Hycroft Mining Holding Corporation

Good day and welcome to the Highcroft Second Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Tracy Tom, Vice President. Please go ahead, ma'am.

Thank you, and thank you, everyone, for joining us this morning. Today, we'll be discussing our Second Quarter 2021 results, for which we filed our Form 10-Q with the Securities and Exchange Commission and issued a press release. The press release can be found on our website at www.highcroftmining.com. Please read the press release and listen to this call in conjunction with reviewing the form 10-Q, which contains additional disclosures. Also, please note that some information provided during this call may include forward-looking statements that involve risks, uncertainties, and assumptions. Even if these risks or uncertainties have been materialized or the assumptions proven correct, these results may differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking. Discussion of some risks, uncertainties, and assumptions are set forth in more detail in our press releases and SEC filings, including the most recently filed 10Q and 10K. We assume no obligation and do not intend to update such forward-looking statements. I'll now turn the call over to Diane Garrett, President and CEO.

Thank you, Tracy. Good morning, everyone, and thank you for participating today on our call to discuss our second quarter 2021 achievements. I am Diane Barrett, President and CEO of High Cross Mining. And along with me today in Winnemucca, Nevada, is Tracy, who just spoke with you. Others on the call are Jack Henris, our Executive Vice President and Chief Operating Officer. Stan Rideout, our Executive Vice President and Chief Financial Officer. And Mike Eislein, our Vice President and General Manager. After I make some initial remarks, I'm going to stand right out to review the highlights of our first quarter financials, followed by Jack, who's going to provide a brief operational update. And then we'll be opening the call up for questions. As we mentioned in some of our prior calls, 2021 is a defining year for Highcroft as we complete a lot of the necessary work. in order to unlock the value of the Highcroft mine, which, as a reminder, is the largest silver resource in North America with over 700 million ounces, and it's the second largest gold resource in the U.S. with 21 million ounces of gold. We still have plenty of open areas for resource expansion, including bed oxides and sulfide materials. It truly is a world-class asset with hundreds of millions of dollars of infrastructure on site. We have an operational mine and we are fully permitted in one of the very best jurisdictions for mining, not just for heat leaked operation. Should we decide that it makes sense, we're also permitted for a MEL operation also. It would take many, many years and an awful lot of money to duplicate what we have here at this site and to bring any mine to our current state of operations. So we're very proud of the assets that we have. this world-class resource, and what this team is doing to unlock the value at Highcroft. Our stock price, in our opinion, in no way reflects the value of this asset. And by the way, many of us in management and board are very engaged shareholders also, and we are committed to realizing the value that is inherent in this asset. We can certainly appreciate the disappointment when we communicated that there was more work required to do at Highcroft before we reached commercial-scale sulfide operations. But we hope that by having identified the gaps in the prior work and also the necessary components that are critical to commercial success, that it in some way provides a level of comfort that this team is extremely capable and highly qualified in operational execution and in our approach to minimizing risk, which will all translate into shareholder values. Before I recap the plans and visions for the remainder of this year and beyond, I want to address a couple of other important key areas. We've had a lot of positive things happening here at Highcroft, and while they don't particularly make for newsworthy announcements on an interim basis, please know that this team is working diligently on many, many fronts, and we're delivering very good results. We still have a lot of work to do over the rest of this year, but we're on schedule and we're on budget for delivering that work. I'm extremely proud of the positive changes and accomplishments that we've made over the past year. A lot of the initiatives that we put into place in 2020 that we spoke about in the past, we're starting to see the results of all of that great work. We've made remarkable improvements in our safety with an 83% decrease in the total reportable incidence frequency rate, or what we refer to as TRIFR. Over the last 12 months, we have gone from a 3.8 TRIPR rating to 0.62, and well below industry average. And I was just informed yesterday at site that at the end of July, our TRIPR decreased again to 0.53. So remarkable achievement by the team. We've also seen a dramatic improvement in the culture and morale on site. We recently conducted an employee engagement survey which revealed from our employees' perspective that our company culture has transformed over this past year into one of teamwork and transparency, a collaboration on operational improvements, on a commitment towards excellence in all areas. and a strident focus on keeping our employees safe every day. And it was commented by many that they feel valued as an employee of Highcroft, that they want to be part of the success of Highcroft, and they're recommending their friends as Highcroft being a great place to work. The improved engagement of this entire team is reflected in the operating performance numbers that we're seeing today. In addition to our dramatically improved safety record, we're also driving performance. We're operating more efficiently, more cost-effectively, and we're reducing cost in both mining and processing. And I want to thank everybody at Highcroft for the role that you have played in getting us to this point. It's really been a miraculous turnaround. The operations continue to hit their production targets, and this is the first time since the restart of the operations that the Highcroft mine has not only met its targets, but has done so for three consecutive quarters. As I mentioned, we've driven costs down in both mining and processing areas, made a lot of improvements to equipment efficiency and utilization, and that in and of itself is very remarkable given the age of our fleet. And we've also improved the overall plant efficiency. Moreover, since this team has been put into place, we've had no write-downs of mineral inventory from the leach pads. I'm very pleased to say that the initiatives undertaken in 2020 are starting to come to fruition throughout the organization and the operation. So now let's talk about some of the activities that we've been conducting this year, which are going to be completed by year end, followed by an internal review of that work with the team, and then we'll be presenting those results to the market during the first quarter of 22. The variability drilling and MET program is well underway. It's on budget. It's on schedule. Samples are being sent to the lab. Analyses are ongoing. We're doing a suite of metallurgical tests of each domain that we've been drilling and submitting to the lab. And this work is important not just for the