- AMC Entertainment inked a deal with a gold-mining firm
- It sounds crazy but there are positives for AMC stock
- Ultimately, though, it’s an admission that the box office has bombed
AMC Entertainment (NYSE:AMC) stock gained 7% after announcing it would invest $27.9 million in cash in Hycroft Mining (NASDAQ:HYMC) in exchange for 23.4 million warrants units.
Management needed to do something drastic to right the sinking ship, but I don’t think buying a gold-mining firm was a possibility anyone ever considered.
As Barron’s contributor Sabrina Escobar reported when citing Wedbush analyst Alicia Reese, it’s bizarre. That might be the understatement of the century. Nevertheless, maybe investors shouldn’t completely write off this audacious idea.
A Closer Look at AMC Stock
Investors should note a critical detail that hasn’t always gotten coverage from all mainstream media sources: Eric Sprott made roughly the same investment.
He bought 23.4 million warrant units, with each unit consisting of one common share of HYMC and one purchase warrant, priced around $1.07 a share and carrying a five-year term.
If you don’t know, Sprott is a big deal in the precious metals industry. When he speaks, people listen. When he buys, people also buy. You can research him and the influence he carries. So, when an esteemed character like Sprott is on the deal, I don’t think people should dismiss it.
Even the aforementioned Wedbush analyst stated that the deal “doesn’t seem like a terrible downside.”
I’ve talked about this issue on CGTN America. When your dollars are hemorrhaging purchasing power, gold really makes a lot of sense because of its relative ease of purchase and general fungibility.
An Unrelated Business
The cineplex operator moving into the gold business is basically an admission that the core business just plain stinks.
Honestly, if someone wanted to criticize AMC stock because the underlying company appears desperate, the harsh words might stick. I’d understand if a movie theater chain wanted to buy something, anything, within the Hollywood supply chain: a projector company, an indie film studio, even a furniture manufacturer.
It may be the right decision in a sea of bad options. But if people were buying AMC stock for the movies, it’s not a great look.
Why Not Go Directly to the Source?
Despite the seeming randomness of the deal, it’s not entirely crazy. Purchasing power is declining sharply while fewer people relative to years ago are watching movies at the box office. AMC had to do something and it did just that.
But the primary issue with its bold decision is that management is admitting that Hollywood alone is not enough for AMC stock to survive. It must take a wager and arguably, there’s no one better to wager with than Eric Sprott.
Still, it raises one last question: if gold is what you like, then why not just get gold? Why deal with an unrelated intermediary to protect yourself from fiat madness?
The risk is that AMC’s move is a gimmick. Since the core business obviously needs major help, investors who are thinking about shares now need to think very carefully.
On the date of publication, Josh Enomoto held a LONG position in AMC and gold. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
