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Market Insights

AMC literally bought a goldmine

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AMC can’t stay out of the headlines. CEO Adam Aron was making waves again this week by announcing that AMC had bought a stake in a Gold & Silver mining firm!

“AMC is playing on offense again with a bold diversification move. We just purchased 22% of Hycroft Mining (NASDAQ: HYMC) of northern Nevada. It has 15 million ounces of gold resources! And 600 million ounces of silver resources! Our expertise to help them bolster their liquidity.”

That’s one way to diversify your revenue streams. As you’d expect, Hycroft’s stock saw a sudden burst of trading activity and much higher trading volumes around the day of the announcement.

Hycroft Mining one day candle stick chart

AMC will purchase the stake for $27.9 million.

How did this happen?

Just under two years ago AMC was on the verge of bankruptcy. Now they’re providing financial lifelines to a mining company that was apparently flirting with bankruptcy itself. That’s a pretty amazing memestonk butterfly effect.

See, AMC was able to build up a “monetary war chest” in 2021. In the March earnings call, CEO Aron called it the company’s ‘best asset’:

“The best asset this company has is this $1.8 billion cash and liquidity award. We need to be reverent that our shareholders have entrusted us with $1.8 billion. We need to be very careful how we deploy it.”

On the face of it, this doesn’t seem very careful. Why buy a distressed miner?

Aron acknowledged how odd it seemed:

“To state the obvious, one would not normally think that a movie theatre company’s core competency includes gold or silver mining,”

He went on to clarify the reasons for the purchase.

“Our strategic investment being announced today is the result of our having identified a company in an unrelated industry that appears to be just like AMC of a year ago. It, too, has rock-solid assets, but for a variety of reasons, it has been facing a severe and immediate liquidity issue,”

AMC isn't alone in the investment either. Precious metals investor Eric Sprott is matching the theatre chains’ $27.9 million investment.

You’d be forgiven for asking how the deal even came about. There must be hundreds of companies facing liquidity issues. Why Hycroft?

Jason Mudrick seems to be a key link. Mudrick Capital already owns a 40% share in Hycroft. Mudrick had previously invested in AMC and also participated in an AMC debt restructuring deal in 2020.

AMC seems to be on the road to recovery, and is still losing money, albeit at a slower rate. The firm lost $134.4 million, or 26 cents a share, in the fourth quarter of 2021.

In Aron’s words:

“Our positive recovery glide path from the global pandemic continued in earnest in the fourth quarter”

The share price made a new low earlier this week before bouncing slightly on this news.

AMC one day share price candlestick chart

Hycroft says they plan to raise a further $500 million from open market share sales over time.

Time will tell if AMC’s investment pays off.

Not investment advice. Past performance does not guarantee or predict future performance.

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