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Item 7. Management’s Discussion and Analysis

2023-03-27 compared with 2022-03-25 · 205 added, 207 removed, 188 unchanged (69% of the section changed)

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You should read the Risk Factors set forth in Item 1A of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

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.

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 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 CCZ, about 1,500 miles south-west of San Diego, California.

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

These four metals contained in the polymetallic nodules are critical for the transition to low carbon 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.

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 and cobalt sulfates) for electric vehicles (“EV”) and renewable energy storage markets, (ii) 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.

(i) feedstock for battery cathode precursors (nickel and cobalt sulfates, or intermediate nickel-copper-cobalt matte) for EV and renewable energy storage markets, (ii) 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 “metal commons”) 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”).

Exploration and exploitation of seabed minerals in international waters is regulated by the ISA, an intergovernmental organization established pursuant to the 1994 Agreement Relating to the Implementation of the UNCLOS.

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

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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”).

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.

(Hatch) and consultants Kingston Process Metallurgy Inc.

(KPM) 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 obtained any exploitation contracts from the ISA to commence commercial scale polymetallic nodule collection in the CCZ nor have we obtained the applicable environmental permits and other permits required to build and operate commercial scale polymetallic nodule processing and refining plants on land.

We hold exclusive exploration and commercial rights to three of the 17 polymetallic nodule contract areas in the CCZ;

two based on ISA exploration contracts through our subsidiaries NORI and TOML, sponsored by Nauru and Tonga, respectively, and exclusive commercial rights through our subsidiary, DGE, and its arrangement with Marawa, a company owned and sponsored by Kiribati.

We have key strategic alliances with (i) Allseas, a leading global offshore contractor, which developed and tested 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 to 50% of the NORI nickel and copper production.

In addition, we have worked with an engineering firm Hatch and consultants KPM to develop a near-zero solid waste flowsheet.

The primary processing stages of the flowsheet from nodule to NiCuCo matte intermediate were demonstrated as part of our pilot plant program at FLSmidth and Xpert Process Solutions’ (XPS, a Glencore company) facilities.

The matte refining stages are being tested at SGS Lakefield.

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

After several months of joint pre-feasibility work in 2022 and in consultation with Epsilon Carbon Pvt, LTD.

(Epsilon Carbon) under our March 2022 business collaboration MoU, we decided to pause this work on a new build plant in India until Project Zero has started commercial production using an existing processing facility requiring lower capital expenditures and which we believe may offer a lower risk solution to get Project Zero into production.

In November 2022, we entered into a non-binding MoU with Pacific Metals Co Ltd (PAMCO) of Japan, to evaluate the toll treatment of an initial quantity of 1.3 million tonnes of wet polymetallic nodules per year at PAMCO’s Hachinohe smelting facility starting in 2025.

The toll treatment is intended to take place on a dedicated rotary kiln-electric arc furnace (RKEF) processing line and produce two products:

nickel-copper-cobalt alloy — an intermediate product used as feedstock to produce Li-ion battery cathodes — and a manganese silicate product used to make silico-manganese alloy, a critical input into steel manufacturing.

We expect this partnership to progress to a binding MoU and a strategic alliance in the second half of 2023, subject to successful evaluation study outcomes and agreement to mutually acceptable commercial terms, in lieu of continuing to pursue an opportunity to build a new Project Zero Plant in India together with Epsilon Carbon as was previously envisioned under our March 2022 business collaboration MoU with Epsilon Carbon.

There can be no assurance that we will enter into such binding MoU or definitive strategic alliance in a particular time period, or at all, or on terms similar to those set forth in the MoU, or that if such binding MoU or definitive strategic alliance are entered into by us or that the existing facility will be able to successfully process nodules in a particular time period, or at all.

We are currently focused on applying for our first exploitation contract from the ISA on the NORI Area D contract area and, subject to regulatory review by the ISA, intend to start commercial production end of 2024 / start of 2025.

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

(i) defining our resource and project economics, (ii) developing and testing an offshore nodule collection system, (iii) assessing the ESG impacts of offshore nodule collection, and (iv) developing and testing onshore technology and systems 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 any exploitation contracts from the ISA to commence commercial scale polymetallic nodule collection in the CCZ nor have we obtained the applicable environmental and other permits required to build and operate commercial scale polymetallic nodule processing and refining plants on land.

2022 Highlights

2021 was a significant year in our potential to exploit our resources and begin commercial production.

Below are a few of the developments that occurred in 2022.

● Creation of TMC the metals company Inc.

- On September 9, 2021, we completed the Business Combination, creating TMC the metals company Inc.

and raised gross proceeds of $137.6 million in cash prior to transaction fees.

● Estimation of Resources - On January 15, 2021, AMC, a leading mining consulting firm, issued a revised independent resource estimate for the NORI Area D and for TOML in accordance with Canadian NI 43-101 standards, which showed an upgrade to the quantity and quality of resources over earlier estimates we had received.

● Definition of Value – On March 17, 2021, AMC issued an independent SK 1300 compliant initial assessment report for the NORI Area D property which indicated life of project net cash flow of $30.6 billion and a project NPV of $6.8 billion using a

9% discount rate and assuming metal prices for nickel metal $16,472/t;

nickel in nickel sulfate $18,807/t Ni;

copper metal $6,872/t;

cobalt metal $46,333/t;

cobalt in cobalt sulfate $56,920/t Co;

manganese in manganese silicate $4.50/dmtu Mn.

