What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-15 compared with 2024-08-14 · 146 added, 111 removed, 254 unchanged (50% of the section changed)

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The following discussion and analysis provide information which management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition.

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.

The discussion should be read in conjunction with the unaudited condensed interim 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 2023 Annual Report on Form 10-K, as updated and/or supplemented in subsequent filings with the SEC.

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and its consolidated subsidiaries.

The unaudited condensed consolidated interim financial statements for the three months and six months ended June 30, 2024 and 2023, 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 and nine months ended September 30, 2024 and 2023, respectively, present the financial position and results of operations of TMC the metals company Inc.

and its consolidated subsidiaries.

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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 committed to completing 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.

In November 2023, we entered into a binding MoU with PAMCO whereby they committed to completing a feasibility study (expected to be completed in the first half of 2025) to toll treat 1.3 million tonnes of wet polymetallic nodules per year at its Hachinohe, Japan smelting facility, 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 lithium-ion battery cathodes, and a manganese silicate product used to make silico-manganese alloy, a critical input into steel manufacturing.

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

We expect this partnership to progress to a definitive tolling agreement in 2025, 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 for a plan of work to the ISA for our first exploitation contract for the NORI contract area, which we expect to be completed and ready for submission prior to the next meeting of the ISA scheduled for March 2025.

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, based on the current timeline in the consolidated draft regulations issued February 2024.

See “ Project and Regulatory Updates - ISA Developments ” below for a further discussion of our planned application and recent developments at the ISA.

We are currently focused on preparing our application for a plan of work to the ISA for our first exploitation contract for the NORI contract area.

Given that it is unlikely that the ISA Council would consider any application for a plan of work for exploitation before its next session in March 2025 and to ensure clarity on the submission process, consideration of the Application, and timeline, the Republic of Nauru, in consultation with NORI, has formally requested that this issue be added to the agenda of the Council’s March 2025 meeting.

We expect that this will allow Council to discuss and approve the process to be confirmed prior to NORI’s expected application submission date of June 27, 2025.

Based on the current timeline in the consolidated draft regulations issued February 2024, the ISA application review and approval process is expected to be approximately one year from the filing date.

See “ Project and Regulatory Updates - ISA Developments ” below for a further discussion on recent developments at the ISA.

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

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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 Second Quarter 2024

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

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

On April 10, 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.

House Allocates Defense Department Funding to Assess the Feasibility of Domestic Nodule Refining Capacity

On May 23, 2024, we welcomed the allocation of $2 million under the House version of the fiscal year 2025 National Defense Authorization Act (NDAA) to the Defense Department’s Industrial Base Policy Office to study the feasibility of developing domestic capacity to refine polymetallic nodule-derived intermediates to high-purity nickel, copper and cobalt products.

In addition, TMC’s U.S.

subsidiary has an outstanding application seeking a $9 million grant under the Defense Production Act Title III program for feasibility work on a domestic refinery for nodule-derived intermediate products.

subsidiary may pursue larger grants and/or loans through the Department of Energy’s Loan Programs Office, Export-Import Bank and other departments to fund construction of a refinery.

World-First Cobalt Sulfate Produced from Deep-Seafloor Polymetallic Nodules

On June 12, 2024, we announced that we successfully produced the world’s first cobalt sulfate derived exclusively from seafloor polymetallic nodules.

The cobalt sulfate was generated during bench-scale testing of our hydrometallurgical flowsheet design with SGS Canada Inc.

Based on samples of nickel-cobalt-copper matte first produced by us in 2021, SGS tested our efficient flowsheet to process high-grade nickel-copper-cobalt matte directly to high-purity cobalt sulfate without making cobalt metal, while producing fertilizer byproducts instead of solid waste or tailings.

The milestone followed the news in May of our successful production of nickel sulfate, a key raw material input used in the production of energy-dense electric vehicle batteries.

Prominent Sustainability Strategist Brendan May Joins TMC’s Board of Directors

On June 3, 2024, we announced the appointment of Brendan May to our Board of Directors.

