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Mudrick Capital Acquisition Corporation *

Mudrick Capital Acquisition Corporation *

Oct 19, 2020 by Roman Developer

PROPOSED BUSINESS COMBINATION: Hycroft Mining Corporation

ESTIMATED CURRENT FUNDS in TRUST: $71.8 million*
CURRENT PER SHARE REDEMPTION PRICE: $10.40*
ENTERPRISE VALUE: $537.0 million

 

*SPACInsider estimate a/o 5-27-20

Mudrick Capital Acquisition Corp. proposes to acquire 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 MUDS following the transaction 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 equivalent1,2 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.

Hycroft’s current life-of-mine (“LOM”) plan is based on a third-party feasibility study completed by M3 Engineering and Hycroft and incorporating resources modeled by SRK Consulting (Reno, NV) (the “Feasibility Study”).  The Feasibility Study projects a LOM net present value of $2.1 billion (at a 5% discount rate), a LOM after-tax internal rate of return of 147.5%, a payback period of 2.6 years, and average annual production of ~366 thousand gold equivalent1 ounces over a 34-year period, subject to assumptions set forth in detail in the Feasibility Study.  The LOM project economics are highly leveraged to metal prices, including those that are higher than the Feasibility Study selling price inputs of $1,300/oz of gold and $17.33/oz of silver.

 

 Metal prices

 NPV – 0%

 NPV – 5%

 After tax IRR

 Gold ($/oz) 

 Silver ($/oz) 

 (billions)

 (billions)

 $1,200

 $16.50

 $4.2

 $1.7

 80%

Feasibility Study 

 $1,300

 $17.33

 $5.1

 $2.1

 148%

 $1,400

 $18.67

 $6.1 

 $2.6

 304%

 $1,500

 $20.00

 $7.1

 $3.0

 N/A

 

In December 2018, construction, refurbishment, crusher commissioning, hiring, and other mine restart activities began at Hycroft with active mining operations being resumed in April 2019 followed by gold and silver production in August 2019. The primary goal of the first phase of the restart has been and continues to be to demonstrate the proprietary oxidation and heap leach process for sulfide ores on a commercial scale.  As the Hycroft mine is fully operational and permitted, the next major operational milestones will be focused on enhancing recoveries and expanding leach pads to allow a ramp up to Feasibility Study levels with respect to tonnages, ounces produced, and cost metrics.

TRANSACTION SUMMARY

  1. A number of shares of Parent’s Class A common stock, par value $0.0001 per share (the “Parent Class A Common Stock”) equal to:
    1. (A) $325,000,000, plus
    2. (B) the value of the Surrendered Shares valued at $10.00 per share, minus
    3. (C) the sum of the 1.5 Lien Share Payment Amount and the 1.5 Lien Cash Payment Amount (each as defined below), minus
    4. (D) the sum of the Excess Notes Share Payment Amount and the Excess Notes Cash Payment Amount (each as defined below), divided by
    5. $10.00,
  2. The Excess Notes and Seller’s 1.5 lien notes acquired by Acquisition Sub in connection with the consummation of the business combination
  3. In addition, (x) Parent and Acquisition Sub will assume certain of Seller’s liabilities, including Parent’s assumption of certain debt obligations of Seller, and (y) Acquisition Sub will pay off, or cause to be paid off, Seller’s other outstanding indebtedness for borrowed money, on Seller’s behalf, including under Seller’s first lien debt and promissory note.

Pursuant to the terms of the transaction, MUDS will have at least $50.0 million of unrestricted and available cash on hand at closing.

Cash sources for the transaction include

  • (a) 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,
  • (b) a $30.0 million 1.5% net smelter royalty agreement arranged by Sprott Resource Lending Corp.,
  • (c) consummation of the $25.0 million forward purchase of MUDS’ units and shares by Mudrick Capital Acquisition Holdings LLC,
  • (d) a $65 million backstop agreement to purchase MUDS shares by certain existing stockholders of Hycroft and
  • (e) the net cash remaining in MUDS’ trust account following any stockholder redemptions.

