AMC Entertainment Holdings Inc. continues to surprise investors with new strategies, deviating from its core theatrical business.
The company, along with precious metals and mining investor Eric Sprott, each put up $27.9 million to fund the cash-strapped Hycroft Mining Holding Corp., a small gold and silver mining venture with one active operation in Nevada.
The deal will provide Hycroft a lifeline after a 2015 bankruptcy and a 2020 reverse-merger with special-purpose acquisition corporation Mudrick Capital Acquisition Corp. For AMC, the investment is relatively small against its cash position, but the theater operator itself is struggling with a massive, high-rate debt load following the COVID-19 pandemic.
Moviegoers are returning to theaters after two years of closures, capacity limits and low supply film output from studios, but AMC is still operating in the red. The company reported a $134.4 million net loss against $1.17 billion in revenue in the fourth quarter of 2021.
AMC is holding cash assets of $1.59 billion, well in excess of the Hycroft price tag. However, it is also holding $10.75 billion in total debt as of fourth-quarter 2021, with the majority of that debt carrying coupons over 5% and much of it with coupons near or above 10%.
In a news release, AMC CEO Adam Aron justified the transaction by comparing AMC's burdened financial position through the pandemic with Hycroft's current position, arguing that AMC demonstrated its ability to navigate liquidity challenges amid negative investor sentiment.
"We are taking AMC's demonstrated achievement in writing the playbook as to how to navigate through liquidity challenge and applying our lessons learned to another entity in Hycroft Mining," the CEO said.
Starting in 2020, AMC issued expensive debt, refinanced old debt at much higher interest rates and diluted its market capital with aggressive equity offerings.
However, while AMC was able to string together a cash position through the pandemic, debt analysts viewed AMC's financial engineering as tantamount to a credit default, and many expected the company to require bankruptcy protection or an M&A transaction. AMC was ultimately saved by a serendipitous wave of attention from retail investors during late 2020 and early 2021. AMC became one of the favored "meme stocks," and retail investors piled into AMC, boosted its stock price and provided the company with access to desperately needed capital.
Hycroft is in a similar position. In SEC filings, the company has stated that there is material doubt it can remain solvent without a capital infusion.
Investors responded favorably to the deal news, launching Hycroft shares 37% following the announcement. However, the price spike may have been impacted by heavy trading leading up to the deal. Trading volume for Hycroft spiked beginning March 7, a week before the announcement, and increased to nearly 350 million shares exchanged in a single day from average daily shares volumes well below 1 million. No public news or filing corresponded to the leap in activity March 7. Hycroft's stock hit a 52-week low March 2.
