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Item 7. Management’s Discussion and Analysis

2024-03-25 compared with 2023-03-27 · 210 added, 187 removed, 206 unchanged (66% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of our operations should be read in conjunction with the financial statements and the notes to those statements appearing elsewhere in this Annual Report on Form 10-K.

Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

You should read the Risk Factors set forth in Item 1A of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We are a deep-sea minerals exploration company focused on the collection and processing of polymetallic nodules found on the seafloor in international waters of the CCZ, about 1,500 miles south-west of San Diego, California.

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

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

You should read the risk factors set forth in Item 1A of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We are a deep-sea minerals exploration company focused on the collection, processing and refining of polymetallic nodules found on the seafloor in international waters of the CCZ, about 1,500 miles south-west of San Diego, California.

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

Polymetallic nodules are discrete rocks that sit unattached to the seafloor, occur in significant quantities in the CCZ and have high concentrations of nickel, manganese, cobalt and copper in a single rock.

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

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

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

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

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

Exploration and exploitation of seabed minerals in international waters is regulated by the ISA, an intergovernmental organization established pursuant to the 1994 Agreement Relating to the Implementation of the UNCLOS.

Exploration and exploitation of seafloor minerals in international waters is regulated by the ISA, an intergovernmental organization established pursuant to the 1994 Agreement Relating to the Implementation of the UNCLOS.

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

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

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

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

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

two based on ISA exploration contracts through our subsidiaries NORI and TOML, sponsored by Nauru and Tonga, respectively, and exclusive commercial rights through our subsidiary, DGE, and its arrangement with Marawa, a company owned and sponsored by Kiribati.

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

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

In addition, we have worked with an engineering firm Hatch and consultants KPM to develop a near-zero solid waste flowsheet.

The primary processing stages of the flowsheet from nodule to NiCuCo matte intermediate were demonstrated as part of our pilot plant program at FLSmidth and Xpert Process Solutions’ (XPS, a Glencore company) facilities.

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

The matte refining stages are being tested at SGS Lakefield.

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

After several months of joint pre-feasibility work in 2022 and in consultation with Epsilon Carbon Pvt, LTD.

(Epsilon Carbon) under our March 2022 business collaboration MoU, we decided to pause this work on a new build plant in India until Project Zero has started commercial production using 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 MoU with Pacific Metals Co Ltd (PAMCO) of Japan, to evaluate the toll treatment of an initial quantity of 1.3 million tonnes of wet polymetallic nodules per year at PAMCO’s Hachinohe smelting facility starting in 2025.

The toll treatment is intended to take place on a dedicated rotary kiln-electric arc furnace (RKEF) processing line and produce two products:

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 MoU with Pacific Metals Co Ltd (PAMCO) of Japan.

In November 2023, we entered into a binding MoU with PAMCO whereby they must complete a feasibility study (expected to be completed during the third 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, if we timely obtain an exploitation contract from the ISA.

The toll treatment is intended to take place on a dedicated RKEF processing line and produce two products:

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

We expect this partnership to progress to a binding MoU and a strategic alliance in the second half of 2023, subject to successful evaluation study outcomes and agreement to mutually acceptable commercial terms, in lieu of continuing to pursue an opportunity to build a new Project Zero Plant in India together with Epsilon Carbon as was previously envisioned under our March 2022 business collaboration MoU with Epsilon Carbon.

There can be no assurance that we will enter into such binding MoU or definitive strategic alliance in a particular time period, or at all, or on terms similar to those set forth in the MoU, or that if such binding MoU or definitive strategic alliance are 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 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 end of 2024 / start of 2025.

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

There can be no assurance that we will enter into such definitive strategic alliance in a particular time period, or at all, or on terms similar to those set forth in the binding MoU, or that if such definitive strategic alliance 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 to submit our application to the ISA for our first exploitation for the NORI Area D contract area following the July 2024 meeting of the ISA.

We now expect to commence production offshore at the end of the first quarter of 2026, assuming an ISA review process of approximately one year on our application for an exploitation contract.

This new estimated timeline to first production is based on:

● Refined assumptions following discussions with our strategic partner Allseas with respect to planned upgrades to the Hidden Gem (including an additional nodule collector vehicle and associated equipment) to increase maximum production capacity from 1.3mtpa to 3.0mtpa of wet nodules, to align with production ramp-up strategy based on precautionary principles.

Upgrades to the Hidden Gem’s capacity prior to mobilization to the CCZ and start of production can avoid a situation in which the expected ramp-up might otherwise lead to temporary production shutdowns.

● The latest ISA draft text of the rules, regulations and procedures (“RRPs” or the “Mining Code”) issued on February 16, 2024, describe an estimated review process on an application for an exploitation contract of 344 days, compared to previous versions which described a review process of 315 days.

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

(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 systems 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 a commercial offshore nodule collection system, (iii) assessing the environmental and social impacts of offshore nodule collection, and (iv) developing onshore technology to process collected polymetallic nodules into a manganese silicate product, and an intermediate nickel-copper-cobalt alloy or matte product and/or end-products like nickel and cobalt sulfates, and copper cathode.

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

We have yet to obtain any exploitation contracts from the ISA to commence commercial scale polymetallic nodule collection in the CCZ nor have we obtained the applicable environmental and other permits required to build and operate commercial scale polymetallic nodule processing and refining plants on land.

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.

2023 Highlights

Below are a few of the developments that occurred in 2023.

