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When Adam Aron promised investors on a November 2021 earnings call that he was going to take his “war chest of equity capital” and “think differently about our future,” it’s difficult to fathom they ever imagined he’d announce months later that he had spent millions on a literal mine, and not even one that produces diamonds which could have at least prompted some fun memes on Reddit.
The chief of AMC Entertainment
AMC,
announced Tuesday morning that the movie theatre company is buying a 22% stake in Hycroft Mining Holding Corp.
HYMC,
an outfit that operates –wait for it– a 71,000 acre gold and silver mine in Northern Nevada.
That news sent shares of Hycroft soaring, putting the stock back over $1 a share for the first time since late 2021, giving the stock a 94% boost at Tuesday’s open, building on what was already newly growing, meme stock-like enthusiasm for the mining ticker.
But let’s step back for a second and wonder aloud as to why Aron would deploy roughly $28 million of AMC’s capital to get involved with a small, distressed mining company that is trading as a penny stock after having dropped almost 100% from its record high in August 2020, and do it during a global commodities freak-out that has only been exacerbated by meteoric inflation and the economic fallout of Russia’s invasion of Ukraine?
Well, in Aron’s own words, because –like the beginning of so many healthy relationships– he knows how to fix Hycroft.
“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,” he said in a statement announcing the deal. “It, too, has rock-solid assets, but for a variety of reasons, it has been facing a severe and immediate liquidity issue. Its share price has been knocked low as a result.”
By infusing Hycroft with cash, Aron is potentially getting on the ground floor of a new meme stock by throwing a few million at what are essentially options contracts on a play that could pay off it works, because Aron is essentially pitching himself as something of a memelord-for-hire on this investment.
“AMC Entertainment has had enormous success and demonstrated expertise in guiding a company with otherwise valuable assets through a time of severe liquidity challenge, the raising of capital, and strengthening of balance sheets, as well as communicating with individual retail investors,” reads his statement. “It is all that experience and skill that we bring to the table to assist the talented mining professionals at Hycroft.”
And like AMC at the height of the pandemic, Hycroft could use the help. It had a recent brush with bankruptcy and was only brought back onto public markets via a SPAC merger in 2020.
Like we saw recently with GameStop
GME,
chairman/activist investor/meme guru Ryan Cohen’s move on Bed Bath & Beyond
BBBY,
meme stock mojo is rather fungible, so Aron’s pitch to bring more AMC apes to Hycroft’s yard might even be viable.
“He has some very dedicated investors,” allowed Wedbush analyst Alicia Reese, who covers AMC. “They might follow him into a penny stock.”
Reese and others made it clear on Tuesday that the Hycroft investment has nothing to do with AMC’s core cinema business, which has only improved as COVID mandates disappear and the summer blockbuster season returns.
But it’s also the case that the Hycroft investment has nothing to do with AMC’s core business even remotely, making the whole investment appear almost bizarrely outside Aron’s popcorn box.
To put it bluntly, the capex realities of the gold mining industry, and the crazy commodities prices these days, make it easier to compare Jim Cramer to Pete Davidson than movie theatres to mining.
Or as Aron put it on Tuesday, “To state the obvious, one would not normally think that a movie theatre company’s core competency includes gold or silver mining.”
And the gold market itself is generally is in something of a tricky spot right now.
Gold prices often act as unofficial barometers of global unrest, which is why the six month chart of gold futures prices
GC00,
look like something you would rather surf on than invest in, and will likely only get choppier as commodities traders start to reckon with the Federal Reserve poised to hike interest rates this week while Putin’s forces simultaneously shell Ukrainian civilians on live television.
This presents a big moment for Hycroft, a reality that seems to have been part of the pitch by metals investor Eric Sprott who is partnering with AMC on the investment.
But one analyst covering the stock sees AMC’s cash infusion as only a start to get Hycroft back in the game.
“This capital infusion gives Hycroft the time and the capital to complete the studies
required to re-engineer the Hycroft mine,” Brian Quast of BMO Capital Markets wrote in a note on Tuesday. “But is unlikely to make a significant contribution to the capital required to re-enter full-scale production.”
If Aron can create a wave of Ape financing with his Twitter account and meme clout, Hycroft might make that production scale-up more likely, and might provide AMC with some upside.
But the questions are already doing more than lingering as to why Aron went so far afield on this investment, because one big thing about protecting your downside on an investment like this is knowing where the problems are in the first place. That’s something that Aron might not be able to do with mining but should not lose sight of with AMC.
“How about paying down debt, buying back stock, reinstituting the dividend that was eliminated during the COVID crisis, making an acquisition in the entertainment space to produce exclusive, higher margin content for the non-mining movie screens or even throwing some serious cash in the at home streaming space to truly “diversify” the business?” Jake Dollarhide of Longbow Asset Management, who owned AMC stock in 2021, posted on LinkedIn.
Hycroft stock had given back 40% of its gains by midday, and AMC was fighting to stay in the green as investors digested the news, without the help of Aron himself who was uncharacteristically tight-lipped about the new deal…on the advice of counsel:
