The Metals Company — Growing up

The Metals Company (NASDAQ: TMC)

Last close As at 19/04/2024

USD1.69

0.03 (1.81%)

Market capitalisation

USD539m

More on this equity

Research: Metals & Mining

The Metals Company — Growing up

The Metals Company (TMC) is approaching a critical phase in its development. As key milestones are achieved, so the project will be de-risked and the valuation expand. Of particular note are the anticipated award of an exploitation licence and physical nodule collection, which management expects to commence in Q126.

David Larkam

Written by

David Larkam

Analyst, Industrials

Metals & Mining

The Metals Company

Growing up

FY23 results

Metals and mining

3 April 2024

Price

$1.58

Market cap

$498m

Net cash ($m) at 31 December 2023

6.8

Shares in issue

318m

Free float

57%

Code

TMC

Primary exchange

Nasdaq

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

16.2

47.7

81.6

Rel (local)

14.6

34.5

43.9

52-week high/low

US$2.9

US$0.7

Business description

The Metals Company is a deep-sea minerals exploration company focused on the collection, processing and refining of polymetallic nodules, containing nickel, copper and cobalt, found on the seafloor in the international waters of the Clarion Clipperton Zone, 1,300 nautical miles off the coast of Southern California.

Next events

Q124 results

Estimated May 2024

Analyst

David Larkam

+44 (0)20 3077 5700

The Metals Company is a research client of Edison Investment Research Limited

The Metals Company (TMC) is approaching a critical phase in its development. As key milestones are achieved, so the project will be de-risked and the valuation expand. Of particular note are the anticipated award of an exploitation licence and physical nodule collection, which management expects to commence in Q126.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/23

0

(62)

(22)

0

N/A

N/A

12/24e

0

(50)

(17)

0

N/A

N/A

12/25e

0

(40)

(13)

0

N/A

N/A

12/26e

179

(38)

(9)

0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY23 results and liquidity

Underlying operating loss for the year reduced from $87m to $63m, primarily due to the smaller scale of the offshore campaign in the year. Net cash outflow for the year was $40m, leaving cash of $6.8m at the year end. The company received $9m from a registered direct offering in January 2024 and has $45m of unsecured credit, giving total short-term liquidity of $61m, sufficient headroom for at least the next 12 months on our forecasts. Our expectations for 2024 and 2025 are unchanged and we issue 2026 forecasts, which include the first revenue from nodule collection.

Key future events

The most closely watched event in 2024 will be the July meeting of the International Seabed Authority (ISA), which is scheduled to complete the mining code, providing the framework for exploitation licensing. TMC’s key schedule for events for 2024 include an application for an exploitation licence, expected post the July ISA meeting, release of a pre-feasibility study (PFS) along with further environmental analysis from the recent follow-up offshore operation. Assuming the award of a licence, management now expects to commence mining toward the end of Q126 (previously Q325).

Valuation: Value driver timeline in place

Our DCF-based valuation uses a sliding scale discount factor as milestones are achieved and the risk reduced. Our base case valuation of $479m is based on publication of a preliminary economic assessment, a stage of development that TMC has already surpassed. More important is the timeline for future events and the impact on the valuation. A PFS is due to be published in 2024, potentially increasing our valuation to $592m; permitting is expected in 2025, increasing our valuation to $1,328m; and nodule collection is expected to commence in 2026, increasing our valuation to $1,781m. In full production our valuation is $6,056m using Edison’s long-term metals prices, the key being nickel at $16,000/t versus $16,750/t at present. Note that this valuation is solely for the NORI-D block, 22% of TMC’s estimated reserves.

FY23 results

Underlying operating loss for the year reduced from $87.1m to $63.2m, primarily due to lower exploration and evaluation costs, reflecting the smaller NORI development block offshore scientific research campaign undertaken to assess the seafloor and environmental impacts from the nodule collection test programme conducted in the prior year. This information will be used within the Environmental Impact Statement (EIS) as part of the exploitation licence application. Administration expenses were also reduced. The operating loss translated to a cash outflow of c $40m after the c $20m fund raise. Net cash at the year end was $6.8m, with the company having access to significantly greater liquidity (see the next section).

