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EXCEL - IDEA: XBRL DOCUMENT - Hycroft Mining CorpFinancial_Report.xls
EX-31.1 - EXHIBIT 31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Hycroft Mining Corpanv-20141231xexhibit311.htm
EX-31.2 - EXHIBIT 31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Hycroft Mining Corpanv-20141231xexhibit312.htm
EX-21.1 - EXHIBIT 21.1 - SUBSIDIARIES OF THE REGISTRANT - Hycroft Mining Corpanv-20141231xexhibit211.htm
EX-32.1 - EXHIBIT 32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Hycroft Mining Corpanv-20141231xexhibit321.htm
EX-32.2 - EXHIBIT 32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Hycroft Mining Corpanv-20141231xexhibit322.htm
EX-95.1 - EXHIBIT 95.1 - MINE SAFETY DISCLOSURES - Hycroft Mining Corpanv-20141231xexhibit951.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
 (Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to
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 number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of exchange on which registered
Common Stock, $0.001 Par Value
 
NYSE MKT LLC / Toronto Stock Exchange
 
 
 
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o   No  x 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No  x 
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 such 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
o
 
Accelerated filer
 
x

 
 
 
 
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 Act).    Yes  o    No  x



The aggregate market value of common stock held by non-affiliates of the registrant was $365.1 million on June 30, 2014. On March 26, 2015, there were 126,193,336 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
 
Documents Incorporated by Reference
To the extent specifically referenced in Part III, portions of the registrant’s definitive Proxy Statement on Schedule 14A to be filed with the Securities and Exchange Commission in connection with the 2015 Annual Meeting of Stockholders are hereby incorporated by reference into this report.




ALLIED NEVADA GOLD CORP.
FORM 10-K
For the Year Ended December 31, 2014

TABLE OF CONTENTS
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
PART I
 
 
Item 1.
 
 
Item 1A.
 
 
Item 1B.
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
 
 
 
 
 
 
 
PART II
 
 
Item 5.
 
 
Item 6.
 
 
Item 7.
 
 
Item 7A.
 
 
Item 8.
 
 
Item 9.
 
 
Item 9A.
 
 
Item 9B.
 
 
 
 
 
 
 
 
 
PART III
 
 
Item 10.
 
 
Item 11.
 
 
Item 12.
 
 
Item 13.
 
 
Item 14.
 
 
 
 
 
 
 
 
 
PART IV
 
 
Item 15.
 
 
 
 
 



Table of Contents
EXPLANATORY NOTE
On March 10, 2015 (the “Petition Date”), Allied Nevada Gold Corp. and certain of its domestic direct and indirect subsidiaries (together with Allied Nevada Gold Corp., the “Debtors”) filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Debtors’ chapter 11 cases (the “Chapter 11 Cases”) are being jointly administered under Case No. 15-10503. We will continue to operate our business as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.
For additional information regarding the Chapter 11 Cases, see Item 1. Business - “Voluntary Reorganization under Chapter 11” and Note 2 - Summary of Significant Accounting Policies, Note 11 - Debt, Note 21 - Derivative Instruments, and Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements. The disclosures in this Annual Report on Form 10-K should be read in the context of the Chapter 11 Cases. For a discussion of risk factors relating to the Chapter 11 Cases, see Item 1A. Risk Factors - “Bankruptcy-Related Risks”.




Cautionary Statement Regarding Forward-Looking Statements
In addition to historical information, this Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) or in releases made by the U.S. Securities and Exchange Commission (the “SEC”), all as may be amended from time to time. All statements, other than statements of historical fact, included herein or incorporated by reference, that address activities, events or developments that we expect or anticipate will or may occur in the future, are forward-looking statements, including but not limited to such things as:
our anticipated liquidity, cash flows, cash operating costs and adjusted cash costs per ounce1;
the availability, terms and costs related to future borrowing, debt repayment, and equity funding;
our expectations and plans related to the recapitalization of the Company or restructuring of any or all of its debt;
our plans and expectations related to our ability to obtain financing to emerge from federal bankruptcy proceedings and continue as a going concern;
our efforts to restructure our operations to continue as a going concern and preserve value;
our expectations that, during the bankruptcy process, our trade creditors and vendors will be paid in full and we will continue to operate and produce gold at our Hycroft Mine;
our future business strategy, plans and goals;
future gold and silver prices;
our estimated future capital expenditures, construction, and other cash needs and expectations as to the funding or timing thereof;
the anticipated delisting of our common stock from the NYSE MKT and Toronto Stock Exchange;
the availability, terms and impacts of financing strategies and options, including arrangements such as joint ventures, royalty agreements, streaming transactions, forward sales, and the restructuring of our asset retirement obligation surety bonds;
our expectations regarding the growth of our business and our estimates of mineral reserves and other mineralized material;
the timing and economic potential of the transitional and sulfide mineralization and milling project at the Hycroft Mine (“Hycroft”), including the anticipated costs, timing and economic benefits set forth in the October 2014 feasibility study and our subsequent capital resequencing and optimization exercise;
the anticipated results of the exploration drilling programs at our properties, including at our Hycroft Mine;
our expectations regarding gold and silver recovery;
our estimated future production, sales, cost of production, cost of sales, costs, and expenses;
our plans and expectations regarding the use of the crushing system, the crushing system’s impact on our operations, and permanent and temporary corrections and modifications of the crushing system;
our plans and expectations regarding the development of our properties, including with respect to Hycroft; and
our plans and expectations regarding the sale of certain assets, including with respect to certain assets held for sale and mineral properties.
These statements can be found under Part I-Item 1. Business, Part I-Item 1A. Risk Factors, Part I-Item 2. Properties, Part II-Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Part II-Item 8. Financial Statements and Supplementary Data and elsewhere throughout this Annual Report on Form 10-K. The words “estimate”, “plan”, “anticipate”, “expect”, “intend”, “believe”, “project”, “target”, “budget”, “may”, “will”, “would”, “could”, “seeks”, or “scheduled to”, or other similar words, or negatives of these terms or other variations of these terms or comparable language or any discussion of strategy or intentions identify forward-looking statements. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act, and the PSLRA with the intention of obtaining the benefit of the “safe harbor” provisions of such laws. These statements involve known and unknown risks, uncertainties, assumptions and other factors which may cause our actual results, performance or achievements to be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on current expectations. Important factors that could cause actual results, performance or achievements to differ materially from those in the forward-looking statements include, but are not limited to:
Bankruptcy-Related Risks
the potential adverse effect of the filing of the Chapter 11 Cases on our business, financial condition and results of operations, including our ability to maintain contracts and other business relationships that are critical to our business and the actions and decisions of our creditors and other third parties with interests in the Chapter 11 Cases;
our ability to maintain adequate liquidity to fund our operations during the Chapter 11 Cases and to fund a plan of reorganization and thereafter;
 
 
 
1 

The term “adjusted cash costs per ounce” is a non-GAAP financial measure. See the section titled “Non-GAAP Financial Measures” in Part II – Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.


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risks related to whether the holders of our liabilities and/or securities will receive any value for their interests;
our ability to obtain approval of the Bankruptcy Court with respect to motions in the Chapter 11 Cases prosecuted from time to time and to develop, prosecute, confirm and consummate one or more plans of reorganization with respect to the Chapter 11 Cases and to consummate all of the transactions contemplated by one or more such plans or upon which consummation of such plans may be conditioned;
Financial Risks
our need to raise additional capital, which may not be available on favorable terms or at all;
our ability to restructure our substantial level of indebtedness in federal bankruptcy proceedings in order to emerge from bankruptcy and continue as a going concern;
risks related to the debtor-in-possession financing;
risks related to our liquidity, financial position, and ability to continue as a going concern.
volatile market prices of gold and silver;
risks related to the potential write-down of our long-lived assets;
our current intention or future decisions whether or not to use forward-sale arrangements;
risk associated with our current and future use of derivative financial instruments;
Operational and Development Risks
risks related to the heap leaching process at Hycroft, including but not limited to gold and silver recovery rates, gold and silver extraction rates, leach pad remediation processes, and the grades of ore placed on our leach pads;
uncertainties concerning estimates of mineral reserves and mineralized materials, and grades;
risks related to estimates of the cost or timing of projects related to the Hycroft mill expansion and sustaining capital projects;
our ability to achieve our estimated production and sales rates and stay within our estimated operating and production costs;
availability and cost of equipment or supplies;
uncertainties and risks related to our reliance on contractors and consultants;
the commercial success of, and risks relating to, our exploration and development activities;
the hazardous nature of mining activities, including operational, geotechnical and environmental risks;
risks related to slope stability;
uncertainties related to our ability to replace and expand our ore reserves;
insurance may not be adequate to cover all risks associated with our business;
Environmental, Compliance, and Regulatory Risks
cost of compliance with current and future government regulations, including those related to environmental protection, mining, health and safety, corporate governance and public disclosure;
potential operational and financial effects of current and proposed federal and state regulations related to environmental protection and mining, and the exposure to potential liability created by such regulations;
uncertainties relating to obtaining or retaining approvals and permits from governmental regulatory authorities;
potential challenges to title in our mineral properties;
risks associated with proposed legislation in Nevada that could significantly increase the costs of our operations;
changes to the climate and regulations and pending legislation regarding climate change could increase the costs of our operations;
Market, General, and Other Risks
risks related to trading in our securities during the term of the Chapter 11 Cases;
risks related to our common stock no longer being traded on the NYSE MKT and the TSX;
risks associated with the inability to retain or attract key personnel necessary to our operations;
potential conflicts of interests that may arise through some of our directors’ involvement with other natural resources companies;
risks associated with joint ventures;
risks related to current and future legal proceedings; and
risks related to security breaches.
For a more detailed discussion of such risks and other important factors that could cause actual results, performance or achievements to differ materially from those in our forward-looking statements, please see the risk factors discussed in “Part I-Item 1A. Risk Factors” of this Annual Report on Form 10-K and our other filings with the SEC. Although we have attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Although we base these forward-looking

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statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results, performance or achievements may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-K. In addition, even if our results, performance or achievements are consistent with the forward-looking statements contained in this Form 10-K, those results, performance or achievements may not be indicative of results, performance or achievements in subsequent periods.
Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements that we make in this Form 10-K speak only as of the date of those statements, and we undertake no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.
Cautionary Note Regarding Mineralized Material
We report reserve and mineralized material estimates in accordance with SEC Industry Guide 7.  In accordance with SEC Industry Guide 7, resources have been reported as “mineralized material”. Canadian investors are cautioned that estimates of mineralized materials may differ from mineral resource estimates prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum referred to in the Canadian Securities Administrators’ National Instrument 43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”). Canadian investors should review the mineral resource estimates prepared in accordance with NI 43-101 contained in the mineral proven and probable ore reserves table.
Glossary
Assay” means to test minerals by chemical or other methods for the purpose of determining the amount of metals contained therein.
Claim” means a mining interest giving its holder the right to prospect, explore for and exploit minerals within a defined area.
“Feasibility study” means a comprehensive study undertaken to determine the economic feasibility of a project; the conclusion of which will be used to determine if a construction and/or production decision can be made.
“Grade” means the amount of metal in each ton of ore, expressed as troy ounces per ton for precious metals.
Heap leaching” means a process whereby gold is extracted by "heaping" crushed ore on impermeable leach pads and continually applying a weak cyanide solution that dissolves the gold from the ore. The gold-laden solution is then collected for gold recovery.
“gpm” means gallons per minute.
“Mill” means a processing facility where ore is finely ground and thereafter undergoes physical or chemical treatments to extract the valuable metals.
Mineralized material” is a body that contains mineralization which has been delineated by appropriately spaced drilling and/or underground sampling to estimate a sufficient tonnage and average grade of metal(s). Such a deposit does not qualify as a reserve until a comprehensive evaluation based upon unit cost, grade, recoveries, and other material factors conclude legal and economic feasibility of extraction at the time of reserve determination.
“Mining Rate” means tons of ore mined per day or specified time period.
NI 43-101” means “National Instrument 43-101—Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators.”
NSR” means net smelter return royalty.
“opt” or “oz/ton” means ounces per ton.
Ore” means material within a mineral deposit that can be economically extracted by the use of mining methods. Ore is processed or stockpiled.
“Ounce” means a troy ounce.
Oxide” means ore in which some of the minerals have been oxidized (i.e., combined with oxygen through exposure to air or water) from surface exposure, fracturing, faulting, or exposure to high temperatures. Oxidation tends to make the ore more porous and permits a more complete permeation of cyanide solutions so that minute particles of gold in the interior of the minerals will be more readily dissolved. Oxide ore is generally processed using a heap leach method.
Prefeasibility study” means a preliminary study undertaken to determine if a project is economic on a preliminary basis and a feasibility study should be performed.
Probable reserves” means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less

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adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.
Proven reserves” means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth, and mineral content of reserves are well-established.
Recovery” means that portion of the metal contained in the ore that is successfully extracted by processing, can also be expressed as a percentage.
Reserves” or “ore reserves” mean that part of a mineral deposit, which could be economically and legally extracted or produced at the time of the reserve determination.
Stripping ratio” or “strip ratio” means the ratio of waste tons to ore tons mined in an open pit mine.
Sulfide” means a compound of sulfur and a metallic element. Sulfide ore is generally processed using a mill method.
Ton” means a short ton (2,000 pounds).
“Transitional” means a material that has been incompletely oxidized. Transitional ore is generally processed using a mill or heap leach method.
Waste” means rock or other material lacking sufficient grade and/or other characteristics to be economically processed or stockpiled as ore. To access an ore deposit it is often necessary to remove waste.


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PART I
Item 1. Business
About 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. We were incorporated under the laws of the state of Delaware on September 14, 2006. In this report, “we”, “us”, “our”, the “Company”, and “Allied Nevada” refer to Allied Nevada Gold Corp. and its subsidiaries.
Historically, gold and silver sales have represented 100% of our operating revenues and the market prices of gold and silver significantly impact our financial position, operating results, and cash flows. Our sole operating mine, the Hycroft Mine (“Hycroft”), is an open-pit heap leach operation located approximately 54 miles west of Winnemucca, Nevada. Hycroft was restarted in 2008 and during the year ended December 31, 2014 we sold 216,937 ounces of gold and 1,841,737 ounces of silver.
As of December 31, 2014, Hycroft had proven and probable mineral reserves of 10.6 million ounces of gold and 465.3 million ounces of silver, which are contained in oxide (heap leach) and sulfide (mill) ores. We currently recover metals contained in oxide ores through our recently expanded heap leach operations. In October 2014, M3 Engineering and Technology Corp. (“M3”), in association with us, completed a feasibility study for a mill expansion which confirmed the results of the April 2014 prefeasibility study and improved on the overall economics of a mill expansion. As of December 31, 2014, our mill ores comprised approximately 87% and 92% of our proven and probable gold and silver mineral reserves, respectively, which is why our long term goal is the construction of a mill at Hycroft to enable us to recover metals contained in mill ores and extend the operating life of the mine.
As discussed in Part I-Item 2. Properties, in addition to Hycroft, we have four advanced exploration properties which have reported other mineralized material and approximately 70 other early stage exploration properties, one of which is a 25% non-controlling interest in the Hasbrouck, Three Hills, and Esmeralda County exploration properties, which have previously reported mineralized material. On an ongoing basis, we evaluate our exploration portfolio to determine ways to increase the value of these properties by improving or increasing the identified mineralized materials and/or selling them or entering into royalty or joint venture agreements.
Hycroft, all of our mineral properties, and our corporate office are located in the state of Nevada. Our corporate headquarters is located at 9790 Gateway Drive, Suite 200, Reno, Nevada 89521.
Voluntary Reorganization Under Chapter 11
Events Leading to Seeking Protection Under Chapter 11
During the last two years, the price per gold ounce and silver ounce decreased from $1,664.00 and $29.95, respectively, at December 31, 2012, to $1,199.25 and $15.97, respectively, at December 31, 2014, and average cost of sales (excluding write-downs) per gold ounce increased from $955 to $1,255 during such periods, both of which adversely impacted us by decreasing operating cash flows and per ounce sales margins. During the year ended December 31, 2014, our net loss of $518.9 million (which includes certain non-cash charges and write-downs) resulted in the generation of $0.8 million of operating cash flows, which was insufficient to meet our capital and liquidity needs. We addressed this shortfall in operating cash flows by 1) borrowing $31.0 million from our revolving credit facility; 2) completing a public offering of common stock and warrants for gross proceeds of $21.8 million; and 3) selling a mineral property for $20.0 million. Despite the aforementioned actions, which resulted in gross proceeds to us of $72.8 million, our Cash and cash equivalents decreased from $81.5 million at December 31, 2013 to $7.6 million at December 31, 2014.
At current metal price levels, we believed that our mining operations could not generate enough cash to make scheduled principal and interest payments required by our debt agreements, fulfill purchase obligations for capital expenditures, and/or cover general and administrative costs necessary to operate the Company. Our previous efforts to improve our financial position and liquidity involved the consideration of various investing and financing activities which may have resulted in us either receiving additional cash proceeds or reducing our future cash obligations and needs. The Board of Directors and our executive management evaluated numerous future plans, including, but not limited to 1) restructuring or recapitalizing portions of our debt obligations; 2) the issuance of additional debt and/or equity securities or instruments; 3) the sale of long-lived assets, mineral properties, and/or equipment, particularly assets currently classified as held for sale; 4) entering into joint ventures, royalty agreements, or streaming transactions; 5) actions which can reduce or delay capital expenditures; and 6) operating and production cost reduction measures. Beginning in February 2015, we began to engage in discussions with certain creditors and their advisors with respect to proposed changes to our capital structure, including the possibility of a consensual, pre-arranged restructuring transaction.
In connection with filing the Chapter 11 Cases, on March 10, 2015, we entered into an agreement (the “Restructuring Support Agreement”) (discussed below) with (1) certain holders (the “Initial Consenting Noteholders”) collectively owning or controlling in excess of 67% of the aggregate outstanding principal amount of our CDN$400.0 million 8.75% senior unsecured notes due 2019 (the “Notes”), issued by Allied Nevada pursuant to that certain indenture dated as of May 25, 2012 (as amended, supplemented or otherwise modified from time to time, the “Indenture”), by and between Allied Nevada and

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Computershare Trust Company of Canada, as trustee (the “Indenture Trustee”) and (2) our secured bank lenders (the “Initial Secured Lenders”) in order to effect an agreed upon restructuring of us through a pre-arranged chapter 11 plan of reorganization (the “Plan”). Thereafter, and as discussed in Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements, on March 10, 2015, we filed with the Bankruptcy Court voluntary petitions for relief and, among other things, a restructuring term sheet attached to the Restructuring Support Agreement and incorporated therein (the “Term Sheet”) outlining the terms of a “pre-arranged” reorganization under the federal Bankruptcy Code which, if successful, is expected to recapitalize our balance sheet by reducing our debt balances while concurrently providing additional liquidity (see Note 2 - Summary of Significant Accounting Policies, Note 11 - Debt, Note 21 - Derivative Instruments, and Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements for comprehensive details).
We intend to continue to operate and produce gold at our Hycroft Mine during the bankruptcy process. We are committed to an orderly resolution of our liquidity situation and financial restructuring that will permit us to continue our operations and to attempt to preserve the value of our assets and our overall enterprise value. However, there can be no assurance that we will be successful in doing so, and we are dependent on a financial restructuring to continue as a going concern.
Restructuring Support Agreement
The Restructuring Support Agreement and Term Sheet attached to and incorporated therein sets forth, subject to certain conditions, the commitment to and obligations of, on the one hand, us, and on the other hand, the Initial Consenting Noteholders (and any successors or permitted assigns that become party thereto, the “Consenting Noteholders”) and the Initial Secured Lenders (and any successors or permitted assigns that become party thereto, the “Secured Lenders” and together with the Consenting Noteholders, the “Creditor Parties”) in connection with a restructuring of our debt and equity (including our common stock (the “Existing Common Stock”)) (the “Restructuring Transaction”) pursuant to a pre-arranged plan of reorganization (the “Plan”) to be filed under the “Bankruptcy Code. In the Restructuring Support Agreement, we and the Creditor Parties are committed to support, subject to certain conditions, the Restructuring Transaction, which includes a restructuring of our debt and equity (which consists of our Existing Common Stock and existing warrants to purchase shares of our Existing Common Stock).
The Term Sheet contemplates that we will reorganize as a going concern. Specifically, the material terms of the Plan are expected to effect, among other things, and subject to certain conditions and as more particularly set forth in the Term Sheet, upon the effective date of the Plan, a substantial reduction in our funded debt obligations by:
the issuance of a new first lien term loan credit facility in exchange for outstanding indebtedness and exposure under:
(1) our revolving credit facility (the “Revolver”), which had approximately $75.0 million of borrowings and issued letters of credit as of the Petition Date (see Note 11 - Debt to the Notes to Consolidated Financial Statements for additional information), and
(2) the close out amount of our cross currency swap liability and diesel swaps liability owed to the Bank of Nova Scotia, which approximated $86.3 million as of March 11, 2015 (see Note 21 - Derivative Instruments to the Notes to Consolidated Financial Statements for additional information).
the issuance of a new second lien convertible term loan credit facility to holders of claims under the DIP Facility (as defined below);
the issuance of common stock to holders of claims under the DIP Facility and claims under the Notes; and
the issuance of warrants to holders of the Company’s Existing Common Stock.
If the Plan is consummated as contemplated by the Term Sheet, our Existing Common Stock and warrants to purchase shares of our Existing Common Stock will be extinguished. Holders of our Existing Common Stock will receive on a pro rata basis warrants (certain terms of which are set forth in the Term Sheet) for the right to purchase shares of common stock in the reorganized Company only if the class of holders of the Existing Common Stock votes in favor of the Plan. If holders of our Existing Common Stock vote against the Plan, then holders of our Existing Common Stock shall receive no recovery on account of their Existing Common Stock. The holders of our outstanding warrants to purchase shares of our Existing Common Stock will receive no recovery on account of these holdings.
The Restructuring Support Agreement may be terminated upon the occurrence of certain events, including the failure to meet certain milestones related to confirmation and consummation of the Plan, among other items, and certain breaches by the parties under the Restructuring Support Agreement.
Secured Multiple Draw Debtor in Possession Credit Agreement
In connection with the Chapter 11 Cases, on March 12, 2015, we entered into a Secured Multiple Draw Debtor in Possession Credit Agreement (the “DIP Credit Agreement”), among the Company, as borrower, the direct and indirect subsidiaries of the Company party thereto from time to time, as guarantors, Wilmington Savings Funds Society, FSB, as administrative agent and collateral agent and the lenders from time to time party thereto. Subject to final approval by the Bankruptcy Court and the satisfaction of certain other conditions, the DIP Credit Agreement will provide for a secured credit facility to us in an aggregate principal amount of up to $78.0 million (the “DIP Facility”), approximately $35.0 million of which was funded on March 12, 2015 based on a Bankruptcy Court order granting interim approval to this amount of the DIP Facility.

