Mike Spector and Anirban Sin

(Reuters] -Movie theater chain AMC Entertainment (NYSE 🙂 Holdings Inc stated Tuesday it bought a significant stake in Hycroft Mining Holding Corp. The purchase was made to capitalize on Hycroft’s popularity among retail investors, and provide a financial support for the financially troubled silver- and gold mine operator.

Hycroft is a Northern Nevada mining company. It was near bankruptcy when AMC invested. Hycroft announced Tuesday that it now plans to raise as much as $500 million through the sale of shares on the open market. This kind of large capital raise would be difficult for a small business in financial trouble.

But such deals are possible because of the popularity of meme stocks among retail investors. Adam Aron, chief executive officer of AMC, stated Tuesday that AMC has raised $1.8 billion in “war chest” through stock sales. This was thanks to the retail investors who snapped up AMC stocks.

Hycroft claimed on Tuesday that the stock had attracted “atypical retail investors interest”, but advised investors that purchasing its stock could lead to losing all, or substantial portions of their capital.

After almost doubled in value on the news about the Hycroft deal, Hycroft shares closed up 9.35% at $1.52. AMC shares ended up 6.9% at $14.48

Aron claimed Hycroft reminded him of the theater chain one year ago. He was facing liquidity crises despite his “rock-solid assets.”

Alicia Reese of Wedbush Securities, an analyst, stated that AMC’s “investment is a little baffling”, and the money would be better spent on repaying debts that exceed $5 billion as of December 31st.

AMC, Eric Sprott (longtime precious metals investor) will each invest $27.9m and get separate 22% stakes into Hycroft. The warrants will be exercisable at $1.07 each share and they will receive equal shares.

Mudrick Capital was a Hycroft creditor. Its special purpose acquisition company, (SPAC), deal with Hycroft in 2020 made them the largest shareholder of the company with a 40% share, according to a source familiar with the matter.

Jason Mudrick was the founding partner of the firm and the chief investment officer. Aron asked him last week to help Hycroft with launching a stock-market offering in order to avoid bankruptcy.

Hycroft was previously known under the name Allied Nevada. It had been bankrupted before but emerged from bankruptcy in 2015. After being spotted by Reddit investors, Hycroft’s stock has risen.

Mudrick had invested previously in AMC, and was part of a restructuring plan in 2020 to keep AMC financially sound.

Aron stated that he is interested in Hycroft’s investment to diversify AMC’s businesses, and that Hycroft might attract additional investor interest.

WHIRLWIND TOUR

Mudrick chartered the plane Sunday in order to fly AMC executives, directors and managers to Nevada to take a tour of Hycroft’s mine operations in Winnemucca on the following morning.

Sources said that the deal was closed Monday at 4:05 p.m. Eastern Time. The source said that the cash reserves of the company had dropped to $8 million before the negotiations.

AMC did not immediately comment on Mudrick’s involvement in the deal. Hycroft, however, didn’t respond to our request for comment.

Sprott and other creditors agree to reduce Hycroft’s debt payments to 2027. Hycroft may be able to build a mill that extracts gold and silver with the boost to its finances.