What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-09 compared with 2021-11-15 · 181 added, 294 removed, 132 unchanged (78% of the section changed)

1 unchanged sentence

The following discussion and analysis provide information which management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition.

The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto for the year ended December 31, 2020 contained in our proxy statement/prospectus filed with the SEC on August 13 , 2021 (the “proxy statement/prospectus”) .

This discussion contains forward looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this Quarterly Report on Form 10-Q.

The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto for the year ended December 31, 2021 contained in our 2021 Annual Report on Form 10-K.

This discussion contains forward looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in “Risk Factors” in Item 1A of Part II of the 2021 Annual Report on Form 10-K as updated and/or supplemented in subsequent filings with the SEC.

Actual results may differ materially from those contained in any forward-looking statements.

1 unchanged sentence

and its consolidated subsidiaries.

The unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2021 and 2020, respectively, present the financial position and results of operations of TMC the metals company Inc.

The unaudited condensed consolidated interim financial statements for the three months ended March 31, 2022 and 2021, respectively, present the financial position and results of operations of TMC the metals company Inc.

and its consolidated subsidiaries.

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to gives effect to the restatement of our financial statements, as more fully described in Note 2 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

For further detail regarding the restatement, see “Restatement of Previously Issued Quarterly Financial Statements” below and Part II, Item 4, Controls and Procedures included in this Quarterly Report on Form 10-Q.

We are a deep-sea minerals exploration company focused on the collection, processing and refining of polymetallic nodules found on the seafloor in international waters of the Clarion Clipperton Zone ("CCZ"), about 1,300 nautical miles south-west of San Diego, California.

These nodules contain high grades of four metals (nickel, copper, cobalt, manganese) critical for the transition to clean energy and infrastructure buildout.

We are a deep-sea minerals exploration company focused on the collection and processing of polymetallic nodules found on the seafloor in international waters of the Clarion Clipperton Zone ("CCZ"), about 1,300 nautical miles south-west of San Diego, California.

The CCZ is a geological submarine fracture zone of abyssal plains and other formations in the Eastern Pacific Ocean, with a length of around 7,240 km (4,500 miles) that spans approximately 4,500,000 square kilometers (1,700,000 sq mi).

Polymetallic nodules are discrete rocks that sit unattached to the seafloor, occur in significant quantities in the CCZ and have high concentrations of nickel, cobalt and copper in a single rock.

These four metals contained in the polymetallic nodules are critical for the transition to clean energy.

Our resource definition work to date shows that nodules in our contract areas represent the world’s largest estimated undeveloped source of critical battery metals.

We plan to use polymetallic nodules to produce three types of metal products:

(i) feedstock for battery cathode precursors (nickel and cobalt sulfates), (ii) copper cathode for wiring for electric vehicles (“EV”) and renewable energy storage markets, and (iii) manganese silicate for manganese alloy production required for steel.

Our mission is to build a carefully managed metal commons - a shared stock of metal that can be used, recovered and reused for generations to come.

We believe our company is well positioned to meet the growing demand for critical battery metals as follows:

● Increasing demand :

The response to the climate change crisis is increasing demand for EVs and renewable energy storage.

In August, the United States (“U.S.”) government announced a target of 50% EV sales by 2030.

The announcement was followed by a ramp-up of industry commitments to build battery cell manufacturing gigafactories in the U.S.

To manufacture battery cells, gigafactories will need critical battery metals like nickel, cobalt, manganese and copper.

● Rising battery metal and battery cell prices:

Commodity prices for metals like nickel and copper have recently reached multi-year highs and battery cell production costs are rising for the first time since the introduction of gigafactories going back to 2014.

● Availability of abundant and high-grade resource off the U.S.

western seaboard:

There are four key battery metals (nickel, copper, cobalt and manganese) in relatively high concentrations in a single nodule and we believe our contract areas have estimated in situ quantities of these metals equivalent to the requirement for 280 million EVs, roughly the size of the entire U.S.

passenger vehicle fleet on the road today.

● Opportunity to re-shore battery metal production in the U.S.:

Current supply chain of battery materials to the U.S.

is approximately 50,000 miles long and is predominantly controlled by nations and companies outside of the U.S., which is leading to increasing concerns about supply chain security in the U.S.

and interest in breaking the U.S.

mineral dependence by re-shoring battery material supply chain in the U.S.

Our resource is 1,300 nautical miles from San Diego and we believe we can eventually process and refine our polymetallic nodules in the U.S.

● Opportunity to reuse existing assets and skills:

We believe the downturn in new offshore oil and gas exploration is creating an opportunity for us to partner with offshore service providers with deep operational experience in subsea environments gained in the oil and gas industry and with existing assets that can be repurposed for our offshore operations.

● Lower expected production cost:

At our potential steady state production, we expect to be the second lowest cost nickel producer in the world.

● Lower expected environmental, social and governance footprint :

Based on several lifecycle assessments (“LCAs”) and an LCA white paper that we commissioned and certain of our executive officers’ co-authored, we expect a potential 70-99% reduction of most lifecycle environmental, social and governance impacts as compared to metal production from conventional land sources by developing a new type of high-grade multi-metal source found on the abyssal plain - a low biomass, low carbon sequestration deep-sea environment removed from human settlement.

The Company holds exclusive exploration and commercial rights to three polymetallic nodule contract areas in international waters in the CCZ.

Exploration and exploitation of seabed minerals in international waters is regulated by the International Seabed Authority (“ISA”), an intergovernmental organization established in 1994 pursuant to the United Nations Convention on the Law of the Sea (“UNCLOS”).

If we are able to collect polymetallic nodules from the seafloor on a commercial scale, we plan to use such nodules to produce three types of metal products:

(i) feedstock for battery cathode precursors (nickel-copper-cobalt matte and/or nickel and cobalt sulfates) for electric vehicles (“EV”) and renewable energy storage markets, (ii) nickel-copper-cobalt matte and/or copper cathode for EV wiring, clean energy transmission and other applications and (iii) manganese silicate for manganese alloy production required for steel production.

Our mission is to build a carefully managed shared stock of metal (a “metals common”) that can be used, recovered and reused for generations to come.

Significant quantities of newly mined metal are required because existing metal stocks are insufficient to meet rapidly rising demand.

Exploration and exploitation of seabed minerals in international waters is regulated by the International Seabed Authority (“ISA”), an intergovernmental organization established pursuant to the 1994 Agreement Relating to the Implementation of the United Nations Convention on the Law of the Sea (“UNCLOS”).

The ISA grants contracts to sovereign states or to private contractors who are sponsored by a sovereign state.

The ISA requires that a contractor must obtain and maintain sponsorship by a host nation that is a member of the ISA and such nation must maintain effective supervision and regulation over such sponsored contractor.

In the event the sponsorship is terminated, a contractor will be required to seek a new sponsorship from another nation that is a member of the ISA.

We currently hold exclusive exploration rights through our subsidiaries Nauru Ocean Resources Inc.

The ISA requires that a contractor must obtain and maintain sponsorship by a host nation that is a member of the ISA and signatory to UNCLOS and such nation must maintain effective supervision and regulatory control over such sponsored contractor.

The ISA has issued a total of 19 polymetallic nodule exploration contracts covering approximately 1.28 million km2, or 0.4% of the global seafloor, 17 of which are in the CCZ.

We hold exclusive exploration and commercial rights to three of the 17 polymetallic nodule contract areas in the CCZ through our subsidiaries Nauru Ocean Resources Inc.

(“NORI”) and Tonga Offshore Mining Limited (“TOML”), sponsored by the Republic of Nauru (“Nauru”) and the Kingdom of Tonga (“Tonga”), respectively, and exclusive commercial rights through our subsidiary, DeepGreen Engineering Pte.

Ltd.’s (“DGE”), arrangement with Marawa Research and Exploration Limited (“Marawa”), a company owned and sponsored by the Republic of Kiribati (“Kiribati”).

The details of each exploration, commercial and sponsorship contract are discussed below under the heading “ Exploration Contracts ” and “ Sponsorship Agreements ”.

To commence commercial production, we need to obtain an ISA exploitation contract for NORI and TOML and to initiate activity as a contractor of Marawa, respectively.

We are currently focused on applying for our first exploitation contract on the NORI-D Area, as defined below, with the goal of potentially starting commercial production in 2024.

An ISA exploitation contract application is comprised of several components, including an Environmental Impact Statement (“EIS”), the end-product of a comprehensive Environmental and Social Impact Assessment (“ESIA”) program.