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The principal outstanding under the DIP Facility will pay interest on a monthly basis at a rate of 12.0% per annum, 6.0% to be paid in cash and 6.0% to be paid in kind.
The obligations under the DIP Credit Agreement are guaranteed by our subsidiaries and secured by a continuing security interest in all our property and assets (subject only to a carve-out, the liens existing on the Petition Date and adequate protection liens) in accordance with sections 364(c)(2), (c)(3) and (d)(1) of the Bankruptcy Code, including (i) a perfected first-priority security interest in the collateral that is not otherwise encumbered as of the Petition Date (subordinate only to adequate protection liens granted in respect of the secured bank debt), (ii) a perfected junior security interest in all collateral that are subject to valid and perfected liens in existence as of the Petition Date or to valid liens in existence as of the Petition Date and perfected subsequent to the Petition Date as permitted by subsection 546(b) of the Bankruptcy Code and (iii) a perfected first-priority senior, priming, security interest in the collateral junior only to a carve-out, the permitted liens, the liens securing the secured bank debt and the adequate protection liens granted in respect of the secured bank debt. Except to the extent set forth in the DIP Credit Agreement and any Bankruptcy Court orders entered or to be entered in connection therewith, the liens securing the Company’s secured bank debt shall be senior in priority to the liens securing Company’s obligations under the DIP Credit Agreement.
We anticipate using the proceeds of the DIP Facility primarily for (1) purposes permitted by orders of the Bankruptcy Court, including ongoing debtor in possession working capital purposes, (2) the payment of fees, costs and expenses and (3) other general corporate purposes, in each case, only to the extent permitted under applicable law, the DIP Credit Agreement, the orders of the Bankruptcy Court, and in accordance with the approved budget, and further subject to certain exceptions as set forth in the DIP Credit Agreement.
The DIP Credit Agreement contains certain customary and industry/Company-specific representations, covenants, indemnifications and events of default. Events of default include, but are not limited to payment defaults, covenant defaults and certain bankruptcy-related defaults. The financial and non-financial covenants include, but are not limited to, the covenant testing the Reserve Tail (as defined in the DIP Credit Agreement), the prohibited variance covenant testing the “Total Operating Disbursements”, “Total Ounces of Gold Sold”, “Total Ounces of Gold Equivalent Sold” and “Total Monthly Ounces of Gold Produced” line items on the approved budget, and the covenant on the Hycroft Demonstration Plant (as defined in the DIP Credit Agreement). The Reserve Tail covenant requires us to maintain a minimum Reserve Tail of at least 600,000 ounces of gold equivalent at the end of each quarter falling after the closing of the DIP Credit Agreement. The Total Operating Disbursements covenant requires us to make disbursements in accordance with a budget approved by the lenders under the DIP Facility (generally subject to a 10% permitted variance over budget). The Total Ounces of Gold Sold, Total Ounces of Gold Equivalent Sold and Total Monthly Ounces of Gold Produced covenants requires us to sell or produce minimum amounts of gold or equivalent ounces (generally subject to a 10% permitted variance under budget). The Hycroft Demonstration Plant covenant requires us to construct and operate a temporary demonstration plant related to the sulfide mill expansion project at our Hycroft Mine.
The Initial Consenting Noteholders, and/or certain affiliates, and/or related funds or vehicles of the Initial Consenting Noteholders have agreed to provide a backstop to the commitments in respect of the DIP Facility to the extent there is a shortfall (in such capacity, collectively, the “Backstop DIP Lenders”). Each of the Backstop DIP Lenders shall receive its pro rata portion of a non-refundable backstop put option payment of $2.34 million (3.0% of the $78.0 million commitment under the DIP Facility) payable in the form of the new second lien convertible term loan credit facility described above or, subject to the conditions set forth in the Term Sheet, in cash.
In addition, we paid to the lenders under the DIP Facility a non-refundable upfront cash put option payment on a pro rata basis in the aggregate amount of $780,000 (1.0% of the $78.0 million commitment under the DIP Facility) upon the initial funding of the DIP Facility on March 12, 2015. The Company shall also pay to lenders under the DIP Facility a non-refundable upfront put option payment payable in the aggregate amount of $3.12 million (4.0% of the $78.0 million commitment under the DIP Facility) in the form of the new second lien convertible term loans or, subject to certain conditions set forth in the Term Sheet, in cash.
The maturity date of the DIP Credit Agreement is one year from the execution of the DIP Credit Agreement, on March 12, 2016. The DIP Credit Agreement and DIP Facility shall terminate upon the earlier to occur of (a) the date of acceleration of the term loans under the DIP Credit Agreement and the termination of the commitment available under the DIP Facility upon an event of default, (b) the date of consummation of any sale of all or substantially all of the assets of the Company pursuant to Bankruptcy Code section 363, (c) if a final order approving the DIP Facility has not been entered, the date that is 35 calendar days after the Petition Date, (d) the effective date of the Plan and (e) maturity date referenced in the immediately preceding sentence.
Notice of Suspended Trading, Possible Delisting from Stock Exchanges
On March 10, 2015, we received notice from the NYSE MKT LLC (the “NYSE MKT”) that the NYSE MKT had suspended our common stock from trading immediately and determined to commence proceedings to delist our common stock pursuant to Section 1003(c)(iii) of the NYSE MKT LLC Company Guide. The NYSE MKT’s determination was based on the

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filings in the Chapter 11 Cases, which contemplate that our existing common stock will be extinguished pursuant to a prearranged plan of reorganization. The last day that our common stock traded on the NYSE MKT was March 9, 2015. We do not intend to take any further action to appeal the NYSE MKT’s decision, and therefore it is expected that our common stock will be delisted after the completion of the NYSE MKT’s application to the SEC.
On March 10, 2015, the Toronto Stock Exchange (“TSX”) suspended our common stock from trading immediately while the TSX reviewed our continued eligibility for listing under the TSX’s Expedited Review Process. The suspension and possible delisting were based on the filing of the Chapter 11 Cases, our financial condition and/or operating results, and whether we had adequate working capital and appropriate capital structure. We did not take any further action to appeal the TSX’s decision. On March 17, 2015, the TSX determined to delist our common stock at the close of business on April 16, 2015. The last day that our common stock traded on the TSX was March 9, 2015.
On March 10, 2015, our common stock began being traded in the over-the-counter market runder the symbol “ANVGQ”.
Going Concern
As discussed in Note 2 - Summary of Significant Accounting Policies to the Notes to Consolidated Financial Statements, the consolidated financial statements included in this Form 10-K have been prepared assuming that we will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern, however, is contingent upon, among other factors, our ability to comply with the provisions in our debtor-in-possession financing, the Bankruptcy Court’s approval of a plan of reorganization in our Chapter 11 Cases and our ability to implement such a plan of reorganization, including obtaining any exit financing. As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession under chapter 11, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in our debtor-in-possession financing), for amounts other than those reflected in the accompanying consolidated financial statements, and any plan of reorganization that emerges in our Chapter 11 Cases could materially change the amounts and classifications of assets and liabilities reported in our consolidated financial statements. Accordingly, uncertainties in the bankruptcy process raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements included in this Form 10-K do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary if we are unable to continue as a going concern or as a consequence of the Chapter 11 Cases.
Fresh Start Accounting
As required by accounting Standards Codification (“ASC”) 852 “Reorganizations”, if we meet the required criteria, we may be required to adopt fresh start accounting upon emergence from chapter 11.
Segment Information
Our segments include the Hycroft Mine, Exploration, and Corporate and Other. The Hycroft Mine segment includes the operations, development, and exploration activities of Hycroft and contains 100% of our revenues and production costs. The Exploration segment includes all costs related to the exploration and development of our properties outside of Hycroft and gains and losses resulting from the dispositions or sales of mineral properties. The Corporate and Other segment includes general and administrative costs of the Company. See Note 22 - Segment Information to the Notes to Consolidated Financial Statements for additional information on our segments.
Principal Products and Market Overview
Our principal products are produced at Hycroft and consist of unrefined gold bars (doré) and in-process inventories (metal-laden carbon), both of which are sent to third party refineries before being sold, generally at prevailing spot prices, to financial institutions or precious metals traders. Doré bars and metal-laden carbon are sent to refineries to produce bullion that meets the required market standards of 99.95% pure gold and 99.90% pure silver. Under the terms of our refining agreements, doré bars and metal-laden carbon are refined for a fee, and our share of the refined gold and the separately-recovered silver are credited to our account or delivered to our buyers.
Product Revenues and Customers
In 2014, revenues from gold and silver made up 89% and 11%, respectively, of our total revenue and, as such, we consider gold our principal product. We expect gold and silver sales to be our only source of future revenues. In 2014, all of our revenues were derived from metal sales to four customers; however, we do not believe we have any dependencies on these customers due to the liquidity of the metal markets and the availability of other metal traders and financial institutions.
Gold Uses
Gold has two main categories of use: fabrication and investment. Fabricated gold has a variety of end uses, including jewelry, electronics, dentistry, industrial and decorative uses, medals, medallions and coins. Gold investors buy gold bullion, coins and jewelry.

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Gold Supply
The supply of gold consists of a combination of current production from mining and metal recycling and the draw-down of existing stocks of gold held by governments, financial institutions, industrial organizations and private individuals. Based on publicly available information, gold production from mines increased 5% during 2014 to a total of approximately 3,479.4 tons (or 101.5 million ounces) and represented approximately 74% of the 2014 global gold supply.
Gold Prices
The price of gold is volatile and is affected by many factors beyond our control, such as the sale or purchase of gold by central banks and financial institutions, inflation or deflation and monetary policies, fluctuation in the value of the US dollar and foreign currencies, global and regional demand, and the political and economic conditions of major gold producing countries throughout the world. The following table presents the annual high, low, and average afternoon fixing prices for gold over the past ten years on the London Bullion Market (in US dollars per ounce).
Year
 
High
 
Low
 
Average
2005
 
$
536

 
$
411

 
$
444

2006
 
725

 
525

 
604

2007
 
841

 
608

 
695

2008
 
1,011

 
713

 
872

2009
 
1,213

 
810

 
972

2010
 
1,421

 
1,058

 
1,225

2011
 
1,895

 
1,319

 
1,572

2012
 
1,792

 
1,540

 
1,669

2013
 
1,694

 
1,192

 
1,411

2014
 
1,385

 
1,142

 
1,266

On March 26, 2015, the afternoon fixing price for gold on the London Bullion Market was $1,203 per ounce.
Employees
At December 31, 2014, we had approximately 459 employees, of which 441 were employed at the Hycroft Mine. None of our employees are represented by unions.
Competition
We compete with other mining companies, some of which are larger and better capitalized, that operate within a general proximity to our Hycroft Mine, for skilled employees as the nearby population in Winnemucca, NV is small. Shortages of skilled employees could lead to production inefficiencies and/or additional costs. To date, we have not experienced any material shortages in staffing our Hycroft Mine with skilled employees.
From time-to-time certain production inputs have been in short supply. Shortages of production supplies rarely lead to operational issues, but would require us to either substitute with lower quality supplies or to ship these supplies from longer distances. These substitutions and changes could result in production inefficiencies and/or additional costs. To date, we have not experienced any material shortages in production inputs.
Government Regulation of Mining-Related Activities
Government Regulation
Mining operations and exploration activities are subject to various federal, state and local laws and regulations in the United States, which govern prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous substances and other matters. We have obtained or have pending applications for those licenses, permits or other authorizations currently required to conduct our mining, exploration and other programs. We believe that we are in compliance in all material respects with applicable mining, health, safety and environmental statutes and the regulations passed thereunder in Nevada and the United States. Although we are not aware of any current claims, orders or directions relating to our business with respect to the foregoing laws and regulations, changes to, or more stringent application or interpretation of, such laws and regulations in Nevada, or in jurisdictions where we may operate in the future, could require additional capital expenditures and increased operating and/or reclamation costs, which could adversely impact the profitability levels of our projects.
Environmental Regulation
Our mining projects are subject to various federal and state laws and regulations governing protection of the environment. These laws and regulations are continually changing and, in general, are becoming more restrictive. They, among other things, impose strict, joint and several liability on current and former owners and operators of sites and on persons who disposed of or

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arranged for the disposal of hazardous substances found at such sites (the Comprehensive Environmental Response, Compensation, and Liability Act); govern the generation, treatment, storage and disposal of solid waste and hazardous waste (the Federal Resource Conservation and Recovery Act); restrict the emission of air pollutants from many sources, including mining and processing activities (the Clean Air Act); require federal agencies to integrate environmental considerations into their decision-making processes by evaluating the environmental impacts of their proposed actions, including the issuance of permits to mining facilities and assessing alternatives to these actions (the National Environmental Policy Act); regulate the use of federal public lands to prevent undue and unnecessary degradation of the public lands (the Federal Land Policy and Management Act of 1976 ); restrict and control the discharge of pollutants and dredged and fill materials into waters of the United States (the Clean Water Act); and regulate the drilling of subsurface injection wells (the Safe Drinking Water Act and the Underground Injection Control program promulgated thereunder). At the state level, mining operations in Nevada are regulated by the Nevada Department of Conservation and Natural Resources, Division of Environmental Protection, which has the authority to implement and enforce many of the federal regulatory programs described above as well as state environmental laws and regulations. Compliance with these and other federal and state laws and regulations could result in delays in obtaining, or failure to obtain, government permits and approvals, delays in beginning or expanding operations, limitations on production levels, incurring additional costs for investigation or cleanup of hazardous substances, payment of fines, penalties or remediation costs for non-compliance, and post-mining closure, reclamation and bonding.
It is our policy to conduct business in a way that safeguards public health and the environment. We believe that our operations are, and will be, conducted in material compliance with applicable laws and regulations. However, our past and future activities in the United States may cause us to be subject to liability under such laws and regulations. For information about the risks to our business related to environmental regulation, see the Environmental, Compliance, and Regulatory Risks section in Part I-Item 1A. Risk Factors.
During the years ended December 31, 2014, 2013, and 2012, there were no material environmental incidents or non-compliance with any applicable environmental regulations on the properties now held by us. We did not incur material capital expenditures for environmental control facilities during such years and do not expect to incur any material expenditures in 2015 for such environmental control facilities.
Reclamation
We are required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping and re-vegetating various portions of a site after mining and mineral processing operations are completed. These reclamation efforts will be conducted in accordance with detailed plans, which must be reviewed and approved by the appropriate regulatory agencies. Our principal reclamation liability is at the Hycroft Mine and is fully secured by surface management surety bonds that meet the financial bonding requirements of the Bureau of Land Management (the “BLM”). Our most recent reclamation cost estimate was approved by the BLM in a January 2014 decision letter and totals $58.3 million. At December 31, 2014, our surface management surety bonds totaled $59.9 million, which were partially collateralized by restricted cash of $38.1 million. If we were to carry out unanticipated reclamation work in the future, our financial position could be adversely affected or our posted bonds may be insufficient. For financial information about our estimated future reclamation costs refer to Note 12 - Asset Retirement Obligation to the Notes to Consolidated Financial Statements.
Mine Safety and Health Administration Regulations
Safety and health is our highest priority which is why we have mandatory mine safety and health programs that include employee and contractor training, risk management, workplace inspection, emergency response, accident investigation and program auditing. We consider these programs to be essential at all levels to ensure that our employees, contractors, and visitors only operate in the safest and healthiest environment possible.
Our operations and exploration properties are subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). MSHA inspects our mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. The number of citations and orders charged against mining operations, and the dollar penalties assessed for such citations, have generally increased in recent years. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires us to provide a mine safety disclosure, which we have done in Part I-Item 4B. Mine Safety Disclosure of this Form 10-K.
Property Interests and Mining Claims
Our exploration activities are conducted in the State of Nevada. Mineral interests may be owned in Nevada by the United States, Nevada, or private parties. Where prospective mineral properties are held by the United States, mineral rights may be acquired through the location of unpatented mineral claims upon unappropriated federal land. Where prospective mineral properties are owned by Nevada or private parties, some type of property acquisition agreement is necessary in order for us to explore or develop such property. Mining claims are subject to the same risk of defective title that is common to all real property interests. Additionally, mining claims are self-initiated and self-maintained and, therefore, possess some unique vulnerabilities not associated with other types of property interests. It is impossible to ascertain the validity of unpatented mining claims solely from an examination of the public real estate records and, therefore, it can be difficult or impossible to

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confirm that all of the requisite steps have been followed for location and maintenance of a claim. For general information about our mineral properties and mining claims refer to Part I-Item 2. Properties. For information about the risks to our business related to our property interests and mining claims, see the Environmental, Compliance, and Regulatory Risks section in Part I-Item 1A. Risk Factors.
Available Information
We maintain an internet website at www.alliednevada.com. Through the Investor section of the website, we make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Proxy Statements, and Press Releases filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and all amendments to those reports, as soon as reasonably practical after such material is electronically filed or furnished with the SEC. We do not currently make available our Current Reports on Form 8-K on our website, but we will provide you with electronic or paper copies of such report free of charge (not including any exhibits thereto) upon written request to Allied Nevada Gold Corp., 9790 Gateway Drive, Suite 200, Reno, Nevada 89521 Attn: Investor Relations. Our website also contains Interactive Data Files filed or furnished pursuant to Rule 405 of Regulation S-T. In addition, our Corporate Governance Guidelines, the charters of key committees of our Board of Directors, and our Code of Ethics are also available on our web site.
You may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Copies of such materials also can be obtained free of charge at the SEC’s website, www.sec.gov, or by mail from the Public Reference Room of the SEC, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room.
Item 1A. Risk Factors
Any investment in Allied Nevada involves a high degree of risk. You should carefully consider the risks described below and the other information contained in this Form 10-K. The risks and uncertainties described below are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of those risks actually occur, our business, financial condition and results of operations would suffer. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. See also “Cautionary Statement Regarding Forward-Looking Statements” above.
The risk factors discussed below are grouped into the following categories: Bankruptcy-Related Risks; Financial Risks; Operational and Development Risks; Environmental, Compliance, and Regulatory Risks; Market Risks; and General and Other Risks.
Bankruptcy-Related Risks
We have filed voluntary petitions for relief under the Bankruptcy Code, which may have an adverse effect on our business, financial condition and results of operations.
We have filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. For the duration of the Chapter 11 Cases, our business and operations will be subjected to various risks, including but not limited to:
our ability to maintain credit to retain and attract necessary suppliers and service providers that are critical to our operations;
our ability to maintain commercial relationships on competitive terms with our customers;
our ability to retain and motivate key employees through the process of the proceedings, and to attract qualified new employees; and
the ability of our management team to focus exclusively on business operations due to the significant amount of time and effort to be required in dealing with restructuring related activities.
Our ability to execute our business strategy will be subjected to various risks and uncertainties associated with bankruptcy, including but not limited to:
our ability to continue as a going concern;
our ability to develop, confirm and consummate the Plan or one or more other plans of reorganization under the Bankruptcy Code;
our ability to complete definitive restructuring documents and obtain approval of the Bankruptcy Court with respect to the motions filed in the Chapter 11 Cases;
our ability to operate within the restrictions and liquidity limitations of our debtor-in-possession financing; and
our ability to comply with and operate under any cash management orders entered by the Bankruptcy Court.
These risks and uncertainties could affect our business and operations in various ways and can ultimately affect our ability to emerge from bankruptcy. For example, negative events or publicity associated with the Chapter 11 Cases could adversely affect our relationships with our suppliers and employees, which in turn could adversely affect our business, results

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of operations and financial condition. Also, transactions outside the ordinary course of business are subject to the prior approval of the Bankruptcy Court, which may limit our ability to respond timely to certain events or take advantage of opportunities. Because of the risks and uncertainties associated with the Chapter 11 Cases, we cannot predict or quantify the ultimate impact that events occurring during the Chapter 11 Cases may have on our business, results of operations and financial condition, and there is no certainty as to our ability to continue as a going concern.
If we are not be able to obtain confirmation of a plan of reorganization or if sufficient debtor-in-possession financing is not available, we could be required to seek a sale of the Debtors or certain of their material assets pursuant to Bankruptcy Code section 363 or liquidate under chapter 7 of the Bankruptcy Code.
A plan of reorganization or related disclosure statement has not been filed with the Bankruptcy Court. In order to successfully emerge from chapter 11 bankruptcy protection, we must develop and obtain court and creditor approval of a plan of reorganization. This process requires us to meet statutory requirements with respect to adequacy of disclosure with respect to a plan, soliciting and obtaining creditor acceptance of a plan, and fulfilling other statutory conditions for plan confirmation. While we have entered into a Restructuring Support Agreement with the Creditor Parties, pursuant to which the Creditor Parties have agreed to support and take all reasonable actions to facilitate the implementation and consummation of the Restructuring Transaction pursuant to the Plan and based on the Term Sheet, the Restructuring Support Agreement may be terminated upon the occurrence of certain events. These events include the failure to meet certain milestones related to confirmation and consummation of the Plan, among other items, and certain breaches by the parties under the Restructuring Support Agreement. Our ability to timely meet such milestones and our other obligations under the Restructuring Support Agreement are subject to risks and uncertainties that may be beyond our control. As a result, we may not receive the requisite acceptances to confirm the Plan or another plan of reorganization.
Even if the requisite acceptances of the Plan or another plan of reorganization are received, the Bankruptcy Court may not confirm it or there may not be sufficient exit financing available to finance the Debtors’ emergence from chapter 11. In addition, the DIP Credit Agreement may not be sufficient to meet our liquidity requirements or may be restricted or terminated by the lenders under the DIP Credit Agreement if we breach the terms of such financing. If any of these events were to occur, we could be forced to sell the Company or certain of its material assets pursuant to Bankruptcy Code section 363 or liquidate under chapter 7 of the Bankruptcy Code.
The volatility of the financial markets may prevent us from obtaining financing to complete the reorganization.
In order to reorganize, we may require access to the financial markets. Financial markets are heavily influenced by government policies and interventions, which may ultimately limit the terms, availability and affordability of financing necessary for us to reorganize.
We have not made any final determinations with respect to reorganizing our capital structure, and any changes to our capital structure may have a material adverse effect on existing debt and other security holders.
Any reorganization of our capital structure that we may engage in may include exchanges of new debt or equity securities for our existing debt and equity securities, and such new debt or equity securities may be issued at different interest rates, payment schedules, and maturities than our existing debt and equity securities. We may also modify our existing debt or equity securities to the same effect. Such exchanges or modifications are inherently complex to implement. Pursuant to the Restructuring Support Agreement, if the Plan is consummated as contemplated by the Term Sheet, our existing common stock will be extinguished. Holders of our existing common stock will receive, on a pro rata basis, warrants for the right to purchase shares of common stock in the reorganized Company only if the class of holders of the existing common stock votes in favor of the Plan. If holders of our existing common stock vote against the Plan, they will receive no recovery on account of their existing common stock. The holders of the Company’s outstanding warrants to purchase shares of the Company’s Existing Common Stock will receive no recovery on account of these holdings.
The success of a reorganization, either by the Plan or another plan of reorganization, through any such exchanges or modifications will depend on approval by the Bankruptcy Court and the willingness of existing debt and security holders to agree to the exchange or modification, and there can be no guarantee of success. If such exchanges or modifications are successful, the existing holders of common stock may find that their holdings no longer have any value, are materially reduced in value or are severely diluted. Also, holders of our debt may find their holdings no longer have any value or are materially reduced in value, or they may be converted to equity and be diluted or receive debt with a principal amount that is less than the outstanding principal amount, longer maturities, and reduced interest rates. There can be no assurance that any new debt or equity securities will maintain their value at the time of issuance. Also, if the existing debt or equity security holders are adversely affected by a reorganization, it may adversely affect our ability to issue new debt or equity in the future.
Any plan of reorganization that we are formulating and that we implement will be based in large part upon assumptions and analyses developed by us. If these assumptions and analyses prove to be incorrect, our plan may be unsuccessful in its execution.

