AMC Theatres buys 22% of Silver Miner

Meme stock and Reddit market darling AMC has just taken a 22% strategic position in Hycroft Mining (NASDAQ: HYMC) in a US$27.9 million all cash trade. The pre-production silver miner has 600 million ounces of silver alongside 15 million ounces of gold in northern Nevada. With continued demand for the precious metal outstripping demand, AMC may be the one of the first listed companies outside of the mining sector racing to secure ounces in the ground.

CEO Adam Aron noted:  "To state the obvious, one would not normally think that a movie theater company’s core competency includes gold or silver mining." The rationale however is to create value for shareholders by providing liquidity at the bottom to a company with rock-solid assets that have been undervalued by the market. Many precious metals investors may not be aware, but the prevailing spot prices of silver have made mines focused on the white metal unviable for decades. The a significant minority of silver focused miners are restricted to Mexico and Peru with 22% and 14% of global output in 2020.

A major component of the silver supply comes as a byproduct of miners targeting other metals. The BHPs and Rios of the world have a major Zinc deposit, and the silver that they do find is a happy bonus. A substantial number of Silver Miners have slowly become Gold Miners just to survive. You’ll notice that a number of major diversified miners made up the top 20 silver producers: Glencore, BHP and South 32, as well as some other major contributors common from base metal miners such as Hindustan Zinc and Southern Copper Corp.

In the words of Ex-Sprott US Director Rick Rule, “the cure for low prices, are low prices”. As supply has been curtailed over an extended period due to depressed spot markets, the pressure on shorts increases. If there is one thing AMC knows about, it’s short squeezes. The stock was one of the most heavily shorted stocks on the NYSE before the Reddit Wall Street Bets crowd pumped their bags. While the Silver Squeeze of February 2021 has since faded, the supply demand dynamics of the precious metal lend themselves to speculators as the value/price mismatch persists.  

Given that the Tesla’s and Apple’s of the world need to secure prodigious amounts of the most conductive metal on the planet, we wouldn’t be surprised if we start hearing about major non-mining companies seeking to guarantee their own supply by buying up miners. Many manufacturers would be looking at the price action in Nickel when all of the sellers and supply disappeared and looking to shore up their own access to essential inputs.  

In terms of mining production, the last few years have seen silver coming out of the the ground at a ratio of approximately 7 : 1 compared with gold. Gold has always been rarer, but at a Gold: Silver Ratio of 77, silver has a long way to run.