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Item 2. Management’s Discussion and Analysis

2024-05-13 compared with 2023-11-09 · 175 added, 225 removed, 150 unchanged (73% 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, 2023 contained in our 2023 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 nine months ended September 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 months ended March 31, 2024 and 2023, respectively, present the financial position and results of operations of TMC the metals company Inc.

and its consolidated subsidiaries.

We are a deep-sea minerals exploration company focused on the collection, processing and refining of polymetallic nodules found on the seafloor in international waters of the Clarion Clipperton Zone (“CCZ”), about 1,300 nautical miles (1,500 miles or 2,400 kilometers) south-west of San Diego, California.

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

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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 undeveloped resource of critical battery metals.

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

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

(i) feedstock for battery cathode precursors (nickel and cobalt sulfates, or 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.

(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, energy transmission and other applications, and (iii) manganese silicate for manganese alloy production required for steel production.

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

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

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

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

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

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

The ISA has issued a total of 19 polymetallic nodule exploration contracts covering approximately 1.28 million km 2 , or 0.4% of the global seafloor, 17 of which are in the CCZ.

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

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

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

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

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

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

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

We are still in the exploration phase and have not yet obtained any exploitation contracts from the ISA to commence commercial scale polymetallic nodule collection in the CCZ nor do we have the applicable environmental and other permits required to build and/ or operate commercial-scale polymetallic nodule processing and refining plants on land.

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

(“Allseas”), a leading global offshore contractor, which has developed and 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 processed through a TMC owned and operated production facility.

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

and consultants Kingston Process Metallurgy Inc.

to develop a near-zero solid waste flowsheet.

The primary processing stages of the flowsheet from nodule to NiCuCo matte intermediate were tested as part of our pilot plant program at FLSmidth & Co A/S’s and Xpert Process Solutions’ (“XPS”, a Glencore company) facilities.

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

We have key strategic alliances with (i) Allseas, a leading global offshore contractor, which developed and tested a pilot collection system, which is expected to be modified into the first commercial production system and (ii) Glencore which holds offtake rights to 50% of the NORI nickel and copper production.

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

(Hatch) and consultants Kingston Process Metallurgy Inc.

(KPM) to develop a near-zero solid waste flowsheet.

The primary processing stages of the flowsheet from nodule to NiCuCo matte intermediate were demonstrated as part of our pilot plant program at FLSmidth and XPS’ facilities.

The matte refining stages are being tested at SGS Lakefield.

The near-zero solid waste flowsheet is expected to serve as the basis for 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.

Subject to entering into a binding arrangement with PAMCO, the toll treatment is intended to take place on a dedicated rotary kiln-electric arc furnace (“RKEF”) processing line and produce two products:

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

After several months of pre-feasibility work in 2022 on the possibility of building a processing facility in India for Project Zero, we decided to adopt a capital-light approach and focus on sourcing an existing processing facility requiring lower capital expenditures and which we believe may offer a lower risk solution to get Project Zero into production.

In November 2022, we entered into a non-binding Memorandum of Understanding (“MoU”) with Pacific Metals Co Ltd (PAMCO) of Japan pursuant to which PAMCO completed prefeasibility work assessing the prospect of processing nodules using their existing facilities.

In November 2023, we entered into a binding MoU with PAMCO whereby they must complete a feasibility study (expected to be completed during the fourth quarter of 2024) to toll treat 1.3 million tonnes of wet polymetallic nodules per year at its Hachinohe, Japan smelting facility expected to start in the second quarter of 2026, provided we obtain an exploitation contract from the ISA as expected.

The toll treatment is intended to take place on a dedicated Rotary Kiln Electric Arc Furnace (RKEF) processing line and produce two products:

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

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

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.

We expect this partnership to progress to a definitive tolling agreement before the end of 2024, subject to successful evaluation study outcomes and agreement to mutually acceptable commercial terms.

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

We are currently focused on preparing 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.

We expect to commence production offshore at the end of the first quarter of 2026, assuming an ISA application review and approval process of approximately one year.

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 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:

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%.

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 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 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 .

Industry Update

ISA Developments:

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, 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.

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.

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.

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 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.

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

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

In addition, we do not have the applicable environmental and other permits required to build and/or operate commercial scale polymetallic nodule processing and refining plants on land.

