TMC The Metals Company Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2021; filed November 15, 2021. Financial statements are unaudited and presented in U.S. dollars. DeepGreen was the accounting acquirer in the September 9, 2021 business combination with SOAC, so prior-period financial results represent DeepGreen.
Business context
TMC is a pre-revenue deep-sea minerals exploration and development company focused on polymetallic nodules in the Clarion-Clipperton Zone. It is developing collection, processing and refining capabilities for nickel, copper, cobalt and manganese products. Commercial operations depend on technical development, environmental review and International Seabed Authority (ISA) approvals.
Financial performance and position
| Metric | Q3 2021 / September 30, 2021 | Comparable period / prior year-end |
|---|---|---|
| Revenue | None to date | None to date |
| Exploration expense | $23.8 million for Q3; $80.2 million for nine months | $4.6 million for Q3 2020; $35.7 million for nine months 2020 |
| General and administrative expense | $13.3 million for Q3; $41.1 million for nine months | $2.2 million for Q3 2020; $3.8 million for nine months 2020 |
| Net loss | $36.7 million for Q3; $121.5 million for nine months | $6.8 million for Q3 2020; $39.5 million for nine months 2020 |
| Basic and diluted loss per share | $0.18 for Q3; $0.61 for nine months | $0.04 for Q3 2020; $0.23 for nine months 2020 |
| Cash and cash equivalents | $112.6 million | $10.1 million at December 31, 2020 |
| Current assets / current liabilities | $112.8 million / $28.3 million | Working capital: approximately $84.4 million |
| Total liabilities | $50.6 million, including $11.6 million warrant liability | $18.4 million at December 31, 2020 |
| Equity / accumulated deficit | $106.7 million / $284.4 million deficit | $36.3 million equity / $162.9 million deficit at December 31, 2020 |
For the nine months, operating cash use was $28.3 million, investing cash use was $3.8 million, and financing provided $134.7 million. Financing included $104.5 million net proceeds from the business combination, $26.0 million of convertible debentures and $4.2 million from option exercises. The $26.0 million debentures, bearing 7% interest, converted into shares at the business combination; no such debenture balance remained at September 30. The filing does not present a conventional operating margin because the company has no revenue.
Changes and unusual items
- Q3 exploration expense increased 423% year over year, mainly from $12.9 million of PMTS-related expense under the amended Allseas agreement, increased offshore campaign activity and higher share-based compensation.
- Nine-month G&A increased substantially, reflecting stock-based compensation, business-combination and public-company costs, marketing and increased personnel and director fees. Nine-month share-based compensation expense was $55.2 million overall.
- The business combination generated $137.6 million gross cash proceeds and $104.5 million net contributions after cash transaction costs. Total transaction costs were approximately $46.8 million; $41.9 million was charged to equity and some costs were expensed.
- The company restated its first-quarter and six-month 2021 financial statements for a $2.7 million exploration-cost accrual omission and stock-option expense errors. Management said the errors were not material individually or in aggregate, but the restated information supersedes the previously reported figures.
- As of September 30, common shares outstanding were 224.4 million. The filing reported 225.3 million outstanding as of November 12. Public and private warrants cover 24.5 million shares at $11.50 per share; additional options and contingent special shares could dilute shareholders.
Outlook, risks and contingencies
- Management said cash on hand was expected to fund working capital and capital expenditure needs at least through Q3 2023. It planned to complete pilot collection trials in 2022, complete environmental impact studies by 2023 and submit an application to move from exploration to exploitation in Q3 2023. Management targeted possible initial commercial production in 2024; revenue is not expected before then and remains contingent on approvals and successful development.
- The ISA’s final exploitation regulations, exploitation contracts and environmental requirements are uncertain. Nauru requested adoption of regulations by July 9, 2023; timing and terms remain outside TMC’s control. TMC also depends on continued sponsorship by Nauru and Tonga.
- The PMTS pilot test, planned for the second half of 2022, is a key technical and regulatory milestone. TMC paid Allseas $10 million on October 5, 2021; further $10 million payments are due following specified milestones, including the North Sea drive test and PMTS completion.
- TMC remains exposed to the possibility of needing additional capital, delays or higher development costs, unproven collection and processing technology, environmental impacts and opposition, resource-estimate uncertainty, metal-price and market-demand changes, partner dependence, and COVID-19-related disruption. The $6.8 billion NORI-D project NPV cited in the filing is from a conceptual initial assessment, not demonstrated economic viability or a reserve.
- Disclosure controls were deemed ineffective at September 30 due to two unremediated material weaknesses: financial-close/reporting deficiencies, including those associated with the restatement, and prior warrant-accounting deficiencies. Management described remediation efforts but cautioned they were not yet complete.
- A shareholder putative class action filed October 28, 2021 alleges misleading statements or omissions about company operations and prospects; TMC denies wrongdoing and intends to defend it. The filing also describes litigation against two PIPE investors that did not meet funding obligations; the company received $110.3 million of the expected approximately $330 million PIPE proceeds.
Important facts for investors to verify
- Whether cash burn, contractual payments and planned spending remain consistent with management’s stated runway through at least Q3 2023.
- Progress and costs for the Allseas pilot system, North Sea drive test, 2022 pilot trial and subsequent payment milestones.
- ISA regulation and exploitation-contract timelines, environmental review requirements, and continued sponsorship arrangements.
- Remediation of internal-control weaknesses and the accuracy of future financial reporting following the restatement.
- Potential dilution from warrants, options and special shares, and the status and potential financial impact of the PIPE and shareholder litigation.
- Whether resource estimates, pilot-scale metallurgical results and the conceptual project economics support commercial feasibility; the filing does not establish reserves or commercial-scale operating performance.