TMC the Metals Company Inc. (NASDAQ:TMC) is an explorer of lower-impact battery metals from seafloor polymetallic nodules, a highly promising resource that could revolutionize the global supply of critical minerals needed for the energy transition and modern infrastructure. With a world-class resource base and a strategic focus on sustainable extraction, TMC is poised to play a pivotal role in addressing the growing demand for nickel, cobalt, copper, and manganese.
Business Overview and History
TMC was incorporated as a Cayman Islands exempted company limited by shares on December 18, 2019, and subsequently continued as a corporation under the laws of the province of British Columbia, Canada on September 9, 2021. The company is focused on the collection, processing, and refining of polymetallic nodules found on the seafloor in international waters of the Clarion Clipperton Zone (CCZ) in the Pacific Ocean, located approximately 1,500 miles southwest of San Diego, California.
In July 2011, TMC's wholly owned subsidiary Nauru Ocean Resources Inc. (NORI) was granted an exploration contract by the International Seabed Authority (ISA), giving NORI exclusive rights to explore for polymetallic nodules in an area covering 74,830 square kilometers in the CCZ. In March 2020, TMC acquired Tonga Offshore Mining Limited (TOML), which was granted an exploration contract by the ISA in January 2012 and has exclusive rights to explore for polymetallic nodules covering an area of 74,710 square kilometers in the CCZ.
In 2013, TMC's subsidiary DeepGreen Engineering Pte. Ltd. (DGE) entered into a services agreement with Marawa Research and Exploration Limited, which granted DGE exclusive rights to manage and carry out all exploration and exploitation in the Marawa Area in return for a royalty payable to Marawa.
TMC has faced several challenges in its exploration and development efforts. In 2021, the company was involved in litigation with certain investors who failed to fund their commitments in a private placement that closed in September 2021. The company commenced litigation against the investors, seeking compensatory damages. Additionally, in January 2023, investors in the 2021 private placement filed a lawsuit against TMC, alleging the company breached representations and warranties in the private placement subscription agreements. TMC denied any allegations of wrongdoing and filed a motion to dismiss the complaint.
Despite these challenges, TMC has made progress in its exploration and development efforts. The company has worked with engineering firms to develop a near-zero solid waste flowsheet for the treatment of polymetallic nodules at commercial scale.
Polymetallic nodules are discrete rocks that sit unattached to the seafloor and contain high concentrations of nickel, manganese, cobalt, and copper - all critical metals for the transition to low-carbon energy, as well as for infrastructure and development. TMC's resource definition work has shown that the nodules in its contract areas represent the world's largest estimated undeveloped source of these critical battery metals.
Exploration and exploitation of seabed minerals in international waters is regulated by the International Seabed Authority (ISA), an intergovernmental organization established pursuant to the 1994 Agreement Relating to the Implementation of the United Nations Convention on the Law of the Sea (UNCLOS). The ISA grants contracts to sovereign states or private contractors sponsored by a sovereign state. TMC's wholly-owned subsidiaries, Nauru Ocean Resources Inc. (NORI) and Tonga Offshore Mining Limited (TOML), hold exclusive exploration and commercial rights to three of the 17 polymetallic nodule contract areas in the CCZ.
In addition to its exploration and development activities, TMC has forged key strategic alliances that are crucial to its long-term success. The company has a partnership with Allseas, a leading global offshore contractor, to develop and test a pilot collection system and modify it into a commercial production system. It also has an offtake agreement with Glencore, which holds the rights to 50% of the NORI nickel and copper production.
Financials
Due to the company's exploration-stage status, TMC has not yet generated any revenue. The company reported a net loss of $65.9 million for the first nine months of 2024, compared to a net loss of $40.3 million in the same period of 2023. This increase in net loss was primarily driven by higher exploration and evaluation expenses, as well as general and administrative costs.
For the third quarter of 2024, TMC reported a net loss of $20.52 million, compared to a net loss of $13.12 million in the same quarter of 2023. The increase in net loss was primarily due to an increase in exploration and evaluation expenses of $3.9 million, mainly from higher share-based compensation and increased mining, technological and process development costs. General and administrative expenses also increased by $3.5 million, driven by higher share-based compensation, legal/consulting costs and personnel costs.
TMC's exploration and evaluation expenses totaled $42.34 million for the first nine months of 2024, compared to $23.17 million in the same period of 2023. The increase was primarily due to an increase in mining, technological, and process development costs of $13.3 million, resulting from increased engineering work by Allseas, as well as expenses incurred on the transportation of nodules to PAMCO's facility in Japan. The company also saw higher personnel costs of $3.2 million and an increase in share-based compensation of $3.5 million during this period.
Liquidity
As of September 30, 2024, TMC had a cash balance of $0.4 million and total liquidity of approximately $63 million, including available credit facilities. The company's current liquidity is expected to be sufficient to meet its working capital and capital expenditure requirements for at least the next 12 months.
