AMC Has Jumped the Shark With Its Mining Investment

Nothing has made much sense to me regarding AMC (NYSE:AMC) ever since last year’s huge meme-fueled rally. Unfortunately for the Reddit crowd, AMC stock has not been spared by the overall market downturn. It was trading as high as $43 in November, but has since fallen as low as $15. But management has a plan to reverse the company’s fortunes.

AMC movie theater front glowing in the setting sun with the name shining bright red. AMC stock.

Source: Ian Dewar Photography / Shutterstock

In what could be one of the oddest pieces of news yet, AMC announced it is getting in on the mining industry.

I suppose if you think about it, the plan makes a bit of sense. Gold, oil and other commodities have been on a tear lately. With the inflation situation not looking ready to abate anytime soon, we could be on the verge of a large, commodity-driven bull run.

AMC Is Building Up Hype

AMC recently announced a team-up with Eric Sprott to invest in troubled miner Hycroft Mining (NASDAQ:HYMC). Apart from the fact that both AMC and Hycroft have been on the verge of bankruptcy, you might be wondering what these firms have in common. What exactly is the synergy here?

Well, AMC CEO Adam Aron got ahead of that question. He stated in a press release that a movie theatre company’s core competency is not normally in gold or silver mining. However, according to him, AMC has “‘demonstrated expertise’ in navigating liquidity challenges.”

In other words, the company has developed the core competency of hyping Reddit crowds to assist AMC stock. This isn’t necessarily a bad thing. Careers have been made in investor relations, banking and news outlets by acting as cheerleaders for stocks.

The recent moves by AMC stock show this strategy is working. Management has been pretty smart about jumping aboard the latest hype trains. From crypto to non-fungible tokens (NFTs) and now mining, this news should provide enough excitement for the meme crowd to possibly propel the stock higher.

Is AMC a Commodities Play?

So what exactly is AMC getting into here, and is it worth the hype? Both the company and Eric Sprott will invest $27.9 million each into Hycroft for 21.8% of the company.

Hycroft is developing a 71,000-acre gold and silver mine in Nevada. According to its latest quarterly filing, the miner indicated it might not meet its financial obligations and would need to raise additional cash.

The company also ceased all mining operations at its mine late last year and laid off more than half of its workers. The prices of gold and silver, however, have skyrocketed in the past few weeks.

The increased price of commodities could potentially make the Hycroft mine a better investment now than in 2020. It is sitting on 15 million ounces of gold and 600 million ounces of silver.

The Takeaway on AMC Stock

AMC’s Hycroft investment might not be as silly as you initially think. The company is getting a decent price for 22% of the company. The long-term outlook on gold and silver is very bullish as well. I believe this investment could be a profitable move for the company.

Unfortunately, though, this is all smoke and mirrors. The $28 million is a drop in the market when compared to AMC stock’s market capitalization of more than $9 billion. The value of this investment is not in the mine itself, but all the headlines it generated. I am sure that has made the Reddit crowd very happy. For the rest of us, grab your popcorn and watch from the sidelines.

On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joseph Nograles is a part-time freelance copywriter focused on the financial industry. He has worked in a wide variety of industries from tech to consulting with one of the “big four.” He has always enjoyed analyzing businesses and has been a CFA charterholder for nearly a decade now.


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