As the demand for cars has increased over the decades, people have exploited the tar sands, shale deposits and the ocean floor to meet the growing need for gasoline. Now that the demand for electric vehicles is growing, people are thinking about exploiting the oceans for the metals used to power battery-powered cars.

It’s not as bad an idea as environmentalists might initially think.

The Metals Company (ticker: TMC) is developing a project in the Clarion Clipperton area, or CCZ. To imagine where it is, draw an imaginary line south from central Alaska and stop at the latitude through central Mexico.

The zone is classified as the world’s largest undeveloped nickel deposit, which is used in stainless steel, aerospace alloys and electric vehicle batteries.

It is not an ordinary resource. While normal mining operations involve the excavation of nickel-bearing ore that is crushed, concentrated, acid leached, and refined to extract the metal, the nickel in the CCZ is contained in nodules that contain far more nickel than rocks excavated on dry land, not to mention copper, aluminum and manganese.

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The nodules, which formed somewhat like pearls in an oyster over millions of years according to TMC, contain no toxic materials. Their processing leaves much less waste than onshore mining, mainly because the metal content is higher.

When production begins, TMC essentially sucks the nodules into a stationary vessel that holds approximately 30,000 tons of product. About once a week, a bulk carrier will bring the nodules ashore for processing.

The subsequent stages of processing are similar to those for other types of ore. The nodules are, essentially, fired in a kiln and then fused in an electric kiln to produce an intermediate product called a matte. Dull is the same product produced from other nickel ores and can be processed by traditional refineries.

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The TMC project is expected to start in late 2024 or early 2025, but the company needs an additional $150 million of capital to get it to production, says CFO Craig Shesky.

The company has spent approximately $300 million on the project over the past decade. Total projected capital costs could eventually reach $7 billion. Much of that money would be debt financing related to the project.

Picking the nodules seems like a good solution, but does it make sense? It seems from a cost point of view. TMC believes it will have the second lowest cost on the planet, after Russia’s Norilsk Nickel.

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Nickel ore typically contains other metals, which is a huge boon for Norilsk, a company whose operating profit margins are above 50%. Counting the value of those metals and including all the cash costs of running a mining operation, the expenses of mining, processing, transportation and sales cost the Russian company about negative $15 to produce a pound of nickel which now sells for about $10.

The comparable figure for TMC, known as the cash cost of C1 nickel, should be minus $2.40 a pound. Both companies get their nickel for less than zero, after taking into consideration the value of those other metals.

The other thing to consider is the environmental effects of operating TMCs. Shesky says his company’s process has far less impact than land-based mining, using less energy and disrupting fewer forest and animal life, disturbing a very small portion of the ocean floor.

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In any case, the environmental impact of nickel mining should be weighed against the effects of oil and coal mining, given that nickel is a critical component of many electric vehicle batteries. Greater use of electric vehicles should allow humans to mine and burn fewer fossil fuels.

Metal mining is a smaller-scale operation compared to oil drilling and coal mining. The TMC project in the CCZ contains approximately 16 million tons of nickel. The world produced about 3.3 million tons in 2022. For context, the world produces about 4 billion tons of crude oil annually, and about 1.3 billion tons comes from offshore oil drilling.

Metals and batteries are not consumed like oil, so much less is needed for battery-powered transport. Batteries need to be recharged, often by power plants that burn coal or natural gas, but about 40% of electricity generation in the United States does not use fossil fuels.

And while mining has its environmental impacts, so does oil production. Apart from oil, the world mined about 8 billion tons of coal in 2022. Production of lithium, nickel, cobalt, aluminum and copper was about 100 million tons in 2022, less than 1% of total oil and coal.

Low cost and low impact make TMC’s design look like a winner, but the title is badly beaten. The shares are down about 53% in the last 12 months while the


S&P 500

AND

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Nasdaq Composite

increased by about 3% and 9% respectively.

The company is new and in need of raising capital, with a new idea and no comparable deals to look to investors. Not a great recipe in this market.

Wall Street isn’t really helping either. Only two analysts cover the stock, according to Bloomberg. Both shares in Hold rate and the average price target is $3, while the stock traded around 70 cents Wednesday morning.

Email Al Root at [email protected]

#company #ocean #floor #metals #good #environment

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