To reach our objective to start commercial production in 2024, we are:

(i) defining our resource and project economics, (ii) engaging in offshore nodule collection system development, (iii) assessing the environmental and social impacts of offshore nodule collection, and (iv) engaging in onshore technology development to process collected polymetallic nodules into battery metal sulfates, copper cathode and a manganese silicate product.

We have also entered into a number of strategic relationships with industry-leading partners.

Our partnership with Maersk Supply Service A/S (“Maersk”) has enabled us to leverage industry leading expertise in marine vessel management and project management for complex offshore resource definition and environmental baseline campaigns.

Our partnership with Allseas Group S.A.

(“Allseas”) has enabled the Company to access industry-leading offshore engineering expertise and benefit from the repurposing of assets that were previously used in the oil and gas sector at below market rates for the development of our nodule collection system.

Resource definition and project economics:

Having completed a total of five offshore resource definition campaigns and collected samples and completed subsea surveys for resource evaluation, we have defined the size and quality of our resource in the NORI and TOML Areas, as described below, in our SEC Regulation S-K (subpart 1300) compliant Technical Report Summary - Initial Assessment of the NORI Property, Clarion-Clipperton Zone, Pacific Ocean dated March 17, 2021 (“NORI Initial Assessment”) and Technical Report Summary - TOML Mineral Resource, Clarion-Clipperton Zone, Pacific Ocean dated March 26, 2021 (“TOML Mineral Resource Statement”), respectively, prepared by AMC Consultants Ltd.

In addition to the mineral resource estimate, the NORI Initial Assessment indicates a project net present value (at the report date) of $6.8 billion, discounted at 9% per annum, for the NORI-D Area, as defined below.

We plan to continue to define our resource in the NORI and TOML Areas and develop the project economics.

Offshore nodule collection system development:

We are working with our strategic partner and investor, Allseas, to develop a system to collect, lift and transport nodules from the seafloor to shore.

The offshore collection system consists of collector robots on the seafloor, a riser and lift system, and a surface production support vessel.

The nodules would be expected to be collected from the seafloor by self-propelled, tracked collector robots using seawater jets aimed at nodules in parallel with the seafloor.

No rock cutting, digging, drill-and-blast or other breakage are expected to be required at the point of collection.

The collectors would be remotely controlled and supplied with electric power via umbilical cables from the production support vessel.

To test the system and assess its environmental impacts, we entered into a contract with Allseas to undertake a pilot trial of the collection system in subsection D of the NORI Area described below (the “NORI-D Area”) in the second half of 2022 (the Pilot Mining Test System or “PMTS”).

The successful completion of the PMTS would support our application for an exploitation contract with the ISA.

Until the successful completion of the PMTS, Allseas is contracted to cover the development cost associated with the PMTS.

We have developed and submitted the Environmental Impact Statement for this test to the ISA in July 2021.

The surface production support vessel, the Hidden Gem, was acquired by Allseas in February 2020 and has strategic importance to us, since it will support the PMTS and will then be upgraded to a small-scale, low-capital early production system.

This vessel is currently undergoing modifications in Rotterdam, Netherlands.

The pilot collector robot is being assembled at a fabrication facility in Heijningen, Netherlands.

Environmental and social impact assessment (“ESIA”) for offshore nodule collection :

The ESIA is an integral part of preparing our application for the ISA exploitation contract on the NORI-D Area.

Our planned ESIA program consists of over 100 discrete studies and relies on the work of several independent deep-sea research institutions.

We have a strategic partnership with Maersk for marine vessel operations and project management services, enabling us to undertake complex multi-objective offshore campaigns, each with multiple teams of scientists using various types of equipment.

The total of seven offshore environmental campaigns (approximately 290 days at sea) focusing on collecting environmental baseline data are expected to have been completed by the end of 2021.

We are currently in the planning stage of the last component of the program:

testing the offshore pilot nodule collection system and monitoring its environmental impacts while it collects nodules in the NORI-D Area next year.

Onshore technology development:

To process and refine collected nodules into critical metals, we have developed a flowsheet together with a metallurgical process design firm, Hatch Ltd.

This flowsheet uses conventional equipment, modified for the unique nature of the polymetallic nodule resource to deliver a process that is expected to generate nearly zero solid waste.

The key products generated by this process are nickel sulfate, cobalt sulfate, copper cathode, manganese silicate and fertilizer-grade ammonium sulfate.

Nickel is expected to account for almost half of future production revenues.

We have completed lab-scale test work and offshore campaigns to collect a bulk sample for pilot-scale metallurgical testing.

We are now in the middle of the pilot plant program.

Earlier this year, we successfully completed calcining and smelting of nodules into a manganese silicate product and nickel-copper-cobalt alloy intermediate, followed by converting and sulfidation of the alloy into matte.

We are currently testing the hydrometallurgical refining phase where matte is processed to produce nickel sulfate, cobalt sulfate, copper cathode and fertilizer grade ammonium sulfate.

Additionally, we are engaged in a technical scoping study for a potential site for our first small-scale production plant in South-East Asia.

We are currently an exploration stage company with no revenue to date and a net loss of $121.5 million for the nine months ended September 30, 2021, compared to $39.5 million in the same period of the prior year.

We incurred a net loss of $56.6 million for the year ended December 31, 2020 and had an accumulated deficit of approximately $284.4 million from inception through September 30, 2021.

We have key strategic alliances with (i) Allseas Group S.A.

(“Allseas”), a leading global offshore contractor, which is developing a pilot collection system, which is expected to be modified into an initial smaller scale commercial production system and serve as the basis for the design of a full-scale commercial production system and (ii) Glencore International AG (Glencore) which holds offtake rights on 50% of the NORI nickel and copper production.

In addition, we have worked with an engineering firm Hatch Ltd.

and consultants Kingston Process Metallurgy Inc.

to develop a near-zero solid waste flowsheet.

The pyromet stages of the flowsheet were tested as part of our pilot plant program at FLSmidth & Co.

A/S’s and XPS Solutions’ (Glencore subsidiary) facilities and hydrometallurgical refining stages are being carried out at SGS SA.

The near-zero solid waste flowsheet is in the process design that is expected to serve as the basis for our onshore processing facilities.

In March 2022, we entered into a non-binding memorandum of understanding with Epsilon Carbon Pvt, LTD.

(“Epsilon Carbon”) in which Epsilon Carbon expressed its intent to conduct pre-feasibility work to potentially finance, engineer, permit, construct and operate a commercial polymetallic nodule processing plant in India.

We are currently focused on applying for our first exploitation contract from the ISA on the NORI Area D contract area with the goal of potentially starting commercial production in 2024.

To reach our objective and initiate commercial production in 2024, we are:

(i) defining our resource and project economics, (ii) developing an offshore nodule collection system, (iii) assessing the ESG impacts of offshore nodule collection, and (iv) developing onshore technology to process collected polymetallic nodules into a manganese silicate product, and an intermediate nickel-copper-cobalt matte product and/or end-products like nickel and cobalt sulfates, and copper cathode.

We are still in the exploration phase and have not yet declared mineral reserves.

We have yet to obtain exploitation contracts from the ISA to commence commercial scale polymetallic nodule collection in the CCZ and have yet to obtain the applicable environmental permits and other permits required to build and operate commercial scale polymetallic nodule processing and refining plants on land.

Developments in the First Quarter 2022

Building on the significant achievements in 2021, below are some of the major developments that occurred in the first quarter 2022.

● Project Zero Plant:

In March 2022, we announced that we entered into a non-binding memorandum of understanding for a business collaboration with Epsilon Carbon to complete a pre-feasibility study for a commercial plant in India, powered by renewables and targeting capacity to process approximately 1.3 million tonnes per annum (“Mtpa”) of wet nodules into more than 30,000 tonnes per annum (“TPA”) of an intermediate nickel-copper-cobalt matte product used in active cathode material for nickel-rich cathode chemistries for lithium-ion batteries and more than 750,000 TPA of manganese silicate by-product expected to be used in manganese alloy production for the steel industry.

● Project Zero System:

In March 2022, our subsidiary, NORI, and Allseas entered into a non-binding term sheet for the potential development and operation of a commercial nodule collection system.

The pilot nodule collection system developed and currently being tested by Allseas is expected to be upgraded to a commercial system with a targeted production capacity of approximately 1.3 Mtpa of wet nodules, with expected production readiness by the fourth quarter of 2024.

● Environmental Filings:

In March 2022, a revised Environmental Impact Study for the collector test was filed with the ISA (original filed July 29, 2021), incorporating stakeholder feedback and baseline results collected in 2021.

Subsequently, a detailed Environmental Management and Monitoring Plan for the collector test was filed with the ISA on May 2, 2022.

