Attached files

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EX-31.2 - EXHIBIT 31.2 CERTIFICATION OF CFO - Hycroft Mining Corpanv-20140630xexhibit312.htm
EX-10.4 - EXHIBIT 10.4 FORM OF PIP PLAN GRANT LETTER - Hycroft Mining Corpanv-20140630exhibit104.htm
EX-31.1 - EXHIBIT 31.1 CERTIFICATION OF CEO - Hycroft Mining Corpanv-20140630xexhibit311.htm
EX-95.1 - EXHIBIT 95.1 MINE SAFETY DISCLOSURES - Hycroft Mining Corpanv-20140630xexhibit951.htm
EX-32.1 - EXHIBIT 32.1 CERTIFICATION OF CEO - Hycroft Mining Corpanv-20140630xexhibit321.htm
EXCEL - IDEA: XBRL DOCUMENT - Hycroft Mining CorpFinancial_Report.xls
EX-32.2 - EXHIBIT 32.2 CERTIFICATION OF CFO - Hycroft Mining Corpanv-20140630xexhibit322.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  
 
FORM 10-Q
 
 (Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-33119
  
 
 ALLIED NEVADA GOLD CORP.
(Exact name of registrant as specified in its charter)
  
 
DELAWARE
 
20-5597115
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer Identification No.)
 
 
 
9790 Gateway Drive, Suite 200
Reno, NV
 
89521
(Address of principal executive offices)
 
(Zip Code)
(775) 358-4455
(Registrant’s telephone no., including area code)
  
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
 
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
 
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
On August 1, 2014, there were 104,332,086 shares of the registrant’s common stock, par value $0.001 per share, outstanding.



ALLIED NEVADA GOLD CORP.
FORM 10-Q
For the Quarter Ended June 30, 2014
INDEX



PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
ALLIED NEVADA GOLD CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US dollars in thousands)
 
 
(Unaudited)
 
 
 
June 30, 
 2014
 
December 31, 
 2013
Assets:
 
 
 
Cash and cash equivalents
$
13,612

 
$
81,470

Accounts receivable
3,079

 
8,227

Inventories - Note 3
25,002

 
26,410

Ore on leachpads, current - Note 4
226,416

 
206,504

Prepaids and other - Note 5
6,847

 
10,857

Assets held for sale
46,576

 
47,357

Deferred tax assets, current
16,760

 
22,943

Current assets
338,292

 
403,768

Restricted cash - Note 6
49,933

 
41,215

Stockpiles and ore on leachpads, non-current - Note 4
131,600

 
116,192

Other assets, non-current - Note 5
12,173

 
12,682

Plant, equipment, and mine development, net - Note 7
880,706

 
890,271

Mineral properties, net - Note 8
47,795

 
48,473

Total assets
$
1,460,499

 
$
1,512,601

Liabilities:
 
 
 
Accounts payable
$
32,763

 
$
67,958

Interest payable
3,837

 
3,402

Other liabilities, current - Note 9
8,374

 
8,512

Debt, current - Note 10
73,674

 
76,226

Asset retirement obligation, current
20

 
20

Current liabilities
118,668

 
156,118

Other liabilities, non-current - Note 9
27,889

 
22,735

Debt, non-current - Note 10
495,987

 
522,427

Asset retirement obligation, non-current
15,889

 
15,344

Deferred tax liabilities, non-current
16,453

 
18,928

Total liabilities
674,886

 
735,552

Commitments and Contingencies - Note 19

 

Stockholders’ Equity:
 
 
 
Common stock, $0.001 par value
 
 
 
Shares authorized: 200,000,000
 
 
 
Shares issued and outstanding: 104,332,086 and 104,043,169, respectively
104

 
104

Additional paid-in-capital
753,363

 
750,119

Accumulated other comprehensive income - Note 17
2,286

 
1,674

Retained earnings
29,860

 
25,152

Total stockholders’ equity
785,613

 
777,049

Total liabilities and stockholders’ equity
$
1,460,499

 
$
1,512,601

The accompanying notes are an integral part of these statements.

1


ALLIED NEVADA GOLD CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(US dollars in thousands, except per share amounts)
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
Revenue - Note 11
$
83,123

 
$
58,998

 
$
168,648

 
$
108,188

Operating expenses:
 
 
 
 
 
 
 
Production costs
55,367

 
35,236

 
111,725

 
57,038

Depreciation and amortization
17,634

 
5,741

 
31,265

 
9,587

Total cost of sales
73,001

 
40,977

 
142,990

 
66,625

Exploration, development, and land holding
665

 
1,203

 
1,394

 
2,190

Accretion
272

 
164

 
545

 
329

General and administrative
5,769

 
8,795

 
11,994

 
14,704

Gain on dispositions or sales of mineral properties, net - Note 8
(19,480
)
 

 
(19,480
)
 

Loss on assets classified as held for sale and asset dispositions, net
4,801

 

 
5,979

 

Income from operations
18,095

 
7,859

 
25,226

 
24,340

Other income (expense):
 
 
 
 
 
 
 
Interest income
2

 
112

 
15

 
238

Interest expense - Note 10
(11,329
)
 
(3,193
)
 
(17,116
)
 
(8,322
)
Other, net - Note 12
(52
)
 
(422
)
 
(38
)
 
(901
)
Income before income taxes
6,716

 
4,356

 
8,087

 
15,355

Income tax expense - Note 13
(2,340
)
 
(126
)
 
(3,379
)
 
(2,307
)
Net income
4,376

 
4,230

 
4,708

 
13,048

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Change in fair value of effective portion of cash flow hedge instruments, net of tax - Note 17
(1,254
)
 
(539
)
 
845

 
1,126

Settlements of cash flow hedges, net of tax - Note 17
8,253

 
(8,872
)
 
(1,345
)
 
(13,996
)
Reclassifications into earnings, net of tax - Note 17
(8,366
)
 
8,776

 
1,112

 
13,864

Other comprehensive income (loss), net of tax
(1,367
)
 
(635
)
 
612

 
994

Comprehensive income
$
3,009

 
$
3,595

 
$
5,320

 
$
14,042

Income per share:
 
 
 
 
 
 
 
Basic - Note 14
$
0.04

 
$
0.04

 
$
0.04

 
$
0.14

Diluted - Note 14
$
0.04

 
$
0.04

 
$
0.04

 
$
0.14

The accompanying notes are an integral part of these statements.

