What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2022-11-14 · 179 added, 211 removed, 164 unchanged (70% of the section changed)

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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, 2022 contained in our 2022 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 I of the 2021 Annual Report on Form 10-K, as updated and supplemented under the caption “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q, as further updated and/or supplemented in subsequent filings with the SEC.

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

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and its consolidated subsidiaries.

The unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2022 and 2021, 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, 2023 and 2022, respectively, present the financial position and results of operations of TMC the metals company Inc.

and its consolidated subsidiaries.

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).

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 (1,500 miles or 2,400 kilometers) 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 clean energy.

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, or intermediate nickel-copper-cobalt matte) 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.

(i) feedstock for battery cathode precursors (nickel and cobalt sulfates, or intermediary nickel-copper matte) 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 “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 International Seabed Authority, 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 obtains and maintains 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 requires that a contractor obtain and maintain sponsorship by a host nation that is a member of the ISA and signatory to UNCLOS, and that such nation maintains 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:

two based on the ISA exploration contracts through our subsidiaries Nauru Ocean Resources Inc.

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 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 do we have the applicable environmental and other permits required to build and operate commercial-scale polymetallic nodule processing and refining plants on land.

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

(“Allseas”), a leading global offshore contractor, which has developed and is currently testing a pilot collection system, 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) holding offtake rights to 50% of NORI nickel and copper production from the NORI area.

(“Allseas”), a leading global offshore contractor, which has developed and successfully tested the pilot nodule collection system in the NORI Area D, completed in the fourth quarter of 2022, with experience from this testing program informing the design of upgrades and modifications of the pilot system for conversion into the initial smaller scale commercial production system which is expected to 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 nickel and copper production from the NORI area.

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

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to develop a near-zero solid waste flowsheet.

The pyrometallurgical 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 bench-scale hydrometallurgical refining work is being carried out with SGS SA.

The near-zero solid waste flowsheet provides a 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.

Together with Epsilon Carbon, we selected a suitable plant site in India, developed and issued a Request for Proposal for Project Zero Pre-feasibility and Feasibility Study.

Due to overstressed process engineering capacity across all markets with expertise in Rotary Kiln-Electric arc Furnace (“RKEF”) plants, compliant bids were received in September 2022 later than initially expected, and are currently under review.

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 in 2024.

To reach our objective, 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 system 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 Third Quarter 2022

Below are some of the major developments that occurred in the third quarter of 2022:

NORI Area D Project:

● Project Zero Research :

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.

● Pilot Collection System Trials and Monitoring Campaign:

● ISA Recommendation:

In September 2022, following the completion of its review of NORI’s Environmental Impact Statement (EIS) and EMMP, the International Seabed Authority recommended that we proceed with independently monitored pilot collection system trials in NORI Area D in the CCZ.

● Start of Trials and Campaign:

With the ISA recommendation, the team of engineers at Allseas and scientists from some of the world’s leading deep-sea research institutions and contractors, began technology trials and our impact monitoring campaign.

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

TMC Financing:

● 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.

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 September 30, 2022

● Board of Director Changes :

On October 3, 2022, we announced the appointment of Andrew C.

Greig to our Board as an Independent Director to replace outgoing director Gina Stryker.

Greig brings extensive experience working on international construction projects in the mining sector during a 35-year career at leading engineering, procurement and construction company, Bechtel Group.

On November 10, 2022, Mr.

Greig was appointed to the Compensation Committee and on November 11, 2022, he was appointed as Lead Independent Director, replacing Andrew Hall.

Hall will remain on the Board of Directors, including as a member of the Audit Committee.

● NORI Collector Test Monitoring :

On October 5, 2022, we announced that a multidisciplinary team of independent scientists from leading research institutions around the world and industry-leading contractors commenced the next phase of an extensive environmental baseline and impact monitoring campaign in preparation for NORI’s ongoing pilot nodule collection system trials in NORI Area D area 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 offshore strategic partner, Allseas, began testing a system consisting of a prototype nodule collector at the seafloor connected to a riser system to bring nodules to the surface production vessel, Hidden Gem .