This documentation is required for the collector test to proceed, which is currently planned for the third quarter of 2022 in the NORI Area D.

● Pilot Collection System Trials:

● Harbor Trials:

In March 2022, the pilot collector vehicle underwent extensive equipment testing in the Port of Rotterdam and all systems were shown to be fully functional.

● North Sea Drive Trials:

In March 2022, the pilot collector vehicle and the Hidden Gem vessel underwent extensive testing of critical deployment and mobility functions in the Dutch Sector of the North Sea, covering a total of 4,533 meters.

All systems were shown to be functional.

Engineers successfully completed a variety of tests of the dynamic positioning system aboard Hidden Gem in advance of pilot trials in the NORI Area D in the CCZ expected in the second half of 2022.

Developments Subsequent to March 31, 2022

● Pilot Collection System Trials - Atlantic Deep-Water Trials:

In April 2022, segments of the pilot nodule riser system were mobilized onboard the Hidden Gem for planned deep-sea testing with the collector vehicle in the Eastern Atlantic Basin.

Vehicle drive testing down to 2,470-meter depths has now occurred, which we expect will be followed by tests in 1,500-meter depths deploying the riser and the collector, connecting them, then bringing them back onboard.

● Independent Lifecycle Impact Assessment of NORI Area D Project:

In April 2022, we announced that we chose the leading lithium-ion battery supply chain research firm, Benchmark Mineral Intelligence (“Benchmark”), to conduct an independent lifecycle assessment of the environmental impacts of our planned NORI Area D polymetallic nodule project and

compare these impacts to producing the same metals from commonly used production pathways using conventional land ores.

Benchmark anticipates completing its comprehensive Lifecycle Impact Assessment for us in mid-Summer 2022.

The Business Combination

On September 9, 2021, we completed the Business Combination with SOAC.

The Business Combination was approved by SOAC’s shareholders at its extraordinary general meeting held on September 3, 2021.

The transaction resulted in the combined company being renamed “TMC the metals company Inc.” and the combined company’s common shares and warrants to purchase common shares commenced trading on the Nasdaq Global Select Market (“Nasdaq”) on September 10, 2021 under the symbols “TMC” and “TMCWW,” respectively.

As a result of the Business Combination, we received gross proceeds of approximately $137.6 million.

As a result of the Business Combination, we received gross proceeds of $137.6 million ($104.5 million net of transactions fees).

The Business Combination was accounted for as a reverse recapitalization and DeepGreen was deemed the accounting acquirer.

2 unchanged sentences

As SOAC had no operations, the net assets acquired were recorded at their historical cost.

Adjustments related to the Business Combination including consideration paid to DeepGreen shareholders and any other adjustments to the eliminate the historical equity of SOAC and recapitalize the equity of DeepGreen were recorded to common shares to reflect the effective issuance of common shares to SOAC and Private Investment in Public Equity investors in the Business Combination.

Adjustments related to the Business Combination including consideration paid to DeepGreen shareholders and any other adjustments to eliminate the historical equity of SOAC and recapitalize the equity of DeepGreen were recorded to common shares to reflect the effective issuance of common shares to SOAC and Private Investment in Public Equity investors in the Business Combination.

Following the Business Combination, we became the successor to an SEC-registered company, which resulted in us hiring additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices to ensure ongoing compliance with applicable law and Nasdaq listing requirements.

1 unchanged sentence

Exploration Contracts

We currently hold exclusive exploration rights through our subsidiaries NORI and TOML and exclusive commercial rights through agreement with Marawa, to certain polymetallic nodule areas in the CCZ.

We currently hold exclusive exploration rights to certain polymetallic nodule areas in the CCZ through our subsidiaries NORI and TOML, sponsored by Nauru and Tonga, respectively, and exclusive commercial rights through our subsidiary, DGE’s, arrangement with Marawa, a company owned and sponsored by Kiribati.

NORI Exploration Contract

NORI was granted the NORI Exploration Contract on July 22, 2011 under the sponsorship of Nauru.

The contract application fee was $0.3 million, and provides NORI with exclusive rights to explore for polymetallic nodules in an area covering 74,830 km 2 in the CCZ (“NORI Area”) for an initial term of 15 years (renewable for successive five-year periods) subject to complying with the exploration contract terms and provides NORI with the priority right to apply for an exploitation contract to collect polymetallic nodules in the same area.

NORI, our wholly-owned subsidiary, was granted the NORI Exploration Contract on July 22, 2011 under the sponsorship of Nauru.

This Exploration Contract provides NORI with exclusive rights to explore for polymetallic nodules in an area covering 74,830 km 2 in the CCZ (“NORI Area”) for an initial term of 15 years (renewable for successive five-year periods) subject to complying with the exploration contract terms and provides NORI with the priority right to apply for an exploitation contract to collect polymetallic nodules in the same area.

Marawa Agreements

Marawa, an entity owned and sponsored by Kiribati, was granted the Marawa Exploration Contract on May 30, 2012.

The Marawa Exploration Contract provides Marawa with exclusive rights to explore for polymetallic nodules in an area covering 74,990 km 2 in the CCZ (“Marawa Area”) for an initial term of 15 years (subject to renewal for successive five-year periods) subject to complying with the exploration contract terms and the priority right to apply for an exploitation contract to collect polymetallic nodules in the same area.

On March 17, 2012, DGE entered into an Option Agreement (“Marawa Option Agreement”) with Marawa and Kiribati.

Under the amended Marawa Option Agreement dated October 1, 2013, DGE paid an option fee of $0.3 million to acquire the right to purchase tenements, as may be granted to Marawa by the ISA or any other regulatory body, for the greater of $0.3 million or the value of any amounts owing to DGE by Marawa.

The exercise period for the option is a maximum of 40 years after the date of the execution of the amended Marawa Option Agreement.

On October 1, 2013, DGE also entered into a services agreement (“Marawa Services Agreement”) with Marawa and Kiribati, which grants DGE the exclusive right to carry out exploration and collection in the Marawa Area.

Under the Marawa Services Agreement, DGE will pay to the ISA on behalf of Marawa, the following:

$47 thousand annual exploration fees, ISA royalties and taxes, and the ISA exploitation application fee of $0.3 million.

In addition, DGE will ensure that the activities carried out in the Marawa Area by DGE and any other service contractor complies with the ISA and any other required regulations.

The Marawa Services Agreement grants DGE the right to recover any and all polymetallic nodules from the Marawa Area by paying Kiribati a royalty per wet tonne of polymetallic nodules collected (adjusted for inflation from October 1, 2013 onwards).

DGE has the right to terminate the Marawa Services Agreement at its sole discretion by giving written notice to Marawa and Kiribati, and such termination shall take effect two months following the date of the termination notice, provided that DGE shall pay to the ISA on behalf of Marawa the fees or payments legally owed to the ISA by Marawa (including the annual ISA exploration fee and ISA royalties and taxes) that are outstanding at the date of termination or that are incurred within 12 months after the date of such termination.

There are no other longer-term commitments with respect to the Marawa Option Agreement and the Marawa Services Agreement.

As at September 30, 2021, Marawa had no amounts owing by DGE under the Marawa Services Agreement and no purchase tenements had been granted to Marawa.

DGE, our wholly-owned subsidiary, entered into agreements with Marawa and Kiribati which provide DGE with exclusive exploration rights to an area covering 74,990 km2 in the CCZ (the “Marawa Contract Area”).

The exploration contract between Marawa and the ISA (the “Marawa Exploration Contract”) was signed on January 19, 2015.

To date, very limited offshore marine resource definition activities in the Marawa Contract Area have occurred and DGE expects to commit future resources as contractually agreed with Marawa to evaluate the future commercial viability of any project in such area.

Marawa has not completed adequate exploration to establish the economic viability of any project in the Marawa Contract Area.

Further work will need to be conducted in order to assess the viability of any potential project in the Marawa Contract Area and such work may take several years until such assessment can be made.

Marawa has delayed certain of its efforts in the Marawa Contract Area while it determines how it will move forward with additional assessment work.

TOML Exploration Contract

TOML was granted the TOML Exploration Contract on January 11, 2012 under the sponsorship of Tonga.

TOML, our wholly-owned subsidiary, was granted the TOML Exploration Contract on January 11, 2012 under the sponsorship of Tonga.

TOML was acquired by us on March 31, 2020 for $32 million from Deep Sea Mining Finance Ltd.

The TOML Exploration Contract provides TOML with exclusive rights to explore for polymetallic nodules in an area covering 74,713 km 2 in the CCZ (“TOML Area”) for an initial term of 15 years (renewable for successive five-year periods) subject to complying with the exploration contract terms and a priority right to apply for an exploitation contract to collect polymetallic nodules in the same area.