2


ALLIED NEVADA GOLD CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(US dollars in thousands)
 
Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
4,376

 
$
4,230

 
$
4,708

 
$
13,048

Adjustments to reconcile net income for the period to net cash (used in) provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
17,634

 
5,741

 
31,265

 
9,587

Accretion
272

 
164

 
545

 
329

Gain on dispositions or sales of mineral properties, net - Note 8
(19,480
)
 

 
(19,480
)
 

Loss on assets classified as held for sale and asset dispositions, net
4,801

 

 
5,979

 

Stock-based compensation - Note 15
1,634

 
2,797

 
3,244

 
4,102

Deferred taxes
2,340

 
952

 
3,379

 
952

Other non-cash items

 
485

 

 
968

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
1,776

 
20,974

 
5,148

 
49,193

Materials and supplies inventories
1,957

 
2,484

 
2,859

 
(5,446
)
Production-related inventories
(9,017
)
 
(35,605
)
 
(25,080
)
 
(76,939
)
Prepaids and other
2,424

 
4,198

 
5,320

 
4,393

Assets held for sale
807

 

 
4,407

 

Accounts payable
(6,334
)
 
(15,141
)
 
(5,446
)
 
(12,118
)
Interest payable
(8,153
)
 
(8,269
)
 
435

 

Asset retirement obligation

 

 

 
(28
)
Other liabilities
(1,909
)
 
(1,756
)
 
(362
)
 
(966
)
Net cash (used in) provided by operating activities
(6,872
)

(18,746
)

16,921


(12,925
)
Cash flows from investing activities:
 
 
 
 
 
 
 
Additions to plant, equipment, and mine development
(24,190
)
 
(109,949
)
 
(67,614
)
 
(204,373
)
Additions to mineral properties

 
(31
)
 

 
(51
)
Proceeds from mineral property sale - Note 8
20,000

 

 
20,000

 

Increases in restricted cash - Note 6
(10,000
)
 
(354
)
 
(8,718
)
 
(9,373
)
Proceeds from other investing activities
5

 
13

 
5

 
13

Net cash used in investing activities
(14,185
)

(110,321
)

(56,327
)

(213,784
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Repayments of principal on capital lease and term loan obligations
(13,838
)
 
(9,141
)
 
(27,592
)
 
(15,128
)
Payments of debt issuance costs
(680
)
 
(453
)
 
(860
)
 
(1,012
)
Proceeds from issuance of common stock

 
150,817

 

 
151,071

Payments of share issuance costs

 
(8,324
)
 

 
(8,324
)
Net cash used in financing activities
(14,518
)

132,899


(28,452
)

126,607

Net (decrease) increase in cash and cash equivalents
(35,575
)

3,832


(67,858
)

(100,102
)
Cash and cash equivalents, beginning of period
49,187

 
243,113

 
81,470

 
347,047

Cash and cash equivalents, end of period
$
13,612


$
246,945


$
13,612


$
246,945

Supplemental cash flow disclosures:
 
 
 
 
 
 
 
Cash paid for interest
$
19,672

 
$
18,970

 
$
21,692

 
$
20,569

Significant non-cash financing and investing activities:
 
 
 
 
 
 
 
Mining equipment acquired through debt financing

 
42,196

 

 
104,623

Accounts payable reduction through capital lease

 

 

 
2,560

The accompanying notes are an integral part of these statements.

3


ALLIED NEVADA GOLD CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(US dollars in thousands, except shares)
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
Balance, January 1, 2014
104,043,169

 
$
104

 
$
750,119

 
$
1,674

 
$
25,152

 
$
777,049

Stock-based compensation and share issuances under RSU Plan
288,917

 

 
2,717

 

 

 
2,717

Stock-based compensation under DSU Plan

 

 
462

 

 

 
462

Stock-based compensation under PIP Plan

 

 
65

 

 

 
65

Other comprehensive income - Note 17

 

 

 
612

 

 
612

Net income

 

 

 

 
4,708

 
4,708

Balance, June 30, 2014
104,332,086

 
$
104

 
$
753,363

 
$
2,286

 
$
29,860

 
$
785,613

The accompanying notes are an integral part of these statements.

4


ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Allied Nevada Gold Corp. and its consolidated subsidiaries (the “Company”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations of the SEC. Therefore, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited Consolidated Financial Statements and related footnotes of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. In the opinion of management, all adjustments and disclosures necessary to fairly present the interim financial information set forth herein have been included. These interim financial statements, with the exception of any recently adopted accounting pronouncements described in Note 2 - Accounting Pronouncements, follow the same Significant Accounting Policies disclosed in the Company’s most recent Annual Report on Form 10-K.
The results reported in these Condensed Consolidated Financial Statements are not necessarily indicative of the results that may be expected for the entire year or for future years.
References to “$” refers to United States currency and “CDN $” refers to Canadian currency.
Reclassifications
Certain reclassifications have been made to the prior period Condensed Consolidated Financial Statements to conform to the current period presentation. The Company reclassified $0.6 million of accrued interest on the Term and Security Deposit Loan from Debt, current to Interest payable as of December 31, 2013. The Company also reclassified $49.8 million (the recorded cost of 44,606 gold ounces) of In-process inventories from Inventories (a current asset) to Ore on leachpads, current as of December 31, 2013, which the Company believes improves the overall classification of current inventories. These reclassifications had no effect on previously reported assets, liabilities, cash flows, or net income.
2. Accounting Pronouncements
Recently Issued
In April 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of a Component of an Entity.” ASU 2014-08 changes the criteria for reporting discontinued operations and requires new disclosures for discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. This pronouncement is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2014, which for the Company means the first quarter of the year ending December 31, 2015. Other than the additional presentation and disclosure requirements, the adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial position, results of operations, or cash flows.
In May 2014, the FASB and the International Accounting Standards Board issued new joint and converged guidance surrounding revenue recognition. FASB’s ASU 2014-09, “Revenue from Contracts with Customers” will supersede nearly all existing revenue recognition guidance, including industry-specific guidance, and requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 does not permit early adoption and is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2016, which for the Company means the first quarter of the year ending December 31, 2017. ASU 2014-09 allows for either a “full retrospective” adoption, meaning the new standard is applied to all periods presented, or a “modified retrospective” adoption, meaning the new standard is applied only to the most current period presented and any cumulative effect of adoption is recognized as an adjustment to the opening balance of retained earnings. The Company has evaluated its current revenue recognition policies and past and present sales contracts and does not currently believe it will be materially impacted by the requirements of ASU 2014-09. Historically, the Company’s sole revenue related performance obligation has been the delivery of metal to customers, either physically or by account transfer, and has been satisfied at the same point in time the Company’s customers obtain control of the delivered metal. As such, the Company currently anticipates adopting ASU 2014-09 using the “modified retrospective” approach and other than the additional presentation and disclosure requirements, does not expect such adoption will have a material effect on the Company’s consolidated financial position, results of operations, or cash flows.

