What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-11 · 139 added, 113 removed, 230 unchanged (52% 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 2022 Annual Report on Form 10-K, as updated and/or supplemented in subsequent filings with the SEC.

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

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and its consolidated subsidiaries.

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.

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

and its consolidated subsidiaries.

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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.

Our resource definition work to date shows that nodules in our contract areas represent the world’s largest undeveloped resource 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 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.

(i) feedstock for battery cathode precursors (nickel and cobalt sulfates, or intermediary nickel-copper-cobalt matte or nickel-copper-cobalt alloy) 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.

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

(“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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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.

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 by the end of 2024 / start of 2025.

We are currently focused on preparing to submit our application to the ISA for our first exploitation contract for the NORI Area D contract area following the July 2024 meetings of the ISA’s twenty-ninth session.

Assuming a one-year review process, we expect to be in production in the fourth quarter of 2025 if the application is approved.

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%.

(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 or nickel-copper-cobalt alloy product and/or end-products like nickel and cobalt sulfates, and copper cathode.

Developments after the Second Quarter 2023

Below are some of the major developments that occurred up to the date of filing of this second quarter 2023 Report on Form 10-Q:

Estimated Timeline to Finalization of Application to the ISA for an Exploitation Contract for NORI Area D:

In July 2023, the ISA Council announced reaching a consensus decision agreeing on a roadmap towards adopting final rules, regulations, and procedures (RRPs, also known as the Mining Code) to allow for the exploitation of seafloor resources.

The ISA intends to adopt the Mining Code during its thirtieth session in 2025, or earlier if ready.

NORI intends to submit an application to the ISA for an exploitation contract for NORI Area D following the conclusion of the July 2024 meeting of the ISA’s twenty-ninth session.

Assuming a one-year review process, we expect to be in production in the fourth quarter of 2025, if the application is approved.

After consideration of feedback received from the ISA’s Legal and Technical Commission (LTC) following the pilot nodule collection tests, we plan to further add to our growing body of environmental data by conducting a post-collection test monitoring campaign this year in NORI Area D and use the findings thereof as part of the initial application.

This campaign was originally planned to be part of NORI’s Environmental Management and Monitoring Plan (EMMP) that will be submitted to the ISA following the initial application.

We believe the findings of this campaign will strengthen the quality of the required Environmental Impact Statement and EMMP by providing additional information on the environmental regeneration of the collection test area.

Based on observations during the 2022 post-collection test monitoring campaign as well as information shared by other contractors, we expect that the findings of this additional campaign will further enhance the quality of the application.

TMC Announces Registered Direct Offering for $26.9 million:

On August 14, 2023, we announced that we entered into a securities purchase agreement for a registered direct offering of 13,461,540 of our common shares and Class A warrants to purchase 6,730,770 common shares for expected gross proceeds to us of $26.9 million and expected net proceeds to us of $25.9 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.

In addition, certain investors may purchase up to an aggregate of 5,500,000 additional common shares and accompanying Class A warrants to purchase up to an aggregate of 2,750,000 additional common shares upon notice to the Company on or before September 15, 2023, if the closing price of the common shares on the trading day before such investor’s notice is $3.00 or less for an aggregate of up to an additional $11 million.

Extension of Credit Facility with Allseas Affiliate:

On July 31, 2023, the Company entered into the Amendment to the Unsecured Credit Facility with Argentum Credit Virtuti GCV (the “Lender”), the parent of Allseas Investments S.A.

and an affiliate of Allseas, to extend the credit facility to November 30, 2024 (as amended, the “Credit Facility”).

Under the Credit Facility, we may borrow from the Lender up to $25,000,000 in the aggregate through November 30, 2024.

Developments with our Allseas Partnership:

In the fourth quarter of 2022, we successfully tested the pilot nodule collection system in NORI Area D.

As a result of lifting to the production vessel, Hidden Gem , of more than 3,000 tonnes of wet nodules during these tests, Allseas and NORI believe that they can upgrade the pilot nodule collection system, including the Hidden Gem , into the first production system, which we refer to as the Project Zero Offshore System.

In August 2023, we announced that Allseas and NORI are now executing on a plan designed to increase the maximum production capacity of the Project Zero Offshore System from the previous estimate of 1.3 million wet tonnes per annum to an estimated 3.0 million wet tonnes per annum in stepped increments based on Allseas’ estimates – a potential increase of 130%.

The upgrades are expected to include the addition of a second 15-meter collector vehicle, the use of a wider diameter riser pipe from the seafloor to the surface, implementation of a larger compressor spread and improvements to the system designed to further mitigate its environmental impacts.