TOML Acquisition

On March 31, 2020, DeepGreen entered into an acquisition agreement to acquire the polymetallic nodules business unit of TOML and other entities in the group (the “TOML Group”) from DSMF (the “TOML Acquisition”).

Total purchase price of the TOML Acquisition, before transaction costs, was $32.0 million.

TOML holds the TOML Exploration Contract, and some exploration related equipment.

The TOML Group also holds various patents and an application right with respect to a prospecting exploration contract in Kiribati.

The purchase price of $32.0 million was settled through initial cash payments in two tranches of $0.25 million each (paid on March 31, 2020 and May 31, 2020, respectively), issuance of 9,005,595 common shares, $0.1 million payment to the ISA on behalf of DSMF and deferred consideration of $3.4 million which was to be paid on January 31, 2021.

The common share consideration paid by DeepGreen was valued at $3.11 per DeepGreen common share based on the recent private placements completed by DeepGreen for a total of $28.0 million.

DeepGreen had the option of settling the deferred consideration in either cash or common shares of DeepGreen at its sole discretion.

In January 2021, the arrangement with DSMF was amended to pay the entire deferred consideration in cash.

The deferred consideration was fully settled on June 30, 2021.

DeepGreen determined that the value of TOML Acquisition was substantially concentrated in the TOML Exploration Contract and therefore considered this to be an acquisition of a group of connected assets rather than an acquisition of a business.

Consequently, the total cost of the transaction was primarily allocated to exploration contracts.

On March 8, 2008, Tonga and TOML entered into a sponsorship agreement formalizing certain obligations of the parties in relation to TOML’s exploration application to the ISA (subsequently granted) for the TOML Contract Area.

The sponsorship agreement was updated on September 23, 2021.

Key Trends, Opportunities and Uncertainties

2 unchanged sentences

finalization of ISA regulations to allow for commercial exploitation, approval of an application for the ISA exploitation contract, developing environmental regulations associated with our business and successful development of our technologies to collect and process polymetallic nodules.

These risks, as well as other risks, are discussed in the section entitled “ Risk Factors ” included in this Quarterly Report on Form 10-Q.

These risks, as well as other risks, are discussed in the section entitled “ Risk Factors ” in Item 1A of Part II of the 2021 Annual Report on Form 10-K as updated and/or supplemented in subsequent filings with the SEC.

Impact of Climate Change

TMC is committed to adopting the Task Force on Climate-Related Financial Disclosures recommendations.

In our upcoming inaugural impact report, we will be providing the same type of climate-related disclosure to the one in this Quarterly Report on Form 10-Q.

We are committed to adopting the Task Force on Climate-Related Financial Disclosures recommendations.

In our upcoming inaugural impact report, we will be providing the same type of climate-related disclosure to the one in the 2021 Annual Report on Form 10-K.

We recognize that climate change may have a meaningful impact on our financial performance over time, and we have begun the process of consolidating key risks and corresponding action plans to mitigate their negative impact of climate change and create value.

Our climate related transition risks and opportunities are likely to be driven by changes in regulation, public policy, and technology.

Regulatory risks

Regulations related to emissions limits, such as cap and trade schemes and carbon taxes, would likely increase our future cost of operations, energy purchase, and equipment selection in addition to costs associated with potential carbon tax and/or purchase of carbon offsets.

It is difficult to estimate the impact of potential future regulations on future operations.

We are working on developing operations with as close to zero emissions as possible along with a plan for continuous reduction of emissions.

When selecting the location of our onshore plant, one of our requirements is access to renewable energy as our metallurgical process will be the most energy intensive step in our operations.

In addition, we are looking to replace metallurgical coal used as reductant during calcining of nodules, and have tested potential renewable alternatives.

We are also identifying the best approach for decarbonizing our offshore operations.

To date, we have not experienced any material impact to our business related to potential regulations, but will continue to evaluate and monitor future developments.

Public policy risks

Awareness of climate change related impacts, and commitments made by companies and governments to achieve net zero emissions, continues to grow.

We support the ambition of the U.S.

to achieve net zero greenhouse gas emissions by no later than 2050 and to reach half of all new vehicles sales to be EVs by 2030.

We are committed to achieving net zero emissions and are reviewing and designing technologies to achieve this goal.

The location of our onshore plant will be key, and we will be working on science-based targets and scenario analysis in 2022.

To support the EV and battery storage value chain, we are looking to close the emerging supply gap of critical battery metals needed for the transition to renewable energy and adoption of EVs.

We plan to take advantage of this opportunity to supply lower carbon battery metals, avoid deforestation, and help reduce the cost of batteries.

Technology risks

The timing and deployment of technologies to support the transition to a lower carbon economy can be uncertain.

Investments in assets with long lifespans require the selection of not only the proper technology, but also the proper timing to retain the ability to adapt to future developments.

There are also risks associated with the additional costs of lower emissions technology and transition to renewables.

To mitigate this risk, we based our flowsheet development on existing proven technology, while retaining sufficient flexibility to be able to retrofit processes with new lower carbon technology as they become available.

Physical risks

Our main activity currently consists of offshore exploration campaigns for research and testing purposes, and technology development at partner facilities.

However, once a location is selected for our onshore metallurgical plant, we will assess the risks associated with hurricanes, floods, and extreme weather.

In March 2020, the World Health Organization declared the global outbreak of COVID-19 a pandemic.

Since then there have been actions, of varying severity, taken around the world to mitigate and manage the spread of COVID-19.

The disparate actions undertaken by local governments to mitigate or manage the spread have had and are expected to continue to have an adverse impact on supply chains and labor markets worldwide.

On March 27, 2020, the U.S.

enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act to provide financial stimulus and support as a result of the initial economic fallout from events related to the COVID-19 pandemic.

As we are a pre-revenue company, the impacts of COVID-19 are relatively smaller than companies with commercial operations.

Depending on the duration and evolution of the pandemic and our supply chains and future customers’ ability to operate normally, there could be future challenges to our business which we cannot currently foresee.

It is critical for our partners to have access to supplies and competent human capital for us to collectively meet our business objectives.

As we have seen during the height of the pandemic and continuing regulations in certain countries, many of our contractors and service providers have modified their business practices to limit travel and in-person meetings.

While there are positive signs that the current situation is being managed well worldwide and country-wide restrictions and lockdowns are subsiding, there can be no guarantee that a new COVID-19 variant would not result in reinstating restrictions.

If significant portions of our contractors, service providers and partners are unable to work effectively, including due to illness, lockdowns, quarantine measures or other government actions, our current development activities and future operations may be impacted negatively.

For instance, the final exploitation regulations were expected to be adopted by the ISA during 2020 but were delayed due to COVID-19.

Offshore, in the first nine months of 2021, we have safely and successfully completed four complex campaigns to the NORI-D Area in the CCZ involving crew and scientists departing from and returning to San Diego from around the world.

In close coordination with our partner, Maersk, we have implemented rigid quarantining and testing protocols designed to provide a safe COVID-19 free work environment.

Onshore, our pilot plant program at third-party facilities has proceeded without COVID-19 related incidents.

Our corporate and project development teams have adopted a virtual working environment without a traditional office setting.

This means we have been minimally impacted by countrywide lockdowns across the globe.

We continue to work and collaborate through virtual channels on an ongoing basis.

Our climate related transition risks and opportunities are likely to be driven by changes in regulation, public policy, and technology, as disclosed in our 2021 Annual Report on Form 10-K.

During the first quarter of 2022, active work comprised of the integration of the collector and riser to the Hidden Gem and completion of harbor testing, offshore dynamic positioning trials and the North Sea drive test.

There were some sporadic outbreaks of COVID on the Hidden Gem while the vessel was docked in Rotterdam requiring isolation of some of the members of the work crews.

The project plan was adjusted to minimize the impact on the project’s schedule resulting in little impact to the overall project schedule.

Allseas implemented pre-departure COVID protocols and there were no reported COVID incidents during the offshore dynamic positioning trials and the North Sea drive test.

We continue to closely monitor the recent developments surrounding the continued spread and potential resurgence of COVID-19 from variants.

The COVID-19 pandemic may have an adverse impact on our operations, particularly because of preventive and precautionary measures that our company, other businesses, and governments are taking.

Refer to the section entitled “ Risk Factors ” included in this Quarterly Report on Form 10-Q for more information.

Refer to the section entitled “Risk Factors” in Item 1A of Part II of the 2021 Annual Report on Form 10-K as updated and/or supplemented in subsequent filings with the SEC for more information.

