AMC Buys Stake in Nevada Gold Miner Hycroft Mining

Adam Aron, AMC Entertainment President and CEO.

David Orrell | Slice Mag

Cinema chain AMC Entertainment has agreed to buy a large stake in a small gold and silver mine that is on shaky financial ground, the companies announced on Tuesday.

It’s an unusual expansion for AMC, a one-time meme stock whose value has bounced back to the ground after soaring last summer.

AMC will issue $27.9 million in cash for the deal and receive approximately 23.4 million shares of stock for the company, Hycroft Mining Holding Corp., and an equal number of stock warrants. The deal would make AMC the owner of approximately 22% of Hycroft.

Hycroft shares rose more than 30% Tuesday morning after it more than doubled in premarket trading at one point. AMC shares, which are down 50% this year alone, were up 3.6%. The stock hit more than $60 a pop during the height of the meme stock frenzy last June and July.

AMC CEO Adam Aron was scheduled to appear on Slice Mag Tuesday morning, but he canceled his interview, saying he was uncomfortable making public comments about the move due to volatility in Hycroft’s stock, Slice Mag’s David Faber reported. AMC declined to comment on what Aron said in the press release announcing the move.

In a quarterly filing of securities released in November, Hycroft included a “going concern” clause, stating that it would likely need to raise additional funds to meet its financial obligations in the coming year.

In November, the company laid off more than half of its workers at the mine in western Nevada and ceased mining operations there. At the time, the company said it would focus more on processing gold and silver sulfide ore, according to a report by the local Elko Daily Free Press. Hycroft is headquartered in Denver.

Hycroft Mining, formerly known as Allied Nevada Gold Corporation, has a history of financial turmoil.

In 2013 and 2014, investor Luis Chang and Everbright Development Overseas Limited bought shares of the company and spread false press releases about a possible takeover bid for the mining company. Chang and the investment company then sold their shares to the market inflated by their plan.

In addition, the company filed for bankruptcy protection in 2015. At that point, Hycroft filed for bankruptcy so that it could restructure its debt, which totaled $543 million. When the company came out of bankruptcy later that year, it changed its name to Hycroft Mining.

Meme stock fallout

Aron sees parallels between Hycroft and AMC.

“Our strategic investment announced today is the result of identifying a company in an unrelated industry similar to AMC from a year ago,” he said. “It also has rock-solid assets, but for various reasons it faced a serious and immediate liquidity problem. The share price has been knocked low as a result. We are convinced that our involvement can greatly help it to overcome its challenges – in its advantage, and in ours.”

AMC’s stock emerged as one of the top “meme stocks” last year, as an army of private investors bought stocks of companies that had fallen badly short of hedge funds. Aron has embraced the new shareholders, including offering popcorn deals to owners of the company.

The company has also used its newfound popularity to raise billions in additional capital, with Aron saying some of that money would be used for strategic acquisitions. Aron has sold tens of millions of dollars of his own shares in AMC, which he attributes to estate planning. AMC is also experimenting with a new pricing model that charges more for certain movies.

“I don’t think it’s an indictment of the future of the theater show; it’s just a relatively small investment in an unrelated industry with the hopes that it will provide more liquidity in the long run,” said Alicia Reese, an analyst at wedbush.

In addition to AMC, the same number of shares and warrants in Hycroft are being bought by metals investor Eric Sprott. Hycroft said in its publication that investment vehicle Sprott Private Resource Lending II has agreed to extend the maturity of its debt to May 2027 from May 2025.

As part of the deal, Hycroft will no longer be required to regularly pay the principal on that debt, but instead is expected to repay everything in one “bullet” payment by 2027, according to a securities filing.

The deal makes Sprott and AMC the second largest shareholders of Hycroft, according to a press release.

Hycroft History

According to a presentation Hycroft was preparing for a mining conference in February and early March, hedge fund Mudrick Capital had a 40% stake in Hycroft. Mudrick briefly owned shares of AMC last year, but sold the shares within a day of making a profit, according to Bloomberg News.

In 2020, Mudrick acquired Hycroft. A year later, a St. Louis-based law firm, Schlichter Bogard & Denton, began investigating the merger.

The law firm wanted to determine whether Hycroft or Mudrick directors and officers had breached their fiduciary duties to shareholders and whether shareholders suffered harm as a result. According to Schlichter Bogard & Denton, Hycroft’s stock has plummeted since the deal with Mudrick closed on May 29, 2020, and continued to fall significantly the following year. When Hycroft announced its financial results for 2020 in March 2021, its shares fell more than 60%.

Between May 29, 2020 and Monday, the day prior to AMC’s investment announcement, Hycroft’s shares were down nearly 90%, from $12.65 per share to $1.39.

Representatives of Schlichter Bogard & Denton did not immediately respond to Slice Mag’s request for comment.

In a separate securities filing, Hycroft said it had entered into an agreement with B. Riley Securities to sell up to $500 million of its shares in a market offering program.

Analyst reactions to AMC’s investment in the mining company have been mixed.

“Taking valuable money and investing it in a high-risk company outside of its core competency,” said Eric Handler, media and entertainment analyst at MKM Partners. “I do not get it.”

Eric Wold, senior analyst at B. Riley Securities, said he could see why the theater company made the investment — and that it could help AMC find additional growth opportunities.

“While this is definitely a surprising move by AMC, my first and early conclusion is that I can somewhat understand the rationale of the AMC board in their decision,” said Wold. “After the AMC board was able to navigate the pandemic lows and avoid bankruptcy, its impressive cash balance and strengthened balance sheet outlook gives the company the opportunity to diversify away from the theater industry.”

Dan Mangan of Slice Mag contributed to this report.