AMC Entertainment (NYSE:AMC) stock is trending higher today after the company announced that it has taken a stake in a gold and silver mining company.
Specifically, AMC has taken a 22% equity stake in Hycroft Mining (NASDAQ:HYMC), a gold and silver development site. Its stake is worth just over $27 million.
While it may seem odd that a movie theater chain would invest in a mining company, the news has been enough to send AMC stock up as much as 4% today. The company’s share price closed trading in New York yesterday at $13.56, down nearly 50% year to date.
What Happened With AMC Stock
In a news release, AMC said that it has received an additional 23.4 million warrants in Hycroft stock at $1.07 per share. Hycroft Mine, located in northern Nevada, is one of North America’s largest gold and silver sites. Studies have confirmed that the Hycroft Mine has some 15 million ounces of gold resources and 600 million ounces of silver resources.
With its investment, AMC gets to appoint a representative to the Hycroft board of directors. In the news release, AMC indicated that it is taking a stake in the Hycroft Mine in order to help the struggling company through a liquidity crisis. Adam Aron, chairman and CEO of AMC Entertainment said:
“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. Its share price has been knocked low as a result. We are confident that our involvement can greatly help it to surmount its challenges — to its benefit, and to ours.”
Why It Matters
HYMC stock has been on a tear this year as prices for both gold and silver hit multi-year highs amid a global commodity squeeze. Year to date, shares of Hycroft Mining were up 124% through yesterday’s close of trading. The stock is up another 50% today on news of AMC’s stake.
However, Hycroft shares still trade deep in the penny stock league at just $2.05 per share.
AMC has been a notorious meme stock over the past year and has fallen from its 52-week high of $72.62. Since the start of this year, AMC stock has fallen sharply even as moviegoers return to theaters to see blockbuster films such as Spider-Man: No Way Home and The Batman. It could be that HYMC stock is now being targeted by retail traders who favor meme stocks.
What’s Next for AMC and Hycroft
In the short term, AMC’s stake in Hycroft Mining appears to be benefitting both companies’ stocks, especially shares of HYMC, which are skyrocketing today on the news. However, long term, both of these stocks are likely to fall back to earth without further developments. Proceed with caution.
On the date of publication, Joel Baglole 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.