MUDS’s 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.

mudrick sources and uses

FORWARD PURCHASE

  • Concurrently with the consummation of the business combination, Parent and Sponsor will consummate the transactions contemplated by that certain Forward Purchase Contract, dated as of January 24, 2018, pursuant to which Sponsor will purchase 2,500,000 Parent Units and 625,000 shares of Parent Class A Common Stock for an aggregate purchase price of $25,000,000 (the “Forward Purchase”)

BACKSTOP

  • With certain investment funds affiliated with or managed by Mudrick Capital Management, L.P., Whitebox Advisors LLC, Highbridge Capital Management, LLC, Aristeia Capital, LLC or Wolverine Asset Management, LLC (collectively, the “Initial Investors”)
    • Parent will issue and sell to the Initial Investors $65,000,000 of Parent Class A Common Stock at a purchase price of $10.00 per share, and the Initial Investors will receive an aggregate of 3,250,000 warrants exercisable at $11.50 per share
  • if, (a) Parent enters into subscription agreements or other instruments with certain third-party investors in connection with the Subscription/Backstop Agreements or (b) in connection with the consummation of the business combination, the cash remaining in Parent’s trust account following the satisfaction of stockholder redemptions exceeds $10,000,000, then:
    • the aggregate number of shares to be issued to the Initial Investors will be correspondingly reduced such that, an amount of Parent Class A Common Stock equal to the difference (not less than zero) between:
      • (i) $65,000,000 and
      • (ii) the amount of cash in excess of $10,000,000 remaining in Parent’s trust account following the satisfaction of stockholder redemptions will be issued to the Initial Investors and such third-party investors, in the aggregate, at a purchase price of $10.00 per share

SPROTT CREDIT AGREEMENT & SPROTT ROYALTY AGREEMENT

A multi-tranche Credit Agreement (the “Sprott Credit Agreement”), pursuant to which Seller will incur indebtedness with an original principal amount not in excess of $110,000,000 .

  • Parent will assume the Sprott Credit Agreement in connection with the consummation of the business combination and will issue to Sprott Private Resource Lending II (Collector), LP a number shares of Parent Class A Common Stock equal to 1% of Parent’s post-closing shares outstanding.

Concurrently with the consummation of the business combination, Parent and a subsidiary of Seller will enter into a Royalty Agreement with Sprott Private Resource Lending II (CO) Inc. (the “Sprott Royalty Agreement”),pursuant to which:

  • Such subsidiary will receive $30,000,000 and will incur a 1.5% net smelter royalty payment obligation relating to the Hycroft mine, the principal asset of Seller’s subsidiaries being acquired in the business combination.

NOTE EXCHANGE AGREEMENT

  • Seller and the holders of all of Seller’s outstanding 1.25 lien notes entered into a Note Exchange Agreement (the “1.25 Lien Exchange Agreement”), pursuant to which such holders and Seller have mutually agreed that:
    • (i) such holders will exchange the outstanding 1.25 lien notes for new subordinated notes of Seller (the “New Subordinated Notes”) immediately prior to the consummation of the business combination and
    • (ii) not more than $80,000,000 in aggregate principal amount of such New Subordinated Notes, on a pro rata basis (the “Assumed New Subordinated Notes”), will be permitted to be assigned to and assumed by Parent at the consummation of the business combination.
  • Seller and the holders of all of Seller’s second lien notes entered into a Conversion and Consent Agreement (the “Second Lien Conversion Agreement”), pursuant to which:
    • such holders have agreed to convert their second lien notes into Seller’s common stock in accordance with the terms thereof immediately prior to the consummation of the business combination.

SPONSOR SHARES & PRIVATE PLACEMENT PURCHASE

**5,200,000 Sponsor Shares at IPO; 7,740,000 Private Placement Warrants at $1.00 at IPO

  • (a) Sponsor agreed to waive certain anti-dilution rights set forth in Section 4.3(b)(ii) of Parent’s Charter that may result from the transactions contemplated by the Purchase Agreement, including the PIPE, and
  • (b) Sponsor agreed to surrender:
    • (i) 1,941,667 Sponsor Shares, plus
    • (ii) the product of
      • (A) 1,941,667 and
      • (B) the difference between (I) 1 and (II) a fraction (not greater than 1), the numerator of which is the sum of (x) the amount of PIPE proceeds from subscription agreements other than the Subscription/Backstop Agreements and (y) the amount of cash remaining in Parent’s trust account following the satisfaction of stockholder redemptions, and the denominator of which is $65,000,000 (the “Surrendered Shares”).