Exhibit 1: Key financial statements

Year to 31 December ($m)

2022

2023

PROFIT & LOSS

Exploration & evaluation costs

(66.2)

(44.8)

General & administrative costs

(20.9)

(18.4)

Group underlying operating profit

(87.1)

(63.2)

Share awards

(17.1)

(9.2)

EBIT (reported)

(104.2)

(72.4)

Financing charges inc warrants

(66.7)

(1.4)

PBT reported

(170.9)

(73.7)

PBT before exceptionals

(86.0)

(62.2)

CASH FLOW

Operating profit

(170.9)

(72.4)

Amortisation development costs

0.4

0.4

Charge for share schemes/warrants

86.2

12.4

EBITDA

(84.4)

(59.7)

Net change in WC

17.8

(0.8)

Other adjusting items

0.9

Operating cash flow

(66.6)

(59.6)

Net capex

(1.2)

(0.5)

Free cash flow

(67.8)

(60.1)

Equity/warrants issued / (repurchased)

29.7

20.1

Net cash flow

(38.1)

(40.0)

Net cash/(debt) b/fwd

84.9

46.8

Movement in net debt

(38.1)

(40.0)

Net cash / (debt)

46.8

6.8

Source: The Metals Company information

Liquidity

As highlighted in Exhibit 2, the company has pro-forma liquidity of approximately $61m, which management believes will cover working capital and capital expenditure commitments for at least the next 12 months. There is no expensive offshore sea trial planned for FY24, positive for cash consumption, although we expect the requirement to be replaced by the costs associated with the feasibility study and the exploitation contract application. Hence our forecast cash requirement is within the current liquidity.

Exhibit 2: Total available liquidity

$m

Cash at 31 December 2023

6.8

Registered direct offering final payment received January 2024

9.0

Allseas unsecured credit facility (matures August 2025)

25.0

ERAS/Gerard Baron unsecured credit facility

20.0

Current liquidity

60.8

Announced at-the-market equity program (untapped)

30.0

Filed S-3 universal shelf filing additional equity raise capacity

26.4

Potential further S-3 universal shelf filing additional capacity

100.0

Full potential liquidity

217.2

Cash at 31 December 2023

Registered direct offering final payment received January 2024

Allseas unsecured credit facility (matures August 2025)

ERAS/Gerard Baron unsecured credit facility

Current liquidity

Announced at-the-market equity program (untapped)

Filed S-3 universal shelf filing additional equity raise capacity

Potential further S-3 universal shelf filing additional capacity

Full potential liquidity

$m

6.8

9.0

25.0

20.0

60.8

30.0

26.4

100.0

217.2

Source: The Metals Company information

Activity update and outlook

Recent achievements

TMC continues to make positive progress. Key recent achievements include:

Completion of a follow-up offshore campaign. In Q423, 12 months after the initial sea trials and nodule collection programme, a further campaign was undertaken to assess the impact of the previous activities on the seafloor and environment. This information will be released through the ISA and form key elements to the various reports, such as the EIS, required to support NORI’s exploitation licence application.

Memorandum of understanding (MoU) signed with PAMCO for the processing of 1.3m wet tonnes of nodules on commencement of commercial operations. This follows on from the agreement in March 2023, within which PAMCO would evaluate its ability to process nodules in its existing facilities. Under the MoU and as part of the process development and ratification, PAMCO will treat 2,000 tonnes of nodules attained from the 2022 sea trials.

First nickel sulphate produced from polymetallic nodules. Work continues to validate the processing route for the nodules with the production of high-grade nickel sulphate, expected to be suitable for battery markets. The process provides clear benefits, including eliminating waste, by not having to produce nickel metal to arrive at a battery cathode material.

2024 key anticipated events

ISA Mining Code adoption

The ISA issued the first consolidated text of the ‘Draft regulations on exploitation of Minerals in the Area’ in February. Discussions continued at the March meeting of the council, with the full text due for approval at the July meeting. The ISA is mandated by its UN charter to issue exploitation regulation, with authorisation the de-facto position of the authority, requiring a two-thirds majority to overturn. Nevertheless, there is obviously no absolute guarantee that the stated objective timeframe for completion in July will be achieved.