● NORI Collector Test Milestone :

On October 12, 2022, we announced the successful collection of an initial batch of seafloor polymetallic nodules, which were lifted up a 4-kilometer-long riser system to the surface, in what represents the first integrated collection system test conducted in the CCZ since the 1970s.

The dedicated team of 130 crew and engineers aboard the Hidden Gem commenced initial nodule collection runs, driving the pilot collector 147 meters in one hour on a pre-determined path and collecting 14 tonnes of nodules, while expert industry contractors and independent scientists continued their complex monitoring program to assess the environmental impacts of the collector system trials using an array of over 50 subsea sensors and monitoring stations.

● Executive Changes :

On October 20, 2022, we announced the appointment of Grant Lindner as Project Director for NORI, as we look to potentially commercialize our first polymetallic nodule project in the NORI Area D.

Lindner has delivered over $26 billion in project value during his 25-year career at Bechtel Group and BHP, holding senior executive roles for large-scale mining, smelter and refinery, material handling and marine projects.

Lindner will play a key role in advancing all areas of the NORI Area D project including the submission of the Environmental Impact Assessment and exploitation application to the ISA, and the safe delivery of offshore and onshore development plans.

We also announced that Anthony O’Sullivan had tendered his resignation on October 14, 2022 for personal and health reasons, although he will remain in the position through a twelve-month transition period.

● Successful Conclusion of NORI Collector Test:

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

Over 3,000 tonnes 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.

The primary processing stages of the flowsheet from nodule to NiCuCo matte intermediate were tested as part of our pilot plant program at FLSmidth & Co A/S’s 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 is expected to serve as the basis for our onshore processing facilities.

In November 2022, we entered into a non-binding memorandum of understanding (“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.

Subject to entering into a binding arrangement with PAMCO, 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.

PAMCO’s Hachinohe facility is located on the coast in northern Japan and is equipped with suitable port and processing infrastructure required to receive and process polymetallic nodules and to ship products to customers.

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

(i) defining our resource and project economics, (ii) developing a commercial 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.

Developments in the First Quarter 2023

Below are some of the major developments that occurred in the first quarter of 2023:

Benchmark LCA of NORI Area D Project:

In March 2023, we announced that leading lithium-ion battery supply chain research firm, Benchmark Mineral Intelligence (“Benchmark”), had completed an independent third-party lifecycle assessment (“LCA”) of the environmental impacts of our NORI Area D project, comparing the production of key energy transition metals (nickel, cobalt and copper) from the NORI Area D project to key land-based production routes for the same metals.

Benchmark’s LCA shows the NORI Area D project model performed better in almost every impact category analysed than all the land-based routes chosen by Benchmark for comparison.

Consortium for ESG disclosure of marine minerals:

In February 2023, we announced that we had joined a broad international consortium to develop a handbook for ESG disclosure in relation to marine minerals.

The purpose of the guidance handbook 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, we believe consideration of ESG issues is key to ensuring transparent and responsible supply chains.

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

Extensive Deep-sea Environmental Data Submission to the ISA

In March 2023, we announced that our wholly-owned subsidiary NORI had begun the process of submitting data collected during 17 offshore resource definition and environmental baseline campaigns in NORI Area D to the DeepData platform, an open database of contractor data managed by the ISA.

Collected using a suite of high-tech equipment, the dataset submitted to the ISA includes over 1,400 biological samples from extensive boxcore and multicore sampling, and over 8,000 images analysed for benthic megafauna

captured by remotely operated vehicles from two offshore campaigns.

This first submission of benthic data, which includes over 270,000 occurrences, will provide a significant expansion to the biological holdings contained within the DeepData platform.

Credit Facility with Argentum Credit Virtuti GCV, Parent of Allseas Investments S.A .:

In March 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.

