HYCROFT MINING HOLDING CORPORATION The following discussion, which has been prepared based on information available to us as ofAugust 3, 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 theU.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 and six months endedJune 30, 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 aU.S. -based gold and silver producer that is focused on operating and developing our wholly ownedHycroft 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 theState of Nevada and the corporate office is located inDenver, Colorado .The Hycroft Mine had proven and probable mineral reserves of 11.9 million ounces of gold and 478.5 million ounces of silver atDecember 31, 2020 , as determined by deducting mineral reserves mined throughDecember 31, 2020 from the mineral reserves estimated in the Hycroft Technical Report atJuly 31, 2019 . As discussed throughout this MD&A, including within theHycroft Mine section, during the six months endedJune 30, 2021 , while we have been able to achieve or improve on certain of our internal operating, processing, sales and production cost targets, because the Company is operating at a pre-commercial scale, it has incurred a net operating loss with 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 half of 2021, we reported no lost time accidents.The Hycroft Mine's total reportable incident frequency rate ("TRIFR") for the trailing twelve months, which includes other reportable incidents, is one of the metrics we use to assess safety performance, and it is well below industry averages and significantly below historical levels experienced at theHycroft Mine . During the first half 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 0.62 atJune 30, 2021 , compared with approximately 2.30 atDecember 31, 2020 . 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. 31 -------------------------------------------------------------------------------- Table of Contents Executive Summary In the first half 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. During the first half of 2021, the Company continued to operate at the 2020 pre-commercial scale, with a plan to mine at a rate in the second half of 2021 that allows the Company to comply with its debt covenants. During the first half of 2021 our technical team continued to progress and develop our understanding of the requirements for implementing the proprietary two-stage sulfide heap oxidation and leach process on a commercial scale, including capital improvement requirements that have been identified and are necessary for successful operations. In addition, the team, together with independent engineering firms and consultants, has completed scoping level economic analyses on multiple processing options. Based on this work, we are undertaking a feasibility study for a Mill and Atmospheric Alkaline Oxidization ("AAO") process as well as other studies. The result of this work will determine the timeline of bringing the sulfides into commercial scale operation and our ROM plan, which is expected to facilitate access to commercial scale sulfides and will be developed to coincide with that schedule. Highlights for the first half of 2021 included: •Production in the second quarter of 2021 of 16,776 ounces of gold and 139,351 ounces of silver represented a 212% and 338% increase in ounces produced, respectively, compared with the corresponding quarter in 2020. •Sales in the second quarter of 2021 were 17,060 ounces of gold (average realized price of$1,811 per ounce) and 189,766 ounces of silver (average realized price of$26.88 per ounce), contributing to a$28.4 million increase in revenue compared with second quarter of 2020. •Continued improvements in safety performance with a 0.62 trailing 12-month total reportable incident frequency rate ("TRIFR") at the end of the second quarter of 2021 compared to 3.80 at the end of 2020, an approximate 84% reduction. •Significant improvements in unit costs over the last six months with reductions in mining cost per ton and processing cost per ton. •Metallurgical drilling continued through the second quarter of 2021 with 31 holes drilled to date totaling 30,929 feet. This drill program, as previously disclosed, is to complete the necessary variability and metallurgical work on geologic domains that were not tested in the past but that represent a significant portion of the life-of-mine production. •Column tests are being performed on sulfide material mined in the first half of 2021. These column tests use sulfide material that has recently been extracted from key domains and will provide additional information for the two-stage sulfide heap oxidation and leach process. •The technical team, together with independent engineering firms and consultants, has completed scoping level economic analyses on multiple processing options. Based on these scoping studies, we engagedAusenco Engineering USA South Inc. ("Ausenco") to complete a feasibility study building on previous Atmospheric Alkaline Oxidation ("AAO") feasibility and pilot plant results, expected to be completed in Q1 2022. •In addition, we have requested bids from other engineering firms to complete a pre-feasibility study on the pressure oxidation ("POX") process as we continue to evaluate processing options for optimizing value, with an anticipated delivery to coordinate with the AAO feasibility study. •The result of the programs and analyses will determine the method and timeline of bringing the sulfides into commercial scale operation and our ROM plan, which is expected to facilitate access to commercial scale sulfides, will be developed to coincide with that schedule. •During the quarter endedJune 30, 2021 , the Company reduced restricted cash by approximately$4.8 million by replacing most of its surety bonds with surety bonds that require lower cash collateral. •There were no write downs of production inventories in the first half of 2021 as compared with the same period in 2020. •Hycroft continued to operate at a pre-commercial scale using a ROM plan with direct leaching, and the associated low gold equivalent production and sales volumes and high relative operating costs resulted in a second quarter 2021 net loss and net cash outflows from operating activities. 