The meme stock invested in a gold mine, expect more of the same as its core business (movie tickets) seems unlikely to recover.
Turns out meme stock favorite AMC Entertainment (AMC) – Get AMC Entertainment Holdings, Inc. Class A Report has been bitten by the gold bug.
The movie theater chain might go down as a rare case study in the annals of business management and finance with its recent investment in a Nevada gold mine.
Lead by Chief Executive Adam Aron, the company bought a 22% stake in Nevada gold miner Hycroft Mining Holding (HYMC) for nearly $28 million.
The company’s move has been met with a wild response among market watchers who have described the move as random, bizarre and stupid because the company still has $5 billion of debt on its books.
The Leawood, Kan., company now wants to become an incubator of sorts and invest in companies on the verge of bankruptcy, a situation it narrowly escaped just over a year ago.
“While the Hycroft investment is pretty far from home, it does rely on a core competency of our company to understand balance sheets, and raising cash, and solving liquidity problems,” Aron told Reuters.
Aron described the deal as a profitable investment for the company.
And so far the numbers are in his favor.
“We just raised another $139 million in nine trading days,” he told CNBC in an interview.
Hycroft, which was facing its own cash crunch, has notched up a valuation of around $140 million in the last two weeks.
“Transformational M&A is mandatory. Our shareholder base has given us capital to deploy with the clear expectation that we are … going to do exciting things with the money they entrusted to us,” Aron added.
AMC’s deal with Hycroft is also supported by seasoned commodity investor Eric Sprott, who committed another $28 million, making the total transaction worth $56 million.
As of Monday’s closing, Hycroft’s stock had risen 52.3% since AMC’s capital infusion to $2.32 a share from $1.52 a share on March 15 the day the details of the transaction were made public.
Through its deal with AMC Entertainment and other investors Hycroft has raised nearly $195 million.
Under the terms of the deal, AMC Entertainment will also have the right to appoint a representative on the Hycroft board, in exchange for what it called a “nominal amount” of cash from AMC shareholders.
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AMC Entertainment in Numbers
In October 2020, AMC had warned that it could run out of cash by year’s end or early 2021 as it struggled through the coronavirus pandemic.
But last year, the struggling cinema chain raised $917 million in debt and equity to ward off bankruptcy.
AMC’s stock had joined the meme stock rally, that captured the imagination of millions, during the peak of the coronavirus pandemic, along with stock market darling GameStop (GME.) – Get GameStop Corp. Class A Report
As ordinary retail investors collectively pushed shares of these companies higher in a bid to force large investors to abandon their short positions, or bets that stock prices will decline, they renewed interest in those companies.
This year, AMC is trying to make up for the revenue it lost during the pandemic. The company is also experimenting with raising ticket prices.
Earlier this month, AMC confirmed that revenues for the three months ending in December came in at $1.17 billion, while its net loss narrowed to $134.4 million, thanks in part to the huge success of “Spider-Man: No Way Home” and the James Bond epic “No Time To Die.”