5

ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


3. Inventories
The following table provides the components of inventories and the estimated recoverable gold ounces therein (in thousands, except ounces): 
 
June 30, 2014
 
December 31, 2013
 
Amount
 
Gold ounces
 
Amount
 
Gold ounces
Materials and supplies
$
15,143

 
 
 
$
18,002

 
 
Merrill-Crowe in-process
6,554

 
5,281

 
6,322

 
5,662

Carbon column in-process
1,572

 
1,271

 
859

 
724

Doré finished goods
1,733

 
1,398

 
1,227

 
1,106

 
$
25,002

 
7,950

 
$
26,410

 
7,492

As of June 30, 2014 and December 31, 2013, production-related Inventories included $2.3 million and $1.6 million, respectively, of capitalized non-cash depreciation and amortization costs.
4. Stockpiles and Ore On Leach Pads
The following table summarizes stockpiles and ore on leach pads and the estimated recoverable gold ounces therein (in thousands, except ounces):
 
June 30, 2014
 
December 31, 2013
 
Amount
 
Gold ounces
 
Amount
 
Gold ounces
Current:
 
 
 
 
 
 
 
Ore on leach pads
$
226,416

 
174,465

 
$
206,504

 
180,919

Non-current:
 
 
 
 
 
 
 
Ore on leach pads
$
97,035

 
74,771

 
$
88,501

 
77,537

Stockpiles
34,565

 
75,646

 
27,691

 
61,771

 
$
131,600

 
150,417

 
$
116,192

 
139,308

As of June 30, 2014 and December 31, 2013, Ore on leach pads, current and non-current included $75.6 million and $65.6 million, respectively, of capitalized non-cash depreciation and amortization costs. As of June 30, 2014 and December 31, 2013, Stockpiles included $6.1 million and $4.8 million, respectively, of capitalized non-cash depreciation and amortization costs.
The period-end market value of the Company’s production-related inventories is determined in part by using period-end London Bullion Market Association (“LBMA”) prices per gold and silver ounce and is highly sensitive to these inputs. As discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, the Company’s application of its lower of cost or market accounting policy resulted in a $12.6 million write-down of ore on leach pads. Although the Company had no write-downs during the three and six months ended June 30, 2014 using period-end LBMA metal prices of $1,315.00 per ounce of gold and $20.87 per ounce of silver, a decline from these metal price levels and/or an increase in production costs per gold ounce could result in, or contribute to, a future write-down of production-related inventories.

6

ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


5. Prepaids and Other Assets
The following table provides the components of prepaids and other assets (in thousands):
 
June 30, 2014
 
December 31, 2013
Prepaids and other
 
 
 
Prepaids
$
4,696

 
$
6,083

Deposits
1,548

 
1,685

Federal income taxes receivable
514

 
2,914

Other
89

 
175

 
$
6,847

 
$
10,857

Other assets, non-current
 
 
 
Debt issuance costs, net
$
11,758

 
$
12,208

Reclamation policy premium, net
415

 
474

 
$
12,173

 
$
12,682

 
6. Restricted Cash
The following table provides the components of restricted cash (in thousands):
Obligation collateralized
June 30, 2014
 
December 31, 2013
Asset retirement obligation surety bonds
$
39,933

 
$
41,215

Revolving credit agreement - Note 10
10,000

 

 
$
49,933

 
$
41,215

7. Plant, Equipment, and Mine Development, Net
The following table provides the components of plant, equipment, and mine development, net (in thousands):
 
Depreciable life or method
 
June 30, 2014
 
December 31, 2013
Mine equipment
5 - 7 years
 
$
298,026

 
$
312,425

Process equipment
Units-of-production
 
273,003

 
60,875

Mine development
Units-of-production
 
124,829

 
120,038

Leach pads
Units-of-production
 
81,432

 
78,737

Buildings and leasehold improvements
10 years
 
25,377

 
25,083

Furniture, fixtures, and office equipment
2 - 3 years
 
4,237

 
4,236

Vehicles
3 - 5 years
 
2,943

 
2,943

Construction in progress and other
 
 
241,744

 
421,117

 
 
 
1,051,591

 
1,025,454

Less: accumulated depreciation and amortization
 
 
(170,885
)
 
(135,183
)
 
 
 
$
880,706

 
$
890,271

During the three months ended June 30, 2014, the Company placed the crushing system (process equipment) into service.
8. Mineral Properties, Net
Sale of Mineral Properties
On April 22, 2014 (the “Closing Date”), the Company entered into a Purchase and Sale Agreement and sold a 75% controlling interest in the Hasbrouck, Three Hills, and Esmeralda County exploration properties (the “Properties”) to West Kirkland Mining, Inc. (“WKM”) for $20.0 million. Within 30 months after the Closing Date, WKM is to make an additional payment of $10.0 million for the 25% non-controlling interest in the Properties retained by the Company, subject to the Company’s option to elect to retain an interest in the Properties. In the event WKM does not meet its final $10.0 million commitment to the Company, or if the Company elects to decline the final payment and retain a 25% interest in the Properties, the Properties will be placed into a joint venture with WKM holding a 75% interest and the Company retaining a 25% interest.

7

ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


The carrying value of the Properties sold to WKM was $0.5 million, resulting in the recognition of a $19.5 million Gain on dispositions or sales of mineral properties during the three months ended June 30, 2014.
9. Other Liabilities
The following table summarizes the components of other liabilities, current and non-current (in thousands):
 
June 30, 2014
 
December 31, 2013
Other liabilities, current
 
 
 
Accrued compensation
$
3,902

 
$
3,587

Capital expenditure retentions
3,505

 
4,256

Derivative instruments - Note 17
811

 
669

Other
156

 

 
$
8,374

 
$
8,512

Other liabilities, non-current
 
 
 
Derivative instruments - Note 17
$
21,687

 
$
21,730

Accounts payable
5,188

 

Deferred royalty income
958

 
953

Other
56

 
52

 
$
27,889

 
$
22,735

10. Debt
The following table summarizes the components of debt (in thousands):
 
 
 
June 30, 2014
 
December 31, 2013
 
Debt, current:
 
 
 
 
 
 
Capital lease and term loan obligations
 
 
$
55,883

(1) 
$
58,435

(1) 
Term and Security Deposit loan
 
 
17,791

(2) 
17,791

(2) 
 
 
 
$
73,674

 
$
76,226

 
Debt, non-current:
 
 
 
 
 
 
Capital lease and term loan obligations
 
 
$
121,307

 
$
146,347

 
8.75% Senior Notes due June 2019 (3)
 
 
374,680

 
376,080

 
 
 
 
$
495,987

 
$
522,427

 
(1)  Includes borrowings of $10.0 million and $5.7 million as of June 30, 2014 and December 31, 2013, respectively, for mine equipment included in Assets held for sale.
(2)  Entire borrowing is attributable to the third rope shovel which is included in Assets held for sale.
 
 
 
 
(3)  Effective interest rate of 8.375% after cross currency swap. See Note 17 - Derivative Instruments for additional detail.
 
 
 
Senior Notes
In May 2012, the Company issued CDN $400.0 million of uncollateralized senior notes (the “Notes”). The Notes are denominated in Canadian dollars, pay interest semi-annually at the rate of 8.75% per annum, and mature in June 2019. Concurrent with the issuance of the Notes, the Company entered into a cross currency swap agreement based upon a notional amount of $400.4 million, which equaled the gross proceeds to the Company from the issuance, which fixed the interest rate at 8.375% as further described in Note 17 - Derivative Instruments. The Notes balance was $374.7 million based upon the U.S. dollar to Canadian dollar exchange rate on June 30, 2014. The Notes are guaranteed by most of the Company’s currently wholly-owned subsidiaries, including Hycroft Resources & Development Inc., which owns the Hycroft Mine and conducts mining operations.