NORI Area D Project:

● Pilot Collection System Trials and Monitoring Campaign:

o ISA Recommendation:

In September 2022, following the completion of its review of NORI’s Environmental Impact Statement (EIS) and EMMP, the ISA allowed us to proceed with independently monitored integrated pilot collection system trials in NORI Area D in the CCZ following our implementation of their recommendations with respect to the trials.

o Start of Monitoring Campaign:

In accordance with the ISA’s recommendation, in September 2022, the team of engineers at Allseas and scientists from some of the world’s leading deep-sea research institutions and industry-leading contractors began an extensive environmental baseline and impact monitoring campaign in preparation for NORI’s now completed pilot nodule collection system trials in the NORI Area D 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 collection system trials.

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

o Successful Conclusion of NORI Integrated Collector Test:

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

Over 3,000 tonnes of nodules 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.

Concurrently, aboard a dedicated monitoring vessel, marine experts and academic scientists conducted the first environmental monitoring program of an integrated pilot collector system test, which utilizes the baseline data which we began to collect in September 2022.

● Project Zero System:

In March 2022, our subsidiary, NORI, and Allseas entered into a non-binding term sheet for the potential development and operation of a commercial nodule collection system (Project Zero System).

The pilot nodule collection system developed and successfully tested by Allseas is expected to be upgraded to a Project Zero System with a targeted production capacity of at least 1.3 Mtpa of wet nodules, with expected production readiness by the fourth quarter of 2024.

● EMMP for Exploitation Application:

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.

Resulting EMMP will form an integral part of NORI’s exploitation application to the ISA.

● 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, 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 completed its comprehensive Lifecycle Impact Assessment for us in March 2023.

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.

● PIPE Financing :

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.

● At-The-Market (ATM) Offering:

On December 22, 2022, we announced an At-The-Market offering with Stifel, Nicolaus & Company, Incorporated and Wedbush Securities Inc., as sales agents, pursuant to which we may, from time to time, issue and sell up to $30 million of our common shares.

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

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 December 31, 2022

Consortium for ESG disclosure of marine minerals:

On February 14, 2023, we announced that we had joined a broad international consortium to develop a handbook for Environmental, Social and Governance (ESG) disclosure in relation to marine minerals.

The purpose of the guidance document is to enable evidence-based assessments of the ESG performance of marine mineral projects in the context of global standards.

Marine minerals are emerging as a strong potential source to help meet growing metals demand.

As with any extractive industries, consideration of ESG issues is key to ensuring transparent and responsible supply chains.

The ESG handbook will provide guidance to addresses material topics related to marine mineral projects in the deep-sea environment using a standardized approach.

Strategic Partnership on Low-Carbon Royalties:

On February 21, 2023, we and our wholly-owned subsidiary, NORI, entered into a strategic partnership with Low Carbon Royalties Inc.

(“Low Carbon Royalties”), a private corporation formed under the laws of British Columbia, Canada to finance low carbon emitting energy production and technologies (natural gas, nuclear, renewables), transition metals and minerals required for energy storage and electrification (Cu, Li, Ni, Co, Mn), and the evolving environmental markets (the “Partnership”).

In connection with the Partnership, NORI contributed a 2% gross overriding royalty (the “NORI Royalty”) on our NORI contract area to Low Carbon Royalties.

We retained the right to repurchase up to 75% of the NORI Royalty at an agreed capped return, exercisable in two transactions, between the second and the tenth anniversary of the Partnership.

If both repurchase transactions are executed, the NORI Royalty will be reduced to 0.5%.

Low Carbon Royalties also owns a 1.6% gross overriding royalty on a producing natural gas field in Latin America.

In consideration of the NORI Royalty, we received a 35.0% common ownership interest in Low Carbon Royalties on a fully-diluted basis as of closing and $5.0 million in cash

NORI Area D Project Advancements

Update on Application Timeline and Costs, Increased Production Capacity

In August 2023, we provided a corporate update on our expected project development timeline, production capacity and application costs for our NORI Area D Nodule Project following the recent ISA Council decisions on a roadmap to deliver final rules, regulations and procedures, also known as the Mining Code.

Our wholly-owned subsidiary NORI intends to submit an application to the ISA for an exploitation contract for NORI Area D following the July 2024 meeting of the ISA.

Assuming an approximate one-year review process, NORI expected to be in commercial production at the end of 2025 (now estimated for the end of the first quarter of 2026) if the application is approved.

NORI and strategic partner Allseas plan for an increased production capacity for the Project Zero Offshore Nodule Collection System, using the Hidden Gem vessel, from an estimated 1.3 million wet tonnes to up to an estimated 3.0 million wet tonnes per annum, a potential increase of 130%.

Extensive Deep-sea Environmental Data Submission to the ISA

In March 2023, we announced that NORI had begun the process of submitting data collected during 17 offshore resource definition and environmental baseline campaigns in NORI Area D to the DeepData platform, an open database of contractor data managed by the ISA.

Collected using a suite of high-tech equipment, the dataset submitted to the ISA includes over 1,400 biological samples from extensive boxcore and multicore sampling, and over 8,000 images analysed for benthic megafauna captured by remotely operated vehicles from two offshore campaigns.

This first submission of benthic data, which includes over 270,000 occurrences, will provide a significant expansion to the biological holdings contained within the DeepData platform.

Publication of NORI Area D data to Ocean Biodiversity Information System

In July 2023, we announced that data from two offshore environmental research campaigns conducted by NORI had been published by the ISA to the Ocean Biodiversity Information System (OBIS), the world’s largest scientific knowledge base on the diversity, distribution and abundance of marine organisms.

