Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
☐
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: 001-32986
General Moly, Inc.
(Exact
name of registrant as specified in its charter)
DELAWARE
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91-0232000
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(State
or other jurisdiction
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|
(I.R.S.
Employer
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of
incorporation or organization)
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Identification
No.)
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1726 Cole Blvd., Suite 115
Lakewood, CO 80401
Telephone: (303) 928-8599
(Address
and telephone number of principal executive offices)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
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Trading
Symbol(s)
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Name of
each exchange on which registered
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Common Stock, par value $0.001 per share
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GMO
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NYSE American and Toronto Stock Exchange
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Indicate by check
mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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 ☒ NO ☐
Indicate by check
mark whether the registrant has submitted electronically, every
Interactive Data File required to be submitted 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 such files). YES ☒ NO ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the
Exchange Act.
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Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☒
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Smaller
reporting company ☒
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|
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Emerging
growth company ☐
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The
number of shares outstanding of issuer’s common stock as of
August 17, 2020, was 152,932,971.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL MOLY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
|
June 30,
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December 31,
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|
2020
|
2019
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|
(unaudited)
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|
ASSETS:
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CURRENT
ASSETS
|
|
|
Cash
and cash equivalents
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$2,528
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$4,614
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Deposits,
prepaid expenses and other current assets
|
506
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272
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Total
Current Assets
|
3,034
|
4,886
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Mining
properties, land and water rights
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44,345
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244,137
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Deposits
on project property, plant and equipment
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30,342
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87,972
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Restricted
cash held at EMLLC
|
2,829
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3,388
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Restricted
cash and investments held for reclamation bonds
|
708
|
708
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Non-mining
property and equipment, net
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—
|
32
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Other
assets
|
484
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3,104
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TOTAL
ASSETS
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$81,742
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$344,227
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LIABILITIES, CRNCI, AND EQUITY (DEFICIT):
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CURRENT
LIABILITIES
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Accounts
payable and accrued liabilities
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$775
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$1,223
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Return
of Contributions Payable to POS-Minerals, current
portion
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33,641
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33,641
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Accrued
advance royalties
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500
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500
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Current
portion of debt
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365
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—
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Total
Current Liabilities
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35,281
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35,364
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Provision
for post closure reclamation and remediation costs
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2,027
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1,953
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Accrued
advance royalties
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6,888
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6,388
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Accrued
payments to Agricultural Sustainability Trust
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5,500
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5,500
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Accrued
water rights payments
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14,000
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14,000
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Senior
Promissory Notes
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8,847
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7,883
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Other
accrued liabilities
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2,891
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3,447
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Total
Liabilities
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75,434
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74,535
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|
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COMMITMENTS
AND CONTINGENCIES - NOTE 12
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|
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CONTINGENTLY
REDEEMABLE NONCONTROLLING INTEREST ("CRNCI")
|
120,617
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172,239
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CONVERTIBLE
PREFERRED SHARES
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1,300
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1,300
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EQUITY
(DEFICIT)
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Common
stock, $0.001 par value; 650,000,000 and 650,000,000 shares
authorized, respectively, 152,685,255 and 152,033,515 outstanding,
respectively
|
152
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152
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Additional
paid-in capital
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295,655
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295,005
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Accumulated
deficit during exploration and development stage
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(411,416)
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(199,004)
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Total
Equity (Deficit)
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(115,609)
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96,153
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TOTAL LIABILITIES, CRNCI, AND EQUITY
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$81,742
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$344,227
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The
accompanying notes are an integral part of these consolidated
financial statements.
2
GENERAL MOLY, INC.
(“GMI”)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(Unaudited — In thousands, except per share
amounts)
|
Three Months Ended
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Six Months Ended
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||
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June 30,
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June 30,
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June 30,
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June 30,
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2020
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2019
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2020
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2019
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REVENUES
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$—
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$—
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$—
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$—
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OPERATING
EXPENSES:
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Exploration
and evaluation
|
132
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102
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305
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206
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General
and administrative expense
|
1,699
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1,962
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3,191
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3,260
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Gain
on sale of non-core properties
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(57)
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—
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(604)
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—
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Loss
on impairment charge
|
260,553
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—
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260,553
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—
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TOTAL
OPERATING EXPENSES
|
262,327
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2,064
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263,445
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3,466
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(LOSS)
FROM OPERATIONS
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(262,327)
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(2,064)
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(263,445)
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(3,466)
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OTHER
INCOME/(EXPENSE):
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Interest
expense
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(367)
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(387)
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(1,126)
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(442)
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Other
income/(expense)
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(215)
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537
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TOTAL
OTHER (EXPENSE)/INCOME, NET
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(582)
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(387)
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(589)
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(442)
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(LOSS)
BEFORE INCOME TAXES
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(262,909)
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(2,451)
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(264,034)
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(3,908)
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|
|
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Income
Taxes
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—
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—
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—
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—
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CONSOLIDATED
NET (LOSS)
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$(262,909)
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$(2,451)
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$(264,034)
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$(3,908)
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Less:
Net loss (income) attributable to CRNCI
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51,697
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(25)
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51,622
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11
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NET
LOSS ATTRIBUTABLE TO GMI
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$(211,212)
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$(2,476)
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$(212,412)
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$(3,897)
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Basic
and diluted net loss attributable to GMI per share of common
stock
|
$(1.39)
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$(0.02)
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$(1.39)
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$(0.03)
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Weighted
average number of shares outstanding — basic and
diluted
|
152,316
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137,797
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153,038
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137,635
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|
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COMPREHENSIVE
(LOSS)
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$(211,212)
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$(2,476)
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$(212,412)
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$(3,897)
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The
accompanying notes are an integral part of these consolidated
financial statements.
3
GENERAL MOLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
(Unaudited — In thousands, except number of shares and per
share amounts)
|
Common
|
Preferred
|
|
Additional
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Accumulated
|
|
|
Shares
|
Shares
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Amount
|
Paid-In Capital
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Deficit
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Total
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Balances,
December 31, 2018
|
137,114,804
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—
|
$137
|
$291,266
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$(191,126)
|
$100,277
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Issuance
of Units of Common Stock:
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|
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Issued
pursuant to stock awards
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135,000
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—
|
—
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—
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—
|
—
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Stock-based
compensation
|
—
|
—
|
—
|
25
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—
|
25
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Restricted
stock net share settlement
|
276,328
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—
|
—
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(1)
|
—
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(1)
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Net
loss for the period ended March 31, 2019
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—
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—
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—
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—
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(1,421)
|
(1,421)
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Balances,
March 31, 2019
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137,526,132
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|
$137
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$291,290
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$(192,547)
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$98,880
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Issuance
of Units of Common Stock:
|
|
|
|
|
|
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Stock-based
compensation
|
—
|
—
|
—
|
21
|
—
|
21
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Warrant
Exercise
|
694,200
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—
|
1
|
247
|
—
|
248
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Net
loss for the period ended June 30, 2019
|
—
|
—
|
—
|
—
|
(2,476)
|
(2,476)
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Balances,
June 30, 2019
|
138,220,332
|
—
|
$138
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$291,558
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$(195,023)
|
$96,673
|
|
Common
|
Preferred
|
|
Additional
|
Accumulated
|
|
|
Shares
|
Shares
|
Amount
|
Paid-In Capital
|
Deficit
|
Total
|
Balances,
December 31, 2019
|
152,316,255
|
1,300
|
$152
|
$295,005
|
$(199,004)
|
$96,153
|
Issuance
of Units of Common Stock:
|
|
|
|
|
|
|
Issued
pursuant to stock awards
|
369,000
|
—
|
—
|
—
|
—
|
—
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Stock-based
compensation
|
—
|
—
|
—
|
382
|
—
|
382
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Net
loss for the period ended March 31, 2020
|
—
|
—
|
—
|
—
|
(1,201)
|
(1,201)
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Balances,
March 31, 2020
|
152,685,255
|
1,300
|
$152
|
$295,387
|
$(200,205)
|
$95,334
|
Issuance
of Units of Common Stock:
|
|
|
|
|
|
|
Stock-based
compensation
|
—
|
—
|
—
|
268
|
—
|
268
|
Net
loss for the period ended June 30, 2020
|
—
|
—
|
—
|
—
|
(211,211)
|
(211,211)
|
Balances,
June 30, 2020
|
152,685,255
|
1,300
|
$152
|
$295,655
|
$(411,416)
|
$(115,609)
|
4
GENERAL MOLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited — In thousands)
|
Six Months Ended
|
|
|
June 30,
|
June 30,
|
|
2020
|
2019
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
Consolidated
net loss
|
$(264,034)
|
$(3.908)
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
Depreciation
and amortization
|
48
|
67
|
Non-cash
interest expense
|
964
|
78
|
Gain
on decrease in warrant liability
|
(556)
|
—
|
Income
realized on lease of water rights
|
—
|
(13)
|
Gain
on sale of non-core assets
|
(547)
|
—
|
Stock-based
compensation for employees and directors
|
528
|
47
|
Decrease
(increase) in deposits, prepaid expenses and other
|
(234)
|
(177)
|
Decrease
in accounts payable and accrued liabilities
|
(131)
|
301
|
(Decrease)
increase in post closure reclamation and remediation
costs
|
20
|
35
|
Loss
on impairment charge
|
260,553
|
|
Net
cash used by operating activities
|
(3,388)
|
(3,570)
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
Purchase
and development of mining properties, land and water
rights
|
58
|
(822)
|
Deposits
on property, plant and equipment
|
—
|
152
|
Proceeds
from sale of non-core assets
|
685
|
—
|
Increase
in investments for reclamation bonds
|
—
|
(16)
|
Net
cash provided by (used in) investing activities
|
743
|
(686)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
Stock
proceeds, net of issuance costs
|
—
|
1,643
|
Net
cash provided/(used) by financing activities:
|
—
|
1,643
|
Net
(decrease) in cash, cash equivalents and restricted
cash
|
(2,645)
|
(2,613)
|
Cash,
cash equivalents and restricted cash, beginning of
period
|
8,002
|
8,617
|
Cash,
cash equivalents and restricted cash, end of period
|
$5,357
|
$6,004
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
Cash
paid for interest, net of capitalized
|
$537
|
$365
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
Equity
compensation capitalized as development
|
$122
|
$3
|
Accrued
portion of advance royalties
|
500
|
—
|
The
accompanying notes are an integral part of these consolidated
financial statements.
5
GENERAL MOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF BUSINESS
General
Moly, Inc. (“we,” “us,”
“our,” “Company,” ”GMI,” or
“General Moly”) is a Delaware corporation originally
incorporated as General Mines Corporation on November 23,
1925. We have gone through several name changes and on
October 5, 2007, we reincorporated in the State of Delaware
(“Reincorporation”) through a merger involving Idaho
General Mines, Inc. and General Moly, Inc., a Delaware
corporation that was a wholly owned subsidiary of Idaho General
Mines, Inc. The Reincorporation was effected by merging Idaho
General Mines, Inc. with and into General Moly, with General
Moly being the surviving entity. For purposes of the
Company’s reporting status with the United States Securities
and Exchange Commission (“SEC”), General Moly is deemed
a successor to Idaho General Mines, Inc.
The
Company conducted exploration and evaluation activities from
January 1, 2002 until October 4, 2007, when our Board of
Directors (“Board”) approved the development of the Mt.
Hope molybdenum property (“Mt. Hope Project”) in Eureka
County, Nevada. The Mt. Hope Project is leased and operated by
Eureka Moly, LLC, an indirectly held 80% subsidiary of the Company
(“EMLLC” or the “LLC”). The Company is
continuing its efforts to both obtain financing for and develop the
Mt. Hope Project. However, the combination of ongoing depressed
molybdenum prices, challenges to our permits and current liquidity
concerns have further delayed development at the Mt. Hope
Project.
Additionally, in
late 2018 we completed a 9-hole drill program on the Mt. Hope
property, focused on the area where previously identified
copper-silver-zinc-mineralized skarns have been identified,
immediately adjacent to the Mt. Hope molybdenum
deposit.
We also
continue to evaluate our Liberty molybdenum and copper property
(“Liberty Project”) in Nye County, Nevada.
Going Concern and Risk of Bankruptcy
At June
30, 2020, we had cash and cash equivalents of $2.5 million and our
current working capital is negative. Based on our current operating
forecast, which takes into consideration the fact that we currently
do not generate any revenue, we believe ourexisting capital
resources are only adequate to sustain our operations through
September 30, 2020. In particular, we have insufficient cash to
make required interest payments on our outstanding Exchange Notes
and Supplemental Notes through the remainder of 2020. These
conditions raise substantial doubt about the Company’s
ability to continue as a going concern. If we are unable to find an
additional source of funding before the end of September 2020, we
will be forced to cease operations and pursue restructuring or
liquidation alternatives, including the filing for bankruptcy
protection, in which event our common stock would likely become
worthless and investors would likely lose their entire investment
in our Company. In addition, holders of our outstanding convertible
preferred stock and senior notes would likely receive significantly
less than the principal amount of their claims and possibly, no
recovery at all. As of the date of the filing of this report, the
Company has no commitments for additional funding and there can be
no assurance that the Company will be successful in obtaining the
financing required to complete the Mt. Hope Project, or in raising
additional financing in the future on terms acceptable to the
Company, or at all.
The
Company is currently pursuing a number of options to extend its
liquidity beyond the third quarter of 2020 and into 2021. The
Company’s Board of Directors (the “Board”)
retained on March 13, 2019 XMS Capital Partners, Headwall Partners,
and Odinbrook Global Advisors (collectively, the
“Advisors”), as financial advisors to assist the Board
and management with evaluating and recommending strategic
alternatives. The Company has engaged the Advisors to assist in
securing interim financing and negotiating with potential
stakeholders.
The
range of strategic alternatives being evaluated include the
potential addition of new Mt. Hope Project partners, additional
Corporate strategic investors, merger opportunities, and/or the
possible sale or privatization of the Company. The Advisors
assisted the Company in successfully restructuring the Convertible
and Non-Convertible Promissory Notes issued in a 2014 private
placement, extending maturity until December 2022 as well as
providing an additional $1.3 million in interim funding. The
Company has engaged the Advisors to assist in securing interim
financing and negotiating with potential stakeholders.
Additional
potential funding sources for the Company include public or private
equity offerings, including the sale of other assets wholly-owned
by the Company or with EMLLC joint-venture partner POS-Minerals
Corporation at the Mt. Hope Project. However, there is no assurance
that the Company will be successful in securing additional funding
in the future on terms acceptable to the Company, or at all. This
could result in further cost reductions, contract cancellations,
and potential delays which ultimately may jeopardize the
development of the Mt. Hope Project.
6
Beginning in early
2020, there has been an outbreak of coronavirus (COVID-19),
initially in China and which has spread to other jurisdictions,
including locations where the Company has offices and personnel.
The full extent of the outbreak, related business and travel
restrictions and changes to behavior intended to reduce its spread
continues to evolve globally. COVID–19 has had a direct
impact on the Company’s financing efforts and potential
solutions to its liquidity position. Currently, the Company
believes that it will be able to sustain its corporate and Liberty
Project operations only through the third quarter of 2020.
Management continues to seek financing opportunities
notwithstanding the impacts associated with the COVID-19 pandemic,
however the Company anticipates that its financing efforts and
liquidity may continue to be materially impacted by the coronavirus
outbreak.
Due to
the Company’s inability to obtain financing to date and
inadequate cash to continue operations past the third quarter of
2020, the impact of COVID-19 on capital markets during the second
quarter of 2020, and the decrease in the current and forecasted
price of molybdenum, among other factors, the Company recognized an
impairment charge reducing the carrying value of the Mt. Hope
assets by $260.6 million as of June 30, 2020. The impairment charge
does not alter the Company’s underlying assets or rights and
the Company continues to pursue strategic alternatives as discussed
above. Further information regarding the impairment is provided in
Note 2.
On
April 24, 2020, the Company received funding under a Paycheck
Protection Program (“PPP”) loan (the “PPP
Loan”) from U.S. Bank, National Association (the
“Lender”). The principal amount of the PPP Loan is
$365,034. The PPP was established under the Coronavirus Aid,
Relief, and Economic Security Act (the “CARES Act”) and
is administered by the U.S. Small Business Administration (the
“SBA”). The Company applied for the PPP Loan primarily
because its potential to access other sources of capital has been
greatly reduced by the ongoing COVID-19 pandemic.
The
PPP Loan has a two-year term, maturing on April 23, 2022. The
interest rate on the PPP Loan is 1.0% per annum. Principal and
interest are payable in 18 monthly installments, beginning on
November 23, 2020, until maturity with respect to any portion of
the PPP Loan which is not forgiven as described below. The Company
did not provide any collateral or guarantees for the PPP Loan, nor
did the Company pay any facility charge to obtain the PPP Loan. The
PPP Loan provides for customary events of default, including, among
others, those relating to failure to make payment, bankruptcy,
breaches of representations and material adverse effects. The
Company is permitted to prepay or partially prepay the PPP Loan at
any time with no prepayment penalties.
The
PPP Loan may be partially or fully forgiven if the Company complies
with the provisions of the CARES Act, including the use of PPP Loan
proceeds for payroll costs, rent, utilities and other expenses,
provided that such amounts are incurred during the 24-week period
that commenced on April 24, 2020 and at least 60% of any forgiven
amount has been used for covered payroll costs as defined by the
CARES Act. Any forgiveness of the PPP Loan will be subject to
approval by the SBA and the Lender and will require the Company to
apply for such treatment in the future.
Other Financing Actions Taken
On
April 12, 2017, the Company filed a prospectus supplement in both
Canada and the United States which enabled the Company, at its
discretion from time to time, to sell up to $20 million worth of
common shares by way of an “at-the-market” offering
(the “ATM”). Since the effectiveness of the prospectus
supplement by the SEC on April 26, 2017 to September 30, 2019, a
total of 1,168,300 common shares have been sold under the ATM, for
net proceeds to the Company of $0.5 million. In October 2018, the
Company completed a public offering of 9,125,000 units consisting
of one share of common stock and one warrant to purchase one share
of common stock resulting in net proceeds to the Company of
$1,900,000. In conjunction with the public offering in October
2018, the Company agreed to suspend the ATM facility for a period
of 2 years.
Additionally,
on March 28, 2019, the Company executed a Securities Purchase
Agreement (the “Series A Purchase Agreement”) with
Bruce D. Hansen, the Company’s Chief Executive Officer, and
Robert I. Pennington, the Company’s Chief Operating Officer
(collectively the “Investors”), effective as of March
21, 2019. Pursuant to the Series A Purchase Agreement, the
Investors agreed to purchase up to $900,000 of convertible shares
of Series A Preferred Stock, par value $0.001 per share (the
“Series A Convertible Preferred Shares”), of the
Company. The Company requested three separate closings of sales of
Series A Convertible Preferred Shares to the Investors between the
date of the Series A Purchase Agreement and June 30, 2019. Each
closing was in the amount of $300,000 of Series A Convertible
Preferred Shares.
The
Series A Convertible Preferred Shares were priced at
$100.00/preferred share, convertible at any time at the
holder’s discretion into common shares whereby one preferred
share converts at a price of $0.27/common share to 370.37 common
shares. The conversion price was set as the closing price of the
common stock on March 12, 2019, which was the day before
announcement of the private placement. The Series A Convertible
Preferred Shares carry a 5% annual dividend, which may be paid, in
the Company’s sole discretion, in cash, additional shares or
a combination thereof. Upon maturity or full repayment of the $7.2
million Convertible Note debt, described below, currently
outstanding, there will be mandatory redemption of the Series A
Convertible Preferred Shares into equivalent cash for the principal
invested, plus any accrued and unpaid dividends.
7
On
May 2, 2019, the Company also executed a Securities Purchase
Agreement (the “MHMI Series A Purchase Agreement”) with
Mount Hope Mines, Inc. (“MHMI”), later assigned in
part to members of MHMI individually. Pursuant to the MHMI
Series A Purchase Agreement, MHMI agreed to purchase $500,000
of Series A Convertible Preferred Shares, as described above. These
shares were fully converted into shares of common stock of the
Company in the fourth quarter of 2019.
On
August 5, 2019, the Company executed a Securities Purchase
Agreement (the “Series B Purchase Agreement”) with the
Investors. Pursuant to the Series B Purchase Agreement, the
Investors agreed to purchase up to $400,000 of convertible shares
of Series B Preferred Stock, par value $0.001 per share (the
“Series B Convertible Preferred Shares”), of the
Company. This transaction closed on August 7, 2019.
The
Series B Convertible Preferred Shares were issued at a price of
$100.00 per share, and each Series B Convertible Preferred Share
will be convertible at any time at the holder’s discretion
into 500 shares of common stock of the Company. The Series B
Convertible Preferred Shares carry a 5% annual dividend, which may
be paid, in the Company’s sole discretion, in cash,
additional shares of Series B Convertible Preferred Shares or a
combination thereof. The Series B Convertible Preferred Shares,
like the Series A Convertible Preferred Shares, are mandatorily
redeemable upon maturity or full repayment of the Exchange Note and
Supplemental Note debt discussed in Note 5 below.
In
December 2019, the Company completed an exchange offer with the
holder of $5 million of the Company’s Senior Convertible
Promissory Notes and certain other holders of Senior Convertible
Notes and Senior Promissory Notes (collectively, the “Old
Notes”) to exchange the Old Notes for new units consisting of
new senior non-convertible promissory notes having a principal
amount equal to the original principal amount of the Old Notes
exchanged plus accrued and unpaid interest (including deferred
interest), bearing an interest rate between 12-14% and otherwise
providing for similar terms (the “Exchange Notes”) and
a three-year warrant to purchase Company common stock exercisable
at $0.35 per share (each a “Unit”). The Exchange
Notes extend the maturity date until December 2022. A majority of
the remaining holders also agreed to the terms of the Exchange
Notes.
In
addition to the exchange of Old Notes, the largest holder of the
Old Notes, as well as the Company’s CEO/CFO, Bruce Hansen and
other noteholders, purchased new 13% Senior Promissory Notes due
2022 in the principal amount of $1.3 million (representing
approximately 20% of the original principal amount of the Old Notes
to be exchanged) providing additional capital to the
Company.
The
Company paid at maturity the unpaid principal and all accrued and
unpaid interest in the approximate amount of $368,000 to those
eligible holders that elected not to participate in the Exchange
Offer. The original principal amount of Old Notes paid at
maturity represented approximately 5% of the total
outstanding. The maturity date was December 26, 2019. The
Warrants issued in connection with the Old Notes expired by their
terms on December 26, 2019.
These
transactions have assisted with very near-term liquidity necessary
for the Company to operate through the third quarter of 2020.
However, this does not alleviate the substantial doubt about our
ability to continue to operate as a going concern. If we are unable
to acquire additional cash resources prior to the end of September
2020, we will likely be forced to enter into bankruptcy and/or
cease operations.
The Mt. Hope Project
From
October 2005 to January 2008, we owned the rights to 100%
of the Mt. Hope Project. Effective as of January 1, 2008, we
contributed all of our interest in the assets related to the Mt.
Hope Project, including the Mt. Hope Lease, into EMLLC, and in
February 2008 entered into a joint venture agreement
(“LLC Agreement”) for the development and operation of
the Mt. Hope Project with POS-Minerals Corporation
(“POS-Minerals”). Under the LLC Agreement, POS-Minerals
owns a 20% interest in the LLC and General Moly, through Nevada
Moly, LLC (“Nevada Moly”), a wholly-owned subsidiary,
owns an 80% interest. The ownership interests and/or required
capital contributions under the LLC Agreement can change as
discussed below.
In
addition, under the terms of the LLC Agreement, since commercial
production at the Mt. Hope Project was not achieved by
December 31, 2011, the LLC will be required to return to
POS-Minerals $36.0 million, since reduced to $33.6 million as
discussed below, of its capital contributions (“Return of
Contributions”), with no corresponding reduction in
POS-Minerals’ ownership percentage. Effective January 1,
2015, as part of a comprehensive agreement concerning the release
of the reserve account described below, Nevada Moly and
POS-Minerals agreed that the Return of Contributions will be
payable to POS-Minerals on December 31, 2020; provided that,
at any time on or before November 30, 2020, Nevada Moly and
POS-Minerals may agree in writing to extend the due date to
December 31, 2021; and if the due date has been so extended,
at any time on or before November 30, 2021, Nevada Moly and
POS-Minerals may agree in writing to extend the due date to
December 31, 2022. If the repayment date is extended, the
unpaid amount will bear interest at a rate per annum of LIBOR plus
5%, which interest shall compound quarterly, commencing on
December 31, 2020 through the date of payment in full.
Payments of accrued but unpaid interest, if any, shall be made on
the repayment date. Nevada Moly may elect, on behalf of the
Company, to cause the Company to prepay, in whole or in part, the
Return of Contributions at any time, without premium or penalty,
along with accrued and unpaid interest, if any.
8
The
original Return of Contributions amount due to POS-Minerals is
reduced, dollar for dollar, by the amount of capital contributions
for equipment payments required from POS-Minerals under approved
budgets of the LLC, as discussed further below. During the period
January 1, 2015 to March 31, 2020, this amount has been reduced by
$2.4 million, consisting of 20% of an $8.4 million principal
payment made on milling equipment in March 2015, a $2.2
million principal payment made on electrical transformers in
April 2015, and a $1.2 million principal payment made on
milling equipment in April 2016, such that the remaining amount due
to POS-Minerals is $33.6 million. If Nevada Moly does not fund its
additional capital contribution in order for the LLC to make the
required Return of Contributions to POS-Minerals set forth above,
POS-Minerals has an election to either make a secured loan to the
LLC to fund the Return of Contributions, or receive an additional
interest in the LLC estimated to be 5%. In the latter case, Nevada
Moly’s interest in the LLC is subject to dilution by a
percentage equal to the ratio of 1.5 times the amount of the unpaid
Return of Contributions over the aggregate amount of deemed capital
contributions (as determined under the LLC Agreement) of both
parties to the LLC (“Dilution Formula”). At June 30,
2020, the aggregate amount of deemed capital contributions of both
parties was $1,091.2 million.
Furthermore, the
LLC Agreement authorizes POS-Minerals to put/sell its interest in
the LLC to Nevada Moly after a change of control of Nevada Moly or
the Company, as defined in the LLC Agreement, followed by a failure
by us or our successor company to use standard mining industry
practice in connection with the development and operation of the
Mt. Hope Project as contemplated by the parties for a period of
twelve (12) consecutive months. If POS-Minerals exercises its
option to put or sell its interest, Nevada Moly or its transferee
or surviving entity would be required to purchase the interest for
120% of POS-Minerals’ total contributions to the LLC, which,
if not paid timely, would be subject to 10% interest per
annum.
Effective
January 1, 2015, Nevada Moly and POS-Minerals signed an
amendment to the LLC Agreement under which a separate $36.0 million
owed to Nevada Moly, held by the LLC in a reserve account
established in December 2012, is being released for the mutual
benefit of both members related to the jointly approved Mt. Hope
Project expenses through 2021. In January 2015, the reserve
account funded a reimbursement of contributions made by the members
during the fourth quarter of 2014, inclusive of $0.7 million to
POS-Minerals and $2.7 million to Nevada Moly. The remaining reserve
account funds are now being used to pay ongoing jointly approved
expenses of the LLC until the Company obtains full financing for
its portion of the Mt. Hope Project construction cost, or until the
reserve account is exhausted. Any remaining funds after financing
is obtained will be returned to the Company. The balance of the
reserve account was $2.8 million and $3.4 million at June 30, 2020
and December 31, 2019, respectively.