8

ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


 Capital Lease and Term Loan Obligations
The Company’s capital lease and term loan obligations are for the purchase of mining equipment, bear interest at rates between 4% - 7% per annum, and primarily carry 60 - 84-month terms. The following is a summary of the future minimum payments under the Company’s capital lease and term loan obligations as of June 30, 2014 (in thousands):
Fiscal Year
 
 
Minimum Lease
Payments
 
2014
 
 
$
38,236

(1) 
2015
 
 
49,888

 
2016
 
 
47,383

 
2017
 
 
32,931

 
2018
 
 
11,875

 
Thereafter
 
 
15,307

 
Less: interest
 
 
(18,430
)
 
Net minimum capital lease payments
 
 
177,190

 
Less: current portion
 
 
(55,883
)
 
Non-current portion
 
 
$
121,307

 
(1)  Includes principal of $10.0 million for mine equipment included in Assets held for sale.

Term and Security Deposit Loan Agreement
In March 2013, the Company entered into a Term and Security Deposit Loan Agreement (the “Loan Agreement”) related to the purchase of three electric rope shovels. Under the Loan Agreement, the Company was made available up to $60.0 million ($20.0 million for each shovel) for scheduled advance security deposit payments pursuant to purchase agreements for the electric rope shovels and up to $90.0 million ($30.0 million for each shovel) in term loan financing to fund the purchase of the electric rope shovels once commissioned at the Hycroft Mine. Under the Loan Agreement, as electric rope shovels were commissioned, amounts previously advanced to the Company for security deposits, together with the remaining purchase price of each electric rope shovel, were converted to term loan obligations. The electric rope shovels secure all amounts borrowed by the Company under the Loan Agreement.
During 2013, the Company commissioned two (of the three) electric rope shovels and, as such, amounts borrowed for these two shovels are included in capital lease and term loan obligations. Costs for the third electric rope shovel are included in Assets held for sale at June 30, 2014 and, as such, related amounts borrowed under the Loan Agreement are included in Debt, current as repayment will occur when the components of the third shovel are sold, which the Company believes will happen within the next twelve months. Advances for security deposits under the Loan Agreement bear an interest rate determined by an applicable rate plus the three month LIBOR, which approximated 4.7% at June 30, 2014. The two executed term loan obligations for the commissioned shovels carry seven year terms and bear interest at a fixed rate of approximately 6%.
Revolving Credit Agreement
In May 2014, the Company entered into a Third Amended and Restated Credit Agreement (the “Revolver”) which amended and restated the December 2013 Second Amended and Restated Credit Agreement (the “Previous Revolver”). The aggregate amount available to the Company under the Revolver is determined by a Borrowing Base (as defined in the Revolver) that makes up to $75.0 million available (an increase from the $40.0 million available under the Previous Revolver) to the Company depending upon 80% of the net realizable value of the gold and silver in the Company’s ore on leach pads, in-process, and finished goods inventories less estimated remaining processing and selling costs. As of June 30, 2014, the full $75.0 million was available under the Revolver, which was reduced by $9.0 million for financial letters of credit issued to collateralize the cross currency swap (discussed in the following paragraph), resulting in remaining availability of $66.0 million. During the three months ended June 30, 2014, cash borrowings under the Revolver totaled $14.0 million and were repaid before quarter-end, resulting in no outstanding cash borrowings as of June 30, 2014.
Borrowings under the Revolver bear interest per annum at either LIBOR plus 4.5% or at an Alternate Base Rate, as defined in the Revolver, plus 3.5%. Financial letters of credit and non-financial letters of credit bear interest per annum at 4.50% and 2.70%, respectively. The Revolver is collateralized by substantially all of the Company’s assets and matures on April 30, 2016.

9

ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


In December 2013, when the Company entered into the Previous Revolver, which amended and restated the October 2012 Amended and Restated Credit Agreement (the “2012 Revolver”), two lenders under the 2012 Revolver exited the credit facility. These two lenders are holders of a portion of the Notes cross currency swap which, in December 2013, ceased being collateralized by the security they held as lenders to the 2012 Revolver. As a result, the Company is required to fully collateralize any mark-to-market liability position for 22% of the cross currency swap, which is the portion held by these two lenders, with cash, letters of credit, or a combination of the two. As of June 30, 2014, the Company had issued $9.0 million of financial letters of credit to collateralize the mark-to-market liability position of 22% of the cross currency swap.
Debt Covenants
The Company’s debt agreements contain representations and warranties, events of default, and covenants that are customary for agreements of these types. The Company’s Notes contain provisions that, among other things, restrict or limit the ability of the Company to redeem the Notes, incur or guarantee additional debt, pay dividends, and consolidate, merge or sell all or substantially all of the Company’s assets. The Company’s Revolver and certain capital lease obligations contain financial covenants related to Tangible Net Worth, Minimum Current Ratio, Minimum Reserve Tail, and Cash and Cash Equivalents balances, as such terms are defined in the Revolver. The Company is required to maintain a Tangible Net Worth of $437.0 million plus 25% of positive net income for each quarter ending after September 30, 2013, a Minimum Current Ratio of 1.25:1.0, and Cash and Cash Equivalents of $10.0 million in deposit accounts with the Revolver lenders which are restricted from use by the Company for the full term of the Revolver. The Minimum Reserve Tail covenant requires that at all times the Company will maintain more than 600,000 gold equivalent recoverable ounces in its heap leach reserves after maturity of the Revolver. The Company was in compliance with all debt covenants as of June 30, 2014.
Interest Expense
The following table summarizes the components of interest expense (in thousands):
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
 
2014
 
2013
 
2014
 
2013
8.75% Senior Notes due June 2019 (1)
 
 
$
8,360

 
$
8,498

 
$
16,629

 
$
16,766

Capital lease and term loan obligations
 
 
2,275

 
1,853

 
3,819

 
3,452

Amortization of debt issuance costs
 
 
675

 
623

 
1,308

 
1,245

Revolver interest and standby fees
 
 
313

 
337

 
516

 
625

Term and Security Deposit loan
 
 
224

 
350

 
445

 
366

Other interest expense
 
 
123

 
117

 
282

 
208

Capitalized interest
 
 
(641
)
 
(8,585
)
 
(5,883
)
 
(14,340
)
 
 
 
$
11,329

 
$
3,193

 
$
17,116

 
$
8,322

(1) Effective interest rate of 8.375% after cross currency swap. See Note 17 - Derivative Instruments for additional detail.
 