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Any plan of reorganization that we may formulate and implement could affect both our capital structure and the ownership, structure and operation of our business and will reflect assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances. Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to (i) our ability to substantially change our capital structure; (ii) our ability to obtain adequate liquidity and financing sources; (iii) our ability to maintain suppliers’ confidence in our viability as a continuing entity; (iv) our ability to retain key employees; and (v) the overall strength and stability of general economic conditions and conditions in the gold mining industry. The failure of any of these factors could materially adversely affect the successful reorganization of our business.
In addition, any plan of reorganization will rely upon financial projections, including with respect to revenues, EBITDA, capital expenditures, debt service and cash flow. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate. In our case, the forecasts will be even more speculative than normal, because they may not only involve assumptions regarding commodity price levels, production estimates, anticipated costs and other factors that are inherently speculative and subject to risks beyond our control, but also involve fundamental changes in the nature of our capital structure. Accordingly, we expect that our actual financial condition and results of operations will differ, perhaps materially, from what we have anticipated. Consequently, there can be no assurance that the results or developments contemplated by any plan of reorganization we may implement will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries or our business or operations. The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful execution of any plan of reorganization.
Third parties may propose competing chapter 11 plans of reorganization.
Chapter 11 gives us the exclusive right to file a plan of reorganization during the first 120 days after filing. That period can be extended for cause up to a total of 18 months from the date we filed the Chapter 11 Cases with approval of the Bankruptcy Court. While we intend to conclude our Chapter 11 Cases during this so-called “exclusivity period” as it may be extended, there can be no assurance that we will be able to do so. After the expiration of the exclusivity period, third parties can file one or more chapter 11 plans for the Debtors. An alternative plan of reorganization could contemplate the Debtors continuing as a going concern, the Debtors being broken up, the Debtors or their assets being acquired by a third party, the Debtors being merged with a competitor, or some other proposal. We may not believe that such an alternative plan of reorganization is in our stakeholders’ best interests or fully values the benefits to be achieved by our reorganization. If we cannot successfully obtain approval of our plan of reorganization during the exclusivity period, we may have limited ability to prevent an alternative plan of reorganization from being approved by the Bankruptcy Court.
The pursuit of the Chapter 11 Cases has occupied and will continue to occupy a substantial portion of the time and attention of our management and will impact how our business is conducted, which may have an adverse effect on our business, results of operations and financial condition.
A long period of operating under chapter 11 could adversely affect our business, results of operations and financial condition. While the Chapter 11 Cases continue, our management and certain of our employees will be required to spend a significant amount of time and effort focusing on the Chapter 11 Cases. This diversion of attention from other matters may materially adversely affect the conduct of our business, and, as a result, our results of operations and financial condition, particularly if the Chapter 11 Cases are protracted.
We may experience increased levels of employee attrition.
During the term of the Chapter 11 Cases, our employees will face considerable distraction and uncertainty and we may experience increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could have a material adverse effect on our ability to meet operational and financial expectations, thereby adversely affecting our business, results of operations and financial condition. Our ability to engage, motivate and retain key employees or take other measures intended to motivate and incentivize key employees to remain with us through the term of the Chapter 11 Cases is limited during the Chapter 11 Cases by restrictions on implementation of retention programs and the uncertain value of our equity compensation. The failure to retain or attract members of our management team and other key personnel could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our business, results of operations and financial condition.
Operating under chapter 11 may restrict our ability to pursue strategic and operational initiatives.
Under chapter 11, transactions outside the ordinary course of business are subject to the prior approval of the Bankruptcy Court, which may limit our ability to respond in a timely manner to certain events or take advantage of certain opportunities. Additionally, the terms of our debtor-in-possession financing limit our ability to undertake certain business initiatives. These limitations include, among other things, our ability to:

9


sell assets outside the ordinary course of business;
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
grant liens; and
finance our operations, investments or other capital needs or to engage in other business activities that might be in our interest.
As a result of the Chapter 11 Cases, realization of assets and liquidation of liabilities are subject to uncertainty.
While operating under the protection of the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as permitted in the normal course of business, we may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in our consolidated financial statements. Further, a plan of reorganization could materially change the amounts and classifications reported in our consolidated historical financial statements, which do not currently give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization.
As a result of the Chapter 11 Cases, our historical financial information may not be indicative of our future financial performance.
Our capital structure will likely be significantly altered under any plan of reorganization ultimately confirmed by the Bankruptcy Court. Under fresh-start reporting rules that may apply to us upon the effective date of a plan of reorganization, our assets and liabilities would be adjusted to fair values and our accumulated deficit would be restated to zero. Accordingly, if fresh-start reporting rules apply, our results of operations and financial condition following our emergence from chapter 11 would not be comparable to the results of operations and financial condition reflected in our historical financial statements. In connection with the Chapter 11 Cases and the development of a plan of reorganization, it is also possible that additional restructuring and related charges may be identified and recorded in future periods. Such charges could be material to our business, results of operations and financial condition in any given period.
Financial Risks
We will need to raise additional capital, but such capital may not be available on favorable terms or at all.
Failure to obtain sufficient financing may result in the delay or indefinite postponement of development or production on any of our properties. The downgrades to our credit ratings, as a result of the bankruptcy proceedings, could significantly limit our ability to secure new or additional credit facilities, increase our cost of borrowing, and make it difficult or impossible to raise additional capital on favorable terms or at all. The exploration and development of our properties, including the advancement of the Hycroft Mine mill expansion project, which has an estimated initial capital cost of $1,390 million, and the development of any of our exploration properties, will require significant capital investment.
We may have a significant amount of indebtedness upon emergence from chapter 11 and may require funding after emergence.
We have a significant amount of indebtedness. As of December 31, 2014, we had indebtedness of $540.3 million, including CDN $400.0 million aggregate principal of Notes (which have been swapped to $400.4 million at 8.375% through a currency swap agreement; but excluding a $43.4 million liability position on such currency swap as of December 31, 2014 from our total indebtedness of $540.3 million) and the remaining being attributed to capital lease and term loan obligations for mobile equipment, security deposit advances for an electric rope shovel, and cash borrowings under our Revolver. In addition, as of December 31, 2014 we had $16.4 million of outstanding financial letters of credit issued under our Revolver. A plan of reorganization or related disclosure statement has not been filed with the Bankruptcy Court, and under any such plan of reorganization we may continue to have a significant amount of indebtedness upon emergence from bankruptcy. If significant, such indebtedness could:
make it more difficult for us to satisfy our obligations with respect to our outstanding debt;
require a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;
limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;
increase our vulnerability to general adverse economic and industry conditions;
limit our flexibility in planning for and reacting to changes in the industry in which we compete;
place us at a disadvantage compared to other, less leveraged competitors; and
increase our cost of borrowing.
There can be no assurance that the reorganized Debtors will be able to generate sufficient cash flow from operations or that sufficient future borrowings will be available to pay off the reorganized Debtors’ debt obligations. The reorganized Debtors’ ability to make payments on, and to refinance, their debt will depend on their ability to generate cash in the future.

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This, to a certain extent, will be subject to general economic, business, financial, competitive, legislative, regulatory, and other factors that will be beyond the control of the reorganized Debtors. The reorganized Debtors may need to refinance all or a portion of their debt on or before maturity; however, there can be no assurance that the reorganized Debtors will be able to refinance any of their debt on commercially reasonable terms or at all.
The mining industry is capital intensive, and sources of cash to finance our capital expenditures may not always be available. While we believe the DIP Credit Agreement, which is subject to Bankruptcy Court approval on a final basis and certain other conditions, will be sufficient to fund our operations in the near term, there can be no assurance that we will be successful in obtaining sufficient additional capital to expand our current operations through cash from operations or additional financing or other transactions, if and when required, on acceptable terms. If we are unable to obtain such financing, if and when needed, we may be forced to curtail business objectives and to finance our business activities with only such internally generated funds as may then be available.
The provisions of the DIP Credit Agreement, which is subject to Bankruptcy Court approval on a final basis and certain other conditions, may have adverse effects on our operations and financial results.
The DIP Credit Agreement contains restrictive covenants that will limit our ability to, among other things:
incur or guarantee additional debt;
pay dividends;
disposition of assets;
repay other indebtedness;
grant additional liens on our assets;
enter into transactions with our affiliates;
make certain investments or acquisitions of substantially all or a portion of another entity’s business assets;
merge with another entity or dispose of our assets;
engage in new lines of business; and
make expenditures or payments outside of an agreed upon budget.
The requirement that we comply with these provisions may materially adversely affect our ability to react to changes in market conditions, take advantage of business opportunities we believe to be desirable, obtain future financing, fund needed capital expenditures or withstand a continuing or future downturn in our business.
Under the provisions of the DIP Credit Agreement, which is subject to Bankruptcy Court approval on a final basis and certain other conditions, if we breach the terms of such financing and our debtor in-possession lenders terminate the DIP Credit Agreement, they and our Revolver lenders will have the right to sell those assets in order to satisfy our obligations to them.
Our secured debt obligations under the DIP Credit Agreement are secured by a lien on substantially all of our assets including the equity interests in our material subsidiaries. In the event of foreclosure relating to us or our subsidiaries that have guaranteed our indebtedness under that financing, holders of this secured indebtedness and our Revolver lenders will have prior claims with respect to substantially all of our assets. In such an event, there can be no assurance that we would receive any proceeds from a foreclosure sale of our assets that constitute collateral following the satisfaction of the secured lenders’ priority claims.
If we are unable to comply with the restrictions and covenants in the DIP Credit Agreement, which is subject to Bankruptcy Court approval on a final basis and certain other conditions, and future debt agreements, there could be a default under the terms of such agreements, which could result in an acceleration of repayment.
If we are unable to comply with the restrictions and covenants in the DIP Credit Agreement or in future debt agreements, there could be a default under the terms of these agreements. Our ability to comply with these restrictions and covenants, may be affected by events beyond our control. As a result, we cannot assure you that we will be able to comply with these restrictions and covenants. In the event of a default under these agreements, lenders could terminate their commitments to lend or accelerate the loans and declare all amounts borrowed due and payable. If any of these events occur, our assets might not be sufficient to repay in full all of our outstanding indebtedness and we may be unable to find alternative financing.
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
Our consolidated financial statements as of December 31, 2014 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued a report that included an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to receive significant amounts of future cash flows from either investing and/or financing activities. As a result of this going concern modification, we may have a difficult time obtaining additional financing which would likely result in the loss in the value of your investment in us.

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The market prices of gold and silver are volatile. A decline in gold and silver prices could result in decreased revenues, decreased net income, increased losses, and decreased cash flows, and may negatively affect our business.
Gold and silver are commodities. Their prices fluctuate and are affected by many factors beyond our control, including interest rates, expectations regarding inflation, speculation, currency values, central bank activities, governmental decisions regarding the disposal of precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors. The prices of gold and silver, as quoted by The London Bullion Market Association on December 31, 2014 and 2013, were $1,199.25 and $1,201.50 per ounce for gold, respectively, and $15.97 and $19.50 per ounce for silver, respectively. The prices of gold and silver may decline in the future. A substantial or extended decline in gold or silver prices would adversely impact our financial position, revenues, net income (loss) and cash flows, particularly in light of our current strategy of not engaging in hedging transactions with respect to gold or silver. In addition, sustained lower gold or silver prices may:
reduce revenues further through production declines due to cessation of the mining of deposits, or portions of deposits, that have become uneconomic at the then-prevailing gold or silver price;
reduce or eliminate the profit, if any, that we currently expect from ore stockpiles and ore on leach pads;
halt, delay, modify, or cancel plans for the construction of a mill for the sulfide ores or the development of new and existing projects (e.g., the recent feasibility study used base case metal assumptions of $1,300 per ounce of gold and $21.67 per ounce of silver, which are higher than the current market prices for these commodities);
make it more difficult for us to satisfy and/or service our debt obligations;
reduce existing reserves by removing ores from reserves that can no longer be economically processed at prevailing prices;
cause us to recognize an impairment to the carrying values of our production-related inventories, mineral properties, and long-lived assets; and
reduce funds available for exploration, with the result that depleted reserves may not be replaced.
The period-end market value of our production-related inventories is determined in part by using period-end prices per gold and silver ounce and is highly sensitive to these inputs. Due to lower metal price levels and increases in per gold ounce production costs, the application of our lower of cost or market accounting policy resulted in write-downs of Ore on leach pads during the years ended December 31, 2014 and 2013 of $70.7 million and $12.6 million, respectively. Further declines from December 31, 2014 metal price levels or increases in future production costs could result in, or contribute to, additional future write-downs.
Similarly, although we crushed 2.8 million ore tons during 2014, we made a decision in November 2014 to temporarily shut down the crusher due to declining metal prices. At current metal prices, we believe the incremental benefit from increased recoveries does not exceed the total costs of running the crusher. If metal prices do not improve, we do not plan to utilize the crusher for our heap leach operations.
Our inability to secure the financing required to begin construction of the mill expansion project during 2014, due in part to the significant and sustained decline in gold and silver prices during 2013 and 2014, caused us to write down certain of our long-lived assets and, in the future, such declines could cause Hycroft to become less profitable, which could require us to record additional write-downs of long-lived assets. Such write-downs may adversely affect our results of operations and financial condition.
We review our long-lived assets for recoverability pursuant to the Financial Accounting Standard Board’s Accounting Standards Codification Section 360 (“ASC 360”). Under that standard, we review the recoverability of our long-lived assets, such as our mill expansion project and heap leach operations, annually and at interim periods if triggering events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Such review involves us estimating the future undiscounted cash flows expected to result from the use and eventual disposition of the asset. Impairment, measured by comparing an asset’s carrying value to its fair value, must be recognized when the carrying value of the asset exceeds these cash flows. We conduct a review of the financial performance of our asset groups in connection with the preparation of our financial statements for each reported period and determine whether any triggering events are indicated.
Our assessment of the recoverability of our long-lived assets at December 31, 2014 under ASC 360 indicated that a write-down of our mill expansion project of $387.9 million was required, as our inability to secure the financing required to begin construction of the mill expansion project significantly decreased the overall near-term probability of completing the mill expansion project. This non-cash impairment charge resulted in a write-down in our Statement of Comprehensive (Loss) Income and reduced the carrying value of Plant, equipment, and mine development, net on the Company’s balance sheet at December 31, 2014, and triggered an event of default under our outstanding indebtedness. Refer to Note 7 - Plant, Equipment, and Mine Development, Net to the Notes to Consolidated Financial Statements for additional information.

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If there are further significant and sustained declines in silver and gold prices, or if we fail to control production and operating costs or realize the mineable ore reserves at Hycroft, we may terminate or suspend mining operations at Hycroft. This event could require a further write-down of the carrying value of our assets. Any such actions would adversely affect our results of operations and financial condition, and could result in other events of default under our outstanding indebtedness.
We do not currently use forward sale or other significant hedging arrangements to protect against movements in gold and silver prices and commodity prices (other than related to a portion of our diesel costs from time to time) and, as a result, our operating results are exposed to the impact of any significant decrease in the price of gold or silver or any significant increase in commodity prices.
We do not currently enter into forward sales or other significant hedging arrangements to reduce the risk of exposure to volatility in metal and commodity prices. Accordingly, our future operations are exposed to the impact of any significant decrease in gold or silver prices and any significant increase in commodity prices. If such prices change significantly, we will realize reduced revenues and increased costs.
Our derivative financial instruments expose us to risk of opportunity loss, mark-to-market accounting adjustments, and exposure to counterparty credit risk, and often times require us to make significant cash payments that adversely affect our financial condition.
From time to time, we may enter into derivative financial instruments to hedge our risk against fluctuations in the price of diesel fuel and other production input costs, interest rates, or foreign exchange rates (cash flow hedges). Additionally, from time to time, we may enter into agreements which are derivatives that are unrelated to the hedging of a specific risk, such as our common stock warrant liability. Our derivative financial instruments can expose us to risk of an opportunity loss and credit risk with counterparties and may result in significant mark-to-market accounting adjustments, which may have a material adverse impact on reported financial results.
As of December 31, 2014, our cross currency swap was in a $43.4 million liability position and our diesel swaps were in a $5.6 million liability position. The out-of-money exposure under each of our outstanding cross currency and diesel swaps can be accelerated and become due and payable upon notice to us after an event of default. The filing of the Chapter 11 Cases constitutes an event of default under each of the swap agreements. On March 10, 2015, we received notice of early termination from each of the counterparties to these swaps, which notices have the effect of terminating each such swap and causing the close-out amount under each such swap to become due and payable immediately. The notices provided for an aggregate close-out amount of approximately $109.3 million, or $87.2 million after realization of letters of credit and cash collateral.
Operational and Development Risks
The estimation of the ultimate recovery of gold and silver from the Hycroft Mine, although based on standard industry sampling and estimating methods, is subjective. The Company’s results of operations, liquidity, and financial position may be negatively impacted if actual recoveries are lower than initial estimations.
Our Hycroft Mine utilizes the heap leach process to extract gold and silver from ore. The heap leach process extracts gold and silver by placing ore on an impermeable pad and applying a dilute cyanide solution that dissolves a portion of the contained gold and silver, which are then recovered in metallurgical processes. We use several integrated steps in the process of extracting gold and silver to estimate the metal content of ore placed on the leach pad. Although we refine our estimates as appropriate at each step in the process, the final amounts are not determined until a third-party smelter refines the doré and/or metal-laden carbon and determines the final ounces of gold and silver available for sale. We then review this end result and reconcile it to the estimates we developed and used throughout the production process. Based on this review, we adjust our estimation procedures when appropriate. Due to the complexity of the estimation process and the number of steps involved, among other things, actual recoveries can vary from estimates, and the amount of the variation could be significant and could have a material adverse impact on our financial condition and results of operations.
Each of these factors not only applies to our current and future operations at the Hycroft Mine, but also will apply to any future development of other properties not yet in production. In the case of mines that we may develop in the future, we will not have the benefit of actual experience in our estimates with respect to those mines, and there is a greater likelihood that actual results will vary from the estimates.
Reserve and other mineralized material calculations are estimates only, and are subject to uncertainty due to factors including metal prices, inherent variability of the ore and recoverability of metal in the mining process.
The calculation of mineral reserves, other mineralized material and grades are estimates and depend upon geological interpretation and statistical inferences or assumptions drawn from drilling and sampling analysis, which may prove to be unpredictable. There is a degree of uncertainty attributable to the calculation of mineral reserves and mineralized material, and corresponding grades. Until mineral reserves and other mineralized materials are actually mined and processed, the quantity of ore and grades must be considered as an estimate only. In addition, the quantity of mineral reserves and other mineralized materials may vary depending on metal prices, which largely determine whether mineral reserves and other mineralized

