What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-15 · 128 added, 106 removed, 247 unchanged (49% of the section changed)

6 unchanged sentences

and its consolidated subsidiaries.

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

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

and its consolidated subsidiaries.

5 unchanged sentences

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) for electric vehicles (“EV”) and renewable energy storage markets, (ii) nickel-copper-cobalt matte and/or copper cathode for EV wiring, clean energy transmission and other applications and (iii) manganese silicate for manganese alloy production required for steel production.

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

(i) feedstock for battery cathode precursors (nickel and cobalt sulfates, or intermediate nickel-copper-cobalt matte) for electric vehicles (“EV”) and renewable energy storage markets, (ii) copper cathode for EV wiring, clean energy transmission and other applications and (iii) manganese silicate for manganese alloy production required for steel production.

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.

1 unchanged sentence

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

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

The ISA has issued a total of 19 polymetallic nodule exploration contracts covering approximately 1.28 million km2, or 0.4% of the global seafloor, 17 of which are in the CCZ.

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

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

two based on the 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.

1 unchanged sentence

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

(“Allseas”), a leading global offshore contractor, which is developing a pilot collection system, which is expected to be modified into an initial smaller-scale commercial production system and serve as the basis for the design of a full-scale commercial production system and (ii) Glencore International AG (Glencore) which holds offtake rights on 50% of the NORI nickel and copper production.

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

(“Allseas”), a leading global offshore contractor, which has developed and is currently testing a pilot collection system, expected to be modified into an initial smaller-scale commercial production system and serve as the basis for the design of a full-scale commercial production system and (ii) Glencore International AG (Glencore) holding offtake rights to 50% of NORI nickel and copper production from the NORI area.

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

and consultants Kingston Process Metallurgy Inc.

5 unchanged sentences

(“Epsilon Carbon”) in which Epsilon Carbon expressed its intent to conduct pre-feasibility work to potentially finance, engineer, permit, construct and operate a commercial polymetallic nodule processing plant in India.

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

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

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

We are currently focused on applying for our first exploitation contract from the ISA on the NORI Area D contract area and, subject to regulatory review by the ISA, intend to start commercial production in 2024.

To reach our objective, we are:

(i) defining our resource and project economics, (ii) developing an offshore nodule collection system, (iii) assessing the ESG impacts of offshore nodule collection, and (iv) developing onshore technology to process collected polymetallic nodules into a manganese silicate product, and an intermediate nickel-copper-cobalt matte product and/or end-products like nickel and cobalt sulfates, and copper cathode.

(i) defining our resource and project economics, (ii) developing and testing an offshore nodule collection system, (iii) assessing the ESG impacts of offshore nodule collection, and (iv) developing and testing onshore technology and system to process collected polymetallic nodules into a manganese silicate product, and an intermediate nickel-copper-cobalt matte product and/or end-products like nickel and cobalt sulfates, and copper cathode.

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

We have yet to obtain exploitation contracts from the ISA to commence commercial scale polymetallic nodule collection in the CCZ and have yet to obtain the applicable environmental permits and other permits required to build and operate commercial scale polymetallic nodule processing and refining plants on land.

Developments in the Second Quarter 2022

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

Pilot Collection System Trials:

● Atlantic Deepwater Trials:

In May 2022, the pilot collector vehicle underwent extensive testing of its various pumps and critical mobility functions in ultra-deep water in the Atlantic Ocean.

Engineers successfully lowered the collector vehicle to depths of 2,470 meters and drove 1,018 meters across the seafloor, in advance of pilot trials in the NORI Area D in the CCZ expected in the second half of 2022.

● Riser & Jumper Trials:

In May 2022, the pilot riser system and jumper hose was successfully deployed in the Atlantic Ocean.

Engineers aboard the Hidden Gem deployed the flexible jumper hose, connected it to the base of the riser and then launched the pilot riser, lowering the assembly to a depth of around 650 meters before making a sub-sea connection between the jumper hose and collector vehicle in 745 meters water depth.

