What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-14 · 103 added, 97 removed, 272 unchanged (42% 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 supplemented under the caption “Risk Factors” in Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 as filed with the SEC on August 14, 2023 and 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 six months ended June 30, 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 nine months ended September 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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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 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/ or operate commercial-scale polymetallic nodule processing and refining plants on land.

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

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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.

The near-zero solid waste flowsheet is expected to serve as the basis for the onshore facilities that will process the nodules in the future.

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.

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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 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.

(i) defining our resource and project economics, (ii) developing a commercial offshore nodule collection system, (iii) assessing the environmental and social 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 in the Third Quarter 2023

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

TMC Announces Registered Direct Offering:

On August 14, 2023, we entered into a securities purchase agreement with certain investors , pursuant to which we agreed to sell and issue, in a registered direct offering (the “Registered Direct Offering”) 12,461,540 common shares and issue Class A Warrants to purchase 6,230,770 common shares for expected gross proceeds to us of $24.9 million and expected net proceeds to us of $23.5 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.

The common share and the accompanying Class A Warrant to purchase 0.5 of a common share were sold at a price of $2.00.

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

Next Phase of Adaptive Management System Development Announced:

Following the delivery of a prototype Digital Twin from Kongsberg Digital in 2022 and its deployment during the collector tests in 2022, we announced in September 2023 that we had entered into the next phase of our relationship with Kongsberg Digital to further develop the Digital Twin which will integrate multiple data streams from our future production system and is designed to enable 3D visualization of our deep-sea operating environment, providing ‘eyes and ears’ to the regulator and stakeholders.

The Digital Twin is a core component of our broader Adaptive Management System (AMS) which is designed to utilise AI and hybrid machine learning capabilities of the Digital Twin with expert analysis to ensure operations remain within environmental impact thresholds, a system with potential applications for resource operations at sea and on land.

Developments subsequent to the Third Quarter 2023

TMC Publishes 2022 Impact Report:

In October 2023, we published our second annual Impact Report which provides an update on key milestones achieved in our assessment of the environmental and social impacts of seafloor nodule collection and those impacts relative to land-based alternatives, and the efforts we are undertaking to eliminate or reduce such impacts.

As part of the Impact Report, we also introduced our Sustainability Approach highlighting our thought processes about how we intend to fully align our activities to environmental, social and governance (ESG) principles.

TMC Launches Post Collector Test Monitoring Campaign:

In October 2023 we entered into a services agreement with a third party in order for NORI to conduct an assessment of the benthic impact of the 2022 collector test for the period of approximately 12 months post the collector test activities, which we believe will strengthen the quality of NORI’s Environmental Impact Statement (“EIS”) and Environmental Management & Monitoring Plan (“EMMP”) by providing additional information on the environmental regeneration of the collection test area.

The key activities to be undertaken are box cores, multicores, benthic and covariance lander works, and megafauna and sedimentation survey around the test field area.

While undertaking this work, the pre-survey of Project Zero mining areas for the first 2 years of production will be undertaken to identify major geological and geomorphological features to inform the mine plan, EIS and EMMP, each of which will be key elements of NORI’s application to the ISA for an exploitation contract for NORI Area D.

The activities pursuant to the Services Agreement are expected to take approximately 3 months to complete.

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.

As a result of lifting to the production vessel, Hidden Gem, more than 3,000 tonnes of wet nodules during the collector tests conducted in the fourth quarter of 2022, 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%.

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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.

The definitive agreement is expected to include further details 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.

In consideration of the exclusivity term, we have issued 4.15 million common shares to Allseas on August 14, 2023.

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

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.

The ISA did not provisionally adopt and approve the final rules, regulations and procedures (“RRPs” or the “Mining Code”) for the exploitation of mineral 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.

The road map includes three scheduled ISA Council meetings, October/November 2023, March 2024 and 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.

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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.

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 submission of an application for a plan of work for exploitation following the July 2024 meeting of the ISA and an approval process taking approximately one year, 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.

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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.

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

TOML, our wholly owned subsidiary, was granted a polymetallic nodule exploration contract in the CCZ by the ISA on January 11, 2012 under the sponsorship of Tonga.

This 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 provides TOML with 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 km 2 in the CCZ (the “Marawa Contract Area”).

DGE, our wholly owned subsidiary DGE, entered into agreements with Marawa and Kiribati which provide DGE with exclusive exploration and exploitation (if awarded) rights to an area covering 74,990 km 2 in the CCZ (the “Marawa Contract Area”).

