Hycroft Mining Corp - FORM 10-Q - November 3, 2014

Attached files

file filename
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Hycroft Mining Corpanv-20140930xexhibit322.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Hycroft Mining Corpanv-20140930xexhibit321.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Hycroft Mining Corpanv-20140930xexhibit312.htm
EX-95.1 - MINE SAFETY DISCLOSURES - Hycroft Mining Corpanv-20140930xexhibit951.htm
EXCEL - IDEA: XBRL DOCUMENT - Hycroft Mining CorpFinancial_Report.xls
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Hycroft Mining Corpanv-20140930xexhibit311.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 September 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 October 31, 2014, there were 104,438,336 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 September 30, 2014
INDEX


PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
ALLIED NEVADA GOLD CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(US dollars in thousands)
 
 
(Unaudited)
 
 
 
September 30, 
 2014
 
December 31, 
 2013
Assets:
 
 
 
Cash and cash equivalents
$
5,799

 
$
81,470

Accounts receivable
1,804

 
8,227

Inventories - Note 3
23,726

 
26,410

Ore on leachpads, current - Note 4
188,263

 
206,504

Prepaids and other - Note 5
6,652

 
10,857

Assets held for sale
45,564

 
47,357

Deferred tax assets, current
31,159

 
22,943

Current assets
302,967

 
403,768

Restricted cash - Note 6
48,140

 
41,215

Stockpiles and ore on leachpads, non-current - Note 4
121,724

 
116,192

Other assets, non-current - Note 5
11,913

 
12,682

Plant, equipment, and mine development, net - Note 7
864,745

 
890,271

Mineral properties, net - Note 8
45,030

 
48,473

Total assets
$
1,394,519

 
$
1,512,601

Liabilities:
 
 
 
Accounts payable
$
38,745

 
$
67,958

Interest payable
12,481

 
3,402

Other liabilities, current - Note 9
7,159

 
8,512

Debt, current - Note 10
71,157

 
76,226

Asset retirement obligation, current
20

 
20

Current liabilities
129,562

 
156,118

Other liabilities, non-current - Note 9
41,498

 
22,735

Debt, non-current - Note 10
472,165

 
522,427

Asset retirement obligation, non-current
16,161

 
15,344

Deferred tax liabilities, non-current
8,225

 
18,928

Total liabilities
667,611

 
735,552

Commitments and Contingencies - Note 20

 

Stockholders’ Equity:
 
 
 
Common stock, $0.001 par value
 
 
 
Shares authorized: 200,000,000
 
 
 
Shares issued and outstanding: 104,438,336 and 104,043,169, respectively
104

 
104

Additional paid-in-capital
754,991

 
750,119

Accumulated other comprehensive income - Note 18
4,367

 
1,674

(Accumulated deficit) retained earnings
(32,554
)
 
25,152

Total stockholders’ equity
726,908

 
777,049

Total liabilities and stockholders’ equity
$
1,394,519

 
$
1,512,601

The accompanying notes are an integral part of these statements.

1

ALLIED NEVADA GOLD CORP.
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME (Unaudited)
(US dollars in thousands, except per share amounts)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Revenue - Note 11
$
76,912

 
$
76,741

 
$
245,560

 
$
184,929

Operating expenses:
 
 
 
 
 
 
 
Production costs
55,071

 
51,775

 
166,796

 
108,813

Depreciation and amortization
16,308

 
9,607

 
47,573

 
19,194

Write-down of production inventories - Note 4
70,690

 
—

 
70,690

 
—

Total cost of sales
142,069


61,382


285,059


128,007

Exploration, development, and land holding
619

 
940

 
2,013

 
3,106

Accretion
273

 
165

 
818

 
494

General and administrative
5,290

 
3,675

 
17,284

 
15,481

Loss (gain) on dispositions or sales of mineral properties, net - Note 8
2,679

 
1,441

 
(16,801
)
 
1,441

Loss on assets classified as held for sale and asset dispositions, net
897

 
298

 
6,876

 
298

Separation and severance costs - Note 12
—

 
3,011

 
—

 
5,933

(Loss) income from operations
(74,915
)

