Shares of Hycroft Mining (NASDAQ: HYMC) have shot up 18.6% this week, according to data from S&P Global Market Intelligence. The Nevada-based gold and silver miner is rising along with the prices of both metals. Their prices have begun to recover since a sharp dip in late January, and Hycroft’s stock price tends to follow the price of gold and silver in the short run. The company also announced an increased assessment of its minable resources at its land holdings.
Here’s why Hycroft Mining stock was soaring this week, and whether it is a buy for your portfolio today.
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With ownership over prospective mines in Nevada, Hycroft Mining will theoretically benefit from rising gold and silver prices once it begins production. If the company’s mining costs remain the same but the prices of gold and silver double, that is pure profit for the business.
What’s more, this week Hycroft announced a third-party study that increased its estimated gold and silver deposits by 55%. This is a huge deal, as the more gold and silver the company can mine, the more money it will make. Plus, if there are higher concentrations of these metals in the ground, the cost to produce each ounce of metal may drop as manufacturing scales up.
It is undoubtedly true that rising gold and silver prices are good for a mining operation like Hycroft. However, the company fails to mention in its investor materials that it is not operating a mine today and is likely years away from full operations.
This will require significant upfront capital spending, which will eat into the balance sheet and shareholder returns. Hycroft has had to heavily dilute existing shareholders to raise funds. What’s more, the company may miss out on the boom period in the typical boom-and-bust cycle of the metals market. Look at any historical price chart for gold and silver. These metals have historically experienced significant price appreciation for a year or two before crashing back to earth.
With a market cap of $3.4 billion and zero revenue, Hycroft Mining stock is not a buy right now.
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