TMC has a $25 million unsecured credit facility with Argentum Cedit Virtuti GCV (an affiliate of Allseas Group SA) which was amended in August 2024 to increase the borrowing limit to $27.5 million, with a maturity date of August 2025. The company also has a $20 million unsecured credit facility with ERAS Capital LLC and Gerard Barron, which was amended in November 2024 to increase the borrowing limit to $38 million and extend the maturity to December 2025.
The company's current ratio and quick ratio both stand at 0.3179, indicating potential short-term liquidity challenges. However, management has stated that the cash on hand, along with the funds raised through a recent registered direct offering and available credit facilities, will be sufficient to meet their working capital and capital expenditure requirements for at least the next 12 months.
Regulatory Landscape and Operational Milestones
TMC's operations are subject to the regulatory framework established by the ISA, which is responsible for overseeing the exploration and exploitation of seabed minerals in international waters. The company has faced several regulatory uncertainties, including the delayed adoption of the ISA's final Mining Code, which was originally expected to be completed by July 2023 but has been pushed back to 2025.
Despite these regulatory challenges, TMC has made significant operational progress. In September 2024, the company announced a breakthrough in the commercial-scale processing of polymetallic nodules, successfully producing high-temperature calcine material at its partner PAMCO's facility in Japan. This milestone paves the way for the next phase of the processing trial, which will involve smelting the calcine into a high-grade nickel-copper-cobalt alloy and manganese silicate product.
Moreover, in November 2024, TMC announced plans to submit its subsidiary NORI's application for an exploitation contract with the ISA on June 27, 2025. This decision was made in consultation with NORI's sponsoring state, the Republic of Nauru, to provide clarity on the submission and review process and allow the ISA to address any outstanding issues prior to the application's submission.
The company has also made significant progress on its environmental impact assessment (EIA), stating that they have compiled one of the largest deep sea datasets ever, which they are continuously analyzing to address concerns and demonstrate that activist and media speculation about potential impacts is overblown.
Competitive Landscape and Growth Opportunities
TMC's polymetallic nodules represent a unique and potentially transformative resource for the global battery metals and critical minerals supply chains. Unlike land-based mining, which can face significant environmental and social challenges, TMC's deep-sea mining approach promises a more sustainable alternative with a smaller environmental footprint.
The company's strategic partnerships and technological advancements have positioned it well to capitalize on the growing demand for battery metals and critical minerals. As governments and industries around the world increasingly focus on securing reliable and sustainable supplies of these essential resources, TMC's deep-sea nodule projects are attracting significant attention and support.
In addition to its core exploration and development activities, TMC is also exploring new revenue streams through a services business that leverages its expertise in areas such as environmental impact assessments, resource definition, and offshore campaign execution. This diversification strategy could provide additional sources of income and strengthen the company's long-term position in the deep-sea mining landscape.
Risks and Challenges
Despite its promising outlook, TMC faces several key risks and challenges that investors should be aware of. These include the continued regulatory uncertainty surrounding the ISA's Mining Code, the technical and operational challenges of large-scale deep-sea mining, the potential environmental and social impacts of its activities, and the need for significant capital investment to bring its projects to commercial production.
Moreover, as an exploration-stage company, TMC is subject to the typical risks associated with early-stage resource development, such as uncertainty around resource estimates, metallurgical recoveries, and project economics. The company's reliance on state sponsorship and the potential for changes in geopolitical dynamics also present risks that must be carefully monitored.
To address these challenges, TMC is taking a "sharp look at the cost side of the business" and is targeting less than $5 million in operating expenses per quarter going forward. The company has also stated that it does not expect to raise funds for capital expenditures related to the preparation of the Hidden Gem vessel until the final regulations are adopted, the application is approved based on the draft regulations, or other potential non-dilutive strategic finance is in place.
Conclusion
TMC the Metals Company Inc. (NASDAQ:TMC) is at the forefront of a potentially transformative shift in the global critical minerals supply chain. With its world-class polymetallic nodule resources, strategic partnerships, and commitment to sustainable extraction, the company is poised to play a pivotal role in addressing the growing demand for battery metals and critical minerals needed for the energy transition and modern infrastructure.
While the company faces significant regulatory and operational challenges, its recent operational milestones and diversification into services suggest that TMC is well-positioned to navigate the path to commercial production and unlock the substantial value inherent in its deep-sea mineral assets. The company's planned submission of NORI's exploitation contract application to the ISA on June 27, 2025, marks a crucial step towards realizing its commercial ambitions.
As the world's focus on securing reliable and sustainable supplies of these essential resources intensifies, TMC's unique value proposition could make it a compelling investment opportunity for those with a long-term, risk-tolerant investment horizon. However, investors should carefully consider the company's current financial position, regulatory uncertainties, and the inherent risks associated with deep-sea mining before making investment decisions.