New Partnerships

● MoU with PAMCO to Evaluate Nodule Processing at Existing Facility:

In March 2023, we announced that we had entered into a non-binding MoU with PAMCO, 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.

● Engagement with Bechtel Australia Pty Ltd:

In March 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 technological and 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.

● Investment in Low Carbon Royalties:

In February 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.

On March 21, 2023, Low Carbon Royalties completed a royalty acquisition whereby it increased its gross overriding royalty on the existing first license block (Maria Conchita) natural gas property from 1.56% to 3.13% and acquired a gross overriding royalty of 1.44% on a new second license block (SINU-9).

The royalty acquisitions were financed through the issuance of LCR common shares, thereby reducing our ownership interest in the Partnership to 32% from 35%.

Industry Update

The ISA completed what we believe was a productive March 2023 session and continues to work inter-sessionally to finalize regulations regarding exploitation of deep-sea minerals.

At the session, all member states of the ISA reiterated their commitment to the adoption of final rules, regulations and procedures (Mining Code).

The main item on the agenda of the ISA Council remains the negotiation of the Draft Regulations on Exploitation of Mineral Resources in the Area.

During the session, the ISA Council confirmed it has the obligation to consider a plan of work for exploitation after July 2023.

We are aligned with the members of the ISA in that we do not want to submit an application for a work plan for exploitation and start commercial operations in the CCZ until final regulations are in place.

We will continue to constructively support the negotiations however, NORI may exercise its legal rights under UNCLOS to lodge an application for a plan of work for exploitation before the final Mining Code is adopted and in place.

The next ISA Council session is scheduled for July 2023.

We expect that discussions will continue at this session on the approval process for an application for a plan of work for exploitation, if one is submitted before final regulations are in place.

NORI is committed

to submitting an application for a plan of work for exploitation only after we complete a quality comprehensive, science-driven environmental and social impact assessment.

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.

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

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

Under this method of accounting, SOAC was treated as the acquired company for financial statement reporting purposes.

The Business Combination was accounted for as a reverse acquisition with no goodwill or intangible assets being recorded.

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 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.

We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, additional internal and external accounting, legal and administrative resources, including increased personnel costs, audit and other professional service fees.

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 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.

Exploration Contracts

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.

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

NORI Exploration Contract

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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.

DGE, our wholly-owned subsidiary, entered into agreements with Marawa and Kiribati which provide DGE with exclusive exploration and exploitation (if awarded) 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, our wholly-owned subsidiary, was granted an exploration contract on January 11, 2012 by the ISA and sponsored by the Kingdom of Tonga pursuant to the TOML Exploration Contract .

TOML, our wholly-owned subsidiary, was granted an exploration contract on January 11, 2012 by the ISA and sponsored by Tonga pursuant to the TOML Exploration Contract .

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

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The sponsorship agreement was updated on September 23, 2021.

Marawa Agreements

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

The exploration contract between Marawa and the ISA was signed on January 19, 2015.

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

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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 the section entitled “ Risk Factors ” in Item 1A of Part I of the 2021 Annual Report on Form 10-K, as updated and supplemented under the caption “ Risk Factors ” in Item 1A of Part II of this Quarterly Report on Form 10-Q, as further updated and/or supplemented in subsequent filings with the SEC.

These risks, as well as other risks, are discussed in the section entitled “ Risk Factors ” in Item 1A of Part I of the 2022 Annual Report on Form 10-K, as further updated and/or supplemented in subsequent filings with the SEC.

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.

In 2022, the global inflation rate has risen sharply.

Marine fuel prices and vessel day rates are 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 due to an upturn in the offshore oil and gas market.

Impact of Climate Change

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

In our first inaugural impact report published in May 2022, we provided climate-related disclosures and shared how we believe our mission is aligned with supporting a clean energy transition and contributing to a circular metals economy.

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 on climate change and create value.

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.

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 the negative impact of climate change on our operations.

