In the investment landscape of mining stocks, there is often a sharp contrast: on one hand, there are multinational giants with strong financial backing and mature, stable business models; on the other, there are mid-sized growth companies aspiring to join the top tier, as well as numerous small exploration firms focused on critical minerals or precious metals mining, whose share prices are highly volatile. In the highly speculative niche segment, there are companies like TMC The Metals Company (TMC). This Canadian company is focused on extracting small nodules rich in critical minerals from the deep sea.
This is undoubtedly a compelling story. Although the stock is not suitable for investors with low risk tolerance, it may offer substantial returns for those willing to take risks—with the emphasis on “may.”
Since its initial public offering in 2020, TMC’s stock price has fallen a cumulative 47%, with a 24% decline over the past year. Adding to the challenge, the company’s current market capitalization is only $2.2 billion, which undoubtedly amplifies its speculative nature. As one of my Foolish colleagues pointed out, TMC is still a pre-revenue company that continues to incur losses.
These characteristics deter many investors, underscoring the need for TMC to prove itself with tangible results rather than verbal promises. In fact, the company has made some progress. In late May, the U.S. National Oceanic and Atmospheric Administration (NOAA) approved TMC’s application to explore for critical minerals across 122,000 square kilometers in the Pacific Ocean.
This catalyst has already been priced in by the market, but the approval is significant in at least two respects. First, if TMC can obtain similar exploration permits in other parts of the Pacific or in any other oceans, its share price could see a considerable near-term upside. Second, and perhaps more critically, if TMC can demonstrate tangible progress to investors within the approved area—such as nearing the actual extraction of nodules from the seabed—the stock could surge dramatically, as this would signal that the company is turning its vision into action and possesses execution capability.
It is crucial for TMC to prove its capabilities, because the sector it operates in has a market potential worth tens of billions of dollars, but investors need far more than hope—they need and crave concrete results.
Government intervention in private enterprises is generally viewed as a negative factor, but for TMC, support from the U.S. government is a positive catalyst that cannot be overlooked. Although this factor has been discussed in the market before, it is worth emphasizing again.
The White House has made it clear that it wants to break China’s dominance in the global rare earth market and other critical mineral sectors. One way to achieve this is by accelerating the permitting process for mining approvals for companies like TMC, as the U.S. Department of Commerce has done.
Like the overall investment thesis for TMC, whether the U.S. government will increase its support for the company and its peers remains uncertain. However, the possibility does exist, and if it materializes, it could very well serve as the trigger for an upward move in this materials stock.
Taken together, TMC The Metals Company is at a critical inflection point. On one hand, the company needs to achieve substantive breakthroughs in deep-sea exploration and extraction technology to prove the viability of its business model. On the other hand, geopolitical competition and the U.S. government’s concern over the security of critical mineral supply chains could also bring policy tailwinds to the company. However, investors must clearly recognize that the company is still in a pre-revenue loss-making stage, with highly volatile stock prices, and investment risks are not to be ignored. Over the next year, the direction of these two catalysts will directly determine whether TMC can achieve a revaluation in its worth.