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materials are classified as ore (economic to mine) or waste (uneconomic to mine). A decline in metal prices may result in previously reported mineral reserves (ore) becoming uneconomic to mine (waste). Our current reserve estimates were calculated using a $1,200 per ounce gold price and $20 per ounce silver price. A material decline in the current price of these commodities could require a reduction in our reserve estimates. Any material change in the quantity of mineral reserves, other mineralized materials, mineralization, grade or stripping ratio may affect the economic viability of our properties. In addition, we can provide no assurance that gold recoveries or other metal recoveries experienced in small-scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production.
Cost estimates and timing of our Hycroft Mine expansion project is uncertain, which may adversely affect our expected production and profitability.
The capital expenditures and time required to develop and explore the Hycroft Mine (and any of our exploration properties not currently contemplated), are considerable and changes in costs, construction schedules, commodity prices and other factors can adversely affect project economics and expected production and profitability. There are a number of factors that can affect costs and construction schedules and result in our assumptions and estimates about the anticipated benefits of a project being incorrect, including, among others:
changes in input commodity prices and labor costs;
availability and terms of financing;
availability of labor, energy, transportation, equipment, and infrastructure;
changes in anticipated tonnage, grade and metallurgical characteristics of the ore to be mined and processed;
recovery rates of gold and other metals from the ore;
difficulty of estimating construction costs over a period of years;
delays in completing any environmental review or in obtaining environmental or other government permits;
weather and severe climate impacts; and
potential delays related to social and community issues.
We currently recover gold and silver from oxide ores at the Hycroft Mine through our heap leach operations. In October 2014, M3, in association with us, completed a feasibility study for a mill expansion which confirmed the results of an earlier prefeasibility study. The construction of a mill at Hycroft would allow us to recover metals contained in sulfide (mill) ores. However, it is important to note that the economic parameters described in a feasibility study include a number of assumptions and estimates that could prove to be incorrect. We use a feasibility study to make a reasoned determination of whether to proceed with a project and to support the required financing for a project, but investors should not assume that the economic analysis contained in a feasibility study is a guarantee of future performance or that the estimated net present value (“NPV”) or internal rate of return (“IRR”) values will be achieved. Actual results may differ materially. In particular, the processing of sulfide ore at the Hycroft Mine, if it is to occur, is uncertain and, therefore, the costs and timing of the commencement of sulfide operations at the Hycroft Mine could vary greatly from our estimates.
We may not achieve our production and/or sales estimates and our costs may be higher than our estimates, thereby reducing our cash flows and negatively impacting our results of operations.
We prepare estimates of future production, sales, and costs for our operations. We develop our estimates based on, among other things, mining experience, reserve and other mineralized material estimates, assumptions regarding ground conditions and physical characteristics of ores (such as hardness and presence or absence of certain metallurgical characteristics) and estimated rates and costs of mining and processing. All of our estimates are subject to numerous uncertainties, many of which are beyond our control. Our actual production and/or sales may be lower than our estimates and our actual costs may be higher than our estimates, which could negatively impact our cash flows and results of operations. While we believe that our projections and estimates are reasonable at the time they are made, actual results will vary and such variations may be material. These projections and estimates are necessarily speculative in nature, and one or more of the assumptions underlying such projections and estimates may not materialize. Investors are cautioned not to place undue reliance on the projections and estimates set forth in this Form 10-K.
Our gold and silver production may decline, reducing our revenues and negatively impacting our business.
Our future gold and silver production may decline as a result of an exhaustion of reserves, the inability to process existing sulfide ores, and possible closure of mines. It is our business strategy to conduct gold and silver exploratory activities at the Hycroft Mine; however, if we cannot expand and/or replace oxide ore reserves or complete expansion projects that would allow us to process sulfide reserves, our revenues from the sale of gold and silver may decline, negatively affecting our results of operations or the duration in which we are able to operate. We can provide no assurance that our gold and silver production in the future will not decline.

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A shortage of equipment and supplies and/or the time it takes such items to arrive at our Hycroft Mine could adversely affect our ability to operate our business.
We are dependent on various supplies and equipment to carry out our mining, exploration, and development operations. The shortage of such supplies, equipment and parts and/or the time it takes such items to arrive at our Hycroft Mine could have a material adverse effect on our ability to carry out our operations, develop our properties, and complete expansion projects and therefore limit or increase the cost of production. Such shortages could also result in increased construction costs and cause delays in expansion projects.
Changes in the cost or supply of energy or commodities used in operations may adversely affect the profitability of our operations and our financial condition.
Our mining operations and exploration activities are intensive users of energy. Our principal energy sources are electricity and diesel fuel. We rely upon third parties for our supply of energy resources consumed in our mining and exploration activities. Energy prices can be affected by numerous factors beyond our control, including global and regional supply and demand, political and economic conditions, and applicable regulatory regimes. The prices of various sources of energy may increase significantly from current levels. An increase in energy prices could materially and adversely affect our results of operations and financial condition.
Disruptions in the supply of our energy resources could temporarily impair our ability to produce gold and silver or delay any expansion projects or plans. Some of our mining operations and exploration projects are in remote locations requiring the building of power lines and long distance transmission of power. A disruption in the transmission of energy, inadequate energy transmission infrastructure or the termination of any of our energy supply contracts could interrupt our energy supply and adversely affect our operations or expansion projects.
Our production costs are also affected by the prices of commodities we consume or use in our operations, such as diesel fuel, lime, sodium cyanide and explosives. The prices of such commodities are influenced by supply and demand trends affecting the mining industry in general and other factors outside our control. Increases in the price for materials consumed in our mining and production activities could materially and adversely affect our results of operations and financial condition.
Our reliance on third party contractors and consultants to conduct a significant portion of our operations and construction projects exposes us to risks.
We contract and engage third party contractors and consultants for a portion of our operations and for our construction projects, including the crushing facility and the mill expansion project, and other ongoing sustaining capital projects at the Hycroft Mine. As a result, our operations and construction projects are subject to a number of risks, some of which are outside our control, including:
negotiating agreements with contractors and consultants on acceptable terms, particularly in light of the bankruptcy proceedings;
the inability to replace a contractor or consultant and their operating equipment in the event that either party terminates the agreement;
reduced control over those aspects of operations which are the responsibility of the contractor or consultant;
failure of a contractor or consultant to perform under their agreement or disputes relative to their performance;
interruption of operations or increased costs in the event that a contractor or consultant ceases their business due to insolvency or other unforeseen events;
failure of a contractor or consultant to comply with applicable legal and regulatory requirements, to the extent they are responsible for such compliance; and
problems of a contractor or consultant with managing their workforce, labor unrest or other employment issues.
In addition, we may incur liability to third parties as a result of the actions of our contractors or consultants. The occurrence of one or more of these risks could decrease our gold and silver production, increase our costs, delay expansion projects, and adversely affect our results of operations and financial position.
We cannot be certain that our future exploration and development activities will be commercially successful.
Substantial expenditures are required to further explore our Hycroft Mine and any of our exploration properties, to establish reserves and other mineralized material through drilling and analysis, to develop metallurgical processes to extract metal from the ore and, in the case of new properties or the expansion of our existing projects, to develop the mining and processing facilities and infrastructure at any site chosen for mining. We cannot provide assurance that any reserves or other mineralized material discovered will be in sufficient quantities to justify commercial operations or that the funds required for development can be obtained on a timely basis. A number of factors, including costs, actual mineralization, consistency and reliability of ore grades and commodity prices, affect successful project development. The efficient operation of processing facilities, the existence of competent operational management, as well as the availability and reliability of appropriately skilled and experienced consultants also can affect successful project development. There can be no assurance that our exploration and

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development programs, including the advancement of the Hycroft Mine oxide operation and the mill expansion project, will result in economically viable mining operations or yield new mineral reserves or other mineralized material.
Mining development, exploration, and processing operations pose risks and costs that may negatively impact our business.
Mining development, exploration, and processing operations involve many hazards and uncertainties, including, among others:
unusual and unexpected rock formations or water conditions;
seismic activity;
metallurgical or other processing problems;
ground or slope failures;
industrial accidents;
environmental contamination or leakage;
fires;
flooding and periodic interruptions due to inclement or hazardous weather conditions or other acts of nature;
organized labor disputes or work slow-downs;
mechanical equipment failure and facility performance problems; and
the availability of critical materials, equipment and skilled labor.
These occurrences could result in damage to, or destruction of, our properties or production facilities, personal injury or death, environmental damage, delays in mining or processing, increased production costs, asset write downs, monetary losses and legal liability, any of which could have an adverse effect on our results of operations and financial condition and adversely affect our projected development and production estimates.
We may be adversely affected by challenges relating to slope stability.
Our open pit mines get deeper as we mine them, presenting certain geotechnical challenges including the possibility of slope failure. If we are required to decrease pit slope angles or provide additional road access to prevent such a failure, our stated reserves could be negatively affected. Further, hydrological conditions relating to pit slopes, renewal of material displaced by slope failures and increased stripping requirements could also negatively affect our stated reserves. We have taken actions in order to maintain slope stability, but we cannot provide any assurances that we will not have to take additional action in the future or that our actions taken to date will be sufficient. Unexpected failure or additional requirements to prevent slope failure may negatively affect our results of operations and financial condition, as well as have the effect of diminishing our stated ore reserves.
The sale of our mineral properties and suspension of acquisition and exploration activities greatly limit our ability to generate new reserves or identify other mineralized materials to replace or expand our current reserves.
Because mines have limited lives based on proven and probable ore reserves, we are continually seeking to replace and expand our ore reserves. Identifying promising mining properties is difficult and speculative. From time to time we may sell mineral properties we own, such as our second quarter of 2014 sale of a 75% controlling interest in our Hasbrouck, Three Hills and Esmerelda County exploration properties, which greatly limits our ability to develop or grow our reserves or identify other mineralized materials. As a result, our revenues from the future sale of gold and silver may decline, resulting in lower income and reduced growth. We have currently suspended our acquisition and exploration activities, and are thus unable to replace and expand current ore reserves through the acquisition of new mining properties or interests therein on terms we consider acceptable.
Our insurance may not cover all of the risks associated with our business.
The mining business is subject to risks and hazards, including construction risks, environmental hazards, industrial accidents, the encountering of unusual or unexpected geological formations, slide-ins, flooding, earthquakes and periodic interruptions due to inclement or hazardous weather conditions. These occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, reduced production and delays in mining, asset write-downs, monetary losses and possible legal liability. Insurance fully covering many of these risks is not generally available to us and if it is, we may elect not to obtain it because of the high premium costs or commercial impracticality. We do not currently carry business interruption insurance and have no plans to obtain such insurance in the future. Any liabilities that we incur for these risks and hazards could be significant and could adversely affect results of operation, cash flows and financial condition.

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Environmental, Compliance, and Regulatory Risks
Environmental regulations could require us to make significant expenditures or expose us to potential liability.
To the extent we become subject to environmental liabilities, the payment of such liabilities or the costs that we may incur, including costs to remedy environmental pollution, would reduce funds otherwise available to us and could have a material adverse effect on our financial condition, results of operations, and liquidity. If we are unable to fully remedy an environmental violation or release of hazardous substances, we might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy or corrective action. The environmental standards that may ultimately be imposed at a mine site can vary and may impact the cost of remediation. Actual remedial costs may exceed the financial accruals that have been made for such remediation. The potential exposure may be significant and could have a material adverse effect on our financial condition and results of operations.
Moreover, governmental authorities and private parties may bring lawsuits based upon damage to property or natural resources and injury to persons resulting from the environmental, health and safety impacts of our past and current operations, which could lead to the imposition of substantial fines, remediation costs, penalties, injunctive relief and other civil and criminal sanctions. Substantial costs and liabilities, including those required to restore the environment after the closure of mines, are inherent in our operations. Although we believe that we are in substantial compliance with applicable laws and regulations, we cannot provide any assurance that any such law, regulation, enforcement or private claim will not have a negative effect on our business, financial condition or results of operations.
Our exploration and development operations are subject to extensive environmental regulations, which could result in the incurrence of additional costs and operational delays.
All phases of our operations are subject to extensive federal and state environmental regulation, including those enacted under the following laws:
Comprehensive Environmental Response, Compensation, and Liability Act;
The Resource Conservation and Recovery Act;
The Clean Air Act;
The National Environmental Policy Act;
The Clean Water Act; and
The Safe Drinking Water Act.
These environmental regulations require us to obtain various operating permits, approvals and licenses and also impose standards and controls relating to exploration, development and production activities. For instance, we are required to hold a Nevada Reclamation Permit with respect to the Hycroft Mine. This permit mandates concurrent and post-mining reclamation of mines and requires the posting of reclamation bonds sufficient to guarantee the cost of mine reclamation. Our most recent reclamation cost estimate was approved by the BLM in the January 2014 decision letter and totals $58.3 million. At December 31, 2014, our surface management surety bonds totaled $59.9 million, which were partially collateralized by restricted cash of $38.1 million. Compliance with this and other federal and state regulations could result in delays in beginning or expanding operations, incurring additional costs for investigation or cleanup of hazardous substances, payment of penalties for non-compliance or discharge of pollutants, and post-mining closure, reclamation and bonding, all of which could have an adverse impact on our financial performance and results of operations.
Compliance with current and future government regulations may cause us to incur significant costs.
Our operations are subject to extensive federal and state legislation governing matters such as mine safety, occupational health, labor standards, prospecting, exploration, production, exports, toxic and hazardous substances, explosives, management of natural resources, price controls, land use, water use, air emissions, waste disposal, environmental review and taxes. Compliance with this and other legislation could require us to make significant financial outlays. The enactment of new legislation or more stringent enforcement of current legislation may increase costs, which could have a negative effect on our financial position, results of operations, and liquidity. We cannot make assurances that we will be able to adapt to these regulatory developments on a timely or cost-effective basis. Violations of these laws, regulations and other regulatory requirements could lead to substantial fines, penalties or other sanctions, including possible shut-downs of the Hycroft Mine or future operations, as applicable.
Changes in environmental regulations could adversely affect our cost of operations or result in operational delays.
The regulatory environment in which we operate is evolving in a manner that will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. New environmental laws and regulations or changes in existing environmental laws and regulations could have a negative effect on exploration activities, operations, production levels and methods of production.

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We can provide no assurance that future changes in environmental laws and regulations will not adversely affect our current operations or future projects. Any changes to these laws and regulations could have an adverse impact on our financial performance and results of operations by, for example, requiring changes to operating constraints, technical criteria, fees or surety requirements.
Our operations are subject to numerous governmental permits that are difficult to obtain and we may not be able to obtain or renew all of the permits we require, or such permits may not be timely obtained or renewed.
In the ordinary course of business we are required to obtain and renew governmental permits for our operations, including in connection with our mining and exploration plans at the Hycroft Mine and our exploration properties. We also need additional governmental permits in order to complete our expansion of the Hycroft Mine operations, including without limitation, permits to construct the tailings impoundment and allow mining below the water table. Obtaining or renewing the necessary governmental permits is a complex and time-consuming process involving costly undertakings by us. The duration and success of our efforts to obtain and renew permits are contingent upon many variables not within our control, including the interpretation of applicable requirements implemented by the permitting authority and intervention by third parties in any required environmental review. We may not be able to obtain or renew permits that are necessary to our operations on a timely basis or at all, and the cost to obtain or renew permits may exceed our estimates. Failure to comply with the terms of our permits may result in injunctions, fines, suspension or revocation of permits and other penalties. We can provide no assurance that we have been, or will at all times, be in full compliance with all of the terms of our permits or that we have all required permits. The costs and delays associated with compliance with these permits and with the permitting process could delay or stop us from executing our Hycroft Mine expansion project, proceeding with the operation or development of a property or increase the costs of development or production and may materially adversely affect our business, results of operations or financial condition.
There are uncertainties as to title matters in the mining industry. Any defects in such title could cause us to lose our rights in mineral properties and jeopardize our business operations.
Our mineral properties consist of private mineral rights, leases covering private lands, leases of patented mining claims and unpatented mining claims. Many of our mining properties in the United States are unpatented mining claims located on lands administered by the BLM, Nevada State Office to which we have only possessory title. Because title to unpatented mining claims is subject to inherent uncertainties, it is difficult to determine conclusively ownership of such claims. These uncertainties relate to such things as sufficiency of mineral discovery, proper location and posting and marking of boundaries, and possible conflicts with other claims not determinable from descriptions of record. We believe a substantial portion of all mineral exploration, development and mining in the United States now occurs on unpatented mining claims, and this uncertainty is inherent in the mining industry.
The present status of our unpatented mining claims located on public lands allows us the right to mine and remove valuable minerals, such as precious and base metals, from the claims conditioned upon applicable environmental reviews and permitting programs. We also are generally allowed to use the surface of the land solely for purposes related to mining and processing the mineral-bearing ores. However, legal ownership of the land remains with the United States. We remain at risk that the mining claims may be forfeited either to the United States or to rival private claimants due to failure to comply with statutory requirements. Prior to 1994, a mining claim locator who was able to prove the discovery of valuable, locatable minerals on a mining claim, and to meet all other applicable federal and state requirements and procedures pertaining to the location and maintenance of federal unpatented mining claims, had the right to prosecute a patent application to secure fee title to the mining claim from the Federal government. The right to pursue a patent, however, has been subject to a moratorium since October 1994, through federal legislation restricting the BLM from accepting any new mineral patent applications. If we do not obtain fee title to our unpatented mining claims, we can provide no assurance that we will be able to obtain compensation in connection with the forfeiture of such claims.
There may be challenges to title to the mineral properties in which we hold a material interest. If there are title defects with respect to any properties, we might be required to compensate other persons or perhaps reduce our interest in the affected property. Also, in any such case, the investigation and resolution of title issues would divert our management’s time from ongoing production, exploration and development programs.
Legislation has been proposed that could, if enacted, significantly affect the cost of our operations on our unpatented mining claims or the amount of Net Proceeds of Mineral Tax we pay to the state of Nevada.
Members of the U.S. Congress have repeatedly introduced bills which would supplant or alter the provisions of the Mining Law of 1872. Such bills have proposed, among other things, to either eliminate or greatly limit the right to a mineral patent and to impose a federal royalty on production from unpatented mining claims. Such proposed legislation could change the cost of holding unpatented mining claims and could significantly impact our ability to develop mineralized material on unpatented mining claims. A majority of our mining claims are on unpatented claims. Although we cannot predict what legislated royalties might be, the enactment of these proposed bills could adversely affect the potential for development of our

18


unpatented mining claims and the economics of our existing operating mines on federal unpatented mining claims. Passage of such legislation could adversely affect our financial performance.
We pay Net Proceeds of Mineral Tax (“NPT”) to the state of Nevada on up to 5% of net proceeds generated from our Hycroft Mine. Net proceeds are calculated as the excess of gross yield over direct costs. Gross yield is determined as the value received when minerals are sold, exchanged for anything of value or removed from the state. Direct costs generally include the costs to develop, extract, produce, transport and refine minerals. From time to time Nevada legislators introduce bills which aim to increase the amount of NPT mining companies operating in the state pay. If legislation is passed that increases the NPT we pay to the state of Nevada our business, results of operations, and cash flows could be negatively impacted.
Regulations and pending legislation governing issues involving climate change could result in increased operating costs, which could have a material adverse effect on our business.
A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to various climate change interest groups and the potential impact of climate change. Legislation and increased regulation regarding climate change could impose significant costs on us, our venture partners and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such regulations. Given the emotion, political significance and uncertainty around the impact of climate change and how it should be dealt with, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry could harm our reputation.
Climate change could have an adverse impact on our cost of operations.
The potential physical impacts of climate change on our operations are highly uncertain and would be particular to the geographic circumstances in areas in which we operate. These climate changes may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperatures. These changes in climate could have an impact on the cost of production at our mines and adversely affect the financial performance of our operations.
Market, General, and Other Risks
Trading in our securities during the term of the Chapter 11 Cases is highly speculative and poses substantial risks.
Trading in securities of an issuer in bankruptcy is extremely speculative, and there is a very significant risk that investors will lose their entire investment. It is impossible to predict at this time whether our equity or other securities will be canceled or if holders of such equity or other securities will receive any distribution with respect to, or be able to recover any portion of, their investments. Trading prices for our equity or other securities may bear little or no relationship to actual recovery, if any, by holders thereof during the term of the Chapter 11 Cases.
We caution and urge existing and future investors to carefully consider the significant risks with respect to investments in our equity and other securities.
Our common stock is no longer traded on the NYSE MKT or the TSX. Our common stock is traded only in the over-the-counter market, which could negatively affect our stock price and liquidity.
Our common stock was historically listed on the NYSE MKT and the TSX under the symbol “ANV.” In connection with the commencement of the Chapter 11 Cases, effective March 10, 2015, the NYSE MKT and the TSX suspended the trading of our common stock and are taking action to remove our common stock from listing and registration on such exchanges. Our common stock is now trading in the over-the-counter market under the symbol “ANVGQ”. The extent of the public market for our common stock and the continued availability of quotations depends upon such factors as the aggregate market value of the common stock, the interest in maintaining a market in our common stock on the part of securities firms and other factors. The over-the-counter market is a significantly more limited market than the NYSE MKT and TSX, and the quotation of our common stock on the over-the-counter market may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock. This could further depress the trading price of our common stock and could also have a long-term adverse effect on our ability to raise capital. There can be no assurance that any public market for our common stock will exist in the future or that we will be able to relist our common stock on a national securities exchange. In connection with the delisting of our common stock, there may also be other negative implications, including the potential loss of confidence in us by suppliers and employees and the loss of institutional investors.
We are in the process of considering suspension of our reporting obligations under the Securities Exchange Act of 1934.
Our directors and management are in the process of exploring the advantages and disadvantages to us and our shareholders of suspending our reporting obligations under the Securities Exchange Act of 1934 following the expected delisting of our common stock from the NYSE MKT. No final decisions have been made in this regard, including as to the timing thereof. Upon suspension