32 -------------------------------------------------------------------------------- Table of Contents 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 endedJune 30, 2021 were issued. Although we completed the Recapitalization Transaction during the 2020 second quarter and completed the underwritten public offering onOctober 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. In order to provide flexibility and opportunities to raise additional funding efficiently, we filed a shelf registration statement on Form S-3 with theSEC , that was declared effective onJuly 13, 2021 , registering the issuance of common and preferred stock, debt, units and other securities up to$500 million in aggregate amount of securities (the "Universal Shelf"). The terms of any offering under the Universal Shelf will be established at the time of the offering and be set forth in an accompanying prospectus supplement relating to such offering. While we monitor and evaluate opportunities on an ongoing basis to appropriately fund the Company and address our going concern, we do not have any agreements or understandings to issue any securities under the Universal Shelf at this time. COVID-19 InMarch 2020 , theWorld Health Organization declared the outbreak of a novel coronavirus ("COVID-19") as a pandemic, which continues to spread throughoutthe United States with new variants of the virus. 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 theCenter for Disease Control (CDC) and the Mine Safety andHealth 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 theHycroft 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 theHycroft Mine itself, which would adversely impact our financial position, operating results, and cash flows.The Hycroft Mine experienced only two COVID-19 cases during the second quarter of 2021. Accordingly, the site began to relax COVID-19 control restrictions in accordance with state, national, andCDC guidelines and will continue to monitor and follow those guidelines going forward. 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. 33 -------------------------------------------------------------------------------- Table of Contents Technical and operations review summary The new leadership team established at the mine in late 2020 launched an extensive and detailed review of theHycroft 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 theHycroft Mine as a safety-focused, long-life, low-cost gold and silver producer. Incident and near miss reporting improved as expected as the team initiated numerous campaigns to recognize, report and eliminate safety hazards. To date, the team has made significant strides at theHycroft Mine through elevating the safety performance with a marked decrease in the twelve-month trailing TRIFR, improving the culture at Hycroft, and establishing operational improvements, including managing the leach pad operations with no write-off of leach pad ounces since the second quarter of 2020, and increasing operational efficiencies to reduce costs by idling high-cost equipment. In addition, a review of consumable consumption has resulted in lower costs by reducing consumption and utilizing vendors with lower unit costs. We have also continued to reduce our reliance on contractors which tend to be higher cost and less efficient. As 2021 progresses, we have seen, and we expect to see, continued improvement in safe work performance and operations 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 reviewing data and results from the pre-commercial leach pads. The technical team is comprised of Hycroft's technical team and 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 industry leading consultants focused its efforts on identifying and investigating opportunities for improvements in operating parameters in the sulfide heap oxidation and leach process and additional processing alternatives resulting in work plans as described in the following 2021 Outlook section. 2021 Outlook Our 2021 operating plan continues to entail mining and processing ROM oxide and transitional ores aimed at optimizing ounce production and cash flows and preserving our cash. Compared to our current capabilities for processing 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 full year 2021 ROM operating plan provides us the opportunity to complete and evaluate the results of ongoing technical and optimization work for the proprietary two-stage heap oxidation and leach process, substantially complete the AAO mill feasibility with the final report expected in the first quarter of 2022 and evaluate alternative processes including substantially completing the POX pre-feasibility study with the final report targeted in the first quarter of 2022. Capital and project spending outlook is anticipated to be at the top end of original guidance and is expected to be in the range of$18 million to$20 million for the full year in 2021, due to an earlier than planned equipment rebuild and timing of metallurgical and exploration spending. Upon achieving or improving upon our targeted production and sales levels for the first half of 2021 and reviewing our forecasts for the second half of 2021, we are maintaining our full year production outlook of 45,000 to 55,000 ounces of gold and 400,000 to 450,000 ounces of silver. During the six months endedJune 30, 2021 , we produced 30,637 ounces of gold and 234,462 ounces of silver, which represents approximately 61% and 45%, respectively, of the mid-points of the full year production outlook range. At current metal prices, our full-year 2021 production costs are expected to exceed gold and silver revenues due to fixed costs and operations continuing at a pre-commercial level. 