5,829


(49,689
)

30,169

Other income (expense):
 
 
 
 
 
 
 
Interest income
3

 
77

 
18

 
315

Interest expense - Note 10
(11,358
)
 
(5,361
)
 
(28,474
)
 
(13,683
)
Other, net - Note 13
18

 
343

 
(20
)
 
(558
)
(Loss) income before income taxes
(86,252
)
 
888

 
(78,165
)
 
16,243

Income tax benefit - Note 14
23,838

 
4,083

 
20,459

 
1,776

Net (loss) income
(62,414
)
 
4,971

 
(57,706
)
 
18,019

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Change in fair value of effective portion of cash flow hedge instruments, net of tax - Note 18
2,157

 
2,470

 
3,002

 
3,596

Settlements of cash flow hedges, net of tax - Note 18
(12,001
)
 
5,941

 
(13,346
)
 
(8,055
)
Reclassifications into earnings, net of tax - Note 18
11,925

 
(5,913
)
 
13,037

 
7,951

Other comprehensive income, net of tax
2,081

 
2,498

 
2,693

 
3,492

Comprehensive (loss) income
$
(60,333
)
 
$
7,469

 
$
(55,013
)
 
$
21,511

(Loss) income per share:
 
 
 
 
 
 
 
Basic - Note 15
$
(0.60
)
 
$
0.05

 
$
(0.55
)
 
$
0.19

Diluted - Note 15
$
(0.60
)
 
$
0.05

 
$
(0.55
)
 
$
0.18

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 September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
 
 
 
Net (loss) income
$
(62,414
)
 
$
4,971

 
$
(57,706
)
 
$
18,019

Adjustments to reconcile net (loss) income for the period to net cash provided by (used in) operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
16,308

 
9,607

 
47,573

 
19,194

Accretion
273

 
165

 
818

 
494

Loss (gain) on dispositions or sales of mineral properties, net - Note 8
2,679

 
1,441

 
(16,801
)
 
1,441

Loss on assets classified as held for sale and asset dispositions, net
897

 
298

 
6,876

 
298

Stock-based compensation - Note 16
1,628

 
1,217

 
4,872

 
5,305

Deferred taxes
(23,747
)
 
(3,097
)
 
(20,368
)
 
(2,145
)
Write-down of production inventories - Note 4
16,005

 
—

 
16,005

 
—

Other non-cash items
—

 
(291
)
 
—

 
677

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
1,275

 
348

 
6,423

 
49,541

Materials and supplies inventories
(1,206
)
 
(1,052
)
 
1,653

 
(6,498
)
Production-related inventories
36,335

 
(23,640
)
 
11,255

 
(100,565
)
Prepaids and other
452

 
(2,968
)
 
5,772

 
(5,870
)
Assets held for sale
115

 
—

 
4,522

 
—

Accounts payable
10,109

 
11,313

 
4,663

 
(805
)
Interest payable
8,644

 
8,452

 
9,079

 
8,452

Other liabilities
(2,133
)
 
(260
)
 
(2,495
)
 
(1,226
)
Asset retirement obligation
—

 
(3
)
 
—

 
(31
)
Net cash provided by (used in) operating activities
5,220


6,501


22,141


(13,719
)
Cash flows from investing activities:
 
 
 
 
 
 
 
Additions to plant, equipment, and mine development
(6,304
)
 
(88,208
)
 
(73,918
)
 
(285,286
)
Proceeds from mineral property sale - Note 8
—

 
—

 
20,000

 
—

Decreases (increases) in restricted cash - Note 6
1,793

 
—

 
(6,925
)
 
(9,375
)
Additions to mineral properties
—

 
—

 
—

 
(51
)
Proceeds from other investing activities
45

 
100

 
50

 
115

Net cash used in investing activities
(4,466
)

(88,108
)

(60,793
)

(294,597
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Repayments of principal on capital lease and term loan obligations
(13,540
)
 
(10,412
)
 
(41,132
)
 
