HYMC - Hycroft Mining (fka Allied Nevada Gold)

[thepupil]

SPAC gold miner which came public via MUDS (Mudrick Acquisition Corp).

 

Mudrick is a middle market distressed credit firm. You can google around.

 

Hycroft is the old Allied Nevada Corporation. It owns a single mine in Nevada.

 

https://www.reuters.com/article/allied-nevada-bankruptcy/u-s-gold-miner-allied-nevada-files-for-bankruptcy-idUSL1N0WC1IW20150310

https://www.wsj.com/articles/allied-nevada-gold-files-for-chapter-11-bankruptcy-protection-1425989423

https://www.valueinvestorsclub.com/idea/ALLIED_NEVADA_GOLD_CORP/5586179165

https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/anv-allied-nevada-gold/msg117826/#msg117826

https://www.heraldmailmedia.com/news/state/brower-piven-announces-proposed-class-action-settlement-involving-purchasers-of-allied-nevada-gold-corporation-common/article_f7b56bc5-767f-5263-a31a-96ea2e6917ac.html

http://securities.stanford.edu/filings-documents/1051/ANGC00_01/2016113_r01c_14CV00175.pdf

 

Gold is at $1,800. If the mine has some chance of working, it will be profitable. Baupost used to own a piece of this company and real distressed guys bought the debt. This makes me think it has some chance of being a real asset whose prospects are not completely fabricated.

 

The company claims some ridiculous NAV that is 3x the stock price. The company claims this is an "institutional" sized mine with estimated low operating cost and a long life and lots of silver and gold. The company went bankrupt in part because of an unexpected increase in operating costs, so who the hell knows.

http://www.hycroftmining.com/wp-content/uploads/Presentation-May-2020.pdf

 

There are 2025 warrants.

 

I put 50 bps in the warrants which gives me 220 bps of delta to a SPAC gold miner when gold is at $1,800 and the market for speculative stocks is bubbly. A 2-5x return on the stock is a 5-20x+ return on the warrants.

 

I expect to lose 100% on my warrants.

 

I could do more work, but why do more work when it's a SPAC gold miner. The downside will always be 100% and divining what the probability of success is beyond my abilities. I don't have the time or desire to do so.

 

tell all your friends in sherwood forest. this thing's gonna rocket if she starts cranking out the ounces. As of yesterday, only 21 residents of sherwood own the stock.

 

 

 

 

 

 

[allnatural]

I like the risk-reward as a flier option. Probably looking at a 1 down 10+ up risk/reward scenario. This specific asset traded at +1x NAV and 3b+ market cap in the last bull gold run. If you want to own a gold hedge, this is probably one of the cheapest ways I found to play it. Size appropriately!

 

Something to keep in mind:

 

$MUDS when deal was announced:

- Gold: $1,400

- EV: $550m

- P/NAV: 0.28x (comps @ 0.65x)

 

$MUDS / $HYMC today (right after deal closed, not actually today):

- Gold: $1,750

- EV: $550m

- P/NAV: < 0.2x

- GDX/GDXJ: 5 year highs

+ 1 extra quarter of surpassing feasibility study

 

* I would also add that while Mudrick and the credit holders rolled over their credit to equity in the transaction, Mudrick put up an additional $100m of fresh capital into the deal at $10/shr. The fund is ~$2b in AUM w/ very little equity positions. So about a 3-4% position for them in total.

[allnatural]

Some HYMC discussion:

 

https://creativedestructionmedia.com/news/markets/2020/07/10/check-in-with-cecchini-cecchinipeter-an-aura-of-treasure-gold-and-an-undiscovered-miner-in-the-nevada-desert-hycroft-mining-hymc/

 

 

~1/3 of HYMC's deposits is Silver.

[thepupil]

I am tempted to add a little here at

 

$1900 / $23 Au  / Ag

 

but holding back because I don't think I have ever made money in mining. That's a sample size of like 2 things over 10 years and less than 200 bps of risk at a time, but it still holds me back..just seems too good to be true to be able to buy 5 year leverage on a mine that's supposedly "worth" $3-$4B at current prices trading for 1/4 or less of that.

 

upside is really big here.

 

 

 

[thepupil]

I think this is the big catch. the company can force you to exercise your warrants in cashless fashion if stock persist above $18. You'd lose your leverage and option/time value then because the company can force you into plain old stock. Of course if it really goes up, a deep ITM warrant is similar to plain old stock, but I still don’t like it.

