AMC confounded both its analysts and meme shareholders this week after the company announced it had acquired a 22 percent stake in the mining company. Not a cryptocurrency mining company – a company that mines real silver and gold. It’s a confusing investment for a movie theater chain, so much so that one analyst we spoke to called it “a complete misuse of equity.”
To acquire a minority stake in Hycroft Mining Holding Corporation, AMC is spending about $28 million, a significant amount for a company that recently teetered on the brink of bankruptcy. Highcroft, owner of the 71,000-acre Highcroft mine in Nevada, owns “about 15 million ounces of gold and about 600 million ounces of silver,” according to an AMC press release. AMC boss Adam Aron characterized investment as a “bold diversification step”.
“Our strategic investment announced today is the result of identifying a company in an unrelated industry that looks exactly like AMC did a year ago,” Aron said in a statement. “He also has solid assets, but for a number of reasons, he has faced a serious and urgent liquidity problem. As a result, the price of his shares fell to a minimum. We are confident that our involvement can go a long way in helping him overcome the difficulties – both for himself and for us.”
“They are in debt. Pay off some of the debt.
Analysts, however, aren’t so sure about AMC’s latest recovery experiment. Michael Pachter of Wedbush Securities called the move “idiotic”, pointing especially to AMC’s outstanding debt.
“This is outrageously stupid. By that, I don’t mean that investing in gold mining is embarrassingly stupid. I mean, it’s inappropriate for a movie company to stray so far from their core business and go into some completely unrelated business that won’t drive any traffic to their theaters,” Pachter told The Verge by phone. “This is a complete misuse of equity, and it does not mean that they are swimming in money and have nothing else to do. They have a debt. Pay off some of the debt.
Pachter isn’t the only analyst baffled that the movie theater chain is betting on literal gold. Eric Handler, media and entertainment analyst at MKM Partners, highlighted the risk that AMC “invests valuable capital in a highly speculative venture,” especially one that “goes beyond its core competencies.”
As part of the movie theater chain’s rapid recovery during the pandemic, the AMC CEO has been heavily pandering to meme investors, indulging them with meme-driven strategies such as adopting Dogecoin and offering NFTs tied to major theatrical releases. AMC has also been trying to break into the food sales and delivery business with its Perfectly Popcorn venture tied to what Aron recently called the “multi-billion dollar popcorn industry”.
But all of these crazy experiments are more or less related to AMC’s core business of bringing people to theaters and sticking their asses in the audience. The mining investment is a marked departure from Aron’s eccentric but arguably coherent business strategy. Aron himself acknowledged that “No one usually thinks that the core competencies of a movie theater company include mining gold or silver.”
“Invest in a goldmine? What does he think?
However, the connection between AMC and the precious metals business may not be as mysterious as it first seemed. Hycroft went public through a merger with Mudrick Capital Acquisition Corporation in May 2020. The business is linked to investor Jason Mudrick, whose investment firm Mudrick Capital Management injected $100 million into AMC in December 2020 to help the movie theater chain. prevent bankruptcy. What an accident!
Highcroft is poised to receive a $56 million injection between AMC’s investment and precious metals investor Eric Sprott, both of whom are investing $27.9 million. Noting AMC’s ability to improve its business in recent years, Aron added, “It’s all of our experience and skills that we use to help the talented mining professionals at Hycroft.” The results, he told shareholders, “will be very profitable.”
Pachter isn’t so sure, once again noting that this is a significant departure from other recent projects that, while niche and meme, still fit his core movie business.
“Any way to get people to buy more tickets is good for him. But invest in a goldmine? What does he think? Pachter said. “I don’t care that they are the same downtrodden company.”
By betting on precious metals, Aron is apparently transforming from father of memes to risky investor at a time when AMC is still trying to stabilize the ship in the wake of the pandemic. In the end, Aaron will have to answer for this. In the meantime, someone pass the Perfectly Popcorn.