Vancouver, Canada-based deep-sea minerals exploration company TMC the metals company Inc. (TMC) explores for and mines nickel sulfate, cobalt sulfate, copper, and manganese. The company holds interest in three polymetallic nodule contract areas in the Clarion Clipperton Zone of the Pacific Ocean. TMC’s recent partnership with Allseas Group to develop a commercial nodule collection system has helped the stock gain 4.6% in price over the past five days.

However, the minerals exploration company’s stock has plunged 73.9% over the past six months. This can be primarily attributed to a dip in the benchmark three-month nickel contract last week, amid Russia’s intensifying conflict in Ukraine and a heavy sell-off in the international metal markets.

TMC’s stock is currently trading 82.5% below its 52-week high of $15.39. Also, numerous regulatory uncertainties and the current geopolitical instability could have a significant impact on its business. In addition, the uncertainty surrounding the commercialization of the seafloor polymetallic nodule deposits that TMC intends to develop could be significant. We think this volatile backdrop could cause the stock to retreat further.

Here is what could influence TMC’s performance in the near term:

Challenges in Business

TMC is still in its pre-revenue stage. It will not generate any revenues until the company receives an exploitation contract from the ISA and successfully collects and processes polymetallic nodules for commercial sale. In addition, zero emissions and carbon taxes regulations could significantly increase the deep-sea mining company’s operational costs. Since TMC and its wholly-owned subsidiaries NORI and TOML are subject to potential risks and liabilities associated with environmental pollution, the additional costs incurred to remedy the pollution could make its operations more expensive.

Class Action Lawsuits

Last December, Bronstein, Gewirtz & Grossman, LLC, and the Schall Law Firm filed a class-action lawsuit against TMC alleging violations of the federal securities laws. It is alleged that the mining company made materially misleading statements in relation to the acquisition of Tonga Offshore Mining Limited that was owned by insiders. Levi & Korsinsky, LLP, and Bernstein Liebhard law firm have also filed a class-action lawsuit against the company on behalf of its investors.

Dismal Financial Performance

During its fiscal third quarter, ended Sept. 30, 2021, TMC’s operating loss totaled $37.18 million, up 451% year-over-year. Furthermore, the company’s exploration expenses stood at $23.85 million, representing a  423.4%increase from its year-ago value. In addition, TMC’s loss and comprehensive loss amounted to $36.65 million for the quarter compared to $6.79 million in the prior-year quarter. And  its loss per share came in at $0.18 versus a $0.04 loss per share in the third quarter of 2020.

The company’s trailing-12-month ROTC, ROA, and ROE came in at negative 156.8%, 88.1%, and 261.3%, respectively. And its trailing-12-month cash from operations stood at a negative $33.52 million.

POWR Ratings Reflect Bleak Prospects

TMC has an overall F rating, which translates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. TMC has a D grade for Quality and a C for Stability. The stock’s negative profit margin and volatility are reflected in these grades.

Also, it has an F grade for Value. This is consistent with the company’s 5.70x trailing-12-month Price/Book ratio, which is 144.6% higher than the 2.33x  industry average.

In addition to the grades we have highlighted, one can check out additional TMC ratings for Sentiment, Momentum, and Growth here.

TMC is ranked #41 of 44 stocks in the D-rated Miners – Diversified industry.

Bottom Line

With nickel prices falling 12% as heavy selling continues in the metal markets, the shares of TMC have taken a hit. Furthermore, concerns related to its  ISA Exploitation Contract approval and growing near-term costs due to regulatory policies could cause the stock to witness a further pullback in the coming months. Also, its weak profitability and financials could limit its growth prospects. As such, we think the stock is best avoided now.

How Does TMC the metals company Inc. (TMC), Stack Up Against its Peers?

While TMC has an overall POWR Rating of F in our proprietary rating system, one  might want to consider investing in A-rated (Strong Buy) stocks in the Miners – Diversified industry, such as Lundin Mining (LUNMF) and Glencore plc (GLNCY).

TMC shares fell $0.02 (-0.74%) in premarket trading Monday. Year-to-date, TMC has gained 30.29%, versus a -6.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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