Key points:
- Hycroft is a perfectly reasonable silver and gold mine that loses money
- The Hycroft stock just jumped 200% though
- There appears to be no real reason other than folk getting excited
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Hycroft Mining (NASDAQ: HYMC) stock is up 200% between yesterday and today's premarket. There’s no real announced reason for this stock price rise at Hycroft, so it remains to be seen whether it persists. Or whether it could, possibly, be something of hype or even a pump and dump.
Hycroft itself is a perfectly respectable gold and silver mine that just doesn’t make any money. The war-related changes in the gold and silver prices of the past few days don’t make any difference to that calculation either, the troubles are deeper rooted than that.
The ore is just fine, even if not particularly rich. There’s a known amount of it there. All of this is uncontroversial. The thing is though that Hycroft is a marginal miner. It’s at the edge of the range of miners that is. Many others have much lower production costs. So, they make profits and Hycroft requires much higher than even today’s prices to be usefully profitable.
The problem is that they’ve not got a processing plant onsite. This means transporting material for processing which is an expensive business. So much so that back in November they in fact stopped the mining of ore. Since then they’ve just been extracting from already mined material. They’re pretty much on a care and maintenance basis that is, processing only the last runs of ore produced.
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They are at this point losing money. Hycroft is also having to make arrangements with creditors in order to stave them off – so far it’s only waivers on credit agreements but still.
There’s no announcement about having solved this capital or processing plant problem.
So, as to what is happening. A reasonable enough opinion would be that some have latched onto a microcap with low trading volumes and seen that, with the right story, the price can be pushed up. The near-inevitable result of that being true would be that the price will slide back down again in a fairly short period of time.
In the absence of any proper news from the company itself about a significant change in circumstances, this is an extremely risky stock to try to trade. For the price movement simply depends upon how many people believe which story. Which is a very risky basis to be trying to trade upon.
Actually solving the capital or processing problems could indeed lead to a significant rerating of Hycroft stock. But all that is being seen (on Twitter and such places) is talk about how much gold and silver there is in the mine. Which is true, obviously, but not really relevant when extracting it costs more than it’s worth.
The big question with Hycroft, therefore, becomes well, why is that stock price doubling and tripling? Until that is worked out the correct trading policy to follow is impossible to determine.
