• The loss from operations soared to $20.4 million in Q4 2022 as the ROM operation was shut down in December 2022.
• Cash declined to below $142 million and I think that there could be significant stock dilution in a year or two to fund the initial CAPEX.
• In my view, the momentum here is low, and this is crucial for exploration-stage mining companies.
• Short selling seems viable as the short borrow fee rate is below 6% but it could be best for risk-averse investors to avoid this stock.

Introduction

I’ve written four articles on SA about U.S. gold miner Hycroft Mining Holding Corporation (NASDAQ:HYMC) so far, the latest of which was in November when I said that the company continued to bleed money while the initial drill results from its 2022-2023 exploration drill program were nothing special.

On March 28, Hycroft Mining released its annual report and I think that the Q4 2022 financial results were weak as the loss from operations soared to $20.4 million. In addition, cash and cash equivalents decreased to below $142 million and I think there could be significant stock dilution in a year or two. Let’s review.

Overview of the 2022 financial results

In case you haven’t read any of my previous articles about Hycroft Mining, here’s a short description of the business. The main asset of the company is a gold and silver project in the northern part of the state of Nevada named Hycroft Mine, where it had a pre-commercial scale direct leaching run-of-mine (ROM) operation until December 2022. The mine has historical production of around 2.1 million ounces of gold and 7.5 million ounces of silver and has been shut down several times so far, usually due to low gold prices. Its most active period was from 1983 to 1998 when it produced 1.2 million ounces of gold and 2.5 million ounces of silver.

Today, Hycroft Mine is among the largest undeveloped gold and silver projects in the world with measured and indicated mineral resources of 10.6 million ounces of gold and 360.7 million ounces of silver and inferred mineral resources of 3.4 million ounces of gold and 96.1 million ounces of silver.

The main issue here is that grades are low and the oxide ore is almost depleted. As a result, the small direct leaching ROM operation at the site was recently shut down and the company will need to build brand-new processing facilities for its vast sulfide resource.

In March 2022, Hycroft Mining became a meme stock as movie theater chain AMC Entertainment (AMC) agreed to invest $27.9 million as part of a larger equity raise of $138.6 million. Many investors were expecting the mining company to use the fresh funds to put the Hycroft Mine back into commercial production. After all, Hycroft Mining released the results of a feasibility study for a heap leach mining operation in 2019, which is usually the last step before the construction of a mine. According to the feasibility study, initial CAPEX was estimated at $225 million over the first five years and Hycroft Mine would have a net present value [NPV] of over $2 billion at $1,300 per ounce of gold. At today’s gold price of over $1,900 per ounce, the NPV would be over $4.5 billion.

Yet, Hycroft Mining decided to use the proceeds from the equity raise on a drilling campaign ahead of a pre-feasibility study [PFS] focused on utilizing a milling and partial oxidation (POX) process for the sulfide mineralization. In my view, this is the right move as processing sulfidic ore is challenging and the recovery rate in the 2019 feasibility study was likely over-optimistic. You see, sulfide ore is refractory, which means that the gold particles are ultra-fine and this requires more sophisticated treatment methods in order to achieve oxide-ore recovery rates. In 2022, Hycroft Mining completed 25,000 meters of reverse circulation [RC] drilling and 4,000 meters of core drilling with the aim of extending mineralization and converting waste to ore. I think that the drill results were underwhelming as they boosted measured and indicated resources by just 0.4 Moz of gold.

Turning our attention to the 2022 production results, Hycroft Mine produced a total of 14,032 ounces of gold and 37,281 ounces of silver in 2022. This is significantly below the levels from 2021 as grades fell and the ROM operation was shut down in December 2022. This led to a large increase in unit costs and the business was unprofitable in 2022 once again.

And with Hycroft Mining ramping up exploration expenses during the year, the loss from operations in Q4 2022 alone came in at $20.4 million. The amount for the full year stood at $53.5 million.

Turning our attention to the balance sheet, cash and cash equivalents declined by $11.4 million quarter on quarter to $142 million as of December. I’m concerned that the company will need to tap into the equity markets to fund the construction of its mine and this could lead to significant stock dilution unless the share price increases over the coming months. Looking at the future, Hycroft Mining plans to complete 5,000 meters of RC drilling and 3,500 of core drilling in 2023 as well as finalize PFS economics. In my view, a construction decision could be taken in 2024.

At the moment, we have no indication of the levels of initial CAPEX, NPV, and unit costs in the new study. In my view, it’s impossible to tell whether this is an economically feasible project, and considering there are few catalysts for the coming months, I think the momentum here is low. And momentum is crucial for exploration-stage mining companies. In view of this, I’m bearish on Hycroft Mining.

So, how do you play this one? Well, opening a small short position seems like a viable idea as data from Fintel shows that the short borrow fee rate stands at 5.79% as of the time of writing. However, the prices of commodities are notoriously volatile, and hedging opportunities here seem limited as call options are expensive at the moment.

Looking at the risks for the bear case, I think there are two major ones. First, it’s possible that Hycroft Mining finds a large zone of oxide mineralization during Phase 2 of its 2022-2023 exploration drill program which is likely to boost the share price. Second, the share prices of microcap companies can sometimes increase for spurious and unknown reasons.

Investor takeaway

The operating loss of Hycroft Mining widened in Q4 2022 as the ROM operation came to an end and I think that Phase 1 of the 2022-2023 exploration drill program was underwhelming as measured and indicated gold resources didn’t increase by much. In my view, the momentum here is low and there are no catalysts on the horizon. That being said, short selling seems dangerous, and I think risk-averse investors should avoid HYMC stock.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am not a financial adviser. All articles are my opinion – they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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The post Hycroft Mining: The Loss Widens And The ROM Operation Is History appeared first on Up2info.com.

• AMC Entertainment Holdings invested in Hycroft Mining Holding in March 2021 as part of a larger equity raise.
• Hycroft has been actively exploring its property, but the majority of drill hole results have been underwhelming.
• Hycroft’s stock valuation is difficult to estimate due to their large burn rate, unprofitable operations, and lack of exploration success.
• I break down the AMC-Hycroft horror story, and if Hycroft has any chance of creating shareholder value in 2023.

AMC’s Hycroft Investment: A Sequel To A Nightmare For Investors

This is a follow-up article on my previous coverage of AMC’s speculative investment in the troubled gold company, Hycroft Mining (NASDAQ:HYMC), titled: “AMC Investing In Hycroft Mining: A Horror Movie.”

To recap my previous coverage: Last March, AMC Entertainment Holdings (AMC) agreed to invest $27.9 million in Hycroft Mining Holding as part of a larger equity raise of $138.6 million. The investment likely saved the cash-strapped gold miner from bankruptcy. Notably, legendary precious metals bull Eric Sprott invested $27.9 million and both investors will receive shares and warrants.

