act") and is administered by the U.S. Small Business Administration (the
"SBA"). The Company applied for the PPP Loan primarily because its potential to
access other sources of capital has been greatly reduced by the ongoing COVID-19
pandemic.
The PPP Loan has a two-year term, maturing on April 23, 2022. The interest rate
on the PPP Loan is 1.0% per annum. Principal and interest are payable in 18
monthly installments, beginning on November 23, 2020, until maturity with
respect to any portion of the PPP Loan which is not forgiven as described below.
The Company did not provide any collateral or guarantees for the PPP Loan, nor
did the Company pay any facility charge to obtain the PPP Loan. The PPP Loan
provides for customary events of default, including, among others, those
relating to failure to make payment, bankruptcy, breaches of representations and
material adverse effects. The Company is permitted to prepay or partially prepay
the PPP Loan at any time with no prepayment penalties.
The PPP Loan may be partially or fully forgiven if the Company complies with the
provisions of the CARES Act, including the use of PPP Loan proceeds for payroll
costs, rent, utilities and other expenses, provided that such amounts are
incurred during the 24-week period that commenced on April 24, 2020 and at least
60% of any forgiven amount has been used for covered payroll costs as defined by
the CARES Act. Any forgiveness of the PPP Loan will be subject to approval by
the SBA and the Lender and will require the Company to apply for such treatment
in the future.
Molybdenum Market Update
The molybdenum oxide daily global spot price per pound is currently at $8.08/lb
compared with $9.20 at yearend 2019 and $11.88 at yearend 2018, according to
Platts. The molybdenum price ranged from a low of $7.33/lb to a high of $9.10/lb
during the second quarter of 2020.
Beginning in 2020 through mid-February, molybdenum prices rose to nearly $11/lb.
Later in February 2020, prices pulled back to the $9-range and below $9 in
mid-March upon the global economic slowdown. Molybdenum rebounded to just above
$9 at the end of April but weakened below $8 in mid-June and traded in the
$7-range for approximately two months.
The molybdenum price has declined from softened demand due to the global
economic impact caused by the COVID-19 pandemic and the weakness in oil and gas
industry impacting molybdenum-strengthened steel consumption. The International
Molybdenum Association ("IMOA") recently reported that global molybdenum
consumption in the first quarter of 2020 at 123.6 million pounds, decreased 13%
year over year. China, the largest user of molybdenum in the world, consumed
40.3 million pounds, 18% less molybdenum in the first quarter compared with a
year ago.
The IMOA also reported that global production decreased 8% year over year to
139.2 million pounds in the first quarter of 2020. China, the largest producer
of molybdenum, saw a 6% decrease year over year to 47.7 million pounds of
molybdenum output related to the shutdown. The IMOA figures translate to a first
quarter surplus of 15.6 million pounds, equating to 13% of first quarter demand.
Stainless steel represents the largest use of molybdenum, accounting for 21% of
all molybdenum consumption, according to the CPM Group ("CPM"). The
International Stainless Steel Federation ("ISSF") reported an 8% drop
year-over-year in global stainless steel output for the first quarter of 2020.
The widespread business and industry shutdown around the globe to curb the
coronavirus spread resulted in stainless steel production declines in all
regions, including the largest stainless steel manufacturer China with a 9%
year-over-year decrease, an 11% drop in United States of America, and a 6%
decline in Europe.
On a promising note, China appears to be rebounding quickly as its cities and
provinces reopen from the shutdown. China's second quarter Gross Domestic
Production showed a 3.2% increase year over year compared with a minus 6.8%
contraction in the first quarter from the prior year, according to BMO Metals
Brief. Furthermore, China's industrial production was up 4.8% year over year in
June, which was the third consecutive month of growth, reported BMO.
