Is DeepGreen Metals (TMC) Stock a Good Buy After SOAC Merger Approval?
SOAC shareholders have approved the DeepGreen Metals merger. Will DeepGreen stock rise or fall after the merger, and what's the forecast?
Sep. 6 2021, Published 1:47 p.m. ET
DeepGreen Metals (TMC) is scheduled to go public through a reverse merger with the Sustainable Opportunities Acquisition (SOAC) SPAC. The merger was approved by SOAC shareholders on Sept. 3. What’s the forecast for DeepGreen stock, and will it rise or fall after the merger?
Founded in 2009, DeepGreen intends to produce metals for use in electric vehicle (EV) batteries through deep-sea mining. The company doesn’t expect to begin commercial production of battery metals until 2024.
SOAC and DeepGreen merger date:
The transaction is expected to close on or about Sept. 7. After the deal closes, the combined entity would be named The Metals Company and would be listed on the Nasdaq under the new ticker symbol TMC.
DeepGreen will receive $137.3 million in gross cash proceeds, including $27.2 million in cash held by SOAC in trust, and an additional $110.1 million in PIPE (private investment in public equity) at $10 per share.
DeepGreen stock’s forecast:
Currently, DeepGreen stock is being tracked by just one analyst, who has given the stock a buy rating and a price target of $20. The price target represents nearly 99.6 percent upside potential from the current price.
Is DeepGreen stock undervalued?
SOAC has assigned DeepGreen a pro forma implied equity value of $2.9 billion and an EV (enterprise value) of $2.4 billion, which gives it a 2025 EV-to-sales multiple of 2.0x and EV-to-EBITDA multiple of 5.7x. To compare, BHP Group and Rio Tinto Group are trading at next-12-month EV-to-sales multiples of 2.6x and 2.1x, respectively.
Will DeepGreen stock rise or fall after the merger?
I believe DeepGreen stock would be subject to the same post-merger blues that most stocks have witnessed after going public through reverse merger deals. In the medium to long term, the outlook for DeepGreen stock looks promising.
Rapid electrification has resulted in a significant increase in demand for battery metals. DeepGreen believes that its contract areas have the resources to power 280 million EVs, representing a quarter of the global passenger car fleet.
In the merger presentation, the company said that 1.4 million EVs were sold in 2020. That number is expected to grow to 7 million in 2025 and 21.8 million in 2030.
DeepGreen stock is a good long-term investment.
Targeting a method to extract metals, DeepGreen has the largest and highest quality estimated source of EV battery metals. The process of mining for metals on the seafloor is predicted to minimize production costs while also having a reduced social and environmental effect.
DeepGreen aims to mine metals from polymetallic rocks found deep in the Pacific Ocean. Nickel, cobalt, copper, and manganese are among the minerals extracted.
DeepGreen estimates to generate revenue of $251 million in 20242 and $1.2 billion in 2025. It expects to turn EBITDA–positive in 2024, and foresees its EBITDA rising to $421 million in 2025.
Investors should note that critics believe deep-sea mining is an unproven mining process with largely unknown environmental consequences. Australia prohibited seabed mining off a portion of its northern coast earlier this year, citing the possible environmental impact.
Update: The data for DeepGreen's gross cash proceeds, cash held by SOAC in trust, and additional money in PIPE has been updated according to amended numbers provided by the company on Sept. 7.
