The Metals Company: High-Potential Deep-Sea Mining Company, But Regulatory And Financial Uncertainty Remain

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The Metals Company has large potential in deep-sea mining of polymetallic nodules, which is crucial for the electrification transition, with minimal environmental impact compared to traditional mining...

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You can become one too!","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4563":"昨日强势股","TMC":"The Metals Company","BK4168":"多种金属与采矿"},"translate_title":"The Metals Company：高潜力深海采矿公司，但监管和财务不确定性仍然存在","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"TMC":0.9},"content_text":"The Metals Company has large potential in deep-sea mining of polymetallic nodules, which is crucial for the electrification transition, with minimal environmental impact compared to traditional mining.TMC's NORI-D field alone has a net present value of more than $8 billion, with total potential revenue from all fields estimated at $500 billion.The anticipated ISA approval could enable TMC to start collection by 2026, but regulatory uncertainty remains.TMC's operations could significantly reduce geopolitical dependency on critical metals, positioning it as a future leader in sustainable mining for the renewable energy sector.Regulatory uncertainty and the low cash position make me rate this stock as a hold.Editor's note: Seeking Alpha is proud to welcome Tejo Strategy Investing as a new contributing analyst. You can become one too! Share your best investment idea by submitting your article for review to our editors. Get published, earn money, and unlock exclusive SA Premium access. Click here to find out more »    MonumentalDoom Thesis The Metals Company (NASDAQ:TMC) is a Canada-based pre-revenue mining company which has incredible potential in deep-sea collecting of polymetallic nodules. These nodules contain high levels of manganese, nickel, copper and cobalt, making them highly desirable in a world transitioning to electrification and moving away from fossil fuels. The impact of this type of mining is limited; no infrastructure needs to be placed, no waste is made in the sea and limited waste offshore, no underground digging is needed. TMC has been assigned different sectors of the Clarion-Clipperton Fracture Zone [CCFZ], which could account for roughly $500 billion in possible total turnover at current prices. NORI-D, the area that TMC plans to exploit first, could generate more than $8 billion of net present value and accounts for 22% of the total assigned seabed territory. However, when the approvals will come is still unclear. TMC’s exploratory work has been finalized, and the company is now awaiting regulatory finalization to hopefully start collection at the beginning of 2026. The electrification industry is currently still highly dependent on often highly polluting mining industries in other continents, some of which are banned from trade with the US or disincentivized, and fraught with longer-term geopolitical uncertainty. Additionally, financing is uncertain. The company’s current cash is very low, but TMC states that financing is guaranteed by existing investors. The company’s current valuation at about $330 million is low, even for standards of pre-revenue mining companies which are often valued on the basis of the asset value of the mine. The Metals Company Introduction Let me start by focusing on the potential of TMC in a world focused on energy transition. Metals such as copper, nickel, cobalt or manganese, are at the heart of the global energy transition, and they are found most abundantly on the bottom of certain parts of the ocean. The demand for metals for the transition from fossil fuels to other energy sources is expected to increase 6x by 2040, and already at present the mining sector is facing difficulties coping with demand. The copper supply crisis is already here, due to increased demand and the lack of mine projects. Typically, these minerals are mined on land, with difficult extraction processes, enormous CO2 emissions and environmental pollution. TMC’s goal is to collect polymetallic nodules off certain areas of the deep seabed. These nodules are composed of are the ones typically used in batteries used for the EV sector. TMC’s goal is to collect polymetallic nodules, which are scattered abundantly on the seabed of the deep sea in the CCFZ. These nodules are located far offshore, at about 4 kilometers depth, with little sea life. TMC’s collector picks up these nodules and transports them back to the ship for processing on land. Nodule Composition (Corporate Presentation) In March 2024, TMC announced the first-ever nickel sulfate ever generated by polymetallic nodules. In June 2024, a similar announcement was made for the first-ever cobalt sulfate generated by polymetallic nodules. In September 2024, TMC and PAMCO announced the successful production of 500 tonnes of calcine, which PAMCO intends to PAMCO smelt into a high-grade nickel-copper-cobalt alloy and manganese silicate. All three announcements are evidently key milestones. TMC holds largest exploration areas TMC company is furthest-advanced to starting deep sea collecting activities in certain allotments of the CCFZ between Hawaii and Mexico, the world’s largest estimated undeveloped source of critical battery metals. Seafloor Resources (Corporate Presentation) TMC’s contract areas hold an estimated 15.9 million tons [Mt] of nickel, 2.2 Mt of cobalt, 355 Mt of manganese, and 13.3Mt of copper. That amount of said metals would also be enough to electrify the entire U.S. fleet, which, compared to China, has a fleet of electrical vehicles three times smaller. That makes TMC the holder of the second-largest nickel resource in the world, behind Russia’s extremely polluting Norilsk, which holds 18.9 Mt of nickel. In light of the U.S.’s target to reach 50% sales of electric vehicles by 2030, progress will need to happen fast here. Estimated