POS AM 1 tm2110640d2_posam.htm POS AM

 

As filed with the Securities and Exchange Commission on March 29, 2021

Registration Nos. 333-248516
 333-249250

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

POST-EFFECTIVE AMENDMENT NO. 1 to

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 

HYCROFT MINING HOLDING CORPORATION

 

(Exact name of registrant as specified in its charter)

 

Delaware   1040   82-2657796
(State or Other Jurisdiction of Incorporation or Organization)   (Primary Standard Industrial Classification Code Number)   (I.R.S. Employer Identification No.)

 

8181 E. Tufts Ave., Suite 510
Denver, Colorado 80237
(303) 253-3267

 

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Diane R. Garrett, Ph.D.
President and Chief Executive Officer
Hycroft Mining Holding Corporation
8181 E. Tufts Ave., Suite 510
Denver, Colorado 80237
(303) 524-1947

 

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:
Neal, Gerber & Eisenberg LLP
2 N. LaSalle Street, Suite 1700
Chicago, IL 60602
Attention: David S. Stone, Esq.
Tel: (312) 269-8000

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
  Emerging Growth Company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall

file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of

the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange

Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

EXPLANATORY NOTE

This Post-Effective Amendment No. 1 (this “Post-Effective Amendment No. 1”) to the Registration Statement on Form S-1 (File No. 333-248516) (the “Registration Statement”), as originally declared effective by the Securities and Exchange Commission (the “SEC”) on October 1, 2020, is being filed to include information contained in the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which was filed with the SEC on March 24, 2021, and to update certain other information in the Registration Statement.

 

No additional securities are being registered under this Post-Effective Amendment No. 1. All applicable registration fees were paid at the time of (i) the original filing of the Registration Statement on September 1, 2020 and (ii) the filing of the S-1MEF on October 2, 2020, which was filed for the sole purpose of increasing the aggregate offering price.

 

 

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED MARCH    , 2021

 

 

 

 

HYCROFT MINING HOLDING CORPORATION

9,583,334 shares of Class A Common Stock Issuable upon Exercise of the Warrants

This prospectus relates to the issuance of up to 9,583,334 shares of our Class A common stock, par value $0.0001 per share (“Common Stock”), issuable upon exercise of warrants to purchase one share of Common Stock at an exercise price of $10.50 per share of Common Stock (the “Warrant”).

Pursuant to a prospectus dated October 2, 2020, we offered 9,583,334 units, with each unit consisting of one share of our Common Stock and one Warrant (together with the shares of Common Stock issuable upon exercise of such warrants, the “Units”). The Units were not issued or certificated. The shares of Common Stock and the Warrants were purchased together in the offering but were immediately separable and were issued separately on October 6, 2020. The Warrants were exercisable on October 6, 2020, the date of issuance, and will expire on October 6, 2025, the five year anniversary of the date of issuance.

Our Common Stock and our Warrants are listed on the Nasdaq Capital Market under the symbols “HYMC” and “HYMCL, respectively. On March 26, 2021, the closing price of our Common Stock was $4.04 per share and the closing price of our Warrants was $0.95.

We are an “emerging growth company” under federal securities laws and are subject to reduced public company reporting requirements. Investing in our Common Stock involves a high degree of risk. See “Risk Factors” beginning on page 8 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is March 29, 2021

 

 

 

TABLE OF CONTENTS

 

Selected Definitions ii
Cautionary Notes Regarding Forward-Looking Statements 1
Prospectus Summary 3
The Offering 7
Risk Factors 8
Use of Proceeds 26
Description OF Business 26
Description of Property 30
Legal Proceedings 45
Market Price of and Dividends on Common Stock and Related Stockholder Matters 45
Managements Discussion and Analysis of Financial Condition and Results of Operations 46
Management 63
Executive Compensation 69
Certain Relationships and Related Party Transactions 81
Security Ownership of Certain Beneficial Owners and Management 85
United States Federal Income Tax Considerations 87
Description of Securities 92
Interest of Named Experts 96
Legal Matters 96
Where You Can Find Additional Information 96
Index to Financial Statements F-1
Signatures II-9

 

We are responsible for the information contained in this prospectus. We have not authorized anyone to provide you with additional information or information different from that contained in this prospectus and we take no responsibility for any other information that others may give you. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of exercise of the Warrants for shares of the Common Stock. Our business, operating results or financial condition may have changed since such date.

i

 

ABOUT THIS PROSPECTUS

This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under “Where You Can Find More Information.”

On May 29, 2020, the entity formerly known as Mudrick Capital Acquisition Corporation (the “Company”), consummated the transactions contemplated by the Purchase Agreement, dated as of January 13, 2020, by and among the Company, MUDS Acquisition Sub, Inc. (“Acquisition Sub”) and Hycroft Mining Corporation, a Delaware corporation (the “Seller”), as amended by that certain Amendment to Purchase Agreement, dated as of February 26, 2020 (as amended, the “Purchase Agreement”). Pursuant to the Purchase Agreement, Acquisition Sub acquired all of the issued and outstanding equity interests of the direct subsidiaries of Seller and substantially all of the other assets and assumed substantially all of the liabilities of Seller, a U.S.-based gold and silver producer operating the Hycroft Mine located in the mining region of northern Nevada. In connection with the completion of the Recapitalization Transaction contemplated by the Purchase Agreement (the “Recapitalization Transaction”), the Company changed its name from Mudrick Capital Acquisition Corporation to Hycroft Mining Holding Corporation. The above description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by the full text of the Purchase Agreement, which is included as Exhibit 2.1 and Exhibit 2.2 to the registration statement of which this prospectus forms a part. Common terms and their meaning are set forth below under the heading “Selected Definitions.”

 

SELECTED DEFINITIONS

Unless stated in this prospectus or the context otherwise requires, references to:

1.25 Lien Exchange” means the exchange by the 1.25 Lien Noteholders of the outstanding 1.25 Lien Notes for the Subordinated Notes.

1.25 Lien Exchange Agreement” means that certain Note Exchange Agreement, dated as of January 13, 2020, by and among Seller and certain investment funds affiliated with or managed by Mudrick Capital, Whitebox, Highbridge, Aristeia and Wolverine, as amended, pursuant to which the 1.25 Lien Exchange occurred immediately prior to the consummation of the Recapitalization Transaction.

1.25 Lien Notes” means the notes issued pursuant to the Note Purchase Agreements, dated as of February 22, 2019, May 21, 2019, June 27, 2019, August 6, 2019, August 29, 2019, September 25, 2019, October 16, 2019, November 21, 2019, December 17, 2019, January 17, 2020, February 7, 2020, March 12, 2020, April 16, 2020 and May 7, 2020 between Seller, the guarantors and the purchasers named therein and WBox 2015-5 Ltd., as collateral agent.

1.25 Lien Noteholders” means the holders of the 1.25 Lien Notes and, subsequent to the 1.25 Lien Exchange, the holders of the Subordinated Notes.

1.5 Lien Notes” means the notes issued pursuant to the Note Purchase Agreements, dated as of May 3, 2016, July 29, 2016, September 22, 2016, November 30, 2016, February 2, 2017, April 12, 2017, June 30, 2017, July 14, 2017, December 20, 2017, March 8, 2018, May 10, 2018, July 10, 2018, August 22, 2018, November 1, 2018, and December 19, 2018 between Seller, the guarantors and the purchasers named therein and WBox 2015-5 Ltd., as collateral agent.

1.5 Lien Noteholders” means certain investment funds affiliated with Mudrick Capital, Whitebox, Highbridge, Aristeia and Wolverine that hold the 1.5 Lien Notes.

Amended and Restated Registration Rights Agreement” means that certain Amended and Restated Registration Rights Agreement entered into at the closing of the Recapitalization Transaction, by and among the Company and the restricted stockholders.

Acquisition Sub” means MUDS Acquisition Sub, Inc., a Delaware corporation and an indirect, wholly owned subsidiary of the Company now known as Autar Gold Corporation.

Aristeia” means Aristeia Capital, LLC.

ii

 

Board” means the board of directors of Hycroft Mining Holding Corporation.

business day” means a day, other than Saturday, Sunday or such other day on which commercial banks in New York, New York are authorized or required by applicable laws to close.

Cantor” means Cantor Fitzgerald & Co.

“Common Stock” means the Class A common stock, par value $0.0001 per share, of the Company.

conversion” means the conversion of the Second Lien Notes into shares of Seller common stock, pursuant to the terms of the Second Lien Conversion Agreement.

DGCL” means the General Corporation Law of the State of Delaware.

debt and warrant assumption” means the assignment by Seller and the assumption by the Company of (x) $80,000,000 in aggregate principal amount of Subordinated Notes, (y) the Sprott Credit Agreement and (z) Seller’s liabilities and obligations under the Seller Warrant Agreement.

effective time” means 9:00 a.m. New York time on May 29, 2020.

employee benefit plan” means any material “employee benefit plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended.

Excess Noteholders” means the holders of the Excess Notes.

Excess Notes” means the $48,459,232 in aggregate principal amount of Subordinated Notes exchanged pursuant to the Exchange Agreement.

Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Exchange Agreement” means that certain Exchange Agreement, dated as of January 13, 2020, by and among Seller, Acquisition Sub, the 1.5 Lien Noteholders and the 1.25 Lien Noteholders, as amended.

First Lien Credit Agreement” means the first lien term loan credit agreement between Seller and The Bank of Nova Scotia, as administrative agent, and other lenders.

First Lien Notes” means the notes under the First Lien Credit Agreement.

forward purchase” means the issuance to sponsor of shares of Common Stock pursuant to the terms of the Forward Purchase Contract.

Forward Purchase Contract” means the Forward Purchase Contract, dated January 24, 2018, by and between the Company and sponsor, pursuant to which sponsor purchased 3,125,000 shares of Common Stock and 2,500,000 forward purchase warrants exercisable at $11.50 per share, for gross proceeds of $25,000,000, concurrently with the consummation of the Recapitalization Transaction.

forward purchase warrants” means the warrants to purchase one share of Common Stock at a price of $11.50 per share issued to the sponsor upon consummation of the Recapitalization Transaction pursuant to the Forward Purchase Contract.

founder shares” means shares of Class B common stock, par value $0.0001 per share, of the Company initially purchased by sponsor which were redeemed or converted into shares of Common Stock upon the consummation of the Recapitalization Transaction.

GAAP” means generally accepted accounting principles in the United States.

Highbridge” means Highbridge Capital Management, LLC.

iii

 

HRD” means Hycroft Resources & Development, LLC, a Delaware limited liability company and an indirect, wholly owned subsidiary of the Company.

Hycroft,” “Company,” “we,” “our,” or “us,” means Hycroft Mining Holding Corporation, a Delaware corporation.

Hycroft Mine” means the Hycroft Open Pit Mine, located in Winnemucca, Nevada that produces gold and silver using a heap leach mining process.

Hycroft Technical Report” means that certain Technical Report Summary, Heap Leaching Feasibility Study prepared for Seller with an effective date of July 31, 2019 by M3 Engineering and Technology Corporation and other qualified persons, prepared in accordance with the requirements of the Modernization of Property Disclosures for Mining Registrants set forth in subpart 1300 of Regulation S-K.

Incentive Plan” means the HYMC 2020 Performance and Incentive Pay Plan.

initial stockholders” means holders of founder shares prior to the IPO.

Initial Subscribers” means investment funds affiliated with or managed by Mudrick Capital, Whitebox, Highbridge, Aristeia and Wolverine (together with any permitted assigns under the Subscription/Backstop Agreements).

IPO” means the Company’s initial public offering, consummated on February 12, 2018, through the sale of 20,800,000 public units (including 800,000 units sold pursuant to the underwriters’ partial exercise of their overallotment option) at $10.00 per unit.

JOBS Act” means the Jumpstart our Business Startups Act of 2012.

Lender” means Sprott Private Resource Lending II (Collector), LP.

Mudrick Capital” means Mudrick Capital Management, L.P., a Delaware limited partnership, an affiliate of sponsor.

Nasdaq” means The Nasdaq Stock Market LLC.

New Mining Rules” means the Modernization of Property Disclosures for Mining Registrants final rule promulgated by the SEC.

New Warrant Agreement” means that certain warrant agreement, dated as of the date of the initial issuance of the securities offered pursuant to this prospectus against payment therefor, by and between the Company and Continental Stock Transfer & Trust Company, as initial warrant agent.

Note exchange” means the exchange of the 1.5 Lien Notes and the Excess Notes, if any, for shares of Common Stock valued at $10.00 per share pursuant to the terms of the Exchange Agreement.

Parent Sponsor Letter Agreement” means that certain letter agreement, dated as of January 13, 2020, by and between the Company and sponsor, as amended from time to time.

PIPE warrants” means the warrants to purchase one share of Common Stock at a price of $11.50 per share issued to the Initial Subscribers in the private investment.

private investment” means the equity financing through a private placement of equity securities in the Company pursuant to Section 4(a)(2) of the Securities Act, for gross proceeds to the Company in an aggregate amount of approximately $76.0 million funded in accordance with the terms of the Subscription/Backstop Agreements.

private placement warrants” means the warrants issued to sponsor and Cantor in a private placement simultaneously with the closing of the IPO.

public shares” means shares of Common Stock sold as part of the units in the IPO.

iv

 

public units” means one share of Common Stock and one redeemable public warrant of the Company, whereby each public warrant entitles the holder thereof to purchase one share of Common Stock at an exercise price of $11.50 per share of Common Stock, sold in the IPO.

public warrants” means the warrants included in the units issued in the IPO, where one warrant entitles the holder thereof to purchase one share of Common Stock at an exercise price of $11.50 per share of Common Stock in accordance with the terms of the Warrant Agreement.

Purchase Agreement” means that certain Purchase Agreement, dated January 13, 2020, as amended on February 26, 2020, by and among the Company, Acquisition Sub and Seller.

Recapitalization Transaction” means the transactions contemplated by the Purchase Agreement, the Exchange Agreement and the Second Lien Conversion Agreement consummated on May 29, 2020.

representatives” means a Person’s officers, directors, employees, accountants, consultants, agents, legal counsel, and other representatives.

restricted stockholders” means, collectively, sponsor, Cantor, certain directors and officers of the Company (as set forth in the Amended and Restated Registration Rights Agreement), the 1.5 Lien Noteholders, certain stockholders of Seller that receive Common Stock in the Recapitalization Transaction, the Initial Subscribers pursuant to the private investment, and Lender.

SEC” means the United States Securities and Exchange Commission.

Second Amended and Restated Charter” means the Second Amended and Restated Certificate of Incorporation of the Company filed with the Delaware Secretary of State on May 29, 2020.

Second Lien Conversion Agreement” means that certain Note Conversion and Consent Agreement by and among Seller and the Second Lien Noteholders, dated January 13, 2020.

Second Lien Notes” means the notes issued pursuant to (a) that certain Note Purchase Agreement, dated as of October 22, 2015, by and among Seller, certain of its affiliates and the purchasers named therein and (b) that certain Note Purchase Agreement, dated as of December 2, 2015, by and among Seller, certain of Seller’s subsidiaries and the purchasers named therein, in each case, entered into pursuant to the 15% Senior Secured Convertible Notes Due 2020 Indenture, dated as of October 22, 2015, by and among Seller, the guarantors (as defined therein) and Wilmington Trust, National Association, as trustee and collateral agent as of January 6, 2016 and March 24, 2016.

Second Lien Noteholders” means certain funds affiliated with Mudrick Capital, Whitebox, Highbridge, Aristeia and Wolverine and two additional noteholders.

Securities Act” means the Securities Act of 1933, as amended.

Seller” means Hycroft Mining Corporation, a Delaware corporation.

Seller common stock” means Seller’s common stock, par value $0.001 per share.

Seller warrants” means a warrant to purchase shares of Common Stock issued pursuant to the Seller Warrant Agreement following the assumption of the Seller Warrant Agreement by the Company pursuant to the Purchase Agreement and effective as of the consummation of the Recapitalization Transaction.

Seller Warrant Agreement” means that certain warrant agreement, dated as of October 22, 2015, by and between Seller and Computershare Inc., a Delaware corporation, and its wholly owned subsidiary Computershare Trust Company, N.A., a federally chartered trust company, collectively as initial warrant agent; such warrant agreement was assumed by the Company pursuant to the Purchase Agreement and Continental Stock Transfer & Trust Company, LLC is the successor warrant agent.

sponsor” means Mudrick Capital Acquisition Holdings LLC, a Delaware limited liability company, which is 100% owned by investment funds and separate accounts managed by Mudrick Capital.

v

 

Sprott Credit Agreement” means that certain amended and restated credit agreement, dated as of May 29, 2020, between Hycroft Mining Holding Corporation, as borrower, MUDS Acquisition Sub, Inc., MUDS Holdco, Inc., Hycroft Resources & Development, LLC, a Delaware limited liability company, and Allied VGH LLC, a Delaware limited liability company, as guarantors, Sprott Private Resource Lending II (Collector), LP, as lender, and Sprott Resource Lending Corp., as arranger.

Sprott Royalty Agreement” means that certain royalty agreement between the Company, Hycroft Resources & Development, LLC, a Delaware limited liability company and Sprott Private Resource Lending II (Co), Inc.

Subordinated Notes” means the $80.0 million in aggregate principal amount of 10% payment in-kind subordinated notes issued pursuant to the 1.25 Lien Exchange Agreement and assigned to, and assumed by, the Company in connection with the Recapitalization Transaction.

Subscription/Backstop Agreements” means those certain Subscription/Backstop Agreements, dated as of January 13, 2020, by and among the Company and the Initial Subscribers, as amended on May 28, 2020.

Treasury Regulations” means the regulations promulgated by the U.S. Department of the Treasury pursuant to and in respect of provisions of the U.S. Tax Code.

trust account” means the trust account of the Company that held the proceeds from the IPO.

Unit” means each unit offered hereby, consisting of one share of our Common Stock and one Warrant to purchase one share of our Common Stock, together with the shares of Common Stock issuable upon due exercise of such Warrants.

U.S. Holder” means a beneficial owner of the Company’s securities who or that is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized in or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source, or (iv) a trust, if (a) a court within the United States is able to exercise primary supervision over the administration of the trust or one or more U.S. persons (as defined in the U.S. Tax Code) have authority to control all substantial decisions of the trust or (b) it has a valid election in effect under Treasury Regulations to be treated as a U.S. person.

U.S. Tax Code” means the Internal Revenue Code of 1986, as amended.

Warrant Agreement” means the Warrant Agreement, dated February 7, 2018, by and between Mudrick Capital Acquisition Corporation and Continental Stock Transfer & Trust Company, LLC.

Warrants” means the warrants to purchase one share of Common Stock at an exercise price of $10.50 per whole share, included in the Units offered hereby, and issued pursuant to the New Warrant Agreement.

Whitebox” means Whitebox Advisors, LLC.

Wolverine” means Wolverine Asset Management, LLC.

vi

 

CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTS

We make “forward-looking statements” in the “Summary,” “Risk Factors,” “Description of Business,” “Description of Property,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and elsewhere throughout this prospectus. All statements, other than statements of historical facts, included in this prospectus and in press releases and public statements by our officers or representatives, that address activities, events or developments that our management expects or anticipates will or may occur in the future, are forward-looking statements, including but not limited to such things as future business strategy, plans and goals, competitive strengths and expansion and growth of our business.

The words “estimate”, “plan”, “anticipate”, “expect”, “intend”, “believe” “target”, “budget”, “may”, “schedule” and similar words or expressions identify forward-looking statements. Forward-looking statements in this prospectus may include, for example, statements about:

Use of proceeds from this offering;
Industry-related risks including:
oFluctuations in the price of gold and silver;
oUncertainties concerning estimates of reserves and mineralized material;
oUncertainties relating to the novel coronavirus (“COVID-19”) pandemic;
oThe intense competition within the mining industry and state of Nevada;
oThe inherently hazardous nature of mining activities, including environmental risks;
oOur insurance may not be adequate to cover all risks associated with our business, or cover the replacement costs of our assets;
oPotential effects on our operations of U.S. federal and state governmental regulations, including environmental regulation and permitting requirements;
oCost of compliance with current and future government regulations;
oUncertainties relating to obtaining or retaining approvals and permits from governmental regulatory authorities;
oPotential challenges to title in our mineral properties;
oRisks associated with proposed legislation in Nevada that could significantly increase the costs or taxation of our operations; and
oChanges to the climate and regulations and pending legislation regarding climate change.

o

 

Business-related risks including:
oRisks related to our liquidity and going concern considerations;
oRisks related to our ability to raise capital on favorable terms or at all;
oRisks related to the proprietary two-stage heap oxidation and leach process at the Hycroft Mine and estimates of production;
oOur ability to achieve our estimated production and sales rates and stay within our estimated operating and production costs and capital expenditure projections;
oRisks related to a decline in our gold and silver production;
oOur 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.
oRisks related to our reliance on one mine with a new process;
oRisks related to our limited experience with a largely untested process of oxidizing and heap leaching sulfide ore;

 

 

oUncertainties and risks related to our reliance on contractors and consultants;
oAvailability and cost of equipment, supplies, energy, or commodities;
oThe commercial success of, and risks relating to, our development activities;
oRisks related to slope stability;
oRisks related to our substantial indebtedness, including cross acceleration and our ability to generate sufficient cash to service our indebtedness;
oUncertainties resulting from the possible incurrence of operating and net losses in the future;
oUncertainties related to our ability to replace and expand our mineral reserves;
oThe costs related to our land reclamation requirements;
oThe loss of key personnel or our failure to attract and retain personnel;
oRisks related to technology systems and security breaches; and
oRisks 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
oVolatility in the price of our common stock and warrants;
oRisks that warrants may expire worthless;
oAnti–takeover provisions could make a third-party acquisition of us difficult; and
oRisks 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.

These statements involve known and unknown risks, uncertainties, assumptions and other factors which 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. Although our management believes that its expectations are based on reasonable assumptions, we can give no assurance that these expectations will prove correct. Please see “Risk Factors” below for more information about these and other risks. Potential investors are cautioned against attributing undue certainty to forward-looking statements. 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. There can be no assurance that our forward-looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in the statements. We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

 2

 

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. It does not contain all the information that you may consider important in making your investment decision. Therefore, you should read the entire prospectus carefully, including, in particular, the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our and Seller’s consolidated financial statements and related notes.

As used in this prospectus, unless the context otherwise requires or indicates, references to “Hycroft,” “Company,” “HYMC,” “we,” “our,” and “us,” refer to Hycroft Mining Holding Corporation and its subsidiaries. “Seller” refers to Hycroft Mining Corporation.

Overview

We are a U.S.-based gold producer that is focused on operating and developing our wholly owned Hycroft Mine in a safe, environmentally responsible, and cost-effective manner. Gold and silver sales represent 100% of our operating revenues and the market prices of gold and silver significantly impact our financial position, operating results and cash flows. The Hycroft Mine is located in the state of Nevada.

During the second quarter of 2019, we restarted open pit mining operations at the Hycroft Mine, and, during the third quarter of 2019, produced and sold gold and silver which we have continued to do on an approximate weekly basis since restarting. As part of the 2019 restart of mining operations, existing equipment was re-commissioned, including haul trucks, shovels and a loader, upgrades were made to the crushing system and new leach pad space was added to the existing leach pads. During 2020, we continued to increase our operations by mining more tons, procuring additional mobile equipment rentals, and increasing our total headcount. During the year ended December 31, 2020 we sold 24,892 ounces of gold and 136,238 ounces of silver. As of December 31, 2020, the Hycroft Mine had proven and probable mineral reserves of 11.9 million ounces of gold and 478.5 million ounces of silver, which are contained in oxide, transitional, and sulfide ores. We currently recover gold and silver through our heap leach process operations, while we continue to study and conduct testing of commercial production using our proprietary two-stage heap oxidation and leach process.

The Hycroft Mine ranks among one of the 20 largest gold deposits in the world, and the second largest in the United States, based on resource sizes. Pursuant to the current 34-year life of mine plan in the Hycroft Technical Report, once fully operational, mining will range from approximately 85 – 100 million tons per year resulting in average annual life-of-mine production of 366,000 gold equivalent ounces (230,700 ounces of gold and over 10 million ounces of silver) at by-product cash cost of production of $548 per ounce. As set forth in the Hycroft Technical Report, during the initial five-year ramp-up we expect mining will be performed by a contract mining company or we will primarily use a short-term equipment rental fleet using customary truck and shovel open pit mining methods. After the initial ramp-up, we expect to self-perform mining with our own equipment fleet.

Effective July 31, 2019, M3 Engineering and Technology Corporation (“M3 Engineering”), in conjunction with SRK Consulting (U.S.), Inc. (“SRK”) and Seller, completed the Hycroft Technical Report Summary, Heap Leaching Feasibility Study prepared for Seller with an effective date of July 1, 2019, and prepared in accordance with the requirements of the Modernization of Property Disclosures for Mining Registrants set forth in subpart 1300 of Regulation S-K, for a two-stage, heap oxidation and subsequent leaching of transition and sulfide ores.

Our sole mining property is located in Nevada. We currently have one operating property, which is the Hycroft Mine as discussed herein.

Recent Developments

On May 29, 2020, we completed the Recapitalization Transaction described below in the Section entitled “Description of Business.”

On July 1, 2020, Randy Buffington, our former Chairman, President, and CEO departed the Company. Mr. Buffington is assisting us during this transition period and has entered into a consulting agreement for 24 months, through July 1, 2022. See Note 22 — Subsequent Events to the Notes to Unaudited Consolidated Financial Statements and “Executive Compensation — Transition Agreements with Randy Buffington.

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Diane R. Garrett, Ph.D, was appointed as the Company’s President and Chief Executive Officer and as a director, effective as of September 8, 2020. For more information about Dr. Garrett’s biography and compensation arrangements, see “Management” and “Executive Compensation — Compensation Arrangements with Diane R. Garrett,” respectively.

On September 8, 2020, the Company entered into a Transition and Succession Agreement and a Consulting Agreement with Stephen M. Jones, pursuant to which he resigned as the Company’s interim President and Chief Executive Officer and agreed to remain as a non-executive employee through November 30, 2020 and to provide consulting services for an additional six months thereafter. For more information, see “Executive Compensation — Transition Agreements with Stephen M. Jones.

Risk Factors

An investment in our securities common stock involves substantial risk. The occurrence of one or more of the events or circumstances described in the section entitled “Risk Factors,” 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 prices of gold and silver;
Uncertainties concerning estimates of mineral reserves and mineral resources;
Uncertainties relating to the COVID-19 pandemic;
The intense competition within the mining industry;
The inherently hazardous nature of mining activities, including environmental risks;
Our insurance may not be adequate to cover all risks associated with our business, or cover the replacement costs of our assets or may not be available for some risks;
Potential effects on our operations of U.S. federal and state governmental regulations, including environmental regulation and permitting requirements;
Cost of compliance with current and future government regulations;
Uncertainties relating to obtaining or retaining approvals and permits from governmental regulatory authorities;
Potential challenges to title in our mineral properties;
Risks associated with proposed legislation in Nevada that could significantly increase the costs or taxation of our operations; and
Changes to the climate and regulations and pending legislation regarding climate change.

Business-related risks including:

Risks related to our liquidity and going concern considerations;
Risks related to our ability to raise capital on favorable terms or at all;
Risks related to the proprietary two-stage heap oxidation and leach process at the Hycroft Mine and estimates of production;

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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 a decline in 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;
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 operating and net losses in the future;
Uncertainties related to our ability to replace and expand our 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; 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;
Risks that warrants may expire worthless;
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.

You should carefully review and consider the risk factors set forth under the section entitled “Risk Factors” beginning on page 8 of this prospectus.

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Implications of Being An Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, or the “JOBS Act.” An emerging growth company may take advantage of specified reduced requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:

we may present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis of Financial Condition and Results of Operations;
we are exempt from the requirement to obtain an attestation report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;
we are permitted to provide less extensive disclosure about our executive compensation arrangements; and
we are not required to give our stockholders non-binding votes on executive compensation or "golden parachute" arrangements.

We may take advantage of these provisions for up to five full fiscal years or such earlier time that we are no longer an emerging growth company. We may choose to take advantage of some but not all of these reduced burdens. We would cease to be an emerging growth company if we have $1.07 billion or more in annual revenues, have more than $700 million in market value of our shares of common stock held by non-affiliates, or issue more than $1 billion of non-convertible debt over a three-year period. The Company has elected not to opt out of the extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Corporate Information

We were incorporated on August 28, 2017 as a Delaware corporation under the name “Mudrick Capital Acquisition Corporation” and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On May 29, 2020, in connection with the consummation of the Recapitalization Transaction, we changed our name to “Hycroft Mining Holding Corporation.”

Our principal executive offices are located at 8181 E. Tufts Ave., Suite 510, Denver, Colorado, and our telephone number is (303) 253-3267. Our website is www.hycroftmining.com. The information found on, or that can be accessed from or that is hyperlinked to, our website is not part of this prospectus.

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THE OFFERING

The following summary contains general information about this offering. The summary is not intended to be complete. You should read the full text and more specific details contained elsewhere in this prospectus.

This prospectus relates to the issuance of up to 9,583,334 shares of our Common Stock, issuable upon exercise of the Warrants to purchase one share of Common Stock at an exercise price of $10.50 per share of Common Stock. The Warrants were exercisable on October 6, 2020, the date of issuance, and will expire on October 6, 2025, the five year anniversary of the date of issuance. The exercise price of the Warrants and the number of shares into which the Warrants may be exercised are subject to adjustment in certain circumstances. See the section of this prospectus entitled “Description of Securities – Description of Warrants” for more information.

Use of Proceeds

We may receive up to a total of $100,625,007 in gross proceeds if all of the Warrants are exercised hereunder for cash. However, as we are unable to predict the timing or amount of potential exercises of the Warrants, we have not allocated any proceeds of such exercises to any particular purpose. Accordingly, all such proceeds are allocated to working capital. It is possible that the Warrants may expire and may never be exercised.

Dividends

We have never paid dividends on our Common Stock and do not anticipate paying any dividends for the foreseeable future.

Risk Factors

See the section of this prospectus entitled “Risk Factors” beginning on page 8 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Common Stock.

Except as otherwise indicated, the information in this prospectus reflects or assumes no exercise of warrants outstanding as of March 26, 2021 (including the Warrants).

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RISK FACTORS

Investing in our securities involves a high degree of risk. Investors should carefully consider the risks described below and all of the other information set forth in the registration statement of which this prospectus forms a part, including our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our Common Stock or warrants. If any of the events or developments described below occur, our business, financial condition, or results of operations could be materially or adversely affected. As a result, the market price of our Common Stock and warrants could decline, and investors could lose all or part of their investment. The risks and uncertainties described below are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. See “Cautionary Notes Regarding Forward-Looking Statements” above.

Industry-Related Risks

The market prices of gold and silver are volatile. A decline in gold and silver prices could result in decreased revenues, decreased net income, increased losses and decreased cash inflows which may negatively affect our business.

Gold and silver are commodities. Their prices fluctuate and are affected by many factors beyond our control, including interest rates, expectations regarding inflation, speculation, currency values, central bank activities, governmental decisions regarding the disposal of precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors. The prices of gold and silver, as quoted by The London Bullion Market Association on March 26, 2021, December 31, 2020 and December 31, 2019, were $1,732, $1,888 and $1,515 per ounce for gold, respectively, and $25.06, $26.49 and $18.04 per ounce for silver, respectively. The prices of gold and silver may decline in the future. A substantial or extended decline in gold or silver prices would adversely impact our financial position, revenues, net income and cash flows, particularly in light of our current strategy of not engaging in hedging transactions with respect to gold or silver. In addition, sustained lower gold or silver prices may:

reduce revenue potential due to cessation of the mining of deposits, or portions of deposits, that have become uneconomic at the then-prevailing gold or silver price;
reduce or eliminate the profit, if any, that we currently expect from mining operations;
halt, delay, modify, or cancel plans for the mining of oxide, transitional, and sulfide ores or the development of new and existing projects;
make it more difficult for us to satisfy and/or service our debt obligations;
reduce existing mineral reserves by removing ores from mineral reserves that can no longer be economically processed at prevailing prices; and
cause us to recognize an impairment to the carrying values of long-lived assets.

Mineral reserve and mineral resource calculations are estimates only and are subject to uncertainty due to factors including metal prices, inherent variability of the ore and recoverability of metal in the mining process.

The calculation of mineral reserves, mineral resources and grades are estimates and depend upon geological interpretation and statistical inferences or assumptions drawn from drilling and sampling analysis, which may prove to be unpredictable. There is a degree of uncertainty attributable to the calculation of mineral reserves and mineral resources, and corresponding grades. Until mineral reserves and mineral resources are actually mined and processed, the quantity of ore and grades must be considered as an estimate only. In addition, the quantity of mineral reserves and mineral resources may vary depending on metal prices, which largely determine whether mineral reserves and mineral resources are classified as ore (economic to mine) or waste (uneconomic to mine). A decline in metal prices may result in previously reported mineral reserves (ore) becoming uneconomic to mine (waste). Current mineral reserve estimates were calculated using sales prices of $1,200 per ounce of gold price and $16.50 per ounce of silver. A material decline in the current price of gold or silver or material changes in our processing methods could require a reduction in our mineral reserve estimates. Any material change in the quantity of mineral reserves, mineral resources, mineralization, grade or stripping ratio may affect the economic viability of our properties. In addition, we can provide no assurance that gold and silver recoveries experienced in small-scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production.

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The COVID-19 pandemic may adversely impact our business, financial condition, and results of operations.

The COVID-19 global pandemic and efforts to reduce its spread have led to a significant decline of economic activity and significant disruption and volatility in global markets. An outbreak could adversely affect our operations if significant portions of our workforce are unable to work or travel effectively for a prolonged period because of government-mandated quarantines, closures, or other restrictions, then our business and financial operations will be significantly impacted and could result in a temporary shutdown of the Hycroft Mine. The continued spread of coronavirus without any impact from effective vaccines or therapeutic treatments may cause further financial instability, and disruptions to our supply chain, which could increase supply costs or prevent us from procuring the supplies necessary to operate the Hycroft Mine. We cannot at this time predict the duration of the coronavirus pandemic or the impact of government regulations that might be imposed in response of the pandemic; however, the coronavirus pandemic may have a material adverse effect on our business, financial position, results of operations and cash flows.

We face intense competition in the mining industry.

The mining industry is intensely competitive, some of which is with large established mining companies with substantial mining capabilities and with greater financial and technical resources than ours. We compete with other mining companies in the recruitment and retention of qualified managerial and technical employees and in acquiring attractive mining claims. If we are unable to successfully attract and retain qualified employees, our development programs and/or our operations may be slowed down or suspended, which may adversely impact our development, financial condition and results of operations.

Mining development and processing operations pose inherent risks and costs that may negatively impact our business.

Mining development and processing operations involve many hazards and uncertainties, including, among others:

metallurgical or other processing problems;
ground or slope failures;
industrial accidents;
unusual and unexpected rock formations or water conditions;
environmental contamination or leakage;
flooding and periodic interruptions due to inclement or hazardous weather conditions or other acts of nature;
fires;
seismic activity;
organized labor disputes or work slow-downs or civil disturbances, including road closures or blockades;
pandemics adversely affecting the availability of workforces and supplies;
mechanical equipment failure and facility performance problems; and
the availability of critical materials, equipment and skilled labor.

These occurrences could result in damage to, or destruction of, our properties or production facilities, personal injury or death, environmental damage, delays in mining or processing, increased production costs, asset write downs, monetary losses and legal liability, any of which could have a material adverse effect on our results of operations and financial condition and adversely affect our projected development and production estimates.

Our insurance may not cover all of the risks associated with our business.

The mining business is subject to risks and hazards, including, but not limited to, construction risks, environmental hazards, industrial accidents, the encountering of unusual or unexpected geological formations, slide-ins, flooding, earthquakes and periodic interruptions due to inclement or hazardous weather conditions. These occurrences could result in damage to, or destruction of, mineral properties mining equipment or production facilities, personal injury or death, environmental damage, reduced production and delays in mining, asset write-downs, monetary losses and possible legal liability. Insurance fully covering many of these risks is not generally available to us and if it is, we may elect not to obtain it because of the high premium costs or commercial impracticality. We do not currently carry business interruption insurance, but may obtain such insurance in the future. Any liabilities incurred for these risks and hazards could be significant and could materially and adversely affect our results of operations, cash flows and financial condition.

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Environmental regulations could require us to make significant expenditures or expose us to potential liability.

To the extent we become subject to environmental liabilities, the payment of such liabilities or the costs that we may incur, including costs to remedy environmental pollution, would reduce funds otherwise available to us and could have a material adverse effect on our financial condition, results of operations, and liquidity. If we are unable to fully remedy an environmental violation or release of hazardous substances, we might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy or corrective action. The environmental standards that may ultimately be imposed at a mine site can vary and may impact the cost of remediation. Actual remedial costs may exceed the financial accruals that have been made for such remediation. Additionally, the timing of the remedial costs may be materially different from the current remediation plan. The potential exposure may be significant and could have an adverse effect on our financial condition and results of operations.

Moreover, governmental authorities and private parties may bring lawsuits based upon damage to property or natural resources and injury to persons resulting from the environmental, health and safety impacts of our past and current operations, which could lead to the imposition of substantial fines, remediation costs, penalties, injunctive relief and other civil and criminal sanctions. Substantial costs and liabilities, including those required to restore the environment after the closure of mines, are inherent in our operations. We cannot provide any assurance that any such law, regulation, enforcement or private claim will not have a negative effect on our business, financial condition or results of operations.

Our operations are subject to extensive environmental regulations, which could result in operational delays, penalties and costs.

All phases of our operations are subject to extensive federal and state environmental regulation, including those enacted under the following laws:

Comprehensive Environmental Response, Compensation, and Liability Act;
Resource Conservation and Recovery Act;
Clean Air Act;
National Environmental Policy Act;
Clean Water Act;
Safe Drinking Water Act;
Federal Land Policy and Land Management Act; and
Bald and Golden Eagle Protection Act;

Additional regulatory authorities also have jurisdiction over some of our operations and mining projects including the Environmental Protection Agency, the Nevada Division of Environmental Protection, the U.S. Fish and Wildlife Service, BLM, and the Nevada Department of Wildlife.

These environmental regulations require us to obtain various operating permits, approvals and licenses and also impose standards and controls relating to development and production activities. For instance, we are required to hold a Nevada Reclamation Permit with respect to the Hycroft Mine. This permit mandates concurrent and post-mining reclamation of mines and requires the posting of reclamation bonds sufficient to guarantee the cost of mine reclamation. Changes to the amount required to be posted for reclamation bonds for our operations at the Hycroft Mine could materially affect our financial position, results of operations, cash flows and liquidity following consummation of the Recapitalization Transaction. Also, the U.S. Fish and Wildlife Service may designate critical habitat and suitable habitat areas it believes are necessary for survival of a threatened or endangered species. A critical habitat or suitable habitat designation could result in further material restrictions to land use and may materially delay or prohibit land access for our development. For example, we had to obtain certain permits associated with mining in the area of an eagle habitat. Failure to obtain such required permits or failure to comply with federal and state regulations could also result in delays in beginning or expanding operations, incurring additional costs for investigation or cleanup of hazardous substances, payment of penalties for non-compliance or discharge of pollutants, and post-mining closure, reclamation and bonding, all of which could have a material adverse impact on our financial performance, results of operations and liquidity.

