If the US Really Wants to “Break China’s Control” on Critical Minerals, $TMC Won’t Be of Any Use

Please refer to our disclaimer at the bottom of the report.

 

Two weeks ago, we published a comprehensive report on the economics of TMC. While most of the discussion about deep sea mining revolves around environmental and regulatory issues, our report focused on the viability of this company. In particular, we showed that TMC was facing fast-escalating costs with two key suppliers: Allseas and PAMCO. The same type of problem led to the bankruptcy of Nautilus, the predecessor of TMC. Nautilus was promoted by the same people who are now behind TMC. They cashed out well before the collapse.

We asked a series of questions that the publicly-listed company has refused to answer.

TMC’s economics do not add up and the company knows it. That’s why TMC has promised and delayed the publication of a pre-feasibility study since 2021. This probably explains why TMC had to hire tiny consultants to write critical parts of the initial assessment in 2021. In fact, if any real mining professional (so not former advertising executives like TMC’s CEO, Gerard Barron) thinks TMC’s economics are viable, please send us an email. There is a reason why ex-Nautilus Canadian promoters are selling this project, and not large mining companies like BHP or Rio, that know a thing or two about cost calculation. Glencore sold its stake in TMC, which speaks volumes.

Our report has demonstrated why deep sea mining cannot work for the metals that TMC plans to mine. In the absence of any response from the company, the argument is closed.

The current report addresses a non-economic bull argument. While many investors admit deep sea mining may not make any economic sense, they believe that this company will benefit from the Trump administration’s objective to “regain independence” on critical minerals.

The US dependency on China can be painfully observed every time the Chinese government restricts exports of rare earths and derived products like magnets, potentially crippling parts of the US industry. Recently auto companies were described as being in “full panic” over rare-earths restrictions. China controls 70% of rare-earths mining, 85% of processing capacity and 90% of magnet production.

From this, many hastily jump to the conclusion that the US would be dependent on China for all critical minerals, in any form. It’s common to read on social media or even in the press that China has a “monopoly on metals”.

And of course, TMC’s management has seized the opportunity. The company, once an ESG champion, switched gears to embrace the Made in America agenda. 

Yet, strangely, despite the frequent outbursts of tension between the US and China, we have never seen the headline: “China threatens to stop exports of manganese, nickel, cobalt, or copper ores to the US”, the four metals that TMC intends to mine.

So is China’s leadership keeping this weapon up its sleeve for future conflicts, and will TMC really save the US economy with its polymetallic nodules?

 

TMC is a solution to a mining problem that does not exist

What TMC wants to do is mine metals ores by harvesting nodules on the seafloor. TMC is not involved in processing these ores into metals, an activity it has no experience in, and that the company wants to outsource to a Japanese smelter. TMC is even less involved in manufacturing finished products such as batteries.

Similarly, deep sea mining nodules are not seen as a viable source of rare earths due to their low concentration. Even TMC does not incorporate them in its business case. It is rather strange that some politicians consider nodules a viable source of rare earths.

So is the US vulnerable to a China ban on the ores of the four metals? For both copper and nickel ores, the US is a net exporter. If the goal is to secure minerals sourcing, it can’t be more secure than that.

For manganese and cobalt ores, the US is a net importer. But its imports are tiny compared to total world mine production ex-China. In other words, the US can choose to get all the ores/concentrates it wants from multiple countries. It is completely immune to China’s export restrictions.

Source: US Geological Survey

Source: US Geological Survey

Now let’s compare this to China. If this country had a so-called “monopoly on metals,” as we read so often, we would expect China to mine most of these metals, like it does for rare earths.

This is the share of China’s mine production vs global mine production:

Source: US Geological Survey

This does not look like a monopoly. What it looks like is a major vulnerability: China imports pretty much all of its ore requirements for the four metals (manganese, nickel, cobalt, copper). For example, China imports manganese from South Africa and Australia. It sources nickel from Indonesia and the Philippines. Most of its cobalt was imported from the Democratic Republic of the Congo (DRC) before the recent export ban. Copper comes from Chile, the DRC, and Peru.

Sourcing these commodities to feed its industry has always been a source of angst for the Chinese government. Many producers such as Australia are political allies of the US. Being cut off from these mining import routes is an existential threat for China.

