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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)
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