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Compliance with current and future government regulations may cause us to incur significant costs.

Our operations are subject to extensive federal and state legislation governing matters such as mine safety, occupational health, labor standards, prospecting, exploration, production, exports, toxic and hazardous substances, explosives, management of natural resources, land use, water use, air emissions, waste disposal, environmental review and taxes. Compliance with this and other legislation could require us to make significant financial outlays. The enactment of new legislation or more stringent enforcement of current legislation may increase costs, which could have a negative effect on our financial position, results of operations, and liquidity. We cannot predict at this time what changes, if any, to federal laws or regulations may be adopted or imposed by the new Biden Administration. We cannot provide any assurances that we will be able to adapt to these regulatory developments on a timely or cost-effective basis. Violations of these laws, regulations and other regulatory requirements could lead to substantial fines, penalties or other sanctions, including possible shutdown of the Hycroft Mine or future operations, as applicable.

Changes in environmental regulations could adversely affect our cost of operations or result in operational delays.

The regulatory environment in which we operate is evolving in a manner that will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. New environmental laws and regulations or changes in existing environmental laws and regulations could have a negative effect on exploration activities, operations, production levels and methods of production.

We cannot predict at this time what changes, if any, to federal laws or regulations may be adopted or imposed by the new Biden Administration. We cannot provide any assurance that future changes in environmental laws and regulations will not adversely affect our current operations or future projects. Any changes to these laws and regulations could have an adverse impact on our financial performance and results of operations by, for example, requiring changes to operating constraints, technical criteria, fees or financial assurance requirements.

Our operations are subject to numerous governmental permits that are difficult to obtain and we may not be able to obtain or renew all of the permits we require, or such permits may not be timely obtained or renewed.

In the ordinary course of business we are required to obtain and renew governmental permits for our operations, including in connection with our plans for heap leaching our sulfide ore at the Hycroft Mine. We will also need additional governmental permits to accomplish our long-term plans to mine sulfide ores, including without limitation, permits to allow construction of additional leach pad space. Obtaining or renewing the necessary governmental permits is a complex and time-consuming process involving costly undertakings by us. The duration and success of our efforts to obtain and renew permits are contingent upon many variables not within our control, including the interpretation of applicable requirements implemented by the permitting authority and intervention by third parties in any required environmental review. We may not be able to obtain or renew permits that are necessary to our operations on a timely basis or at all, and the cost to obtain or renew permits may exceed our estimates. Failure to comply with the terms of our permits may result in injunctions, fines, suspension or revocation of permits and other penalties. We can provide no assurance that we have been, or will at all times be, in full compliance with all of the terms of our permits or that we have all required permits. The costs and delays associated with compliance with these permits and with the permitting process could alter all or a portion of our life of mine plan, delay or stop us from proceeding with the operation or development of the Hycroft Mine or increase the costs of development or production, any or all of which may materially adversely affect our business, results of operations, financial condition and liquidity.

There are uncertainties as to title matters in the mining industry. Any defects in such title could cause us to lose our rights in mineral properties and jeopardize our business operations.

Our mineral properties consist of private mineral rights, leases covering private lands, leases of patented mining claims and unpatented mining claims. Areas of the Hycroft Mine are unpatented mining claims located on lands administered by the BLM, Nevada State office to which we have only possessory title. Because title to unpatented mining claims is subject to inherent uncertainties, it is difficult to determine conclusively ownership of such claims. These uncertainties relate to such things as sufficiency of mineral discovery, proper location and posting and marking of boundaries, and possible conflicts with other claims not determinable from descriptions of record. We believe a substantial portion of all mineral exploration, development and mining in the United States now occurs on unpatented mining claims, and this uncertainty is inherent in the mining industry.

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The present status of our unpatented mining claims located on public lands allows us the right to mine and remove valuable minerals, such as precious and base metals, from the claims conditioned upon applicable environmental reviews and permitting programs. We also are generally allowed to use the surface of the land solely for purposes related to mining and processing the mineral-bearing ores. However, legal ownership of the land remains with the United States. We remain at risk that the mining claims may be forfeited either to the United States or to rival private claimants due to failure to comply with statutory requirements. Prior to 1994, a mining claim locator who was able to prove the discovery of valuable, locatable minerals on a mining claim, and to meet all other applicable federal and state requirements and procedures pertaining to the location and maintenance of federal unpatented mining claims, had the right to prosecute a patent application to secure fee title to the mining claim from the Federal government. The right to pursue a patent, however, has been subject to a moratorium since October 1994, through federal legislation restricting the BLM from accepting any new mineral patent applications. If we do not obtain fee title to our unpatented mining claims, we can provide no assurance that we will be able to obtain compensation in connection with the forfeiture of such claims.

There may be challenges to title to the mineral properties in which we hold a material interest. If there are title defects with respect to any properties, we might be required to compensate other persons or perhaps reduce our interest in the affected property. Also, in any such case, the investigation and resolution of title issues would divert our management’s time from ongoing production and development programs.

Legislation has been proposed periodically that could, if enacted, significantly affect the cost of our operations on our unpatented mining claims or the amount of Net Proceeds of Mineral Tax we pay to the State of Nevada.

Members of the U.S. Congress have periodically introduced bills which would supplant or alter the provisions of the Mining Law of 1872. Such bills have proposed, among other things, to either eliminate or greatly limit the right to a mineral patent and to impose a federal royalty on production from unpatented mining claims. Such proposed legislation could change the cost of holding unpatented mining claims and could significantly impact our ability to develop mineralized material on unpatented mining claims. A majority of our mining claims are unpatented claims. Although we cannot predict what legislated royalties might be, the enactment of these proposed bills could adversely affect the potential for development of our unpatented mining claims and the economics of our existing operating mines on federal unpatented mining claims. Passage of such legislation could adversely affect our financial performance and results of operations.

We are subject to Net Proceeds of Mineral Tax, which we refer to as “NPT,” to the State of Nevada on up to 5% of net proceeds generated from our Hycroft Mine. Net proceeds are calculated as the excess of gross yield over direct costs. Gross yield is determined as the value received when minerals are sold, exchanged for anything of value or removed from the state. Direct costs generally include the costs to develop, extract, produce, transport and refine minerals. From time to time Nevada legislators introduce bills which aim to increase the amount of NPT mining companies operating in the state pay. As of the date of this filing, there are two proposed amendments to the NPT that would change the calculation of the NPT. Both of the amendments increase the rate of the tax, but one of the amendments would base NPT on gross proceeds instead of net proceeds. If legislation is passed that increases the NPT we pay to the State of Nevada, our business, results of operations, and cash flows could be negatively impacted.

Regulations and pending legislation governing issues involving climate change could result in increased operating costs, which could have a material adverse effect on our business.

A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to various climate change interest groups and the potential impact of climate change. Legislation and increased regulation regarding climate change could impose significant costs on us and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such regulations. Given the emotion, political significance and uncertainty around the impact of climate change and how it should be dealt with, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry could harm our reputation.

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Climate change could have an adverse impact on our cost of operations.

The potential physical impacts of climate change on our operations are highly uncertain and would be particular to the area in which we operate. These climate changes may include changes in rainfall and storm patterns and intensities, water shortages and changing temperatures. These changes in climate could adversely affect our mining operations, including by affecting the moisture levels and pH of ore on our leach pads, increase the cost of production at the Hycroft Mine and materially and adversely affect the financial performance of our operations.

Business-Related Risks

Due to uncertainty surrounding our ability to achieve sales, production, cost and other operating targets, as well as our ability to consummate a future financing transaction to provide additional working capital and to fund capital projects in the future, substantial doubt exists as to our ability to continue as a going concern. Our plans to alleviate the substantial doubt about our ability to continue as a going concern may not be successful, and we may be forced to limit our business activities or be unable to continue as a going concern, which would have a material adverse effect on our results of operations and financial condition.

The financial statements of the Company have been prepared on a “going concern” basis, which contemplates the presumed continuation of the Company even though 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 it is probable that, without additional capital injections, we may be unable to meet our obligations as they become due within one year after the date of the financial statements in this registration statement of which this prospectus is a part.

We restarted operations in 2019 and have incurred net losses, negative operating cash flow and required cash flow from financing to meet our operating and capital spending needs for both the years ended December 31, 2020 and 2019. Based on our internal cash flow projection models, we currently forecast we will likely require additional cash from financing activities in less than 12 months from the filing date of this registration statement of which this prospectus is a part to meet our operating and investing requirements and future obligations as they become due. Our current cash flow projection models include the cash payments required pursuant to the Sprott Credit Agreement, which are currently estimated at $9.0 million over the next 12 months including interest payments.

Our ability to continue as a going concern is contingent upon increasing sales, by achieving higher cost-effective operating tonnages and recovery rates as planned as well securing additional funding for working capital, capital expenditures and other corporate expenses. You are cautioned that management’s expectations regarding our liquidity and capital resources are based on a number of assumptions that we believe are reasonable but could prove to be incorrect. For example, our expectations are based on assumptions regarding commodity prices, gold and silver recovery percentages and rates, production estimates, timing of oxidation, anticipated costs and other factors that are subject to a number of risks, many of which are beyond our control. If our assumptions prove to be incorrect, we may require additional financing sooner than we expect to continue to operate our business, which may not be available on favorable terms or at all and which could have a material adverse effect on our results of operations, financial condition and liquidity.

We may need to raise additional capital, but such capital may not be available on favorable terms or at all.

The continuing operation of our Hycroft Mine and future development for mining and processing our mineral reserves and mineral resources will require significant investment. Failure to obtain sufficient financing may result in the delay or indefinite postponement of development or production at the Hycroft Mine. The covenants in the Sprott Credit Agreement could significantly limit our ability to secure new or additional credit facilities, increase our cost of borrowing, and make it difficult or impossible to raise additional capital on favorable terms or at all.

Our primary future cash requirements for 2021 will be to fund capital projects, leases for mining equipment, technical work, augment or recommission process plant equipment, and pay for corporate costs including debt service requirements under the Sprott Credit Agreement. As of December 31, 2020, we had cash of $56.4 million. Using current metal prices and our estimates of future metal sales volumes and costs, we currently expect to fund negative net cash flows from cash on hand during the fiscal year ending December 31, 2021. Future development of the Hycroft Mine may require additional capital to fund expenditures including refurbishing and commissioning the North Merrill-Crowe plant, additional leach pad expansions, additional process plant operations, mining fleet additions, material handling equipment, a rail spur, and working capital. You are cautioned that management’s expectations regarding our liquidity and capital resources are based on a number of assumptions that we believe are reasonable but could prove to be incorrect. For example, our expectations are based on assumptions regarding commodity prices, gold and silver recovery percentages and rates, production estimates, anticipated costs and other factors that are subject to a number of risks, many of which are beyond our control. If our assumptions prove to be incorrect, we may require additional financing sooner than we expect to continue to operate our business, which may not be available on favorable terms or at all and which could have a material adverse effect on our results of operations, financial condition and liquidity.

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The estimation of the ultimate recovery of gold and silver from the Hycroft Mine, is based on standard industry sampling and estimating methods, which are subjective. Our results of operations, liquidity, and financial position may be negatively impacted if actual recoveries of gold and silver are lower than estimations.

We use several integrated steps to estimate the metal content of ore placed on the leach pad and the ultimate recovery of gold and silver based on the process projected to be applied to the various ore types. Although we refine our estimates as appropriate at each step in the process, the final amounts are not determined until a third-party smelter refines the doré or metal-laden carbon and determines the final ounces of gold and silver available for sale. We then review this end result and reconcile it to the estimates we developed and used throughout the production process. Based on this review, we adjust our estimation procedures when appropriate. Due to the complexity of the estimation process and the number of steps involved, among other things, actual recoveries can vary from estimates, and the amount of the variation could be significant and could have a material adverse impact on our financial condition, results of operations and liquidity.

There is only limited experience of recovering gold and silver from sulfide ores using a proprietary two-stage heap oxidation and leach process and we may not be able to economically recover gold and silver.

The Hycroft Technical Report reflects extracting gold and silver from transitional and sulfide ores using a proprietary two-stage heap oxidation and leach process on transitional and sulfide ores using soda ash to manage pH and alkalinity during the oxidation process. However, the economic parameters described in the Hycroft Technical Report include a number of assumptions and estimates that could prove to be incorrect. Additionally, this proprietary two-stage heap oxidation and leach process to oxidize transitional and sulfide ores before heap leaching to extract gold and silver is a new and relatively untested process and it has not been widely accepted as a viable process. We cannot provide any assurance that the development and advancement of the Hycroft Mine using our proprietary two-stage heap and leach process will result in economically viable mining operations, yield new mineral reserves or mineral resources, enable us to convert other mineralized material (included within mineral resources identified by the Hycroft Technical Report), or be implemented on an economic and profitable basis.

Cost estimates of operating our Hycroft Mine are uncertain, which may adversely affect our expected production and profitability.

The expenditures to implement our proprietary two-stage heap oxidation and leach process, and access our sulfide ore, are considerable and changes in processing requirements, costs, construction schedules, commodity prices and other factors can adversely affect project economics and expected production and profitability. There are a number of factors that can affect process requirements, costs and construction schedules and result in our assumptions and estimates about the anticipated benefits of a project being incorrect, including, among others:

changes in input commodity prices and labor costs;
process requirements vary by mineralogy and ore types;
changes in estimates of prices and quantities of required reagents for processing, including cyanide, soda ash and lime;
recovery rates of gold and silver from ore;
availability and terms of financing;
availability of labor, energy, transportation, equipment, and infrastructure;
changes in anticipated tonnage, grade and metallurgical characteristics of the ore to be mined and processed;
difficulty of estimating construction costs over a period of years;
delays in completing any environmental review or in obtaining environmental or other governmental permits;
weather and severe climate impacts; and

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potential delays related to civil disturbances or social and community issues.

We have previously recovered gold and silver from oxide and transitional ores at the Hycroft Mine through our heap leach operations. In connection with our restarted mining operations, in addition to mining oxide ore, the Hycroft Technical Report reflects mining gold and silver sulfide ore using a modified heap leach process, in which soda ash is used in a two-stage heap oxidation and leach process. However, it is important to note that the economic parameters described in a feasibility study, such as the Hycroft Technical Report, include a number of assumptions and estimates that could prove to be incorrect. We use feasibility studies to make a reasoned determination of whether to proceed with a project and to support the required financing for a project, but you should not assume that the economic analysis contained in a feasibility study is a guarantee of future performance as projected in the feasibility study or that the estimated net present value or internal rates of return will be achieved. Actual results may differ materially. In particular, the processing of sulfide ore at the Hycroft Mine is uncertain and, therefore, the process requirements, recovery rates, reagent requirement assumptions, costs and timing of the commencement of the production of sulfide ore operations at the Hycroft Mine could vary greatly from our estimates. Further, we will continue to monitor and evaluate other processing technologies for their potential to process certain sulfide ores, but such technologies may not be economical.

We may not achieve our production and/or sales estimates and our costs may be higher than our estimates, thereby reducing our cash flows and negatively impacting our results of operations and liquidity.

We prepare estimates of future production, sales, and costs for our operations. We develop our estimates based on, among other things, mining experience, processing and mining fleet equipment reliability, operational efficiencies, recovery methods, mineral reserve and mineral resource estimates, assumptions regarding ground conditions and physical characteristics of ores (such as hardness and presence or absence of certain metallurgical characteristics), costs to construct new leach pads and estimated rates and costs of mining and processing. All of our estimates are subject to numerous uncertainties, many of which are beyond our control. Our actual production and/or sales may be lower than our estimates and our actual costs may be higher than our estimates, which could negatively impact our cash flows and results of operations. While we believe that our estimates are reasonable at the time they are made, actual results will vary and such variations may be material. These estimates are speculative in nature, and it may be the case that one or more of the assumptions underlying such projections and estimates may not materialize. You are cautioned not to place undue reliance on the projections and estimates set forth in this Registration Statement of which this prospectus forms a part.

Plans for eliminating or reducing processing and mining constraints and planned technical efforts in 2021, each aimed at positioning us for a future ramp up in production, may not be successful, could result in information which could adversely impact conclusions in the Hycroft Technical Report and/or could provide data, information or test results that could materially and adversely impact our processing technology, potential future output, results of operations and profitability.

In 2021, we expect to continue to more fully evaluate potential opportunities while we also position the Hycroft Mine for ramping up production at the appropriate time. We intend to focus much of our technical efforts for 2021 on, among other things, (1) using our internal technical team to complete a variety of technical analyses and studies; (2) further refine operating parameters of our proprietary two-stage heap oxidation and leach process in order to position ourselves for large-scale application of the oxidation heap leach; and (3) engaging engineering firms to assess and evaluate potential design changes to the current leach pad and unit operations to better support the sulfide oxidation process. While each of these actions is intended to provide us with additional data on which we can assess potential efficiencies and operational improvements and such information provided from these activities could result in updates to the existing Hycroft Technical Report or a new Technical Report including consideration of multiple processing technologies, no assurances can be given that the results of this ongoing technical work in 2021 will enhance or improve our ability to efficiently and successfully access the ore within the Hycroft Mine. Further, while these technical efforts are intended to allow us to ramp up the Hycroft Mine at the appropriate time, that future ramp up is dependent on eliminating current mining and processing constraints. We expect that we will need to acquire an expanded mining fleet capable of mining targeted production rates, and recruit and train operators and maintenance staff. Additional resources must also be spent on enhancing our processing plant capabilities. No assurances can be given that we will be able to successfully eliminate these mining and processing constraints.

As information, test results, and data becomes available to us resulting from our 2021 technical efforts, that information may lead us to modify the scope, nature, and timing of technical, testing, engineering, and growth planning work actually performed. If the results of our technical efforts do not result in increased efficiencies and capabilities and/or if our attempts to eliminate mining and processing constraints are not successful, each of those events could have a material adverse impact on our potential future output, results of operations and profitability.

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We currently depend on a single mine and there is no assurance that we will not incur any interruptions or stoppages in our mining activities which would have an adverse effect on our results of operations and financial condition.

The Hycroft Mine is our only mining property. We can provide no assurance that we will be successful in profitably operating the Hycroft Mine using the oxide leach process, the proprietary two-stage heap oxidization and leach process for sulfide ore, or alternative processing technologies. Further, any interruption in our ability to operate the Hycroft Mine, such as, but not limited to, a pandemic, natural disaster, loss of material permits, extended supply interruptions, processing interruptions or difficulties or labor strike would have a material adverse effect on our ability to produce gold and silver and to generate revenue and liquidity.

We cannot be certain that our future development activities will be commercially successful.

Substantial expenditures are required to construct and operate the Hycroft Mine including additional equipment and infrastructure such as additional leach pads to extract gold and silver from our sulfide ore utilizing the new metallurgical processes described in the Hycroft Technical Report, to further develop our Hycroft Mine to identify new mineral reserves and mineral resources, and to expand or establish mineral reserves and mineral resources through drilling and analysis. We cannot provide assurance that our process to extract gold and silver from sulfide ore using a proprietary two-stage heap oxidation and leach process can be maintained on an economic and profitable basis, that any mineral reserves or mineral resources discovered will be in sufficient quantities to justify commercial operations or that the funds required for development can be obtained on a timely or economic basis. A number of factors, including costs, actual mineralization, consistency and reliability of ore grades and commodity and reagent quantities and prices affect successful project development. The efficient operation of processing facilities, the existence of competent operational management, as well as the availability and reliability of appropriately skilled and experienced consultants also can affect successful project development. We can provide no assurance that the development and advancement of the Hycroft Mine sulfide leaching operations will result in economically viable mining operations or yield new mineral reserves or resources.

Our reliance on third party contractors and consultants to conduct our operations and construction projects exposes us to risks.

In connection with the operation of the Hycroft Mine, we contract and engage third party contractors and consultants to assist with aspects of our operations and related construction projects, including construction of new leach pads, maintenance, repair and improvements to our crushing and processing facilities, and mining of our ore and waste. As a result, our operations and construction projects are subject to a number of risks, some of which are outside our control, including:

negotiating agreements with contractors and consultants on acceptable terms;
the inability to replace a contractor or consultant and their operating equipment in the event that either party terminates the agreement;
reduced control over those aspects of operations which are the responsibility of the contractor or consultant;
failure of a contractor or consultant to perform under their agreement or disputes relative to their performance;
interruption of operations or increased costs in the event that a contractor or consultant ceases their business due to insolvency or other unforeseen events;
failure of a contractor or consultant to comply with applicable legal and regulatory requirements, to the extent they are responsible for such compliance; and
problems of a contractor or consultant with managing their workforce, labor unrest or other employment issues.

In addition, we may incur liability to third parties as a result of the actions of our contractors or consultants. The occurrence of one or more of these risks could decrease our gold and silver production, increase our costs, interrupt or delay our mining operations or our ability to access our ores, and adversely affect our liquidity, results of operations and financial position.

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A shortage of equipment and supplies and/or the time it takes such items to arrive at our Hycroft Mine could adversely affect our ability to operate our business.

We are dependent on various supplies and equipment to engage in mining and development operations. The shortage of such supplies, equipment and parts and/or the time it takes such items to arrive at our Hycroft Mine could have a material adverse effect on our ability to carry out our operations and develop the Hycroft Mine, and therefore limit or increase the cost of production. Such shortages could also result in increased construction costs and cause delays in expansion projects.

The inability to obtain soda ash or delays in obtaining soda ash could adversely affect our ability to profitably operate our business.

There are a limited number of suppliers that produce and supply soda ash and to our knowledge, such suppliers do not typically mine soda ash in excess of what they believe they can sell. We entered into a three-year agreement with a soda ash supplier in April 2019 to provide soda ash for our operations. However, if the contracted supplier cancels the contract, is unable to produce and supply enough soda ash or ceases operations because of the large quantities of soda ash required in our operations, we may have to temporarily stop mining until we can obtain a new contract to purchase soda ash. Further, we cannot provide any assurance as to the costs that we might incur in obtaining soda ash from a substitute supplier which could materially and adversely affect the profitability and cash flows of our mining operations.

Changes in the cost or supply of energy or commodities used in operations may adversely affect the profitability of our operations and our financial condition.

Our mining operation requires significant quantities of energy. Our principal energy sources are electricity and diesel fuel. We rely upon third parties for our supply of energy resources consumed in our mining activities. Energy prices can be affected by numerous factors beyond our control, including global and regional supply and demand, political and economic conditions, and applicable regulatory regimes. The prices of various sources of energy may increase significantly from current levels. An increase in energy prices could materially and adversely affect our results of operations and financial condition.

Disruptions in the supply of our energy resources could temporarily impair our ability to produce gold and silver or delay any expansion projects or plans. Our mining operation is in a remote location requiring the long-distance transmission of power. A disruption in the transmission of energy, inadequate energy transmission infrastructure or the termination of any of our energy supply contracts could interrupt our energy supply and adversely affect our operations or expansion projects.

Our production costs are also affected by the prices of commodities we consume or use in our operations, such as diesel fuel, sodium cyanide, soda ash, lime, tires, and explosives. The prices of such commodities are influenced by supply and demand trends affecting the mining industry in general and other factors outside our control. Increases in the price for materials consumed in our mining and production activities could materially and adversely affect our liquidity, results of operations, financial condition and cash flows.

We may be adversely affected by challenges relating to slope stability.

Our open pit mine gets deeper and creates a larger footprint as we mine it, presenting certain geotechnical challenges including the possibility of slope failure. If we are required to decrease pit slope angles or provide additional road access to prevent such a failure, our stated mineral reserves could be negatively affected. Further, hydrological conditions relating to pit slopes, removal of material displaced by slope failures and increased stripping requirements could also negatively affect our stated mineral reserves. We cannot provide any assurances that we will not have to take additional action to maintain slope stability in the future or that our actions taken to date will be sufficient. Unexpected failure or additional requirements to prevent slope failure may negatively affect our results of operations and financial condition, as well as have the effect of diminishing our stated mineral reserves.

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The Sprott Credit Agreement imposes significant operating and financial restrictions that may limit our ability to operate our business.

The Sprott Credit Agreement imposes significant operating and financial restrictions on us and our restricted subsidiaries. These restrictions will limit our ability and the ability of our restricted subsidiaries to, among other things, as applicable:

incur additional debt;
pay dividends or make other restricted payments, including certain investments;
create or permit certain liens;
sell assets;
engage in certain transactions with affiliates; and
consolidate or merge with or into other companies, or transfer all or substantially all of our assets or the assets of our restricted subsidiaries.

These restrictions could limit our ability to finance our future operations or capital needs, make acquisitions or pursue available business opportunities.

In addition, the Sprott Credit Agreement will require us to comply with a number of customary covenants, including:

covenants related to the delivery of monthly, quarterly and annual financial statements, budgets and annual projections;
maintaining required insurance;
compliance with laws (including environmental);
compliance with ERISA;
maintenance of ownership of 100% of Hycroft Mine;
restrictions on consolidations, mergers or sales of assets;
limitations on liens;
limitations on issuance of certain equity interests;
limitations on issuance of additional indebtedness;
limitations on transactions with affiliates; and
other customary covenants.

We cannot assure you that we will satisfy these covenants or that our lenders will waive any future failure to do so. A breach of any of the covenants under the Sprott Credit Agreement could result in a default. See Note 9 – Debt, Net to the Notes to the Financial Statements for further information. If a default occurs under the Sprott Credit Agreement and/or the Royalty Agreement among Hycroft Mining Holding Corporation, its wholly owned subsidiary Hycroft Resources and Development, LLC and Sprott Private Resource Lending II (CO) Inc., the lenders could elect to declare the debt, together with accrued interest and other fees, to be immediately due and payable and proceed against the collateral securing that debt, which, in the case of the Sprott Credit Agreement and the Sprott Royalty Agreement, constitutes all or substantially all of our assets.

Our substantial indebtedness could adversely affect our financial condition.

As of March 26, 2021, we had substantial outstanding indebtedness under the Sprott Credit Agreement and the Subordinated Notes. Subject to the limits and terms contained in the Sprott Credit Agreement, if we are able to incur additional debt or grant additional security interests from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes, then the risks related to our high level of debt could intensify. Our high level of debt and royalty payment obligations could:

make it more difficult for us to satisfy our obligations with respect to our outstanding debt;

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require a substantial portion of our cash flows to be dedicated to debt service and/or royalty payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;
limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;
increase our vulnerability to commodity price volatility, including increases in prices of commodities that we purchase and decreases in prices of gold and silver that we sell, each as part of our operations, general adverse economic and industry conditions;
limit our flexibility in planning for and reacting to changes in the industry in which we compete;
place us at a disadvantage compared to other, less leveraged competitors; and
increase our cost of borrowing.

Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations under our debt, and the price of our common stock. The Sprott Credit Agreement contains restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of nearly all of our debt.

If we default on our obligations to pay any of our indebtedness or otherwise default under the agreements governing our indebtedness, lenders could accelerate such debt and we may be subject to restrictions on the payment of our other debt obligations or cause a cross-acceleration.

Any default under the agreements governing our indebtedness that is not waived by the required lenders or holders of such indebtedness, and the remedies sought by the holders of such indebtedness, could prevent us from paying principal, premium, if any, and interest on other debt instruments. If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness and royalty payment obligations, or if we otherwise fail to comply with the various covenants in any agreement governing our indebtedness, we would be in default under the terms of the agreements governing such indebtedness and other indebtedness under the cross-default and cross-acceleration provisions of such agreements. In the event of such default:

the lenders or holders of such indebtedness could elect to terminate any commitments thereunder, declare all the funds borrowed thereunder to be due and payable and, if not promptly paid, in the case of our secured debt, institute foreclosure proceedings against our assets; and
even if these lenders or holders do not declare a default, they may be able to cause all of our available cash to be used to repay indebtedness owed to them.

As a result of such default and any actions the lenders may take in response thereto, we could be forced into bankruptcy or liquidation.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on our debt and royalty obligations or refinance our debt obligations (if necessary) depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control, including the market prices of gold and silver. We may be unable to maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness and our royalty obligations.

If our cash flows and capital resources are insufficient to fund our debt service obligations and our royalty obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The Sprott Credit Agreement restricts our ability to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise debt to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service and royalty payment obligations then due.

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In addition, we conduct a substantial portion of our operations through our subsidiaries, certain of which in the future may not be guarantors of our indebtedness. Accordingly, repayment of our indebtedness is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of our indebtedness, our subsidiaries do not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity, and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.

Our inability to generate sufficient cash flows to satisfy our debt and royalty obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations and our ability to satisfy our obligations.

If we cannot make scheduled payments on our debt, we will be in default and the lenders under the Sprott Credit Agreement and the Sprott Royalty Agreement could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation.

Our lack of exploration activities will lead to our inability to replace depleted mineral reserves.

To maintain production levels over time we must replace depleted reserves by exploiting known ore bodies and locating new deposits. We have plans to continue exploration related to the mining and processing of gold and silver contained in ore within the Hycroft Mine, which may include areas surrounding the Hycroft Mine operating properties. There can be no assurance that such projects will be successful. Our mineral base will decline if reserves are mined without adequate replacement, and we may not be able to sustain production beyond the currently contemplated mine life, based on projected production rates. As a result, our revenues from the future sale of gold and silver may decline, resulting in lower income and reduced growth. Further, we expect to encounter strong competition from other mining companies in connection with the acquisition of properties producing or capable of producing gold and silver. If or when we attempt to acquire new properties, we will face competition from many of these companies that have greater financial resources than we do. Consequently, we may be unable to replace and expand current mineral reserves through the acquisition of new mining properties or interests therein on terms we consider acceptable.

Land reclamation requirements for the Hycroft Mine may be burdensome and expensive and include requirements that we provide financial assurance supporting those requirements.

Land reclamation requirements are generally imposed on companies with mining operations in order to minimize long-term effects of land disturbance. Reclamation may include requirements to control dispersion of potentially deleterious effluents, treat ground and surface water to drinking water standards, and reasonably re-establish pre-disturbance landforms and vegetation.

In order to carry out reclamation obligations imposed on us in connection with our activities, we must allocate financial resources that might otherwise be spent on further development programs. We have established a provision for our reclamation obligations on the Hycroft Mine property, as appropriate, but this provision may not be adequate. If we are required to carry out unanticipated reclamation work, our financial position could be adversely affected.

We are also required by U.S. federal and state laws and regulations to provide financial assurance sufficient to allow a third party to implement approved reclamation plans for the Hycroft Mine if we are unable to do so. Third party financial assurances may not be available to us or we may elect not to obtain it because of the high costs, associated collateral requirements may be too expensive or it may be commercially impractical which could adversely affect our financial position.

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If we lose key personnel or are unable to attract and retain additional personnel, we may be unable to develop our business.

Our development in the future will be highly dependent on the efforts of key management employees, specifically, Diane Garrett, our President and Chief Executive Officer, Stanton Rideout, our Executive Vice President and Chief Financial Officer, John (Jack) Henris, our Executive Vice President and Chief Operating Officer, and other key employees that we may hire in the future. We will need to recruit and retain other qualified managerial and technical employees to build and maintain our operations. If we are unable to successfully recruit and retain such persons, our development and growth could be significantly curtailed.

We are dependent upon information technology systems that are subject to disruption, damage, failure and risks associated with implementation and integration.

We are dependent upon information technology systems in the conduct of our operations. Our information technology systems are subject to disruption, damage or failure from a variety of sources, including, without limitation, computer viruses, security breaches, cyber-attacks, natural disasters and defects in design. Cybersecurity incidents, in particular, are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, extortion to prevent or the unauthorized release of confidential or otherwise protected information and the corruption of data. Given the unpredictability of the timing, nature and scope of information technology disruptions, we could potentially be subject to production downtimes, operational delays, extortion, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and networks or financial losses from remedial actions, any of which could have a material adverse effect on our cash flows, financial condition or results of operations.

We could also be adversely affected by system or network disruptions if new or upgraded information technology systems are defective, not installed properly or not properly integrated into our operations. System modification failures could have a material adverse effect on our business, financial position and results of operations and could, if not successfully implemented, adversely impact the effectiveness of our internal controls over financial reporting.

The three largest stockholders of the Company are able to exert significant influence over matters submitted to stockholders for approval, which could delay or prevent a change in corporate control or result in the entrenchment of management or the Board of Directors, possibly conflicting with the interests of our other stockholders.

As of December 31, 2021, Mudrick Capital, Whitebox, and Highbridge beneficially owned approximately 42%, 20% and 13% of the outstanding shares of our common stock, respectively. Because of their significant stockholdings, each of Mudrick Capital, Whitebox and Highbridge could exert significant influence in determining the outcome of corporate actions requiring stockholder approval and otherwise influence our business. This influence could have the effect of delaying or preventing a change in control of the Company or entrenching management or the Board of Directors, which could conflict with the interests of other stockholders and, consequently, could adversely affect the market price of our common stock.

Risks related to our Common Stock and Warrants

The market price of our shares of common stock and publicly traded warrants may fluctuate widely.

The trading price of our common stock and warrants listed for trading may fluctuate substantially and may be lower than current price. This may be especially true for companies like ours with a small public float. If an active market for our securities continues, the trading price of our securities could be volatile and subject to wide fluctuations. The trading price of our common stock and warrants depends on many factors, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock and/or warrants. Any of the factors listed below could have an adverse effect on your investment in our securities and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.

Factors affecting the trading price of our securities may include:

actual or anticipated fluctuations in our financial results or the financial results of companies perceived to be similar to the Company;
changes in the market’s expectations about our operating results;

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the public’s reaction to our press releases, other public announcements and filings with the SEC;
speculation in the press or investment community;
actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;
the operating results failing to meet the expectation of securities analysts or investors in a particular period;
changes in financial estimates and recommendations by securities analysts concerning the Company or the market in general;
operating and stock price performance of other companies that investors deem comparable to the Company;
changes in laws and regulations affecting our business;
commencement of, or involvement in, litigation involving the Company;
changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
the volume of our common stock available for public sale;
any major change in the Board of Directors or management;
sales of substantial amounts of our common stock by our directors, officers or significant stockholders or the perception that such sales could occur; and
general economic and political conditions such as recessions, interest rates, “trade wars,” reductions in precious metals prices, increases in fuel and other commodity prices used in the operation of our business, currency fluctuations and acts of war or terrorism.

Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general and Nasdaq Capital Market have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for the stocks of other companies that investors perceive to be similar to the Company could depress our stock price regardless of our business, prospects, financial conditions or results of operations. Broad market and industry factors, as well as general economic, political and market conditions such as recessions or interest rate changes, may seriously affect the market price of our common stock and warrants, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our stock shortly following the Recapitalization Transaction. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.

In addition, in the past, following periods of volatility in the overall market and the market prices of particular companies’ securities, securities class action litigations have often been instituted against these companies. Litigation of this type, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments.

There is no guarantee that our outstanding public warrants will ever be in the money, and they may expire worthless and the terms of warrants may be amended.

We have 34,289,898 publicly traded warrants outstanding that entitle holders to purchase one share of our common stock at an exercise price of $11.50 per share for a period of five years from the May 29, 2020 Recapitalization Transaction. On October 6, 2020, we issued 9,583,334 units in an underwritten public offering at an offering price to of $9.00 per unit, 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.

Additionally, as part of the Recapitalization Transaction, we assumed the obligations and liabilities under that certain warrant agreement, dated as of October 22, 2015, by and between Seller and Computershare Inc., a Delaware corporation, and its wholly owned subsidiary Computershare Trust Company, N.A., a federally chartered trust company, collectively as initial warrant agent; and Continental Stock Transfer & Trust Company, LLC was named as the successor warrant agent (the “Seller Warrant Agreement”). Pursuant to the assumption of the Seller Warrant Agreement, the warrants issued thereunder (the “Seller warrants”) became exercisable into shares of our common stock. As of March 22, 2021, the exercise price for the Seller warrants was $40.31 per share of our common stock.

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There is no guarantee that any or all of the warrants will ever be in the money prior to their expiration, and as such, the warrants may expire worthless.

Because the public offering price of our Common Stock included in the Units or issuable upon exercise of the Warrants will be substantially higher than the net tangible book value per share of our outstanding Common Stock following this offering, new investors will experience immediate and substantial dilution.

The public offering price of our Common Stock included in the Units or issuable upon exercise of the Warrants will be substantially higher than the net tangible book value per share of our Common Stock immediately following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase shares of our Common Stock, included in the Units or issuable upon exercise of the Warrants in this offering, you will experience immediate and substantial dilution. See the section of this prospectus entitled “Dilution.”

There is no public market for the Warrants.

There is no established public trading market for the Warrants and a public market for the Warrants may never develop. The Warrants are not listed, and we do not intend to apply for listing the Warrants on any securities exchange or trading system. Without an active market, the liquidity of the Warrants is limited, and investors may be unable to liquidate their investments in the Warrants.

The Warrants purchased in this offering do not entitle the holder to any rights as common stockholders until the holder exercises the Warrant for shares of our Common Stock.

Until you acquire shares of our Common Stock upon exercise of your Warrants purchased in this offering, such Warrants will not provide you any rights as a common stockholder, except as set forth in the Warrants. Upon exercise of your Warrants purchased in this offering, you will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs on or after the exercise date.

The exercise price of the Warrants will not be adjusted for certain dilutive events.

The exercise price of the Warrants is subject to adjustment for certain events, including, but not limited to, the payment of a stock dividend, stock splits, certain issuances of capital stock, options, convertible securities and other securities. However, the exercise prices will not be adjusted for dilutive issuances of securities and there may be transactions or occurrences that may adversely affect the market price of our Common Stock or the market value of the Warrants without resulting in an adjustment of the exercise prices of the Warrants.

The Warrants are speculative in nature and may not have any value.

The Warrants in this offering do not confer any rights of Common Stock ownership on its holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of Common Stock at a fixed price and during a fixed period of time. Specifically, commencing on the date of issuance, holders of the Warrants may exercise their right to acquire Common Stock and pay an exercise price of $10.50 per share of Common Stock. The Warrants will be exercisable beginning on the date of issuance and expire on the fifth anniversary of the date of issuance.

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Moreover, following this offering, the market value of the Warrants, if any, is uncertain and there can be no assurance that the market value of the Warrants will equal or exceed their imputed offering price. There can also be no assurance that the market price of the Common Stock will ever equal or exceed the exercise price of the Warrants, and consequently, the Warrants may not have any value.

Anti-takeover provisions contained in our charter and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

Our charter contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together, these provisions may make it more difficult to remove management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. These provisions include:

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
the right of our Board of Directors to appoint a director to fill a vacancy created by the expansion of the Board of Directors or the resignation, death or removal of a director in certain circumstances, which prevents stockholders from being able to fill vacancies our Board of Directors;
a prohibition on stockholders calling a special meeting and the requirement that a meeting of stockholders may only be called by members our Board of Directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
the ability of our Board of Directors to determine whether to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
limiting the liability of, and providing indemnification to, the directors and officers; and
advance notice procedures that stockholders must comply with in order to nominate candidates to our Board of Directors or to propose matters to be acted upon at a meeting of stockholders, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.