However, the move was very surprising to me as it is clearly not in line with AMC’s core competency. The gold mining industry is risky and requires more seasoned, experienced investors to succeed. AMC’s CEO Adam Aron even stated that the investment is not in line with AMC’s usual operations and the move is puzzling.

Looking back, I think it’s more clear now that AMC’s decision to invest in Hycroft was a way to take advantage of the trend of meme stocks, where volatility and financial performance were not as important to some individual investors (in particular, retail investors on Reddit and Twitter).

Since my earlier analysis and recommendation to sell AMC’s stock, it has decreased by 68%, falling behind the S&P 500’s decline of 13.28%. Even with the recent increase of 5% in gold prices, the stock has not recovered from the loss.

However, it is worth noting that Hycroft has been actively exploring its property, announcing Hycroft’s “largest exploration program in a decade.” And, its stock is rising today due to a move higher in gold prices.

Does Hycroft have the potential to generate any value for investors this year? Read more below.

Hycroft Mining: Sinking Money into a Black Hole?

Hycroft’s production is headed in the wrong direction.

In the first quarter of 2022, Hycroft produced 5,358 ounces of gold and 16,861 ounces of silver, raising $194 million in equity offerings. In the second quarter of 2022, production improved slightly with 6,487 ounces of gold and 18,566 ounces of silver recovered. Unfortunately, production decreased in the third quarter of 2022 with only 3,480 ounces of gold and 14,404 ounces of silver recovered.

Yet, it’s spending money on exploration. In July of 2022, Hycroft announced that its exploration program for the upcoming 2022-2023 period will include around 125,000 feet of reverse circulation drilling, as well as 20,000 feet of core drilling.

The company reported initial results two months later. The highlights were mostly underwhelming. Drilling results from Hole 22R-5650 showed 82 meters of 1.03 grams per tonne gold and 30.38 grams per tonne silver, including 3 meters of 1.20 grams per tonne gold and 163.51 grams per tonne silver.

That was its best result, and while its a decent assay, it failed to exceed 100 grams x meter (a metric which multiplies grams per ton by the width of the hole). In gold exploration, a drill hole exceeding 100 GxM is considered a strong hole, and Hycroft’s best result returned 84 GxM.

Other results included: 58 meters of 0.58 grams per tonne gold and 24.07 grams per tonne silver; 50 meters of 0.79 grams per tonne gold and 38.74 grams per tonne silver; and 20 meters of 0.10 grams per tonne gold and 90.86 grams per tonne silver.

Several months later, Hycroft reported that it struck higher grades, and I have to admit, the results did improve quite a bit. For example, H22R-5648 returned 189 meters of 1.06 g/t gold and 58.33 g/t silver, which is a great hole, registering close to 200 GxM, and registering some silver credits.

But investors should dig deeper. Its other drill holes didn’t even come close to duplicating that success. While the silver grades are encouraging, not a single other assay returned over 50 GxM:

• H22R-5649 returned 80.8 meters of 0.48 g/t gold and 50.11 g/t silver;
  • Including 1.5 meters of 0.10 g/t gold and 358.00 g/t silver

• H22R-5654 returned 35.1 meters of 0.31 g/t gold and 50.43 g/t silver

  • Including 3.0 meters of 0.35 g/t gold and 293.5 g/t silver

• H22R-5669 returned 48.8 meters of 0.46 g/t gold and 75.79 g/t silver

  • Including 1.5 meters of 1.49 g/t gold and 852.0 g/t silver

  • Including 3.0 meters of 0.53 g/t gold and 222.5 g/t silver

• H22R-5669 also returned a separate intercept of 3.0 meters of 0.90 g/t gold and 228.5 silver.

Recently, on Dec. 20, Hycroft reported that drilling results from H22R-5671 returned 35 meters of 2.83 grams per tonne gold and 35.59 grams per tonne silver, which was a positive outcome. However, just like its previous news releases, it looks like its overall results from the program were not as strong.

The company is planning to revise its resource and will incorporate the results of this recent exploration drilling and historical silver assay data that had not been included in the previous report.

The point is that, while there were a few noteworthy results from the drill program, the majority of the results were underwhelming and it is not clear how this exploration program will lead to a valuable resource or a profitable mining operation for the company.

Hycroft Mining: Cash Rich, But Cash Burn High

Hycroft Mining’s cash on hand may appear to indicate a strong financial position, however, this is misleading.

Despite having around $140 million in cash, due to a large equity financing round last year, they still have an outstanding debt of $135 million. After a recent $12.2 million debt reduction, their net cash position is only around $5 million. This is a relatively low amount for a gold exploration and development company.

But the situation at Hycroft is worrying for several reasons.

First, the company does not generate any meaningful revenue from gold production, since production is very low (and declining). Additionally, it has been spending large amounts of money on an exploration program that has not yielded strong results.

Lastly, there is no evidence that the company has a plan to increase production and reduce costs at the mine. At present, it appears that Hycroft is taking a huge risk in hoping to achieve a high-grade assay result that boosts interest in its stock.

The company has been burning through $5 million each month, which translates to over $60 million per year. According to the company’s quarterly results, if they maintain that level of investment and do not increase their drilling and development, they will have exhausted their funds within two years or so.

Hycroft Mining’s Stock Valuation: Is It Overpriced?

Hycroft has a market capitalization of $148 million and an enterprise value of $142 million, as of the date of this writing (Jan. 12). The company possesses a large gold and silver resource of 15.3 million ounces of gold equivalent (measured and indicated resources).

However, given the fact that Hycroft cannot generate profit from its operations, it is not wise to put any value on this resource. I believe Hycroft is aware of this fact, which is why it has shifted its business strategy to concentrate on finding a high-grade resource.

It can be difficult to estimate the fair value of the stock, since those investing in it are gambling on Hycroft’s success in locating a new high-grade resource. Considering the high risk that comes with owning Hycroft shares, due to its large burn rate and limited exploration successes thus far, I would assign its shares a value equal to its net cash value, plus a slight value for its optionality on gold prices.

If I had to estimate the fair value of Hycroft, I would assign it a value of $5 million for its net cash, plus an additional $5-$10 million for the potential upside that could come with higher gold prices or exploration successes. In total, this would give Hycroft a valuation of around $20 million, which works out to $0.03 per share.

A Horror Movie Sequel Worth Skipping

AMC’s investment in Hycroft Mining has not worked out well, as expected. It’s highly unlikely to make any money from this ill-advised move.