(25,540
)
Proceeds from revolving credit agreement borrowings
5,000

 
—

 
5,000

 
—

Payments of debt issuance costs
(27
)
 
(251
)
 
(887
)
 
(1,263
)
Proceeds from issuance of common stock
—

 
—

 
—

 
151,071

Payments of share issuance costs
—

 
(219
)
 
—

 
(8,543
)
Net cash (used in) provided by financing activities
(8,567
)

(10,882
)

(37,019
)

115,725

Net decrease in cash and cash equivalents
(7,813
)

(92,489
)

(75,671
)

(192,591
)
Cash and cash equivalents, beginning of period
13,612

 
246,945

 
81,470

 
347,047

Cash and cash equivalents, end of period
$
5,799


$
154,456


$
5,799


$
154,456

Supplemental cash flow disclosures:
 
 
 
 
 
 
 
Cash paid for interest
$
2,205

 
$
2,746

 
$
23,897

 
$
23,315

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

 
26,867

 
—

 
131,490

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 (Accumulated Deficit)
 
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
382,667

 
—

 
4,006

 
—

 
—

 
4,006

Stock-based compensation under DSU Plan
—

 
—

 
662

 
—

 
—

 
662

Stock-based compensation under PIP Plan
12,500

 
—

 
204

 
—

 
—

 
204

Other comprehensive income - Note 18
—

 
—

 
—

 
2,693

 
—

 
2,693

Net loss
—

 
—

 
—

 
—

 
(57,706
)
 
(57,706
)
Balance, September 30, 2014
104,438,336

 
$
104

 
$
754,991

 
$
4,367

 
$
(32,554
)
 
$
726,908

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. During the three and nine months ended September 30, 2013, the Company reclassified a $1.4 million loss on disposal of mineral properties from Other, net to Loss (gain) on dispositions or sales of mineral properties, net and a $0.3 million loss on equipment held for sale from Other, net to Loss on assets classified as held for sale and asset dispositions, net. 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. ASU 2014-08 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. 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)


In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern.” ASU 2014-15 requires management to assess, at each interim and annual reporting period, whether substantial doubt exists about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued and, when necessary, provide related footnote disclosures. Management’s assessment should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. ASU 2014-15 is effective for fiscal years ending after December 15, 2016, which for the Company means the year ending December 31, 2016; however, early adoption is permitted. 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.
3. Inventories
The following table provides the components of inventories and the estimated recoverable gold ounces therein (in thousands, except ounces): 
 
September 30, 2014
 
December 31, 2013
 
Amount
 
Gold ounces
 
Amount
 
Gold ounces
Materials and supplies
$
16,349

 
 
 
$
18,002

 
 
Merrill-Crowe in-process
4,794

 
3,490

 
6,322

 
5,662

Carbon column in-process
867

 
655

 
859

 
724

Doré finished goods
1,716

 
1,258

 
1,227

 
1,106

 
$
23,726

 
5,403

 
$
26,410

 
7,492

As of September 30, 2014 and December 31, 2013, production-related Inventories included $1.7 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):
 
September 30, 2014
 
December 31, 2013
 
Amount
 
Gold ounces
 
Amount
 
Gold ounces
Current:
 
 
 
 
 
 
 
Ore on leach pads
$
188,263

 
163,962

 
$
206,504

 
180,919

Non-current:
 
 
 
 
 
 
 