Total Resource Slide (Corporate Presentation) Nori-D is the furthest advanced of the zones awarded to TMC, has a current net present value of more than $8 billion, represents 41% of the NORI field and 22% of TMC’s total polymetallic nodule fields. Total gross revenue for only the NORI zone is estimated at about $100 billion, with nickel revenues accounting for about half of that revenue. The above financial model would also imply that TMC could become the second lowest-cost nickel producer in the world. Low-cost nickel production slide (Corporate Presentation) Russia’s nornickel leads the way here, but the conditions of life and mining there are beyond imagination. Nornickel has left an entire geographical area severely polluted due to the lack of proper storage and spills. ISA However, regulatory uncertainty remains a concern. To start operations, TMC is dependent on action from the International Seabed Authority [ISA], an organization established in accordance with the 1994 UNCLOS agreement which has been empowered to award seabed exploration contracts. The vast majority of all countries in the entire world have ratified UNCLOS, though the U.S. has not, which is probably why TMC operates out of Canada. ISA has exclusively awarded TMC three of a total of 19 exploration contracts, 17 of which are in the CCZ, covering <4% of the global seafloor. The big regulatory hurdle TMC has to take is one that fully depends on ISA, and TMC has had to repeatedly delay the expected start of commercialization as ISA is not moving forward fast enough. NORI, a TMC subsidiary, has filed an application to exploit minerals in 2021. That has triggered a two-year timeframe for ISA to complete regulations on deep sea mining. That two-year period in which ISA was supposed to provide a regulatory framework for deep sea collection of polymetallic nodules has meanwhile passed. In the March 2024 meeting, a finalization date of July 2025 was put forward. That does not mean TMC cannot move forward, as the lack of regulations within two years of Nori’s application triggers the possibility for Nori to file an exploitation contract application. TMC assumes this should take a year to review. TMC now plans to start production at the end of Q1 2026, assuming filing of an application for an exploitation contract at the beginning of 2025 and a one-year review process. Production, processing and offtake readiness TMC’s plan is to produce 1.3 million wet tons annually with one vessel at first, and to ramp up production to about 3 million wet tons annually over time. Tests with one ship have shown the ability to collect 14 tons of nodules per hour. The processing of the nodules should eventually take place at Pamco in Japan, subject to some feasibility studies. The definitive contract with Pamco to that purpose is expected to be finalized by the end of 2024. Assuming approval to start exploitation in 2025, PAMCO could start processing the nodules as of 2026. TMC has offtake agreements with Glencore in place giving Glencore the right to purchase up to 50% of the annual produced quantity originating from the NORI contract area, for the duration of exploitation of the NORI contract area. Glencore also made a $5 million equity investment into TMC. Limited environmental concerns I think the environmental concerns are all in all limited at this stage. Existing mining techniques have severe impacts on deforestation - often in rainforest areas - biodiversity, water use and pollution. Oil rigs have their own history of incidents and disasters. Compared to existing mining techniques, I believe deep sea collection of polymetallic nodules is the road ahead, using a far better technique from the perspective of sustainability and environmental concerns. Additionally, the typical supply chain to bring these metals to the U.S. could be substantially reduced. The dedicated vessel, Allseas’ The Hidden Gem which TMC has exclusive use of, currently has a collector on board that descends to the seabed supplied by electrical cables. The collector uses seawater jets aimed at nodules. Other than picking up the nodules, there is no excavation, cutting or drilling of sorts [Vimeo video]. The biggest environmental concern is the impact of the sediment plume generated by the seawater jets and collection. TMC’s ESIA program is intended to research the impact of the intended collection, and a collector test run in 2022 provided information on the impact of the intended collection activities. The test run’s preliminary conclusion as confirmed by other reports was that the seafloor sediment plume hugs the seafloor and is not transported long distances by ocean currents, essentially implying a rather small impact to the seabed. Sessile organisms identified during baseline studies were still present twelve months after nodule collection. The abyssal plain where operations would take place furthermore represents an area of the planet with the lowest biomass per square meter. The impact on CO2 emissions would be drastic, too, compared to mining techniques currently used. CO2 emission impact slide (Corporate Presentation) A potential shift away from geopolitical dependency TMC's production should also allow the American continent to be less dependent on countries such as Russia and China, which may create a substantial political incentive. Dependency on mining areas in territories outside of Western territories or, worse, in countries who are no members of the Free Trade Agreement with the US, is a big issue in the global energy transition. It may not only raise production and cost issues, but also means a net outflow of monies to such countries. Over half of nickel production worldwide is located in Russia, China, Indonesia and the Philippines. TMC’s contract areas NORI and TOML account by far for the largest undeveloped nickel projects on the planet, and would rank second next to Russia’s nornickel if operations would begin, even if only NORI would be operated in the first