As a former Chief Executive of the Marine Stewardship Council (MSC) and European Chairman of the Rainforest Alliance, Mr.

May has spent over two decades at the forefront of sustainability challenges in globally significant ecosystems.

In 2010, he formed renowned global sustainability consultancy, Robertsbridge, whose counsel has been sought by leading companies and NGOs around the world.

Developments Subsequent to June 30, 2024

Third Annual Impact Report Published

On July 29, 2024, we published our third annual Impact Report to provide an update on key milestones achieved in our assessment of the environmental impacts of nodule collection including, what we believe, is the successful collection of sufficient quantities of environmental baseline and impact data to develop an Environmental Impact Statement and Environmental Mitigation and Management Plan (EMMP) for the world’s first deep-seafloor nodule collection project.

Developments in the Third Quarter 2024

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

TMC and PAMCO Achieve Breakthrough in Commercial-Scale Processing of Polymetallic Nodules, Successfully Producing Calcine

In September 2024, we announced that we had successfully produced high temperature material (calcine) during the first phase of a commercial-scale campaign to process a 2,000-tonne sample of deep-seafloor polymetallic nodules at our partner PAMCO’s Hachinohe Rotary Kiln Electric-Arc Furnace facility in Hachinohe, Japan.

Approximately 500 tonnes of calcine were produced and, in the coming months, PAMCO intends to commence the next phase of the processing trial by transferring the calcine material to its electric arc furnace for smelting into a high-grade nickel-copper-cobalt alloy and manganese silicate product.

TMC CEO Testifies to U.S.

House of Representatives on Benefits of Nodules

In September 2024, our CEO Gerard Barron gave testimony during a meeting of the Critical Mineral Policy Working Group for the House Select Committee on the Chinese Communist Party to discuss the U.S.’ heavy reliance on Chinese imports of critical minerals and policy solutions to incentivize greater cooperation with allies to create alternative supplies.

Mr Barron spoke to the potential of seafloor nodules to secure U.S.

supplies of key minerals for the energy transition and defense sectors.

Rebuttal to Publication

In July 2024, Nature Geoscience published a paper claiming that seafloor nodules produce oxygen in the absence of sunlight.

Since the paper’s publication, multiple rebuttals have been submitted to Nature warning of serious flaws with the paper’s methodology and claims, prompting calls for the paper to be retracted.

Researchers at the University of Tokyo and University of Gothenburg are among the experts that have submitted pre-print rebuttals to the article’s author.

Our own rebuttal, published September 19, 2024, notes selective reporting of data and omission of key evidence, including experiments that show oxygen increases without nodules, directly contradicting the authors’ claims.

Developments Subsequent to September 30, 2024

TMC Announces Registered Direct Offering for $17.5 million:

On November 14, 2024, the Company entered into a securities purchase agreement with certain new and existing institutional investors for the sale of an aggregate of 17,500,000 common shares (the “Shares”) and accompanying Class B warrants (the “Class B Warrants”), in a registered direct offering.

The offering price was $1.00 per Share, resulting in gross proceeds of $17.5 million ($16.5 million after associated fees), with each Share including an accompanying Class B Warrant to purchase 0.5 common shares.

The Class B Warrants are exercisable immediately upon issuance at a price of $2.00 per share and expire five years from issuance.

The Class B Warrants include customary anti-dilution protections and a repurchase feature, permitting the Company to repurchase the warrants for $0.0001 per Common Share underlying the Class B Warrants if the volume-weighted average price of the Company’s common shares exceeds $5.00 per share for each trading day in a consecutive 30-trading-day period.

Extension and Increase of Credit Facility with ERAS Capital LLC and Gerard Barron

On November 14, 2024, we entered into the Second Amendment to the credit facility with ERAS Capital LLC and Gerard Barron (the “2024 Lenders”), to increase the borrowing limit to $38 million in the aggregate ($19 million from each of the 2024 Lenders) and to extend the maturity of the credit facility to December 31, 2025.

Termination of Marawa Service Agreement

On November 14, 2024, DeepGreen Engineering Pte.