19


of our reporting obligations under the Securities Exchange Act of 1934, we would cease filing reports with the SEC, which will result in significantly less information about the Company being publicly available. The lack of publicly available information about the Company could adversely affect the price and liquidity of our common stock and any securities issued in connection with the Chapter 11 Cases.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any dividends on our common stock and we intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases or holders of our common stock receive a distribution in the Chapter 11 Cases. Our board of directors retains the discretion to change this policy, subject to the Bankruptcy Code and other applicable law.
Anti-takeover provisions in our organizational documents and under Delaware law could make a third party acquisition of us difficult.
Our amended and restated certificate of incorporation and bylaws contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include the ability of our board of directors to designate the terms of and issue new series of preferred stock. In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless certain specific requirements are met as set forth in Section 203. Collectively, these provisions could make a third party acquisition of us difficult or could discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
If we lose key personnel or are unable to attract and retain additional personnel, we may be unable to develop our business.
Our development in the future will be highly dependent on the efforts of key management employees, specifically, Robert Buchan, our Executive Chairman, Randy Buffington, our Chief Executive Officer, Stephen Jones, our Executive Vice President and Chief Financial Officer, and other key employees that we may hire in the future. Although we have entered into employment agreements with Mr. Buffington and Mr. Jones, we do not have and currently have no plans to obtain key man insurance with respect to any of our key employees. As well, we will need to recruit and retain other qualified managerial and technical employees to build and maintain our operations. If we are unable to successfully recruit and retain such persons, which may be difficult in light of the bankruptcy proceedings, our development and growth could be significantly curtailed.
Some of our directors may have conflicts of interest as a result of their involvement with other natural resource companies.
Some of our directors are directors or officers of other natural resource or mining-related companies, or may be involved in related pursuits that could present conflicts of interest with their roles at Allied Nevada. In the event that any such conflict of interest arises, a director who has such a conflict is required to disclose the conflict to our board of directors (and any applicable committees), should abstain from voting on the matter and, in most cases, should leave the meeting while the remaining directors discuss and vote on such matter. In appropriate cases, we will establish a special committee of independent directors to review a matter in which directors, or management, may have a conflict.
Joint ventures and other partnerships may expose us to risks.
In the future, we may enter into joint ventures or other partnership arrangements with other parties in relation to the exploration, development and production of certain of the properties in which we have an interest. Joint ventures can often require unanimous approval of the parties to the joint venture or their representatives for certain fundamental decisions such as an increase or reduction of registered capital, merger, division, dissolution, amendments of constituting documents, and the pledge of joint venture assets, which means that each joint venture party may have a veto right with respect to such decisions which could lead to a deadlock in the operations of the joint venture or partnership. Further, we may be unable to exert control over strategic decisions made in respect of such properties, including our existing joint venture at our Maverick Springs property where we are a minority (45%) owner, the Hasbrouck and Three Hills properties where we have an option to retain a 25% ownership interest, or any future joint ventures which we may become party to. Any failure of such other companies to meet their obligations to us or to third parties, or any disputes with respect to the parties’ respective rights and obligations, could have a material adverse effect on the joint ventures or their properties and therefore could have a material adverse effect on our results of operations, financial performance, and cash flows.
We are currently, and in the future may be, subject to legal proceedings.
Due to the nature of our business, we may be subject to regulatory investigations, claims, lawsuits and other proceedings in the ordinary course of our business. The results of these legal proceedings cannot be predicted with certainty due to the uncertainty inherent in litigation, including the effects of discovery of new evidence or advancement of new legal theories, the difficulty of predicting decisions of judges and juries and the possibility that decisions may be reversed on appeal. There can be no assurances that these matters will not have a material adverse effect on our business.

20


In addition to the Chapter 11 Cases, we are currently the subject of purported securities class-action lawsuits in the United States and Canada, which allege that we made false and misleading statements in our public disclosures to induce the purported class members to purchase our securities at artificially inflated prices. We dispute the claims and intend to contest the actions vigorously. While we do not believe, based on currently available information, that contingencies related to these lawsuits will have a material adverse effect on our financial statements, litigation is inherently uncertain and there can be no assurance that these proceedings will be resolved in our favor. Regardless of the outcome, such litigation could have an adverse impact on our business because of defense and settlement costs, diversion of management resources and other factors.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
We collect and store sensitive data, including intellectual property, our proprietary business information and personally identifiable information of our employees, on our networks. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations, and damage our reputation, which could adversely affect our business.
Item 1B. Unresolved Staff Comments
 
None.
Item 2. Properties
We classify our mineral properties into three categories: “Operating Properties”, “Advanced Exploration Properties”, and “Other Exploration Properties”. Operating Properties are properties in which we operate a producing mine. Hycroft, as described below, is our only Operating Property and makes up the “Hycroft Mine” segment in our Consolidated Financial Statements. Advanced Exploration Properties are properties where we retain a significant or controlling interest or joint venture and there has been sufficient historical drilling and analysis completed to identify and report reserves or other mineralized material. Other Exploration Properties are those for which insufficient drilling and geologic investigations have been completed to define mineralized materials or properties where we retain an insignificant or non-controlling interest or joint venture. In our Consolidated Financial Statements, the “Exploration” segment includes all costs, expenses, gains, and losses attributable to our Advanced and Other Exploration Properties.
Operating Property
Hycroft Mine
For a detailed discussion of Hycroft’s operating and production data, see Part II - Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Hycroft Mine.
The following shows where Hycroft and our Advanced Exploration Properties are located as well as areas of Hycroft:

21


 -
We currently have one Operating Property, Hycroft, an open-pit heap leach operation which is located 54 miles west of Winnemucca, NV. Winnemucca, a city with a population of approximately 8,000, is a commercial community on Interstate 80, 164 miles northeast of Reno. The town is served by a transcontinental railroad and has a municipal airport. Access to Hycroft from Winnemucca is by State Road No. 49 (Jungo Road), a good-quality, unpaved road, and a short access road to the main entrance of the mine. Well-maintained mine and exploration roads provide access throughout the property. Access is also possible from Imlay, Gerlach, and Lovelock by unpaved roads intersecting Interstate 80 and Nevada State Route 447. The majority of our employees live in the Winnemucca area. The site receives electrical power provided by NV Energy from the northwestern Nevada power grid. The Hycroft Mine currently has water rights which are adequate to support our current and planned future oxide heap leach and sulfide operations.
We hold 28 private patented claims and 3,248 unpatented mining claims that constitute our Hycroft Mine Operating Property. The total acreage covered by unpatented claims is approximately 68,759 acres and an additional 1,912 acres is covered by patented claims. Combining the patented and unpatented claims, total claims cover approximately 70,671 acres. Our Hycroft patented claims occupy private lands and our unpatented claims occupy public lands, administered by the BLM. These claims are governed by the laws and regulations of the U.S. federal government and the state of Nevada. To maintain the patented claims in good standing, we must pay the annual property tax payments to the county in which the claims are held. To maintain the unpatented claims in good standing, we must file a notice of intent to maintain the claims within the county and pay the annual mineral claim filing fees to the BLM. A portion of Hycroft is subject to a mining lease requiring us to pay 4% net profit royalty to the owner of certain patented and unpatented mining claims, subject to a maximum of $7.6 million, of which $2.1 million had been paid as of December 31, 2014. There is no expiration date on the net profit royalty.
Hycroft was formerly known as the Crofoot-Lewis open pit mine, which was a small heap leaching operation that commenced in 1983. Vista Gold Corp., a corporation incorporated under the laws of the Yukon Territory (“Vista”), acquired the Crofoot-Lewis claims and mine in 1987 and 1988. During this first operating period the mine produced over 1.0 million ounces of gold and 2.5 million ounces of silver. The mine production continued until it was placed on a care and maintenance program in December 1998 due to low gold prices. We acquired Hycroft in 2007 pursuant to an arrangement agreement where Vista transferred to us its Nevada mining properties. We completed our first year of mining operations in 2009.
Exploration and Development
We have recently expanded our heap leach operations and, in October 2014, we completed a feasibility study for our previously commenced (and subsequently deferred) mill expansion. Although we have not yet secured the financing required to begin construction of a mill, we continue to explore potential available financing options. For a detailed discussion on expansion and development projects that occurred at Hycroft during 2014 and 2013, see the Hycroft Mine - Hycroft Expansion Projects section included in Part II - Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In 2014, we drilled 260 holes, representing approximately 76,945 feet, with a focus on targeting oxide ore proximal to current ore reserves at the Bay, Central, and Brimstone pits to expand our oxide (heap leach) mineralized material. The drilling results obtained were utilized to update our corresponding engineering models. A similar sized drill program with the same

22


objective has been designed for 2015.
At December 31, 2014, the gross book cost of the Hycroft mineral property totaled $3.5 million and its associated plant, equipment, and mine development totaled $1,036.2 million.
Geology
Hycroft is located on the western flank of the Kamma Mountains. The deposit is hosted in a volcanic eruptive breccia and conglomerates associated with the Tertiary Kamma Mountain volcanics. The volcanics are mainly acidic to intermediate tuffs, flows and coarse volcaniclastic rocks. Volcanic rocks have been block-faulted by dominant north-trending structures, which have affected the distribution of alteration and mineralization. The Central Fault and East Fault control the distribution of mineralization and subsequent oxidation. A post-mineral range-front fault separates the ore body from the adjacent Pleistocene Lahontan Lake sediments in the Black Rock Desert.
The known gold mineralization within Hycroft extends for a distance of three miles in a north-south direction by 1.5 miles in an east-west direction. Mineralization extends to a depth of less than 330 feet in the outcropping to near-outcropping portion of the deposit on the northwest side to over 2,500 feet in the Vortex deposit to the east. The mineralization is oxide from the surface down to a depth of approximately 300 feet and sulfide mineralization occurs at this depth. The transitional mineralization occurs at the boundary region where original sulfide mineralization has been partially oxidized.
Mineral Proven and Probable Ore Reserves
Our reserve estimates are calculated in accordance with Industry Guide 7 of the Exchange Act. Proven and probable reserves may not be comparable to similar information regarding mineral reserves disclosed in accordance with the guidance of other countries. We conduct ongoing studies of our ore bodies to optimize economic values and to manage risk. We revise our mine plans and estimates of proven and probable mineral reserves as required and in accordance with the latest available studies. Our estimates of proven and probable reserves are prepared by and are the responsibility of our employees, and are reconciled to production amounts on monthly, rolling six month, and rolling 12 month bases.
Our most recent reserve estimated proven and probable reserves as of December 31, 2014, using prices of $1,200 per ounce for gold and $20 per ounce for silver. The average London Bullion Market spot metal prices for the past three years is approximately $1,449 per ounce for gold and $25 per ounce for silver. Below is a summary of our estimated proven and probable ore reserves as of December 31, 2014.
 
Ore Tons
(000’s)
 
Gold
 
Silver
 
 
 
Strip 
Ratio
Category
Grade
(oz/ton)
 
Contained
Ounces
(000’s)
 
Grade
(oz/ton)
 
Contained
Ounces
(000’s)
 
Waste
Tons
(000’s)
 
Proven reserves - heap leach
134,369

 
0.009

 
1,150

 
0.24

 
31,696

 
 
 
 
Probable reserves - heap leach
36,680

 
0.007

 
246

 
0.20

 
7,486

 
 
 
 
Proven reserves - mill
620,392

 
0.012

 
7,432

 
0.57

 
352,974

 
 
 
 
Probable reserves - mill
157,760

 
0.011

 
1,722

 
0.46

 
73,119

 
 
 
 
Proven and probable reserves
949,201

 
0.011

 
10,550

 
0.49

 
465,275

 
1,427,214

 
1.50
%

Advanced Exploration Properties
Advanced Exploration Properties are both those properties where we retain a significant controlling interest or joint venture and where there has been sufficient drilling and analysis completed to identify and report reserves or other mineralized material. We currently have four properties on which mineralized material has been identified: Maverick Springs (a 45% joint venture with Silver Standard), Mountain View, Wildcat, and Pony Creek/Elliot Dome. None of these properties currently have proven or probable reserves as defined by Industry Guide 7 of the Exchange Act. At the end of 2014, these four properties contained 1,606 unpatented mining claims, covering approximately 33,180 acres. Over the past three years, we have not performed any significant exploration campaigns at Maverick Springs, Mountain View, Wildcat, or Pony Creek/Elliot Dome and do not currently have any plans to perform significant exploration activities at these properties in 2015. We continually evaluate these properties to determine how to best advance them by improving or increasing the identified mineralized materials and/or selling them or entering into joint venture or royalty agreements.
Other Exploration Properties
In general, Other Exploration Properties consist of those properties for which insufficient drilling and geologic investigations have been completed to define mineralized materials or properties where we retain a non-controlling interest or joint venture. We have approximately 70 Other Exploration Properties, one of which is a 25% non-controlling interest in the Hasbrouck, Three Hills, and Esmeralda County exploration properties, which have previously reported mineralized material, and for which we sold a 75% controlling interest to West Kirkland Mining, Inc. in 2014 (refer to Note 8 - Mineral Properties, Net to the Notes to Consolidated Financial Statements for additional information). Certain of our Other Exploration Properties have been optioned and leased to other mining and exploration companies in return for production royalties averaging

23


approximately 3.0%. We intend to continue to pursue strategic options for our Other Exploration Properties through exploration programs, joint ventures, royalty agreements, or the sale or release of the mineral property.
During the year ended December 31, 2014, we completed a review of our Other Exploration Properties and as a result abandoned six mineral properties.
Item 3. Legal Proceedings
From time to time we are involved in various legal actions related to our business, some of which are class action lawsuits. We do not believe, based on currently available information, that contingencies related to any pending or threatened legal matter will have a material adverse effect on our financial statements, although a contingency could be material to our results of operations or cash flows for a particular period depending on our results of operations and cash flows for such period. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
As discussed above, on March 10, 2015, the Debtors filed the Chapter 11 Cases with the Bankruptcy Court. The Debtors will continue to operate their business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. For additional information regarding our Chapter 11 Cases, see Item 1. Business - “Voluntary Reorganization Under Chapter 11” and Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements.
Item 4. Mine Safety Disclosure
 
Safety and health is our highest priority, which is why we have a mandatory mine safety and health program that includes employee and contractor training, risk management, workplace inspection, emergency response, accident investigation and program auditing. We consider these programs to be essential at all levels to ensure that our employees, contractors, and visitors operate in the safest and healthiest environment possible.
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this Form 10-K.

24


PART II - FINANCIAL INFORMATION
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock was previously listed and traded on the NYSE MKT and the Toronto Stock Exchange (“TSX”) under the symbol “ANV”. On March 10, 2015, the NYSE MKT suspended trading of our common stock and commenced proceedings to delist the common stock. The last day that our common stock traded on the NYSE MKT was March 9, 2015. We do not intend to take any further action to appeal the NYSE MKT’s decision, and therefore it is expected that our common stock will be delisted after the completion of the NYSE MKT’s application to the SEC. On March 10, 2015, the TSX suspended our common stock from trading immediately, and on March 17, 2015, the TSX determined to delist our common stock at the close of business on April 16, 2015. The last day that our common stock traded on the TSX was March 9, 2015.
The following table sets out the reported high and low sale prices as reported by the NYSE MKT and the TSX during the last two fiscal years:
 
 
 
NYSE MKT ($)
 
Toronto Stock
Exchange (CDN$)
 
 
 
High    
 
Low    
 
High    
 
Low    
2014
4th quarter
 
3.42

 
0.72

 
3.82

 
0.83

 
3rd quarter
 
4.06

 
2.92

 
4.34

 
3.24

 
2nd quarter
 
4.50

 
2.61

 
4.96

 
2.86

 
1st quarter
 
6.70

 
3.65

 
7.42

 
3.87

2013
4th quarter
 
5.09

 
3.01

 
5.25

 
3.20

 
3rd quarter
 
7.50

 
3.54

 
7.58

 
3.66

 
2nd quarter
 
16.65

 
5.40

 
16.77

 
5.66

 
1st quarter
 
31.31

 
15.65

 
31.00

 
15.91

As of March 26, 2015, there were 126,193,336 shares of our common stock issued and outstanding, and as of March 10, 2015 we had 201 registered stockholders of record.
We have never paid dividends or repurchased shares of our common stock and currently have no intention to do so. Our DIP Credit Agreement, Notes, Revolver, and certain capital lease agreements, contain provisions that restrict our ability to pay dividends and repurchase or redeem capital stock. For additional information on these restrictions, please see Part II – Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations – Debt Covenants and Note 11 - Debt and Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements.
Stock Performance Graph
The following graph and table compares the performance of our common stock to the S&P 500 Index and the PHLX Gold/Silver Sector IndexSM, assuming reinvestment of dividends on December 31 of each year indicated. The chart and table assumes $100 invested at the per share closing price on NYSE MKT in Allied Nevada and each of the indices on December 31, 2009 through December 31, 2014. The following performance graph and table is furnished and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, nor shall it be deemed incorporated by reference in any filing under the Securities Act or Exchange Act.
Comparison of 5 Year Cumulative Total Return
Among Allied Nevada Gold Corp., the S&P 500 Index, and the PHLX Gold and Silver Sector Index

25


 
 
December 31,
 
 
2009
 
2010
 
2011
 
2012
 
 2013
 
2014
 Allied Nevada Gold Corp.
 
$
100.00

 
$
174.73

 
$
200.80

 
$
199.80

 
$
23.54

 
$
5.77

 S&P 500 Index
 
100.00

 
114.86

 
117.23

 
135.78

 
179.42

 
203.60

 PHLX Gold and Silver Index
 
100.00

 
134.67

 
107.36

 
98.42

 
50.01

 
40.88

Sales of Unregistered Securities
The Company had no sales of unregistered securities during the years ended December 31, 2014, 2013, and 2012.
Equity Compensation Plan Information
The following table summarizes our equity compensation plans, all of which have been approved by our stockholders:
 
 
December 31, 2014
Plan Category
 
(a)
 
(b)
 
(c)
Equity compensation plans
approved by security holders
 
Number of securities to be issued upon exercise of outstanding options, warrants, and rights (#)
 
Weighted average exercise  price or grant date fair value of outstanding options, warrants, and rights ($)
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities referenced in column (a)) (#)
Allied Nevada Restricted Share Plan
 
2,021,081

 
7.64

 

Allied Nevada 2007 Stock Option Plan
 
500,000

 
4.35

 

Deferred Share Unit Plan
 
380,560

 
7.26

 
116,348

Performance and Incentive Pay Plan
 
302,871

 
3.25

 
3,684,629

Deferred Phantom Unit Plan
 
248,136

 
18.50

 
11,597

 
 
3,452,648

 
 
 
3,812,574

For additional information on our equity compensation plans refer to Note 14 - Stock-Based Compensation to the Notes to Consolidated Financial Statements.  
Item 6. Selected Financial Data
The following table summarizes selected consolidated financial data and is derived from our audited Consolidated Financial Statements and should be read in conjunction with “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II—Item 8. Financial Statements and Supplementary Data.” 
Selected Financial Data
U.S. dollars in thousands (except per share amounts)
 
 
Years Ended December 31,
Results of operations
 
2014
 
2013
 
2012
 
2011
 
2010
Revenue
 
$
310,425

 
$
267,901

 
$
214,559

 
$
152,029

 
$
130,930

Total cost of sales
 
342,947

 
209,156

 
109,492

 
63,029

 
64,685

Net (loss) income
 
(518,925
)
 
1,405

 
47,727

 
36,709

 
34,128

Basic net (loss) income per share
 
(4.90
)
 
0.01

 
0.53

 
0.41

 
0.41

Diluted net (loss) income per share
 
(4.90
)
 
0.01

 
0.52

 
0.40

 
0.41

 
 
December 31,
Financial position
 
2014
 
2013
 
2012
 
2011
 
2010
Cash and cash equivalents
 
$
7,575

 
$
81,470

 
$
347,047

 
$
275,002

 
$
337,829

Inventories
 
20,957

 
26,410

 
19,726

 
28,305

 
9,978

Ore on leachpads, current
 
214,444

 
206,504

 
129,180

 
64,230

 
49,357

Stockpiles and ore on leachpads, non-current
 
91,904

 
116,192

 
38,357

 
11,320

 