NORI is now the single largest contributor of biological occurrence data to the OBIS ISA-node, providing approximately 60% of all records.

With much more data to be submitted, we expect NORI Area D will be one of the most highly characterized deep-sea areas in the region that hosts approximately 90% of all nodule exploration.

Benchmark LCA of NORI Area D Project

In March 2023, we announced that leading lithium-ion battery supply chain research firm, Benchmark Mineral Intelligence (“Benchmark”), had completed an independent third-party lifecycle assessment (“LCA”) of the environmental impacts of our NORI Area D project, comparing the production of key energy transition metals (nickel, cobalt and copper) from the NORI Area D project to key land-based production routes for the same metals.

Benchmark’s LCA shows the NORI Area D project model performed better in almost every impact category analysed than all the land-based routes chosen by Benchmark for comparison.

Forest ecosystems play a critical role in the carbon cycle, yet mining’s impacts on their carbon sequestration services often goes unaccounted for in studies.

In 2023, we commissioned Benchmark to address some of these gaps in information in a follow-up study by looking at mining in the top nickel and cobalt producing regions of Sulawesi, Indonesia and Katanga, DRC.

When accounting for forest removal, the lifecycle global warming potential (GWP) per kilogram of nickel mined in Indonesia;

Benchmark’s earlier LCA would increase by between 7-49% per kilogram of Indonesian nickel (depending on production routes) and by 35% per kilogram of cobalt mined in DRC.

Publication of 2022 Impact Report

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

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

NORI Area D Testing and Monitoring

NORI Shares Preliminary Findings on Environmental Impacts of Test Mining Campaign

In November 2023, our subsidiary NORI began sharing emerging data on the impacts of seafloor sediment plumes which show that the plume forms a gravity-driven turbidity current that hugs the contours of the seafloor and does not loft up into the water column where it could possibly be transported longer distances by ocean currents.

A key component to understanding our environmental impacts, the data builds upon earlier laboratory predictions and in-field verifications from prior collector tests.

Conclusion of Key Offshore Research Campaign

In December 2023, we announced the conclusion of our latest offshore scientific research campaign to assess seafloor impacts and recovery rates twelve months after the pilot nodule collection system test conducted by our NORI subsidiary.

NORI’s latest offshore scientific research campaign successfully gathered crucial environmental data on ecosystem recovery and functioning to further support our application for a commercial exploitation contract.

The preliminary qualitative assessments are encouraging, and we look forward to sharing the data and results in 2024.

Next Phase of Adaptive Management System Development Announced

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

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

New Partnerships

MoUs with PAMCO to Evaluate Nodule Processing at Existing Facility

In March 2023, we announced that we had entered into a non-binding MoU with PAMCO of Japan, to evaluate the toll treatment and conversion of polymetallic nodules into battery metal feedstock at PAMCO’s Hachinohe, Japan smelting facility.

This announcement was followed with the signing of a binding MoU with PAMCO in November 2023 for a feasibility study to process 1.3 million tonnes of wet polymetallic nodules per year at their existing smelting facility in Hachinohe, Japan.

The agreement underscores our stated capital-light strategy to get into initial commercial production swiftly and with lower upfront capital by re-using existing onshore production assets.

Engagement with Bechtel Australia Pty Ltd.

On March 9, 2023, we announced that we entered into an agreement with Bechtel Australia Pty Ltd (Bechtel), a global leader in engineering, procurement and construction, to collect and compile the techno-economic studies prepared by various consultants required for NORI to lodge its application for an exploitation contract for its NORI Area D Project with the ISA.

Bechtel will collect and compile technical and economic studies prepared by various consultants that will underpin NORI’s application to the ISA for an exploitation contract, which we expect to have ready for submission in the second half of 2023.

New Credit Facility with Allseas:

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

and an affiliate of Allseas, pursuant to which, we may borrow from the Lender up to $25,000,000 in the aggregate, from time to time, subject to certain conditions.

to Support NORI’s Commercial Contract Application

In March 2023, we announced that our wholly-owned subsidiary DeepGreen Engineering Pty.

had entered into an agreement with Bechtel Australia Pty Ltd.

(“Bechtel”), a global leader in engineering, procurement and construction, to collect and compile the techno-economic studies prepared by various consultants required for NORI to lodge its application for an exploitation contract for its NORI Area D project with the ISA.

Investment in Low Carbon Royalties

In February 2023, we and our wholly-owned subsidiary, NORI, entered into a strategic partnership with Low Carbon Royalties Inc.

(“LCR”), a private corporation formed under the laws of British Columbia, Canada to finance low carbon emitting energy production and technologies (natural gas, nuclear, renewables), transition metals and minerals required for energy storage and electrification (Cu, Li, Ni, Co, Mn), and the evolving environmental markets (the “Partnership”).

We agreed with LCR to a purchase and sale agreement whereby LCR acquired a 2.0% gross overriding royalty on our NORI project area in the CCZ of the Pacific Ocean (“NORI Royalty”).

In consideration for the NORI Royalty, we received $5,000,000 cash and an initial 35.0% equity interest in LCR.

We retain the right to repurchase up to 75% of the NORI royalty at a capped return.

If both repurchase transactions are executed, the NORI Royalty will be reduced to 0.5%.

Developments with our Allseas Partnership

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

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

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

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

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

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

In furtherance of our non-binding term sheet entered into in March 2022 with Allseas, we continue our discussions with Allseas regarding these upgrades and the development of the Project Zero Offshore Nodule Collection System and anticipate reaching a definitive agreement with Allseas before the end of 2024.