Hycroft Mining is not a good stock to buy, and there are plenty of other producers (GDX), junior miners and developers (GDXJ), and explorers (GEOX) that will give you leverage and upside to gold prices. Hycroft may even be a good candidate for short selling, due to its poor business model, weak financial performance, and lack of indications of profitability in the near future (if ever).

But investors should be aware of the various risks of short-selling a stock, too.

• There’s the chance that gold prices may increase significantly to $2,500/oz or higher, which may drive up Hycroft’s stock price and lead to a small profit from operations, despite its poor fundamentals.
• It’s also possible that Hycroft may release better drill results, which could attract short-term traders and speculative investors looking to make a quick profit.
• Finally, there’s the risk of Hycroft’s stock being affected by interest from retail investors on social media platforms such as WallStreetBets, which could drive up the stock price despite poor fundamentals. This is an illiquid and volatile stock that can move widely in either direction.

Steer clear of Hycroft Mining just as you would try to avoid running into Michael Myers in a Halloween movie.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Short position through short-selling of the stock, or purchase of put options or similar derivatives in HYMC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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The post AMC’s Hycroft Investment: A Sequel To A Nightmare For Investors appeared first on Up2info.com.

• The company completed over 40,000 feet of drilling in Q3 2022, but there were few drill interceptions above 1g/t gold.
• In addition, the pre-commercial scale direct leaching ROM operation continued to run in the red.
• Momentum seems low and the short borrow fee rate is below 6%.
• However, risk-averse investors could be better off staying away, as hedging is challenging, and the share price is likely to soar if the company finds a large zone with oxide ore mineralization.

Introduction

In August 2022, I wrote a bearish article on SA about U.S. gold miner Hycroft Mining Holding Corporation (NASDAQ:HYMC) in which I said that the company seemed to be stalling the development of its flagship project by focusing on exploration. There’s a feasibility study from 2019 that showed an initial capex of $224.8 million yet Hycroft isn’t moving forward to the construction phase despite securing $194 million in gross proceeds in Q1 2022 through capital increases.

The company completed over 40,000 feet of drilling in Q3 2022, but the released assays looked underwhelming. In addition, the existing pre-commercial scale direct leaching run-of-mine [ROM] operation is still in unprofitable and the loss from operations came in at $12.6 million for the quarter. Overall, the future is looking grim for this former meme stock. Let’s review.

Overview of the recent developments

In case you haven’t read my previous articles about Hycroft Mining, here is a brief description of the business. The company holds a gold and silver project in northern Nevada named Hycroft Mine, which is among the largest precious metals deposits in the world with measured and indicated resources of 15.3 Moz of gold equivalent. There’s a small direct leaching ROM operation at the site which will proceed through the end of 2022. The reason gold production will cease after that is because almost all of the material is sulfide, which means that Hycroft Mining needs to build brand-new processing facilities.

In Q3 2022, Hycroft Mining sold just 8,456 oz of gold and 15,131 oz of silver and generated revenues of $8.76 million. This didn’t even cover production costs this time around, and I don’t expect the situation to be any different in Q4 2022 as gold production comes to a halt. As you can see from the table below, exploration and development expenses soared to $7 million as Hycroft kicked off an exploration program comprising 125,000 feet of reverse circulation [RC] drilling and 20,000 feet of core drilling in July. In addition, the company had $4.46 million in interest expenses despite holding $153.4 million of unrestricted cash and cash equivalents at the end of September.

The reason for this is that Hycroft Mining has debts of $144.8 million, which means that net cash was just $8.6 million at the end of Q3. However, the company is unlikely to run into liquidity issues anytime soon, as most of the debt is payable in 2027.

Turning our attention to the drill results, this is the largest exploration program at Hycroft Mine in nearly a decade and is expected to cost between $15 million and $20 million. Hycroft Mining is focusing on potential feeder systems as well as high-grade zones and completed 41,000 feet of RC drilling and 2,300 feet of core drilling in Q3 2022. The initial drill results were released on September 13, but I think they look underwhelming, as there were few drill interceptions above 1g/t gold. Here are the highlights.

In addition, all assays above 1 g/t gold came from the Brimstone area, so it’s unclear if they are inside the computer-generated optimized pit.

Hycroft Mining will focus on targeted step-out drilling in Q4 2022 within an area of 60,000 acres that has not previously been explored, and I think that finding oxide or low-sulfidation material is crucial. You see, refractory sulfide gold ores have to be processed using sophisticated treatment methods and Hycroft Mining’s plan for the Vortex zone included an unproven technology using iron (as ferric chloride) in the oxidation solutions. However, there are various challenges that need to be overcome for this method to work, and the fact that the company is betting on drilling instead of building the processing plant now that it has the funding secured leads me to think that the odds of this technology working don’t look good.

Overall, very few mining companies have managed to make sulfide gold deposits work well in the past and in my view, this makes most of Hycroft Mining’s vast measured and indicated resources close to worthless. Often, the issue is that recoveries are low, and the company was already projecting just 80% recoveries using an assumed sulfide grade in the feed of 1.78%, which is lower than the measured resources.

I’ve never seen a well-funded mining company with a feasibility study stage project launch a large drilling program instead of going into the construction phase. In view of this, Hycroft Mining’s exploration program seems like a Hail Mary move, and the drill results look unimpressive so far. In view of this, I find it unsurprising that the share price is over 30% lower compared to my previous article and I think it could continue to slide as there is little momentum left. And this is crucial for exploration-stage mining companies.

Data from Fintel shows that the short borrow fee rate stands at 5.71% as of the time of writing, so opening a small short position seems viable. However, commodities prices are notoriously volatile, and hedging seems challenging as long-dated call options are expensive at the moment. In light of this, I think it could be best for risk-averse investors to stay away from this stock.

Looking at the risks for the bear case, the major one is that fortune smiles on Hycroft Mining and the company finds a large zone of oxide mineralization. This is likely to send the share price soaring.

Investor takeaway

I think this was another disappointing quarter for Hycroft Mining investors as the pre-commercial scale direct leaching ROM operation continued to bleed money while the initial drill results were nothing special. The company still has a lot of cash in its coffers, but momentum seems low, and the share price is likely to continue to decline in the near future.

However, short selling seems dangerous as hedging is challenging, and Hycroft Mining might get lucky in its exploration endeavors. It could be best for risk-averse investors to avoid this stock.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am not a financial adviser. All articles are my opinion – they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

If you like this article, consider joining Bears and Resources. I post my portfolio and shortlist there and you can also find exclusive ideas from our community of investors. I like to focus on undervalued companies that the market is ignoring, like an island of misfit toys. Both long and short ideas.

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The post Hycroft Mining: Underwhelming Drill Results And Momentum Is Lost appeared first on Up2info.com.