As the
cash needs for the development of the Mt. Hope Project are
significant, we and/or the LLC will be required to arrange for
financing to be combined with funds anticipated to be received from
POS-Minerals in order to retain its 20% LLC membership interest. If
we are unsuccessful in obtaining financing, we will not be able to
proceed with the development of the Mt. Hope Project. Additional
funding for the Mt. Hope Project would allow us to restart
equipment procurement and agreements that were suspended or
terminated would be renegotiated under current market terms and
conditions, as necessary. In the event of an extended delay related
to availability of the Company’s portion of full financing
for the Mt. Hope Project, the Company will continue using its best
efforts to work with its LLC joint venture partner POS-Minerals to
revise procurement and construction commitments including Mt. Hope
Project equipment deposits and pricing structures. There can be no
assurance that additional funding will be obtained.
Purchase Commitments
We
continue to work with our long-lead vendors to manage the timing of
contractual payments for milling equipment. The following table
sets forth the LLC’s remaining cash commitments under these
equipment contracts (collectively, “Purchase
Contracts”) at June 30, 2020 (in millions):
|
As of
|
|
June 30,
|
Year
|
2020 *
|
2020
|
$—
|
2021
|
0.6
|
Total
|
$0.6
|
*
All amounts are
commitments of the LLC, and as a result of the agreement between
Nevada Moly and POS-Minerals are to be funded by the reserve
account, now $2.8 million, until such time that the Company obtains
financing for its portion of construction costs at the Mt. Hope
Project or until the reserve account balance is exhausted, and
thereafter are to be funded 80% by Nevada Moly and 20% by
POS-Minerals. POS-Minerals remains obligated to make capital
contributions for its 20% portion of equipment payments required by
approved budgets of the LLC, and such amounts contributed by the
reserve account on behalf of POS-Minerals will reduce, dollar for
dollar, the amount of capital contributions that the LLC is
required to return to POS-Minerals.
9
If the
LLC does not make the payments contractually required under these
purchase contracts, it could be subject to claims for breach of
contract or to cancellation of the respective purchase contract. In
addition, the LLC may proceed to selectively suspend, cancel or
attempt to renegotiate additional purchase contracts, if necessary,
to further conserve cash. If the LLC cancels or breaches any
contracts, the LLC will take all appropriate action to minimize any
losses, but could be subject to liability under the contracts or
applicable law. The cancellation of certain key contracts could
cause a delay in the commencement of operations, and could add to
the cost to develop the Company’s interest in the Mt. Hope
Project.
Through
June 30, 2020, the LLC has made deposits and/or final payments of
$88.0 million on equipment orders. Of these deposits, $71.7 million
relate to fully fabricated items, primarily milling equipment, for
which the LLC has additional contractual commitments of $0.6
million noted in the table above. The remaining $16.3 million
reflects both partially fabricated milling equipment, and
non-refundable deposits on mining equipment. As discussed in Note
11, the mining equipment agreements remain cancellable with no
further liability to the LLC. The underlying value and
recoverability of these deposits and our mining properties in our
consolidated balance sheets are dependent on the LLC’s
ability to fund development activities that would lead to
profitable production and positive cash flow from operations, or
proceeds from the sale of these assets. There can be no assurance
that the LLC will be successful in generating future profitable
operations, selling these assets or that the Company will secure
additional funding in the future on terms acceptable to us or at
all. Our consolidated financial statements do not include any
adjustments relating to recoverability and classification of
recorded assets or liabilities.
All Mt.
Hope Project related funding is payable out of the reserve account
until exhausted, the balance of which was $2.8 million and $3.4
million at June 30, 2020 and December 31, 2019, respectively.
Corporate general and administrative expenses and costs associated
with the maintenance of the Liberty Project are not covered by the
Reserve Account. Additional potential funding sources include
public or private equity offerings or sale of other assets owned by
the Company and/or the LLC.
Agreement with AMER International Group
(“AMER”)
Private Placement
As
announced in April 2015, the Company and AMER entered into a
private placement for 40.0 million shares of the Company’s
common stock and warrants to purchase 80.0 million shares of the
Company’s common stock, priced using the trailing 90-day
volume weighted average price (“VWAP”) of $0.50 on
April 17, 2015, the date the Investment and Securities
Purchase Agreement (“AMER Investment Agreement”) was
signed. General Moly received stockholder approval of the
transaction at its 2015 Annual Meeting, and of material amendments
to the transaction at a special meeting held in December
2017.
On
November 2, 2015, the Company and AMER entered into an amendment to
the AMER Investment Agreement, utilizing a three-tranche
investment. The first tranche of the amended AMER Investment
Agreement closed on November 24, 2015 for a $4.0 million private
placement representing 13.3 million shares, priced at $0.30 per
share, and warrants (“the AMER Warrants”) to purchase
80.0 million shares of common stock at $0.50 per share, which would
have become exercisable upon availability of an approximately
$700.0 million senior secured loan (“Bank Loan”). The
funds received from the $4.0 million private placement were divided
evenly between general corporate purposes and an expense
reimbursement account available to both AMER and the Company to
cover anticipated Mt. Hope financing costs and other jointly
sourced business development opportunities. In addition, AMER and
General Moly entered into a Stockholder Agreement allowing AMER to
nominate a director to the General Moly Board of Directors and
additional directors following the close of Tranche 3, discussed
below, and drawdown of the Bank Loan. The Stockholder Agreement
also governed AMER’s acquisition and transfer of General Moly
shares. Prior to closing the first tranche the parties agreed to
eliminate certain conditions to closing. Following the closing,
AMER nominated Tong Zhang to serve as a director of the Company,
and he was appointed by the Board of Directors on December 3, 2015.
Mr. Zhang was nominated by the Board of Directors to stand for
election at the 2018 General Meeting of Stockholders and was
elected by the stockholders to serve as a Class II director for a
three (3) year term expiring in 2021, subject to re-election. On
July 29, 2019, Mr. Zhang resigned from the Board of Directors. AMER
nominated Mr. Siong Tek (“Terry”) Lee, a Chartered
Accountant based in Singapore, to serve the remaining term of Mr.
Zhang expiring at the Company’s annual meeting in 2021. AMER
may nominate a second director to the Board so long as its
shareholding exceeds 20% of the Company’s shares
outstanding.
On
October 16, 2017, the Company and AMER announced the closure of the
second tranche of the parties’ three-tranche financing
agreement. At the close of the second tranche, General Moly issued
14.6 million shares to AMER, priced at the volume weighted average
price (“VWAP”) for the 30-day period ending August 7,
2017 (the date of the parties’ Amendment No. 2 to the AMER
Investment Agreement) of $0.41 per share for a private placement of
$6.0 million by AMER. $5.5 million of the equity sale proceeds were
available for general corporate purposes, while $0.5 million was
held in the expense reimbursement account established at the close
of the first tranche to cover costs related to the Mt. Hope Project
financing and other jointly sourced business development
opportunities.
10
The
third tranche of the amended investment agreement was to include a
$10.0 million private placement representing 20.0 million shares,
priced at $0.50 per share (“Tranche 3”). Closing of
Tranche 3 was conditioned upon the earlier of the reissuance of
water permits for the Mt. Hope Project or completion of a joint
business opportunity involving use of 10.0 million shares of
General Moly stock.
The
issuance of shares in connection with the third tranche of the AMER
Investment Agreement was approved by General Moly stockholders in
December 2017 at a Special Meeting of Stockholders.
AMER Disputes Obligation to Close Tranche 3
The
last closing conditions for Tranche 3 under the AMER Investment
Agreement included issuance of water permits for the Mt. Hope
Project. The water permits were issued by the Nevada State Engineer
on July 24, 2019. On July 26, 2019, the Company provided formal
notice to AMER that the conditions to closing of Tranche 3 had been
satisfied, and that AMER would have two business days (until the
close of business on Tuesday, July 30, 2019) to close the
transaction. On July 31, 2019, the Company sent a Notice of
Default, as AMER failed to fund and close Tranche 3 by the July 30,
2019 deadline.
On
August 1, 2019, the Company received a letter from AMER dated July
30, 2019, purporting to terminate the AMER Investment Agreement,
referencing its earlier letter received by the Company on July 18,
2019, in which AMER has alleged uncured material adverse effects
and alleged breaches of the AMER Investment Agreement by the
Company (which included concerns related to US/China relations,
concerns regarding the delay in obtaining environmental permits and
solvency concerns). The Company believed that such assertions were
inaccurate and wholly without merit under the terms of the AMER
Investment Agreement. Additionally, as AMER disputed its obligation
to fund the close of Tranche 3, the Company believed that
AMER’s attempted termination of the AMER Investment Agreement
was ineffective. With AMER’s failure to fund Tranche 3, the
Company had inadequate cash to continue operations and was forced
to evaluate its options, including pursuing asset sales, short-term
financing options and, if unsuccessful in obtaining sufficient
financing, the possibility of seeking bankruptcy
protection.
On
August 28, 2019, the Company engaged King & Spalding, an
international arbitration and litigation firm, to represent the
Company in its dispute against AMER for AMER’s default. The
Company formally notified AMER that a dispute, as defined by the
AMER Investment Agreement existed between the parties as a result
of AMER’s failure to close Tranche 3. The notification
required that one representative of each of the executive
management of the parties be designated and authorized to attempt
to settle the Dispute and the representatives were to meet in good
faith to resolve the Dispute.
On
October 14, 2019, the Company announced that it had entered into a
Dispute Negotiation Extension Agreement with AMER to extend the
dispute negotiation period (“Extension Agreement”).
Under the terms of the Extension Agreement, the Company received
$300,000 from AMER in exchange for an extension of the negotiation
period to November 15, 2019, on which date the Company’s CEO
Bruce Hansen and AMER Chairman Wang Wen Yin met to discuss
settlement options. With the payment, AMER had the right, at its
option, to credit the Extension Fee among the following: (1) credit
against a final negotiated settlement; (2) credit against any AMER
payment obligation to the Company, pursuant to an arbitration
award; or (3) apply the Extension Fee as consideration for the
purchase of the Company’s common stock, priced at the 30-day
volume weighted average price, as of the date immediately prior to
the date that AMER demands delivery of such shares.
On December 9, 2019, the Company and an affiliate
of AMER announced the closure of a $4 million private placement at
a price of $0.40 per common share of General Moly under a new
Securities Purchase Agreement (“SPA”) and amended and
restated warrant agreement (“New AMER Warrant”),
resolving the Dispute. Additionally, the parties agreed to a
mutual release, terminating the previous AMER Investment Agreement,
the prior Warrant, and the Extension Agreement. The
parties’ previous Stockholder Agreement expired by its terms
on November 24, 2019. In addition to the 10.0 million shares issued
by General Moly to AMER in the private placement, AMER also
received 1.1 million General Moly common shares priced at
$0.27/share, the 30-day volume weighted average price of the
Company’s shares on the NYSE American on December 6, 2019
utilizing the Extension Fee, pursuant to the terms of the Extension
Agreement. Additionally, for every $100 million of sourced
Chinese bank lending that AMER has assisted in contributing to a
completed $700 million project debt financing, AMER may exercise 12
million warrants issued under the New AMER Warrant at an exercise
price of $0.50 per share, up to 80 million warrants.
Supply Agreement
Furthermore, upon
closing of a minimum of $100 million from AMER’s efforts
toward the completion of a Chinese bank $700 million project
financing, AMER has the option to enter into a molybdenum supply
agreement with General Moly to purchase Mt. Hope Project sourced
molybdenum at a small discount to spot pricing when the Mt. Hope
Project achieves full commercial production. The saleable amount of
molybdenum to AMER escalates from an aggregate 3 million pounds per
year to 20 million pounds per year over the first five years of
mine production based on the level of project financing assisted by
AMER towards the $700 million project financing.
11
Exploring Other Potential Joint Opportunities
The
Company and AMER have jointly evaluated other potential
opportunities, ranging from outright acquisitions and
privatizations, or significant minority interest investments with a
focus on base metal and ferro-alloy prospects, where the Company
would benefit from management fees, minority equity interests, or
the acquisition of both core and non-core assets. The Company and
AMER have considered but not completed any such transactions to
date and we are not currently evaluating potential opportunities
with AMER. From commencement of the AMER Investment Agreement in
2015 to December 31, 2019, the Company and AMER spent approximately
$2.5 million from the expense reimbursement account described above
in connection with such evaluations. There have been no further
joint evaluations and no further expenses incurred.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The
interim consolidated financial statements (“interim
statements”) of the Company are unaudited. In the opinion of
management, all adjustments and disclosures necessary for a fair
statement of these interim statements have been included. All such
adjustments are, in the opinion of management, of a normal
recurring nature. The results reported in these interim statements
are not necessarily indicative of the results that may be presented
for the entire year. These interim statements should be read in
conjunction with the consolidated financial statements included in
our Annual Report on Form 10-K for the year ended
December 31, 2019, filed with the Securities and Exchange
Commission (“SEC”) on May 4, 2020.
This
summary of significant accounting policies is presented to assist
in understanding the financial statements. The financial statements
and notes are representations of the Company’s management,
which is responsible for their integrity and objectivity. These
accounting policies conform to accounting principles generally
accepted in the United States of America (“GAAP”) and
have been consistently applied in the preparation of the financial
statements.
Accounting Method
Our
financial statements are prepared using the accrual basis of
accounting in accordance with GAAP. With the exception of the LLC,
all of our subsidiaries are wholly owned. In February 2008, we
entered into the LLC Agreement, which established our ownership
interest in the LLC at 80%. The consolidated financial statements
include all of our wholly owned subsidiaries and the LLC. The
POS-Minerals contributions attributable to their 20% interest are
shown as Contingently Redeemable Noncontrolling Interest on the
Consolidated Balance Sheet. The net loss attributable to
contingently redeemable noncontrolling interest is reflected
separately on the Consolidated Statement of Operations and reduces
the Contingently Redeemable Noncontrolling Interest on the
Consolidated Balance Sheet. Net losses of the LLC are attributable
to the members of the LLC based on their respective ownership
percentages in the LLC. During the three months ended June 30,
2020, the LLC had a $176,000 loss, primarily associated with the
sale of non-core assets offset by accretion of its reclamation
obligations and care and maintenance costs incurred which do not
qualify for capitalization under U.S. GAAP, of which $35,000, was
attributed to the Contingently Redeemable Noncontrolling
Interest.
Contingently Redeemable Noncontrolling Interest
(“CRNCI”)
Under
GAAP, certain noncontrolling interests in consolidated entities
meet the definition of mandatorily redeemable financial instruments
if the ability to redeem the interest is outside of the control of
the consolidating entity. As described in
Note 1 — “Description of Business”, the
LLC Agreement permits POS-Minerals the option to put its interest
in the LLC to Nevada Moly upon a change of control, as defined in
the LLC Agreement, followed by a failure by us to use standard
mining industry practice in connection with the development and
operation of the Mt. Hope Project as contemplated by the parties
for a period of 12 consecutive months. As such, the CRNCI has
continued to be shown as a separate caption between liabilities and
equity based on accounting standards which require equity
instruments with redemption features that are not solely within the
control of the issuer to be classified outside of permanent equity
(referred to as mezzanine equity). The carrying value of the
CRNCI has historically included the Return of Contributions, now
$33.6 million, that will be returned to POS-Minerals in 2020,
unless further extended by the members of the LLC as discussed
above. The expected Return of Contributions to POS-Minerals was
carried at redemption value as we believed redemption of this
amount was probable. Effective January 1, 2015, Nevada Moly
and POS-Minerals agreed that the Return of Contributions will be
due to POS-Minerals on December 31, 2020, unless further
extended by the members of the LLC as discussed above. As a result,
we have reclassified the Return of Contributions payable to
POS-Minerals from CRNCI to a current liability at redemption value,
and subsequently reduced it by $2.4 million, consisting of 20% of
an $8.4 million principal payment made on milling equipment in
March 2015, a $2.2 million principal payment made on
electrical transformers in April 2015, and a $1.2 million
principal payment made on milling equipment in April 2016, such
that the remaining amount due to POS-Minerals is $33.6
million.
12
The
remaining carrying value of the CRNCI has not been adjusted to its
redemption value as the contingencies that may allow POS-Minerals
to require redemption of its noncontrolling interest are not
probable of occurring. Under GAAP, until such time as that
contingency has been eliminated and redemption is no longer
contingent upon anything other than the passage of time, no
adjustment to the CRNCI balance should be made. Future changes in
the redemption value will be recognized immediately as they occur
and the Company will adjust the carrying amount of the CRNCI to
equal the redemption value at the end of each reporting
period.
Estimates
The
process of preparing consolidated financial statements requires the
use of estimates and assumptions regarding certain types of assets,
liabilities, revenues, and expenses. Such estimates primarily
relate to unsettled transactions and events as of the date of the
financial statements. Accordingly, upon settlement, actual results
may differ from estimated amounts.
Asset Impairments
We
evaluate the carrying value of long-lived assets to be held and
used, using a fair-value based approach when events and
circumstances indicate that the related carrying amount of our
assets may not be recoverable. Significant declines in the overall
economic environment, molybdenum and copper prices may be
considered as impairment indicators for the purposes of these
impairment assessments. Additionally, failure to secure our mining
permits, including our water rights, or revocation of our permits,
may be considered as impairment indicators for the purposes of
these impairment assessments. In accordance with U.S. GAAP, the
carrying value of a long-lived asset is considered impaired when
the anticipated undiscounted cash flows from such asset is less
than its carrying value. In that event, an impairment charge will
be recorded in our Consolidated Statement of Operations and
Comprehensive Loss based on the difference between book value and
the estimated fair value of the asset computed using discounted
future cash flows, or the application of an expected fair value
technique in the absence of an observable market price. Future cash
flows include estimates of recoverable quantities to be produced
from estimated proven and probable mineral reserves, commodity
prices (considering current and historical prices, price trends and
related factors), production quantities and capital expenditures,
all based on life-of-mine plans and projections. In estimating
future cash flows, assets are grouped at the lowest level for which
identifiable cash flows exist that are largely independent of cash
flows from other asset groups. Generally, in estimating future cash
flows, all assets are grouped at a particular mine for which there
are identifiable cash flows.
Management
evaluated the circumstances of the July 30, 2019 AMER default and
concluded the default was a triggering event in the third quarter
of 2019 which continues to exist at June 30, 2020. As of June 30,
2020, we evaluated and determined the carrying value of the asset
group for the Liberty project was recoverable as the
probability-weighted undiscounted cash flows exceeded the carrying
value of that asset group. We determined the carrying value of the
asset group for the Mt. Hope project was not recoverable as the
carrying value exceeded the probability-weighted undiscounted cash
flows of that asset group. The Company has recorded an impairment
charge of $260.6 million which represents the difference between
the book value and the estimated fair value of the assets utilizing
estimated market prices. Factors leading to the impairment include,
but are not limited to, the Company’s inability to obtain
financing to date and inadequate cash to continue operations past
the third quarter of 2020, the impact of COVID-19 on capital
markets and demand for molybdenum during the second quarter of
2020, and the decrease in the current and forecasted price of
molybdenum.
In the
calculation of the impairment charge, management estimated the fair
value of the asset group using the estimated salvage value using a
range based on an immediate sale model and a sale in an improved
commodity market model, basing the estimated fair value of the
asset group on the midpoint of these two estimates. Given current
market conditions and considering our need for near-term liquidity,
management determined that the midpoint was the most appropriate
point in the range for the fair value estimate. The estimated range
of fair values was approximately $28 million to $53 million.
Salvage values were used to determine fair value of the Mt. Hope
asset group because the current discounted cash flows was negative
due to current molybdenum prices. The carrying value of the Mt.
Hope asset group, which includes directly associated liabilities,
prior to impairment was approximately $299.3 million. During the
third quarter of 2020, management will continue to refine the
calculation using formal appraisals of tangible assets which could
materially change the impairment calculation.
13
The
impairment charge by asset type was as follows:
|
Asset Impairment Charges
|
|
(In thousands)
|
Mining
properties, land and water rights
|
$200,303
|
Deposits
on project property, plant and equipment
|
57,630
|
Other
assets
|
2,620
|
Total
|
$260,553
|
While
at June 30, 2020, we have not identified any impairment of our
long-lived assets for the Liberty project, there can be no
assurance that there will not be asset impairments for the Liberty
project or additional impairments for the Mt. Hope project if
commodity prices experience a sustained decline and/or if there are
significant downward adjustments to estimates of recoverable
quantities to be produced from proven and probable mineral reserves
or production quantities, and/or upward adjustments to estimated
operating costs and capital expenditures, all based on life-of-mine
plans and projections. Additionally, should we be unable to secure
additional financing, we may be required to modify our
probability-weighted undiscounted cash flow projections which could
result in additional impairment to our assets.
Cash and Cash Equivalents and Restricted Cash
We
consider all highly liquid investments with original maturities of
three months or less to be cash equivalents. The Company’s
cash equivalent instruments are classified within Level 1 of the
fair value hierarchy established by FASB guidance for Fair Value
Measurements because they are valued based on quoted market prices
in active markets.
We
consider all restricted cash, inclusive of the reserve account
discussed above and reclamation surety bonds, to be
long-term.
|
|
June 30, 2020
|
|
December 31, 2019
|
||
|
|
(in thousands)
|
||||
Cash and cash equivalents
|
|
$
|
2,528
|
|
$
|
4,614
|
Restricted cash held at EMLLC
|
|
|
2,829
|
|
|
3,388
|
Total cash, cash equivalents and restricted cash shown in the
statement of cash flows
|
|
$
|
5,357
|
|
$
|
8,002
|
As of
June 30, 2020, the LLC had $0.3 million in cash deposits associated
with reclamation bonds, which are accounted for as restricted cash.
Another $0.1 million in cash collateral is associated with surety
bonds at the Liberty Project. These amounts are considered
investments and are not included in cash and cash equivalents for
purposes of the Statement of Cash Flows.
Basic and Diluted Net Loss Per Share
Net
loss per share was computed by dividing the net loss attributable
to the Company by the weighted average number of shares outstanding
during the period. The weighted average number of shares was
calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding. Outstanding
awards as of June 30, 2020 and December 31, 2019,
respectively, were as follows:
|
June 30,
2020
|
December 31,
2019
|
Warrants
|
98,013,256
|
98,013,256
|
Unvested
Stock Awards
|
421,268
|
421,268
|
Stock
Appreciation Rights
|
909,837
|
909,837
|
These
awards were not included in the computation of diluted loss per
share for the three and six months ended June 30, 2020 and December
31, 2019, respectively, because to do so would have been
anti-dilutive. Therefore, basic loss per share is the same as
diluted loss per share.
Mineral Exploration and Development Costs
All
exploration expenditures are expensed as incurred. If no economic
ore body is discovered, previously capitalized costs are expensed
in the period the property is abandoned. Expenditures to develop
new mines, to define further mineralization in existing ore bodies,
and to expand the capacity of operating mines, are capitalized and
amortized on a units-of-production basis over proven and probable
reserves.
14
Should
a property be abandoned, its capitalized costs are charged to
operations. The Company charges to the consolidated statement of
operations the allocable portion of capitalized costs attributable
to properties sold. Capitalized costs are allocated to properties
sold based on the proportion of claims sold to the claims remaining
within the project area.
Mining Properties, Land and Water Rights
Costs
of acquiring and developing mining properties, land and water
rights are capitalized as appropriate by project area. Exploration
and related costs and costs to maintain mining properties, land and
water rights are expensed as incurred while the property is in the
exploration and evaluation stage. Development and related costs and
costs to maintain mining properties, land and water rights are
capitalized as incurred while the property is in the development
stage. When a property reaches the production stage, the related
capitalized costs are amortized using the units-of-production basis
over proven and probable reserves. Mining properties, land and
water rights are periodically assessed for impairment of value, and
any subsequent losses are charged to operations at the time of
impairment. If a property is abandoned or sold, a gain or loss is
recognized and included in the consolidated statement of
operations.
The
Company has capitalized royalty payments made to Mt. Hope
Mines, Inc. (“MHMI”) (discussed in Note 11 below)
during the development stage. The amounts will be applied to
production royalties owed upon the commencement of
production.
Depreciation and Amortization
Property and
equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets.
Property and equipment are depreciated using the following
estimated useful lives:
Field equipment
|
|
Four to ten years
|
|
Office furniture, fixtures, and equipment
|
|
Five to seven years
|
|
Vehicles
|
|
Three to five years
|
|
Leasehold improvements
|
|
Three years or the term of the lease, whichever is
shorter
|
|
Residential trailers
|
|
Ten to twenty years
|
|
Buildings and improvements
|
|
Ten to twenty seven and one-half years
|
|
Provision for Taxes
Income
taxes are provided based upon the asset and liability method of
accounting. Under this approach, deferred income taxes are recorded
to reflect the tax consequences in future years of differences
between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end. In accordance with
authoritative guidance under Accounting Standards Codification
(“ASC”) 740, Income Taxes, a valuation allowance is
recorded against the deferred tax asset if management does not
believe the Company has met the “more likely than not”
standard to allow recognition of such an asset.
Reclamation and Remediation
Expenditures for
ongoing compliance with environmental regulations that relate to
current operations are expensed or capitalized as appropriate.
Future obligations to retire an asset, including reclamation, site
closure, dismantling, remediation and ongoing treatment and
monitoring, are recorded as a liability at fair value at the time
of construction or development. The fair value determination is
based on estimated future cash flows, the current credit-adjusted
risk-free discount rate and an estimated inflation factor. The
value of asset retirement obligations is evaluated on a quarterly
basis or as new information becomes available on the expected
amounts and timing of cash flows required to discharge the
liability. The fair value of the liability is added to the carrying
amount of the associated asset and this additional carrying amount
will be depreciated or amortized over the estimated life of the
asset upon the commencement of commercial production. An accretion
cost, representing the increase over time in the present value of
the liability, will also be recorded each period as accretion
expense. As reclamation work is performed or liabilities are
otherwise settled, the recorded amount of the liability is reduced.
Certain collateral amounts associated with our reclamation
obligations are held in investment accounts, for which the fair
value is estimated based on Level 1 inputs.
Stock-based Compensation
Stock-based
compensation represents the fair value related to stock-based
awards granted to members of the Board, officers and
employees. The Company uses the Black-Scholes model to
determine the fair value of stock-based awards under authoritative
guidance for Stock-Based
Compensation. For stock-based compensation that is
earned upon the satisfaction of a service condition, the cost is
recognized on a straight-line basis (net of estimated forfeitures)
over the requisite vesting period (up to three years). Awards
expire five years from the date of vesting.
15
Further
information regarding stock-based compensation can be found in Note
8 — “Equity Incentives.”
Warrants
The
Company has issued warrants in connection with several financing
transactions and uses the Black-Scholes model or a lattice to
determine the fair value of these transactions based on the
features included in each.
Leases
The
Company adopted Accounting Standards Codification
(“ASC”) 842, Leases, on January 1, 2019. Changes to the
Company’s accounting policy as a result of adoption are
discussed below.
The Company determines if a contractual
arrangement represents or contains a lease at inception. Operating
leases are included in Deposits, prepaids and other
Current Assets and Other accrued
liabilities in the
Consolidated Balance Sheets. No finance leases have been identified
to date.
Operating
and finance lease right-of-use ("ROU") assets and lease liabilities
are recognized at the commencement date based on the present value
of the future lease payments over the lease term. When the rate
implicit to the lease cannot be readily determined, the Company
utilizes its incremental borrowing rate in determining the present
value of the future lease payments. The incremental borrowing rate
is derived from information available at the lease commencement
date and represents the rate of interest that the Company would
have to pay to borrow on a collateralized basis over a similar term
and amount equal to the lease payments in a similar economic
environment. The ROU asset includes any lease payments made and
lease incentives received prior to the commencement date. Operating
lease ROU assets also include any cumulative prepaid or accrued
rent when the lease payments are uneven throughout the lease term.
The ROU assets and lease liabilities may include options to extend
or terminate the lease when it is reasonably certain that the
Company will exercise that option.
