AMC Pivots to Precious Metals to Stop the Bleeding

AMC Pivots to Precious Metals to Stop the Bleeding

AMC Entertainment (AMC), the darling of the meme stock world just a few short months ago, has been slowly bleeding out since September. Their Reddit-induced high of $62.55 in 2021 is down to a measly $14.13 this morning. This week, in a desperate attempt to breathe life back into the company, they bought 22% of Hycroft Mining (HYMC). AMC is digging for gold.  

Hycroft is a Nevada-based gold and silver mining company that’s been trading barely above penny stock levels in 2022. Their year-end closing price was 61¢ a share. On March 10th, they were at 67¢. Watch it this week. The Reddit Raiders have gotten ahold of the story. At 9:30 am on Tuesday, after Seeking Alpha profiled the deal, Hycroft went from $1.39 to $2.70.

Gold Mining Won’t Save AMC Entertainment

A bad bet is a bad bet. AMC was overvalued last year, and this deal won’t make them a better company. Their ROI, operating margin, and profit margin are all in the red. Their target price is just $10.45, so they’re still trading above what they are worth. Any upward movement from this latest deal is nothing more than misplaced optimism in the American film industry.

Don’t get me wrong. Hycroft looks like a solid investment. The Hycroft Mine in Northern Nevada has a reported 15 million ounces of gold resources and 600 million ounces of silver. That’s 20,000 tons of US-mined precious metals. Their nearest competitor, Barrick Gold (GOLD), which owns Nevada Gold Mines, mined 4.8 million ounces of gold last year.   

 

Are you seeing what I’m seeing? Here’s a breadcrumb for the social media crowd: Eric Sprott, one of the world’s largest investors in precious metals, also bought 22% of Hycroft this week. He and AMC each invested $27.9 million in cash to the mining company. That sounds like a war chest to me. There’s more to this deal than we’re hearing right now. 

Hedging with Gold and Betting on the Meme Stock Effect

When asked to comment on the Hycroft deal, 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.” Does everyone remember what happened to AMC last year? 

Aron goes on to talk about “rock-solid assets” and “liquidity issues,” but the messaging here is clear. They’re counting on the meme stock effect to drive stock prices up while they bet on the film industry to recover. Their hope is based on the success of Spiderman and Batman. Superheroes only save the day in comic books. This hole is too deep to climb out of. 

Gold is a hedge. It’s not my favorite hedge, but it’s stabilized my portfolio more than once over the years. Look at this deal for what it is. Covid isn’t dead yet. Follow what’s happening in China. Movie theatres are giant petri dishes that may soon become a nostalgic memory. That saddens me, but it’s a harsh reality. Batman is not coming to save the day.   

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About the Author

AMC Pivots to Precious Metals to Stop the Bleeding

Kevin D. Flynn

Kevin D. Flynn is a former financial professional and founder of AdvisorScale Financial Writing. He lives in Leominster, Massachusetts with his wife Evelyn, two cats, and nine wonderful grandchildren.