Our climate related transition risks and opportunities are likely to be driven by changes in regulation, public policy, and technology, as disclosed in our 2022 Annual Report on Form 10-K.

During the third quarter of 2022, active work comprised the commencement of deep-water test of the full collector system deployed from the Hidden Gem in the NORI Area D project area in the CCZ.

There were COVID-19 outbreaks, but these were effectively managed and had no impact on the project schedule and delivery of the collector 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” in Item 1A of Part I of the 2021 Annual Report on Form 10-K, as updated and supplemented under the caption “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q, as further 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 re-assess the impacts of COVID-19.

Restatement of Previously Issued Quarterly Financial Statements

As disclosed in our 2021 Annual Report on Form 10-K, we have restated our financial statements as of and for the three and six-months period ended June 30, 2021 in the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

The restatement resulted from the following items:

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 and 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 (“STIP”) 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 US 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.

Basis of Presentation

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Our historical results are reported under U.S.

Generally Accepted Accounting Principles (“U.S.

GAAP”) and in U.S.

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Components of Results of Operations

We are an exploration-stage company with no revenue to date and a net loss of $25.9 million and $59.4 million for the three and nine months ended September 30, 2022, respectively, compared to a net loss of $36.7 million and $121.5 million in the same periods of 2021, respectively.

We have an accumulated deficit of approximately $363.6 million from inception through September 30, 2022.

We are an exploration-stage company with no revenue to date and net income of approximately $nil for the three months ended March 31, 2023, compared to a net loss of $21.1 million in the same period of 2022.

We have an accumulated deficit of approximately $475.1 million from inception through March 31, 2023.

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

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Interest Income/Expense

Interest expense in the first nine months 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.

Interest income recorded in the first nine months of 2022 resulted from the interest earned on the funds we received from the Business Combination which closed in September 2021 and from the PIPE financing which closed in August 2022.

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

Interest expense consists primarily of interest expense on our outstanding indebtedness.

The Company’s credit facility with Allseas remains undrawn as at March 31, 2023.

Foreign Exchange Loss

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Results of Operations

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 and nine months ended September 30, 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 and Nine Months Ended September 30, 2022 and 2021

The following is a discussion of our results of operations for the three months ended March 31, 2023 and 2022.

Our accounting policies are described in Note 3 “Significant Accounting Policies” in our financial statements filed as part of the 2022 Annual Report on Form 10-K.

Comparison of the Three Months Ended March 31, 2023 and 2022

For the Three Months Ended

For the Nine Months Ended

(Dollar amounts in thousands, except as noted)

September 30,

Exploration and evaluation expenses

General and administrative expenses

Change in fair value of warrants liability

Foreign exchange loss (gain)

Interest expense (income)

Loss for the period

Three Months ended September 30, 2022 compared to Three Months ended September 30, 2021

We reported a net loss of $27.9 million in the third quarter of 2022, compared to $36.7 million in the same period of 2021.

The following explains the major reasons for the reduction in the net loss in the third quarter of 2022.

Exploration and Evaluation Expenses

Exploration and evaluation expenses for the three months ended September 30, 2022 were $22.7 million, compared to $23.8 million for the same period in 2021.

The decrease of $1.2 million was primarily due to a decrease in environmental studies of $3.4 million, due to the completion of the NORI Area D baseline campaigns in the fourth quarter of 2021 and a reduction in share-based compensation of $1.4 million in the 2022 period, as the cost of the LTIP options with vesting condition of $3 billion market capitalization was completely amortized in 2021 in addition to the decrease in the amortization cost of STIP sign-up options granted in 2021 offset by the increase amortization cost of the RSUs issued to employees and contractors in 2022.

The above expense reductions were partially offset by increased work on the PMTS which progressed in the third quarter of 2022 resulting in increased expenses of $3.7 million.

General and Administrative Expenses

G&A expenses for the three months ended September 30, 2022 were $5.9 million compared to $13.3 million for the same period in 2021.