34 -------------------------------------------------------------------------------- Table of Contents Technical Activities During the first half of 2021, we continued to work alongside our industry leading consultants to identify gaps in information and investigate opportunities for improvements in operating parameters for commercial scale Hycroft operations. This information is critical in understanding the mineralogical properties of the deposit and ultimately the most economic processing technology for the various ore domains. Accordingly, we developed an approximate$10 million program for drilling and additional metallurgical and mineralogical studies in 2021 and early 2022, which has been approved by our Board of Directors and is being funded from existing cash and our current operating plan. The program is expected to be completed in the first quarter of 2022, and as ofJune 30, 2021 , we have spent$2.9 million under the program. Our ongoing and future technical work for theHycroft Mine can be categorized into four main areas: (i) current leach pad operations; (ii) mine planning and exploration; (iii) the proprietary two-stage sulfide heap oxidation and leach process; and (iv) mill sulfide processing options. As is common in the mining industry, mines with large mineral reserves like Hycroft often process ores using more than one recovery method and, accordingly, we are evaluating more than one processing method to determine which method, either individually or in combination with others, may be the most beneficial to the future development of theHycroft Mine . Consistent with our strategy to position theHycroft Mine for a ramp up at the appropriate time, much of our technical efforts for 2021 are focused on achieving the below items in each of the four areas: Current leach pad operations •Leach pad optimization - We developed a stacking plan for the 2021 ROM plan that utilizes existing leach pads that have the capacity to stack up to approximately 30 million tons of ROM ore. We have continued to work on ROM ore mine plans and stacking plans to optimize our cash position as we bridge to commercial scale sulfide operations. These plans facilitate deferring capital expenditures to complete and commission the new leach pad into 2022 or beyond dependent on the timing and nature of the sulfide ore mining plans. •Constraints to growth -The Hycroft Mine's future ramp up, including increasing ROM operations, 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. Mine planning and exploration •Mine planning - The mining and geology teams, together withForte 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. In addition to developing several mine plans with this team, we are continuing to work on mine plans that are cash efficient and position the Company for commercial scale sulfide operations at the appropriate time. •Exploration - The expanded exploration team has identified exploration drilling opportunities to follow up on higher grade areas that have been insufficiently drilled, to convert inferred blocks to measured or indicated blocks, and areas that have had little to no drilling that are prospective for higher grade material. We have plans to opportunistically and cost effectively drill these areas as we have drilling capacity with the drill rigs that were contracted to complete the variability drilling program. Two-stage sulfide heap oxidation and leach process •Column test work - Column tests are being performed on sulfide material mined in the first half of 2021. These column tests utilize sulfide material that has recently been extracted from key domains and will provide additional information for the two-stage sulfide heap oxidation and leach process. •Variability test work - The variability test work is underway. This work is necessary for all commercial scale sulfide processing options. The test work includes a suite of mineralogy studies designed to: ?understand the metallurgical characteristics of each geologic domain and their amenability to various processing technologies; ?understand the metallurgical characteristics of sulfide material below the water table; ?understand the role other minerals may play in the overall oxidation process; 35 -------------------------------------------------------------------------------- Table of Contents ?determine amenability to oxidation in each geologic domain; ?establish a relationship between oxidation rates and gold recoveries across each geologic domain; and ?establish optimum crush size. •Flow sheet and equipment review - Commensurate with the variability testing and analyses, we reviewed the process flowsheet and it was determined that certain additional components would be required to achieve successful commercial scale operations with the novel process. These components would require additional capital and time to engineer and implement into the system. These components include: ?agglomeration of crushed material; ?materials handling systems; ?air injections; and ?solutions management, including on/off pads. Mill sulfide processing options As previously discussed, we are in the process of reviewing historically completed feasibility and pilot plant work for sulfide processing options, as