Developments in the First Quarter 2024

Below are some of the major developments that occurred in the first quarter of 2024:

Amendment to Credit Facility with Allseas Affiliate

On March 22, 2024, we entered into the Second 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 further extend the Credit Facility to August 31, 2025 and to provide that the underutilization fee thereunder shall cease to be payable after the date on which we or the Lender gives notice of termination of the agreement (as amended by this amendment and the July 2023 amendment, the “Credit Facility”).

Under the Credit Facility, we may borrow from the Lender up to $25,000,000 in the aggregate through August 31, 2025.

Credit Facility with ERAS Capital LLC and Gerard Barron

On March 22, 2024, we entered into an Unsecured Credit Facility (the “2024 Credit Facility”) with Gerard Barron, our Chief Executive Officer and Chairman, and ERAS Capital LLC, the family fund of our director, Andrei Karkar (collectively, the “2024 Lenders”), pursuant to which, we may borrow from the 2024 Lenders up to $20,000,000 in the aggregate ($10,000,000 from each of the 2024 Lenders), from time to time, subject to certain conditions.

All amounts drawn under the 2024 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 2024 Credit Facility.

We have the right to pre-pay the entire amount outstanding under the 2024 Credit Facility at any time, before the 2024 Credit Facility’s maturity of September 22, 2025.

The 2024 Credit Facility also contains customary events of default.

The 2024 Credit Facility will terminate automatically if we or any of our subsidiaries raise at least USD $50,000,000 in the aggregate (i) through the issuance of any of our or our subsidiaries’ debt or equity securities, or (ii) in prepayments under an off-take agreement or similar commercial agreement.

As of May 13, 2024, the Company drew $2.9 million from the 2024 Credit Facility

ISA Consolidated Draft Regulations

In February 2024, the ISA published a consolidated set of draft regulations for the first time, harmonizing and cleaning up the text thereof.

The 225-page text is comprehensive and signals the next phase in the negotiations to finalize the regulations.

Part 1 of the ISA’s 29th Session took place between March 18-29, 2024.

During the Session, the ISA Council commenced negotiations on the new consolidated text and identified a number of issues for negotiation inter-sessionally.

Responsible Use of Seafloor Resources Act (RUSRA)

In March 2024, legislation was introduced in the U.S.

House of Representatives calling for the U.S.

to “support international governance of seafloor resource exploration and responsible polymetallic nodule collection by allied partners”, and to “provide financial, diplomatic, or other forms of support for seafloor nodule collection, processing and refining.”

Developments Subsequent to March 31, 2024

World-First Production of Nickel Sulfate from Deep-Seafloor Polymetallic Nodules

In April 2024, we announced that we had successfully produced the world’s first nickel sulfate derived exclusively from seafloor polymetallic nodules during pilot-scale nodule processing.

In partnership with SGS Canada Inc, the testing was undertaken on samples of nickel-cobalt-copper matte produced by TMC in 2021 using the Company’s efficient flowsheet to process high-grade nickel matte directly to nickel sulfate without making nickel metal, while producing fertilizer byproducts instead of solid waste or tailings.

Extensive Submission of Deep-Sea Environmental Data to the ISA

In May 2024, we announced that our subsidiary NORI had made a second submission of key environmental data from all prior environmental baseline campaigns conducted in the NORI-D exploration area up to January 2022 to DeepData, an open database of contractor data managed by the ISA.

The submission of this batch of data includes an extensive set of geochemical and biological samples from across the water column.

Steve Jurvetson Joins TMC’s Board of Directors as Vice Chairman and Special Advisor to the CEO

In April 2024, renowned Silicon Valley investor Steve Jurvetson joined our board of directors as Vice Chairman and special advisor to the CEO.

Jurvetson is an investor focused on founder-led, mission-driven companies at the cutting edge of disruptive technology and new industry formation.

His investments include pioneering technology companies like Tesla, Planet Labs, SpaceX and Commonwealth Fusion Systems, and represent over $800 billion in aggregate value creation.

Exploration Contracts

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

NORI Exploration Contract

NORI, our wholly-owned subsidiary, was granted a polymetallic nodule exploration contract in the CCZ by the ISA on July 22, 2011 under the sponsorship of Nauru.

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

TOML Exploration Contract

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 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.

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

NORI our wholly-owned subsidiary, holds exploration rights to four blocks (NORI Area A, B, C, and D, the “NORI Contract Area”) covering 74,830 square kilometers in the CCZ that were granted by the ISA in July 2011.

NORI is sponsored by Nauru pursuant to a certificate of sponsorship signed by the Government of Nauru on April 11, 2011.

The D block of the NORI area (“NORI Area D”) is the seafloor parcel where we have performed the most resource definition and environmental work to date.

