The Metals Company has big ambitions to mine the depths of the Pacific Ocean for rare earth metals used to power everything from iPhones to electric vehicles. The problem is that it is short on cash.
The Canadian start-up went public last month through a special purpose acquisition company but has been left high and dry by one investor who was meant to hand over 60 per cent of $330m it had been counting on to start digging but has now all but disappeared.
The $200m hole left in the The Metals Company’s books by Ramas Capital Management, a little-known private equity firm run by former JPMorgan Chase analyst Ganesh Betanabhatla, has also raised deeper questions about the funding model underpinning the Spac playbook.
The Metals Company, formerly known as DeepGreen Metals, made its debut on the stock market last month after a deal with Sustainable Opportunities Acquisition Corporation six months earlier. Despite projecting that it will have no revenues for at least another three years, the company was valued at almost $3bn.
Spacs raise money by selling shares in an initial public offering and use that cash to hunt for a private business to take public through a so-called reverse merger — where a public company with no operations takes over a private company and assumes its name.
At the time of the merger, blank-cheque companies then typically announce another round of fundraising via institutional investors who are allocated shares through a Pipe, or private investment in public equity.
These investors are shown the target before a merger is announced, giving them the chance to conduct due diligence and act as a stamp of approval from Wall Street to new businesses in emerging sectors.
Pipe investors are typically allocated a fixed number of shares at the same price as the Spac IPO investors, giving them a significant stake in the operating company after the merger has completed.
The Spac market has been transformed by Pipes, which helped fuel the blank-cheque boom earlier this year with investors such as BlackRock, Wellington Management and Fidelity ploughing billions of dollars into companies going public through special purpose vehicles.
While shareholders in the Spac have the option to redeem their investment if they do not like the deal, Pipe investors are locked into their agreements and must provide the cash when the transaction is completed.
Ramas Capital’s failure to deliver on its promised $200m threatens to undermine that model as well as The Metals Company’s ambitions to mine cobalt and copper on the sea floor.
Since The Metals Company disclosed in early September that about two-thirds of its Pipe funding had not been received, shares in the company have sunk by as much as 70 per cent, to less than $4, hurting investors who bought in at the $10 offer price. Its brief moment as a meme stock, beloved by retail investors who throng online forums such as Reddit, was not enough to keep the price up.
Making things worse, more than 90 per cent of the Spac shareholders have opted to redeem their cash, leaving less than $30m in the Spac trust. The business, which is yet to generate any revenues, may need more funding before long.
The Metals Company did not name Ramas Capital when it first announced the missing Pipe money in early September, but it has since filed a lawsuit against the firm in New York’s Supreme Court in an attempt to get the funds.
According to the complaint, Ramas Capital, a small outfit registered to a residential building in River Oaks, Texas, and solely controlled by energy investor Betanabhatla, agreed to buy shares in The Metals Company at $10 a piece.
Despite Ramas Capital contributing almost two-thirds of the Pipe for SOAC’s deal with The Metals Company, its name does not appear in the press release announcing the transaction, which includes other investors, like shipping group Maersk and Allseas, a literal pipeline constructor.
The Metals Company is also pursuing Ethos Capital, a San-Francisco based private equity firm for $20m, which according to a separate complaint filed in New York’s Supreme Court has said it only has $3.6m to contribute.
Companies and their advisers are, as part of the due diligence process, expected to ensure that Pipe investors have enough cash to fulfil their obligations.
In response to questions sent by the Financial Times, The Metals Company said it was “shocked and disappointed” that Ramas Capital had failed to deliver the funds, but added that it had “sufficient capital” to meet its objectives.
The Metals Company said Betanabhatla provided documentation that showed Ramas had a $1.5bn natural resources fund backed by a sovereign wealth fund. Another person who was present during the meetings said the energy investor assured the company it had drawn “sufficient funds to fulfil its $200m commitment”.
“Due diligence on Ramas included the review of the agreements with the fund’s [limited partners] and representation that cash already in Ramas’ control was well in excess of their Pipe commitment,” the company said.
“In fact, allocations for other Pipe investors were cut back to make additional room for Ramas given their strategic contributions, such was the confidence of SOAC’s advisers in the due diligence process,” it added.
Citigroup and Nomura, intermediaries who help put together the Pipe deal, and Kirkland & Ellis, which acted as a legal adviser to SOAC, all declined to comment.
Betanabhatla, who also declined to comment, appeared in 2014 on the Forbes 30 under 30 in Finance list and was previously a managing director at Talara Capital Management. He founded Ramas Capital in 2017. However, there is little public information on its operations.
The firm has not filed updates with regulators since November 2019 and withdrew its registration as an exempt reporting adviser with the Securities and Exchange Commission in October 2020. The firm’s website has been taken down and the phone number associated with the company is not in operation.
The Metals Company said it had, as part of the due diligence process, relied on the team behind Ramas Capital, whom it deemed “credible”.
A list of employees provided by a person familiar with the deal, some of whom asked not to be named, all said they were no longer affiliated with the firm when contacted by the Financial Times.
One person said they had “terminated all relationships” with Ramas Capital in February 2020. Two others stated that they had never been officially hired by Ramas Capital but had acted as consultants during brief periods in 2021 and had since “formally ceased any and all affiliation” with the firm. They added that they had no “advanced knowledge” Ramas Capital would not meet its commitments.
If Ramas Capital does not pay up, The Metals Company will have to make do with slightly more than $100m in cash. That’s a fraction of what it expected to receive from the deal and well below the $163m in operating costs the group said, during an investor presentation in March, that it would need in the next two years.
The fear will be that — in light of warnings from hundreds of scientists that deep sea mining could result “in the loss of biodiversity and ecosystem functioning that would be irreversible on multigenerational timescales” — finding new money might prove even harder than finding metal on the sea floor.