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

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

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

In consideration of the exclusivity term, we will issue 4.15 million Common Shares to Allseas.

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

Registered Direct Offering

On August 14, 2023, we entered into a securities purchase agreement with certain investors, pursuant to which we agreed to sell and issue, in a registered direct offering (the “Registered Direct Offering”) 12,461,540 Common Shares and issue Class A Warrants to purchase 6,230,770 Common Shares for expected gross proceeds to us of $24.9 million and expected net proceeds to us of $23.6 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.

The Common Share and the accompanying Class A Warrant to purchase 0.5 of a Common Share were sold at a price of $2.00 per unit.

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

The Registered Direct Offering initially closed in August 2023, with the final receipt of gross proceeds received in January 2024.

Extension of Credit Facility with Allseas Affiliate

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

and an affiliate of Allseas, to extend the credit facility to November 30, 2024.

The Credit Facility was then further amended in March 2024 as described below.

Developments Subsequent to December 31, 2023

Amendment to Credit Facility with Allseas Affiliate

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

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

Credit Facility with ERAS Capital LLC and Gerard Barron

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

All amounts drawn under the 2024 Credit Facility will bear interest at the 6-month Secured Overnight Funding Rate (SOFR), 180-day average plus 4.0% per annum payable in cash semi-annually (or plus 5% if paid-in-kind at maturity, at our election) on the first business day of each of June and January.

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

We have the right to pre-pay the entire amount outstanding under the Credit Facility at any time, before the Credit Facility’s maturity of May 21, 2024.

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

The 2024 Credit Facility also contains customary events of default.

The Business Combination

On September 9, 2021, we completed the Business Combination with SOAC.

The transaction resulted in the combined company being renamed “TMC the metals company Inc.” and the combined company’s common shares and warrants to purchase common shares commenced trading on the Nasdaq on September 10, 2021, under the symbols “TMC” and “TMCWW,” respectively.

As a result of the Business Combination, we received gross proceeds of approximately $137.6 million.

The Business Combination was accounted for as a reverse recapitalization and DeepGreen was deemed the accounting acquirer.

Under this method of accounting, SOAC was treated as the acquired company for financial statement reporting purposes.

The Business Combination was accounted for as a reverse acquisition with no goodwill or intangible assets being recorded.

As SOAC had no operations, the net assets acquired were recorded at their historical cost.

Adjustments related to the Business Combination including consideration paid to DeepGreen shareholders and any other adjustments to eliminate the historical equity of SOAC and recapitalize the equity of DeepGreen were recorded to common shares to reflect the effective issuance of common shares to SOAC and Private Investment in Public Equity investors in the Business Combination.

Following the Business Combination, we became the successor to an SEC-registered company, which resulted in us hiring additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices to ensure ongoing compliance with applicable law and Nasdaq listing requirements.

We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, additional internal and external accounting, legal and administrative resources, including increased personnel costs, audit and other professional service fees.

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.

Exploration Contracts

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

NORI our wholly-owned subsidiary, holds exploration rights to four blocks (NORI Area A, B, C, and D, the “NORI Contract Area”) covering 74,830 km 2 in the CCZ that were granted by the ISA in July 2011.

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

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

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

The NORI Technical Report Summary is filed as Exhibit 96.1 to this Annual Report on Form 10-K.

TOML our wholly-owned subsidiary which we acquired in March 2020, holds exploration rights to an area covering 74,713 km 2 in the CCZ that were granted by the ISA in January 2012 (the “TOML Contract Area”).

The NORI Technical Report Summary is filed as Exhibit 96.1 to this Annual Report.

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

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

The sponsorship agreement was updated on September 23, 2021.

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

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

TOML commissioned a Technical Report Summary by AMC, dated March 2021, which is filed as Exhibit 96.2 to this Annual Report.

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

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

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

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

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

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

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 and process polymetallic nodules into saleable products on a commercial scale.

We are currently a pre-revenue company and we do not anticipate earning revenues 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 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, 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 Item 7A entitled “ Quantitative and Qualitative Disclosures About Market Risk ” and Item 1A entitled “ Risk Factors ” included in this Annual Report on Form 10-K.

Impact of Climate Change

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Impact of Global Inflation

In 2022, the global inflation rate rose sharply.

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

The global inflation rate rose sharply in 2021 and 2022, and though inflation softened in 2023, marine fuel prices and vessel day rates remained high and have increased our exploration expenses beyond what was originally expected.

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

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

Our historical results are reported under U.S.

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

GAAP”) and in U.S.

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

Components of Results of Operations

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General and Administrative Expenses

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

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

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

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

Interest expense 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.

Foreign Exchange Loss

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

Change in Fair Value of Warrants Liabilities

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

For accounting purposes, the Company was considered to have issued the Private Warrants as part of the Business Combination.

Change in Fair Value of Warrants Liability

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

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

Results of Operations

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.

Comparison of the periods ended December 31, 2023 and 2022

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General and administrative expenses

Equity-accounted investment loss

Change in fair value of warrants liability

Foreign exchange loss

Interest expense (income)

Loss for the year, after tax

Interest income

Fees and interest on credit facility

Loss for the period, after tax

Full Year 2023 compared to Full Year 2022

Exploration and Evaluation Expenses

Exploration and evaluation expenses for the year ended December 31, 2022 were $144.6 million, compared to $93.0 million for the year ended December 31, 2021.

