Hycroft Mining - Unlocking Value of a World-Class Nevada Gold & Silver Deposit

• Hycroft Mining has a large-scale gold and silver project in Nevada transitioning to mining sulfide ore
• Recently made a significant high-grade silver discovery that could be a "game changer"
• Considering building a smaller processing plant focused on the high-grade discovery to reduce capex and improve economics
• Strong management team with track record of successful project development
• Potential to generate sulfuric acid byproduct to supply nearby lithium mines

Investing in Silver & Gold in Nevada

With gold prices forecast by some analysts to potentially reach $2,500-$3,000 per ounce, investing in quality gold mining companies with strong assets and management teams warrants consideration. One compelling opportunity is Hycroft Mining (NASDAQ:HYMC), which owns a large-scale gold and silver project in Nevada.

Hycroft Mining's flagship asset has a history of heap leach operations dating back to the 1980s. The company is now transitioning the project to mine the sulfide ore through a milling process. Hycroft's current resource contains over 10 million ounces of gold (Measured & Indicated) and 360 million ounces of silver in a low-grade, bulk-tonnage deposit that is still open for expansion.

The Hycroft management team, led by President & CEO Diane Garrett, has a strong track record of value creation in the mining industry. Garrett and her team have been involved in several successful projects, including Romarco Minerals' Haile Gold Mine prior to the merger with OceanaGold.

Many of the key members of the Hycroft team, including the CFO and VP of Exploration, were part of the Ocampo gold and silver mine success story. This experience in taking projects from exploration through to production and generating significant returns for investors bodes well for Hycroft's prospects.

The company is led by a strong management team with a track record of successfully building and operating mines.

CEO Diane Garrett explained, "It's really about the people at the end of the day because that is the only asset you're investing in when you're in this development stage... We invest in our people, we bring all the technical team in up front." The team includes veterans of major companies like Phelps Dodge, Barrick, and Newmont.

Interview with President & CEO, Diane Garrett

High-Grade Discovery

In November 2023, Hycroft made a significant high-grade silver discovery in the sulfide ore that could be a "game changer" for the project economics.

Garrett commented, "We've always believed there was more to Hycroft than just a low-grade deposit...It now opens up an opportunity to build a smaller plant, lower capex, much lower capex, and better economics, which means better cash flow up front, which means better return for our shareholders.

The high-grade zone extends over 1,300 meters along strike in both directions and remains open. Hycroft will continue drilling to better define this zone in 2024. If successful, the high-grade discovery could support starting production with a smaller mill, greatly reducing the initial capital requirements compared to a larger operation.

The recent high-grade silver discovery at Hycroft is a significant development for the project. While the company is still drilling to define the extent of the mineralization, initial results are encouraging. The high-grade zone has been traced over 1,300 meters of strike length in both directions and remains open, meaning it could potentially expand with additional drilling.

Specific details on the grade and thickness of the discovery have not yet been released, as the company is still in the process of defining the zone. However, management believes it could be a "game changer" for the project, allowing for the development of a smaller, higher-grade operation that would reduce initial capital costs and improve overall economics.

Production & Cost Profile

As a large, low-grade deposit, Hycroft was previously envisioned as a bulk tonnage operation processing 60,000 tonnes per day with significant upfront capital requirements. The high-grade discovery opens up the potential for a smaller, more targeted operation with lower costs and improved returns.

While the specifics of the revised production scenario have not been finalized, the company is working on updated economic studies to evaluate the impact of the high-grade zone. Management expects to release the results of this work in the second half of 2024, which should provide investors with a clearer picture of the potential production and cost profile.

Favorable Jurisdiction

Nevada is one of the top mining jurisdictions globally, ranking as the #1 state for mining investment in the USA. While permitting a new mine can still take 7-10 years, Hycroft benefits from having key permits already in place as a brownfield site. This reduces development risk and timelines.

As Garrett noted, "Nevada understands mining. It's a very fundamental part of their economy...It's a great jurisdiction to be in from our perspective." Mining is the 2nd largest industry in Nevada after gaming and gambling.

Unique By-Product Opportunity

In addition to gold and silver, Hycroft is evaluating the potential to produce sulfuric acid as a by-product of its sulfide ore. There are five lithium mines in Nevada which require sulfuric acid to process their ore. Currently, they have to transport in elemental sulfur to make sulfuric acid on-site at a high cost.

Supplying sulfuric acid to these lithium operations could generate a significant additional revenue stream for Hycroft. "We've already been contacted by lithium companies to purchase our sulfuric acid," said Garrett. "This is another major revenue source for the project."