The decrease of $7.4 million in G&A expenses was mainly the result of lower share-based compensation in the 2022 period as the cost of the LTIP options with vesting condition of $3 billion market capitalization was completely amortized in 2021 in addition to the decrease in the amortization cost of STIP sign-up options granted in 2021, offset by the increase amortization cost of the RSUs issued to employees and contractors in 2022.

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

The third quarter of 2021 also included higher expenses for consulting and communications related to the Business Combination.

Equity-accounted investment loss

Gain on disposition of asset

Change in fair value of warrants liability

The change in fair value of warrants liability during the third quarter of 2022 resulted in a credit of $0.4 million.

The credit was primarily due to a 15% decrease in the price of our warrants in the third quarter of 2022.

The warrants liability was initially recorded as part of the Business Combination.

Nine Months ended September 30, 2022 compared to Nine Months ended September 30, 2021

We reported a net loss of $59.5 million in the first nine months of 2022, compared to $121.5 million in the same period of 2021.

The following explains the major reasons for the reduction in the net loss in the first nine months of 2022.

Foreign exchange loss

Interest (income) expense

Fees and interest on credit facility

Net Loss (Income) for the period

Three Months ended March 31, 2023 compared to Three Months ended March 31, 2022

We reported net income of approximately $nil in the first quarter of 2023, compared to a net loss of $21.1 million in the same period of 2022.

The following explains the major reasons for the reduction in the net loss in the first quarter of 2023.

Exploration and Evaluation Expenses

Exploration and evaluation expenses for the nine months ended September 30, 2022 were $40.3 million, compared to $80.2 million for the same period in 2021.

The decrease of $39.8 million was primarily due to a decrease in environmental studies of $23.5 million, due to the completion of the NORI Area D environmental baseline campaigns in the fourth quarter of 2021.

In the first nine months of 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 Maersk Supply Service A/S (“Maersk”).

The decrease in the first nine months of 2022 also reflects a reduction in share-based compensation of $23.2 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 the first nine months of 2022.

The above expense reductions were partially offset by increased work on the PMTS which progressed in the first nine months of 2022 resulting in increased expenses of $6.4 million.

Exploration and evaluation expenses for the three months ended March 31, 2023 were $7.2 million, compared to $7.4 million for the same period in 2022.

The decrease of $0.2 million was primarily due to a reduction in share-based compensation of $2.0 million in the 2023 period, as the cost of the LTIP options with specific market capitalization vesting conditions was fully amortized in 2022 in addition to the decrease in the amortization cost of STIP sign-up options granted in 2021, a reduction of $1.3 million on the PMTS, as the collector test was completed in November 2022 and reduced exploration activities in 2023.

This was offset by an increase in environmental studies of $1.3 million related to the monitoring work on the NORI Area D collector test which was carried out in the fourth quarter of 2022 and an increase in mining, technological and process development of $0.8 million due to engineering work which commenced in the fourth quarter of 2022.

General and Administrative Expenses

G&A expenses for the nine months ended September 30, 2022 were $22.5 million compared to $41.1 million for the same period in 2021.

The decrease of $18.6 million in G&A expenses in the first nine months of 2022 was mainly the result of lower share-based compensation in the 2022 period as the first nine months 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 nine months of 2022, reflecting an increase in personnel, legal and other expenses associated with being a public company.

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

G&A expenses for the three months ended March 31, 2023 were $6.2 million compared to $8.5 million for the same period in 2022.

The decrease of $2.3 million in G&A expenses was mainly the result of lower share-based compensation in the 2023 period as the cost of the LTIP options with specific market capitalization vesting conditions was fully amortized in 2022 in addition to the decrease in the amortization cost of STIP sign-up options granted in 2021 and a decrease in communication and investor relations costs incurred during the first quarter of 2023.

This decrease was partially offset by higher G&A expenses in the first quarter of 2023, reflecting an increase in personnel, legal and other expenses.