Onshore Processing:

● SINTEF Manganese Study:

In May 2022, we announced that we had retained SINTEF, one of Europe’s leading independent research institutions, to analyze our manganese silicate product that can be used to produce silicomanganese alloy for steelmaking.

SINTEF found that our high-grade nodule-derived manganese silicate, which we estimate could account for approximately one third of potential future revenues, behaves similarly to traditional land-based manganese sources and appears to have significant advantages on cost and carbon dioxide footprint, with the potential for 7 to 17% higher value-in-use, depending on carbon tax regimes.

Environmental, Social and Governance (ESG):

● Impact Report 2021:

In May 2022, we published our inaugural Impact Report setting out our motivations for collecting nodules and providing a forward-looking view of the potential environmental impacts of our expected operations and the efforts underway to potentially eliminate or reduce them.

● Independent Lifecycle Impact Assessment of NORI Area D Project:

In April 2022, we announced that we chose the leading lithium-ion battery supply chain research firm, Benchmark Mineral Intelligence (“Benchmark”), to conduct an independent lifecycle assessment of the environmental impacts of our planned NORI Area D polymetallic nodule project and compare these impacts to producing the same metals from commonly used production pathways using conventional land ores.

Benchmark anticipates completing its comprehensive Lifecycle Impact Assessment for us by the end of the third quarter of 2022.

Developments Subsequent to June 30, 2022

Developments in the Third Quarter 2022

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

NORI Area D Project:

● Project Zero Research :

In July 2022, our Australian subsidiary entered into a research funding agreement with a consortium of institutions led by Australia’s Commonwealth Scientific Industrial Research Organization (CSIRO) to create a framework for the development of an ecosystem-based Environmental Management and Monitoring Plan (EMMP) for our proposed deep-sea polymetallic nodule collection operations in the CCZ.

● NORI Collector Test Environmental Impact Statement (EIS):

The Legal and Technical Commission (the “LTC”) reviewed the EIS submitted to the ISA as part of NORI’s program to undertake a test of the collector system during their July 2022 meeting and provided their comments to NORI on July 15, 2022.

The LTC noted that while the generic framework and spatial components of the monitoring program described in the EMMP were good, the monitoring program lacked sufficient detail on the overall sampling design and integrated environmental monitoring specifications that the LTC needs to adequately evaluate the accuracy and statistical reliability of the EIS and the Monitoring Plan.

As such, the LTC decided that it was unable to recommend to the Secretary-General of the Authority that the EIS be included in the program of activities of NORI until NORI provided more detail on its proposed survey design, the level of benthic sediment plume monitoring, pelagic sampling of biological impacts of the plume discharge, temporal issues of survey timing and duration, and the extent of noise monitoring.

NORI submitted its responses to the LTC on July 29, 2022 and it is under review by the LTC.

We continue to expect that the planned collector test in the CCZ will commence in the third quarter of 2022, as initially planned.

● Pilot Collection System Trials and Monitoring Campaign:

● ISA Recommendation:

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

● Start of Trials and Campaign:

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

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

TMC Financing:

● PIPE Financing:

On August 15, 2022, we announced a private placement financing with 25 accredited investors, pursuant to three securities purchase agreements the Company entered into with the investors on August 12, 2022.

We will issue an aggregate of 37,978,680 common shares to the investors at a price per share of $0.80 ($0.9645 with respect to approximately $100,000 of common shares purchased by our Chief Executive Officer and Chairman in the private placement financing).

The Company expects to receive aggregate gross cash proceeds of approximately $30.4 million this quarter from the private placement and net proceeds of approximately $30 million, after deducting placement agent fees and offering expenses.

The Company agreed to file a resale registration statement for the common shares issued to the investors in the financing with the SEC on or before September 16, 2022.

On August 15, 2022, we announced a private placement financing which raised aggregate gross cash proceeds of $30.4 million (approximately $30 million net proceeds, after deducting placement agent fees and offering expenses) through the issuance of approximately 38.0 million common shares.

A majority of the committed funds came from our existing shareholders and insiders.

We filed a resale registration statement for the common shares issued to the investors in the financing with the SEC on September 16, 2022, which the SEC declared effective on October 14, 2022.

UAW Agreement:

In September 2022, we announced that we had entered into a labor neutrality agreement with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) designed to bolster the critical mineral supply chain, which we believe lays the groundwork for sustainable production of electric car batteries while also creates a path to potential job growth in the United States.

Developments Subsequent to September 30, 2022

● Board of Director Changes :

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

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

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

On November 10, 2022, Mr.

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

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

● NORI Collector Test Monitoring :

On October 5, 2022, we announced that a multidisciplinary team of independent scientists from leading research institutions around the world and industry-leading contractors commenced the next phase of an extensive environmental baseline and impact monitoring campaign in preparation for NORI’s ongoing pilot nodule collection system trials in NORI Area D area of the CCZ.

Scientists aboard a dedicated 103-meter-long monitoring vessel conducted pre-disturbance monitoring studies on a sub-section of the NORI Area D exploration area to establish an environmental baseline before NORI’s offshore strategic partner, Allseas, began testing a system consisting of a prototype nodule collector at the seafloor connected to a riser system to bring nodules to the surface production vessel, Hidden Gem .

● NORI Collector Test Milestone :

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

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

● Executive Changes :

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

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

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

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

● Successful Conclusion of NORI Collector Test:

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

Over 3,000 tonnes were transported up a 4.3-kilometer-long riser system to the surface production vessel, Hidden Gem , while the additional 1,500 tonnes of nodules were purposely left behind on the seafloor as part of the trials.

The Business Combination

16 unchanged sentences

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

DGE, our wholly-owned subsidiary, entered into agreements with Marawa and Kiribati which provide DGE with exclusive exploration rights to an area covering 74,990 km2 in the CCZ (the “Marawa Contract Area”).

DGE, our wholly-owned subsidiary, entered into agreements with Marawa and Kiribati which provide DGE with exclusive exploration and exploitation (if awarded) rights to an area covering 74,990 km2 in the CCZ (the “Marawa Contract Area”).

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

10 unchanged sentences

Key Trends, Opportunities and Uncertainties

We are currently a pre-revenue company and we do not anticipate earning revenues until such time as NORI receives an exploitation contract from the ISA and we are able to successfully collect polymetallic nodules and process the nodules into saleable products on a commercial scale.

We are currently a pre-revenue company and we do not anticipate earning revenues until such time as 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 believe that our performance and future success pose risks and challenges, including those related to:

finalization of ISA regulations to allow for commercial exploitation, approval of an application for the ISA exploitation contract, developing environmental regulations associated with our business and successful development of our technologies to collect and process polymetallic nodules.

finalization of ISA regulations to allow for commercial exploitation, approval of an application for the ISA exploitation contract, development of environmental regulations associated with our business and development of our technologies to collect and process polymetallic nodules.

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

9 unchanged sentences

Our climate related transition risks and opportunities are likely to be driven by changes in regulation, public policy, and technology, as disclosed in our 2021 Annual Report on Form 10-K.

During the second quarter of 2022, active work comprised the deep-water test of the collector system as well test deployment of the riser system and test connection of the jumper hose to the collector test all deployed by the Hidden Gem .

These tests were all completed successfully without any COVID outbreaks given the pre-departure COVID protocols that Allseas implemented.

At the end of the second quarter, the Hidden Gem was steaming from the Atlantic to the west coast of North America to commence mobilization for the collector test which is planned to commence in the third quarter 2022.

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

There were COVID-19 outbreaks, but these were effectively managed and had no impact on the project schedule and delivery of the collector test.

We continue to closely monitor the recent developments surrounding the continued spread and potential resurgence of COVID-19 from variants.

1 unchanged sentence

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

We are unable to predict the full impact that the COVID-19 pandemic will have on our future results of operations, liquidity and financial condition due to numerous uncertainties, including the duration of the pandemic and the actions that may be taken by government authorities.

We are unable to predict the full impact that the COVID-19 pandemic will have on our future results of operations, liquidity

and financial condition due to numerous uncertainties, including the duration of the pandemic and the actions that may be taken by government authorities.

However, COVID-19 is not expected to result in any significant changes to our business or our costs in the near term.

4 unchanged sentences

certain invoices for exploration expenses were not appropriately accrued as of June 30, 2021, resulting in a $2.7 million understatement of each of exploration expenses and accounts payable and accrued liabilities as of and for the six-month period ended June 30, 2021;

our expensing of options granted in the first quarter of 2021 under the Company’s Short-Term Incentive Plan (“STIP”) based on the grantee’s historical start date with us rather than the grant date of the options on March 4, 2021, as required by US Generally Accepted Accounting Principles (“US GAAP”), resulting in a $1.8 million overstatement of stock-based compensation expenses as of and for the three-month period ended March 31, 2021, and $0.3 million understatement and $1.5 million overstatement of stock-based compensation expenses as of and for the six month period ended June 30, 2021, respectively.

GAAP”), resulting in a $1.8 million overstatement of stock-based compensation expenses as of and for the three-month period ended March 31, 2021, and $0.3 million understatement and $1.5 million overstatement of stock-based compensation expenses as of and for the six month period ended June 30, 2021, respectively.

Basis of Presentation

5 unchanged sentences

Components of Results of Operations

We are an exploration-stage company with no revenue to date and a net loss of $12.4 million and $33.5 million for the three and six months ended June 30, 2022, respectively, compared to a net loss of $29.1 million and $84.9 million in the same periods of 2021, respectively.

We have an accumulated deficit of approximately $337.7 million from inception through June 30, 2022.

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

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

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

1 unchanged sentence

To date, we have not generated any revenue.

We do not expect to generate revenue until at least 2025 and only if NORI receives an exploitation contract from the ISA and we are able to successfully collect polymetallic nodules and process the nodules into saleable products on a commercial scale.

We do not expect to generate revenue until at least 2025 and only if NORI receives an exploitation contract from the ISA and we are able to successfully collect and process polymetallic nodules into saleable products on a commercial scale.

Any revenue from initial production is difficult to predict.

11 unchanged sentences

Interest Income/Expense

Interest expense in the first half of 2021 resulted from our financing transactions, specifically the convertible debentures issued in February 2021, which accrued interest at 7% per annum.

Interest expense in the first nine months of 2021 resulted from our financing transactions, specifically the convertible debentures issued in February 2021, which accrued interest at 7% per annum.

The convertible debentures were fully converted into DeepGreen common shares on September 9, 2021.

Interest income recorded in the first half of 2022 resulted from the interest earned on the funds we received from the Business Combination which closed in September 2021.

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

Foreign Exchange Loss

5 unchanged sentences

DeepGreen was determined to be the accounting acquirer and therefore, all information prior to the Business Combination, including the prior period financial information, represent the financial condition and operating results of DeepGreen.

The following is a discussion of our results of operations for the three and six months ended June 30, 2022 and 2021.

The following is a discussion of our results of operations for the three and nine months ended September 30, 2022 and 2021.

Our accounting policies are described in Note 3 “Summary of Significant Accounting Policies” in our financial statements filed as part of the 2021 Annual Report on Form 10-K.

Comparison of the Three and Six Months Ended June 30, 2022 and 2021

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

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

4 unchanged sentences

Loss for the period

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

We reported a net loss of $12.4 million in the second quarter of 2022, compared to $29.1 million in the same period of 2021.

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

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

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

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

Exploration and Evaluation Expenses

Exploration and evaluation expenses for the three months ended June 30, 2022 were $10.0 million, compared to $18.2 million for the same period in 2021.

The decrease of $8.2 million was primarily due a decrease in offshore campaign costs of $4.5 million, due to the completion of the NORI Area D baseline campaigns in the fourth quarter of 2021 and a reduction in share-based compensation of $6.5 million in the 2022 period, as the cost of the LTIP options with vesting condition of $3 billion market capitalization was completely amortized in 2021 in addition to the decrease in the amortization cost of STIP sign-up options granted in 2021 offset by the increase amortization cost of the RSUs issued to employees and contractors in 2022.

Work on the PMTS progressed in the second quarter of 2022 resulting in increased PMTS expenses of $1.3 million, which partially offset the above expense reductions.

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

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

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

General and Administrative Expenses

G&A expenses for the three months ended June 30, 2022 were $8.3 million compared to $10.4 million for the same period in 2021.

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

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

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

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

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

Change in Fair Value of Warrants Liability

The change in fair value of warrants liability during the second quarter of 2022 resulted in a credit of $5.7 million.

The credit was primarily due to a 67% decrease in the price of our warrants in the second quarter of 2022.

The warrants liability was initially recorded as part of the Business Combination and therefore did not exist in the prior year.

Six Months ended June 30, 2022 compared to Six Months ended June 30, 2021

We reported a net loss of $33.5 million in the first half of 2022, compared to $84.9 million in the same period of 2021.

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

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

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

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

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

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

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

Exploration and Evaluation Expenses

Exploration and evaluation expenses for the six months ended June 30, 2022 were $17.3 million, compared to $56.3 million for the same period in 2021.

The decrease of $39 million was primarily due to a decrease in offshore campaign costs of $20.9 million, due to the completion of the NORI Area D baseline campaigns in the fourth quarter of 2021.

The first half of 2021 offshore campaign costs included a fair value increase of $12.2 million that was recognized on the issuance of DeepGreen common shares to Maersk Supply Service A/S (“Maersk”).

The decrease in the first half of 2022 also reflects a reduction in share-based compensation of $21.7 million, as a significant number of stock options were awarded in March 2021, in recognition of past services and in anticipation of the Business Combination, while no stock options were awarded in the first half of 2022.

Work on the PMTS progressed in the first half of 2022 resulting in increased PMTS expenses of $2.6 million, which partially offset the above expense reductions.

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

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

In the first nine months of 2021, offshore campaign costs in support of environmental studies included a fair value increase of $12.2 million that was recognized on the issuance of DeepGreen common shares to Maersk Supply Service A/S (“Maersk”).

The decrease in the first nine months of 2022 also reflects a reduction in share-based compensation of $23.2 million, as a significant number of stock options were awarded in March 2021, in recognition of past services and in anticipation of the Business Combination, while no stock options were awarded in the first nine months of 2022.

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

General and Administrative Expenses

G&A expenses for the six months ended June 30, 2022 were $16.9 million compared to $27.8 million for the same period in 2021.

The decrease of $10.9 million in G&A expenses in the first half of 2022 was mainly the result of lower share-based compensation in the 2022 period as the first half of 2021 included the award of a significant number of stock options in recognition of past services and in anticipation of the Business Combination.

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

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

The decrease of $18.6 million in G&A expenses in the first nine months of 2022 was mainly the result of lower share-based compensation in the 2022 period as the first nine months of 2021 included the award of a significant number of stock options in recognition of past services and in anticipation of the Business Combination.

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

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

Change in F air V alue of W arrants Liability

The change in fair value of warrants liability during the first half of 2022 resulted in a credit of $0.5 million.

The credit was primarily due to a 28% decrease in the price of our warrants in the first half of 2022.

The warrants liability was initially recorded as part of the Business Combination and therefore did not exist in the prior year.

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

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

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

Liquidity and Capital Resources

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

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

As of June 30, 2022, we had cash on hand of $46.3 million.

In addition, on September 9, 2021, we completed the Business Combination with SOAC, receiving gross cash proceeds of $137.6 million ($104.5 million net of transaction fees), followed by a PIPE financing that we announced on August 15, 2022, which resulted with gross cash proceeds of $30.4 million (approximately $30 million net of transaction fees).

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

We received lower than expected cash proceeds upon closing of the Business Combination resulting from higher-than-expected redemptions of SOAC’s Class A ordinary shares and the default by certain PIPE investors in their funding obligations in connection with the closing of the Business Combination.

3 unchanged sentences

We are an exploration-stage company and the recovery of our investment in mineral exploration contracts and attainment of profitable operations is dependent upon many factors including, among other things, the development of a production system for collecting polymetallic nodules from the seafloor as well as the development of our processing technology for the metallurgical treatment of such nodules, the establishment of mineable reserves, the demonstration of commercial and technical feasibility of seafloor polymetallic nodule collection and processing systems, metal prices, and securing ISA exploitation contracts.

While we have obtained financing in the past, there is no assurance that such financing will continue to be available on favorable terms, if at all.

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 expected proceeds from the financing we announced in August 2022, we believe we will have sufficient funds to meet our obligations that become due within the next twelve months.

Based on our cash balance when compared with our forecasted cash expenditures, we believe we will have sufficient funds to meet our obligations that become due within the next twelve months.

Our estimates used in reaching this conclusion are based on information available as at the date of filing this Quarterly Report on Form 10-Q.

Accordingly, actual results could differ from these estimates and resulting variances may result and we may need cash resources in this period in addition to the recently announced financing due to changes in business conditions or other developments, including, but not limited to, deferral of approvals, capital and operating cost escalation, currently unrecognized technical and development challenges, our ability to pay certain vendors or suppliers in our common shares or changes in external business environment.

In addition, we will need and expect to seek additional financing to fund our operations beyond the next twelve months and to reach potential commercial production through additional public or private equity, debt financings, equity-linked financings or other sources, including through non-dilutive asset- or project-based financings.

If these financing or other financing sources are not available, or if the terms of financing are less desirable than we expect, we may be forced to delay our exploration and/or exploitation activities or scale back our operations, which could have a material adverse impact on our business and financial prospects.

Accordingly, actual results could differ from these estimates and resulting variances may result in our need for additional funding in amount greater or earlier than expected, due to changes in business conditions or other developments, including, but not limited to, deferral of approvals, capital and operating cost escalation, currently unrecognized technical and development challenges, our ability to pay certain vendors or suppliers in our common shares or changes in external business environment.

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

These financings could include additional public or private equity, debt financings, equity-linked financings or other sources of financing, including through non-dilutive asset, royalty or project-based financings.

If these financing or other financing sources are not available, or if the terms of financing are less desirable than we expect, or if in insufficient amounts, we may be forced to delay our exploration and/or exploitation activities or further scale back our operations, which could have a material adverse impact on our business and financial prospects.

On September 16, 2022, we filed a registration statement on Form S-3 with the Securities and Exchange Commission, which the SEC declared effective on October 14, 2022, to sell up to $100 million of securities, before any fees or expenses of the offering.

Securities that may be sold 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.

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

However, the exercise price for the outstanding Public Warrants and Private Warrants is $11.50 per common share and there can be no assurance that such warrants will be in the money prior to their expiration, and as such, such warrants may expire worthless.

Based on the current trading price of our common shares we do not expect to receive any proceeds from exercise of the Public Warrants and Private Warrants unless there is a significant increase in the price of our common shares.

Based on the current trading price of our common shares we do not expect to receive any proceeds from the exercise of the Public Warrants and Private Warrants unless there is a significant increase in the price of our common shares.

In certain circumstances, the Public Warrants and Private Warrants may be exercised on a cashless basis and the proceeds from the exercise of such warrants will decrease.

1 unchanged sentence

Cash Flows Summary

Comparison of the Three and Six Months Ended June 30, 2022 and June 30, 2021

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

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

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

2021 Restated

2 unchanged sentences

Net cash (used in) investing activities

Net cash (used in) provided by financing activities

Net cash provided by financing activities

(Decrease) increase in cash

Six Months ended June 30, 2022 compared to Six Months ended June 30, 2021

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

Cash flows used in Operating Activities

Net cash used in operating activities for the six months ended June 30, 2022 was $38.1 million, attributable to a net loss of $33.5 million and an increase in net operating assets and liabilities of $17.0 million, partially offset by non-cash adjustments of $12.4 million.

