TMC The Metals Co Inc. annual report, FY2020

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Business context and reporting period

Important entity clarification: The supplied 2020 Form 10-K is for Sustainable Opportunities Acquisition Corp. (SOAC), a Cayman Islands SPAC—not TMC The Metals Co Inc. It covers the fiscal year ended December 31, 2020. SOAC had no operating business or revenue and was searching for a business combination.

Financial performance and position

  • Revenue and margins: No operating revenue; margins are not applicable.
  • Net loss: $2.934 million in 2020, compared with $9,039 from inception on December 18, 2019, through year-end 2019. The 2020 loss primarily reflected $3.004 million of operating expenses, partly offset by $69,135 of trust-investment gains and $111 of interest income.
  • Cash and liquidity: At year-end, cash outside the trust was $1.299 million and prepaid expenses were $210,000. Current liabilities of $1.881 million exceeded current assets of $1.509 million, resulting in a $372,000 working-capital deficit. Trust investments were $300.069 million, principally for a business combination or shareholder redemptions, rather than ordinary operating needs.
  • Cash flow: Operating activities used $1.336 million; financing activities provided $302.635 million, largely from the IPO and private placement. The company deposited $300 million into the trust account.
  • Debt and liabilities: No working-capital loans were outstanding at year-end. Total liabilities were $12.381 million, including $10.5 million of deferred underwriting commissions payable only upon a completed business combination.

Material changes and subsequent developments

  • SOAC completed its IPO in May 2020, raising $300 million gross from 30 million units, and raised another $9.5 million through a private placement of warrants.
  • On March 4, 2021, after year-end, SOAC agreed to combine with DeepGreen Metals Inc. The transaction contemplated a $2.25 billion implied DeepGreen equity value and an earnout-share structure.
  • Also after year-end, investors agreed to provide $330.3 million of PIPE financing at $10 per share, contingent on closing. DeepGreen’s stated minimum-cash condition was $250 million from trust proceeds and PIPE financing after redemptions and specified expenses. At the time of the filing, closing was expected in the second quarter of 2021, subject to approvals and other conditions.

Outlook, risks, and unusual items

  • The auditor’s report included a going-concern explanatory paragraph. Management and the auditor cited limited cash outside the trust, a working-capital deficit, expected transaction-search costs, and uncertainty about obtaining additional financing; substantial doubt was raised about SOAC’s ability to continue through its November 8, 2021 combination deadline.
  • SOAC reported a $1.116 million accrued termination fee under a consulting agreement at year-end. It had also paid a nonrefundable $350,000 fee and agreed to pay a further $2.65 million only if a business combination closed.
  • Other material risks include failure to complete a transaction by the deadline, shareholder redemptions reducing available cash, claims against trust assets, reliance on sponsor financing that was not committed, conflicts of interest, and potential dilution from founder shares, warrants, PIPE issuance, and earnout shares. If no deal closed by the deadline, public shares were to be redeemed from the trust, while warrants would expire worthless.
  • The filing says there were no material pending legal proceedings. Management stated COVID-19’s specific financial impact was not readily determinable.

Important facts for investors to verify

  1. Confirm the issuer: this filing is SOAC’s 2020 10-K, not a TMC annual report; do not attribute SOAC’s figures to TMC.
  2. Check subsequent filings for whether the DeepGreen transaction and PIPE closed, final redemption levels, actual cash delivered, and final transaction terms.
  3. Review the going-concern disclosure and the availability of cash outside the trust; trust funds were restricted and subject to transaction and redemption provisions.
  4. Verify the consulting agreement’s termination terms and contingent payment, deferred underwriting commission, and other transaction expenses.
  5. Assess the dilution and governance effects of founder shares, warrants, PIPE shares, earnout shares, and sponsor-related conflicts.