(“DeepGreen”) issued a formal termination notice to Marawa Research and Exploration Limited, ending the Services Agreement dated October 1, 2013 (the “Agreement”), pursuant to DeepGreen’s right to terminate for convenience under the Agreement.

The termination will take effect two months from the date of the notice, on January 14, 2025.

The termination is not expected to have a material adverse effect on the Company’s financial position or operations, with non-material ongoing costs and no termination penalties applicable under the Agreement.

Project and Regulatory Updates

NORI Area D Project Developments

Data processing from the successful Campaign 8 has been completed, and data packages have been distributed to all relevant subcontractors to advance environmental and technical scopes.

On April 6, 2024, 2,000 wet tonnes of polymetallic nodules, collected during the successful 2022 pilot nodule collection system test, were delivered to PAMCO, at their facility in Hachinohe, Japan.

This delivery facilitated the commencement of calcining trials at the PAMCO facility in mid-May, marking a significant milestone in supporting the metallurgical program.

Progress continues on the Environmental Impact Statement (EIS), Pre-Feasibility Study (PFS), and Plan of Work application documentation.

Key activities during the second quarter 2024 included the development of tender documents by Allseas for long lead items and our EIS team conducted an environmental synthesis workshop with all EIS contributors.

On October 6, 2024, the first feed of Calcine was transported via conveyor to the furnace to commence the first smelting campaign at PAMCO’s facility in Hachinohe, Japan.

Progress continues on the Environmental Impact Statement (EIS), Pre-Feasibility Study (PFS) which is nearing completion, and Plan of Work application documentation.

Key activities during the third quarter 2024 included the substantial completion of the PFS, which has now entered the review and approval process.

Our EIS team continued finalizing baseline reports to support the EIS workshop with subject-matter experts.

We expect to issue an S-K 1300-compliant Technical Report Summary following the completion and approval of the PFS.

ISA Developments

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

At its July 2024 session, the ISA agreed to continue the negotiations of the Mining Code with a continued view to its adoption during the 30 th session of the ISA in 2025.

At its July 2024 session, the ISA completed a first reading of the consolidated text and requested the Secretariat produce a second consolidated text in 2024.

The ISA agreed to continue the negotiations of the Mining Code with a continued view to its adoption during the 30 th session of the ISA in 2025.

The ISA Council has scheduled two ISA Council meetings in March and July 2025 to progress the Mining Code and has agreed to continue working inter-sessionally to advance the text.

In addition, on August 2, 2024, the ISA Assembly elected Leticia Carvalho of Brazil as the new Secretary-General of the ISA for the period 2025-2028.

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

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

Assuming submission of an application for a plan of work for exploitation prior to the next meeting of the ISA scheduled for March 2025, assuming the ISA’s timely review and approval thereof, based on the current timeline in the consolidated draft regulations issued February 2024, we expect our first production offshore from NORI Area D to be at the end of the first quarter of 2026.

There can be no assurances, however, that (i) the Mining Code will be adopted within these timelines, or at all, or (ii) 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 before the final Mining Code is adopted, or at all.

Exploration Contracts

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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 $20.2 million and $45.4 million for the three and six months ended June 30, 2024, respectively, compared to a net loss of $14.1 million and $27.9 million in the same periods of 2023, respectively.

We have an accumulated deficit of approximately $594.3 million from inception through June 30, 2024.

We are an exploration-stage company with no revenue to date and a net loss of $20.5 million and $65.9 million for the three and nine months ended September 30, 2024, respectively, compared to a net loss of $12.5 million and $40.3 million in the same periods of 2023, respectively.

We have an accumulated deficit of approximately $614.8 million from inception through September 30, 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 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.

We expect to generate revenue once 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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Interest income consists primarily of interest earned on our cash and cash equivalents.

Fees and Interest on Borrowings and Credit Facilities

Fees and interest on borrowings and credit facilities represent interest charged on the Company’s short-term debt and interest and underutilization fees associated with the Company’s credit facilities.

