Hycroft Mining (NASDAQ: HYMC) stock is up 25% this morning premarket off the back of the Q1 results announced last night. Actual production was entirely in line with previous guidance at 5,358 ounces of gold and 16,861 ounces of silver.
The big difference is of course the cash position which is now a nicely positive $172.8 million. This is the result of the raising of $194.4 million through a private placement to Eric Sprott and AMC Entertainment of $55.9 million followed by an at the market equity offering of $138.6 million.
It’s worth walking through what happened at Hycroft to work out what has really happened here. The start was probably the identification of Hycroft Mining as a meme stock. As we pointed out back then, why not? Small-cap stock, large short position, no seemingly real way out for the management. The internal cost structure of the company was just wrong and there didn’t seem to be any sensible way of raising the capital to change that.
But once that identification had happened then it is possible for memes to work as happened with Hycroft stock. As then followed with the AMC involvement. As a result of itself being a meme stock AMC Entertainment bought into Hycroft for AMC was now capital rich. A capital rich company buying into a capital light one, one that needs to solve its problem with more capital – yes, that can work.
As to what Hycroft’s actual operating problem was. This is a technical matter about mining. There really is gold in them thar hills – silver too. This isn’t a Tier 1 deposit or anything, but it could be worth exploiting. However, it’s necessary to process the ore and rock – obviously, this is mining. But Hycroft didn’t have its own processing plant. The costs of shipping the extracted ore containing rock to be processed were more than the ore processed out was worth. This cannot be beaten by mining hard, more or faster – that just drives up losses.
What was needed was the ability to build an onsite processing plant. Then transport costs would only be of ore, not of also all the associated gangue. But the capital structure of Hycroft was such that there was no obvious manner of raising the capital to be able to build such a processing plant. This is rather the problem that has been solved by the meme stock, AMC Entertainment, at the market stock offer sequence.
The future value of Hycroft Mining stock is going to be determined by how well they spend that capital they’ve now got. Will they build a useful and functioning processing plant with it? Time will tell no doubt.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.