AMC 'Playing On Offense Again,' Picks Up 22% Stake In Gold And Silver Miner Hycroft: What Investors Should Know

In an unexpected development, movie theater chain AMC Entertainment Holdings, Inc. AMC announced Tuesday the company's diversification into an unrelated venture.

What Happened: AMC said it is picking up a 22% stake in Hycroft Mining Holding Corporation HYMC and its 71,000 acre Hycroft mine in northern Nevada. AMC also noted that Eric Sprott, a gold and silver investor, will make an equal investment in the company. Together, the combined investment is valued at $56 million, with each contributing $27.9 million in cash in exchange for 23,408,240 units of Hycroft.

Each unit comprises one common share of Hycroft and one warrant to purchase common share, and it is priced at $1.193. Each warrant is convertible into one Hycroft common share at a price of $1.068 apiece and will carry a 5-year term from the date of issuance.

The closing of the private placement is expected to occur on or about March 15. The theater chain's investment gives it the right to appoint a representative to Hycroft's board.

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Why It's Important: The strategic investment is the result of AMC having identified a company in an unrelated industry that is currently facing the same issues as AMC was a year ago, AMC's CEO Adam Aron said. Hycroft has solid assets but is facing a severe liquidity issue, he noted. "We are confident that our involvement can greatly help it to surmount its challenges — to its benefit, and to ours," Aron said.

Independent third-party studies confirm that the 71,000 acre Hycroft Mine in northern Nevada has some 15 million ounces of gold deposits and about 600 million ounces of silver deposits, AMC noted. It is one of North America's largest development sites.

"Our investment to buy 22% of Hycroft Mining Holding Corporation, and to receive an additional 23.4 million warrants in Hycroft at $1.07 per share is a truly terrific opportunity to potentially strengthen and enrich our company, and thereby create significant value for AMC Entertainment shareholders," Aron said.

AMC stated that it is on the path to recovery due to the strength of "Spider-Man: No Way Home" and "The Batman," as well as 2022's promising industry box office. Aron said AMC is in a position to seize a beneficial opportunity and termed the move as a "bold diversification."

AMC is playing on offense again with a bold diversification move. We just purchased 22% of Hycroft Mining HYMC of northern Nevada. It has 15 million ounces of gold resources! And 600 million ounces of silver resources! Our expertise to help them bolster their liquidity. pic.twitter.com/LihqZguwnd

— Adam Aron (@CEOAdam) March 15, 2022

AMC reported earlier this month what it termed as "the strongest quarter in two full years." Revenues jumped from $162.5 million in the fourth quarter of 2020 to $1.17 billion in the fourth quarter of 2021, and the theater chain also considerably cut its losses. Cash and cash equivalents at the end of 2021 stood at $1.59 billion and liquidity amounted to $1.80 billion.

The company has also recently embarked on cleaning up its balance sheet by retiring some of its high-interest debts. The company stock rallied strongly through the first-half of 2021, propped up by heavy retail interest as the theater chain limped back to normalcy from the impact of COVID-related theater closures.

"In 2021, our retail shareholders armed us with a $1.8 billion war chest to play on offense and grow our company," Aron said in a statement. All the same, the move may raise some eyebrows over the logic behind the unrelated diversification, given the company is still not out of the woods yet. In premarket trading, AMC was adding 1.77% to $13.80 and Hycroft was nearly doubling to $2.78.

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Photo: Courtesy of SridharSaraf on Flickr