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 on the open market over time, Hycroft said Tuesday. Such a large fundraiser is generally not accessible to a small business in serious financial difficulty.
Yet retail investors’ fascination with so-called “same stocks” has made such operations possible. AMC Chief Executive Adam Aron said on Tuesday that the company had raised a “war chest” of $1.8 billion in 2021 through ripped-off stock sales by retail investors.
Hycroft said on Tuesday it had also attracted “atypical interest from retail investors”, but warned investors that buying its shares could cause them to lose all or a significant portion of their money.
Hycroft shares ended the session up 9.35% at $1.52 after nearly doubling in value earlier in the day on news of the deal. AMC shares closed nearly 6.9% higher at $14.48.
Mr Aron said Hycroft was like the cinema chain of a year ago, facing a cash crunch despite having “rock-solid assets”.
Still, AMC’s investment “is a little confusing” and its cash would be better spent paying down debt that topped $5 billion at the end of December, said Wedbush Securities analyst Alicia Reese.
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 the form of exercisable warrants at a price of $1.07 per share.
Mudrick Capital, a Hycroft creditor whose Special Purpose Acquisition Company (SPAC) agreement with Hycroft in 2020 made him the company’s largest shareholder with a 40% stake, helped set up the deal with AMC, said a person familiar with the matter.
Jason Mudrick, the company’s founder and chief investment officer, called Aron last week to ask him to advise Hycroft on how it could launch a public offering to avoid bankruptcy, the person familiar with the matter said. .
Hycroft, formerly known as Allied Nevada, had already filed for bankruptcy and exited in 2015. More recently, its stock has surged 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 cinema operator afloat.
Aron responded that he was interested in investing in Hycroft to diversify AMC’s business, and that such a move could help Hycroft attract more interest from investors, the source said.
TURNS WHIRLWIND
Mudrick chartered a plane on Sunday to take AMC executives and directors to Nevada for a high-level tour of Hycroft’s mining operations in the town of Winnemucca the next morning, the source said.
The deal was completed just before 4 p.m. EDT on Monday, the source said. Prior to the negotiations, the company’s cash was down to around $8 million, the source added.
AMC had no immediate comment on Mudrick’s work on the transaction, while Hycroft did not respond to a request for comment.
Sprott and other creditors have agreed to push Hycroft’s debt repayment to 2027. Hycroft’s improved finances could allow it to develop an expensive factory to dig up gold and silver. (Reporting by Mike Spector New York and Anirban Sen Bengaluru; Additional reporting by Tiyashi Datta Bengaluru and Jessica DiNapoli New York; Editing by Bernard Orr)