 

The stock is heating up a little and had a volatility halt this morning.

 

 

If the foregoing conditions are satisfied and the Company issues a notice of redemption of the public warrants, each public warrant holder will be entitled to exercise his, her or its public warrant prior to the scheduled redemption date. However, the price of the Common Stock may fall below the $18.00 redemption trigger price (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) as well as the $11.50 per share warrant exercise price after the redemption notice is issued.

 

If the Company calls the public warrants for redemption as described above, the Company’s management will have the option to require any holder that wishes to exercise his, her or its public warrant to do so on a “cashless basis.” In determining whether to require all holders to exercise their public warrants on a “cashless basis,” the Company’s management will consider, among other factors, the Company’s cash position, the number of public warrants that are outstanding and the dilutive effect on stockholders of issuing the maximum number of shares of Common Stock issuable upon the exercise of its public warrants. If the Board takes advantage of this option, all holders of public warrants would pay the exercise price by surrendering their public warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the public warrants, multiplied by the difference between the exercise price of the public warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported closing price of the Common Stock for the ten trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of public warrants. If the Company’s management takes advantage of this option, the notice of redemption will contain the information necessary to calculate the number of shares of Common Stock to be received upon exercise of the public warrants, including the “fair market value” in such case. Requiring a cashless exercise in this manner will reduce the number of shares to be issued and thereby lessen the dilutive effect of a public warrant redemption. If the Company’s management does not take advantage of this option, sponsor and its permitted transferees would still be entitled to exercise their private placement warrants described in “ – Private Placement Warrants” below for cash or on a cashless basis using the same formula described above that other public warrant holders would have been required to use had all public warrant holders been required to exercise their public warrants on a cashless basis, as described in more detail below.

[thepupil]

For those with access, very bulled up VIC writeup. Basically says same thing as first post but with much greater detail and sophistication: If the mine works and prices stay/increased this is at 0.15x NAV and should go up 3-5x offering lots o upside to the warrants. Notes the call feature and a potential warrant buyback as risks as well as the fact that the line uses a new technology which everyone is scared about (I think that’s probably why this won’t work).

 

The writeup argues the warrants are a 20x. I could use the 1600bps of profit or even settle for a meager 10x.

 

It’s a weird stock where the warrant is much more liquid than the underlying.

 

https://valueinvestorsclub.com/idea/HYCROFT_MINING_HOLDING_CORP/4440137779

[Pondside47]

I think the warrant strike price is a bit high. I remember this won’t be in the money unless the stock trades at 1x NAV. The original company that spun off allied Nevada in 2006 is trading at 6% of NAV with a mine that is largely permitted. Same leverage with no expiration?  Vista Gold.

[thepupil]

Are you looking at different warrants? These are struck at $11.50 (Pretty much where the very illiquid stock trades now) and the pumpers/company are arguing NAV is $30/$40/$70

 

See the thread allnatural posted. I think this summarizes the bull and bear case well:

 

 

The guy tweets “at current prices this mine is worth mucho”

 

The gold bug replies:

 

The value is super compelling although at $18 in the shares the warrants are repuchasable. So return capped at 4x. Bigger issue can you get oxides to leach. Unproven metallurgy. 2 cos. Gone BK. Senior management leaving.  I decided to pass. May work. Unclear.

 

Negative, just not sure it scales.  Test versus commercial two different beasts.

 

 

He’s not correct that returns are capped at 4x. If the stock is above $18 for a period the company can force you to do a cashless exercise. So for example if the stock goes to $25 the $11.50’s would be worth $13.5 (7x from here). Let’s say you own 10,000 warrants. The company can force you to have your position become $135,000 of stock (5400 shares @$25) rather than the right to buy 10,000 shares at $11.50. The company can basically force your position to become unlevered delta one exposure and therefore the warrant value is capped at intrinsic value and all extrinsic(time/option/ value) will go to zero of the stock goes up a lot which is unfortunate, but it does not mean the returns are capped at 4x for the warrants. the company has to issue the least amount of shares the more the stock goes up, so it's not a given that they immediately force cashless exercise the second these get to $18.

 

The bigger issue is the technology is unproven at scale and until this bad boy is producing and the stock is more liquid  the goldbug investment folks won’t buy the stock.

 

 

 

 

[Pondside47]

Thanks. For some reason searching for hycroft on IB gave me the HYCTW, which is different from the public warrant you are referring to.