China, the largest producer of stainless steel in the world, has been ramping up
stainless steel production over the second quarter, according to CPM. China
showed just a 2.7% decrease year over year ("YOY") for June 2020 in the three
most popular types of stainless steel, series 200, 300, and 400, compared with
the record monthly high of 2.4 million metric tons in August 2019, noted CPM. An
additional positive factor for molybdenum is that China also showed a 5.8% YOY
production growth for 2Q 2020 in the series 300 stainless steel, which contains
higher moly and nickel compared with series 200 steel, stated CPM.
42
Molybdenum Spot Price (1/6/2011 - 8/14/2020)
[[Image Removed]]
Molybdenum Market Outlook
We believe the molybdenum market is in a temporary pause caused by the COVID-19
pandemic. When the global health crisis abates, we anticipate that the
molybdenum market will recover and view the long-term outlook for our business
positively, supported by shortfalls in long-term supplies of molybdenum, the
requirements for molybdenum in the steel industry, and a recovery of the oil and
gas industry. We believe the underlying long-term fundamentals of the molybdenum
business remain positive, supported by the significant role of molybdenum in the
steel industry and a challenging long-term supply environment attributable to
the difficulty in replacing output from both existing and high-cost mines with
new production sources. World market prices for molybdenum and other commodities
have fluctuated historically and are affected by numerous factors beyond our
control.
Future molybdenum prices are expected to be volatile and are likely to be
influenced by demand from China and emerging markets, as well as the strength or
weakness of the U.S. dollar, U.S.-China trade tariffs, economic activity in the
U.S. and other industrialized countries, the timing of the development of new
supplies of molybdenum, production levels of mines, including primary molybdenum
production from China, and the duration of the global health crisis and its drag
on the global economy.
Liquidity, Capital Resources and Capital Requirements
For the period from December 31, 2019 to June 30, 2020
Our total consolidated cash balance at June 30, 2020 was $2.5 million compared
to $4.6 million at December 31, 2019, representing a decrease of $2.1 million
due to a variety of cash inflows and outflows. Outflows included $0.4 million in
development costs for the Mt. Hope Project, $0.3 million at the Liberty Project,
$1.7 million in general and administrative costs, offset by $0.3 million
reimbursed to the Company by the LLC upon the sale of non-core property in March
2020.
43
The $36.0 million reserve account established in December of 2012, at the
direction of the LLC management committee, was payable to Nevada Moly upon
release, at which time the funds would have become available for use by the
Company. Effective January 1, 2015, Nevada Moly and POS-Minerals signed an
amendment to the LLC agreement under which $36.0 million owed to Nevada Moly and
held by the LLC in the reserve account is released quarterly for the mutual
benefit of both members related to the jointly approved Mt. Hope Project
expenses into 2021, as discussed above. The balance of the reserve account at
June 30, 2020 was $2.8 million, compared to $3.4 million at December 31, 2019.
Issuance of Series A and Series B Convertible Preferred Stock
On March 28, 2019, the Company executed a Securities Purchase Agreement (the
"Series A Purchase Agreement") with Bruce D. Hansen, the Company's Chief
Executive Officer/Chief Financial Officer, and Robert I. Pennington, the
Company's Chief Operating Officer (collectively the "Investors"), effective as
of March 21, 2019. Pursuant to the Series A Purchase Agreement, the Investors
agreed to purchase up to $900,000 of convertible shares of Series A Preferred
Stock, par value $0.001 per share (the "Series A Convertible Preferred Shares"),
of the Company. The Company requested three separate closings of sales of Series
A Convertible Preferred Shares to the Investors between the date of the Series A
Purchase Agreement and June 30, 2019. Each closing was in the amount of $300,000
of Series A Convertible Preferred Shares.
The Series A Convertible Preferred Shares were priced at $100.00/preferred
share, convertible at any time at the holder's discretion into common shares
whereby one preferred share converts at a price of $0.27/common share to 370.37
common shares. The conversion price was set as the closing price of the common
stock on March 12, 2019, which was the day before announcement of the private
placement. The Series A Convertible Preferred Shares carry a 5% annual dividend,
which may be paid, in the Company's sole discretion, in cash, additional shares
or a combination thereof. Upon maturity or full repayment of the Exchange Note
debt (discussed below), there will be mandatory redemption of the Series A
Convertible Preferred Shares into equivalent cash for the principal invested,
plus any accrued and unpaid dividends.
