Key points:
- Theatre chain AMC Entertainment diversify into mining with surprising $27.9M stake in Hycroft
- AMC is able to utilise its extensive cash flow to ease Hycroft's liquidity and debt issues
- AMC CEO outlines Hycroft Mining has similar foundations to AMC's position a year ago
A new dawn for AMC? Clutching at straws? There is a lot of speculation surrounding AMC this morning, following the company’s decision to purchase a $27.9M stake in Hycroft Mining; a struggling gold and silver miner. Certainly one of today’s larger market surprises, investors might be left scratching their heads as to what is going behind the scenes of the theatre company, and why is now the time to diversify?
Arguably one of the most famed one-time meme stocks in recent years, AMC has had a slow but steady landing after taking off in the summer of 2021. Despite the stock’s fading hype, the company managed to raise around $537M with a stock offering last July, meaning AMC has the cash flow to be able to speculate and diversify; if they should choose to do so.
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Hycroft Mining – a penny stock that has largely remained under the radar until today’s news – currently trades with a 13% gain, retracing from heights of up to 30% this morning. Interestingly, we reported on an unknown 200% gain in Hycroft shares last week. On the basis of today’s news, we can only assume that stake information was partially leaked before the official announcement.
It appears that AMC CEO Adam Aron has a vision for Hycroft that falls in line with the growth story of the against-the-odds cinema chain. He points to the company’s ‘rock-solid’ assets but clear-cut liquidity issues; a problem that Hycroft pointed out in a quarterly filing in November. Will a cash injection from AMC be enough to re-oil the cogs of Hycroft’s mining endeavor and relinquish the company from heavy debt?
Undoubtedly, the investment has come from an unexpected place. AMC is clearly looking at alternative diversification, but will its investment in Hycroft amount to more than fairytale speculation? Only time will tell whether the bold move will hold up. Low-risk investors should probably avoid Hycroft shares for the time being due to extreme volatility. AMC reached a daily gain of 3% before retracing.