 
11. Revenue
The table below is a summary of the Company’s gold and silver revenue (in thousands, except ounces sold):
 
Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
 
Amount
 
Ounces sold
 
Amount
 
Ounces sold
 
Amount
 
Ounces sold
 
Amount
 
Ounces sold
Gold
$
73,713

 
57,050

 
$
55,946

 
41,512

 
$
150,946

 
116,520

 
$
99,918

 
68,768

Silver
9,410

 
474,832

 
3,052

 
146,303

 
17,702

 
881,066

 
8,270

 
321,069

 
$
83,123

 
 
 
$
58,998

 
 
 
$
168,648

 
 
 
$
108,188

 
 

10

ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


12. Other, Net

The table below is a summary of the Company’s other income and expense (in thousands):
 
Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
Foreign currency transaction (loss) gain on Notes - Note 17
$
(12,800
)
 
$
13,320

 
$
1,400

 
21,520

Reclassification of gain (loss) into earnings from Accumulated other comprehensive income for cross currency swap - Note 17
12,800

 
(13,320
)
 
(1,400
)
 
(21,520
)
Loss on marketable equity securities

 
(484
)
 

 
(968
)
Other
(52
)
 
62

 
(38
)
 
67

 
$
(52
)
 
$
(422
)
 
$
(38
)
 
$
(901
)
13. Income Tax Expense
For the six months ended June 30, 2014, the Company recorded income tax expense of approximately $3.4 million which included $2.8 million of income tax expense from income taxed at the estimated annual effective rate of approximately 33.9% and $0.6 million of additional income tax expense for discrete items primarily related to stock-based compensation that were recognized as incurred in the current quarter.
For the six months ended June 30, 2013, the Company recorded income tax expense of approximately $2.3 million based on an estimated annual effective rate of 15.0%. The estimated annual effective tax rate varied from the United States statutory tax rate of 35% primarily due to the effects of the percentage depletion deduction.
Historically, the Company has not been subject to state or foreign income taxes as all of the Company’s operations and properties are located within Nevada, which does not impose a state income tax. As necessary, the Company provides a reserve against the benefits of uncertain tax positions taken in its tax filings that are not more likely than not to be sustained upon examination. Based on the weight of available evidence, the Company does not believe it has taken any uncertain tax positions that require the establishment of a reserve. The Company has not recorded any interest or penalties related to income tax liabilities as of June 30, 2014.
14. Income Per Share
The following table sets forth the computation of basic and diluted income per share (in thousands, except per share amounts):
 
Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
Net income available to common stockholders:
$
4,376

 
$
4,230

 
$
4,708

 
$
13,048

Weighted average common shares:
 
 
 
 
 
 
 
Basic
104,765

 
97,194

 
104,665

 
93,678

Effect of shares granted under the:
 
 
 
 
 
 
 
Restricted Share Unit Plan
1,480

 
1,049

 
1,661

 
848

Deferred Phantom Unit Plan
248

 
248

 
248

 
248

Deferred Share Unit Plan
299

 
139

 
217

 
87

Performance and Incentive Pay Plan
236

 

 
118

 

2007 Stock Option Plan

 
269

 

 
360

Diluted
107,028

 
98,899

 
106,909

 
95,221

Income per share:
 
 
 
 
 
 
 
Basic
$
0.04

 
$
0.04

 
$
0.04

 
$
0.14

Diluted
$
0.04

 
$
0.04

 
$
0.04

 
$
0.14

15. Stock-Based Compensation
As of June 30, 2014, the Company’s stock-based compensation plans included the Deferred Phantom Unit Plan, the Deferred Share Unit Plan, and the Performance and Incentive Pay Plan (the “PIP Plan”).

11

ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


Stockholder Approval of Performance and Incentive Pay Plan
At the Company’s May 1, 2014 Annual Meeting of Stockholders, the Company’s stockholders approved the PIP Plan, which includes a stock-based compensation plan that terminates and replaces the 2007 Stock Option Plan and the Restricted Share Unit Plan (together, the “Former Plans”). The Company is no longer permitted to grant awards under the Former Plans; however, awards made under the Former Plans prior to May 1, 2014 will continue to vest in accordance with the provisions of the grants and pursuant to the terms of the Former Plans.
The PIP Plan makes available up to 4,000,000 shares of common stock for awards to officers, employees, directors, and consultants, which may be granted in a variety of forms, including restricted stock, restricted stock units, stock options, stock appreciation rights, performance awards, and other stock awards. The terms and conditions of awards granted under the PIP Plan are established by the Compensation Committee of the Board of Directors, who also administers the PIP Plan.
The following tables summarize the Company’s stock-based compensation cost and unrecognized stock-based compensation cost by plan (in thousands):
 
Three months ended June 30,
 
Six months ended June 30,
Stock-based compensation cost by plan
2014
 
2013
 
2014
 
2013
Restricted Share Unit
$
1,369

 
$
2,535

 
$
2,717

 
$
3,577

Performance and Incentive Pay
65

 

 
65

 

Deferred Share Unit
200

 
262

 
462

 
525

 
$
1,634

 
$
2,797

 
$
3,244

 
$
4,102

 
June 30,
Unrecognized stock-based compensation cost by plan
2014
 
2013
Restricted Share Unit
$
10,675

 
$
16,964

Performance and Incentive Pay
1,084

 

Deferred Share Unit
600

 
787

 
$
12,359

 
$
17,751

The following table summarizes awards and activity of the Company’s stock-based compensation plans:
 
Six months ended June 30, 2014
 
Restricted
Share Unit
 
Performance and Incentive Pay
 
Deferred
Share Unit
 
2007 Stock
Option
 
Deferred
Phantom Unit
Outstanding on January 1,
1,630,145

 

 
134,408

 
500,000

 
248,136

Granted
1,003,800

 
353,790

 
246,152

 

 

Vested/exercised
(288,917
)
 

 

 

 

Canceled/forfeited
(136,150
)
 

 

 

 

Outstanding, end of period
2,208,878

 
353,790

 
380,560

 
500,000

 
248,136

Vested and unissued/exercisable, end of period
495,116

 

 
195,946

 
500,000

 
248,136

All awards granted under the PIP Plan have been in the form of restricted stock units.
16. Fair Value Measurements
Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis;
Level 2 – Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

12

ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Certain financial instruments, including cash and equivalents, accounts receivable, prepaids and other, accounts payable, and other liabilities, are carried at cost, which approximates fair value due to the short-term nature of these instruments. There were no changes to the Company’s valuation techniques and no transfers in or out of Levels 1 or 2 during the three and six months ended June 30, 2014.
The following table sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities measured at fair value on a recurring basis (in thousands).
Assets
June 30, 2014
 
December 31, 2013
 
Input Hierarchy
Level
Assets held for sale
$
46,576

 
$
47,357

 
Level 2
 
 
 
 
 
 
Liabilities
 
 
 
 
 
Cross currency swap - Note 17
$
22,498

 
$
22,399

 
Level 2
The Company’s assets held for sale are valued using a market approach for each item of property and equipment held for sale. Inputs include quoted market prices for identical or similar assets in markets that are not active and, as such, property and equipment held for sale is classified within Level 2 of the fair value hierarchy. Periodic changes in fair value (less costs to sell) to assets held for sale are included in Loss on assets classified as held for sale and asset dispositions, net.
The Company’s cross currency swap derivative instrument is valued using a model which requires a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, and correlations of such inputs. Some of the model inputs used in valuing the cross currency swap trade in liquid markets and, as such, model inputs can generally be verified and do not involve significant management judgment. The cross currency swap is classified within Level 2 of the fair value hierarchy and included in Other liabilities, current and non-current.
Items Disclosed at Fair Value
Using prevailing interest rates on similar debt issuances, credit spreads, and foreign currency forward rates, the estimated fair value of the Notes was $350.1 million at June 30, 2014. The fair value estimate of the Notes was prepared with the assistance of an independent third party and does not reflect the Notes actual trading value or the carrying value of the Notes in the Company’s condensed consolidated financial statements.
 