We are unable to predict the full impact that the COVID-19 pandemic will have on our future results of operations, liquidity and financial condition due to numerous uncertainties, including the duration of the pandemic and the actions that may be taken by government authorities.

However, COVID-19 is not expected to result in any significant changes to our business or our costs in the near term.

We will continue to monitor the performance of our business and reassess the impacts of COVID-19.

We will continue to monitor the performance of our business and re-assess the impacts of COVID-19.

Restatement of Previously Issued Quarterly Financial Statements

We have restated our financial statements as of and for the three month period ended March 31, 2021, and as of and for the six month period ended June 30, 2021 (the “Affected Periods”) in the accompanying unaudited condensed financial statements included in this Quarterly Report on Form 10-Q.

The restatement resulted from the following items we identified while preparing the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q:

certain invoices for exploration expenses were not appropriately accrued as of June 30, 2021, resulting in a $2.7 million understatement of each of exploration expenses, accounts payable and accrued liabilities as of and for the six month period ended June 30, 2021;

our expensing of options granted in the first quarter of 2021 under the Company’s Short-Term Incentive Plan based on the grantee’s historical start date with us rather than the grant date of the options on March 4, 2021 as required by U.S.

As disclosed in our 2021 Annual Report on Form 10-K filed March 25, 2022, we have restated our financial statements as of and for the three-month period ended March 31, 2021 in the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

The restatement resulted from our expensing of options granted in the first quarter of 2021 under the Company’s Short-Term Incentive Plan based on the grantee’s historical start date with us rather than the grant date of the options on March 4, 2021, as required by U.S.

Generally Accepted Accounting Principles (“U.S.

GAAP”), resulting in a $1.8 million overstatement of stock-based compensation expenses as of and for the three month period ended March 31, 2021, and $0.3 million understatement and $1.5 million overstatement of stock-based compensation expenses as of and for the six month period ended June 30, 2021, respectively.

Therefore, the Company is restating in this Quarterly Report on Form 10-Q its financial statements for the Affected Periods (the “Restatement”).

The Company considered the guidance in Accounting Standard Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections , and ASC Topic 250-10-S99-1, Assessing Materiality and ASC Topic 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements , in evaluating whether the Company’s previously issued quarterly financial statements were materially misstated.

The Company concluded the items set forth above were not material individually or in the aggregate to the quarterly financial statements presented for the Affected Periods.

Therefore, amendments of the previously filed report and registration statements in which such quarterly financial statements were included was not required.

The Company has not amended its previously filed reports or registration statements to reflect the Restatement.

The financial information that has been previously filed or otherwise reported for the Affected Periods is superseded by the information in this Quarterly Report on Form 10-Q, including Note 2 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Additionally, the effect of the Restatement on each line item set forth below in the unaudited pro forma condensed combined financial information previously filed with our Current Report on Form 8-K, as amended, filed with the SEC on September 15, 2021 for each period presented is set forth in Item 5 of Part II of this Quarterly Report on Form 10-Q.

This resulted in a $1.8 million overstatement of stock-based compensation expenses as of and for the three-month period ended March 31, 2021.

Basis of Presentation

4 unchanged sentences

All share and per share amounts have been adjusted to reflect the impact of the Business Combination.

The below reflect the results after considering the restatement of our historical financial statements to correct for errors related to stock-based compensation expensing and accrual of exploration expenses and associated liabilities as further described above under “Restatement of Previously Issued Quarterly Financial Statements” and in Note 2 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Components of Results of Operations

We are an exploration-stage company and our historical results may not be indicative of our future results for reasons that may be difficult to anticipate.

We are an exploration-stage company with no revenue to date and a net loss of $21.1 million for the three months ended March 31, 2022, compared to a net loss of $55.7 million in the same quarter of 2021.

We have an accumulated deficit of approximately $325.3 million from inception through March 31, 2022.

Our historical results may not be indicative of our future results for reasons that may be difficult to anticipate.

Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical or projected results of operations.

2 unchanged sentences

Any revenue from initial production is difficult to predict.

Exploration Expenses

Exploration and Evaluation Expenses

We expense all costs relating to exploration and development of mineral claims.

Such exploration and development costs include, but are not limited to, ISA contract management, geological, geochemical and geophysical studies, environmental baseline studies, process development and payments to Allseas for the PMTS.

Our exploration expenses are impacted by the amount of exploration work conducted during each period.

1 unchanged sentence

General and Administrative Expenses

General and administrative (“G&A”) expenses consist primarily of compensation for employees, consultants and directors, including stock-based compensation, consulting fees, investor relations expenses;

expenses related to advertising and marketing functions, insurance costs, office and sundry expenses, professional fees (including legal, audit and tax fees), travel expenses and transfer and filing fees.

Stock-based compensation cost from the issuance of stock options is measured at the grant date based on the fair value of the award and is recognized over the related service period.

Stock-based compensation costs are charged to exploration expenses and general and administrative expenses depending on the function fulfilled by the option holder.

In instances where stock options are issued for financing related services, the costs are included within equity as part of the financing costs.

General and administrative (“G&A”) expenses consist primarily of compensation for employees, consultants and directors, including share-based compensation, consulting fees, investor relations expenses, expenses related to advertising and marketing functions, insurance costs, office and sundry expenses, professional fees (including legal, audit and tax fees), travel expenses and transfer and filing fees.

Share-based compensation costs from the issuance of stock options and restricted share units (“RSUs”) is measured at the grant date based on the fair value of the award and is recognized over the related service period.

Share-based compensation costs are charged to exploration expenses and general and administrative expenses depending on the function fulfilled by the holder of the award.

In instances where an award is issued for financing related services, the costs are included within equity as part of the financing costs.

We recognize forfeiture of any awards as they occur.

Interest Income/Expense

Interest income consists primarily of interest income earned on our cash and cash equivalents.

Interest expense resulted from our financing transactions, specifically the convertible debentures issued in February 2021, which accrued interest at 7% per annum.

Interest expense in the first quarter of 2021 resulted from our financing transactions, specifically the convertible debentures issued in February 2021, which accrued interest at 7% per annum.

The convertible debentures were fully converted into DeepGreen common shares on September 9, 2021.

Foreign Exchange Loss

The foreign exchange income or loss for the periods primarily relates to our cash held in Canadian dollars and also to the settlement of costs incurred in foreign currencies, depending on either the strengthening or weakening of the U.S.

Change in Fa ir V alue of W arrant L iabilities

Change in fair value of warrant liabilities primarily consists of the change in the fair value of the 9,500,000 warrants issued to Sustainable Opportunities Holdings LLC concurrently with SOAC’s initial public offering (the “Private Warrants”).

For accounting purposes, the Company was considered to have issued the Private Warrants as part of the Business Combination.

The foreign exchange income or loss for the periods primarily relates to our cash held in Canadian dollars and to the settlement of costs incurred in foreign currencies, depending on either the strengthening or weakening of the U.S.

Change in Fa ir V alue of W arrants L iability

The change in fair value of warrants liability primarily consists of the change in the fair value of the 9,500,000 warrants issued to Sustainable Opportunities Holdings LLC concurrently with SOAC’s initial public offering (the “Private Warrants”).

For accounting purposes, the Company was considered to have issued the Private Warrants as part of the Business Combination, and we are required to re-measure the fair value of our Private Warrants at the end of each reporting period.

Results of Operations

The following is a discussion of our results of operations for the three and nine months ended September 30, 2021 and 2020.

Our accounting policies are described in Note 3 “Summary of Significant Accounting Policies” in our financial statements included elsewhere in this Quarterly Report on Form 10-Q.

The activity below reflects the results after considering the restatement of our historical financial statements as more fully described in Note 2 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q and above under "Restatement of Previously Issued Quarterly Financial Statements".

Comparison of the Three Months Ended September 30, 2021 and 2020

Three Months Ended September 30,

DeepGreen was determined to be the accounting acquirer and therefore, all information prior to the Business Combination, including the prior period financial information, represent the financial condition and operating results of DeepGreen.

The following is a discussion of our results of operations for the three months ended March 31, 2022 and 2021.

Our accounting policies are described in Note 3 “Summary of Significant Accounting Policies” in our financial statements filed as part of the 2021 Annual Report on Form 10-K.

Comparison of the Three Months Ended March 31, 2022 and 2021

Three Months Ended March 31,

(dollar amounts in thousands)

Exploration expenses

Interest expense (income)

Change in fair value of warrant liabilities

Foreign exchange loss

Exploration Expenses

Exploration expenses increased by approximately $19.3 million, or 423%, to $23.8 million during the three months ended September 30, 2021, compared to $4.6 million during the three months ended September 30, 2020.