Ore on leach pads
$
80,684

 
70,269

 
$
88,501

 
77,537

Stockpiles
41,040

 
79,014

 
27,691

 
61,771

 
$
121,724

 
149,283

 
$
116,192

 
139,308

As of September 30, 2014 and December 31, 2013, Ore on leach pads, current and non-current included $60.9 million and $65.6 million, respectively, of capitalized non-cash depreciation and amortization costs. As of September 30, 2014 and December 31, 2013, Stockpiles included $7.3 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. At September 30, 2014, the period-end LBMA price per gold ounce was $1,216.50 and the price per silver ounce was $17.11. Due to metal price levels at September 30, 2014 and an increase in per gold ounce production costs during the three months ended September 30, 2014, the Company’s application of its lower of cost or market accounting policy resulted in a $70.7 million write-down of Ore on leach pads. The Company’s $70.7 million write-down of Ore on leach pads consisted of $16.0 million of allocated depreciation and amortization costs and $54.7 million of previously incurred cash production costs.
Further declines from September 30, 2014 metal price levels and/or future production costs per gold ounce greater than the September 30, 2014 carrying value per gold ounce included in Ore on leach pads could result in, or contribute to, additional future write-downs of production-related inventories. The write-down during the three months ended September 30, 2014 resulted solely from the Company’s application of its lower of cost or market accounting policy and was unrelated to any metallurgical balancing analytics or changes to recovery rates.

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):
 
September 30, 2014
 
December 31, 2013
Prepaids and other
 
 
 
Prepaids
$
4,734

 
$
6,083

Deposits
1,224

 
1,685

Federal income taxes receivable
605

 
2,914

Other
89

 
175

 
$
6,652

 
$
10,857

Other assets, non-current
 
 
 
Debt issuance costs, net
$
11,048

 
$
12,208

Reclamation policy premium, net
385

 
474

Cash collateral for cross currency swap - Note 10
480

 
—

 
$
11,913

 
$
12,682

 
6. Restricted Cash
The following table provides the components of restricted cash (in thousands):
Obligation collateralized
September 30, 2014
 
December 31, 2013
Asset retirement obligation surety bonds
$
38,140

 
$
41,215

Revolving credit agreement - Note 10
10,000

 
—

 
$
48,140

 
$
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
 
September 30, 2014
 
December 31, 2013
Mine equipment
5 - 7 years
 
$
298,026

 
$
312,425

Process equipment
Units-of-production
 
274,757

 
60,875

Mine development
Units-of-production
 
126,197

 
120,038

Leach pads
Units-of-production
 
81,446

 
78,737

Buildings and leasehold improvements
10 years
 
25,640

 
25,083

Furniture, fixtures, and office equipment
2 - 3 years
 
4,417

 
4,236

Vehicles
3 - 5 years
 
2,943

 
2,943

Construction in progress and other
 
 
240,342

 
421,117

 
 
 
1,053,768

 
1,025,454

Less: accumulated depreciation and amortization
 
 
(189,023
)
 
(135,183
)
 
 
 
$
864,745

 
$
890,271

During the second quarter of 2014, the Company placed the crushing system (process equipment) into service.

7
ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


8. Mineral Properties, Net
The table below is a summary of the Company’s gains and losses on dispositions and sales of mineral properties (in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Loss on dispositions of early-stage exploration properties
$
(2,679
)
 
$
(1,441
)
 
$
(2,679
)
 
$
(1,441
)
Gain on sale of a 75% controlling interest in the Hasbrouck, Three Hills, and Esmeralda County properties
—

 
—

 
19,480

 
—

 
$
(2,679
)
 
$
(1,441
)
 
$
16,801

 
$
(1,441
)
From time to time, the Company performs reviews of its early-stage exploration properties, which are properties having no defined mineralized material. If the Company determines that abandonment of any properties is appropriate, the book value is written-off and a loss is recognized.
On April 22, 2014, 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. The carrying value of the Properties sold to WKM was $0.5 million, resulting in the recognition of a $19.5 million gain during the nine months ended September 30, 2014.
9. Other Liabilities
The following table summarizes the components of other liabilities, current and non-current (in thousands):
 
September 30, 2014
 
December 31, 2013
Other liabilities, current
 
 
 
Accrued compensation
$
5,333

 
$
3,587

Derivative instruments - Note 18
1,685

 
669

Capital expenditure retentions
—

 
4,256

Other
141

 
—

 
$
7,159

 
$
8,512

Other liabilities, non-current
 
 
 
Derivative instruments - Note 18
$
35,296

 
$
21,730

Accounts payable
5,188

 
—

Deferred royalty income
958

 
953

Other
56

 
52

 
$
41,498

 
$
22,735


8
ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


10. Debt
The following table summarizes the components of debt (in thousands):
 
 
 