Plant, equipment, and mine development, net
 
443,289

 
890,271

 
538,037

 
190,694

 
84,955

Total assets
 
941,238

 
1,512,601

 
1,233,224

 
657,206

 
567,352

Debt, current
 
540,263

 
76,226

 
28,614

 
10,306

 
3,215

Debt, non-current
 

 
522,427

 
496,578

 
34,245

 
11,104

Total liabilities
 
663,680

 
735,552

 
613,250

 
92,084

 
44,598

Total stockholders’ equity
 
277,558

 
777,049

 
619,974

 
565,122

 
522,754


26


Item 7. 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 March 27, 2015, 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”). References to “$” refers to United States currency and “CDN $” to Canadian currency.
Voluntary Reorganization Under Chapter 11
On March 10, 2015 (the “Petition Date”), Allied Nevada Gold Corp. and certain of its domestic direct and indirect subsidiaries (together with Allied Nevada Gold Corp., the “Debtors”) filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Debtors’ chapter 11 cases (the “Chapter 11 Cases”) are being jointly administered under Case No. 15-10503. We will continue to operate our business as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.
For additional information regarding the Chapter 11 Cases, see Item 1. Business - “Voluntary Reorganization under Chapter 11” and Note 2 - Summary of Significant Accounting Policies, Note 11 - Debt, Note 21 - Derivative Instruments, and Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements.
Overview
Our discussion and analysis consists of the following subsections:
Introduction to the Company which provides a brief discussion of our current heap leach (oxide) operations, future mill (sulfide) expansion plans, and business strategies and goals;
Executive Summary which lists and discusses significant matters related to our health and safety, financial performance, operations, and expansion projects;
Critical Accounting Estimates which provides a discussion of accounting estimates that we believe are critical in understanding and evaluating our reported financial results because they affect reported amounts and require significant management judgment and assumptions about highly uncertain matters;
Hycroft Mine which provides a detailed discussion of our operations and expansion projects;
Results of Operations which provides a discussion and analysis of our operating results for the last three years;
Liquidity and Capital Resources which provides a discussion of our cash flows (last three years), liquidity, available sources of liquidity, capital requirements, and debt covenants; and
Non-GAAP Financial Measures which includes a description of our non-GAAP financial measure “adjusted cash costs per ounce”, the reasons for our use of such measure, and a three year reconciliation to our production costs and write-down of production inventories (the nearest GAAP measures).
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.
Our sole operating mine, the Hycroft Mine (“Hycroft”), is an open-pit heap leach operation and during the year ended December 31, 2014 we sold 216,937 ounces of gold and 1,841,737 ounces of silver produced at Hycroft. As of December 31, 2014, Hycroft had proven and probable mineral reserves of 10.6 million ounces of gold and 465.3 million ounces of silver, which are contained in heap leach and mill ores. We currently recover metals contained in oxide ores through our recently expanded heap leach operations. In October 2014, M3 Engineering and Technology Corp. (“M3”), in association with us, completed a feasibility study for a mill expansion which confirmed the results of the April 2014 prefeasibility study and improved on the overall economics of a mill expansion. As of December 31, 2014, our mill ores comprised approximately 87% and 92% of our proven and probable gold and silver mineral reserves, respectively, which is why our long term goal is the construction of a mill at Hycroft to enable us to recover metals contained in mill ores and extend the operating life of the mine.
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. Our near-term operating strategies and goals, which we strive to accomplish to the best of our ability in a safe and environmentally responsible manner, include:
maximize operating cash flows by meeting projected ounces sold volumes, achieving our annual targeted mining and processing rates and cost metrics, and operating our heap leach operations to its full, steady-state capacity;
manage discretionary general, administrative, and exploration related spending;

27


minimize our capital expenditures; and
maintain, at all times, sufficient liquid assets and access to capital resources.
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 the sulfide ore at Hycroft.
Executive Summary
Our 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 (“MD&A”):
Health and safety: We remained committed to our core values, health and safety, and operated in an environmentally responsible manner. Regrettably, there was one lost time accident at our Hycroft Mine during the fourth quarter; however, through our “continuous improvement” approach, we believe we constantly improve and strengthen the overall health and safety environment at our Hycroft Mine.
Ounces sold: We sold an annual record 216,937 gold ounces and 1,841,737 silver ounces (double the amount of silver ounces sold in 2013) as we continued to benefit from our previously expanded heap leach operations; however, due to an increased waste to ore strip ratio and our decision to shut down the crusher (discussed below in the Hycroft operations highlight) and acid leach heap leach ore encountered during the fourth quarter, we did not achieve our initial 2014 sales guidance of 230,000 to 250,000 gold ounces.
Net loss: Net loss was $518.9 million (or $4.90 per share - basic and diluted). Although we sold a record number of gold and silver ounces, we were negatively impacted by a low metal price environment, increased production costs, a write-down of production inventories, a write-down of long-lived assets and stockpiles, losses on assets classified as held for sale and asset dispositions, and increased interest expense.
Insufficient liquidity and Chapter 11 Cases: Despite our proactive approach to liquidity throughout the year, due to lower than planned metal sales, a low metal price environment, and significant capital expenditures and debt service payments, our cash and cash equivalents and available sources of liquidity decreased during the year to critical levels at year end. As discussed in Note 2 - Summary of Significant Accounting Policies and Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements, on March 10, 2015, we filed the Chapter 11 Cases with the Bankruptcy Court which, if successful, are expected to recapitalize our balance sheet by reducing our debt balances while concurrently providing additional liquidity.
Hycroft operations: We achieved our annual mining rate target and placed 36.7 million ore tons on the leach pads (2.8 million tons of which was crushed during the first nine months of the year) containing approximately 218,196 recoverable ounces of gold, which was lower than our initial internal target (for the reasons discussed above in the Ounces sold highlight). In November 2014, we decided to temporarily shut down the crusher due to declining metal prices as we believe the incremental benefit from increased recoveries does not exceed the total costs of running the crusher. If metal prices do not stabilize at improved levels, we do not plan to utilize the crusher for our heap leach operations.
Hycroft mill expansion: We completed a feasibility study for a mill expansion in October 2014 that confirmed and improved on the results of the April 2014 prefeasibility study. We have not yet secured the financing required to begin construction of a mill.
Critical Accounting Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States. The preparation of these statements requires us to make assumptions, estimates, and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. We base our assumptions, estimates, and judgments on historical experience, current trends and other factors that we believe to be relevant at the time our Consolidated Financial Statements are prepared. On a regular basis, we review our accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could (will) differ, and such differences could be material.
We consider an accounting estimate to be critical if it requires significant management judgments and assumptions about matters that are highly uncertain at the time the estimate is made and if changes in the estimate that are reasonably possible could materially impact our financial statements. Although other estimates are used in preparing our financial statements, we believe that the following accounting estimates are the most critical to understanding and evaluating our reported financial results. For information on all of our significant accounting policies, see Note 2 - Summary of Significant Accounting Policies to the Notes to Consolidated Financial Statements.

28


Ore on Leach Pads
Estimate Required:
The recovery of gold at the Hycroft Mine is accomplished through a heap leaching process, the nature of which limits our ability to precisely determine the recoverable gold ounces in ore on leach pads. We estimate the quantity of recoverable gold ounces in ore on leachpads using surveyed volumes of material, ore grades determined through sampling and assaying of blastholes, and estimated recovery rates based on ore type and domain. The quantity of recoverable gold ounces and recovery rates varies based on ore mineralogy, ore grade, ore particle sizes, solution flows, and pH levels. The estimated recoverable gold ounces placed on the leach pads and recovery rates are periodically reconciled by comparing the related ore to the actual gold ounces recovered (metallurgical balancing). The ultimate recoverable gold ounces or life-of-mine recovery rate is unknown until mining operations cease. A change in the recovery rate or the quantity of recoverable gold ounces in our ore on leach pads could materially impact our financial statements.
Impact of Change in Estimate:
Changes in recovery rate estimates or estimated recoverable gold ounces that do not result in write-downs are accounted for on a prospective basis; however, if a write-down is required, ore on leach pads would be adjusted to market values before prospectively accounting for the remaining costs and revised estimated recoverable gold ounces. We have not experienced any significant changes to estimated recovery rates or estimates of recoverable gold ounces. As discussed in Note 4 - Stockpiles and Ore On Leach Pads to the Notes to Consolidated Financial Statements, our $70.7 million write-down of ore on leach pads resulted solely from the application of our lower of cost or market accounting policy and was unrelated to our metallurgical balancing analytics or changes to recovery rates.
At December 31, 2014, if our estimate of recoverable gold ounces on the leach pad decreased by 1% or 2%, recoverable gold ounces in ore on leach pads would decrease by 2,623 ounces or 5,246 ounces, respectively, which would require a write-down of $2.3 million or $5.3 million, respectively, of our ore on leach pad costs before prospectively accounting for the remaining costs. A 1% or 2% increase to our estimate of recoverable gold ounces in ore on leach pads would increase the estimated recoverable ounces by the aforementioned amounts and reduce our weighted average cost per ounce by approximately $12 per ounce or $23 per ounce, respectively, which would be accounted for on a prospective basis.
Impairment of Long-Lived Assets
Estimate Required:
Our long-lived assets, which consist of plant, equipment, and mine development, are evaluated for recoverability annually and at interim periods as needed. An impairment is determined to exist if the total projected future cash flows on an undiscounted basis are less than the carrying amount of a long-lived asset group. An impairment loss is measured and recorded based on the excess carrying value of the impaired long-lived asset group over fair value. To determine fair value, we use a discounted cash flow model based on quantities of estimated recoverable minerals and incorporate projections and probabilities involving metal prices (considering current and historical prices, price trends and related factors), production levels, operating and production costs, and the timing and capital costs of expansion and sustaining projects, all of which are based on life-of-mine plans. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups, which for us is 1) heap leach operations and 2) mill expansion project. The assumptions, projections, and probabilities used to determine estimates of future cash flows are consistent or reasonable in relation to internal budgets and projections. Any change in the assumptions, projections, or probabilities used in our impairment calculations could materially impact our financial statements.
Impact of Change in Estimate:
The significant assumptions used in our 2014 impairment tests (other than estimates related to proven and probable ore reserves) included long-term gold and silver selling prices of $1,269 and $19 per ounce, respectively, which represent our 2014 average realized selling prices, and a remote probability of securing financing sufficient to construct a mill, and resulted in an impairment charge of $387.9 million. If we were to increase our estimates of long-term gold and silver selling prices and the probability of securing sufficient financing to construct a mill, the recorded amount of the impairment (if any at all) for the mill expansion project asset group may have decreased. As of December 31, 2014, our projected future cash flows on an undiscounted basis from our heap leach operations exceeded the carrying value of the related long-lived asset group by approximately 25%. Refer to Note 7 - Plant, Equipment, and Mine Development, Net to the Notes to Consolidated Financial Statements for additional information.
Proven and Probable Ore Reserves
Estimate Required:
Proven and probable ore reserves are the part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. Our proven and probable ore reserves are periodically updated, usually on an

29


annual basis. Estimated recoverable gold ounces in our proven and probable reserves at the Hycroft Mine are used in units-of-production amortization calculations and are the basis for future cash flow estimates utilized in impairment calculations. When determining proven and probable reserves, we must make assumptions and estimates of future commodity prices, the mining methods we use and intend to use in the future, and the related costs incurred to develop, mine, and process our reserves. Our estimates of recoverable gold ounces in proven and probable reserves are prepared by and are the responsibility of our employees. Any change in estimate or assumption used to determine our proven and probable ore reserves could change our estimated recoverable gold ounces in such reserves, which may have a material impact on our financial statements and/or our calculations of units-of-production amortization and impairment charges (if any).
Impact of Change in Estimate:
Future changes in estimates of recoverable gold ounces are used in our units-of-production calculations and impairment calculations on a prospective basis.
Based upon our most recently completed proven and probable reserve study, the estimated recoverable gold ounces contained therein would have to change significantly to change the results of our 2014 long-lived asset impairment test as our impairment charges were driven by the decreased probability of the mill expansion, not estimates surrounding our reserves. Additionally, a change in the estimated recoverable gold ounces would need to eliminate the 25% excess of projected future cash flows from our heap leach operations to result in an additional impairment charge. If our proven and probable ore reserves decreased by 5% the effect on our 2014 recorded amortization expense would be approximately $0.1 million.
Income Taxes
Estimate Required:
We account for income taxes using the liability method, recognizing certain temporary differences between the financial reporting basis of our liabilities and assets and the related income tax basis for such liabilities and assets. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future income, we make estimates about future gold and silver sales, metals prices and future production costs. Additionally, significant judgment must be used in determining how much weight to give each piece of evidence considered in determining realizability. Changes to any of these estimates or assumptions could change our conclusions regarding the realizability of deferred tax assets and corresponding income tax, which may have a material impact on our financial statements.
Impact of Change in Estimate:
As of December 31, 2014, based on the weight of available evidence, we determined that it is more likely than not that the benefit of our net deferred tax assets will not be realized and recorded a full valuation allowance of $178.6 million against such assets. In considering the evidence, we gave significant weight to recent operating results, future projections, and the inability to secure financing to construct a mill. At December 31, 2014, if we had determined that it is more likely than not that some or all of the benefit of our net deferred tax assets would be realizable, we would have have reduced our recorded valuation allowance of $178.6 million to as low as $nil depending on our estimates of future taxable income and the weight of other evidence.

30


Hycroft Mine
Operations
Key operating statistics for the previous three years are as follows:
 
 
Years ended December 31,
 
 
2014
 
2013
 
2012
Ore mined (000’s tons)
 
33,894

 
45,557

 
30,299

Ore mined and crushed (000’s tons)
 
2,841

 

 

Ore mined and stockpiled (000’s tons)
 
3,190

 
3,515

 
3,346

Waste mined (000’s tons)
 
58,460

 
32,969

 
22,088

 
 
98,385

 
82,041

 
55,733

Excavation mined (000’s tons)
 

 
3,288

 
4,945

Ore mined grade - gold (oz/ton)
 
0.011

 
0.011

 
0.012

Ore mined grade - silver (oz/ton)
 
0.434

 
0.219

 
0.211

Ounces produced - gold
 
214,345

 
190,831

 
136,930

Ounces produced - silver
 
1,818,637

 
882,225

 
794,097

Ounces sold - gold
 
216,937

 
181,941

 
114,705

Ounces sold - silver
 
1,841,737

 
858,073

 
696,144

Average realized price - gold ($/oz)
 
$
1,269

 
$
1,365

 
$
1,681

Average realized price - silver ($/oz)
 
$
19

 
$
23

 
$
31

Adjusted cash costs per ounce, excluding write-down1
 
$
812

 
$
802

 
$
638

Adjusted cash costs per ounce1
 
$
1,064

 
$
855

 
$
638

As discussed below in the Hycroft Mine - Hycroft Expansion Projects section, our mining rate and processing capabilities were expanded during 2013, which resulted in the production and sale of a record number of gold and silver ounces in 2013 and again in 2014 when Hycroft operated at its steady-state capacity. Our expanded, more efficient mobile mine equipment fleet, which includes the two electric rope shovels, allowed us to increase our total tons mined by 20% in 2014, following an already significant annual increase of 47% in 2013. In addition to achieving our planned tonnage volumes, during 2014 our average cash cost per ton mined decreased by approximately 27% (to $1.51 per ton) from 2013. As part of our heap leach expansion, in 2013 we commissioned the North leach pad and a 21,500 gpm Merrill-Crowe solution processing plant, the latter of which allowed us reduce the use of our carbon columns and improve silver recoveries. At the beginning of 2014, our only ongoing heap leach expansion project was the crushing system, which as of June 2014, was operating at a capacity (in terms of throughput) sufficient to support our current heap leach operations. We crushed 2.8 million ore tons in 2014; however, as of November 2014, due to declining metal prices, the decision was made to temporarily shut down the crusher until metal prices stabilize at improved levels.
Although a record number, the 216,937 gold ounces sold in 2014 fell short of our initial 2014 sales guidance of 230,000 to 250,000 ounces primarily due to 1) an increased waste to ore strip ratio to support our 2015 mine plan and 2) our decision to shut down the crusher. At the end of the second quarter of 2014, we had sold 116,520 gold ounces which was in line with the annual rate required to achieve our initial guidance. In the third quarter of 2014 we updated our mine plan to focus on moving additional waste to open up new mining areas for 2015 thereby lowering the number of ore tons placed on the leach pads during the second half of 2014. Additionally, due to low metal prices, we selectively utilized the crusher following its June 2014 commissioning until November 2014, when the decision was made to temporarily shut down the crusher until metal prices stabilize at improved levels. At current metal prices, we believe the incremental benefit from increased recoveries does not exceed the total costs of running the crusher. The 1,841,737 silver ounces sold in 2014, which represents the mid-point of our initial annual guidance, is more than double the number of silver ounces sold in 2013. Our silver to gold ounces sold ratio was 8.5:1.0, compared to 4.7:1.0 for 2013, as our average silver grade of ore mined increased to 0.434 oz/ton (compared to 0.219 oz/ton in 2013) and approximately 86% of our 2014 gold ounces sold (compared to 62% in 2013) was from solution processed through our Merrill-Crowe plants, which yield higher silver concentrations and recoveries than solution processed through our carbon columns.
 
 
 
 
 
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.

31


Our adjusted cash costs per ounce1 (excluding write-down) during 2014 was $812 (consistent with $802 in 2013) due primarily to improved silver sales (as planned) from solution processed through our Merrill-Crowe plants and increased silver grades. During 2014, we sold on average an additional 3.8 ounces of silver per gold ounce, which resulted in additional silver credits of $72 per gold ounce sold compared to 2013. The increase in silver ounces sold helped to offset lower average realized silver prices and higher per ounce cash production costs, which is discussed below in the Results of Operations section. As discussed in Note 4 - Stockpiles and Ore On Leach Pads to the Notes to Consolidated Financial Statements, in accordance with our lower of cost or market accounting policy we recorded a $70.7 million write-down of ore on leach pads during the third quarter of 2014 which included $54.7 million of previously incurred cash production costs. This write-down negatively impacted our 2014 adjusted cash costs per ounce1 by $252 and was unrelated to any metallurgical balancing analytics or changes to recovery rates.
Hycroft Expansion Projects
Our proven and probable mineral reserves are contained in heap leach and mill ores. We currently recover metals contained in oxide ores through our heap leach operations; the construction of a mill would allow us to recover metals contained in sulfide ores. As of December 31, 2014, our mill ores comprised approximately 87% and 92% of our proven and probable gold and silver mineral reserves, respectively, which is why our long term goal is the construction of a mill at Hycroft to enable us to recover metals contained in mill ores and extend the operating life of the mine.
Heap leach (oxide ore)
We have previously completed heap leach expansion projects which included increasing the mining rate through larger capacity haul trucks, electric rope shovels, and production drills and expanding leach pad operations through increased leach pad size (North leach pad) and additional solution processing capacity (Merrill-Crowe plant). During 2014, the only ongoing heap leach expansion project was the crushing system, which as of June 2014, was operating at a capacity (in terms of throughput) sufficient to support our current heap leach operations. Although we crushed 2.8 million ore tons during 2014, as of November 2014, due to declining metal prices, the decision was made to temporarily shut down the crusher. At current metal prices, we believe the incremental benefit from increased recoveries does not exceed the total costs of running the crusher. Going forward, we plan to monitor metal price levels and our mine plan to identify the point at which we would expect increased revenues from crushed ore would considerably exceed the costs of running the crusher. Until such time, we do not expect to utilize the crusher for our heap leach operations.
We are currently working with the crusher manufacturer to resolve an engineering design issue (at no cost to us) on the secondary and tertiary crushers, the solution of which is necessary to increase the crusher’s future capacity (in terms of throughput) to the level required for the mill expansion. As discussed below, once commenced, the initial phase of the mill expansion requires a 24-month construction period, which we believe provides the crusher manufacturer sufficient time to engineer and implement a solution without disrupting our mill expansion efforts.
Mill (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, mill-related engineering, and obtaining the required permits to begin construction. 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 was completed in October 2014 by M3, in association with the Company. The feasibility study confirmed the positive results of the prefeasibility study and improved the overall economics of the mill expansion.
The October 2014 feasibility study entails a two-phase mill expansion approach which projects average annual production for the first five years of full operation (120,000 tons of ore per day) of approximately 458,700 ounces of gold and 23.0 million ounces of silver and average annual life-of-project (12 years of full operation at 120,000 tons of ore per day) production of approximately 447,900 ounces of gold and 23.2 million ounces of silver. The estimated additional (new) capital cost to construct Phase 1 and Phase 2 of the mill expansion is $1,390 million. Phase 1 entails a 60,000 tons of ore per day (“tpd”) mill capacity and a 24-month construction period. Once Phase 1 is commissioned, Phase 2 entails bringing the overall mill capacity to 120,000 tpd over an additional 12-month construction period.
 
 
 
 
 
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.