We are an "emerging growth company" and a "smaller reporting company," and the reduced disclosure requirements applicable to us as such may make our common stock less attractive to our stockholders.

We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, which we refer to as the “JOBS Act.” As such, we have elected to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements. As a result, our stockholders may not have access to certain information they deem important. We will remain an emerging growth company until the earliest of  (i) the last day of the fiscal year (a) following February 12, 2023, the fifth anniversary of the IPO, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that are held by non-affiliates exceeds $700 million as of the last business day of the Company’s prior second fiscal quarter, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we qualify as an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

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We are also a “smaller reporting company”, and we will remain a smaller reporting company until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is $250 million or more measured on the last business day of our second fiscal quarter, or our annual revenues are $100 million or more during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is $700 million or more measured on the last business day of our second fiscal quarter. Similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosure and have certain other reduced disclosure obligations, including, among other things, being required to provide only two years of audited financial statements. Our stockholders may find our common stock less attractive as a result of our status as an “emerging growth company” and “smaller reporting company” and our reliance on the reduced disclosure requirements afforded to these companies.

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USE OF PROCEEDS

We may receive up to a total of $100,625,007 in gross proceeds if all of the Warrants are exercised hereunder for cash. However, as we are unable to predict the timing or amount of potential exercises of the Warrants, we have not allocated any proceeds of such exercises to any particular purpose. Accordingly, all such proceeds are allocated to working capital. It is possible that the Warrants may expire and may never be exercised.

DESCRIPTION OF BUSINESS

About the Company

Hycroft Mining Holding Corporation (formerly known as Mudrick Capital Acquisition Corporation) was incorporated under the laws of the state of Delaware on August 28, 2017. We are a U.S.-based gold producer focused on operating and developing its wholly owned Hycroft Mine in a safe, environmentally responsible, and cost-effective manner.

Our operating mine, the Hycroft Mine, is an open-pit heap leach operation located approximately 54 miles west of Winnemucca, Nevada. Mining operations at the Hycroft Mine were restarted in 2019. As part of the restart, Hycroft, along with third party consultants, completed the Hycroft Technical Report for our proprietary two-stage heap oxidation and leach process for sulfide ore, for further detail see “Description of Property” . During the year ended December 31, 2020 we sold 24,892 ounces of gold and 136,238 ounces of silver. As of December 31, 2020, the Hycroft Mine had proven and probable mineral reserves of 11.9 million ounces of gold and 478.5 million ounces of silver, which are contained in oxide, transitional, and sulfide ores. We currently recover gold and silver through our heap leach process operations, while we continue to study and conduct testing of commercial production using our proprietary two-stage heap oxidation and leach process.

The Hycroft Mine, our sole operating property, is located outside of Winnemucca, Nevada. Our corporate headquarters is located at 8181 E. Tufts Avenue, Suite 510, Denver, Colorado 80237, and our telephone number is (303) 253-3267. Our website is www.hycroftmining.com.

Recapitalization Transaction with MUDS

As discussed in Note 1 - Company Overview and Note 3 - Recapitalization Transaction to the Notes to the Financial Statements, on May 29, 2020, we, formerly known as Mudrick Capital Acquisition Corporation (“MUDS”), consummated a Recapitalization Transaction (the “Recapitalization Transaction”) that resulted in MUDS Acquisition Sub, Inc. (“Acquisition Sub”) acquiring all of the issued and outstanding equity interests of the direct subsidiaries of Hycroft Mining Corporation (“Seller”) and substantially all of the other assets of Seller and assuming substantially all of the liabilities of Seller. In conjunction with 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 common stock or converted into shares of Seller common stock, and our post-Recapitalization Transaction indebtedness included amounts drawn under the Credit Agreement among MUDS, MUDS Holdco Inc., Allied VGH LLC, Hycroft Mining Holding Corporation, Hycroft Resources and Development, LLC Sprott Private Resource Lending II (Collector) Inc., and Sprott Resources Lending Corp. (“Sprott Credit Agreement”) and the assumption of the newly issued Subordinated Notes (as such are defined herein). Upon closing of the Recapitalization Transaction, our unrestricted cash available for use totaled $68.9 million.

 

Segment Information

The Hycroft Mine is our only operating segment and includes the operations, development, and exploration activities and contains 100% of our revenues and production costs. Corporate and Other includes corporate general and administrative costs. See Note 17 - Segment Information to the Notes to the Financial Statements for additional information on our segments.

Principal Products, Revenues, and Market Overview

The principal products produced at the Hycroft Mine are unrefined gold and silver bars (doré) and in-process inventories (metal-laden carbons and slags), both of which are sent to third party refineries before being sold, generally at prevailing spot prices, to financial institutions or precious metals traders. Doré bars and metal-laden carbons and slags are sent to refineries to produce bullion that meets the required market standards of 99.95% pure gold and 99.90% pure silver. Under the terms of our refining agreements, doré bars and metal-laden carbons and slags are refined for a fee, and our share of the separately recovered refined gold and refined silver are credited to our account or delivered to our buyers.

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Product Revenues and Customers

In 2020, revenues from gold and silver made up 94% and 6%, respectively, of our total revenue and, as such, we consider gold our principal product. In 2020, all of our revenues were derived from metal sales to two customers; however, we do not believe we have any dependencies on these customers due to the liquidity of the metal markets and the availability of other metal buyers and financial institutions.

Gold Uses

Gold has two main categories of use: fabrication and investment. Fabricated gold has a variety of end uses, including jewelry, electronics, dentistry, industrial and decorative uses, medals, medallions and coins. Gold investors buy gold bullion, coins and jewelry.

Gold Supply and Demand

The supply of gold consists of a combination of current production from mining and metal recycling and the draw-down of existing stocks of gold held by governments, financial institutions, industrial organizations and private individuals. Based on publicly available information, gold production from mines decreased slightly for 2020 compared to 2019 totaling approximately 3,401 metric tons (or 109.3 million troy ounces) and represented approximately 73.4% of the 2020 global gold supply. Gold demand in 2020 was approximately 3,760 tons (or 120.9 million troy ounces) and totaled approximately $214 billion in value. In 2020, gold demand by sector was comprised of jewelry (38%), bar and coin (24%), ETF investments (23%), technology (8%), and central bank purchases (7%).

Gold Prices

The price of gold is volatile and is affected by many factors beyond our control, such as the sale or purchase of gold by central banks and financial institutions, inflation or deflation and monetary policies, fluctuation in the value of the U.S. dollar and foreign currencies, global and regional demand, and the political and economic conditions of major gold producing countries throughout the world. The following table presents the annual high, low, and average afternoon fixing prices for gold over the past ten years on the London Bullion Market (in U.S. dollars per ounce).

    GOLD PRICES   SILVER PRICES 
Year   High   Low   Average   High   Low   Average 
2018    1,355    1,178    1,268    17.52    13.97    15.71 
2019    1,546    1,270    1,393    19.31    14.38    16.21 
2020    2,067    1,474    1,770    28.89    12.01    20.55 

On March 22, 2021, the afternoon fixing price for gold and silver on the London Bullion Market was $1,736 per ounce and $25.74 per ounce, respectively.

Competition

The top 10 producers of gold comprise approximately one third of total worldwide mined gold production. We are a developing producer with a single mine. The Hycroft Mine has large gold and silver reserves with an expected average annual production of approximately 366,000 gold equivalent ounces, based on a 34-year mine life included in the Hycroft Technical Report. We have not fully developed our operation and we have not established our long-term production and cost structure. Our costs are expected to be determined by the location, grade and nature of our ore body, processing technologies applied to our ore, and costs including energy, labor and equipment. The metals markets are cyclical, and our ability to maintain our competitive position over the long-term is based on our ability to develop and cost effectively operate the Hycroft Mine in a safe and environmentally responsible manner.

We compete with other mining companies in connection with hiring and retaining qualified employees. There is substantial competition for qualified employees in the mining industry, some of which is with companies having substantially greater financial resources than us and a more stable history. As a result, we may have difficulty hiring and retaining qualified employees.

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Please see “Risk Factors —Industry Related Risks — We face intense competition in the mining industry” for additional discussion related to our current and potential competition.

Employees

At December 31, 2020, we had approximately 240 employees, of which 228 were employed at the Hycroft Mine. None of our employees are represented by unions.

COVID-19

We have implemented health and safety policies for employees, contractors, and visitors that follow guidelines from the Center for Disease Control (CDC) and the Mine Safety and Health Administration (MSHA). During 2020, especially the fourth quarter, our operations faced certain limitations due to COVID-19 related absences, however the impact did not significantly adversely affect our operations.

Please see “Risk Factors — Industry Related Risks — The COVID-19 pandemic may adversely impact our business, financial condition, and results of operations” as well as “Management's Discussion and Analysis of Financial Condition and Results of Operations” for additional discussion related to COVID-19.

Government Regulation of Mining-Related Activities

Government Regulation

Mining operations and exploration activities are subject to various federal, state and local laws and regulations in the United States, which govern prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous substances and other matters. We have obtained or have pending applications for those licenses, permits or other authorizations currently required to conduct our current mining, exploration and other programs. We believe that we are in compliance in all material respects with applicable mining, health, safety and environmental statutes and the regulations passed thereunder in Nevada and the United States. Although we are not aware of any current claims, orders or directions relating to our business with respect to the foregoing laws and regulations, changes to, or more stringent application, interpretation, or enforcement of, such laws and regulations in Nevada, or in jurisdictions where we may operate in the future, could require additional capital expenditures and increased operating and/or reclamation costs, which could adversely impact the profitability levels of our projects.

On January 20, 2021, the Department of the Interior, Washington Office, issued order number 3395 (the “Order”) promulgating a suspension of authority for Department Bureaus and Offices to take actions including to take actions in accordance with the National Environmental Policy Act; to approve plans of operation, or to amend existing plans of operation under the General Mining Law of 1872; or any notices to proceed under previous surface use authorizations that will authorize ground-disturbing activities. The suspension will remain in effect for 60 days from January 20, 2021, or until any of its provisions are amended, superseded, or revoked. The Order suspended the authority of the local offices of the Bureau of Land Management (“BLM”) to make decisions or to approve any new ground-disturbing actions under previous decisions related to the Company’s planned operations. At the time of the suspension of authority, the Company had no material proposed actions pending with the local office of the Bureau of Land Management, will proceed with currently approved actions for the duration of the anticipated 60-day suspension of authority, and is not currently aware of any material adverse effects from the suspension of authority based on the duration stated in the Order. The Company may require authorization to proceed with new ground-disturbing activities under previous authorizations prior to proceeding into the sulfide ore bodies planned for 2022, in the event the Order has not been amended, superseded, or revoked.

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Environmental Regulation

Our mining projects are subject to various federal and state laws and regulations governing protection of the environment. These laws and regulations are continually changing and, in general, are becoming more restrictive. The federal laws and regulations, among other things:

impose strict, joint and several liability on current and former owners and operators of sites and on persons who disposed of or arranged for the disposal of hazardous substances found at such sites (the Comprehensive Environmental Response, Compensation, and Liability Act);
govern the generation, treatment, storage and disposal of solid waste and hazardous waste (the Federal Resource Conservation and Recovery Act);
restrict the emission of air pollutants from many sources, including mining and processing activities (the Clean Air Act);
require federal agencies to integrate environmental considerations into their decision-making processes by evaluating the environmental impacts of their proposed actions, including the issuance of permits to mining facilities and assessing alternatives to these actions (the National Environmental Policy Act);
regulate the use of federal public lands to prevent undue and unnecessary degradation of the public lands (the Federal Land Policy and Management Act of 1976);
restrict and control the discharge of pollutants and dredged and fill materials into waters of the United States (the Clean Water Act); and
regulate the drilling of subsurface injection wells (the Safe Drinking Water Act and the Underground Injection Control program promulgated thereunder).

We cannot predict at this time what changes, if any, to federal laws or regulations may be adopted or imposed by the new Biden Administration. At the state level, mining operations in Nevada are regulated by the Nevada Department of Conservation and Natural Resources, Division of Environmental Protection (the "Division"), which has the authority to implement and enforce many of the federal regulatory programs described above as well as state environmental laws and regulations. Compliance with these and other federal and state laws and regulations could result in delays in obtaining, or failure to obtain, government permits and approvals, delays in beginning or expanding operations, limitations on production levels, incurring additional costs for investigation or cleanup of hazardous substances, payment of fines, penalties or remediation costs for non-compliance, and post-mining closure, reclamation and bonding.

It is our policy to conduct business in a way that safeguards public health and the environment. We believe that our operations are, and will be, conducted in material compliance with applicable laws and regulations. However, our past and future activities in the United States may cause us to be subject to liability under such laws and regulations. For information about the risks to our business related to environmental regulation, see “Risk Factors - Industry Related Risks”:

Our operations are subject to numerous governmental permits that are difficult to obtain and we may not be able to obtain or renew all of the permits we require, or such permits may not be timely obtained or renewed;
Changes in environmental regulations could adversely affect our cost of operations or result in operations delays;
Environmental regulations could require us to make significant expenditures or expose us to potential liability; and
Our exploration and development operations are subject to extensive environmental regulations, which could result in the incurrence of additional costs and operational delays.

During 2020 and 2019, there were no material environmental incidents or non-compliance with any applicable environmental regulations on the properties now held by us, except as follows: On March 19, 2019, we executed an Administrative Order of Consent and agreed to a payment of $11,521 to the State of Nevada acting by and through the Division to settle a Finding of Alleged Violation and Order issued November 7, 2018 for non-compliance with the Resource Conservation and Recovery Act requirements to remove hazardous waste within 90 days of accumulation of such waste. Additionally, on December 11, 2019, the Division held an enforcement conference with our management to determine whether the issuance of Notices of Alleged Air Quality Violation Order No 2701 was or was not warranted. The Division issued a formal warning and has indicated that it did not intend to take any further action. We did not incur material capital expenditures for environmental control facilities during 2020 and 2019 and do not expect to incur any material expenditures in 2021 for such environmental control facilities.

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Reclamation

We are required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping and re-vegetating various portions of a site after mining and mineral processing are completed, mitigating potential impacts to surface water and groundwater resources. These reclamation efforts will be conducted in accordance with detailed plans, which must be reviewed and approved by the appropriate regulatory agencies. Our reclamation obligations at the Hycroft Mine are secured by surface management surety bonds that meet the financial assurance requirements of the State of Nevada and the BLM. Our most recent reclamation cost estimate was approved by the BLM and the State of Nevada in July 2020. At December 31, 2020, our surface management surety bonds totaled $59.9 million, of which $58.3 million secures the financial assurance requirements for the Hycroft Mine, $1.0 million secures the financial assurance requirements for the adjacent water supply well field and exploration project, and $0.6 million secures the financial assurance requirements for an archaeological mitigation project. Based on the December 31, 2020 estimate, no material reclamation expenditures are expected to be incurred until 2047 and the reclamation work is projected to be completed by 2065. When we perform reclamation work in the future, the work will be planned to conform to our mining operations and will be required to be documented when completed under our governing permits with the government regulatory agencies. The reclamation obligation would be adjusted accordingly as allowed under current regulations, and the financial assurance requirements would be adjusted to account for the completed reclamation work. If we are required to comply with material unanticipated financial assurance requirements in the future, our financial position could be adversely affected, or our posted financial assurance may be insufficient. For financial information about our estimated future reclamation costs refer to Note 11 – Asset Retirement Obligation to the Notes to our Financial Statements.

Mine Safety and Health Administration Regulations

Safety and health is a core value which is why we have mandatory mine safety and health programs that include employee and contractor training, risk management, workplace inspection, emergency response, accident investigation and program auditing. We consider these programs to be essential at all levels to ensure that our employees, contractors, and visitors only operate in a safe and healthy workplace.

Our operations and exploration properties are subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), issuers are required to disclose specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities in periodic reports. MSHA inspects our mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. The number of citations and orders charged against mining operations, and the dollar penalties assessed for such citations, have generally increased in recent years.

Property Interests and Mining Claims

Our development activities are conducted in the State of Nevada. Mineral interests in Nevada may be owned by the United States, the State of Nevada, or private parties. Where prospective mineral properties are held by the United States, mineral rights may be acquired through the location of unpatented mineral claims upon unappropriated federal land. Where prospective mineral properties are owned by the State of Nevada or private parties, some type of property acquisition agreement is necessary in order for us to explore or develop such property. Mining claims are subject to the same risk of defective title that is common to all real property interests. Additionally, mining claims are self-initiated and self-maintained and, therefore, possess some unique vulnerabilities not associated with other types of property interests. It is impossible to ascertain the validity of unpatented mining claims solely from an examination of the public real estate records and, therefore, it can be difficult or impossible to confirm that all of the requisite steps have been followed for location and maintenance of a claim. For general information about our mineral properties and mining claims refer to “Description of Property” in this registration statement for which this prospectus forms a part. For information about the risks to our business related to our property interests and mining claims, see “Risk Factors - Industry Related Risks” in this registration statement for which this prospectus forms a part:

There are uncertainties as to title matters in the mining industry. Any defects in such title could cause us to lose our rights in mineral properties and jeopardize our business operations; and
Legislation has been proposed periodically that could, if enacted, significantly affect the cost of our operations on our unpatented mining claims or the amount of Net Proceeds Mineral Tax we pay to the State of Nevada.

DESCRIPTION OF PROPERTY

Our sole property is the Hycroft Mine. The Hycroft Mine is an open-pit (surface) gold and silver mine with a long history of operations as discussed below. Commencing in January 2019, Seller began efforts to restart mining operations. During the first quarter of 2019, Seller worked to bring our six haul trucks, two hydraulic shovels and one wheel loader back into operation. In addition, Seller began the rehabilitation of the crushing system and the construction of leach pad space to enable mining operations to begin in the second quarter of 2019. Initial gold and silver production occurred in August 2019. During 2020, the rehabilitation of the crushing system was completed, additional mobile fleet equipment was rented, headcount increased, repairs and restoration of processing facilities were continued, and the construction of a new leach pad expansion and related infrastructure began. The North Merrill-Crowe processing and refining facility continues on care and maintenance and it will require expenditures to restore it to operational status.

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Hycroft Technical Report

The information that follows relating to the Hycroft Mine is derived, for the most part, from, and in some instances is an extract from, the Hycroft Technical Report prepared in compliance with the SEC’s Modernization of Property Disclosures for Mining Registrants. Portions of the following information are based on assumptions, qualifications and procedures that are not fully described herein. Reference should be made to the full text of the Hycroft Technical Report, as previously filed with the SEC on February 14, 2020.

Overview and Highlights

The Hycroft Mine Technical Report contemplates average annual production of approximately 366,000 gold equivalent ounces, based on a 34-year mine life for mining and processing mineral reserves. As of December 31, 2020, we had not yet begun the ramp up of our operations to production levels contemplated in the Hycroft Technical Report and, as such, we are producing gold and silver at a much lower rate. Our 2021 production plan will allow us to maintain our existing workforce and the decision to delay ramp up to high production levels will allow us time to optimize our mining plan, take additional steps to define our ore body, and resolve technical issues to better understand the proprietary two-stage heap oxidation and leach process and evaluate the proposed oxidation process for transitional and sulfide ores, and allow us to evaluate implementing additional processing technologies that may be more profitable for certain ore types. Our current plans focus our efforts on placing the Hycroft Mine in a position for a future ramp up of production at the appropriate time.

The Hycroft Technical Report sets forth a novel process for processing sulfide ore and assumes that we will utilize a substantial amount of existing infrastructure at the Hycroft Mine including administration buildings, mobile maintenance shop, light vehicle maintenance shop, warehouse, leach pads, crushing system, a refinery, and two Merrill-Crowe process plants, after refurbishment. Additionally, a second refinery is planned using existing equipment. In order to ramp up and maintain our operation to tonnage and production levels contemplated by the Hycroft Technical Report, we will need to construct additional leach pad space, add crusher capacity, add material handling systems, and construct a rail spur and storage space among other projects. In addition to infrastructure additions, we will need to significantly expand our mobile mining fleet and workforce, and perform repairs and maintenance to existing infrastructure, particularly the North Merrill-Crowe process plant. In the event that we determine to implement additional processing technologies and/or materially change our assumptions for consumption of reagents or metallurgical recovery rates, we may update or file a new technical report in the future. We currently have established goals and budgeted estimated costs for this work in 2021 or 2022.

Hycroft Mine

For a detailed discussion of the Hycroft Mine’s operating and production data, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Hycroft Mine.”

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The following shows where our Hycroft Mine and Advanced Exploration Properties are located as well as areas of the Hycroft Mine.

Additionally, the map below shows the current property and facilities layout.

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The Hycroft Mine and related facilities are located approximately 54 miles west of Winnemucca, Nevada. Winnemucca, a city with a population of approximately 7,800 (2019), is a commercial community on Interstate 80, 164 miles northeast of Reno. The mine property straddles Townships 34, 35, 351∕2 and 36 North and Ranges 28, 29 and 30 East (MDB&M) with an approximate latitude 40°52’ north and longitude 118°41’ west.

The town is served by a transcontinental railroad and has a municipal airport. Access to the Hycroft Mine from Winnemucca is by Jungo Road, formerly designated as State Route 49, a good-quality, unpaved road, and a short access road to the main entrance of the mine. Well-maintained mine and exploration roads provide access throughout the property. Access is also possible from Imlay, Gerlach and Lovelock by unpaved roads intersecting Interstate 80 and Nevada State Route 447. The majority of our employees live in the Winnemucca area. The site receives electrical power provided by NV Energy from the northwestern Nevada power grid. Initial surveys indicate that the town of Winnemucca has the required infrastructure (shopping, emergency services, schools, etc.) to support the maximum workforce and dependents. The Hycroft Mine currently has water rights which are adequate to support our planned future heap leach operations. The mine is situated on the eastern edge of the Black Rock Desert and on the western flank of the Kamma Mountains between Winnemucca and Gerlach, Nevada. There are no streams, rivers or major lakes in the general area. Elevations in the mine area range between 4,500 and 5,500 feet above sea level.

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The climate of the region is arid, with precipitation averaging 2.1 inches per year. Average temperatures during the summer range from 50°F to 90°F and average winter temperatures range from 20°F to 40°F.

We hold 30 private patented claims and 3,247 unpatented mining claims that constitute our Hycroft Mine operating property. The total acreage covered by unpatented claims is approximately 68,759 acres and an additional 1,912 acres is covered by patented claims. Combining the patented and unpatented claims, total claims cover approximately 70,671 acres. Our Hycroft Mine patented claims occupy private lands and our unpatented claims occupy public lands, administered by the BLM. These claims are governed by the laws and regulations of the U.S. federal government and the State of Nevada. To maintain the patented claims in good standing, we must pay the annual property tax payments to the county in which the claims are held. To maintain the unpatented claims in good standing, we must file a notice of intent to maintain the claims within the county and pay the annual mineral claim filing fees to the BLM. Such filing fees amounted to $0.6 million in 2020. As long as we file the annual notice and pay the claim filing fees, there is no expiration date for our unpatented claims.

A portion of the Hycroft Mine is subject to a mining lease requiring us to pay 4% net profit royalty to the owner of certain patented and unpatented mining claims, subject to a maximum of $7.6 million, of which $4.9 million remained payable as of December 31, 2020. There is no expiration date on the net profit royalty.

The Hycroft Mine is also subject to the Sprott Royalty Agreement (as defined herein) that requires us to pay a perpetual royalty equal to 1.5% of the Net Smelter Returns, as such term is defined in such agreement, from our Hycroft Mine. There is no expiration and no limit on the amount that can be paid on the Sprott Royalty Agreement. We have the right to repurchase up to 33.3% (0.5% of the 1.5% royalty) of the royalty on each of the first and second anniversaries from May 29, 2020.

The Hycroft Mine was formerly known as the Crofoot-Lewis open pit mine, which was a small heap leaching operation that commenced in 1983. Vista Gold Corp., a corporation incorporated under the laws of the Yukon Territory (“Vista”), acquired the Crofoot-Lewis claims and mine in 1987 and 1988. During this first operating period the mine produced over 1.0 million ounces of gold and 2.5 million ounces of silver. The mine production continued until it was placed on a care and maintenance program in December 1998 due to low gold prices. Seller acquired the Hycroft Mine in 2007 pursuant to an arrangement agreement where Vista transferred its Nevada mining properties to Seller’s predecessor. Seller restarted the Hycroft Mine in 2008 and suspended mining operations on July 8, 2015. During 2016, Seller was actively processing and producing gold from the ore within the heap leach pads. On January 1, 2017, Seller went into a care and maintenance mode when it stopped adding lime to the leach pads and continued to operate in a care and maintenance mode throughout 2017 and 2018. Prior to restarting operations, production of gold and silver was a byproduct of Seller’s maintenance activities on the Hycroft Mine. In January 2019 Seller began the restart of mining operations. During the first quarter of 2019 Seller began operations again with six haul trucks, two hydraulic shovels and one wheel loader. In addition, Seller began the rehabilitation of its crushing system and the construction of new leach pad space to enable mining operations to begin in the second quarter of 2019. Initial gold and silver production occurred in August 2019.

On site facilities include an administration building, mobile maintenance shop, light vehicle maintenance shop, warehouse, leach pads, crushing system, two Merrill-Crowe process plants and a refinery. The components for a second refinery are on-site and will be constructed as part of the expansion of mining activities. The crushing system was refurbished as part of the restart activities and all other facilities are operational with the exception of the North Merrill-Crowe plant which is currently expected to be needed in 2022. The gross book value of plant and equipment associated with the Hycroft Mine as of December 31, 2020, was $85.3 million.

Geology

The Hycroft Mine is located on the western flank of the Kamma Mountains. The deposit is hosted in a volcanic eruptive breccia and conglomerates associated with the Tertiary Kamma Mountain volcanics. The volcanics are mainly acidic to intermediate tuffs, flows and coarse volcanoclastic rocks. Fragments of these units dominate the clasts in the eruptive breccia. The Central Fault and East Fault control the distribution of mineralization. A post-mineral range-front fault separates the ore-body from the adjacent Pleistocene Lahontan Lake sediments in the Black Rock Desert. The geological events have created a physical setting ideally suited to the open-pit, heap-leach mining operation at the Hycroft Mine. The heap leach method is widely used in the southwestern United States and allows the economical treatment of oxidized low-grade ore deposits in large volumes.

The deposit is typically broken into six major zones based on geology, mineralization, and alteration. These zones include Brimstone, Vortex, Central, Bay, Boneyard, and Camel. Breaks between the zones are major faults.

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Mineralization at Hycroft has been deposited through multiple phases. An early silica sulfide flooding event deposited relatively low-grade gold and silver mineralization generally along bedding. This mineralization is cross cut by later, steeply dipping quartz alunite veins. Late stage silver bearing veins are found in the Vortex zone and at depth in the Central area. Late to present supergene oxidation along faults has liberated precious metals from sulfides and further enriched gold and silver mineralization, along water table levels.

The known gold mineralization extends for a distance of three miles in a north-south direction by 1.5 miles in an east-west direction. Mineralization extends to a depth of less than 330 feet in the outcropping to near-outcropping portion of the deposit on the northwest side to over 2,500 feet in the Vortex deposit in the east.

Proven and Probable Mineral Reserves

Our mineral reserve estimates are calculated in accordance with subpart 1300 of Regulation S-K under the Modernization of Property Disclosures for Mining Registrants. Proven and probable mineral reserves may not be comparable to similar information regarding mineral reserves disclosed in accordance with the guidance of other countries. We conduct ongoing studies of our ore bodies to optimize economic values and to manage risk. We revise our mine plans and estimates of proven and probable mineral reserves as required and in accordance with the latest available studies. Our estimates of proven and probable mineral reserves are prepared by and are the responsibility of our employees.

Our estimated proven and probable mineral reserves were determined in 2019 and have been adjusted to reflect depletion solely from mining activities through December 31, 2020. Our mineral reserves are based on prices of $1,200 per ounce for gold and $16.50 per ounce for silver. The gold and silver prices used in estimating mineral reserves were lower than the trailing 3-year average price of $1,272.66 per ounce for gold and $16.53 per ounce for silver at the time they were established. The average London Bullion Market spot metal prices for each of the years ended December 31, 2019, 2018 and 2017 was $1,393, $1,268 and $1,257 per ounce for gold, respectively, and $16.21, $15.71 and, $17.04 per ounce for silver, respectively. Below is a summary of our estimated proven and probable mineral reserves as of December 31, 2020.

   Tons   Grades, oz/t   Contained Oz (000s) 
   (000s)   Au   Ag   Au   Ag 
Proven (Heap Leach)                         
Oxide ROM   21,921    0.009    0.233    201    5,114 
Transitional ROM   3,257    0.006    0.12    21    391 
Oxide 3∕4” Crushed   14,667    0.012    0.739    180    10,837 
Transitional 3∕4” Crushed   4,361    0.005    0.312    23    1,361 
Transitional 1∕2” Crushed   86,406    0.011    0.452    908    39,014 
Sulfide 1∕2” Crushed   249,563    0.012    0.467    2,910    116,457 
Total Proven Heap Leach   380,175    0.011    0.456    4,243    173,174 
Probable (Heap Leach)                         
Oxide ROM   12,988    0.005    0.229    70    2,979 
Transitional ROM   3,550    0.005    0.131    19    465 
Oxide 3∕4” Crushed   2,847    0.010    0.716    28    2,038 
Transitional 3∕4” Crushed   1,298    0.004    0.496    5    643 
Transitional 1∕2” Crushed   51,752    0.010    0.461    496    23,858 
Sulfide 1∕2” Crushed   662,787    0.010    0.411    6,929    272,219 
Total Probable Heap Leach   735,222    0.010    0.411    7,547    302,202 
Total Probable Sulfide Stockpile 1∕2” Crushed   7,445    0.01    0.422    75    3,139 
Total Proven and Probable Mineral Reserves   1,122,842    0.011    0.426    11,865    478,515 
Waste   1,316,936                     
Total Tons   2,439,778                     
Strip Ratio   1.17                     

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Below is a summary of our estimated proven and probable mineral reserves as of December 31, 2019 that were determined in 2019 and have been adjusted to reflect depletion solely from mining activities through December 31, 2019.

   Tons   Grades, oz/t   Contained Oz (000s) 
   (000s)   Au   Ag   Au   Ag 
Proven (Heap Leach)                         
Oxide ROM   22,475    0.009    0.232    205    5,211 
Transitional ROM   4,081    0.008    0.185    32    755 
Oxide 3∕4” Crushed   15,250    0.012    0.716    184    10,926 
Transitional 3∕4” Crushed   4,395    0.005    0.311    24    1,367 
Transitional 1∕2” Crushed   90,095    0.01    0.448    945    40,328 
Sulfide 1∕2” Crushed   250,333    0.012    0.466    2,921    116,698 
Total Proven Heap Leach   386,629    0.011    0.453    4,311    175,285 
Probable (Heap Leach)                         
Oxide ROM   13,145    0.005    0.229    71    3,005 
Transitional ROM   3,658    0.005    0.138    20    505 
Oxide 3∕4” Crushed   3,001    0.01    0.687    29    2,063 
Transitional 3∕4” Crushed   1,300    0.004    0.495    5    644 
Transitional 1∕2” Crushed   52,451    0.01    0.458    504    24,041 
Sulfide 1∕2” Crushed   662,931    0.01    0.411    6,932    272,252 
Total Probable Heap Leach   736,486    0.01    0.411    7,561    302,510 
Total Probable Sulfide Stockpile 1∕2” Crushed   8,289    0.01    0.396    85    3,281 
Total Proven and Probable Mineral Reserves   1,131,404    0.011    0.425    11,957    481,076 
Waste   1,320,164                     
Total Tons   2,451,568                     
Strip Ratio   1.17                     
Mineral reserves estimated at $1,200/oz Au and $16.50/oz Ag.
Cut-off grades used a Net Smelter Return (NSR) calculation.
Numbers in the table have been rounded to reflect the accuracy of the estimate and may not sum due to rounding.

We did not use metal or equivalent metal cut-off grades in estimating proven and probable mineral reserves set forth in the table above and the complexity of the ore body resulted in the use of multiple metallurgical recovery factors by domain and process method, as reflected in the NSR calculations contained in Section 12 of the Hycroft Technical Report. NSR calculations were used as the basis of proven and probable mineral reserve estimations and for decisions influencing operating strategy, mine planning and design, because of differing mining and processing costs, recoveries, and the influence of both gold and silver. Factors including the variable ore types and mineralogy, different process streams and metallurgical recoveries, and related haulage distance can all cause variability in mining and processing costs and block value. Consequently, calculation of the breakeven NSR contained no profit assumptions. Metallurgical recovery factors used to estimate proven and probable mineral reserves set forth in the table above are variable based upon the domain and processing method applied. Detailed domain specific metallurgical recoveries used to estimate proven and probable mineral reserves are set forth in Table 12-3 in Section 12 of the Hycroft Technical Report, including Au and Ag recoveries by domain for ROM Heap Leach Recovery, 3/4” Crushed Heap Leach Recovery, and 1∕2” Crushed Heap Leach Recovery.

The reference point for mineral reserves is ore delivered to the leach pad and does not include reductions attributed to anticipated leach recoveries. In the case of the Hycroft Mine’s open pit, all costs are accounted for during the optimization phase of pit limit planning. Once the optimum pit extents have been determined, the decision to mine the material has been made and the cost incurred; the only task remaining then is to determine the optimal routing of the material. General and administrative expenses, as applied at Hycroft, are a fixed cost and do not vary by the tons mined or processed. As such, general and administrative costs are applied as an annual cost in the mine planning and not applied as a dollar to ton of ore processed. All material routing is based on optimal destination determination accounting for all applicable costs, recoveries, and limits (i.e., crushing capacity).

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Below is a summary of gold and silver ounces contained in our estimated proven and probable mineral reserves as of December 31, 2020 to reflect the reduction in mineral reserves resulting from mining in 2020, as compared to December 31, 2019:

      Au Oz (000s)   Ag Oz (000s) 
      As of December 31,   Change in Oz   As of December 31,   Change in Oz 
Classification  Material  2020   2019   Au Oz   %   2020   2019   Ag Oz   % 
Proven  Oxide ROM   201    205    (4)   (2.0)%   5,114    5,211    (97)   (1.9)%
   Oxide 3/4" Crush   21    32    (11)   (34.4)%   391    755    (364)   (48.2)%
   Transition ROM   180    184    (4)   (2.2)%   10,837    10,926    (89)   (0.8)%
   Transition 3/4" Crush   23    24    (1)   (4.2)%   1,361    1,367    (6)   (0.4)%
   Transition 1/2" Crush   908    945    (37)   (3.9)%   39,014    40,328    (1,314)   (3.3)%
   Sulfide 1/2" Crush   2,910    2,921    (11)   (0.4)%   116,457    116,698    (241)   (0.2)%
   Total   4,243    4,311    (68)   (1.6)%   173,174    175,285    (2,111)   (1.2)%
                                            
Probable  Oxide ROM   70    71    (1)   (1.4)%   2,979    3,005    (26)   (0.9)%
   Oxide 3/4" Crush   19    20    (1)   (5.0)%   465    505    (40)   (7.9)%
   Transition ROM   28    29    (1)   (3.4)%   2,038    2,063    (25)   (1.2)%
   Transition 3/4" Crush   5    5        %   643    644    (1)   (0.2)%
   Transition 1/2" Crush   496    504    (8)   (1.6)%   23,858    24,041    (183)   (0.8)%
   Sulfide 1/2" Crush   6,929    6,932    (3)   %   272,219    272,252    (33)   0.0%
   Total   7,547    7,561    (14)   (0.2)%   302,202    302,510    (308)   (0.1)%
                                            
Probable Stockpile  Sulfide 1/2" Crush   75    85    (10)   (11.8)%   3,139    3,281    (142)   (4.3)%
                                            
Proven and Probable  Oxide ROM   271    276    (5)   (1.8)%   8,093    8,216    (123)   (1.5)%
   Oxide 3/4" Crush   40    52    (12)   (23.1)%   856    1,260    (404)   (32.1)%
   Transition ROM   208    213    (5)   (2.3)%   12,875    12,989    (114)   (0.9)%
   Transition 3/4" Crush   28    29    (1)   (3.4)%   2,004    2,011    (7)   (0.3)%
   Transition 1/2" Crush   1,404    1,449    (45)   (3.1)%   62,872    64,369    (1,497)   (2.3)%
   Sulfide 1/2" Crush   9,914    9,938    (24)   (0.2)%   391,815    392,231    (416)   (0.1)%
   Total   11,865    11,957    (92)   (0.8)%   478,515    481,076    (2,561)   (0.5)%

 

Typical break-even individual single metal cut-off grade listed for informational reference in the Hycroft Technical Report (Table 12-7) is as follows:

 

Process Method  Au (opt)   Ag (opt) 
ROM Oxide Leach Recovery   0.006    0.938 
ROM Transitional Leach Recovery   0.008    1.115 
3/4” Crushed Oxide Leach Recovery   0.005    0.793 
3/4” Crushed Transitional Leach Recovery   0.007    0.835 
1/2” Crushed Transitional Leach Recovery   0.006    0.420 
1/2” Crushed Sulfide Leach Recovery   0.007    0.519 

The NSR calculation incorporates more than the typical single metal cutoff grades shown above, and the cutoff grades above, while typical, are not utilized in the estimation or reporting of mineral reserves. The NSR calculation covers all fixed and variable costs including mining, processing, sustaining capital deemed to be directly proportional to ore tonnage, general and administration, gross royalties, transport and shipping costs, smelting and refining costs, limits to payable metals, and refining penalties for deleterious metals. The following is an example of the method used to calculate the NSR expressed in US dollars per ton (US$/t):

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NSR (US$/t) is calculated from the following equation:

NSR = (((Au Price - Au Selling) * Au Grade * Recovery Au * Au Refine) + ((Ag Price - Ag Selling) * Ag Grade * Recovery Ag * Ag Refine)) * (1 - Royalty) - Mine Cost - Process Cost - Soda Ash Cost - Sustaining Cost - G&A Cost

Where:

NSR = Net Smelter Return
Au Price = Au selling price in $ per troy ounce
Au Selling = bullion treatment and refining cost in $ per troy ounce
Au Grade = Au fire grade in troy ounces per ton
Recovery Au = % metallurgical recovery of Au by process route & domain
Au Refine = % payable for Au refining losses and deductions
Ag Price = Ag selling price in $ per troy ounce
Ag Selling = bullion treatment and refining cost in $ per troy ounce
Ag Grade = Ag fire grade in troy ounces per ton
Recovery Ag = % metallurgical recovery of Ag by process route & domain
Ag Refine = % payable for Ag refining losses and deductions
Royalty = % royalty (Note due to very limited royalty remaining, no royalty has been included)
Mine Cost = mining cost per ton by material type
Process Cost = process cost per ton by process type & domain
Soda Ash Cost = soda ash cost per ton
Sustaining Cost = sustaining cost per ton
G&A Costs = general and administrative cost per ton

 

In addition to the factors listed above, methods, material assumptions and criteria used for estimating mineral reserves, as set forth in Section 12 of the Hycroft Technical Report, are as follows:

 

Costs were generated by Hycroft personnel, metallurgical recoveries were developed by M3 Engineering, and slope inputs supplied by Call and Nicholas and Golder Associates.

