Iceberg Research takes short position on TMC the metals company

Iceberg Research has announced a short position on TMC The Metals Company (TMC), citing concerns over the deep-sea mining firm's financial projections and operational assumptions. The short report draws parallels to Nautilus Minerals, a prior venture involving TMC's CEO that ended in creditor protection, and criticizes TMC's reliance on a 2021 initial assessment that projects a $6.8 billion NPV, which Iceberg Research estimates is actually negative $721 million after adjusting for what they deem unrealistic assumptions. They also highlight discrepancies between TMC's cost estimates and supplier quotes, declining prices for key metals, and overly optimistic recovery rate assumptions.

Analysis

Iceberg Research has publicly disclosed a short position in TMC The Metals Company (NASDAQ:TMC), a deep-sea mining enterprise, citing substantial concerns regarding its financial viability and operational projections. The research firm highlights TMC's reliance on a 2021 preliminary 'initial assessment' (IA) for its valuation, noting the company's Pre-Feasibility Study (PFS), claimed as completed in November 2024, still awaits expert sign-off. This IA projects a Net Present Value (NPV) of $6.8 billion, which Iceberg Research contends is a negative $721 million after adjusting for what it deems unrealistic assumptions, a discrepancy of 111%. Significant cost incongruities are central to Iceberg's thesis; TMC estimates total offshore costs at $36 per wet tonne, whereas supplier Allseas reportedly plans to charge $136-$170 per wet tonne, 3.8 to 4.8 times higher. Similarly, TMC's projected third-party processing cost of $76 per wet tonne is 57% lower than supplier PAMCO's intended charge of $120 per wet tonne. Compounding these concerns are challenging market dynamics for key metals, with nickel and cobalt prices having declined over 64% from their peaks and facing substitution threats from LFP battery technology. Iceberg also questions TMC's optimistic 95% nickel recovery rate assumption, contrasting it with typical industry rates around 83%, and criticizes the 9% discount rate used in the 2021 IA as inadequately reflecting the unprecedented risks of deep-sea mining. Further risks cited include potential operational failures, the unproven economics of onshore processing, policy reversal possibilities, and the potential for offshore partner Allseas to pursue operations independently. The report draws parallels to the failure of Nautilus Minerals, a previous venture involving TMC's CEO Gerard Barron, and points to governance issues, including CEO Barron's compensation being over eight times the median for peers and a high-interest credit facility established by insiders with TMC. This scrutiny follows a 285% year-to-date surge in TMC's stock price, partly fueled by a presidential executive order encouraging deep-sea exploration.

Key Decisions for Investors

• Investors should critically re-evaluate TMC's valuation and future revenue projections in light of the detailed discrepancies in cost estimates, NPV calculations, and commodity price assumptions presented by Iceberg Research.
• Monitor closely for the release and independent validation of TMC's Pre-Feasibility Study (PFS), as this document is crucial for substantiating the company's resource estimates and economic model.
• Assess the significant downside risks associated with declining nickel and cobalt prices, potential technological displacement by LFP batteries, and the operational and regulatory uncertainties inherent in deep-sea mining.
• Consider the highlighted governance concerns, including executive compensation and insider transactions, as well as the historical precedent of Nautilus Minerals, when evaluating management's credibility and the overall risk profile of an investment in TMC.