Good day, and welcome to the Highcroft Second Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Tracey Pump, Vice President. Please go ahead, ma'am. Thank you, and thank you everyone for joining us this morning.
Today, we'll
be discussing our Q2 2021 results for which we filed our Form 10 Q with the Securities and Exchange Commission and issued a press release. The press release can be found on our website at www.higrofmining.com. Please read the press release and listen to this call in conjunction with reviewing the Form 10 Q, which contains additional disclosures. Also, please note that some information provided during this call may include forward looking statements that involve risks, uncertainties and assumptions. Even if these risks or uncertainties have been materialized or the assumptions prove incorrect, these results may differ materially from those expressed or implied by such forward looking statements.
All statements other than statements of historical fact are statements that could be deemed forward looking. Discussion of some risks, uncertainties and assumptions are set forth in more detail in our press releases and SEC filings, including the most recently filed 10 Q and 10 ks. We assume no obligation and do not intend to update such forward looking statements. I'll now turn the call over to Diane Barrett, President and CEO.
Thank you, Tracy. Good morning, everyone, and thank you for participating today on our call to discuss our Q2 2021 achievements. I am Diane Barrett, President and CEO of Highcroft Mining. And along with me today in Winamaca, Nevada is Tracy, who just spoke with you. Others on the call are Jack Kenrose, our Executive Vice President, Chief Operating Officer Stan Rideout, our Executive Vice President and Chief Financial Officer and Mike Eiseline, our Vice President and General Manager.
After I make some initial remarks, I'm going to ask Stan Rideout to review the highlights of our Q1 financials, followed by Jack, who's going to provide a brief operational update. Then we'll be opening the call up for questions. As we mentioned in some of our product calls, 2021 is a defining year for Highcroft as we complete a lot of the necessary work in order to unlock the value of the Highcroft Mine, which as a reminder is the largest silver resource in North America with over 700,000,000 ounces and it's the 2nd largest gold resource in the U. S. With 21,000,000 ounces of gold.
We still have plenty of open areas for resource expansion, including bif oxide and sulfide material. It truly is a world class asset with 100 of 1,000,000 of dollars of infrastructure on-site. We have an operational mine and we are fully permitted in one of the very best jurisdictions for mining, not just for heap leach operation, but should we decide that it makes sense, we're also permitted for a mill operation also. It would take many, many years and an awful lot of money to duplicate what we have here at this site and to bring any mine to our current state of operations. So we're very proud of the assets that we have, this world class resource and what this team is doing to unlock the value of Highcroft.
Our stock price in our opinion in no way reflects the value of this asset and by the way many of us in management and Board are very engaged shareholders also and we are committed to realizing the value that is inherent in this asset. We can certainly appreciate the disappointment when we communicated that there was more work required to do at Highcroft before we reach commercial scale sulfide operations. But we hope that by having identified the gaps in the prior work and also the necessary components that are critical to commercial success, that it in some way provides a level of comfort that this team is extremely capable and highly qualified in operational execution and in our approach to minimizing risk, which will all translate into shareholder value. Before I recap the plans and visions for the remainder of this year and beyond, I want to address a couple of other important key areas. We've had a lot of positive things happening here at Highcroft.
And while they don't particularly make for newsworthy announcements on an interim basis, please know that this team is working diligently on many, many fronts and we're delivering very good results. We still have a lot of work to do over the rest of this year, but we're on schedule and we're on budget for delivering that work. I'm extremely proud of the positive changes and accomplishments that we've made over the past year. A lot of the initiatives that we put into place in 2020 that we spoke about in the past, we're starting to see the results of all of that great work. We've made remarkable improvements in our safety with an 83% decrease in the total reportable incidence frequency rate or what we refer to as TRIPR.
Over the last 12 months, we have gone from a 3.8 TRIPR rating to 0.62 and well below industry average. And I was just informed yesterday at Sykes that at the end of July, our tripper decreased again to 0.53, so remarkable achievement by the team. We've also seen a dramatic improvement in the culture and morale on-site. We recently conducted an employee engagement survey, which reveals from our employees' perspective that our company culture has transformed over this past year into one of teamwork and transparency, collaboration on operational improvements, on a commitment towards excellence in all areas and a strident focus on keeping our employees safe every day. And it was commented by many that they feel valued as an employee of Highcroft that they want to be part of the success of Highcroft and they're recommending their friends as Highcroft being a great place to work.
The improved engagement of this entire team is reflected in the operating performance numbers that we're seeing today. In addition to our dramatically improved safety record, we're also driving performance. We're operating more efficiently, more cost effectively and we're reducing costs in both mining and processing. And I want to thank everybody at Highcroft for the role that you have played in getting us to this point. It's really been a miraculous turnaround.
The operations continue to hit their production targets and this is the first time since the restart of the operations that the Highcroft Mine has not only met its target, but has done so for 3 consecutive quarters. As I mentioned, we've driven costs down in both mining and processing areas, made a lot of improvements to equipment efficiency and utilization and that in and of itself is very remarkable given the age of our fleet and we've also improved the overall plant efficiency. Moreover, since this team has been put into place, we've had no write downs of mineral inventory from the leach pad. I'm very pleased to say that the initiatives undertaken in 2020 are starting to come to fruition throughout the organization and the operation. So now let's talk about some of the activities that we've been conducting this year, which are going to be completed by year end, followed by an internal review of that work with the team and then we'll be presenting those results to the market during the Q1 of 2022.
The variability drilling in that program is well underway. It's on budget. It's on schedule. Samples are being sent to the lab. Analyses are ongoing.
We're doing a suite of metallurgical tests of each domain that we've been drilling and submitting for the lab. And this work is important not just for the dew stage sulfide oxidation and leak process, but any milling process or any process that we would be implementing on a commercial scale here at Highcroft. We have initiated column tests on-site. We are using the sulfide material that we've been mining this year. This is going to give us a clear picture of activation and chemistry management so that we can mimic the precise conditions of the commercial application prior to spending considerable time and money on test heat.
We conducted a range of internal scoping analyses on a variety of processing methods and the result of the work that we've been doing in that regard indicates that 1, with respect to the novel sulfide oxidation and leach process, we have identified and also previously reported to the market several items that are critical to any successful commercial application of this process, which will likely lead us to update our capital costs and operating costs once they're better defined. You'll recall that some of those items include the need for an agglomeration circuit, forced air injection circuit and through some of the work that we've been doing this year, we now know that the best option for handling multi solutions on a multi lift heat will be on off pads. So that's a critical component to the process and we'll need to determine what we will require in terms of material handling components and of course the size of the on off patch. With respect to a milling process, we have completed scoping level economics and internal evaluations on multiple milling process options at various throughput rates with associated mine plans. There was a feasibility study on the AAO mill process in 2014 for the High Cross Mine and then subsequent to that, there was a feasibility study in 2016 based on smaller tonnage throughput and also reduced capital requirements.
At the time of the 2016 feasibility study, the company was private. So that report was not filed or disclosed publicly. And we have with CECO Engineering reviewed the past technical work and the very successful 10 ton per day mill demonstration plant that followed during the follow the 2016 feasibility study. Based on that work that our team has done in connection with the Cinco Engineering, we have determined that we should advance to a feasibility study for the mill AAO process and we've engaged the Cinco Engineering to complete this work. This doesn't negate any other process that we're working on.
We've just identified a lot of areas within this process that it's important to complete the feasibility study on it. We're going to also be utilizing independent mining consultants, many of you know them as IMC. They're going to be developing the mine planning as a subcontractor for Osinko. We expect to have the feasibility completed in the Q1 of 2022. In addition to that, we plan to kick off a pre feasibility study very soon on pressure oxidation process.
This is a process that would yield significantly higher recoveries for both gold and silver of any of the processes that we've studied to date. Previous test work indicates that high copper ores performed very well when subjected to alkaline pressure oxidation conditions. This work is also going to be completed by year end with the results expected to be announced in the Q1 of 2022. And we're in the process of receiving bids from engineering firms and expect to make that selection shortly. So a lot of work to do on the technical studies and the work for the 2 stage process for the AAO mill feasibility and for the pressure oxidation pre feasibility, all which will be completed by year end, reviewed by our team and available to disclose to the market in the Q1 of 2022.
And while we've been doing all of that work, we've also been working on developing a run of mine plan for 2022 and beyond with the idea of bridging the run of mine operations to commercial sulfide production, while we optimize our cash. The run of mine plan has an important secondary objective of removing the run of mine oxide and transition material in a manner to expose the commercial scale sulfides. You'll recall that we have around 40,000,000 tons of material that needs to be moved before we can get into commercial scale sulfide operations. This work is ongoing on the mine plan and we expect to have it completed by the end of the year and coincide with the results of our other technical reports. So now let's talk about cash because that is always on everybody's mind.
And we know that there's a lot of speculation regarding the timing of any potential financing. First of all, we have a lot of work to do for the remainder of this year and in the Q1 of next year. And that work is going to give us a lot of valuable and necessary information that we're going to use to help us determine what our mine plans are going to be and any capital needs associated with those specific mine plans. With the improvements that we have made in the efficiency of our mining fleet, our plans are to continue utilizing the current fleet until all of our technical work is completed. We will continue to drive unit costs lower to reduce the negative burn until we have clarity on what our commercial operation plan will be and how we are going to implement it.
