It was the best of times, it was the worst of times. It was the age of wisdom, it was the age of foolishness. We could go on, but you get the picture. It might be boom times for climate tech, but climate tech SPACs? Not so much. With few exceptions, they’re trading well below their initial price.
Yet there might be reason to think that not all climate-focused SPACs will tank.
SPACs as a whole haven’t had the best track record. The vast majority of companies that have gone public via SPAC since 2021 now trade well below their merger prices, according to SPAC Track. It doesn’t matter the sector — SPACs as a whole haven’t held up.
It’s hard to see how that would go any differently for a recently announced transaction involving Sam Altman’s AltC Acquisition Corp. and Oklo, a nuclear fission company where Altman is both investor and board chair.
AltC has been searching for an acquisition for more than two years. The shell company gave itself until July 12 to find a target and sign a letter of intent. Since the launch of OpenAI’s ChatGPT, where Altman is CEO, observers speculated that AltC might merge with an AI company of some sort. Following the launch of ChatGPT, AltC’s share price rose from $9.86 to a peak of $10.70 on May 30. It was down as much as 2% the day the merger with Oklo was announced.
Clearly, Oklo was not what some investors had in mind. Its price has held up reasonably well since the announcement, though. Still, there’s reason to doubt that will last.
Hardware companies seem like a particularly poor fit for the SPAC process, especially if they’re a ways out from significant revenue. Hardware is, well, hard. It takes time to design, refine, manufacture, scale up and sell. Those last three are especially capital intensive. There’s a risk that a company will raise capital via a SPAC combination, but not enough to make it to commercial viability, possibly putting them in a position of running out of cash without another fundraising mechanism within reach. (Something that we’ve seen in the EV space.)
In the nuclear space, those problems are magnified. In the U.S. especially, new fission power plants take decades to design, permit and build, and they often come in way over budget. Though fission produces about 18% of the country’s electricity, according to the Energy Information Administration, only two new reactors have been turned on in the last decade.
Oklo is betting that its small modular reactor (SMR) design can help break the logjam that fission finds itself in. Most new reactors produce around a gigawatt of electricity. They’re massive, highly specialized installations. Oklo’s SMR, on the other hand, will produce only 15 megawatts, enough for about 12,000 homes. The startup is hoping that by making smaller reactors using a design it claims is safer than existing fission reactors, it’ll find buyers for more units, allowing them to leverage economies of scale that could bring down the price of future installations.
Oklo has a buyer for its first unit, the Idaho National Laboratory. Problem is, the startup still doesn’t have the required permit from the Nuclear Regulatory Commission. Last year, the commission denied its application, citing “significant information gaps.” Oklo says it’s working on a revised application that it hopes to submit by 2024. The last permit took the NRC nearly two years to review.
In other words, Oklo is still years from material revenue, and as a publicly traded company, it seems hard to imagine that its future will look much different from other hardware companies that have struggled after de-SPACing. The company hopes to raise $500 million through the merger, though the final amount could be much lower if redemption rates are higher than expected. (Given the speculation that AltC would merge with an AI company, that wouldn’t be surprising.)
But that doesn’t mean climate-focused SPACs are inherently bad. ACG Acquisition Company Ltd. is up 10% above its initial offering. The company is also chasing a different sector, though one that’s also challenging and capital intensive: mining.
ACG is perhaps an unusual case in the SPAC world. It’s not merging with a startup looking for a fast-track to the public markets. Instead, it’s going to buy two mines in Brazil — one that produces nickel and another that produces copper and gold.
Already, ACG has raised $100 million each from automaker Stellantis, mining giant Glencore, and investment firm La Mancha Resource Capital, according to The Wall Street Journal. Volkswagen, through its PowerCo subsidiary, has committed another $100 million as a prepayment for nickel that it’ll use in its lithium-ion batteries. The acquisition company is also raising $300 million in debt from big banks like Citigroup, and it hopes to bring in another $300 million from new share sales.
The difference with ACG is that it’s tackling an industry that is hot today. At least one major customer has already committed to significant purchases, and demand is only likely to increase as the switch to electric vehicles quickens. ACG is predicting that its mines will generate $270 million in EBITDA this year.
Oklo doesn’t have that same luxury. Its reactors might be cheaper than existing multi-billion-dollar designs, but an electron is an electron. The startup still has to compete against solar, wind and batteries, all of which continue to get cheaper and don’t face the sort of regulatory hurdles that fission does.
SPACs have gotten a bad rap in the last year, perhaps rightly so. Plenty of promising companies (and their investors) have been lured by the song of quick cash only to crash on the rocks of market expectations regarding publicly traded companies. EV and climate tech firms, many of which are still many quarters or years from meaningful revenue, have been hit particularly hard. But ACG shows that SPACs aren’t necessarily all bad.
With automakers scrambling to secure critical minerals from outside China, ACG saw the market opportunity and leapt at it. The company may still fail — mining is a risky business, and there’s always execution risk — but it won’t be because it rushed a public offering before the market was ready.
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