September 30, 2014
 
December 31, 2013
 
Debt, current:
 
 
 
 
 
 
Capital lease and term loan obligations
 
 
$
53,366

(1) 
$
58,435

(1) 
Term and Security Deposit loan
 
 
17,791

(2) 
17,791

(2) 
 
 
 
$
71,157

 
$
76,226

 
Debt, non-current:
 
 
 
 
 
 
Capital lease and term loan obligations
 
 
$
110,284

 
$
146,347

 
Revolving Credit Agreement
 
 
5,000

 
—

 
8.75% Senior Notes due June 2019 (3)
 
 
356,881

 
376,080

 
 
 
 
$
472,165

 
$
522,427

 
(1)  Includes borrowings of $8.9 million and $5.7 million as of September 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 18 - 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 18 - Derivative Instruments. The Notes balance was $356.9 million based upon the U.S. dollar to Canadian dollar exchange rate on September 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.
 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 September 30, 2014 (in thousands):
Fiscal Year
 
 
Minimum Lease
Payments
 
2014
 
 
$
22,499

(1) 
2015
 
 
49,898

 
2016
 
 
47,392

 
2017
 
 
32,941

 
2018
 
 
11,885

 
Thereafter
 
 
15,421

 
Less: interest
 
 
(16,386
)
 
Net minimum capital lease payments
 
 
163,650

 
Less: current portion
 
 
(53,366
)
 
Non-current portion
 
 
$
110,284

 
(1)  Includes principal of $8.9 million for mine equipment included in Assets held for sale.


9
ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


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 September 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 September 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 September 30, 2014, the full $75.0 million was available under the Revolver, which was reduced by $11.4 million for financial letters of credit issued to collateralize the cross currency swap (discussed in the following paragraph) and $5.0 million in outstanding cash borrowings, resulting in remaining availability of $58.6 million.
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.
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 September 30, 2014, the Company had remitted $0.5 million of cash and issued $11.4 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 September 30, 2014.

10
ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


Interest Expense
The following table summarizes the components of interest expense (in thousands):
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
 
2014
 
2013
 
2014
 
2013
8.75% Senior Notes due June 2019 (1)
 
 
$
8,452

 
$
8,452

 
$
25,081

 
$
25,219

Capital lease and term loan obligations
 
 
2,124

 
1,989

 
5,943

 
5,441

Amortization of debt issuance costs
 
 
740

 
664

 
2,047

 
1,909

Revolver interest and standby fees
 
 
341

 
385

 
858

 
1,010

Term and Security Deposit loan
 
 
226

 
755

 
671

 
1,105

Other interest expense
 
 
141

 
368

 
424

 
592

Capitalized interest
 
 
(666
)
 
(7,252
)
 
(6,550
)
 
(21,593
)
 
 
 
$
11,358

 
$
5,361

 
$
28,474

 
$
13,683

(1) Effective interest rate of 8.375% after cross currency swap. See Note 18 - 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 September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
Amount
 
Ounces sold
 
Amount
 
Ounces sold
 
Amount
 
Ounces sold
 
Amount
 
Ounces sold
Gold
$
66,511

 
52,176

 
$
72,649

 
52,713

 
$
217,458

 
168,696

 
$
172,567

 
121,481

Silver
10,401

 
535,407

 
4,092

 
184,082

 
28,102

 
1,416,473

 
12,362

 
505,151

 
$
76,912

 
 
 
$
76,741

 
 
 
$
245,560

 
 
 
$
184,929

 
 
12. Separation and Severance Costs
The tables below summarize the Company’s separation and severance costs by type of cost and the reportable segment to which they relate (in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
Type of cost
2014
 
