By Mike Spector and Anirban Sen

(Reuters) -Movie-theater chain AMC Entertainment Holdings Inc said on Tuesday it agreed to buy a large stake in Hycroft Mining Holding Corp for $27.9 million, capitalizing on its popularity with retail investors to provide a financial lifeline to the troubled gold and silver mine operator.

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)

---