17. Derivative Instruments
Derivative Instrument Fair Values
The following table is a summary of the fair values of the Company’s derivative instruments and the location in which they are recorded (in thousands):
 
 
June 30, 2014
 
December 31, 2013
 
 
Other liabilities,
current
 
Other liabilities,
non-current
 
Other liabilities,
current
 
Other liabilities,
non-current
Cross currency swap
 
$
811

 
$
21,687

 
$
669

 
$
21,730

Derivative Instruments Designated as Hedges – Cash Flow Hedges
Diesel Swap Agreements
As of December 31, 2013, the Company had no remaining unsettled diesel swaps. The net gain in Accumulated other comprehensive income from previously settled diesel swaps is being reclassified into earnings (Production costs) as the hedged transaction impacts earnings (as specific gold ounces are sold).
Cross Currency Swap
In May 2012, the Company entered into a cross currency swap concurrent with the issuance of the Notes. The notional value of the cross currency swap was $400.4 million and the interest rate was fixed at 8.375%. The Company makes interest payments ($400.4 million at 8.375%) to the counterparty in exchange for the Canadian dollars required to service the Notes (CDN$400.0 million at 8.75%). Upon maturity the Company will pay $400.4 million to the counterparty and receive CDN $400.0 million, which will be used to satisfy the face amount of the issuance. As discussed in Note 10 - Debt, the Company is required to fully collateralize any mark-to-market liability position of 22% of the cross currency swap.

13

ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


Accumulated Other Comprehensive Income (Loss)
The following table sets forth changes in accumulated other comprehensive income (loss) and the impacts cash flow hedges had on the Company’s earnings (in thousands):
 
Six months ended June 30, 2014
 
Cross Currency
Swap
 
Diesel Swap
Agreements
 
Tax
Effects
 
Total
Balance, beginning of period
$
1,920

 
$
653

 
$
(899
)
 
$
1,674

Change in fair value of effective portion of unsettled cash flow hedge instruments
1,300

 

 
(455
)
 
845

Settlements of cash flow hedges
(2,070
)
 

 
725

 
(1,345
)
Reclassifications into earnings when underlying hedged transactions impacted earnings:
 
 
 
 
 
 
 
Reclassified to Interest expense
670

 

 
(235
)
 
435

Reclassified to Other, net
1,400

 

 
(490
)
 
910

Reclassified to Production costs

 
(359
)
 
126

 
(233
)
Balance, end of period
$
3,220

 
$
294

 
$
(1,228
)
 
$
2,286

 
 
Six months ended June 30, 2013
 
Cross Currency
Swap
 
Diesel Swap
Agreements
 
Tax
Effects
 
Total
Balance, beginning of period
$
(9,574
)
 
$
1,241

 
$
2,917

 
$
(5,416
)
Change in fair value of effective portion of unsettled cash flow hedge instruments
1,950

 
(217
)
 
(607
)
 
1,126

Settlements of cash flow hedges
(21,793
)
 
260

 
7,537

 
(13,996
)
Reclassifications into earnings when underlying hedged transactions impacted earnings:
 
 
 
 
 
 
 
Reclassified to Interest expense
273

 

 
(96
)
 
177

Reclassified to Other, net
21,520

 

 
(7,532
)
 
13,988

Reclassified to Production costs

 
(463
)
 
162

 
(301
)
Balance, end of period
$
(7,624
)
 
$
821

 
$
2,381

 
$
(4,422
)

14

ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


18. Segment Information
The Company is engaged in the operation of the Hycroft Mine and the evaluation, exploration, and advancement of gold exploration and development projects in Nevada. Our segments are defined as components of the Company for which separate financial information is available that is evaluated regularly by the executive decision-making group in assessing performance, establishing operating plans and budgets, and deciding how to allocate resources. Segment information as of and for the three and six months ended June 30, 2014 and 2013 is as follows (in thousands):
Three months ended June 30,
 
Hycroft
Mine
 
Exploration
 
Corporate
and Other
 
Total
2014
 
 
 
 
 
 
 
 
Revenue - Note 11
 
$
83,123

 
$

 
$

 
$
83,123

Depreciation and amortization
 
17,386

 

 
248

 
17,634

Income (loss) from operations
 
5,298

 
18,815

 
(6,018
)
 
18,095

Interest income
 

 

 
2

 
2

Interest expense - Note 10
 
(2,622
)
 

 
(8,707
)
 
(11,329
)
Other, net - Note 12
 
26

 

 
(78
)
 
(52
)
Income (loss) before income taxes
 
2,702

 
18,815

 
(14,801
)
 
6,716

Total assets
 
1,378,491

 
37,348

 
44,660

 
1,460,499

Capital expenditures
 
$
24,190

 
$

 
$

 
$
24,190

2013
 
 
 
 
 
 
 
 
Revenue - Note 11
 
$
58,998

 
$

 
$

 
$
58,998

Depreciation and amortization
 
5,473

 

 
268

 
5,741

Income (loss) from operations
 
18,125

 
(1,203
)
 
(9,063
)
 
7,859

Interest income
 
4

 

 
108

 
112

Interest expense - Note 10
 
(2,320
)
 

 
(873
)
 
(3,193
)
Other, net - Note 12
 
64

 

 
(486
)
 
(422
)
Income (loss) before income taxes
 
15,873

 
(1,203
)
 
(10,314
)
 
4,356

Total assets
 
1,206,511

 
39,258

 
240,313

 
1,486,082

Capital expenditures
 
$
152,045

 
$

 
$
100

 
$
152,145


15

ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


Six months ended June 30,
 
Hycroft
Mine
 
Exploration
 
Corporate
and Other
 
Total
2014
 
 
 
 
 
 
 
 
Revenue - Note 11
 
$
168,648

 
$

 
$

 
$
168,648

Depreciation and amortization
 
30,755

 

 
510

 
31,265

Income (loss) from operations
 
19,644

 
18,086

 
(12,504
)
 
25,226

Interest income
 
5

 

 
10

 
15

Interest expense - Note 10
 
(4,546
)
 

 
(12,570
)
 
(17,116
)
Other, net - Note 12
 
36

 

 
(74
)
 
(38
)
Income (loss) before income taxes
 
15,139

 
18,086

 
(25,138
)
 
8,087

Total assets
 
1,378,491

 
37,348

 
44,660

 
1,460,499

Capital expenditures
 
$
67,614

 
$

 
$

 
$
67,614

2013
 
 
 
 
 
 
 
 
Revenue - Note 11
 
$
108,188

 
$

 
$

 
$
108,188

Depreciation and amortization
 
9,060

 

 
527

 
9,587

Income (loss) from operations
 
41,760

 
(2,190
)
 
(15,230
)
 
24,340

Interest income
 
8

 

 
230

 
238

Interest expense - Note 10
 
(4,025
)
 

 
(4,297
)
 
(8,322
)
Other, net - Note 12
 
66

 

 
(967
)
 
(901
)
Income (loss) before income taxes
 
37,809

 
(2,190
)
 
(20,264
)
 
