TMC the Metals: Navigating Permit Hopes and Valuation Gaps for Long-Term Gains

Investors seeking high-risk, high-reward opportunities in the metals sector should take note: TMC the Metals (NASDAQ: TMC) now trades at an 85% discount to its $7.40 fair value target, offering a compelling entry point for patient investors.

Key Catalysts for Long-Term Potential

1. Reduced Net Loss Signals Operational Progress
   TMC narrowed its net loss to $0.06 per diluted share in Q1 2025, an improvement from the prior year's $0.08 loss. While revenue remains at zero due to its early-stage exploration phase, this reduction in losses demonstrates cost discipline and execution. For a company focused on deep-sea nodule extraction for EV batteries and energy storage, this is a critical step toward eventual profitability.

2. Permit Applications: A Lifeline for Future Growth
   TMC's progress on securing permits for its polymetallic nodule projects—particularly its application to the International Seabed Authority (ISA)—is a key catalyst. Positive regulatory outcomes could unlock access to deposits rich in cobalt, nickel, and copper, directly aligning with the soaring demand for critical minerals. Success here would validate TMC's business model and attract institutional investors.

3. Index Inclusion Brings Institutional Attention
   TMC's recent inclusion in the S&P MidCap 400 Index has already driven inflows from passive funds tracking the benchmark. This visibility could stabilize liquidity and reduce volatility, as index funds are less likely to exit during short-term dips.

The $7.40 Fair Value Target: A Discount Too Good to Ignore

At a recent price of $4.21, TMC trades at a 85% discount to its consensus fair value target of $7.40 (per analysts' estimates). This valuation gap is stark even when considering the company's risks. A highlights its underperformance versus peers—a divergence that may correct if permits materialize and investor sentiment shifts.

Risks and Challenges

• Zero Revenue and Liquidity Concerns: TMC's reliance on future revenue streams means liquidity is a critical concern. Its Q1 2025 liquidity of $43.8 million raises questions about near-term funding needs.
• Execution Risks: Deep-sea mining remains unproven at scale, with technical, environmental, and regulatory hurdles yet to be fully addressed.
• Market Volatility: The stock's bid-ask spread and post-earnings volatility (e.g., a 3% drop after its Q1 report) underscore its sensitivity to macroeconomic shifts and investor sentiment.

Why Buy-and-Hold Investors Should Consider TMC

Despite these risks, TMC's 170.75% total shareholder return over three years—far outpacing the metals and mining industry's 0.4% growth—suggests a track record of capital appreciation during favorable cycles. The $7.40 fair value target implies a 75% upside from current levels, making the stock a high-beta play on the EV battery metals boom.

For investors with a 5+ year horizon, TMC's valuation gap and strategic positioning in a sector poised for exponential growth outweigh near-term risks. The company's permit timeline (e.g., 2026 decisions on key applications) provides clear catalysts to watch, while its inclusion in major indices reduces liquidity concerns over time.

Conclusion

TMC the Metals is a high-risk, high-reward opportunity for investors willing to bet on its long-term potential in the critical minerals space. With a valuation gap of 85%, progress on permits, and institutional inflows from index inclusion, now could be a rare entry point. While volatility is inevitable, the $7.40 fair value target and the EV battery metals tailwinds make TMC a compelling buy-and-hold candidate for portfolios seeking exposure to the next wave of industrial innovation.

Action Item: Consider a staged entry into TMC, averaging down during dips below $4.00 while monitoring regulatory updates and liquidity metrics. This strategy balances risk with the potential for asymmetric upside.

Disclaimer: This analysis is for informational purposes only. Always conduct thorough due diligence before making investment decisions.