Prospective deep-sea miners say operations would still be profitable despite the recent downturn in metal prices.

Companies are racing to develop ways to recover small rocks known as polymetallic nodules found at the bottom of the ocean in the hopes of profiting off the contained battery metals — nickel, cobalt, manganese and copper — despite ongoing debate about potential environmental damage.

But as miners wait for regulations, metal prices have dropped due to slower-than-expected electric vehicle demand and a fast ramp-up in production from Indonesia. Companies say nickel will make up a majority of profits from deep-sea mining, but the nickel price has come down from a high set in 2022.

A short squeeze set the London Metal Exchange cash price above $40,000/t in March 2022, but nickel continued to trade at or above $30,000/t through mid-2022. The nickel price has dropped 42.1% since the beginning of 2023, from $29,886/t on Jan. 2, 2023, to $17,290/t as of March 19. In 2024, the nickel price reached a three-year low of $15,660/t on Feb. 6.

Prospective seafloor miners The Metals Co. Inc. (TMC), Loke Marine Minerals AS and Impossible Metals Inc. all said they would remain profitable at current nickel prices, while TMC also argued that it has sufficiently taken into account prospective operating costs in its financial model despite industry skepticism.

"I know there's a lot of people who are opponents of this industry who will conveniently say, 'Because there is progress on the regulatory front, now let's try to attack the economics,' and we venture that those people do not have a good sense about what it takes to invest in a mining project," TMC CFO Craig Shesky told S&P Global Commodity Insights.

Price point

TMC is the most advanced company in the deep-sea mining space and is planning to apply for an exploitation license in July, though a roadmap for the UN-mandated International Seabed Authority (ISA) suggests the rules will not be in place until 2025.

The Canada-based company expects nickel to comprise about half of its revenue and estimates it would still be profitable at nickel prices below $10,000/t, according to Shesky.

"Deep-sea minerals can support even lower metal prices than today," Oliver Gunasekara, CEO of Impossible Metals, said in an email. Impossible Metals is a US-based provider of deep-sea mining technology.

Loke Minerals, a Norwegian company aiming to mine international waters as well as the national waters of Norway, told Commodity Insights that it would break even with nickel prices at $10,000/t, cobalt at $18,000/t and copper at $7,000/t.

"It is more correct to look at metal price combinations," Loke Minerals CEO Walter Sognnes said.

Impossible Metals and TMC claim the profitability of deep-sea mining comes from the fact that the polymetallic nodules have a high nickel-equivalent grade. Both companies say the seafloor nodules have a grade of 1.3% nickel, increasing to 3.2% when byproduct metals are included. Land-based mining grades range between 1.3% and 3%, according to a report by the Australian government.

The companies say they can compete with Indonesian nickel, which has flooded the market with cheap product and tripped miners in the top end of the global cost curve.

"This really is the only other scalable resource that can come online in time and at a size sufficient enough to challenge a lot of the Indonesian nickel laterite [ore] that's coming through Chinese investment," TMC's Shesky said.

Cost concerns

Industry participants and environmental activists argue that investors should take a cautious approach to the numbers released by prospective miners as buying, maintaining and navigating industry equipment in the deep ocean is no easy feat.

"The Metals Company is underestimating how much it will cost to bring nodules from the sea floor to the surface and how much it will cost when things go inevitably wrong at depth, at pressure, and when you can't communicate," said Bobbi-Jo Dobush, legal officer at The Ocean Foundation and co-author of a February report arguing against the business case for deep-sea mining.

TMC lifted 3,000 metric tons of nodules out of the sea in a November 2022 pilot project, after which the company increased the expected annual capacity of its first vessel from 1.3 million to 3 million wet metric tons.

In the company's initial assessment of its NORI project in 2021, TMC said it plans to target about 12.5 million metric tons of wet nodules per year at full production.

"They're talking about bringing up material on a 24/7, 365 basis; that is two orders of magnitude more than what they did in their pilot project," said Victor Vescovo, private equity investor, retired naval officer and undersea explorer. "I believe that they are significantly underestimating the technical problems that they will have to troubleshoot."

TMC has argued that possible stoppages are factored into the company's operating schedule.

"As part of our economic model, we've assumed 270 days of operation out of 365 days per year," Shesky said. The company still expects to be profitable and free cash flow positive as it works to reach full production by 2030, the executive added.

Budget tightening

TMC acknowledged that current market prices have caused the company to slash its capital expenditure estimates.

TMC initially projected capital costs of $10.61 billion for its NORI development, with onshore costs making up 45.1% of the total, and operating costs estimated at $144.85/t of wet nodules collected. The company is planning to release a "capital-light" model around the third quarter of 2024.

"That 2021 model is a useful guide showing a 60% EBITDA margin ... but it was just a point-in-time analysis," said Shesky. "We now pivoted to a model where we trade away some EBITDA margin to our partners. You're still left over with a very healthy margin for TMC and the internal rate of return for our shareholders actually goes up significantly because invested capex goes down to a diminutive level."

The prospective miner has dropped plans to build and operate four rotary kiln-electric furnace processing facilities, and it secured a binding agreement with Pacific Metals Co. Ltd.in November 2023 to contract out mineral processing operations.

In addition, TMC will not buy seagoing vessels and will instead use those provided by a contractor in exchange for a production-based fee.