2013
 
2014
 
2013
One time, cash payments
$
—

 
$
3,011

 
$
—

 
$
4,809

Stock-based compensation costs from continued vesting
—

 
—

 
—

 
1,124

 
$
—

 
$
3,011

 
$
—

 
$
5,933

 
Three months ended September 30,
 
Nine months ended September 30,
Reportable segment
2014
 
2013
 
2014
 
2013
Hycroft Mine
$
—

 
$
1,860

 
$
—

 
$
1,860

Exploration
—

 
381

 
—

 
405

Corporate and Other
—

 
770

 
—

 
3,668

 
$
—

 
$
3,011

 
$
—

 
$
5,933


11
ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


13. Other, Net
The table below is a summary of the Company’s other income and expense (in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Foreign currency transaction gain (loss) on Notes - Note 18
$
17,800

 
$
(8,400
)
 
$
19,200

 
13,120

Reclassification of (loss) gain into earnings from Accumulated other comprehensive income for cross currency swap - Note 18
(17,800
)
 
8,400

 
(19,200
)
 
(13,120
)
Gain (loss) on marketable equity securities
—

 
290

 
—

 
(677
)
Other
18

 
53

 
(20
)
 
119

 
$
18

 
$
343

 
$
(20
)
 
$
(558
)
14. Income Tax Benefit
For the nine months ended September 30, 2014, the Company recorded income tax benefit of approximately $20.5 million which included a $23.7 million income tax benefit from loss based on an estimated annual effective rate of approximately 30.3% and $3.2 million of additional income tax expense for discrete items primarily related to stock-based compensation and return to provision adjustments that were recognized as incurred in the current quarter. The estimated annual effective tax rate varied from the United States statutory tax rate of 35% primarily due to an increase in valuation allowance established against deferred tax assets expected to be generated in the current year.
For the nine months ended September 30, 2013, the Company recorded income tax benefit of approximately $1.8 million based on an estimated annual effective rate of 10.0%. 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 September 30, 2014.
15. (Loss) Income Per Share
The following table sets forth the computation of basic and diluted (loss) income per share (in thousands, except per share amounts):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2014
 
2013
 
2014
 
2013
Net (loss) income available to common stockholders:
$
(62,414
)
 
$
4,971

 
$
(57,706
)
 
$
18,019

Weighted average common shares:
 
 
 
 
 
 
 
Basic
104,852

 
104,416

 
104,728

 
97,297

Effect of shares granted under the:
 
 
 
 
 
 
 
Restricted Share Unit Plan
—

 
1,045

 
—

 
988

Deferred Phantom Unit Plan
—

 
248

 
—

 
248

Deferred Share Unit Plan
—

 
130

 
—

 
97

2007 Stock Option Plan
—

 
83

 
—

 
319

Diluted
104,852

 
105,922

 
104,728

 
98,949

(Loss) income per share:
 
 
 
 
 
 
 
Basic
$
(0.60
)
 
$
0.05

 
$
(0.55
)
 
$
0.19

Diluted
$
(0.60
)
 
$
0.05

 
$
(0.55
)
 
$
0.18


12
ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


During the three and nine months ended September 30, 2014, the Company’s basic average common shares and diluted average common shares were the same because the effects of potential shares of common stock was anti-dilutive due to the Company’s net loss. Had the Company generated net income, during the three and nine months ended September 30, 2014, the effects from 1,833,828 restricted share units, 380,560 deferred share units, and 248,136 deferred phantom units would have been included in the diluted average common shares calculation.
16. Stock-Based Compensation
As of September 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”).
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 September 30,
 
Nine months ended September 30,
Stock-based compensation cost by plan
2014
 
2013
 
2014
 
2013
Restricted Share Unit
$
1,289

 
$
1,005

 
$
4,006

 
$
4,568

Performance and Incentive Pay
139

 
—

 
204

 
—

Deferred Share Unit
200

 
212

 
662

 
737

 
$
1,628

 
$
1,217

 
$
4,872

 
$
5,305

 
September 30,
Unrecognized stock-based compensation cost by plan
2014
 
2013
Restricted Share Unit
$
8,211

 
$
12,115

Performance and Incentive Pay
818

 
—

Deferred Share Unit
400

 
525

 
$
9,429

 
$
12,640

The following table summarizes awards and activity of the Company’s stock-based compensation plans:
 
Nine months ended September 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

 
378,790

 
246,152

 
—

 
—

Issued/exercised
(382,667
)
 
(12,500
)
 
—

 
—

 
—

Canceled/forfeited
(225,205
)
 
(63,419
)
 
—

 
—

 
—

Outstanding, end of period
2,026,073

 
302,871

 
380,560

 
500,000

 
248,136

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

 
—

 
257,484

 
500,000

 
248,136

All awards granted under the PIP Plan have been in the form of restricted stock units.