32


Subsequent to completion of the October 2014 feasibility study, using the same parameters, we and M3 directed our focus on Phase 1 of the mill expansion with the goal of maintaining the throughput rate of Phase 1 of the mill construction while minimizing upfront capital requirements. The capital re-sequencing and optimization exercise indicated that we can begin operation of the first line of the mill for an estimated capital outlay of approximately $768 million, a reduction of 18% from estimated Phase 1 costs that were shown in the October 2014 feasibility study of approximately $934.5 million. The expected reduction in the Phase 1 capital was achieved by re-sequencing construction of infrastructure and certain components that were previously scheduled to be built in Phase 1, but would not deliver significant cash flow in the current market environment or were not being fully utilized until the full 120,000 tpd mill was operating. A detailed capital cost estimate of the optimized Phase 1 was completed in early 2015.
We have not yet secured the financing required to begin construction of Phase 1 of the mill and continue to explore potential available financing options.
Results of Operations
Revenue
Gold revenue
The table below summarizes changes in gold revenue, ounces sold, and average realized prices for the following periods:
 
Years ended December 31,
 
2014
 
2013
 
2012
Total gold revenue (thousands)
$
275,318

 
$
248,386

 
$
192,847

Gold ounces sold
216,937

 
181,941

 
114,705

Average realized price (per ounce)
$
1,269

 
$
1,365

 
$
1,681

 
 
 
 
 
 
 
2014 vs. 2013
 
2013 vs. 2012
 
 
The change in gold revenue was attributable to (thousands):
 
 
 
 
 
Increase in ounces sold
$
47,777

 
$
113,040

 
 
Decrease in average realized price
(17,482
)
 
(36,252
)
 
 
Effect of average realized price decrease on ounces sold increase
(3,363
)
 
(21,249
)
 
 
 
$
26,932

 
$
55,539

 
 
During 2014 and 2013 our gold revenue increased by approximately 11% and 29%, respectively, over the preceding years primarily due to increases in the number of gold ounces sold. Gold ounces sold in 2014 increased by 34,996 ounces (or 19%) as our heap leach operations performed at a steady-state capacity following the expansion projects that were completed in 2013. During 2013, we expanded our mine equipment fleet, increased the ore under leach and solution flows to the pads, and increased our solution processing capacity, which resulted in a 67,236 ounce increase (or +59%) in gold ounces sold. During 2014 and 2013, gold revenue was negatively impacted by decreases of $96 (or -7%) and $316 (or -19%), respectively, to the average realized price per ounce compared to the preceding year, which partially offset the revenue increases from higher ounces sold.
Silver revenue
The table below summarizes changes in silver revenue, ounces sold, and average realized prices for the following periods:
 
Years ended December 31,
 
2014
 
2013
 
2012
Total silver revenue (thousands)
$
35,107

 
$
19,515

 
$
21,712

Silver ounces sold
1,841,737

 
858,073

 
696,144

Average realized price (per ounce)
$
19

 
$
23

 
$
31

 
 
 
 
 
 
 
2014 vs. 2013
 
2013 vs. 2012
 
 
The change in silver revenue was attributable to (thousands):
 
 
 
 
 
Increase in ounces sold
$
22,372

 
$
5,051

 
 
Decrease in average realized price
(3,159
)
 
(5,880
)
 
 
Effect of average realized price decrease on ounces sold increase
(3,621
)
 
(1,368
)
 
 
 
$
15,592

 
$
(2,197
)
 
 
For the reasons discussed above in the Gold revenue section, during 2014 and 2013, the number of silver ounces sold increased by 983,664 ounces (or 115%) and 161,929 (or 23%), respectively, over the preceding years. During 2014, our silver

33


to gold ounces sold ratio was 8.5:1.0, compared to 4.7:1.0 for 2013, as our average silver grade of ore mined increased to 0.434 oz/ton (compared to 0.219 oz/ton in 2013) and approximately 86% of our 2014 gold ounces sold (compared to 62% in 2013) was from solution processed through our Merrill-Crowe plants, which yield higher silver concentrations and recoveries than solution processed through our carbon columns. During 2014 and 2013, silver revenue was negatively impacted by decreases of $4 (or -17%) and $8 (or -26%), respectively, to the average realized price per ounce compared to the preceding year, which partially offset the revenue increases from higher ounces sold.
Total cost of sales
Total cost of sales consists of production costs, depreciation and amortization, and write-down of production inventories. The table below summarizes changes in total cost of sales for the following periods (in thousands):
 
Years ended December 31,
 
2014
 
2013
 
2012
Production costs
$
211,253

 
$
165,478

 
$
94,898

Depreciation and amortization
61,004

 
31,092

 
14,594

Write-down of production inventories
70,690

 
12,586

 

Total cost of sales
$
342,947

 
$
209,156

 
$
109,492

 
 
 
 
 
 
 
2014 vs. 2013
 
2013 vs. 2012
 
 
The change in cost of sales was attributable to:
 
 
 
 
 
Increase in gold ounces sold
$
37,810

 
$
64,180

 
 
Increase in average cost of sales per ounce
31,767

 
14,436

 
 
Effect of average cost per ounce increase on ounces sold increase
6,110

 
8,462

 
 
 
75,687

 
87,078

 
 
Increase in write-down of production inventories
58,104

 
12,586

 
 
 
$
133,791


$
99,664

 
 
As discussed above in the Gold Revenue section, during 2014 and 2013, we sold 19% and 59% more gold ounces, respectively, than the preceding year. These quantity increases, together with an increase in the average cost of sales per gold ounce and a write-down of production inventories, increased our total cost of sales.
Production costs
Increased costs of mining additional waste more than offset the efficiencies of our expanded heap leach operations during 2014 and increased our average cash production costs per gold ounce placed on the leach pads. During 2014, our average cash mining costs per ton decreased by approximately 27% to $1.51 per ton as our two efficient electric rope shovels were in operation for the full year. However, as shown above in the Hycroft Mine – Operations table, we progressed through increased waste to open up new mining areas for the 2015 mine plan; our 2014 waste to ore strip ratio (excluding stockpiled ore) increased by approximately 129% to 1.6:1.0 compared to 0.7:1.0 during 2013. We also incurred approximately $6.8 million of production costs while we ran the crusher during 2014.
During 2013 we experienced a comparable waste to ore strip ratio to 2012 but progressed through a lower gold ore grade phase of the mine plan. In the first half of 2013, increased maintenance costs of older loading equipment, and inefficient utilization of the mobile fleet resulted in a significant increase to the average cost per ounce placed on the leach pads. During the second half of 2013, we commissioned two electric rope shovels and a 21,500 gpm Merrill-Crowe plant and began to realize efficiencies from our mobile equipment dispatch system, all while operating with a leaner workforce subsequent to the July 2013 reduction in force.
Depreciation and amortization
Depreciation and amortization per gold ounce sold during 2014, 2013, and 2012 was $281, $171, and $127, respectively. As we expanded our oxide heap leach operations, the amount of plant, equipment, and mine development in service increased, resulting in a significant increase in depreciation and amortization per gold ounce sold. From January 1, 2013 to December 31, 2014, prior to recording an impairment on our long-lived assets, our plant, equipment, and mine development in service increased by $437.4 million (or 121%) as we placed into service the North leach pad, two electric rope shovels, the 21,500 gpm Merrill-Crowe plant, and the crusher (which was only amortized when being used in operations).
Write-down of production inventories
As discussed above, during the last two years our cash production costs and non-cash depreciation and amortization costs per gold ounce have increased. Due to low metal price levels at year end, as of December 31, 2014, the carrying value of our

34


ore on leach pads (current and non-current) subsequent to the write-down in September 2014 was just above the estimated market value calculated in accordance with our lower of cost or market accounting policy. Further declines from December 31, 2014 metal price levels and/or future production costs per gold ounce greater than the December 31, 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. Write-downs have not been related to any metallurgical balancing analytics or changes to recovery rates. See Note 4 - Stockpiles and Ore On Leach Pads to the Notes to Consolidated Financial Statements for additional information.
Exploration, development, and land holding
Exploration, development, and land holding totaled $2.6 million, $3.6 million, and $7.4 million during 2014, 2013, and 2012, respectively, consisting of compensation and benefit costs for our exploration employees, land holding and claim maintenance fees, and exploration campaign fees (when present). We did not perform any exploration activities in 2014 at our outside properties and have not employed a statewide exploration workforce since the third quarter of 2013. Our 2013 costs decreased from 2012 as we incurred only minimal exploration program costs during the first half of 2013. During 2012, we spent $4.4 million for drilling campaigns that took place at some of our Advanced Exploration Properties.
General and administrative
General and administrative costs totaled $20.7 million, $18.9 million, and $16.3 million during 2014, 2013, and 2012, respectively. The 2014 increase of $1.8 million was due to increased rent expense for housing facilities and additional legal expenses, which more than offset decreases to employee-related cash compensation and benefit costs from reduced staff levels at our corporate headquarters. The 2013 increase of $2.6 million was attributable to increased staff levels for a majority of the year (which were reduced by approximately 40% during the third quarter) in support of our growing operations and increased stock-based compensation costs. Additionally, stock-based compensation costs for directors increased $1.3 million during 2013 compared to 2012.
Loss (gain) on dispositions or sales of mineral properties, net
During 2014 and 2013, following reviews of our early-stage exploration properties, which are properties having no defined mineralized material due to insufficient historical exploration activities, we abandoned certain properties and recorded losses of $2.7 million and $1.4 million, respectively. Additionally, during 2014, we recorded a $19.5 million gain for the sale of a 75% controlling interest in our Hasbrouck, Three Hills, and Esmeralda County exploration properties. We received $20.0 million of gross proceeds from the sale which exceeded the $0.5 million carrying value of the exploration properties sold. For additional detail, see Note 8 - Mineral Properties, Net to the Notes to Consolidated Financial Statements.
Loss on assets classified as held for sale and asset dispositions, net
From time to time, we determine that certain of our property and equipment no longer fit into our strategic operating plans and commit to a plan to sell such identified assets. During 2014 and 2013, we recorded losses of $10.2 million and $11.7 million, respectively, on assets classified as held for sale and asset dispositions. The $10.2 million loss during 2014 primarily resulted from 1) classifying additional used mining equipment as held for sale and adjusting such assets to fair value and 2) reducing the carrying value (fair value) of assets previously classified as held for sale for updated, lower market valuations. The $11.7 million loss during 2013 primarily resulted from classifying a residential housing and townhouse development, new and used blasthole drills, used haul trucks, shovels, and graders, and the components required for one electric wire rope shovel as held for sale and adjusting such assets to fair value.
Write-down of long-lived assets and stockpiles
During 2014, write-down of long-lived assets and stockpiles totaled $429.9 million. We were unable to secure the financing required to begin construction of the mill expansion project which significantly decreased the overall near-term probability of completing the mill expansion project and resulted in an impairment write-down of long-lived assets of $387.9 million and a write-down of stockpiles of $42.1 million. Despite our 2014 mill-related write-downs, our long term goal remains the construction of a mill at Hycroft to enable us to recover metals contained in mill ores and extend the operating life of the mine. Refer to Note 4 - Stockpiles and Ore On Leach Pads and Note 7 - Plant, Equipment, and Mine Development, Net to the Notes to Consolidated Financial Statements for additional information.
Separation and severance
Separation and severance costs relate to the rationalizing of our employee headcount to align our operations in the most strategic and cost-efficient manner and totaled $5.9 million during 2013. During the third quarter of 2013 we reduced the Hycroft Mine workforce by approximately 24% and our corporate workforce by approximately 40%. There were no comparable costs in the 2014 and 2012 years. For additional information refer to Note 16 - Separation and Severance Costs to the Notes to Consolidated Financial Statements.

35


Interest expense
Interest expense was $39.8 million, $22.6 million, and $17.9 million during 2014, 2013, and 2012, respectively. Interest charges were primarily related to interest on our May 2012 senior notes (the “Notes”) and capital lease and term loan obligations, reduced for amounts capitalized to our project expenditures. Interest capitalized during 2014 decreased from 2013 and 2012 as fewer expansion projects were ongoing. For additional detail on our recorded interest expense, including amounts capitalized, and changes to our debt obligations refer to Note 11 - Debt to the Notes to Consolidated Financial Statements.
Other, net
Other, net was $5.8 million and $1.0 million of expense during 2014 and 2013, respectively, and $0.3 million of income during 2012. Other, net consists of fair value changes to our outstanding common stock warrants and marketable equity securities (received in a 2011 mineral property sale and sold in the fourth quarter of 2013), foreign currency transaction gains (losses) on the Notes, which are offset by corresponding amounts from the cross currency swap, hedge ineffectiveness from our diesel swaps, and adjustments recorded for the discontinuance of cash flow hedges. For additional detail on our other income and expense, refer to Note 17 - Other, Net to the Notes to Consolidated Financial Statements.
Income tax benefit (expense)
Income tax (expense) benefit totaled $(4.8) million, $8.1 million, and $(16.4) million during 2014, 2013, and 2012, respectively. Our 2014 income tax expense primarily consisted of a $179.9 million benefit from pretax loss multiplied by the statutory tax rate offset by a $178.6 million expense to increase the valuation allowance against deferred tax assets, a $2.7 million expense related to percentage depletion adjustments, and $3.5 million of expense related to other items. Our 2013 income tax benefit primarily consisted of a $2.3 million benefit from our loss before income taxes multiplied by the federal statutory tax rate and an $11.4 million depletion deduction benefit, offset by a $4.3 million dollar charge to increase the valuation allowance against deferred tax assets. Our 2012 income tax expense primarily consisted of a $22.5 million charge from income taxed at the statutory rate and a $6.9 million depletion deduction. For additional detail on our recorded income tax benefit (expense), refer to Note 9 - Income Taxes to the Notes to Consolidated Financial Statements.
Net (loss) income
For the reasons described above, we reported net loss of $518.9 million in 2014 and net income of $1.4 million and $47.7 million during 2013 and 2012, respectively.
Other comprehensive income (loss), net of tax
Other comprehensive income (loss), net of tax totaled $1.7 million and $7.1 million of income during 2014 and 2013, respectively, and $5.4 million of loss during 2012, and included fair value adjustments to our cash flow hedge instruments, settlements of such hedges, and reclassifications into earnings. For additional detail refer to Note 21 - Derivative Instruments to the Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
General
Our most important near-term operating strategy and goal is to maintain, at all times, sufficient liquid assets and access to capital resources using a disciplined approach that enables us to respond to changes in our business environment to the best of our ability, such as decreases in metal prices or lower than planned metal production, and changes in other factors beyond our control. To accomplish this, we closely and actively manage our liquidity and capital resources by, among other things, (1) monitoring metal prices and the impacts (near-term and future) they have on our business; (2) working to achieve our projected ounces sold volumes and per ounce cost metrics; (3) managing our working capital; (4) managing discretionary general and administrative and exploration related spending; and (5) planning (and delaying when possible) the timing and amounts of capital expenditures at Hycroft.
When our projected future liquidity needs are expected to exceed our current available liquidity we consider strategies and options in which we may be able to obtain additional cash or access to liquidity which are attainable on favorable and reasonable terms, and are permissible under our existing debt agreements. Common strategies and options considered may include, but are not limited to 1) restructuring or recapitalizing portions of our debt obligations; 2) the issuance of additional debt and/or equity securities or instruments; 3) the sale of long-lived assets, mineral properties, and/or equipment, particularly assets currently classified as held for sale; 4) entering into joint ventures, royalty agreements, or streaming transactions; 5) actions which can reduce or delay capital expenditures; and 6) operating and production cost reduction measures.

36


Cash and cash equivalents and liquid assets
We have placed substantially all of our cash and cash equivalents in operating accounts with two high-quality financial institutions, thereby ensuring balances remain readily available. Due to the nature of our operations and the composition of our current assets, our cash and cash equivalents, accounts receivable, and metal inventories balances represent substantially all of our liquid assets on hand. As of December 31, 2014, we had existing cash and cash equivalents of $7.6 million, a decrease from the December 31, 2013 balance of $81.5 million. For detail on our 2014 cash and cash equivalents activity, see the Sources and uses of cash for 2014, 2013, and 2012 section below.
Significant December 31, 2014 liquidity shortage and relief sought under chapter 11
Management’s assessment of year end liquidity shortage
Despite our proactive approach to liquidity throughout the year, due to lower than planned metal sales, a low metal price environment, and significant capital expenditures and debt service payments, our cash and cash equivalents and available sources of liquidity decreased during the year to critical levels at year end.
During the last two years, the price per gold ounce and silver ounce decreased from $1,664.00 and $29.95, respectively, at December 31, 2012, to $1,199.25 and $15.97, respectively, at December 31, 2014, and average cost of sales (excluding write-downs) per gold ounce increased from $955 to $1,255 during such periods, both of which adversely impacted us by decreasing operating cash flows and per ounce sales margins. During 2014, our net loss of $518.9 million (which includes certain non-cash charges and write-downs) resulted in the generation of $0.8 million of operating cash flows, the amount of which was insufficient to meet our capital and liquidity needs. As necessary, throughout 2014 we took proactive measures to address this shortfall in operating cash flows by 1) borrowing $31.0 million from our Third Amended and Restated Credit Agreement (the “Revolver”) subsequent to us increasing its availability from $40.0 million to $75.0 million; 2) completing a public offering of common stock and warrants for gross proceeds of $21.8 million; and 3) selling a mineral property for gross proceeds of $20.0 million. Despite our aforementioned actions, which resulted in gross proceeds to us of $72.8 million, our cash and cash equivalents decreased from $81.5 million at December 31, 2013 to $7.6 million at December 31, 2014.
We believe the following analysis provides management’s internal view on our estimated shortage in near-term liquidity as of December 31, 2014 by comparing our total liquid assets and available sources of liquidity as of December 31, 2014 to our 2015 contractual obligations. We have excluded Assets held for sale from the below analysis even though such assets are actively marketed at competitive prices, which we believe will result in their sale within the next 12 months, as we cannot predict with certainty the timing that such sales may occur. We have also excluded Ore on leachpads, current and Accounts payable from the below analysis as cash margins generated from the processing and subsequent sale of our in-process inventories historically has been sufficient to fund current mine-site production costs and general and administrative expenses included in accounts payable, resulting in an approximately neutral impact on cash (in thousands):

37


Liquid assets and available sources of liquidity
 
 
Amount
 
Total
Cash and cash equivalents
 
 
$
7,575

 
 
Revolving credit agreement(1)
 
 
27,600

 
 
Accounts receivable(2)
 
 
3,755

 
 
Inventories(3)
 
 
5,875

 
 
 
 
 

 
44,805

Contractual obligations
 
 
 
 
 
Due in "Less than 1 year"(4)
 
 
129,505

 
 
Less: Debt associated with assets held for sale(5)
 
 
(22,495
)
 
107,010

Estimated near-term liquidity shortage (excluding effects of debt covenant violations and commencement of the Chapter 11 Cases)
 

 
(62,205
)
Debt, non-current classified as Debt, current due to debt covenant violations and commencement of the Chapter 11 Cases(6)
 
 
 
(471,746
)
 
 
 
 
$
(533,951
)
 
 
 
 
 
 
(1) Availability under our Revolver has been reduced for $16.4 million of letters of credit issued to collateralize the cross currency swap and $31.0 million of outstanding cash borrowings. See Note 11 - Debt to the Notes to Consolidated Financial Statements for additional detail.
(2) Entire Accounts receivable balance is expected to be collected during the next 12 months.
(3) Inventories contained approximately 4,899 ounces of gold which are expected to be sold within the next 12 months. Assuming a gold selling price of $1,199.25 per ounce (the LBMA December 31, 2014 P.M. fix) and excluding any proceeds from silver sales, the sale of all gold ounces estimated to be recovered from our Inventories would provide us with $5.9 million of revenue during the next 12 months.
(4) For a detailed listing and additional information about our Contractual obligations due during 2015, see the below Capital requirements section. Included in the "Less than 1 Year" column is $57.0 million of operating obligations, $4.0 million of investing obligations, and $68.5 million of scheduled financing obligations (excluding effects of debt covenant violations).
(5) Included in the “Less than 1 year” total is $29.6 million of debt and accrued interest for current and non-current obligations which will be repaid concurrent with the sale of assets classified as Assets held for sale. The current carrying values (fair values) of the debt-burdened Assets held for sale exceeds the related debt and accrued interest owed and, accordingly, we currently expect the total proceeds received from selling such assets will ultimately exceed amounts owed. Of the $29.6 million, $7.1 million is contractually due during 2015 and $22.5 million is contractually due in periods greater than 1 year (2016 and beyond). Accordingly, we have reduced the above 2015 contractual obligations by $22.5 million for amounts due in periods greater than 1 year (2016 and beyond).
(6) As of December 31, 2014, due to a year end write-down of long-lived assets, we were not in compliance with the Tangible Net Worth covenant contained in the Revolver and certain capital lease obligations. In addition, the commencement of the chapter 11 Cases constituted an event of default under the indenture governing the Notes, the Revolver and certain capital lease obligations. Therefore, we have classified within Debt, current 1) $344.8 million of Notes; 2) $95.7 million of capital lease and term loan obligations; and 3) $31.0 million of Revolver borrowings, all of which contain stated maturities of greater than 1 year. See Note 11 - Debt and Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements for additional detail.
Events leading to seeking protection under chapter 11
During 2014, 2013, and 2012, our net cash provided by (used in) operating activities totaled $0.8 million, ($32.2) million, and ($21.1) million, respectively, as historically we have been unable to generate large amounts of cash from our operations. Historically, in order to meet our obligations as they became due, we received significant amounts of cash flows from financing activities, the amounts and timing of which were highly uncertain. As discussed below, our financing efforts in December 2014 did not generate sufficient cash to allow us to continue to meet our obligations as they become due during 2015.
We believe that the following items and events, which primarily occurred from December 2014 to the Petition Date, largely contributed to our voluntary filing of the Chapter 11 Cases:
Despite our efforts, during 2014 we were unable to novate the portion of the cross currency swap held by non-Revolver lenders to a Revolver lender (which we believed would have eliminated the requirement to collateralize a portion of the mark-to-market liability position). From September 30, 2014 to the Petition Date, the CDN$ to US$ exchange rate weakened from CDN$0.89:US$1.00 to CDN$0.79:US$1.00, respectively. This approximate 11% decrease in the exchange rate decreased our available sources of liquidity by approximately $10.2 million as we were required to increase the collateral posted for the portion of our cross currency swap held by non-Revolver lenders. For additional detail on our cross currency swap see Note 11 - Debt and Note 21 - Derivative Instruments to the Notes to Consolidated Financial Statements.
In late-October and November, we encountered a significant amount of acid leach material in our planned mining areas that had an adverse effect on our drilling and processing capabilities. This material negatively impacted the amount of gold ounces sold in the fourth quarter of 2014 resulting in lower operating revenues. This trend continued in the first two months of 2015 resulting in materially lower than expected revenues while our monthly operating and production costs could not be reduced, further contributing to our liquidity shortfall.

