What happened
Investors in movie-theater operator AMC Entertainment (AMC 8.22%) were surprised to see news today about what the company's doing with some of the cash it's raised over the last two years. The stock's initial reaction was a pop of almost 8% Tuesday morning. As perhaps the novelty wore off for some retail investors, however, the stock pared its gain to about 3.3% as of 10:43 a.m. ET.
So what
Why the pop and subsequent reversal? Because it's hard for investors to quickly process why AMC has just invested almost $30 million in a gold and silver mine in Nevada.
Image source: Getty Images.
Now what
AMC, along with precious-metals investor Eric Sprott, are each investing $27.9 million in cash for 22% stakes in Hycroft Mining, which owns the more than 70,000 acre Hycroft Mine in northern Nevada. The investment makes AMC and Mr. Sprott the second-largest shareholders in the small mining company.
AMC CEO Adam Aron described the investment as a winning proposition for both companies. He said in a statement:
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. It, too, has rock-solid assets, but for a variety of reasons, it has been facing a severe and immediate liquidity issue.
The mine has about 15 million ounces of gold deposits and 600 million ounces of silver deposits.
Aron has previously told shareholders his company would seek acquisitions to help it recover and rebound from pandemic impacts that hit the movie-theater industry hard. AMC ended 2021 with cash and equivalents of about $1.6 billion on its balance sheet after multiple capital raises over the past two years.
Few would likely have thought one of those acquisitions would be in the mining industry, however. Hycroft said it may use the capital investment to address its debt, as well as for working capital and other general corporate purposes to fund the mine's development.
Retail investors who have latched onto AMC as a meme stock seemed to like the surprise investment, at first. But the reality is that it's a sideshow to AMC's recovery story.