On May 2, 2019, the Company also executed a Securities Purchase Agreement (the
"MHMI Series A Purchase Agreement") with Mount Hope Mines, Inc. ("MHMI"), later
assigned in part to members of MHMI individually. Pursuant to the MHMI Series A
Purchase Agreement, MHMI agreed to purchase $500,000 of Series A Convertible
Preferred Shares, as described above. These shares were fully converted into
shares of common stock of the Company in the fourth quarter of 2019.
On August 5, 2019, the Company executed a Securities Purchase Agreement (the
"Series B Purchase Agreement") with the Investors. Pursuant to the Series B
Purchase Agreement, the Investors agreed to purchase up to $400,000 of
convertible shares of Series B Preferred Stock, par value $0.001 per share (the
"Series B Convertible Preferred Shares"), of the Company. This transaction
closed on August 7, 2019.
The Series B Convertible Preferred Shares were issued at a price of $100.00 per
share, and each Series B Convertible Preferred Share will be convertible at any
time at the holder's discretion into 500 shares of common stock of the Company.
The Series B Convertible Preferred Shares carry a 5% annual dividend, which may
be paid, in the Company's sole discretion, in cash, additional shares of Series
B Convertible Preferred Shares or a combination thereof. The Series B
Convertible Preferred Shares, like the Series A Convertible Preferred Shares,
are mandatorily redeemable upon maturity or full repayment of the Exchange Note
debt (discussed below).
Interest Forbearance Agreement and New 12% Senior Promissory Notes due December
2022
On September 26, 2019, the Company entered into a 90-day interest deferral and
forbearance agreement with the primary holder of the Senior Convertible Notes,
along with certain of the Company's members of management and directors who
participated in the 2014 debt offering. As a result, the Company deferred
approximately $162,000 of interest payments that were due at the end of the
third quarter 2019.
Exchange Offer and New 12% Senior Promissory Notes due December 2022
On December 27, 2019, the Company closed a private offer to exchange (the
"Exchange Offer") its outstanding 10% Senior Convertible Promissory Notes and
10% Senior Promissory Notes both due December 26, 2019 (together, the "Old
Notes"), for units consisting of its newly issued 12% Senior Promissory Notes
due December 26, 2022 (the "Exchange Notes") and warrants (the "New Warrants")
to purchase shares of the Company's common stock, par value $0.001 per share
("Common Stock"), upon the terms and subject to the conditions set forth in the
confidential Offer to Exchange and Subscription Offer dated November 27, 2019.
44
Eligible holders tendered Old Notes with an original principal amount of $6.89
million of the total outstanding of $7.25 million, representing 95% of the
outstanding, in the Exchange Offer. For each $1 principal amount of, and
accrued and unpaid interest on, Old Notes tendered and accepted by the Company,
one unit consisting of $1 principal amount of Exchange Notes and one New Warrant
was settled. The Exchange Notes bear interest at an initial rate of 12% per
annum. Interest on the Exchange Notes will be paid on March 31, June 30,
September 30 and December 31 of each year, commencing on March 31, 2020. The
Exchange Notes will mature on December 26, 2022, unless otherwise earlier
redeemed. Each New Warrant is exercisable for one share of Common Stock at a
price of $0.35 per share for a period of three years. One New Warrant was
issued for each dollar of original principal amount of, and accrued and unpaid
interest on, Old Notes exchanged for Exchange Notes for a total of 7.2 million
New Warrants issued.