NORI commissioned AMC Consulting Ltd, a leading mining consulting firm (AMC), to undertake a preliminary economic assessment (“PEA”) of the mineral resource contained in NORI Area D and to compile a technical report compliant with Canadian National Instrument (NI 43-101), which was completed in March 2021.

AMC subsequently compiled the NORI Technical Report Summary, dated March 2021, which included an initial assessment and an economic analysis of NORI Area D prepared in accordance with the SEC’s Modernization of Property Disclosures for Mining Registrants set forth in subpart 1300 of Regulation S-K (the “SEC Mining Rules”).

The NORI Technical Report Summary is filed as Exhibit 96.1 in our 2023 Annual Report on Form 10-K.

TOML our wholly-owned subsidiary which we acquired in March 2020, holds exploration rights to an area covering 74,713 square kilometers in the CCZ that were granted by the ISA in January 2012 (the “TOML Contract 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.

TOML commissioned a Technical Report Summary by AMC, dated March 2021, which is filed as Exhibit 96.2 in our 2023 Annual Report on Form 10-K.

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

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

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

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

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

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

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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 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 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.

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

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

Impact of Climate Change

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

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

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

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

These risks, as well as other risks, are discussed in the section entitled “ Risk Factors ” in Item 1A of Part I of the 2023 Annual Report on Form 10-K, as further updated and/or supplemented in subsequent filings with the SEC.

Basis of Presentation

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As a pre-revenue company with no commercial operations, our activities to date have been limited.

Our historical results are reported under U.S.

Generally Accepted Accounting Principles (“U.S.

Our results are reported under Generally Accepted Accounting Principles in the United States (“U.S.

GAAP”) and in U.S.

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

Components of Results of Operations

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.

We are an exploration-stage company with no revenue to date and a net loss of $25.2 million for the three months ended March 31, 2024, compared to a net loss of $13.7 million in the same period of 2023.

We have an accumulated deficit of approximately $574.1 million from inception through March 31, 2024.

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 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.

We do not expect to generate revenue until at least 2026 and only if NORI receives an exploitation contract from the ISA and we are able to successfully collect and process polymetallic nodules into saleable products on a commercial scale.

Any revenue from initial production is difficult to predict.

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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 vessel use, engineering and management services, as well as payments related to the Pilot Mining Test System (“PMTS”) in 2022.

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

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General and Administrative Expenses

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.

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

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

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We recognize forfeiture of any awards as they occur.

Interest Income/Expense

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

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.

Interest Income

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

Foreign Exchange Gain/Loss

The foreign exchange gain 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 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”).

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

The change in fair value of warrants liability primarily consists of the change in the fair value of our 9,500,000 Private Warrants, which is re-measured at the end of each reporting period.

Results of Operations

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

The following is a discussion of our results of operations for the three months ended March 31, 2024 and 2023.

Our accounting policies are described in Note 3 “Significant Accounting Policies” in our financial statements filed as part of the 2023 Annual Report on Form 10-K.

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

Additionally, the unaudited condensed consolidated interim financial statement for the three months ended March 31, 2023 have been revised to correct prior period errors as discussed in Note 22 “Quarterly Financial Data (Unaudited) Restatement of Previously Issued Financial Statements” to the consolidated financial statement included in Part II, Item 8 of our 2023 Annual Report on Form 10-K.

Accordingly, the Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects the effects of the revisions.

Comparison of the Three Months Ended March 31, 2024 and 2023

For the Three Months Ended

For the Nine Months Ended

(Dollar amounts in thousands, except as noted)

September 30,

Exploration and evaluation expenses

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Equity-accounted investment loss

Gain on disposition of asset

Change in fair value of warrants liability

Foreign exchange loss (gain)

Foreign exchange (gain) loss

Interest income

Fees and interest on credit facility

Net Loss for the period

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.

Loss for the period

Three Months ended March 31, 2024 compared to Three Months ended March 31, 2023

We reported a net loss of approximately $25.2 million in the first quarter of 2024, compared to a net loss of $13.7 million in the same period of 2023.

The following explains the major reasons for the increase in the net loss in the first quarter of 2024.

Exploration and Evaluation Expenses

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.

Exploration and evaluation expenses for the three months ended March 31, 2024 were $18.1 million, compared to $7.2 million for the same period in 2023.

The increase of $10.9 million was primarily due to an increase in mining, technological and process development of $10.5 million due to increased engineering work and expenses incurred on the transportation of nodules to PAMCO’s facility in Japan, and higher personnel costs.

