Torchlight Energy Resources Inc. (TRCH:NASDAQ) is divesting its oil and gas assets in Texas and merging with cleantech company Metamaterial Inc.
Metamaterial's products are used in a wide spectrum of applications, including in the aerospace and defense, automotive, consumer electronics, energy and medical industries. The company designs and manufactures "complex films and other materials called metamaterials, materials that can manipulate and utilize light and other forms of energy in new and often amazing ways."
"Metamaterial is a film company and received an award for the CleanTech 100," Torchlight CEO John Brda told Streetwise Reports. "Its film can be used for a variety of different applications in a variety of vertical markets. They are doing business with some terrific companies, some very well known household names. We are very excited about what they are doing."
Brda expects the merger to close in the second quarter. At closing Torchlight's oil and gas assets will be in a preferred dividend that will go to shareholders of record on the date of the close. "Once those assets are segregated, we will either sell them or spin them out into their own asset company," Brda explained.
"Torchlight shareholders who got into this field because of oil and gas, they are going to get the benefit of that spinout, either through the sale of the asset, which still benefits 100% from that, or we split it out into another publicly traded company, and they'll be shareholders in that as well," Brda noted.
Torchlight shareholders will also own 25% of Metamaterial continuing company, and the name and ticker symbol will change; the ticker symbol will be MMAT.
"Torchlight shareholders get two bites of the apple," Brda said.
What was the genesis of the merger? "Last April/May, in the early days of the COVID pandemic, oil prices went negative and we knew it was going to be a while before the oil and gas market recovered," Brda explained. "We decided at that point that maybe the best course of action is to find something else to merge into our NASDAQ vehicle; Torchlight shareholders get a benefit from that, and then we put up the oil and gas assets for sale or vend them out separately."
Torchlight had discussions with about a half dozen companies, Brda indicated, before deciding on Metamaterial. The companies signed a letter of intent in September and in December signed the final agreements.
Torchlight, in February, closed a public offering of 23 million shares of common stock at $1.20 per share. "About $5 million of those funds are earmarked for Torchlight's benefit, meaning the oil and gas side of the business," Brda explained. "The remainder will be for the combined entity once we close; subtracting closing costs, a little over $20 million will be destined for the company post-closing, so they will have a nice war chest to work with on a go-forward basis."
Torchlight, over the past few months, has eliminated all of its debt, converting it to common stock.
Brda explained that Torchlight was never a traditional oil and gas firm and was more akin to a real estate company. "We would buy assets that had either been overlooked or messed up by other companies. We would go in and do extensive science on the area and try to figure out what went wrong or why it wasn't working for somebody else. And then we turn those assets around, kind of like improving the land before you put a building on it."
After doing the science, Torchlight would do a number of test wells and then sell the asset.
The company currently has two properties, "one is under contract to be sold, and the other, our largest asset, the Orogrande, has no production on it currently. If we keep it, we will drill four wells, and if we sell it, someone else will drill it," Brda noted.
Torchlight's stock has seen major price movements over the few months, rising from $0.35 to as high as $4.80. It now sits at around $2.83. "A number of things have gone in our favor," Brda said. "Since September, when we announced the transaction, we've been able to eliminate all the debt, we've been able to raise the capital, and we've been able to override the different hurdles that we had to overcome in order for this to happen."
"Then you throw on top of that," Brda said, "we somehow got picked up by people on the internet via message boards and Twitter. It's creating a tremendous amount of views and exposure." In September, Torchlight had 4,000 shareholders, and it now has over 100,000 by last count.
Torchlight has about 140 million shares outstanding currently; management owns around 25 million shares, institutions—mainly fund holdings—hold 29 million shares, and the remainder is retail.
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Disclosure:
1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
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