Hycroft Mining: Loss Widens And ROM Operation Is History (NASDAQ:HYMC)

Introduction

I’ve written 4 articles on SA about U.S. gold miner Hycroft Mining Holding Company (NASDAQ:HYMC) to date, the most recent of which was in November once I mentioned that the corporate continued to bleed cash whereas the preliminary drill outcomes from its 2022-2023 exploration drill program had been nothing particular.

On March 28, Hycroft Mining launched its annual report and I believe that the This autumn 2022 monetary outcomes had been weak because the loss from operations soared to $20.4 million. As well as, money and money equivalents decreased to beneath $142 million and I believe there may very well be vital inventory dilution in a 12 months or two. Let’s assessment.

Overview of the 2022 monetary outcomes

In case you have not learn any of my earlier articles about Hycroft Mining, this is a brief description of the enterprise. The primary asset of the corporate is a gold and silver mission within the northern a part of the state of Nevada named Hycroft Mine, the place it had a pre-commercial scale direct leaching run-of-mine (ROM) operation till December 2022. The mine has historic manufacturing of round 2.1 million ounces of gold and seven.5 million ounces of silver and has been shut down a number of occasions to date, often because of low gold costs. Its most energetic interval was from 1983 to 1998 when it produced 1.2 million ounces of gold and a couple of.5 million ounces of silver.

At this time, Hycroft Mine is among the many largest undeveloped gold and silver tasks on the planet with measured and indicated mineral assets of 10.6 million ounces of gold and 360.7 million ounces of silver and inferred mineral assets of three.4 million ounces of gold and 96.1 million ounces of silver.

The primary problem right here is that grades are low and the oxide ore is nearly depleted. In consequence, the small direct leaching ROM operation on the website was not too long ago shut down and the corporate might want to construct brand-new processing amenities for its huge sulfide useful resource.

In March 2022, Hycroft Mining turned a meme inventory as movie show chain AMC Leisure (AMC) agreed to take a position $27.9 million as half of a bigger fairness elevate of $138.6 million. Many traders had been anticipating the mining firm to make use of the recent funds to place the Hycroft Mine again into business manufacturing. In any case, Hycroft Mining launched the outcomes of a feasibility examine for a heap leach mining operation in 2019, which is often the final step earlier than the development of a mine. In line with the feasibility examine, preliminary CAPEX was estimated at $225 million over the primary 5 years and Hycroft Mine would have a web current worth [NPV] of over $2 billion at $1,300 per ounce of gold. At right now’s gold worth of over $1,900 per ounce, the NPV could be over $4.5 billion.

But, Hycroft Mining determined to make use of the proceeds from the fairness elevate on a drilling marketing campaign forward of a pre-feasibility examine [PFS] centered on using a milling and partial oxidation (POX) course of for the sulfide mineralization. In my opinion, that is the precise transfer as processing sulfidic ore is difficult and the restoration price within the 2019 feasibility examine was possible over-optimistic. You see, sulfide ore is refractory, which implies that the gold particles are ultra-fine and this requires extra subtle remedy strategies with a purpose to obtain oxide-ore restoration charges. In 2022, Hycroft Mining accomplished 25,000 meters of reverse circulation [RC] drilling and 4,000 meters of core drilling with the goal of extending mineralization and changing waste to ore. I believe that the drill outcomes had been underwhelming as they boosted measured and indicated assets by simply 0.4 Moz of gold.

Turning our consideration to the 2022 manufacturing outcomes, Hycroft Mine produced a complete of 14,032 ounces of gold and 37,281 ounces of silver in 2022. That is considerably beneath the degrees from 2021 as grades fell and the ROM operation was shut down in December 2022. This led to a big enhance in unit prices and the enterprise was unprofitable in 2022 as soon as once more.

And with Hycroft Mining ramping up exploration bills in the course of the 12 months, the loss from operations in This autumn 2022 alone got here in at $20.4 million. The quantity for the complete 12 months stood at $53.5 million.

Turning our consideration to the steadiness sheet, money and money equivalents declined by $11.4 million quarter on quarter to $142 million as of December. I’m involved that the corporate might want to faucet into the fairness markets to fund the development of its mine and this might result in vital inventory dilution until the share worth will increase over the approaching months. Wanting on the future, Hycroft Mining plans to finish 5,000 meters of RC drilling and three,500 of core drilling in 2023 in addition to finalize PFS economics. In my opinion, a building resolution may very well be taken in 2024.

In the mean time, we’ve no indication of the degrees of preliminary CAPEX, NPV, and unit prices within the new examine. In my opinion, it’s not possible to inform whether or not that is an economically possible mission, and contemplating there are few catalysts for the approaching months, I believe the momentum right here is low. And momentum is essential for exploration-stage mining corporations. In view of this, I’m bearish on Hycroft Mining.

So, how do you play this one? Properly, opening a small quick place looks like a viable concept as knowledge from Fintel exhibits that the quick borrow payment price stands at 5.79% as of the time of writing. Nevertheless, the costs of commodities are notoriously risky, and hedging alternatives right here appear restricted as name choices are costly in the intervening time.

Wanting on the dangers for the bear case, I believe there are two main ones. First, it’s potential that Hycroft Mining finds a big zone of oxide mineralization throughout Section 2 of its 2022-2023 exploration drill program which is prone to enhance the share worth. Second, the share costs of microcap corporations can generally enhance for spurious and unknown causes.

Investor takeaway

The working lack of Hycroft Mining widened in This autumn 2022 because the ROM operation got here to an finish and I believe that Section 1 of the 2022-2023 exploration drill program was underwhelming as measured and indicated gold assets didn’t enhance by a lot. In my opinion, the momentum right here is low and there aren’t any catalysts on the horizon. That being mentioned, quick promoting appears harmful, and I believe risk-averse traders ought to keep away from HYMC inventory.

Editor’s Notice: This text covers a number of microcap shares. Please pay attention to the dangers related to these shares.