well as conducting metallurgical and mineralogical testing programs geared towards identifying the most appropriate processing technologies for each ore domain. The technical work programs taking place in 2021 and 2022, as previously discussed, will provide information for evaluating operational enhancements, updates, and opportunities. The team, together with independent engineering firms and consultants, has completed scoping level economic analyses on multiple processing options. Based on these scoping studies, we engaged Ausenco to complete a feasibility study building on previous 2014 and 2016 AAO feasibility studies and pilot plant results and we are in discussions with other engineering firms on completing a pre-feasibility study on the POX process as we continue to evaluate alternative processing options. Although the above items set forth our current expectations of focus during 2021, as information, test results, and data become available to us during the upcoming year, such findings may modify the scope, nature, and timing of technical, testing, engineering, and growth planning work performed. During 2021, we intend to focus our efforts on placing theHycroft Mine in a position for 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 optimizing ounce production and cash flows and preserving our cash. Compared to our current capabilities for processing 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. We expect to be in a position to provide an update on the path forward for commercial scale sulfide operations by the second quarter of 2022. 36 -------------------------------------------------------------------------------- Table of Contents Hycroft Mine Operations The following table provides a summary of operating results for theHycroft Mine : Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Ore mined - sulfide stockpile (ktons) 602 - 1,021 - Ore mined - crusher feed (ktons) - 1,550 - 2,507 Ore mined - ROM (ktons) 2,556 196 5,021 501 Total ore mined (ktons) 3,158 1,746 6,042 3,008 Waste mined (ktons) 1,762 1,272 2,957 1,437 Total mined (ktons) 4,920 3,018 8,999 4,445 Waste tons to ore tons strip ratio (#) 0.56 0.73 0.49 0.48 Ore grade mined - gold (oz/ton) 0.016 0.011 0.014 0.014 Ore grade mined - silver (oz/ton) 0.430 0.245 0.348 0.205 Production - gold (oz) 16,776 5,370 30,637 12,342 Production - silver (oz) 139,351 31,806 234,462 73,717 Ounces sold - gold (oz) 17,060 4,237 26,890 10,797 Ounces sold - silver (oz) 189,766 21,331 247,002 70,703 Average realized sales price - gold ($/oz)$ 1,811
($/oz) $ 26.88 As shown above, tons mined, ounces produced, ounces sold and average realized prices significantly increased during the three and six months endedJune 30, 2021 , compared with the same periods of the prior year due to ramping up mining and operations beginning in the second quarter of 2020. Mining activity during the first half of 2021 was negatively impacted by unfavorable levels of manpower due to recruiting shortfalls, as well as COVID-19 related absences. Higher gold and silver grades during the first half of 2021 were as expected under the current mine plan. The crusher did not operate during the first half of 2021, as planned, 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 or 2022. During the first half of 2021, ore placed on the 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. Until the Company builds a commercial scale operation to process sulfide ore, the ore mined is expected to be predominantly ROM oxide ore and transitional ore and we expect to stockpile sulfide ore that we encounter. Production and sales in the first and second quarters of 2021 increased over the comparable 2020 periods due to increased quantities of ROM ounces placed in the fourth quarter of 2020 and the first quarter of 2021. The recovered ounces realized in the first half of 2021 resulted from continued leach production of those inventory ounces, additional ounces placed under leach, 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 half of 2021 and combined with the higher volumes resulted in revenue of$55.0 million as compared to$18.8 million in the comparable 2020 period. The Company did not record any write downs of production inventories in the first half of 2021. 37 -------------------------------------------------------------------------------- Table of Contents Results of Operations Revenues Gold revenue The table below summarizes gold sales, ounces sold and average realized prices for the following periods (dollars in thousands, except per ounce amounts): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Gold revenue$ 30,900 $ 7,284 $ 48,441 $ 17,612 Gold ounces sold 17,060 4,237 26,890 10,797
Average realized price (per ounce) $ 1,811
During the three and six months endedJune 30, 2021 , gold revenue was$30.9 million and$48.4 million , respectively, compared to$7.3 million and$17.6 million for the comparable periods of 2020. The significant increase in revenue during the 2021 periods 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 three and six months endedJune 30, 2021 . We also benefited from favorable gold prices, which were$92 and$170 per ounce, or 5% and 10% higher during the three and six months endedJune 30, 2021 , respectively, compared to the same periods of 2020. Gold revenue was also adversely affected during the three and six months endedJune 30, 2020 due to lower gold ounces available for sale as a result of write-downs of recoverable gold ounces on the leach pads (see Note 4 - Inventories to the Notes to the Financial Statements). Silver revenue The table below summarizes silver sales, ounces sold and average realized prices for the following periods (dollars in thousands, except per ounce amounts): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Silver revenue$ 5,101 $ 352 $ 6,596 $ 1,148 Silver ounces sold 189,766 21,331 247,002 70,703
