TMC The Metals Company (TMC 2.57%) is an exciting stock right now. Over the past year, its share price has risen by over 220%. At one point, the stock was trading higher by more than 460%, so there is definitely some volatility to contend with.
Before you jump aboard this roller-coaster ride, here are three things you need to know about TMC The Metals Company and its stock.
1. The Metals Company is doing something big
The Metals Company is attempting to build an undersea mining business. This has been tried before by others, and it wasn't profitable enough to catch on. In fact, the company highlights several technological advances it has helped develop, which it hopes will turn undersea mining into a sustainable business model.
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That isn't to suggest that The Metals Company can't succeed where others have failed. However, you need to go in fully recognizing the huge risks that the company is taking.
2. Mining is expensive and uncertain
The Metals Company is nowhere near the point of having a functioning undersea mining operation. As you would expect, this upstart business is bleeding red ink. Given the huge capital investment needed to build a mining business, you should expect the losses to continue for the foreseeable future.
And that assumes that everything works according to plan. Indeed, sometimes mines don't produce what was expected, either in quantity or quality. There is also the risk of accidents to consider. Given the location of The Metals Company's proposed mine, all of the costs and all of the risks are likely to be much higher than for a company operating on land.
NASDAQ: TMC
Key Data Points
3. Commodities are volatile
The commodities The Metals Company is aiming to mine and sell are nickel, cobalt, copper, and manganese. All are important for energy, defense, manufacturing, and infrastructure. Commodity prices are quite high today for these metals, which has increased investment in their production. That's basically what The Metals Company is leaning into.
However, in the long term, high commodity prices tend to lead to lower commodity prices. That's because the very investment that is buoying The Metals Company's stock price tends to lead to increased production. And increased production generally helps to resolve the supply/demand imbalance that led to high commodity prices. So even if The Metals Company successfully builds its undersea mining business, that doesn't mean it will become sustainably profitable. If it is like most mining operations, profits will ebb and flow with commodity prices.
A high-risk investment
At a fundamental level, The Metals Company is a high-risk investment. Only the most aggressive investors should consider owning it. And even then, it might make sense to wait until the company is actually generating revenue.