[thepupil]

the company has to issue the least amount of shares the more the stock goes up, so it's not a given that they immediately force cashless exercise the second these get to $18.

 

this is completely wrong and stupid.

 

the more the stock goes up, the more shares they'll have to issue, but it will always be less than they would issue if shareholder exercised the warrants. I therefore think the company is incentivized to exercise the call and that the upside is more capped than I thought.

[thepupil]

https://commonstockwarrants.com/spac-interview-with-mudrick-capital-muds-and-hycroft-mining-hymc/

 

interview with Mudrick re the asset, hosted by some gold bug type.

 

since beginning of thread, stock is up 30%, warrants up 60-70% versud GDXJ up 13%.

 

good idea so far, but I'm a little less excited given the call feature.

 

One thing that I would note is one could use the warrant to create a low risk short position in the company, not unlike what one might do with an ITM convertible bond.

 

If one goes long the warrant and short the common at current prices, you get $10.75 of cash and the most you can lose is $0.75 (plus borrow) if the mine is worthless, you do well, but there's path dependence because the stock could go up and the warrant could be forced to exercise.

 

I still like her on the long and strong side though.

 

 

 

 

[thepupil]

getting some love from this guy lol.

 

I'm going t keep bumping HYMC until we're at robintrack 10,000.

 

Future business card: former gold stock promoter, VNOQ PGREQ bagholder

 

we started the thread at 21 cases of robintrack-$HYMC-2020 and are now at 55 cases. it's contagious!

 

https://robintrack.net/symbol/HYMC

 

 

Eddie Mush

@MushOnStocks 18h

What's not to like about $HYMC? It's a junior gold miner *and* a SPAC

 

Eddie Mush

@MushOnStocksJul 27

Sentiment check: CoBF complaining that an idea's upside is potentially capped at 4x

 

[thepupil]

the warrants are up about 100% so far, but have lost virtually all of their time value.

 

I was able to short some stock and buy some more warrants today around lunchtime at basically no warrant premium. the stock does have borrow (18% annualized) but I still think the warrants are very cheap given what I see as a binary/volatile situation and earnings are in a week.

 

on an intrinsic value basis only, my payoff profile (from cost) is below, though we have 5 years until the warrants expire, so that will mute losses if the stock falls (since the time value of the warrant will increase from almost $0). the short stock position changed the shape of the profile (for the better) in my opinion.

 

Stock Return

0.5 70%

1.5 55%

2.5 39%

3.5 24%

4.5 8%

5.5 -7%

6.5 -23%

7.5 -38%

8.5 -54%

9.5 -69%

10.5 -85%

11.5 -100%

12.5 -48%

13.5 3%

14.5 55%

15.5 106%

16.5 158%

17.5 210%

18.5 261%

19.5 313%

20.5 364%

21.5 416%

22.5 468%

23.5 519%

24.5 571%

25.5 622%

26.5 674%

27.5 726%

28.5 777%

 

 

[thepupil]

Results are out, my ignorant interpretation is that this is more likely to not work than to work.

 

If anyone with more knowledge of mining wishes to opine, feel free.

 

De-risked significantly Sold all in the pre market with some sloppy warrant sales at extremely “cheap” prices to last stock price. If the stock/warrants goes up today, because there’s something in the results that someone more knowledgeable sees that I don’t, cool, but I don’t see it.

 

I would also note that o attempted to conduct warrant arbitrage on this last week (I bought the warrants and shorted stock for $0.2 more than the stock price through the warrants) and failed because IBKR would not allow me to exercise the warrants. Rather than investigate further, I moved on. For obvious reasons I didn’t share this. This decreased overall profits as i exited at a higher spread.

 

All in, I’ll have made a 50-100%+ profit ~70%on maximum amount at risk and have learned something about making sure you can exercise before trying to do an arb trade.

 

Stupid little rinky drink beer money trade.

 

Original Thesis:

- cheap levered bet on speculative gold miner with 10x upside

 

Changes to thesis:

- Upside capped due to warrant call feature unless one can exercise for intrinsic value if stock goes above $18.00 (just didn't do the work to see this at first)

- Unable to exercise via IBKR with ease, ergo upside more capped and/or more time consuming than I want. This also makes the long warrant short stock trade more dangerous

- warrant price doubled increasing sizing/risk, along with capped upside making risk/reward worse

-company reported results that don't seem great and indicates they need more capital