The Company paid at maturity the unpaid principal and all accrued and unpaid
interest in the approximate amount of $368,000 to those eligible holders that
elected not to participate in the Exchange Offer. The original principal amount
of Old Notes paid at maturity represented approximately 5% of the total
outstanding. The maturity date was December 26, 2019. The Notes Warrants issued
in connection with the Old Notes expired by their terms on December 26, 2019.
New 13% Senior Promissory Notes due December 2022
The Company also announced that certain eligible holders who tendered their Old
Notes in the Exchange Offer ("Participating Holders") elected to participate in
the accompanying Subscription Agreement, to purchase (the "Subscription Offer")
13,355 units for $100 each, consisting of its newly issued 13% Senior Promissory
Notes due 2022 (the "Supplemental Notes") and accompanying New Warrants,
including participation by the largest Old Noteholder investor, as well as the
Company's CEO, Bruce Hansen. One New Warrant was issued for each dollar
invested in the Supplemental Notes. The New Warrants have an exercise price of
$0.35 per share and have a three-year term. The Participating Holders increased
their respective note investment by approximately 20% by purchasing the
Supplemental Notes, resulting in approximately $1.34 million of new capital to
the Company.
Results of Operations
Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
For the three months ended June 30, 2020, we had a consolidated net loss of
$262.9 million compared with a net loss of $2.5 million in the same period for
2019. The net loss for the three months ended June 30, 2020 included an asset
impairment charge of $260.6 million as described in the Notes to Consolidated
Financial Statements.
For the three months ended June 30, 2020 and 2019, exploration and evaluation
expenses were $0.1 million and $0.1 million, due to ongoing care and maintenance
expenses.
For the three months ended June 30, 2020 and 2019, general and administrative
expenses were $1.7 million and $2.0 million, respectively, reflecting continued
cost conservation efforts.
For the three months ended June 30, 2020 and 2019, loss on impairment charge was
$260.6 million and nil as the result of an impairment taken in the second
quarter of 2020 as described in the Notes to Consolidated Financial Statements.
Interest expense for the three months ended June 30, 2020 and 2019 was $0.4
million and $0.4 million, respectively.
Other income/(expense) for the three months ended June 30, 2020 and 2019 was
($0.2) million and nil, respectively. The amount incurred in 2020 is related to
fair value adjustments on the warrants issued to AMER in late 2019.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
For the six months ended June 30, 2020, we had a consolidated net loss of $264.0
million compared with a net loss of $3.9 million in the same period for 2019.
The net loss for the six months ended June 30, 2020 included an asset impairment
charge of $260.6 million as described in the Notes to the Consolidated Financial
Statements.
For the six months ended June 30, 2020 and 2019, exploration and evaluation
expenses were $0.3 million and $0.2 million, respectively due to ongoing care
and maintenance.
45
For the six months ended June 30, 2020 and 2019, general and administrative
expenses were $3.2 million and $3.5 million, respectively, reflecting continued
cost conservation efforts.
For the six months ended June 30, 2020 and 2019, loss on impairment charge was
$260.6 million and nil as the result of an impairment taken in the second
quarter of 2020 as described in the Notes to Consolidated Financial Statements.
Interest expense for the six months ended June 30, 2020 and 2019 was $1.1
million and $0.4 million, respectively, with the increase primarily related to
larger non-cash adjustments to the exchange and supplemental notes.
Off-Balance Sheet Arrangements
None.