Average realized price (per ounce)
During the three and six months endedJune 30, 2021 , silver revenue was$5.1 million and$6.6 million , respectively, compared to$0.4 million and$1.1 million for the comparable periods of 2020. Similar to gold revenue, the increase in silver revenue during the second 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 over$10 per ounce higher during both of the three and six months endedJune 30, 2021 , compared to the same periods of 2020. Silver revenue was also adversely affected during the three and six months endedJune 30, 2020 due to lower silver ounces available for sale as a result of write-downs of recoverable ounces on the leach pads. 38 -------------------------------------------------------------------------------- Table of Contents Total cost of sales Total cost of sales consists of Production costs, Depreciation and amortization, Mine site period costs, and Write-down of production inventories. The table below summarizes total cost of sales for the following periods (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Production costs$ 29,494 $ 7,486 $ 47,311 $ 16,421 Depreciation and amortization 1,573 548 2,614 1,324 Mine site period costs 2,434 12,870 12,978 20,062 Write-down of production inventories - 10,959 - 17,924 Total cost of sales$ 33,501 $ 31,863 $ 62,903 $ 55,731 Production costs For the three and six months endedJune 30, 2021 , we recognized$29.5 million and$47.3 million , respectively, in Production costs, or$1,729 and$1,759 , respectively, per ounce of gold sold, compared to$7.5 million and$16.4 million respectively, or$1,767 and$1,521 per ounce of gold, sold during the same period of 2020. The increase in total production costs was primarily due to a respective increase of 12,823 and 16,093 gold ounces sold at a higher average inventory cost per ounce during the three and six months endedJune 30, 2021 compared to the same periods of 2020. As discussed in the below Mine site period costs section, throughout 2020 and the six months endedJune 30, 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$1.6 million and$2.6 million , or$92 and$97 per ounce of gold sold for the three and six months endedJune 30, 2021 , respectively, compared to$0.5 million and$1.3 million , or$129 and$123 per ounce of gold sold, during the same periods of 2020. The decrease in total depreciation and amortization costs per ounce of gold sold was largely due to an increase of 12,823 and 16,093 gold ounces sold during the three and six months endedJune 30, 2021 compared to the same periods of 2020. Mine site period costs During the three and six months endedJune 30, 2021 , inclusive of depreciation and amortization, we recorded$2.4 million and$13.0 million , respectively, of Mine site period costs for costs that were in excess of the net realizable value per ounce of gold inventories, compared to$12.9 million and$20.1 million during the same periods 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 and six months endedJune 30, 2021 . As discussed in Note 4 - Inventories to the Notes to the Financial Statements, based on metallurgical balancing results, during the three and six months endedJune 30, 2020 , we determined that 6,512 and 10,492 ounces of gold that had been placed on the leach pads were no longer recoverable and recognized$11.0 million and$17.9 million , respectively, of Write-down of production inventories on the consolidated statements of operations, which included production costs of$10.2 million and$16.7 million , and capitalized depreciation and amortization costs of$0.8 million and$1.2 million , respectively. 39 -------------------------------------------------------------------------------- Table of Contents General and administrative General and administrative totaled$5.2 million and$9.0 million during the three and six months endedJune 30, 2021 , respectively, compared to$10.4 million and$12.4 million during the same periods of 2020. The decrease of$5.2 million during the three months endedJune 30, 2021 was primarily due to decreases in: (i) bonus compensation associated with the completion of theMay 2020 Recapitalization Transaction of$4.8 million ; (ii) insurance costs of$1.7 million ; and (iii) registration fees of$0.1 million , partially offset by increases in: (i) legal, professional, and consulting fees associated with general corporate matters and obligations as a public company of$0.5 million ; (ii) director compensation for the members of our committees created upon becoming a public company of$0.5 million ; and (iii) salary and compensation costs from increased headcount of$0.3 million . The decrease of$3.4 million during the six months endedJune 30, 2021 was primarily due to decreases in: (i) bonus compensation associated with the completion of theMay 2020 Recapitalization Transaction of$4.6 million ; (ii) insurance costs of$1.4 million ; and (iii) registration fees of$0.1 million , partially offset by increases in: (i) legal, professional, and consulting fees associated with general corporate matters and obligations as a public company of$1.4 million ; (ii) salary and compensation costs from increased headcount of$0.7 million ; and (iii) director compensation for the members of our committees created upon becoming a public company of$0.5 million . Projects and development During the three and six months endedJune 30, 2021 , Projects and development costs totaled$1.0 million and$1.5 million and were 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 and six months endedJune 30, 2020 . Accretion We recorded$0.1 million