Recently Adopted Accounting Pronouncements
Fair Value Measurement (Topic 820)
In
August 2018, the FASB issued Accounting Standards Update 2018-13,
Fair Value Measurement (Topic 820). The update modifies the
disclosure requirements on fair value measurements, including
amendments on changes in unrealized gains and losses, the range and
weighted average of significant unobservable inputs used to develop
Level 3 fair value measures and the narrative description of
measurement uncertainty. The amendments in ASU 2018-13 are
effective for public entities for annual reporting periods
beginning after December 31, 2019, and for interim periods within
that reporting period. The Company adopted this standard as of
January 1, 2020. The adoption had no effect on our financial
statements.
NOTE 3 — MINING PROPERTIES, LAND AND WATER
RIGHTS
We
currently have interests in two mining properties that are the
primary focus of our operations, the Mt. Hope Project and the
Liberty Project. We also have one other, non-core, mining property
that is being evaluated for future development or
sale.
The Mt. Hope Project. We are currently
in the process of developing the Mt. Hope Project, and have
recently obtained all permits required for construction. In
January 2014, the Company published an updated Technical
Report on the Mt. Hope Project using Canadian Instrument NI 43-101
guidelines, which provided data on the viability and expected
economics of the project. In early 2017, we re-examined the Mt.
Hope proven and probable mineral reserves and updated the reserve
and resource estimates using an $8.40/lb molybdenum
(“Mo”) three-year backward average price. No further
adjustments have been required.
As
discussed above in Note 2, during the second quarter of 2020, the
Company recorded an impairment charge reducing the carrying value
of the Mt. Hope Project assets by $260.6 million. The asset
impairment does not change the underlying assets or
rights.
Liberty Project. We continue to evaluate
opportunities at the Liberty Project as they arise. The Liberty
Project remains largely in care and maintenance at this time. In
July 2014, the Company published an updated NI 43-101
compliant pre-feasibility study, which more closely examined the
use of existing infrastructure and the copper potential of the
property.
In
February 2017, Liberty Moly entered into a lease agreement with
West Vault Mining, Inc., formerly known as WK Mining Ltd.
(“WK”) for the lease of water rights for the purpose of
mining and milling. The term of the lease is six years which WK can
extend for an additional four years. As compensation for the leased
water rights, WK has issued $124,000 in common shares to Liberty
Moly, consisting of $100,000 at signing of the agreement and shares
equal to $12,000 in both its first and second annual installments,
and is required to pay an annual fee on the anniversary date of the
lease in either cash or WK common shares. The third installment
(due February 2020) was paid in cash.
16
In
December, 2019, Liberty Moly, LLC (“Liberty Moly”)
entered into a lease agreement with SR Minerals, Inc. (SRM) for the
lease of water rights for the purpose of mining and milling. The
term of the lease is five years, after which SRM can extend
annually for an additional five years. As compensation for the
leased water rights, SRM has paid $16,000 in cash to Liberty Moly,
and is required to pay an annual fee on the anniversary date of the
lease in cash.
Liberty
Moly continues to work with the Nevada Division of Environmental
Protection (“NDEP”) to address environmental concerns
with some Liberty Project facilities acquired with the property. We
have implemented remedial treatment of the Liberty pit lake and
developed and implemented procedures to manage process solutions
draining from the pre-existing leach pad, as required by NDEP. We
may be required to treat the pit lake again, and/or revise our
systems to manage heap leach solution. At this time we are working
with NDEP to reasonably estimate the scope and costs of addressing
these issues.
Other Mining Properties. We also have
mining claims and land purchased prior to 2006 consisting of 34
unpatented mining claims in Marion County, Oregon, known as the
Detroit property. The costs associated with these claims are
minimal and primarily relate to claim fees. The total book value of
this property is nil. The Company has retained production royalties
of 1.5% of all net smelter returns on future production from two
undeveloped properties in Skamania County, Washington and Josephine
County, Oregon, which were sold in 2012 and 2013,
respectively.
Summary. The following is a summary of
mining properties, land and water rights at June 30, 2020 and
December 31, 2019 (in thousands):
|
At
|
At
|
|
June 30,
|
December 31,
|
|
2020
|
2019
|
Mt.
Hope Project:
|
|
|
Development
costs
|
$—
|
$179,356
|
Mineral,
land and water rights
|
2,570
|
23,423
|
Advance
royalties
|
33,488
|
32,988
|
Total
Mt. Hope Project
|
36,058
|
235,767
|
Total
Liberty Project
|
8,287
|
8,370
|
Other
Properties
|
0
|
0
|
Total
|
$44,345
|
$244,137
|
Development costs
of nil, after asset impairment charges of $200.3 million, as of
June 30, 2020, include hydrology and drilling costs, expenditures
to further the permitting process, capitalized salaries, project
engineering costs, and other expenditures required to fully develop
the Mt. Hope Project. Deposits on project property, plant and
equipment of $30.3 million, after asset impairment charges of $57.6
million as of June 30, 2020 represent ongoing progress payments on
equipment orders for the custom-built grinding and milling
equipment, related electric mill drives, and other processing
equipment that require the longest lead times.
NOTE 4 — ASSET RETIREMENT OBLIGATIONS
Asset
retirement obligations (“ARO”) arise from the
acquisition, development, construction and normal operation of
mining property, plant and equipment due to government controls
that protect the environment, and are primarily related to closure
and reclamation of mining properties. The exact nature of
environmental issues and costs, if any, which the Company or the
LLC may encounter in the future are subject to change, primarily
because of the changing character of environmental requirements
that may be enacted by governmental authorities.
The
following table shows asset retirement obligations for future mine
closure and reclamation costs in connection with the Mt. Hope
Project and within the boundaries of the Plan of Operations
(“PoO”):
|
(in thousands)
|
At
January 1, 2019
|
$1,633
|
Accretion
Expense
|
108
|
Adjustments*
|
62
|
At
December 31, 2019
|
$1,803
|
Accretion
Expense
|
54
|
Adjustments*
|
—
|
At
June 30, 2020
|
$1,857
|
*
Includes additions,
annual changes to the escalation rate, the market-risk premium
rate, or reclamation time periods.
17
The
estimated future reclamation costs for the Mt. Hope Project have
been discounted using a rate of 8%, which is the rate that existed
at the time the liability was originally measured. The total
inflated and undiscounted estimated reclamation costs associated
with current disturbance under the PoO at the Mt. Hope Project were
$5.8 million at June 30, 2020, inclusive of $2.6 million for
mitigation of sage grouse habitat that would be affected by
development of the Mt. Hope Project. Increases in ARO liabilities
resulting from the passage of time are recognized as accretion
expense.
As of
June 30, 2020, the LLC had provided the appropriate regulatory
authorities with $2.8 million in reclamation financial guarantees
through the posting of surety bonds for reclamation of the Mt. Hope
Project as approved in the ROD. As of March 31, 2020, we had $0.3
million in cash deposits associated with these bonds which are
specific to the PoO disturbance and recorded in Restricted cash and investments held for
reclamation bonds and are unrelated to the inflated and
undiscounted liability referenced above. The LLC posted an
additional $0.3 million as a cash bond with the BLM in April 2019
as a result of a required three-year update to the reclamation bond
calculation.
The LLC
has a smaller liability at the Mt. Hope Project for disturbance
associated with exploration drilling which occurred outside the PoO
boundaries. The LLC has not discounted this reclamation liability
as the total amount is approximately $0.2 million.
Total
restricted cash for surety bond collateral requirements and other
long-term reclamation obligations at the Mt. Hope Project equal
$0.6 million. Another $0.1 million in cash collateral is associated
with surety bonds at the Liberty Project.
The
Company’s Liberty Project is currently in the exploration
stage. As the Company is not currently performing any exploration
activity at the Liberty Project, the reclamation liability incurred
for historical disturbance from previous operations and more recent
exploration conducted by the Company of approximately $0.1 million
has not been discounted as shown in the table below.
|
Mt. Hope Project
|
|
|
outside PoO
|
|
|
boundary
|
Liberty
|
|
(in thousands)
|
|
At January 1,
2019
|
$15
|
$121
|
Adjustments
*
|
2
|
13
|
At December 31,
2019
|
$17
|
$134
|
Adjustments
*
|
—
|
20
|
At June 30,
2020
|
$17
|
$154
|
*
Includes reduced /
reclaimed disturbance
NOTE 5 —DEBT
In
December 2014, the Company sold and issued 85,350 Units of
Convertible Notes (the “Notes”) with warrants (the
“Notes Warrants”) to qualified buyers pursuant to
Section 4(a)(2) of the Securities Act of 1933, as
amended, of which 23,750 Units were sold and issued to related
parties, including several directors and each of our named
executive officers. The Convertible Notes were unsecured
obligations and were senior to any of the Company’s future
secured obligations to the extent of the value of the collateral
securing such obligations.
The
transaction value of $8.5 million was allocated between debt for
the Convertible Notes and equity for the Notes Warrants based on
the relative fair value of the two instruments. This resulted in
recording $0.8 million in Additional Paid In Capital for the
relative fair value of the Warrants and $7.7 million as Convertible
Notes. The Company received net proceeds from the sale of the
Convertible Notes of approximately $8.0 million, after
deducting offering expenses of approximately $0.5 million,
which was allocated between debt and equity. As a result, the
Company recognized $0.4 million as Debt Issuance Costs to be
amortized over the expected redemption period, and $0.1 million
recognized as a reduction to Additional Paid in Capital. Net
proceeds from the sale were used to fund ongoing
operations.
The
Convertible Notes bore interest at a rate of 10.0% per annum,
payable in cash quarterly in arrears on each March 31,
June 30, September 30, and December 31. The
Convertible Notes matured on December 26, 2019 unless earlier
redeemed, repurchased or converted. Ninety-five percent of the
outstanding principal balance was exchanged for newly issued
non-convertible notes and warrants on December 26, 2019, as
described below. The Convertible Notes were redeemable by the
Company for cash, either in whole or in part, at any time, in
exchange for the sum of (i) a cash payment equal to the unpaid
principal plus all accrued but unpaid interest through the date of
redemption and (ii) the present value of the remaining
scheduled interest payments discounted to the maturity date at the
annual percentage yield on U.S. Treasury securities with maturity
similar to the notes plus 25 basis points (the “Optional
Redemption”). The Convertible Notes were mandatorily
redeemable at par plus the present value of remaining coupons upon
(i) the availability of cash from a financing for Mt. Hope and
(ii) any other debt financing by the Company. In addition, 50%
of any proceeds from the sale of assets cumulatively exceeding
$250,000 were to be used to prepay the Convertible Notes at par
plus the present value of remaining coupons (the “Mandatory
Redemption”).
18
The
Convertible Notes were convertible at any time in an amount equal
to 80% of the greater of (i) the average VWAP for the 30
Business Day period ending on the Business Day prior to the date of
the conversion, or (ii) the average VWAP for the 30 Business
Day period ending on the original issuance date of the note. Each
Convertible Note could convert into a maximum of 100 shares per
note, resulting in the issuance of 8,535,000 shares, or 9.3% of
shares outstanding as of December 31, 2014 (the
“Conversion Option”). General Moly’s executive
management team and board of directors who participated in the
offering were restricted from converting at a price less than
$0.32, the most recent closing price at the time that the Notes
were issued.
If the
Company underwent a “fundamental change”, the
Convertible Notes were to be redeemed for cash at a repurchase
price equal to 100% of the principal amount of the Convertible
Notes to be repurchased plus accrued and unpaid interest, including
contingent interest and additional amounts, if any. Examples of a
“fundamental change” include the reclassification of
the common stock, consolidation or merger of the Company with
another entity or sale of all or substantially all of the
Company’s assets.
During
the year ended December 31, 2015, certain holders of the
Convertible Notes, including both directors and named executive
officers of the Company, elected to convert notes totaling $2.6
million, reducing the principal balance of the Convertible Notes to
$5.9 million. Upon conversion, the Convertible Notes holders
received 2,625,000 shares of common stock, at conversion prices
ranging from $0.3462 to $0.5485, and were issued non-convertible
Senior Promissory Notes (“Promissory Notes”) of $1.3
million, pursuant to the terms of the share maximum provision of
the Conversion Option. The Promissory Notes had identical terms to
the Convertible Notes, with the exception that the holder no longer
had a Conversion Option. Accordingly, the Promissory Notes bore
interest equal to 10.0% per annum, payable in cash quarterly in
arrears on each March 31, June 30, September 30, and
December 31 and matured on December 26, 2019. The
conversions resulted in a $0.2 million annual reduction in interest
payments made by the Company in the servicing of the
Notes.
On
December 27, 2019, the Company closed an Exchange Offer, upon the
terms and subject to the conditions set forth in the confidential
Offer to Exchange and Subscription Offer dated November 27,
2019.
Eligible
holders tendered Old Notes with an original principal amount of
$6.89 million of the total outstanding of $7.25 million,
representing 95% of the outstanding, in the Exchange Offer.
For each $1 principal amount of, and accrued and unpaid interest
on, Old Notes tendered and accepted by the Company, one unit
consisting of $1 principal amount of Exchange Notes and one New
Warrant was settled. The Exchange Notes bear interest at an
initial rate of 12% per annum. Interest on the Exchange Notes will
be paid on March 31, June 30, September 30 and December 31 of each
year, commencing on March 31, 2020. The Exchange Notes will mature
on December 26, 2022, unless otherwise earlier redeemed. Each
New Warrant is exercisable for one share of Common Stock at a price
of $0.35 per share for a period of three years. One New
Warrant was issued for each dollar of original principal amount of,
and accrued and unpaid interest on, Old Notes exchanged for
Exchange Notes for a total of 7.2 million New Warrants
issued.
The
Company paid at maturity the unpaid principal and all accrued and
unpaid interest in the approximate amount of $368,000 to those
eligible holders that elected not to participate in the Exchange
Offer. The original principal amount of Old Notes paid at
maturity represented approximately 5% of the total
outstanding. The maturity date was December 26, 2019. The
Notes Warrants issued in connection with the Old Notes expired by
their terms on December 26, 2019.
The Company may redeem the Exchange Notes for
cash, either in whole or in part, at any time, in exchange for the
sum of (i) 101% of the amount of unpaid principal and (ii) all
accrued but unpaid interest through the date of redemption. The
Exchange Notes are mandatorily redeemable (i) upon obtaining debt
or equity financing sufficient to cover the construction of Mt.
Hope and (ii) upon a “fundamental change” such as a
reclassification of the common stock, consolidation or merger of
the Company with another entity or sale of all or substantially all
of the Company’s assets. In addition, 50% of the proceeds
exceeding a specified threshold amount of approximately $6.3
million from a financing in which the Company issues debt
securities senior to the Exchange Notes will be used to redeem
Exchange Notes. In all cases of mandatory redemption, the
redemption amount is equal to the sum of (i) the unpaid principal
plus all accrued but unpaid interest through the date of redemption
and (ii) the present value of the remaining scheduled interest
payments discounted to maturity date at the annual
percentage yield on U.S. Treasury securities with maturity similar
to the Exchange Notes plus 25 basis points.
The
Company accounted for the Exchange Offer as an extinguishment of
the Old Notes and recorded a gain on extinguishment of $0.1
million. The Exchange Notes and the Exchange Warrants were recorded
at fair value at December 27, 2019 of $6.8 million and $0.3
million, respectively. The Company incurred $0.2 million of
offering expenses related to the Exchange Offer which was allocated
between debt and equity. As a result, the Company recognized $0.2
million as Debt Issuance Costs to be amortized over the term of the
Exchange Notes and recognized $8,000 as a reduction of Additional
Paid In Capital.
19
New 13% Senior Promissory Notes due December 2022
In addition to the Exchange Offer, certain
Participating Holders also elected to participate in the
accompanying Subscription Offer to purchase 13,355 units for $100
each, consisting of its newly issued Supplemental Notes and
accompanying Warrants, including participation by the largest Old
Noteholder investor, as well as the Company’s CEO, Bruce
Hansen. One Warrant was issued for each dollar invested in
the Supplemental Notes. The New Warrants have an exercise
price of $0.35 per share and have a three-year term. The
Participating Holders increased their respective note investment by
approximately 20% by purchasing the Supplemental Notes, resulting
in approximately $1.34 million of new capital to the Company. The
supplemental notes are redeemable at any time at the
Company’s option, and must be redeemed by the Company under
certain circumstances. The Company has agreed not to issue, assume
or guarantee any indebtedness that is senior to or
pari passu
with the Supplemental Notes, provided,
however, that the Company may issue no more than $15 million of
additional debt securities that rank pari passu with the Supplemental Notes.
The
transaction value of $1.3 million was allocated between debt for
the Supplemental Notes and equity for the accompanying Warrants
based on their relative fair value. This resulted in recording
$47,000 in Additional Paid in Capital for the Warrants and the
remainder as Supplemental Notes. The Company incurred $40,000 of
offering expenses related to the Subscription Offer which was
allocated between debt and equity. As a result, the Company
recognized $38,000 as Debt Issuance Costs to be amortized over the
term of the Supplemental Notes and recognized $2,000 as a reduction
to Additional Paid in Capital.
The Supplemental Notes bear interest at a rate of
13.0% per annum, payable in cash quarterly in arrears on each March
31, June 30, September 30, and December 31. The Supplemental Notes
mature December 26, 2022 unless earlier redeemed. The Company may
redeem the Supplemental Notes for cash, either in whole or in part,
at any time, in exchange for the sum of (i) 101% of the amount of
unpaid principal and (ii) all accrued but unpaid interest through
the date of redemption. The Supplemental Notes are mandatorily
redeemable (i) upon obtaining debt or equity financing sufficient
to cover the construction of Mt. Hope and (ii) upon a
“fundamental change” such as a reclassification of the
common stock, consolidation or merger of the Company with another
entity or sale of all or substantially all of the Company’s
assets. In either case, the mandatory redemption amount is equal to
the sum of (i) the unpaid principal plus all accrued but unpaid
interest through the date of redemption and (ii) the present value
of the remaining scheduled interest payments discounted to maturity
date at the annual percentage yield on U.S. Treasury
securities with maturity similar to the Supplemental Notes plus 25
basis points.
Embedded Derivatives
Based
on the redemption and conversion features discussed above, the
Company determined that there were embedded derivatives that
require bifurcation from the debt instrument and should be
accounted for under ASC 815. Embedded derivatives are separated
from the host contract, the Convertible Notes, and carried at fair
value when: (a) the embedded derivative possesses economic
characteristics that are not clearly and closely related to the
economic characteristics of the host contract; and (b) a
separate, stand-alone instrument with the same terms would qualify
as a derivative instrument. The Company concluded that the
Mandatory Redemption and Conversion Option features embedded within
the Convertible Notes met these criteria and, as such, were
required to be valued separate and apart from the Convertible Notes
as one embedded derivative and recorded at fair value each
reporting period (the “Embedded
Derivatives”).
A
probability-weighted calculation was utilized to estimate the fair
value of the Mandatory Redemption.
The
Company used a binomial lattice model in order to estimate the fair
value of the Conversion Option in the Convertible Notes. A binomial
lattice model generates two probable outcomes, arising at each
point in time, starting from the date of valuation until the
maturity date. A lattice was initially used to determine if the
Convertible Notes would be converted or held at each decision
point. Within the lattice model, the Company assumes that the
Convertible Notes will be converted early if the conversion value
is greater than the holding value.
The
Company also determined that the mandatory redemption features in
the Exchange Notes and Supplemental Notes are embedded derivatives.
As of June 30, 2020 and December 31, 2019, the carrying value of
the Exchange Notes, absent the embedded derivative, was $6.3 and
$6.2 million, respectively, inclusive of an unamortized debt
discount of $0.9 and $1.1 million. The fair value of the Exchange
Notes was $6.1 and $6.2 million at June 30, 2020 and December 31,
2019. As of June 30, 2020 and December 31, 2019, the carrying value
of the Supplemental Notes, absent the embedded derivative, was $1.2
and $1.2 million inclusive of an unamortized debt discount of $0.2
and $0.2 million, respectively. The fair value of the Supplemental
Notes was $1.2 and $1.2 million at June 30, 2020 and December 31,
2019.
20
The
changes in the estimated fair value of the embedded derivatives
during the three and six months ended June 30, 2020 resulted in a
gain of $18,000 and loss of $345,000, respectively. The embedded
derivatives in the Exchange Notes and the Supplemental Notes had a
fair value of $1.0 million and $0.2 million, respectively, at June
30, 2020. The embedded derivatives in the Exchange Notes and the
Supplemental Notes had a fair value of $0.6 million and $0.1
million, respectively, at December 31, 2019. Gain or loss on
embedded derivatives is recognized as Interest Expense in the
Statement of Operations.
The
Company has estimated the fair value of the Convertible Notes,
Promissory Notes, Exchange Notes, Supplemental Notes, and embedded
derivatives based on Level 3 inputs. Changes in certain inputs into
the valuation models can have a significant impact on changes in
the estimated fair value. For example, the estimated fair value of
the embedded derivatives will generally decrease with: (1) a
decline in the stock price; (2) increases in the estimated stock
volatility; and (3) an increase in the estimated credit
spread.
The
following inputs were utilized to measure the fair value of the
Notes and embedded derivatives: (i) price of the
Company’s common stock; (ii) Conversion Rate (as defined
in the Convertible Note); (iii) Conversion Price (as defined
in the Convertible Notes); (iv) maturity date;
(v) risk-free interest rate; (vi) estimated stock
volatility; (vii) estimated credit spread for the Company;
(viii) default intensity; and (ix) recovery
rate.
The
following tables set forth the inputs to the models that were used
to value the embedded derivatives:
|
June 30,
2020
|
December 31,
2019
|
Stock
Price
|
0.20
|
$0.24
|
Exercise
Price
|
0.50
|
0.50
|
Expected
Term
|
7.8 years
|
7.8 years
|
Stock
Volatility
|
40.0%
|
40.0%
|
Risk-Free
Interest Rate
|
0.2%
|
1.8%
|
Type of Event
|
|
Expected Date
|
|
Probability of Event
|
|
Mandatory Redemption
|
|
October 17, 2019
|
|
10%
|
|
Conversion Option
|
|
March 31, 2019
|
|
0%
|
|
Note Reaches Maturity
|
|
December 31, 2019
|
|
90%
|
|
The
following assumptions were utilized to measure the fair value of
the Exchange Notes, the Supplemental Notes, and the embedded
derivatives at June 30, 2020 and December 31, 2019: (i) estimated
market yield; and (ii) estimated probabilities of mandatory
redemption.
On
April 24, 2020, General Moly, Inc. (the “Company”)
received funding under a Paycheck Protection Program
(“PPP”) loan (the “PPP Loan”) from U.S.
Bank, National Association (the “Lender”). The
principal amount of the PPP Loan is $365,034. The PPP was
established under the Coronavirus Aid, Relief, and Economic
Security Act (the “CARES Act”) and is administered by
the U.S. Small Business Administration (the “SBA”). The
Company applied for the PPP Loan primarily because its potential to
access other sources of capital has been greatly reduced by the
ongoing COVID-19 pandemic.
The
PPP Loan has a two-year term, maturing on April 23, 2022. The
interest rate on the PPP Loan is 1.0% per annum. Principal and
interest are payable in 18 monthly installments, beginning on
November 23, 2020, until maturity with respect to any portion of
the PPP Loan which is not forgiven as described below. The Company
did not provide any collateral or guarantees for the PPP Loan, nor
did the Company pay any facility charge to obtain the PPP Loan. The
PPP Loan provides for customary events of default, including, among
others, those relating to failure to make payment, bankruptcy,
breaches of representations and material adverse effects. The
Company is permitted to prepay or partially prepay the PPP Loan at
any time with no prepayment penalties.
The
PPP Loan may be partially or fully forgiven if the Company complies
with the provisions of the CARES Act, including the use of PPP Loan
proceeds for payroll costs, rent, utilities and other expenses,
provided that such amounts are incurred during the eight-week
period that commenced on April 24, 2020 and at least 75% of any
forgiven amount has been used for covered payroll costs as defined
by the CARES Act. Any forgiveness of the PPP Loan will be subject
to approval by the SBA and the Lender and will require the Company
to apply for such treatment in the future.
21
NOTE 6 — COMMON STOCK UNITS, COMMON STOCK AND COMMON STOCK
WARRANTS
During
the three months ended June 30, 2020, we issued 369,000 shares of
common stock pursuant to stock awards under the 2006 Equity
Incentive Plan.
During
the year ended December 31, 2019, 1,544,926 shares of common stock
were issued pursuant to stock awards under the 2006 Equity
Incentive Plan.
We
currently have 98,013,256 warrants outstanding at an exercise price
between $0.35 and $5.00 per share.
On
September 12, 2019, the Company received a letter from the NYSE
American indicating that the NYSE American had determined, pursuant
to Section 1003(f)(v) of the NYSE American Company Guide, that the
Company’s common stock had been selling for a low price per
share for a substantial period of time. Accordingly, the Company
was required to demonstrate sustained price improvement or effect a
reverse stock split of its common stock by no later than March 12,
2020, in order to maintain the listing of the Company’s
common stock on the NYSE American. On March 12, 2020, the
Company was advised by the NYSE American that the price deficiency
had not been cured by the end of the six-month period, but that the
NYSE American had granted the Company additional time until its
2020 Annual Meeting of Stockholders to implement a reverse stock
split. The June 19, 2020 Annual Meeting of Stockholders was
adjourned without conducting any business, until Friday, July 17,
2020 in order to solicit additional proxies for Proposal 3
concerning authority to provide the Board with the flexibility to
implement a reverse stock split, if appropriate. The meeting
was reconvened on July 17, 2020, at which time the company
announced that it had received stockholder approval for all
proposals, including authorization for the Board of Directors to
implement a reverse stock split. The Company will work with the
NYSE American to assess actions, if any, required to maintain
compliance with the continuing listing requirements of the NYSE
American.
In
the interim, the Company’s common stock remains listed on the
NYSE American, under the trading symbol “GMO”, subject
to the Company’s compliance with other continued listing
requirements and subject to the trading price remaining above a
required $0.06 minimum per share. The NYSE American has added
the designation of “.BC” to indicate that the Company
is below compliance with the listing standards set forth in the
Company Guide.
On
December 27, 2019, the Company issued warrants to purchase
8,556,456 shares of common stock in connection with the exchange of
its senior notes as discussed above at an exercise price of $0.35
with a three-year term. These warrants are equity-classified. The
Company used a Black-Scholes model to determine the fair value of
the warrants at the date of issuance using the following inputs to
the model:
|
December 27,
2019
|
Stock
Price
|
$0.23
|
Exercise
Price
|
$0.35
|
Expected
Term
|
3.0 years
|
Stock
Volatility
|
40.0%
|
Risk-Free
Interest Rate
|
1.6%
|
On December 9, 2019, the Company and an affiliate
of AMER announced the closure of a $4 million private placement at
a price of $0.40 per common share of General Moly under a new
Securities Purchase Agreement (“SPA”) and amended and
restated warrant agreement for the purchase of up to 80 million
shares of common stock at $0.50 per share (“New AMER
Warrant”). Additionally, the parties agreed to a mutual
release, terminating the previous AMER Investment Agreement, the
prior Warrant, and the Dispute Negotiation Extension
Agreement. These warrants are not indexed to the
Company’s own stock. Therefore, these warrants are
classified as a liability and subsequently measured at fair value
with changes in fair value recorded as other income/expense in the
Statements of Operations. The Company uses a Monte
Carlo Simulation to determine the fair value of the warrants at the
end of each reporting period based on the number of warrants
expected to vest. At June 30, 2020 and December 31, 2019, the
warrants had a fair value of $0.6 million and $1.1 million,
respectively, resulting in a non-cash gain of $0.5 million recorded
as other income in the Statement of Operations. The following
inputs to the model were used at June 30, 2020 and December 31,
2019:
|
June 30,
2020
|
December 31,
2019
|
Stock
Price
|
0.16
|
$0.24
|
Exercise
Price
|
0.50
|
0.50
|
Expected
Term
|
7.8 years
|
7.8 years
|
Stock
Volatility
|
40.0%
|
40.0%
|
Risk-Free
Interest Rate
|
0.6%
|
1.8%
|
22
On
October 17, 2018, the Company announced an underwritten public
offering of 9,151,000 units at a price of $0.25 per share, with
each unit consisting of one share of common stock accompanied by
one warrant exercisable for one share of common stock immediately
upon closing at a price of $0.35 per share. The offering provided
net proceeds of approximately $1.9 million after underwriting
commissions and expenses. Mr. Bruce Hansen, Chief Executive Officer
of the Company and a related party, participated in the offering
for a total of $0.5 million. The Company used the proceeds for
general corporate purposes, including the ongoing preliminary
drilling program for the exploration of zinc, copper and silver
mineralization at the southeast area of the Mt. Hope
Project.
