Shares of Hycroft Mining (HYMC 11.21%) rocketed 57% higher in January, according to data from S&P Global Market Intelligence. The company, which owns proposed gold and silver mines but does not actually mine today, is seeing a booming stock price amid the resurgence of metals prices. The company also outlined a large silver concentration late in December, which could prove profitable.
However, with gold and silver prices collapsing to start February, Hycroft Mining stock has quickly retraced 23% from recent highs. Here's why the stock was rising in January, and whether now is a good time to buy the dip on this gold and silver miner.
NASDAQ: HYMC
Key Data Points
Booming metals pricing
The mining business is easy to understand. If you can produce refined metal at a price below the current selling price, the business will make a profit, meaning the higher the price, the better. With gold and silver both up around 100% in the last year, investors turned Hycroft Mining into a momentum stock. It is up over 1,000% in the last twelve months based on assumptions for operating leverage once it begins to mine for gold and silver.
It even announced a high silver concentration at one of its locations in December, which, combined with a rapidly rising silver price, sent Hycroft Mining stock into overdrive.
There is just one problem with Hycroft Mining: it does not actually mine metal today. It will be a few years -- if not longer -- before the company plans to actually bring gold and silver to market. This means it cannot take advantage of the recent price surge and must hope that rising metal prices are durable for the rest of this decade. It will also cost the company many hundreds of millions, if not over a billion dollars, to start-up operations.
Image source: Getty Images.
Should you buy the dip?
Looking at the history of gold and silver prices, the metals tend to follow a boom-and-bust cycle. Enthusiasm may stick around for a year (or three), but then prices come crashing down to earth. These are highly volatile assets that can move quickly with economic sentiment, as seen in early February when prices collapsed.
At the same time, Hycroft Mining is not prepared to bring metal out of the ground anytime soon. With a market cap of $3.4 billion, no revenue, and large start-up costs, this is a precarious bet that gold and/or silver prices will stay elevated for years. Call me skeptical. Stay away from Hycroft Mining stock. This is a risky stock to buy today.
