Key Points
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Geopolitical dynamics could help TMC accelerate its progression to commercialization.
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The company has yet to generate any sales from its mining and processing operations.
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TMC will probably have delivered incredible returns if it reaches the point where it’s paying dividend, but that’s a speculative bet.
TMC The Metals Company (NASDAQ: TMC) has emerged as a hot play amid rapidly shifting dynamics in the minerals market. The company specializes in the collection of deep-sea nodules that contain a variety of valuable minerals including cobalt, nickel, copper, and manganese. Some investors are also betting that the company could become a player in the rare-earth minerals space.
TMC’s business is still in a pre-revenue state, and the company went public through a merger with a special purpose acquisition company (SPAC) in September 2021. Across its history as a publicly traded company, TMC has never paid a dividend. Could the stock set investors up for life if the company starts returning cash directly to shareholders with regular dividend payments?
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A pocket watch and cash.
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TMC is probably a long way away from paying a dividend
With relations with China heading in an increasingly adversarial direction in recent years, securing access to critical minerals through other channels has become increasingly important for the U.S. and its allies. China accounts for a huge chunk of of global mineral excavation and refining, and its share of the rare-earth minerals market is even more pronounced — coming in between 60% and 70% of mining extraction and over 90% of refining.
Amid this backdrop, TMC’s timelines for achieving the necessary regulatory approvals and launching and scaling its business have probably been accelerated. On the other hand, it’s important to keep in mind that the business has yet to generate any revenue — let alone any profit or free cash flow.
With the third-quarter report it published in November, the company announced that it had a cash position of roughly $115.6 million. While that gives TMC a sizable capital base that it can use to launch and scale commercial nodule-collection operations, the company will probably be operating at a loss upon launching operations. It’s likely that the minerals specialist will also need to raise additional funding and will probably move to do so by selling new stock or by taking on debt.
Almost definitionally, scenarios in which TMC is paying a substantial dividend at regular intervals assumes that the company has successfully launched and scaled its mineral-sourcing operations to the point of profitability. Even after the company starts generating positive earnings and free cash flow, it will probably be years before it would opt to being paying a dividend.
While investors generally love dividends, young and fast-growing companies often have greater incentive to reinvest cash flows to drive additional growth. Paying a dividend cuts into resources that can be used to fund continued and expansion and is often done when a company has reached a point where returning cash to shareholders appears to be a better use of capital than making additional bets to drive growth.
If TMC eventually winds up generating enough income and free cash flow to justify paying regular dividends, it’s virtually guaranteed that its share price will have rocketed far above current levels. On the other hand, investors should understand that it’s very unlikely that this will happen anytime in the near future.
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Keith Noonan 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.