Non-cash adjustments primarily consisted of $12.7 million of expenses settled with share-based payments, partially offset by $0.5 million related to the decrease in the fair value of the Private Warrants, mainly as a result of the decrease in our share price during the first half of 2022.

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

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

The increase in our net operating assets and liabilities was primarily due to a $1.5 million decrease in accounts payable and accrued liabilities in the 2022 period due to the timing of supplier payments.

Cash flows used in Investing Activities

Net cash used in investing activities for the six months ended June 30, 2022 was $0.3 million for the purchase of equipment, as compared to $3.8 million in the first half of 2021, which related to the initial payments made to DSMF in connection with our acquisition of TOML in 2020.

Net cash used in investing activities for the nine months ended September 30, 2022 was $1.0 million for the purchase of equipment, as compared to $3.8 million in the first nine months of 2021, which related primarily to the initial payments made to DSMF in connection with our acquisition of TOML in 2020.

Cash flows (used in) provided by Financing Activities

Net cash used in financing activities for the six months ended June 30, 2022 was nil, compared to $28.6 million provided by financing activities in the first half of 2021, which consisted of $26.0 million from the issuance of convertible debentures in February 2021 and $2.6 million from the exercise of incentive stock options.

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

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

PIPE Financing

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

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

The Company expects to receive aggregate gross cash proceeds of approximately $30.4 million from the private placement this quarter and net cash proceeds of approximately $30 million, after deducting placement agent fees and offering expenses.

The Company agreed to file a resale registration statement for the common shares issued to the investors in the financing with the SEC on or before September 16, 2022.

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

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

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

We filed a resale registration statement for the common shares issued to the investors in the financing with the SEC on September 16, 2022, which the SEC declared effective on October 14, 2022.

Contractual Obligations and Commitments

2 unchanged sentences

The periodic review report included a summary of work completed over the previous 5-year period (2017 to 2021) and a work plan and estimated budget for the next five-year period (2022 to 2026).

NORI had committed to spend approximately $5 million to deliver on its intended work plan from 2017 to 2021, which it has significantly exceeded.

The periodic review report, which included a proposed work plan and estimated budget for 2022 to 2026, has been reviewed by and agreed with the ISA, and we are implementing the next five-year plan.

15 unchanged sentences

TOML had committed to spend $30.0 million over the five-year period from 2017 to 2021.

Such commitment has flexibility where the amount can be reduced by the ISA and such reduction would be dependent upon various factors including the success of the exploration programs and the availability of funding.

The ISA is currently reviewing the periodic report, which includes the next 5-year program of work, at which point the next five-year commitment will be finalized.

Such commitment has flexibility where the amount can be reduced and such reduction would be dependent upon various factors including the success of the exploration programs and the availability of funding.

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

Regulatory Obligations Relating to Exploration Contracts

1 unchanged sentence

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 nation must maintain effective supervision and regulatory control over such sponsored contractor.

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

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

In the event the sponsorship is otherwise terminated, such subsidiary will be required to obtain new sponsorship from another nation that is a member of the ISA.

In the event the sponsorship is otherwise terminated, such subsidiary will be required to obtain new sponsorship from another state that is a member of the ISA.

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

21 unchanged sentences

We made the second $10 million payment to Allseas under the PMTA on April 25, 2022, following the successful completion of the North Sea drive test.

The third and final $10 million payment to Allseas will be due upon successful completion of the pilot trial of the PMTS in NORI Area D which is expected in the fourth quarter of 2022.

The third and final $10 million payment to Allseas became due upon successful completion of the pilot trial of the PMTS in NORI Area D, which we intend to settle through the issuance of common shares in the fourth quarter of 2022, at a price of $1.00 per share, subject to regulatory approval.

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

Offtake Agreement

39 unchanged sentences

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