TMC The Metals Company Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter ended September 30, 2022. Amounts are in U.S. dollars. TMC is a pre-revenue deep-sea minerals exploration company pursuing collection and processing of polymetallic nodules in the Clarion-Clipperton Zone.
Financial results and liquidity
- Revenue: None. The company has not begun commercial operations.
- Net loss: $27.9 million for Q3 2022, compared with $36.7 million in Q3 2021; $61.4 million for the first nine months of 2022, versus $121.5 million in the comparable 2021 period. Basic and diluted loss per share was $0.12 for Q3 and $0.27 for the nine-month period.
- Expenses: Q3 operating expenses were $28.6 million (exploration and evaluation $22.7 million; general and administrative $5.9 million). Nine-month operating expenses were $62.8 million (exploration $40.3 million; G&A $22.5 million).
- Cash flow: Nine-month cash used in operating activities was $46.8 million; investing activities used $1.0 million; financing activities provided $29.8 million, principally from the PIPE financing. Cash declined by $17.9 million over the nine months.
- Balance sheet: Cash was $66.9 million at September 30, down from $84.9 million at December 31, 2021. Current assets were $71.9 million and current liabilities $25.2 million. Total liabilities were $38.1 million and equity $79.1 million. The filing reports no conventional borrowings; liabilities include accounts payable and accrued liabilities, deferred tax and warrant liabilities.
- Margins: Not applicable because TMC reported no revenue.
Material changes versus the prior comparable period
- Q3 net loss narrowed by about 24%; the nine-month loss narrowed by about 49%. Lower environmental-study costs and lower share-based compensation were major drivers, partly offset by increased spending on the pilot mining test system and higher public-company costs.
- Nine-month operating cash use increased from $28.3 million in 2021 to $46.8 million in 2022, despite the lower reported loss.
- The August 2022 private placement issued approximately 38.0 million shares for $30.4 million gross proceeds (about $30 million net). The placement included purchases by the CEO and a fund associated with a director. Common shares outstanding were 265,529,989 at September 30.
Outlook, risks and unusual items
- Management stated it expects cash to cover obligations due within the next 12 months, but also said additional financing is needed and is being sought. It warned that unavailable or unfavorable financing could require delayed or reduced activities.
- TMC aims to submit an ISA exploitation application for NORI Area D in the second half of 2023. Commercial production was described as a 2024 objective in the overview, while the filing elsewhere says revenue is not expected until at least 2025. Both timelines depend on regulatory approval and successful commercial-scale collection and processing.
- In November, after quarter-end, the company reported successful completion of the NORI pilot collection test. It intends to settle the final $10 million Allseas payment with shares at $1.00 per share, subject to regulatory approval; 11.6 million Allseas warrants also vested and became exercisable.
- Key uncertainties include ISA exploitation regulations and approvals, environmental and technical feasibility, development and financing of commercial collection and processing systems, cost inflation, and the absence of declared mineral reserves. The commercial collection arrangement with Allseas was still under negotiation and based on a non-binding term sheet.
- The company disclosed a shareholder class action with a motion to dismiss awaiting a ruling, litigation against investors alleged to have failed to fund earlier PIPE commitments, and an ongoing SEC investigation concerning the TOML acquisition and business combination. Potential losses from the class action could not be reliably estimated.
- Management concluded disclosure controls were not effective as of September 30, 2022 because of material weaknesses in internal control over financial reporting. The filing also describes prior-period financial statement restatements, including 2021 interim periods.
Important facts for investors to verify
- Reconcile the stated 2024 commercial-production objective with the filing’s expectation of no revenue before at least 2025.
- Track cash burn, funding needs, and progress or terms of any additional financing.
- Confirm ISA rulemaking, exploitation-application timing and approval requirements, and necessary environmental permits.
- Review the accounting and dilution effects of the Allseas share payment and newly vested warrants.
- Monitor the SEC investigation, litigation, and remediation of the disclosed control weaknesses.