This was partially offset by a decrease in environmental studies as the cost for Campaign 8 which commenced in the fourth quarter of 2023 was completed in the first quarter of 2024 and was lower than the cost of the environmental work in the first quarter of 2023 following the completion of the NORI integrated collector test.

General and Administrative 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.

G&A expenses for the three months ended March 31, 2024 were $6.6 million compared to $6.2 million for the same period in 2023.

The increase of $0.4 million is due to higher amortization of share-based compensation and higher consulting fees, offset by lower legal costs.

Change in Fair Value of Warrants Liability

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.

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 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 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 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 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.

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

The charge recorded in both years reflects the increase in the market price of our warrants.

Liquidity and Capital Resources

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

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

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

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.

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.

Our primary sources of financing have come from private placements and public offerings of Common Shares and warrants, the issuance of convertible debentures and from credit facilities.

As of March 31, 2024, we had cash on hand of $4.0 million.

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 provisional approvals and/or exploitation contracts.

We are an exploration-stage company and the recovery of our investment in mineral exploration contracts and attainment of profitable operations is dependent upon many factors including, among other things, the development of 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 or provisional approvals.

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, 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.

Based on our cash balance and availability of borrowing under our credit facility with Allseas and credit facility with ERAS Capital LLC and Gerard Barron, 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 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:

● 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.

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 and the securities issuable in the recently announced Registered Direct Offering discussed below.

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

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, which includes the $30 million that may be sold under the At-the-Market Equity Distribution Agreement discussed below and the Common Shares and shares underlying the Class A Warrants issued in the Registered Direct Offering.

In addition, on November 30, 2023, we filed an additional registration statement on Form S-3 with the SEC, which the SEC declared effective on December 8, 2023, to sell up to an additional $100 million of securities.

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

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

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

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

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

On December 21, 2023, we amended the Sales Agreement to remove Stifel as a sales agent.

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

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

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

and an affiliate of Allseas, 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.

In April 2024, we sold 1,607,821 Common Shares pursuant to the Sales Agreement for gross proceeds of $2.6 million ($2.5 million net of fees and commissions).

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

and an affiliate of Allseas, which was amended on July 31, 2023 and March 22, 2024, 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 November 30, 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

August 31, 2025.

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 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.

On August 14, 2023, we entered into a securities purchase agreement for a Registered Direct Offering of our Common Shares and Class A Warrants, the final closing of which occurred on January 31, 2024.

The purchase price for each Common Share and Class A Warrant to purchase 0.5 Common Shares was $2.00 per unit.

The exercise price to purchase one Common Share under the Class A Warrants is $3.00, subject to adjustment as provided in the warrant agreement.

The aggregate gross proceeds from the Registered Direct Offering were approximately $24.9 million, before deducting fees payable to financial advisors and other estimated offering expenses payable by the Company ($23.6 million net of fees).

We will pay an underutilization fee equal to 4.0% per annum payable semi-annually for any amounts that remain undrawn under the 2024 Credit Facility.

We have the right to pre-pay the entire amount outstanding under the 2024 Credit Facility at any time, before the 2024 Credit Facility’s maturity of September 22, 2025.

The 2024 Credit Facility also contains customary events of default.

As of May 13, 2024, the Company drew $2.9 million from the 2024 Credit Facility.

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

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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.

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

In addition, the exercise price to purchase one Common Share under the outstanding Class A Warrants is $3.00 (subject to customary adjustments) and there can be no assurance that such warrants will be exercised prior to their expiration, and as such, such warrants may expire, and we will not receive any proceeds from the excise thereof.

Cash Flows Summary

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 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 financing activities

Increase (Decrease) in cash

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

Net cash used in investing activities

Net provided by financing activities

Decrease in cash

Comparison of the Three Months Ended March 31, 2024 and March 31, 2023

Cash flows used in Operating Activities

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.

For the three months ended March 31, 2024, major operating activities over this period involved Campaign 8, 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 quarter of 2024, amounted to $11.8 million, and consisted mainly of $6.7 million on various environmental work, $2.1 million on personnel costs, $0.8 million for sponsorship,

training and stakeholder engagement support, $0.6 million spent on engineering and pre-feasibility studies, $0.4 million on legal costs, and additional payments of $1.4 million for various expenses.

For the three months ended March 31, 2023, operating activities focused mainly on the continuation of environmental work following the completion of the NORI integrated collector test, as well as progressing on engineering work and pre-feasibility studies on the project.