 

An NSR was generated for each 40 ft x 40 ft x 40 ft block for each of the processing methods available at Hycroft, which are the following:

 

Run-of-Mine (ROM) Heap Leaching of oxide and transitional material;

 

3∕4” Crushed Heap Leaching of oxide and transitional material;

 

1∕2” Crushed Heap Leaching of transitional and sulfide material; and

 

Assumed gold and silver prices of $1,200 and $16.50 per ounce, respectively.

 

Economic pit limits were determined with Geovia Whittle® Strategic Planning software.

 

Open pit designs were completed utilizing Maptek Vulcan 3D mine design software.

 

Mine planning was completed using Minemax strategic and operational mine planning software and the processing method that returned the highest net value was selected. If all processing methods returned a negative value, the block was classified as waste.

 38

 

Soda ash assumptions set forth in Table 12-4 in Section 12 of the Hycroft Technical Report were as follows:

 

Soda Ash Cost = Cost of Soda Ash x Soda Ash Required
Cost of Soda Ash = $0.11 per pound
Soda Ash Required = % Oxidation x 2000 x % Sulfide Sulfur x 1.57
% Oxidation = (Target Oxidation — ratio_au) / Liberation Rate
Target Oxidation : Bay = 55%; All Others = 70%
ratio_au = aucn block grade / aufa block grade
Liberation Rate   if (ratio_au le 0.05) then = 1.77
    if (ratio_au le 0.10) then = 1.89
    if (ratio_au le 0.15) then = 1.99
    if (ratio_au le 0.20) then = 2.09
    if (ratio_au le 0.25) then = 2.18
    if (ratio_au le 0.30) then = 2.27
    if (ratio_au le 0.35) then = 2.36
    if (ratio_au le 0.40) then = 2.44
    if (ratio_au le 0.45) then = 2.53
    if (ratio_au le 0.50) then = 2.60
    if (ratio_au le 0.55) then = 2.68
    if (ratio_au le 0.60) then = 2.70
    if (ratio_au le 0.70) then = 2.78

 

Additional parameters used to calculate NSR included: (i) Whittle input parameters of the heap leach for oxide, transitional and sulfide ores and multiple cost and recovery factors by domain, as set forth in Table 12-2 of the Hycroft Technical Report; and (ii) heap leach metallurgical recoveries utilized in the Whittle optimization in mineral reserve determinations varying by redox, domain and process method, as set forth in Table 12-3 of the Hycroft Technical Report.

 

Measured, Indicated and Inferred Mineral Resources

 

Our mineral resource estimates are calculated in accordance with subpart 1300 of Regulation S-K and are exclusive of mineral reserves. Measured, indicated and inferred mineral resources may not be comparable to similar information regarding mineral resources disclosed in accordance with the guidance of other countries. The estimates of Mineral Resources may be materially affected if mining, metallurgical, or infrastructure factors change from those currently anticipated at the Hycroft Mine. Estimates of inferred mineral resources have significant geological uncertainty and it should not be assumed that all or any part of an inferred mineral resource will be converted to the measured or indicated categories. Mineral resources that are not mineral reserves do not meet the threshold for reserve modifying factors, such as estimated economic viability, that would allow for conversion to mineral reserves.

 

The Hycroft Mine contains a large precious metals deposit, based on measured and indicated mineral resource size. The resource information provided below was calculated by SRK during 2019 and also reflects the resource information as of December 31, 2019 and December 31, 2020 as Hycroft did not deplete any resources from mining activities through December 31, 2020.

 39

 

 

Classification   Material   Tons (kt)   Contained Grade   Contained Metal  
      AuFa OPT   AuCn OPT   AgFa OPT   S%   Au (koz)   Ag (koz)  
Measured   Oxide   5,650      0.011   0.008   0.224   1.79   60      1,267   
    Transitional   21,746      0.011   0.005   0.186   1.80   232      4,038   
    Sulfide   37,512      0.010   0.002   0.273   1.85   356      10,248   
        64,908      0.010   0.004   0.240   1.83   649      15,554   
Indicated   Oxide   2,619      0.006   0.005   0.229   1.89   17      599   
    Transitional   16,293      0.007   0.003   0.329   1.79   117      5,369   
    Sulfide   310,102      0.009   0.002   0.282   1.81   2,916      87,470   
        329,014      0.009   0.002   0.284   1.81   3,050      93,438   
Measured and Indicated   Oxide   8,268      0.009   0.007   0.226   1.82   77      1,867   
    Transitional   38,039      0.009   0.004   0.247   1.80   349      9,407   
    Sulfide   347,614      0.009   0.002   0.281   1.81   3,272      97,718   
        393,922      0.009   0.002   0.277   1.81   3,699      108,992   
Inferred   Oxide   6,191      0.007   0.005   0.267   1.72   44      1,651   
    Transitional   20,148      0.008   0.004   0.276   1.74   156      5,570   
    Sulfide   568,704      0.010   0.002   0.214   1.76   5,516      121,930   
    Fill   4,018      0.013   0.008   0.150   0.63   53      603   
        599,062      0.010   0.002   0.217   1.76   5,769      129,754   

 

Mineral resources are not mineral reserves and do not meet the threshold for reserve modifying factors, such as estimated economic viability, that would allow for conversion to mineral reserves. There is no certainty that any part of the mineral resources estimated will be converted into mineral reserves and no mineral resources are assumed to be converted into mineral reserves in the Hycroft Technical Report.

 

Open pit resources stated as contained within a potentially economically minable open pit; pit optimization was based on assumed prices for gold of $1,400 per ounce and for silver of $18 per ounce, variable Au and Ag Recoveries based on geometallurgical domains, a mining cost of $1.45 per ton, variable ore processing costs based on geometallurgical domains, and G&A cost of $0.65 per ton, and a pit slope of 45 degrees;

 

Open pit resources are reported based on calculated NSR block values and the cutoff therefore varies from block to block. The NSR incorporates Au and Ag sales costs of $0.75 per ounce beyond the costs used for pit optimization;

 

Numbers in the table have been rounded to reflect the accuracy of the estimate and may not sum due to rounding;

 

Mineral resources are reported exclusive of mineral reserves.

 

We did not use metal or equivalent metal cut-off grades in estimating measured, indicated or inferred mineral resources set forth in the table above, as no mining of mineral resources has been incorporated into the contemplated 34-year mine plan set forth in the Hycroft Technical Report, and the complexity of the ore body resulted in the use of multiple metallurgical recovery factors by ore body, as reflected in the NSR calculations contained in Section 11 of the Hycroft Technical Report. NSR block calculations were used as the basis for measured, indicated and inferred mineral resources estimations and open pit mineral resources are reported based on calculated NSR block values and the cutoff therefore varies from block to block. SRK worked with our predecessor to construct updated three-dimensional wireframes for alteration and oxidation zones uses geo software. Estimation of gold, silver, sulfur and rock hardness in a three-dimensional block model was completed by SRK and is reflected in Section 11 of the Hycroft Technical Report.

 

Metallurgical recovery factors used to estimate measured, indicated or inferred mineral resources set forth in the table above, are variable based upon the domain and processing method applied. Detailed domain specific metallurgical recoveries used to estimate measured, indicated or inferred mineral resources are set forth in Table 11-21 in Section 11 of the Hycroft Technical Report, including Au and Ag recoveries by domain for ROM Heap Leach Recovery, 3∕4” Crushed Heap Leach Recovery, and 1∕2” Crushed Heap Leach Recovery.

 40

 

 

Measured, indicated and inferred mineral resources were estimated based upon an open pit optimization utilizing the following assumptions:

 

assumed prices for gold of $1,400 per ounce and for silver of $18 per ounce;

 

variable Au and Ag Recoveries based on geometallurgical domains;

 

mining cost of $1.45 per ton;

 

variable ore processing costs based on geometallurgical domains;

 

G&A cost of $0.65 per ton;

 

pit slope of 45 degrees; and

 

NSR incorporates Au and Ag sales costs of  $0.75 per ounce beyond the costs used for pit optimization.

 

Please see Table 11-21 in Section 11 of the Hycroft Technical Report for a more detailed tabular presentation of the resource pit optimization parameters for oxide, transitional and sulfide ores and multiple cost and metallurgical recovery factors by domain that were also used in the calculation of block NSR values for reporting purposes.

 

Below is a summary of gold and silver ounces contained in our estimated measured, indicated, and inferred resources as of December 31, 2019 and December 31, 2020 as there was no reduction to mineral resources from mining in 2020:

 

        Au Oz (000s)     Ag Oz (000s)  
        As of December 31,     Change in Oz     As of December 31,     Change in Oz  
Classification   Material   2020     2019     Au Oz     %     2020     2019     Ag Oz     %  
Measured   Oxide   60      60          %   1,267      1,267          %
    Transitional   232      232          %   4,038      4,038          %
    Sulfide   356      356          %   10,248      10,248          %
        649      649          %   15,554      15,554          %
Indicated   Oxide   17      17          %   599      599          %
    Transitional   117      117          %   5,369      5,369          %
    Sulfide   2,916      2,916          %   87,470      87,470          %
        3,050      3,050          %   93,438      93,438          %
Measured and Indicated   Oxide   77      77          %   1,867      1,867          %
    Transitional   349      349          %   9,407      9,407          %
    Sulfide   3,272      3,272          %   97,718      97,718          %
        3,699      3,699          %   108,992      108,992          %
Inferred   Oxide   44      44          %   1,651      1,651          %
    Transitional   156      156          %   5,570      5,570          %
    Sulfide   5,516      5,516          %   121,930      121,930          %
    Fill   53      53          %   603      603          %
        5,769      5,769          %   129,754      129,754          %

 

Cautionary Note to Investors

 

Information concerning our mineral properties in the Hycroft Technical Report and in this Registration Statement of which this prospectus forms a part includes information that has been prepared in accordance with the requirements of the Modernization of Property Disclosures for Mining Registrants set forth in subpart 1300 of Regulation S-K which we elected to adopt early and became widely applicable on January 1, 2021. These standards differ significantly from the previously applicable disclosure requirements of Industry Guide 7 in that mineral resource information was not permitted and mineral reserves have been calculated in accordance with the provision of subpart 1300 of Regulation S-K.

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Under SEC standards, mineralization, such as mineral resources, may not be classified as a “mineral reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time of the mineral reserve determination by a qualified person as defined by subpart 1300 of Regulation S-K. The term “economically,” has been interpreted to mean that profitable extraction or production has been established or analytically demonstrated in a pre-feasibility or feasibility study to be viable and justifiable under reasonable investment and market assumptions. The term “legally” as it relates to the definition of mineral reserves, has been interpreted not to imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for a mineral reserve to exist, we must have a justifiable expectation, based on applicable laws and regulations, that issuance of permits or resolution of legal issues necessary for mining and processing at a particular deposit will be accomplished in the ordinary course and in a timeframe consistent with our current proposed mine plans. As used in this Registration Statement of which this prospectus forms a part, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined and used in accordance with the Modernization of Property Disclosures for Mining Registrants set forth in subpart 1300 of Regulation S-K. You are specifically cautioned not to assume that any part or all of the mineral deposits (including any mineral resources) in these categories will ever be converted into mineral reserves, as defined by the SEC.

 

You are cautioned that, except for that portion of mineral resources classified as mineral reserves, mineral resources do not have demonstrated economic value. Inferred mineral resources have a high degree of uncertainty as to their existence as to whether they can be economically or legally mined. Estimates of inferred mineral resources may not form the basis of an economic analysis. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. A significant amount of exploration must be completed in order to determine whether an inferred mineral resource may be upgraded to a higher category. Therefore, you are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be economically or legally mined, or that it will ever be upgraded to a higher category. Likewise, you are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be upgraded to mineral reserves.

 

Internal Controls and Material Assumptions

 

Seller’s drill hole database has been validated by Seller’s exploration group. A review and validation of the collar coordinate, down-hole survey, and geology data was completed in the third quarter of 2014 by Seller’s predecessor’s geologists.

 

SRK completed data verification and validation in advance of geological modeling and resource estimation, first between May and July 2017, for gold, silver, sulfide sulfur, and total sulfur analytical results, and for logged geological data. During this review, the analytical databases were found to be incomplete. SRK worked with Seller’s predecessor to extract all available analytical data from the acQuire database. This resulted in a 58% increase in the sulfide sulfur dataset. The compilation of gold and silver assay values in parts per million (PPM) units resulted in more intervals with valid Au CN:FA values for oxide modeling, and greater precision for grade estimation. SRK completed data verification for the new analytical database in September 2017.

 

Model validation was approached through visual and statistical methods. Visual comparison was done on sections and in plan for each area of the deposit. Statistical comparison was achieved using comparative population statistics and swath plots. Reconciliation of the model, excluding fill, to available production data was completed. Material mined by Seller’s predecessor between 2008 and 2015 was compared to blocks in the mined volume. Model and production data are summarized in the Hycroft Technical Report. The model compared well to historical production records for total gold ounces. The model has about 5% more tonnage, and about 4% lower gold grade, than the reported production. Reported silver grade was about 7% lower than what was predicted by the model and resulted in silver ounces produced about 12% less than what was predicted from the block model.

 

A visual inspection of the model in plan and section confirmed that grades were well correlated between the blocks and the composite data in each area.

 

Statistics by interpolation domain (grade shell) were used to compare the Au and Ag NN (polygonal) and OK and IDW, where applicable, grades against each other. The NN interpolation method provides a declustered representation of the sample grades and therefore, the resulting mean grades of any other method should be similar to the mean grade of the NN estimate at a zero-cutoff grade. For Au, the OK estimates were within acceptable tolerances of the NN; approximately ±3% for each domain. The global mean estimated OK grade at zero cut-off was within ~1% of the NN estimate. For Ag, the OK and IDW estimates were within acceptable tolerances of the NN; approximately ±5% for each domain, with the higher variances corresponding to the poorly sampled Bay and Lewis domains. The global mean estimated grade at zero cut-off was within ~1.2% of the NN estimate.

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A swath plot is a graphical display of the grade distribution derived from a series of bands, or swaths, generated in several directions through the deposit. Using the swath plot, grade variations from the OK and IDW (where applicable) model are compared to the distribution derived from the NN grade model.

 

On a local scale, the NN model does not provide reliable estimations of grade, but on a much larger scale it represents an unbiased estimation of the grade distribution based on the underlying data. Therefore, if the OK/IDW model is unbiased, the grade trends may show local fluctuations on a swath plot, but the overall trend of the OK/IDW data should be similar to the NN distribution of grade.

 

Swath plots were generated along east-west, north-south directions, and for elevation. Swath widths were 200 feet wide for both east-west and north-south orientations, and 80 feet wide in the vertical. Au grades were plotted by OK/IDW (red traces) and NN (blue traces) for all estimated blocks.

 

Based on the swath plots, it was concluded that there is a reasonable correlation between the modeling methods. The degree of smoothing in the OK/IDW model is evident in the peaks and valleys shown in some swath plots; however, this comparison shows close agreement between the OK/IDW and NN models in terms of overall grade distribution as a function of easting, northing, and elevation; especially where there are high tonnages (as shown by the vertical bars on the plots).

 

Given that process recoveries and costs in the resource model are grade and/or domain dependent, the application of standard cut-off grades for resource reporting purposes is not feasible. The resources are, therefore, reported with respect to a block NSR value which is calculated on a block-by-block basis. The resource is also constrained by an optimized (Whittle) resource pit, in order to demonstrate that the defined resources have reasonable prospects of eventual economic extraction, a part of the New Mining Rules criteria. All classification categories were considered in the resource pit optimization. The estimation of the NSR values and development of the Whittle resource pit requires assumptions around technical and economic parameters such as process recoveries, mining methods and operating costs.

 

Drilling

 

Our exploration model includes data from 1981 to December 2018 and includes 5,501 holes, representing 2.5 million feet of drilling. Exploration drilling was started in 1974 by Duval Corporation, and continued through various owners. Seller’s predecessor commenced systematic exploration and resource development drilling starting in late 2006. Drilling has been focused on oxide mineral reserve delineation, sulfide resource definition, sulfide exploration, condemnation drilling for facilities, silver data and both geotechnical and metallurgical core samples. A combination of rotary, reverse circulation and core drilling techniques has been utilized to verify the nature and extent of mineralization. From late-2006 to August 31, 2016, Seller and its predecessor completed 1,970 exploration holes, totaling approximately 1.45 million feet.

 

Seller drilled an additional 54 holes, totaling 4,706 feet starting in December 2018 through April 2019 confirming the grades of the previously mined sulfide ore stockpiles, which we have been using as the initial ore feed for Seller’s restart operations.

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Drill hole collar locations are shown in the figure below.

 

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LEGAL PROCEEDINGS

 

From time to time we are involved in various legal actions related to our business, some of which are class action lawsuits. We do not believe, based on currently available information, that contingencies related to any pending or threatened legal matter will have a material adverse effect on our financial statements, although a contingency could be material to our results of operations or cash flows for a particular period depending on our results of operations and cash flows for such period. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

 

MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK
AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

Our common stock began publicly trading on the Nasdaq Capital Market under the symbol “HYMC” on May 30, 2020. Prior to that time, shares of Class A common stock traded on the Nasdaq Capital Market under the symbol "MUDS".

 

On March 22, 2021, the last reported sale price of our common stock on the Nasdaq Capital Market was $7.11. As of March 22, 2021, there were 59,901,306 shares of our common stock issued and outstanding, and we had 58 registered stockholders of record.

 

Dividend Policy

 

We have never paid dividends or repurchased shares of our common stock and currently have no plans to do so. The Sprott Credit Agreement contain provisions that restrict our ability to pay dividends and repurchase or redeem capital stock. For additional information on these restrictions, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Liquidity and Capital Resources – Debt covenants” and Note 9 - Debt, Net to the Notes to our Financial Statements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion, which has been prepared based on information available to us as of March 22, 2021, provides information that we believe is relevant to an assessment and understanding of our consolidated operating results and financial condition. As a result of the completion of the Recapitalization Transaction, the financial statements of Seller are now the financial statements of the Company. Prior to the Recapitalization Transaction, the Company had no operating assets but, upon consummation of the Recapitalization Transaction, the business and operating assets of Seller sold to the Company became the sole business and operating assets of the Company. Accordingly, the financial statements of Seller and its subsidiaries as they existed prior to the Recapitalization Transaction and reflecting the sole business and operating assets of the Company going forward, are now the financial statements of the Company. The following discussion should be read in conjunction with our other reports filed with the SEC as well as our Financial Statements and the Notes thereto included in this Registration Statement for which this prospectus forms a part. Terms not defined herein have the same meaning defined in the Financial Statements and the Notes.

 

The following MD&A generally discusses our consolidated financial condition and results of operations for 2020 and 2019 and year-to-year comparisons between 2020 and 2019.

 

Introduction to the Company

 

We are a U.S.-based gold producer that is focused on operating and developing our wholly owned Hycroft Mine in a safe, environmentally responsible, and cost-effective manner. Gold and silver sales represent 100% of our operating revenues and the market prices of gold and silver significantly impact our financial position, operating results, and cash flows. The Hycroft Mine is located in the State of Nevada and the corporate office is located in Denver, Colorado. The Hycroft Mine had proven and probable mineral reserves of 11.9 million ounces of gold and 478.5 million ounces of silver at December 31, 2020, as determined by deducting mineral reserves mined through December 31, 2020 from the mineral reserves estimated in the Hycroft Technical Report at July 31, 2019.

 

Operations restart

 

During the second quarter of 2019, we restarted open pit mining operations at the Hycroft Mine, and, during the third quarter of 2019, produced and sold gold and silver, which we have continued to do on an approximate weekly basis since restarting. As part of the 2019 restart of mining operations, existing equipment was re-commissioned, including haul trucks, shovels and a loader, upgrades were made to the crushing system and leach pad space was added to the existing leach pads. During 2020, we added mobile equipment through rentals, began construction of additional leach pad space, and increased our total headcount in order to increase our mining rate and also initiated construction of a new leach pad for future production.

 

As discussed throughout this MD&A, including within the Hycroft Mine section, during the year ended December 31, 2020 we have been unable to fully achieve our internal operating, processing, sales, and production cost targets, which has resulted in net operating losses and negative cash flows before financing activities creating substantial doubt about our ability to continue as a going concern. Refer to the Going concern subsection of the Recent Developments section of this MD&A for additional details.

 

2020 Summary

 

We continued to ramp-up production at the Hycroft Mine in 2020 and to progress and develop our understanding of the requirements for implementing the proprietary two-stage sulfide heap oxidization and leach process on a commercial production scale. Following the May 29, 2020 Recapitalization Transaction, we also implemented a number of changes including hiring a new senior executive team and establishing a new leadership team at the mine with the technical talent and experience for implementing complex processing technologies. Additionally, as we operated pre-commercial test pads in 2020 we identified several important items as we worked to implement this novel processing technology.

 

Senior management - We strengthened our executive management team with the addition of Diane R. Garrett, Ph.D., who was appointed as our President and Chief Executive Officer and as a director, effective as of September 8, 2020; Stanton Rideout, who was appointed as our Executive Vice President and Chief Financial Officer, effective as of October 20, 2020; Mike Eiselein, who was appointed as our Vice President, General Manager, effective as of October 27, 2020; and Jack Henris, who was appointed as our Executive Vice President and Chief Operating Officer, effective as of January 11, 2021. Refer to Executive management changes of the Recent Developments section for additional details.

 

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Senior operations management – We realigned our organizational structure and recruited several key individuals mostly in the last three months of 2020 to bolster the on-site technical, financial, and operational teams, including:

 

James Berry, VP Exploration and Geology (former Romarco, Barrick);

 

Kenji Umeno, Process Manager (former Kinross Gold Corp., Fluor, Freeport-McMoRan Inc. (“Freeport”));

 

Jeff Griffin, Sr. Metallurgist (former Phelps Dodge, Freeport);

 

Santiago Garcia, Chief Metallurgist (former Agnico Eagle Mines Ltd., Newmont); and

 

New Mine Manager, Safety Manager, HR Manager, Controller and Project Manager.

 

Technical team – We established an independent technical team comprised of Hycroft personnel and industry-leading consultants including John O. Marsden (Metallurgium), Hazen Research Inc. and Forte Dynamics, Inc. (“Forte”) with expertise in metallurgy, mine plan optimization, and heap stacking designs to assist with the development of the mining and process plans and alternatives.

 

Recapitalization Transaction – On May 29, 2020, we completed the Recapitalization Transaction, which as of the closing date, among other things, resulted in a cash balance of $68.9 million and 50,160,042 shares of our common stock issued and outstanding. In addition, upon closing, we had 34,289,999 outstanding warrants to purchase an equal number of shares of our common stock and 12,721,623 Seller warrants to purchase 3,210,213 shares of common stock.

 

Public offering - During the fourth quarter of 2020, we improved our financial position through an upsized public offering for 9,583,334 units, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at a price of $10.50 per share. The public offering closed on October 6, 2020, providing us with net proceeds of approximately $83.1 million.

 

Ounces and realized prices - During 2020, the Hycroft Mine produced 27,392 ounces of gold and 178,836 ounces of silver and sold 24,892 ounces of gold (average realized price of $1,779) and 136,238 ounces of silver (average realized price of $20.30). Our 2020 production levels have been negatively impacted by mining inefficiencies and an inability to achieve consistent oxidation of sulfide ores consistent with the Hycroft Technical Report's commercial scale.

 

Proprietary process – During 2020, we made operational, technical staffing, and reporting improvements for the two-stage, heap oxidation and subsequent leaching of transitional ores, which is discussed further in the Processing section of the Hycroft Mine section. We also continued to enhance our understanding of the results yielded from oxidizing transitional ores, which was the primary type of ore stacked on the pre-commercial leach pads during 2020.

 

Leach pad construction – During 2020, we spent $29.3 million on the leach pad expansion project. As discussed in the 2021 Outlook section, due to strategic shifts in our focus for 2021, we have temporarily deferred completing the construction and commissioning of the leach pad expansion. We expect to complete construction to the appropriate point in which we believe there would be minimal risk of adverse impacts to the leach pad. We also plan to complete the purchase of certain long-lead time items and continue to evaluate and apply value engineering for the project in 2021 with completion of construction and commissioning of the project in 2022.

 

Cash flows and liquidity – Our available cash balance on December 31, 2020 was $56.4 million, following year-to-date 2020 net operating cash outflows of $110.5 million, cash outflows from investing activities of $31.1 million, and cash inflows from net financing activities of $188.7 million.

 

Going concern – As of December 31, 2020, substantial doubt existed about our ability to continue as a going concern as we may need additional capital, which is contemplated based on, among other things, our current estimates of production, costs, metal prices, capital expenditures, and debt service obligations over the next twelve months from the filing date of our 2020 Form 10-K.

 

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Recent Developments

 

Recapitalization Transaction

 

As discussed in Note 1 - Company Overview and Note 3 - Recapitalization Transaction to the Notes to the Financial Statements, on May 29, 2020, we consummated the Recapitalization Transaction as contemplated by a purchase agreement dated January 13, 2020, as amended on February 26, 2020 (the “Purchase Agreement”), by and among us, Acquisition Sub and Seller. Pursuant to the Purchase Agreement, Acquisition Sub acquired all of the issued and outstanding equity interests of the direct subsidiaries of Seller and substantially all of the other assets of Seller and assumed substantially all of the liabilities of Seller. In conjunction with 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 (as such are defined herein). Upon closing of the Recapitalization Transaction, our unrestricted cash available for use totaled $68.9 million and the number of shares of our common stock issued and outstanding totaled 50,160,042. In addition, upon closing, we had 34,289,999 outstanding warrants to purchase an equal number of shares of our common stock at $11.50 per share and 12,721,623 warrants to purchase 3,210,213 shares of our common stock at a price of $44.82 per share (see Note 12 - Stockholders' Equity to the Notes to the Financial Statements for additional information). Upon closing of the Recapitalization Transaction and after giving effect to the terms of the Recapitalization Transaction, the former holders of Seller’s indebtedness and common stock, including affiliated entities of such former holders, owned approximately 96.5% of our issued and outstanding common stock.

 

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 year-end 2020 financial statements were issued. Although we completed the Recapitalization Transaction during the 2020 second quarter and completed the underwritten public offering on October 6, 2020, for estimated proceeds net of discount and equity issuance costs of $83.1 million, using our internal forecasts and cash flow projection models, we currently project we will likely require additional cash from financing activities in less than 12 months from the date of this report to meet our operating and investing requirements and future obligations as they become due.

 

Our ability to continue as a going concern is contingent upon securing additional funding for working capital, capital expenditures and other corporate expenses so that we can increase sales by achieving higher cost-effective operating tonnages and recovery rates and generate positive cash flows.

 

COVID-19

 

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic, which continues to spread throughout the United States. Efforts implemented by local and national governments, as well as businesses, including temporary closures, have had adverse impacts on local, national and global economies. We have implemented health and safety policies for employees, contractors, and visitors that follow guidelines published by the Center for Disease Control (CDC) and the Mine Safety and Health Administration (MSHA). During 2020, especially the fourth quarter, our operations were limited by COVID-19 related absences, however the impact did not significantly adversely affect our operations. The extent of the impact of COVID-19 on our operational and financial performance going forward will depend on certain developments, including but not limited to the duration and continued spread of the outbreak and strand mutations, the availability and use of vaccines, the development of therapeutic drugs and treatments, and the direct and indirect impacts on our employees, vendors, and customers, all of which are uncertain and cannot be fully anticipated or predicted. Since the Hycroft Mine represents the entirety of our operations, any further COVID-19 outbreaks at the mine site or any governmental restrictions implemented to combat the pandemic could result in a partial or an entire shutdown of the Hycroft Mine itself, which would negatively impact our financial position, operating results, and cash flows.

 

As a result of COVID-19, we have implemented numerous policies and initiatives, including, but not limited to:

 

General travel and site access restricted to business-critical needs; discretionary travel strongly discouraged;

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Health and temperature checks required prior to boarding mine site transportation buses and prior to entering the mine site for all other employees and visitors;

 

Increased cleaning and disinfecting of common areas, including mobile mining equipment cabs;

 

Use of face coverings and social distancing, including limiting meetings to essential people with increased use of conference calls and webinars;

 

Communications informing employees of their ability to take paid-leave for COVID-19-related matters;

 

Employees who can have been permitted to work remotely; and

 

Regularly monitoring local, state, and national publications and guidance for routine discussion among executives and management.

 

To date, COVID-19 related absences have limited our operations, but this 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 as COVID-19 case spikes continue across the country, including in the vicinity of the Hycroft Mine, that our operations will not be materially adversely affected.

 

Executive management changes

 

Diane R. Garrett, Ph.D., was appointed as the Company’s President and Chief Executive Officer and as a director, effective as of September 8, 2020, succeeding Stephen Jones, the former interim CEO. Dr. Garrett has over 25 years of senior executive management experience in the mining industry and an exceptional track record for developing projects and building companies and received her Ph.D. in Engineering and her Masters in Mineral Economics from the University of Texas at Austin.

 

Stanton Rideout was appointed as the Company's Executive Vice President and Chief Financial Officer, effective as of October 20, 2020, succeeding Jeffrey Stieber, as former interim CFO. Mr. Rideout is a seasoned financial executive and has more than 30 years of senior executive experience in the mining and manufacturing industries and earned his Master’s in Business Administration from the University of Evansville and his Bachelor of Science, Business/Finance, from Western Kentucky University. Mr. Rideout is a Certified Public Accountant.

 

Jack Henris was appointed as the Company's Executive Vice President and Chief Operating Officer, effective as of January 11, 2021. Mr. Henris is a highly experienced mining operations executive with more than 35 years of experience in senior operations positions with major mining firms and holds a Bachelor of Science in Geological Engineering from the South Dakota School of Mines and Technology.

 

Technical review summary

 

The new leadership team established at the mine launched into an extensive and detailed review of the Hycroft Mine and took immediate steps to rectify operational shortcomings, significantly reduce costs, and put in place an operating team aligned with the Company’s long-term strategy to establish the Hycroft Mine as a long-life, low-cost gold and silver producer. To date, the team has made significant strides at the Hycroft Mine through elevating the safety performance, improving the culture at Hycroft, establishing operational improvements, reducing spend, and identifying several areas for continued enhancement. The 2020 actions were quickly implemented and, in the fourth quarter alone, we saw significant improvement in costs as we reassigned our workforce to reduce our reliance on contractors as well as improved safety performance with a more than 50% year-over-year reduction in the TRIFR alone. Incident and near miss reporting increased as expected as the team initiated numerous campaigns to recognize, report, and eliminate safety hazards. In 2021, we expect to continue to see additional benefits from these 2020 actions.

 

In the fourth quarter of 2020, we formed a technical team to support the new leadership team in ongoing data analysis, developing processing models for future larger-scale sulfide leach operations and incorporating data and results from the pre-commercial leach pads. The team is comprised of industry leading consultants with expertise in metallurgy, open pit mining and heap leach processing, heap leach stacking and modeling and other process technologies, and the team also has access to a leading research and development laboratory. The mine site’s process team and leadership in conjunction with the technical team focused its efforts on identifying and investigating opportunities for improvements in operating parameters in the sulfide heap oxidation and leach process resulting in additional work plans as described in the following 2021 Outlook section.

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2021 Outlook

 

During 2021, we intend to focus our efforts on placing the Hycroft Mine in a position for a future ramp up of production at the appropriate time. Our focus for 2021 will entail mining and processing run-of-mine oxide and transitional ores aimed at maximizing ounce production and cash flows and preserving our cash. Compared to sulfide ore, run-of-mine 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 run-of-mine operating plan for 2021 will provide us the opportunity to complete and evaluate the results of the ongoing technical and optimization work for the proprietary two-stage heap oxidation and leach process. Based upon the findings and results of this evaluation process, we may update or file a new technical report. We currently have established goals and budgeted estimated costs for this work in 2021 or 2022.

 

Production outlook

 

Although the 2021 run-of-mine operating plan reduces annual mining activity from 2020, we expect to increase total annual production to 45,000 - 55,000 ounces of gold and 400,000 - 450,000 ounces of silver by drawing down inventory that has been previously stacked on the leach pads and stacking run-of-mine oxide and transitional material with a shorter recovery cycle. We anticipate that mining in the first four months of 2021 will be performed using the existing Hycroft fleet and a rental fleet, moving approximately 1.5 million tons per month of ore and waste. For the remainder of the year, we intend to mine approximately 500,000 tons of oxide and transitional ore and waste per month with a more cost effective fleet. The run-of-mine operating plan will allow us to maintain our existing workforce while allowing time to optimize the mining plan, take additional steps to define the ore body, and resolve technical issues related to developing processes and procedures for the efficient and effective recovery of gold and silver from the two-stage heap oxidation and leaching of sulfide ore, thereby positioning the mine site for the first phase ramp up and future growth. At current metal prices, our full-year 2021 production costs are expected to exceed gold and silver revenues due to fixed costs and lower planned run-of-mine volumes. The run-of-mine volumes reflect the current processing capacity which is limited until we can complete expenditures necessary to refurbish the North Merrill-Crowe plant and construct the second refinery.

 

Technical activities

 

During the last few months of 2020 and into 2021, we have worked alongside our industry leading consultants to identify and investigate opportunities for improvements in operating parameters for the two-stage sulfide heap oxidization and leach process. The result of the work to date has identified a number of items that were not considered or included in the original plan and design but are critical to the success of this process. These findings included:

 

(1)adding a forced air injection system for the leach pad which is a key component of the oxidation process;

 

(2)developing a system for segregating solution flows to and from the heap leach pad to avoid co-mingling of solutions among heap lifts and ore processing stages that negatively impact recoveries and conditions on the leach pads;

 

(3)identifying that the finer crushed material requires agglomeration in order to achieve optimal permeability and gold and silver recoveries;

 

(4)understanding that higher soda ash, caustic soda, and cyanide consumption will be required which we experienced throughout the 2020 pre-commercial test pad programs and recently confirmed through the review of the test work;

 

(5)determining that some transitional ores are more economically attractive when processed as direct leach, run-of-mine material; and

 

(6)concluding that additional variability metallurgical and mineralogy studies will be required to better understand each of the geometallurgical domains in the ore body. While there was some variability work completed in the past, the recent test work has revealed that additional variability test work and compositing is necessary to fully understand the geometallurgy of each domain, and that additional sampling, including sampling below the water table where the predominance of the sulfide resources exist, is required given the complexity and variability of the large ore body.

 

The additional variability test work will also include detailed mineralogy studies as it is important to understand the role other minerals may play in the overall oxidation process and to enhance our ability to measure oxidation rates accurately and consistently. We have developed an approximate $10.0 million program for drilling and additional metallurgical and mineralogical studies in 2021. This program of work has been approved by our Board of Directors and is expected to be funded from existing cash and our current operating plans.

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Based on our recent understanding of the two-stage heap oxidation and leach process, and consistent with our strategy to position the Hycroft Mine for a ramp up at the appropriate time, much of our technical efforts for 2021 will include focusing on achieving the below items:

 

Pre-commercial leach pads – We expect to mine and stockpile at least 300,000 tons of sulfide ore in 2021 that, once sufficient additional work on the proprietary two-stage heap oxidation and leach process has been completed, will be available for testing to further refine operating parameters and measure its performance for large scale application of the oxidation heap leach.

 

Leach pad expansion – We developed a stacking plan for the 2021 run-of-mine plan that utilizes existing leach pads, preserving the new leach pad for sulfide ores, and facilitates deferring the capital expenditures to complete and commission the new leach pad into 2022. During the upcoming year, in conjunction with the technical team, we plan to engage with engineering firms to assess value engineering opportunities and evaluate potential design changes to the current leach pad plans to better support the sulfide oxidation process.

 

Technical analyses – The technical work programs taking place in 2021 may provide information for evaluating enhancement updates and opportunities for the novel process while also considering processing technologies for certain ores that may generate enhanced value.

 

Mine planning and exploration – The mining team was expanded to include a professional with expertise in geologic modeling and a track record for establishing successful exploration and geology programs. The mining team, together with Forte and the exploration team, are working to identify additional opportunities to explore areas with higher grade potential and identify mine plan enhancements for improved cash flows.

 

Constraints to growth – The Hycroft Mine’s future ramp up is dependent on eliminating current mining and processing constraints. As it relates to mining, when we are ready to ramp up production, we will need to acquire a mining fleet capable of achieving targeted production, and recruit and train operators and maintenance staff. For processing, we will need to: (i) complete planned repairs to the Brimstone Merrill-Crowe plant and refinery; (ii) restore and recommission the North Merrill-Crowe plant, and complete detailed engineering, permitting, and installation for the adjacent refinery; (iii) ensure we have sufficient reagent availability and storage, handling, and application systems; and (iv) evaluate other supporting process plant and equipment required for future growth, namely material handling systems and crusher capacity.

 

Although the above items set forth our current expectations of focus during 2021, as information, test results, and data becomes available to us during the upcoming year, such findings may modify the scope, nature, and timing of technical, testing, engineering, and growth planning work actually performed.

 

Hycroft Mine

 

Operations

 

The following table provides a summary of operating results for the Hycroft Mine, which was restarted in April 2019:

 

       Year ended December 31, 
       2020   2019 
Ore mined - crusher feed   (ktons)    4,941    3,147 
Ore mined - run of mine   (ktons)    1,873    939 
Total ore mined   (ktons)    6,814    4,086 
Waste mined   (ktons)    4,815    321 
Total mined and rehandled   (ktons)    11,629    4,407 
                
Waste tons to ore tons strip ratio   (#)    0.71    0.08 
                
Ore grade mined - gold   (oz/ton)    0.014    0.019 
Ore grade mined - silver   (oz/ton)    0.261    0.122 
                
Production - gold   (oz)    27,392    9,561 
Production - silver   (oz)    178,836    70,332 
                
Ounces sold - gold   (oz)    24,892    8,593 
Ounces sold - silver   (oz)    136,238    52,036 
                
Average realized sales price - gold   ($/oz)   $1,779   $1,490 
Average realized sales price - silver   ($/oz)   $20.30   $17.41 

 

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As shown above, tons mined, ounces produced, and ounces sold significantly increased during the year ended December 31, 2020, compared to the prior year due to restarting mining and operations in 2019. During the second quarter of 2019, we restarted open pit mining operations at the Hycroft Mine, and, during the third quarter of 2019, we produced and sold gold and silver, which we have continued to produce with sales occurring on an approximate weekly basis since restarting. 

 

Mining

 

As shown in the table above, tons mined, ounces produced, and ounces sold significantly increased during the year ended December 31, 2020 compared with the prior year as we benefited from a full year of operations in 2020 and only eight months of mining in 2019. Operations were restarted in the second quarter of 2019 and, each quarter since restarting, generally there has been an increase in tonnage mined and placed on the leach pads, most notably in the second quarter of 2020 following the arrival and commissioning of mobile mining equipment rentals (nine haul trucks and one loader).

 

The gold grades of ore mined during 2020 were as planned and decreased from the comparable period of 2019 in which existing higher grade stockpile ore was mined prior to starting any drilling and blasting. During the first quarter of 2020, we commenced in-pit contractor drilling and blasting activities that continued through the fourth quarter of 2020, to provide fresh ore feed for the crusher, run-of-mine hauling, and waste removal in support of the full year plan.