Submission of NORI’s exploitation contract

Management’s intention is to submit an exploitation application for the NORI-D project after the ISA meeting in July. The operating company, NORI, initially informed the ISA of its intention to submit an application in June 2021, initiating a two-year time frame for adoption of the legislation. In 2023, in light of the delayed adoption of such regulation, NORI deferred its application by a year. Management’s expectation is that the approval process for its application will take 344 days, suggesting a timeline out to July 2025.

Pre-feasibility study to be released

Much of the work for the PFS, such as the offshore trials with Allseas and the onshore processing with PAMCO, has been finalised. Further elements will be completed in the year and are predominantly required for the application for the exploitation licence. Our expectation is that this key report for commercial purposes will be available in H224.

Commencement of commercial nodule collection

Management has put back the expected timeline for commencement of operations from Q425 to the end of Q126. The deferral primarily reflects the additional upgrade work required for the collection module, riser system and Little Gem vessel associated with the expanded capacity.

National Defence Authorisation Act

Congress has been mandated to provide a report concerning the US position on critical minerals required in the transition to a low carbon economy. This includes the potential of polymetallic nodules and the ability to process these mineral resources in the US. The report was due in March 2024. This could pave the way for government assisted funding of nodule processing infrastructure in the US.

Forecasts

Our forecasts for FY24 and FY25 are unchanged, FY25 due to our cautious approach of only factoring in production commencing in FY26. We have introduced forecasts for FY26, with the assumption that production commences in H2, slightly more conservative than the latest management guidance of Q126.

Valuation

We have rolled forward our valuation for the new financial year, which, particularly at higher discount rates, has a meaningful impact on the valuation. We continue to use a range of discount values to reflect the level of risk, as highlighted in Exhibit 3.

The company is arguably beyond the preliminary economic assessment in terms of development, suggesting that the associated valuation of $479m is conservative. More interesting is the clear timeline for a PFS to be released in 2024, permitting in 2025 and ramp-up of production in 2026, which would significantly reduce the risk and enhance the valuation. The valuations are based on Edison’s long-term metal price expectations, primarily nickel at $16,000/t versus the current price of $16,700/t.

We also note that (1) our project valuation of $6.1bn is consistent with yet conservative compared to the NORI Technical Report Summary, which indicated a post-tax project NPV of $6.8bn; and (2) our valuation only takes into account NORI-D block, which only consists of 22% of the total estimated reserves within the NORI and TOML blocks for which TMC is contracted to develop.

Exhibit 3: Project valuation

Discount rate used

Project valuation

Milestone

High (%) 

Low (%) 

Low ($m) 

High ($m) 

Average

Preliminary economic assessment 

36 

31 

355

603

479

Pre-feasibility study 

34 

29 

439

744

592

Bankable feasibility study 

31 

26 

603

1,020

812

Permitted 

27 

21

918

1,738

1,328

Ramp-up 

23 

19 

1,402

2,160

1,781

Project Zero 

18 

13 

2,411

4,233

3,322

Project One 

11 

5,341

6,771

6,056

Source: Edison Investment Research

Exhibit 4: Financial summary

2022

2023

2024e

2025e

2026e

Year to 31 December ($m)

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

INCOME STATEMENT

Revenue

0.0

0.0

0.0

0.0

179.2

Cost of Sales

0.0

0.0

0.0

0.0

(170.7)

Gross Profit

0.0

0.0

0.0

0.0

8.5

EBITDA

(84.4)

(59.7)

(50.0)

(39.6)

(34.9)

Underlying operating profit

(87.1)

(63.2)

(50.0)

(40.0)

(37.7)

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

Share-based payments

(17.1)

(9.2)

(10.0)

(20.0)

(20.0)

Reported operating profit

(104.2)

(72.4)

(60.0)

(60.0)

(57.7)

Net Interest

1.1

1.3

0.0

0.0

0.0

Exceptionals, warrants etc

(67.8)

(2.6)

0.0

0.0

0.0

Profit Before Tax (norm)

(86.0)

(61.9)

(50.0)

(40.0)

(37.7)

Profit Before Tax (reported)

(170.9)

(73.7)

(60.0)

(60.0)

(57.7)

Reported tax

0.0

(0.0)

0.0

0.0

7.5

Profit After Tax (norm)

