It's not often that mining stocks provide triple-digit returns in a single calendar year. But that's exactly the case -- so far at least -- with The Metals Company (TMC -3.09%), an innovative mining company that aspires to produce battery metals from polymetallic nodules located on the seafloor. The Metals Company has seen its stock skyrocket more than 240% from the start of the year through this writing.
After this impressive performance, metals-minded investors may be wondering what's behind the stock's rise and if it's too late to add The Metals Company to their portfolios. Both are valid questions, so let's look at the stock's recent climb and whether it's a good time to buy.
An insider buy begins the market's buying frenzy
For a speculative stock like The Metals Company, investors want to see that company insiders are willing to put their money where their mouths are. That's exactly what they found in early June, when a member of the board of directors bought $3 million in stock on the open market. Shares closed 12% higher on the day that the trade was reported.
The buying activity extended through June and into July thanks to a growing interest in shoring up the supply of battery metals -- something that The Metals Company can provide. On June 30, The Metals Company issued a press release highlighting growing interest from the U.S. government in procuring battery metals from polymetallic nodules to fortify America's self-reliance on critical minerals. Shares have, subsequently, soared.
Digging into the bull case
Batteries used in electric vehicles (EVs) and other clean energy applications depend on a variety of metals: Nickel, copper, cobalt, and manganese. The issue for battery manufacturers is that the supply of these minerals is not secure because the mineral resources are found in areas such as Russia, China, and the Congo.
By attempting to supply battery makers with minerals from the seafloor, The Metals Company is working to ameliorate the situation, help the U.S. shore up its supply of these critical minerals, and meet the needs of the burgeoning EV industry. According to the company, it has access to resources that could provide enough nickel, copper, cobalt, and manganese for 280 million EVs.
In 2022, The Metals Company conducted a successful test of its mining system, collecting 3,000 metric tons of polymetallic nodules from the seafloor -- an important step in validating the viability of its planned operations.
Unearthing the bear case
Undeniably, the bull case for The Metals Company will electrify the excitement of growth investors. But the potential of this high-reward stock also has some high risks -- namely, questions surrounding permitting. While the mining of polymetallic nodules is gaining attention from the U.S. government, there are opponents who question the environmental risks of deep sea mining.
In order to move ahead, The Metals Company must secure rights from the International Seabed Authority (ISA), an autonomous organization established by the U.N. This is far from a guarantee, though. Currently, the ISA is discussing the establishment of a regulatory framework for deep sea mining. The Metals Company projects that once this is done, it could receive the necessary permit in the second half of 2024.
There is notable international and corporate opposition to deep sea mining, however. The European Academies Science Advisory Council, for example, recently issued a statement arguing against the advancement of deep sea mining due, in part, to the "risk of irreparable damage to millions of square kilometers of seabed." Additionally, The Guardian reported last year that Google, BMW, and Volvo echoed a request from the World Wildlife Fund for a moratorium on deep sea mining.
Is it the right time to power your portfolio with this metals stock?
An innovative mining company that could supply the growing EV industry with important metals and also secure the U.S. supply of said metals? It's no wonder shares of The Metals Company have looked so lustrous in investors' eyes. But it seems that the market has gotten ahead of itself.
The question of whether the ISA will establish a favorable environmental framework for deep sea mining is important to recognize. Beyond the framework, the company would still need to subsequently receive the necessary permits. There's also the issue of profitability. The Metals Company may have the technological prowess to procure the metals from the sea floor, but whether it can generate earnings from the enterprise is far from a guarantee.
At this point, growth investors with an ample tolerance for risk should be the only ones seriously weighing whether The Metals Company is a right fit for their portfolios. More conservative investors, on the other hand, should wait for some green flags before choosing to power their portfolios with this mining stock.