● Expected Regulatory Timeline - In July 2021, the Republic of Nauru exercised its right under 1994 UNCLOS Implementation Agreement by requesting that the ISA complete its adoption of the exploitation regulations within two years.

The ISA met in December 2021, laying out a schedule of work to be performed in 2022 with the goal of finalizing regulations regarding the exploitation of seabed minerals in the Area by July 2023.

● Conversion of Nodules into Salable Metal – We completed pyrometallurgical pilot testing of polymetallic nodules producing a matte product containing > 80% combined Ni, Cu and Co which is a suitable feedstock to produce critical metals essential for EV batteries and wiring.

We also produced a manganese silicate product which can be sold direct to market and further processed to manganese alloy, a critical input to steel production.

● Continued Development of Pilot Nodule Collection System - In collaboration with Allseas, the ultra-deep-water drillship, the Hidden Gem was modified and classified as the world’s first sub-sea mining vessel.

Allseas progressed the development and assembly of the collector vehicle and vertical transportation system throughout 2021.

We expect to complete this work in time for our pilot nodule collection tests in 2022.

● Completion of Deep-Sea Environmental Baseline Program and Submission of Collector Test EIS – We completed five offshore campaigns in 2021, including the offshore sampling and data collection for our environmental baseline program.

The EIS for the pilot test in the NORI Area D was submitted in July 2021 and the test is planned for the second half of 2022.

● Support for Potential Reduced Impact - Independent plume modelling for the EIS was undertaken in 2021 which showed a more limited, localized impact than anticipated.

● Enhanced Transparency – We partnered with Kongsberg Digital to develop the digital twin required to support our Adaptive Management System which will provide real time visibility to stakeholders of the sub-sea operations, and will enable us to operate safely, within acceptable boundaries.

NORI Area D Project:

● Pilot Collection System Trials and Monitoring Campaign:

o ISA Recommendation:

In September 2022, following the completion of its review of NORI’s Environmental Impact Statement (EIS) and EMMP, the ISA allowed us to proceed with independently monitored integrated pilot collection system trials in NORI Area D in the CCZ following our implementation of their recommendations with respect to the trials.

o Start of Monitoring Campaign:

In accordance with the ISA’s recommendation, in September 2022, the team of engineers at Allseas and scientists from some of the world’s leading deep-sea research institutions and industry-leading contractors began an extensive environmental baseline and impact monitoring campaign in preparation for NORI’s now completed pilot nodule collection system trials in the NORI Area D of the CCZ.

Scientists aboard a dedicated 103-meter-long monitoring vessel conducted pre-disturbance monitoring studies on a sub-section of the NORI Area D exploration area to establish an environmental baseline before NORI’s collection system trials.

The environmental and operational data gathered during these trials will be used to help ensure the safe and efficient collection of polymetallic nodules to meet expected demand for critical minerals for the clean energy transition and will be part of the ISA’s review of our expected submission of an application for an exploitation contract for the NORI Area D.

o Successful Conclusion of NORI Integrated Collector Test:

On November 14, 2022, we announced that NORI and Allseas successfully concluded the first integrated system test in the CCZ since the 1970s, achieving all significant pilot milestones while collecting approximately 4,500 tonnes of seafloor polymetallic nodules.

Over 3,000 tonnes of nodules were transported up a 4.3-kilometer-long riser system to the surface production vessel, Hidden Gem , while the additional 1,500 tonnes of nodules were purposely left behind on the seafloor as part of the trials.

Concurrently, aboard a dedicated monitoring vessel, marine experts and academic scientists conducted the first environmental monitoring program of an integrated pilot collector system test, which utilizes the baseline data which we began to collect in September 2022.

● 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 (Project Zero System).

The pilot nodule collection system developed and successfully tested by Allseas is expected to be upgraded to a Project Zero System with a targeted production capacity of at least 1.3 Mtpa of wet nodules, with expected production readiness by the fourth quarter of 2024.

● EMMP for Exploitation Application:

In July 2022, our Australian subsidiary entered into a research funding agreement with a consortium of institutions led by Australia’s Commonwealth Scientific Industrial Research Organization (CSIRO) to create a framework for the development of an ecosystem-based Environmental Management and Monitoring Plan (EMMP) for our proposed deep-sea polymetallic nodule collection operations in the CCZ.

Resulting EMMP will form an integral part of NORI’s exploitation application to the ISA.

● 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, 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 completed its comprehensive Lifecycle Impact Assessment for us in March 2023.

Onshore Processing:

● SINTEF Manganese Study:

In May 2022, we announced that we had retained SINTEF, one of Europe’s leading independent research institutions, to analyze our manganese silicate product that can be used to produce silicomanganese alloy for steelmaking.

SINTEF found that our high-grade nodule-derived manganese silicate, which we estimate could account for approximately one third of potential future revenues, behaves similarly to traditional land-based manganese sources and appears to have significant advantages on cost and carbon dioxide footprint, with the potential for 7 to 17% higher value-in-use, depending on carbon tax regimes.