Because until we know that, until the mine plan is finalized for the most suitable process or combination of processes, we don't know what size haul trucks we're going to need or how many we're going to need and what's going to be required specifically for the type of sulfide operation that we're going to be presenting. So we do have a plan to recommission the North Marill Crowe plant and do a phased installation commissioning of the new refinery there. We spoke to you about that upgrade in the past. We've also spent considerable efforts to mechanically and operationally improve the existing Brimstone Marill Crow plant facility. And the plant flows and recoveries that we're seeing from Brimstone are the highest the site has experienced in many, many years.
We also filed a Form F-three in July that not only allows us to incorporate S-one filings by reference, but it also provides for a universal shelf, which provides flexibility for the company. A shelf is prudent for any company, including high cost as we continue to monitor and evaluate opportunities to appropriately fund the company once we have clarity on the money plan and processing methods. However, we currently do not have any agreements or understandings to issue any securities under the shelf. At current prices and with the current plans we have and utilizing our own equipment, we expect to remain comfortably above our $10,000,000 cash threshold, which is required under our debt covenants into the Q2 of 2022. This is going to help us and enable us to complete the necessary technical work, generate mine plans, finalize the plant flow sheet and then be able to assess any capital requirements.
I'm extremely pleased with this team and what we've been able to achieve over the past 9 to 12 months. We have a very full year with technical studies to be completed on 3 different processes and we will continue to update the market on developments as they arise and we look forward to providing an update on the results of this work and also to providing a coherent executable mine plan for the successful development of the commercial sulfides on the operation. And with that, I'll turn it over to Stan Rideout after I clear my throat.
Thank you, Diane, and good morning. In terms of ounces sold revenue and cash conservation, the Q2 of 2021 was our best quarter since we restarted pre commercial scale operations in the Q2 of 2019. Since the new management and operating team came on board in the second half of twenty twenty, the operational improvements that have been implemented, including the excellent management of our run a mine leach pads that have resulted in no ounces written off since the Q2 of 2020 are making a positive impact on our financial performance. 2nd quarter 2021 sales of 17,060 gold ounces and 189,766 silver ounces or 36,000,000 of revenue was nearly double the Q1 of 2021 nearly 5 times Q2 of a year ago. And that was due mostly to the higher sales volume from increased ore tonnages on the leach pad.
Q2 2021 average realized gold price of $18.11 gross per ounce was 5% higher than the same quarter last year, and year to date 2021 average realized gold price per ounce was about 10% higher than the comparable 6 months of 2020. The byproduct benefit from silver was significant during the Q2 of 2021 as we were able to sell some previously produced matte bars containing 55,000 silver ounces. In addition to higher silver sales volumes, Q2 2021, average realized silver price of $26.88 per ounce was 62% higher than Q2 of a year ago. And year to date 2021 average realized silver price of $26.70 per ounce was 64% higher than the same period a year ago. In the Q2 of 2021, we narrowed our loss from operations to $3,800,000 and our net loss was $8,400,000 after other net expenses, which was mainly interest expense.
While our cash burn was reduced in the Q2 of 2021, because of our continuing pre commercial scale volumes and associated higher relative operating cost profile, we've not been able to generate positive net income or positive cash flows from our operating activities. At the end of the Q2 of 2021, we had $30,000,000 in unrestricted cash, which represents a $26,000,000 decrease from the beginning of the year. Year to date 2021 cash used in operations was $21,000,000 and cash used in investing activities accounted for another $9,000,000 But you'll note the significant decrease in the Q2. We also began making cash payments on the spot credit agreement in the Q2 of 2021, and that was approximately $600,000 Included in our $30,000,000 of unrestricted cash is approximately $5,000,000 that we were able to free up from restricted cash as we replaced existing surety bonds with new surety bonds that required less cash collateral. While we complete the necessary work required for commercial scale sulfide operations, we will continue to focus on managing our cash through operational improvements and appropriate mining plans that keep us on tight with our debt covenants.
With that, I'll turn the conversation over to Jack.
Thank you, Stan. Good morning, everyone. Now with my years in the mining industry, I've not seen such a marked improvement in safety, culture, operational performance and process plant efficiency in less than a year. This team is to be congratulated. We will continue to drive our costs down and enhance our operating performance.