Current Debt Position

Hycroft has a significant amount of debt on its balance sheet, which is affecting the company's ability to bring in larger, long-term institutional shareholders.

Key points regarding Hycroft's debt position:

1. Hycroft has $57 million in cash but also carries approximately $115 million in debt.
2. Garrett emphasized that development-stage companies like Hycroft should not have debt on their balance sheets when they are not generating cash flow. She implied that the current management team inherited this debt when they took over the company.
3. The presence of this debt is acting as a gating event for institutional investors, who are otherwise excited about Hycroft's assets, management team, and the potential of the recent high-grade discovery.
4. Garrett stated that the company is actively looking for ways to address the debt issue, as it is creating an overhang on the stock price.
5. By resolving the debt problem, Hycroft aims to remove the overhang on its stock and refresh its shareholder base by attracting institutional investors who have previously invested in the management team's former companies.

Garrett acknowledged that Hycroft's current debt position is a concern and may be preventing the company from attracting larger, long-term institutional investors. So despite the promising aspects of the company, such as its assets and recent high-grade discovery, the debt remains a gating factor for potential investors. Hycroft's management is actively seeking ways to address this issue and hopes to resolve it to improve the company's financial position and appeal to a broader range of investors.

The Investment Thesis for Hycroft Mining

• Large 10+ million ounce gold and 500+ million ounce silver resource in a world-class jurisdiction
• High-grade silver discovery could improve already-robust project economics and support a lower-capex starter operation
• Veteran management team with experience developing and operating successful mines
• Unique opportunity to become a strategic supplier of sulfuric acid to Nevada's lithium industry
• Significantly discounted valuation with shares trading well below the value of the underlying resource

Hycroft Mining presents a good investment opportunity for exposure to gold and silver through a large, expandable resource in the top-ranked mining jurisdiction of Nevada. The recent high-grade discovery could be a "game changer" for the project economics. Combined with the potential for a sulfuric acid by-product and a best-in-class management team, Hycroft is well-positioned to create shareholder value as it advances its project through development. Shares currently trade at a discount to the value of the underlying gold and silver resource, offering significant leverage to rising precious metals prices.

Macro Factors Driving Gold

The fundamentals for investing in gold appear highly favorable given the current macroeconomic backdrop of elevated inflation, geopolitical instability, and sovereign debt concerns. Many analysts forecast gold prices could reach $2500-$3000 per ounce in the coming years, as explained by Hycroft Mining CEO Diane Garrett:

"The mood here [at the Gold Forum Europe conference in Zurich] is very bullish. We are hearing from wonderful keynote speakers saying the prediction is commodities are going to continue to rise. They are speculating gold at $2500 to $3000 in the not-too-distant future, just because of the demand. Plus we're talking about a lot of central bank buying.

Against this constructive backdrop for gold prices, investing in gold mining companies with quality assets and management teams like Hycroft Mining could generate significant returns. While mining equities are inherently risky and volatile, they offer substantial leverage to the underlying metal prices. When the gold price rises, earnings and cashflows of gold miners typically increase at a greater rate, often leading to outsize gains in their share prices.

For investors with a multi-year investment horizon and tolerance for risk, allocating a portion of their portfolio to select gold equities could provide valuable diversification, inflation protection, and outsized return potential in the current macro environment. A company like Hycroft Mining with a large, high-quality resource in a stable jurisdiction and an exceptional management team stands out as a compelling opportunity requiring further due diligence.

The bullish case for gold is supported by several key macro drivers, including:

1. Inflation concerns: With central banks worldwide printing unprecedented amounts of money to stimulate their economies, many investors fear a surge in inflation. Gold has historically served as an inflation hedge, tending to rise in value as the purchasing power of fiat currencies declines.
2. Geopolitical instability: Tensions between major global powers, such as the U.S. and China, as well as ongoing conflicts in various regions, have increased the appeal of gold as a safe-haven asset.
3. Central bank buying: Central banks, particularly in emerging markets, have been steadily accumulating gold reserves in recent years to diversify away from U.S. dollar-denominated assets. This trend is expected to continue, providing a key source of demand.
4. Supply constraints: While gold demand remains robust, global gold production has been relatively stagnant in recent years due to declining ore grades and a lack of new discoveries. This supply/demand imbalance could support higher prices going forward.

Historically, gold mining equities have offered leverage to the gold price, typically outperforming the metal during bull markets. However, investing in mining stocks carries additional risks, such as operational challenges, permitting issues, and political risks in the jurisdictions where mines are located.

Investors must carefully consider these factors when evaluating gold mining investments. Companies with experienced management teams, high-quality assets in stable jurisdictions, and strong financial positions tend to be best positioned to navigate these challenges and create value for shareholders.