• Hycroft Mining booked a loss from operations of $20.5 million in H1 2022, but it still had $157.8 million in the bank as of June.
• Yet, the company is focusing on drilling out the Hycroft Mine instead of proceeding to the construction stage.
• In my view, this is a sign that there is little confidence that technical challenges can be successfully overcome and is costing the company a lot of momentum.

Introduction

In March, I wrote a bearish article on a small gold miner named Hycroft Mining Holding Corporation (NASDAQ:HYMC) in which I said that its shares seemed to have attracted significant retail investor interest and that the share price was likely to return to below $0.30 in the near future.

Shortly after that, Hycroft Mining became a meme stock as movie theater chain AMC Entertainment (AMC) and mining investor Eric Sprott announced they are each investing $27.9 million in cash in Hycroft in exchange for 23,408,240 shares. In addition, AMC and Sprott each got 23.4 million warrants exercisable at $1.07 per share.

This deal has strengthened the balance sheet of Hycroft Mining and the share price has been holding up above $1.00 since then. However, I think that the H1 2022 financial results of Hycroft Mining look underwhelming and that the company seems to be stalling the development of its flagship project. With momentum being lost, I think it’s just a matter of time before its share price returns back below $0.30 per share. Let’s review.

Overview of the latest developments

In case you haven’t read my previous articles on Hycroft Mining, here’s a quick description of the business. The company’s main asset is a gold and silver project in the northern part of the state of Nevada named Hycroft Mine which has measured and indicated resources of 9.65 million ounces of gold and 446 million ounces of silver. However, you can notice from the table below that the grades are pretty low and that almost all of the material is sulfide, which is usually technically challenging to process.

The company has a pre-commercial scale direct leaching run-of-mine (ROM) operation at the site which is expected to proceed through the end of 2022. In H1 2022, Hycroft Mine produced a total of 10,924 ounces of gold and 30,515 ounces of silver. However, this ROM operation is bringing in less and less revenue each quarter and is unprofitable at the moment. In H1 2022, Hycroft Mining sold 6,740 ounces of gold and 16,879 ounces of silver for $13 million but production and mine site period costs came in at $22.2 million. The loss from operations for the period was $20.5 million, which represents an increase of 10.6% year-on-year. In addition, Hycroft Mining had interest expenses of another $9.5 million.

Looking at the future of the Hycroft Mine project, the company released a heap leaching feasibility study in 2019 which showed that a relatively modest initial CAPEX of about $230 million would deliver a mine with a net present value of over $2 billion at $1,300 per ounce of gold. At today’s price of gold of around $1,800 per ounce, the NPV stands at around $4 billion.

However, you should take these figures with a grain of salt. You see, refractory sulfide gold ores need to be processed using sophisticated treatment methods. Hycroft Mining’s plan to solve this issue is to use iron (as ferric chloride) in the oxidation solutions but this is an unproven technology and there are several technical challenges that need to be addressed.

In light of this, I find it unsurprising that Hycroft Mining is not proceeding with the construction of the mine despite finally having the funds to do so. You see, the company had $157.8 million in the bank as of June 2022 as it completed a $138.6 million at-the market equity offering program shortly after its deal with AMC and Sprott.

Yet, Hycroft Mining’s focus at the moment is on an exploration program that includes infill drilling as well as 100,000 feet of RC drilling and 25,000 feet of core drilling. I’ve never seen a mining company with a feasibility study stage project embark on such a large drilling program instead of proceeding to the construction phase which leads me to think that there is little confidence that the Hycroft Mine can be built and put into commercial operation without a hitch. Another issue for investors is that the market valuations of exploration and development stage mining companies are mainly driven by momentum, and this is being lost here. And it’s not like Hycroft Mining can afford to delay the construction of its mine for long as almost all its debt has to be repaid in 2027.

Overall, I think that Hycroft Mining is in trouble despite raising almost $200 million in equity over the past year as the company’s annualized loss from operations is about $40 million and it doesn’t seem to have the confidence in its technology to put the Hycroft Mine into commercial production. In my view, the most likely scenario at the moment is that Hycroft Mining continues to bleed cash over the next few years before getting into a liquidity crisis in 2027. With momentum gradually being lost, this could result in a significant decrease in the company’s market valuation.

I’m bearish on Hycroft Mining and data from Fintel shows that the short borrow fee rate stands at 8.92% as of the time of writing. However, hedging seems tough here as long-dated call options are expensive at the moment.

Considering the prices of commodities are notoriously volatile, it could be best for risk-averse investors to avoid this stock.

Investor takeaway

Hycroft Mining was aiming to develop a 3-5-year ROM plan to generate positive cash flows but it seems this plan has failed as loss from operations was $20.5 million in H1 2022 alone.

The company had $157.8 million in the bank as of June yet its focus in the near term is on exploration despite Hycroft Mine being a feasibility study stage project. In my view, this move is a clear sign that there are a significant number of technical or operational issues that need to be addressed before proceeding to the construction phase. This is likely to cost the company momentum, which could drive down its market valuation in the near future.

Overall, I think that Hycroft Mine won’t enter the construction phase anytime soon and that Hycroft Mining could have a liquidity crisis on its hands in 2027.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am not a financial adviser. All articles are my opinion – they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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The post Hycroft Mining Seems To Be Stalling The Development Of Its Flagship Project appeared first on Up2info.com.

• Hycroft is a great story and I like good stories.
• Bombed out mine to meme stock to AMC investment and then…
• Well, that’s the thing, isn’t it, what comes next?

It is a great story

Hycroft Mining (NASDAQ:HYMC) has been a grand little story just recently. There’s definitely been some excitement in the stock and the reason why is almost a fairy tale of how weird things can happen in stock markets.

However, the end of the tale is what matters – of course it is – and there the jury is still out. This piece is not going to try to divine what the end is going to be. Rather, it’s going to lay out what the problem was, how it has potentially been solved and then leave you, the reader, to fill in the blank of what the end of the story might be. I’m not – because I don’t know it – going to predict that end, but you will be better informed at the end of this.

The old problem

Just when folk first started getting interested in March I wrote elsewhere about Hycroft. The stock had just jumped 200% and there was some thought that it was about to become another meme stock. Lots of speculative interest which could lead to fun times and possibly even stonks.

The basic problem was described by the company itself. There’s a mine, it has gold and silver in it. It’s not some massive Tier 1 deposit, but it’s a perfectly respectable little deposit that could well be worth mining. The actual problem is that they’ve not got a processing plant there. This makes their activities uneconomic. The solution is to build a processing plant but they didn’t have the capital to do that, nor any real prospect of doing so.

A bit of tech here

So, when you go mining there are different techniques dependent upon what you’re trying to pull out of the ground. Mineral sands operations are different from hard rock and so on. It’s entirely possible that you’ve got to move a ton of rock to gain a gram of something – that’s not uncommon with gold in fact.

