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Last week, TMC announced an $85mn investment by Korea Zinc, a $11bn company. For a controversial company like TMC, securing a well-established investor is an effective way to enhance credibility and build confidence among retail investors. It is a classic tactic in a stock promotion. This has pushed up the stock price.
However, there is nothing new in the long Nautilus/TMC story. Looking back, TMC and its predecessor, Nautilus, managed to seduce a number of high-profile investors, significantly larger than Korea Zinc. Many of these investors later suffered near-complete losses.
For example, mining major Teck Resources (formerly known as Teck Cominco) invested $25mn in Nautilus in 2007 at CAD3.76 per share. The share price surged by 30% following the announcement. Although it is unclear when Teck fully exited the investment, given that Nautilus ultimately entered credit protection in 2019 and was subsequently delisted, it is safe to assume that Teck lost most, if not all, of its initial investment.
Similarly, mining giant Anglo American, invested over $60mn in Nautilus through a series of financing rounds from 2006 to 2012, at an estimated average cost of CAD2.4 per share. The share price jumped approximately 40% following the announcement of Anglo American’s initial investment in November 2006. Anglo American reportedly exited the investment in May 2018, by which time the share price had plunged to around ~CAD 0.15. The company likely lost approximately 94% of its original investment.
Unsurprisingly, Nautilus framed the investments from major mining companies as a vote of confidence: “The fact that these companies have chosen to invest directly in Nautilus… is a recognition of how thoroughly and successfully Nautilus has advanced its business plan of becoming the first company to commercially explore the ocean floor”.
One might wonder what representations were made to these investors at the time. We know that OPEX eventually surged and ultimately sank Nautilus.
Likewise, commodities giant Glencore made a tiny investment of $5mn in TMC (then known as DeepGreen) in May 2012, at an estimated average cost of $2.16 per TMC share. Glencore reportedly exited its investment in 2024, by which time the share price had fallen to ~$1.24, potentially resulting in a loss of around 42% on its initial investment.
In short, as seen in recent days, some retail investors in Nautilus once placed their trust in large corporations, believing in their supposedly shrewd investment decisions. These corporations ultimately suffered heavy losses when Nautilus failed.
It is worth noting that Korea Zinc is not known for successful investments in US SPACs. The group invested $50mn in gravity storage startup Energy Vault ahead of its SPAC merger in the first quarter of 2022. The same CEO made both the Energy Vault and TMC investments. Since then, Energy Vault’s share price has fallen to $0.71, down 93%. As of Q3 2024, Korea Zinc appeared to still be bag-holding.
Korea Zinc’s CEO announced: “As such, we are excited to be an investor in TMC, who I believe will be one of the most competitive nickel and copper producers in the world.” “Believe” is the appropriate word here. Korea Zinc is a metals processor. It has no expertise in mining and assessing its costs, which is a completely different industry.
Korea Zinc also has only a marginal presence in nickel (which is included in the 7.5% “Other revenue” category shown below).
As with Nautilus, we wonder what were TMC’s management’s representations to Korea Zinc: did TMC provide an indicative price for their nodules? Korea Zinc has yet to evaluate “a bulk sample of nodule material supplied by TMC.”
TMC’s mining licence is not expected before 2026
There is clearly some misunderstanding on when NOAA will grant a commercial exploitation permit to TMC. What is expected shortly is a notice that “TMC USA’s application for a commercial recovery permit is complete”. But this is merely an administrative step, not the approval itself. “NOAA is then expected to proceed with a full review of the applications, including environmental and technical evaluations.” The mining licence itself is not expected before 2026 according to TMC’s CFO.
How the LFP chemistry killed TMC’s business model
TMC’s investors are making two critical mistakes: ignoring the management’s past at Nautilus and assuming that battery technology is static.
Before TMC turned MAGA, it presented itself as a save-the-planet ESG company. When TMC listed via SPAC, the pitch for this company and similar firms was quite simple: measure the nickel and cobalt content in an EV battery, then calculate the number of batteries required to reach net zero emissions, and finally draw the conclusion that the world needed so much nickel or cobalt that land-based mining wouldn’t be enough. There was a risk of shortage.
But things move fast in the battery industry with constantly evolving chemistries. The nickel manganese cobalt (NMC) chemistry is increasingly replaced by LFP (lithium iron phosphate) that does not require nickel or cobalt.
As Volkswagen CEO Thomas Schäfer recently said, “In the volume game, LFP is the technology.”
The predictions on market share of NMC have proven wrong: LFP, which is constantly improving (e.g. better energy density), is progressing fast. LFP also shows minimal degradation over time and higher stability than NMC.
Nickel and cobalt increasingly look like yesterday’s technology. The prices of nickel and cobalt have fallen. The Democratic Republic of the Congo, which produces 70% of cobalt ore, has imposed an export ban from February to September this year, as the market was flooded with Indonesia’s cobalt. Given the dominant position of the DRC, one would expect cobalt prices to skyrocket but they are nowhere near their previous level. This is highly unusual and illustrates fundamental shifts in battery demand for cobalt.
The market moved from shortage concerns to oversupply, not for cyclical reasons but due to structural changes in battery technology. That is good news for both the US and China, the main importer.
But it’s terrible news for TMC. Some investors argued that high-end batteries still use NMC batteries. But this misses the point: TMC is the ultimate marginal producer on the cost curve. It can only make sense if there is a severe shortage. If demand for nickel/cobalt is lower than expected, the marginal producer becomes irrelevant.
As for manganese, it is the fifth most abundant metal on earth, and can be found in many countries, at grades higher than in nodules. Extracting manganese at 4,000 to 6,000 meters below sea level is probably the most nonsensical idea in the history of mining. For reference, the world’s deepest offshore oil field (Stones), operated by Shell, is at 2,900 meters of water depth.
More potential legal problems for TMC’s partners
A recent tweet by CEO Gerard Barron stated that a motion to move to a precautionary pause on deep sea mining was rejected by the Dutch parliament.
The motion was indeed rejected by three votes. For anyone who reads this tweet without knowledge of the legal background, it’s easy to assume that the Netherlands authorised deep sea mining. But in reality the Netherlands is still a party to UNCLOS, which does not allow deep sea mining outside the framework of the International Seabed Authority.
What Barron fails to mention is that the Dutch parliament has approved another motion in June to “call on the government to enter into discussions with the partly Dutch Allseas; requests the government, in consultation with the United Nations, International Seabed Authority and the European Union, to address the United States and The Metals Company on this matter, and to take and support any possible (legal) action against The Metals Company if the above-mentioned parties initiate this.”
Switzerland, where Allseas is domiciled, has recently co-signed a declaration that “any potential deep-sea mining on areas beyond national jurisdictions outside the international legal framework, as reflected in UNCLOS, would be contrary to international law”.
There are many very serious legal risks for TMC’s foreign partners (and their suppliers) that a Law of the Sea expert has recently presented in an op-ed on our website.
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