Earnings Call Transcript - HYMC Q2 2020

Operator, Operator

Hello and thank you for joining the Hycroft Second Quarter 2020 Financial and Operating Results Call. At this time, all participants are in listen-only mode. Please note that this call may be recorded. It is now my pleasure to turn today's conference over to Tracey. Please go ahead.

Tracey Thom, Investor Relations

Thank you, Bree. Good morning, everyone. Thank you for joining us today. Today Steve Jones, Interim President and CEO will be discussing our second quarter 2020 results for which we found our 10-Q and issued a press release this morning. The press release can be found on our website at www.hycroftmining.com. We urge you to read the Press Release and listen to this call in conjunction with reviewing the 10-Q, which contains additional disclosures. Also, please note that some information provided during this call may include forward-looking statements that involve risks, uncertainties, and assumptions. Even if these risks or uncertainties have materialized or the assumptions proven correct, these results may differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking. A discussion of some of the risks, uncertainties, and assumptions are set forth in more detail in our press releases and SEC filings, including the most recently filed 10-Q. We assume no obligation and did not intend to update any such forward-looking statements. I will now turn the call over to Steve Jones who will discuss the year-to-date results.

Steve Jones, Interim President and CEO

Thank you, Tracey. Good morning and good afternoon, and welcome to the first Hycroft Mining Holding Corporation quarterly call. As most people on the phone are aware, on May 29, Hycroft Mining Company, a private company, completed a recapitalization using a special purpose acquisition vehicle. As a result, the Hycroft Mine is now owned by Hycroft Mining Holding Corporation, a listed company on NASDAQ. In July 2019, about a year ago, M3 Engineering, along with SRK and Hycroft Mining Corporation completed a feasibility study for one of the world's largest precious metal deposits with a resource in excess of 31 million gold equivalent ounces. That feasibility study showed a net present value of $2.1 billion at metal prices of $1,300 gold and $17.33 silver. Today, we see gold and silver above $2,000 an ounce and $28 an ounce respectively. In fact, if you take Friday's closing spot prices of $2,035 gold and $28.32 silver, the NPV is approximately $5.6 billion. As you would expect, a mine with a 34-year mine life is incredibly leveraged to the precious metal prices. To put it in a little bit different perspective, a $100 change in gold is $300 to the NPV and a $1 change in silver is $125. To this point, the company has been putting the building blocks in place to take advantage of just such an opportunity as it presents us today. We have this excellent capital-light permitted expansion in front of us taking advantage of what Hycroft Mining Corporation already had in place. Specifically, last year, the owners of Hycroft Mining Corporation made the decision to restart the mine, and we began refurbishing equipment and adding infrastructure. We started up the crusher, replacing the cone crushers that we knew needed to be replaced. We started mining in April and we began producing gold in August. In order to build the future of Hycroft and continue to ramp up, we have four key focus areas: people, our mobile equipment, the process side, which includes both the crusher as well as the oxidation on the leach pads, and then the infrastructure and capital that supports that. While focusing on this initial restart and continuing to focus on the future, our goal is to maintain a high level of discipline in our health, safety, and environmental practices. Specifically, this year, we've added a new Safety Manager and a new Environmental Manager. Like most businesses, we believe the first step to success is finding the right people. Our focus in 2020 has been building a strong team with the talent and knowledge to turn our plans into reality. Specifically, we've increased the workforce by 35% year-to-date. We've identified and added key management roles that we need to operate the mine. In February, we brought on a new General Manager who has quickly come up to speed on the operation and has proven to be a very effective operator. We've recently split the Process Manager role into two to get better focus on the key process area around the oxidation of leach pads. Specifically, we now have one Process Manager whose responsibility is purely technical, managing the oxidation, and the second Process Manager who is focused on operations and is implementing what needs to take place. We've recently added a highly experienced HR person to help us bring on some of these additional people, as well as a number of technical folks to our maintenance teams, both on the equipment side as well as the crushing side. Specifically, we've found a couple of strong electrical and instrumentation technicians, which are critical to maintaining the crushing system. Supporting us, we have an excellent procurement team that has managed to put in place long-term contracts for our soda ash, lime, and cyanide—our three primary reagents. Today, we have a complement of 216 employees, and as we continue to grow our manpower, we have a goal of 275 employees by the end of the year. On the mining side, we've improved our mobile equipment maintenance team to transition to self-performed maintenance and begin to discontinue the contractor-led maintenance that we've relied on since start-up. The best part of the increase in manpower overall is that we're trying to wean ourselves from relying on contractors, bringing that expertise in-house, and then developing it further so that we maintain that expertise long term. In April, we increased our mining fleet through the rental of seven 240-ton haul trucks and a loader that replaced a smaller fleet we had with a contractor. Net overall, that more than doubles the number of trucks we have; we own six 200-ton trucks in addition to the 700 rented ones. On mining, we started out in stockpiles; we're now actively drilling and blasting in the pit. Overall, we've increased our monthly mining rate from January to June by 55%. Moving downstream to the crusher, the crusher was really the focus of 2019 and into early 2020. The crusher had sat idle for several years, as I mentioned, and we had to replace two cone crushers which we knew needed to be done before start-up. It took us a while to get that crusher operating efficiently. We've seen significant improvement; in the first quarter, we averaged 338,000 tonnes through the crusher and in the second quarter, 459,000 tonnes. Part of the reason for that improvement is that we put in place a comprehensive preventative maintenance program, and we've added a trainer on-site to conduct operating training. The crusher is designed to run in automatic mode, and the only way to truly do that is to have very knowledgeable operators, and we've seen huge improvement on the operator side in the last few months. We continue to improve the crusher, and we have plans in the fourth quarter to further upgrade the automation and process controls, improve the overall electrical infrastructure, and conduct a final OEM review with FL Schmidt, the manufacturer of the crushers, to prepare to step up the tonnage in 2021. Once the ore is crushed and moved out to the leach pads, we are focused on oxidation. The most important thing we've done to date is for test pads one and two, the initial two pads that we stacked out there. We've been able to show that we can, in a true commercial setting, obtain recoveries greater than those in the feasibility level. Specifically, on test pad one for the Brimstone, which represents 80% of our reserves, we achieved a recovery level of 82% versus the feasibility estimate of 65%. On the second initial pad, which is central and represents 19% of our reserves, we achieved a recovery of 91% versus the 70% forecast in the feasibility study, demonstrating that we can indeed obtain the recoveries identified in the feasibility study within a commercial setting. We've also improved the solution management system, what we call the reagent island, which increases the solution distribution to our leach pads. Initially, we started up with a facility that was a little under-sized, so we needed to increase that size to properly manage all the leach pads as we continued to stack out onto them. In terms of the reagent island itself, we've got further improvements lined up for the third quarter. We're going to add new tankage with an agitator that will allow us to better dissolve the soda ash into the solution, which will improve the kinetics in the leach pads, specifically increasing the oxidation results and raising the pH to achieve better overall recoveries. If we move further downstream to the process, the actual processing of the solution flows, once we put them under leach, we have the infrastructure in place to ramp up our operations. We're currently operating the Brimstone Merrill-Crowe facility and refinery. We've added a carbon-in-columns, or CIC circuit to capture metal from a low-grade solution, and we've begun planning the restart of the 21,500 gallons-per-minute North Merrill Pro plant, which we'll utilize later on in 2021 when our solution flows achieve about 9,000 gallons per minute. Currently, we're at about 5,000 gallons per minute. We have set our second-half targets for mining, crushing, and oxidation at levels we believe can be successfully achieved and further demonstrate the success of our two-stage oxidation and leach process. We expect second half crushing and production levels to be consistent with, or a little bit above, our first-half levels, and our focus is on getting prepared for ramping up mining, crushing, and production in 2021 with the new leach pads in place. We've made significant progress on the new leach pad; the first phase is 4 million square feet, along with the necessary ponds, pipes, and electricity that will be required to operate that new pad. This new pad is critical to our ability to ramp up. We've spent $9.7 million through June on the new leach pad and we would expect to spend about $36 million in total. We expect to begin stacking on the new leach pad in the fourth quarter. We did have some struggles in the second quarter related to leach pad processing activities, which resulted in the write-off of about 6,500 ounces of gold. We did not properly execute our processing plans and had delays in getting our pads under leach. This is directly the result of the lack of manpower, specifically at the management level, and the undersized reagent island that I mentioned. With the additional manpower we have made now—specifically around processing—we believe we have the team in place. The two managers that I already discussed, as well as a senior metallurgical engineer, give us confidence that we can execute our plans properly moving forward. To enable us to be in position for the ramp-up in 2021, we've begun the process of speaking with financial advisors and stakeholders about options and timing related to securing additional financing. Additionally, we've received a letter of support from our two largest stakeholders, Muderick and Whitebox, and that letter was filed this morning in our 10-Q as an exhibit. The Board of the company intends to evaluate our options to ensure the necessary capital is raised on terms favorable and in the best interest of all its shareholders. We have no commitment at this time, but as I said, we've begun work with our financial advisors and stakeholders about potential options. We are very excited about the improvements we've made to date. We are excited about those plans for the second half of the year and really eager to get ourselves to the place where we can significantly begin the ramp-up of mining, crushing, oxidizing, and ultimately production in 2021. The new leach pads are key to us being able to do that, and it’s exciting to see the progress that has already been made on those. We look forward to updating everybody on future calls with continued progress. If you have any questions about the quarter, please contact Tracey Thom. Her contact details are on the website. We want to thank everyone, and we look forward to updating you in the future.

Operator, Operator

This does conclude today's program. We appreciate your participation. And you may now disconnect.