Just digging isn’t enough is another way of putting it. You’ve got to process the desired element or mineral out of the general rock. Again, there are different ways of doing this, even different ways the same element can be extracted.

The thing about gold is that concentrations in the host rock are usually pretty small. Those grams per ton. Sometimes we’ll find a quartz vein, the gold being concentrated in that, and it’s possible to hand mine just the quartz and so extract the gold. Historically that has been true at least, but near all such deposits are now mined out. What is much more common these days is – just as an example – that we’ve still got quartz containing gold, but not so much in a vein but spread through the rock itself. So the rock must be crushed to liberate the quartz from which we can then extract the gold.

Note that this isn’t a description of the Hycroft geology, it’s just an example of the problem.

So, here comes the specific Hycroft problem. They didn’t have a processing plant to liberate the gold and silver containing minerals from the surrounding rock. The whole pile of rock had to be transported offsite to such a processing plant. The transport costs were such that this meant no profit could be made.

The solution is to build the processing plant onsite. Then transport costs only apply to the actual ore, not all the surrounding rock (what is called “gangue”).

Hycroft’s problem

The analysis of what was wrong is not just simple, the company itself had it right. For all of that above is taken from their own explanations. So, if it’s this simple – build an onsite processing plant – then why didn’t they do that?

Their problem was that the capital structure of the company simply didn’t allow it. The market capitalization was in the tens of millions, they’d need a couple of hundred million to solve this problem. They were already gaining waivers from creditors on some loans and so on. They simply weren’t worth enough to be able to issue stock to solve the problem.

The combination of needing capital and not being able to raise it put them into a corner which it wasn’t obvious they could get out of.

Then came

Then came, at first at least, that little burst of activity about possibly being a meme stock. The hope seemed to be – on the bulletin boards and so on – that given the short interest it might be possible to create a short squeeze in what was, after all, a microcap.

That could have worked but only if the short positions had been much larger. Sure, there were shorts – Hycroft didn’t really have any way out, recall – but it wasn’t like GameStop where there seemed to be more short positions than there were free float.

What happened next is of course AMC – that other meme stock – investing in Hycroft. This seems very odd indeed, a movie complex company investing in a gold mine. But AMC’s own experience as a meme stock had led to it having excess capital. Using one’s own excess capital to solve a capital shortage elsewhere – for a price of course – is sensible investing.

Now that the price had moved up it was possible then to complete the capital raise at a price that wasn’t so hugely dilutive. And so was Hycroft saved.

Or at least that’s one way of reading the story. That now Hycroft has the capital necessary they can build the processing plant, they can resume mining and everything will be fantabulous.

This is where the problem is now

What we don’t in fact know is whether Hycroft is going to use this new capital properly and successfully. There are those who think – from the AMC point of view perhaps – this is a horror story. This doesn’t look good to me either: ” “Our strengthened balance sheet allows us to reduce our debt, complete our technical studies and launch a robust exploration program to capitalize on recent exploration results,” President and CEO Diane Garrett said. “

Umm, no, more exploration isn’t the point. Building that processing plant so as to make current production viable is.

My view

The original definition of the problem – recall this comes from the company itself – was that lack of local processing and the resultant transport costs. They’ve now got the capital to solve that problem. If they use the capital to try to do other things then I’m bearish. If they actually solve their base problem then Hycroft becomes a perfectly acceptable, if not hugely exciting, gold and silver miner. The second of those is preferable.

The investor view

An influx of capital can cause executive minds to focus on possibly the wrong things. The test of the future value depends, I think, on whether they build that local processing or not. If they do then their current mine becomes profitable and that will be reflected in the stock price. That’s therefore the thing to look for.

This ends up being rather boring for which I’m sorry. But if Hycroft uses its influx of capital to be boring and solve that processing problem then it’s worth more than the current price. If they start to have grand plans then it might well not be.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post I Like Hycroft Mining, It’s A Great Story appeared first on Up2info.com.

• The movie theater chain and meme stock AMC is investing in Hycroft Mining, formerly known as Allied Nevada Gold.
• The Hycroft mine carries a massive gold resource – albeit at very low grades.
• And AMC is investing a relatively tiny amount of money compared to its market cap and past equity raises.
• I give my honest opinion on this surprising development.

AMC Entertainment Holdings (AMC) recently agreed to buy a large stake in Hycroft Mining Holding (NASDAQ:HYMC) for $27.9 million, as part of a much larger $138.6 million equity raise, which likely saves the cash-strapped gold miner from bankruptcy.

AMC will invest alongside Eric Sprott, who will also contribute $27.9 million, and both investors will receive shares as well as 1 warrant per share, entitling them to buy another share at a price of $1.07.

However, investors should steer clear of investing in Hycroft, a risky gold miner with a troubled past.

This is clearly a puzzling, if not shocking, development: Why on earth is a movie theater chain investing in a gold miner?

“To state the obvious, one would not normally think that a movie theatre company’s core competency includes gold or silver mining,” said AMC CEO Adam Aron in a recent interview.

Is it because Hycroft is deeply undervalued? The mine does contain about 15 million ounces of gold and 600 million ounces of silver in resources – a tremendous precious metals deposit – especially when compared to Hycroft’s minuscule market cap of $110 million.

Yet, Hycroft Mining shares are down 86% over the past year, during a time which the gold miners index (GDX) returned over 81%, so investors have largely steered clear of Hycroft.

Does AMC know something gold mining investors don’t? Did AMC catch a smoking-hot deal in Hycroft and should investors follow the movie theater chain into Hycroft Mining?

I don’t believe so.

1. The Hycroft mine has a long, troubled history

This is not a new asset. Allied Nevada tried to produce profits from Hycroft for years, unsuccessfully, and went bankrupt in 2015. (Here’s an article I published back in 2015).

This was a low point for gold prices, to be fair, trading around $1,200/oz gold.

However, the company was re-listed a few years ago as “Hycroft Mining” but has still performed very poorly, as its shares are down 86.50% since then.

Again, this underperformance comes during a bull market in gold and gold miners, with the VanEck gold miners index returning 81% in that timeframe!

In February, Hycroft reported annual gold production of 55,668 ounces, and in Nov. 2021, it reported Q3 2021 financial results – but in both cases, it appears that the miner didn’t include its cash costs in either news release and doesn’t exactly make it easy to find this information.

Looking at its 10-K, Hycroft reported cash costs of $1,833/oz gold, up from $1,675/oz a year ago. This led to a net loss of $88 million for 2021.

2. Hycroft has lot of gold and silver, but it is very low grade

Hycroft touts a massive gold resource base 15 million ounces of gold and 600 million ounces of silver.