Gain on disposition of asset

In the first quarter of 2023, we reported a gain of $13.75 million on the disposition of NORI’s 2% royalty, reflecting the excess of the consideration received from Low Carbon Royalties of $14 million and NORI exploration contract’s carrying value.

Change in F air V alue of W arrants Liability

The change in fair value of warrants liability during the first nine months of 2022 resulted in a credit of $0.9 million, similar to the same period of 2021.

The credit was primarily due to a 39% decrease in the price of our warrants in the first nine months of 2022.

The change in fair value of warrants liability during the first quarter of 2023 resulted in a charge of $0.5 million, reflecting a 49% increase in the price of our warrants in the first quarter of 2023.

This compares to a charge of $5.2 million in the comparative quarter of 2022, reflecting an increase of 125% in the price of our warrants.

The warrants liability was initially recorded as part of the Business Combination.

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, receiving gross cash proceeds of $137.6 million ($104.5 million net of transaction fees), followed by a PIPE financing that we announced on August 15, 2022, which resulted with gross cash proceeds of $30.4 million (approximately $30 million net of transaction fees).

As of September 30, 2022, we had cash on hand of $66.9 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.

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

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 March 31, 2023, we had cash on hand of $28.4 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 private placement 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.

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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 a 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.

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 a 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 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.

Based on our cash balance and availability of borrowing under our recently signed Credit Facility with an affiliate of 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 Quarterly Report on Form 10-Q.

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.

Accordingly, actual results could differ from these estimates and resulting variances may result in our need for additional funding in an 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.

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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.

On September 16, 2022, we filed a registration statement on Form S-3 with the SEC, 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.

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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 Quarterly Report on Form 10-Q, no sales of common shares have been made under this offering.

On March 22, 2023, we entered into the 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 million 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.

As of the date of this Quarterly Report on Form 10-Q, no amounts have been drawn under this Credit Facility.

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.

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.

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Cash Flows Summary

Comparison of the Three and Nine Months Ended September 30, 2022 and September 30, 2021

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

For the Three Months Ended

For the Nine Months Ended

September 30,

2021 Restated

Net cash used in operating activities

Net cash (used in) investing activities

Net cash provided by financing activities

(Decrease) increase in cash

Nine Months ended September 30, 2022 compared to Nine Months ended September 30, 2021

Net cash provided by (used in) investing activities

Net cash used in financing activities

Decrease in cash

Comparison of the Three Months Ended March 31, 2023 and March 31, 2022

Cash flows used in Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2022 was $46.8 million, attributable to a net loss of $59.4 million and an increase in net operating assets and liabilities of $2.9 million, partially offset by non-cash adjustments of $15.5 million.

Non-cash adjustments primarily consisted of $16.1 million of expenses settled with share-based payments, partially offset by $0.9 million related to the decrease in the fair value of the Private Warrants, mainly as a result of the decrease in our share price during the first nine months of 2022.

The increase in our net operating assets and liabilities was primarily due to a $1.5 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, 2022 was $1.0 million for the purchase of equipment, as compared to $3.8 million in the first nine months of 2021, which related primarily to the initial payments made to DSMF in connection with our acquisition of TOML in 2020.

Cash flows (used in) provided by Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2022 was $29.8 million, compared to $134.7 million provided by financing activities in the first nine months of 2021.

The 2022 results represent the net proceeds from the PIPE financing which we announced in August 2022, while the 2021 comparative includes the net proceeds from the Business Combination of $104.7 million, $26.0 million from the issuance of convertible debentures in February 2021 and $4.2 million from the exercise of incentive stock options.

PIPE Financing

On August 15, 2022, we announced a private placement financing with 25 accredited investors, including our Chief Executive Officer and Chairman Gerard Barron and ERAS Capital LLC, and the investment fund of our director Andrei Karkar.