The increase of $51.6 million was primarily due to the increased work and completion of the PMTS in November 2022, which included the recognition of the grant date value of the Allseas Warrant of $69.9 million which became exercisable with the completion of the PMTS.

The increase in 2022 was partially offset by a decrease in expenses associated with environmental studies of $2.2 million, due to the completion of the NORI Area D environmental baseline campaigns in the fourth quarter of 2021, and a reduction in share-based compensation of $18.5 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 2022.

In 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 our former supplier Maersk Supply Service A/S (“Maersk”).

Exploration and evaluation expenses for the year ended December 31, 2023 were $49.8 million, compared to $144.6 million for the same period in 2022.

The decrease of $94.8 million was primarily due to the recognition of cost representing the fair value of Allseas Warrant of $69.9 million, a reduction of $21.6 million on environmental studies as the collector test was completed in 2022 partially offset by the monitoring work on the NORI Area D collector test which was carried out in the fourth quarter of 2023, a reduction of $17.8 million on the PMTS and a reduction of $3.5 million in share based compensation cost as the cost of the LTIP options with specific market capitalization vesting conditions was fully amortized in 2022 in addition to the decrease in the amortization cost of STIP sign-up options granted in 2021, and reduced exploration activities in 2023.

This was partially offset by an increase in mining, technological and process development of $13.0 million due to engineering work which commenced in the fourth quarter of 2022, an increase of $2.2 million in exploration labor costs mainly attributable to an increase in headcount, an increase of $1.9 million on Sponsorship, Training and Stakeholder Engagement cost and an increase of $1.3 million on prefeasibility work.

General and Administrative (“G&A”) Expenses

G&A expenses for the year ended December 31, 2022 were $29.5 million compared to $56.6 million in the prior year.

The decrease of $27.1 million in G&A in 2022 was mainly as a result of lower share-based compensation in 2022 of $24.8 million, as 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 2022, for personnel, legal and other expenses associated with being a public company.

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

Interest Expense

During 2022, we earned interest of $1.1 million mainly from the investment of our cash on hand, as compared to 2021 where we recognized interest expense of $1.0 million mainly as a result of the issuance of 7% convertible debentures of $26.0 million during February 2021, prior to their conversion into our common shares in connection with the Business Combination.

G&A expenses for the year ended December 31, 2023 were $22.5 million compared to $29.5 million for the same period in 2022.

The decrease of $7.0 million in G&A expenses was mainly the result of lower share-based compensation in the 2023 period as the cost of the LTIP options with specific market capitalization vesting conditions was fully amortized in 2022 in addition to the decrease in the amortization cost of STIP sign-up options granted in 2021 and a decrease in communication and investor relations costs incurred during the first quarter of 2023.

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

Interest Income

During 2023, we earned interest of $1.3 million, as compared to $1.1 million in 2022, mainly from the investment of our cash on hand.

Change in Fair Value of Warrants Liability

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

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

The credit recorded in both years reflects the decrease in the market price of our warrants.

Liquidity and Capital Resources

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

In addition, on September 9, 2021, we completed the Business Combination with SOAC, and as a result we received gross proceeds of approximately $137.6 million.

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

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

As of December 31, 2023, we had cash on hand of $6.8 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.

As a result, we revised our work plan to focus on activities necessary to have an application ready for submission to the ISA in the second half of 2023 for an exploitation contract for the NORI Area D and stopped and/or deferred work and expenses associated with other activities.

In light of the significant deficit in expected funding following the closing of the Business Combination in September 2021, we adopted what we call a “capital-light” strategy whereby we removed any allocation of funds to capital expenditures that were not deemed necessary to support the submission of an application for an exploitation contract for the NORI Area D, and by negotiating the settlement of program expenditures with our equity whenever possible.

We have yet to generate any revenue from our business operations.

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

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

We expect to incur significant expenses and operating losses for the foreseeable future, particularly as we advance towards our application to the ISA for an exploitation contract and preparation for potential commercialization.

Based on our cash balance and availability of borrowing under our recently signed credit facility with Allseas, when compared with our forecasted cash expenditures, we believe we will have sufficient funds to meet our obligations that become due within the next twelve months.

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

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.

Based on our cash balance and availability of borrowing under our credit facility with Allseas and credit facility with ERAS Capital LLC and Gerard Barron, when compared with our forecasted cash expenditures, we believe we will have sufficient funds to meet our obligations that become due within the next twelve months.

Our estimates used in reaching this conclusion are based on information available as at the date of filing this Annual Report.

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

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

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

On September 16, 2022, we filed a registration statement on Form S-3 with the 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, which includes the $30 million that may be sold under the At-the-Market Equity Distribution Agreement discussed below.

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

We continue to expect that we will require approximately $35 to $45 million of cash in addition to the $6.8 million cash on hand as of December 31, 2023 and the committed funding from an affiliated investor of $9 million which was received on January 31, 2024 as part of our previously announced Registered Direct Offering, assuming no exercise of the Class A warrants issued in the offering (but not including potential drawdown on our credit facility with Allseas or our credit facility with ERAS Capital LLC and Gerard Barron) to submit a high-quality application for an exploitation contract for NORI Area D following the July 2024 meeting of the ISA.

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

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

● pre-feasibility studies;

● regulatory and legal;

● payroll and other general corporate matters.

