TMC

Business Context and Reporting Period

TMC The Metals Company Inc. (TMC) is a deep-sea minerals exploration company focused on collecting and processing polymetallic nodules in the Clarion Clipperton Zone (CCZ) of the Pacific Ocean. The company holds exploration contracts through subsidiaries Nauru Ocean Resources Inc. (NORI) and Tonga Offshore Mining Limited (TOML), and an option agreement for the Marawa area. This Form 10-Q covers the quarterly period ended June 30, 2022. TMC is currently in the exploration phase with no commercial revenue and is working toward an exploitation contract application with the International Seabed Authority (ISA).

Key Financial Metrics

Material Changes vs. Prior Period

• Net Loss Reduction: Net loss decreased significantly compared to the prior year periods. For the six months ended June 30, 2022, the loss was $33.5 million compared to $84.9 million in the same period of 2021 (a 61% decrease).
• Expense Drivers: The reduction in loss was primarily driven by a decrease in exploration and evaluation expenses ($17.3 million in 2022 vs. $56.3 million in 2021) and general and administrative expenses ($16.9 million in 2022 vs. $27.8 million in 2021). This was largely due to lower offshore campaign costs and reduced share-based compensation expenses in 2022.
• Warrant Liability Gain: The company recorded a non-cash gain of $5.7 million for the quarter and $0.5 million for the six months due to the decrease in the fair value of private warrants, a factor not present in the prior year.
• Cash Position: Cash decreased from $84.9 million at December 31, 2021, to $46.3 million at June 30, 2022, reflecting a net cash outflow of $38.6 million for the six-month period.

Guidance, Outlook, and Risks

• Capital-Light Strategy: Management has adopted a "capital-light" strategy to preserve cash, focusing resources on activities necessary to submit an exploitation contract application to the ISA for the NORI Area D in the second half of 2023.
• Recent Financing: On August 15, 2022, TMC announced a private placement financing expected to raise approximately $30.4 million in gross proceeds. This is intended to fund operations for the next 12 months.
• Operational Milestones: The company expects to complete the pilot trial of the Pilot Mining Test System (PMTS) in the fourth quarter of 2022. Commercial production is targeted for 2024, subject to regulatory approvals.
• Material Weaknesses: The company disclosed material weaknesses in internal controls over financial reporting related to the restatement of prior financial statements and accounting for warrants. Remediation efforts are underway.
• Legal Proceedings: TMC is defending against a putative class action lawsuit alleging false statements regarding operations and prospects. Additionally, the company is litigating against two investors who failed to fund commitments during the business combination.
• Regulatory Risks: The business is contingent on the finalization of ISA exploitation regulations and the approval of the company's exploitation contract application. Delays or rejections could materially impact the timeline for commercialization.

Investor Verification Checklist

• Verify the status and expected closing date of the $30.4 million private placement financing announced in August 2022.
• Monitor the progress of the Pilot Mining Test System (PMTS) trials and the submission of the Environmental Impact Statement (EIS) to the ISA.
• Review the timeline for the finalization of ISA exploitation regulations and the company's application for the NORI Area D exploitation contract.
• Assess the impact of the ongoing class action litigation and the litigation against non-performing PIPE investors on the company's financial position.
• Track the company's cash burn rate and the effectiveness of the "capital-light" strategy in extending the runway to commercial production.
• Confirm the remediation status of the material weaknesses in internal controls over financial reporting.