instance. TMC territories largest undeveloped nickel projects (Corporate Presentation) In countries such as Democratic Republic of the Congo, where much of the world’s supply of copper and cobalt is mined, conditions are often not much better. And probably for all metals related to the energy transition, which are all found in polymetallic nodules TMC would be collecting, the global energy transition will increase demand dramatically as shown in the slides below – examples focused on electric vehicles are given for nickel and manganese. Expected Total Demand For Nickel (Annual Report)Expected Manganese Demand (Annual Report) U.S. regulators seem to be realizing that they should not be left behind in all of this. Recently, about 350 government and military officials have urged the Senate to ratify the UNCLOS, which was hailed by TMC. Valuation Mining projects are often valued on the basis of their net present value. In TMC’s case, with the total NPV for NORI-D estimated at $8.5 billion at current prices, the total TOML+NORI NPV would be about $40 billion at current prices. Total gross revenue for only the NORI zone is estimated at about $100 billion, with nickel revenues accounting for about half of that revenue. A rough extrapolation would mean total revenue for NORI and TOML could amount to about $500 billion, at current prices. Nori-D Financial Model (Corporate Presentation) At a $330 million valuation, there is a huge discrepancy between the NPV for its TOML+NORI fields and even for merely the NORI-D field. Exploration of the Marawa field, a further exploration area that TMC is currently not focusing on, has not even been taken into account in that respect. No reasonable discount can justify such low valuation in my eyes, also taking into account that the regulatory or other uncertainty here is rather limited in my eyes. Financials Financing could be a concern if regulatory uncertainty remains for the years to come. TMC will at a given point need to raise capital, but prefers to do so by tapping into less dilutive means than adding shares, such as through credit facility announcements. At the end of June 2024, TMC had $0.5 million in cash, down from $6.8 million at the end of 2023, and had short-term debt of $5.9 million. TMC has options to receive unsecured funding from each of its three largest shareholders. The company believes that its borrowing availability under a credit facility with an affiliate of Allseas, and its credit facility with ERAS Capital LLC and Mr. Barron will be sufficient to meet working capital and capital expenditure commitments for at least the next twelve months from today. There is a $25 million unsecured credit facility from the affiliate of Allseas and an unsecured $20 million credit facility provided by the largest shareholder Eras Capital and CEO Gerard Barron. Eras Capital is the family office of TMC director Andrei Karkar. For the previous quarter, TMC reported a net loss of approximately $20.2 million. In comparison, net loss for the full year of 2023 was $73.8 million, of which $33.5 million was related to Q4 of 2023. TMC cash and liquidity (Corporate Presentation) Risks I believe a lot of the risk for TMC is regulatory and financial at this stage. No seafloor polymetallic nodule deposit has ever been commercially collected. Critics of deep sea collection not only originate from the environmental side, but also from the financial side, considering that it’s financially risky. Competition from China, Russia or Indonesia may be less burdened by regulatory constraints both for collection as for processing, and 16 other ISA member states or private companies sponsored by such states hold exploration contracts. That means that competition in the deep sea collection market may eventually become more fierce, and other big players such as DEME Group may eventually compete in the same field. Seeking Alpha's Quant program mentions the stock is at risk of performing poorly. Conclusion The Metals Company holds large potential as a deep sea mining company, but at the same time regulatory and financial uncertainty remain. Clearly, TMC could become a big player in the future of mining, as the world transitions into sustainable ways to manufacture batteries for renewable energy storage. Deep sea polymetallic nodules are scattered on the floor of the Clarion-Clipperton Fracture zone contain cobalt, nickel, copper and manganese, and all of these are highly desired for the global future energy needs. The NORI-D field would be the first to exploit, and TMC has been a front-runner in trying to have the international regulatory authority ISA regulate exploitation and in assessing the impact of its potential future activities. TMC hopes to begin collection at the beginning of 2026. Mining is a necessity in today’s world. TMC plans to do so in a sustainable way, with less impact on biodiversity than other mining activities and a high yield, much less emissions, and on a low cost-basis. The potential is huge, with 15.9 million tonnes of nickel alone making it the second biggest undeveloped nickel project globally. I believe the clock is ticking, not just for global warming, but also in light of the U.S.’s target to reach 50% sales of electric vehicles by 2030. I estimated the total NPV of TMC’s TOML and NORI fields at about $40 billion, based on an NPV of $8.5 for the NORI-D field as calculated by TMC at current metal prices. TMC’s trades at a fraction of those NPV’s. The only things preventing a bull case scenario for TMC at this point are regulatory uncertainty and the lack of cash. It is still unclear when ISA will give the green light. TMC keeps stating that it has sufficient funding through credit facilities, but it would be better in my eyes – given the high quarterly cash burn – to have additional cash on hand. For the above reasons, TMC is a Hold for me at this stage.  Editor's Note: This article covers one or more microcap stocks. 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