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A solution to battery metals crunch awaits in ocean – DeepGreen, SPAC CEOs


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A solution to battery metals crunch awaits in ocean – DeepGreen, SPAC CEOs

SNL Image

Box cores are used to evaluate polymetallic nodule resources containing valuable metals in the deep sea. DeepGreen Metals Inc., a company that develops such resources, is going public through a deal with Sustainable Opportunities Acquisition Corp.
Source: DeepGreen Metals Inc.

A deal between a blank-check firm and a Canadian developer aims to tap into deep ocean resources to become the world's largest producer of metals for electric-vehicle batteries while keeping its environmental footprint and costs low.

DeepGreen Metals Inc. announced March 4 that it will combine with Sustainable Opportunities Acquisition Corp., a special purpose acquisition company, to create a combined entity called The Metals Co. with an estimated equity value of about $2.9 billion. The deal with the SPAC offers DeepGreen the speed and certainty needed to move operations forward, DeepGreen Chairman and CEO Gerard Barron said in an interview with S&P Global Market Intelligence.

"It's all of a sudden started to dawn on people that, if we're going to move away from fossil fuels, we're going to need to produce billions of tons of metals," Barron said. "The externalities from fossil fuels are now very well understood. We haven't given the same attention to onshore mining practices, and actually, when you look into them, it's not all that pretty."

Unattached polymetallic nodules found in the deep sea contain metals including cobalt, nickel, copper and manganese. DeepGreen estimates that its subsidiaries' exploration contracts in the Clarion-Clipperton Zone of the Pacific Ocean host sufficient resources for 280 million electric vehicles.

Supplies of battery metals present a challenge as the world looks to transition to less carbon-intensive forms of energy amid an increased focus on environmental, social and governance issues. UBS analysts warned in a March 4 research note that metals suppliers are not ready to meet the wave of demand from the growing electric vehicle market. In 2020, Market Intelligence published research pointing to a lack of major nickel discoveries hampering battery-grade nickel availability.

According to its announcement, DeepGreen aims to meet the growing demand for metals with a commitment to ocean health and with a "clear stop date in mind." The company envisions an eventual transition to recycling metals rather than extracting them.

"We have a firm view that extractive industries need to stop and that we can only do that when we move to a circular economy," Barron said. "We've probably got 40 to 50 years before a lot of extractive industries will be sunsetting because consumers just won't want to buy products that aren't built with recycled materials."

SNL Image

Warwick Miller, lead geologist with DeepGreen, holds a polymetallic nodule from a newly surfaced box core during a recent environmental research campaign.
Source: DeepGreen Metals Inc.

However, several groups and researchers have questioned the use of seabed resources as a means to deal with growing metals demand. The World Wildlife Fund released a report in February warning the industry may present significant risks to deep-sea ecosystems and biodiversity with potential effects on fisheries, metal and nutrient cycles and more.

"Ultimately, moving to a low-carbon future will require major structural changes in our economy and in our lifestyles — not a rush to exploit the resources of previously untouched areas of our planet," the environmental organization concluded in the report.

Greenpeace, another environmental organization, has also been a vocal opponent of extracting materials from the ocean floor. DeepGreen has refuted such opposition and Barron said the company is closely studying its impacts on ocean health.

"There's no perfect solution to this problem around climate," Barron said. "Of course, what we believe and what the science is proving is that we can collect these nodules and turn them into battery metals and massively compress those ESG impacts."

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Sustainable Opportunities Acquisition Corp., or SOAC, bills itself as an ESG-focused SPAC and holds over $300 million in trust, according to the deal announcement. SOAC looked at over 100 companies before advancing the deal with DeepGreen, including many in the renewable energy and electric vehicle sectors.

SOAC CEO Scott Leonard told Market Intelligence that DeepGreen aligns with one of its underlying investment theses: "Electrification is here today, but the pinch point is going to be at the metals supply chain." Leonard said the combined company will offer investors a vehicle for both a good return on investment and addressing climate change.

"We think that the valuation that we have and the upside of this business mean that this is an investment that really could do quite well," Leonard said. "We know that all civilizations are disruptive to the planet. All types of solutions require new natural resources. We think this natural resource is far superior to any other option."

The Metals Company targets commercial production of battery metals as soon as 2024. DeepGreen and SOAC expect to close the combination agreement in the second quarter of 2021. The combined company will continue to be led by Barron, while Leonard is joining the board.