TMC is the answer to a national security problem that does not exist: you can’t diversify away from China when China hardly produces these ores.

 

The real problem for the US is mineral processing and finished products, and that is not what TMC does.

Unlike mining, China’s extensive dominance over the processing of many metals poses a substantial risk to US industries.

Source:International Energy Agency

Worse, the US can’t even rely on an ally to substitute for China. If the US wants to resurrect domestic processing and stop being at the mercy of China, this is where it has to invest, for example, in processing rare earths.

The Pentagon has already invested $258 million in Australian rare earth producer Lynas to support the construction of a rare earth processing facility in Texas. But the project suffers from important delays and cost overruns, proving how difficult it is to get out of the Chinese chokehold. As it took China decades to build this capacity, this will require the administration’s significant additional resources and time.

Processing metals is not what TMC knows or plans to do. The company has zero assets, experience in running smelters, or patents. TMC fundamentally brings nothing to the US government in terms of supply chain security.

 

Does the MAGA crowd realise TMC is a foreign company?

Some Americans still believe even importing ores from trade partners ex-China, for example Australia, Indonesia, Chile, or Canada, is not enough. It should all come from the US. They seem to be missing a slightly obvious fact: TMC is not an American company. It is Canadian. CEO Barron conveniently used the term “America” in his House Committee hearing to go around this. If the objective were to be truly independent, maybe the US should not rely on a company incorporated in a country that has seen its relationship with the US sharply deteriorate over the past few months. Also, Canada, unlike the US, is part of the United Nations Convention on the Law of the Sea (UNCLOS), which raises legal questions on whether Canada will allow TMC to engage in commercial deep sea mining. The same applies to the Swiss-headquartered offshore partner Allseas.

There was actually a truly US group that was involved in deep sea mining: Lockheed Martin. But the defense group sold two ISA exploration licenses to a Norwegian startup, Loke Marine Minerals, in 2023, which declared bankruptcy two years later. Lockheed retains US NOAA exploration licenses issued in 1984 but there is no known plan to re-engage in this activity. Lockheed probably reached exactly the same conclusion as our report: the economics don’t add up.

 

China is not about to aggressively engage in deep sea mining

TMC has effectively leveraged the US-China rivalry to persuade the US lawmakers by instilling a sense of urgency and competition. As Barron put it in a recent podcast: “The thematic was really simple, and that is, China dominates the critical mineral space. They’re about to dominate the ocean metal space as well.” The company stated in its Q2 2024 earnings call, that China is “moving forward aggressively” based upon the fact that the country has announced its intention to conduct 2 separate collector tests in 2025. 

However, China has been engaged in deep-sea mining research since the 1980s, and has progressed gradually since then. This includes its first sea trials for mining vehicles in 2018, followed by more trials in 2021 and 2024. There is nothing new in China testing deep sea mining technology and there is no indication that China plans to start commercial mining in the near future. 

The country knows that at the current metals prices, deep sea mining is nowhere near profitable. The reason why China has an interest in deep sea mining is that it is vulnerable to potential supply disruption for the reasons explained above. The goal is not to extract metals now at a prohibitive price versus land-based mining. It is to be technologically ready in case the worst-case scenario materialises. It is a backup plan.

 

Conclusion

Facing a dire financial future, TMC cleverly pivoted to a “Make in America” thematic, an approach that appealed to Republican politicians and some investors.

But the reality is that TMC does not actually solve any “China problem” in the supply chain. If TMC started operations tomorrow, it would send its ores to a Japanese smelter for tolling before selling them to a Chinese industrial group, most likely.

China does have actual leverage on other products but not in what TMC offers. That means that in practice we expect the Trump administration to focus its urgent attention on areas where the US can be hit by a Chinese ban, such as rare earths. While the U.S. administration fast-tracks deep-sea mining permits, it will be up to TMC to prove the economic viability of its project, which they won’t be able to do.

Time is clearly against TMC. Nickel and cobalt are under structural pressure due to the rapid growth of LFP battery chemistry. The legal environment remains uncertain as both TMC’s and Allseas’ countries are parties to UNCLOS. Finally, there is a risk that the next US administration could cancel the entire project.

 

 

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