NOTABLE CONDITIONS TO CLOSING

  • $210,000,000 in available cash immediately prior to the effective time of the consummation of the business combination (after taking into account:
    • (A) payments required to satisfy Parent’s stockholder redemptions and
    • (B) the net proceeds from the PIPE, the Forward Purchase, and the funding under the Sprott Agreements), and
  • $50,000,000 in unrestricted and available cash immediately following the effective time of the consummation of the business combination (taking into account all of the transactions referenced)

NOTABLE CONDITIONS TO TERMINATION

  • By either Parent or Seller, if the consummation of the business combination has not occurred on or prior to February 12, 2020 (the “Outside Date”;
    • Provided, that if Parent seeks and receives approval of its stockholders to extend the deadline for Parent to consummate its initial business combination transaction to August 12, 2020, the Outside Date shall be extended to such date

BOARD

  • In connection with the consummation of the transactions contemplated by the Purchase Agreement, Parent will amend and restate its Charter such that Parent will have a single-tier board that will consist of seven (7) directors. Each of the directors will serve for a one year term and until his or her successor is elected or, if earlier, upon such director’s resignation, removal or death.

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.

MUDRICK CAPITAL MANAGEMENT & BOARD

Executive Officers

Jason Mudrick, 42
CEO and Director

Mr. Mudrick is the founder and Chief Investment Officer of Mudrick Capital, an investment firm that specializes in long and short investments in distressed credit. Mudrick Capital was founded in 2009 with $5 million under management. As of December 31, 2017, the firm had grown to approximately $1.8 billion under management, primarily for institutional clients. Mr. Mudrick began his Wall Street career in 2000 advising on mergers and acquisition transactions as an Associate in Merrill Lynch’s Mergers & Acquisitions Investment Banking Group. In 2001, he joined Contrarian Capital Management, where he began his focus on distressed investing. Beginning in October 2002, Mr. Mudrick served as Managing Director and Portfolio Manager of the Contrarian Equity Fund, a fund specializing in post-restructured equities, which he managed until his departure at the end of 2008. As Managing Director and Portfolio Manager of the Contrarian Equity Fund, Mr. Mudrick specialized in investing in post-restructured equities, among other things. In 2009, Mr. Mudrick founded Mudrick Capital to continue his specialty of investing in distressed debt and post-restructured equities. Mr. Mudrick has served on numerous ad hoc creditors’ committees and seven post-restructured companies’ boards of directors, including Safety-Kleen Holdings, Integrated Alarm Services Group, Salton, Rotech Healthcare, NJOY Holdings, Corporate Risk Holdings and Dex Media Holdings, Inc., where he is currently the Chairman of the Board. Jason also spent two years in graduate school teaching economics classes to Harvard University undergraduates. Mr. Mudrick has a B.A. in Political Science from the College of the University of Chicago and a J.D. from Harvard Law School. Mr. Mudrick was previously admitted to the New York State Bar.

Victor Danh, 40
Vice-President

Mr. Danh is a Managing Director, Head of Research, and Senior Analyst at Mudrick Capital, where he is responsible for analyzing distressed credit and equity opportunities across a diverse range of industries and overseeing and coordinating the research team. Prior to joining Mudrick Capital, Mr. Danh was a Vice President and Assistant Portfolio Manager at Contrarian Capital Management, LLC from 2003 to 2009 where he focused on deep value and distressed investments in a wide range of industries across the entire capital structure. Previously, Mr. Danh worked at Merrill Lynch in the Mergers and Acquisitions Group and at UBS in the Technology Investment Banking Group. Mr. Danh received a B.A. in Economics from Harvard College.

David Kirsch, 38
Vice-President and Director

Mr. Kirsch has been our Vice President since September 2017 and is one of our directors as of the date hereof. Mr. Kirsch is a Managing Director and Senior Analyst at Mudrick Capital, where he is responsible for analyzing distressed credit and equity opportunities across a diverse range of industries. Prior to joining Mudrick Capital, from 2008 to 2010 Mr. Kirsch was a Senior Analyst and Managing Director at Miura Global Management, a large global long-short equity hedge fund, where he was responsible for coverage of the financial and consumer industries across the Americas, Europe and Asia.