Of the
warrants outstanding at June 30, 2020, 8.6 million are exercisable
at $0.35 per share at any time from December 27, 2019 through their
expiration on December 26, 2022, 1.0 million are exercisable at
$5.00 per share once General Moly has received financing necessary
for the commencement of commercial production at the Mt. Hope
Project and will expire one year thereafter, and the 80.0 million
shares of the AMER Warrant will become exercisable in increments of
12 million shares for each $100 million in Bank Loan financing AMER
assists in arranging.
Pursuant to our
amended Certificate of Incorporation, approved by the stockholders
at the general meeting of June 30, 2015, we are authorized to issue
650.0 million shares of $0.001 par value common stock.
All shares have equal voting rights, are non-assessable and
have one vote per share. Voting rights are not cumulative and
therefore, the holders of more than 50% of the common stock could,
if they choose to do so, elect all of the directors of the
Company.
NOTE 7 — REDEEMABLE PREFERRED STOCK
Pursuant to our
Certificate of Incorporation we are authorized to issue
10,000,000 shares of $0.001 per share par value preferred
stock, of which 55,000 shares are designated as Series A Preferred
Stock Shares and 5,000 are designated as Series B Preferred Stock
Shares as of June 30, 2020. The authorized but unissued shares
of preferred stock may be issued in designated series from time to
time by one or more resolutions adopted by the Board. The Board has
the authority to determine the preferences, limitations and
relative rights of each series of preferred stock.
During
the year ended December 31, 2019, the Company issued 14,000 shares
of Series A Preferred in a series of private placement agreements.
The Series
A Preferred Shares were priced at $100.00/ share and are
convertible at any time at the holder’s discretion into
common shares whereby one preferred share converts at a price of
$0.27/common share to 370.37 common shares. The conversion price
was set at the closing price of the Company’s common stock on
March 12, 2019, which was the day before announcement of the
private placement. Upon maturity or full repayment of the Senior
Convertible Notes and Promissory Notes currently outstanding, there
will be mandatory redemption of the preferred shares in exchange
for equivalent cash for the principal invested, plus any accrued
and unpaid dividends. The holders of the Series A Preferred Shares
are entitled to receive, when and if declared by the Board of
Directors and in preference to the common stock, cumulative cash or
in-kind dividends at a rate per annum of 5% of the original issue
price. In the event of a liquidation, dissolution, or winding up of
the Company, the proceeds would be distributed first to the holders
of Series A Preferred Shares prior to any distributions to holders
of common stock in an amount per share equal to the original issue
price plus any declared but unpaid dividends. The holders of Series
A Preferred Shares are entitled to vote, together with the holders
of common stock, as if the Series A Preferred Shares had
been converted to common stock on all matters
submitted to stockholders for vote. In addition, the Series A
Preferred Shares contains certain protective rights that require
the vote or consent of the holders of at least a majority of the
shares of Series A Preferred Shares.
Of the 14,000 shares
issued during the year ended December 31, 2019, 5,000 shares were
issued to MHMI. MHMI and their
investors converted all of their preferred shares to 1,851,844
common shares during the fourth quarter of
2019.
As the
Series A Preferred Shares are redeemable upon maturity or full
repayment of the Exchange Notes, it has been classified as
mezzanine equity in our Consolidated Balance Sheets. The Company
recognizes change in the redemption value as they occur by
adjusting the carrying amount of the mezzanine equity at each
reporting date. The change in the redemption value of the Series A
due to accrued and unpaid dividends since its issuance is
insignificant.
On
August 2, 2019, the Company filed a Certificate of Designation of
Series B Preferred Stock with the Delaware Secretary of State,
designating 5,000 shares of preferred stock the Series B
Convertible Preferred Shares. On August 5, 2019, the Company
executed the Series B Purchase Agreement with the Investors.
Pursuant to the Series B Purchase Agreement, the Investors agreed
to purchase up to $400,000 of Series B Convertible Preferred
Shares. This transaction closed on August 7, 2019.
The
Series B Convertible Preferred Shares were issued at a price of
$100.00 per share, and each Series B Convertible Preferred Share
will be convertible at any time at the holder’s discretion
into 500 shares of common stock of the Company. The Series B
Convertible Preferred Shares carry a 5% annual dividend, which may
be paid, in the Company’s sole discretion, in cash,
additional shares of Series B Convertible Preferred Shares or a
combination thereof. The Series B Convertible Preferred Shares,
like the Series A Convertible Preferred Shares, are mandatorily
redeemable at such time that the Company’s $7.2 million in
Exchange Note debt currently outstanding becomes due and payable in
accordance with its terms, as such terms may be modified from time
to time.
23
On
March 27, 2020, the Company filed Certificates of Amendment to the
Certificates of Designation for the Series A and B Convertible
Preferred Stock clarifying that the private exchange offer
completed by the Company in December 2019, constituted a
modification of the Old Notes for purposes of the mandatory
redemption provisions of the Series A and B Preferred Shares.
Accordingly, the Series A and B Preferred Shares are mandatorily
redeemable on such date as a majority of the then-outstanding
principal amount of the Exchange Notes become due and payable in
accordance with their terms (as may be altered by modification,
amendment, exchange or otherwise, from time to time).
NOTE 8 — EQUITY INCENTIVES
In
2006, the Board and shareholders of the Company approved the 2006
Equity Incentive Plan (“2006 Plan”), and in
May 2010, our shareholders approved an amendment and
restatement of the 2006 Plan increasing the number of shares that
may be issued under the plan by 4,500,000 shares to 9,600,000
shares and extend the expiration date of the 2006 Plan to May 2020,
as well as making other technical changes related to tax law and
accounting rule changes, and to make administrative clarifying
changes. In June 2016, our shareholders approved an additional
amendment to the 2006 Plan increasing the number of shares that may
be issued under the plan by 5,000,000 shares to 14,600,000 shares.
In June 2019, our shareholders approved an amendment and
restatement of the 2006 Plan increasing the number of shares that
may be issued under the plan by 6,500,000 shares to 21,100,000
shares and, which by its terms, extends the expiration date to June
2029. The 2006 Plan authorizes the Board, or a committee of the
Board, to issue or transfer up to an aggregate of 21,100,000 shares
of common stock, of which 7,855,920 remain available for issuance
as of June 30, 2020. Awards under the 2006 Plan may include
incentive stock options, non-statutory stock options, restricted
stock units, restricted stock awards, and stock appreciation rights
(“SARs”). At the option of the Board, SARs may be
settled with cash, shares, or a combination of cash and shares. The
Company settles the exercise of other stock-based compensation with
newly issued common shares.
Stock-based
compensation cost is estimated at the grant date based on the
award’s fair value as calculated by the Black-Scholes option
pricing model and is recognized as compensation ratably on a
straight-line basis over the requisite vesting/service period. As
of June 30, 2020, there was $0.4 million of total unrecognized
compensation cost related to share-based compensation arrangements,
which is expected to be recognized over a weighted-average period
of 2.5 years.
Stock Options and Stock Appreciation Rights
All
stock options and SARs are approved by the Board prior to or on the
date of grant. Stock options and SARs are granted at an exercise
price equal to or greater than the Company’s closing stock
price on the date of grant. Both award types vest over a period of
zero to three years with a contractual term of five years after
vesting. The Company estimates the fair value of stock options and
SARs using the Black-Scholes valuation model. Key inputs and
assumptions used to estimate the fair value of stock options and
SARs include the grant price of the award, expected option term,
volatility of the Company’s stock, the risk-free rate and the
Company’s dividend yield.
At June
30, 2020, the outstanding and exercisable (fully vested) SARs had
an aggregate intrinsic value of nil and had a weighted-average
remaining contractual term of 0.8 years. No SARs were exercised
during the three and six months ended June 30, 2020.
Restricted Stock Units and Stock Awards
Grants
of restricted stock units and stock awards (“Stock
Awards”) have been granted as performance based awards,
earned over a required service period, or to Board members and the
Company Secretary without any service requirement. Performance
based grants are recognized as compensation based on the probable
outcome of achieving the service condition. Stock Awards issued to
members of the Board of Directors and the Company Secretary that
are fully vested at the time of issuance are recognized as
compensation upon grant of the award.
The
compensation expense recognized by the Company for Stock Awards is
based on the closing market price of the Company’s common
stock on the date of grant. For the three and six months ended June
30, 2020, the weighted-average grant date fair value for Stock
Awards was $0.24. The total fair value of stock awards vested
during the three and six months ended June 30, 2020 is $0.5
million.
24
Summary of Equity Incentive Awards
The
following table summarizes activity under the Plans during the six
months ended June 30, 2020:
|
SARs
|
Stock Awards
|
||
|
Weighted
|
Number
|
Weighted
|
|
|
Average
|
of Shares
|
Average
|
|
|
Strike
|
Under
|
Grant
|
Number of
|
|
Price
|
Option
|
Price
|
Shares
|
Balance
at January 1, 2019
|
$3.19
|
938,667
|
$1.18
|
2,401,268
|
Awards
Granted
|
—
|
—
|
0.24
|
135,000
|
Awards
Exercised or Earned
|
—
|
—
|
0.38
|
(2,115,000)
|
Awards
Forfeited
|
—
|
—
|
—
|
—
|
Awards
Expired
|
2.56
|
(28,830)
|
—
|
—
|
Balance
at December 31, 2019
|
$3.21
|
909,837
|
$4.90
|
421,268
|
|
|
|
|
|
Exercisable
at December 31, 2019
|
$1.69
|
27,693
|
|
|
|
SARs
|
Stock Awards
|
||
|
Weighted
|
Number
|
Weighted
|
|
|
Average
|
of Shares
|
Average
|
|
|
Strike
|
Under
|
Grant
|
Number of
|
|
Price
|
Option
|
Price
|
Shares
|
Balance
at January 1, 2020
|
$3.21
|
909,837
|
$4.90
|
421,268
|
Awards
Granted
|
—
|
—
|
0.24
|
2,569,000
|
Awards
Exercised or Earned
|
—
|
—
|
0.24
|
(2,569,000)**
|
Awards
Forfeited
|
—
|
—
|
—
|
—
|
Awards
Expired
|
—
|
—
|
—
|
—
|
Balance
at June 30, 2020
|
$3.21
|
909,837
|
$4.90
|
421,268
|
|
|
|
|
|
Exercisable
at June 30, 2020
|
$1.69
|
27,693
|
|
|
**
Of the shares exercised or earned as of June 30, 2020, 2,200,000
shares vested on June 30, 2020. Employees elected to surrender
112,204 shares to cover the tax liability associated with their
award vesting resulting in shares issued during July 2020 of
247,716. The remaining 1,840,000 shares vested at June 30, 2020
were awarded to officers of the Company who agreed to defer
issuance of the physical shares until such time as the Company
receives incremental financing or December 31, 2020, whichever
occurs earlier.
A
summary of the status of the non-vested awards as of June 30, 2020
and changes during the six months there ended is presented
below:
|
SARs
|
Stock Awards
|
||
|
Weighted
|
Number
|
Weighted
|
|
|
Average
|
of Shares
|
Average
|
|
|
Fair
|
Under
|
Fair
|
Number of
|
|
Value
|
Option
|
Value
|
Shares
|
Balance
at January 1, 2019
|
$3.26
|
882,144
|
$1.18
|
2,401,268
|
Awards
Granted
|
—
|
—
|
0.24
|
135,000
|
Awards
Vested or Earned
|
—
|
—
|
0.63
|
(535,000)
|
Awards
Forfeited
|
—
|
—
|
—
|
—
|
Balance
at June 30, 2019
|
$3.25
|
892,896
|
$1.34
|
2,001,268
|
|
|
|
|
|
|
Weighted
|
Number
|
Weighted
|
|
|
Average
|
of Shares
|
Average
|
|
|
Fair
|
Under
|
Fair
|
Number of
|
|
Value
|
Option
|
Value
|
Shares
|
Balance
at January 1, 2020
|
$3.26
|
882,144
|
$4.90
|
421,268
|
Awards
Granted
|
—
|
—
|
0.24
|
2,569,000
|
Awards
Vested or Earned
|
—
|
—
|
0.24
|
(2,569,000)
|
Awards
Forfeited
|
—
|
—
|
—
|
—
|
Balance
at June 30, 2020
|
$3.26
|
882,144
|
$4.90
|
421,268
|
|
|
|
|
|
25
NOTE 9 — CHANGES IN CONTINGENTLY REDEEMABLE NONCONTROLLING
INTEREST AND EQUITY
|
Activity for
|
|
|
Six Months Ended
|
|
|
June 30,
|
June 30,
|
Changes CRNCI (Dollars in thousands)
|
2020
|
2019
|
Total
CRNCI December 31, 2019 and 2018, respectively
|
$172,239
|
$172,261
|
Loss
on Impairment Charge
|
(47,716)
|
|
Net
Loss Attributable to CRNCI
|
(35)
|
(11)
|
Total
CRNCI June 30, 2020 and 2019, respectively
|
$124,488
|
$172,250
|
|
Activity for
|
|
|
Six Months Ended
|
|
|
June 30,
|
June 30,
|
Changes Redeemable Preferred Stock
(Dollars in thousands)
|
2020
|
2019
|
Total
Redeemable Preferred Stock December 31, 2019 and 2018,
respectively
|
$1,300
|
$—
|
Redeemable
Preferred Stock Issued
|
—
|
300
|
Preferred
Stock Redeemed
|
—
|
—
|
Total
Redeemable Preferred Stock June 30, 2020 and 2019,
respectively
|
$1,300
|
$300
|
NOTE 10 — INCOME TAXES
At June
30, 2020 and December 31, 2019, we had deferred tax assets
principally arising from the net operating loss carry-forwards for
income tax purposes multiplied by an expected rate of 21%. As
management of the Company cannot determine that it is more likely
than not that we will realize the benefit of the deferred tax
assets, a valuation allowance equal to the net deferred tax asset
has been established at June 30, 2020 and December 31,
2019.
We
establish a valuation allowance against the deferred tax assets if,
based on available information, it is more likely than not that all
of the assets will not be realized. The valuation allowance of
$81,038 and $35,429 at June 30, 2020 and December 31, 2019,
respectively, relates mainly to net operating loss carryforwards
where the utilization of such attributes is not more likely than
not. The Company continually assesses both positive and negative
evidence to determine whether it is more likely than not that
deferred tax assets can be realized prior to their
expiration.
As of
June 30, 2020 and December 31, 2019, the Company had federal net
operating losses of $282.8 million and $280 million, respectively.
$261 million of the losses were generated before 2018 and expire in
varying amounts in 2021-2037. Losses generated after 2017 of
$21.8 million have an indefinite carryover period.
As of
June 30, 2020 and 2019, the Company had no unrecognized tax
benefits. There was no change in the amount of unrecognized tax
benefits as a result of tax positions taken during the year or in
prior periods or due to settlements with taxing authorities or
lapses of applicable statues of limitations.
On
March 27, 2020, President Trump signed into U.S. federal law the
CARES Act, which is aimed at providing emergency assistance and
health care for individuals, families, and businesses affected by
the COVID-19 pandemic and generally supporting the U.S. economy.
The CARES Act, among other things, includes provisions relating to
refundable payroll tax credits, deferment of employer side social
security payments, net operating loss carryback periods,
alternative minimum tax credit (“AMT”) refunds,
modifications to the net interest deduction limitations and
technical corrections to tax depreciation methods for qualified
improvement property. In particular, the CARES Act, (i) eliminates
the 80% of taxable income limitation by allowing corporate entities
to fully utilize NOLs to offset taxable income in 2018, 2019 or
2020, (ii) increases the net interest expense deduction limit to
50% of adjusted taxable income from 30% for tax years beginning
January 1, 2019 and 2020 and (iv) allows taxpayers with AMT credits
to claim a refund in 2020 for the entire amount of the credit
instead of recovering the credit through refunds over a period of
years, as originally enacted by the Tax Cuts and Jobs Act in
2017. The Company did not identify any impact of these
provisions on the Company’s income taxes.
The
Company and/or its subsidiaries file income tax returns in the U.S.
federal jurisdiction, and various state jurisdictions. Without
exception, the Company is no longer subject to U.S. Federal, state
and local income tax examinations by tax authorities for years
before 2014. The Company is open to federal and state tax audits
until the applicable statutes of limitations expire.
26
NOTE 11 — COMMITMENTS AND CONTINGENCIES
Mt.
Hope Project
The Mt.
Hope Project is owned/leased and will be operated by the LLC under
the LLC Agreement. The LLC currently has a lease (“Mt. Hope
Lease”) with Mount Hope Mines, Inc. (“MHMI”)
for a period of 30 years from October 19, 2005 and for so long
thereafter as operations are being conducted on the property. The
lease may be terminated earlier at the election of the LLC, or upon
a material breach of the agreement and failure to cure such breach.
If the LLC terminates the lease, termination is effective 30 days
after receipt by MHMI of written notice to terminate the Mt. Hope
Lease and no further payments would be due to MHMI. If MHMI
terminates the lease, termination is effective upon receipt of a
notice of termination due to a material breach, representation,
warranty, covenant or term contained in the Mt. Hope Lease and
followed by failure to cure such breach within 90 days of receipt
of a notice of default. MHMI may also elect to terminate the Mt.
Hope Lease if the LLC has not cured the non-payment of obligations
under the lease within 10 days of receipt of a notice of default.
In order to maintain the Lease Agreement, the LLC must pay certain
minimum advance royalties as discussed below.
The Mt.
Hope Lease requires a royalty advance (“Construction Royalty
Advance”) of 3% of certain construction capital costs, as
defined in the Mt. Hope Lease. The LLC is obligated to pay a
portion of the Construction Royalty Advance each time capital is
raised for the Mt. Hope Project based on 3% of the expected capital
to be used for those certain construction capital costs defined in
the Mt. Hope Lease. Through March 31, 2020, we have paid $26.1
million of the total royalty advance. Based on our Mt. Hope Project
capital budget we estimate that a final reconciliation payment on
the Capital Construction Cost Estimate (the “Estimate”)
will be due following the commencement of commercial production,
after as-built costs are definitively determined. The Company
estimates, based on the revised capital estimate discussed above
and the current timeline for the commencement of commercial
production, that an additional $5.4 million will be due
approximately 24 months after the commencement of construction.
This amount has been accrued for all periods presented as accrued
advance royalties. The capital estimates may be subject to
escalation in the event the Company experiences continued delays in
achieving full financing for the Mt. Hope Project.
The LLC
is also obligated to make a minimum annual advance royalty payment
(“Annual Advance Royalty”) of $0.5 million each
October 19 for any year wherein commercial production has not
been achieved or the MHMI Production Royalty (as hereinafter
defined) is less than $0.5 million. As commercial production is not
anticipated to commence before early-2023, the Company has accrued
$2.0 million in Annual Advance Royalty payments which will be due
in four $0.5 million installments in October 2020, 2021, 2022,
and 2023 respectively. The Estimate and the Annual Advance Royalty
are collectively referred to as the “Advance
Royalties.” All Advance Royalties are credited against the
MHMI Production Royalties once the mine has achieved commercial
production. After the mine begins production, the LLC estimates
that the MHMI Production Royalties will be in excess of the Annual
Advance Royalties for the life of the Mt. Hope Project. Until the
advance royalties are fully credited, the LLC will pay one half of
the calculated Production Royalty annually. Assuming a $12
molybdenum price, the Annual Advance Royalties will be consumed
within the first five years of commercial production.
On
February 28, 2018, the LLC) and MHMI entered into a Second
Amendment dated effective January 15, 2018 (the “Lease
Amendment”), to the Mt. Hope Lease. The Lease Amendment
provides that following commencement of commercial production of
any non- molybdenum minerals at the Mt. Hope Project, the LLC will
pay a production royalty to MHMI as follows:
●
For zinc, the
production royalty shall be equal to (i) 4.0% of net returns when
the average gross value for the calendar quarter is less than or
equal to $2.00 per pound; (ii) 4.5% of net returns when the average
gross value is between $2.01 and $2.49 per pound; and (iii) 5.0% of
net returns when the average gross value is $2.50 per pound or
greater; and
●
For all other
non-molybdenum minerals, the production royalty shall be equal to
4.0% of net returns.
If commercial
production of non-molybdenum minerals commences before commercial
production of molybdenum, the Lease Amendment provides that the
LLC’s obligation to pay the annual advance royalty under the
Mt. Hope Lease will continue until the LLC has paid MHMI an
aggregate of $3 million in non-moly production royalties in a
three-year period. After this threshold is met, then payment of the
advance royalty may be deferred in whole or in part if the non-moly
production royalty exceeds specified levels. After non-moly
production royalties have exceeded $10,000,000, future payments may
be credited against future production royalties under certain
circumstances.
Additionally, Exxon
Corporation will receive a perpetual 1% royalty interest in and to
all ores, metals, minerals and metallic substances mineable or
recoverable from the Mt. Hope Project in kind at the mine or may
elect to receive cash payment equal to 1% of the total amount of
gross payments received from the purchaser of ores
mined/removed/sold from property net of certain
deductions.
27
The
Liberty Project
Liberty
Moly continues to work with the Nevada Division of Environmental
Protection (“NDEP”) to address environmental concerns
with some Liberty Project facilities acquired with the property. We
have implemented remedial treatment of the Liberty pit lake and
developed and implemented procedures to manage process solutions
draining from the pre-existing leach pad, as required by NDEP. We
may be required to treat the pit lake again, and/or revise our
systems to manage heap leach solution. At this time we are working
with NDEP to reasonably estimate the scope and costs of addressing
these issues..
Deposits
on project property, plant and equipment
As
discussed in Note 1, the LLC has active orders with varying stages
of fabrication on milling process equipment comprised of two 230kV
primary transformers and substation, a primary crusher, a
semi-autogenous mill, two ball mills, and various motors for the
mills with remaining cash commitments of $0.6 million due on these
orders.
Equipment
and Supply Procurement
Through
June 30, 2020, the LLC has made deposits and/or final payments of
$88.0 million on equipment orders and has spent approximately
$208.9 million for the development of the Mt. Hope Project, for a
total Mt. Hope Project inception-to-date spend of $298.9
million.
In
2012, the LLC issued a firm purchase order for eighteen haul
trucks. The order provides for delivery of those haul trucks
required to perform initial mine development, which will begin
several months prior to commercial production. Non-refundable
down-payments of $1.2 million were made in 2012, with pricing
subject to escalation as the trucks were not delivered prior to
December 31, 2013. Since that time, the LLC has renegotiated
the timelines for truck delivery and delayed deliveries into
December 2020. The contract is cancellable with no further
liability to the LLC.
Also in
2012, the LLC issued a firm purchase order for four mine production
drills with a non-refundable down-payment of $0.4 million, and
pricing was subject to escalation if the drills were not delivered
by the end of 2013. Since that time, the LLC accepted a change
order which delayed delivery into December 2020. The contract
remains cancellable with no further liability to the
LLC.
On
June 30, 2012, the LLC’s contract to purchase two
electric shovels expired. On July 11, 2012, we signed a letter
of intent with the same vendor providing for the opportunity to
purchase the electric shovels at prices consistent with the expired
contract, less a special discount in the amount of $3.4 million to
provide credit to the LLC for amounts paid as deposits under the
expired contract. The letter of intent provides that equipment
pricing will remain subject to inflation indexes and guarantees
production slots to ensure that the equipment is available when
required by the LLC. Since that time, the parties agreed to extend
the letter of intent through December 31, 2020.
Obligations
under capital and operating leases
We have
contractual operating leases that will require a total of $0.1
million in payments over the next three years. Operating leases
consist primarily of rents on office facilities and office
equipment. Our expected payments are $0.1 million, nil, and nil for
the years ended December 31, 2020, 2021, and 2022,
respectively.
Creation
of Agricultural Sustainability Trust
On
August 19, 2010, the LLC entered into an agreement with the
Eureka Producers’ Cooperative (“EPC”), which was
amended on October 15, 2018, whereby the LLC will fund a $5.6
million Sustainability Trust (“Trust”) in exchange for
the cooperation of the EPC with respect to the LLC’s water
rights and permitting of the Mt. Hope Project. The Trust will be
tasked with developing and implementing programs that will serve to
enhance the sustainability and well-being of the agricultural
economy in the Diamond Valley Hydrographic Basin through reduced
water consumption.
The LLC
has contributed $0.1 million into the Trust as of June 30, 2020.
The remaining contributions to the Trust may be funded by the LLC
over several years based on the achievement of certain milestones,
which are considered probable, and as such $5.5 million has been
accrued in the Company’s financial statements and is included
in mining properties, land, and water rights.
28
Permitting
Considerations
In the
ordinary course of business, mining companies are required to seek
governmental permits for expansion of existing operations or for
the commencement of new operations. The LLC is required to obtain
approval, in the form of a Record of Decision (“ROD”),
from the BLM to implement the Mt. Hope Project Plan of Operations
(“PoO”). The LLC is also required to obtain various
state and federal permits including, but not limited to, water
protection, air quality, water rights and reclamation. In addition
to requiring permits for the development of the Mt. Hope Project,
we will need to obtain and modify various mining and environmental
permits during the life of the Mt. Hope Project. Maintaining,
modifying, and renewing the necessary governmental permits is a
complex and time-consuming process involving numerous jurisdictions
and often involving public hearings and substantial expenditures.
The duration and success of the LLC’s efforts to obtain,
modify or renew permits will be contingent upon many variables,
some of which are not within the LLC’s control. Increased
costs or delays could occur, depending on the nature of the
activity to be permitted and the interpretation of applicable
requirements implemented by the permitting authority. All necessary
permits may not be obtained and, if obtained, may not be renewed,
or the costs involved in each case may exceed those that we
previously estimated. In addition, it is possible that compliance
with such permits may result in additional costs and
delays.
History of Record of Decision (ROD)
On
November 16, 2012, the BLM issued its initial ROD authorizing
development of the Mt. Hope Project. The ROD was subsequently
vacated by the U.S. Court of Appeals for the Ninth Circuit in
December 2016, discussed below. Also, on April 23, 2015, the
BLM issued a Finding of No Significant Impact (“FONSI”)
supporting their Decision to approve an amendment to the PoO. The
initial ROD and FONSI/Decision approved the PoO and amended PoO,
respectively, for construction and operation of the mining and
processing facilities and also granted the Right-of-Way, and
amended Right-of-Way, respectively, for a 230kV power transmission
line, discussed below. Monitoring and mitigation measures
identified in the initial ROD and FONSI, developed in collaboration
with the regulatory agencies involved throughout the permitting
process, will avoid, minimize, and mitigate environmental impacts,
and reflect the Company’s commitment to be good stewards of
the environment. Ongoing changes to permits and the PoO during the
life of mining operations are typical as design evolves and
operations are optimized.
On
February 15, 2013, Great Basin Resource Watch and the Western
Shoshone Defense Project (“Plaintiffs”) filed a
Complaint against the U.S. Department of the Interior and the BLM
(“Defendants”) in the U.S. District Court, District of
Nevada (“District Court”), seeking relief under the
National Environmental Policy Act (“NEPA”) and other
federal laws challenging the BLM’s issuance of the initial
ROD for the Mt. Hope Project, and on February 20, 2013 filed a
Motion for Preliminary Injunction. The District Court allowed the
LLC to intervene in the matter.