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

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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, including under Item 1A of Part II of this Quarterly Report on Form 10-Q.

These risks, as well as other risks, are discussed in the section entitled “ Risk Factors ” in Item 1A of Part I of the 2022 Annual Report on Form 10-K, as updated and supplemented under the caption “Risk Factors” in Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 as filed with the SEC on August 14, 2023 and this Quarterly Report on Form 10-Q, as further updated and/or supplemented in subsequent filings with the SEC.

Impact of Global Inflation

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

In 2022, the global inflation rate rose sharply and higher inflation has continued 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 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.

We are an exploration-stage company with no revenue to date and a net loss of approximately $12.5 million and $26.6 million for the three and nine months ended September 30, 2023, respectively, compared to a net loss of $27.9 million and $61.4 million in the same periods of 2022, respectively.

We have an accumulated deficit of approximately $501.7 million from inception through September 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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We expense all costs relating to exploration and development of mineral claims.

Such exploration and development costs include, but are not limited to, ISA contract management, geological, geochemical and geophysical studies, environmental baseline studies, process development and payments to Allseas for the Pilot Mining Test System (“PMTS”).

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

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

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

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

Foreign Exchange Loss

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

Change in Fa ir V alue of W arrants L iability

Change in Fair Value of Warrants Liability

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

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Results of Operations

The following is a discussion of our results of operations for the three and six months ended June 30, 2023 and 2022.

The following is a discussion of our results of operations for the three and nine months ended September 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 and Six Months Ended June 30, 2023 and 2022

Comparison of the Three and Nine Months Ended September 30, 2023 and 2022

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

(Dollar amounts in thousands, except as noted)

September 30,

Exploration and evaluation expenses

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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.

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

We reported a net loss of approximately $12.5 million in the third quarter of 2023, compared to a net loss of $27.9 million in the same period of 2022.

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

Exploration and Evaluation Expenses

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.

Exploration and evaluation expenses for the three months ended September 30, 2023 were $7.9 million, compared to $22.7 million for the same period in 2022.

The decrease of $14.8 million was primarily due to a reduction in environmental studies of $14.4 million and a reduction of $3.7 million on the PMTS, as the collector test was completed in November 2022, partially offset by increased spending in 2023 on prefeasibility studies, as well as mining, technological and process development activities, due to engineering work which commenced in the fourth quarter of 2022, and increased spending on sponsorship programs.

General and Administrative 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.

G&A expenses for the three months ended September 30, 2023 were $4.6 million, compared to $5.9 million for the same period in 2022.

The decrease of $1.3 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 insurance costs.

These decreases were partially offset by an increase in external consulting costs on corporate activities 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 change in fair value of our Private Warrants liability during the third quarter of 2023 resulted in a credit of $0.1 million, reflecting a decrease in the price of our Public Warrants and common shares in the third quarter of 2023.

This compares to a credit of $0.4 million in the comparative quarter of 2022, reflecting a decrease in the price of our Public Warrants and common shares 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.

Nine Months ended September 30, 2023 compared to Nine Months ended September 30, 2022

We reported a net loss of $26.6 million in the first nine months of 2023, compared to a net loss of $61.4 million in the same period of 2022.

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

Exploration and evaluation expenses for the first nine months ended September 30, 2023 were $23.2 million, compared to $40.3 million for the same period in 2022.

The decrease of $17.1 million was primarily due to a reduction in environmental studies of $15.1 million and a reduction of $6.5 million on the PMTS, as the collector test was completed in November 2022, and lower share-based compensation of $3.6 million in the first nine months 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.

These cost reductions were partially offset by increased spending in 2023 on mining, technological and process development activities of $5.0 million and on prefeasibility studies of $1.1 million, due to engineering work which commenced in the fourth quarter of 2022, and higher spending on sponsorship programs.

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.

G&A expenses for the first nine months ended September 30, 2023 were $15.9 million, compared to $22.5 million for the same period in 2022.

The decrease of $6.6 million in G&A expenses in the first nine months 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 during the first nine months of 2023.

This decrease was partially offset by higher spending on legal costs, external consulting on corporate activities and other expenses.

Gain on Disposition of Asset

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.

In the first nine months 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 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.

The change in fair value of our Private Warrants liability during the first nine months of 2023 resulted in a charge of $1.2 million, reflecting an increase of 57% in the price of our Public Warrants partially offset by a decrease in the price of our common shares in the first nine months of 2023.