Capacity is expected to be increased over time as production and experience milestones are met, which we believe will help manage operational risk, minimize up-front capital expenditure requirements and allow for staged increases in capacity as environmental review thresholds are met.

Most of these capacity improvements are expected to occur after NORI’s application for an exploitation contract over NORI Area D is ready for submission to the ISA.

In furtherance of our non-binding term sheet entered into in March 2022 with Allseas, we continue our discussions with Allseas regarding these upgrades and the development of the Project Zero Offshore System and anticipate reaching a definitive agreement with Allseas before the end of 2023.

The definitive agreement is expected to include further detail on pre-production system development and post-production costs.

There can be no assurances, however, that we will enter into a definitive agreement(s) with Allseas in a particular time period, or at all, or on terms similar to those currently expected, or that if such definitive agreement(s) is entered into that the Project Zero Offshore System will be successfully developed or operated.

In addition, on August 1, 2023, we entered into an Exclusive Vessel Use Agreement with Allseas pursuant to which Allseas will give exclusive use of the Hidden Gem to us in support of the development of the Project Zero Offshore System until the system is completed or December 31, 2026, whichever is earlier.

In consideration of the exclusivity term, we will issue 4.15 million common shares to Allseas.

We expect that the definitive agreement with Allseas discussed above will extend the exclusive use of the Hidden Gem .

NORI Publishes Biodiversity Data:

In July 2023, NORI published the first wave of its research data collected from the NORI Area D exploration area to UNESCO’s Ocean Biodiversity Information System (OBIS).

With this publication, NORI is now the single largest contributor of biological occurrence data to the OBIS ISA-node, increasing biodiversity records available for the CCZ by about 150%.

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.

ISA Developments:

As we previously disclosed, the ISA did not provisionally adopt and approve the final rules, regulations and procedures (“RRPs” or the “Mining Code”) for the exploitation of seafloor resources by the July 9, 2023 deadline.

At its July 2023 session, the ISA released a road map to continue the elaboration of the Mining Code with a view to its adoption during the thirtieth session of the ISA in 2025, with the potential for earlier adoption during the twenty-ninth session of the ISA in 2024 if the Mining Code is ready for adoption.

The road map includes three scheduled ISA Council meetings through July 2024 to progress the Mining Code.

There can be no assurances, however, that the Mining Code will be adopted within these timelines, or at all.

Consistent with Nauru’s rights, as the sponsoring state of NORI, under UNCLOS and the 1994 agreement relating to the implementation of Part XI of UNCLOS, NORI reserves its right to submit a plan of work for exploitation, in the absence of the adoption of the final Mining Code pursuant to Section 1, Paragraph 15(c) of the Annex to the 1994 agreement relating to the implementation of Part XI of UNCLOS, the possibility of which was recognized in ISA Council decisions ISBA/28/C/24 and ISBA/28/C/25.

There can be no assurances, however, that the ISA will provisionally approve our plan of work or that such provisional approval would lead to the issuance of an exploitation contract by the ISA.

Assuming submission of an application for a plan of work for exploitation following the July 2024 meeting of the ISA and the ISA’s timely review and approval thereof, the Company expects its first production of nodules from NORI Area D to be in the fourth quarter of 2025.

There can be no assurances, however, if the ISA will approve an application, or the plan of work included therein, and/or issue an exploitation contract.

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 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 public warrants to purchase common shares (the “Public Warrants”) 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.

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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.

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

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

The sponsorship agreement was updated on September 23, 2021.

Marawa Agreements

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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 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.

In 2022, the global inflation rate rose sharply and higher inflation is continuing in 2023.

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

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Components of Results of Operations

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.

We are an exploration-stage company with no revenue to date and a net loss of approximately $14.1 million for both the three and six months ended June 30, 2023, compared to a net loss of $12.4 million and $33.5 million in the same periods of 2022, respectively.

We have an accumulated deficit of approximately $489.2 million from inception through June 30, 2023.

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

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To date, we have not generated any revenue.

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.

We expect to generate revenue once NORI receives an exploitation contract from the ISA, anticipated within one year from our expected submission to the ISA, following the July 2024 meeting of the ISA.

The application for an exploitation contract will include a plan of work for exploitation for NORI Area D, with first revenue anticipated once 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 Expenses

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.

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

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

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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.

The Credit Facility with Allseas remains undrawn as at June 30, 2023.

Foreign Exchange Loss

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Results of Operations

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

The following is a discussion of our results of operations for the three and six months ended June 30, 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

Comparison of the Three and Six Months Ended June 30, 2023 and 2022

For the Three Months Ended

For the Six Months Ended

(Dollar amounts in thousands, except as noted)

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Change in fair value of warrants liability

Foreign exchange loss

Interest (income) expense

Foreign exchange loss (gain)

Interest income

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.