and$0.2 million of Accretion during both the three and six months endedJune 30, 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$5.3 million and$9.7 million during the three and six months endedJune 30, 2021 , respectively, compared to$15.1 million and$35.0 million during the same periods in 2020. The decrease of$9.8 million and$25.3 million during the three and six months endedJune 30, 2021 was a result of completing the Recapitalization Transaction onMay 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 and six months endedJune 30, 2021 , the Fair value adjustments to warrants resulted in a non-cash gain of$0.7 million and$10.1 million , respectively, 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 and six months endedJune 30, 2020 . Refer to Note 11 - Warrants to the Notes to the Consolidated Financial Statements for further detail. Interest income Interest income totaled approximately$9,000 and$32,000 during the three and six months endedJune 30, 2021 , respectively, compared with$35,000 and$0.1 million during the same periods in 2020. Interest income was lower for the three and six months endedJune 30, 2021 primarily due to decreases in interest rate yields from the comparable periods of 2020, as well as a decrease in the cash collateral required by our new surety bonds consummated in Q2 of 2021, resulting in less interest earned on our restricted cash held as collateral for the surety bonds. 40 -------------------------------------------------------------------------------- Table of Contents Income taxes There was no income tax benefit or expense, net, recognized during the three and six months endedJune 30, 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 15 - Income Taxes to the Notes to the Financial Statements. Net loss For the reasons discussed above, we recorded a net loss of$8.4 million and$18.1 million for the three and six months endedJune 30, 2021 , respectively, which included a gain from Fair value adjustments to warrants of$0.7 million and$10.1 million , compared to net losses of$50.7 million and$85.3 million for the three and six months endedJune 30, 2020 . Liquidity and Capital Resources General Our primary use of cash during the six months endedJune 30, 2021 related to the$21.3 million of cash used in the Company's operations and$9.1 million of cash used in investing activities including (i)$3.7 million for purchased equipment and refurbishments; (ii)$2.9 million related to metallurgical and mineralogical studies; and (iii)$2.5 million spent on the leach pad expansion project (which excludes$0.7 million of capitalized interest) to complete construction to the appropriate point in which we believe there would be minimal risk of adverse impacts to the leach pad. We did not complete any financing activities during the six months endedJune 30, 2021 . However, during the quarter endedJune 30, 2021 the Company replaced certain surety bonds with new surety bonds with lower cash collateral requirements, resulting in an approximate$4.8 million reduction in restricted cash. 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. In order to provide flexibility and opportunities to raise additional funding, we filed a shelf registration statement on Form S-3 with theSEC , that was declared effective onJuly 13, 2021 , registering the issuance of common and preferred stock, debt, subscription rights, units and other securities up to$500 million in aggregate amount of securities. The terms of any offering under the Universal Shelf will be established at the time of the offering and be set forth in an accompanying prospectus supplement relating to such offering. While we monitor and evaluate opportunities on an ongoing basis to appropriately fund the Company and address our going concern, we do not currently have any agreements or understandings to issue any securities under the Universal Shelf. OnMay 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, onOctober 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 theHycroft 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 theHycroft 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 theHycroft 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 41 -------------------------------------------------------------------------------- Table of Contents agreements for more economic options; (v) decrease restricted cash balances that collateralize bonds; and (vi) planning the timing and amounts of capital expenditures and drilling, metallurgical and mineralogical study costs at theHycroft Mine and deferring such items that are not expected to benefit our near term operating plans. 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, 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): June 30, 2021 December 31, 2020 Cash$ 30,220 $ 56,363 Accounts receivable 1,463 426 Metal inventories(1) 11,876 6,418 Ore on leach pads, current(2) 37,664
38,041
Total projected sources of future liquidity
101,248