This compares to a credit of $0.9 million in the first nine months of 2022, reflecting a decrease in both our Public Warrants and common shares 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 June 30, 2023, we had cash on hand of $20.0 million.

On August 14, 2023, we announced that we entered into the Purchase Agreement in connection with a Registered Direct Offering.

To date, we have received gross proceeds of $15.9 million (approximately $14.5 million net of transaction fees) in the Registered Direct Offering and expect to receive an additional $9 million of gross proceeds from an investor affiliated with us in two installments, $2.5 million on or before November 30, 2023 and $6.5 million on or before January 31, 2024.

As of September 30, 2023, we had cash on hand of $22.5 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.

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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, 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.

Based on our cash balance, including the 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.

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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.

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.

We continue to expect that we will require approximately $35 to $45 million of cash in addition to $22.5 million cash on hand as of September 30, 2023 and the remaining committed funding from an affiliated investor of $9 million expected to be received as part of our recently announced Registered Direct Offering, assuming no exercise of the Class A warrants issued in the offering (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:

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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.

On August 14, 2023, we entered into the Purchase Agreement for a Registered Direct Offering of common shares and Class A Warrants.

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.

No investor elected to exercise its right to purchase additional common shares and accompanying Class A Warrants on or before September 15, 2023 under the terms of the Purchase 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.

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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.

In addition, the exercise price for the outstanding Class A Warrants issued and issuable in the Registered Direct Offering is $3.00 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 and we will not receive any proceeds from the excise thereof.

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.

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Cash Flows Summary

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

Comparison of the Three and Nine Months Ended September 30, 2023 and September 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

For the Nine Months Ended

(Dollar amounts in thousands)

September 30,

Net cash (used in) operating activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Decrease in cash

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

Net cash provided by financing activities

Increase (Decrease) in cash

Nine Months ended September 30, 2023 compared to Nine Months ended September 30, 2022

Cash flows used in Operating Activities

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.

For the nine months ended September 30, 2023, major operating activities over this period involved the continuation of environmental work following the NORI integrated collector test which was concluded in November 2022, as well as advanced work on engineering and pre-feasibility studies as we advance towards our application to the ISA for an exploitation contract and prepare for potential future commercial production.

Net cash used in operating activities in the first nine months of 2023, amounted to $44.4 million, and consisted mainly of $24.8 million on various environmental work, $1.6 million spent on engineering and pre-feasibility studies, $7.5 million on personnel costs, $3.7 million on legal costs, $2.6 million for sponsorship, training, and stakeholder engagement support, and additional payments of $3.8 million for various expenses.

For the nine months ended September 30, 2022, operating activities focused mainly on the preparation and execution of the NORI integrated collector test which was concluded in November 2022.

Net cash used in operating activities in the first nine months of 2022 amounted to $46.8 million, consisting mainly of $21.1 million on various environmental work, $10.3 million for work on the PMTS, $7.0 million on personnel costs, $5.1 million on legal costs and other corporate activities, and additional payments of $3.1 million for various expenses including costs for engineering, communications and stakeholder engagements.

Cash flows provided by (used in) Investing Activities

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 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.

Net cash provided by investing activities for the nine months ended September 30, 2023 was $4.8 million, primarily reflecting the cash received of $5 million on closing of our investment in Low Carbon Royalties.

In the comparative first nine months of 2022, cash used in investing activities was $0.9 million for the purchase of equipment.

Cash flows provided by Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2023 was $15.2 million, compared to $29.8 million in the first nine months of 2022.

The 2023 results represent the net proceeds received from the Registered Direct Offering announced in August 2023, while the 2022 results represent the net proceeds from the PIPE financing announced in August 2022.

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, 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.

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 five-year plan.

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

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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.

Marawa has delayed certain activities 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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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.

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, assuming our future operations are ultimately profitable.

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 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.

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 assuming our future operations are ultimately profitable.

Allseas Agreements

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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.

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 Offshore 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.

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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 June 30, 2023, we have made the following payments to Allseas under the PMTA:

Through September 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 August 9, 2023, 11,578,620 common shares were issued to Allseas upon the exercise of the warrant that was granted to Allseas in March 2021, and receipt of the exercise fee of $115.8 thousand.

The warrant vested and became exercisable on successful completion of the PMTS in November 2022.

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.

On August 1, 2023, we entered into an Exclusive Vessel Use Agreement with Allseas pursuant to which Allseas will give us exclusive use of the vessel ( “Hidden Gem” ) 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, on August 14, 2023, we issued 4.15 million common shares to Allseas.

Offtake Agreement

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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