two-stage sulfide oxidation and leach process, but any milling process or any process that we would be implementing on a commercial scale here at Highcroft. We have initiated column tests on site. We are using the sulfide material that we've been mining this year. And this is going to give us a clear picture of oxidation and chemistry management so that we can mimic the precise conditions of the commercial application prior to spending considerable time and money on test heat. We've conducted a range of internal scoping analyses on a variety of processing methods. And the result of the work that we've been doing in that regard indicates that one, with respect to the novel sulfide oxidation and leach process, we have identified and also previously reported to the market several items that are critical to any successful commercial application of this process, which will likely lead us to update our capital costs and operating costs once they're better defined. You'll recall that some of those items include the need for an agglomeration circuit, forced air injection circuit, And through some of the work that we've been doing this year, we now know that the best option for handling multi-solutions on a multi-lift heap will be on-off pads. So that's a critical component to the process. And we'll need to determine what we will require in terms of materials handling components and, of course, the size of the on-off pads. With respect to a milling process, We have completed scoping level economics and internal evaluations on multiple milling process options at various throughput rates with associated mine plans. There was a feasibility study on the AAO mill process in 2014 for the High Cross mine, and then subsequent to that, there was a feasibility study in 2016 based on smaller tonnage throughput and also reduced capital progress. At the time of the 2016 feasibility study, the company was private. So that report was not filed or disclosed publicly. And we have, with Asynco Engineering, reviewed the past technical work and the very successful 10 ton per day mill demonstration plant that followed the 2016 feasibility study. Based on that work that our team has done in connection with Asynco Engineering, We have determined that we should advance to a feasibility study for the mill AAO process, and we've engaged Asynco Engineering to complete this work. This doesn't negate any other process that we're working on. We've just identified a lot of areas within this process that it's important to complete a feasibility study on it. We're going to also be utilizing independent mining consultants. Many of you know them as IMC. They're going to be developing the mine planning as a subcontractor for Asynco. We expect to have the feasibility completed in the first quarter of 22. In addition to that, we plan to kick off a pre-feasibility study very soon on pressure oxidation process. This is a process that would yield significantly higher recoveries for both gold and silver of any of the processes that we've studied to date. Previous test work indicates that high crop ores perform very well when subjected to alkaline pressure oxidation conditions. This work is also going to be completed by year end with the results expected to be announced in the first quarter of 22. And we're in the process of receiving bids from engineering firms and expect to make that selection shortly. So a lot of work to do on the technical studies and the work for the two-stage process, for the AAO mill feasibility, and for the pressure oxidation pre-feasibility, all which will be completed by year-end, reviewed by our team, and available to disclose to the market in the first quarter of 2022. While we've been doing all of that work, we've also been working on developing a run of mine plan for 2022 and beyond with the idea of bridging the run of mine operations to commercial sulfide production while we optimize our cash. The run of mine plan has an important secondary objective of removing the run of mine oxide and transition material in a manner to expose the commercial scale sulfides. You'll recall that we have around 40 million tons of material that needs to be moved before we can get into commercial scale sulfide operations. This work is ongoing on the mine plan and we expect to have it completed by the end of the year and coincide with the results of our other technical reports. So now let's talk about cash because that is always on everybody's mind. And we know that there's a lot of speculation regarding the timing of any potential financing. First of all, we have a lot of work to do for the remainder of this year and in the first quarter of next year. And that work is going to give us a lot of valuable and necessary information that we're going to use to help us determine what our mine plans are going to be and any capital needs associated with those specific mine plans. With the improvements that we have made in the efficiency of our mining fleet, our plans are to continue utilizing the current fleet until all of our technical work is completed. We will continue to drive unit costs lower to reduce the negative burn until we have clarity on what our commercial operation plan will be and how we are going to implement it. Because until we know that, until the mine plan is finalized for the most suitable process or combination of processes, We don't know what size haul trucks we're going to need or how many we're going to need and what's going to be required specifically for the type of sulfide operation that we're going to be presenting. So we do have a plan to recommission the North Merrill Crow plant and do a phased installation commissioning of the new refinery there. We spoke to you about that upgrade in the past. We've also spent considerable effort to mechanically and operationally improve the existing Brimstone Merrill Crow plant facility. And the plant flows and recoveries that we're seeing from Brimstone are the highest the site has experienced in many, many years. We also filed a Form S3 in July. That not only allows us to incorporate S1 filings by reference, but it also provides for a universal shelf, which provides flexibility for the company. A shelf is prudent for any company, including High Cross, as we continue to monitor and evaluate opportunities to appropriately fund the company once we have clarity on the mine plan and processing methods. However, we currently do not have any agreements or understandings to issue any securities under the shelf. At current prices and with the current plans we have and utilizing our own equipment, we We expect to remain comfortably above our $10 million cash threshold, which is required under our debt covenants, into the second quarter of 2022. This is going to help us and enable us to complete the necessary technical work, generate mine plans, finalize the plant flow sheet, and then be able to assess any capital requirements. I'm extremely pleased with this team and what we've been able to achieve over the past nine to 12 months. We have a very full year with technical studies to be completed on three different processes. And we will continue to update the market on developments as they arise. And we look forward to providing an update on the results of this work and also to providing a coherent, executable mine plan for the successful development of the commercial sulfides on the operation. And with that, thank you. I'll turn it over to Stan Rideout after I clear my throat.