Contractual Obligations
Payments due by period
Total 2020 2021-2022 2023-2024 Thereafter
Agricultural Sustainability Trust
Contributions 5.5 - 2.0 3.5 -
Exchange Notes and Supplemental Notes** 8.3 - 8.3 - -
Equipment Purchase Contracts
0.6 - 0.6 - -
Advance Royalties 6.9 0.5 1.0 5.4 -
Return of Contributions to POS-Minerals 33.6 33.6 - - -
3M Plan Contributions 1.0 - 0.3 0.7 -
Total $55.9 $34.1 $12.2 $9.6 $-
*
With the exception of the 12% Senior Promissory Notes (Exchange Notes) and 13%
Senior Promissory Notes (Supplemental Notes), which are the obligation of the
Company, all amounts are commitments of the LLC, and as a result of the
agreement between Nevada Moly and POS-Minerals are to be funded by the reserve
account until such time that the Company obtains financing for its portion of
construction costs at the Mt. Hope Project or until the reserve account balance
is exhausted, and thereafter are to be funded 80% by Nevada Moly and 20% by
POS-Minerals. POS-Minerals remains obligated to make capital contributions for
its 20% portion of equipment payments required by approved budgets of the LLC,
and such amounts contributed by the reserve account on behalf of POS-Minerals
will reduce, dollar for dollar, the amount of capital contributions that the LLC
is required to return to POS-Minerals, as described above.
**
The Company is obligated to pay interest on the Exchange Notes at a rate of 12%
per year, payable quarterly and on the Supplemental Notes at a rate of 13% per
year, payable quarterly.
Through June 30, 2020, the LLC has made deposits and/or final payments of $88.0
million on equipment orders. See "-Overview-Equipment and Supply Procurement"
above. Of these deposits, $71.7 million relate to fully fabricated items,
primarily milling equipment, for which the LLC has additional contractual
commitments of $0.6 million. The remaining $16.3 million reflects both partially
fabricated milling equipment, and non-refundable deposits on mining equipment.
As discussed in Note 11 to the consolidated financial statements contained
elsewhere in this report, the mining equipment agreements remain cancellable
with no further liability to the LLC. The underlying value and recoverability of
these deposits and our mining properties in our consolidated balance sheets are
dependent on the LLC's ability to fund development activities that would lead to
profitable production and positive cash flow from operations or proceeds from
the disposition of these assets. There can be no assurance that the LLC will be
successful in obtaining project financing, in generating future profitable
operations, disposing of these assets or the Company securing additional funding
in the future on terms acceptable to us or at all. Our audited consolidated
financial statements include an impairment charge reducing the carrying value of
the Mt. Hope assets as of June 30, 2020 as described in the Notes to the
Financial Statements..
If the LLC does not make the payments contractually required under these
purchase contracts, it could be subject to claims for breach of contract or to
cancellation of the respective purchase contract. In addition, the LLC may
proceed to selectively suspend, cancel or attempt to renegotiate additional
purchase contracts if necessary, to further conserve cash. See "-Liquidity,
Capital Resources and Capital Requirements" above. If the LLC cancels or
breaches any contracts, the LLC will take all appropriate action to minimize any
losses, but could be subject to liability under the contracts or applicable law.
The cancellation of certain key contracts could cause a delay in the
commencement of operations, and could add to the cost to develop the Company's
interest in the Mt. Hope Project.
46
Obligations under capital and operating leases
We have contractual obligations under operating leases that will require a total
of $0.1 million in payments over the next three years. Operating leases consist
primarily of rents on office facilities and office equipment. Our expected
payments are $0.1 million, nil, and nil for the years ended December 31, 2020,
2021 and 2022, respectively.
Creation of Agricultural Sustainability Trust
On August 19, 2010, the LLC entered into an agreement with the Eureka Producers'
Cooperative ("EPC") whereby the LLC will fund a $4.0 million Sustainability
Trust ("Trust") in exchange for the cooperation of the EPC with respect to the
LLC's water rights and permitting of the Mt. Hope Project, since increased to
$5.6 million as a result of the settlement reached with Eureka County and the
DNR, first discussed in Item 2 above. The Trust will be tasked with developing
and implementing programs that will serve to enhance the sustainability and
well-being of the agricultural economy in the Diamond Valley Hydrographic Basin
through reduced water consumption.
The Trust may be funded by the LLC over several years based on the achievement
of certain milestones, which are considered probable, and as such $5.6 million
has been accrued in the Company's financial statements and is included in mining
properties, land, and water rights.
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GENERAL MOLY, INC. 