However, they are not actual gold reserves – most of the resource is in the measured and indicated category, and a large part in inferred resources, which are consider too speculative to be counted as economical.

Also, Hycroft’s resource grades are a maximum of .012 opt or .31 g/t, which is very low.

According to the World Gold Council, large and high-quality underground gold mines contain average grades of around 8 to 10 g/t gold, while marginal underground mines average around 4 to 6 g/t gold. Open-pit mines usually range from 1 to 4 g/t gold.

I believe the mine needs much higher metals prices to produce a profit. It is not a profitable asset by any means (if it was, it would already be producing profits with gold at $1,900/oz).

3. AMC is investing a relatively tiny amount of money

The investment of $28 million compares to $1.8 billion it has raised from investors over the past year or so.

The $28 million sum is also tiny compared to AMC’s $11 billion market cap. This is pretty low risk for AMC since $28 million is a drop in the bucket.

It’s hardly a newsworthy amount, in my opinion, yet the news was met with great media attention and was covered by outlets like CNBC, Reuters, MarketWatch, and others.

4. Extreme share dilution

The size of the investment pie has decreased substantially for existing Hycroft Mining shareholders.

Hycroft just diluted existing shareholders when it issued 89.5 million new shares at a price of $1.19, generating proceeds of $138.6 million.

This is not the best time for the company to be diluting shareholders given its stock price performance since re-listing in 2020.

The company now has 196,803,459 shares issued and outstanding – up from 60 million last year and less than 10 million shares when it re-listed.

Hycroft also issued 23.4 million warrants to Sprott and AMC, giving them the right to purchase an additional share at $1.068 with a 5-year term. Assuming the exercise of the warrants, it would bump up Hycroft’s share count to over 220 million shares.

Bottom line: Avoid Hycroft

If Hycroft was such a great asset worthy of investment, I believe a gold miner would have participated in the recent private placement. But we didn’t see any mining company step up to the plate.

There are literally dozens of other producers who would be thrilled to add a large Nevada gold mine to their portfolio. But Hycroft is just not a good asset in my opinion.

The bulls may argue that Hycroft could end up turning a huge profit if gold prices soar to $3,000/oz or higher from current spot prices – but that’s the case for literally any producing gold miner, and you can earn better returns elsewhere (with much less risk).

I recommend investors avoid speculating in this stock, as there are far better opportunities in the gold mining sector.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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The post AMC Investing In Hycroft Mining: A Horror Movie appeared first on Up2info.com.

Get ahead of the market by subscribing to Seeking Alpha’s Stocks to Watch, a preview of key events scheduled for the coming week. The newsletter keeps you informed of the biggest stories set to make headlines, including upcoming IPOs, investor days, earnings reports and conference presentations.

To catch up on what you may have missed this week, watch Saturday’s Alpha TALKS episode or listen to the podcast, part of Wall Street Breakfast, our flagship daily newsletter delivering everything you need to know each day. Stocks to Watch subscribers can also tune in on Sundays for a curated podcast that’s available on Seeking Alpha, Apple Podcasts, Stitcher and Spotify.

A couple of crucial reads on China will arrive next week for investors to digest when Nike (NYSE:NKE) reports earnings on March 21 and Nio (NYSE:NIO) spills numbers on March 24. Both companies could disrupt their respective sector with the latest updates on supply and demand trends. The tech sector has Nvidia’s (NASDAQ:NVDA) annual GTC event to track, while Adidas (OTCQX:ADDYY) is holding an innovation event with competition heating up in the athletic apparel sector. The week winds down with Moderna (NASDAQ:MRNA) holding a vaccine update and an annual meeting at Huntman (NYSE:HUN) taking place with activists investors pushing for a board change.

Earnings spotlight: Monday, March 21 Nike (NKE) and Tencent Music Entertainment (NYSE:TME).

Earnings spotlight: Tuesday, March 22 Carnival (NYSE:CCL), Adobe (NASDAQ:ADBE) and Poshmark (POSH).

Earnings spotlight: Wednesday, March 23 General Mills (NYSE:GIS), Winnebago (WGO) and EVgo (NASDAQ:EVGO).

Earnings spotlight: Thursday, March 24 Darden Restaurants (DRI) and Nio (NIO).

Earnings spotlight: Friday, March 25 JinkoSolar (NYSE:JKS).

IPO and SPAC watch: No IPOs are expected in the week ahead as the market stays rather dormant. There is a wave of IPO share lockup period expirations to track including Toast (NYSE:TOST) and a.k.a Brands (NYSE:AKA) on March 21; Freshworks (NASDAQ:FRSH), Remitly Global (RELY), EngageSmart (ESMT), Sterling Check (NASDAQ:STER), Sovos Brands (SOVO) and Brilliant Earth Group (NASDAQ:BRLT) on March 22 and Clearwater Analytics (NYSE:CWAN) and Cue Health (HLTH) on March 23. In the SPAC world, shareholders with Tailwind Two Acquisition (TWNT) will vote on the deal to take satellite maker Terran Orbital public. The deal include a $50M PIPE from investors including AE Industrial Partners, Beach Point Capital, Daniel Staton and Lockheed Martin (LMT).

Projected dividend increases: Companies forecast to boost their quarterly dividend payouts include Worthington Industries (WOR) to $0.31 from $0.28, Oxford Industries (OXM) to $0.45 from $0.42 and Cousins Properties (NYSE:CUZ) to $0.32 from $0.31.

Nvidia event: Nvidia’s (NVDA) GTC 2022 premiere event takes place between March 21-24. GTC will be watched closely across the tech sector, particularly the keynote address by Nvidia CEO Jensen Huang. Key topics to be discussed include accelerated computing, deep learning, data science, digital twins, networking, quantum computing and computing in the data center, cloud and edge. The company also plans to talk about various technologies such as GPUs powered by current and next-generation architecture, as well as new software methodologies. The introduction of the company’s next-gen Hopper GH100 GPUs and new gaming products are seen as potential share price drivers. Looking further ahead, NVIDIA could highlight revenue-sharing opportunities with automakers as an enabler of OTA upgradeability and features, as well as outline the omniverse platform strategy and Grace CPU timeline. Analysts think NVDA’s presentations could raise investor expectations on the track for EPS approach $10 per share.

Nike earnings preview: Nike (NKE) heads into its earnings report with some analysts thinking many of the supply chain, inflation and labor headwinds are already priced into the share price. Wells Fargo expects a reiteration of guidance for mid single digits FY22 revenue growth, while Credit Suisse thinks that valuation on Nike in relation to peers can start to reset after FY23 numbers are de-risked. Morgan Stanley sees the commentary from Nike execs on supply and demand trends in China as the biggest wildcard with the report. Meanwhile, BTIG says it is too early to get constructive on Nike as it believes the company continues to work through supply chain issues and face demand constraints in China.