The technical team
has been working on developing an oxide and transition ROM plant for 2022 beyond. The ultimate ROM plan will be designed to coincide with the start of commercial scale operations, which of course will be determined following the ongoing technical studies
with the goal of improving
our cash position and to keep the outstanding operating team in place. Metallurgical drilling continued through the Q2 of 2021 with 31 holes drilled to date totaling approximately 31,000 feet. This drill program, as Diane already noted, is to complete the necessary variability and metallurgical work on geologic domains that were not tested in the past but to represent a significant portion of the life of mine production. One thing I'm particularly excited about is that throughout our mine planning work and met drilling, we've identified a number of robust targets, including Chance, Hades, East Fault, Camel South and South Vortex. These areas have both oxide and sulfide targets and South Vortex in particular is a very high grade silver deposit which remains open to the South.
We have verified the prior drilling in that area and will soon be including that in our corporate presentation on our website. While we currently remain focused on commercial scale sulfide operations, we look forward to
be able to explore
the untapped potential at Hyacroft. As a reminder, there's been no exploration drilling in Highcroft for more than a decade. We have a lot of work to do for the remainder of this year and I can say that we have a team passionate
about driving the future success of Highcroft.
Thank you, Dan.
Thanks, Jack. Appreciate it. Thank you, Stan also. I just before we open it up for questions, I just want to say that we truly appreciate the support and patience of all of our shareholders as we are hard at work conducting all of the necessary work to develop the most economic long term plan for Highcroft. This team is very passionate and very excited about what we're doing here and the opportunity to work on this world class asset.
So it's in good hands with the team. We look forward to delivering the plan to you soon early in the New Year that helps provide the best value for all of our shareholders. So with that, I will turn it back to Tracy so we can open up for questions.
Anita, please open the call for Q and A.
Thank you.
We'll take our
We'll take our first question from Vincent Anderson with Stifel. Please go ahead.
Thanks. Good morning. Nice job again this quarter. So I think the focus here to start things off would certainly be around AAO, doing a little bit of background reading. The name is unique, but does this really differ significantly from other ore flotation processes?
Yes, this is Mike Geiswine. On the front end, no, it's a pretty straightforward grind flotation circuit. The oxidation piece, the chemistry works. It's just a matter of designing a reactor system that gets the same retention and oxidation performance under atmospheric alkaline conditions versus a little bit higher pressure temperature in an autoclave.
Okay. That checks out. And then in that case, the one thing I'm still kind of trying to figure out is, would this be utilizing your existing grind capacity or does this need to build integrated grinding?
No. So the beauty of
that, we own the mills. We own the capital equipment on the front end, which is a huge piece. Those are long lead, high capital items. That's already some cost and sitting in the warehouse. So the rest of the circuit and the plant, obviously, we have a few parts and pieces, but the hard part is already sitting on the ground.
Great. And so I guess the question then becomes, this isn't maybe this isn't fair, but your assessment of maybe why this wasn't pursued more aggressively by the original basically prior to all your involvements in the company, why was this maybe not revisited in more detail in the original mine plan?
So it comes down to the price of gold and capital. I think in those previous environments, you're looking at a $1400 gold and a significant capital that they were looking for on circuit design, which I think was a little bit bloated and lacked efficiency. It was marginal with the grade profile that currently exists. And there's a lot of ways to skin that cat. I've worked back on it from the design perspective, But knowing that we have the milling equipment already on the ground, there's a lot we can do to conserve capital with plant design on the back end all the way through.
And we have an $1800 old environment to further bolster that. So it's it's very attractive in a lot of different aspects.
Yes. And I would just Vincent, I would add on to what Mike said, and he's absolutely correct. I mean, we weren't there at the time, so we don't know. But as we all know in the 2015 kind of 2016 timeframe, gold was sliding actually net closer to $1200 gold and was looking fairly weak at the time. But also there was a sense of seeing if they could take that chemistry and apply it in a heap leach setting and get into operations very quickly at even a lower capital.
And our view is the ore body is going to tell you the best way to process this material. And we think there's some optimization and efficiencies that can be looked at in the prior work that was done. In fact, we're doing it now with Mike and his team in the Cinco engineering. So we definitely think it's a plan to be looking at that again.
Perfect. I really appreciate the candor on that. And so if I think about, again, not to get ahead of whatever the results of the feasibility report are, but in your mind, is this something that bridges you and gives you a little bit more time to work on the traditional pad leach and then becomes a supplementary process thereafter? Or do you think that you could get this to scale efficiently? I'm just trying to think about how this could look in the overall mine plan if the visibility comes back positive.
Yes. I think you hit the nail on the head. Most of the operations in Northern Nevada here are complex ore bodies, right? They're either refractory and double refractory ore bodies that require a myriad of different process applications to extract that value. This is really no different.