Foreign Exchange Gain/Loss

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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, 2024 and 2023.

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

Additionally, the unaudited condensed consolidated interim financial statement for the six months ended June 30, 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 and Six Months Ended June 30, 2024 and 2023

Additionally, the unaudited condensed consolidated interim financial statement for the nine months ended September 30, 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 reflect the effects of the revisions.

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

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, 2024 compared to Three Months ended June 30, 2023

We reported a net loss of approximately $20.2 million in the second quarter of 2024, compared to a net loss of $14.1 million in the same period of 2023.

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

Three Months ended September 30, 2024 compared to Three Months ended September 30, 2023

We reported a net loss of approximately $20.5 million in the third quarter of 2024, compared to a net loss of $12.5 million in the same period of 2023.

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

Exploration and Evaluation Expenses

Exploration and evaluation expenses for the three months ended June 30, 2024 were $12.4 million, compared to $8.1 million for the same period in 2023.

The increase of $4.3 million was primarily due to an increase in mining, technological and process development of $1.8 million resulting from increased engineering work by Allseas, increase in share-based compensation of $1.7 million due to amortization of the fair value of RSUs and options granted to the directors and officers in the second quarter of 2024 and higher personnel costs of $1 million.

This was partially offset by a decrease in environmental studies as the costs to complete Campaign 8b in the second quarter of 2024 was lower than the cost of the environmental work spent in the second quarter of 2023 to complete the NORI pilot nodule collection system test.

Exploration and evaluation expenses for the three months ended September 30, 2024 were $11.8 million, compared to $7.9 million for the same period in 2023.

The increase of $3.9 million was primarily due to an increase in share-based compensation of $1.8 million due to the amortization of the fair value of RSUs and options granted to the directors and officers in the second quarter of 2024, increase in mining, technological and process development of $1.0 million resulting from increased engineering work by Allseas and higher personnel costs of $1.0 million.

General and Administrative Expenses

G&A expenses for the three months ended June 30, 2024 were $7.9 million compared to $5.1 million for the same period in 2023.

The increase of $2.8 million in G&A expenses was mainly due to an increase in share-based compensation of $1.7 million due to amortization of the fair value of RSUs and options granted to the directors and officers in the second quarter of 2024, higher personnel costs and an increase in legal and consulting costs.

G&A expenses for the three months ended September 30, 2024 were $8.1 million compared to $4.6 million for the same period in 2023.

The increase of $3.5 million in G&A expenses was mainly due to an increase in share-based compensation of $1.8 million due to the amortization of the fair value of RSUs and options granted to the directors and officers in the second quarter of 2024, an increase in legal and consulting costs of $1.0 million and higher personnel costs of $0.5 million.

Change in F air V alue of W arrants L iability

Six Months ended June 30, 2024 compared to Six Months ended June 30, 2023

We reported a net loss of $45.4 million in the first half of 2024, compared to a net loss of $27.9 million in the same period of 2023.

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

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

During the three months ended September 30, 2024, the fair value of warrants liability decreased reflecting the decline in both the price of the public warrants and price of the Company’s shares.

Fees and Interest on Borrowings and Credit Facilities

The interest charged on the Company’s short-term debt borrowings was $0.1 million in the third quarter of 2024 ($nil for the same period of 2023), while interest on drawn amounts on the Company’s credit facilities was $0.1 million and underutilization fees on these same facilities was $0.5 million in the third quarter of 2024 ($nil and $0.3 million over the same periods in 2023, respectively).

Nine Months ended September 30, 2024 compared to Nine Months ended September 30, 2023

We reported a net loss of $65.9 million in the first nine months of 2024, compared to a net loss of $40.3 million in the same period of 2023.

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

Exploration and Evaluation Expenses

Exploration and evaluation expenses for the six months ended June 30, 2024 were $30.5 million, compared to $15.3 million for the same period in 2023.