13
ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


17. 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).
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 nine months ended September 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
September 30, 2014
 
December 31, 2013
 
Input Hierarchy
Level
Assets held for sale
$
45,564

 
$
47,357

 
Level 2
 
 
 
 
 
 
Liabilities
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
Cross currency swap - Note 18
$
36,800

 
$
22,399

 
Level 2
Diesel swap agreements - Note 18
181

 
—

 
Level 2
 
$
36,981

 
$
22,399

 
 
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 derivative instruments are valued using models which require 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 derivative instruments trade in liquid markets and, as such, model inputs can generally be verified and do not involve significant management judgment. Derivative instruments are 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 $333.7 million at September 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.
 

14
ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


18. 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):
 
 
September 30, 2014
 
December 31, 2013
 
 
Other liabilities,
current
 
Other liabilities,
non-current
 
Other liabilities,
current
 
Other liabilities,
non-current
Cross currency swap
 
$
1,544

 
$
35,256

 
$
669

 
$
21,730

Diesel swap agreements
 
141

 
40

 
—

 
—

 
 
$
1,685

 
$
35,296

 
$
669

 
$
21,730

Derivative Instruments Designated as Hedges – Cash Flow Hedges
Diesel Swap Agreements
As of September 30, 2014, the Company had outstanding diesel swaps covering the 2015 year for 3.0 million gallons (0.25 million gallons per month) at an average price of $2.70 per gallon, which represents approximately 28% of the Company’s forecasted 2015 diesel consumption. As of December 31, 2013, the Company had no unsettled diesel swaps. Gains and losses in Accumulated other comprehensive income from previously settled diesel swaps are 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.
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):
 
Nine months ended September 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
4,799

 
(180
)
 
(1,617
)
 
3,002

Settlements of cash flow hedges
(20,532
)
 
—

 
7,186

 
(13,346
)
Reclassifications into earnings when underlying hedged transactions impacted earnings:
 
 
 
 
 
 
 
Reclassified to Interest expense
1,332

 
—

 
(466
)
 
866

Reclassified to Other, net
19,200

 
—

 
(6,720
)
 
12,480

Reclassified to Production costs
—

 
(476
)
 
167

 
(309
)
Balance, end of period
$
6,719

 
$
(3
)
 
$
(2,349
)
 
$
4,367

 

15
ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


 
Nine months ended September 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
5,781

 
(248
)
 
(1,937
)
 
3,596

Settlements of cash flow hedges
(12,927
)
 
534

 
4,338

 
(8,055
)
Reclassifications into earnings when underlying hedged transactions impacted earnings:
 
 
 
 
 
 
 
Reclassified to Interest expense
(193
)
 
—

 
68

 
(125
)
Reclassified to Other, net
13,120

 
—

 
(4,592
)
 
8,528

Reclassified to Production costs
—

 
(695
)
 
243

 
(452
)
Balance, end of period
$
(3,793
)
 
$
832

 
$
1,037

 
$
(1,924
)
19. 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 nine months ended September 30, 2014 and 2013 is as follows (in thousands):
Three months ended September 30,
 
Hycroft
Mine
 
Exploration
 
Corporate
and Other
 
Total
2014
 
 
 
 
 
 
 
 
Revenue - Note 11
 
$
76,912

 
$
—

 
$
—

 
$
76,912

Depreciation and amortization
 
16,063

 
—

 
245

 
16,308

Write-down of production inventories - Note 4
 
70,690

 
—

 
—

 
70,690

Loss from operations
 
(66,082
)
 
(3,298
)
 
(5,535
)
 