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

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

On September 16, 2022, we filed a registration statement on Form S-3 with the SEC, which the SEC declared effective on October 14, 2022, to sell up to $100 million of securities, which includes the $30 million that may be sold under the At-the-Market Equity Distribution Agreement discussed below and the Common Shares and shares underlying the Class A Warrants issued in the Registered Direct Offering.

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

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

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

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

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

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

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

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

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

As of the date of this Annual Report, no sales of Common Shares have been made under this offering.

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

and an affiliate of Allseas, pursuant to which, we may borrow from the Lender up to $25,000,000 in the aggregate, from time to time, subject to certain conditions.

and an affiliate of Allseas, which was amended on July 31, 2023 and March 22, 2024, pursuant to which, we may borrow from the Lender up to $25 million in the aggregate, from time to time, subject to certain conditions.

All amounts drawn under the Credit Facility will bear interest at the 6-month Secured Overnight Funding Rate (SOFR), 180-day average plus 4.0% per annum payable in cash semi-annually (or plus 5% if paid-in-kind at maturity, our election) on the first business day of each of June and January.

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

We have the right to pre-pay the entire amount outstanding under the Credit Facility at any time, before the Credit Facility’s maturity of May 21, 2024.

We have the right to pre-pay the entire amount outstanding under the Credit Facility at any time, before the Credit Facility’s maturity of August 31, 2025.

The Credit Facility also contains customary events of default.

As of the date of this Annual Report, no amounts have been drawn under this Credit Facility.

On August 14, 2023, we entered into a securities purchase agreement for a Registered Direct Offering of our Common Shares and Class A Warrants.

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

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

No investor elected to exercise its right to purchase additional Common Shares and accompanying Class A Warrants on or before September 15, 2023 under the terms of the securities purchase agreement.

As of December 31, 2023, we had received gross proceeds of $15.9 million (approximately $14.6 million net of transaction fees) in the Registered Direct Offering.

We received the remaining $9 million of gross proceeds on January 31, 2024, from an investor affiliated with us.

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

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

The 2024 Credit Facility also contains customary events of default.

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.

We expect our capital expenditures and working capital requirements to increase materially in the near future as NORI and TOML seek to obtain exploitation contracts, perform the required environmental studies, complete pre-feasibility and feasibility studies.

We believe that our cash on hand and availability of borrowing under our recently entered into credit facility with Allseas will be sufficient to meet our working capital and capital expenditure requirements over the next twelve months.

With these funds, we expect to be able to complete our assessment of the offshore environmental impacts based on data collected during our campaigns completed in 2022 and lodge our application in the second half of 2023 to move from exploration phase to exploitation phase.

We may, however, need additional cash resources due to changes in business conditions or other developments, including, but not limited to, deferral of approvals, capital cost escalation, currently unrecognized technical and development challenges or changes in external business environment.

To the extent that our current resources are insufficient to satisfy our cash requirements, we may need to seek additional equity, debt or other financing.

If the financing is 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.

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

Cash Flows Summary

Comparison of the Periods Ended December 31, 2023 and December 31, 2022

The following table summarizes our sources and uses of cash for the three months and years ended December 31, 2022 and December 31, 2021.

The following table summarizes our sources and uses of cash for the three and twelve months ended December 31, 2023 and December 31, 2022.

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

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Net cash (used in) operating activities

Net cash (used in) investing activities

Net cash (used in) provided by investing activities

Net cash (used in) provided by financing activities

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Cash flows used in Operating Activities

Net cash used in operating activities for the year ended December 31, 2022 was $66.6 million, attributable to a net loss of $171 million, a net change in net operating assets and liabilities of $17.8 million and non-cash adjustments of $86.5 million.

Non-cash adjustments primarily consisted of $69.9 million from the vesting of the Allseas Warrant in November 2022 and $18.4 million of share-based payments related to the value of the incentive stock options and RSUs recognized during the year ended December 31, 2022.

The change in our net operating assets and liabilities was primarily due to a $17 million increase in accounts payable and accrued liabilities due to the timing of payments.

Net cash used in operating activities for the year ended December 31, 2021 was $56.1 million, attributable to a net loss of $141.3 million and a net change in net operating assets and liabilities of $18.6 million and non-cash adjustments of $66.6 million.

Non-cash adjustments primarily consisted of $12.8 million for the value of shares issued to Maersk at the end of 2020 and $60.3 million of share-based payments related to the value of the incentive stock options and RSUs recognized during the year ended December 31, 2021.

The change in our net operating assets and liabilities was primarily due to a $22.0 million increase in accounts payable and accrued liabilities due to the timing of payments.

Cash flows used in Investing Activities

Net cash used in investing activities for the year ended December 31, 2022 was $1.2 million for the purchase of equipment.

Net cash used in investing activities for the year ended December 31, 2021 was $3.8 million and related to the payments made to Deep Sea Mining Finance Ltd., from whom we acquired TOML and other related entities for the deferred consideration that became due during the period.

For the year ended December 31, 2023, major operating activities over this period involved the continuation of environmental work following the NORI integrated collector test which was concluded in November 2022, as well as advanced work on engineering and pre-feasibility studies as we advance towards our application to the ISA for an exploitation contract and prepare for potential future commercial production.

Net cash used in operating activities in the year ended December 31, 2023 amounted to $59.6 million, and consisted mainly of $32.2 million on various environmental work, $2.8 million spent on engineering and pre-feasibility studies, $9.3 million on personnel costs, $4.4 million on legal costs, $3.2 million for sponsorship, training, and stakeholder engagement support, $1.9 million on communication and business development and additional payments of $5.8 million for various expenses.