T he increase of $15.2 million was primarily due to an increase in mining, technological and process development of $12.2 million resulting from increased engineering work by Allseas, as well as expenses incurred on the transportation of nodules to PAMCO’s facility in Japan, higher personnel costs of $2.2 million and an increase in share-based compensation of $1.7 million due to amortization of the fair value of RSUs and options granted to the directors and officers in the second quarter of 2024 .

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 half of 2023 following the completion of the NORI pilot nodule collection system test.

Exploration and evaluation expenses for the nine months ended September 30, 2024 were $42.3 million, compared to $23.2 million for the same period in 2023.

The increase of $19.1 million was primarily due to an increase in mining, technological and process development of $13.3 million resulting from increased engineering work by Allseas, as well as expenses incurred on the transportation of nodules to PAMCO’s facility in Japan, higher personnel costs of $3.2 million and an increase in share-based compensation of $3.5 million due to the amortization of the fair value of RSUs and options granted to the directors and officers in the second quarter of 2024.

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 nine months of 2023 following the completion of the NORI pilot nodule collection system test .

General and Administrative Expenses

G&A expenses for the six months ended June 30, 2024 were $14.5 million, compared to $11.3 million for the same period in 2023.

The increase of $3.2 million in G&A expenses in the first half of 2024 was mainly the result of an increase in share-based compensation of $2.2 million due to amortization of the fair value of RSUs and options granted to the directors and officers in the second quarter of 2024, higher personnel cost of $1.3 million and higher cost incurred on business development, communication, and advisory activities.

G&A expenses for the nine months ended September 30, 2024 were $22.6 million, compared to $16.0 million for the same period in 2023.

The increase of $6.6 million in G&A expenses in the first nine months of 2024 was mainly the result of an increase in share-based compensation of $4.0 million due to the amortization of the fair value of RSUs and options granted to the directors and officers in the second quarter of 2024, higher personnel cost of $1.9 million and higher cost incurred on business development and advisory activities.

This increase was partially offset by decreased legal and insurance costs incurred in the first half of 2024 compared to the same period in 2023.

Change in Fair Value of Warrants Liability

The change in fair value of warrants liability consists of the change in the fair value of the 9,500,000 Private Warrants, which is based on the change in the price of our warrants and the price of the Company’s shares and resulted in a small credit in the first half of 2024 and a charge of $1.3 million in the first half of 2023, primarily due to an increase of 150% in the price of our Public Warrants over this period.

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

For the nine months ended September 30, 2024, the fair value of warrants liability decreased reflecting the decline in both the price of the public warrants and price of Company’s shares.

Fees and Interest on Borrowings and Credit Facilities

The interest charged on the Company’s short-term debt borrowings was $0.1 million in the first nine months of 2024 ($nil for the same period of 2023), while interest on drawn amounts on the Company’s credit facilities was $0.1 million and underutilization fees on these same facilities was $1.2 million in the first nine months of 2024 ($nil and $0.5 million over the same periods in 2023, respectively).

Liquidity and Capital Resources

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 June 30, 2024, we had cash on hand of $0.5 million.

As of September 30, 2024, we had cash on hand of $0.4 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 contract area, and by negotiating the settlement of program expenditures with our equity whenever possible.

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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.

In the second quarter of 2024, we sold 1,634,588 Common Shares pursuant to the Sales Agreement for net proceeds of $2.6 million, net of fees and commissions.

In the third quarter of 2024, we sold 1,617,000 Common Shares pursuant to the Sales Agreement at an average share price of $1.45 for net proceeds of $2.3 million, net of fees and commissions.

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

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The Credit Facility also contains customary events of default.

We believe we have an agreement in principle with the Lender to amend the Credit Facility to increase the borrowing limit of the Credit Facility from $25 million to $27.5 million until certain financing events when the borrowing limit returns to its original amount.

We, however, are awaiting the final amendment from the Lender and believe the amendment to the Credit Facility will be executed in the next few days when the authorized signatory is available to sign the amendment.

On August 16, 2024, the Company entered into the Third Amendment to the Credit Facility, to increase the borrowing limit of the Credit Facility to $27.5 million.

Under the terms of the Third Amendment, the borrowing limit will return to $25 million upon certain financing events.

