AMC Rescues Failing Hycroft Mining, Invests 28M – Report

Meme stock favorite AMC Entertainment Holdings, Inc. (AMC) has surprised the markets by rescuing a dying gold miner Hycroft Mining (HYMC), after the company itself was salvaged from the brink of bankruptcy by retail investors last year, according to the Wall Street Journal.

Following the news, AMC jumped 6.8% closing at $14.48 on March 15. Meanwhile, HYMC shares skyrocketed almost 96% during intraday trading before closing the day up 9.4% at $1.52. During pre-market trading today, HYMC is up more than 11% and AMC is inching up about 3%.

Unusual Investment in HYMC

AMC operates a line of theaters in the U.S. and abroad. Meanwhile, HYMC is a small mining firm with humongous gold and silver mines spanning more than 70,000 acres in Nevada. The firm was on the brink of bankruptcy when it became a meme stock frenzy.

Individual investors hound the market for attractive penny stock companies, which have huge upside potential. Moreover, the ongoing Russia-Ukraine war has lifted commodity prices to record highs making for favorable investments. The HYMC stock had lost almost 47% before it caught the market’s attention and began its upward trajectory.

On Tuesday, AMC invested $27.9 million in HYMC and became one of the major shareholders with a 22% stake in the miner. HYMC also saw an investment of the same amount by famous precious metals investor Eric Sprott.

How did AMC find HYMC?

Rumor has it that hedge fund investor Jason Mudrick was the one to intrigue AMC’s interest in HYMC. Mudrick has substantial investments in both HYMC and AMC, and he also provided aid during AMC’s time of financial duress.

As per the report, last week, Mudrick had requested AMC CEO, Adam Aron to address HYMC CEO, Diane Garrett’s need to tap equity funding through an at-the-market share offering, similar to the ones AMC had used earlier to raise capital.

Upon discussion and after an interesting site visit at HYMC’s Nevada mines, Aron decided to fund the failing company. As per the latest financials, AMC had idle cash in hand (around $1.6 billion) and was searching for potential acquisition opportunities to diversify its business.

HYMC, on the other hand, was in discussions with several other parties for the probable investments, but decided to finalize the joint deal with AMC and Mr. Sprott. HYMC believes that AMC’s own revival story and investor fandom could spur interest in its shares.

In its latest results filed on March 2, AMC posted a smaller-than-feared adjusted loss and outpaced revenue expectations. For the full year, too, AMC’s revenue more than doubled to $2.52 billion and adjusted losses significantly fell to $2.50 per share compared to FY20.

Wall Streets’ Take

Responding to AMC’s financial performance, Barrington analyst James Goss reiterated his Hold rating on the stock and said, “Management has been successful in raising equity that has improved AMC’s potential to move past the pandemic, but risk levels remain high. While the equity stock price has compressed significantly, it remains very elevated in terms of financial valuation metrics we use to value comparable securities.”

With three Holds and two Sells, the AMC stock has a Moderate Sell rating. The average AMC stock prediction of $9.83 implies 32.1% downside potential to current levels. Its shares have lost 45.4% year-to-date.

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