In mid-March, movie theater chain AMC announced a deal to buy shares in their Hycroft Mining Holding Corp.
AMC will spend 27.9 million on 22% shares. The investment provides much-needed support for mining activities that are struggling financially. Hicroft owns a mine in northern Nevada and aims to raise cash by selling shares. Their goal is to generate 500 million.
In recent months, AMC has seen a dramatic improvement in their financial position as a result of their meme stock situation. In 2021 the stock rose more than 1,000% which gave a break to the broken chain. This catastrophe allowed the company to be more aggressive in their investments.
The question is: why buy shares of a mining company?
Although there does not seem to be a definite answer, there are some theories. Some suggest that AMC is a way to invest in diversifying their business. The move could be in response to the continued popularity of streaming entertainment. In addition, the occasional resurgence of the Covid variant has kept viewers away from the theater.
Another reason for the deal could be a relationship between Jason Mudrick and AMC CEO Adam Aaron. Mudrick – who brought Hiccroft to the public in 2020 – advised them to launch an at-the-market share offer in 2021 to help AMC escape bankruptcy. The move has helped AMC fully capitalize on their rocket share price.
The money raised from Hicroft AMC and the money they want to raise from others can be used to buy new technology that can process their reserves more efficiently. The effectiveness of this plan remains to be seen.
Aaron believes the deal is a wise move for AMC because Hicroft has “rock-solid assets” and will only need to overcome liquidity issues to reach profitability. Aaron further hinted that he believes the deal could encourage more investors to buy Hicroft shares.
The newly raised capital could be shot in the hands of Hicroft to realize the full value of their operation. The mining company focuses on gold and silver deposits in northern Nevada. Their long-term plan is to redesign their process for sulfide gold and silver resources and turn it into a large-scale mining activity.
Investors became enthusiastic soon after the announcement of the AMC deal. Hicroft shares have closed up nearly 9% since the announcement of the deal.
This increase could also signal a renewed interest among investors in precious metals. As geopolitical tensions escalate in the Ukraine-Russia war, more investors are considering assets that are more likely to hold their value in the world market as a waiver. For these investors, buying physical gold is probably the most meaningful. However, investors’ appetite for gold and silver has also grown enough to revive interest in mining. AMC and Hycroft are in a good position to benefit from investors’ search for stability at an uncertain time.
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