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

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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).

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 $25,000,000 in the aggregate ($12,500,000 from each of the 2024 Lenders), from time to time (was initially $20,000,000 in the aggregate ($10,000,000 from each of the 2024 Lenders), subject to certain conditions.

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

On March 22, 2024, we entered into an Unsecured Credit Facility with Gerard Barron, our Chief Executive Officer and Chairman, and ERAS Capital LLC, the family fund of our director, Andrei Karkar, pursuant to which, we may borrow from the 2024 Lenders up to $25,000,000 in the aggregate ($12,500,000 from each of the 2024 Lenders), from time to time (was initially $20,000,000 in the aggregate ($10,000,000 from each of the 2024 Lenders), 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.

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 December 31, 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 $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.

On August 13, 2024, we entered into an amendment to the 2024 Credit Facility to increase the borrowing limit to $25 million in the aggregate ($12.5 million from each of the 2024 Lenders).

Under the terms of the amendment, the borrowing limit will return to the initial $20 million in the aggregate ($10 million from each of the 2024 Lenders) upon certain financing events.

As of the date of this Quarterly Report on Form 10-Q, there was $4.2 million drawn under the 2024 Credit Facility, including a draw of $0.3 million subsequent to June 30, 2024.

On August 13, 2024, we entered into the First Amendment to the 2024 Credit Facility to increase the borrowing limit to $25 million in the aggregate ($12.5 million from each of the 2024 Lenders).

Under the terms of the First Amendment, the borrowing limit was due to return to the initial $20 million in the aggregate ($10 million from each of the 2024 Lenders) upon certain financing events.

On November 14, 2024, we entered into the Second Amendment to the 2024 Credit Facility with ERAS Capital LLC and Gerard Barron, to increase the borrowing limit to $38 million in the aggregate ($19 million from each of the 2024 Lenders) and to extend the maturity of the 2024 Credit Facility to December 31, 2025.

As of the date of this Quarterly Report on Form 10-Q, there was $4.3 million drawn under the 2024 Credit Facility, including a draw of $0.1 million subsequent to September 30, 2024.

On May 27, 2024, the Company entered into a short-term loan agreement with the Lender (Argentum Cedit Virtuti GCV), an affiliate of Allseas.

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The Loan takes priority over the 2024 Credit Facility.

The Loan and accrued interest are payable to the Lender on or before the earlier of (i) our next financing and (ii) September 10, 2024 (maturity date).

The Loan will accrue interest at a rate of 8% per annum.

As of the date of this Quarterly Report on Form 10-Q, the Loan remains outstanding.

The Loan matured on September 10, 2024 (maturity date) and accrued interest at a rate of 8% per annum.

On the maturity date, Company repaid the entire Loan amounting to $2 million and the accrued interest amounting to $46 thousand.

On September 9, 2024, the Company entered into a working capital loan agreement (the “Working Capital Loan Agreement”) with Allseas Investments SA (the “Allseas Investments”), a company related to Allseas.

In accordance with the Working Capital Loan Agreement, Allseas Investments provided a loan to the Company amounting to $5 million (the “Working Capital Loan”) on September 10, 2024, to be used towards general corporate purposes and the repayment of all outstanding amounts under the Short-Term Loan between the Company and the Lender.

The Working Capital Loan is payable to the Lender on or before the earlier of (i) the occurrence of certain financing events and (ii) April 1, 2025 (the “Repayment Date”).

The Working Capital Loan will bear interest based on the 6-month Secured Overnight Financing Rate, 180-day average plus a margin of 4.0% per annum and is payable in two installments on January 2, 2025, and the Repayment Date (or plus a margin of 5.0% if all interest payments are deferred to the Repayment Date, at the Company’s election).

On October 18, 2024, the Company entered into the First Amendment to the Working Capital Loan Agreement with Allseas Investments, resulting in a further draw of $2.5 million by the Company and a total Working Capital Loan drawn amount of $7.5 million.

The offering price was $1.00 per Share, with each Share including an accompanying Class B Warrant to purchase 0.5 common shares.