Net Loss for the period

Three Months ended June 30, 2023 compared to Three Months ended June 30, 2022

We reported a net loss of approximately $14.1 million in the second quarter of 2023, compared to a net loss of $12.4 million in the same period of 2022.

The following explains the major reasons for the net loss reported in the second quarters of both 2023 and 2022.

Exploration and Evaluation Expenses

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.

Exploration and evaluation expenses for the three months ended June 30, 2023 were $8.1 million, compared to $10.2 million for the same period in 2022.

The decrease of $2.1 million was primarily due to a reduction in share-based compensation of $1.5 million in the second quarter of 2023, as the cost of the long-term incentive plan (LTIP) options with specific market capitalization vesting conditions was fully amortized in 2022 in addition to the decrease in the amortization cost of short-term incentive plan (STIP) sign-up options granted in 2021, a reduction of $1.4 million on the PMTS and $1.9 million on environmental studies, as the collector test was completed in November 2022 and reduced exploration activities in 2023.

This was offset by $0.4 million spent in the 2023 period on prefeasibility studies ($nil in 2022) and an increase in mining, technological and process development of $1.9 million due to engineering work which commenced in the fourth quarter of 2022.

General and Administrative Expenses

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.

G&A expenses for the three months ended June 30, 2023 were $5.1 million, compared to $8.1 million for the same period in 2022.

The decrease of $3.0 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 insurance costs incurred during the second quarter of 2023.

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

Change in Fair Value of Warrants Liability

The change in fair value of our Private Warrants liability during the second quarter of 2023 resulted in a charge of $0.8 million, reflecting an increase of 67% in the price of our Public Warrants in the second quarter of 2023.

This compares to a credit of $5.7 million in the comparative quarter of 2022, reflecting a decrease of 67% in the price of our Public Warrants in this period.

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

Six Months ended June 30, 2023 compared to Six Months ended June 30, 2022

We reported a net loss of $14.1 million in the first half of 2023, compared to a net loss of $33.5 million in the same period of 2022.

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

Exploration and Evaluation Expenses

Exploration and evaluation expenses for the six months ended June 30, 2023 were $15.3 million, compared to $17.7 million for the same period in 2022.

The decrease of $2.4 million was primarily due to a reduction in share-based compensation of $3.4 million in the first half of 2023, 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 $2.8 million on the PMTS and $0.6 million on environmental studies, as the collector test was completed in November 2022 and reduced exploration activities in 2023.

This was offset by an increase in mining, technological and process development of $2.7 million due to engineering work which commenced in the fourth quarter of 2022, spending in the first half of 2023 of $0.8 million on prefeasibility studies ($nil in 2022) and an increase in sponsorship and training activities in 2023 of $0.8 million.

General and Administrative Expenses

G&A expenses for the six months ended June 30, 2023 were $11.3 million, compared to $16.6 million for the same period in 2022.

The decrease of $5.3 million in G&A expenses in the first half of 2023 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 insurance costs incurred during the first half of 2023.

This decrease was partially offset by higher G&A expenses in the first half of 2023, reflecting an increase in personnel, travel 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.

In the first half of 2023, we reported a gain of $13.75 million on NORI’s contribution in February 2023 of a 2% gross overriding royalty on the NORI project area to Low Carbon Royalties, reflecting the excess of the consideration received from Low Carbon Royalties of $14 million and NORI’s exploration contract carrying value.

Change in F air V alue of W arrants Liability

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.

The change in fair value of our Private Warrants liability during the first half of 2023 resulted in a charge of $1.3 million.

The charge was primarily due to an increase of 150% in the price of our Public Warrants in the first half of 2023.

This compares to a credit of $0.5 million in the first half of 2022, reflecting an decrease of 28% in the price of our Public Warrants in this period.

Liquidity and Capital Resources

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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.

As of June 30, 2023, we had cash on hand of $20.0 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.

As a result, we revised our work plan to focus on activities necessary to submit an application to the ISA for an exploitation contract, which will include a plan of work for exploitation, for the NORI Area D following the July 2024 meeting of the ISA 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 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 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.

Based on our cash balance, including the expected net proceeds from the registered direct offering in August 2023, and availability of borrowing under our 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 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.

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.

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

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 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.

We estimate that we will require approximately $34 to $44 million of cash in addition to $20 million cash on hand as of June 30, 2023 and the $25.9 million of expected net proceeds from our recently announced registered direct offering assuming no exercise of the Class A warrants issued in the offering and excluding up to $11 million of the securities that may be purchased upon notice to us on or before September 15, 2023 (but not including potential drawdown on the Credit Facility) to submit a high-quality application for an exploitation contract for NORI Area D following the July 2024 meeting of the ISA.