15,355

Total assets
 
1,206,511

 
39,258

 
240,313

 
1,486,082

Capital expenditures
 
$
308,848

 
$

 
$
148

 
$
308,996

19. Commitments and Contingencies
The Company is from time to time involved in various legal actions related to its business, some of which purport to be class actions lawsuits. Management does not believe, based on currently available information, that contingencies related to any pending or threatened legal matter will have a material adverse effect on the Company’s financial statements, although a contingency could be material to the Company’s results of operations or cash flows for a particular period depending on the results of operations and cash flows for such period. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.
Financial Commitments Not Recorded in the Condensed Consolidated Financial Statements
Purchase Obligations
At June 30, 2014, the Company had purchase obligations totaling $12.8 million for the purchase of mill components and capital items associated with the expansion projects of the Hycroft Mine. During 2014, the Company expects purchase obligations to be satisfied through cash payments.
Temporary Housing Space Rental and Service Agreement
The Company leases a temporary housing complex in Winnemucca, NV to provide lodging for employees, contractors, and consultants. The temporary housing complex is leased from a third party who maintains the property and grounds. The Company estimates the remaining payments due under the temporary housing space rental and service agreement will approximate $0.8 million in 2014, $3.6 million in 2015, and $0.1 million in 2016.
Net Profit Royalty
A portion of the Hycroft Mine is subject to a mining lease that requires a 4% net profit royalty be paid to the owner of certain patented and unpatented mining claims. The mining lease also requires an annual advance payment of $120,000 every year mining occurs on the leased claims. All advance annual payments are credited against the future payments due under the 4% net profit royalty. The total payments due under the mining lease are capped at $7.6 million, of which the Company has paid approximately $2.1 million through June 30, 2014. The Company estimates the remaining payments due under the mining lease will approximate $0.3 million in 2014, $1.7 million in 2015, $2.1 million in 2016, and $1.4 million in 2017.

16

ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


Letters of credit
As discussed in Note 10 - Debt and Note 17 - Derivative Instruments, the Company had issued $9.0 million of financial letters of credit under the Revolver to collateralize a portion of the cross currency swap’s liability position. The Company was in compliance with all debt covenants as of June 30, 2014 and projects future compliance; however, an event of default, if not cured, could result in the Company losing availability to the Revolver which may require the portion of the cross currency swap currently collateralized with letters of credit to be collateralized entirely with cash.

17


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In Management’s Discussion and Analysis of Financial Condition and Results of Operations, “we”, “us”, “our”, the “Company”, and “Allied Nevada” refer to Allied Nevada Gold Corp. and its subsidiaries. The following discussion, which has been prepared based on information available to us as of August 4, 2014, provides information that we believe is relevant to an assessment and understanding of our consolidated operating results and financial condition. The following discussion should be read in conjunction with our other reports filed with the U.S. Securities and Exchange Commission (the “SEC”) as well as our interim unaudited Condensed Consolidated Financial Statements and the notes thereto included in this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2013. References to “$” refers to United States currency and “CDN $” to Canadian currency.
Introduction to the Company
We are a U.S.-based primary gold producer focused on mining, developing, and exploring properties in the state of Nevada in a safe, environmentally responsible, and cost-effective manner. Gold and silver sales represent 100% of our revenues and the market prices of gold and silver significantly impact our operating results and cash flows. We cannot control the prices that we receive for the sale of our products, which is why our near-term operating strategies and goals focus on sales volumes, costs, capital expenditures, and other items that we may have discretionary influence over. If we are able to carry out our near-term operating strategies and goals, we believe we will be better positioned to continue working towards our long-term goal, which is the construction and operation of a mill to process our mill ores at the Hycroft Mine (“Hycroft”) and extend the life of mine.
Our operating mine, the Hycroft Mine, is an open-pit heap leach operation and as of December 31, 2013, had estimated proven and probable mineral reserves of 10.6 million ounces of gold and 467.1 million ounces of silver, which are contained in oxide (heap leach), transitional (heap leach and mill), and sulfide (mill) ores. We currently recover metals contained in oxide and transitional ores through our recently expanded heap leach operations. In April 2014, M3 Engineering and Technology (“M3”), in association with the Company, completed a prefeasibility study for a mill expansion. Work continues on the mill expansion project with the goal of completing a feasibility study by the end of the third quarter of 2014. The construction of a mill at Hycroft would allow us to recover metals contained in additional transitional (mill) and the sulfide (mill) ores.
Executive Summary
Our second quarter 2014 highlights and significant developments included the following, which are discussed in further detail throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations:
Health and safety: We remained committed to our core values, health and safety, and operated in a safety-conscious and environmentally responsible manner with no lost-time accidents. We continued to implement programs designed to increase our employees’ knowledge and awareness of mine-site health and safety and environmental responsibility.
Ounces sold: We achieved our sales expectations as gold ounces sold increased 37% to 57,050 ounces and silver ounces sold increased 225% to 474,832 ounces, compared to the second quarter of 2013, which represents the fourth consecutive quarter in which we have met, or exceeded, our targets for the number of gold ounces sold.
Net income: Our net income was $4.4 million as we continued to operate in a lower metal price environment and experienced increases to our total cost of sales which was offset by a gain from a mineral property sale.
Maintained sufficient liquidity: Our operating, investing, and financing activities all resulted in net uses of cash during the second quarter of 2014, which resulted in a June 30, 2014 cash and cash equivalents balance of $13.6 million. We received $20.0 million in gross proceeds from a mineral property sale and increased our revolving credit facility’s capacity by $35.0 million to $75.0 million, which improved our liquidity.
Hycroft operations: We achieved our targeted mining rate and placed 10.9 million ore tons on the leach pads, including 0.4 million crushed ore tons, containing approximately 54,024 recoverable ounces of gold and approximately 0.4 million recoverable ounces of silver. The crushing system was placed back in operation in mid-June at a capacity sufficient to support our heap leach operations.
Hycroft mill expansion: We completed a prefeasibility study for a mill expansion in April 2014 that incorporated on-site oxidation of sulfide concentrates, which would allow us to produce doré on-site. We are now working with M3 on a feasibility study for the mill expansion which we expect to complete by the end of the third quarter of 2014. We are working on financing strategies based upon the prefeasibility study’s estimated capital cost and have engaged Credit Suisse Securities (USA) LLC and Scotia Capital, Inc. to help us find an investment partner(s) to assist us with financing the mill expansion project.