The Class B Warrants are exercisable immediately upon issuance at a price of $2.00 per share and expire five years from issuance.

The aggregate gross proceeds from the Registered Direct Offering were approximately $17.5 million, before deducting fees payable to financial advisors and other offering expenses payable by the Company ($16.5 million net of fees).

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 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.

In addition, the exercise price to purchase one Common Share under the outstanding Class A Warrants is $3.00 (subject to customary adjustments).

Upon the closing of the November 2024 Registered Direct Offering described above, the exercise price of the Class A Warrants will be adjusted downward pursuant to the terms of the Class A Warrants.

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

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For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Net cash used in operating activities

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Net cash provided by financing activities

Decrease in cash

Six Months ended June 30, 2024 compared to Six Months ended June 30, 2023

(Decrease) Increase in cash

Nine Months ended September 30, 2024 compared to Nine Months ended September 30, 2023

Cash flows used in Operating Activities

For the six months ended June 30, 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 half of 2024, amounted to $23.9 million, and consisted mainly of $12.1 million on various environmental work, $3.6 million on personnel costs, $2.8 million on legal, advisory and consulting, $1.5 million for sponsorship, training and stakeholder engagement support, $1.8 million spent on engineering and pre-feasibility studies, $1.1 million on communication and business development expenses, and additional payments of $1 million for various expenses.

For the six months ended June 30, 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 half of 2023, amounted to $31.9 million, and consisted mainly of $17.2 million on various environmental work, $4.8 million on personnel costs, $3.3 million on legal costs, $1.8 million for sponsorship, training, and stakeholder engagement support, $2.2 million spent on engineering and pre-feasibility studies, $1 million on communication and business development expenses and additional payments of $1.6 million for various expenses.

For the nine months ended September 30, 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 a NORI exploitation contract and prepare for potential future commercial production.

Net cash used in operating activities in the first nine months of 2024, amounted to $29.7 million, and consisted mainly of $13.0 million on various environmental work, $6.1 million on personnel costs, $3.9 million on legal, advisory and consulting, $1.9 million for sponsorship, training and stakeholder engagement support, $1.7 million spent on engineering and pre-feasibility studies, $1.5 million on communication and business development expenses, and additional payments of $1.6 million for various expenses.

For the nine months ended September 30, 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 nine months of 2023, amounted to $44.4 million, and consisted mainly of $24.8 million on various environmental work, $7.5 million on personnel costs, $3.7 million on legal costs, $2.6 million for sponsorship, training, and stakeholder engagement support, $1.6 million spent on engineering and pre-feasibility studies, $1 million on communication and business development expenses and additional payments of $4.2 million for various expenses.

Cash flows used in Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2024 was $0.4 million for the purchase of equipment and software development.

Net cash provided by investing activities for the nine months ended September 30, 2024 was $0.5 million for the purchase of equipment and software development.

Cash flows provided by Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2024 was $17.7 million, which comprised of net proceeds received from the Registered Direct Offering announced in August 2023 of $9 million, proceeds from short term debt and credit facilities of $5.9 million, proceeds from shares issued from ATM of $2.5 million and proceeds from exercise of stock options and employee stock plans of $0.3 million while the 2023 first half results represent the cash received of $5 million on closing of our investment in Low Carbon Royalties.

Net cash provided by financing activities for the nine months ended September 30, 2024 was $23.3 million, which comprised of proceeds received from the Registered Direct Offering announced in August 2023 of $9 million, proceeds from short term debt and credit facilities of $9.2 million, proceeds from shares issued from ATM of $4.9 million and proceeds from exercise of stock options and employee stock plans of $0.5 million while the 2023 first nine months results represent the cash received from the Registered Direct Offering of $14.9 million and cash received of $5 million on closing of our investment in Low Carbon Royalties.

Contractual Obligations and Commitments

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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 Services Agreement

In 2013, DGE entered into the Marawa Services Agreement with Marawa which granted DGE exclusive rights to manage and carry out all exploration and exploitation in the Marawa Area.

