Why Hycroft Mining Was a Tarnished Stock Last Month

The trajectory of precious metals prices in June was hardly helping the stocks of companies that specialize in mining such minerals. Exhibit A: Hycroft Mining (NASDAQ: HYMC), a silver and gold specialist that possesses but a single mine in its home state of Nevada -- although it's quite a large-scale play.

The shine declines

With one mine, Hycroft is a classic stock in its sector, a non-diversified company that is always susceptible to spot price movements. That worked beautifully in its favor earlier this year, when a long bull run in precious metals reached record highs for both gold and silver.

Image source: Getty Images.

Yet subsequent developments would send both Earthward at fairly jarring rates. The prices for the two precious metals plummeted at double-digit rates across June. Those fairly consistent falls kept draining investor enthusiasm for Hycroft's stock, and justifiably so.

What made the pretty metals so tarnished in June? Mostly, this had to do with intensifying speculation that the Federal Reserve (Fed) would raise interest rates, perhaps more than once, this year. Inflation continues to be a problem, with the latest consumer price index (CPI) reading showing a jump in May.

Gold and silver bugs acutely fear higher interest rates because they make interest-bearing investments more attractive. The other side of that coin, of course, is a flight away from assets that don't pay interest, and precious metals are leaders in this category.

What compounds this for Hycroft is that the company has generated zero revenue since the beginning of 2023, following its halt of active mining at the aforementioned play.

At the moment, the company's sole asset is that massive (64,000-acre) patch called the Hycroft Mine and located in northern Nevada. While it has monster potential as a play, the catch is that minerals there are trapped within sulfide deposits, making extraction significantly more challenging.

And expensive -- the company estimates it would require significant capital expenditures of around $2.4 billion to start exploiting the play.

Bearsville

We're now in early July, and the up-and-down negotiations between the U.S. and Iran aimed at easing or ending their conflict aren't doing wonders for prices. It's still expensive to fill up at the pump, and other inflationary goods aren't seeing many price declines.

So while I think markets usually overshoot and there might be an upward correction in gold/silver prices, I feel rate hikes are on the horizon. That won't help mining companies, particularly Hycroft with its solitary, not-yet-productive play.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.