 

Crushing

 

The crusher performed well during the second half of 2020, generally meeting internal targets for product fraction size, tonnage rates, and availability, as we continued to improve equipment and operating systems to ensure ongoing reliability. In the fourth quarter of 2020, tons crushed decreased as we moved to processing transitional ore as run-of-mine material and direct leaching.

 

Processing

 

During the second half of 2020, we made the following progress on the existing pre-commercial leach pad operations: (1) improved the reagent island including upgrading the agitator system to allow for more soda ash concentration in solution thereby increasing the application rate; (2) technical staffing additions; and (3) improved leach pad data gathering and reporting protocols. These improvements combined with the new technical leadership resulted in improved control and management of the leach pads during the second half of 2020. Accordingly, we did not experience any metallurgical balancing write-downs of recoverable gold ounces on the leach pads, which was an improvement from the first half of 2020 in which we wrote-off 10,492 ounces of gold.

 

During 2020, a majority of the ore placed on the pre-commercial leach pads was transitional ore, which based on studies and processing results in the second half of 2020, indicate this ore is more amenable to direct leach, as the costs and time associated with oxidizing transitional ore do not yield significantly better recoveries than routing transitional ore as direct leach. We expect a substantial portion of the ore mined over the next twelve months to be run-of-mine oxide ore and transitional ore before entering larger sulfide ore mining phases. Our recent understanding resulted in the decision to route transitional ore as run-of-mine direct leach.

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Production and sales

 

Our 2020 production and sales levels increased over 2019 due to higher operating levels after renting nine haul trucks and a shovel in April 2020. Production and sales in 2020 were negatively impacted by the write-off of 10,492 ounces of gold during the first half of 2020. Average realized gold prices per ounce increased during 2020 and combined with the higher volumes resulted in revenue of $47.0 million as compared to $13.7 million in 2019.

 

Leach pad expansion project

 

During the second quarter of 2020, we commenced a leach pad expansion project on the north side of the Hycroft Mine property to provide us with leach pad space required for future operations. The initial stage of the leach pad project is being constructed in two phases by a contractor, with the first phase consisting of approximately 4.0 million square feet of pad space and infrastructure for ponds, pipes, and electrical controls, and the second phase consisting of approximately 4.6 million square feet. With respect to the first phase, we initially expected construction and commissioning to be completed by the end of 2020, but due to shifts in our focus for 2021, we have pushed back completing construction and commissioning of the leach pad expansion project.

 

During 2020 we spent $29.3 million on the leach pad expansion project, and now expect total phase one leach pad project spending to approximate $41.0 million, which is $5.0 million higher than our previous estimate. The leach pad expansion project represented approximately 87.7% of our total capital spending during the year ended 2020 and is expected to represent the largest percentage of capital spending for the first half of 2021. We expect to complete construction of the leach pad to the appropriate point in which we believe there would be minimal risk of adverse impacts to the leach pad.

 

2019 Hycroft Technical Report

 

M3 Engineering, in conjunction with SRK and the Company, completed the Hycroft Technical Report for a two-stage, heap oxidation and subsequent leaching of sulfide ores. The Hycroft Technical Report projects the economic viability and potential future cash flows for the Hycroft Mine when mining operations expand to levels presented in the Hycroft Technical Report.

 

The Hycroft Technical Report provides the results of the Hycroft Mine heap leach feasibility study that evaluated the possibility of oxidizing and leaching transitional and sulfide ores in a heap leach application. The feasibility analyzes a full-scale operation including construction of new leach pads and expanded mining activities. Key components of the process that currently exist onsite include heap leach pads, a crushing facility consisting of primary, secondary, and tertiary crushing, two Merrill-Crowe plants having a total capacity of 26,000 gallons per minute, and associated support facilities.

 

The Hycroft Technical Report presents a mineral reserve estimate as of June 30, 2019 of 12.0 million ounces of gold and 481.4 million ounces of silver contained in oxide, transitional and sulfide ores, which is projected to be mined over 34 years using typical truck and shovel open pit mining methods. The mine plan presented in the Hycroft Technical Report requires a range of approximately 85 to 100 million tons per year to be mined (both ore and waste) through the mine life. Over the course of the contemplated mine plan, 1.1 billion tons of ore are mined with a strip ratio of 1.17.

 

The Hycroft Technical Report outlines the test work done to demonstrate the viability of the two-stage, heap oxidation and subsequent leaching of sulfide ores. As outlined in the Hycroft Technical Report, a significant portion of the ore is crushed to a P80 of ½” and then mixed with soda ash to induce an alkaline oxidation process. After the ore has been oxidized to the desired extent, we will rinse the ore with fresh water and saturated lime solution and then cyanide leach the ore to extract the gold and silver. This process is the subject of a pending patent application.

 

The crushing system is initially designed to run at nominal capacity of 2.0 million tons per month ramping up to 3.0 million tons per month with the addition of two additional tertiary crushers. Soda ash is added during the crushing circuit to begin the oxidation process. The ore proceeds through three stages of crushing and exits into the fine ore stockpile, which is then hauled to leach pads.

 

The pH and alkalinity of the ore is managed on the leach pad using a soda ash solution that is applied to the material to achieve alkalinity levels for optimal oxidation characteristics. The process solutions are regularly sampled for reagent addition control and the soda ash solution in the heap is replenished on a regular basis to offset evaporation and carbonate consumption. The duration of the pre-oxidation is expected to take between 30 and 120 days, which is determined by the characteristics of the ore and the measured extent of oxidation based upon sulfate production.

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When the pre-oxidation cycle has been completed, we rinse the ore first with fresh water and then with a saturated lime solution prior to the commencement of cyanidation leach. This is necessary to remove sulfate and bicarbonate from the heap and reduce cyanide loss during leaching. The alkalinity of the solution in the heap is monitored to ensure rinse completion prior to the start of cyanidation. The pH is controlled during cyanidation using lime. As the ore has already been oxidized and rinsed, it undergoes a nominal 60-day primary leach cycle.

 

Due to the high silver content of the pregnant solution, gold and silver are recovered by zinc cementation. We have two existing Merrill-Crowe plants that are used to process pregnant solution from the heap leach operation. The older plant has a capacity of 4,500 gallons per minute. The newer plant is considerably larger, with a nameplate capacity of 21,500 gallons per minute.

 

Overall, the Hycroft Technical Report shows 7.8 million ounces of payable gold and 344.1 million ounces of payable silver produced and sold.

 

Results of Operations

 

Revenues

 

Gold revenue

 

The table below summarizes gold sales, ounces sold and average realized prices for the following periods (dollars in thousands, except ounce amounts):

 

   Year Ended December 31, 
   2020   2019 
Gold revenue  $44,279   $12,803 
Gold ounces sold   24,892    8,593 
Average realized price (per ounce)  $1,779   $1,512 

 

During the year ended December 31, 2020, our gold revenue was $44.3 million, compared to $12.8 million for the comparable period of 2019. The significant increase in revenue during the 2020 period was attributable to the mine operating for the entire period, whereas in 2019 revenue was first recorded in the third quarter following the operations restart. We also benefited from favorable gold prices, which increased $267 per ounce, or 18% for the year ended December 31, 2020, compared to the prior year period. While production increased and we benefited from favorable gold prices, gold revenues were adversely affected during the year ended December 31, 2020 by write-downs of recoverable gold ounces on the leach pads during the first half of 2020.

 

Silver revenue

 

The table below summarizes silver sales, ounces sold and average realized prices for the following periods (dollars in thousands, except ounce amounts):

 

   Year Ended December 31, 
   2020   2019 
Silver revenue  $2,765   $906 
Silver ounces sold   136,238    52,036 
Average realized price (per ounce)  $20.30   $17.41 

 

During the year ended December 31, 2020, our silver revenue was $2.8 million compared to $0.9 million for the comparable period of 2019. Similar to gold revenue, the increase in silver revenue during 2020 compared to the 2019 period was primarily attributable to mining operations ongoing for the full year of 2020. We also benefited from favorable silver prices, which increased $2.89 per ounce for the year ended December 31, 2020, compared to the prior year. During 2020, silver revenue was negatively impacted from write-downs of recoverable silver ounces on the leach pads during the first half of 2020.

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Total cost of sales

 

Total cost of sales consists of Production costs, Depreciation and amortization, Mine site period costs, and Write-down of production inventories. The table below summarizes total cost of sales for the following periods (dollars in thousands):

 

   Year Ended December 31, 
   2020   2019 
Production costs  $41,688   $11,041 
Depreciation and amortization   2,894    1,011 
Mine site period costs   47,115    2,174 
Write-down of production inventories   17,924    16,443 
Total cost of sales  $109,621   $30,669 

 

Production costs

 

For the year ended December 31, 2020, we recognized $41.7 million in Production costs, or $1,675 per ounce of gold sold, compared to $11.0 million in Production costs or $1,285 per ounce of gold sold during 2019. The increase in total production costs was due to an increase in gold ounces sold of 16,299 during the year ended December 31, 2020 compared to the same period of 2019 in conjunction with higher cost per ounce produced, which was primarily driven by an increase in contracted labor and equipment costs to meet the operational needs of the mine. Throughout 2020, and as discussed below, our high operating cost structure and low levels of production have resulted in write-downs to the inventory value per ounce of gold that approximate the net realizable value per ounce of gold after considering costs to complete and sell as determined in accordance with our accounting policies. Accordingly, our inventory value per ounce has been partially limited for the impact of recognizing Mine site period costs, which lowers the carrying value of leach pad inventories.

 

Depreciation and amortization

 

Depreciation and amortization was $2.9 million, or $116 per ounce of gold sold for the year ended December 31, 2020, compared to $1.0 million, or $118 per ounce of gold sold for year ended December 31, 2019. The increase in total depreciation and amortization costs was due to an increase in gold ounces sold of 16,299 during the year ended December 31, 2020 compared to the same period of 2019, in which incremental equipment was placed into service during the year, and existing equipment incurred a full year of depreciation, as compared to depreciation in 2019 that was only incurred after the restart of the mine in April of 2019.

 

Mine site period costs

 

During the year ended December 31, 2020, inclusive of depreciation and amortization, we recorded $47.1 million of Mine site period costs for costs that were in excess of net realizable value per ounce of gold less costs to complete. During the year ended December 31, 2019, inclusive of depreciation and amortization, we recorded $2.2 million of Mine site period costs. 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, or other unusual costs and activities.

 

Write-down of production inventories

 

As discussed in Note 2 - Summary of Significant Accounting Policies and Note 4 - Inventories to the Notes to the Financial Statements, based on metallurgical balancing results, during the year ended December 31, 2020, we determined that 10,492 ounces of gold that had been placed on the leach pads were no longer recoverable and wrote-off these ounces. As a result, during 2020, the Company recognized a Write-down of production inventories on the consolidated statements of operations, which included Production costs of $16.7 million, and capitalized depreciation and amortization costs of $1.3 million. During the first half of 2020, we (1) were unable to consistently maintain leach pad conditions required to produce all of the estimated recoverable ounces placed on the leach pads, and (2) experienced instances of solution mismanagement in which pregnant metal-bearing solutions were circulated to areas of leach pads not currently in operation, thus making such ounces unrecoverable. During the second half of 2020, we did not experience any metallurgical balancing write-downs of recoverable gold ounces on the leach pads.

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During the 2019 fourth quarter, based on metallurgical balancing results, the Company determined that 11,680 ounces of gold that had been placed on the leach pads were no longer recoverable and wrote-off these ounces. As a result of the write-off the Company recognized a Write-down of production inventories on the consolidated statements of operations of $16.4 million. Cash production costs written-off were $15.1 million and capitalized depreciation and amortization costs written-off were $1.3 million. The write-off of these ounces was primarily a result of mismanagement of solution flows. The lost gold and silver ounces were leached and captured in solution. However, prior to the solution being processed through the Merrill-Crowe plant, it was inadvertently commingled with barren solution and pumped to leach pads no longer in use, which will prevent it from being recovered in the future.

 

General and administrative

 

General and administrative totaled $21.1 million and $6.1 million during year ended December 31, 2020 and 2019, respectively. The increase of $15.0 million during 2020 was primarily due to: (1) an increase of $5.4 million in bonus compensation, largely related to the completion of the Recapitalization Transaction; (2) a $3.1 million increase in additional compensation related to salary continuation costs for severance and separation agreements to our former executives; (3) $3.4 million of insurance costs primarily related to a directors and officers run-off policy for Seller as a result of the Recapitalization Transaction; and (4) $3.0 million of additional legal and professional service fees associated with general corporate matters and obligations as a public company.

 

Accretion

 

We recorded $0.4 million of Accretion during the year ended December 31, 2020 and 2019, which related to our asset retirement obligation and future reclamation costs. Refer to Note 11 - Asset Retirement Obligation within the Notes to the Consolidated Financial Statements for further detail.

 

Project and development

 

For the year ended December 31, 2019, Project and development was $7.7 million, while no such costs were incurred for the year ended December 31, 2020. In late 2018, the Company began the process of restarting mining operations and restarted active mining at the Hycroft Mine in April 2019. During 2019, project and development costs were incurred related to the restart of the Hycroft Mine, such as maintenance and repair of mobile mining equipment and processing equipment (crusher, and Merrill-Crowe facility), to prepare for use after sitting idle for several years. During 2019, project and development costs also related to the preparation of the feasibility study and metallurgical test work, including costs incurred to prepare the Hycroft Technical Report.

 

Pre-production depreciation and amortization

 

Pre-production depreciation and amortization represents expense recognized prior to the restart of mining operations at the Hycroft Mine and for the year ended December 31, 2019 was $1.1 million. Upon the April 2019 restart of the Hycroft Mine, we began capitalizing to inventory depreciation and amortization for ore on the leach pads. Due to the restart of the Hycroft Mine, no pre-production depreciation and amortization costs were incurred during the second half of 2019 or in 2020.

 

Care and maintenance

 

Care and maintenance totaled $3.5 million for the year ended 2019 was incurred from January to March of 2019 prior to the Hycroft Mine’s April 2019 restart, after which we no longer recorded such costs.

 

Interest expense, net

 

As discussed and detailed in Note 9 - Debt, Net to the Notes to the Financial Statements, Interest expense, net of capitalized interest totaled $43.5 million and $64.8 million during the years ended December 31, 2020 and 2019, respectively. Interest expense decreased by $21.3 million during the year ended December 31, 2020 from the prior year. The year-over-year decrease was a result of completing the Recapitalization Transaction on May 29, 2020, which caused the exchange or conversion of the majority of Seller's $627.8 million debt outstanding to equity, thus resulting in post-Recapitalization Transaction indebtedness totaling $159.8 million for the Sprott Credit Agreement and Subordinated Notes. For the year ended December 31, 2020, our average debt balance was $350.9 million compared to $492.3 million for the prior year period.

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Interest income

 

Interest income totaled approximately $0.2 million and $0.8 million during 2020 and 2019, respectively. Interest income was lower in 2020 primarily due to decreases in interest rate yields from the comparable periods of 2019.

 

Reorganization items

 

On March 10, 2015, the predecessor to Seller filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) and incurred legal and professional fees of $0.9 million for the year ended December 31, 2019 related to such matters. No such costs were incurred during the year ended December 31, 2020.

 

Income taxes

 

There was no income tax benefit or expense, net, recognized during the year ended December 31, 2020 or 2019. Seller’s gain from the Recapitalization Transaction was fully offset by the use of Seller’s deferred tax assets. 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 $132.7 million for the year ended December 31, 2020, compared to a net loss of $98.9 million for the year ended December 31, 2019.

 

Liquidity and Capital Resources

 

General

 

Prior to the closing of the Recapitalization Transaction, our primary source of liquidity was proceeds received from the issuance of related-party debt instruments, which were used to finance the 2019 restart of mining operations at the Hycroft Mine and all working capital and capital expenditures thereafter. During the second half of 2019, we began to produce and sell gold and silver at the Hycroft Mine that provided a source of revenue and related cash flow. On May 29, 2020, we completed the Recapitalization Transaction that provided cash available for use of $68.9 million. As part of the Recapitalization Transaction, Seller’s indebtedness existing prior to the Recapitalization Transaction was either repaid, exchanged for indebtedness of the Company, exchanged for shares of our common stock or converted into shares of Seller common stock, and our post-Recapitalization Transaction indebtedness included amounts drawn under the Sprott Credit Agreement and the assumption of the newly issued Subordinated Notes. Additionally, on October 6, 2020, the Company issued 9,583,334 units in an underwritten public offering at an offering price to of $9.00 per unit (the "Public Offering"), with each unit consisting of one share of our common stock and one warrant to purchase one share of our common stock at an exercise price of $10.50 per share, for total proceeds net of discount and equity issuance costs of $83.1 million.

 

Our future liquidity and capital resources management strategy entails a disciplined approach to monitor the timing and amount of any operational tonnage ramp-up of the Hycroft Mine while attempting to remain in a position that allows us to respond to changes in our business environment, such as a decrease in metal prices or lower than forecasted future cash flows, and changes in other factors beyond our control.

 

Our primary cash requirements during 2020 related to the leach pad expansion project, of which $29.3 million of the revised estimated total cost of $41.0 million has been spent, and $110.5 million of cash was used in the operations of the Hycroft Mine, which was higher than planned due to leach pad inventory write downs and higher production costs, the mechanical limitations for mixing soda ash, and corporate and transactional expenses associated with becoming a public entity and completing the Recapitalization Transaction. We have yet to generate positive cash flow from operations and we do not expect to do so for the full year 2021.

 

As discussed in the Going concern subsection of the Recent Developments section of this MD&A, using estimates of future production costs, and operational metrics, at current metal spot prices, we do not expect the Hycroft Mine to generate positive net operating monthly cash flows during 2021. However, we have undertaken efforts aimed at managing our liquidity and preserving our capital resources by, among other things: (1) monitoring metal prices and the impacts (near-term and future) they have on our business; (2) developing plans and forecasts that we expect to be reliable and achievable considering historical operational and processing challenges encountered to date; (3) controlling our working capital and managing discretionary spending; and (4) planning the timing and amounts of capital expenditures at the Hycroft Mine and deferring such items that are not expected to benefit our near term operating plans.

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Cash and liquidity

 

We have placed substantially all of our cash in operating accounts with a well-capitalized financial institution, thereby ensuring balances remain readily available. Due to the nature of our operations and the composition of our current assets, our Cash, Accounts receivable, and Metal inventories represent substantially all of our liquid assets on hand. Additionally, we are provided with additional liquidity as ounces are recovered from the Ore on leach pads, current, processed into finished goods, and sold at prevailing spot prices to our customers.

 

The following table summarizes our projected sources of future liquidity, as recorded within our financial statements (dollars in thousands):

 

   December 31, 2020   December 31, 2019 
Cash  $56,363   $6,220 
Accounts receivable   426    97 
Metal inventories(1)   6,418    1,894 
Ore on leach pads, current(2)   38,041    22,062 
Total projected sources of future liquidity  $101,248   $30,273 
           
(1)Metal inventories contained approximately 3,463 recoverable ounces of gold that are expected to be sold within the next 12 months. Assuming a gold selling price of $1,888 per ounce (the December 31, 2020 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 $6.5 million of revenue. See Note 4 - Inventories to the Notes to the Financial Statements for additional information.

 

(2)Ore on leach pads, current contained approximately 21,869 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 $1,888 per ounce (the December 31, 2020 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 $41.3 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 $7.9 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.

 

Twelve months ended December 31, 2020 compared to the twelve months ended December 31, 2019

 

The following table summarizes our sources and uses of cash for the following periods (dollars in thousands):

 

   Year Ended December 31, 
   2020   2019 
Net loss  $(132,670)  $(98,895)
Net non-cash adjustments   73,087    76,099 
Net change in operating assets and liabilities   (50,925)   (36,975)
Net cash used in operating activities   (110,508)   (59,771)
Net cash used in investing activities   (31,124)   (12,296)
Net cash provided by financing activities   188,705    68,173 
Net increase (decrease) in cash   47,073    (3,894)
Cash and restricted cash, beginning of period   48,967    52,861 
Cash and restricted cash, end of period  $96,040   $48,967 

 

Cash used in operating activities

 

For the year ended December 31, 2020, we used $110.5 million of cash in operating activities primarily attributable to a net loss of $132.7 million, the cash impact of which was equal to $59.6 million, and $50.9 million used for working capital, largely due to the $43.8 million used to increase production related inventories. The largest non-cash items during the year ended December 31, 2020 included the non-cash portion of interest expense of $38.8 million, and write-downs of production inventories of $17.9 million, which is discussed in Note 4 - Inventories to the Notes to the Financial Statements.

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For the year ended December 31, 2019, we used $59.8 million of cash for operating activities primarily attributable to a net loss of $98.9 million, a reduction in the asset retirement obligations of $1.9 million, the cash impact of which was equal to $22.8 million, and $37.0 million used for working capital largely due to increases in the following operating assets; production-related inventories ($38.6 million), materials and supplies inventories ($1.0 million) and prepaids and other, current and non-current ($0.5 million). The cash outflows caused by the items described above were partially offset by certain non-cash expenses such as $54.8 million non-cash portion of interest expense, $18.6 million write-down of production inventories, $2.1 million depreciation and amortization, $1.1 million stock-based compensation and $0.4 million of accretion. There were also increases in accounts payable ($3.4 million) that partially offset the cash outflows.

 

Cash used in investing activities

 

For the year ended December 31, 2020 and 2019, we used $31.1 million and $12.3 million, respectively, in investing activities. For 2020, expenditures primarily related to construction of a large leach pad expansion project and totaled $29.3 million. For 2019, the vast majority of the costs related to (1) construction of new leach pad space for the restart of $6.2 million, (2) the purchase and installation of four new cone crushers for $4.0 million and (3) replacement and significant repairs of existing processing equipment for $0.8 million.

 

Cash provided by financing activities

 

For the year ended December 31, 2020, Seller issued $44.8 million in aggregate principal amount of 1.25 Lien Notes (net of issuance costs) which were used to fund the operations and capital needs through May 29, 2020. The remainder of the financing activities primarily related to the Public Offering of units, which was comprised of one share of our common stock and one warrant to purchase one share of our common stock. The Public Offering was completed on October 6, 2020, and resulted in proceeds net of discount and equity issuance costs of approximately $83.1 million. Additional financing activities primarily related to the Recapitalization Transaction, which provided $210.0 million in net cash flows and was used to repay Seller’s $125.5 million First Lien Agreement, a $6.9 million promissory note, and transaction costs and other issuance costs. See Note 3 - Recapitalization Transaction to the Notes to the Financial Statements for further discussion.

 

The amount of cash provided by financing activities was $68.2 million for the year ended December 31, 2019, which was due to $71.8 million in aggregate principal amount of 1.25 Lien Notes (net of issuance costs) issued to fund the restart of mining operations. Seller spent $2.9 million for legal and consulting fees related to the Recapitalization Transaction and $0.8 million to extend the maturity of the First Lien Credit Agreement.

 

Future capital and cash requirements

 

The following table provides our gross contractual cash obligations as of December 31, 2020, 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 
   Total   Less than
1 Year
   1 - 3
Years
   3 - 5
Years
   More than
5 Years
 
Operating activities:                         
Net smelter royalty(1)  $345,558   $1,316   $5,270   $16,042   $322,930 
Remediation and reclamation expenditures(2)   62,032                62,032 
Interest payments(3)   15,707    3,728    9,676    2,303     
Operating lease requirements(4)   4,957    4,947    10         
Crofoot royalty(5)   4,870    240    480    480    3,670 
Consignment inventory(6)   2,188    1,355    833         
Financing activities:                         
Repayments of debt principal(7)   212,974    3,756    37,558    171,660     
Additional interest payments(8)   9,348    1,650    4,399    3,299     
Total  $657,634   $16,992   $58,226   $193,784   $388,632 

 

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(1)Under the Sprott Royalty Agreement, we are required to pay a perpetual royalty equal to 1.5% of the Net Smelter Returns from our Hycroft Mine, payable monthly. Amounts presented above incorporate estimates of our current life-of-mine plan, and are based on consensus pricing for gold and silver. See Note 10 - Royalty Obligation to the Notes to the Financial Statements for additional information.

 

(2)Mining operations are subject to extensive environmental regulations in the jurisdictions in which they are conducted and we are required, upon cessation of operations, to reclaim and remediate the lands that our operations have disturbed. The estimated undiscounted cash outflows of these remediation and reclamation obligations are reflected here. In the above presentation, no offset has been applied for the $59.9 million of our collateralized reclamation bonds.

 

(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. See Note 9 - Debt, Net to the Notes to the Financial Statements for additional information.

 

(4)As noted below in the Off-balance sheet arrangements section of this MD&A, we have operating leases for mine equipment and office space.

 

(5)We are required to pay a 4% net profits royalty, including advance royalty payments of $120,000 in any year where mining occurs on the Crofoot claims and an additional $120,000 if tons mined from the Crofoot claim blocks exceed 5.0 million tons. See Note 21 - Commitments and Contingencies to the Notes to the Financial Statements for additional information. 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. See Note 9 - Debt, Net to the Notes to the Financial Statements for additional information.

 

(8)Additional interest payments consist of repayments of additional interest under the Sprott Credit Agreement, commencing February 28, 2021 and ending on the maturity date. See Note 9 - Debt, Net to the Notes to the Financial Statements for additional information.

 

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 (as defined herein) 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 December 31, 2020, the Company was in compliance with all covenants.

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Off-balance sheet arrangements

 

As of December 31, 2020, our off-balance sheet arrangements consisted of operating lease agreements (see Note 21 - Commitments and Contingencies to our Notes to the Financial Statements), a net profit royalty arrangement (see Note 21 - Commitments and Contingencies to the Notes to the Financial Statements), and a future purchase obligation for consignment inventory (see Note 5 - Prepaids and Other to the Notes to the Financial Statements).

 

Accounting developments

 

For a discussion of any recently issued and/or recently adopted accounting pronouncements, see Note 2 - Summary of Significant Accounting Policies to the Notes to the Financial Statements.

 

Critical Accounting Estimates

 

MD&A is based on our Financial Statements, that have been prepared in accordance with GAAP. The preparation of these statements requires us to make assumptions and estimates that affect the reported amounts. We base our assumptions and estimates on historical experience and various other sources that we believe to be reasonable at the time our estimates are made. Actual results may differ from amounts estimated in these statements, and such difference could be material. As such, future events and their effects cannot be determined with certainty.

 

Although other estimates are used in preparing our financial statements, we believe that the following accounting estimates are the most critical to understanding and evaluating our reported financial results. For information on all of our significant accounting policies, see Note 2 - Summary of Significant Accounting Policies to the Notes to the Financial Statements.

 

Ore on leach pads

 

Estimate Required:

 

The recovery of gold and silver at the Hycroft Mine is accomplished through a proprietary two-stage heap oxidation and leach process, the nature of which limits our ability to precisely determine the recoverable gold ounces in ore on leach pads. We estimate the quantity of recoverable gold ounces in ore on leach pads using surveyed volumes of material, ore grades determined through sampling and assaying of blastholes, and estimated recovery rates based on ore type and domain and level of oxidation actually achieved or expected to be achieved prior to leaching. The quantity of recoverable gold ounces and recovery rates varies based on ore mineralogy, steps in the leach process, ore grade, ore particle sizes and the percentage of cyanide soluble gold. The estimated recoverable gold ounces placed on the leach pads are periodically reconciled by comparing the related ore to the actual gold ounces recovered (metallurgical balancing). The ultimate recoverable gold ounces or life-of-mine recovery rate is unknown until mining operations cease. A change in the recovery rate or the quantity of recoverable gold ounces in our stockpiles or ore on leach pads could materially impact our financial statements.

 

Impact of Change in Estimate:

 

Changes in recovery rate estimates or estimated recoverable gold ounces that do not result in write-downs are accounted for on a prospective basis. If a write-down is required, ore on leach pads would be adjusted to market values before prospectively accounting for the remaining costs and revised estimated recoverable gold ounces. During the year ended December 31, 2020, based on our metallurgical balancing results, we determined that 10,492 ounces of gold that had been placed on the leach pads were no longer recoverable and wrote-off these ounces, which resulted in write-downs of production costs of $16.7 million and capitalized depreciation and amortization of $1.3 million. During the second half of 2020, we determined that no metallurgical balancing adjustment was needed and as such did not recognize write-downs of production inventories. The write-off of these ounces in the first and second quarters of 2020 was primarily due to the mismanagement of the oxidation process including inadequately adjusting variables in the oxidation process for changes in the ore type based on domain. As a result, we determined that we would recover fewer ounces than planned from those affected sections of the leach pads.

 

At December 31, 2020, if our estimate of recoverable gold ounces on the leach pad decreased by 2.5% or 5.0%, recoverable gold ounces in ore on leach pads would decrease by approximately 651 ounces or 1,302 ounces, respectively, which would require a write-down of $1.1 million or $2.3 million, respectively, of our ore on leach pad costs before prospectively accounting for the remaining costs. A 2.5% or 5.0% increase to our estimate of recoverable gold ounces in ore on leach pads would increase the estimated recoverable ounces by the aforementioned amounts and reduce our weighted average cost per ounce by approximately $42 per ounce or $83 per ounce, respectively, which would be accounted for on a prospective basis.

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Proven and probable mineral reserves

 

Estimate Required:

 

Proven and probable mineral reserves are the part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. Our mineral reserve estimates are calculated in accordance with subpart 1300 of Regulation S-K under the Modernization of Property Disclosures for Mining Registrants of the Exchange Act. Estimated recoverable gold ounces in our proven and probable mineral reserves at the Hycroft Mine are used in units-of-production amortization calculations and are the basis for future cash flow estimates utilized in impairment calculations. When determining proven and probable mineral reserves, we must make assumptions and estimates of future commodity prices and demand, the mining methods we use and intend to use in the future, and the related costs incurred to develop, mine, and process our mineral reserves. Our estimates of recoverable gold ounces in proven and probable mineral reserves are prepared by and are the responsibility of our employees. Any change in estimate or assumption used to determine our proven and probable mineral reserves could change our estimated recoverable gold ounces in such mineral reserves, which may have a material impact on our financial statements.

 

Impact of Change in Estimate:

 

Our proven and probable mineral reserves are periodically updated, usually on an annual basis. Estimated recoverable gold ounces used in our units-of-production amortization and impairment calculations are based on proven and probable mineral reserves that were determined as of December 31, 2020 using gold and silver selling prices of $1,200 per ounce and $16.50 per ounce, respectively. Resulting changes in estimates of recoverable gold ounces are used in our units-of-production calculations and impairment calculations on a prospective basis.

 

Impairment of long-lived assets

 

Estimate Required:

 

Our long-lived assets consist of plant, equipment, and mine development. We review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Events that may trigger a test for recoverability include, but are not limited to, significant adverse changes to projected revenues, costs, or future expansion plans or changes to federal and state regulations (with which we must comply) that may adversely impact our current or future operations. An impairment is determined to exist if the total projected future cash flows on an undiscounted basis are less than the carrying amount of a long-lived asset group. An impairment loss is measured and recorded based on the excess carrying value of the impaired long-lived asset group over fair value.

 

To determine fair value, we use a discounted cash flow model based on quantities of estimated recoverable minerals and incorporate projections and probabilities involving metal prices (considering current and historical prices, price trends, and related factors), production levels, operating and production costs, and the timing and capital costs of expansion and sustaining projects, all of which are based on life-of-mine plans. The term “recoverable minerals” refers to the estimated amount of gold and silver that will be sold after taking into account losses during ore processing and treatment. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. Our estimates of future cash flows are based on numerous assumptions that are consistent or reasonable in relation to internal budgets and projections, and actual future cash flows may be significantly different than the estimates, as actual future quantities of recoverable gold and silver, metal prices, operating and production costs, and the timing and capital costs of expansion and sustaining projects are each subject to significant risks and uncertainties.

 

Impact of Change in Estimate:

 

The estimates and assumptions used in our impairment test as of December 31, 2020 were based on the Hycroft Technical Report. The Hycroft Technical Report was prepared using prices of $1,200 per ounce for gold and $16.50 per ounce for silver, which when using sales prices of $1,300 per ounce for gold and $17.33 per ounce for silver, resulted in an after tax net present value of $2.1 billion. We compared the estimated after tax net present value of $2.1 billion to the carrying value of our plant, equipment, and mine development of $60.2 million, and given the large surplus between the estimated after tax net present value of the Hycroft Mine and the carrying value of our plant, equipment, and mine development a change in the estimates used in the Hycroft Technical Report would be unlikely to result in an impairment as of December 31, 2020.

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Asset retirement obligation ("ARO")

 

Estimate Required:

 

We will be required to perform reclamation activity at the Hycroft Mine in the future. As a result of this requirement, an ARO has been recorded on our consolidated balance sheets that is based on our expectation of the costs that will be incurred years in the future. Any underestimate or unanticipated reclamation costs or any changes in governmental reclamation requirements could require us to record or incur additional reclamation costs. ARO liabilities are accrued when they become known, are probable and can be reasonably estimated. Whenever a previously unrecognized ARO liability becomes known, or a previously estimated reclamation cost is increased, the amount of that liability and additional cost will be recorded at that time and could materially reduce our consolidated net income attributable to stockholders.

 

Impact of Change in Estimate:

 

Based on our current proposed 34-year mine plan set forth in the Hycroft Technical Report, no significant reclamation activity will be made until 2047. However, if the significant reclamation activity were to begin in 2042 or 2045 our reclamation liability would increase by approximately $1.8 million and approximately $0.7 million, respectively.

 

MANAGEMENT

 

Management and Board of Directors

 

The below is a list of our executive officers and directors and their respective ages and a brief account of each of their business experience:

 

Name   Age   Position(s)
Diane R. Garrett, Ph.D.   61   President, Chief Executive Officer and Director
Stanton Rideout   61   Executive Vice President and Chief Financial Officer
John W. Henris   57   Executive Vice President and Chief Operating Officer
Jeffrey Stieber   37   Senior Vice President, Finance and Treasurer
David Kirsch   41   Chairman of the Board
Eugene Davis   66   Director
John Ellis   85   Director
Michael Harrison   49   Director
Thomas Weng   52   Director
Marni Wieshofer   58   Director

 

Upon the consummation of the Recapitalization Transaction, the size of the our board was increased from five directors to seven directors, and each of the above directors was elected by our stockholders at the special meeting of our stockholders held on May 29, 2020 to approve the Recapitalization Transaction. Prior to being elected to our Board on May 29, 2020, Messrs. Ellis, Kirsch and Harrison served on Seller’s board of directors for the terms set forth in their biography below and Mr. Kirsch has served on our Board since February of 2018. We have determined that each of Messrs. Davis, Ellis, Harrison, Kirsch, and Weng and Ms. Wieshofer are “independent directors” under Nasdaq listing standards. The Board reviews independence on an annual basis and has also determined that each current member of the Company’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee is independent as defined under the applicable Nasdaq listing standards and SEC rules. The Board further determined that each of Ms. Wieshofer and Mr. Davis qualifies as an audit committee financial expert in accordance with applicable rules and guidance. In making these determinations, the Company’s Board found that none of these directors had a material or other disqualifying relationship with the Company.

 

Randy Buffington resigned from his roles of Chairman of the Board, President and Chief Executive Officer effective as of July 1, 2020 and our Board was decreased to six directors. Effective as of September 8, 2020, the Board authorized the increase in the size of our Board from six to seven members and appointed Diane R. Garrett, Ph.D. to the Board to serve as a director contemporaneous with her appointment as President and Chief Executive Officer.

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Diane R. Garrett, Ph.D. began serving as our President and Chief Executive Officer and a director on September 8, 2020. From June 2016 until her appointment with the Company, Dr. Garrett was the President and Chief Executive Officer of Nickel Creek Platinum Corp. (“NCP”), a mining exploration and development company listed on the Toronto Stock Exchange and the OTC-QB Market. She has more than 20 years of senior management and financial expertise in the field of natural resources. Prior to joining NCP, she held the position of President and Chief Executive Officer and a director of Romarco Minerals Inc. (“Romarco”) from November 2002 until October 2015, taking the multi-million-ounce Haile Gold Mine project from discovery to construction. Romarco was acquired by OceanaGold in 2015, at which time Dr. Garrett became a director and consultant to OceanaGold before joining NCP in June 2016. Prior to that, she held numerous senior positions in public mining companies including VP of Corporate Development at Dayton Mining Corporation and VP of Corporate Development at Beartooth Platinum Corporation. Early in her career, Dr. Garrett was the Senior Mining Analyst and Portfolio Manager in the precious metals sector with US Global Investors. Dr. Garrett received her Ph.D. in Engineering and her Masters in Mineral Economics from the University of Texas at Austin. The Board has determined that Dr. Garrett should serve as a director due to her technical expertise and background as a senior executive in mining companies as well as her significant experience with permitting, developing and constructing gold mines and moving a precious-metals mining company from the development stage to the successful producer stage, Dr. Garrett is also a director of Novagold Resources Inc., a mineral exploration company operating in the gold mining industry and listed on the NYSE American and Toronto Stock Exchange.

 

Stanton Rideout has served as our Executive Vice President and Chief Financial Officer since October 2020. He has more than 30 years of senior executive experience in the mining and manufacturing industries, including Romarco Minerals and Phelps Dodge Corporation (“Phelps Dodge”). Since April 2018, Mr. Rideout has been a consulting Chief Executive Officer of Carolina Gold Resources Inc. (“CGR”), a Canadian precious and base metals project-generator company. He joined the Board of CGR in June 2017 and became Chairman of the Board in July 2018. Prior to that, Mr. Rideout served as the Senior Vice President and Chief Financial Officer of Romarco from November 2010 through December 2015. Since Romarco was acquired by OceanaGold in September 2015, he provided debt and equity consulting services for a number of mining companies. From January 2008 until May 2008, Mr. Rideout was Executive Vice President and Chief Financial Officer for Swift Transportation Corporation (“Swift”), a large North American truckload carrier. Prior to Swift, Mr. Rideout held various senior finance and accounting positions over 25 years with Phelps Dodge, a publicly traded mining and manufacturing company. Those roles included Vice President and Treasurer, Vice President and Controller, and Investor Relations Officer and Chief Financial Officer of Phelps Dodge International Corporation. Mr. Rideout earned his Master’s in Business Administration from the University of Evansville and his Bachelor of Science, Business/Finance, from Western Kentucky University. Mr. Rideout is a Certified Public Accountant.

 

John (Jack) W. Henris has served as our Executive Vice President and Chief Operating Officer since January 2021. Mr. Henris has over 35 years of experience in the gold and silver mining industry. Prior to joining the Company, Mr. Henris served since December 2019 as a Senior Consultant at Stantec Consulting Services where he managed the technical and professional services (including mine planning, engineering support, cost estimating, scheduling and cost control services) required for the development of surface and underground mining studies. Prior to that, from April 2019 to September 2019, he was General Manager of McEwen Mining, Inc., a Canadian gold and silver mining company (NYSE: MUX), where he was responsible for all operations at the Gold Bar Mine. Prior to McEwen Mining, Mr. Henris was the Vice President of Mining - Geotechnical at Goldcorp, Inc. (NYSE: GG; TSX: G) from December 2017 to April 2019. From April 2013 until September 2017, Mr. Henris was the General Manager at two operations for Newmont Mining Company (NYSE: NEM; TSX: NGT). At Newmont, he was responsible for surface and underground mines, processing facilities, including roasting, flotation and oxide milling and heap leach pads. Mr. Henris has a Bachelor of Science in Geological Engineering from the South Dakota School of Mines and Technology.