So yes, this kind of gives the time to really fine tune the performance of the different metallurgical domains and then tailor the appropriate approach, processing and mining approach to that mineralogy. And you got to get that right. You got to take the time to get that right or it's just not going to function the way you need it. So yes, it could be it's very more likely going to be a continuing oxide conventional heap leach. We'll continue to work on the sulfide oxidation piece for the heap leach as well that may have a very definitive impact as well as a milling flotation and oxidation circuit as well for some of the higher grade.
And when we look at the gold and silver price environment, Vincent, I mean, you just want to capture as much of that recovery of that gold and silver as you can. And we see that in the milling scenario, the ore definitely generates far more value in that scenario than it does in a heat fleet setting. But to Mike's point, this is very likely going to look like a hybrid operation. So the work we're doing right now on testing each of these metallurgical geologic domains is to help us understand which one generates the best economic value and best recoveries under which process and without the oraclering lasers.
Yes. And then I guess one conversation that we haven't had to have, which is great, has been permitting. But maybe just walk us through what permits would be in place and what would be needed under AAO or POX?
So yes, another huge benefit is the bulk of the permitting for the process is complete and clean tails down. We're the process is permitted. There's a couple of tails down locations that are actually permitted. We're in this feasibility study, we're looking at those and then actually putting a plan in place to with dewatering and everything else, just tighten those up and get them ready to go in conjunction, in parallel with as we advance the study work on a different plane as well. So yes, it's all there.
The previous work we've done at Highcroft on the permitting piece is a huge time saver that's going to really benefit the work we're doing now and advancing any process that we put in out there. Auto planning was never looked at permitted previously, but I don't know if that will be really much of a heavy lift in Nevada, honestly. It's a hydrometallurgical process. It exists in a couple of other operations in Northern Nevada. It's known to the regulators.
So I don't see that being a huge obstacle.
All right, great. I'll give you a break. I'm just going to ask a couple of quick questions on cash flow. I really appreciate it. So I think I missed this line.
You discussed your covenants, minimum cash balance and how you felt about that. Could I just get that again?
Sure. We have 2 financial debt covenants that we focus on and they're both a $10,000,000 threshold. 1 is absolute cash and the other is net current assets, which requires that we take a haircut of 50% on our leach pad inventory in the calculation. So we feel very good about it, the team. Everybody is aware of our covenants and all of our plans are targeted toward keeping us comfortably above those threshold levels.
Okay, excellent. So that kind of informs the follow-up question, which is just everybody is focused on the mine plan, but if we just think about the next 12 months in very broad terms, it sounds like you're comfortable with those covenants just based on the run of mine plan. But as we get into 2022, are you comfortable with continuing to operate at run of mine and feel comfortable producing positive operating cash flows at least out of that before basically taking any kind of funding considerations for the go forward mine plan out of the equation?
Yes, that is exactly our plan is to continue to maximize cash generation out of the wrong plan. As Jack and all of us have commented on, a component of that is continuing to drive down costs. I truly believe the team is up to the task. You've seen the progress. And they're getting more creative by the day.
So we're optimistic. That's the plan. But information will come in later in the year and we'll reassess at that point. But as we said, right now the plan is to get us deep into 2022 being late in the Q2 with the existing cash and plans.
Perfect. And just last one from me. You maintained guidance, certainly prudent, but you have been doing quite well year to date. Was there anything exceptional about the first half of the year that you just want to make us aware of in terms of maybe just timing of what kind of grades are on the pads right now or labor constraints and just being cautious into the back half of the year, but what kind of keeps you from hitting sort of the high end of that range, let's say,
based on the current trajectory?
So pad management, it's always a good process person doesn't reveal all his tricks. So in trades. But frankly, a lot of its timing. And what we're seeing is really the result of that process group and maximizing and squeezing every ounce out of that pad, getting advancing the leach front just as soon as they get it released from the mine and get it ripped. Our flows to the pad are the highest that I've seen since I've been here in plant recovery plants is performing well extremely well.
Those are all positives that are affecting our bottom line. And the rest of it is just how we manage the inventory on and off the pad throughout the rest of the year, so stacking, placement. We got a few tricks up our sleeves. We're actually pulling some levers out there now on side slopes and re leaching some old areas and even re leaching roads in excess. So those are all tricks of the trade that are really helping our ounce profile.
All right, perfect. Well, thanks, everyone, on the call for all the color and best of luck on the rest of the year.
Okay. Thanks, Fanta. Thank you, everybody. We look forward to reporting back to you in the very near future. This concludes today's call.
Thank you for your participation. You may now disconnect.