38


While we were successful in raising $21.8 million of gross proceeds from the December 2014 issuance of common stock and warrants, we were unsuccessful in raising additional funds through the issuance of equity or debt to cover the liquidity shortfall created in part by the reasons set forth above.
Liquidity effects to date from our restructuring efforts
Beginning in February 2015, we began to engage in discussions with certain creditors and their advisors with respect to proposed changes to our capital structure, including the possibility of a consensual, pre-arranged restructuring transaction. Ultimately, and as discussed in Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements, on March 10, 2015, we filed with the Bankruptcy Court voluntary petitions for relief and, among other things, a restructuring term sheet attached to the Restructuring Support Agreement and incorporated therein outlining the terms of a “pre-arranged” reorganization under the federal Bankruptcy Code which, if successful, is expected to recapitalize our balance sheet by reducing our debt balances while concurrently providing additional liquidity. Further, on March 12, 2015, we entered into a Secured Multiple Draw Debtor in Possession Credit Agreement (the “DIP Agreement”) which will provide us access to up to $78.0 million in principal amount of additional liquidity, approximately $35.0 million of which was funded on March 12, 2015 based on a Bankruptcy Court order granting interim approval to this amount of the DIP Facility, for (1) purposes permitted by orders of the Bankruptcy Court, including ongoing debtor in possession working capital purposes, (2) the payment of fees, costs and expenses and (3) other general corporate purposes.
We intend to continue to operate and produce gold at our Hycroft Mine as a “debtor-in-possesion” during the bankruptcy process. We are committed to an orderly resolution of our liquidity situation and financial restructuring that will permit us to continue our operations and to attempt to preserve the value of our assets and our overall enterprise value. However, there can be no assurance that we will be successful in doing so, and we are dependent on a successful financial restructuring to continue as a going concern.
Future capital and cash requirements
As discussed throughout this Liquidity and Capital Resources section and in Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements, our insufficient capital resources and available sources of liquidity resulted in us filing the Chapter 11 Cases under the Bankruptcy Code. We received access to additional liquidity through the $78.0 million multiple-draw DIP Agreement which we believe will allow us to fund our obligations as they become due during the bankruptcy process.
The following table provides our gross contractual cash obligations as of December 31, 2014, which are grouped in the same manner as they are classified in the Consolidated Statements of Cash Flows in order to provide a better understanding of the nature of the obligations and to provide a basis for comparison to historical information. Due to our year end debt covenant violation (discussed below in the Debt covenants section) and the commencement of the Chapter 11 Cases, in the table below we have classified within the “Less than 1 Year” period $101.7 million, $363.6 million, and $6.5 million of Repayments of principal on debt having scheduled maturities of “1-3 Years”, “3-5 Years”, and “More than 5 Years”, respectively. Interest related to debt is presented using the underlying debt instrument’s scheduled maturity (in thousands):
 
Total
 
Payments Due by Period
 
Less than
 
1 – 3
 
3 – 5
 
More than
Contractual obligations
1 Year
 
Years
 
Years
 
5 Years
Operating activities:
 
 
 
 
 
 
 
 
 
Interest related to debt (1)(7)
$
170,329

 
$
43,967

 
$
74,193

 
$
52,016

 
$
153

Property and claim maintenance fees (2)
15,946

 
791

 
6,333

 
1,103

 
7,719

Remediation and reclamation expenditures (3)
36,727

 

 

 
25

 
36,702

Temporary housing and space rental costs(4)
3,757

 
3,603

 
154

 

 

Diesel swap agreements(5)
5,612

 
5,612

 

 

 

Cross currency swap agreement(5)
43,389

 
3,016

 
40,373

 

 

Investing activities:
 
 
 
 
 
 
 
 
 
Purchase obligations for plant and equipment(6)
3,999

 
3,999

 

 

 

Financing activities:
 
 
 
 
 
 
 
 
 
Repayments of issued letters of credit(1)(7)
16,350

 
16,350

 

 

 

Repayments of principal on debt(1)(7)
540,263

 
540,263

 

 

 

 
$
836,372

 
$
617,601

 
$
121,053

 
$
53,144

 
$
44,574

(1) 
Interest related to debt does not include amortization of debt issuance costs or Revolver standby fees. Interest payments are adjusted for the effect of the cross currency swap agreement. Interest payments for cash borrowings and letters of credit issued under the Revolver are calculated using the April 30, 2016 maturity date of the Revolver. For additional information see Note 11 - Debt to the Notes to Consolidated Financial Statements.

39


(2) 
Includes estimated Hycroft Mine property and county claim fees and a 4% net profits royalty on Crofoot claims at the Hycroft Mine. For additional information on our 4% net profits royalty see Note 25 - Commitments and Contingencies to the Notes to Consolidated Financial Statements.
(3) 
Mining operations are subject to extensive environmental regulations in the jurisdictions in which they are conducted and we are required, upon cessation of operations, to reclaim and remediate the lands that our operations have disturbed. The estimated undiscounted cash outflows of these remediation and reclamation obligations are reflected here. For additional information see Note 12 - Asset Retirement Obligation to the Notes to Consolidated Financial Statements.
(4) 
Temporary housing and space rental costs are related to lodging for employees, contractors, and consultants. For additional information see Note 25 - Commitments and Contingencies to the Notes to Consolidated Financial Statements.
(5) 
Amounts shown represent recorded liability amounts in our financial statements. For additional information see Note 21 - Derivative Instruments to the Notes to Consolidated Financial Statements. As discussed in Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements our diesel and cross currency swap agreements were terminated in March 2015 and the close-out amount under each such swap became due and payable immediately.
(6) 
Purchase obligations are not recorded in the Consolidated Financial Statements. The amounts shown above represent certain purchase obligations which we cannot cancel. For additional information on see Note 25 - Commitments and Contingencies to the Notes to Consolidated Financial Statements.
(7) 
Amounts shown represent recorded liability amounts in our financial statements. As discussed in Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements we filed for relief under the Bankruptcy Code with the Bankruptcy Court.
Sources and uses of cash for 2014, 2013, and 2012 (in thousands):
 
Years ended December 31,
 
2014
 
2013
 
2012
Net (loss) income
$
(518,925
)
 
$
1,405

 
$
47,727

Net non-cash adjustments
505,956

 
45,495

 
37,853

Net change in operating assets and liabilities
13,801

 
(79,083
)
 
(106,691
)
Net cash provided by (used in) operating activities
832

 
(32,183
)
 
(21,111
)
Net cash used in investing activities
(65,874
)
 
(335,687
)
 
(275,249
)
Net cash (used in) provided by financing activities
(8,853
)
 
102,293

 
368,405

Net (decrease) increase in cash and cash equivalents
(73,895
)
 
(265,577
)
 
72,045

Cash and cash equivalents, beginning of period
81,470

 
347,047

 
275,002

Cash and cash equivalents, end of period
$
7,575

 
$
81,470

 
$
347,047

Cash provided by (used in) operating activities
Our operating cash flows vary with prices realized from metal sales, sales volumes, production costs, mine plans, working capital changes, and non-cash amounts included in net (loss) income. Our operating cash flows are largely impacted by increases in production-related inventories as we have increased our mining rate and expanded our plant and equipment used in our heap leach operations. The following table and related narrative provides an analysis of significant factors impacting our net cash provided by (used in) operating activities which, during 2014, 2013, and 2012 totaled $0.8 million, ($32.2) million, and ($21.1) million, respectively:
 
 
 
Years ended December 31,
Operating margins from gold sales
 
 
2014
 
2013
 
2012
Gold ounces sold
 
 
216,937

 
181,941

 
114,705

Average realized price per gold ounce sold
 
 
$
1,269

 
$
1,365

 
$
1,681

Production costs per gold ounce sold
 
 
(974
)

(910
)

(827
)
Average operating margin per gold ounce sold(1)
 
$
295


$
455


$
854

 
 
 
 
 
 
 
 
Gross cash used in increase of production inventories
 
 
 
 
 
 
Cash used to increase production-related inventories
 
$
(67,570
)

$
(118,070
)

$
(66,541
)
Cash portion of Write-down of production inventories - Note 4
 
54,685

 
9,711

 

Change in Production-related inventories
 
 
$
(12,885
)
 
$
(108,359
)
 
$
(66,541
)
(1) Excludes write-downs of production inventories, non-cash depreciation and amortization, and silver revenues.
 
 
 
 
As shown in the table above, from 2012 to 2014, our average operating margin per gold ounce sold decreased due to 1) lower average realized gold prices and 2) higher cash production costs per gold ounce sold (discussed above in the Results of Operations section). Additionally shown in the table above, during 2014, 2013, and 2012, we used $67.6 million, $118.1 million, and $66.5 million, respectively, of cash to increase our production-related inventories (included in net change in

40


operating assets and liabilities) as the mining rate, processing capacity, and annual gold and silver ounces produced by our heap leach operations was expanded. During 2014, 2013, and 2012 depreciation and amortization expense included in net non-cash adjustments totaled $61.0 million, $31.1 million, and $14.6 million, respectively, increasing due to higher ounces sold volumes and increased plant, equipment, and mine development in service. In 2014, our net non-cash adjustment included a $429.9 million write-down of long-lived assets and stockpiles. In 2013 and 2012, the change in our accounts receivable balance provided $47.7 million of cash and used $56.0 million of cash, respectively, as we received payment in 2013 from the 2012 sale of a significant amount of in-process inventories.
Cash used in investing activities
2014: The amount of cash used in investing activities decreased 80% in 2014 as fewer expansion projects were ongoing at Hycroft. During 2014 cash additions to plant, equipment, and mine development totaled $79.1 million and included $35.7 million for mill components, $23.2 million for the crushing facility, $12.1 million for Merrill-Crowe additions, and $8.1 million for mine development. We received $20.0 million of gross proceeds from the second quarter 2014 sale of a 75% controlling interest in our Hasbrouck, Three Hills, and Esmeralda County exploration properties which was offset by a $6.9 million net increase to our restricted cash balances as our Revolver requires us to maintain $10.0 million in restricted deposit accounts with the Revolver lenders.
2013: The amount of cash used in investing activities increased 22% in 2013 due to the expansion projects at the Hycroft Mine. During 2013, cash additions to plant, equipment, and mine development totaled $327.6 million and included $99.3 million for the crushing facility, $59.5 million for the mill expansion, $53.3 million for processing upgrades, $40.6 million for mine equipment, $32.4 million for leach pad expansions, $22.9 million for mine development, and $19.6 million for other additions. Additionally, during 2013 we increased our restricted cash balances by $9.4 million to satisfy financial assurance requirements for the estimated future reclamation and remediation costs at Hycroft.
2012: During 2012, cash additions to plant, equipment, and mine development included $103.7 million for the mill expansion, $59.4 million for the crushing facility, $35.3 million for mine development, $30.1 million for leach pad expansions, $8.7 million for mine equipment, and $25.0 million for other additions. Additionally, during 2012 we increased our restricted cash balances by $13.0 million to satisfy financial assurance requirements for the estimated future reclamation and remediation costs at Hycroft.
Cash (used in) provided by financing activities
2014: During 2014, we completed a public offering of common stock and common stock warrants for gross proceeds of $21.8 million and paid fees, commissions, and related offering costs of $2.4 million. Our principal repayments on capital lease and term loan obligations totaled $58.3 million, increasing from 2013 as 1) we progressed further into lease terms which resulted in increased portions of monthly payments being credited to the obligation’s principal balance and 2) proceeds received from the sale of one drill and four used haul trucks (previously classified as Assets held for sale) was used to repay the underlying obligation’s remaining principal. During 2014, we borrowed $31.0 million from the Revolver to satisfy our liquidity needs.
2013: During 2013, we completed a public offering of common stock for gross proceeds of $150.5 million and paid fees, commissions, and related offering costs of $8.5 million. Our principal repayments on capital lease and term loan obligations totaled $38.6 million, increasing from 2012 as a result of entering into additional obligations, primarily for haul trucks, the two electric wire rope shovels, and other mobile mine equipment.
2012: During 2012, we issued the Notes for gross proceeds of $400.4 million (after the effect of the cross currency and interest rate swap), and paid related debt issuance costs of $13.3 million. An additional $2.0 million of debt issuance costs were paid for the October 2012 amendment of our revolving credit facility and capital lease financing arrangements. Our repayments on capital lease and term loan obligations totaled $16.3 million as a result of entering into additional leases, primarily for haul trucks and hydraulic shovels.
Debt covenants
We were not in compliance with all debt covenants as of December 31, 2014, which are discussed below in additional detail. Our debt agreements contain cross-default and cross-acceleration clauses, which means that an event of default or covenant violation under any of our debt agreements may result in the acceleration of substantially all of our outstanding debt. As of December 31, 2014, we were not in compliance with the Tangible Net Worth covenant contained in the Revolver and certain capital lease obligations. In addition, the commencement of the Bankruptcy Case constituted an event of default under the indenture that governs the Notes, the Revolver, the Loan Agreement (as defined below), the cross currency swap and diesel swaps, and certain capital lease obligations. Accordingly as of December 31, 2014 we classified within Debt, current 1) $344.8 million of Notes; 2) $95.7 million of capital lease and term loan obligations; and 3) $31.0 million of Revolver borrowings, all of which contain stated maturities of greater than 1 year. For additional information on our debt balances, refer to Note 11 - Debt to the Notes to Consolidated Financial Statements.

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As discussed in Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements, due to the filing of the Chapter 11 Cases we currently believe that the ability of the lenders to seek remedies to enforce their respective rights against us are stayed and creditor rights of enforcement against us are subject to the applicable provisions of the Bankruptcy Code. In the Restructuring Support Agreement, we and the Creditor Parties are committed to support, subject to certain conditions, the Restructuring Transaction.
Senior notes
In May 2012, we issued CDN $400.0 million of uncollateralized Notes that pay interest semi-annually at the rate of 8.75% per annum and mature in June 2019. Concurrently with the issuance of the Notes, we entered into a cross currency swap agreement based upon a notional amount of $400.4 million, the gross proceeds to us from the issuance, and a fixed interest rate of 8.375%. The Notes constitute senior unsecured obligations and are guaranteed by most of our currently wholly owned subsidiaries, including Hycroft Resources & Development Inc., which owns Hycroft and conducts mining operations. We are using the net proceeds from the Notes to fund capital expenditures at Hycroft.
The indenture for the Notes may, among other things, limit our ability and the ability of our subsidiary guarantors to (i) pay dividends, or make certain other restricted payments or investments; (ii) incur additional indebtedness and issue disqualified stock; (iii) create liens on our and their assets; (iv) transfer and sell assets; (v) merge, consolidate or sell all or substantially all of our and their assets; (vi) enter into certain transactions with affiliates; (vii) create restrictions on dividends or other payments by our subsidiary guarantors and (viii) create guarantees of indebtedness by our subsidiary guarantors. These covenants are subject to a number of important limitations and exceptions that are described in the indenture for the Notes.
Upon the occurrence of a change of control triggering event specified in the indenture governing the Notes, we must offer to purchase the Notes at a redemption price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase.
The indenture for the Notes provides for customary events of default (subject in certain cases to customary grace and cure periods), which include nonpayment, breach of covenants in the indenture governing the Notes, payment defaults or acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy and insolvency. If an event of default occurs and is continuing, the trustee or holders of at least 25% in principal amount of the outstanding Notes may declare the principal, accrued and unpaid interest, if any, on all the Notes to be due and payable. These events of default are subject to a number of important qualifications, limitations and exceptions that are described in the indenture governing the Notes.
The cross currency swap entered into concurrent with the issuance of the Notes contains a mutual put provision, which becomes effective beginning in June 2016, that gives any of the counterparties to the agreement the right to require early settlement of this derivative financial instrument prior to the expiration of its contractual term. The amount to be received or paid by us would be equal to the mark-to-market value on the date of settlement. As of December 31, 2014, the cross currency swap was in a $43.4 million liability position. The cross currency swap was terminated in March 2015, as discussed in Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements.
Revolving credit facility
In May 2014, we entered into the Revolver which amended and restated the December 2013 Second Amended and Restated Credit Agreement (the “Previous Revolver”). The aggregate amount available to us 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 us depending upon 80% of the net realizable value of the gold and silver in our ore on leach pads, in-process, and finished goods inventories less estimated remaining processing and selling costs. Borrowings under the Revolver bear interest per annum at either LIBOR plus 4.5% or at an Alternate Base Rate Canada, 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 our assets and matures on April 30, 2016.
Our Revolver contains 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. We are 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 us for the full term of the Revolver. The Minimum Reserve Tail covenant requires that at all times we maintain more than 600,000 gold equivalent recoverable ounces in our heap leach reserves after maturity of the Revolver. As discussed above, as of December 31, 2014, we were not in compliance with the Tangible Net Worth covenant contained in the Revolver.
Term and Security Deposit Loan Agreement
In March 2013, we 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, up to $60.0 million was made available to us for scheduled advance security deposit payments pursuant to purchase agreements for the electric rope shovels and up to $90.0 million was made available for term loan financing to fund the purchase of the electric rope shovels as they were commissioned at Hycroft.

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The electric rope shovels secure all amounts borrowed by us under the Loan Agreement. The Loan Agreement contains customary covenants, agreements, and events of default for loan agreements of this type.
Capital lease and term loan obligations
Certain capital lease and term loan obligations reference the covenants included in the Revolver and contain limitations on dividends.
Off-balance sheet arrangements
As of December 31, 2014, our off-balance sheet arrangements consisted of operating lease agreements, purchase obligations, royalty agreements, and outstanding letters of credit issued under the Revolver. For additional detail see the Future capital and cash requirements section above and Note 11 - Debt and Note 25 - Commitments and Contingencies to the Notes to Consolidated Financial Statements.
Non-GAAP Financial Measures
Adjusted Cash Costs per Ounce
Adjusted cash costs per ounce is a non-GAAP financial measure, calculated on a per ounce of gold sold basis, and includes all direct and indirect operating cash costs related to the physical activities of producing gold, including mining, processing, cash portions of production costs written-down, the effective portion of any cash flow hedges, third party refining expenses, on-site administrative and support costs, royalties, and mining production taxes, net of revenue earned from silver sales. Because we are a primary gold producer and our operations focus on maximizing profits and cash flows from the extraction and sale of gold, we believe that silver revenue is peripheral and not material to our key performance measures or our Hycroft Mine operating segment and, as such, adjusted cash costs per ounce is reduced by the benefit received from silver sales.
Adjusted cash costs per ounce provides management and investors with a further measure, in addition to conventional measures prepared in accordance with GAAP, to assess the performance of our mining operations and ability to generate cash flows over multiple periods from the sale of gold. Non-GAAP financial measures do not have any standardized meaning prescribed by GAAP and, therefore, may not be comparable to similar measures presented by other mining companies. Accordingly, the above measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
The table below presents a reconciliation between non-GAAP adjusted cash costs (excluding write-down), which is the numerator used to calculate non-GAAP adjusted cash costs per ounce (excluding write-down), to Production costs (GAAP) (in thousands, except ounces sold and per ounce amounts):
 
 
Years ended December 31,
 
 
2014
 
2013
 
2012
Production costs
 
$
211,253

 
$
165,478

 
$
94,898

Less: Silver revenues - Note 15
 
(35,107
)
 
(19,515
)
 
(21,712
)
Adjusted cash costs, excluding write-down
 
$
176,146

 
$
145,963

 
$
73,186

Gold ounces sold - Note 15
 
216,937

 
181,941

 
114,705

Adjusted cash costs per ounce, excluding write-down
 
$
812

 
$
802

 
$
638

Write-down of production inventories per ounce(1) - Note 4
 
252

 
53

 

Adjusted cash costs per ounce
 
$
1,064

 
$
855

 
$
638

 
 
 
 
 
 
 
(1) During 2014 and 2013, we recorded write-downs of $70.7 million and $12.6 million, respectively, of Ore on leach pads, consisting of $54.7 million and $9.7 million, respectively, of previously incurred cash production costs. Cash portions of the write-downs impacted our adjusted cash costs per ounce by $252 and $53 during 2014 and 2013, respectively. See Note 4 - Stockpiles and Ore On Leach Pads to the Notes to Consolidated Financial Statements for additional detail.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As of, and for the year ended December 31, 2014, we were subject to the following risks:
Metal Price Risk
Our principal products are unrefined gold bars (doré) and in-process inventories (metal-laden carbon), both of which are produced at Hycroft. During 2014, 2013, and 2012, 100% of our revenues were from the sale of gold and silver. Our financial results can vary significantly as a result of fluctuations in the market prices of gold and silver. The price of gold and silver is volatile and is affected by many factors beyond our control, such as interest rates, expectations regarding inflation, speculation, currency values, central bank activities, governmental decisions regarding the disposal of precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors.

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We have not entered into any financial instruments to mitigate the risk of fluctuations in metal prices and therefore a substantial or extended decline in gold or silver prices would adversely impact our financial position, results of operations, or cash flows.
Interest Rate Risk
Borrowings under our $75.0 million Revolver bear interest per annum at either LIBOR plus 450 basis points ("bps") or at an Alternate Base Rate Canada, as defined in the Revolver, plus 350 bps.
We have not entered into any financial instruments to mitigate the risk of fluctuations in LIBOR and therefore a substantial or extended increase to LIBOR could adversely impact our financial position, results of operations, or cash flows.
Foreign Currency Exchange Risk
As discussed in Note 11 - Debt to the Notes to Consolidated Financial Statements, we are required to fully collateralize any mark-to-market liability position for 22% of the cross currency swap with cash, letters of credit, or a combination of the two. As of December 31, 2014, we had issued $16.4 million of financial letters of credit under our Revolver to collateralize the mark-to-market liability position of 22% of the cross currency swap.
We have not entered into any financial instruments to mitigate the risk of fluctuations in the CDN dollar to US dollar exchange rate for $90.0 million of the total $400.4 million notional amount of the cross currency swap and therefore, a substantial or extended fluctuation in the CDN dollar to US dollar exchange rate could adversely impact our financial position, results of operations, or cash flows by requiring us to increase the amount of collateral posted for this portion of the swap.
The cross currency swap was terminated in March 2015, as discussed in Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements.
Common Stock Price Volatility Risk
As discussed in Note 13 - Stockholders' Equity to the Notes to Consolidated Financial Statements, because our warrants contain a “down-round” provision they are accounted for as derivative financial instruments and carried at fair value. The fair value of the warrants is determined using a Monte Carlo simulation-based valuation model and a variety of inputs, including annualized common stock price volatility.
Generally, increases in our common stock price volatility will result in an increase to the fair value liability of the warrants. Accordingly, a significant increase in our common stock price volatility may result in significant fair value accounting adjustments (losses) which could adversely impact our financial position, results of operations, or cash flows.
As discussed in Note 26 - Subsequent Events to the Notes to Consolidated Financial Statements, under the terms of the Restructuring Transactions the holders of our outstanding warrants will receive no recovery on account of these holdings with respect to the Chapter 11 Cases.
Assets Held For Sale Market Price Risk
Our assets held for sale include homes, new and used blasthole drills, used haul trucks, shovels, graders, and processing equipment, and the components required for one electric wire rope shovel. Assets held for sale are carried at fair value which is determined using a market approach for each item of property and equipment held for sale.