This estimate includes, among other things, the expected costs of:

● the environmental and social impact assessment (ESIA), including the post-collection test monitoring campaign described above;

● pre-feasibility studies;

● layup costs for the Hidden Gem ;

● non-recurring engineering and project management on the Project Zero Offshore System;

● regulatory and legal, and

● payroll and other general corporate matters.

This estimate is exclusive of costs expected to be spent subsequent to the submission of the application for an exploitation contract, on more detailed feasibility estimates and to progress the Project Zero Offshore System development as described above.

We expect to refine our expected cash needs to prepare for potential commercialization following the time we submit our application to the ISA for an exploitation contract and after we finalize our planned definitive agreement with Allseas discussed above.

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

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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.

and an affiliate of Allseas, which was amended on July 31, 2023 to extend the maturity date, 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.

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 November 30, 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.

On August 14, 2023, we entered into a securities purchase agreement for a registered direct offering of 13,461,540 of our common shares and Class A warrants to purchase 6,730,770 common shares for expected gross proceeds to us of $26.9 million and expected net proceeds to us of $25.9 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.

In addition, certain investors may purchase up to an aggregate of 5,500,000 additional common shares and accompanying Class A warrants to purchase up to an aggregate of 2,750,000 additional common shares upon notice to us on or before September 15, 2023, if the closing price of the common shares on the trading day before such investor’s notice is $3.00 or less for an aggregate of up to an additional $11 million.

The purchase price for each common share and Class A warrant to purchase 0.5 common shares is $2.00.

The exercise price of the Class A warrants is $3.00, subject to adjustment as provided in the warrant agreement.

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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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.

On July 26, 2023, the Allseas Warrant was exercised resulting in our issuance of 11.6 million common shares to Allseas in return for the payment of the exercise price of $115.8 thousand.

The Allseas Warrant vested and became exercisable upon the successful completion of the PMTS in November 2022.

Cash Flows Summary

Comparison of the Three and Six Months Ended June 30, 2023 and June 30, 2022

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

For the Three Months Ended

For the Six Months Ended

Net cash (used in) operating activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

Net cash provided by (used in) financing activities

Decrease in cash

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

Six Months ended June 30, 2023 compared to Six Months ended June 30, 2022

Cash flows used in Operating Activities

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.

Net cash used in operating activities for the six months ended June 30, 2023 was $31.9 million, attributable to a loss of $14.1 million in the period, a net change in net operating assets and liabilities of $10.2 million and non-cash adjustments of $7.6 million.

Non-cash adjustments primarily consisted of a $13.75 million gain on disposition of assets, partially offset by $4.3 million of expenses settled with share-based payments and $1.3 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 Public Warrants during the first half of 2023.

The change in our net operating assets and liabilities was primarily due to a $11.3 million decrease in accounts payable and accrued liabilities in the first half of 2023 due to the timing of supplier payments and an increase in receivables and prepayments of $1.1 million.

Net cash used in operating activities for the six months ended June 30,2022 was $38.1 million, attributable to a loss of $33.5 million in the period, a decrease in net operating assets and liabilities of $17.0 million (of which $16.0 million was due to a decrease in accounts payable and accrued liabilities) and non-cash adjustments of $12.4 million, primarily from the settlement of expenses with share-based 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.

Net cash provided by investing activities for the six months ended June 30, 2023 was $4.9 million, primarily reflecting the cash received of $5 million on closing of our investment in Low Carbon Royalties.

In the comparative first half of 2022, cash used in investing activities was $0.5 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.

Net cash provided by financing activities for the six months ended June 30, 2023 was $0.1 million, compared to nil in the first half of 2022.

Contractual Obligations and Commitments

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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 pilot nodule collection system developed and tested by Allseas is expected to be upgraded to a commercial system with an expanded targeted production capacity of an estimated 3.0 million tonnes of wet nodules per year, to be delivered in stepped increments, with expected production readiness in the fourth quarter of 2025.

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

Once in production, NORI is expected to pay Allseas a nodule collection and transshipment fee and, as Allseas scales up production to an estimated 3.0 million wet tonnes of nodules per year, it is expected that unit costs will be reduced.

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, system design and cost estimates and intend to enter into a binding Heads of Terms by the end 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.

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 an additional 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 March 31, 2023, we have made the following payments to Allseas under the PMTA:

Through June 30, 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 July 26, 2023, Allseas exercised its warrant and received 11.6 million TMC common shares for the payment of the exercise price of $115.8 thousand.

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.

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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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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