(1)Metal inventories contained approximately 6,969 recoverable ounces of gold that are expected to be sold within the next 12 months. Assuming a gold selling price of$1,727 per ounce (theJune 30, 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$12.0 million of revenue. See Note 4 - Inventories to the Notes to the Financial Statements for additional information. (2)Ore on leach pads contained approximately 21,723 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$1,727 per ounce (theJune 30, 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$37.5 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$7.3 million ; accordingly, we exclude this inventory from our projected sources of future liquidity. See Note 4 - Inventories to the Notes to the Financial Statements for additional information. 42 -------------------------------------------------------------------------------- Table of Contents Six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 The following table summarizes our sources and uses of cash for the following periods (dollars in thousands): Six Months Ended June 30, 2021 2020 Net loss$ (18,115) $ (85,330) Net non-cash adjustments 3,963 52,979 Net change in operating assets and liabilities (7,165) (25,291) Net cash used in operating activities (21,317) (57,642) Net cash used in investing activities (9,065) (11,704) Net cash (used in) provided by financing activities (583) 107,303 Net (decrease) increase in cash (30,965) 37,957 Cash and restricted cash, beginning of period 96,040 48,967 Cash and restricted cash, end of period $
65,075
Cash used in operating activities During the six months endedJune 30, 2021 , we used$21.3 million of cash in operating activities primarily attributable to a net loss of$18.1 million , the cash impact of which was equal to$14.2 million , and$7.2 million used for working capital, which included$6.3 million used to increase production-related inventories. The largest non-cash items included in net income during the six months endedJune 30, 2021 included a$10.1 million gain from Fair value adjustments to warrants and Non-cash portion of interest expense of$9.2 million . For the six months endedJune 30, 2020 , we used$57.6 million of cash for operating activities primarily attributable to a net loss of$85.3 million , the cash impact of which was equal to$32.4 million , and$25.3 million used for working capital, including the operational ramp up following the 2019 restart of theHycroft Mine using a net$24.8 million to increase production-related inventory balances. Cash outflows during the six months endedJune 30, 2020 were partially offset by certain non-cash expenses included in Net loss, such as$30.4 million of non-cash interest expense and a$17.9 million Write-down of production inventories. Cash used in investing activities For the six months endedJune 30, 2021 and 2020, we used$9.1 million and$11.7 million , respectively, in investing activities. For the six months endedJune 30, 2021 , expenditures included (i)$3.7 million for purchased equipment and refurbishments; (ii)$2.9 million related to metallurgical and mineralogical studies; and (iii)$2.5 million spent on the leach pad expansion project (which excludes$0.7 million of capitalized interest) to complete construction to the appropriate point in which we believe there would be minimal risk of adverse impacts to the leach pad. For the six months endedJune 30, 2020 , the majority of the capital expenditures related to construction of new leach pad space. Cash (used in) provided by financing activities During the six months endedJune 30, 2021 we repaid$0.6 million of the Additional Interest which is classified as debt under the terms of our Sprott Credit Agreement. Cash provided by financing activities was$107.3 million for the six months endedJune 30, 2020 , which included proceeds from financing instruments consummated in connection with the Recapitalization Transaction of$254.8 million , offset by principal payments on debt of$132.4 million and payments for legal and consulting fees related to the Recapitalization Transaction of$15.1 million . 43 -------------------------------------------------------------------------------- Table of Contents Future capital and cash requirements The following table provides our gross contractual cash obligations as ofJune 30, 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) $ 403,647 $ 1,880 $ 21,536 $ 24,054 $ 356,177
Remediation and reclamation
expenditures(2) 62,032 - - - 62,032
Interest payments(3) 15,705 5,230 8,858 1,617 -
Operating lease requirements(4) 9,372 3,227 4,609 1,536 -
Crofoot royalty(5) 4,870 240 480 480 3,670
Consignment inventory(6) 833 833 - - -
Financing activities:
Repayments of debt principal(7) 213,355 5,734 41,526 28,237 137,858
Additional interest payments(8) 9,348 2,200 4,399 2,749 -
Total $ 719,162 $ 19,344 $ 81,408 $ 58,673 $ 559,737
(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 that also includes an additional amount for withholding taxes payable by
Sprott. 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 20 - 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.
44
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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 June 30, 2021 , the Company was in compliance with all covenants under its
debt agreements.
Off-balance sheet arrangements
As of June 30, 2021 , our off-balance sheet arrangements consisted of operating
lease agreements (see Note 20 - Commitments and Contingencies to our Notes
to the Financial Statements), a net profit royalty arrangement (see Note 20 -
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 six months
ended June 30, 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
(expense) income, 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
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 theSEC , 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: 46 -------------------------------------------------------------------------------- Table of Contents 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 theU.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 ofU.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 legislation inNevada 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 theHycroft 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; 47
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Table of Contents •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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