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Hycroft Mine
Operations
Key operating statistics for the three and six months ended June 30, 2014 and 2013 are as follows:
 
Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
Ore mined (000’s tons)
10,528

 
9,798

 
21,312

 
19,384

Ore mined and crushed (000’s tons)
383

 

 
383

 

Ore mined and stockpiled (000’s tons)
156

 
155

 
2,318

 
804

Waste mined (000’s tons)
14,471

 
7,605

 
26,523

 
14,924

 
25,538

 
17,558

 
50,536

 
35,112

Excavation mined (000’s tons)

 
161

 

 
3,288

Ore mined grade - gold (oz/ton)
0.010

 
0.010

 
0.010

 
0.011

Ore mined grade - silver (oz/ton)
0.418

 
0.232

 
0.361

 
0.188

Ounces produced - gold
56,864

 
39,195

 
116,978

 
77,214

Ounces produced - silver
481,151

 
132,841

 
893,657

 
320,841

Ounces sold - gold
57,050

 
41,512

 
116,520

 
68,768

Ounces sold - silver
474,832

 
146,303

 
881,066

 
321,069

Average realized price - gold ($/oz)
$
1,292

 
$
1,348

 
$
1,295

 
$
1,453

Average realized price - silver ($/oz)
$
20

 
$
21

 
$
20

 
$
26

Adjusted cash costs per ounce1
$
806

 
$
775

 
$
807

 
$
709

As shown above, tons mined, ounces produced, and ounces sold during the second quarter and first six months of 2014 significantly increased from the comparable 2013 periods. Operational increases were attributable to the heap leach expansion projects completed during the second half of 2013, which included a 21,500 gallons per minute (“gpm”) Merrill-Crowe plant, the North leach pad, and the addition of two electric wire rope shovels. The 57,050 gold ounces sold during the second quarter of 2014 represented the fourth consecutive quarter we have met, or exceeded, our gold ounces sold targets as Hycroft continues to operate at its steady-state heap leach capacity. During the first six months of 2014, the number of silver ounces sold more than doubled from the same period of 2013 as a result of increased silver ore grades and decreased use of our carbon columns to process solution. During the first six months of 2014, approximately 85% of our gold ounces sold was from solution processed through our Merrill-Crowe plants which yield increased silver concentrations and recoveries than solution processed through our carbon columns, resulting in a silver to gold ounces sold ratio of 7.6:1.0, compared to 4.7:1.0 for the same period of 2013.
During the second quarter and first six months of 2014, our total tons mined slightly exceeded our planned tons and we crushed our first production ore tons. As discussed below in the Hycroft Expansion Projects section, in mid-June, the temporary repairs were completed to the crushing system and it was placed back in operation at a capacity sufficient to support our heap leach operations. During the second half of 2014, we plan to selectively crush high-grade ore with the crushing system to improve metal recoveries.
Our adjusted cash costs per ounce1 during the second quarter and first six months of 2014 were as expected and significantly benefited from our increased silver to gold ounces sold ratio (discussed above). During the second quarter and first six months of 2014, we sold on average an additional 4.8 and 2.9 ounces of silver per gold ounce, respectively, which resulted in additional silver credits of $96 and $58, respectively, per gold ounce sold compared to the same periods of 2013. The increase in silver ounces sold helped to offset lower average realized silver prices and increases to our cash production costs, which is discussed below in the Results of Operations section.
Operations Outlook
We continue to expect our 2014 full year metal sales will approximate 230,000 to 250,000 ounces of gold and 1.7 million to 2.0 million ounces of silver, while we selectively crush high grade ore for the remainder of the year. Adjusted cash costs per ounce1 for the first six months of 2014 were $807 but, for the second half of the year, are expected to increase and approach our previously stated annual range of $825 to $850 per ounce (with silver as a byproduct credit) due to anticipated mining of higher waste tons.
 
 
 
 
 
1 

The term “adjusted cash costs per ounce” is a non-GAAP financial measure. Non-GAAP financial measures do not have any standardized meaning prescribed by GAAP and, therefore, should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. See the section on “Non-GAAP Financial Measures” in this MD&A for additional information.


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During the second half of 2014, due to increased plant and equipment in service our non-cash depreciation and amortization, both capitalized to production-related inventories and included in total cost of sales, are expected to increase. We plan to increase our mining rate to progress through high waste zones of the mine plan which we expect will increase our cash production costs. Depending in part on future period end metal prices, this mining strategy, together with the expected increase in non-cash costs, could result in, or contribute to, a future write-down of production-related inventories.
Hycroft Expansion Projects
Our proven and probable mineral reserves are contained in oxide (heap leach), transitional (heap leach and mill), and sulfide (mill) ores. We currently recover metals contained in oxide and transitional ores through our heap leach operations and the construction of a mill would allow us to recover metals contained in additional transitional (mill) and the sulfide (mill) ores.
Capital expenditures
Consistent with our strategy and goal to preserve liquidity by minimizing capital expenditures, we currently expect our total 2014 capital spending for non-expansion (sustaining) expenditures to be less than $15.0 million.
We expect our remaining 2014 capital spending (sustaining and expansion) to total approximately $20.0 million. For additional detail about our Hycroft Mine expansion spending see the Liquidity and Capital Resources section below.
Heap leach (oxide and transitional ore)
We have previously completed heap leach expansion projects which included increasing the mining rate through larger capacity haul trucks, shovels, and production drills and expanding leach pad operations through increased leach pad size and additional solution processing capacity (Merrill-Crowe plant). During 2014, the only ongoing heap leach expansion project was the crushing system, which was run intermittently until being shut down in April to enable the manufacturer to resolve an engineering design issue on the secondary and tertiary crushers. In mid-June, the temporary repairs were completed to the crushing system and it was placed back in operation at a capacity sufficient to support our heap leach operations. Going forward, we plan to selectively crush high-grade ore with the crushing system to improve metal recoveries while the manufacturer engineers a solution that will bring the crushing system’s capacity to the level required for a mill expansion.
Mill (transitional and sulfide ore)
We had previously commenced a mill expansion project which was deferred during the second quarter of 2013 due to declining metal prices. Previous mill expansion efforts included ordering the mills themselves, motors and mill drives, foundation preparation, and mill-related engineering. Following the decision to defer the previously announced mill, we began working with M3 to develop different mill scenarios which considered phased construction approaches and on-site oxidation methods for our sulfide concentrates to enable on-site doré production. In April 2014, M3, in association with the Company, completed a prefeasibility study for a mill expansion that incorporated on-site oxidation of sulfide concentrates. Based on the positive results of the prefeasibility study, the Board of Directors approved moving forward with a feasibility study, which is currently ongoing and expected to be completed by the end of the third quarter of 2014. The feasibility study will be completed by the same independent third-party engineering firm, M3, in association with the Company, and as of June 30, 2014, is expected to cost less than $3.0 million to complete, which is included in our total Purchase obligations for plant and equipment in the Contractual obligations table in the below Liquidity and Capital Resources section.
Based on assumptions in the prefeasibility study, which entails a two-phase mill expansion approach, we project the addition of a mill could result in average annual production for the first five years of full operation (120,000 tons of ore per day) of approximately 450,000 ounces of gold and 21.0 million ounces of silver and average annual life-of-project (the 12 years of full operation at 120,000 tons of ore per day) production of approximately 438,000 ounces of gold and 21.2 million ounces of silver. The estimated additional (new) capital cost to construct a mill in two phases is $900.1 million for Phase 1 and $421.9 million for Phase 2. Phase 1 entails a 60,000 tons of ore per day (“tpd”) mill capacity and a 24-month construction period. Phase 2 entails bringing the overall mill capacity to 120,000 tpd over an additional 12-month construction period.
We are working on financing strategies based upon the prefeasibility study’s estimated capital cost and have engaged Credit Suisse Securities (USA) LLC and Scotia Capital, Inc. to help us find an investment partner(s) to assist us with financing the mill expansion project.

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Results of Operations
Revenue
Gold revenue
The table below summarizes changes in gold revenue, ounces sold, and average realized prices for the following periods:
 
Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
Total gold revenue (thousands)
$
73,713

 
$
55,946

 
$
150,946