Corporate events: Adidas (OTCQX:ADDYY) will hold an Innovation Day event in Germany. The presentation will be just one day ahead of Lululemon (LULU) formally entering the footwear industry with its first-ever running shoe hitting the market. Lululemon’s shoe lineup will compete directly against Adidas, Nike (NKE) and New Balance. It is also a busy week of investor and analyst day events. RealReal (NASDAQ:REAL) and Vail Resorts (NYSE:MTN) hold events on March 22, while Petco Health and Wellness Company (WOOF), Nikola (NASDAQ:NKLA) and Wex (NYSE:WEX) are all set to present on March 23. Moderna’s (MRNA) virtual Vaccines Day for analysts and investors on March 24 will also be of high interest. Check out Seeking Alpha’s Catalyst watch for a full list of events next week that could impact share prices.

Conference schedule: The conference schedule includes the Goldman Sachs Chemical Intensity Days Conference, the Keybanc Virtual Healthcare Conference, the D.A. Davidson Inaugural EV & Energy Transition Virtual Conference, the Wolfe Research Software Conference, the Piper Sandler 22nd Annual Energy Conference and the Wolfe Research Software March Madness Conference.

Stock split: The 3-for-2 stock split for W.R. Berkley Corporation (WRB) becomes effective.

Annual meeting: Huntsman Corporation (HUN) will hold its annual meeting on March 25 with activist investor drama circling the company. Proxy advisor Institutional Shareholder Services recommended that shareholders elect two of Starboard Value’s two nominees, while Glass Lewis backed the company’s slate.

Barron’s mentions: The publications digs deep to find some inflation-proof stocks that could benefit as higher prices are passed on to consumers. The food industry is noted to be seeing strong demand trends and have an overall valuation level below the three-year trends. Stocks that could benefit from rising food costs include General Mills (GIS), Hershey (HSY), Kellogg (K), Hostess Brands (TWNK), Bloomin’ Brands (BLMN),Brinker International (EAT), Starbucks (SBUX), Agco (AGCO), Deere (DE), Albertsons (ACI), Kroger (KR) and Bunge (BG). Palo Alto Networks (PANW) also gets a favorable writeup this week as a savvy way to play the boom in cybersecurity.

Sources: EDGAR, Bloomberg, CNBC, Reuters, Renaissance Capital

The post Stocks To Watch: Nvidia, Nike And Moderna On Center Stage appeared first on Up2info.com.

• Gold prices are rising due to the Russia-Ukraine conflict and Hycroft Mining seems to have attracted significant retail investor interest.
• The company has over 22 million ounces of gold equivalent resources and its valuation has quintupled this week.
• However, Hycroft Mining has a high debt load and is in pre-commercial scale operations, which means that it’s in trouble financially and won’t benefit much from high gold prices.
• In my view, retail investors should eventually realize their mistake, or the company could take advantage of the situation and carry out a capital increase to strengthen its balance sheet.

Investment thesis

On Thursday, I was going through the list of the top trending stocks on Fintwit and I was surprised to see there a micro cap that I’ve covered on SA – Hycroft Mining Holding Corporation (NASDAQ: NASDAQ:HYMC).

I wrote a bearish article on the company in July 2021 when the share price was $2.80. Since then, the share price slowly drifted lower to below $0.30. Yet, the company’s market valuation has quintupled this week to close at $169.2 million on March 10. In my view, the reason behind this could be high retail investor interest, which I think creates a good short selling opportunity. Over the past year, I’ve written bearish SA articles on more than 50 companies that seem to have attracted significant retail investor interest. The share prices of the vast majority of them have declined as of the time of writing as retail investor interest is often fleeting and the fundamentals just aren’t there in most cases. Let’s review.

Overview of the business and financials

Hycroft Mining owns a gold and silver project under the same name that started out in 1983 as a small heap leach operation known as the Lewis Mine. It’s located near the Florida Canyon gold mine of Argonaut Gold (OTCPK:ARNGF).

In 2021, Hycroft Mine produced 55,668 ounces of gold and 355,967 ounces of silver. At the moment, the company has a pre-commercial scale direct leaching run-of-mine (ROM) operation there. Mining stopped in November 2021 due to cost pressures for reagents and consumables.

On February 22, Hycroft Mining released the results of an initial assessment of the project that showed the mine contains an estimated 15.3 million ounces of gold equivalent resources in the measured and indicated categories as well as another 6.9 million ounces of gold equivalent in the inferred category.

This makes the Hycroft Mine one of the largest gold and silver projects in the entire world and what’s even more impressive is that the current mineral resource can be found on only 2% of the land package. However, there are several issues with this mine. First, resources can be very different from reserves and we don’t know how many of those ounces are recoverable at the current gold price. Second, the grades are low which usually leads to high production costs. Third, almost all of the material is sulfide, which means that recovery rates could be an issue. Simply put, it’s a large but technically challenging gold and silver deposit. Processing of ore on leach pads is expected to proceed through the second quarter of 2022 and Hycroft Mining plans to bet its future on a mill and pressure oxidation (POX) process. The idea is that this should generate better gold and silver recoveries than the sulfide heap oxidation and leach process and thus improve the economics of the project. However, the completion of this project is probably years away.

Looking at the financials, the situation looks bad due to the pre-commercial nature of operations. In Q3 2021, Hycroft Mining booked revenues of $31.7 million and a net loss of $23.2 million. The company’s debt load stood at $146.2 million as of September and interest expenses surpassed $5 million during the quarter.

In February, Hycroft Mining revealed that cash on hand had decreased from $19.5 million in September to $12.3 million by December.

In my view, the debt load is unsustainable and it’s likely that we will see a debt for equity swap in the near future. I also view it as also possible that the company decides to take advantage of its soaring share price and launches a capital increase to strengthen its balance sheet.

As you can see from the chart above, the trading volume has been high too, with over 220 million shares changing hands on March 10 alone. My theory is that the share price and trading volume are soaring as a result of high retail investor interest. As I mentioned, Hycroft Mining is among the top trending stocks on Fintwit as of the time of writing. There are also a large number of posts about the company on websites like Twitter, and StockTwits. Here’s a post from a trader on Twitter claiming that he bought 5 million shares and his price target is $4.

On YouTube, Hycroft Mining is being covered by several channels, including ClayTrader, Flight Financial, SomeCityTrading, IT NEWS BIKUL, Evan Evans, Cyber Trading University, and Pack-A-Punch Traders. Note that the company isn’t doing the promotion of its business or shares itself, but this is being done by a significant number of private investors and traders.