 

Jeffrey Stieber has served as our Senior Vice President, Finance and Treasurer since October 2020. Prior to that, he served as our Vice President and interim Chief Financial Officer from July 2020 to October 2020. Mr. Stieber joined the Company as its Vice President, Treasurer upon the consummation of the Recapitalization Transaction and previously was appointed to that position by Seller in August 2018, having previously served in senior finance and accounting roles with that company from 2010 to 2015. From 2015 to 2018 Mr. Stieber held senior and executive positions at Tahoe Resources and Klondex Mines, until its acquisition by Hecla. Mr. Stieber has more than 15 years of finance and accounting experience mostly within the mining industry, is a CPA, and graduated from the University of Nevada.

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David Kirsch has been a member of our Board since February 2018 and has served as the Chairman of our Board since July 1, 2020. He also serves as Chairman of the Compensation Committee and as a member of the Nominating and Governance Committee. Mr. Kirsch also served as a member of Seller’s board of directors since October 2015, and served as the Chair of the Audit Committee and as a member of the Compensation and Nominating and Governance committees for Seller’s board of directors. Mr. Kirsch is a Managing Director and Senior Analyst at Mudrick Capital, where he is responsible for analyzing distressed credit and equity opportunities across a diverse range of industries. Prior to joining Mudrick, from 2008 to 2010 Mr. Kirsch was a Senior Analyst and Managing Director at Miura Global Management, a large global long-short equity hedge fund, where he was responsible for coverage of the financial and consumer industries across the Americas, Europe and Asia. Mr. Kirsch gained extensive restructuring experience as a Director at Alvarez & Marsal from 2003 to 2008. At Alvarez & Marsal, he held primary or lead management roles on an interim basis for distressed companies and advised creditors on balance sheet solutions to maximize the value of their investments. Mr. Kirsch began his Wall Street career as an Analyst in the Healthcare Industry Group in the Investment Banking Division of Banc of America Securities. He is currently serving on the board of directors of NJOY Holdings, a privately-held producer of e-cigs and vaping products to help adult smokers make the switch from tobacco products, Proenza Schouler, Targus Holdings and Nelson Education, where he is the Chairman of the Board. Mr. Kirsch received his B.S. magna cum laude in Economics from the Wharton School at the University of Pennsylvania. Mr. Kirsch’s qualifications to serve on our Board include his extensive leadership and board experience, his experience as Managing Director and Senior Analyst of Mudrick, his current board experience, including as Chairman of the Board of Nelson Education, and his network of contacts in the distressed field.

 

Eugene Davis has been a member of our Board since the May 29, 2020 Recapitalization Transaction and is Chairman of the Nominating and Governance Committee and a member of the Audit Committee. Mr. Davis currently serves as the Chairman and Chief Executive Officer of PIRINATE Consulting Group, LLC (“PIRINATE”), a privately held consulting firm specializing in turnaround management, merger and acquisition consulting, hostile and friendly takeovers, proxy contests and strategic planning advisory services for domestic and international public and private business entities. Since forming PIRINATE in 1997, Mr. Davis has advised, managed, sold, liquidated and served as a chief executive officer, chief restructuring officer, director, chairman or committee chairman of a number of businesses operating in diverse sectors. He was the President, Vice Chairman and a director of Emerson Radio Corporation, a consumer electronics company, from 1990 to 1997 and was the Chief Executive Officer and Vice Chairman of Sport Supply Group, Inc., a direct-mail marketer of sports equipment, from 1996 to 1997. Mr. Davis began his career in 1980 as an attorney and international negotiator with Exxon Corporation and Standard Oil Company (Indiana) and was in private practice from 1984 to 1998. Since December 2020, Mr. Davis has been the Chairman of the Board, member of the Compensation Committee and Chair of the Nominating Committee of FTS International, Inc. (NYSE American: FTSI). During the past five years, Mr. Davis has been a director of the following public or formerly public companies: Montage Resources Corp., Seadrill Limited, VICI Properties Inc., Verso Corporation, ALST Casino Holdco, LLC, Atlas Air Worldwide Holdings, Inc., Atlas Iron Limited, The Cash Store Financial Services, Inc., Dex One Corp., Genco Shipping & Trading Limited, Global Power Equipment Group, Inc., Goodrich Petroleum Corp., Great Elm Capital Corp., GSI Group, Inc., Hercules Offshore, Inc., HRG Group, Inc., Knology, Inc., SeraCare Life Sciences, Inc., Spansion, Inc., Spectrum Brands Holdings, Inc., Titan Energy LLC, Trump Entertainment Resorts, Inc., U.S. Concrete, Inc. and WMIH Corp. In addition, Mr. Davis is and has been a director of several private companies in various industries. Mr. Davis is well-qualified to serve as a member of our Board because of his substantial knowledge about strategic planning, mergers and acquisitions, finance, accounting, capital structure and board practices and his extensive experience serving as a director of public and private companies in various industries. Mr. Davis controls a limited liability company which is the general partner of Reata Properties, LP, a private real estate company. Reata Properties, LP filed a Chapter 7 bankruptcy petition in September 2020. Certain of its creditors have filed litigation against Reata Properties, LP in the bankruptcy court.

 

John Ellis has been a member of our Board since the May 29, 2020 Recapitalization Transaction and is Chairman of the Safety, Sustainability & Technical Committee and a member of the Compensation Committee. Mr. Ellis also served as a member of Seller’s board of directors since December 2017 and served as Chair of the Technical Committee of Seller’s board of directors. Mr. Ellis is a seasoned mining professional with a more than 50-year history of large-scale mine development and operations globally and has provided consulting services to multiple mining companies for the past 18 years. Mr. Ellis began his career in operations with Kennecott Copper, where he progressed from operating roles to management roles before moving on to new opportunities. He has most recently held various senior management roles for CVRD-Inco, including Managing Director of Voisey Bay Nickel and VP Operations for PT Indonesia. Prior to that, he was Chairman and CEO of Anglo Gold North America, Independence Mining Company and Hudson Bay Mining and Smelting Company. He has also provided technical advice in a consulting capacity to major global producers such as CVRD-Inco, BHP (Australia), Queenstake Resources, AngloGold Ashanti and Anglo American. Mr. Ellis currently serves as a member of the board of directors of Jaguar Mining Inc. (TSX: JAG), a gold mining company. Mr. Ellis also served as a member of the board of directors of International Tower Hill Mines Ltd., a mineral exploration company (NYSE American: THM) from February 2014 to May 2019 and of Sunshine Silver Mines, a privately held silver mining company from September 2011 to November 2018 and of Jaguar Mines from June 2016 to present. Mr. Ellis is a graduate of the Haileybury School of Mines and holds a B.Sc. from Montana Tech University. Mr. Ellis brings extensive experience and knowledge of historic and current mining operations coupled with his leadership experience in the mining industry to the Board.

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Michael Harrison has been a member of our Board since the May 29, 2020 Recapitalization Transaction and is a member of the Safety, Sustainability & Technical Committee. Mr. Harrison also served as a member of Seller’s board of directors since December 2017 and was a member of the Audit and Technical Committees. Since January 2, 2020, Mr. Harrison has served as Managing Partner, Sprott Resource Streaming and Royalty and Managing Director of Sprott, Inc. Since January 2, 2020, Mr. Harrison has also served as the CEO of Sprott Resource Streaming and Royalty Corp. From May 7, 2019 to June 23, 2020, Mr. Harrison served as the Interim President and Chief Executive Officer of Sprott Resource Holdings Inc. (“SRHI”) and prior to such date served as a Managing Director in the mining and metals group of SRHI since February 2017. Prior to joining SRHI, he held the position of President and CEO of Adriana Resources Inc. from October 2015 to February 2017, and Vice President, Corporate Development for Coeur Mining Inc. from February 2011 to August 2015. Mr. Harrison previously served on the Board of Directors of Corsa Coal Corp. (TSXV: CSO) from March 2011 to March 2017 and on the board of directors of Macusani Yellowcake (TSXV: PLU) from May 2011 to January 2013. He also previously worked for Cormark Securities Inc. and National Bank Financial in the mining investment banking groups raising funds and providing mergers and acquisition advice to listed and private mining companies, including the creation of Seller’s predecessor company. Previously, he worked internationally for BHP Billiton Exploration Division as a Project Geophysicist. Mr. Harrison holds a B.Sc.E (Honours) in Geophysics from Queen’s University, and an MBA (with Distinction) from the University of Western Ontario. Mr. Harrison brings over 25 years of executive, financial and technical knowledge in the mining industry to our Board and adds a valuable perspective.

 

Thomas Weng has been a member of our Board since the May 29, 2020 Recapitalization Transaction and is a member of the Audit Committee and Nominating and Governance Committee. Mr. Weng has more than 25 years of experience in the financial services sector and is a Co-Founding Partner with Alta Capital Partners, a provider of financial advisory services (since February 2011). From February 2007 to January 2011, Mr. Weng was a Managing Director at Deutsche Bank and Head of Equity Capital Markets for Metals and Mining throughout the Americas and across all industry segments for Latin America. Prior to 2007, he held various senior positions at Pacific Partners, an alternative investment firm, and Morgan Stanley and Bear Stearns. Mr. Weng currently sits on the board of International Tower Hill Mines and Jaguar Mining Inc. Mr. Weng graduated from Boston University with a Bachelor of Arts in Economics. Mr. Weng is well-qualified to serve as a member of our Board because of his extensive knowledge of strategic planning, mergers and acquisitions, finance, and mining.

 

Marni Wieshofer has been a member of our Board since the May 29, 2020 Recapitalization Transaction and is Chairwoman of the Audit Committee and a member of the Compensation Committee. Ms. Wieshofer has served as Head of Media and Managing Director in Houlihan Lokey’s TMT Corporate Finance Group, based out of Los Angeles, providing mergers and acquisitions, capital markets, financial advisory and financial restructuring services including the Weinstein Company and Relativity Media bankruptcies and subsequent sales. Before joining Houlihan Lokey, Ms. Wieshofer was Partner and Managing Director at MESA, a boutique advisory investment bank, where she spearheaded investment banking, strategy, and valuation engagements for companies throughout the media space. Her background also includes Chief Financial Officer and EVP of Corporate Development at Lionsgate Entertainment where she oversaw the company’s mergers, acquisitions, and other strategic financial initiatives including the acquisitions and integration of Trimark Pictures, Artisan Entertainment and Redbus Films Distribution U.K. to name a few, as well as the sale of Lionsgate Studios and the Canadian distribution business. Ms. Wieshofer’s experience also includes prominent roles at Media Rights Capital, Alliance Atlantis Communications and Coopers & Lybrand Chartered Accountants. Ms. Wieshofer is currently Lead Director at Thunderbird Entertainment Group Inc. (TSXV: TBRD, OTC: THBRF), a member of the Board of Directors of Organigram Holdings Inc. (NASDAQ: OGI), a member of the Board of Directors of Film2Future, a member of the Dean’s Advisory Committee at the Rotman School of Management, Chair of the Women’s Volleyball Be Extraordinary Campaign at Western University (University of Toronto); and is a former Director and Chair of the Audit Committee of Takara Resources Inc. Ms. Wieshofer holds a BA from Western University, an MBA from the Rotman School of Management, is a Canadian Chartered Accountant and obtained the ICD.D designation in 2018. Ms. Wieshofer is well-qualified to serve as a member of our Board due to her expertise in mergers and acquisitions, capital markets, financial advisory and financial restructuring services across a range of industries.

 

Board of Directors

 

In accordance with our charter, as amended at the special meeting of stockholders on May 29, 2020, members of our Board serve one-year terms, or until their respective successors are duly elected and qualified, or until their earlier resignation, removal or death.

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Committees of the Board of Directors

 

We have four standing committees. The Audit Committee, the Compensation Committee and the Nominating and Governance Committee are each composed solely of independent directors. In addition, we established a Safety, Sustainability and Technical Committee on May 29, 2020 upon the consummation of the Recapitalization Transaction, currently composed of two independent directors. Each of the committees reports to the Board as it deems appropriate and as the Board may request. The composition, duties and responsibilities of these committees are set forth below.

 

Audit Committee

 

Eugene Davis, Thomas Weng and Marni Wieshofer (Chair) are the members of the Audit Committee. Under the Nasdaq listing standards and applicable SEC rules, the Audit Committee is required to have at least three members. Subject to phase-in rules and a limited exception, the rules of Nasdaq and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors. Mr. Davis, Mr. Weng and Ms. Wieshofer qualify as independent directors under applicable rules. Each member of the Audit Committee is financially literate and each of Ms. Wieshofer and Mr. Davis qualifies as an “audit committee financial expert” as defined under applicable SEC rules.

 

Under its charter, the functions of the Audit Committee include:

 

the appointment, compensation, retention, replacement, and oversight of the work of the independent accounting firm engaged by the Company;

 

the pre-approval of all non-audit services to be provided by the independent auditors or any other registered public accounting firm engaged by the Company;

 

setting clear hiring policies for employees or former employees of the independent registered public accounting firm;

 

obtaining and reviewing a report, at least annually, from the independent auditors describing (i) the independent auditor’s internal quality-control procedures and (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues;

 

reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC;

 

discussing with management and the independent auditor, as appropriate, any audit problems or difficulties and management’s response, and our risk assessment and risk management policies, including our major financial risk exposure and steps taken by management to monitor and mitigate such exposure; and

 

reviewing our financial reporting and accounting standards and principles, significant changes in such standards or principles or in their application and the key accounting decisions affecting our financial statements, including alternatives to, and the rationale for, the decisions made.

 

Compensation Committee

 

John Ellis, David Kirsch (Chair) and Marni Wieshofer are the members of the Compensation Committee. All of the members of the Compensation Committee are independent directors and considered to be a “non-employee director” under Rule 16b-3 of the Exchange Act. Under its charter, the functions of the Compensation Committee will include:

 

reviewing and approving annually corporate goals and objectives relating to the compensation of the Chief Executive Officer (“CEO”), evaluating the performance of the CEO in light of those goals and reviewing and establishing the CEO’s annual compensation and Incentive Plan participation levels and bases of participation; and

reviewing and approving annually the evaluation process and compensation structure for the Company’s or its subsidiaries’ other officers; to evaluate, review and recommend to the our Board any changes to, or additional, stock-based and other incentive compensation plans; and to recommend inclusion of the Compensation Discussion and Analysis in the annual proxy statement and annual report on Form 10-K to be filed with the SEC.

 

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In addition, on an annual basis, the Compensation Committee will conduct an in-depth, broad scope and detailed review of succession planning efforts at multiple levels of the our management team.

 

The Compensation Committee charter also provides that the Compensation Committee shall have the sole authority to retain or obtain the advice of a compensation consultant, legal counsel or other adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the Compensation Committee will consider the independence of each such adviser, including the factors required by NASDAQ and the SEC.

 

Nominating and Governance Committee

 

Eugene Davis (Chair), David Kirsch and Thomas Weng are the members of the Nominating and Governance Committee. All of the members of the Nominating and Governance Committee are independent directors under applicable Nasdaq listing standards.

 

Under its charter, the functions of the Nominating and Governance Committee include:

 

identifying individuals qualified to become Board members and recommending to the Board the director nominees for the next annual meeting of stockholders;

 

recommending to the Board the corporate governance guidelines applicable to the Company;

 

leading the Board in its annual review of the performance of (i) the Board; (ii) its committees; and (iii) management; and

 

recommending to the Board nominees for each Board committee.

 

The Nominating and Governance Committee shall have the sole authority to retain and terminate any search firm to be used to identify director candidates and shall have sole authority to approve the search firm’s fees and other retention terms.

 

The Nominating and Governance Committee has not set specific minimum qualifications for director positions. Instead, the Nominating and Governance Committee will review nominations for election or re-election to the Board on the basis of a particular candidate’s merits and the Company’s needs after taking into account the current composition of the Board. When evaluating candidates annually for nomination for election, the Nominating and Governance Committee will consider an individual’s skills, diversity, independence, experience in areas that address the needs of the Board and ability to devote adequate time to Board duties. The Nominating and Governance Committee does not specifically define diversity, but values diversity of experience, perspective, education, race, gender and national origin as part of its overall annual evaluation of director nominees for election or re-election. Whenever a new seat or a vacated seat on the Board is being filled, candidates that appear to best fit the needs of the Board and the Company will be interviewed and evaluated by the Nominating and Governance Committee. Candidates selected by the Nominating and Governance Committee will then be recommended to the full Board.

 

While the Company maintains a plurality voting standard in the election of directors, it has adopted a majority voting standard as well. Under that standard, any director in an uncontested election that receives more “withheld” votes than votes “for” his or her election must tender his or her resignation. The Nominating and Governance Committee will consider such offered resignation and recommend an action to the full Board which will then determine whether to accept or reject that resignation.

 

Safety, Sustainability and Technical Committee

 

John Ellis (Chair) and Michael Harrison are members of the Safety, Sustainability and Technical Committee.

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Under its charter, the functions of the Safety, Sustainability and Technical Committee will include the authority to:

 

investigate any activity of the Company or its subsidiaries relating to health, safety, loss prevention and operational security, sustainable development, environmental affairs, public policy and relations with communities and civil society, government relations, human rights and communication matters;

 

review our developmental, construction and operational activities; and

 

retain outside counsel, experts and other advisors as the Safety, Sustainability and Technical Committee may deem appropriate in its sole discretion to assist the Company in fulfilling its responsibilities.

 

Director Independence

 

The Board has determined that Messrs. Ellis, Harrison, Kirsch, Davis and Weng and Ms. Wieshofer are “independent directors” under NASDAQ listing standards. The Board reviews independence on an annual basis and has also determined that each current member of the Company’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee is independent as defined under the applicable NASDAQ listing standards and SEC rules. The Board further determined that Ms. Wieshofer qualifies as an audit committee financial expert in accordance with applicable rules and guidance. In making these determinations, the Board found that none of these directors had a material or other disqualifying relationship with the Company.

 

EXECUTIVE COMPENSATION

 

None of the individuals who were our executive officers and directors prior to the consummation of the Recapitalization Transaction received any cash compensation for services rendered to MUDS. There were no agreements or understandings, whether written or unwritten, with our executive officers concerning the information specified in Item 402(t)(2) or (3) (i.e., any type of compensation, whether present, deferred or contingent, that is based on or otherwise relates to the Recapitalization Transaction). We also have not, prior to the Recapitalization Transaction, granted any stock options or stock appreciation rights or any other awards under long-term incentive plans.

 

The following disclosure concerns the compensation arrangements of our current named executive officers and directors for the fiscal years ended December 31, 2019 and 2018 (i.e., before the Recapitalization Transaction) while serving Seller in a similar capacity. Such disclosure should be read together with the compensation tables and related disclosures provided below and in conjunction with the financial statements and related notes appearing elsewhere in this prospectus.

 

Seller Summary Compensation Table

 

The following table presents information regarding the compensation awarded to, earned by, or paid in the years ended December 31, 2019 and 2018 to Randy E. Buffington and Stephen M. Jones. These officers are referred to as our named executive officers, or “NEOs”. As an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies” as such term is defined in the rules promulgated under the Securities Act.

 

                   Non-Equity         
               Stock   Incentive Plan   All Other     
Name and Principal              Awards(1)   Compensation(2)   Compensation(3)     
Position  Year   Salary ($)   Bonus ($)   ($)   ($)   ($)   Total ($) 
Randy E. Buffington  2019   $525,000       $1,575,000    n/a(4)  $22,438   $2,122,438 
President and CEO  2018   $525,000           $150,000   $21,344   $696,344 
Stephen M. Jones  2019   $425,000       $1,062,500    n/a(4)  $23,628   $1,511,128 
EVP, CFO and Secretary  2018   $425,000           $100,000   $43,666   $568,666 

 

 

 

(1)As a result of Seller’s reorganization pursuant to the chapter 11 cases, all of the stock-based compensation plans were eliminated and all prior awards granted pursuant to the plans were cancelled. Seller did not grant any stock awards in 2017 or 2018. In February 2019, Seller authorized and approved time-based and performance-based equity incentive awards in the aggregate amount of $1,575,000 and $1,062,500 to Messrs. Buffington and Jones, respectively, in the form of restricted stock units convertible following vesting into shares of Seller’s common stock. Under the terms of those agreements and as provided in the Purchase Agreement, the obligations under such equity awards have been assumed by us in connection with the Recapitalization Transaction and mirror replacement equity awards in the form of substantially similar restricted stock units convertible into shares of our Common Stock have been issued in connection with the consummation of the Recapitalization Transaction.

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(2)Seller provided incentive compensation in the form of an annual cash bonus, the payout amounts of which are at-risk, consistent with Seller’s emphasis on using a pay-for-performance philosophy. The 2018 and 2019 annual cash incentive payments were contingent upon the attainment of Seller’s goals and performance criteria, which were developed with the assistance of Seller’s management and approved by the compensation committee of Seller’s board of directors before being subsequently approved by the non-management members of Seller’s board of directors.

 

(3)During 2018 and 2019, All Other Compensation consisted of the following:

 

       401K Plan   Life         
       Matching   Insurance   Moving     
Name  Year   Contributions ($)   Premiums ($)   Expenses ($)   Total ($) 
Randy E. Buffington   2019   $16,800   $5,638       $22,438 
    2018   $16,500   $4,844       $21,344 
Stephen M. Jones   2019   $16,800   $6,828       $23,628 
    2018   $16,500   $4,844   $22,322   $43,666 

  

(4)As of March 15, 2020, the non-equity incentive bonus payments for 2019 performance had not been paid.

 

2019 Outstanding Equity Awards at Fiscal Year-End Table

 

Under Seller’s predecessor’s reorganization plan and in connection with Seller’s emergence from bankruptcy proceedings, on October 22, 2015, all of Seller’s stock-based compensation plans were eliminated and all prior awards pursuant to the compensation plans were cancelled. Seller did not grant any equity awards in 2018.

 

Under the terms of employment agreements entered into with Messrs. Buffington and Jones, they were each entitled to an equity incentive award. In February 2019, Seller granted time-based and performance-based equity incentive awards in the aggregate amount of $1,575,000 and $1,062,500 to Messrs. Buffington and Jones, respectively, in the form of restricted stock units convertible following vesting into shares of Seller common stock. Under the terms of those agreements and as provided in the Purchase Agreement, the obligations under such equity awards were assumed by us in connection with the Recapitalization Transaction and mirror replacement equity awards in the form of substantially similar restricted stock units convertible into shares of Common Stock were issued in connection with the consummation of the Recapitalization Transaction.

 

       Stock Awards
       Equity Incentive     Equity Incentive
       Plan Award:     Plan Award:
       Number of     Market of Payout
       Unearned Shares,     Value of Unearned
       Units, or Other     Shares, Units, or
   Grant   Rights That Have     Other Rights That
Name  Date   Not Vested (#)     Have Not Vested (#)
Randy E. Buffington   February 20, 2019   (1)  $ 1,575,000
Stephen M. Jones   February 20, 2019   (1)  $ 1,062,500

  

(1)The number of shares into which the equity awards granted will vest was not currently determinable.

 

Retention Bonus Plan

 

In connection with Seller’s emergence from bankruptcy proceedings, Seller implemented a management incentive plan, which was subsequently superseded by Seller’s Retention Bonus Plan (the “Retention Bonus Plan”), that provided for the payment of cash and/or the issuance of shares of Seller’s common stock to management, including our NEOs. Seller previously paid two cash retention bonus payments under the Retention Bonus Plan to participants, including the NEOs, who remained employed as of December 29, 

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2017 and required the delivery to Seller’s board of directors of the heap leach feasibility study for the profitable and feasible sulfide ore heap leach process, which was completed on June 29, 2018 and subsequently modified as of August 6, 2018. The Retention Bonus Plan also provided for a third retention bonus, equal to an aggregate amount of $250,000, plus an additional amount tied to a percentage share of an “award pool” (as described below), in the event of either of the following:

 

a “sale transaction” defined generally as the consummation of a sale of all or substantially all of our consolidated assets; or at least a majority of our then issued and outstanding shares of common stock; or

 

a “public offering” defined generally as an underwritten registered public offering pursuant to an effective registration statement covering a sale of shares of Seller’s common stock to the public that results in the listing for trading of our Common Stock on a national securities exchange or quoted on the Nasdaq Capital Market.

 

The amount of the award pool under the Retention Bonus Plan was to be determined by either the purchase price in a sale transaction or the enterprise value in connection with a public offering. The award pool was to be equal to (i) 1% of the sale proceeds in a sale transaction or enterprise value in a public offering of up to, and including, $200.0 million, plus (ii) 2% of the sale proceeds in a sale transaction or enterprise value in a public offering, if any, above $200.0 million up to, and including, $300.0 million plus (iii) 3% of the sale proceeds in a sale transaction or enterprise value in a public offering, if any, above $300.0 million.

 

Sale proceeds were defined under the Retention Bonus Plan as:

 

(i)the total gross cash proceeds and the fair value of property other than cash actually received on the closing date of a sale transaction by our stockholders in consideration for the sale of their shares of our common stock or on account of the sale by the Company of its assets; plus

 

(ii)all indebtedness for borrowed money, guarantees and capitalized leases (but not any other liabilities) assumed, refinanced, retired or extinguished by the acquirer in connection with such sale transaction; plus

 

(iii)any contingent amounts, as defined in the Retention Bonus Plan; plus

 

(iv)in the case such sale transaction takes the form of a sale, exchange or purchase of shares, the value of any retained equity interest, if any, of our stockholders in the Company based on the value paid for or ascribed to the shares of our common stock transferred in such sale transaction.

 

The Retention Bonus Plan allowed participants to elect to receive payment in respect of the third retention bonus in either cash or a combination of cash and common stock. However, in connection with the Recapitalization Transaction, executed waivers were obtained from the participants to eliminate the payment election right, such that the third retention bonuses were payable in cash.

 

The Recapitalization Transaction constituted a “sale transaction” under the Retention Bonus Plan triggering both payment of the third retention bonus under the Retention Bonus Plan and an allocation under the award pool, as determined by the value of the sale transaction. The obligation to make the Retention Bonus Plan payments was assumed by us pursuant to the Purchase Agreement and was paid to the participants, including the NEO’s, upon consummation of the Recapitalization Transaction, subject to the participants’ continued employment by Seller from the date of grant of such award until the consummation of such sale transaction. Payments in the aggregate amount of approximately $5.9 million were made following consummation of the Recapitalization Transaction.

 

Employment Arrangements

 

In March of 2019, in anticipation of the Recapitalization Transaction, Seller entered into new employment agreements with Randy E. Buffington and Stephen M. Jones. These new employment agreements superseded and replaced their prior agreements entered into by Seller upon emergence from federal bankruptcy proceedings. Upon consummation of the Recapitalization Transaction, pursuant to their terms and in accordance with the Purchase Agreement, the new employment agreements were assigned to and the obligations under such agreements assumed by the Company.

 

Common Defined Terms Used in the Employment Agreements

 

For purposes of the employment agreements with our NEOs, the terms “Cause”, “Change in Control”, “Disability”, and “Good Reason” have the following definitions:

 

The term “Cause” shall mean that one or more of the following has occurred:

 

(i)the NEO is convicted of a felony or pleads guilty or nolo contendere to a felony (whether or not with respect to Seller or any of its affiliates);

 

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(ii)a failure of the NEO to substantially perform his responsibilities and duties to the Company which, to the extent curable, is not remedied within 10 days after the NEO’s receipt of written notice given by the appropriate senior officer or any member of the Board identifying the failure in reasonable detail and granting the NEO an opportunity to cure such failure within such 10 day period;

 

(iii)the failure of the NEO to carry out or comply with any lawful and reasonable directive of the Board (or any committee of the Board), which, to the extent curable, is not remedied within 10 days after the NEO’s receipt of written notice given by or on behalf of the Company identifying the failure in reasonable detail and granting the NEO an opportunity to cure such failure within such 10 day period;

 

(iv)the NEO engages in illegal conduct, any breach of fiduciary duty (if any), any act of material dishonesty or other misconduct, in each case in this clause (iv), against the Company or any of its affiliates;

 

(v)a material violation or willful breach by the NEO of any of the policies or procedures of the Company, including, without any limitation, any employee manual, handbook or code of conduct of the Company which, to the extent curable, is not remedied within 10 days after the NEO’s receipt of written notice given by or on behalf of the Company identifying the violation or breach in reasonable detail and granting the Executive an opportunity to cure such violation or breach within such 10 day period;

 

(vi)the NEO fails to meet any material obligation the NEO may have under any agreement entered into with the Company which, to the extent curable, is not remedied within 10 days after the NEO’s receipt of written notice given by any member of the Company identifying the failure in reasonable detail and granting the NEO an opportunity to cure such failure within such 10 day period;

 

(vii)the NEO’s failure to maintain any applicable license, permit or card required by the federal or state authorities or a political subdivision or agency thereof (or the suspension, revocation or denial of such license, permit or card); or

 

(viii)the NEO’s breach of any non-compete, non-solicit, confidentiality or other restrictive covenant to which the NEO may be subject, pursuant to an employment agreement or otherwise.

 

The term a “Change in Control” of the Company will be deemed to occur as of the first day that one or more of the following conditions is satisfied:

 

(i)The “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act) of securities representing more than 50% of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (“Company Voting Securities”), is accumulated, held or acquired by a “Person” (as defined in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, holders of capital stock of the Company as of the date hereof or a subsidiary thereof, any corporation owned, directly or indirectly, by the Company’s stockholders in substantially the same proportions as their ownership of stock of the Company); provided, however, that any acquisition from the Company or any acquisition pursuant to a transaction that complies with clauses (A), (B) and (C) of clause (iii) below will not be a Change in Control; provided further, that immediately prior to such accumulation, holding or acquisition, such Person was not a direct or indirect beneficial owner of 15% or more of Company Voting Securities as of the date of this Agreement; or

 

(ii)Individuals who, as of the date of the Agreement, constitute the Board, or “Incumbent Board”, cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered as though such individual were a member of the Incumbent Board; or

 

(iii)Consummation by the Company of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets or stock of another entity, or “Business Combination”, in each case, unless immediately following such Business Combination: (A) more than 50% of the combined voting power of then outstanding voting securities entitled to vote generally in the election of directors of (x) the corporation resulting from such Business Combination, or “Surviving Corporation”, or (y) if applicable, a corporation that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries, or “Parent Corporation”, is represented, directly or indirectly by Company Voting Securities outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportions as their ownership, immediately prior to such Business Combination, of Company Voting Securities; (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 40% or more of the combined voting power of the then outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) except to the extent that (x) such ownership of the Company existed prior to the Business Combination or (y) that immediately prior to such Business Combination, such Person was a direct or indirect beneficial owner of 15% or more of the Company Voting Securities as of the date of the respective employment agreement, and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination.

 

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Notwithstanding anything to the contrary in the foregoing, in no event will a Change in Control be deemed to have occurred with respect to the NEO (i) in connection with the initial public offering of the Parent Corporation’s Voting Securities; or (ii) if the NEO is part of a purchasing group that consummates the Change in Control transaction. The NEO will be deemed “part of a purchasing group” for purposes of the preceding sentence if the NEO is an equity participant in the purchasing company or group (except (i) passive ownership of less than two percent of the stock of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group that is otherwise not significant, as determined prior to the Change in Control by a majority of the nonemployee continuing directors; provided that, for purposes of the foregoing, participation as a management investor in such purchasing company will not be deemed to be within the exceptions provided for in these items (i) and (ii)); and/or (iii) in connection with the Recapitalization Transaction.

 

The term “Disability” means the NEO’s long-term disability as defined by and determined under the Company’s long-term disability plan, or if the NEO is not covered by a long-term disability plan sponsored by the Company, then the NEO’s inability (as determined by the Board or compensation committee thereof in its discretion) to engage in any substantial gainful activity by reason of any medically-determined physical or mental impairment that can be expected to result in death or to be of long-continued and indefinite duration.

 

The term “Good Reason” means the occurrence of any of the following without the NEO’s consent:

 

(i)a material reduction or a material adverse alteration in the nature of the NEO’s position, responsibilities or authorities or the assigning of duties to the NEO that are materially inconsistent with those of the position of such NEO of a company of comparable size in a comparable industry;

 

(ii)the NEO’s becoming the holder of a lesser office or title than that previously held;

 

(iii)any material breach of this Agreement by the Company that causes an adverse change to the terms and conditions of the NEO’s employment;

 

(iv)the Company requires the NEO to relocate his principal business office to a location not within 75 miles of the Company’s principal executive office located in Denver, Colorado or the Hycroft Mine;

 

(v)any reduction in the NEO’s salary, other than a reduction in salary generally applicable to executive employees; or

 

(vi)failure of the Company to pay the NEO any amount otherwise vested and due under this Agreement or under any plan or policy of the Company following written notice by the NEO to Seller identifying the failure and the basis for such payment and the Company’s failure to cure within 10 days following receipt of such written notice.

 

In no event will a resignation be deemed to occur for “Good Reason” unless the NEO provides notice to the Company, and such resignation occurs, within 90 days after the event or condition giving rise thereto. Upon receiving notice from the NEO, the Company shall have a period of 30 days during which it may remedy the event or condition.

 

Employment Agreement with Randy E. Buffington

 

Seller entered into an employment agreement dated as of March 15, 2019 with Mr. Buffington, which was assumed by the Company, providing for a two-year term as President and Chief Executive Officer, following which he shall be deemed to be an at-will employee during the continuation of his employment by the Company. Under the terms of his employment agreement, Mr. Buffington is entitled to an annual base salary of $525,000, an annual cash incentive bonus initially set at 50% of his annual base salary at target, and long-term equity incentive awards initially awarded at 300% of his annual base salary at target. On February 20, 2019, the board of directors of Seller authorized and approved the issuance of equity awards in the form of restricted stock units with a value of $1,575,000, which were also assumed by the Company. On July 1, 2020, the Company and Mr. Buffington agreed to terminate his employment with the Company and his service on the Board as described in more detail in “– Transition Agreements with Randy Buffington” below.

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The long-term equity incentive awards are in the form of restricted stock units, subject to the terms and conditions set forth in the written award agreements. Fifty percent of such awards are performance-based equity awards with vesting tied to satisfaction of performance-based metrics which were determined by Seller’s board of directors at the end of the performance period. The remaining 50% of such awards were in the form of time-based equity awards with vesting based upon continued employment. Fifty percent of the time-based equity awards vested upon the consummation of the Recapitalization Transaction and the remaining 50% of such time-based equity awards vested on the second anniversary of the effective date or June 1, 2020. The number of units awarded were determined by an enterprise value of $350 million, reflecting the anticipated value of the Recapitalization Transaction. Under the terms of those equity award agreements and as provided in the Purchase Agreement, the obligations under such equity awards have been assumed by us in connection with the Recapitalization Transaction and mirror replacement equity awards in the form of substantially similar restricted stock units convertible into shares of Common Stock have been issued in connection with the consummation of the Recapitalization Transaction.

 

The initial long-term equity incentive award agreements will also include “double trigger” accelerated vesting in the event of a Change in Control (which does not include the Recapitalization Transaction), in addition to two accelerated vesting events involving liquidity transactions that would be mutually exclusive with the consummation of the Recapitalization Transaction.

 

On July 1, 2020, the Company announced that the Board and Randy Buffington agreed that Mr. Buffington would depart from the Company and would resign and transition from his roles of Chairman of the Board, President and Chief Executive Officer and any and all other positions held by him with any direct or indirect subsidiary of the Company, effective as of July 1, 2020, as described in more detail in “– Transition Agreements with Randy Buffington” below.

 

Transition Agreements with Randy Buffington

 

On July 1, 2020, the Company and Mr. Buffington entered into a Transition and Succession Agreement (the “Transition Agreement”) pursuant to which Mr. Buffington resigned as Chairman of the Board, President and Chief Executive Officer and any and all other positions held by him with any direct or indirect subsidiary of the Company, and that provides, among other things, that the payments and arrangements paid in accordance with the Transition Agreement constitute full and complete satisfaction of any and all amounts due and owing to him as a result of his employment with the Company and that Mr. Buffington receive a continuation of his salary for a period of 24 months and the value of his insurance coverage for a period of 18 months following his departure, subject to the statutory revocation provisions set forth in the Transition Agreement. In recognition of Mr. Buffington’s successful efforts in developing a new process to economically and profitably recover gold from sulfide ores in a heap leach process and restarting mining operations at the Hycroft Mine and to reward and compensate him for transition assistance, the Company and Mr. Buffington also entered into a Restricted Stock Unit Agreement (Time-Vesting) (the “RSU Agreement”) pursuant to which the Company will grant a special discretionary equity bonus in the form of $1,300,000 in restricted stock units convertible into shares of common stock, vesting pro rata over a period of two years following expiration of the statutory revocation period set forth in the Transition Agreement. The Company also agreed to transfer title to the truck that Mr. Buffington used to travel to the Hycroft Mine. In addition and in order to facilitate the continued development and operation of the Hycroft Mine and the transition to his successor as President and Chief Executive Officer, the Company and Mr. Buffington have entered into a Consulting Agreement (the “Consulting Agreement”) pursuant to which the Company will pay Mr. Buffington $25,000 a month for 24 months for his performance of consulting services during that time.

 

Mr. Buffington will be subject to ongoing restrictive covenants of non-disclosure of confidential information, and non-competition and non-solicitation for a period of 24 months following the subsequent termination of his employment with the Company.

 

Mr. Buffington’s decision to resign did not involve any disagreement relating to the Company’s operations, policies or practices. The foregoing summary of the Transition Agreement, the RSU Agreement and the Consulting Agreement does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of those agreements, copies of which are attached as Exhibits 10.32, 10.33 and 10.34, respectively, to the registration statement on Form S-1 of which this prospectus forms a part and are incorporated by reference herein.

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Employment Agreement with Stephen M. Jones

 

Seller entered into an employment agreement dated as of March 15, 2019 with Mr. Jones, which was assumed by the Company, providing for a three-year term as Executive Vice President and Chief Financial Officer, following which he shall be deemed to be an at-will employee during the continuation of his employment by the Company. Under the terms of his employment agreement, Mr. Jones is entitled to an annual base salary of $425,000, an annual cash incentive bonus initially set at 50% of his annual base salary at target, and long-term equity incentive awards initially awarded at 250% of his annual base salary at target. On February 20, 2019, Seller’s board of directors authorized and approved the issuance of equity awards in the form of restricted stock units with a value of $1,062,500, which were also assumed by the Company. On September 8, 2020, the Company and Mr. Jones agreed to the terms of his resignation as an executive officer of the Company and termination of his employment as described in more detail in “– Transition Agreements with Stephen M. Jones” below.

 

The initial performance metrics for the annual cash incentive bonus plan were based upon successful financing of the Hycroft Mine development costs, Hycroft Mine operational start up, safety and other metrics which were determined by Seller’s board of directors.

