Ray Blanco is out with a new promo pitch, yet another “biggest call of my career” about a tiny $1 stock that’s going to save our electric vehicle future by producing nickel, cobalt and other battery metals from the ocean, covered in one of those exhausting long infommercial presentations called his “$16 Trillion Super Mine Summit” last week (on June 15), and pretty incessantly pitched every day since then. The tease is an ad for Ray Blanco’s Catalyst Trader (currently “on sale” for $995/yr, no refunds (the guarantee is, “if the stock doesn’t 10X, call in and complain and we’ll give you another premium subscription” … which, of course, costs the publisher nothing)) — when we’ve covered this letter in the past, it has mostly been pitching biotech stocks with a FDA decision coming, like his incessant pitches for MyMD over the past year or so, and other speculative small caps with some kind of “catalyst” in the technology space.

His presentation doesn’t provide us with a transcript, sadly, but I listened to the whole dang thing to get our needed clues for the Thinkolator (that’s your reminder that I love you), and to get a gist of what he’s promising… he’s talking up the potential for this company to explode overnight when we get a change in international law that lets their project move forward, something he expects to happen in July, and he thinks that the stock could go on to soar tenfold in the next year as the project moves forward in what he calls the “Mysterious ‘CC’ Zone.” Or maybe a 100X gain over “decades.”

Here are some snippets from the pitch…

“… thanks to a change in international law — a law set to go into effect just weeks from now — a tiny $1 company with an estimated $85 billion tract of this super-mine could be set to soar….

“Thanks to a change in international law that’s set to go into effect “just weeks from today”

“This company has exclusive rights to one of the largest tracts of “new gold” deposits, which could send this “tiny $1 stock” up 10X in the next year.

“Market cap below $300 million, so it’s a microcap stock that the institutional investors can’t touch….

“It’s mining two and a half miles underneath the ocean.”

The big legal change is that on July 9, Blanco says the 26-year international ban on seafloor mining is about to be lifted… and the company he’s teasing already owns the commercial rights to $750 billion worth of this “new gold” on the ocean floor.

Once the ban ends, this small stock can move forward to the next stage and get closer. And he thinks this “major legal catalyst” could send the stock soaring.

And the area he’s talking about is the “CC Zone” in the pacific, which he says covers two million square miles of ocean, and on the ocean floor is full of the “polymetallic modules” that he says represent “treasure.”

There are some other clues peppered in, like that the insiders “own 41% of the company” and are “buying more.” Which is sort of true, the latest report indicates that insiders own 41% of the outstanding shares, and some of them did buy shares when it dipped below a dollar earlier this year (and previously, when it traded substantially higher a year ago)… though there is also plenty of insider selling, including several executives who sold shares in recent months. The biggest shareholders are CEO Gerard Barron and Director Andrei Karkar, and both of them did add a little bit to their positions this year.

What Blanco is talking about here is a deep-sea mining outfit called The Metals Company (TMC), which used to be called Deep Green but came public through a SPAC merger with the Sustainable Opportunities Acquisition Corporation, so it was part of the SPAC mania during 2021 — the deal was announced in the Spring of that year, and closed in September of 2021, just in time for the market to have given up on SPACs almost entirely, and it sold off quickly. The deal was based on a $10 share price, like almost all SPACs, and within a month it was below $4. It has jumped back up in recent weeks, thanks to some attention-getting stories from Barron’s, probably spurred a bit by Ray Blanco’s attention in this teaser pitch and some other media coverage, but right now it’s at about $1.50.

If you want the skeptical story, you don’t have to go much further than the coverage this SPAC deal got back in 2021 — the headline of one of the Bloomberg columns was, “$500 Million of SPAC Cash Vanishes Under the Sea”

That was a story about the fact that the SPAC holders opted out of the deal, which meant that TMC didn’t end up getting nearly as much cash as they expected out of the SPAC deal (SPAC shareholders have the right to redeem their shares for cash before the deal is consummated, and for a lot of the sketchier SPACs, they exercised that right and pulled their cash, leaving the company with dramatically less capital than expected). And in the case of TMC, even the PIPE sponsors tried to pull out of the deal, which I don’t think I saw with any of the other SPAC disasters of 2021 and 2022. (PIPE is an acronym, standing for Private Investment in Public Equity– that’s the additional funding that most SPAC deals raise beyond what’s in the SPAC trust fund, usually on very friendly terms for larger investors, with better warrants than the original SPAC investors receive — PIPE deals were essentially windfall gifts to big investors when SPACs were booming, but they were also often the only cash going into the deal when SPAC investors pulled their equity at the final moment).

