Meta Materials Receives Attention Due To Its Oil And Gas Spinoff (NASDAQ:MMAT)

Meta Materials (NASDAQ:MMAT) recently saw its stock close above $1 again, potentially staving off listing compliance issues (from its stock being below $1). It appears to be benefiting from the attention being paid to its oil and gas spinoff (Next Bridge Hydrocarbons) as the placeholder shares (OTCPK:MMTLP) for that spinoff soar.

Meta will not have any ownership in Next Bridge Hydrocarbons once it spins out, although if Next Bridge later raises funds of its own, it should be able to pay Meta back the $20 million that it loaned Next Bridge.

The loan repayment would give Meta some additional runway, as I believe that it is otherwise still on track to require another equity raise in 1H 2023. Assuming that the loan is repaid, Meta should have enough cash to get to late 2023 without requiring more funding, and perhaps a bit more time if it can further reduce its rate of cash burn.

Listing Compliance

Meta received notice from Nasdaq in late August that it wasn’t in compliance with the $1.00 minimum bid price requirement for continued listing. Meta has until February 21, 2023 (180 calendar days) to regain compliance by having the closing bid of its common stock meet or exceed $1.00 per share for at least ten consecutive business days.

The recent interest in the company (which appears to have been caused by attention to its oil and gas spinoff) has boosted its share price above $1 and may allow it to regain compliance. If it doesn’t regain compliance by February 21, 2023, it may be allowed a second 180 calendar day period to regain compliance and a reverse split becomes a significant possibility in that case.

Cash Burn And Cash On Hand

At the end of Q2 2022, Meta reported having approximately $55 million in cash and short-term investments. This is after it completed its June 2022 equity offering, which resulted in $50 million in gross proceeds ($46 million in net proceeds).

Meta used $29 million in cash on operating activities in the first half of 2022. It also spent $9 million on purchases of property, plant and equipment during that period, which would include spending on its Halifax production facility (scheduled to open in November 2022).

Meta’s spending should decline a bit once its oil and gas assets spinoff and once its Halifax production facility is completed. I can see it having around $25 million to $30 million in cash burn over the second half of the year, which would result in it ending 2022 with around $25 million to $30 million in cash and short-term investments.

In early 2023, Meta may be able to reduce its rate of cash burn to around $10 million per quarter. This still puts it on track for another equity offering in 1H 2023 if it doesn’t receive funds from another source.

Potential sources of funding include its warrants for 37 million shares at an exercise price of $1.75 per share (first exercisable at the end of 2022) as well as the potential repayment of loans by Next Bridge.

Next Bridge will start out as a private company, but I expect it to be publicly traded in the near future. It owes $20 million to Meta, with a maturity date of March 31, 2023 currently. However, if Next Bridge raises at least $30 million in capital (through equity and/or debt), the debt maturity will be extended to September 30, 2023 (for $15 million) and October 3, 2023 (for $5 million). The debt would need to be repaid in six equal monthly installments (starting in April 2023) in the scenario that Next Bridge raises that capital. The $3.33 million per month repayment schedule in that case would basically cover Meta’s projected cash burn (at projected early 2023 levels), which would give it another six months of runway (and perhaps more if it can reduce its cash burn).

Next Bridge Hydrocarbons

Next Bridge Hydrocarbons is getting closer to being spun off from Meta. It appears that a combination of a short squeeze and momentum trading has propelled the placeholder MMTLP over 300% in a matter of days. One MMTLP (Series A Preferred share) will be exchanged into one Next Bridge common share once the spinoff is completed.

There has been a lot of attention paid to the language in the latest S-1/A filing noting the potential for a short squeeze. This language may itself have triggered the rise in MMTLP’s price.

However that note also points out that MMTLP “may rise significantly but not be representative of the value of the underlying shares” of Next Bridge common stock.

I am of the opinion that MMTLP’s current price (of $6.69 per share) far exceeds the current intrinsic value of the oil and gas assets that Next Bridge will own. At $6.69 per share, Next Bridge would have a market cap of $1.1 billion, which would be an exceptionally high valuation for a company with no current production, negative free cash flow and no evidence that it can generate competitive well-level returns. These days $1.1 billion can essentially purchase an oil and gas producer that can generate around $200 million in 2023 free cash flow (at current strip) while at least maintaining production levels.

Conclusion

Meta Materials may reset the clock on its Nasdaq listing compliance issues if its share price closes above $1 for nine more days. It is benefiting from the interest around its Next Bridge Hydrocarbons spinoff, as the MMTLP placeholder preferred shares for that spinoff have increased in value by over 300% over the last few days.

However, MMTLP’s current trading price (at $6.69) would result in a $1.1 billion market cap for Next Bridge, which greatly exceeds the amount the oil and gas assets would fetch in a sale in the current market environment. Thus people holding for Next Bridge shares are extremely likely to be disappointed if they expect to receive more than MMTLP’s current trading price in a sale of the assets.