Last week, investors witnessed a “gold rush” as the Russia-Ukraine crisis sent the prices of metals skyrocketing. Mining stocks surged by impressive amounts, including some names that traded at the penny-stock level. Today, many of these previous breakout stocks are slipping, but one name is still on the rise. Hycroft Mining (NASDAQ:HYMC) has announced a new deal with a prominent company that has sent HYMC stock shooting up. The company could be on its way out of the penny-stock category.
What’s Happening With HYMC Stock
Today began with the news that AMC Entertainment (NYSE:AMC) is planning to invest $56 million in Hycroft, roughly a 22% equity stake in the Nevada-based company. For the small gold and silver miner, this type of investment is no small thing. AMC stock has not reacted well to the news so far. As of this writing, it is up about 1% after falling this morning. Hycroft, on the other hand, is seeing a bigger jump. Indeed, HYMC stock skyrocketed by more than 4o% within the first hour of trading. As of the time of writing, it is still up about 20%
Why It Matters
This type of move makes sense for both parties. While it will indeed bolster Hycroft’s liquidty as CEO Adam Aron noted in a tweet, it will also provide valuable diversification for AMC. The entertainment company has been pushed to market prominence by its status as a meme stock. However, some critics don’t see the stock as having long-term growth potential due to its limited nature. InvestorPlace contributor Thomas Niel recently predicted that the meme-stock frenzy will soon be over.
AMC is playing on offense again with a bold diversification move. We just purchased 22% of Hycroft Mining (NASDAQ: HYMC) of northern Nevada. It has 15 million ounces of gold resources! And 600 million ounces of silver resources! Our expertise to help them bolster their liquidity. pic.twitter.com/LihqZguwnd
— Adam Aron (@CEOAdam) March 15, 2022
If Niel is correct, AMC should absolutely be looking to diversify its holdings and demonstrate to investors that it is more than simply a movie theater chain. When we examine it from that perspective, acquiring an equity stake in a gold and silver mining company is a strategic move that investors should be happy to see. It should also be noted that Hycroft still trades at very low levels, even with its recent surges. If it continues to rise — and the company seems certain that it will — AMC will reap a significant profit.
This investment from AMC should be great news for Hycroft investors. They can take comfort in the fact that AMC sees HYMC stock as having growth potential. As InvestorPlace contributor Joel Baglole states, “in the short term, AMC’s stake in Hycroft Mining appears to be benefitting both companies.”
What It Means
Baglole also notes, though, that both companies could see shares fall unless further action is taken. This observation is astute. The gold rush that propelled HYMC stock into Wall Street’s spotlight may indeed be over. For AMC to take such a large equity stake in a company like Hycroft, though, indicates that it foresees further catalysts ahead that will help keep both stocks in the green.
Investors should proceed with caution while also keeping a close eye on both stocks, particularly HYMC. It’s easy for investors to dismiss penny stocks. However, AMC’s investment shows that Hycroft is a company that should be taken seriously.
On the date of publication, Samuel O’Brient 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.comPublishing Guidelines.