Here’s a little excerpt from that column:

“Despite having no revenues and around two dozen employees, the start-up was valued at more than $2 billion by its blank-check partner. It plans to exploit a rich deposit of battery metals located on the seafloor in between Hawaii and Mexico. It says these minerals are sufficient to electrify 280 million vehicles….

“TMC wants to mine the seabed for potato-sized nuggets (“polymetallic nodules”) of metals like nickel, copper, manganese and cobalt. These are in high demand — nickel prices are at a 7-year high — and are used in cathodes and wiring for electric car batteries and other types of energy storage. Its commercial partners include commodities giant Glencore Plc and the offshore marine service division of A/P Moller-Maersk A/S.

“TMC refers to the nodules as ‘EV batteries in a rock’ and says mining them will help decarbonize the transport sector and thereby help solve the climate crisis, all while causing less ecological damage, and at less cost, than extracting the same materials on land.”

There was a pretty strong environmentalist backlash against this deal, since organizations like Greenpeace have long opposed seabed mining, though the company does try very hard to push itself as a way to help “green” the world by mining battery materials in a way that’s less damaging than conventional cobalt and nickel mining.

And yes, mining metals deposits from the ocean floor is something that has been tempting explorers and investors for decades — there was a run of a few years when Nautilus Minerals (formerly at ticker NUS in Toronto) was the sexiest stock idea among the junior miners, the company that promised it was on the verge of pulling the gold and copper resources offshore Papua New Guinea to the surface with its Solwara 1 project. Nautilus was pretty heavily touted from 2008 to 2011 or so (it was one of the first big pitches from Frank Curzio when he took over Stansberry’s Phase 1 Investor newsletter in 2010, for example) … but after burning through millions of dollars over 20+ years, including at least $100 million spent on building deepsea mining equipment, and fighting environmental opposition, financial battles with the Papua New Guinea government, and the physical challenge of mining a mile-deep sulphide deposit, Nautilus finally went bankrupt in 2019, 22 years after they had first promised “hundreds of millions of dollars of metals in the immediate future” (their dream quietly lives on in the private company Deep Sea Mining Finance that ended up with the assets after bankruptcy, their website says they’re still hoping to leverage their technological advancements and the continuing claim to the Solwara 1 project).

And the two top folks at Deep Green, which was the startup that became The Metals Company in this SPAC merger, actually have a connection there — Gerard Barron, now CEO at TMC, was a major investor at Nautilus Minerals, though reports indicate that he “pulled out” before the bankruptcy, and Tony O’Sullivan, Chief Development Officer, was the COO for Nautilus Minerals.

Barron is clearly pretty evangelical about the mission here, he does a good Elon Musk impression as he talks up the importance of sustainable harvesting of metals from the sea floor and the startup of a “circular economy” as those metals are recycled in the future, instead of using harsher terrestrial mining. How much of that is a pipe dream and how much is the likely development trend of the next few decades, I don’t know — certainly Musk’s overly grandiose promises and ridiculous promises of the impossible over the past decade have played a large role in Tesla becoming the largest automaker in the world, and in electric vehicles becoming a viable part of the global transportation fleet… but, as an investor, it’s hard to have faith in a project that is so clearly rife with overpromising and grand vision, and short on capital. I see lots of reasons to be skeptical here… but, to be fair, I also never bought Tesla.

The company has moved forward with pilot projects to prove out the value of those ocean-floor rocks, and to prove that the equipment to harvest them works, and they have the support of some of the pacific island nations near their project area, particularly Nauru, which has pushed for permitting these projects in the Clarion Clipperton Zone of the Pacific Ocean (that’s the actual name of the “Mysterious CC Zone” that Blanco hints at). They’re working with plenty of partners in both offshore equipment and mineral processing, including Glencore for offtakes and Maersk for vessel operations and a company called Hatch for onshore processing of the nodules, as well as others who might be able to refine these metals… but their most active partner at the moment seems to be the offshore contractor Allseas, which mostly does pipeline-laying projects but bought a drillship and retrofitted it for nodule collection, and their pilot project video from last year indicates that the harvesting of these little rocks from the ocean floor can really be done. It’s kind of cool to see (Blanco reuses some of this video in his presentation, too, so you may have already seen it).