Beau Harbour, 35
Vice-President

Bruce “Beau” Harbour is a Managing Director and Senior Analyst at Mudrick Capital, where he is responsible for analyzing distressed credit and equity opportunities across a diverse range of industries. Prior to joining Mudrick Capital, Mr. Harbour was a Managing Director at Fortress Investment Group LLC from 2015, which he joined as part of a strategic transaction with Mount Kellett Capital Management LP, a large global special situations investment fund. Mr. Harbour joined Mount Kellett at its inception in 2008 and was most recently a Managing Director and Co-Head of North American Corporate Investments, focusing on deep value, special situations and distressed investments across the capital structure. He covered a range of industries in both the public and private markets. While at Mount Kellett, he also served on the Board of Directors of the Great Atlantic & Pacific Tea Company, Inc., where he was responsible for directing the company’s capital markets, mergers and acquisitions, real estate and restructuring activities on behalf of the board. Mr. Harbour started his career in investment banking as an analyst in the Financial Sponsors Group at Credit Suisse before joining Citadel Investment Group as an investment analyst. Mr. Harbour received his A.B. magna cum laude in Politics and a Certificate in Finance from Princeton University.

Glenn Springer, 45
CFO 

Mr. Springer is the Chief Financial Officer of Mudrick Capital, where he oversees the finance, accounting and operations functions. Prior to joining Mudrick Capital, Mr. Springer was Chief Financial Officer and Chief Operating Officer at Turtle Creek Investment Advisors, LLC from 2007 to 2008 where he developed from inception, its operational and financial infrastructure. Prior to joining Turtle Creek, Mr. Springer served as Chief Financial Officer & Chief Compliance Officer of SBZ Select Investments, LLC from 2005 to 2007 where he was responsible for the finance, accounting and compliance functions, including the registration of two investment advisors with the SEC. Previously, Mr. Springer served as Controller (A.A.I.UK), Director of Fund Accounting and a Risk Management Affiliated Fund Analyst at Asset Alliance Corporation from 2000 to 2004. Prior to Asset Alliance, Mr. Springer was a Senior Accountant in PricewaterhouseCoopers, LLP’s Financial Services and Business Advisory Services Group from 1998 to 2000 where his focus was on audits of a variety of investment companies including hedge funds and private equity funds. Mr. Springer began his career at Richard A. Eisner & Co. LLP from 1996 to 1998 where he was a Senior Accountant in the Audit Department. Mr. Springer received a B.A. from the State University of Albany and an M.B.A. from Baruch College, CUNY. Mr. Springer is a Certified Public Accountant in the State of New York.

Board of Directors

Dennis Stogsdill, 47
Director

Mr. Stogsdill has in excess of 20 years of experience in management consulting, advising troubled companies, lenders and equity sponsors in distressed and non-distressed situations. Mr. Stogsdill began his career in 1994 working as a management consultant at GB Consulting and later in 1996 joined the global restructuring group of Arthur Andersen. In 2001 he helped form the restructuring group of the investment bank Berenson Minella. In 2002, he joined Alvarez & Marsal, a global consulting firm specializing in corporate turnarounds and financial restructurings. Mr. Stogsdill is currently Managing Director at Alvarez & Marsal and has been involved in all aspects of the reorganization process, including acting in executive-level roles such as Chief Restructuring Officer. Mr. Stogsdill periodically served as Chief Restructuring Officer (or in an analogous position) of companies which elected to utilize bankruptcy proceedings as a part of their financial restructuring process and, as such, he served as an executive officer of various companies which filed bankruptcy petitions under federal law, including, without limitation, Fairway Group Holdings in 2015, Revel Casino in 2013, Fresh & Easy Markets in 2013 and M&G Chemicals SA in 2017. He is currently serving as Chief Restructuring Officer of M&G Chemicals SA, a global petrochemicals business. Mr. Stogsdill has a B.S. from Rutgers University.

