Earnings Call Transcript - HYMC Q3 2021

Operator, Operator

Good day and welcome to the Hycroft Q3 Results Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Tracey Thom. Please go ahead, ma'am.

Tracey Thom, Vice President and Corporate Communications and Investor Relations

Thank you. Good morning and thank you for joining us. Today, we'll be discussing the business update and third quarter operating results that we issued in a press release this morning, which can be found on our website. On or about November 11, 2021, we plan to file a 10-Q for the period ending September 30, 2021, which will include our financial disclosures for the third quarter. Please read the press release and listen to this call in conjunction with reviewing the form 10-Q which will contain 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 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 facts are statements that could be deemed forward-looking. A discussion of some of the risks and uncertainties and assumptions will be set forth in more detail in our press releases and SEC filings, including the anticipated 10-Q. We assume no obligation and do not intend to update any such forward-looking statements. I'll now turn the call over to Diane Garrett, President and CEO.

Diane Garrett, President and CEO

Thank you, Tracey. I appreciate that. Good morning, everyone. And thank you for participating today on our call to discuss the business and operating update for the third quarter of 2021. I'm Diane Garrett, President and CEO of Hycroft Mining, and with me today are Stan Rideout, our Executive Vice President and Chief Financial Officer, and Tracey Thom, our Vice President and Corporate Communications and Investor Relations. Once I deliver my initial comments on the news release that we issued today, we will then open the call for questions. As a reminder, as Tracey just noted, we do intend to file our third quarter financial results on Form 10-Q after the market closes tomorrow, November 11. This new management team has been in place at Hycroft for just over a year. While all of us joined this company in anticipation of quickly ramping up production to full-scale commercial sulphide operations under the novel process, we identified and subsequently disclosed to the market a number of items that must be addressed before any application of this process could be successful or economically viable on a commercial basis. While we've been working diligently over the past many months, performing the necessary review of that process, conducting additional test work which is ongoing, and engaging three independent consultants with expertise in laboratory testing and metallurgy to independently review this work, our team is extremely conscientious about de-risking a project upfront in order to mitigate execution risk as much as possible. A big part of that de-risking involves the ongoing variability and mineralogy work across all the domains of the Hycroft ore body because that is absolutely critical to any mining operation, and must be completed before commercial start-up begins. Today, we announced the following key items. First of all, we are ceasing the mining operations at Hycroft mine effective immediately. This is why my eyes are lined, our general manager and Jack Henris, our COO are not on this call with us today as they are meeting with our team on site. However, we will continue processing metal inventory off the leach pads until it's no longer economic to do so. The operation started back in 2019 mining of the rock sides and transition allowed the company to pre-strip the overburden with some revenue offsets as they were working to expose commercial scale sulphide ore. Through our de-risking of that novel process, there are a number of findings from our work that indicate capital costs will be materially higher for that process, and operating costs will be significantly higher. We have noted that some of the ore is not amenable to this process, and that some ore is likely to perform below what was previously expected. Based on what we now know, the economics will be challenging for the novel process. We do know, however, that the chemistry of this process works, but the application on a large commercial scale at Hycroft will require more work and will not be applicable to the entire deposit. Additionally, it will be higher costs. With our change in focus from the novel process to a milling operation, we have ample time to align the remaining pre-stripping of the oxide and transitions with the start-up of commercial scale sulphide operation. Secondly, with respect to the technical studies that are currently underway and expected to be completed in the first quarter of 2022, we have run a number of pit optimizations to analyze the input value of the ore body under various sulphide processing scenarios. Without exception, the pressure oxidation or POX process generates significantly higher relative economic value at Hycroft. Moreover, that value is highly leveraged to even modest increases in gold and silver prices. Previous studies and test work have also demonstrated that milling is a viable option for Hycroft. While construction began by our predecessor company, a number of factors precluded the implementation of a mill, including lower gold prices and financial struggles faced by that predecessor company at the time. We do know that milling works at Hycroft. The Hycroft asset is truly world-class. I don't think anyone denies that it is a significant mineral endowment with hundreds of millions of dollars in infrastructure that exists on the site today. The mine is permitted to provide the heat bleach and milling operation and is situated in one of the best mining jurisdictions. An asset like Hycroft deserves thoughtful care and attention to not be driven by market expectations or commodity prices, but to be looked at through the lens of what it truly is. It sits in the top five largest primary gold projects in the world, with a significant silver component that houses the largest silver resource in the US. Our task is to unlock and deliver that value to shareholders in the best way possible. How do we do that? From all our analysis to date, we believe