Pursuant to three securities purchase agreements we entered into on August 12, 2022, we issued an aggregate of 37,978,680 common shares to the investors at a price per share of $0.80 ($0.9645 with respect to approximately $100,000 of common shares purchased by our Chief Executive Officer and Chairman in the private placement financing, which was the consolidated closing bid price of the common shares on August 11, 2022).

We received aggregate gross cash proceeds of approximately $30.4 million from the private placement during the quarter ended September 30, 2022 and net cash proceeds of approximately $30 million, after deducting placement agent fees and offering expenses.

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.

Net cash used in operating activities for the three months ended March 31, 2023 was $23.5 million, attributable to a net change in net operating assets and liabilities of $12.3 million and non-cash adjustments of $11.1 million.

Non-cash adjustments primarily consisted of a $13.75 million gain on disposition of assets, partially offset by $1.8 million of expenses settled with share-based payments and $0.5 million related to the increase in the fair value of the Private Warrants, mainly as a result of the increase in the price of our warrants during the first quarter of 2023.

The change in our net operating assets and liabilities was primarily due to an $11.9 million decrease in accounts payable and accrued liabilities in the 2022 period due to the timing of supplier payments.

Cash flows provided by (used in) Investing Activities

Net cash provided by investing activities for the three months ended March 31, 2023 was $5.0 million, reflecting the cash received on closing of our investment in Low Carbon Royalties.

In the comparative first quarter of 2022, cash used in investing activities was $0.2 million for the purchase of equipment.

Cash flows used in Financing Activities

Net cash used in financing activities for the three months ended March 31, 2022 was $0.1 million, compared to nil in the first three months of 2023.

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.

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).

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 through the issuance of the Company’s shares.

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 the Company, agreed with the ISA and may be subject to change depending on our progress to date.

Marawa Option Agreement and Services Agreement

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 between Marawa and the ISA as part of a five-year plan submission 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.

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

TOML Exploration Contract

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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 and such reduction would be dependent upon various factors including the success of the exploration programs and the availability of funding.

The ISA has reviewed TOML’s periodic review report for the 2017-2021 period and submitted its initial findings at the end of September 2022, which management is currently reviewing.

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.

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

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

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.

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 obtains and maintains sponsorship by a host state that is a member of the ISA and such state must maintain effective supervision and regulatory control 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.

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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.

Upon reaching the minimum recovery level within the exploitation contract area, TOML has agreed to pay Tonga a seabed mineral recovery payment based on the polymetallic nodules recovered from the exploitation contract area.

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

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 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 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 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.

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, another 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, 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 became due upon successful completion of the pilot trial of the PMTS in NORI Area D, which we intend to settle through the issuance of common shares in the fourth quarter of 2022, at a price of $1.00 per share, subject to regulatory approval.

Additionally, with the successful completion of the pilot trial, the Allseas Warrants vested and are exercisable for 11.6 million common shares.

Through March 31, 2023, 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 a warrant to purchase 11.6 million common shares at a nominal exercise price per share in March 2021, (d) $10 million in cash in October 2021, following the closing of the Business Combination and meeting certain progress targets on the PMTS and (e) on February 23, 2023 issued 10.85 million common shares to Allseas, as described below.

On November 11, 2022, the board of directors approved the successful completion and testing of the PMTS in the NORI Area D and payment of the third milestone amounting to $10 million and additional costs owed to Allseas under the PMTA by issuing 10.85 million common shares to Allseas priced at $1.00 per share on February 23, 2023.

Offtake Agreement

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

Credit Facility

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

Off-Balance Sheet Arrangements

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Except as described in Note 5 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 2022 Annual Report on Form 10-K.

Recent Accounting Pronouncements

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

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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 through at least the end of the 2022 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 2022 fiscal year, 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 to 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.

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We have estimated 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 estimate our resource in the NORI and TOML Areas and develop the project economics.

We plan to continue to estimate our resources in the NORI and TOML Areas and develop the project economics.

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

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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