(74,915
)
Interest income
 
1

 
—

 
2

 
3

Interest expense - Note 10
 
(2,491
)
 
—

 
(8,867
)
 
(11,358
)
Other, net - Note 13
 
(42
)
 
60

 
—

 
18

Loss before income taxes
 
(68,614
)
 
(3,238
)
 
(14,400
)
 
(86,252
)
Total assets
 
1,302,629

 
35,517

 
56,373

 
1,394,519

Capital expenditures
 
$
6,304

 
$
—

 
$
—

 
$
6,304

2013
 
 
 
 
 
 
 
 
Revenue - Note 11
 
$
76,741

 
$
—

 
$
—

 
$
76,741

Depreciation and amortization
 
9,346

 
—

 
261

 
9,607

Income (loss) from operations
 
13,299

 
(2,762
)
 
(4,708
)
 
5,829

Interest income
 
2

 
—

 
75

 
77

Interest expense - Note 10
 
(2,912
)
 
—

 
(2,449
)
 
(5,361
)
Other, net - Note 13
 
49

 
—

 
294

 
343

Income (loss) before income taxes
 
10,438

 
(2,762
)
 
(6,788
)
 
888

Total assets
 
1,348,593

 
38,743

 
143,331

 
1,530,667

Capital expenditures
 
$
89,938

 
$
51

 
$
—

 
$
89,989


16
ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


Nine months ended September 30,
 
Hycroft
Mine
 
Exploration
 
Corporate
and Other
 
Total
2014
 
 
 
 
 
 
 
 
Revenue - Note 11
 
$
245,560

 
$
—

 
$
—

 
$
245,560

Depreciation and amortization
 
46,818

 
—

 
755

 
47,573

Write-down of production inventories - Note 4
 
70,690

 
—

 
—

 
70,690

(Loss) income from operations
 
(46,438
)
 
14,788

 
(18,039
)
 
(49,689
)
Interest income
 
6

 
—

 
12

 
18

Interest expense - Note 10
 
(7,037
)
 
—

 
(21,437
)
 
(28,474
)
Other, net - Note 13
 
(6
)
 
60

 
(74
)
 
(20
)
(Loss) income before income taxes
 
(53,475
)
 
14,848

 
(39,538
)
 
(78,165
)
Total assets
 
1,302,629

 
35,517

 
56,373

 
1,394,519

Capital expenditures
 
$
73,918

 
$
—

 
$
—

 
$
73,918

2013
 
 
 
 
 
 
 
 
Revenue - Note 11
 
$
184,929

 
$
—

 
$
—

 
$
184,929

Depreciation and amortization
 
18,406

 
—

 
788

 
19,194

Income (loss) from operations
 
55,059

 
(4,952
)
 
(19,938
)
 
30,169

Interest income
 
10

 
—

 
305

 
315

Interest expense - Note 10
 
(6,937
)
 
—

 
(6,746
)
 
(13,683
)
Other, net - Note 13
 
115

 
—

 
(673
)
 
(558
)
Income (loss) before income taxes
 
48,247

 
(4,952
)
 
(27,052
)
 
16,243

Total assets
 
1,348,593

 
38,743

 
143,331

 
1,530,667

Capital expenditures
 
$
398,785

 
$
51

 
$
149

 
$
398,985

20. Commitments and Contingencies
The Company is from time to time involved in various legal actions related to its business, some of which are 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 September 30, 2014, the Company had purchase obligations totaling $12.3 million for the purchase of mill components and capital items associated with the expansion projects of the Hycroft Mine. 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 $0.4 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 September 30, 2014. The Company currently estimates the remaining payments due under the mining lease will approximate $0.3 million in 2015, $1.5 million in 2016, $3.0 million in 2017, and $0.7 million in 2018.

17
ALLIED NEVADA GOLD CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


Letters of credit
As discussed in Note 10 - Debt and Note 18 - Derivative Instruments, the Company had issued $11.4 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 September 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.


18

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 November 3, 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 financial position, 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 sulfide (mill) ores at the Hycroft Mine (“Hycroft”) and extend the life of the 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 October 2014