Whether it can be done safely enough and cleanly enough, at dramatically larger scale, and whether those nodules are really valuable enough to be worth the effort to find them and pump them up from a couple miles underwater, then ship them to some onshore plant for grinding and processing and refining to extract the cobalt and manganese and other minerals, well, my guess (and it is a guess) is that we’re probably still years from finding that out with any certainty. And somebody’s still going to have to come up with at least $5-10 billion for a real industrial-scale project, which might require some more proof of the economic viability of all of this. It’s only been a few years, the bankers probably remember that Nautilus Minerals went bankrupt — TMC’s story is certainly different than Nautilus in many ways, their harvesting seems to be much less intensive and the deposits are also at least a mile deeper, and much farther away from land, but the need for vast amounts of capital to build this new mining infrastructure, and the creation of a whole new way of mining, is pretty similar.

There is a “resource estimate and financial model” from early 2021 that assessed the net present value of their NORI-D project at $6.8 billion (they said it would now be up to $13.2 billion with metals prices rising as of March of this year), as part of a NPV of $31.3 billion for the full portfolio of The Metals Company projects, thanks to the vast stores of nickel and cobalt and manganese and copper that they believe exists throughout the sea floor in this part of the ocean, in high concentration… but what those net asset value calculations are based on, and whether they’re conservative enough to deal with the uncertainty of operating at this remote location, doing something that hadn’t ever been tried before last year, I don’t know.

This isn’t like a mine on land, where you can draw comparisons to sometimes hundreds of other projects that have been done with similar technology and similar challenges and with similar drilling results that can map an underground ore body, and with equipment that you know has been proven to work at other mines. It seems to me that in some ways this is an airplane that’s still being invented as it taxis down the runway in preparation for takeoff. They’ve done a lot of work, and they have some compelling reports and cool videos, but to me it doesn’t seem like there’s any way to be certain that this plane will be able to speed up and take to the air, let alone calculate what it should be worth. Maybe they’re on that track, and I can see that their arguments are logical, but I especially can’t wrap my head around what it would cost to turn this into a real industrial mining operation. The good news, I guess, is that those nodules are just sitting on the ocean floor, so unlike a deep sea oil miner they’re not having to drill another mile below that… but still, the mind boggles at the complexity of the operation.

Which makes it a pretty cool speculation, for those who love this kind of brand new story about something wildly different. I find the story pretty compelling, if only because it seems at least possible that the harvesting of even a pretty large area of ocean floor is going to be less environmentally destructive than your typical open pit mine, but it’s clear that there’s also a lot of objection to this kind of industrial scale subsea operation in what have been pretty untouched waters. “Cool” doesn’t mean safe or predictable, of course, and I would hesitate to say with any certainty that I think the project should be worth $100 million or $100 billion at this point, there are just way too many unknowns… which probably means I should just stay away.

As of about Noon today (the stock is rising with all this attention), The Metals Company was valued at about $425 million, after the SPAC deal valued them at a pro forma equity value of $2.9 billion (that was roughly two years ago). Much of that value disappeared because the SPAC shareholders pulled their $300 million in cash, and the PIPE investors surprised everyone by failing to come through with most of their $330 million, too (the PIPE funding is still being fought out in the courts, I think, so perhaps they’ll get some of that in the end), which has left the company without much cash… they’re going to need a LOT more money to move forward, even if they don’t need it today.

They did get a boost a couple weeks ago, when the stock was featured in Barron’s with a fairly friendly article (“A Company Wants to Mine the Ocean Floor for EV Metals. It’s Good for the Environment”), an unusual feature for a junior “miner.” Here’s a little bit from that piece…

“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….

“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.”

It’s not at 70 cents anymore, of course, it has roughly doubled in recent weeks — you can’t throw that much attention at a microcap without the price bumping higher. But yes, it’s still way down below any analysts price targets, and far lower than what the company believes its project should be worth. And they’re going to need tons of capital, but they’re not currently desperate — as of the first quarter presentation last month, TMC claims that their “existing liquidity will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months from today.”