Timothy Daileader, 47
Director

Mr. Daileader has been a restructuring consultant since 2016 at Drivetrain, LLC, an independent fiduciary and advisory firm. In this capacity, Mr. Daileader leads several post-bankruptcy liquidation and litigation trusteeships, and from 2016 to 2017 was an independent director at Kawa Solar Holdings and several of its U.S. and Canadian affiliates. From 2011 to 2015, Mr. Daileader served as a senior investment analyst at Litespeed Partners, the N.Y.-based hedge fund. From 2007 to 2011, Mr. Daileader also served as the Director of Research for debt and equity research at Knight Capital Group and Libertas Partners (acquired by Knight Capital Group) where he also was part of the Senior Operating, New Business and Credit Policy committees. From 1997 to 2007, Mr. Daileader was a senior investment professional at Stanfield Capital Partners and Strategic Value Partners. Between 1994 and 1997, Mr. Daileader worked at GiroCredit AG and Banque Francais du Commerce Exterieur in their Corporate Finance/ Commercial Lending departments. From 1992 and 1994, Mr. Daileader completed formal credit training at National Westminster Bank USA and worked in its Credit Department. Mr. Daileader received a B.A. in Economics from Georgetown University where he was a George F. Baker Scholar, and is a CFA charter holder.

Dr. Brian Kushner, 59
Director

Dr. Kushner has since 2009 served as a Senior Managing Director at FTI Consulting, Inc. (NYSE: FCN), a global business advisory firm, where he serves as the leader of the Private Capital Advisory Services practice and as the co-leader of the Technology practice, the Aerospace, Defense and Government Contracting practice and the Activism and M&A Solutions practice. Prior to joining FTI, Dr. Kushner was the co-founder of CXO, L.L.C., a boutique interim and turnaround management consulting firm that was acquired by FTI at the end of 2008. Over the past two decades, he has served as Chief Executive Officer, the Chief Restructuring Officer or a Director of more than two dozen public and private technology, manufacturing, telecom and defense companies, and has led, or participated in the sale or acquisition of over 25 companies. Dr. Kushner periodically served as Chief Restructuring Officer (or in an analogous position) of companies which elected to utilize bankruptcy proceedings as a part of their financial restructuring process and, as such, he served as an executive officer of various companies which filed bankruptcy petitions under federal law, including, without limitation, Relativity Media LLC in 2015. Dr. Kushner began his career in 1982 at BDM International, a defense firm, and remained with them following their acquisition by Ford Motor Company, and stayed on to become Chief Scientist and General Manager as part of the management team that completed a leveraged buyout of BDM in 1990 with the Carlyle Group. Dr. Kushner serves as an independent director and Chair of the Audit Committee of Dex Media Holdings Inc, a digital and print marketing company since 2016; an independent director of DevelopOnBox Holding, LLC d/b/a Zodiac Interactive, a software development company for the cable and video processing industry, where he has served on the Audit and Governance Committees since 2016 ; and a non-executive independent director of the Luxfer Group, PLC (NYSE: LXFR), a specialty materials manufacturing company, where he serves as Chair of the Remuneration Committee and is a member of the Audit Committee, since 2016. Dr. Kushner is also a member of the Advisory Council of the College of Natural Sciences at the University of Texas at Austin, Chairman Emeritus of the Physics Advisory Council at the University of Texas at Austin, and is an Emeritus member of the Engineering College Council at Cornell University in Ithaca, New York. Previously, from 2015 to 2016 he served as an independent director and Chair of the Audit Committee of Everyware Global, Inc, the manufacturing company that is the parent of the Oneida and Anchor Hocking brands (since renamed the Oneida Group); from 2013 to 2015 the Lead Independent Director of Damovo, LLC, the ultrahigh reliability and data systems integration company; from 2010 to 2013 as Chair of Caribbean Asset Holdings, the voice, video and telephony company serving many Caribbean islands; from 2009 to 2013 as managing member and director of DLN Holdings, LLC, a mid-tier defense contractor; from 2007 to 2012 as director and acting Chair of Sage Telecom, Inc., a competitive local exchange carrier and a Silver Point Capital portfolio company; from 2006 to 2009 a director of Pacific Crossing Limited, a telecom carrier; and from 2003 to 2008 an independent director of Headway Resources, a staffing company. Dr. Kushner has a Ph.D.

 

ByRoman Developer