 

The long-term equity incentive awards are in the form of restricted stock units, subject to the terms and conditions set forth in the written award agreements. Fifty percent of such awards are performance-based equity awards with vesting tied to satisfaction of performance-based metrics which were determined by Seller’s board of directors at the end of the performance period. The remaining 50% of such awards were in the form of time-based equity awards with vesting based upon continued employment. Fifty percent of the time-based equity awards vested upon the consummation of Recapitalization Transaction and the remaining 50% of such time-based equity awards vested on the second anniversary of the effective date or June 1 , 2020. The number of units awarded were determined by an enterprise value of $350 million, reflecting the anticipated value of the Recapitalization Transaction. Under the terms of those equity award agreements and as provided in the Purchase Agreement, the obligations under such equity awards have been assumed by us in connection with the Recapitalization Transaction and mirror replacement equity awards in the form of substantially similar restricted stock units convertible into shares of Common Stock have been issued in connection with the consummation of the Recapitalization Transaction.

 

Pursuant to the terms of his employment agreement, Mr. Jones will be subject to ongoing restrictive covenants of non-disclosure of confidential information, and non-competition and non-solicitation for a period of 18 months following the termination of his employment by the Company without Cause, by him for Good Reason or due to his Disability, or in the event that he voluntarily terminates his employment without Good Reason prior to the expiration of the initial term of his employment agreement.

 

Transition Agreements with Stephen M. Jones

 

On September 8, 2020, the Company and Mr. Jones entered into a Transition and Succession Agreement (the “Jones Transition Agreement”) pursuant to which Mr. Jones resigned as interim President and Chief Executive Officer and as an executive officer of the Company. Pursuant to the Jones Transition Agreement, Mr. Jones will remain a non-executive employee of the Company through November 30, 2020 (the “Termination Date”), at which time he will resign from the Company entirely and his employment with the Company will terminate. Mr. Jones will receive his ongoing salary through the Termination Date and, after that date, will receive salary continuation payments, at a rate of $425,000 per annum, for a period of 24 months from the Termination Date. In the event of a Change in Control (as defined in Mr. Jones’ Employment Agreement with the Company), all payments to be made to Mr. Jones through the Termination Date, as well as salary continuation payments and payments due under the Consulting Agreement will generally accelerate and be payable upon the Change in Control, subject to certain adjustments as required under the Internal Revenue Code. In connection with Mr. Jones’ employment agreement, he had agreed to certain confidentiality, non-solicitation of executives and customers and non-compete provisions. The Jones Transition Agreement extended the term of such provisions to 24 months following the Termination Date. Mr. Jones will provide the Company a general release of claims as set forth in the Jones Transition Agreement.

 

In addition, on September 8, 2020, the Company and Mr. Jones entered into a Consulting Agreement (the “Jones Consulting Agreement”) pursuant to which Mr. Jones agrees to provide consulting, technical advice and transition assistance to the Company from December 1, 2020 through May 31, 2021. Mr. Jones will receive $25,000 per month during the consulting period. The Company many terminate the Jones Consulting Agreement prior to May 31, 2021 only upon mutual agreement with Mr. Jones, or for Cause (as defined in the Jones Consulting Agreement), in which event, payments under the Jones Consulting Agreement shall cease.

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Mr. Jones’ decision to resign did not involve any disagreement relating to the Company’s operations, policies or practices. The foregoing summary of the Jones Transition Agreement and the Jones Consulting Agreement does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of those agreements, copies of which are attached as Exhibits 10.35 and 10.36, respectively, to the registration statement on Form S-1 of which this prospectus forms a part and are incorporated by reference herein.

 

Termination Payment Terms Applicable to the Employment Agreements of the NEOs Who Remain Currently Employed with Us

 

Each of the employment agreements with our current NEOs, Dr. Garrett and Messrs. Rideout and Stieber contain provisions which entitle them to payments following termination of their employment in certain circumstances, as described below.

 

Termination of Employment for any Reason

 

Pursuant to the current employment agreements with Dr. Garrett and Messrs. Rideout and Stieber, in the event their employment with the Company is terminated for any lawful reason or no reason, they (or their estate, as applicable) will be entitled to receive any earned but unpaid base salary, any earned but unpaid annual cash incentive bonus, any amounts that may be payable under any applicable executive benefit plan, expense reimbursements and COBRA benefits provided that a timely election for COBRA continuation coverage is made and the applicable amounts are paid.

 

Termination of Employment other than for Cause or Voluntary Termination by Executive for Good Reason

 

In the event that the Company terminates any of Dr. Garrett or Messrs. Rideout or Stieber without Cause or either of them terminates their employment for Good Reason, they would be entitled to (i) a cash amount equal to 1.5 (for Dr. Garrett and Mr. Rideout) and 1.0 (for Mr. Stieber) multiplied by their annual base salary, payable in equal installments over the 18 month period (for Dr. Garrett and Mr. Rideout) and over the 12 month period (for Mr. Stieber) following the date of termination, (ii) 18 months (in the case of Dr. Garrett and Mr. Rideout) and 12 months (in the case of Mr. Stieber) of continued coverage under the Company’s medical, dental, life and disability plans, at the same cost to the individual as in effect on the date of termination, and (iii) outplacement services until the earlier of (A) $15,000 (in the case of Dr. Garrett and Mr. Rideout) and $10,000 (in the case of Mr. Stieber) in the aggregate having been paid by the Company to the outplacement firm or (B) 12 months following the date of termination.

 

Termination of Employment in the Event of Death or Disability

 

In the event that the employment of any of Dr. Garrett or Messrs. Rideout or Stieber with the Company is terminated due to her or his death or Disability, she or he (or their estate, as applicable) will be entitled to receive the pro rata portion of any bonus payable to them under the Company’s annual cash incentive plan for the year in which such termination for death or Disability occurs determined based on the actual bonus attained for the fiscal year in which such termination occurs.

 

Termination of Employment after a Change in Control

 

If within 90 days prior to, or one year after, a Change in Control, the Company terminates the employment of any of Dr. Garrett or Messrs. Rideout or Stieber for reasons other than for Cause, any of them incurs a Disability or any of them voluntarily terminates his or her employment for Good Reason, such NEO will be entitled to (i) a cash amount equal to 2.0 (in the case of Dr. Garrett and Mr. Rideout) or 1.5 (in the case of Mr. Stieber) multiplied by his or her annual base salary, payable in a lump sum on the 60th day following the date of termination, (ii) a cash amount equal to 2.0 (in the case of Dr. Garrett and Mr. Rideout) or 1.5 (in the case of Mr. Stieber) multiplied by the greater of (A) the actual bonus paid for the fiscal year immediately preceding the date of termination, (B) the actual bonus attained for the fiscal year in which the date of termination occurs prior to the first anniversary of the employment agreement, or (C) the target bonus for the fiscal year in which the date of termination occurs prior to the first anniversary of the agreement, payable in a lump sum on the 60th day following the date of termination, (iii) 24 months (in the case of Dr. Garrett and Mr. Rideout) or 18 months (in the case of Mr. Stieber) of continued coverage under the Company’s medical, dental, life and disability plans, at the same cost to the individual as in effect on the date of the Change in Control (or, if lower, as in effect at any time thereafter) and (iv) outplacement services until the earlier of (A) $15,000 (in the case of Dr. Garrett and Mr. Rideout) or $10,000 (in the case of Mr. Stieber) in the aggregate having been paid by the Company to the outplacement firm or (B) 12 months following the date of termination.

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Director Compensation

 

During the years ended December 31, 2018 or 2019, we did not pay our directors for their service and as of December 31, 2019, none of the directors held any options or other equity in the Company.

 

The Compensation Committee and Board of Directors approved the following initial annual director compensation arrangements, for non-employee directors, in the form of (i) an annual cash retainer of $55,000; (ii) annual committee chair fees of $12,500 for the Audit Committee, $10,000 for the Safety, Sustainability and Technical Committee, and $7,500 for each of the Nominating and Governance and Compensation Committees; (iii) annual committee member fees of $5,000 for the Audit Committee, $4,000 for the Safety, Sustainability and Technical Committee, and $2,500 for each of the Nominating and Governance and Compensation Committees; and (iv) $75,000 in annual equity awards in the form of restricted stock units. In addition, an initial equity award in the amount of $50,000 will be granted to each non-employee director. These 2020 annual and initial restricted stock unit awards were granted to each non-employee director on December 4, 2020. Future annual equity awards will be granted at each annual stockholder meeting of the Company unless otherwise determined by the Compensation Committee.

 

Phantom Stock Award Agreements

 

Each of the non-employee members of our Board who served on Seller’s board of directors received phantom shares pursuant to Seller’s Non-Employee Director Phantom Stock Plan (the “Phantom Plan”). Non-employee members of Seller’s board of directors received such phantom shares as part of their annual compensation pursuant to phantom stock award agreements. Under the Phantom Plan, a phantom share was an unfunded bookkeeping unit, entitling a participant to a cash payment equal to the fair market value of a share of Seller’s common stock determined upon the date of the applicable “Payment Event” (as set forth below). Under the award agreements, each phantom share was vested upon the date of grant and was subject to forfeiture if the participant is removed from Seller’s board of directors for reasons constituting “Cause” (as defined below). Directors who are affiliated with our significant stockholders, which include Mr. Kirsch, were entitled to be awarded a number of phantom shares equal to the greater of (i) $125,000 or (ii) the value of 75,000 phantom shares (subject to equitable adjustment for changes in capital or corporate structure). Directors who were not affiliated with our significant stockholders, which included Messrs. Ellis and Harrison, were entitled to be awarded annually $50,000 in cash payable quarterly and a number of phantom shares equal to the greater of (i) $75,000 or (ii) the value of 45,000 phantom shares (subject to equitable adjustment for changes in capital or corporate structure).

 

For purposes of the Phantom Plan, “Payment Event” means the first to occur of the following:

 

1)the participant’s retirement from Seller’s board of director;

 

2)the participant’s resignation from Seller’s board of directors;

 

3)the participant’s failure to stand for re-election as a non-employee director of Seller’s board of directors;

 

4)the participant’s removal from Seller’s board of directors for reasons other than “Cause” (as defined below);

 

5)the participant’s death; or

 

6)a Change of Control (as defined in the Phantom Plan).

 

The cash payment described above to the participant in respect of his or her phantom shares shall be made within 30 days of the applicable Payment Event.

 

Cause” is defined in each phantom stock award agreement as follows:

 

1)the conviction of the participant for committing, or entering into a plea of nolo contendere by the participant with respect to, a felony under federal or state law or a crime involving moral turpitude;

 

2)the commission of an act of personal dishonesty or fraud involving personal profit in connection with the participant’s service on Seller’s board of directors; or

 

3)the willful misconduct, gross negligence or deliberate failure on the part of the participant to perform his or her duties with us in any material respect.

 

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A Payment Event under the Phantom Plan was triggered by the Recapitalization Transaction and cash payments in the aggregate amount of $1.8 million were made by Seller in connection with the closing of the Recapitalization Transaction to satisfy such phantom share awards.

 

Compensation Philosophy and Objectives

 

Our compensation policies and philosophies are designed to align compensation with our business objectives and the creation of stockholder value, while enabling us to attract, motivate and retain individuals who contribute to the long-term success of the Company.

 

The Compensation Committee believes that the executive compensation program must be competitive in order to attract and retain our executive officers. The Compensation Committee has implemented compensation policies and philosophies that link a significant portion of our executive officers’ cash compensation to performance objectives and by providing a portion of their compensation as long-term incentive compensation in the form of equity awards. This was the approach taken by the compensation committee of Seller and reflected in the compensation arrangements entered into with Messrs. Buffington and Jones, as well as other officers of Seller who have continue in their current roles following the Recapitalization Transaction.

 

Compensation for our executive officers will have three primary components: base salary, an annual cash incentive bonus and long-term equity-based incentive compensation.

 

Base Salary

 

Base Salaries are set to be fair to the executive officers, competitive within the industry and reasonable in light of our cost structure. The Compensation Committee will determine base salaries, subject to the terms of any employment agreements, and will review base salaries annually based upon advice and counsel from its advisors.

 

Annual Cash Incentive Bonuses

 

The Compensation Committee will use annual cash incentive bonuses for the NEOs to tie a portion of the NEOs compensation to financial and operational objectives achievable within the applicable fiscal year. The Compensation Committee at the beginning of each year will select the performance targets, target amounts, target award opportunities and other term and conditions of annual cash bonuses for the NEOs. Following the end of each year, the Compensation Committee will determine the extent to which the performance targets were achieved and the amount of the award that is payable to the NEOs. Because the Recapitalization Transaction closed at approximately the middle of 2020 (on May 29, 2020) and because of changes in Company performance relative to the budget initially established prior to the Recapitalization Transaction, the Compensation Committee (i) did not establish performance metrics or pay any annual cash incentive bonuses in 2020 on the basis of satisfying performance metrics and (ii) noted that the officers of Seller were entitled to and received significant retention awards upon consummation of the Recapitalization Transaction.

 

Equity-Based Awards

 

The Compensation Committee will use equity-based awards to reward long-term performance of the NEOs under the Incentive Plan. Providing a meaningful portion of the total compensation package in the form of equity-based awards is an essential element to compensation arrangements to align the incentives of its officers, including its NEOs, with the interests of its stockholders and serve to motivate and retain the individual NEOs.

 

Executive Agreements

 

Seller entered into compensation arrangements with its officers, including employment agreements and time-based and performance-based equity award agreements as part of its policy to pay and compensate key executives as appropriate to attract, retain and compensate executive talent following the Recapitalization Transaction. The obligations under those agreements have been assigned and assumed by us in connection with the Recapitalization Transaction. The Compensation Committee expects to continue such approach in the future.

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Other Compensation

 

We will maintain the various employee benefit plans, including medical, dental, life insurance and 401(k) plans, offered by Seller in which the NEOs will participate.

 

Deductibility of Executive Compensation

 

Section 162(m) of the U.S. Tax Code denies a federal income tax deduction for certain compensation in excess of $1.0 million per year paid to certain current and former executive officers of a publicly-traded corporation.

 

Compensation Committee Interlocks and Insider Participation

 

No member of Seller’s compensation committee was, during the years ended December 31, 2018 or 2019, and no member of our Compensation Committee currently is or was, an officer or employee of Seller or the Company, respectively, or any of their subsidiaries or affiliates. No executive officer of Seller was, during the years ended December 31, 2018 or 2019, no executive officer of the Company currently is or was, a director or a member of the compensation committee of another entity having an executive officer who is a director or a member of our Compensation Committee or Seller’s compensation committee, respectively.

 

Compensation Arrangements with named Executive Officers

 

Employment Agreement with Diane R. Garrett

 

The Company entered into an employment agreement dated as of August 31, 2020 (the “Garrett Employment Agreement”) with Diane R. Garrett, Ph.D, which provides for a three-year term as President and Chief Executive Officer, following which she shall be deemed to be an at-will employee during the continuation of her employment by the Company. Under the terms of the Garrett Employment Agreement, Dr. Garrett is entitled to an annual base salary of $550,000, an annual cash incentive bonus initially set at 70% of her annual base salary as target, and an initial long-term equity incentive award having a value of $1,000,000. The initial long-term equity incentive was granted on the effective date of her employment, September 8, 2020, in the form of 96,154 restricted stock units (RSUs”), which was determined by dividing $1,000,000 by $10.40, the closing stock price of the Common Stock on the date of grant. Such RSUs will vest on the fourth anniversary of the date of grant, subject to Dr. Garrett’s continued employment by the Company through the vesting date and subject to any provisions of the grant relating to retirement, disability, change of control and other matters. Dr. Garrett will also be eligible to participate in equity-based compensation plans, initially targeted at 200% of her base salary, with 50% of such awards initially in the form of performance-based equity awards and 50% of such awards initially in the form of time-based equity awards. The foregoing description of the Garrett Employment Agreement and the RSUs do not purport to be complete and is qualified in its entirety by reference to the full text of the Garrett Employment Agreement and the initial Restricted Stock Unit Agreement (Time Vesting), which are attached as Exhibits 10.37 and 10.38, respectively, of the registration statement on Form S-1 of which this prospectus forms a part.

 

As required under the terms of the Garrett Employment Agreement, on December 15, 2020, the Company offered Dr. Garrett $550,000 worth of time-based RSUs. However, Dr. Garrett did not accept her full time-based equity award and requested that a portion of those time-based RSUs be re-allocated and granted to other employees rather than herself.

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As a result, on December 15, 2020, Dr. Garrett accepted $250,000 in value in the amount of 34,966 RSUs, based upon the fair market value of the Company’s Common Stock on the date of grant, rather than the 76,924 RSUs she would have been eligible to receive. Dr. Garrett’s RSUs will vest, subject to continued employment, in three equal installments on each of May 28, 2021, May 27, 2022 and May 29, 2023. The Company did not issue any performance-based equity awards in 2020.

 

Employment Agreement with Stanton Rideout

 

The Company entered into an employment agreement dated as of October 20, 2020 (the “Rideout Employment Agreement”) with Mr. Rideout, which provides for a three-year term as Executive Vice President and Chief Executive Officer, following which he shall be deemed to be an at-will employee during the continuation of his employment by the Company. Under the terms of the Rideout Employment Agreement, Mr. Rideout is entitled to an annual base salary of $375,000, an annual cash incentive bonus target initially set at 60% of his annual base salary and an initial long-term equity award having a value of $250,000.

 

The initial long-term equity incentive was granted on the effective date of his employment, October 20, 2020, in the form of 32,982 RSUs, with the number of RSUs determined by dividing $250,000 by the closing stock price of the Company’s Common Stock on the date of grant. Such RSUs will vest on the fourth anniversary of the grant date, subject to Mr. Rideout’s continued employment by the Company through the vesting date and subject to any provisions of the grant relating to retirement, disability, change of control and other matters. Mr. Rideout will also be eligible to participate in equity-based compensation plans commencing in 2021, initially targeted at 150% of his base salary, with 50% of such awards initially in the form of performance-based equity awards and 50% of such awards in the form of time-based equity awards. The foregoing description of the Rideout Employment Agreement and the RSUs do not purport to be complete and is qualified in its entirety by reference to the full text of the Rideout Employment Agreement and the initial Restricted Stock Unit Agreement (Time Vesting), which are attached as Exhibits 10.39 and 10.40, respectively, of the registration statement on Form S-1 of which this prospectus forms a part.

 

On December 17, 2020, the Company awarded Mr. Rideout a portion of the re-allocated RSUs described above under “Employment Agreement with Diane R. Garrett”) equal to $150,000 in value in the amount of 19,109 RSUs, based on the fair market value of the Company’s Common Stock on the date of grant, in recognition of his contributions to the Company and to incentivize his future performance. Mr. Rideout’s RSUs have the same vesting schedule as Dr. Garrett’s that were granted on December 15, 2020.

 

Employment Agreement with Jeffrey Stieber

 

Seller entered into an employment agreement dated as of March 25, 2019 with Mr. Stieber (the “Stieber Employment Agreement”). Mr. Stieber became an executive officer in July 2020 upon his appointment as our Vice President and Interim Chief Financial Officer. On October 20, 2020, upon Mr. Rideout’s assuming the position of Executive Vice President and Chief Financial Officer, Jeffrey Stieber ceased to serve as the Company’s Vice President and Interim Chief Financial Officer and, instead, became our Senior Vice President of Finance and Treasurer, reporting to Mr. Rideout. At that time, Mr. Stieber remained an executive officer of the Company and his employment agreement continued unchanged.

 

The Stieber Employment Agreement provides for a three-year term following which he shall be deemed to be an at-will employee during the continuation of his employment by the Company. Under the terms of the Stieber Employment Agreement, Mr. Stieber is entitled to an annual base salary of $205,000, an annual cash incentive bonus target initially set at 40% of his annual base salary and an initial long-term equity award, which he received on February 20, 2019, targeted at 100% of his base salary with 50% of such awards initially in the form of performance-based RSUs and 50% of such initial awards initially in the form of time-based RSUs. The Stieber Employment Agreement and equity awards issued to Mr. Stieber by Seller were assumed by the Company in connection with the Recapitalization Transaction. The foregoing description of the Stieber Employment Agreement and the RSUs do not purport to be complete and is qualified in its entirety by reference to the full text of the Stieber Employment Agreement and the initial Restricted Stock Unit Agreement (Time Vesting), which are attached as Exhibits 10.41 and 10.42, respectively, of the registration statement on Form S-1 of which this prospectus forms a part.

 

Effective as of August 1, 2020, Mr. Stieber’s annual base salary was increased by $25,000. On December 15, 2020, the Company granted Mr. Stieber 14,336 time-based RSUs.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Related Party Transactions relating to the Company

 

Purchase of Units by Greater Than 5% Stockholders in Registered Public Offering

 

On October 6, 2020, the Company closed the registered public offering of an aggregate of 9,583,334 Units (the “Offering”). The offering price to the public was $9.00 per Unit. After deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, the net proceeds to the Company were approximately $83.1 million. Certain of the Company’s affiliated stockholders that own more than five percent of the Company’s outstanding Common Stock purchased, in the aggregate, 4,055,555 Units in the Offering at the same price as the price to the public, $9.00 per Unit. No underwriters fees or commissions’ were paid by the Company to the underwriters in the Offering with respect to Units sold to such affiliates. The affiliates who purchased Units in the Offering were: Mudrick Capital Management, L.P. and/or certain of its affiliated entities – 3,222,222 Units for an aggregate purchase price of $29.0 million; Aristeia Capital, L.L.C. and/or certain of its affiliated entities – 895,833 Units for an aggregate purchase price of approximately $8.1 million; and Highbridge Capital Management, LLC and/or certain of its affiliated entities – 833,333 Units for an aggregate purchase price of $7.5 million.

 

Interest in Seller, the Recapitalization Transaction and Private Investment

 

Various funds managed by and affiliated with Mudrick Capital, a greater than 5% beneficial owner of our Common Stock and an affiliate of sponsor of which Jason Mudrick, our prior Chief Executive Officer and director, is the President and David Kirsch, the current Chairman of the Board and prior Vice President of the Company, is Managing Director, may be deemed to have beneficially owned: 646,421 shares of Seller’s common stock (prior to the Recapitalization Transaction), in connection with which such funds received 72,131 shares of our Common Stock in connection with the consummation of the Recapitalization Transaction; and, as of May 29, 2020, an aggregate of $41.8 million in principal amount of Seller First Lien Notes, which was repaid in connection with the consummation of the Recapitalization Transaction; an aggregate of $58.1 million in principal amount of 1.5 Lien Notes, including accrued interest, which was subject to the Exchange Agreement and exchanged for shares of our Common Stock in the Note exchange; an aggregate of $85.9 million in principal amount of Second Lien Notes, including accrued interest, which were subject to the Second Lien Conversion Agreement and converted into shares of Seller’s common stock in connection with the consummation of the Recapitalization Transaction and received a distribution of shares of our Common Stock upon dissolution of Seller immediately following consummation of the Recapitalization Transaction; and an aggregate of $51.2 million in principal amount of 1.25 Lien Notes, including accrued interest, which was subject to the 1.25 Lien Exchange Agreement pursuant to which the 1.25 Lien Notes were exchanged for the $31.9 million in aggregate principal amount of Subordinated Notes, and the remainder for Excess Notes which were exchanged for shares of our Common Stock in the Note exchange. In addition, in connection with the private investment, funds managed by and affiliated with Mudrick Capital, entered into the Subscription/Backstop Agreements for the purchase of an aggregate of 3,028,924 shares of our Common Stock at a purchase price of $10.00 per share, and the issuance to such investors of an aggregate of 1,295,892 warrants exercisable at $11.50 per share, for an aggregate purchase price of $30.3 million.

 

In addition, various funds managed by and affiliated with Whitebox, Highbridge and Aristeia, each a greater than 5% beneficial owner of our Common Stock, as of May 29, 2020, held an aggregate of $15.4 million, $14.2 million and $5.9 million, respectively, in aggregate principal amount of Seller First Lien Notes, which was repaid in connection with the consummation of the Recapitalization Transaction; an aggregate of $40.9 million, $23.3 million and $15.7 million, respectively, in principal amount of 1.5 Lien Notes, including accrued interest, which was subject to the Exchange Agreement and exchanged for shares of our Common Stock in the Note exchange; an aggregate of $60.5 million, $34.5 million and $23.2 million, respectively, in principal amount of Second Lien Notes, including accrued interest, which were subject to the Second Lien Conversion Agreement and converted into shares of Seller’s common stock in connection with the consummation of the Recapitalization Transaction and received a distribution of shares of our Common Stock upon dissolution of Seller immediately following consummation of the Recapitalization Transaction; and an aggregate of $36.1 million, $20.6 million and $13.9 million, respectively, in principal amount of 1.25 Lien Notes, including accrued interest, which was subject to the 1.25 Lien Exchange Agreement pursuant to which the 1.25 Lien Notes were exchanged for $22.5 million, $12.8 million and $8.6 million, respectively, in aggregate principal amount of Subordinated Notes and the remainder for Excess Notes which were exchanged for shares of our Common Stock in the Note exchange. In addition, in connection with the private investment, funds managed by and affiliated with Whitebox, Highbridge and Aristeia each entered into the Subscription/Backstop Agreements for the purchase of an aggregate of 2,134,018, 1,216,653 and 819,404 shares of our Common Stock at a purchase price of $10.00 per share, and the issuance to such investors of an aggregate of 913,017, 520,532 and 350,573 warrants exercisable at $11.50 per share, for an aggregate purchase prices of $21.3 million, $12.2 million and $8.2 million, respectively.

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David Kirsch was a director of Seller. Mr. Kirsch was the primary representative of the Company in respect of negotiating the Recapitalization Transaction and asked to be recused as a director from all Seller’s board of directors meetings related to consideration of the Recapitalization Transaction. Throughout the period from May 2018 through January 2020, Mr. Kirsch did not participate as a director in meetings of Seller’s board of directors related to consideration of a transaction with the Company unless specifically requested to do so after acknowledgment and disclosure of his potential conflicts of interest. In connection with the private investment, negotiations on behalf of the Initial Subscribers were led by Mr. Jonathan Segal, a member of Seller’s board of directors acting on behalf of Highbridge, and Mr. Jacob Mercer, a member of Seller’s board of directors acting on behalf of Whitebox, and Mr. Mudrick, on behalf of the funds managed by Mudrick Capital, who agreed that Mudrick Capital would participate on a pro rata basis with the other investors on the terms to which the other Initial Subscribers agreed.

 

Founder Shares

 

On September 25, 2017, sponsor purchased 5,750,000 founders shares for an aggregate price of $25,000. Holders of founder shares may also elect to convert their founder shares into an equal number of shares of our Common Stock, subject to adjustment, at any time. As a result of the underwriters’ election to partially exercise their over-allotment option on February 28, 2018, 550,000 founder shares were forfeited so that the founder shares held by the initial stockholders would represent 20% of the outstanding shares of our Common Stock following the completion of the IPO. In connection with the Recapitalization Transaction, 3,511,820 founder shares in accordance with the terms of the Purchase Agreement and the Parent Sponsor Letter Agreement and the remaining founder shares were automatically converted into 1,688,180 shares of our Common Stock.

 

Private Placement Warrants

 

Concurrently with the closing of the IPO, sponsor and Cantor purchased an aggregate of 7,500,000 private placement warrants at a price of $1.00 per warrant (6,500,000 private placement warrants by sponsor and 1,000,000 private placement warrants by Cantor) for an aggregate purchase price of $7,500,000. On February 28, 2018, we consummated the sale of an additional 240,000 private placement warrants at a price of $1.00 per warrant, of which 200,000 warrants were purchased by sponsor and 40,000 warrants were purchased by Cantor, generating gross proceeds of $240,000. Each private placement warrant is exercisable for one share of our Common Stock at a price of $11.50 per share. The proceeds from the private placement warrants were added to the proceeds from the IPO and held in the trust account. The private placement warrants are non-redeemable and exercisable on a cashless basis so long as they are held by sponsor, Cantor or their permitted transferees. The private placement warrants will expire five years after the completion of the Recapitalization Transaction or earlier upon redemption or liquidation. In addition, for as long as the private placement warrants are held by sponsor, Cantor or its designees or affiliates, they may not be exercised after five years from the effective date of the registration statement for the IPO.

 

Sponsor, Cantor and our prior officers and directors have agreed, subject to limited exceptions, not to transfer, assign or sell any of their private placement warrants until 30 days after the completion of the Recapitalization Transaction.

 

Related Party Loans

 

On September 25, 2017, sponsor agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the IPO pursuant to a promissory note. The Note was non-interest bearing and was repaid in full to the sponsor at the time of the IPO.

 

On January 2, 2020, in order to finance transaction costs in connection with the Recapitalization Transaction, we issued an unsecured promissory Note to the sponsor in an amount up to $1,500,000. Such Note bore no interest and was repaid in full ($900,000) at the consummation of the Recapitalization Transaction.

 

Administrative Support Agreement

 

Commencing on February 8, 2018 through the earlier of the consummation of a business combination or its liquidation, we agreed to pay sponsor a total of $10,000 per month for office space, utilities and secretarial and administrative support. For the years ended December 31, 2020 and December 31, 2019, the Company incurred $50,000 and $120,000 of administrative service fees, respectively.

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Forward Purchase Contract

 

On January 24, 2018, we entered into the Forward Purchase Contract with sponsor, pursuant to which sponsor committed to purchase, in a private placement for gross proceeds of $25,000,000 to occur concurrently with the consummation of the Recapitalization Transaction, 3,125,000 shares of our Common Stock and 2,500,000 forward purchase warrants having substantially the same terms as the private placement warrants. The funds from the sale of the securities under the Forward Purchase Contract was used as part of the consideration in connection with the Recapitalization Transaction.

 

Sprott Credit Agreement

 

On October 4, 2019, Seller, as borrower, and certain of its subsidiaries, as guarantors, entered into the Initial Sprott Credit Agreement with Lender for a secured multi-advance term credit facility with an original aggregate principal amount not in excess of $110.0 million. In connection with the consummation of the Recapitalization Transaction we assumed the Initial Sprott Credit Agreement pursuant to the terms of the Purchase Agreement, entered into the Sprott Credit Agreement, with us becoming a party thereto, borrowed $70.0 million under such facility and issued to Lender 496,634 shares of Common Stock on behalf of the Lender and the other participants in the Sprott Credit Agreement. As a result, we are the borrower under the Sprott Credit Agreement. Subsequent to the consummation of the Recapitalization Transaction the Lender transferred 45,149 shares of Common Stock to nonaffiliated participants in the Sprott Credit Agreement and 13,545 shares of Common Stock to Sprott Private Resource Streaming and Royalty (Collector), LP., an affiliated participant in the Sprott Credit Agreement. Michael Harrison, a member of our Board, has an indirect pecuniary interest in shares of our Common Stock beneficially owned by Sprott Private Resource Streaming and Royalty (Collector), LP. and the Lender as chief executive officer of Sprott Resource Streaming and Royalty Corp. and/or through his fiduciary role as Managing Partner of Sprott Private Resource Streaming & Royalty (Collector) LP. For a more complete discussion of the Sprott Credit Agreement, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources  — Sprott Credit Agreement” of this prospectus.

 

Sprott Royalty Agreement

 

The Company, HRD and Sprott Private Resource Lending II (Co) Inc., as the Payee, an affiliate of the Lender, entered into the Sprott Royalty Agreement with respect to the Hycroft Mine at the closing of the Recapitalization Transaction. Pursuant to the terms of the Sprott Royalty Agreement, at the closing of the Recapitalization Transaction, Payee paid to HRD cash consideration in the amount of $30.0 million, for which HRD granted to Payee a perpetual royalty equal to one and one-half percent (1.50%) of net smelter returns, payable monthly. Michael Harrison, a member of our Board, has an indirect interest in the Sprott Private Resource Lending II (Co) Inc. as chief executive officer of Sprott Resource Streaming and Royalty Corp. and/or through his fiduciary role as Managing Partner of Sprott Private Resource Streaming and Royalty (Collector) LP. For a more complete discussion of the Sprott Royalty Agreement, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources  — Sprott Royalty Agreement” of this prospectus.

 

Amended and Restated Registration Rights Agreement

 

In connection with the consummation of the Recapitalization Transaction, the Company entered into an Amended and Restated Registration Rights Agreement with the restricted stockholders to register the shares of Common Stock and, to the extent applicable, warrants, currently held or subsequently acquired by such holders, whether through conversion, exchange or otherwise. The Amended and Restated Registration Rights Agreement provides the parties with demand and piggyback registration rights for underwritten offerings and shelf registration rights for underwritten and non-underwritten offerings, in each case with the costs associated with such preparation and registration to be borne by the Company other than any applicable underwriting fees for the sale of securities. The restricted stockholders under the Amended and Restated Registration Rights Agreement have agreed not to sell, transfer, pledge or otherwise dispose of shares of Common Stock and warrants they hold or receive, subject to certain exceptions, for certain time periods specified therein. Pursuant to the Amended and Restated Registration Rights Agreement, a registration statement on Form S-1 was filed with the SEC and became effective on July 22, 2020, which registers for resale the Common Stock and certain warrants of the Company owned by the restricted stockholders.

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Employment Arrangements

 

In contemplation of the Recapitalization Transaction, Seller entered into employment agreements with its named executive officers which were assumed by the Company upon the consummation of the Recapitalization Transaction. For more information regarding these agreements with Seller’s named executive officers, please see “Executive Compensation — Employment Arrangements” of this prospectus.

 

Transition Agreements

 

On July 1, 2020, the Company and Mr. Buffington entered into the Transition Agreement, the Consulting Agreement and the RSU Agreement. For more information regarding these agreements, please see “Executive Compensation — Transition Agreements with Randy Buffington” of this prospectus. On September 8, 2020, the Company and Mr. Jones entered into the Jones Transition Agreement and the Jones Consulting Agreement. For more information regarding these agreements, please see “Executive Compensation — Transition Agreements with Stephen M. Jones” of this prospectus.

 

Indemnification Agreements

 

We have entered into indemnification agreements with each of our directors and officers. The indemnification agreements and our amended and restated bylaws in effect upon the consummation of the Recapitalization Transaction require us to indemnify all directors and officers to the fullest extent permitted by Delaware law against any and all expenses, judgments, liabilities, fines, penalties, and amounts paid in settlement of any claims. The indemnification agreements will also provide for the advancement or payment of all expenses to the indemnitee and for reimbursement to the Company if it is found that such indemnitee is not entitled to such indemnification under applicable law.

 

Related Party Policy

 

Our Audit Committee, pursuant to its charter, is responsible for reviewing and approving related party transactions to the extent that we enter into such transactions. We also require each of our directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information about related party transactions.

 

These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information regarding beneficial ownership of our Common Stock, as of March 22, 2021, by (i) each person known by us to be the beneficial owner of more than 5% of our outstanding Common Stock, (ii) each of our NEOs and directors and (iii) all of our executive officers and directors, as a group.

 

The number of shares of Common Stock beneficially owned by each entity, person, director or executive officer is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. The percentage ownership of our Common Stock in the “Percentage of Beneficial Ownership” column in the table is based on 59,901,306 shares of our Common Stock issued and outstanding as of March 22, 2021. Under such rules, beneficial ownership generally includes any shares of Common Stock over which the individual has sole or shared voting power or investment power as well as any shares of Common Stock that the individual has the right to acquire within 60 days of March 22, 2021, through the exercise of warrants or other rights. Unless otherwise indicated in the footnotes to this table, the Company believes each of the stockholders named in this table has sole voting and investment power with respect to the shares of Common Stock indicated as beneficially owned.

 

    Shares     Percentage of  
    Beneficially     Beneficial  
Name and Address of Beneficial Owner   Owned     Ownership  
5% or Greater Stockholders                
Mudrick Capital Management, L.P. and affiliated entities(1)     38,921,571       52.9 %
Whitebox Advisors and affiliated entities(2)     12,856,334       21.1 %
Highbridge Capital Management, LLC and affiliated entities(3)     9,094,078       14.8 %
Aristeia Capital, L.L.C. and affiliated entities(4)     5,889,683     9.8 %
Named Executive Officers and Directors(5)                
Diane R. Garrett, Ph.D.     --       * %
Randy Buffington**     --       * %
John Henris     --       * %
Stephen M. Jones***     --       * %
Stanton K. Rideout     --       * %
Jeffrey Stieber     --       * %
Eugene Davis     --       * %
John Ellis     --       * %
Michael Harrison(6)     --       * %
David Kirsch(7)     --       * %
Thomas Weng     --       * %
Marni Wieshofer     --       * %
All current executive officers and directors as a group (10 individuals)(8)     --       * %

 

 

 

*       Represents less than 1% of the outstanding shares of common stock.

 

**       Mr. Buffington resigned from his positions as Chairman of the Board, President and Chief Executive Officer effective on July 1, 2020.

 

***     Mr. Jones resigned from his positions as interim President and Chief Executive Officer effective September 8, 2020.

 

(1)Based on a Schedule 13D filed with the SEC on June 8, 2020, and other information provided to the Company. This includes 13,718,114 shares of Common Stock underlying warrants held by the Mudrick Funds (as defined below). Mudrick Capital Management, L.P. is the investment manager of Mudrick Distressed Opportunity Drawdown Fund, L.P., Mudrick Distressed Opportunity Fund Global L.P., Mudrick Distressed Opportunity Specialty Fund, LP, Mudrick Distressed Senior Secured Fund Global, L.P., Mudrick Distressed Opportunity Drawdown Fund II, L.P. and certain funds managed by Mudrick Capital Management, L.P., and the managing member of Mudrick Capital Acquisition Holdings, LLC (collectively, the “Mudrick Funds”) and holds voting and dispositive power over the shares of Common Stock held by the Mudrick Funds. Mudrick Capital Management, LLC is the general partner of Mudrick Capital Management, L.P., and Jason Mudrick is the sole member of Mudrick Capital Management, LLC. As such, Mudrick Capital Management, L.P., Mudrick Capital Management, LLC and Jason Mudrick may be deemed to have beneficial ownership of the shares of Common Stock held by the Mudrick Funds. Each such entity or person disclaims any beneficial ownership of the reported shares other than to the extent of any pecuniary interest they may have therein, directly or indirectly. The business address of such holders is 527 Madison Avenue, 6th Floor, New York, New York 10022. David Kirsch, the Chairman of our Board, has no pecuniary interest in shares of our Common Stock and disclaims any beneficial ownership of the shares of our Common Stock beneficially owned by Mudrick Capital Management, L.P. and its affiliates.

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(2)Based on a Schedule 13D/A filed on March 24, 2021. This include 913,017 shares of Common Stock underlying warrants. Whitebox Advisors LLC is the investment manager of Whitebox Institutional Partners, LP, Whitebox Asymmetric Partners, LP, Whitebox Credit Partners, LP, Whitebox Multi-Strategy Partners, LP (the “Whitebox Funds”) and holds voting and disposable power over the shares of the Company held by the Whitebox Funds. Whitebox Advisors LLC is owned by Robert Vogel, Paul Twitchell, Jacob Mercer, and Paul Roos and such individuals disclaim beneficial ownership of the securities referenced herein except to the extent of its or his direct or indirect economic interest in Whitebox Advisors LLC or such Whitebox Funds. The address of these persons is 3033 Excelsior Blvd., Suite 500, Minneapolis, Minnesota 55416.