Which may well be true, I don’t have a real sense of their capital budget and I haven’t dug through their actual SEC filings, but that would probably mean they’re not going to do a ton of work in the next twelve months — and that they’re going to draw down all their potential liquidity. They had $28 million in cash left as of March 31, after using about $24 million in their operations last quarter (which did NOT include the expensive pilot projects with Allseas, those were completed last year), but they did also sell a royalty on the project to Low Carbon Royalties, and they have a $25 million credit line from the parent of their partner Allseas that they can tap, and they can sell equity under their current $30 million at-the-market program. So if they keep burning cash at the current rate, they can probably just barely get through the year by tapping all those sources of funding. If they spend less, of course, they can be more patient.

They’ve also completed some pilot projects for nodule processing, and have some third-party assessments of the viability of the program, so they’re continuing to work, but they don’t seem to be planning any massive capital projects in the next few quarters — it sounds like after their last environmental survey project, and their pilot test for module collection, they’re now waiting for the International Seabed Authority (ISA) to set the final “exploitation regulations” for polymetallic seabed nodule production, which is indeed supposed to happen starting soon, with July 9 being the deadline that was set after Nauru triggered the “two-year rule” at the ISA back in 2021 to force the issue. That organization, which is under the UN umbrella and was created by the UN Convention on the Law of the Sea about 30 years ago, has been meeting 2-3X a year over the past couple years to try to reach those final agreements on rules, standards, royalties and guidelines for these non-territorial waters, part of a long process of developing some kind of subsea mining code that really started about a dozen years ago. International regulatory bodies aren’t known for being fast, though the letter of the law in this case seems to indicate that if they don’t have final regulations for all seabed mining projects by then, they will have to give some sort of conditional approval for projects to continue to move forward — though there isn’t a lot of detail about what that means, or what the oversight and regulatory framework might look like for an initial conditional permit of some kind (TMC is working with the regulators so far, they had observers and inspectors on board during their testing of the nodule harvesting equipment).

Ideally, I expect, The Metals Company like to get a boost from next month’s expected regulatory news, which could theoretically create the framework for a permitting process, and then do a major equity raise if they can get the stock up as a result… but that’s just a guess on my part.

TMC’s latest presentation indicates that they think we’ll see final exploitations regulations in the second half of this year, that they’ll be ready to submit their exploitation application also in the second half of this year, that their permits will be granted within a year for this first NORI-D project, and they’ll begin production in late 2024 or early 2025.

I am definitely not an expert on any of this, but personally, I would be cautious and assume that TMC is being at least as pathologically optimistic as an average junior miner… which would mean that we should probably tack 3-5 years onto that timeline, at a minimum. And, of course, we have no idea what the UN body will say next month about the finalization of their regulatory framework, or about how long the permitting process will take, assuming it begins in the next few months.

There are other companies working on these kinds of projects as well, and other countries who have found similar nodules and resources in their territorial waters, or in this same large CCZ region of the Pacific, or elsewhere under the oceans, so TMC and their NORI sponsor Nauru (and Kiribati and Tonga, who are the “sponsoring states” for TMC’s earlier stage TOML and Marawa projects), are not the only ones pushing for a regulatory framework to move forward and be developed (China and Norway are also working on these kinds of projects, just to name a couple ISA member states that probably have more sway than Nauru… the US is one of the few countries that’s not a member state of the ISA, just FYI).

And TMC does have some strong partners who have committed meaningful cash and resources to the initial design and test of the project and the needed equipment, I don’t want you to come away from this note saying that I think all hope is lost for TMC’s project and it can’t succeed… just that it’s very likely going to take a lot longer, cost a lot more money, and be more controversial and disputed than the company (publicly) expects.

But it’s your money on the line, of course, so you get to make the call — think TMC is going to get the permission to move forward when they go into permitting this year, and that they’ll be able to build up production over the next few years to become one of the lowest cost nickel producers in the world, as they hope? Even if it becomes a more expensive or challenging project in the future, might the stock soar in the next few weeks as the regulatory framework clears up? Do let us know with a comment below.