Deep-sea battery metal developer DeepGreen going public with SPAC to become $2.9B (equity value) The Metals Company
DeepGreen Metals Inc., a developer of lower-impact battery metals from unattached seafloor polymetallic nodules (earlier post), has entered into a definitive business combination agreement with Sustainable Opportunities Acquisition Corporation, a special purpose acquisition company (SPAC) with a dedicated ESG focus and deep operational and capital market capabilities in the energy and resource sectors.
The transaction represents a pro forma equity value of US$2.9 billion (assuming no redemptions) for the combined company, which will be renamed “TMC the metals company Inc.” and operate as The Metals Company upon closing.
DeepGreen is developing a new, scalable source of EV battery metals in the form of polymetallic nodules found unattached on the seafloor in the Pacific Ocean. The estimated resource on the seafloor in the exploration contract areas held by the company’s subsidiaries is sufficient for 280 million EVs—a quarter of the global passenger car fleet.
Seafloor polymetallic nodule. The nodules are unattached to the seafloor; i.e., there is no need for drilling and blasting. The nodules contain high grades of four metals, with few hazardous elements. Ranging from 2-10 cm in diameter, the nodules are easy to handle. The microporous nodules are also easier to smelt. Source: DeepGreen
The development of this resource offers an abundant, low-cost supply of critical raw materials for EV batteries and wiring including nickel, cobalt, copper and manganese, with a lower lifecycle ESG impact than conventional mining. (Earlier post.) Ensuring this critical supply of battery metals is essential to the transition from internal combustion engines to EVs, which faces the following risks, according to DeepGreen:
A slump in discovery of new metal deposits could lead to shortages in key metals such as nickel and copper from 2024-2025 onwards;
Rising raw materials prices risk undermining EV manufacturers’ efforts to drive down the cost of EV batteries necessary for mass adoption; and
Like fossil fuel extraction, conventional metals extraction comes at a steep cost to people and the planet, leading to vast deforestation in some of the most biodiverse areas on the planet. This is generating the world’s largest industrial waste stream and gigatons of emissions, poisoning ecosystems and people’s health, and driving potential labor exploitation including child labor.
The company’s ambition is to become the world’s largest developer and producer of EV battery metals through a responsible approach with the lowest lifecycle ESG impact and low production cost.
Sourcing battery metals is the biggest hurdle facing the clean energy transition, and the pipeline of new mining projects on land is insufficient to meet rising demand. We looked at over 100 companies, many of them in the EV and renewable energy space. DeepGreen stands above the rest. It offers a real, scalable solution to the raw materials problem, at a low production cost and with a significant reduction in the ESG footprint of metals. Assuming full-scale production, we expect The Metals Company to be among the lowest cost nickel producers in the world.
We are convinced that The Metals Company is the ultimate answer to our thorough search for meaningful ESG impacts combined with tremendous financial upside.—Scott Leonard, CEO of SOAC
The reality is that the clean energy transition is not possible without taking billions of tons of metal from the planet. Seafloor nodules offer a way to dramatically reduce the environmental bill of this extraction. We are getting into this industry with a deep commitment to ocean health and a clear stop date in mind. The plan is simple: produce better metals to supply the EV transition, while building up enough metal stock to stop extracting from the planet and enable society to live off recycled metals.—Gerard Barron, DeepGreen Chairman and CEO
Transaction overview. SOAC, which currently holds more than US$300 million in trust, will combine with DeepGreen Metals Inc. Upon closing, DeepGreen will be renamed to operate as The Metals Company and is expected to begin trading under the ticker symbol TMC.
The transaction reflects a pro forma equity value for TMC of approximately US$2.9 billion (assuming no redemptions) and enterprise value of US$2.4 billion, representing an enterprise value to EBITDA of 1.2x as measured on the company’s estimated 2027 EBITDA of approximately US$2 billion, and a price to net asset value (NAV) of 0.35x as measured on the exploration area of the company’s subsidiary, NORI-D, with potential substantial upside as the full resource is developed.
The transaction includes an upsized US$330 million fully committed common stock Private Investment in Public Equity (PIPE) at US$10.00 per share, anchored by an international consortium of strategic and institutional investors, including Allseas, adding to the list of existing strategic investors such as Maersk Supply Service and Glencore.
The transaction, which has been unanimously approved by the Boards of Directors of both DeepGreen and SOAC, is expected to be completed in the second quarter of 2021 and is subject to the approval of SOAC’s and DeepGreen’s shareholders and other customary closing conditions, including a registration statement being declared effective by the SEC.
The combined company is expected to have approximately US$570 million in cash, assuming no redemptions, as part of the business combination, facilitating plans for The Metals Company to start commercial production of battery metals as soon as 2024.
The combined company will continue to be led by Gerard Barron, DeepGreen Chairman and CEO. Scott Leonard, CEO of SOAC, will join the board of The Metals Company.
DeepGreen. DeepGreen Metals Inc. is a Canadian developer of lower-impact battery metals from seafloor polymetallic nodules, on a dual mission: (1) supply metals for the clean energy transition with the least possible negative environmental and social impact and (2) accelerate the transition to a circular metal economy. The company through its subsidiaries holds exploration and commercial rights to three polymetallic nodule contract areas in the Clarion Clipperton Zone of the Pacific Ocean sponsored by the governments of Nauru, Kiribati and the Kingdom of Tonga, which are regulated by the International Seabed Authority.
DeepGreen has developed a process for producing metals from polymetallic nodules with near-zero solid waste, eliminating the need for tailings dams on land.
DeepGreen through its subsidiaries has exploration rights to the world’s largest private resource of unattached polymetallic nodules and has made significant progress on project development, including: attracting world-class strategic partners and investors; completing 10 resource definition and environmental campaigns to its exploration areas in the Pacific Ocean; the expected piloting of the offshore nodule collector system together with Allseas next year; and completing a zero-solid-waste pilot processing plant program with Hatch, FLSmidth and Glencore this year.
DeepGreen is also participating in a multi-year environmental and social impact assessment, in partnership with some of the world’s top ocean scientists, to minimize risks for all stakeholders and comprehensively assess the impact of collecting nodules from the ocean floor. This business combination will provide the new entity, The Metals Company, with the capital required to get through a feasibility study and into potential revenue as early as 2024, when many analysts anticipate nickel and copper shortages from current sources.