So, why are retail investors and traders buying Hycroft Mining? Well, many of them claim that they like the company’s vast resource base and that its market valuation is being boosted by rising gold prices as a result of the Russia-Ukraine conflict. Others are claiming that there is a short squeeze going on. I doubt the latter is true considering that data from Finviz shows that short interest is around only 170,000 shares. Also, data from Fintel shows that there are no shares available for borrowing as of the time of writing and that the latest short borrow fee rate was 94.74%.

Investor takeaway

The Hycroft Mine project has significant gold and silver resources but I continue to doubt that it will be able to reach commercial production without encountering significant technical or operational issues. Even if everything goes smoothly, I doubt the current shareholders of Hycroft Mining will reap the gains considering the company has a lot of debt and is almost out of cash.

I’m surprised that Hycroft Mining has attracted significant retail investor interest considering that operations are in a pre-commercial stage and the company thus won’t be able to take advantage of elevated gold prices due to the Russia-Ukraine conflict.

I think that retail investor interest is likely to fade away in the near future and the share price will return to below $0.30. There are no shares available for borrowing but there are put options for Hycroft Mining. However, they aren’t cheap.

For risk-averse investors, I think it could be best to avoid Hycroft Mining as I perceive this as a high-risk, high-reward type of opportunity.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am not a financial adviser. All articles are my opinion – they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post Hycroft Mining – Retail Investor Interest Seems Misplaced And I’m Bearish appeared first on Up2info.com.

• The company’s flagship project has reserves of 11.9 million ounces of gold and 478.5 million ounces of silver.
• The after-tax net present value is $2.1 billion at $1,300 per ounce of gold and more than $4 billion at today’s gold prices.
• However, the grades are very low and most of the remaining material is sulfide, which could lead to a lot of technical issues.
• Hycroft Mining also had a $116.8 million net debt as of March 2021 and the red flags seem too many.
• I think that the company is heading to a funding shortfall, which likely means stock dilution. I’m bearish.

Investment thesis

Hycroft Mining (NASDAQ:NASDAQ:HYMC) owns a gold and silver project under the same name in the U.S. state of Nevada. At the moment, its reserves stand at 11.9 million ounces of gold and 478.5 million ounces of silver, making it one of the best gold-silver projects in a Tier 1 jurisdiction in the world. Yet, the market values Hycroft at less than 0.1x the project’s after-tax net present value (NPV) and there are several reasons for this. The grades are low and almost all of the material is sulfide, which means that designing a good flow sheet could be tricky and recovery rates could be an issue. It’s an old mine that has been shut down several times in the past and I think the risk is just too high. Best to avoid or sell this one.

Overview of the Hycroft deposit

The project is located near the Florida Canyon gold mine of Argonaut Gold (OTCPK:ARNGF) and started out in 1983 as a small heap leach operation known as the Lewis Mine (page 16 here).

(Source: Hycroft Mining)

The project has historical production of around 2.1 million ounces of gold and 7.5 million ounces of silver and was shut down several times over the years, usually due to low gold prices. The most active period was from 1983 to 1998, when the mine produced 1.2 million ounces of gold and 2.5 million ounces of silver.

According to a 2019 heap leaching feasibility study, there is still a lot of gold and silver left in the Hycroft deposit. Enough, in fact, to rank it among the best low-risk jurisdiction gold and silver deposits in the world in terms of reserves.

(Source: Hycroft Mining)

According to the feasibility study, the initial capital cost for a heap leach operation is estimated to be $230.8 million and the after-tax net present value of the project stands at $2.1 billion at a 5% discount rate. This is a compelling NPV number, especially considering that the study was based on gold prices of just $1,300 per ounce of gold.

The price of gold stands at over $1,800 per ounce as of the time of writing, which means that Hycroft’s NPV should be over $4 billion at the moment.

(Source: Hycroft Mining)

The mine life is expected to be over three decades and the strip ratio stands at just 1.17. Both of those are very good numbers for a gold mine.

(Source: Hycroft Mining)

However, you might’ve already started noticing some of the issues and red flags. The grades are very low and there is barely any oxide material.

(Source: Hycroft Mining)

Leaching gold and silver from oxides is relatively easy, but processing sulfidic ore is challenging. The latter is refractory, which means that the gold particles are ultra-fine and this requires more sophisticated treatment methods in order to achieve oxide-ore recovery rates. According to the feasibility study, Hycroft plans to add iron (as ferric chloride) to the oxidation solutions but even then, there are numerous challenges to achieve adequate gold recovery rates.

(Source: Hycroft Mining)

The company has ideas on how to deal with some of the technical challenges of this operation but I’m skeptical as these are technologies and methods that haven’t been proven on a commercial scale. There are a lot of things that can go wrong here.

(Source: Hycroft Mining)

Another red flag for me is that Hycroft Mining plans to use a significant part of the old mining infrastructure. Sure, such a move can significantly decrease CAPEX, but there are operational risks involved. The nearby Florida Canyon mine used the same approach when it was owned by a company named Rye Patch Gold (the company no longer exists, the SA profile is here). SA contributors including me were optimistic about the prospects of the latter, but some of the refurbished equipment kept breaking down or underdelivering and the project still hasn’t lived up to its potential. The point is that using old equipment is risky and can result in higher costs down the line. At the moment, Hycroft Mining has a mining fleet, a crushing circuit, and a North Merrill-Crowe plant. As you can see, not all of them seem to be in a good condition.

(Source: Hycroft Mining)

Looking at the financials, the picture doesn’t look good as the net debt stood at $116.8 million as of March 2021.

(Source: Hycroft Mining)

The company has decided to direct leach its run-of-mine ore, but this is proving to be unprofitable at the moment. In Q1 2021, Hycroft Mining booked a $14.8 million loss from operations.

(Source: Hycroft Mining)

Still, Hycroft Mining aims to develop a 3-5 year ROM plan to generate positive cash flows. It remains to be seen if this is possible.

Investor takeaway

The Hycroft gold and silver project looks great at first glance thanks to its high reserves and NPV. However, grades are low and most of there is almost no oxide material left to mine. Overall, I doubt that the Hycroft project will be able to reach commercial production without encountering significant technical or operational issues. This is set to lead to a funding shortfall for Hycroft Mining, which likely means stock dilution.

Hycroft Mining is pretty cheap compared to peers at the moment, but I think its valuation could fall lower due to the high debt load as well as the stock dilution risk. It’s possible this one is close to worthless.

(Source: Hycroft Mining)

According to Fintel, the short borrow fee rate stands at 16.37% as of the time of writing. This is relatively high.

In case you prefer to protect the downside, I think long-dated put options are a good idea.

(Source: Seeking Alpha)

Or you could just avoid this one.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am not a financial adviser. All articles are my opinion – they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading.

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