Mudrick Capital (MUDS) to Combine with Hycroft Mining

“Gold was a gift to Jesus. If it’s good enough for Jesus, it’s good enough for me!” – Mr. T

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Mudrick Capital Acquisition Corp. (MUDS), announced this morning that they have entered into a definitive purchase agreement with Hycroft Mining Corporation, a US-based, gold and silver producer operating the Hycroft mine located in the mining region of Northern Nevada. Assuming no redemptions by MUDS stockholders, the transaction is expected to yield an enterprise value of approximately $537 million. Following the closing of the transaction, Hycroft will be listed on the Nasdaq Stock Exchange under the ticker symbol “HYMC.” 

The Hycroft Mine is a senior-scale asset that has historically produced more than 2.0 million ounces of gold and 7.5 million ounces of silver and hosts one of the world’s largest gold and silver deposits, with proven and probable mineral reserves of ~18 million gold equivalent^1,2 ounces.  Hycroft has a highly experienced executive and management team and currently employs approximately 150 employees at the mine site in addition to its contractors and consultants.

¹Gold equivalent values are calculated using a 75:1 silver to gold ratio.
²Mineral Reserves estimated at $1,200/oz Au and $16.50/oz Ag.

Transaction Summary

In this transaction the Seller will sell to Acquisition Sub, and Acquisition Sub will purchase from Seller, all of the issued and outstanding equity interests of Seller’s subsidiaries and substantially all of Seller’s other assets.  Additionally, MUDS will have at least $50.0 million of unrestricted and available cash on hand at closing with the cash sources including:

• A $110.0 million multi-tranche credit agreement arranged by Sprott Resource Lending Corp. (the “Sprott Credit Agreement”), of which $70.0 million is expected to be drawn at closing,
• A $30.0 million 1.5% net smelter royalty agreement arranged by Sprott Resource Lending Corp.,
• Consummation of the $25.0 million forward purchase of MUDS’ units and shares by Mudrick Capital Acquisition Holdings LLC,
• A $65 million backstop agreement to purchase MUDS shares by certain existing stockholders of Hycroft and
• The net cash remaining in MUDS’ trust account following any stockholder redemptions.

Furthermore, MUDS’ post-transaction indebtedness will include amounts drawn from the Sprott Credit Agreement plus newly issued subordinated notes not to exceed $80.0 million.  All other indebtedness of Hycroft will be retired, exchanged for MUDS shares, converted into Hycroft shares or assumed by MUDS in the transaction.

However, if you are a subscriber, head over to MUDS profile page for further details since this transaction’s structure is fairly complicated and has too many moving parts to list them all out here.

Quick takes:  Unfortunately, we don’t have a presentation filed yet and a conference call was not scheduled, which makes drilling down on Hycroft challenging.  Especially since we don’t have any comps to compare it to. However, keep in mind that MUDS is running up on their completion deadline of roughly February 12, 2020, a month away.  Clearly, MUDS will be extending so we should be getting a preliminary proxy filing any day now.  Most likely, MUDS waited to file their extension proxy to first gauge reaction to the announced deal before committing to any additional contribution to trust.  However, as of right now, MUDS is not trading significantly above trust value after this morning’s announcement, so some sort of contribution to extend is probably in the cards.

Additionally, it states within the press release that “Hycroft’s principal equity holders include investment funds affiliated with or managed by Mudrick Capital Management LP, Whitebox Advisors LLC, Highbridge Capital Management LLC, Aristeia Capital, LLC and Wolverine Asset Management, LLC, who together own a majority interest in Hycroft.”  So Mudrick (the SPAC) is kind of buying themselves (Mudrick Capital Management), which is not super typical.  Although, probably not much different than the Gores team dipping into the family private equity firm. However, it does mean that Mudrick will need to get a Fairness Opinion since they are an affiliate of Hycroft.  And, if you look in today’s filed agreement, it says they’ve received an “oral opinion” from Greenhill & Co., Canada, Ltd., but that it will be followed up in writing.  Getting an “oral opinion” is definitely unusual. Not sure how you determine the fairness “orally”.  However, if we want to read the tea leaves here, it sounds like there wasn’t enough time for Greenhill to put together a standard, written fairness opinion.  Which also means maybe this transaction came about a lot more recently than we thought.  In the meantime, hopefully we get a presentation (and a proxy) shortly to get a better look at this deal.  Stay tuned…

ADVISORS

• Weil, Gotshal & Manges LLP is acting as legal advisor to MUDS.
• Neal, Gerber & Eisenberg LLP is acting as legal advisor to Hycroft.
• BMO Capital Markets Corp. and Greenhill & Co., Canada, Ltd. acted as financial advisors to Hycroft.
• Duff & Phelps, LLC acted as financial advisor to MUDS.
• Cantor Fitzgerald & Co. acted as capital markets advisor to MUDS.