Under Marawa’s Exploration Contract with the ISA, Marawa submitted a periodic review report to the ISA that 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.

Marawa is scheduled to submit a new periodic review in 2024, which will include a new work plan.

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.

Regulatory Obligations Relating to Exploration Contracts

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

On August 20, 2024, Nauru updated its Nauru Seabed Minerals Authority Act, to prepare its regulatory regime for the transition from exploration to exploitation.

Sponsorship Agreements

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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.

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.

On September 23, 2021, TOML and Tonga updated the TOML Sponsorship Agreement harmonizing the terms of its agreement 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, assuming our future operations are ultimately profitable .

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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 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 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.

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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 June 30, 2024, we have made the following payments to Allseas under the PMTA:

Through September 30, 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.

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As described above, on March 22, 2023, the Company entered into the 2023 Credit Facility with Argentum Cedit Virtuti GCV, an affiliate of Allseas, under which we may borrow up to $25.0 million pursuant to the terms and conditions of the Credit Facility, as amended, which has a maturity date of August 31, 2025.

The Company believes it has an agreement in principle with the Lender to amend the Credit Facility to increase the borrowing limit of the Credit Facility from $25 million to $27.5 million until certain financing events when the borrowing limit returns to its original amount.

The Credit Facility remained undrawn as at June 30, 2024.

2024 Short-Term Loan

On August 16, 2024, the Company entered into the Third Amendment to the Credit Facility, to increase the borrowing limit of the Credit Facility to $27.5 million.

Under the terms of the Third Amendment, upon closing of the November 2024 Registered Direct Offering discussed above, the borrowing limit will return to $25 million.

The Credit Facility remained undrawn as at September 30, 2024.

2024 Short-Term Loan and Working Capital Loan

On May 27, 2024, the Company entered into a short-term loan agreement with Argentum Cedit Virtuti GCV whereby the Company borrowed $2 million (the “Loan”) on May 30, 2024.

The Loan takes priority over the 2024 Credit Facility discussed below.

The Loan and accrued interest are payable to the Lender on or before the earlier of (i) our next financing and (ii) September 10, 2024 (maturity date).

The Loan accrues interest at a rate of 8% per annum.

The Loan matured on September 10, 2024 (maturity date) and accrued interest at a rate of 8% per annum.

On the maturity date, Company repaid the entire Loan amounting to $2 million and the accrued interest.

The Working Capital Loan is payable to the Lender on or before the earlier of (i) the occurrence of certain financing events and (ii) April 1, 2025 (the “Repayment Date”).

Credit Facility with ERAS Capital LLC and Gerard Barron

On March 22, 2024, the Company entered into an Unsecured Credit Facility (as amended, 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 $25,000,000 in the aggregate ($12,500,000 from each of the 2024 Lenders), from time to time, subject to certain conditions.

On March 22, 2024, the Company entered into an Unsecured Credit Facility with Gerard Barron, our Chief Executive Officer and Chairman, and ERAS Capital LLC, the family fund of our director, Andrei Karkar, pursuant to which, we may borrow from the 2024 Lenders up to $25,000,000 in the aggregate ($12,500,000 from each of the 2024 Lenders), from time to time, subject to certain conditions.

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.

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 December 31, 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.

In the second quarter 2024, the Company drew $3.9 million from the 2024 Credit Facility.

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.

On August 13, 2024, the Company entered into the First Amendment to the 2024 Credit Facility with the 2024 Lenders, to increase the borrowing limit of the 2024 Credit Facility to $25 million in the aggregate ($12.5 million from each of the 2024 Lenders).

On November 14, 2024, we entered into the Second Amendment to increase the borrowing limit to $38 million in the aggregate ($19 million from each of the 2024 Lenders) and to the 2024 Credit Facility with ERAS Capital LLC and Gerard Barron, to extend the maturity of the 2024 Credit Facility to December 31, 2025.

In the three and nine months ended September 30, 2024, the Company drew $0.3 million and $4.2 million, respectively, from the 2024 Credit Facility.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis