An AMC theatre in Times Square in the Manhattan borough of New York City on June 2, 2021.CARLO ALLEGRI/Reuters
It was a pivot nobody saw coming: U.S. movie theatre giant AMC Entertainment AMC-N announced on Tuesday it is teaming up with Canada’s best-known mining investor, Eric Sprott, to grab a major stake in struggling Nevada mining venture Hycroft Mining Holding Corp. HYMC-Q
The combined AMC and Sprott stake is worth US$56-million, or more than half of what the company was worth before the investment was made public.
Through their common share investment, Mr. Sprott and AMC will hold a combined 43.6-per-cent stake in Hycroft. The two investors also received warrants that could see them double their positions over the next five years.
The high-cost, low-production and heavily indebted Hycroft says it intends to use at least part of the money to repay some of its liabilities.
While the Hycroft investment is par for the course for the billionaire investor Mr. Sprott, who is known for taking big swings on junior mining stocks, AMC’s foray into precious metals was a surprise that lit up social media.
Replying to AMC’s Twitter post announcing the Hycroft investment, Santa Monica, Calif.-based financial adviser Ross Gerber wrote, “Joke right. You have billions in debt to pay off.”
Known mainly for showing mega-hit movies such as Spider-Man: No Way Home and The Batman, AMC conceded that the move into junior mining is a big lane change.
“One would not normally think that a movie theatre company’s core competency includes gold or silver mining,” Adam Aron, chairman and chief executive officer of AMC, said in a release.
But Mr. Aron said AMC saw in Hycroft a mirror image of what it was a year ago, when it was struggling in the depths of the pandemic with theatre closings. Hycroft, too, “has rock-solid assets, but for a variety of reasons, it has been facing a severe and immediate liquidity issue.”
AMC has “the experience and skill” to help Hycroft realize its potential, Mr. Aron added.
The movie theatre company said in the release that the Hycroft mine holds 15 million ounces of gold deposits and 600 million ounces of silver, which had been confirmed by independent third party studies.
However, a technical report released by Hycroft last month shows that all of the gold and silver estimated by the third parties are in the “measured, indicated and inferred” category. That means it has not yet been proven to be economically viable. Hycroft left blank the section in the report that listed gold and silver in the proven and probable category, which is the bar the industry aims for before metals can be produced commercially.
At the moment, Hycroft is refining small amounts of gold and silver on-site. That process is high in cost and money-losing. In the company’s most recently disclosed quarter, it lost US$41-million. At the end of last year, Hycroft was holding US$12.3-million in cash versus US$159-million in debt.
The Hycroft mine started production from a small open pit in the early 1980s and produced 1.2 million ounces of gold and 2.5 million ounces of silver before being mothballed in the late 1990s because of depressed metal prices. The mine was restarted about a decade later, but closed again in 2015 amid another slump.
That downturn forced its owner, Allied Nevada Gold Corp., into bankruptcy. After a restructuring, a new iteration of the company emerged, with the new name, Hycroft. Production started again on a very small scale about three years ago. Before the investment from Mr. Sprott and AMC, the stock had fallen by about 90 per cent over the past 18 months.
On Tuesday, shares in the company rose by 9.35 per cent on the Nasdaq to close at US$1.52 apiece.
Diane Garrett, CEO of Hycroft, did not respond to a request for comment.
Mr. Sprott is one of Bay Street’s best-known maverick investors. In 1981, he started his own independent brokerage, Sprott Securities Ltd. He sold his stake to employees in the early 2000s and then moved on to managing money with the founding of Sprott Asset Management Inc. Heavily tilted toward the precious metals and mining industry, the business expanded to include mutual funds, exchange-traded funds, physical metals trusts and a mining lending business.
Over the past five years, Mr. Sprott is perhaps best known for using his own money to invest in small mining companies. While not all bets have worked out, some have been blockbusters. He invested in Kirkland Lake Gold Ltd. when it was close to bankruptcy. His cash infusion and early management of Kirkland, which included handpicking its CEO, resulted in a dramatic turnaround. Kirkland was recently sold to Agnico Eagle Mines Ltd. for $13-billion.
Mr. Sprott declined comment.
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Niall McGee