Deep sea mining. It sounds like something out of a science fiction novel, but for The Metals Company (TMC), it's rapidly becoming a reality. While most analysts are focused on the regulatory hurdles and environmental concerns surrounding this nascent industry, a critical detail buried within TMC's recent Q1 2024 earnings transcript hints at a potential game-changer: nickel sulfate.

TMC announced they successfully produced nickel sulfate from seafloor nodules, a feat with monumental implications for the electric vehicle (EV) battery market. This seemingly innocuous announcement could be the key that unlocks a sleeping giant, pushing TMC's valuation far beyond its current $496 million market cap.

Why the excitement over nickel sulfate? It's the preferred form of nickel used in EV battery cathodes, a market expected to explode in the coming years. Currently, most nickel sulfate is produced from nickel laterites, a process with a significant environmental footprint.

However, TMC's process, utilizing an intermediate nickel mat and bypassing the nickel metal stage, offers a potentially revolutionary alternative. This flowsheet not only aligns perfectly with the battery market but, according to a 2023 Benchmark lifecycle assessment, boasts a significantly smaller carbon footprint than traditional nickel sulfate production methods.

Valuation: A Potential Multi-Billion Dollar Opportunity

Back in March 2021, AMC Consultants valued TMC's NORI-D project at $6.8 billion. This valuation was based on metal prices at the time. Fast forward to today, with nickel prices having rebounded significantly in Q2 2024, that same model, updated only for current metal prices, yields a staggering $11.5 billion net present value for NORI-D alone.

Remember, NORI-D represents just 22% of TMC's total estimated resource. Extrapolating this updated valuation across both NORI and TOML projects, TMC's potential net present value could reach a jaw-dropping $52 billion.

The Turning Tide: Regulatory and Industry Support

Currently, TMC's market cap is languishing at a mere 4% of the updated NORI-D NPV and less than 1% of the potential total NPV. This stark undervaluation might reflect investor skepticism surrounding the regulatory environment and the untested nature of deep-sea mining.

However, the tides seem to be turning. Global powers like China and France have reaffirmed their commitment to the development of deep-sea mining regulations. Meanwhile, in the U.S., the House of Representatives introduced "The Responsible Use of Seafloor Resources Act," and the Pentagon is preparing a report on the strategic importance of nodules for critical mineral supply chains.

Coupled with the potential environmental advantages of TMC's nickel sulfate production and the looming demand surge from the EV sector, the company appears poised for a significant re-rating. The $11 billion valuation derived from the updated NORI-D model might just be the tip of the iceberg.

Financial Performance

In Q1 2024, TMC reported a net loss of $25.2 million, attributed mainly to exploration and evaluation expenses. However, the company has secured a $20 million unsecured credit facility, demonstrating confidence from its major shareholders.

Investors who delve deeper into the implications of TMC’s quiet nickel sulfate revolution could find themselves ahead of a wave that's set to reshape the landscape of battery metal sourcing. While risks remain, the potential upside for this underwater treasure trove is simply too compelling to ignore.

"Fun Fact: TMC’s CEO, Gerard Barron, has often compared the abundance of metals in their contract areas to the Comstock Lode, a legendary silver discovery that fueled the growth of Nevada in the 19th century. Could TMC’s nodules be the 21st century’s Comstock Lode, driving the EV revolution and reshaping the global metal market? Only time will tell."