For the year ended December 31, 2022, operating activities focused mainly on the preparation and execution of the NORI integrated collector test which concluded in November 2022.

Net cash used in operating activities in the year ended December 31, 2022 amounted to $66.6 million, consisting mainly of $33.2 million on various environmental work, $10.3 million for work on the PMTS, $8.1 million on personnel costs, $8.5 million on legal costs and other corporate activities, $2.0 million for communication and business development, $1.4 million for sponsorship, training, and stakeholder engagement support and additional payments of $3.1 million for various expenses.

Cash flows used in/provided by Investing Activities

Net cash used in investing activities in the year ended December 31, 2023 was $0.6 million, representing the purchase of equipment.

In the comparative year ended December 31, 2022, cash used in investing activities was $1.2 million for the purchase of equipment.

Cash flows provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2022 was $29.7 million, primarily related to proceeds of $30.4 million from a private placement financing, less financing expenses.

Net cash provided by financing activities for the year ended December 31, 2021 was $134.7 million related to proceeds of $104.5 million from the Business Combination, proceeds of $26.0 million from the issuance of convertible debentures and $4.2 million from the exercise of incentive stock options.

Net cash provided by financing activities in the year ended December 31, 2023 was $20.1 million, compared to $29.7 million in 2022.

The results for the year ended December 31, 2023 represent the net proceeds received from the Registered Direct Offering announced in August 2023 and cash received of $5 million on the closing of our investment in Low Carbon Royalties, while the year ended December 31, 2022 results represent the net proceeds from the PIPE financing announced in August 2022.

Contractual Obligations and Commitments

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As part of the NORI Exploration Contract with the ISA, NORI submitted a periodic review report to the ISA in 2021, covering the 2017-2021 period.

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

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

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

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

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

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

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Marawa Option Agreement and Services Agreement

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

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

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

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

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.

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The periodic review report included a summary of work completed over the five-year period and a program of activities and estimated budget for the next five-year period.

The five-year period ending in 2021 included activities of both TOML (from its acquisition in 2020) and its predecessor.

Although the stated program objectives from 2017-2021 were not achieved by the contractors, the ISA accepted TOML’s submission and explanations, and agreed on the path forward.

On December 23, 2022, the ISA accepted TOML’s proposed program of activities for the 2022-2026 five-year period, which included an estimated five-year expenditure of up to $44 million.

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Regulatory Obligations Relating to Exploration Contracts

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

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

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

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In addition, NORI will pay an administration fee each year to Nauru for such administration and sponsorship, which is subject to review and increase in the event NORI is granted an ISA exploitation contract.

NORI has begun discussions with the Government of Nauru to renegotiate the existing sponsorship agreement and has also committed to ensuring NORI pays corporate income tax within Nauru.

NORI has begun discussions with the Government of Nauru to renegotiate the existing sponsorship agreement and has also committed to ensuring NORI pays corporate income tax within Nauru, assuming our future operations are ultimately profitable.

On March 8, 2008, Tonga and TOML entered into the TOML Sponsorship Agreement formalizing certain obligations of the parties in relation to TOML’s exploration and potential exploitation of the TOML Area.

Upon reaching the minimum recovery level within the exploitation contract area, TOML has agreed to pay Tonga a seabed mineral recovery payment based on the polymetallic nodules recovered from the exploitation contract area.

In addition, TOML has agreed to pay the reasonable direct costs incurred by Tonga to administer the obligations of Tonga to the ISA.

On September 23, 2021, Tonga updated the TOML Sponsorship Agreement harmonizing the terms of its engagement with TOML with those held by NORI with Nauru.

TOML expects to renegotiate the existing sponsorship agreement with Tonga prior to entering into operations in the TOML area and has committed to paying corporate income tax within Tonga.

TOML expects to renegotiate the existing sponsorship agreement with Tonga prior to entering into operations in the TOML Area and has committed to paying corporate income tax within Tonga, assuming our future operations are ultimately profitable.

Allseas Agreements

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On March 16, 2022, NORI and Allseas entered into a non-binding term sheet for the development and operation of a commercial nodule collection system.

The pilot nodule collection system developed and tested by Allseas is expected to be upgraded to a commercial system with a targeted production capacity of 1.3 million tonnes of wet nodules per year with expected production readiness by the fourth quarter of 2024.

NORI and Allseas intended to equally finance all costs related to developing and getting the first commercial system into production that were estimated at less than EUR100 million.

It was anticipated that NORI will not have to make any payments related to the commercial system to Allseas until March 31, 2023.

Once in production, NORI expected to pay Allseas a nodule collection and transshipment fee estimated at approximately EUR 150 per wet tonne in the first year of operations and expected to be reduced by more than 20% in the following years as Allseas scaled up production to at least 1.3 million wet tonnes of nodules per year.

Following the successful completion of the NORI Area D pilot collection system trials in November 2022 and subsequent analysis of pilot data, the parties are reviewing Project Zero System production targets (up to 3 Mtpa of wet nodules), system design and cost estimates and intend to enter into a binding Heads of Terms in the second half of 2023.

The pilot nodule collection system developed and tested by Allseas is expected to be upgraded to a commercial system with an expanded targeted production capacity of 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 three separate definitive agreements for engineering, conversion/build and commercial operations phase, respectively.

Subject to the necessary regulatory approvals, Allseas and NORI also intend to investigate acquiring a second production vessel similar to the Hidden Gem , a further Samsung 10000, with the potential for it to be engineered to support a higher production rate of three million tonnes of wet nodules per year and lower associated per tonne production cost.