Environmental, Social and Governance (ESG):

● Impact Report 2021:

In May 2022, we published our inaugural Impact Report setting out our motivations for collecting nodules and providing a forward-looking view of the potential environmental impacts of our expected operations and the efforts underway to potentially eliminate or reduce them.

● PIPE Financing :

On August 15, 2022, we announced a private placement financing which raised aggregate gross cash proceeds of $30.4 million (approximately $30 million net proceeds, after deducting placement agent fees and offering expenses) through the issuance of approximately 38.0 million common shares.

A majority of the committed funds came from our existing shareholders and insiders.

We filed a resale registration statement for the common shares issued to the investors in the financing with the SEC on September 16, 2022, which the SEC declared effective on October 14, 2022.

● At-The-Market (ATM) Offering:

On December 22, 2022, we announced an At-The-Market offering with Stifel, Nicolaus & Company, Incorporated and Wedbush Securities Inc., as sales agents, pursuant to which we may, from time to time, issue and sell up to $30 million of our common shares.

As of the date of this Annual Report on Form 10-K, no sales of common shares have been made under this offering.

UAW Agreement:

In September 2022, we announced that we had entered into a labor neutrality agreement with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) designed to bolster the critical mineral supply chain, which we believe lays the groundwork for sustainable production of electric car batteries while also creates a path to potential job growth in the United States.

Developments Subsequent to December 31, 2022

Consortium for ESG disclosure of marine minerals:

On February 14, 2023, we announced that we had joined a broad international consortium to develop a handbook for Environmental, Social and Governance (ESG) disclosure in relation to marine minerals.

The purpose of the guidance document is to enable evidence-based assessments of the ESG performance of marine mineral projects in the context of global standards.

Marine minerals are emerging as a strong potential source to help meet growing metals demand.

As with any extractive industries, consideration of ESG issues is key to ensuring transparent and responsible supply chains.

The ESG handbook will provide guidance to addresses material topics related to marine mineral projects in the deep-sea environment using a standardized approach.

Strategic Partnership on Low-Carbon Royalties:

On February 21, 2023, we and our wholly-owned subsidiary, NORI, entered into a strategic partnership with Low Carbon Royalties Inc.

(“Low Carbon Royalties”), a private corporation formed under the laws of British Columbia, Canada to finance low carbon emitting energy production and technologies (natural gas, nuclear, renewables), transition metals and minerals required for energy storage and electrification (Cu, Li, Ni, Co, Mn), and the evolving environmental markets (the “Partnership”).

In connection with the Partnership, NORI contributed a 2% gross overriding royalty (the “NORI Royalty”) on our NORI contract area to Low Carbon Royalties.

We retained the right to repurchase up to 75% of the NORI Royalty at an agreed capped return, exercisable in two transactions, between the second and the tenth anniversary of the Partnership.

If both repurchase transactions are executed, the NORI Royalty will be reduced to 0.5%.

Low Carbon Royalties also owns a 1.6% gross overriding royalty on a producing natural gas field in Latin America.

In consideration of the NORI Royalty, we received a 35.0% common ownership interest in Low Carbon Royalties on a fully-diluted basis as of closing and $5.0 million in cash

Engagement with Bechtel Australia Pty Ltd:

On March 9, 2023, we announced that we entered into an agreement with Bechtel Australia Pty Ltd (Bechtel), a global leader in engineering, procurement and construction, to collect and compile the techno-economic studies prepared by various consultants required for NORI to lodge its application for an exploitation contract for its NORI Area D Project with the ISA.

Bechtel will collect and compile technical and economic studies prepared by various consultants that will underpin NORI’s application to the ISA for an exploitation contract, which we expect to have ready for submission in the second half of 2023.

New Credit Facility with Allseas:

On March 22, 2023, we entered into an Unsecured Credit Facility Agreement (“Credit Facility”) with Argentum Credit Virtuti GCV (the “Lender”), the parent of Allseas Investments S.A.

and an affiliate of Allseas, pursuant to which, we may borrow from the Lender up to $25,000,000 in the aggregate, from time to time, subject to certain conditions.

All amounts drawn under the Credit Facility will bear interest at the 6-month Secured Overnight Funding Rate (SOFR), 180-day average plus 4.0% per annum payable in cash semi-annually (or plus 5% if paid-in-kind at maturity, at our election) on the first business day of each of June and January.

We will pay an underutilization fee equal to 4.0% per annum payable semi-annually for any amounts that remain undrawn under the Credit Facility.

We have the right to pre-pay the entire amount outstanding under the Credit Facility at any time, before the Credit Facility’s maturity of May 21, 2024.

The Credit Facility also contains customary events of default.

The Business Combination

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

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.

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 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.

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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 we expect to commit future resources as contractually agreed with Marawa to evaluate the future commercial viability of any project in such area.

We have 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.

To date, limited offshore marine resource definition activities in the Marawa Contract Area have occurred.

We expect to collaborate with Marawa to assess the viability of any potential project in the Marawa Contract Area, although the timing of such assessment is uncertain.

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

Key Trends, Opportunities and Uncertainties

We are currently a pre-revenue company and we do not anticipate earning revenues until such time as NORI receives an exploitation contract from the ISA and we are able to successfully collect polymetallic nodules and process the nodules into saleable products on a commercial scale.