On
August 22, 2013, the District Court denied, without prejudice,
Plaintiffs’ Motion for Preliminary Injunction based on a
Joint Stipulation to Continue Preliminary Injunction Oral Argument,
which advised the District Court that as a result of economic
conditions, including the Company’s ongoing financing
efforts, all major ground disturbing activities had ceased at the
Mt. Hope Project.
On July
23, 2014, the District Court denied Plaintiffs’ motion for
summary judgment in its entirety and on August 1, 2014 the Court
entered judgment in favor of the Defendants and the LLC, and
against Plaintiffs regarding all claims raised in the
Complaint.
Thereafter, on
September 22, 2014, the Plaintiffs filed their notice of
appeal to the U.S. Court of Appeals for the Ninth Circuit
(“Ninth Circuit”) of the District Court’s
dismissal. Oral argument of the parties before the Ninth Circuit
was completed on October 18, 2016. On
December 28, 2016, the Ninth Circuit issued its Opinion rejecting
many of the arguments raised by the Plaintiffs challenging the
Environmental Impact Statement ("EIS") completed for the Mt.
Hope Project, but issued a narrow reversal of the BLM's findings
related to air quality analysis and information related to
potential public water resources. Because of this technical
deficiency, the Court vacated the initial ROD.
Re-Issuance of Record of Decision Approving Supplemental
Environmental Impact Statement (“SEIS”)
On
remand to the BLM, the agency conducted additional evaluation of
air quality impacts and resulting cumulative impact analysis under
NEPA in preparation of a Supplemental Environmental Impact
Statement (“SEIS”). The SEIS disclosed additional
information to the public related to the selection of appropriate
background concentrations to use for dispersion modeling of air
pollutants and information related to potential public water
reserves. Because the SEIS must be prepared in accordance with NEPA
guidelines, the SEIS process included three publications in the
Federal Register: the first was the Notice of Intent
(“NOI”) which was published on July 19, 2017; the
second, the Notice of Availability (“NOA”) of the Draft
SEIS (“DSEIS”) was published on March 6, 2019;
and on September 27, 2019, the third, an NOA of the final SEIS
was published announcing that the BLM had re-issued the ROD marking
completion of the NEPA process and approval of the SEIS. On October
31, 2019, a Complaint was filed against the U.S. Department of
Interior and the BLM in the U.S. District Court in Nevada,
challenging the re-issuance of the ROD. On March 11, 2020, the LLC
filed its unopposed Motion to Intervene in the U.S. District Court
on behalf of the Mt. Hope Project. The District Court approved the
LLC’s intervention on March 19, 2020 and the LLC’s
Answer to the Complaint was filed on March 20, 2020. The LLC will
work closely with the BLM and DOI to defend the claims filed by
Great Basin Resource Watch and Western Shoshone Defense
Project.
29
Reclamation Considerations
Environmental
regulations related to reclamation require that the cost for a
third party contractor to perform reclamation activities on the
minesite be estimated. In October 2015, we submitted a request to
the BLM to reduce our reclamation liability to current surface
disturbance. Simultaneously, we submitted an application to the
Nevada Department of Environmental Protection (“NDEP”)
Bureau of Mining Regulation and Reclamation
(“NDEP-BMRR”) to modify the Reclamation Permit to
reflect this reduced reclamation liability. On October 26, 2015,
NDEP-BMRR approved the proposed permit modification, including the
reduced reclamation liability amount. On December 21, 2015, BLM
approved the updated reclamation liability estimate, reducing of
the reclamation liability to approximately $2.8 million. In early
2019, the Company submitted, and BLM approved a required 3-year
update to the reclamation liability estimate, resulting in an
increased liability of approximately $3.1 million. We worked with
the LLC’s reclamation surety underwriters to satisfy the $2.8
million financial guarantee requirements under the approved amended
PoO for the Mt. Hope Project and funded the $0.3 million increase
in cash directly with the BLM in April 2019. As of June 30, 2020,
the surety bond program was funded with a cash collateral payment
of $0.3 million.
Water
Rights Considerations
History of Mt. Hope Water Permits
In July
2011, the Nevada State Engineer (“State Engineer”)
initially approved our applications for new appropriation of water
for mining and milling use, and applications to change existing
water from agricultural use to mining and milling use for the Mt.
Hope Project. Subsequently, the State Engineer granted water
permits associated with the approved applications and approved a
Monitoring, Management and Mitigation Plan (“3M Plan”)
for the Mt. Hope Project. Eureka County, Nevada and two other
parties comprised of water rights holders in Diamond Valley and
Kobeh Valley appealed the State Engineer’s decision approving
the applications and granting the water permits to the Nevada State
District Court (“District Court”) and then filed a
further appeal to the Nevada Supreme Court challenging the District
Court’s decision affirming the State Engineer’s
decision to approve the applications and grant the water permits.
In June 2013, the appeal was consolidated by the Nevada Supreme
Court with an appeal of the State Engineer’s approval of the
3M Plan filed by two water rights holders. The District Court
previously upheld the State Engineer’s approval of the 3M
Plan and the two parties subsequently appealed the District
Court’s decision to the Nevada Supreme Court.
On
September 18, 2015, the Nevada Supreme Court issued an Order that
reversed and remanded the cases to the District Court for further
proceedings consistent with the Order. On October 29, 2015, the
Nevada Supreme Court issued the Order as a published Opinion. The
Nevada Supreme Court ruled that the State Engineer did not have
sufficient evidence in the record at the time he approved the
applications and granted the water permits to demonstrate that
successful mitigation may be undertaken so as to dispel the threat
to existing water rights holders.
On
September 27, 2017, the Nevada Supreme Court affirmed a March 4,
2016 District Court Order vacating the 3M Plan, denying the water
applications and vacating the permits issued by the State Engineer
in July 2011 and June 2012. This decision of the Nevada Supreme
Court was final, and not subject to further appeal.
New Change Applications for Water Use at Mt. Hope
Project
After
the Company received the September 2017 decision from the Nevada
Supreme Court, it proceeded with new applications to change
existing agricultural irrigation and mining/milling water rights
owned by the Company to use at the Mt. Hope Project. These new
change applications had been filed with the State Engineer in 2015
and 2016 while the above described appeals were pending before the
Nevada Supreme Court. Originally, these applications and other new
appropriation applications were to be addressed at a pre-hearing
conference scheduled on August 25, 2016 before the State Engineer.
These applications were the subject of a Writ of Prohibition or
Mandamus (“Writ”) filed by Eureka County on August 23,
2016 to the Nevada Supreme Court seeking the Supreme Court’s
intervention to stop further action by the State Engineer while the
appeals discussed above were pending. On December 22, 2017 the
Nevada Supreme Court denied Eureka County’s Writ Petition. As
a result, the State Engineer allowed a pre-hearing conference held
on January 24, 2018. At the pre-hearing conference the State
Engineer and his hearing officer scheduled review of the new change
applications for a September 11, 2018 hearing in Carson City,
Nevada.
On
January 2, 2018, Eureka County, and later joined by the other two
protestants representing a rancher in Kobeh Valley and a ranching
group in Diamond Valley, filed a motion to dismiss with the State
Engineer asserting that our applications were precluded from review
and approval asserting that they were repetitive of the
applications denied previously by the Nevada Supreme Court in its
September 2017 decision. On March 26, 2018, the State Engineer
issued a non-final order denying the motion to dismiss finding that
the applications to be reviewed at the upcoming hearing were not
identical issues and that further consideration of the motion could
be taken at the hearing. On May 14, 2018, Eureka County, joined by
the other protestants filed a Writ to the Nevada Supreme Court and
later a Motion to Stay the September hearing date, asserting that
the denial of the Motion to Dismiss was erroneous and that the
Nevada Supreme Court should order that the applications be denied
and/or the September 2018 hearing should be delayed until the
Nevada Supreme Court can consider the Writ and underlying motion to
dismiss. The Company filed its objection on June 27, 2018, and on
August 30, 2018, the Nevada Supreme Court denied the Writ,
permitting the September 2018 hearing before the Nevada State
Engineer to proceed.
30
On the
second day of the September hearing, all protest issues raised by
Eureka County and the Diamond Natural Resources Protections &
Conservation Association (“DNR”) concerning the Mt.
Hope water rights applications were resolved through a Stipulation,
Settlement Agreement and Withdrawal of Protest
(“Settlement”). After Eureka County and DNR were
excused, the hearing continued with evidence addressing concerns
raised by another protestant representing a Kobeh Valley ranching
family and cattle company that refused to participate in the
Settlement. At the public hearing, the Company presented expert
testimony in support of its augmentation and monitoring plan to the
Nevada State Engineer, which will protect senior water rights in
the Kobeh Valley basin when the Company commences construction and
operation of its proposed Mt. Hope molybdenum project near the town
of Eureka, Nevada. The hearing concluded on September 21,
2018.
Effective April 30,
2019, the Company, through its wholly owned subsidiary Kobeh Valley
Ranch LLC (“KVR”) entered into a settlement agreement
with a Kobeh Valley, Nevada ranching family
(“Ranchers”), resolving the last set of protests
pending before the Nevada State Engineer pertaining to the Mt. Hope
Project’s water rights applications.
On June
6, 2019, the Nevada State Engineer issued Ruling 6464 granting the
Company’s water rights applications for mining purposes. The
water right permits for the Mt. Hope Project were issued on July
24, 2019. With receipt of and in compliance with the terms of the
water permits, the water is available for consumptive use at the
Mt. Hope Project. Neither the issuance of Ruling 6464 nor the
issuance of the water permits were challenged, and the deadline for
filing any appeal has expired.
Key Terms of Settlements
Eureka County and the DNR
Under
the terms of the Settlement with Eureka County and the DNR, the
Company and the LLC agreed to convey all related water rights for
Mt. Hope Project at the future cessation of all mining activity to
assist Eureka County and the DNR’s efforts to mitigate the
pre-existing effects of agricultural groundwater pumping in Diamond
Valley. Furthermore, upon construction of certain power
infrastructure and grants of right of way by the LLC at the Mt.
Hope Project, the Company and the LLC will work cooperatively with
Eureka County to allow use of and access to such infrastructure to
lessen the pre-existing effects of Diamond Valley groundwater
pumping. Eureka County, and the Company and the LLC, also agreed to
work cooperatively to seek opportunities to improve and implement
groundwater monitoring efforts.
In
addition, the Company withdrew its protests to Eureka
County’s pending applications with the Nevada State Engineer
to appropriate water from the Kobeh Valley basin, and at the
request of DNR, the Company also agreed to publicly support the
proposed Diamond Valley Ground Water Management Plan, which was
subsequently approved by the Nevada State Engineer.
With
receipt of the water permits, the LLC increased its financial
contributions to the existing Agricultural Sustainability Trust
Agreement, discussed above, with the Eureka Producers’
Cooperative (“EPC”) in Diamond Valley with an
additional $50,000 to EPC. Initially, upon execution of the
Settlement, the LLC made a payment of $50,000.
The LLC
will make additional contributions of $750,000 each after the
commencement of molybdenum production at the Mt. Hope Project and
on the one-year anniversary of production, for a total contribution
obligation to the Sustainability Trust of $5.6 million, an increase
of $1.6 million related to the terms of the Settlement. The amount
has been accrued under mining properties, land, and water rights in
the Company’s financial statements in addition to the
previously accrued $4.0 million resulting in a total accrual of
$5.6 million. The LLC has contributed $0.1 million into the Trust
as of June 30, 2020.
The
Sustainability Trust is tasked with developing and implementing
programs that will serve to slow groundwater drawdown and thereby
improve the sustainability of the agricultural economy in the
Diamond Valley Hydrographic Basin.
Kobeh Valley Ranching Family
At the
execution of the settlement agreement, the LLC funded an initial
payment of $1 million into a trust account; distribution to the
Ranchers occurred when the water permits were issued on July 24,
2019. Upon receipt of the initial $1,000,000 into the trust
account, the Ranchers withdrew their protests and forfeited any
judicial review of Ruling 6464 and the water applications and
issuance of the water permits issued on July 24, 2019 by the Nevada
State Engineer.
When
conditions exist for the LLC to secure project financing,
additional consideration of $14,000,000 will be payable to the
Ranchers, which amount was accrued as of June 30, 2020. As the LLC
had not secured Mt. Hope Project financing within 12 months of the
executed settlement agreement or April 2020, the LLC began making
monthly payments of $10,000 to the Ranchers and will continue to do
so until financing is achieved, at which time the remaining
consideration will be paid to the Ranchers.
Pursuant to an
April 29, 2019 Consent Agreement, the members of the LLC agreed
that funding for the $1 million was advanced to the LLC by the
Company, to preserve the joint venture’s existing reserve
account. General Moly sourced $500,000 from its available cash, and
received the remaining $500,000 from closing a sale of Series A
Convertible Preferred Shares in a private placement with Mount Hope
Mines Inc. (“MHMI”), the Mt. Hope Project’s
claim/land lessor, discussed in Items 1 and 2 above and later in
Note 7 to the consolidated financial statements contained elsewhere
in this report.
31
In
exchange for General Moly advancing the $1,000,000 initial
settlement funding, the LLC members have agreed to repay
the $1 million advance from the proceeds of ongoing sales of
non-critical LLC assets and lands. On
September 27, 2019, the Company and POS-Minerals entered into a
further Consent Agreement for a reimbursement schedule concerning
the approximately $700,000 owed to the Company by the LLC in return
for the Company’s advance of funding to settle protests
related to the water right applications for the Mt. Hope Project.
Under the September Consent Agreement, $200,000 was reimbursed from
the Reserve Account to the Company on September 30, 2019 and an
additional $200,000 was reimbursed in early November. The remaining
approximately $300,000 was reimbursed in March 2020 upon the sale
by the LLC of more than $400,000 in non-critical Mt. Hope Project
related equipment.
32
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
References made in
this Quarterly Report on Form 10-Q to “we,”
“our,” “us,” or the “Company,”
refer to General Moly, Inc.
The
following discussion and analysis of our financial condition and
results of operations constitutes management’s review of the
factors that affected our financial and operating performance for
the three and six months ended June 30, 2020, and 2019. This
discussion should be read in conjunction with the consolidated
financial statements and notes thereto contained elsewhere in this
report and in our Annual Report on Form 10-K for the year
ended December 31, 2019, which was filed on May 5,
2020.
We
routinely post important information about us on our Company
website. Our website address is www.generalmoly.com. We do not
incorporate the information on our website into this document and
you should not consider any information on, or that can be accessed
through, our website as part of this document.
Overview
We
began the development of the Mt. Hope Project on October 4,
2007. During the year ended December 31, 2008 we also
completed work on a pre-feasibility study of our Liberty Project,
which we updated during 2014.
Outlook
The
cash needs for the construction and development of the Mt. Hope
Project are significant and require that we arrange for financing
to be combined with funds anticipated to be received from
POS-Minerals in order to retain its 20% membership interest. The
Company estimates the go-forward capital required for the Mt. Hope
Project, based on 65% completed engineering, to be approximately
$1,023 million, of which the Company’s 80% capital
requirement is $818 million. There is no assurance that the Company
will be successful in obtaining the financing required to complete
the Mt. Hope Project, or in raising additional financing in the
future on terms acceptable to the Company, or at all.
Based
on our current operating forecast, which takes into consideration
the fact that we currently do not generate any revenue, we believe
our existing capital resources are only adequate to sustain our
operations through September 30, 2020. In particular, we have
insufficient cash to make required interest payments on our
outstanding Exchange Notes and Supplemental Notes through the
remainder of 2020. These conditions raise substantial doubt about
the Company’s ability to continue as a going concern. If we
are unable to find an additional source of funding before the end
of September 2020, we will be forced to cease operations and pursue
restructuring or liquidation alternatives, including filing for
bankruptcy protection, in which event our common stock would likely
become worthless and investors would likely lose their entire
investment in our Company. In addition, holders of our outstanding
convertible preferred stock and senior notes would likely receive
significantly less than the principal amount of their claims and,
possibly, no recovery at all. As of the date of the filing of this
report, the Company has no commitments for additional funding and
there can be no assurance that the Company will be successful in
obtaining the financing required to continue operations or complete
the Mt. Hope Project, or in raising additional financing in the
future on terms acceptable to the Company, or at
all.
The
Company is currently pursuing a number of options to extend its
liquidity beyond the third quarter of 2020 and into 2021. The
Company’s Board of Directors retained on March 13, 2019 XMS
Capital Partners, Headwall Partners, and Odinbrook Global Advisors
(collectively, the “Advisors”), as financial advisors
to assist the Board and management with evaluating and recommending
strategic alternatives. The Company has engaged the Advisors to
assist in securing interim financing and negotiating with potential
stakeholders.
The
range of strategic alternatives being evaluated include the
potential addition of new Mt. Hope Project partners, additional
Corporate strategic investors, merger opportunities, and/or the
possible sale or privatization of the Company. The Advisors
assisted the Company in successfully restructuring the Convertible
and Non-Convertible Promissory Notes issued in a 2014 private
placement, extending maturity until December 2022 as well as
providing an additional $1.3 million in interim funding. The
Company has engaged the Advisors to assist in securing interim
financing and negotiating with potential stakeholders.
Additional
potential funding sources for the Company include public or private
equity offerings, including the sale of other assets wholly-owned
by the Company or with EMLLC joint-venture partner POS-Minerals
Corporation at the Mt. Hope Project. However, there is no assurance
that the Company will be successful in securing additional funding
in the future on terms acceptable to the Company, or at all. This
could result in further cost reductions, contract cancellations,
and potential delays which ultimately may jeopardize the
development of the Mt. Hope Project.
33
Total
assets as of June 30, 2020 decreased to $101.4 million
compared to $344.2 million as of December 31, 2019
primarily due to a non-cash impairment charge related to the Mt.
Hope Project of $260.6 million and ongoing general and
administrative costs.
Project Ownership
From
October 2005 to January 2008, we owned the rights to 100%
of the Mt. Hope Project. Effective as of January 1, 2008, we
contributed all of our interest in the assets related to the Mt.
Hope Project, the Mt. Hope Lease, discussed above, into Eureka
Moly, LLC (the “LLC”), and in February 2008
entered into a joint venture agreement (“LLC
Agreement”) for the development and operation of the Mt. Hope
Project with POS-Minerals Corporation (“POS-Minerals”).
Under the LLC Agreement, POS-Minerals owns a 20% interest in the
LLC and General Moly, through Nevada Moly, LLC (“Nevada
Moly”), a wholly-owned subsidiary, owns an 80% interest. The
ownership interests and/or required capital contributions under the
LLC Agreement can change as discussed below.
Under
the terms of the LLC Agreement, since commercial production at the
Mt. Hope Project was not achieved by December 31, 2011, the
LLC will be required to return to POS-Minerals $36.0 million, since
reduced to $33.6 million as discussed below, of its capital
contributions (“Return of Contributions”), with no
corresponding reduction in POS-Minerals’ ownership
percentage. Effective January 1, 2015, as part of a
comprehensive agreement concerning the release of the reserve
account described below, Nevada Moly and POS-Minerals agreed that
the Return of Contributions will be payable to POS-Minerals on
December 31, 2020; provided that, at any time on or before
November 30, 2020, Nevada Moly and POS-Minerals may agree in
writing to extend the due date to December 31, 2021; and if
the due date has been so extended, at any time on or before
November 30, 2021, Nevada Moly and POS-Minerals may agree in
writing to extend the due date to December 31, 2022. If the
repayment date is extended, the unpaid amount will bear interest at
a rate per annum of LIBOR plus 5%, which interest shall compound
quarterly, commencing on December 31, 2020 through the date of
payment in full. Payments of accrued but unpaid interest, if any,
shall be made on the repayment date. Nevada Moly may elect, on
behalf of the Company, to cause the Company to prepay, in whole or
in part, the Return of Contributions at any time, without premium
or penalty, along with accrued and unpaid interest, if
any.
The
original Return of Contributions amount due to POS-Minerals is
reduced, dollar for dollar, by the amount of capital contributions
for equipment payments required from POS-Minerals under approved
budgets of the LLC, as discussed further below. As of December 31,
2019, this amount has been reduced by $2.4 million, consisting of
POS-Mineral’s 20% share of equipment purchases, such that the
remaining amount due to POS-Minerals is $33.6 million. If Nevada
Moly does not fund its additional capital contribution in order for
the LLC to make the required Return of Contributions to
POS-Minerals set forth above, POS-Minerals has an election to
either make a secured loan to the LLC to fund the Return of
Contributions or receive an additional interest in the LLC
estimated to be 5%. In the latter case, Nevada Moly’s
interest in the LLC is subject to dilution by a percentage equal to
the ratio of 1.5 times the amount of the unpaid Return of
Contributions over the aggregate amount of deemed capital
contributions (as determined under the LLC Agreement) of both
parties to the LLC (“Dilution Formula”). At June 30,
2020, the aggregate amount of deemed capital contributions of both
parties was $1,091.2 million.
Furthermore, the
LLC Agreement permits POS-Minerals to put/sell its interest in the
LLC to Nevada Moly after a change of control of Nevada Moly or the
Company, as defined in the LLC Agreement, followed by a failure by
us or our successor company to use standard mining industry
practice in connection with the development and operation of the
Mt. Hope Project as contemplated by the parties for a period of
twelve (12) consecutive months. If these circumstance should occur,
POS-Minerals may exercise its option to put or sell its interest,
and thereafter, Nevada Moly or its transferee or surviving entity
would be required to purchase the interest for 120% of
POS-Minerals’ total contributions to the LLC, which, if not
paid timely, would be subject to 10% interest per
annum.
The LLC
Agreement requires the Company and POS-Minerals to make monthly pro
rata capital contributions to the LLC to fund costs incurred. The
interest of a party in the LLC that does not make its monthly pro
rata capital contributions to fund costs incurred is subject to
dilution based on the Dilution Formula. All required monthly
contributions have been made by both parties in accordance with the
terms of the agreements between the parties.
34
Asset Impairment
Due to
the Company’s inability to obtain financing to date and
inadequate cash to continue operations past the third quarter of
2020, the impact of COVID-19 on capital markets during the second
quarter of 2020, and the decrease in the current and forecasted
price of molybdenum, among other factors, the Company recognized an
impairment charge reducing the carrying value of the Mt. Hope
assets by $260.6 million as of June 30, 2020. The impairment charge
does not alter the Company’s underlying assets or rights and
the Company continues to pursue strategic alternatives as discussed
above.
Management
evaluated the circumstances of the July 30, 2019 AMER default and
concluded the default was a triggering event in the third quarter
of 2019 which continues to exist at June 30, 2020. As of June 30,
2020, we evaluated and determined the carrying value of the asset
group for the Liberty project was recoverable as the
probability-weighted undiscounted cash flows exceeded the carrying
value of that asset group. We determined the carrying value of the
asset group for the Mt. Hope project was not recoverable as the
carrying value exceeded the probability-weighted undiscounted cash
flows of that asset group. The Company has recorded an impairment
charge of $260.6 million which represents the difference between
the book value and the estimated fair value of the assets utilizing
estimated market prices. Factors leading to the impairment include,
but are not limited to, the Company’s inability to obtain
financing to date and inadequate cash to continue operations past
the third quarter of 2020, the impact of COVID-19 on capital
markets and demand for molybdenum during the second quarter of
2020, and the decrease in the current and forecasted price of
molybdenum.
In the
calculation of the impairment charge, management estimated the fair
value of the asset group using the estimated salvage value using a
range based on an immediate sale model and a sale in an improved
commodity market model, basing the estimated fair value of the
asset group on the midpoint of these two estimates. Given current
market conditions and considering our need for near-term liquidity,
management determined that the midpoint was the most appropriate
point in the range for the fair value estimate. The estimated range
of fair values was approximately $28 million to $53 million.
Salvage values were used to determine fair value of the Mt. Hope
asset group because the current discounted cash flows was negative
due to current molybdenum prices. The carrying value of the Mt.
Hope asset group, whichincludes directly associated liabilities,
prior to impairment was approximately $299.3 million. During the
third quarter of 2020, management will continue to refine the
calculation using formal appraisals of tangible assets which could
materially change the impairment calculation.
The
impairment charge by asset type was as follows:
|
Asset Impairment Charges
|
|
(In thousands)
|
Mining
properties, land and water rights
|
$200,303
|
Deposits
on project property, plant and equipment
|
57,630
|
Other
assets
|
2,620
|
Total
|
$260,553
|
While
at June 30, 2020, we have not identified any impairment of our
long-lived assets for the Liberty project, there can be no
assurance that there will not be asset impairments for the Liberty
project or additional impairments for the Mt. Hope project if
commodity prices experience a sustained decline and/or if there are
significant downward adjustments to estimates of recoverable
quantities to be produced from proven and probable mineral reserves
or production quantities, and/or upward adjustments to estimated
operating costs and capital expenditures, all based on life-of-mine
plans and projections. Additionally, should we be unable to secure
additional financing, we may be required to modify our
probability-weighted undiscounted cash flow projections which could
result in additional impairment to our assets.
The Reserve Account
Effective
January 1, 2015, Nevada Moly and POS-Minerals signed an
amendment to the LLC Agreement under which a separate $36.0 million
belonging to Nevada Moly, held by the LLC in a reserve account
established in December 2012, is being released for the mutual
benefit of both members related to annual jointly approved Mt. Hope
Project expenses into 2021. In January 2015, the reserve
account funded a reimbursement of contributions made by the members
during the fourth quarter of 2014, inclusive of $0.7 million to
POS-Minerals and $2.7 million to Nevada Moly. The remaining reserve
account funds are now being used to pay ongoing jointly approved
expenses of the LLC until the Company obtains full financing for
its portion of the Mt. Hope Project construction cost, or until the
reserve account is exhausted. Any remaining funds after financing
is obtained will be returned to the Company. The balance of the
reserve account was $2.8 million and $3.4 million at June 30, 2020
and December 31, 2019, respectively.
35
Permitting Considerations
In the
ordinary course of business, mining companies are required to seek
governmental permits for expansion of existing operations or for
the commencement of new operations. The LLC is required to obtain
approval, in the form of a Record of Decision (“ROD”),
from the BLM to implement the Mt. Hope Project Plan of Operations
(“PoO”). The LLC is also required to obtain various
state and federal permits including, but not limited to, water
protection, air quality, water rights and reclamation. In addition
to requiring permits for the development of the Mt. Hope Project,
we will need to obtain and modify various mining and environmental
permits during the life of the Mt. Hope Project. Maintaining,
modifying, and renewing the necessary governmental permits is a
complex and time-consuming process involving numerous jurisdictions
and often involving public hearings and substantial expenditures.
The duration and success of the LLC’s efforts to obtain,
modify or renew permits will be contingent upon many variables,
some of which are not within the LLC’s control. Increased
costs or delays could occur, depending on the nature of the
activity to be permitted and the interpretation of applicable
requirements implemented by the permitting authority. All necessary
permits may not be obtained and, if obtained, may not be renewed,
or the costs involved in each case may exceed those that we
previously estimated. In addition, it is possible that compliance
with such permits may result in additional costs and
delays.
History of Record of Decision (ROD)
On
November 16, 2012, the BLM issued its initial ROD authorizing
development of the Mt. Hope Project. The ROD was subsequently
vacated by the U.S. Court of Appeals for the Ninth Circuit in
December 2016, discussed below. Also, on April 23, 2015, the
BLM issued a Finding of No Significant Impact (“FONSI”)
supporting their Decision to approve an amendment to the PoO. The
initial ROD and FONSI/Decision approved the PoO and amended PoO,
respectively, for construction and operation of the mining and
processing facilities and also granted the Right-of-Way, and
amended Right-of-Way, respectively, for a 230kV power transmission
line, discussed below. Monitoring and mitigation measures
identified in the initial ROD and FONSI, developed in collaboration
with the regulatory agencies involved throughout the permitting
process, will avoid, minimize, and mitigate environmental impacts,
and reflect the Company’s commitment to be good stewards of
the environment. Ongoing changes to permits and the PoO during the
life of mining operations are typical as design evolves and
operations are optimized.
On
February 15, 2013, Great Basin Resource Watch and the Western
Shoshone Defense Project (“Plaintiffs”) filed a
Complaint against the U.S. Department of the Interior and the BLM
(“Defendants”) in the U.S. District Court, District of
Nevada (“District Court”), seeking relief under the
National Environmental Policy Act (“NEPA”) and other
federal laws challenging the BLM’s issuance of the initial
ROD for the Mt. Hope Project, and on February 20, 2013 filed a
Motion for Preliminary Injunction. The District Court allowed the
LLC to intervene in the matter.
On
August 22, 2013, the District Court denied, without prejudice,
Plaintiffs’ Motion for Preliminary Injunction based on a
Joint Stipulation to Continue Preliminary Injunction Oral Argument,
which advised the District Court that as a result of economic
conditions, including the Company’s ongoing financing
efforts, all major ground disturbing activities had ceased at the
Mt. Hope Project.
On July
23, 2014, the District Court denied Plaintiffs’ motion for
summary judgment in its entirety and on August 1, 2014 the Court
entered judgment in favor of the Defendants and the LLC, and
against Plaintiffs regarding all claims raised in the
Complaint.
Thereafter, on
September 22, 2014, the Plaintiffs filed their notice of
appeal to the U.S. Court of Appeals for the Ninth Circuit
(“Ninth Circuit”) of the District Court’s
dismissal. Oral argument of the parties before the Ninth Circuit
was completed on October 18, 2016. On
December 28, 2016, the Ninth Circuit issued its Opinion rejecting
many of the arguments raised by the Plaintiffs challenging the
Environmental Impact Statement ("EIS") completed for the Mt.
Hope Project, but issued a narrow reversal of the BLM's findings
related to air quality analysis and information related to
potential public water resources. Because of this technical
deficiency, the Court vacated the initial ROD.
Re-Issuance of Record of Decision Approving Supplemental
Environmental Impact Statement (“SEIS”)
On
remand from the Ninth Circuit to the BLM, the agency conducted
additional evaluation of air quality impacts and resulting
cumulative impact analysis under NEPA in preparation of a
Supplemental Environmental Impact Statement (“SEIS”).
The SEIS disclosed additional information to the public related to
the selection of appropriate background concentrations to use for
dispersion modeling of air pollutants and information related to
potential public water reserves. Because the SEIS must be prepared
in accordance with NEPA guidelines, the SEIS process included three
publications in the Federal Register: the first was the Notice of
Intent (“NOI”) which was published on July 19, 2017;
the second, the Notice of Availability (“NOA”) of the
Draft SEIS (“DSEIS”) was published on March 6, 2019;
and on September 27, 2019, the third, an NOA of the final
SEIS, was published announcing that the BLM had re-issued the ROD
marking completion of the NEPA process and approval of the SEIS. On
October 31, 2019, a Complaint was filed against the U.S. Department
of Interior and the BLM in the U.S. District Court in Nevada,
challenging the re-issuance of the ROD. On March 11, 2020, the LLC
filed its unopposed Motion to Intervene in the U.S. District Court
on behalf of the Mt. Hope Project. The District Court approved the
LLC’s intervention on March 19, 2020 and the LLC’s
Answer to the Complaint was filed on March 20, 2020. The LLC will
work closely with the BLM and DOI to defend the claims filed by
Great Basin Resource Watch and Western Shoshone Defense
Project.
36
Reclamation Considerations
Environmental
regulations related to reclamation require that the cost for a
third party contractor to perform reclamation activities on the
minesite be estimated. In October 2015, we submitted a request to
the BLM to reduce our reclamation liability to current surface
disturbance. Simultaneously, we submitted an application to the
Nevada Division of Environmental Protection (“NDEP”)
Bureau of Mining Regulation and Reclamation
(“NDEP-BMRR”) to modify the Reclamation Permit to
reflect this reduced reclamation liability. On October 26, 2015,
NDEP-BMRR approved the proposed permit modification, including the
reduced reclamation liability amount. On December 21, 2015, BLM
approved the updated reclamation liability estimate, reducing the
reclamation liability to approximately $2.8 million. In early 2019,
the Company submitted, and BLM approved a required 3-year update to
the reclamation liability estimate, resulting in an increased
liability of approximately $3.1 million. We worked with the
LLC’s reclamation surety underwriters to satisfy the $2.8
million financial guarantee requirements under the approved amended
PoO for the Mt. Hope Project and funded the $0.3 million increase
in cash directly with the BLM in April 2019. As of June 30, 2020,
the surety bond program was funded with a cash collateral payment
of $0.3 million.
Water
Rights Considerations
History of Mt. Hope Water Permits
In July
2011, the Nevada State Engineer (“State Engineer”)
initially approved our applications for new appropriation of water
for mining and milling use, and applications to change existing
water from agricultural use to mining and milling use for the Mt.
Hope Project. Subsequently, the State Engineer granted water
permits associated with the approved applications and approved a
Monitoring, Management and Mitigation Plan (“3M Plan”)
for the Mt. Hope Project. Eureka County, Nevada and two other
parties comprised of water rights holders in Diamond Valley and
Kobeh Valley appealed the State Engineer’s decision approving
the applications and granting the water permits to the Nevada State
District Court (“District Court”) and then filed a
further appeal to the Nevada Supreme Court challenging the District
Court’s decision affirming the State Engineer’s
decision to approve the applications and grant the water permits.
In June 2013, the appeal was consolidated by the Nevada Supreme
Court with an appeal of the State Engineer’s approval of the
3M Plan filed by two water rights holders. The District Court
previously upheld the State Engineer’s approval of the 3M
Plan and the two parties subsequently appealed the District
Court’s decision to the Nevada Supreme Court.
On
September 18, 2015, the Nevada Supreme Court issued an Order that
reversed and remanded the cases to the District Court for further
proceedings consistent with the Order. On October 29, 2015, the
Nevada Supreme Court issued the Order as a published Opinion. The
Nevada Supreme Court ruled that the State Engineer did not have
sufficient evidence in the record at the time he approved the
applications and granted the water permits to demonstrate that
successful mitigation may be undertaken so as to dispel the threat
to existing water rights holders.
On
September 27, 2017, the Nevada Supreme Court affirmed a March 4,
2016 District Court Order vacating the 3M Plan, denying the water
applications and vacating the permits issued by the State Engineer
in July 2011 and June 2012. This decision of the Nevada Supreme
Court was final, and not subject to further appeal.
New Change Applications for Water Use at Mt. Hope
Project
After
the Company received the September 2017 decision from the Nevada
Supreme Court, it proceeded with new applications to change
existing agricultural irrigation and mining/milling water rights
owned by the Company to use at the Mt. Hope Project. These new
change applications had been filed with the State Engineer in 2015
and 2016 while the above described appeals were pending before the
Nevada Supreme Court. Originally, these applications and other new
appropriation applications were to be addressed at a pre-hearing
conference scheduled on August 25, 2016 before the State Engineer.
These applications were the subject of a Writ of Prohibition or
Mandamus (“Writ”) filed by Eureka County on August 23,
2016 to the Nevada Supreme Court seeking the Supreme Court’s
intervention to stop further action by the State Engineer while the
appeals discussed above were pending. On December 22, 2017 the
Nevada Supreme Court denied Eureka County’s Writ Petition. As
a result, the State Engineer allowed a pre-hearing conference held
on January 24, 2018. At the pre-hearing conference the State
Engineer and his hearing officer scheduled review of the new change
applications for a September 11, 2018 hearing in Carson City,
Nevada.
On
January 2, 2018, Eureka County, and later joined by the other two
protestants representing a rancher in Kobeh Valley and a ranching
group in Diamond Valley, filed a motion to dismiss with the State
Engineer asserting that our applications were precluded from review
and approval asserting that they were repetitive of the
applications denied previously by the Nevada Supreme Court in its
September 2017 decision. On March 26, 2018, the State Engineer
issued a non-final order denying the motion to dismiss finding that
the applications to be reviewed at the upcoming hearing were not
identical issues and that further consideration of the motion could
be taken at the hearing. On May 14, 2018, Eureka County, joined by
the other protestants filed a Writ to the Nevada Supreme Court and
later a Motion to Stay the September hearing date, asserting that
the denial of the Motion to Dismiss was erroneous and that the
Nevada Supreme Court should order that the applications be denied
and/or the September 2018 hearing should be delayed until the
Nevada Supreme Court can consider the Writ and underlying motion to
dismiss. The Company filed its objection on June 27, 2018, and on
August 30, 2018, the Nevada Supreme Court denied the Writ,
permitting the September 2018 hearing before the Nevada State
Engineer to proceed.
37
On the
second day of the September hearing, all protest issues raised by
Eureka County and the Diamond Natural Resources Protections &
Conservation Association (“DNR”) concerning the Mt.
Hope water rights applications were resolved through a Stipulation,
Settlement Agreement and Withdrawal of Protest
(“Settlement”). After Eureka County and DNR were
excused, the hearing continued with evidence addressing concerns
raised by another protestant representing a Kobeh Valley ranching
family and cattle company that refused to participate in the
Settlement. At the public hearing, the Company presented expert
testimony in support of its augmentation and monitoring plan to the
Nevada State Engineer, which will protect senior water rights in
the Kobeh Valley basin when the Company commences construction and
operation of its proposed Mt. Hope molybdenum project near the town
of Eureka, Nevada. The hearing concluded on September 21,
2018.
Effective April 30,
2019, the Company, through its wholly owned subsidiary Kobeh Valley
Ranch LLC (“KVR”) entered into a settlement agreement
with a Kobeh Valley, Nevada ranching family
(“Ranchers”), resolving the last set of protests
pending before the Nevada State Engineer pertaining to the Mt. Hope
Project’s water rights applications.
On June
6, 2019, the Nevada State Engineer issued Ruling 6464 granting the
Company’s water rights applications for mining purposes. The
water right permits for the Mt. Hope Project were issued on July
24, 2019. With receipt of and in compliance with the terms of the
water permits, the water is available for consumptive use at the
Mt. Hope Project. Neither the issuance of Ruling 6464 nor the
issuance of the water permits were challenged, and the deadline for
filing any appeal has expired.
Key Terms of Settlements
Eureka County and the DNR
Under
the terms of the Settlement with Eureka County and the DNR, the
Company and the LLC agreed to convey all related water rights for
Mt. Hope Project at the future cessation of all mining activity to
assist Eureka County and the DNR’s efforts to mitigate the
pre-existing effects of agricultural groundwater pumping in Diamond
Valley. Furthermore, upon construction of certain power
infrastructure and grants of right of way by the LLC at the Mt.
Hope Project, the Company and the LLC will work cooperatively with
Eureka County to allow use of and access to such infrastructure to
lessen the pre-existing effects of Diamond Valley groundwater
pumping. Eureka County, and the Company and the LLC, also agreed to
work cooperatively to seek opportunities to improve and implement
groundwater monitoring efforts.
In
addition, the Company withdrew its protests to Eureka
County’s pending applications with the Nevada State Engineer
to appropriate water from the Kobeh Valley basin, and at the
request of DNR, the Company also agreed to publicly support the
proposed Diamond Valley Ground Water Management Plan, which was
subsequently approved by the Nevada State Engineer.
With
receipt of the water permits, the LLC increased its financial
contributions to the existing Agricultural Sustainability Trust
Agreement, discussed above, with the Eureka Producers’
Cooperative (“EPC”) in Diamond Valley with an
additional $50,000 to EPC. Initially, upon execution of the
Settlement, the LLC made a payment of $50,000.
The LLC
will make additional contributions of $750,000 each after the
commencement of molybdenum production at the Mt. Hope Project and
on the one year anniversary of production, for a total contribution
obligation to the Sustainability Trust of $5.6 million, an increase
of $1.6 million related to the terms of the Settlement. The amount
has been accrued under mining properties, land, and water rights in
the Company’s financial statements in addition to the
previously accrued $4.0 million resulting in a total accrual of
$5.6 million. The LLC has contributed $0.1 million into the Trust
as of June 30, 2020.
The
Sustainability Trust is tasked with developing and implementing
programs that will serve to slow groundwater drawdown and thereby
improve the sustainability of the agricultural economy in the
Diamond Valley Hydrographic Basin.
Kobeh Valley Ranching Family
At the
execution of the settlement agreement, the LLC funded an initial
payment of $1 million into a trust account; distribution to the
Ranchers occurred when the water permits were issued on July 24,
2019. Upon receipt of the initial $1,000,000 into the trust
account, the Ranchers withdrew their protests and forfeited any
judicial review of Ruling 6464 and the water applications and
issuance of the water permits issued on July 24, 2019 by the Nevada
State Engineer.
When
conditions exist for the LLC to secure project financing,
additional consideration of $14,000,000 will be payable to the
Ranchers. As the LLC had not secured Mt. Hope Project financing
within 12 months of the executed settlement agreement or April
2020, the LLC began making monthly payments of $10,000 to the
Ranchers and will continue to do so until financing is achieved, at
which time the remaining consideration will be paid to the
Ranchers.
38
Pursuant to an
April 29, 2019 Consent Agreement, the members of the LLC agreed
that funding for the $1 million was advanced to the LLC by the
Company, to preserve the joint venture’s existing reserve
account. General Moly sourced $500,000 from its available cash, and
received the remaining $500,000 from closing a sale of Series A
Convertible Preferred Shares in a private placement with Mount Hope
Mines Inc. (“MHMI”), the Mt. Hope Project’s
claim/land lessor, discussed in Items 1 and 2 above and later in
Note 7 to the consolidated financial statements contained elsewhere
in this report.
In
exchange for General Moly advancing the $1,000,000 initial
settlement funding, the LLC members have agreed to repay
the $1 million advance from the proceeds of ongoing sales of
non-critical LLC assets and lands. On
September 27, 2019, the Company and POS-Minerals entered into a
further Consent Agreement for a reimbursement schedule concerning
the approximately $700,000 owed to the Company by the LLC in return
for the Company’s advance of funding to settle protests
related to the water right applications for the Mt. Hope Project.
Under the September Consent Agreement, $200,000 was reimbursed from
the Reserve Account to the Company on September 30, 2019 and an
additional $200,000 was reimbursed in early November. The remaining
approximately $300,000 was reimbursed once the LLC sold a minimum
of $400,000 in non-critical Mt. Hope Project related equipment in
March 2020.
Capital & Operating Cost Estimates
Presently, the
development of the Mt. Hope Project has a Project Capital Estimate
of $1,312 million, which includes development costs of
approximately $1,245 million and $67 million in cash financial
guaranty/bonding requirements, advance royalty payments, and power
pre-payment estimates. These capital costs were updated in the
third quarter of 2012, and were then escalated by approximately 3%
in the third quarter of 2013, for those items not yet procured or
committed to by contract. The Mt. Hope Project has not materially
changed in scope and remains currently designed at approximately
65% engineering completion, with solid scope definition. The
pricing associated with this estimate remains subject to escalation
associated with equipment, construction labor and commodity price
increases, and project delays, which will continue to be reviewed
periodically. The Project Capital Estimate does not include
financing costs or amounts necessary to fund operating working
capital and potential capital overruns, is subject to additional
holding costs as financing activities for construction of the Mt.
Hope Project are delayed, and may be subject to other escalation
and de-escalation as contracts and purchase arrangements are
finalized at then current pricing. From October 2007 through
the quarter ended June 30, 2020, the LLC spent approximately $298.9
million of the estimated $1,312 million on development of the Mt.
Hope Project.
The
LLC’s Project Operating Cost Estimate forecasts molybdenum
production of approximately 41 million pounds per year for the
first five years of operations at estimated average direct
operating costs of $6.16 per pound based on a $8.00/lb reserve
and $50 per barrel oil equivalent energy prices. The Costs
Applicable to Sales (“CAS”) per pound, including
anticipated royalties calculated at a market price of approximately
$13 per pound molybdenum, are anticipated to average $6.84 per
pound for the first 5 years. These cost estimates are based on 2013
constant dollars and are subject to cost inflation or deflation. We
expect that these cost estimates will increase in the future upon
completion of an engineered re-estimate of capital
costs.
Equipment and Supply Procurement
Through
June 30, 2020, the LLC has made deposits and/or final payments of
$88.0 million on equipment orders.
In
2012, the LLC issued a firm purchase order for eighteen haul
trucks. The order provides for delivery of those haul trucks
required to perform initial mine development, which will begin
several months prior to commercial production. Non-refundable
down-payments of $1.2 million were made in 2012, with pricing
subject to escalation as the trucks were not delivered prior to
December 31, 2013. Since that time, the LLC has renegotiated
the timelines for truck delivery and delayed deliveries into
December 2020. The contract is cancellable with no further
liability to the LLC.
Also in
2012, the LLC issued a firm purchase order for four mine production
drills with a non-refundable down-payment of $0.4 million, and
pricing was subject to escalation if the drills were not delivered
by the end of 2013. Since that time, the LLC has renegotiated the
contract to further delay delivery into December 2020. The
contract remains cancellable with no further liability to the
LLC.
On
June 30, 2012, the LLC’s contract to purchase two
electric shovels expired. On July 11, 2012, we signed a letter
of intent with the same vendor providing for the opportunity to
purchase the electric shovels at prices consistent with the expired
contract, less a special discount in the amount of $3.4 million to
provide credit to the LLC for amounts paid as deposits under the
expired contract. The letter of intent provides that equipment
pricing will remain subject to inflation indexes and guarantees
production slots to ensure that the equipment is available when
required by the LLC. Since that time, the parties have agreed to
extend the letter of intent through December 31,
2020.
39
Agreement with AMER International Group
Private Placement
As
announced in April 2015, the Company and AMER International Group
Co., Ltd (“AMER”) entered into a private placement for
40.0 million shares of the Company’s common stock and
warrants to purchase 80.0 million shares of the Company’s
common stock, priced using the trailing 90-day volume weighted
average price (“VWAP”) of $0.50 on April 17, 2015,
the date the Investment and Securities Purchase Agreement
(“AMER Investment Agreement”) was signed. General Moly
received stockholder approval of the transaction at its 2015 Annual
Meeting, and of material amendments to the transaction at a special
meeting held in December 2017.
On
November 2, 2015, the Company and AMER entered into an amendment to
the AMER Investment Agreement, utilizing a three-tranche
investment. The first tranche of the amended AMER Investment
Agreement closed on November 24, 2015 for a $4.0 million private
placement representing 13.3 million shares, priced at $0.30 per
share, and warrants (“the AMER Warrants”) to purchase
80.0 million shares of common stock at $0.50 per share, which would
have become exercisable upon availability of an approximately
$700.0 million senior secured loan (“Bank Loan”). The
funds received from the $4.0 million first tranche private
placement were divided evenly between general corporate purposes
and an expense reimbursement account available to both AMER and the
Company to cover anticipated Mt. Hope financing costs and other
jointly sourced business development opportunities. In addition,
AMER and General Moly entered into a Stockholder Agreement allowing
AMER to nominate a director to the General Moly Board of Directors
and additional directors following the close of the third tranche,
discussed below, and drawdown of the Bank Loan. The Stockholder
Agreement also governed AMER’s acquisition and transfer of
General Moly shares. Prior to closing the first tranche the parties
agreed to eliminate certain conditions to closing. Following the
closing, AMER nominated Tong Zhang to serve as a director of the
Company, and he was appointed by the Board of Directors on December
3, 2015. Mr. Zhang was nominated by the Board of Directors to stand
for election at the 2018 General Meeting of Stockholders and was
elected by the stockholders to serve as a Class II director for a
three (3) year term expiring in 2021, subject to re-election. On
July 29, 2019, Mr. Zhang resigned from the Board of
Directors.
On
October 16, 2017, the Company and AMER announced the closure of the
second tranche of the parties’ three-tranche financing
agreement. At the close of the second tranche, General Moly issued
14.6 million shares to AMER, priced at the volume weighted average
price (“VWAP”) for the 30-day period ending August 7,
2017 (the date of the parties’ Amendment No. 2 to the AMER
Investment Agreement) of $0.41 per share for a private placement of
$6.0 million by AMER. $5.5 million of the equity sale proceeds were
available for general corporate purposes, while $0.5 million was
held in the expense reimbursement account established at the close
of the first tranche to cover costs related to the Mt. Hope Project
financing and other jointly sourced business development
opportunities.
The
third tranche of the amended AMER Investment Agreement was to
include a $10.0 million private placement representing 20.0 million
shares, priced at $0.50 per share (“Tranche 3”).
Closing of Tranche 3 was conditioned upon the earlier of the
reissuance of water permits for the Mt. Hope Project or completion
of a joint business opportunity involving use of 10.0 million
shares of General Moly stock. The issuance of shares in connection
with the Tranche 3 was approved by General Moly stockholders in
December 2017 at a Special Meeting of Stockholders.
AMER Disputes Obligation to Close Tranche 3
The
last closing conditions for Tranche 3 under the AMER Investment
Agreement included issuance of water permits for the Mt. Hope
Project. The water permits were issued by the Nevada State Engineer
on July 24, 2019. On July 26, 2019, the Company provided formal
notice to AMER that the conditions to closing of Tranche 3 had been
satisfied, and that AMER had two business days (until the close of
business on Tuesday, July 30, 2019) to close the transaction. On
July 31, 2019, the Company sent a Notice of Default to AMER, as
AMER failed to fund and close Tranche 3 by the July 30, 2019
deadline.
On
August 1, 2019, the Company received a letter from AMER dated July
30, 2019, purporting to terminate the AMER Investment Agreement, referencing its
earlier letter received by the Company on July 18, 2019, in which
AMER alleged uncured material
adverse effects and alleged breaches of the AMER Investment Agreement by the Company
(which included concerns related to US/China relations, concerns
regarding the delay in obtaining environmental permits and solvency
concerns). The Company believed that such assertions were
inaccurate and wholly without merit under the terms of the
AMER Investment Agreement.
Additionally, as AMER disputed
its obligation to fund the close of Tranche 3, the Company believed
that AMER’s attempted
termination of the AMER
Investment Agreement was ineffective. With AMER’s failure to fund Tranche 3, the
Company had inadequate cash to continue operations and was forced
to evaluate its options, including pursuing asset sales, short-term
financing options and, if such efforts were unsuccessful in
obtaining sufficient financing, the possibility of seeking
bankruptcy protection.
40
On
August 28, 2019, the Company engaged King & Spalding, an
international arbitration and litigation firm, to represent the
Company in its Tranche 3 dispute with AMER. The Company also formally notified
AMER that a Dispute, as defined
by the AMER Investment
Agreement, existed between the parties as a result of AMER’s failure to close Tranche 3.
The notification required that one representative of each of the
executive management of the parties be designated and authorized to
attempt to settle the Dispute and the representatives were to meet
in good faith to resolve the Dispute.
On
October 14, 2019, the Company announced that it had entered into a
Dispute Negotiation Extension Agreement with AMER to extend the
dispute negotiation period (“Extension Agreement”).
Under the terms of the Extension Agreement, the Company received
$300,000 from AMER in exchange for an extension of the negotiation
period to November 15, 2019, on which date the Company’s CEO
Bruce Hansen and AMER Chairman Wang Wen Yin met to discuss
settlement options. With the payment, AMER had the right, at its
option, to apply the Extension Fee among the following: (1) credit
against a final negotiated settlement; (2) credit against any AMER
payment obligation to the Company, pursuant to an arbitration
award; or (3) as consideration for the purchase of the
Company’s common stock, priced at the 30-day volume weighted
average price, as of the date immediately prior to the date that
AMER demands delivery of such shares.
On
December 9, 2019, the Company and an affiliate of AMER announced the closure of a $4.0
million private placement at a price of $0.40 per common share of
General Moly common stock under a new Securities Purchase Agreement
(“SPA”) and amended and restated warrant agreement
(“New AMER
Warrant”), resolving the Dispute. Additionally, the parties
agreed to a mutual release, terminating the previous AMER Investment Agreement, the prior
Warrant, and the Extension Agreement. The parties’ previous
Stockholder Agreement expired by its terms on November 24, 2019. In
addition to the 10.0 million shares issued by General Moly to AMER
in the private placement, AMER also received 1.1 million General
Moly common shares priced at $0.27/share, the 30-day volume
weighted average price of the Company’s shares on December 6,
2019 utilizing the previously $300,000 extension fee, pursuant to
the terms of the Extension Agreement. Additionally, for every $100
million of sourced Chinese bank lending that AMER has assisted in contributing to a
completed $700 million project debt financing, AMER may exercise 12 million warrants
issued under the New AMER
Warrant at an exercise price of $0.50 per share, up to 80 million
warrants.
Additionally,
AMER nominated Mr. Siong Tek
(“Terry”) Lee to serve the remaining term of
AMER’s previous director
nominee (Tong Zhang) expiring at the Company’s annual meeting
in 2021. AMER may nominate a
second director to the Board so long as its shareholding exceeds
20% of the Company’s shares outstanding.
Bank Loan
Under
the new SPA, AMER has agreed to
use its reasonable best efforts to assist the Company in obtaining
a loan from one or more prime Chinese banks (“Bank
Loan”), for the Company’s share of construction and
development costs at the Mt. Hope Project. As discussed above, for
every $100 million of sourced Chinese bank lending that
AMER has assisted in
contributing to a completed $700 million project debt financing,
AMER may exercise 12 million
warrants issued under the New AMER Warrant at an exercise price of $0.50
per share, up to 80 million warrants.
Supply Agreement
Furthermore, upon
closing of a minimum of $100 million from AMER’s efforts toward the completion
of a Chinese bank $700 million project financing, AMER has the option to enter into a
molybdenum supply agreement with General Moly to purchase Mt. Hope
Project sourced molybdenum at a small discount to spot pricing when
the Mt. Hope Project achieves full commercial production. The
saleable amount of molybdenum to AMER escalates from an aggregate 3 million
pounds per year to 20 million pounds per year over the first five
years of mine production based on the level of project financing
assisted by AMER towards the
$700 million project financing.
Exploring Other Potential Joint Opportunities
The
Company and AMER have jointly evaluated other potential
opportunities, ranging from outright acquisitions and
privatizations, or significant minority interest investments with a
focus on base metal and ferro-alloy prospects, where the Company
would benefit from management fees, minority equity interests, or
the acquisition of both core and non-core assets. The Company and
AMER have considered but not completed any such transactions to
date and we are not currently evaluating potential opportunities
with AMER. From commencement of the AMER Investment Agreement in
2015 to December 31, 2019, the Company and AMER spent approximately
$2.5 million from the expense reimbursement account described above
in connection with such evaluations. There have been no further
joint evaluations and no further expenses incurred.
41
COVID-19
Beginning in early
2020, there has been an outbreak of coronavirus (COVID-19),
initially in China and which has spread to other jurisdictions,
including locations where the Company does business. The full
extent of the outbreak, related business and travel restrictions
and changes to behavior intended to reduce its spread continues to
evolve globally. Therefore, the full extent to which coronavirus
may impact the Company’s results of operations, liquidity or
financial position is uncertain. Management continues to monitor
the impact that the COVID-19 pandemic is having on the Company and
the economies in which the Company operates. The Company
anticipates that its liquidity may be materially impacted by the
coronavirus outbreak.
On
April 24, 2020, the Company received funding under a Paycheck
Protection Program (“PPP”) loan (the “PPP
Loan”) from U.S. Bank, National Association (the
“Lender”). The principal amount of the PPP Loan is
$365,034. The PPP was established under the Coronavirus Aid,
Relief, and Economic Security Act (the “CARES Act”) and
is administered by the U.S. Small Business Administration (the
“SBA”). The Company applied for the PPP Loan primarily
because its potential to access other sources of capital has been
greatly reduced by the ongoing COVID-19 pandemic.
The
PPP Loan has a two-year term, maturing on April 23, 2022. The
interest rate on the PPP Loan is 1.0% per annum. Principal and
interest are payable in 18 monthly installments, beginning on
November 23, 2020, until maturity with respect to any portion of
the PPP Loan which is not forgiven as described below. The Company
did not provide any collateral or guarantees for the PPP Loan, nor
did the Company pay any facility charge to obtain the PPP Loan. The
PPP Loan provides for customary events of default, including, among
others, those relating to failure to make payment, bankruptcy,
breaches of representations and material adverse effects. The
Company is permitted to prepay or partially prepay the PPP Loan at
any time with no prepayment penalties.
The
PPP Loan may be partially or fully forgiven if the Company complies
with the provisions of the CARES Act, including the use of PPP Loan
proceeds for payroll costs, rent, utilities and other expenses,
provided that such amounts are incurred during the 24-week period
that commenced on April 24, 2020 and at least 60% of any forgiven
amount has been used for covered payroll costs as defined by the
CARES Act. Any forgiveness of the PPP Loan will be subject to
approval by the SBA and the Lender and will require the Company to
apply for such treatment in the future.
Molybdenum Market Update
The
molybdenum oxide daily global spot price per pound is currently at
$8.08/lb compared with $9.20 at yearend 2019 and $11.88 at yearend
2018, according to Platts. The molybdenum price ranged from a low
of $7.33/lb to a high of $9.10/lb during the second quarter of
2020.
Beginning in 2020
through mid-February, molybdenum prices rose to nearly $11/lb.
Later in February 2020, prices pulled back to the $9-range and
below $9 in mid-March upon the global economic slowdown. Molybdenum
rebounded to just above $9 at the end of April but weakened below
$8 in mid-June and traded in the $7-range for approximately two
months.
The
molybdenum price has declined from softened demand due to the
global economic impact caused by the COVID-19 pandemic and the
weakness in oil and gas industry impacting molybdenum-strengthened
steel consumption. The International Molybdenum Association
(“IMOA”) recently reported that global molybdenum
consumption in the first quarter of 2020 at 123.6 million pounds,
decreased 13% year over year. China, the largest user of molybdenum
in the world, consumed 40.3 million pounds, 18% less molybdenum in
the first quarter compared with a year ago.
The
IMOA also reported that global production decreased 8% year over
year to 139.2 million pounds in the first quarter of 2020. China,
the largest producer of molybdenum, saw a 6% decrease year over
year to 47.7 million pounds of molybdenum output related to the
shutdown. The IMOA figures translate to a first quarter surplus of
15.6 million pounds, equating to 13% of first quarter
demand.
Stainless steel
represents the largest use of molybdenum, accounting for 21% of all
molybdenum consumption, according to the CPM Group
(“CPM”). The International Stainless Steel Federation
(“ISSF”) reported an 8% drop year-over-year in global
stainless steel output for the first quarter of 2020. The
widespread business and industry shutdown around the globe to curb
the coronavirus spread resulted in stainless steel production
declines in all regions, including the largest stainless steel
manufacturer China with a 9% year-over-year decrease, an 11% drop
in United States of America, and a 6% decline in
Europe.
On a
promising note, China appears to be rebounding quickly as its
cities and provinces reopen from the shutdown. China’s second
quarter Gross Domestic Production showed a 3.2% increase year over
year compared with a minus 6.8% contraction in the first quarter
from the prior year, according to BMO Metals Brief. Furthermore,
China’s industrial production was up 4.8% year over year in
June, which was the third consecutive month of growth, reported
BMO.
China,
the largest producer of stainless steel in the world, has been
ramping up stainless steel production over the second quarter,
according to CPM. China showed just a 2.7% decrease year over year
(“YOY”) for June 2020 in the three most popular types
of stainless steel, series 200, 300, and 400, compared with the
record monthly high of 2.4 million metric tons in August 2019,
noted CPM. An additional positive factor for molybdenum is that
China also showed a 5.8% YOY production growth for 2Q 2020 in the
series 300 stainless steel, which contains higher moly and nickel
compared with series 200 steel, stated CPM.
42
Molybdenum Spot Price (1/6/2011 – 8/14/2020)
Molybdenum Market Outlook
We
believe the molybdenum market is in a temporary pause caused by the
COVID-19 pandemic. When the global health crisis abates, we
anticipate that the molybdenum market will recover and view the
long-term outlook for our business positively, supported by
shortfalls in long-term supplies of
molybdenum, the requirements for molybdenum in the steel industry,
and a recovery of the oil and gas industry. We believe
the underlying long-term fundamentals of the molybdenum business
remain positive, supported by the significant role of molybdenum in
the steel industry and a challenging long-term supply environment
attributable to the difficulty in replacing output from both
existing and high-cost mines with new production
sources. World market prices for molybdenum and other
commodities have fluctuated historically and are affected by
numerous factors beyond our
control.
Future
molybdenum prices are expected to be volatile and are likely to be
influenced by demand from China and emerging markets, as well as
the strength or weakness of the U.S. dollar, U.S.-China trade
tariffs, economic activity in the U.S. and other industrialized
countries, the timing of the development of new supplies of
molybdenum, production levels of mines, including primary
molybdenum production from China, and the duration of the global
health crisis and its drag on the global economy.
Liquidity, Capital Resources and Capital Requirements
For the period from December 31, 2019 to June 30,
2020
Our
total consolidated cash balance at June 30, 2020 was $2.5 million
compared to $4.6 million at December 31, 2019, representing a
decrease of $2.1 million due to a variety of cash inflows and
outflows. Outflows included $0.4 million in development costs for
the Mt. Hope Project, $0.3 million at the Liberty Project, $1.7
million in general and administrative costs, offset by $0.3 million
reimbursed to the Company by the LLC upon the sale of non-core
property in March 2020.
43
The
$36.0 million reserve account established in December of 2012,
at the direction of the LLC management committee, was payable to
Nevada Moly upon release, at which time the funds would have become
available for use by the Company. Effective January 1, 2015,
Nevada Moly and POS-Minerals signed an amendment to the LLC
agreement under which $36.0 million owed to Nevada Moly and held by
the LLC in the reserve account is released quarterly for the mutual
benefit of both members related to the jointly approved Mt. Hope
Project expenses into 2021, as discussed above. The balance of the
reserve account at June 30, 2020 was $2.8 million, compared to $3.4
million at December 31, 2019.
Issuance of Series A and Series B Convertible Preferred
Stock
On
March 28, 2019, the Company executed a Securities Purchase
Agreement (the “Series A Purchase Agreement”) with
Bruce D. Hansen, the Company’s Chief Executive Officer/Chief
Financial Officer, and Robert I. Pennington, the Company’s
Chief Operating Officer (collectively the “Investors”),
effective as of March 21, 2019. Pursuant to the Series A Purchase
Agreement, the Investors agreed to purchase up to $900,000 of
convertible shares of Series A Preferred Stock, par value $0.001
per share (the “Series A Convertible Preferred
Shares”), of the Company. The Company requested three
separate closings of sales of Series A Convertible Preferred Shares
to the Investors between the date of the Series A Purchase
Agreement and June 30, 2019. Each closing was in the amount of
$300,000 of Series A Convertible Preferred Shares.
The
Series A Convertible Preferred Shares were priced at
$100.00/preferred share, convertible at any time at the
holder’s discretion into common shares whereby one preferred
share converts at a price of $0.27/common share to 370.37 common
shares. The conversion price was set as the closing price of the
common stock on March 12, 2019, which was the day before
announcement of the private placement. The Series A Convertible
Preferred Shares carry a 5% annual dividend, which may be paid, in
the Company’s sole discretion, in cash, additional shares or
a combination thereof. Upon maturity or full repayment of the
Exchange Note debt (discussed below), there will be mandatory
redemption of the Series A Convertible Preferred Shares into
equivalent cash for the principal invested, plus any accrued and
unpaid dividends.
On May
2, 2019, the Company also executed a Securities Purchase Agreement
(the “MHMI Series A Purchase Agreement”) with Mount
Hope Mines, Inc. (“MHMI”), later assigned in part to
members of MHMI individually. Pursuant to the MHMI Series A
Purchase Agreement, MHMI agreed to purchase $500,000 of Series A
Convertible Preferred Shares, as described above. These shares were
fully converted into shares of common stock of the Company in the
fourth quarter of 2019.
On
August 5, 2019, the Company executed a Securities Purchase
Agreement (the “Series B Purchase Agreement”) with the
Investors. Pursuant to the Series B Purchase Agreement, the
Investors agreed to purchase up to $400,000 of convertible shares
of Series B Preferred Stock, par value $0.001 per share (the
“Series B Convertible Preferred Shares”), of the
Company. This transaction closed on August 7, 2019.
The
Series B Convertible Preferred Shares were issued at a price of
$100.00 per share, and each Series B Convertible Preferred Share
will be convertible at any time at the holder’s discretion
into 500 shares of common stock of the Company. The Series B
Convertible Preferred Shares carry a 5% annual dividend, which may
be paid, in the Company’s sole discretion, in cash,
additional shares of Series B Convertible Preferred Shares or a
combination thereof. The Series B Convertible Preferred Shares,
like the Series A Convertible Preferred Shares, are mandatorily
redeemable upon maturity or full repayment of the Exchange Note
debt (discussed below).
Interest Forbearance Agreement and New 12% Senior Promissory Notes
due December 2022
On
September 26, 2019, the Company entered into a 90-day interest
deferral and forbearance agreement with the primary holder of the
Senior Convertible Notes, along
with certain of the Company’s members of management and
directors who participated in the 2014 debt offering. As a result,
the Company deferred approximately $162,000 of interest payments
that were due at the end of the third quarter 2019.
Exchange Offer and New 12% Senior Promissory Notes due December
2022
On
December 27, 2019, the Company closed a private offer to exchange
(the “Exchange Offer”) its outstanding 10% Senior
Convertible Promissory Notes and 10% Senior Promissory Notes both
due December 26, 2019 (together, the “Old Notes”), for
units consisting of its newly issued 12% Senior Promissory Notes
due December 26, 2022 (the “Exchange Notes”) and
warrants (the “New Warrants”) to purchase shares of the
Company’s common stock, par value $0.001 per share
(“Common Stock”), upon the terms and subject to the
conditions set forth in the confidential Offer to Exchange and
Subscription Offer dated November 27, 2019.
44
Eligible
holders tendered Old Notes with an original principal amount of
$6.89 million of the total outstanding of $7.25 million,
representing 95% of the outstanding, in the Exchange Offer.
For each $1 principal amount of, and accrued and unpaid interest
on, Old Notes tendered and accepted by the Company, one unit
consisting of $1 principal amount of Exchange Notes and one New
Warrant was settled. The Exchange Notes bear interest at an
initial rate of 12% per annum. Interest on the Exchange Notes will
be paid on March 31, June 30, September 30 and December 31 of each
year, commencing on March 31, 2020. The Exchange Notes will mature
on December 26, 2022, unless otherwise earlier redeemed. Each
New Warrant is exercisable for one share of Common Stock at a price
of $0.35 per share for a period of three years. One New
Warrant was issued for each dollar of original principal amount of,
and accrued and unpaid interest on, Old Notes exchanged for
Exchange Notes for a total of 7.2 million New Warrants
issued.
The
Company paid at maturity the unpaid principal and all accrued and
unpaid interest in the approximate amount of $368,000 to those
eligible holders that elected not to participate in the Exchange
Offer. The original principal amount of Old Notes paid at
maturity represented approximately 5% of the total
outstanding. The maturity date was December 26, 2019. The
Notes Warrants issued in connection with the Old Notes expired by
their terms on December 26, 2019.
New 13% Senior Promissory Notes due December 2022
The
Company also announced that certain eligible holders who tendered
their Old Notes in the Exchange Offer (“Participating
Holders”) elected to participate in the accompanying
Subscription Agreement, to purchase (the “Subscription
Offer”) 13,355 units for $100 each, consisting of its newly
issued 13% Senior Promissory Notes due 2022 (the
“Supplemental Notes”) and accompanying New Warrants,
including participation by the largest Old Noteholder investor, as
well as the Company’s CEO, Bruce Hansen. One New
Warrant was issued for each dollar invested in the Supplemental
Notes. The New Warrants have an exercise price of $0.35 per
share and have a three-year term. The Participating Holders
increased their respective note investment by approximately 20% by
purchasing the Supplemental Notes, resulting in approximately $1.34
million of new capital to the Company.
Results of Operations
Three Months Ended June 30, 2020 Compared to Three Months Ended
June 30, 2019
For the
three months ended June 30, 2020, we had a consolidated net loss of
$262.9 million compared with a net loss of $2.5 million in the same
period for 2019. The net loss for the three months ended June 30,
2020 included an asset impairment charge of $260.6 million as
described in the Notes to Consolidated Financial
Statements.
For the
three months ended June 30, 2020 and 2019, exploration and
evaluation expenses were $0.1 million and $0.1 million, due to
ongoing care and maintenance expenses.
For the
three months ended June 30, 2020 and 2019, general and
administrative expenses were $1.7 million and $2.0 million,
respectively, reflecting continued cost conservation
efforts.
For the
three months ended June 30, 2020 and 2019, loss on impairment
charge was $260.6 million and nil as the result of an impairment
taken in the second quarter of 2020 as described in the Notes to
Consolidated Financial Statements.
Interest expense
for the three months ended June 30, 2020 and 2019 was $0.4 million
and $0.4 million, respectively.
Other
income/(expense) for the three months ended June 30, 2020 and 2019
was ($0.2) million and nil, respectively. The amount incurred in
2020 is related to fair value adjustments on the warrants issued to
AMER in late 2019.
Six Months Ended June 30, 2020 Compared to Six Months Ended June
30, 2019
For the
six months ended June 30, 2020, we had a consolidated net loss of
$264.0 million compared with a net loss of $3.9 million in the same
period for 2019. The net loss for the six months ended June 30,
2020 included an asset impairment charge of $260.6 million as
described in the Notes to the Consolidated Financial
Statements.
For the
six months ended June 30, 2020 and 2019, exploration and evaluation
expenses were $0.3 million and $0.2 million, respectively due to
ongoing care and maintenance.
45
For the
six months ended June 30, 2020 and 2019, general and administrative
expenses were $3.2 million and $3.5 million, respectively,
reflecting continued cost conservation efforts.
For the
six months ended June 30, 2020 and 2019, loss on impairment charge
was $260.6 million and nil as the result of an impairment taken in
the second quarter of 2020 as described in the Notes to
Consolidated Financial Statements.
Interest expense
for the six months ended June 30, 2020 and 2019 was $1.1 million
and $0.4 million, respectively, with the increase primarily related
to larger non-cash adjustments to the exchange and supplemental
notes.
Off-Balance Sheet Arrangements
None.
Contractual Obligations
|
Payments due by period
|
||||
|
Total
|
2020
|
2021-2022
|
2023-2024
|
Thereafter
|
Agricultural
Sustainability Trust Contributions
|
5.5
|
—
|
2.0
|
3.5
|
—
|
Exchange
Notes and Supplemental Notes**
|
8.3
|
—
|
8.3
|
—
|
—
|
Equipment
Purchase Contracts
|
0.6
|
—
|
0.6
|
—
|
—
|
Advance
Royalties
|
6.9
|
0.5
|
1.0
|
5.4
|
—
|
Return
of Contributions to POS-Minerals
|
33.6
|
33.6
|
—
|
—
|
—
|
3M
Plan Contributions
|
1.0
|
—
|
0.3
|
0.7
|
—
|
Total
|
$55.9
|
$34.1
|
$12.2
|
$9.6
|
$—
|
*
With
the exception of the 12% Senior Promissory Notes (Exchange Notes)
and 13% Senior Promissory Notes (Supplemental Notes), which are the
obligation of the Company, all amounts are commitments of the LLC,
and as a result of the agreement between Nevada Moly and
POS-Minerals are to be funded by the reserve account until such
time that the Company obtains financing for its portion of
construction costs at the Mt. Hope Project or until the reserve
account balance is exhausted, and thereafter are to be funded 80%
by Nevada Moly and 20% by POS-Minerals. POS-Minerals remains
obligated to make capital contributions for its 20% portion of
equipment payments required by approved budgets of the LLC, and
such amounts contributed by the reserve account on behalf of
POS-Minerals will reduce, dollar for dollar, the amount of capital
contributions that the LLC is required to return to POS-Minerals,
as described above.
**
The
Company is obligated to pay interest on the Exchange Notes at a
rate of 12% per year, payable quarterly and on the Supplemental
Notes at a rate of 13% per year, payable quarterly.
Through
June 30, 2020, the LLC has made deposits and/or final payments of
$88.0 million on equipment orders. See
“—Overview—Equipment and Supply
Procurement” above. Of these deposits, $71.7 million relate
to fully fabricated items, primarily milling equipment, for which
the LLC has additional contractual commitments of $0.6 million. The
remaining $16.3 million reflects both partially fabricated milling
equipment, and non-refundable deposits on mining equipment. As
discussed in Note 11 to the consolidated financial statements
contained elsewhere in this report, the mining equipment agreements
remain cancellable with no further liability to the LLC. The
underlying value and recoverability of these deposits and our
mining properties in our consolidated balance sheets are dependent
on the LLC’s ability to fund development activities that
would lead to profitable production and positive cash flow from
operations or proceeds from the disposition of these assets. There
can be no assurance that the LLC will be successful in obtaining
project financing, in generating future profitable operations,
disposing of these assets or the Company securing additional
funding in the future on terms acceptable to us or at all. Our
audited consolidated financial statements include an impairment
charge reducing the carrying value of the Mt. Hope assets as of
June 30, 2020 as described in the Notes to the Financial
Statements..
If the
LLC does not make the payments contractually required under these
purchase contracts, it could be subject to claims for breach of
contract or to cancellation of the respective purchase contract. In
addition, the LLC may proceed to selectively suspend, cancel or
attempt to renegotiate additional purchase contracts if necessary,
to further conserve cash. See “—Liquidity, Capital Resources and Capital
Requirements” above. If the LLC cancels or breaches
any contracts, the LLC will take all appropriate action to minimize
any losses, but could be subject to liability under the contracts
or applicable law. The cancellation of certain key contracts could
cause a delay in the commencement of operations, and could add to
the cost to develop the Company’s interest in the Mt. Hope
Project.
46
Obligations under capital and operating leases
We have
contractual obligations under operating leases that will require a
total of $0.1 million in payments over the next three years.
Operating leases consist primarily of rents on office facilities
and office equipment. Our expected payments are $0.1 million, nil,
and nil for the years ended December 31, 2020, 2021 and 2022,
respectively.
Creation of Agricultural Sustainability Trust
On
August 19, 2010, the LLC entered into an agreement with the
Eureka Producers’ Cooperative (“EPC”) whereby the
LLC will fund a $4.0 million Sustainability Trust
(“Trust”) in exchange for the cooperation of the EPC
with respect to the LLC’s water rights and permitting of the
Mt. Hope Project, since increased to $5.6 million as a result of
the settlement reached with Eureka County and the DNR, first
discussed in Item 2 above. The Trust will be tasked with developing
and implementing programs that will serve to enhance the
sustainability and well-being of the agricultural economy in the
Diamond Valley Hydrographic Basin through reduced water
consumption.
The
Trust may be funded by the LLC over several years based on the
achievement of certain milestones, which are considered probable,
and as such $5.6 million has been accrued in the Company’s
financial statements and is included in mining properties, land,
and water rights.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Commodity Price Risk
We are
a development stage company in the business of the exploration,
development and mining of properties primarily containing
molybdenum. As a result, upon commencement of production, our
financial performance could be materially affected by fluctuations
in the market price of molybdenum and other metals we may mine. The
market prices of metals can fluctuate widely due to a number of
factors. These factors include fluctuations with respect to the
rate of inflation, the exchange rates of the U.S. dollar and other
currencies, interest rates, global or regional political and
economic conditions, banking environment, global and regional
demand, production costs, and investor sentiment. See
“Management’s
Discussion and Analysis of Financial Condition and Results of
Operations — Molybdenum Market Update” for a
discussion of molybdenum prices.
In
order to better manage commodity price risk and to seek to reduce
the negative impact of fluctuations in prices, we will seek to
enter into long-term supply contracts for our portion of the Mt.
Hope production. On December 28, 2007, we entered into a
molybdenum supply agreement with ArcelorMittal S.A.
(“ArcelorMittal”), the world’s largest steel
company, that provides for ArcelorMittal to purchase 6.5 million
pounds of molybdenum per year, plus or minus 10%, once the Mt. Hope
Project commences commercial operations at minimum specified
levels. The supply agreement provides for a floor price along with
a discount for spot prices above the floor price and expires five
years after the commencement of commercial production at the Mt.
Hope Project. Both the floor and threshold levels at which the
percentage discounts change are indexed to a producer price index.
According to public filings, on January 25, 2011, the boards
of directors of ArcelorMittal S.A. and APERAM each approved the
transfer of the assets comprising ArcelorMittal’s stainless
and specialty steels businesses from its carbon steel and mining
businesses to APERAM, a separate entity incorporated in the Grand
Duchy of Luxembourg. This transfer did not include the supply
agreement the Company had in place with ArcelorMittal. The shares
of the Company’s common stock previously owned by
ArcelorMittal were transferred to APERAM.
Additionally, on
May 14, 2008, we entered into a molybdenum supply agreement
with SeAH Besteel Corporation (“SeAH Besteel”),
Korea’s largest manufacturer of specialty steels, which
provides for SeAH Besteel to purchase 4.0 million pounds of
molybdenum per year, plus or minus 10%, once the Mt. Hope Project
commences commercial operations at minimum specified levels. Like
the APERAM supply agreement, the supply agreement with SeAH Besteel
provides for a floor price along with staged discounts for spot
prices above the floor price and expires five years from the date
of first supply under the agreement. Both the floor and threshold
levels at which the percentage discounts change are indexed to a
producer price index. On July 22, 2015, the Company and SeAH
Besteel entered into a first amendment to the molybdenum supply
agreement, which provides that the agreement will terminate on
December 31, 2020, if commercial operations at the minimum
specified levels have not commenced by that date.
On
August 8, 2008, the Company entered into a molybdenum supply
agreement (“Sojitz Agreement”) with Sojitz Corporation
(“Sojitz”). The Sojitz Agreement provides for the
supply of 5.0 million pounds per year of molybdenum for five years,
beginning once the Mt. Hope Project reaches certain minimum
commercial production levels. One million annual pounds sold under
the Sojitz Agreement will be subject to a per-pound molybdenum
floor price and is offset by a flat discount to spot molybdenum
prices above the floor. The remaining 4.0 million annual pounds
sold under the Sojitz Agreement will be sold with reference to spot
molybdenum prices without regard to a floor price. The Sojitz
Agreement includes a provision that allows Sojitz the option to
cancel in the event that supply from the Mt. Hope Project had not
begun by January 1, 2013. The described option is available up
to ten days following the achievement of certain production levels
at the Mt. Hope Project. As commercial production at the Mt. Hope
Project has not commenced, Sojitz currently has the option to
cancel its contract or participate in the molybdenum supply
agreement as described above.
47
The
long-term supply agreements provide for supply only after
commercial production levels are achieved, and no provisions
require the Company to deliver product or make any payments if
commercial production is never achieved or declines in later
periods and have floor prices ranging from $13.50 to $14.00 per
pound and incremental discounts above the floor price. The
agreements require that monthly shortfalls be made up only if the
Company’s portion of Mt. Hope production is available for
delivery, after POS-Minerals has taken its 20% share. In no event
do these requirements to make up monthly shortfalls become
obligations of the Company if production does not meet targeted
levels.
Furthermore, each
of the agreements remain as contractual obligations and have
take-or-pay provisions that require the buyers to either take
delivery of product made available by the Company, or to pay as
though they had taken delivery pursuant to the term of the
agreements. In the event that our contract parties choose not to
honor their contractual obligations or attempt to terminate these
agreements as a result of the continuing delay in achieving
production, our profitability may be adversely impacted. We may be
unable to sell any product our contract parties fail to purchase in
a timely manner, at comparable prices, or at all.
While
we have not used derivative financial instruments in the past, we
may elect to enter into derivative financial instruments to manage
commodity price risk. We have not entered into any market risk
sensitive instruments for trading or speculative purposes and do
not expect to enter into derivative or other financial instruments
for trading or speculative purposes.
Interest Rate Risk
As of
June 30, 2020, we had a balance of cash and cash equivalents of
$2.5 million and restricted cash of $3.7 million. Interest rates on
short term, highly liquid investments have not changed materially
since December 31, 2010, and continue to be 1% or less on an
annualized basis.
ITEM 4. CONTROLS AND PROCEDURES
Our
management, with the participation of our Chief Executive
Officer/Chief Financial Officer and our Principal Accounting
Officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)) as
of June 30, 2020. Based on that evaluation management concluded
that, as of June 30, 2020, due to the material weakness in our
internal control over financial reporting described below and as
further described in our Annual Report on Form 10-K for the year
ended December 31, 2019, our disclosure controls and procedures
were not effective to provide reasonable assurance that the
information we are required to disclose in the reports that we file
or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the
SEC’s rules and forms, and that such information is
accumulated and communicated to our management, including our Chief
Executive Officer and Chief Accounting Officer, as appropriate, to
allow timely decisions regarding required disclosure.
A
material weakness is a deficiency or a combination of deficiencies
in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of our annual
or interim financial statements will not be prevented or detected
in a timely basis.
As a
result of our assessment, management identified the following
control deficiencies that represent material weaknesses as of
December 31, 2019, which are continuing as of June 30,
2020:
●
As of December 31,
2019 and June 30, 2020, the limited level of staffing, combined
with the lack of formalized processes and technical resources
available to handle the increased volume of the complex non-routine
transactions occurring during 2019 resulted in several significant
adjustments being recorded. As a direct result of these
complex transactions and limitation on current accounting resources
we determined that our controls over the financial statement close
process related to the timely account reconciliation, analysis and
assessment of key accounting assessments and financial reporting
and disclosure were not operating effectively.
Because
of this material weakness, management concluded that we did not
maintain effective internal control over financial reporting as of
June 30, 2020.
REMEDIATION
OF THE MATERIAL WEAKNESS
We are
committed to improving our internal control over financial
reporting (ICFR). As part of this control improvement,
we plan to enhance our capacity and capabilities to review and
evaluate ongoing and technically complex transactions through
selective increased use of external resources and potential
realignment of internal staff. We will continue to
monitor and evaluate the effectiveness of our internal controls and
procedures and our ICFR on an ongoing basis, and are committed to
taking further action and implementing additional enhancements or
improvements, as necessary and as funds allow.
48
While
we believe that the above actions will ultimately remediate the
material weakness, we intend to continue to refine those controls
ad monitor their effectiveness for a sufficient period of time
prior to reaching any determination as to whether the material
weakness has been remediated.
Notwithstanding the
assessment that our ICFR was not effective and that there were
material weaknesses as identified in this report, we believe that
our consolidated financial statements contained in this
Quarterly Report on Form 10-Q for the quarter ended June 30, 2020,
fairly present our financial position, results of our operations
and cash flows for the periods covered thereby in all material
respects.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Other
than as described in the Remediation of Material
Weakness section above, there have been no changes in
our internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the quarter ended June 30, 2020 that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
49
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Permitting
Considerations
In the
ordinary course of business, mining companies are required to seek
governmental permits for expansion of existing operations or for
the commencement of new operations. The LLC is required to obtain
approval, in the form of a Record of Decision (“ROD”),
from the BLM to implement the Mt. Hope Project Plan of Operations
(“PoO”). The LLC is also required to obtain various
state and federal permits including, but not limited to, water
protection, air quality, water rights and reclamation. In addition
to requiring permits for the development of the Mt. Hope Project,
we will need to obtain and modify various mining and environmental
permits during the life of the Mt. Hope Project. Maintaining,
modifying, and renewing the necessary governmental permits is a
complex and time-consuming process involving numerous jurisdictions
and often involving public hearings and substantial expenditures.
The duration and success of the LLC’s efforts to obtain,
modify or renew permits will be contingent upon many variables,
some of which are not within the LLC’s control. Increased
costs or delays could occur, depending on the nature of the
activity to be permitted and the interpretation of applicable
requirements implemented by the permitting authority. All necessary
permits may not be obtained and, if obtained, may not be renewed,
or the costs involved in each case may exceed those that we
previously estimated. In addition, it is possible that compliance
with such permits may result in additional costs and
delays.
History of Record of Decision (ROD)
On
November 16, 2012, the BLM issued its initial ROD authorizing
development of the Mt. Hope Project. The ROD was subsequently
vacated by the U.S. Court of Appeals for the Ninth Circuit in
December 2016, discussed below. Also, on April 23, 2015, the
BLM issued a Finding of No Significant Impact (“FONSI”)
supporting their Decision to approve an amendment to the PoO. The
initial ROD and FONSI/Decision approved the PoO and amended PoO,
respectively, for construction and operation of the mining and
processing facilities and also granted the Right-of-Way, and
amended Right-of-Way, respectively, for a 230kV power transmission
line, discussed below. Monitoring and mitigation measures
identified in the initial ROD and FONSI, developed in collaboration
with the regulatory agencies involved throughout the permitting
process, will avoid, minimize, and mitigate environmental impacts,
and reflect the Company’s commitment to be good stewards of
the environment. Ongoing changes to permits and the PoO during the
life of mining operations are typical as design evolves and
operations are optimized.
On
February 15, 2013, Great Basin Resource Watch and the Western
Shoshone Defense Project (“Plaintiffs”) filed a
Complaint against the U.S. Department of the Interior and the BLM
(“Defendants”) in the U.S. District Court, District of
Nevada (“District Court”), seeking relief under the
National Environmental Policy Act (“NEPA”) and other
federal laws challenging the BLM’s issuance of the initial
ROD for the Mt. Hope Project, and on February 20, 2013 filed a
Motion for Preliminary Injunction. The District Court allowed the
LLC to intervene in the matter.
On
August 22, 2013, the District Court denied, without prejudice,
Plaintiffs’ Motion for Preliminary Injunction based on a
Joint Stipulation to Continue Preliminary Injunction Oral Argument,
which advised the District Court that as a result of economic
conditions, including the Company’s ongoing financing
efforts, all major ground disturbing activities had ceased at the
Mt. Hope Project.
On July
23, 2014, the District Court denied Plaintiffs’ motion for
summary judgment in its entirety and on August 1, 2014 the Court
entered judgment in favor of the Defendants and the LLC, and
against Plaintiffs regarding all claims raised in the
Complaint.
Thereafter, on
September 22, 2014, the Plaintiffs filed their notice of
appeal to the U.S. Court of Appeals for the Ninth Circuit
(“Ninth Circuit”) of the District Court’s
dismissal. Oral argument of the parties before the Ninth Circuit
was completed on October 18, 2016. On
December 28, 2016, the Ninth Circuit issued its Opinion rejecting
many of the arguments raised by the Plaintiffs challenging the
Environmental Impact Statement ("EIS") completed for the Mt.
Hope Project, but issued a narrow reversal of the BLM's findings
related to air quality analysis and information related to
potential public water resources. Because of this technical
deficiency, the Court vacated the initial ROD.
Re-Issuance of Record of Decision Approving Supplemental
Environmental Impact Statement (“SEIS”)
On
remand to the BLM, the agency conducted additional evaluation of
air quality impacts and resulting cumulative impact analysis under
NEPA in preparation of a Supplemental Environmental Impact
Statement (“SEIS”). The SEIS disclosed additional
information to the public related to the selection of appropriate
background concentrations to use for dispersion modeling of air
pollutants and information related to potential public water
reserves. Because the SEIS must be prepared in accordance with NEPA
guidelines, the SEIS included three publications in the Federal
Register, the first was the Notice of Intent (“NOI”)
which was published on July 19, 2017, the second, the Notice of
Availability (“NOA”) of the Draft SEIS
(“DSEIS”) was published on March 6, 2019, and on
September 27, 2019, the third NOA was published announcing that the
BLM had re-issued the ROD marking completion of the NEPA process
and approval of the SEIS. On November 5, 2019, we announced
that a Complaint was filed against the U.S. Department of Interior
and the BLM in the U.S. District Court in Nevada, challenging the
re-issuance of the ROD. On March 11, 2020, the LLC filed its
unopposed Motion to Intervene in the U.S. District Court on behalf
of the Mt. Hope Project. The District Court approved the
LLC’s intervention on March 19, 2020 and the LLC’s
Answer to the Complaint was filed on March 20, 2020. The LLC will
work closely with the BLM and DOI to defend the claims filed by
Great Basin Resource Watch and Western Shoshone Defense
Project.
50
Reclamation Considerations
Environmental
regulations related to reclamation require that the cost for a
third party contractor to perform reclamation activities on the
minesite be estimated. In October 2015, we submitted a request to
the BLM to reduce our reclamation liability to current surface
disturbance. Simultaneously, we submitted an application to the
Nevada Department of Environmental Protection (“NDEP”)
Bureau of Mining Regulation and Reclamation
(“NDEP-BMRR”) to modify the Reclamation Permit to
reflect this reduced reclamation liability. On October 26, 2015,
NDEP-BMRR approved the proposed permit modification, including the
reduced reclamation liability amount. On December 21, 2015, BLM
approved the updated reclamation liability estimate, reducing of
the reclamation liability to approximately $2.8 million. In early
2019, the Company submitted, and BLM approved a required 3-year
update to the reclamation liability estimate, resulting in an
increased liability of approximately $3.1 million. We worked with
the LLC’s reclamation surety underwriters to satisfy the $2.8
million financial guarantee requirements under the approved amended
PoO for the Mt. Hope Project and funded the $0.3 million increase
in cash directly with the BLM in April 2019. As of June 30, 2020,
the surety bond program was funded with a cash collateral payment
of $0.3 million.
Water
Rights Considerations
History of Mt. Hope Water Permits
In July
2011, the Nevada State Engineer (“State Engineer”)
initially approved our applications for new appropriation of water
for mining and milling use, and applications to change existing
water from agricultural use to mining and milling use for the Mt.
Hope Project. Subsequently, the State Engineer granted water
permits associated with the approved applications and approved a
Monitoring, Management and Mitigation Plan (“3M Plan”)
for the Mt. Hope Project. Eureka County, Nevada and two other
parties comprised of water rights holders in Diamond Valley and
Kobeh Valley appealed the State Engineer’s decision approving
the applications and granting the water permits to the Nevada State
District Court (“District Court”) and then filed a
further appeal to the Nevada Supreme Court challenging the District
Court’s decision affirming the State Engineer’s
decision to approve the applications and grant the water permits.
In June 2013, the appeal was consolidated by the Nevada Supreme
Court with an appeal of the State Engineer’s approval of the
3M Plan filed by two water rights holders. The District Court
previously upheld the State Engineer’s approval of the 3M
Plan and the two parties subsequently appealed the District
Court’s decision to the Nevada Supreme Court.
On
September 18, 2015, the Nevada Supreme Court issued an Order that
reversed and remanded the cases to the District Court for further
proceedings consistent with the Order. On October 29, 2015, the
Nevada Supreme Court issued the Order as a published Opinion. The
Nevada Supreme Court ruled that the State Engineer did not have
sufficient evidence in the record at the time he approved the
applications and granted the water permits to demonstrate that
successful mitigation may be undertaken so as to dispel the threat
to existing water rights holders.
On
September 27, 2017, the Nevada Supreme Court affirmed a March 4,
2016 District Court Order vacating the 3M Plan, denying the water
applications and vacating the permits issued by the State Engineer
in July 2011 and June 2012. This decision of the Nevada Supreme
Court was final, and not subject to further appeal.
New Change Applications for Water Use at Mt. Hope
Project
After
the Company received the September 2017 decision from the Nevada
Supreme Court, it proceeded with new applications to change
existing agricultural irrigation and mining/milling water rights
owned by the Company to use at the Mt. Hope Project. These new
change applications had been filed with the State Engineer in 2015
and 2016 while the above described appeals were pending before the
Nevada Supreme Court. Originally, these applications and other new
appropriation applications were to be addressed at a pre-hearing
conference scheduled on August 25, 2016 before the State Engineer.
These applications were the subject of a Writ of Prohibition or
Mandamus (“Writ”) filed by Eureka County on August 23,
2016 to the Nevada Supreme Court seeking the Supreme Court’s
intervention to stop further action by the State Engineer while the
appeals discussed above were pending. On December 22, 2017 the
Nevada Supreme Court denied Eureka County’s Writ Petition. As
a result, the State Engineer allowed a pre-hearing conference held
on January 24, 2018. At the pre-hearing conference the State
Engineer and his hearing officer scheduled review of the new change
applications for a September 11, 2018 hearing in Carson City,
Nevada.
On
January 2, 2018, Eureka County, and later joined by the other two
protestants representing a rancher in Kobeh Valley and a ranching
group in Diamond Valley, filed a motion to dismiss with the State
Engineer asserting that our applications were precluded from review
and approval asserting that they were repetitive of the
applications denied previously by the Nevada Supreme Court in its
September 2017 decision. On March 26, 2018, the State Engineer
issued a non-final order denying the motion to dismiss finding that
the applications to be reviewed at the upcoming hearing were not
identical issues and that further consideration of the motion could
be taken at the hearing. On May 14, 2018, Eureka County, joined by
the other protestants filed a Writ to the Nevada Supreme Court and
later a Motion to Stay the September hearing date, asserting that
the denial of the Motion to Dismiss was erroneous and that the
Nevada Supreme Court should order that the applications be denied
and/or the September 2018 hearing should be delayed until the
Nevada Supreme Court can consider the Writ and underlying motion to
dismiss. The Company filed its objection on June 27, 2018, and on
August 30, 2018, the Nevada Supreme Court denied the Writ,
permitting the September 2018 hearing before the Nevada State
Engineer to proceed.
51
On the
second day of the September hearing, all protest issues raised by
Eureka County and the Diamond Natural Resources Protections &
Conservation Association (“DNR”) concerning the Mt.
Hope water rights applications were resolved through a Stipulation,
Settlement Agreement and Withdrawal of Protest
(“Settlement”). After Eureka County and DNR were
excused, the hearing continued with evidence addressing concerns
raised by another protestant representing a Kobeh Valley ranching
family and cattle company that refused to participate in the
Settlement. At the public hearing, the Company presented expert
testimony in support of its augmentation and monitoring plan to the
Nevada State Engineer, which will protect senior water rights in
the Kobeh Valley basin when the Company commences construction and
operation of its proposed Mt. Hope molybdenum project near the town
of Eureka, Nevada. The hearing concluded on September 21,
2018.
Effective April 30,
2019, the Company, through its wholly owned subsidiary Kobeh Valley
Ranch LLC (“KVR”) entered into a settlement agreement
with a Kobeh Valley, Nevada ranching family
(“Ranchers”), resolving the last set of protests
pending before the Nevada State Engineer pertaining to the Mt. Hope
Project’s water rights applications.
On June
6, 2019, the Nevada State Engineer issued Ruling 6464 granting the
Company’s water rights applications for mining purposes. The
water right permits for the Mt. Hope Project were issued on July
24, 2019. With receipt of and in compliance with the terms of the
water permits, the water is available for consumptive use at the
Mt. Hope Project.
Key Terms of Settlements
Eureka County and the DNR
Under
the terms of the Settlement with Eureka County and the DNR, the
Company and the LLC agreed to convey all related water rights for
Mt. Hope Project at the future cessation of all mining activity to
assist Eureka County and the DNR’s efforts to mitigate the
pre-existing effects of agricultural groundwater pumping in Diamond
Valley. Furthermore, upon construction of certain power
infrastructure and grants of right of way by the LLC at the Mt.
Hope Project, the Company and the LLC will work cooperatively with
Eureka County to allow use of and access to such infrastructure to
lessen the pre-existing effects of Diamond Valley groundwater
pumping. Eureka County, and the Company and the LLC, also agreed to
work cooperatively to seek opportunities to improve and implement
groundwater monitoring efforts.
In
addition, the Company withdrew its protests to Eureka
County’s pending applications with the Nevada State Engineer
to appropriate water from the Kobeh Valley basin, and at the
request of DNR, the Company also agreed to publicly support the
proposed Diamond Valley Ground Water Management Plan, which was
subsequently approved by the Nevada State Engineer.
With
receipt of the water permits, the LLC increased its financial
contributions to the existing Agricultural Sustainability Trust
Agreement, discussed above, with the Eureka Producers’
Cooperative (“EPC”) in Diamond Valley with an
additional $50,000 to EPC. Initially, upon execution of the
Settlement, the LLC made a payment of $50,000.
The LLC
will make additional contributions of $750,000 each after the
commencement of molybdenum production at the Mt. Hope Project and
on the one year anniversary of production, for a total contribution
obligation to the Sustainability Trust of $5.6 million, an increase
of $1.6 million related to the terms of the Settlement. The amount
has been accrued under mining properties, land, and water rights in
the Company’s financial statements in addition to the
previously accrued $4.0 million resulting in a total accrual of
$5.6 million. The LLC has contributed $0.1 million into the Trust
as of March 31, 2020.
The
Sustainability Trust is tasked with developing and implementing
programs that will serve to slow groundwater drawdown and thereby
improve the sustainability of the agricultural economy in the
Diamond Valley Hydrographic Basin.
Kobeh Valley Ranching Family
At the
execution of the settlement agreement, the LLC funded an initial
payment of $1 million into a trust account; distribution to the
Ranchers occurred when the water permits were issued on July 24,
2019. Upon receipt of the initial $1,000,000 into the trust
account, the Ranchers withdrew their protests and forfeited any
judicial review of Ruling 6464 and the water applications and
issuance of the water permits issued on July 24, 2019 by the Nevada
State Engineer.
When
conditions exist for the LLC to secure project financing,
additional consideration of $14,000,000 will be payable to the
Ranchers. As the LLC had not secured Mt. Hope Project financing
within 12 months of the executed settlement agreement or April
2020, the LLC began making monthly payments of $10,000 to the
Ranchers and will continue to do so until financing is achieved, at
which time the remaining consideration will be paid to the
Ranchers.
52
Funding
for the $1 million was advanced to the LLC by the Company, to
preserve the joint venture’s existing reserve account.
General Moly sourced $500,000 from its available cash, and received
the remaining $500,000 from closing a sale of Series A Convertible
Preferred Shares in a private placement with Mount Hope Mines Inc.
(“MHMI”) discussed in Notes 1 and 7 above, the Mt. Hope
Project’s claim/land lessor.
In
exchange for General Moly advancing the $1,000,000 initial
settlement funding, the LLC members have agreed to repay
the $1 million advance from the proceeds of ongoing sales of
non-critical LLC assets and lands. On
September 27, 2019, the Company and POS-Minerals entered into a
Consent Agreement for a reimbursement schedule concerning the
approximately $700,000 owed to the Company by the LLC in return for
its advance of funding to settle protests related to the water
right applications for the Mt. Hope Project. Under the Consent
Agreement, $200,000 was reimbursed from the Reserve Account to the
Company on September 30, 2019 and an additional $200,000 was
reimbursed in early November. The remaining approximately $300,000
will be reimbursed in December, provided that the LLC has sold a
minimum of $400,000 in non-critical Mt. Hope Project related
equipment.
ITEM 1A. RISK FACTORS.
Our
Annual Report on Form 10-K for the year ended
December 31, 2019, including the discussion under the heading
“Risk Factors” therein, and this report describe risks
that may materially and adversely affect our business, results of
operations or financial condition. The risks described in our
Annual Report on Form 10-K and this report are not the only
risks facing us. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition
and/or operations.
Substantial doubt exists as to our ability to continue as a going
concern, and there is a substantial risk that we may be required to
seek protection under Chapter 11 of the United States Bankruptcy
Code, possibly before the fourth quarter of 2020.
We have
experienced substantial and recurring losses from operations, which
losses have caused an accumulated deficit of 411.4 million at June
30, 2020. At June 30, 2020, we had approximately $2.5 million in
unrestricted cash and $2.8 million in restricted cash on hand, held
by the LLC. We generate no revenue. Based on our cash balances as
of June 30, 2020, we believe that we will only be able to sustain
operations through September 30, 2020. In particular, we have
insufficient cash to make required interest payments on our
outstanding Exchange Notes and Supplemental Notes through the
remainder of 2020. The Mt. Hope Project remains funded into 2021 by
the reserve account held by the LLC for the payment of ongoing
jointly approved (by POS-Minerals and the Company) expenses until
the Company obtains full financing for its portion of the Mt. Hope
Project construction cost. However, the Company does not currently
have liquidity and capital resources to finance its portion of Mt.
Hope Project operations after the reserve account is depleted or
otherwise honor its obligations under the EMLLC LLC
Agreement.
We have
been funding our business principally through sales of our
securities. However, we have been unable to obtain additional
financing in recent months due to the impact of COVID-19 on capital
markets during the second quarter of 2020, and the decrease in the
current and forecasted price of molybdenum, among other factors. As
a result, we recognized an impairment charge reducing the carrying
value of the Mt. Hope assets by $260.6 million as of June 30, 2020.
The impairment charge may make it even more difficult to obtain
additional financing by selling our securities in public or private
transactions, and may impair the market value and liquidity of our
common stock. Reductions in the trading price of our common stock
or commencement of bankruptcy proceedings by the Company could
result in the suspension or delisting of our common stock from the
NYSE American stock exchange.
We have
retained financial advisors to assist us with evaluating a variety
of strategic alternatives, including securing incremental
financing, the potential addition of new Mt. Hope Project partners,
additional corporate strategic investors, merger opportunities,
and/or the possible sale or privatization of the Company. We may
not be successful independently or with our financial advisors in
securing strategic alternatives, and may not be able to raise
additional capital or, if we are successful in our efforts to raise
additional capital, the terms and conditions upon which any such
capital would be extended. If we are unable to meet our obligations
past third quarter 2020, we would be forced to cease all operations
and pursue restructuring or liquidation alternatives, and will
likely be forced to file for bankruptcy protection, in which event
our common stock will likely become worthless and investors will
likely lose their entire investment in our Company. In addition,
holders of our outstanding convertible preferred stock and senior
notes would likely receive significantly less than the principal
amount of their claims and, possibly, no recovery at
all.
Even if we are successful in raising additional funding, we may not
be able to achieve our stated goals and continue as a going
concern.
53
Even if
we are successful in raising additional funding or finding another
source of liquidity, we will continue to face a number of risks,
including our ability to repay our outstanding debt, and our
ability to execute on our business plan with respect to the Mt.
Hope Project. Accordingly, we cannot ensure that the raising
additional funding will achieve our stated goals nor can we give
any assurance of our ability to continue as a going
concern.
In the event that we commence proceedings under Chapter 11, trading
in our common stock will be highly speculative and pose substantial
risks.
We
anticipate that, in any Chapter 11 proceedings, holders of our
common stock (or claims and interests with respect to, or rights to
acquire, our equity securities) would be entitled to little or no
recovery, and those claims and interests may be canceled for little
or no consideration. If that were to occur, we anticipate that all
or substantially all of the value of all investments in our equity
securities would be lost and that our equity holders would lose all
or substantially all of their investment. Trading prices and volume
in our common stock may bear little or no relationship during
Chapter 11 proceedings to any actual recovery. Accordingly, we urge
extreme caution with respect to existing and future investments in
our common stock.
If we fail to maintain compliance with the continued listing
standards of the NYSE American, it may result in the delisting of
our common stock from the NYSE American.
Our
common stock is currently listed and traded on the NYSE American.
If we are unable to maintain compliance with the minimum listing
standards of NYSE American, including those standards relating to
our stock price, stockholders’ equity and market value, in
each case, as determined under NYSE American rules, we may receive
a notice of non-compliance and be subject to delisting proceedings.
If we are unable to cure any event of noncompliance with any
continued listing standard of the NYSE American within the
applicable timeframe and other parameters set forth by the NYSE
American, or if we fail to maintain compliance with certain
continued listing standards that do not provide for a cure period,
it will result in the delisting of our common stock from the NYSE
American, which could negatively impact the trading price, trading
volume and liquidity of, and have other material adverse effects
on, our common stock. Further, if we commence Chapter 11
proceedings, our shares of common stock will likely be delisted
from trading on the NYSE American. NYSE American rules provide that
securities of a company that trades on the NYSE American may be
delisted in the event that such company seeks bankruptcy
protection. In response to a Chapter 11 filing, the NYSE American
would likely issue a delisting letter immediately following such a
filing. If the NYSE American issued such a letter, we would have
the opportunity to appeal the determination during which time the
delisting would be stayed, but if we did not appeal or otherwise
were not successful in our appeal, our common stock would soon
thereafter be delisted and our common stock could be traded in the
over-the-counter markets.
Special Note Regarding Forward-Looking Statements
Certain
statements in this report may constitute forward-looking
statements, which involve known and unknown risks, uncertainties
and other factors, which may cause actual results, performance or
achievements of our Company, the Mt. Hope Project, Liberty Project
and our other projects, or industry results, to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statements. We use the
words “may,” “will,” “believe,”
“expect,” “anticipate,”
“intend,” “future,” “plan,”
“estimate,” “potential” and other similar
expressions to identify forward-looking statements. These
forward-looking statements are subject to a number of risks,
uncertainties and assumptions that could cause actual results to
differ materially from those in the forward looking statements.
Such risks, uncertainties and assumptions are described in the
“Risk Factors” section included in our Annual Report on
Form 10-K for the year ended December 31, 2019, and this
report, and include, among other things:
●
we will likely be
forced to enter into bankruptcy and/or cease operations if we are
unable to acquire additional cash resources prior to the end of
September 2020;
●
our investors may
lose their entire investment in our securities;
●
Substantial risk
that COVID-19 is affecting and will continue to affect financing
efforts to improve liquidity;
●
Our ability to have
access to insurance programs for directors & officers;
commercial general liability and automobile liability; workers
compensation; property; surety bonding for reclamation liability
and builders risk insurance could be impaired if our financial
condition continues to be at risk for meeting our financial
obligations;
●
our permits,
including the current appeal of the ROD discussed above, may be
subject to further judicial appeals, which may further delay the
development of the Mt. Hope Project;
●
our profitability
depends largely on the success of the Mt. Hope Project, the failure
of which would have a material adverse effect on our financial
condition;
●
we have not
obtained, and may not obtain, alternative project financing, which
could cause additional delays or expenses in developing the Mt.
Hope Project;
54
●
if certain
conditions are not met under attempts to secure project financing,
including AMER’s reasonable best efforts to assist the
Company under the new SPA, our ability to begin construction of the
Mt. Hope Project could be delayed further;
●
the impact of asset
impairment charges if required as a result of our inability to
obtain additional funding;
●
substantial
additional financing may be required in order to fund the
operations of the Company and the LLC and if we are successful in
raising additional capital, it may have dilutive and other adverse
effects on our stockholders;
●
POS-Minerals’
right under the LLC Agreement to approve certain major decisions
regarding the Mt. Hope Project could impair our ability to quickly
adapt to changing market conditions;
●
POS-Minerals’
right under the LLC Agreement to approve the conduct of business
other than the development, construction, operations and financing
of the Mt. Hope molybdenum project, including the potential Cu-Ag
target and zinc mineralization;
●
risks related to
the failure of POS-Minerals to make ongoing cash contributions to
the LLC pursuant to the LLC Agreement;
●
our listing with
the NYSE American may continue to be non-compliant, and may require
the implementation of a reverse stock split, if authorized by our
shareholders and Board of Directors, to maintain our
listing;
●
maintaining
effectiveness of current molybdenum supply agreements;
●
fluctuations in the
market price of, and demand for, molybdenum, copper and other
metals;
●
counter party
risks;
●
the timing of
exploration, development and production activities and estimated
future production, if any;
●
estimates related
to costs of production, capital, operating and exploration
expenditures;
●
the estimation and
realization of mineral reserves and production estimates, if
any;
●
inherent operating
hazards of mining;
●
title disputes or
claims;
●
climate change and
climate change legislation for planned future
operations;
●
our ability to
renegotiate, restructure, suspend, cancel or extend payment terms
of contracts as necessary or appropriate in order to conserve
cash;
●
government
regulation of mining operations, environmental conditions and
risks, reclamation and rehabilitation expenses;
●
compliance/non-compliance
with the Mt. Hope Lease Agreement;
●
losing key
personnel and contractors or the inability to attract and retain
additional personnel;
●
reliance on
independent contractors, experts, technical and operational service
providers over whom we have limited control;
●
increased costs can
affect our profitability;
●
shortages of
critical parts, equipment, and skilled labor may adversely affect
our development costs;
●
limitations of and
access to certain insurance coverage;
●
legislation may
make it difficult to retain or attract officers and directors and
can increase costs of doing business; and
●
provisions of
Delaware law and our charter and bylaws may delay or prevent
transactions that would benefit stockholders.
You
should not place undue reliance on these forward-looking
statements, which speak only as of the date of this report. These
forward-looking statements are based on our current expectations
and are subject to a number of risks and uncertainties, including
those set forth above. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, our
actual results could differ materially from those expressed in
these forward-looking statements, and any events anticipated in the
forward-looking statements may not actually occur. Except as
required by law, we undertake no duty to update any forward-looking
statements after the date of this report to conform those
statements to actual results or to reflect the occurrence of
unanticipated events. We qualify all forward-looking statements
contained in this report by the foregoing cautionary
statements.
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF
PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
55
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit Number
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|
Description of Exhibit
|
|
|
Certificate
of Incorporation, as amended (Filed as Exhibit 3.1 to our Quarterly
Report on Form 10-Q filed on November 4, 2015.)
|
||
|
Certificate
of Designation of Series A Junior Participating Preferred Stock
(Filed as Exhibit 3.1 to our Current Report on Form 8-K filed on
March 5, 2010.)
|
||
|
Certificate
of Designations of Series A Preferred Stock. (Filed as Exhibit 3.1
to our Current Report on Form 8-K filed on March 28,
2019.)
|
||
|
Certificate
of Designation of Series B Preferred Stock (Filed as Exhibit 3.1 to
our Current Report on Form 8-K filed on August 7,
2019.)
|
||
|
Certificate
of Amendment to Certificate of Designation of Series A Convertible
Preferred Stock (Filed as Exhibit 3.1 to our Current Report on Form
8-K filed on April 2, 2020.)
|
||
|
|
Certificate
of Amendment to Certificate of Designation of Series B Preferred
Stock (Filed as Exhibit 3.2 to our Current Report on Form 8-K filed
on April 2, 2020.)
|
|
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Promissory
Note, dated as of April 24, 2020 between General Moly, Inc. and
U.S. Bank, National Association (Filed as Exhibit 10.1 to our
Current Report on Form 8-K filed on April 29, 2020.)
|
||
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General
Moly, Inc. 2006 Equity Incentive Plan, as Amended and Restated
(Filed as Annex A to our Definitive Proxy Statement on Schedule 14A
filed on June 13, 2019.)
|
||
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith)
|
||
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith)
|
||
101
|
|
The
following XBRL (Extensible Business Reporting Language) materials
are filed herewith: (i) XBRL Instance; (ii) XBRL Taxonomy
Extension Schema; (iii) XBRL Taxonomy Extension Calculation;
(iv) Taxonomy Extension Labels, (v) XBRL Taxonomy
Extension Presentation, and (vi) XBRL Taxonomy Extension
Definition.
|
56
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated:
August 19, 2020
|
|
|
|
GENERAL
MOLY, INC.
|
|
|
|
|
|
By:
|
/s/
Amanda J. Corrion
|
|
|
Amanda
Corrion
|
|
|
Principal
Accounting Officer and Duly Authorized Officer
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57