Subject to the necessary regulatory approvals, Allseas and NORI also intend to investigate acquiring a second production vessel similar to the Hidden Gem , another Samsung 10000, with the potential for an additional production rate of three million tonnes of wet nodules per year and lower associated per tonne production cost.

There can be no assurances, however, that we will enter into definitive agreements with Allseas contemplated by the non-binding term sheet in a particular time period, or at all, or on terms similar to those set forth in the non-binding term sheet, or that if such definitive agreements are entered into by us that the proposed commercial systems and second production vessel will be successfully developed or operated in a particular time period, or at all.

Through December 31, 2023, we have made the following payments to Allseas under the PMTA:

(a) $10 million in cash in February 2020, (b) $10 million through the issuance of 3.2 million common shares valued at $3.11 per share in February 2020, (c) issued Allseas a warrant to purchase 11.6 million common shares at a nominal exercise price per share in March 2021 and (d) $10 million in cash in October 2021, following the closing of the Business Combination and meeting certain progress targets on the PMTS.

On November 11, 2022, the Board approved the successful completion and testing of the PMTS in the NORI Area D and payment of the third milestone amounting to $10 million by issuing 10 million shares to Allseas on February 23, 2023.

In relation to the third milestone payment, we have recorded a charge amounting to $8.7 million based on the fair market value of our shares on November 11, 2022.

We also issued 850,000 common shares at the same time as payment of additional costs owed Allseas under the PMTA.

(a) $10 million in cash in February 2020, (b) $10 million through the issuance of 3.2 million Common Shares valued at $3.11 per share in February 2020, (c) issued Allseas a warrant to purchase 11.6 million Common Shares at a nominal exercise price per share in March 2021, (d) $10 million in cash in October 2021, following the closing of the Business Combination and meeting certain progress targets on the PMTS and (e) on February 23, 2023 issued 10.85 million Common Shares to Allseas, as described below.

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

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

On November 11, 2022, our board of directors approved the successful completion and testing of the PMTS in the NORI Area D and payment of the third milestone amounting to $10 million and additional costs owed to Allseas under the PMTA by issuing 10.85 million Common Shares to Allseas priced at $1.00 per share on February 23, 2023.

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

In consideration of the exclusivity term, on August 14, 2023, we issued 4.15 million Common Shares to Allseas.

Offtake Agreement

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

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

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

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

As described above, on March 22, 2023 we entered into the Credit Facility under which we may borrow up to $25 million pursuant to the terms and conditions of the Credit Facility.

Credit Facility with Allseas Affiliate

As described above, on March 22, 2023 we entered into the Credit Facility with Argentum Credit Virtuti GCV, an affiliate of Allseas, under which we may borrow up to $25 million pursuant to the terms and conditions of the Credit Facility, which as amended has a maturity date of August 31, 2025.

Credit Facility with ERAS Capital LLC and Gerard Barron

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

Off-balance sheet arrangements

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We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on the consolidated financial statements.

Our significant accounting policies are described in Note 2 to our audited consolidated financial statements included in this Annual Report on Form 10-K.

Our significant accounting policies are described in Note 2 to our audited consolidated financial statements included in this Annual Report.

We have the critical accounting policies and estimates which are described below.

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We determine the fair value of stock options using the Black-Scholes option pricing model, which is impacted by the following assumptions:

● Fair Value of Common Shares on the Date of the Grant — We used the price of the most recent private placements to assess the value of our shares on the date of the grant of incentive stock options.

● Fair Value of Common Shares on the Date of the Grant — We used the price of the most recent offerings of our Common Shares to assess the value of our shares on the date of the grant of incentive stock options.

● Expected Term — We used the term of the award when calculating the expected term due to insufficient historical exercise data.

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This valuation approach involves the use of estimates, judgments and assumptions that are subjective, such as those regarding the probability of future events.

Changes in these estimates and assumptions impact our valuation as of the valuation date and may have a material impact on the valuation of the Company’s common shares.

Changes in these estimates and assumptions impact our valuation as of the valuation date and may have a material impact on the valuation of our Common Shares.

Changes in these assumptions used to determine the fair value of incentive stock options, including the vesting timeline of granted stock options, could have a material impact on our loss and comprehensive loss.

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We re-measure the fair value of the Private Warrants at the end of each reporting period.

The fair value of the Private Warrants is estimated using a Black-Scholes option pricing model whereby the expected volatility is estimated using a binomial model based on consideration of the implied volatility from the Company’s Public Warrants adjusted to account for the call feature of the Public Warrants at prices above $18.00 during 20 trading days within any 30-trading day period.

The fair value of the Private Warrants is estimated using a Black-Scholes option pricing model whereby the expected volatility is estimated by using a blended volatility calculated by assigning equal weights to both implied volatility of the Company’s Public Warrants and the historical volatility of the Company’s common share price.

The expected volatility was estimated using a binomial model based on consideration of the implied volatility from the Company’s Public Warrants, adjusted to account for the call feature of the Public Warrants at prices above $18.00 during 20 trading days within any 30-trading-day period and historical volatility of the share price of our Common Shares.

Evaluation of Going Concern

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Recent Accounting Pronouncements

See Note 3 to the audited consolidated financial statements included in this Annual Report on Form 10-K for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations and cash flows.

See Note 3 to the audited consolidated financial statements included in this Annual Report for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations and cash flows.

Emerging Growth Company Status

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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-K

Item 7. Management’s Discussion and Analysis