We are currently a pre-revenue company and we do not anticipate earning revenues until such time as NORI receives an exploitation contract from the ISA and we are able to successfully collect and process polymetallic nodules into saleable products on a commercial scale.

We believe that our performance and future success pose risks and challenges, including those related to:

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.

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

These risks, as well as other risks, are discussed in Item 7A entitled “ Quantitative and Qualitative Disclosures About Market Risk ” and Item 1A entitled “ Risk Factors ” included in this Annual Report on Form 10-K.

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 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.

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

In our inaugural Impact Report published in May 2022, we provided climate-related disclosure and shared how we believe our mission is aligned with supporting the global energy transition and contributing to a circular metals economy.

Our climate related transition risks and opportunities are likely to be driven by changes in regulation, public policy, and technology as well as risk of business disruptions due to climate related events.

Regulatory risks

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

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

We are working on a plan for continuous reduction of emissions and aiming to develop operations with near zero 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.

In addition, we are seeking 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.

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We are committed to achieving 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.

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

To support the EV and battery storage value chain, we are seeking 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.

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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 in most parts of the world and country-wide restrictions and lockdowns are subsiding, there can be no guarantee that any new COVID-19 variant would not result in reinstating restrictions which may impact our business.

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 2021, we have safely and successfully completed five complex campaigns in our NORI Area D in the CCZ involving crew and scientists departing from and returning to San Diego from around the world.

In close coordination with our partners, 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.

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 Annual Report on Form 10-K 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.

Impact of Global Inflation

In 2022, the global inflation rate rose sharply.

Marine fuel prices and vessel day rates were higher year-over-year and have increased our exploration expenses beyond what we had originally expected.

Additionally, we are experiencing higher offshore labor costs through our contractors.

As a pre-revenue company, persistent inflation may affect our ultimate cash requirements prior to our ability to begin commercial production.

Basis of Presentation

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

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.

Components of Results of Operations

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To date, we have not generated any revenue.

We do not expect to generate revenue until at least 2024 and only if NORI receives an exploitation contract from the ISA and we are able to successfully collect polymetallic nodules and process the nodules into saleable products on a commercial scale.

We do not expect to generate revenue until at least 2025 and only if NORI receives an exploitation contract from the ISA and we are able to successfully collect and process polymetallic nodules into saleable products on a commercial scale.

Any revenue from initial production is difficult to predict.

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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 cost 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 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.

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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 Fair Value of Warrant Liabilities

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”).

Change in Fair Value of Warrants Liabilities

Change in fair value of warrants 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.

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Interest expense (income)

Loss for the period

Loss for the year, after tax

Full Year 2022 compared to Full Year 2021

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Exploration and evaluation expenses for the year ended December 31, 2022 were $144.6 million, compared to $93.0 million for the year ended December 31, 2021.

The increase of $44 million was primarily due to the recognition of $27.0 million of share-based compensation granted to personnel during the year ended December 31, 2021 as compared to $0.8 million during the same period in 2020.

The share-based compensation cost for stock options and restricted share units granted to personnel involved in exploration activities is included within exploration and evaluation expenses for the periods presented.

The increase in share-based compensation was mainly due to the completion of the Business Combination and increased project activity resulting in additional personnel and new incentive plans, as well as an increase in the fair value of DeepGreen common shares compared to the prior year.

In addition, the cost of offshore campaigns that we undertook during the year ended December 31, 2021 was $39.0 million as compared to $28.0 million during the same period in 2020, reflecting increased activity to complete environmental baseline studies.

In 2021, we had a strategic partnership with Maersk, as described below, pursuant to which we settled the costs for marine 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 exploration and evaluation expenditures in 2021.

During March 2021, we revised our previous arrangement with Maersk, to require settlement of marine vessel services in cash instead of common shares.

Cost incurred for the PMTS to Allseas during the year ended December 31, 2021 was $14.3 million, representing the first two milestone payments to Allseas under Amendment 3 of our PMTS agreement with Allseas compared to $11.7 million during the same period in 2020, whereby we paid $10 million and issued 3.2 million common shares to Allseas under Amendment 2 of our PMTS agreement with Allseas.

General and Administrative Expenses

G&A expenses for the year ended December 31, 2021 were $56.6 million compared to $7.7 million in 2020.

The increase in G&A in 2021 was a result of higher share-based compensation which increased by $30.1 million, reflecting the impact of new incentive plans, with higher issuances and vesting, with an increased workforce, as well as an increase in the fair value of DeepGreen common shares compared to the prior year.

The level of corporate activities and the number of corporate personnel increased as a result of the Business Combination.

In addition, an expense of $3.9 million was recognized in the third quarter of 2021, as the board of directors approved amendments to certain stock option grants to extend their initial terms.

Professional and consulting fees, and investor relations expenses increased by $8.6 million and $5.3 million, respectively, as compared to 2020 due to increased corporate activities as we became a public company.

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

The increase of $51.6 million was primarily due to the increased work and completion of the PMTS in November 2022, which included the recognition of the grant date value of the Allseas Warrant of $69.9 million which became exercisable with the completion of the PMTS.

The increase in 2022 was partially offset by a decrease in expenses associated with environmental studies of $2.2 million, due to the completion of the NORI Area D environmental baseline campaigns in the fourth quarter of 2021, and a reduction in share-based compensation of $18.5 million, 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 2022.

In 2021, offshore campaign costs in support of environmental studies included a fair value increase of $12.2 million that was recognized on the issuance of DeepGreen common shares to our former supplier Maersk Supply Service A/S (“Maersk”).

General and Administrative (“G&A”) Expenses

G&A expenses for the year ended December 31, 2022 were $29.5 million compared to $56.6 million in the prior year.

The decrease of $27.1 million in G&A in 2022 was mainly as a result of lower share-based compensation in 2022 of $24.8 million, as 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 2022, for personnel, legal and other expenses associated with being a public company.

In addition, 2021 included higher expenses for consulting and communications related to the Business Combination.

Interest Expense

During the year ended December 31, 2021, we recognized interest expense of $1.0 million as a result of the issuance of 7% convertible debentures of $26.0 million during February 2021, prior to their conversion into our common shares in the Business Combination.

Change in Fair Value of Warrant Liability

Change in fair value of warrant 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, we are considered to have issued the Private Warrants as part of the Business Combination.

During 2022, we earned interest of $1.1 million mainly from the investment of our cash on hand, as compared to 2021 where we recognized interest expense of $1.0 million mainly as a result of the issuance of 7% convertible debentures of $26.0 million during February 2021, prior to their conversion into our common shares in connection with the Business Combination.

Change in Fair Value of Warrants Liability

Change in fair value of warrants liability primarily consists of the change in the fair value of the 9,500,000 Private Warrants.

The credit recorded in both years reflects the decrease in the market price of our warrants.

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 December 31, 2021, we had cash and cash equivalents of $84.9 million.

On August 12, 2022, we completed a private placement raising gross cash proceeds of $30.4 million (approximately $30 million net of transaction fees).

As of December 31, 2022, we had cash on hand of $46.8 million.

We received lower than expected cash proceeds upon closing of the Business Combination resulting from higher-than-expected redemptions of SOAC’s Class A ordinary shares and the default by certain PIPE investors in their funding obligations in connection with the closing of the Business Combination.

As a result, we revised our work plan to focus on activities necessary to have an application ready for submission to the ISA in the second half of 2023 for an exploitation contract for the NORI Area D and stopped and/or deferred work and expenses associated with other activities.

In light of the significant deficit in expected funding following the closing of the Business Combination in September 2021, we adopted what we call a “capital-light” strategy whereby we removed any allocation of funds to capital expenditures that were not deemed necessary to support the submission of an application for an exploitation contract for the NORI Area D, and by negotiating the settlement of program expenditures with our equity whenever possible.

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

We are an exploration-stage company and the recovery of our investment in mineral exploration contracts and attainment of profitable operations is dependent upon many factors including, among other things, the development of production system for collecting polymetallic nodules from the seafloor as well as the development of our processing technology for the metallurgical treatment of such nodules, the establishment of mineable reserves, the demonstration of commercial and technical feasibility of seafloor polymetallic nodule collection and processing systems, metal prices, and securing ISA exploitation contracts.

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.

Fiscal 2020 Financings

During the year ended December 31, 2020, we issued 6.6 million DeepGreen Common Shares in private placements for total proceeds of $20.4 million.

Inclusive in this was a subscription from Allseas for 3.2 million DeepGreen Common Shares for total proceeds of $10 million.

We further issued 3.2 million DeepGreen Common Shares for services to Allseas at a price of $3.11 per share for total value of $10.0 million and 4.7 million DeepGreen Common Shares for marine vessel services to Maersk to settle invoiced cost of $5.1 million at an agreed upon contract price of $1.08 per share.

Such shares issued to Maersk were recognized for accounting purposes at $3.11 per share.

During the year ended December 31, 2020, option holders exercised 2.6 million stock options for total proceeds of $0.9 million at an average exercise price of $0.42 per share.

Fiscal 2021 Financings

During the year ended December 31, 2021, we issued 4.2 million DeepGreen Common Shares to Maersk for marine vessel services.

Such Common Shares were valued at $6.05 per DeepGreen Common Share.

Certain holders of stock options exercised their rights in exchange for 6.3 million DeepGreen Common Shares.

The weighted average exercise price of these stock options was $0.67 per DeepGreen Common Share resulting in total proceeds of $4.3 million.

During February 2021, we raised a total of $26 million through convertible debentures financing.

The convertible debentures bear interest at the rate of 7.0% per annum, compounded annually, with a maturity date that is 24 months from the date of the financing.

The debentures were automatically converted into DeepGreen Common Shares immediately prior to the Business Combination at the conversion price of $8.64 per share.

On February 18, 2021, debentures totaling $0.5 million were converted into 50,000 DeepGreen Common Shares, and then converted into 57,894 of our common shares upon closing of the Business Combination.

On September 9, 2021, the Company issued 3,068,673 common shares, after adjustment for the exchange ratio, in connection with the Business Combination, upon conversion of the outstanding debentures consisting of $25.5 million and $1.0 million of principal and accrued interest, respectively.

We are an exploration-stage company and the recovery of our investment in mineral exploration contracts and attainment of profitable operations is dependent upon many factors including, among other things, the development of commercial production system for collecting polymetallic nodules from the seafloor as well as the development of our processing technology for the metallurgical treatment of such nodules, the establishment of mineable reserves, the demonstration of commercial and technical feasibility of seafloor polymetallic nodule collection and processing systems, metal prices, and securing ISA exploitation contracts.

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

We expect to incur significant expenses and operating losses for the foreseeable future, particularly as we advance towards our application to the ISA for an exploitation contract and preparation for potential commercialization.

Based on our cash balance and availability of borrowing under our recently signed credit facility with Allseas, when compared with our forecasted cash expenditures, we believe we will have sufficient funds to meet our obligations that become due within the next twelve months.

Our estimates used in reaching this conclusion are based on information available as at the date of filing this Annual Report on Form 10-K.

Accordingly, actual results could differ from these estimates and resulting variances may result in our need for additional funding in amount greater or earlier than expected, 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, our ability to pay certain vendors or suppliers in our common shares or changes in external business environment.

In addition, we will need and are seeking additional financing to fund our continued operations.

These financings could include additional public or private equity, debt financings, equity-linked financings or other sources of financing, including through non-dilutive asset, royalty or project-based financings.

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

On September 16, 2022, we filed a registration statement on Form S-3 with the Securities and Exchange Commission, which the SEC declared effective on October 14, 2022, to sell up to $100 million of securities, before any fees or expenses of the offering, which includes the $30 million that may be sold under the At-the-Market Equity Distribution Agreement discussed below.

Securities that may be sold include common shares, preferred shares, debt securities, warrants and units.

Any such offering, if it does occur, may happen in one or more transactions.

Specific terms of any securities to be sold will be described in supplemental filings with the SEC.

On December 22, 2022, we entered into an At-the-Market Equity Distribution Agreement with Stifel, Nicolaus & Company, Incorporated and Wedbush Securities Inc., as sales agents, allowing us, from time to time, to issue and sell common shares with an aggregate offering price of up to $30 million.

The offer and sales of the shares are made under our effective “shelf” registration statement on Form S-3 filed with the SEC on September 16, 2022, which the SEC declared effective on October 14, 2022.

As of the date of this Annual Report on Form 10-K, no sales of common shares have been made under this offering.

On March 22, 2023, we entered into a Credit Facility with Argentum Credit Virtuti GCV, the parent of Allseas Investments S.A.

and an affiliate of Allseas, pursuant to which, we may borrow from the Lender up to $25,000,000 in the aggregate, from time to time, subject to certain conditions.

All amounts drawn under the Credit Facility will bear interest at the 6-month Secured Overnight Funding Rate (SOFR), 180-day average plus 4.0% per annum payable in cash semi-annually (or plus 5% if paid-in-kind at maturity, our election) on the first business day of each of June and January.

We will pay an underutilization fee equal to 4.0% per annum payable semi-annually for any amounts that remain undrawn under the Credit Facility.

We have the right to pre-pay the entire amount outstanding under the Credit Facility at any time, before the Credit Facility’s maturity of May 21, 2024.

The Credit Facility also contains customary events of default.

We may receive up to approximately $281.8 million in aggregate gross proceeds from cash exercises of the Public Warrants and the Private Warrants, based on the per share exercise price of such warrants.

However, the exercise price for the outstanding Public Warrants and Private Warrants is $11.50 per common share and there can be no assurance that such warrants will be in the money prior to their expiration, and as such, such warrants may expire worthless.

Based on the current trading price of our common shares we do not expect to receive any proceeds from the exercise of the Public Warrants and Private Warrants unless there is a significant increase in the price of our common shares.

In certain circumstances, the Public Warrants and Private Warrants may be exercised on a cashless basis and the proceeds from the exercise of such warrants will decrease.

Furthermore, even if the warrants will be in the money, the holders of the warrants are not obligated to exercise their warrants, and we cannot predict whether holders of the warrants will choose to exercise all or any of their warrants.

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 into 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 believe that our cash on hand and availability of borrowing under our recently entered into credit facility with Allseas will be sufficient to meet our working capital and capital expenditure requirements over the next twelve months.

With these funds, we expect to be able to complete our assessment of the offshore environmental impacts based on data collected during our campaigns completed in 2022 and lodge our application in the second half of 2023 to move from exploration phase to exploitation phase.

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.

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

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Net cash (used in) investing activities

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Increase (decrease) in cash

2 unchanged sentences

Net cash used in operating activities for the year ended December 31, 2022 was $66.6 million, attributable to a net loss of $171 million, a net change in net operating assets and liabilities of $17.8 million and non-cash adjustments of $86.5 million.

Non-cash adjustments primarily consisted of $12.8 million for the value of shares issued to Maersk and $60.3 million of share-based payments related to the value of the incentive stock options and RSUs recognized during the year ended December 31, 2021.

Non-cash adjustments primarily consisted of $69.9 million from the vesting of the Allseas Warrant in November 2022 and $18.4 million of share-based payments related to the value of the incentive stock options and RSUs recognized during the year ended December 31, 2022.

The change in our net operating assets and liabilities was primarily due to a $17 million increase in accounts payable and accrued liabilities due to the timing of payments.

Net cash used in operating activities for the year ended December 31, 2021 was $56.1 million, attributable to a net loss of $141.3 million and a net change in net operating assets and liabilities of $18.6 million and non-cash adjustments of $66.6 million.

Non-cash adjustments primarily consisted of $10.0 million expensed for the value of shares issued to Allseas and Maersk as described above, $12.9 million for the value of shares issued to Maersk at the end of 2020, $4.1 million of share-based payments related to the value of the incentive stock options recognized during the year ended December 31, 2020, and $0.6 million for amortization of equipment.

Non-cash adjustments primarily consisted of $12.8 million for the value of shares issued to Maersk at the end of 2020 and $60.3 million of share-based payments related to the value of the incentive stock options and RSUs recognized during the year ended December 31, 2021.

The change in our net operating assets and liabilities was primarily due to a $22.0 million increase in accounts payable and accrued liabilities due to the timing of payments.

Cash flows used in Investing Activities

Net cash used in investing activities for the year ended December 31, 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 December 31, 2021 there was no amount outstanding for the deferred consideration pertaining to TOML Acquisition.

We also spent $0.4 million for the purchase of equipment.

Net cash used in investing activities for the year ended December 31, 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 year ended December 31, 2022 was $1.2 million for the purchase of equipment.

Net cash used in investing activities for the year ended December 31, 2021 was $3.8 million and related to the payments made to Deep Sea Mining Finance Ltd., from whom we acquired TOML and other related entities for the deferred consideration that became due during the period.

Cash flows provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2022 was $29.7 million, primarily related to proceeds of $30.4 million from a private placement financing, less financing expenses.

Net cash provided by financing activities for the year ended December 31, 2021 was $134.7 million related to proceeds of $104.5 million from the Business Combination, proceeds of $26.0 million from the issuance of convertible debentures and $4.2 million from the exercise of incentive stock options.

Net cash provided by financing activities for the year ended December 31, 2020 was $21.3 million related to proceeds from private placements of $20.3 million and $0.9 million from the exercise of incentive stock options.

Contractual Obligations and Commitments

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

NORI had committed to spend $5 million over the five-year period from 2017 to 2021, which it has exceeded, spending close to $167 million (including over $77 million spent in 2021).

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.

The report is being reviewed by the ISA.

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 2023 to be approximately $25 million, 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 us, agreed with the ISA and may be subject to change depending on our 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 spend a defined amount of funds on exploration activities on an annual basis.

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

The spending commitment for both years has been met.

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

The commitment for fiscal 2023 and 2024 is Australian dollar (“AUD”) $3 million and AUD $2 million, respectively.

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

is in the process of preparing to submit its 5-year periodic review report to the ISA.

Due to uncertainty on the economic potential of the Marawa Contract Area, Marawa is currently considering conducting another exploration campaign to increase the geological knowledge or is considering to seek a new area.

Marawa expects to finalize its decision in 2022.

Marawa has delayed its 2022 geological and environmental work programs until it determines how it will move forward.

We expect that the offshore engineering, onshore engineering and training work programs will continue to be advanced subject to any limitations posed by the ongoing pandemic.

To date, limited offshore marine resource definition activities in the Marawa Contract Area have occurred.

We expect to collaborate with Marawa to assess the viability of any potential project in the Marawa Contract Area, although the timing of such assessment is unclear.

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 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 just completed and a program of activities and estimated budget for the next five-year period of $44 million.

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.

For the 2021 year, we had spent approximately $12.6 million in connection with the TOML Exploration Contract, bringing the five-year total spend to approximately $17.8 million from 2017 to 2021.

TOML has submitted its periodic 5-year review which includes the next 5-year program of work, with both program periods under consideration by the ISA.

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.

The five-year period ending in 2021 included activities of both TOML (from its acquisition in 2020) and its predecessor.

Although the stated program objectives from 2017-2021 were not achieved by the contractors, the ISA accepted TOML’s submission and explanations, and agreed on the path forward.

On December 23, 2022, the ISA accepted TOML’s proposed program of activities for the 2022-2026 five-year period, which included an estimated five-year expenditure of up to $44 million.

The five-year estimated expenditure is indicative and subject to change, TOML will review the program regularly and TOML will inform the ISA of any changes through its annual reports.

Regulatory Obligations Relating to Exploration Contracts

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Each company has been registered and incorporated within the applicable host nation’s jurisdiction.

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.

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

Each of TOML and NORI is subject to the registration and incorporation requirements of these nations.

In the event the sponsorship is otherwise terminated, such subsidiary will be required to obtain new sponsorship from another nation that is a member of the ISA.

In the event the sponsorship is otherwise terminated, such subsidiary will be required to obtain new sponsorship from another state that is a member of the ISA.

Failure to obtain such new sponsorship would have a material impact on the operations of such subsidiary and us.

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In addition, NORI will pay an administration fee each year to Nauru for such administration and sponsorship, which is subject to review and increase in the event NORI is granted an ISA exploitation contract.

NORI has begun discussions with the Government of Nauru to renegotiate the existing sponsorship agreement and has also committed to ensuring NORI pays corporate income tax within Nauru.

On March 8, 2008, Tonga and TOML entered into the TOML Sponsorship Agreement formalizing certain obligations of the parties in relation to TOML’s exploration and potential exploitation of the TOML Area.

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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.

TOML expects to renegotiate the existing sponsorship agreement with Tonga prior to entering into operations in the TOML area and has committed to paying corporate income tax within Tonga.

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 (“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.

In furtherance of this agreement, on July 8, 2019, we entered into a Pilot Mining Test Agreement with Allseas (“PMTA”), which was amended on five occasions through February 2023, 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.

On March 16, 2022, NORI and Allseas entered into a non-binding term sheet for the development and operation of a commercial nodule collection system.

The pilot nodule collection system developed and tested by Allseas 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 intended to equally finance all costs related to developing and getting the first commercial system into production that were estimated at less than EUR100 million.

It was anticipated that NORI will not have to make any payments related to the commercial system to Allseas until March 31, 2023.

Once in production, NORI expected 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 by more than 20% in the following years as Allseas scaled up production to at least 1.3 million wet tonnes of nodules per year.

Following the successful completion of the NORI Area D pilot collection system trials in November 2022 and subsequent analysis of pilot data, the parties are reviewing Project Zero System production targets (up to 3 Mtpa of wet nodules), system design and cost estimates and intend to enter into a binding Heads of Terms in the second half of 2023.

The parties expect to further detail their relationship in three separate definitive agreements for engineering, conversion/build and commercial operations phase, respectively.

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

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, 2022, 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.

As of December 31, 2021, we had the following remaining payment obligations to Allseas under the PMTA:

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

and (b) $10 million upon successful completion of the pilot trial of the PMTS in NORI Area D.

Maersk Agreement

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 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.

The invoiced cost related to the vessel was settled through issuance of common shares at an agreed upon price of $1.08 per common share.

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

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 seeking proposals from third parties to provide a survey vessel, and specialized ROV and AUV services required to support the implementation of the collector test monitoring survey planned for 2022.

(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 a warrant 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.

On November 11, 2022, the Board approved the successful completion and testing of the PMTS in the NORI Area D and payment of the third milestone amounting to $10 million by issuing 10 million shares to Allseas on February 23, 2023.

In relation to the third milestone payment, we have recorded a charge amounting to $8.7 million based on the fair market value of our shares on November 11, 2022.

We also issued 850,000 common shares at the same time as payment of additional costs owed Allseas under the PMTA.

Offtake Agreement

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Glencore may also terminate the agreement by giving twelve months’ notice.

As described above, on March 22, 2023 we entered into the Credit Facility under which we may borrow up to $25 million pursuant to the terms and conditions of the Credit Facility.

Off-balance sheet arrangements

We are not party to any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Critical Accounting Policies and Significant Judgments and Estimates

Our financial statements have been prepared in accordance with U.S.

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We have the critical accounting policies and estimates which are described below.

TOML Acquisition

On March 31, 2020, we completed the TOML Acquisition and applied guidance from ASC 805 to understand the accounting treatment regarding this acquisition and make necessary judgements.

ASC 805 defines a business as inputs and processes, when applied to the inputs, resulting in the creation of outputs.

The key input acquired in connection with the TOML Acquisition is the TOML Exploration Contract and the related intellectual property.

TOML Exploration Contract is in the exploration stage and therefore does not produce outputs.

ASC 805 requires that where there is no output, there must be both an input and substantive process which must include an organized workforce with the necessary skills, experience, and knowledge to develop and convert the inputs into outputs, for a group of assets to be considered a business.

An organized workforce was not included in the TOML Acquisition and therefore our management deemed that the TOML Acquisition was not a business acquisition and only an acquisition of a group of assets.

Our position is supported by ASC 805’s guidance that if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not considered a business.

We determined that the value of TOML Acquisition was substantially concentrated in the TOML Exploration Contract.

Our management also determined that other assets acquired (which included other intangible assets, such as patents and trademarks) were connected to the TOML Exploration Contract and would not hold value by themselves.

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

Value of Common Share-Based Payments

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Changes in these assumptions used to determine the fair value of incentive stock options, including the vesting timeline of granted stock options, could have a material impact on our loss and comprehensive loss.

Valuation of warrant liability

Valuation of Warrants Liability

We re-measure the fair value of the Private Warrants at the end of each reporting period.

The fair value of the Private Warrants is estimated using a Black-Scholes option pricing model whereby the expected volatility is estimated using a binomial model based on consideration of the implied volatility from the Company’s Public Warrants adjusted to account for the call feature of the Public Warrants at prices above $18.00 during 20 trading days within any 30-trading day period.

Evaluation of Going Concern

We assess quarterly whether the Company has the ability to meets its committed cash requirements for the next twelve months and continue to operate as a going concern.

This assessment requires the use of forecasts of our business activities and related estimates of future cost obligations which can be subject to change.

Changes in these assumptions could have a material impact on our assessment and related disclosures.

Recent Accounting Pronouncements

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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 expect to remain an emerging growth company at least through the end of the 2023 fiscal year and we expect to continue to take advantage of the benefits of the extended transition period at least through the end of the 2023 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.

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-K

Item 7. Management’s Discussion and Analysis