The Metals Company Is Riding the Critical Metals Boom. Here's Why I Still Wouldn't Touch It.

The Metals Company (NASDAQ: TMC) believes it's sitting on a treasure trove of critical metals. The problem is that they're buried under a literal ocean of water. Additionally, it has some big regulatory and execution risks. Those are just some of the reasons why I won't touch this metals stock.

However, it's an interesting company to keep an eye on, given the demand boom for critical metals.

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Buried treasure

The Metals Company holds rights to a massive stretch of seabed in the Pacific Ocean off the U.S. West Coast known as the Clarion Clipperton Zone. It holds an estimated 1.6 tonnes of polymetallic nodule resources. These potato-sized rocks contain nickel, copper, cobalt, and manganese. The company estimates that the combined net present value of its resources is $23.6 billion. Those metals are critical for electric vehicle batteries, renewable energy, and many other applications.

It's taking a unique regulatory path for approval to extract these resources. While the U.N. would normally govern deep-sea mining under its affiliated International Seabed Authority, it has never finalized commercial mining rules. That's leading The Metals Company to seek NOAA's approval under the Deep Seabed Hard Mineral Resources Act of 1980, which is a faster, clearer regulatory path. It currently expects to receive a permit before its late 2027 target to commission its offshore collection system. The company is also working to secure funding from the U.S. government to support its plan to build module processing and refining capacity in the U.S.

Why I'm going to pass for now

There's no doubt that The Metals Company holds immense promise. However, the risk is just as big, if not greater.

A major risk is its chosen regulatory path. It's bypassing the international approval framework by going directly to U.S. regulators. Even if NOAA approves the permit, it might not receive the needed international recognition as the final authority. Dozens of countries have already called for a moratorium or a pause on deep-sea mining due to the potential impacts on the marine environment. It will likely face legal challenges if it moves forward after receiving a NOAA permit.

The risks don't end there. The Metals Company is a pre-revenue company that's years away from production (at the earliest, 2027). It ended the second quarter with $143 million in cash after burning through $20.1 million in the period. It's going to need a cash infusion at some point, either through government funding or capital market transactions, to fund its operations and the build-out of its facilities and equipment. Even the build-out is risky, as this is a first-of-its-kind project that isn't yet commercially proven.

There are better ways to bet on growing metals demand

The world will need a lot more nickel, cobalt, and copper in the coming years to support electric vehicles, battery storage, and AI data center demand. The Metals Company could one day play a critical role in supporting this demand. However, it's a risky bet due to its regulatory strategy and financial picture. That's why I don't plan to touch the stock for now, and would consider buying a more established metal stock while I wait to see how these risks play out.

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.