As demand for cars has risen over the decades people have tapped oil sands, shale deposits, and the ocean floor to meet the increasing need for gasoline. Now that EV demand is growing, people are thinking about tapping the oceans for metals used to power battery-powered cars.
It isn’t as bad an idea as environmentalists might initially think.
The Metals Company
(ticker: TMC) is developing a project in the “Clarion Clipperton zone,” or CCZ. To picture where that is, draw an imaginary line south from central Alaska and stop at the latitude crossing the middle of Mexico.
The zone is ranked as having the world’s largest undeveloped deposit of nickel, which is used in stainless steel, aerospace alloys, and in EV batteries.
It isn’t an ordinary resource. While ordinary mining operations involve digging up nickel-bearing ore that is crushed, concentrated, leached with acid, and refined to extract the metal, the nickel in the CCZ is contained in nodules that contain far more nickel than rocks dug up on land, not to mention some copper, cobalt, and manganese.
The nodules, formed a little like pearls in an oyster over what TMC estimates is millions of years, contain no toxic materials. Processing them leaves far less waste than land-based mining, mainly because the metal content is higher.
When production starts, TMC will essentially vacuum up the nodules into a stationary ship that holds about 30,000 metric tons of product. About once a week, a bulk carrier will take nodules to land for processing.
The later stages of processing are similar to those for other types of ore. The nodules are, essentially, cooked in a kiln and then melted in an electric furnace to produce an intermediate product called a “matte.” That matte is the same product produced from other nickel ores and can be processed by traditional refineries.
The TMC project is slated to start up at the end of 2024 or early in 2025, but the company needs another $150 million of capital to get to production, says CFO Craig Shesky.
The company has spent roughly $300 million on the project over the past decade. Total projected capital costs could eventually reach to $7 billion. Much of that money would be project-related debt financing.
Gathering the nodules sounds like a good solution, but does it make sense? It appears to from a cost perspective. TMC believes it will have the second-lowest costs on the planet, after Russia’s Norilsk Nickel.
Nickel-bearing ore typically contains other metals, which is a huge benefit for Norilsk, a company whose operating profit margins are north of 50%. Counting the value of those metals and including all the cash costs of running a mining operation—mining, processing, freight, and selling expenses—it costs the Russian company about negative $15 to produce a pound of nickel that now sells for roughly $10.
The comparable figure for TMC, known as its C1 nickel cash cost, is expected to be minus $2.40 a pound. Both companies get their nickel for less than zero, after factoring in the value of those other metals.
The other thing to consider is the environmental effects of TMC’s operation. Shesky says his company’s process has a much smaller impact than land-based mining, using less energy and disrupting less forest and animal life while disturbing a very small portion of the ocean floor.
In any case, the environmental impact of mining for nickel should be compared with the effects of extracting oil and coal, given that nickel is a critical component of many electric-vehicle batteries. Greater use of EVs should allow humans to extract and burn less fossil fuels.
Mining metals is a smaller-scale operation than drilling for oil and digging up coal. The TMC project in the CCZ contains an estimated 16 million metric 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 a year and roughly 1.3 billion tons come from offshore oil drilling.
Metals and batteries aren’t consumed like oil is, so a lot less is needed for battery-powered transportation. Batteries do have to be recharged, often via power plants that burn coal or natural gas, but about 40% of the electricity generation in the U.S. doesn’t use fossil fuels.
And while mining has its environmental impacts, so does oil production. Aside from oil, the world mined about 8 billion metric tons of coal in 2022. Lithium, nickel, cobalt, aluminum, and copper production amounted to roughly 100 million tons combined in 2022, less than 1% of the total for oil and coal.
Low costs and low impact makes TMC’s project seem like a winner, but the stock is badly beaten up. Shares are down about 53% over the past 12 months while the
S&P 500
and
Nasdaq Composite
are up about 3% and 9%, respectively.
The company is new and needs to raise capital, with a new idea and no comparable operations for investors to look at. That isn’t a great recipe in this market.
Wall Street isn’t really helping, either. Only two analysts cover the stock, according to Bloomberg. Both rate shares Hold and the average price target is $3, while the stock was trading at about 70 cents on Wednesday morning.
Corrections & Amplifications: The metallic nodules TMC plans to collect from the ocean floor don’t contain aluminum. An earlier version of this article incorrectly said they did.
Write to Al Root at [email protected]
Source: https://www.barrons.com/articles/tmc-mine-ocean-nickel-ev-metals-e06ebae7?siteid=yhoof2&yptr=yahoo