 

(3)Based on a Schedule 13G/A filed on February 12, 2021. This includes 1,353,865 shares of Common Stock underlying warrants. Highbridge Capital Management, LLC (“HCM”), the trading manager of Highbridge MSF International Ltd. (“MSF”) and Highbridge Tactical Credit Master Fund, L.P. (“TCF” and, together with MSF, the “Highbridge Funds”), may be deemed to be the beneficial owner of the shares held by the Highbridge Funds. Jonathan Segal and Jason Hempel are responsible for the investment and voting decisions made by HCM with respect to the shares held by MSF and TCF. The Highbridge Funds and the foregoing individuals disclaim any beneficial ownership of these shares. The business address of HCM is 277 Park Avenue, 23rd Floor, New York, NY 10172 and the business address of the Highbridge Funds is c/o HedgeServ (Cayman) Ltd., Cricket Square, Floor 6, George Town, Grand Cayman KY1-1104, Cayman Islands.

 

(4)Based on the Schedule 13G filed on February 16, 2021. This excludes shares of Common Stock underlying warrants that are not presently exercisable due to the effect of a beneficial ownership limitation blocker. Aristeia Capital, L.L.C. is the investment manager of, and has voting and investment control with respect to the securities described herein held by, one or more private investment funds. The business address of such holders is One Greenwich Plaza, Third Floor, Greenwich, Connecticut 06830.

 

(5)The business address of each of the listed individuals is 8181 E. Tufts Avenue, Suite 510, Denver, Colorado 80237.

 

(6)Michael Harrison has an indirect pecuniary interest in shares of our Common Stock beneficially owned by Sprott Private Resource Streaming and Royalty (Collector), LP and Sprott Private Resource Lending II (Collector), LP as chief executive officer of Sprott Resource Streaming and Royalty Corp. and/or through his fiduciary role as a Managing Partner of Sprott Private Resource Streaming and Royalty (Collector) LP. Mr. Harrison disclaims any beneficial ownership of the shares of our Common Stock beneficially owned by Sprott Private Resource Streaming and Royalty (Collector), LP. and Sprott Private Resource Lending II (Collector), LP.

 

(7)David Kirsch, the Chairman of our Board, has no pecuniary interest in shares of our Common Stock and disclaims any beneficial ownership of the shares of our Common Stock beneficially owned by Mudrick Capital Management, L.P and its affiliates.

 

(8)Number includes shares owned by Messrs. Buffington and Jones who both left the Company during 2020.

 

We are not aware of any arrangements that may result in “changes in control” as that term is defined by the provisions of Item 403 of Regulation S-K.

 

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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

 

The following discussion is a summary of the U.S. federal income tax considerations generally applicable to the ownership and disposition of our Common Stock and Warrants, which we refer to collectively as our securities. This summary is based upon U.S. federal income tax law as of the date of this prospectus, which is subject to change or differing interpretations, possibly with retroactive effect. This summary does not discuss all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances, including investors subject to special tax rules (e.g., financial institutions, insurance companies, broker-dealers, tax-exempt organizations (including private foundations), taxpayers that have elected mark-to-market accounting, S corporations, regulated investment companies, real estate investment trusts, passive foreign investment companies, controlled foreign corporations, investors that will hold our securities as part of a straddle, hedge, conversion, or other integrated transaction for U.S. federal income tax purposes or investors that have a functional currency other than the U.S. dollar), all of whom may be subject to tax rules that differ materially from those summarized below. In addition, this summary does not discuss other U.S. federal tax consequences (e.g., estate or gift tax), any state, local, or non-U.S. tax considerations, the Medicare tax or any alternative minimum tax consideration. In addition, this summary is limited to investors that will hold our securities as a “capital asset,” as defined under the U.S. Tax Code (generally, property held for investment). No ruling from the Internal Revenue Service, (the “IRS”) has been or will be sought regarding any matter discussed herein. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects set forth below.

 

A “non-U.S. Holder” is a beneficial holder of securities who or that is neither a U.S. Holder nor a partnership for U.S. federal income tax purposes.

 

If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our securities, the tax treatment of a partner, member or other beneficial owner of such partnership will generally depend upon the status of the partner, member or other beneficial owner, the activities of the partnership, and certain determinations made at the partner, member or other beneficial owner level. If you are a partner, member or other beneficial owner of a partnership holding our securities, you are urged to consult your tax advisor regarding the tax consequences of the ownership and disposition of our securities.

 

THIS DISCUSSION OF U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. PROSPECTIVE HOLDERS SHOULD CONSULT THEIR TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO THEM OF OWNING AND DISPOSING OF OUR SECURITIES, AS WELL AS THE APPLICATION OF ANY, STATE, LOCAL, AND NON-U.S. INCOME, ESTATE AND OTHER TAX CONSIDERATIONS.

 

Allocation of Purchase Price and Characterization of a Unit

 

No statutory, administrative or judicial authority directly addresses the treatment of a Unit or any instrument similar to a Unit for U.S. federal income tax purposes and, therefore, such treatment is not entirely clear. The acquisition of a Unit should be treated for U.S. federal income tax purposes as the acquisition of one share of our Common Stock and one Warrant to acquire one share of our Common Stock. For U.S. federal income tax purposes, each holder of a Unit must allocate the purchase price paid by such holder for such Unit between the one share of Common Stock and the Warrant comprising the Unit based on the relative fair market value of each at the time of issuance. Under U.S. federal income tax law, each investor must make his or her own determination of such value based on all the relevant facts and circumstances. Therefore, we strongly urge each investor to consult his or her tax advisor regarding the determination of value for these purposes. The price allocated to each share of Common Stock and the Warrant comprising the Unit should be the stockholder’s tax basis in such share or Warrant, as the case may be. Any disposition of a Unit should be treated for U.S. federal income tax purposes as a disposition of the share of Common Stock and the Warrant comprising the Unit, and the amount realized on the disposition should be allocated between the share of Common Stock and the Warrant comprising the Unit based on their respective relative fair market values (as determined by each such Unit holder based on all the relevant facts and circumstances) at the time of disposition. The separation of shares of Common Stock and Warrants comprising Units should not be a taxable event for U.S. federal income tax purposes.

 

The foregoing treatment of the Units, shares of Common Stock and Warrants and a holder’s purchase price allocation are not binding on the IRS or the courts. Because there are no authorities that directly address instruments that are similar to the Units, no assurance can be given that the IRS or the courts will agree with the characterization described above or the discussion below. Accordingly, each prospective investor is urged to consult its own tax advisors regarding the tax consequences of an investment in a Unit (including alternative characterizations of a Unit). The balance of this discussion assumes that the characterization of the Units described above will be respected for U.S. federal income tax purposes.

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U.S. Holders

 

Taxation of Distributions

 

We do not intend to pay cash dividends for the foreseeable future. If we pay distributions to U.S. Holders of shares of our Common Stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. Holder’s adjusted tax basis in our Common Stock. Any remaining excess will be treated as gain realized on the sale or other disposition of the Common Stock and will be treated as described under “U.S. Holders—Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Common Stock” below.

 

Dividends we pay to a U.S. Holder that is a taxable corporation generally will qualify for the dividends received deduction if the requisite holding period is satisfied. With certain exceptions (including dividends treated as investment income for purposes of investment interest deduction limitations), and provided certain holding period requirements are met, dividends we pay to a non-corporate U.S. Holder will generally constitute “qualified dividends” that will be subject to tax at the maximum tax rate accorded to long-term capital gains.

 

Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Common Stock

 

A U.S. Holder will recognize gain or loss on the sale, taxable exchange or other taxable disposition of our Common Stock. Any such gain or loss will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder’s holding period for such Common Stock exceeds one year. The amount of gain or loss recognized will generally be equal to the difference between (1) the sum of the amount of cash and the fair market value of any property received in such disposition and (2) the U.S. Holder’s adjusted tax basis in such Common Stock. A U.S. Holder’s adjusted tax basis in its Common Stock will generally equal the U.S. Holder’s acquisition cost (i.e., as discussed above, the portion of the purchase price of a Unit allocated to a share of Common Stock or, as discussed below, an amount equal to the sum of the U.S. Holder’s initial investment in a Warrant and the exercise price of such Warrant) less any prior distributions treated as a return of capital. The deductibility of capital losses is subject to limitations.

 

Exercise of a Warrant

 

Except as discussed below with respect to the cashless exercise of a Warrant, a U.S. Holder will not recognize gain or loss upon the exercise of a Warrant. The U.S. Holder’s tax basis in the share of our Common Stock received upon exercise of the Warrant will generally be an amount equal to the sum of the U.S. Holder’s initial investment in the Warrant and the exercise price of such Warrant. It is unclear whether a U.S. Holder’s holding period for the Common Stock received upon exercise of the Warrant would commence on the date of exercise of the Warrant or the day following the date of exercise of the Warrant; however, in either case the holding period will not include the period during which the U.S. Holder held the Warrant.

 

The tax consequences of a cashless exercise of a Warrant are not clear under current tax law. A cashless exercise may be nontaxable, either because the exercise is not a realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either situation, a U.S. Holder’s tax basis in the Common Stock received would generally equal such U.S. Holder’s tax basis in the Warrant. If the cashless exercise were treated as not being a realization event, it is unclear whether a U.S. Holder’s holding period for the Common Stock would commence on the date of exercise of the Warrant or the day following the date of exercise of the Warrant. If, however, the cashless exercise were treated as a recapitalization, the holding period of the Common Stock would include the holding period of the Warrant. It is also possible that a cashless exercise could be treated as a taxable exchange in which gain or loss is recognized. In such event, a U.S. Holder would be deemed to have surrendered a number of Warrants having a value equal to the exercise price. The U.S. Holder would recognize capital gain or loss in an amount equal to the difference between the fair market value of the Common Stock represented by the Warrants deemed surrendered and the U.S. Holder’s tax basis in the Warrants deemed surrendered. In this case, a U.S. Holder’s tax basis in the Common Stock received would equal the sum of the U.S. Holder’s initial investment in the Warrants exercised and the exercise price of such Warrants. It is unclear whether a U.S. Holder’s holding period for the Common Stock would commence on the date of exercise of the Warrant or the day following the date of exercise of the Warrant.

 

Due to the absence of authority on the U.S. federal income tax treatment of a cashless exercise, including when a U.S. Holder’s holding period would commence with respect to the Common Stock received, there can be no assurance which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders are urged to consult their tax advisors regarding the tax consequences of a cashless exercise.

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Sale, Exchange, Redemption or Expiration of a Warrant

 

Upon a sale, exchange (other than by exercise), redemption (other than a redemption for Common Stock) or expiration of a Warrant, a U.S. Holder will recognize taxable gain or loss in an amount equal to the difference between (1) the amount realized upon such disposition or expiration and (2) the U.S. Holder’s tax basis in the warrant. Such gain or loss will generally be treated as long-term capital gain or loss if the Warrant is held by the U.S. Holder for more than one year at the time of such disposition or expiration. If a Warrant is allowed to lapse unexercised, a U.S. Holder generally will recognize a capital loss equal to such U.S. Holder’s tax basis in the Warrant. The deductibility of capital losses is subject to certain limitations.

 

A redemption of warrants for Common Stock described in this prospectus under “Description of Securities —Warrants—Public Warrants” should be treated as a “recapitalization” within the meaning of Section 368(a)(1)(E) of the U.S. Tax Code. Accordingly, you should not recognize any gain or loss on the redemption of Warrants for shares of our Common Stock. Your aggregate tax basis in the shares of Common Stock received in the redemption should equal your aggregate tax basis in your Warrants redeemed and your holding period for the shares of Common Stock received in redemption of your Warrants should include your holding period for your surrendered Warrants.

 

Possible Constructive Distributions

 

The terms of each Warrant provide for an adjustment to the number of shares of Common Stock for which the Warrant may be exercised or to the exercise price of the Warrant in certain events, as discussed in the section of this prospectus captioned “Description of Securities — Description of Warrants Included in the Units.” An adjustment that has the effect of preventing dilution is generally not a taxable event. Nevertheless, a U.S. Holder of Warrants would be treated as receiving a constructive distribution from us if, for example, the adjustment increases such U.S. Holder’s proportionate interest in our assets or earnings and profits (e.g., through an increase in the number of shares of Common Stock that would be obtained upon exercise) as a result of a distribution of cash to the U.S. Holders of shares of our Common Stock that is taxable to such U.S. Holders as a distribution. Such a constructive distribution would be subject to tax as described under “U.S. Holders—Taxation of Distributions” above in the same manner as if such U.S. Holder received a cash distribution from us equal to the fair market value of such increased interest.

 

Non-U.S. Holders

 

Taxation of Distributions

 

As discussed above, we do not intend to pay cash dividends for the foreseeable future. In general, any distributions (including constructive distributions) we make to a non-U.S. Holder of shares of our Common Stock, to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), will constitute dividends for U.S. federal income tax purposes and, provided such dividends are not effectively connected with the non-U.S. Holder’s conduct of a trade or business within the United States, we will be required to withhold tax from the gross amount of the dividend at a rate of 30%, unless such non-U.S. Holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and provides proper certification of its eligibility for such reduced rate (generally on an IRS Form W-8BEN or W-8BEN-E, as applicable). In the case of any constructive dividend, it is possible that this tax would be withheld from any amount owed to a non-U.S. Holder by the applicable withholding agent, including cash distributions on other property or sale proceeds from Warrants or other property subsequently paid or credited to such non-U.S. Holder. Any distribution not constituting a dividend will be treated first as reducing (but not below zero) the non-U.S. Holder’s adjusted tax basis in its shares of our Common Stock and, to the extent such distribution exceeds the non-U.S. Holder’s adjusted tax basis, as gain realized from the sale or other disposition of the Common Stock, which will be treated as described under “Non-U.S. Holders—Gain on Sale, Exchange, Redemption, Expiration or Other Taxable Disposition of Common Stock or Warrants” below. In addition, if we determine that we are classified as a “United States real property holding corporation” (see “Non-U.S. Holders – Gain on Sale, Exchange, Redemption, Expiration or Other Taxable Disposition of Common Stock or Warrants” below), we will withhold 15% of the fair market value of any property distributed that exceeds our current and accumulated earnings and profits.

 

Dividends we pay to a non-U.S. Holder that are effectively connected with such non-U.S. Holder’s conduct of a trade or business within the United States (or, if an applicable tax treaty so requires, are attributable to a U.S. permanent establishment or fixed base maintained by the non-U.S. Holder) will generally not be subject to U.S. withholding tax, provided such non-U.S. Holder complies with certain certification and disclosure requirements (generally by providing an IRS Form W-8ECI). Instead, such dividends will generally be subject to U.S. federal income tax, net of certain deductions, at the same graduated individual rates or corporate rate applicable to U.S. Holders. If the non-U.S. Holder is a corporation, dividends that are effectively connected income may also be subject to a “branch profits tax” at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty).

 

Exercise of a Warrant

 

The U.S. federal income tax treatment of a non-U.S. Holder’s exercise of a Warrant generally will correspond to the U.S. federal income tax treatment of the exercise of a warrant by a U.S. Holder, as described under “U.S. Holders—Exercise of a Warrant” above, although to the extent a cashless exercise results in a taxable exchange, the U.S. federal income tax consequences to the non-U.S. Holder would be the same as those described below in “Non-U.S. Holders—Gain on Sale, Exchange, Redemption, Expiration or Other Taxable Disposition of Common Stock or Warrants.”

 

Redemption of Warrants for Common Stock

 

A redemption of warrants for Common Stock described in this prospectus under “Description of Securities—Warrants—Public Warrants” should be treated as a “recapitalization” within the meaning of Section 368(a)(1)(E) of the U.S. Tax Code. Accordingly, you should not recognize any gain or loss on the redemption of Warrants for shares of our Common Stock. Your aggregate tax basis in the shares of Common Stock received in the redemption should equal your aggregate tax basis in your Warrants redeemed and your holding period for the shares of Common Stock received in redemption of your Warrants should include your holding period for your surrendered Warrants.

 

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Possible Constructive Distributions

 

The terms of each Warrant provide for an adjustment to the number of shares of Common Stock for which the Warrant may be exercised or to the exercise price of the Warrant in certain events, as discussed in the section of this prospectus captioned “Description of Securities — Description of Warrants” An adjustment that has the effect of preventing dilution is generally not a taxable event. Nevertheless, a non-U.S. Holder of Warrants would be treated as receiving a constructive distribution from us if, for example, the adjustment increases such non-U.S. Holder’s proportionate interest in our assets or earnings and profits (e.g., through an increase in the number of shares of Common Stock that would be obtained upon exercise) as a result of a distribution of cash to the non-U.S. Holders of shares of our Common Stock that is taxable to such non-U.S. Holders as a distribution. A non-U.S. Holder would be subject to U.S. federal income tax withholding as described in “Taxation of Distributions” above in the same manner as if such non-U.S. Holder received a cash distribution from us equal to the fair market value of such increased interest, but without any corresponding receipt of cash. It is possible that any withholding tax on such a constructive distribution might be satisfied by us or the applicable withholding agent through a sale of a portion of the non-U.S. Holders’ Common Stock, Warrants, or other property held or controlled by us or the applicable withholding agent on behalf of the non-U.S. Holders or might be withheld from distributions or proceeds subsequently paid or credits to the non-U.S. Holder.

 

Gain on Sale, Exchange, Redemption, Expiration or Other Taxable Disposition of Common Stock or Warrants

 

A non-U.S. Holder will generally not be subject to U.S. federal income or withholding tax in respect of gain recognized on a sale, taxable exchange or other taxable disposition of our Common Stock or Warrants, or upon the redemption or expiration of a Warrant, unless:

 

the gain is effectively connected with the conduct of a trade or business by the non-U.S. Holder within the United States (or, if an applicable tax treaty so requires, is attributable to a U.S. permanent establishment or fixed base maintained by the non-U.S. Holder);

 

the non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are met; or

 

(i) we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that the non-U.S. Holder held our Common Stock or Warrants, and (ii) shares of our Common Stock (A) are not regularly traded on an established securities market or (B) are regularly traded on an established securities market, but the non-U.S. Holder has owned, directly or constructively (including through ownership of Warrants), more than 5% of our Common Stock at any time within the shorter of the five-year period preceding the disposition or such non-U.S. Holder’s holding period for the shares of our Common Stock. There can be no assurance that our Common Stock will be treated as regularly traded on an established securities market for this purpose.

 

Gain described in the first bullet point above will be subject to tax at generally applicable U.S. federal income tax rates. Any gains described in the first bullet point above of a non-U.S. Holder that is a foreign corporation may also be subject to an additional “branch profits tax” at a 30% rate (or lower applicable treaty rate). Gain described in the second bullet point above will generally be subject to a 30% U.S. federal income tax. Non-U.S. Holders are urged to consult their tax advisors regarding possible eligibility for benefits under income tax treaties.

 

If the third bullet point above applies to a non-U.S. Holder, gain recognized by such non-U.S. holder on the sale, exchange or other disposition of our Common Stock or Warrants will be subject to tax at generally applicable U.S. federal income tax rates. In addition, if our stock is not regularly traded on an established securities market for this purpose, a buyer of our Common Stock or Warrants from such non-U.S. Holder may be required to withhold U.S. income tax at a rate of 15% of the amount realized upon such disposition. We will be classified as a United States real property holding corporation if the fair market value of our “United States real property interests” equals or exceeds 50% of the sum of the fair market value of our worldwide real property interests plus our other assets used or held for use in a trade or business, as determined for U.S. federal income tax purposes. We believe that we currently are, and expect to remain for the foreseeable future, a United States real property holding corporation. Non-U.S. Holders are urged to consult their tax advisors regarding the application of these rules.

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Additional U.S. Federal Tax Considerations

 

Additional Tax on Net Investment Income

 

In addition to regular U.S. federal income tax, certain U.S. Holders that are individuals, estates or trusts are subject to a 3.8% tax on all or a portion of their “net investment income,” which may include all or a portion of their net gain from the sale, exchange or other disposition of, or dividends with respect to, Common Stock. Each U.S. Holder is urged to consult its own tax advisor regarding the application of this tax.

 

Backup Withholding and Additional Information Reporting

 

In general, information returns may be filed with the IRS in connection with actual or constructive dividends paid to a U.S. Holder in respect of our securities, and the proceeds received by a U.S. Holder from the sale, exchange or other disposition of our securities within the United States or through certain U.S.-related financial intermediaries will be subject to U.S. information reporting rules, unless a U.S. Holder is a corporation or other exempt recipient and properly establishes its rights to an exemption. Backup withholding at a rate of 24% may apply to such payments if a U.S. Holder does not establish an exemption from backup withholding or fails to provide a correct taxpayer identification number and make any other required certifications.

 

In general, information returns may be filed with the IRS in connection with dividends paid to non-U.S. Holders, and the proceeds received by a non-U.S. Holder from the sale, exchange or other disposition of our securities within the United States or through certain U.S.-related financial intermediaries. Copies of the information returns reporting dividends and any withholding may also be made available to the tax authorities in the country in which the non-U.S. Holder resides under the provisions of a treaty or agreement. A non-U.S. Holder may be subject to backup withholding (currently at a rate of 24%) in connection with actual or constructive dividends with respect to our securities and the proceeds from the sales, exchange or other disposition of our securities unless the non-U.S. Holder provides to the applicable withholding agent a properly executed IRS Form W-8BEN or W-8BEN-E (or other applicable form) certifying under penalties of perjury that the non-U.S. Holder is not a United States person, or otherwise qualifies for an exemption.

 

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against U.S. federal income tax liability, provided that the required information is timely furnished to the IRS. Holders are urged to consult their own tax advisor regarding the information reporting and backup withholding rules.

 

Foreign Account Tax Compliance Act

 

Sections 1471 through 1474 of the U.S. Tax Code and the Treasury Regulations and administrative guidance promulgated thereunder (commonly referred as the “Foreign Account Tax Compliance Act” or “FATCA”) generally impose withholding at a rate of 30% in certain circumstances on actual or constructive dividends in respect of our securities which are held by or through certain foreign financial institutions (including investment funds), unless any such institution (1) enters into, and complies with, an agreement with the IRS to report, on an annual basis, information with respect to interests in, and accounts maintained by, the institution that are owned by certain U.S. persons and by certain non-U.S. entities that are wholly or partially owned by U.S. persons and to withhold on certain payments, or (2) if required under an intergovernmental agreement between the United States and an applicable foreign country, reports such information to its local tax authority, which will exchange such information with the U.S. Department of Treasury. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Accordingly, the entity through which our securities is held will affect the determination of whether such withholding is required. Similarly, dividends in respect of our securities held by an investor that is a non-financial non-U.S. entity that does not qualify under certain exceptions will generally be subject to withholding at a rate of 30%, unless such entity either (1) certifies to us or the applicable withholding agent that such entity does not have any “substantial United States owners” or (2) provides certain information regarding the entity’s “substantial United States owners,” which will in turn be provided to the U.S. Department of Treasury. Prospective investors should consult their tax advisors regarding the possible implications of FATCA on their investment in our securities.

 

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DESCRIPTION OF SECURITIES

 

General

 

These summaries are not intended to be a complete discussion of the rights of Company stockholders and are qualified in their entirety by reference to the Delaware General Corporation Law and the various documents of the Company that are referred to in the summaries, as well as reference to the Second Amended and Restated Charter and Amended and Restated Bylaws, copies of which are included as Exhibits 3.1 and 3.2, respectively, to the registration statement of which this prospectus forms a part.

 

Authorized Capital Stock

 

The Second Amended and Restated Charter authorizes the issuance of up to 400,000,000 shares of common stock, $0.0001 par value per share, and 10,000,000 shares of preferred stock.

 

Description of Warrants Included in the Units

 

The material terms and provisions of the Warrants are summarized below. This summary of some provisions of the Warrants is not complete, and is qualified in its entirety by, the provisions of the New Warrant Agreement. For the complete terms of the Warrants and the New Warrant Agreement, you should refer to the New Warrant Agreement, and the form of warrant included as Exhibit A to the New Warrant Agreement, filed as Exhibit 4.4 to the registration statement on Form S-1 of which this prospectus forms a part.

 

The Warrants have been issued in registered form under the New Warrant Agreement between Continental Stock Transfer & Trust Company, as warrant agent, and the Company and shall initially be represented only by one or more global warrants deposited with the warrant agent, as custodian on behalf of The Depository Trust Company, or DTC, and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC. The New Warrant Agreement provides that the terms of the Warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but any change that adversely affects the interests of the registered holders of Warrants, including any modification or amendment to increase the Warrant price or shorten the exercise period, requires the approval of the registered holder of the Warrant.

 

Exercise Price

 

The initial exercise price is $10.50 per share of Common Stock. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our Common Stock.

 

Exercisability

 

The Warrants are exercisable at any time after October 5, 2020, the date of issuance, and at any time up to the earlier to occur of (x) October 5, 2025, the date that is five years from the date of issuance and (y) the date fixed by the Company for redemption if the Company elects to redeem the Warrants (as described below), at which time any unexercised warrants will expire and cease to be exercisable. The Warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to the Company, for the number of Warrants being exercised. The Warrant holders do not have the rights or privileges of holders of shares of Common Stock and any voting rights until they exercise their Warrants and receive shares of Common Stock. After the issuance of shares of Common Stock upon exercise of the Warrants, each holder will be entitled to one vote for each share of Common Stock held of record on all matters to be voted on by stockholders.

 

No fractional shares will be issued upon exercise of the Warrants. If, upon exercise of the Warrants, a holder would be entitled to receive a fractional interest in a share, the Company will, upon exercise, round down to the nearest whole number the number of shares of Common Stock to be issued to the Warrant holder.

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Redemption by the Company and Cashless Exercise

 

Once the Warrants become exercisable, the Company may call the Warrants for redemption:

 

in whole and not in part;

 

at a price of $0.01 per Warrant;

 

upon not less than 30 days’ prior written notice of redemption to each Warrant holder; and

 

if, and only if, the last reported sale price of the Common Stock equals or exceeds $17.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading day period ending three business days prior to the date the Company sends the notice of redemption to the Warrant holders.

 

If and when the Warrants become redeemable, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.

 

If the foregoing conditions are satisfied and the Company issues a notice of redemption of the Warrants, each Warrant holder will be entitled to exercise his, her or its Warrant prior to the scheduled redemption date. However, the price of the Common Stock may fall below the $17.00 redemption trigger price (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) as well as the $10.50 per share warrant exercise price after the redemption notice is issued.

 

If the Company calls the Warrants for redemption as described above, the Company’s management will have the option to require any holder that wishes to exercise his, her or its Warrant to do so on a “cashless basis.” In determining whether to require all holders to exercise their Warrants on a “cashless basis,” the Company’s management will consider, among other factors, the Company’s cash position, the number of Warrants that are outstanding and the dilutive effect on stockholders of issuing the maximum number of shares of Common Stock issuable upon the exercise of its Warrants. If the Company’s Board takes advantage of this option, all holders of Warrants would pay the exercise price by surrendering their Warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the Warrants, multiplied by the difference between the exercise price of the Warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported closing price of the Common Stock for the ten trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. If the Company’s management takes advantage of this option, the notice of redemption will contain the information necessary to calculate the number of shares of Common Stock to be received upon exercise of the Warrants, including the “fair market value” in such case. Requiring a cashless exercise in this manner will reduce the number of shares to be issued and thereby lessen the dilutive effect of a Warrant redemption.

 

If the Common Stock is at the time of any exercise of a Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act (or any successor rule), the Company may, at its option, (i) require holders of the Warrants who exercise the Warrants to exercise such Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act (or any successor rule) as described in the New Warrant Agreement and (ii) in the event the Company so elects, the Company shall not be required to file or maintain in effect a registration statement for the registration, under the Securities Act, of the Common Stock issuable upon exercise of the Warrants, notwithstanding anything in the New Warrant Agreement to the contrary.

 

Reorganization

 

In case of any reclassification or reorganization of the outstanding shares of Common Stock, or in the case of any merger or consolidation of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding shares of Common Stock), or in the case of any sale or conveyance to another corporation or entity of the Company’s assets or other property as an entirety or substantially as an entirety in connection with which the Company is dissolved, the holders of the Warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the Warrants and in lieu of the shares of Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the Warrants would have received if such holder had exercised his, her or its Warrants immediately prior to such event. If less than 70% of the consideration receivable by the holders of shares of Common Stock in such transaction is payable in the form of shares of Common Stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the Warrant properly exercises the Warrant within 30 days following public disclosure of such transaction, the Warrant exercise price will be reduced as specified in the New Warrant Agreement based on the Black-Scholes value (as defined in the New Warrant Agreement) of the Warrant. The purpose of such exercise price reduction is to provide additional value to holders of the Warrants when an extraordinary transaction occurs during the exercise period of the Warrants pursuant to which the holders of the Warrants otherwise do not receive the full potential value of the Warrants.

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Exchange Listing

 

The Warrants are listed on the Nasdaq Capital Market under the symbol “HYMCL.”

 

No Rights as a Stockholder

 

Except as otherwise provided in the warrants or by virtue of such holder’s ownership of shares of our Common Stock, the holder of a Warrant does not have the rights or privileges of a holder of our Common Stock, including any voting rights, until the holder exercises the Warrant.

 

We do not intend to apply for listing of the Warrants on any securities exchange or other trading system.

 

Class A Common Stock

 

Voting Power

 

Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, under the Second Amended and Restated Charter, the holders of our Common Stock possess all voting power for the election of directors and all other matters requiring stockholder action and are entitled to one vote per share on matters to be voted on by stockholders. The holders of Common Stock will at all times vote together as one class on all matters submitted to a vote of the Company’s common stockholders under the Second Amended and Restated Charter.

 

Preferred Shares

 

The Second Amended and Restated Charter provides that shares of preferred stock may be issued from time to time in one or more series. The Board is authorized to fix the voting rights, if any, designations, powers, preferences and relative, participating, optional, special and other rights, if any, and any qualifications, limitations and restrictions thereof, applicable to the shares of each series. The Board is able, without stockholder approval, to issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the Common Stock and could have anti-takeover effects. The ability of the Board to issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control or the removal of existing management. The Company has no preferred stock outstanding at the date hereof. Although the Company does not currently intend to issue any shares of preferred stock, it cannot assure you that it will not do so in the future.

 

Dividends

 

Subject to the rights, if any, of holders of any outstanding shares of preferred stock, the Second Amended and Restated Charter provides that holders of Common Stock are entitled to receive such dividends and other distributions, if any, as may be declared from time to time by the Board in its discretion out of legally available funds and shall share equally on a per share basis in such dividends and distributions.

 

Election of Directors

 

The Second Amended and Restated Charter and the Company’s Amended and Restated Bylaws provide that the Board will be elected at each annual meeting of stockholders. The term of all directors shall be for one year and will expire at the next annual meeting of stockholders or until their respective successors are duly elected and qualified. With the approval of the stockholders at the special meeting of the stockholders on May 29, 2020, the Board was declassified. The current directors and executive officers of the Company are described in the Section entitled “Management” of this prospectus.

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Under the Second Amended and Restated Charter, there is no cumulative voting with respect to the election of directors, with the result that directors will be elected by a plurality of the votes cast at a meeting of stockholders by the holders of Common Stock.

 

Liquidation Preference

 

The Second Amended and Restated Charter provides that in the event of voluntary or involuntary liquidation, dissolution, or winding up of the Company, the holders of the Common Stock will be entitled to receive all of the remaining assets of the Company available for distribution to stockholders, ratably in proportion to the number of shares of Common Stock held by them, after the rights of creditors and the holders of the preferred stock have been satisfied.

 

Business Combinations

 

The Second Amended and Restated Charter provides that the Company will not be governed by Section 203 of the DGCL and includes a provision that is substantially similar to Section 203 of the DGCL, but excludes the investment funds affiliated with sponsor and their respective successors and affiliates and the investment funds affiliated with or managed by Mudrick Capital, Whitebox, Highbridge, Aristeia and Wolverine and their respective successors and affiliates from the definition of “interested stockholder.”

 

Pre-emption Rights

 

The holders of the Common Stock will not have preemptive or other subscription rights and there will be no sinking fund or redemption provisions applicable to the Common Stock.

 

Removal of Directors; Vacancies on the Board of Directors

 

The Second Amended and Restated Charter and the Company’s Amended and Restated Bylaws provide that, subject to the rights of the holders of any series of the Company preferred stock, directors may be removed only by the affirmative vote of the holders of a majority of the voting power of all shares then entitled to vote at an election of directors. Furthermore, subject to the rights of the holders of any series of the Company preferred stock, any vacancy on the Company’s Board, however occurring, including a vacancy resulting from an increase in the size of the Board, may only be filled by the affirmative vote of a majority of the Company’s directors then in office, even if less than a quorum, or by a sole remaining director, and shall not be filled by a vote of the stockholders.

 

Corporate Opportunity

 

The Second Amended and Restated Charter provides that, to the extent allowed by applicable law, the doctrine of corporate opportunity, or any other analogous doctrine, does not apply with respect to the Company or any of its officers or directors in circumstances where the application of such corporate opportunity doctrine would conflict with any fiduciary duties or contractual obligations they may have. Mudrick Capital, Whitebox, Highbridge, Aristeia and Wolverine and the investment funds affiliated with them, including their respective partners, principals, directors, officers, members, managers, equity holders and/or employees (including any of the foregoing who serve as officers or directors of the Company) do not have any fiduciary duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as the Company or any of its subsidiaries, except as may otherwise be provided in separate agreement between such person or entity and the Company.

 

Exclusive Forum Provision

 

The Second Amended and Restated Charter provides that the Court of Chancery of the State of Delaware is the exclusive forum for stockholder litigation, other than any stockholder action to enforce any liability or duty under the Securities Act or the Exchange Act for which there is exclusive federal or concurrent federal and state jurisdiction.

 

Amendment of Certificate of Incorporation or Bylaws

 

As required by the DGCL, any amendment of the Second Amended and Restated Charter must first be approved by a majority of the directors then in office and, if required by law or the Second Amended and Restated Charter, thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment, and a majority of the outstanding shares of each class entitled to vote on the amendment as a class.

 95

 

 

The Company’s Amended and Restated Bylaws may be amended, altered or repealed by the affirmative vote of a majority of the Company directors then in office, and may also be amended, altered or repealed by the affirmative vote of a majority of the outstanding shares entitled to vote generally in the election of directors.

 

Listing

 

Our Common Stock and public warrants are listed on the Nasdaq Capital Market under the symbols “HYMC” and “HYMCW,” respectively. The Seller warrants commenced trading on September 1, 2020 on the Nasdaq Capital Market under the symbol “HYMCZ.” The Warrants commenced trading on January 25, 2021 on the Nasdaq Capital Market under the symbol “HYMCL.”

 

INTEREST OF NAMED EXPERTS

 

The consolidated financial statements of Hycroft Mining Holding Corporation as of December 31, 2020 and 2019 and for each of the years in the two-year period ended December 31, 2020 have been audited by Plante & Moran, PLLC, an independent registered public accounting firm, as stated in their report thereon and have been included in the registration statement of which this prospectus forms a part in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.

 

The financial statements of Mudrick Capital Acquisition Corp. as of and for each of the years in the two year period ending December 31, 2019 and December 31, 2018 included in this post effective amendment no. 1 to the registration statement on form S-1 have been audited by WithumSmith+Brown, PC, an independent registered public accounting firm, as set forth in their report (which includes a explanatory paragraph about the entities ability to continue as a going concern), appearing elsewhere herein, and are included in reliance on such report given on the authority of such firm as experts in accounting and auditing.

 

Employees of M3 Engineering & Technology Corporation and SRK Consulting (U.S.), Inc. and Steven Newman (RM-SME) and Richard F. DeLong (P.Geo) have prepared the Hycroft Technical Report. Each of the individuals who prepared the Hycroft Technical Report is a qualified person as defined in subpart 1300 of Regulation S-K. Steven Newman is the Director of Feasibility Studies at the Company and is an employee of the Company. Richard F. DeLong is an employee of EM Strategies, Inc. Other than Steven Newman, none of the qualified persons, or the employers of any of the qualified persons, is an affiliate of Company.

 

As at the date hereof, none of the above named experts has received, or is to receive, in connection with the offering, an interest, direct or indirect, in our Company.

 

LEGAL MATTERS

 

Neal, Gerber & Eisenberg LLP, Chicago, Illinois, which has acted as our counsel in connection with this offering, will pass upon the validity of the Common Stock covered by this prospectus.

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities offered by this prospectus. This prospectus, which forms a part of such registration statement, does not contain all of the information included in the registration statement. For further information pertaining to us and our securities, you should refer to the registration statement and to its exhibits. The registration statement has been filed electronically and may be obtained in any manner listed below. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement or a report we file under the Exchange Act, you should refer to the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit to a registration statement or report is qualified in all respects by the filed exhibit.

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC’s website at www.sec.gov and on our website at www.hycroftmining.com. The information found on, or that can be accessed from or that is hyperlinked to, our website is not part of this prospectus. You may inspect a copy of the registration statement through the SEC’s website, as provided herein.

 

 96

 

INDEX TO FINANCIAL STATEMENTS

 

HYCROFT MINING HOLDING CORPORATION

 

AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 2020 AND 2019

 

 

 

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Balance Sheets as of December 31, 2020 and 2019

F-3

Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019

F-4

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

F-5

Consolidated Statements of Stockholders’ (Deficit) Equity for the Years Ended December 31, 2020 and 2019

F-6

Notes to Audited Consolidated Financial Statements

F-7

 

 

MUDRICK CAPITAL ACQUISITION CORPORATION 

 

 

 

AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED 2019 AND 2018

 

 

 

Report of Independent Registered Public Accounting Firm

F-42

Balance Sheets as of December 31, 2019 and 2018

F-43

Statements of Operations for the Fiscal Years Ended December 31, 2019 and 2018

F-44

Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019 and 2018

F-45

Statements of Cash Flows for the Years Ended December 31, 2019 and 2018

F-46

Notes to Audited Financial Statements

F-47

 

 

UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

 

 

 

Condensed Balance Sheets as of March 31, 2020 and December 31, 2019

F-59

Condensed Statements of Operations for the Three Months Ended March 31, 2020 and 2019

F-60

Condensed Statements of Change in Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018

F-61

Condensed Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

F-62

Notes to Unaudited Condensed Financial Statements

F-63

 

 

PRO FORMA FINANCIAL STATEMENTS 

 

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2020

F-75

 

 

F-1

 

Report of Independent Registered Public Accounting Firm

 

To the Stockholders and Board of Directors of Hycroft Mining Holding Corporation

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Hycroft Mining Holding Corporation (the “Company”) as of December 31, 2020 and 2019, the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company’s significant recurring operating losses, lack of liquidity and capital, and significant capital needed to expand operations raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Emphasis of Matter

 

As discussed in Note 3 Recapitalization Transaction and Note 22 Related Party Transactions to the financial statements, the Company completed a significant recapitalization transaction involving related parties. Our opinion is not modified with respect to this matter.

 

/s/ Plante & Moran PLLC

 

We have served as the Company’s auditor since 2017.

 

Denver, Colorado

 

March 24, 2020

F-2

 

HYCROFT MINING HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share amounts)

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets:

 

 

 

 

 

 

 

 

Cash

 

$

56,363

 

 

$

6,220