Movie theater operator AMC invests in troubled miner Hycroft (updated)

Hycroft Mining Holding

16/03/2022 01:51

(Adds more details on the deal from source, analyst comment)
    By Mike Spector and Anirban Sen
    March 15 (Reuters) - Movie-theater chain AMC Entertainment
Holdings Inc  AMC.N  said on Tuesday it agreed to buy a large
stake in Hycroft Mining Holding Corp  HYMC.O  for $27.9 million,
capitalizing on its popularity with retail investors to provide
a financial lifeline to the troubled gold and silver mine
operator.
    Hycroft, which owns a mine in Northern Nevada, was on the
verge of bankruptcy before AMC's investment. Now, it plans to
raise up to $500 million by selling shares in the open market
over time, Hycroft said on Tuesday. Such a large capital raise
is not typically accessible to a small company in dire financial
straits.
    Yet the fascination of retail investors with so-called meme
stocks have made such deals possible. AMC Chief Executive
Officer Adam Aron on Tuesday said the company raised a $1.8
billion "war chest" in 2021 thanks to stock sales snapped up by
retail investors. 
    Hycroft said on Tuesday it had also attracted "atypical
retail investor interest" but warned investors that buying its
stock could result in losing all or a substantial portion of
their money.
    Hycroft shares ended trading up 9.35% at $1.52 after almost
doubling in value earlier in the day on news of the deal. AMC
shares closed up nearly 6.9% at $14.48
    Aron said Hycroft resembled the movie-theater chain a year
ago, facing a liquidity crisis despite "rock-solid assets."
    Still, AMC's investment "is a little baffling" and its cash
would be better used on repaying debt that exceeded $5 billion
at the end of December, said Alicia Reese, a Wedbush Securities
analyst.
    AMC and longtime precious-metals investor Eric Sprott will
each invest $27.9 million and receive separate 22% stakes in
Hycroft, the companies said. They will also receive an equal
amount of shares in warrants exercisable at a price of $1.07 per
share.
    Mudrick Capital, a Hycroft creditor whose special purpose
acquisition company (SPAC) deal with Hycroft in 2020 made it the
company's largest shareholder with a 40% stake, helped put
together the deal with AMC, a person familiar with the matter
said.  
    Jason Mudrick, the firm's founder and chief investment
officer, called Aron last week asking him to advise Hycroft on
how it could launch a stock market offering to stave off
bankruptcy, the person familiar with the matter said. 
    Hycroft, previously known as Allied Nevada, had filed for
bankruptcy before and emerged from it in 2015. More recently,
its stock rose after attracting interest from retail investors
on social-media platform Reddit.  
    Mudrick knew Aron because he had previously invested in AMC
and participated in a debt restructuring deal in 2020 that
helped keep the movie theater operator afloat.
    Aron responded that he was interested investing in Hycroft
to diversify AMC's business, and that such a deal could help
Hycroft attract more investor interest, the source said.
    
    WHIRLWIND TOUR 
    Mudrick chartered a plane on Sunday to fly AMC executives
and directors to Nevada for a whirlwind tour of Hycroft's mining
operations in the town of Winnemucca the next morning, the
source said. 
    The deal closed just before 4 p.m. EDT Monday, the source
said. Before the negotiations, the company's cash had dwindled
to roughly $8 million, the source added.
    AMC had no immediate comment on Mudrick's work on the deal,
while Hycroft did not respond to a request for comment. 
    Sprott and other creditors agreed to push back Hycroft's
debt repayments to 2027. The boost in Hycroft's finances may
allow it to develop an expensive mill to unearth gold and
silver.

 (Reporting by Mike Spector in New York and Anirban Sen in
Bengaluru; Additional reporting by Tiyashi Datta in Bengaluru
and Jessica DiNapoli in New York; Editing by Bernard Orr)
 ((tiyashi.datta@thomsonreuters.com;))