Net cash used in operating activities in the first quarter of 2023, amounted to $23.5 million, and consisted mainly of $17.0 million on various environmental work, $2.7 million on personnel costs, $1.4 million on legal costs, $0.8 million for sponsorship, training, and stakeholder engagement support, $0.4 million spent on engineering and pre-feasibility studies, and additional payments of $1.2 million for various expenses.

Cash flows provided by (used in) Investing Activities

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.

Net cash provided by investing activities for the three months ended March 31, 2024 was $0.3 million for the purchase of equipment and software development.

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.

Net cash provided by financing activities for the three months ended March 31, 2024 was $9.0 million, representing the net proceeds received from the Registered Direct Offering announced in August 2023, while the 2023 first quarter results represent the cash received of $5 million on closing of our investment in Low Carbon Royalties.

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 five-year plan.

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

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

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 this five-year plan.

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

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

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

Marawa Option Agreement and Services Agreement

As part of DGE’s Marawa’s Exploration Contract, Marawa last submitted periodic review report to the ISA included a proposed work plan and estimated budget for the 2020-2024 five-year period.

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

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

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

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

TOML Exploration Contract

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

Marawa Option Agreement and Services Agreement

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

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

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

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

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

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

Regulatory Obligations Relating to Exploration Contracts

Each of TOML and NORI require sponsorship from their host sponsoring nations, Tonga and Nauru, respectively.

Both TOML and NORI require sponsorship from their host sponsoring nations, Tonga and Nauru, respectively.

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

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

The ISA requires that a contractor must obtain and

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

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

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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 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.

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 up to an estimated 3.0 million tonnes of wet nodules per year, to be delivered in stepped increments, with expected production readiness in the first quarter of 2026.

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 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.

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 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 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.

Once in production, NORI is expected to pay Allseas a nodule collection and transshipment fee and, as Allseas scales up production to up 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 Offshore Nodule Collection System production targets, system design and cost estimates and intend to enter into a binding Heads of Terms by the end of 2024.

The parties expect to further detail their relationship in a single definitive agreement using Work Planning and Budgeting procedure to allow for flexibility as the Allseas and NORI project team complete system engineering, upgrades and start commercial production.

There can be no assurances, however, that we will enter into a definitive agreement 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 a definitive agreement is 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, 2024, 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.

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.

On November 11, 2022, our 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 Nodule Collection 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

On May 25, 2012, DGE and Glencore International AG (“Glencore”) entered into a copper offtake agreement and a nickel offtake agreement.

On May 25, 2012, DGE and Glencore entered into a copper offtake agreement and a nickel offtake agreement.

DGE has agreed to deliver to Glencore 50% of the annual quantity of copper and nickel produced by a DGE-owned facility from nodules derived from the NORI Area at London Metal Exchange referenced market pricing with allowances for product quality and delivery location.

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

Credit Facility

As described above, on March 22, 2023 we entered into the Credit Facility with Argentum Credit Virtuti GCV, an affiliate of Allseas, under which we may borrow up to $25 million pursuant to the terms and conditions of the Credit Facility, which was amended on July 31, 2023 to extend the maturity date to November 30, 2024.

Credit Facility with Allseas Affiliate

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, which as amended has a maturity date of August 31, 2025.

Credit Facility with ERAS Capital LLC and Gerard Barron

As described above, on March 22, 2024, we entered into the 2024 Credit Facility with ERAS Capital LLC and Gerard Barron under which we may borrow up to $20 million pursuant to the terms and conditions of the 2024 Credit Facility through its maturity on September 22, 2025.

As of May 13, 2024, the Company drew $2.9 million from the 2024 Credit Facility.

Off-Balance Sheet Arrangements

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Critical Accounting Policies and Significant Judgments and Estimates

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

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

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

In the preparation of these financial statements, we are required to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported expenses incurred during the reporting periods.

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

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Section 102(b)(1) of the Jumpstart Our Business Startups (“JOBS”) Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards.

The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable.

The JOBS Act provides that a company can choose not to take advantage of the extended transition

period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable.

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

Following the closing of the Business Combination, we expect to remain an emerging growth company at least through the end of the 2023 fiscal year and we expect to continue to take advantage of the benefits of the extended transition period at least through to the end of the 2023 fiscal year, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards.

Following the closing of the Business Combination, we expect to remain an emerging growth company at least through the end of the 2024 fiscal year and we expect to continue to take advantage of the benefits of the extended transition period at least through the end of the 2024 fiscal year, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards.

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

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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