This increase was mainly due to $12.9 million related to the first two milestone payments accrued to Allseas in 2021 under the amended PMTS agreement, $2.8 million higher cost of offshore campaigns as a result of greater offshore activities in the 2021 period as compared to the 2020 period, and $2.8 million higher stock-based compensation expense in the 2021 period as compared to the 2020 period due to the timing of recognition of expense for stock options granted in the first quarter of 2021.

We have a strategic partnership with Maersk pursuant to which we settled the costs for vessel services provided by Maersk through the issuance of common shares.

Such common shares were recognized at their fair value and the changes in such fair value had a significant impact on our exploration expenditures.

During March 2021, we revised our arrangement with Maersk so that the costs of vessel services are now paid in cash instead of the issuance of common shares.

As a result, going forward, such costs are expected to reflect the cost of the offshore campaigns undertaken with no additional impact on the costs resulting from the change in the fair value of our common shares.

We expect exploration expenses to remain elevated in fourth quarter 2021 and then decrease in the first half of 2022 due to completion of the offshore data collection component of the environmental baseline surveys to support the ESIA and completion of the metallurgical plant program.

Work continuing in the first half of 2022 is the expected completion of fabrication of the pilot nodule collection system, expected completion of the hydrometallurgical pilot testing and preparations for the pilot nodule collection system test monitoring campaign.

General and Administrative Expenses

G&A expenses increased $11.1 million, or 508%, to $13.3 million during the three months ended September 30, 2021, compared to $2.2 million during the three months ended September 30, 2020.

The increase in G&A expenses were a result of increased stock-based compensation expense of $5.3 million as compared to the 2020 period due to a $3.9 million expense recognized in the third quarter of 2021 as the board of directors approved amendments for certain stock option grants to extend their term beyond the retirement provisions in the 2021 Incentive Equity Plan (“Plan”) and timing of recognition of expense for stock options granted in the first quarter of 2021.

In addition, we incurred an increase in professional fees in connection with the Business Combination and other costs associated with being a public company of $2.4 million.

The professional fees are in addition to $41.9 million related to the Business Combination which were included in common shares.

Overall, our business activities increased and we incurred additional marketing costs of $2.2 million and personnel and director fees of $0.7 million during the three months ended September 30, 2021 over those incurred in the same period of the prior year.

We expect G&A expenses, excluding those related to the Business Combination, to continue to increase as we expand our infrastructure to commence production and due to additional legal, accounting, insurance and other expenses associated with being a public company.

Exploration and evaluation expenses

Interest expense

During the three months ended September 30, 2021, we recognized interest expense of $0.3 million as a result of accrued interest on the 7% convertible debentures of $26 million issued during February 2021 prior to their conversion into DeepGreen common shares on September 9, 2021.

Change in F air V alue of W arrant L iabilities

Change in fair value of warrant liabilities resulted in a gain of $0.9 million for the three months ended September 30, 2021.

The gain was primarily due to a decrease in our share price from September 9, 2021 to September 30, 2021.

The warrant liabilities were initially recorded as part of the Business Combination and therefore did not exist in the prior year.

Comparison of the Nine Months Ended September 30, 2021 and 2020

Nine Months Ended September 30,

(dollar amounts in thousands)

Exploration expenses

Interest expense (income)

Change in fair value of warrant liabilities

Change in fair value of warrants liability

Foreign exchange loss

Exploration Expenses

Exploration expenses increased by approximately $44.4 million, or 124%, to $80.2 million during the nine months ended September 30, 2021, compared to $35.7 million during the nine months ended September 30, 2020.

This increase was primarily due to the recognition of $30.6 million of stock-based compensation from the issuance of stock options granted to personnel during the nine months ended September 30, 2021 as compared to $0.5 million during the same period in 2020.

The stock-based compensation cost for the stock options granted to individuals involved in the exploration activities is included within exploration expenses for the periods presented.

In addition, the cost of offshore campaigns that we undertook during the nine months ended September 30, 2021 was $29.1 million, as compared to $17.4 million during the same period in 2020, as the scale of our exploration campaigns increased, and the fair value of common shares issued to Maersk increased compared to the prior year period.

Furthermore, we expensed $12.9 million of exploration costs during the nine months ended September 30, 2021 related to the first two milestone payments accrued to Allseas under the amended PMTS agreement.

The increases were partially offset by a decrease of $11.7 million in costs recognized related to our agreement with Allseas under which we paid Allseas $10 million and issued 3.2 million common shares to Allseas during the nine months ended September 30, 2020.

Exploration and Evaluation Expenses

Exploration and evaluation expenses for the three months ended March 31, 2022 were $7.3 million, compared to $38.1 million for the same period in 2021.

The decrease of $30.8 million was primarily due a decrease in offshore campaign costs of $16.4 million, due to the completion of the NORI Area D baseline campaigns in the fourth quarter of 2021.

The first quarter of 2021 offshore campaign costs included a fair value increase of $12.2 million that was recognized on the issuance of DeepGreen common shares to Maersk.

The decrease in the first quarter year over year also reflects a reduction in share-based compensation of $15.2 million in the 2022 period, as a significant number of stock options were awarded in March 2021, in recognition of past services and in anticipation of the Business Combination, while no stock options were awarded in the first quarter of 2022.

Work on the PMTS progressed in the first quarter of 2022 resulting in increased PMTS expenses of $1.3 million, which partially offset the above expense reductions.

General and Administrative Expenses

G&A expenses increased $37.3 million, or 977%, to $41.1 million during the nine months ended September 30, 2021, compared to $3.8 million during the nine months ended September 30, 2020.

The increase in G&A expenses were a result of an increase in stock-based compensation expense due to a $3.9 million expense recognized in the third quarter of 2021 as the board of directors approved amendments for certain stock option grants to extend their term beyond the retirement provisions in the Plan and recognition of expense for stock options granted in the first quarter of 2021.

Professional fees also increased by $7.0 million compared to the prior period consisting of transaction costs in connection with the Business Combination and indirect costs associated with being a public company.

The professional fees are in addition to $41.9 million related to the Business Combination which were included in common shares.

Our activities overall also increased and we incurred additional marketing costs of $4.5 million, personnel and director fees of $1.0 million and consulting fees of $0.8 million over those incurred in the same prior year period.

Interest Expense

During the nine months ended September 30, 2021, we recognized interest expense of $1.0 million as a result of accrued interest on the 7% convertible debentures of $26.0 million issued during February 2021 prior to their conversion into DeepGreen common shares on September 9, 2021.

Change in F air V alue of W arrant Liabilities

Change in fair value of warrant liabilities resulted in a gain of $0.9 million for the nine months ended September 30, 2021.

The gain was primarily due to a decrease in our share price from September 9, 2021 to September 30, 2021.

The warrant liabilities were initially recorded as part of the Business Combination and therefore did not exist in the prior year.

G&A expenses for the three months ended March 31, 2022 were $8.6 million compared to $17.4 million for the same period in 2021.

The decrease of $8.8 million in G&A expenses in the first quarter of 2022 was mainly the result of lower share-based compensation in the 2022 period as the first quarter of 2021 included the award of a significant number of stock options in recognition of past services and in anticipation of the Business Combination.

This decrease was partially offset by higher G&A expenses in the first quarter of 2022, reflecting an increase in personnel, legal and other expenses associated with being a public company.

Change in F air V alue of W arrants Liability

The change in fair value of warrants liability during the first quarter of 2022 resulted in a charge of $5.2 million.

The charge was primarily due to a 25% increase in our share price in the first three months of 2022.

The warrants liability was initially recorded as part of the Business Combination and therefore did not exist in the prior year.

Liquidity and Capital Resources

Prior to closing of the Business Combination, our primary sources of capital have been private placements of DeepGreen common shares and DeepGreen preferred shares and the issuance of convertible debentures completed in February 2021, which were automatically converted into DeepGreen common shares immediately prior to the completion of the Business Combination.

In addition, on September 9, 2021, we completed the Business Combination with SOAC, and as a result we received gross proceeds of approximately $137.6 million.

As of September 30, 2021, we had cash and cash equivalents of $112.6 million and an accumulated deficit of $284.4 million.

In addition, on September 9, 2021, we completed the Business Combination with SOAC, and as a result we received gross proceeds of $137.6 million ($104.5 million net of transaction fees).

As of March 31, 2022, we had cash on hand of $69.0 million.

We have yet to generate any revenue from our business operations.

1 unchanged sentence

While we have obtained financing in the past, there is no assurance that such financing will continue to be available on favorable terms, if at all.

