Why Torchlight Energy Resources shares plunged 26% in March


What happened

Shares of an American exploration and production company Torchlight energy resources (NASDAQ: TRCH) fell 26% in March, according to data from S&P Global Market Intelligence. That said, at one point they were actually about 15% higher. The mood turned negative when an update on the company’s proposed merger began to filter through.

So what

In mid-December 2020, Torchlight Energy and Metamaterial announced its intention to merge. It’s a complex deal that is basically a back door for Canada-based Metamaterial to get listed in the United States. In fact, once completed, the energy assets now owned by Torchlight are expected to be scrapped, with the combined company focusing on specialty materials. Still, there are incentives for Torchlight investors here, and a reason to be happy with the somewhat unusual deal.

Image source: Getty Images.

That said, in mid-March, Torchlight announced that the planned merger is expected to be completed in the second quarter. This materially pushes back the use date, which investors didn’t seem to like very much. In fact, the stock has fallen steadily after the news broke. Given the delay, some investors might be concerned that the acquisition process is not going as smoothly as originally hoped.

Now what

Torchlight Energy is no longer just a store of energy. It really is a game of special situations, which is a space that is probably only suitable for more aggressive investors. The delay here could just be a timing issue or more, but for most investors it would be best to sit on the sidelines until the deal is done. Or, if what you are really looking for is energy exposure, ignore torch energy altogether.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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