(86.0)

(62.2)

(50.0)

(40.0)

(30.2)

Profit After Tax (reported)

(170.9)

(73.8)

(60.0)

(60.0)

(50.2)

Net income (normalised)

(86.0)

(62.2)

(50.0)

(40.0)

(30.2)

Net income (reported)

(170.9)

(73.8)

(60.0)

(60.0)

(50.2)

Average Number of Shares Outstanding (m)

240

289

297

318

318

EPS - normalised (c)

(36)

(22)

(17)

(13)

(9)

EPS - normalised fully diluted (c)

(32)

(20)

(16)

(12)

(9)

EPS - basic reported (c)

(71)

(26)

(20)

(19)

(16)

Dividend (c)

0

0

0

0

0

BALANCE SHEET

Fixed Assets

44.8

60.1

50.9

100.5

127.7

Intangible Assets

42.8

43.2

43.2

43.2

43.2

Tangible Assets

2.0

2.8

7.8

57.4

84.5

Investments & other

0.0

14.2

0.0

0.0

0.0

Current Assets

49.7

8.8

2.0

2.0

46.8

Stocks

0.0

0.0

0.0

0.0

44.8

Debtors

0.0

0.0

0.0

0.0

0.0

Cash & cash equivalents

46.8

6.8

0.0

0.0

0.0

Other

2.9

2.0

2.0

2.0

2.0

Current Liabilities

(41.7)

(31.3)

(31.3)

(31.3)

(31.3)

Creditors

(41.7)

(31.3)

(31.3)

(31.3)

(31.3)

Tax and social security

0.0

0.0

0.0

0.0

0.0

Short term borrowings

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

(11.7)

(26.6)

(51.9)

(141.6)

(243.7)

Long term borrowings

0.0

0.0

(39.2)

(128.8)

(238.5)

Other long term liabilities

(11.7)

(26.6)

(12.7)

(12.7)

(5.2)

Net Assets

41.1

10.9

(30.4)

(70.4)

(100.6)

Minority interests

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

41.1

10.9

(30.4)

(70.4)

(100.6)

CASH FLOW

Operating Cash Flow

(84.4)

(59.7)

(50.0)

(39.6)

(34.9)

Working capital

17.8

(0.8)

0.0

0.0

(44.8)

Exceptional & other

0.0

0.9

0.0

0.0

0.0

Tax

0.0

0.0

0.0

0.0

0.0

Net operating cash flow

(66.6)

(59.6)

(50.0)

(39.6)

(79.7)

Capex

(1.2)

(0.5)

(5.0)

(50.0)

(30.0)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

Net interest

0.0

0.0

0.0

0.0

0.0

Equity financing

29.7

20.1

9.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Net Cash Flow

(38.1)

(40.0)

(46.0)

(89.6)

(109.7)

Opening net debt/(cash)

(84.9)

(46.8)

(6.8)

39.2

128.8

FX

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

(46.8)

(6.8)

39.2

128.8

238.5

Source: company information, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by The Metals Company and prepared and issued by Edison, in consideration of a fee payable by The Metals Company. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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General disclaimer and copyright

This report has been commissioned by The Metals Company and prepared and issued by Edison, in consideration of a fee payable by The Metals Company. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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London │ New York │ Frankfurt

20 Red Lion Street

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Immix Biopharma — Reaffirmed long-term focus on outpatient CAR-T

Immix Biopharma is continuing its strategic pivot towards exploring non-traditional indications for its CAR-T asset, NXC-201, leading with relapsed/refractory (r/r) amyloid light chain amyloidosis (ALA). This tactical approach targets opportunities with a potential first mover advantage and the strategy is expected to be consolidated in 2024 with the initiation of the Phase Ib NEXICART-2 study in the US and the selection of the first autoimmune indication for NXC-201. Readouts in ALA are expected in Q424, with a potential Biologics License Application (BLA) in 2025, both key catalysts for Immix. Pro forma cash of $33.5m includes the February 2024 $15.5m (net) raise and is expected to support operations to Q225, past several key readouts. We adjust our assumptions for the latest updates, which results in resetting our valuation to $142.2m or $5.4 per share (from $86.6m or $4.0/share previously).

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