We expect our capital expenditures and working capital requirements to increase materially in the near future as NORI and TOML seek to obtain exploitation contracts, perform the required environmental studies, complete pre-feasibility and feasibility studies.

We believe that our cash on hand will be sufficient to meet our working capital and capital expenditure requirements to at least the third quarter of 2023.

With these funds, we expect to be able to complete pilot nodule system collection trials in 2022, complete our environmental impact studies by 2023, and lodge our application to move from exploration phase to exploitation phase in the third quarter of 2023.

We may, however, need additional cash resources due to changes in business conditions or other developments, including, but not limited to, deferral of approvals, capital cost escalation, currently unrecognized technical and development challenges or changes in external business environment.

To the extent that our current resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing.

We believe that our cash on hand will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months, however, additional cash resources may be required due to changes in business conditions or other developments, including, but not limited to, deferral of approvals, capital and operating cost escalation, currently unrecognized technical and development challenges or changes in external business environment.

We may need to seek additional equity or debt financing.

If the financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to delay our exploration and/or exploitation activities or scale back our operations, which could have a material adverse impact on our business and financial prospects.

Cash Flows Summary

Comparison of the Nine Months Ended September 30, 2021 and September 30, 2020

Comparison of the Three Months Ended March 31, 2022 and March 31, 2021

Presented below is a summary of our operating, investing and financing cash flows:

Nine Months Ended September 30,

Three Months Ended March 31,

2021 (Restated)

(in thousands)

2 unchanged sentences

Net cash used in investing activities

Net cash provided by financing activities

Net cash (used in) provided by financing activities

(Decrease) increase in cash

Cash flows used in Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2021 was $28.3 million, attributable to a net loss of $121.5 million, partially offset by a net change in net operating assets and liabilities of $23.4 million and non-cash adjustments of $69.8 million.

Non-cash adjustments primarily consisted of $12.8 million for the value of shares issued to Maersk and $55.3 million of share-based payments related to the value of the incentive stock options recognized during the nine months ended September 30, 2021.

The change in our net operating assets and liabilities was primarily due to a $23.4 million increase in accounts payable and accrued liabilities in the 2021 period due to the timing of supplier payments and payment of the milestones for the PMTS to Allseas.

Net cash used in operating activities for the three months ended March 31, 2022 was $15.5 million, attributable to a net loss of $21.1 million and an increase in net operating assets and liabilities of $5.3 million, partially offset by non-cash adjustments of $12.2 million.

Non-cash adjustments primarily consisted of $6.9 million of expenses settled with share-based payments and $5.2 million related to the increase in the fair value of the Private Warrants, mainly as a result of the increase in our share price during the first three months of 2022.

The increase in our net operating assets and liabilities was primarily due to a $5.9 million decrease in accounts payable and accrued liabilities in the 2022 period due to the timing of supplier payments.

Cash flows used in Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2021 was $3.8 million and related to the payments made to DSMF for the deferred consideration that became due during the period.

As at September 30, 2021 there was no amount outstanding for the deferred consideration pertaining to the TOML Acquisition.

We also spent $0.4 million for purchase of equipment during the nine months ended September 30, 2021.

Net cash used in investing activities for the nine months ended September 30, 2020 was $0.6 million and related to the initial payments made to DSMF in connection with the TOML Acquisition.

Net cash used in investing activities for the three months ended March 31, 2022 was $0.2 million for the purchase of equipment, as compared to $2.2 million in the first three months of 2021, which related to the initial payments made to DSMF in connection with our acquisition of TOML in 2020.

Cash flows provided by Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2021 was $134.7 million which was primarily related to $104.5 million in proceeds from the Business Combination, net of transaction costs paid, proceeds of $26.0 million from the issuance of convertible debentures in February 2021 and $4.2 million from the exercise of incentive stock options.

Net cash used in financing activities for the three months ended March 31, 2022 was $0.1 million, compared to $27.4 million provided by financing activities in the first three months of 2021, which consisted of $26.0 million from the issuance of convertible debentures in February 2021 and $1.4 million from the exercise of incentive stock options.

Contractual Obligations and Commitments

NORI Exploration Contract

As part of the NORI Exploration Contract with the ISA, NORI committed to spending $5 million over the five-year period from 2017 to 2021.

Such commitment has already been met.

As part of the NORI Exploration Contract with the ISA, NORI submitted a periodic review report to the ISA in 2021, covering its intended work plan the 2017-2021 period.

The periodic review report included a summary of work completed over the previous 5-year period (2017 to 2021) and a work plan and estimated budget for the next five-year period (2022 to 2026).

NORI had committed to spend approximately $5 million to deliver on its intended work plan from 2017 to 2021, which it has significantly exceeded.

The periodic review report, which included a proposed work plan and estimated budget for 2022 to 2026, has been reviewed by and agreed with the ISA, and we are implementing the next five-year plan.

NORI has estimated its work plan for 2022 and 2023 to be approximately $40 million and $25 million, respectively, which may be settled in cash or equity.

The cost of the estimated work plan for 2024 onwards is contingent on the ISA’s approval of the NORI Area D exploitation application.

Should the approval of NORI’s exploitation application for NORI Area D be delayed or rejected, NORI intends to revise its estimated future work plan in respect of its NORI Area.

Work plans are reviewed annually by the Company, agreed with the ISA and may be subject to change depending on the Company’s progress to date.

Marawa Option Agreement and Services Agreement

As part of DGE’s Marawa Option Agreement and Services Agreement with Marawa with respect to the Marawa Area, Marawa committed to spending funds on exploration activities on an annual basis.

The commitment for fiscal 2020 was Australian dollar $1 million and for 2021 is Australian dollar $2 million.

Such commitment is negotiated with the ISA for five-year plans and is subject to regular periodic reviews.

Through DGE’s Marawa Option Agreement and Services Agreement with Marawa with respect to the Marawa Area, DGE committed to spend a defined amount of funds on exploration activities on an annual basis.

The commitment for fiscal 2022, 2023 and 2024 is AUD $1 million, AUD $3 million and AUD $2 million, respectively.

Such commitment is negotiated with the ISA as part of a five-year plan submissions and is subject to regular periodic reviews.

Marawa has not completed adequate exploration to establish the economic viability of any project in the Marawa Contract Area.

Further work will need to be conducted in order to assess the viability of any potential project in the Marawa Contract Area and such work may take several years until such assessment can be made.

Marawa has delayed certain of its efforts in the Marawa Contract Area while it determines how it will move forward with additional assessment work.

TOML Exploration Contract

As part of the TOML Exploration Contract, TOML has committed to spending $30.0 million for a five-year period from 2016 to 2021 in the first-year review finalized in 2016.

As part of the TOML Exploration Contract, TOML submitted a periodic review report to the ISA in 2021, covering the 2017-2021 period.

The periodic review report included a summary of work completed over the five-year period and a program of activities and estimated budget for the next five-year period.

TOML had committed to spend $30.0 million over the five-year period from 2017 to 2021.

Such commitment has flexibility where the amount can be reduced by the ISA and such reduction would be dependent upon various factors including the success of the exploration programs and the availability of funding.

As at September 30, 2021, we had spent approximately $17.2 million in connection with the TOML Exploration Contract.

TOML will submit a five-year review to the ISA in 2021 which will summarize the work completed by TOML from 2017 to 2021, as well as propose TOML’s next year work program.

The ISA is currently reviewing the periodic report, which includes the next 5-year program of work, at which point the next five-year commitment will be finalized.

Regulatory Obligations Relating to Exploration Contracts

12 unchanged sentences

In addition, TOML has agreed to pay the reasonable direct costs incurred by Tonga to administer the obligations of Tonga to the ISA.

On September 23, 2021, Tonga updated the TOML Sponsorship Agreement harmonizing the terms of its engagement with TOML with those held by Nauru.

On September 23, 2021, Tonga updated the TOML Sponsorship Agreement harmonizing the terms of its engagement with TOML with those held by NORI with Nauru.

Allseas Agreements

On March 29, 2019, we entered into a strategic alliance with Allseas to develop a system to collect, lift and transport nodules from the seafloor to shore and agreed to enter into a nodule collection and shipping agreement whereby Allseas would provide commercial services for the collection of the first 200 million metric tonnes of polymetallic nodules on a cost plus 50% profit basis.

In furtherance of this agreement, on July 8, 2019, we entered into a Pilot Mining Test Agreement with Allseas (“PMTS Agreement”), which was amended in 2020 and 2021, to develop and deploy a PMTS, successful completion of which is a prerequisite for our application for an exploitation contract with ISA.