that the milling operation using the POX process is the right approach. Hycroft is very amenable to this process. With the higher recoveries from POX over all the other options we've reviewed, including the novel process, we believe that this is the right path for Hycroft. It is proven, it is reliable, and it has significantly less risk. While the capital required for the mill may be more than originally anticipated for the novel process, once you factor in the agglomeration circuit, materials handling system, on/off pads and solutions management systems, the expected economic return and reduced execution risks far outweigh that incremental capital requirement. So our focus going forward is solely on the POX pre-feasibility studies. We also want to follow up on many areas identified that are prospective for higher-grade ore with the targeted exploration drilling program. Many mines in Nevada started up with low-grade oxide heat bleach operations, not unlike Hycroft, but have a long history of heap leach operation. Ultimately, many of these mines have transitioned to underground mines when the feeder system to the near-surface low-grade ore was discovered through drilling. It was postulated by many geologists that potential feeder systems for both gold and silver exist at Hycroft. However, the focus from the early 2010s until recently was on step-out drilling to expand the pit. It is well known that Hycroft has banded veins similar to other high-grade projects and mines in Northern Nevada. We have seen evidence of these banded veins as we mined through the ore. In the southern part of our claims, we also found placer-style visible gold that has not been followed up on with drilling. There was minimal effort and resources at Hycroft to follow up on these opportunities or to work to identify the feeders of this enormous system. In September, we announced that we had conducted some limited exploration drilling to follow up on prospective higher-grade areas. We encountered some noteworthy intercepts, which we disclosed to the market and can be found on our website. A particular interest was a 52-meter intercept in the vortex zone that returned 2.47 grams per tonne gold and 25.5 grams per tonne silver. These are some of the highest grade gold intercepts we've seen at Hycroft and warrant additional attention. We invite you to look at our most recent presentation on our website, which details some of the target areas we have been reviewing and would like to follow up on with the drilling program. Regarding our stock price, it in no way reflects the value of this asset. Many of us in management and on our board are very engaged shareholders, and we're committed to realizing the value inherent in this asset. We can certainly appreciate the disappointment when we communicated that more work is required at Hycroft before reaching commercial scale sulphide operations. However, we believe that the decisions to narrow our focus on the PFS and to cease mining to preserve our cash for ongoing development programs provide some level of comfort that this team is ready to take the right steps. This team is extremely capable and highly qualified in operational execution and in mitigating risks, which all translate into shareholder value. Related to Hycroft, we had two large shareholders from closed funds, which were required to liquidate all holdings in those funds that also held shares of Hycroft. For approximately four months, nearly 8 million shares of Hycroft were sold, which put significant pressure on our share price. We believe the future of Hycroft is compelling as we complete the POX PFS in the first quarter of next year, while also engaging in a robust exploration program designed to target these prospective higher-grade areas. This team has established a strong culture focused on safety and environmental compliance. We continue to see incredible improvements in our tripper rate with a decrease of 0.41 at the end of September, amounting to an 82% reduction from September 2020. I'm very pleased with the focus on operational efficiencies and improvements along with the safety side, which is our number one priority. Cost control measures and improvements in these efficiencies will benefit the ongoing process of the leach pads and Merrill-Crowe plant operation as we continue to leach material off the pad. We will continue to provide periodic updates on the development of the POX PFS, and we look forward to presenting a path forward once that PFS is completed early in the new year. In closing, I am very grateful for this team and the amazing work they have done in the past year. Going forward, I am confident that we can create a long-life mine that will benefit generations of miners. With that, I would like to open it up to Q&A and make some closing comments before we end the call today.

Operator, Operator

Okay, thank you, operator. Well, that's amazing. We've either answered everybody's questions with our comments, because we do have quite a number of people on the call today. I want to thank you all for joining us. If you would like to follow up, I think everybody's got our contact information, it can be found on the press release, please reach out to us. We'd be more than happy to answer any questions you have. We are hard at work conducting all the necessary work to develop the best long-term plan for Hycroft. We really appreciate the support and patience of our shareholders and stakeholders as we look forward to delivering this plan that provides value for our shareholders. Before I say goodbye to everybody, I’d like to get on with your day. I also want to thank the entire team at the Hycroft mine for their hard work. We could not have made significant improvements without their commitment and dedication to safety and operational improvement while navigating through the challenges of the novel process. I'd also like to thank Jack Henris for his guidance on the mining and Mr. David Kirsch for his leadership as Chairman of Hycroft. Thank you very much for joining us today. Please do visit our website and reach out to us with any questions that you may have. Have a wonderful day, everybody. Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.