TMC The Metals Company Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter ended September 30, 2023; unaudited financial statements prepared under U.S. GAAP. Unless indicated otherwise, financial amounts below are in U.S. dollars. TMC is a pre-revenue deep-sea minerals exploration company focused on polymetallic nodules in the Clarion-Clipperton Zone (CCZ).
Financial performance and position
- Revenue: None to date. TMC remains in the exploration and development stage; margins are not meaningful.
- Q3 2023: Net loss was $12.5 million, down from $27.9 million in Q3 2022. Operating loss was $12.5 million versus $28.6 million. Exploration and evaluation expense was $7.9 million versus $22.7 million; general and administrative expense was $4.6 million versus $5.9 million. Basic and diluted loss per share was $0.04 versus $0.12.
- First nine months of 2023: Net loss was $26.6 million versus $61.4 million in the comparable 2022 period; operating loss was $39.1 million versus $62.8 million. Exploration and evaluation expense was $23.2 million versus $40.3 million, and G&A expense was $16.0 million versus $22.5 million. Loss per share was $0.09 versus $0.27.
- Cash flows, first nine months: Operating activities used $44.4 million, compared with $46.8 million in 2022. Investing activities provided $4.8 million, mainly from the $5.0 million cash consideration received in the Low Carbon Royalties transaction; investing activities used $1.0 million in 2022. Financing activities provided $15.2 million, versus $29.8 million, principally reflecting the 2023 registered direct offering compared with the 2022 PIPE financing.
- Liquidity and balance sheet: Cash was $22.5 million at September 30, 2023, down from $46.8 million at December 31, 2022. Current assets were $27.9 million and current liabilities $19.3 million. Total assets were $87.6 million, total liabilities $32.2 million, and equity $55.4 million. Accumulated deficit was $501.7 million.
- Debt and financing: No amount had been drawn on the $25 million unsecured Allseas-affiliate credit facility by September 30. It matures November 30, 2024; undrawn amounts incur a 4% annual underutilization fee. The company reported $0.5 million of such fees for the first nine months.
Material changes and significant transactions
- Lower exploration spending drove much of the year-over-year loss reduction: the 2022 period included substantial environmental studies and pilot mining test costs, with the collector test completed in November 2022. Lower share-based compensation and G&A costs also contributed.
- In February 2023, NORI contributed a 2% gross overriding royalty on its project area to Low Carbon Royalties in exchange for a 35% initial equity interest and $5 million cash. TMC recorded an investment of $8.5 million at September 30 and a $13.75 million gain on disposition in Q1. Its ownership was subsequently diluted to 32%.
- The August registered direct offering provided $15.7 million gross proceeds by September 30, from shares and Class A warrants. The filing reports net proceeds as approximately $14.3 million in the notes and approximately $14.5 million in MD&A. A further $9 million from an affiliated investor was committed in installments due by November 30, 2023 and January 31, 2024.
- TMC issued 4.15 million shares to Allseas for exclusive use of the Hidden Gem vessel through completion of the system or December 31, 2026, whichever is earlier. Allseas also exercised a warrant for 11.6 million shares. At quarter-end, Allseas owned 17.3% of TMC’s common shares.
Outlook, risks and contingencies
- Management said cash on hand, offering proceeds and availability under the credit facility were expected to cover obligations due within the next 12 months. TMC nevertheless expects to need additional financing over time and estimated it would require another $35–$45 million, in addition to quarter-end cash and the committed $9 million, to prepare a NORI Area D exploitation application after the ISA’s July 2024 meeting. This estimate excludes later commercialization and further system-development costs.
- TMC expects to submit its first NORI Area D exploitation application after the July 2024 ISA meeting. Assuming approval and an approximately one-year review, it expects first production in Q4 2025. These expectations depend on regulatory approval, commercial-scale collection and processing feasibility, financing, environmental work and other factors; there is no assurance of approval or timing.
- The ISA did not finalize exploitation regulations by the July 2023 deadline. Its roadmap contemplated possible adoption in 2024 or during the ISA’s 2025 session. TMC states NORI reserves a right to submit a plan of work without final regulations, but provisional approval and an exploitation contract are not assured.
- Allseas and NORI were evaluating upgrades intended to increase Project Zero Offshore System capacity from an earlier estimate of 1.3 million to up to 3.0 million wet tonnes annually in stages. A definitive agreement was anticipated before year-end 2023, but remained uncertain. PAMCO toll-treatment discussions were based on a non-binding MoU.
- Key risks include continued funding needs and potential dilution, cost inflation, technical and environmental uncertainty, regulatory delays, commodity-price exposure if production begins, and dependence on partners. A post-collector environmental assessment was planned; the filing cautions its results may not be successful or sufficient for the application.
- Contingencies include a securities class action awaiting a ruling on a motion to dismiss, an investor lawsuit with a motion hearing scheduled for December 7, 2023, and an ongoing SEC investigation into the 2020 TOML acquisition and Business Combination. The company denies wrongdoing; potential losses in the lawsuits could not be reliably estimated. TMC also reported litigation seeking recovery from investors alleged to have failed to fund 2021 commitments.
- Management concluded disclosure controls and procedures were effective as of September 30, 2023. No material changes to internal control over financial reporting were reported for the quarter.
Important facts for investors to verify
- Whether the $9 million affiliated-investor commitment was received on schedule and whether additional financing is needed beyond management’s stated estimate.
- Progress and timing of the ISA Mining Code and NORI Area D application, including the adequacy and results of environmental monitoring.
- Whether TMC and Allseas executed definitive Project Zero agreements, and the costs, funding split, production capacity and schedule they establish.
- The registered direct offering’s final net proceeds and the dilution impact of issued shares and outstanding warrants.
- Developments in the disclosed litigation and SEC investigation, including any material change in potential exposure.