Under the amended PMTS Agreement, Allseas agreed to cover the development cost of the project in exchange for a payment from us upon successful completion of the PMTS.

Through September 30, 2021, we have made the following payments to Allseas under the amended PMTS Agreement:

(a) $10 million in cash in February 2020, (b) $10 million through the issuance of 3.2 million common shares valued at $3.11 per share in February 2020 and (c) issued Allseas a warrant to purchase 11.6 million common shares at a nominal exercise price per share in March 2021.

As of September 30, 2021, we had the following payment obligations to Allseas under the amended PMTS Agreement:

(a) $10 million within 10 business days of the closing of the Business Combination provided Allseas confirmed ordering certain equipment and demonstrated certain progress on construction of the PMTS;

(b) $10 million on the later of (i) January 1, 2022, and (ii) confirmation of successful completion of the North Sea drive test;

and (c) $10 million upon successful completion of the PMTS.

The first $10 million payment set forth in clause (a) was paid to Allseas on October 5, 2021 following completion of the Business Combination and completion of the further conditions to the payment.

In furtherance of this agreement, on July 8, 2019, we entered into a Pilot Mining Test Agreement with Allseas (“PMTA”), which was amended on three occasions in 2020 and 2021, to develop and deploy a PMTS, successful completion of which is a prerequisite for our application for an exploitation contract with the ISA.

Under the PMTA, Allseas agreed to cover the development cost of the project in exchange for a payment from us upon successful completion of the pilot trial of the PMTS in NORI Area D.

On March 16, 2022, NORI and Allseas entered into a non-binding term sheet for the development and operation of commercial nodule collection system The pilot nodule collection system developed and currently being tested by Allseas and is expected to be upgraded to a commercial system with a targeted production capacity of 1.3 million tonnes of wet nodules per year with expected production readiness by the fourth quarter of 2024.

NORI and Allseas intend to equally finance all costs related to developing and getting the first commercial system.

Once in production, NORI expects to pay Allseas a nodule collection and transshipment fee estimated at approximately EUR 150 per wet tonne in the first year of operations and expected to be reduced as Allseas scales up production to 1.3 million wet tonnes per year.

The parties intend to further detail and revise these cost estimates in the definitive agreement contemplated by the non-binding term sheet, which the parties expect to enter into no later than December 31, 2022 following the completion of the planned pilot collection tests.

Subject to the necessary regulatory approvals Allseas and NORI also intend to investigate acquiring a second production vessel similar to the Hidden Gem, a Samsung 10000, with the potential for it to be engineered to support a higher production rate of three million tonnes of wet nodules.

There can be no assurances, however, that we will enter into definitive agreements with Allseas contemplated by the non-binding term sheet in a particular time period, or at all, or on terms similar to those set forth in the non-binding term sheet, or that if such definitive agreements are entered into by us that the proposed commercial systems and second production vessel will be successfully developed or operated in a particular time period, or at all.

Through December 31, 2021, we have made the following payments to Allseas under the PMTA:

(a) $10 million in cash in February 2020, (b) $10 million through the issuance of 3.2 million common shares valued at $3.11 per share in February 2020, (c) issued Allseas

warrants to purchase 11.6 million common shares at a nominal exercise price per share in March 2021 and (d) $10 million in cash in October 2021, following the closing of the Business Combination and meeting certain progress targets on the PMTS.

We made the second $10 million payment to Allseas under the PMTA on April 25, 2022, following the successful completion of the North Sea drive test.

The third and final $10 million payment to Allseas will be due upon successful completion of the pilot trial of the PMTS in NORI Area D.

Maersk Agreements

Effective March 15, 2017, we entered into a strategic partnership with Maersk to undertake the exploration, environmental baseline and offshore testing required to support development of feasibility studies for economic production of polymetallic nodules from the CCZ.

Under the agreement, Maersk provides vessel services and project management services, enabling us to undertake the various offshore campaigns to support required pre-feasibility studies.

Under the agreement, Maersk provided vessel services and project management services, which enabled us to undertake the various offshore campaigns to support required pre-feasibility studies.

During these offshore campaigns, we undertook baseline studies required to complete an ESIA, collected nodules for metallurgical test work and collected samples and survey data for resource evaluation.

1 unchanged sentence

Project management services provided by Maersk for managing these offshore campaigns are paid in cash.

On March 4, 2021, the agreement with Maersk was amended whereby all future costs pertaining to the use of the vessels would be paid in cash rather than through the issuance of common shares.

The amended agreement is in place until early 2022, at which point the parties will negotiate any potential future offshore engagements on a case-by-case basis.

On March 3, 2021, the agreement with Maersk was amended whereby all costs incurred on or after February 5, 2021, pertaining to the use of the marine vessel, would be paid in cash rather than through issuance of common shares.

Under this amendment, Maersk also agreed that amounts owed to Maersk for services rendered through February 5, 2021 in the aggregate amount of $4.6 million had been satisfied by the issuance of 4.2 million common shares at a contractual price per share of $1.08.

Our agreement with Maersk ended pursuant to its terms in January 2022.

We are currently in discussion with a third party to provide a survey vessel and specialized remotely operated vehicles, and autonomous underwater vehicles services required to support the implementation of the collector test monitoring survey planned for 2022 in the NORI Area D.

Offtake Agreement

6 unchanged sentences

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S.

The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as expenses incurred during the reporting periods.

Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated interim financial statements, which have been prepared in accordance with U.S.

The preparation of these condensed consolidated interim financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of these statements, as well as expenses incurred during the reporting periods.

Our estimates are based on our historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about items that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

Except as described in Note 3 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our proxy statement/prospectus filed with the SEC on August 13, 2021.

Except as described in Note 3 to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our 2021 Annual Report on Form 10-K filed with the SEC on March 25, 2022.

Recent Accounting Pronouncements

See Note 3 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations and cash flows.

See Note 3 to the condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations and cash flows.

Emerging Growth Company Status

2 unchanged sentences

We are an “emerging growth company” as defined in Section 2(a) of the Securities Act and have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards.

Following the closing of the Business Combination, we expect to remain an emerging growth company at least through the end of the 2021 fiscal year and we expect to continue to take advantage of the benefits of the extended transition period, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards.

Following the closing of the Business Combination, we remained an emerging growth company through the end of the 2021 fiscal year and we expect to continue to take advantage of the benefits of the extended transition period at least to the end of the fiscal year, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards.

This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.

Cautionary Statements Regarding the NORI Initial Assessment and TOML Mineral Resource Statement

As reflected in the economic analysis of NORI-D Area contained in the NORI Initial Assessment, a discounted cash flow analysis considering the intended pre-development work through 2024, discounted at 9% per annum, indicated a NORI-D Area project net present value (as of January 1, 2021) of $6.8 billion.

The initial assessment included in the NORI Initial Assessment is a conceptual study of the potential viability of mineral resources in the NORI-D Area.

This initial assessment indicates that development of the mineral resource in the NORI-D Area is potentially technically and economically viable;

We have defined the size and quality of our resource in the NORI and TOML Areas, as described below, in our SEC Regulation S-K (subpart 1300) compliant Technical Report Summary - Initial Assessment, of the NORI Property, Clarion-Clipperton Zone, Pacific Ocean dated March 17, 2021 ( “ NORI Initial Assessment ” ) and Technical Report Summary - TOML Mineral Resource, Clarion-Clipperton Zone, Pacific Ocean dated March 26, 2021 ( “ TOML Mineral Resource Statement ” ), respectively, prepared by AMC Consultants Ltd.

We plan to continue to define our resource in the NORI and TOML Areas and develop the project economics.

The initial assessment included in the NORI Initial Assessment is a conceptual study of the potential viability of mineral resources in the NORI Area D.

This initial assessment indicates that development of the mineral resource in the NORI Area D is potentially technically and economically viable;

however, due to the preliminary nature of project planning and design, and the untested nature of the specific seafloor production systems at a commercial scale, economic viability has not yet been demonstrated.

6 unchanged sentences

Inferred mineral resources have a high degree of uncertainty as to their existence and to whether they can be economically or legally commercialized.

Under the SEC Mining Rules, estimates of inferred mineral resources may not form the basis of an economic analysis.

Under the SEC Mining Rules, estimates of inferred mineral resources may not form the basis

of an economic analysis.

It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category.

1 unchanged sentence

Therefore, you are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be economically or legally commercialized, or that it will ever be upgraded to a higher category.

Approximately 97% of the NORI-D Area resource is categorized as measured or indicated.

Approximately 97% of the NORI Area D resource is categorized as measured or indicated.

Likewise, you are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be upgraded to mineral reserves.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis