Why Torchlight Energy Resources stock fell 19% at the start of today’s trading


What happened

Energy Driller Actions Torchlight energy resources (NASDAQ: TRCH) fell as much as 19% in morning trading on June 17. By noon EDT, the stock had recovered some of these losses and was down around 16%. Part of the drop could be a comeback from June 16, when the stock was in rally mode. However, there is so much going on with Torchlight Energy Resources lately that stocks have long been on a rollercoaster.

So what

At the end of 2020, Torchlight Energy Resources agreed to merge with Metamaterial. This, however, is not just a simple business combination, it is a way for Metamaterial to get a listing in the United States. In fact, following the merger, the company plans to completely withdraw from exploration and production activities. There are a lot of moving parts in this very complex business. Progress has also been slower than expected, leading to numerous news-induced price hikes and drops in the first half of 2021. But it looks like it will be consumed relatively soon.

Image source: Getty Images.

On top of that, it looks like Reddit message boards have shone at Torchlight. It was a big part of the story in yesterday’s big price hike. So there is a very real possibility that today’s drop is related to nothing more than the changing mood of Reddit investors. However, there has also been some significant merger news over the past few days, including a preferred stock dividend (which will effectively follow the energy sector once the merger is complete) and, yesterday, the announcement of ‘a $ 100 million stock sale. Both are important steps on the road to finalizing the merger and suggest that it will soon be a done deal. Selling shares, however, will dilute shareholders, which is generally not a good thing and could also be the cause of the sale today. There are so many moving parts right now that it’s hard to say what fact (s) are stimulating investors.

Now what

Most investors would probably be better off watching this show from the side. The merger between Torchlight and Metamaterial is complex and will fundamentally change Torchlight. While the deal appears to be close to being done, the existing Torchlight assets have yet to be ditched in one way or another, so the complexity here will not end when the deal is done.

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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