Hycroft Mining Is an Interesting Story, But Not a Great Opportunity

  • AMC’s investment in Hycroft Mining (HYMC) has put it on the map, and has sent its stock price soaring last month
  • However, there’s a reason why it was down so much before its recent meme boost
  • As the AMC deal and other capital raises do little to improve its chances of “striking gold,” avoid this stock
gold bars representing gold stocks
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Last month, Hycroft Mining (NASDAQ:HYMC) went from mere junior mining stock, to much-talked about meme stock. Following news of AMC Entertainment’s (NYSE:AMC) participation in a secondary offering of HYMC stock, this speculative silver & gold play took off in price.

Trading for around 33 cents per share before the news, it zoomed to over $2.50 per share by month’s end. It’s drifted lower so far in April. But at around $2.18

per share today, it’s held onto most of its recent meme gains.

That said, while it’s an interesting situation, is it an investment opportunity worth pursuing? Not so much. It’s gone “to the moon” in the short-term. Over a longer timeframe, though, it’s seen a massive drop in price.

There’s a good chance it’ll see another big drop down the road. Despite the hype around its initial reserves assessment, the details suggest it won’t be able to turn this fact into big profits for investors.

HYMC Hycroft Mining $2.18

HYMC Stock at a Glance

Based in Winnemucca, Nevada, Hycroft Mining owns interests in a silver and gone mine of the same name. Generating big losses, the company saw its cash position dwindle throughout the year. An issue made worse by its highly-levered balance sheet (long term debt of $143.6 million).

Yet with the release of a initial assessment of its mineral reserves, the situation with HYMC stock became a lot more interesting. The junior miner estimated it has as much of 14.65 million ounces of gold reserves, and as much as 596.4 million ounces of silver reserves.

It took time for buzz to start surrounding this news. But starting in early March, Hycroft shares began to surge on the assessment news. Then, with the news of AMC’s participation in the $56 million secondary offering, its rally went into hyperdrive. This carried on to month’s end, with the company taking advantage by completing a larger $138.6 million at-the-market equity offering.

Nevertheless, while there’s a lot of excitement about this mining stock, it may not pay off for investors buying in at today’s prices. Again, taking a look at the details, it’s far from certain whether its seemingly large reserves will ever translate into ample profits.

Sitting on a Lode of Silver and Gold

AMC CEO Adam Aron, when touting his company’s HYMC stock investment, was quick to boast on Twitter (NASDAQ:TWTR) about this mining company’s supposed reserves. Not only that, rounding up the two numbers, I mentioned above, to 15 million ounces (gold) and 600 million ounces (silver).

However, there’s a catch to this story about a small-time miner sitting on a treasure trove of precious metals. Like I discussed in an article last month on AMC stock, Hycroft’s reserves are of the hard-to-reach variety. It’ll likely need to raise more capital in order to fully extract it.

That’s not all. The high production costs will make it tough for the company to profitably extract it. As a Seeking Alpha commentator argued earlier this month, metals prices will need to see another big surge before its literal “gold mine” becomes a gold mine in the figurative sense.

Furthermore, while this company’s “payoff” moment remains a work-in-progress, the recent capital raises have resulted in high shareholder dilution. The pie’s now cut into many more slices. Even if it finds some success extracting its reserves, it may result in little downside if you’re buying in today.

Overhyped and Overvalued, Skip on it

Hycroft Mining may look cheap, when you compare its current valuation ($425 million) to its metals reserves. But given the uncertainty whether it’ll ever reach these reserves, much less profitably, the market is correct in applying this big discount.

Even worse, another “discounting” stands to happen. The meme buzz has started to fade. It will continue to do so. Traders late to the game could see big losses if they choose to take a chance on it at $2.25 per share.

Its “story” of sitting on a gold mine, plus the AMC connection, makes it an interesting situation. What it doesn’t do is make it an investable situation. Despite the story, it differs little from other speculative junior mining stocks.

So, what’s the best move here? Overhyped and overvalued, stay away from HYMC stock.

On the date of publication, Thomas Niel 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.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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