TMC The Metals Co Inc. annual report, FY2022

TMC the metals company Inc. — 2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022. The filing was signed March 27, 2023. TMC is an exploration-stage, pre-revenue company developing seafloor polymetallic nodules in the Clarion-Clipperton Zone (CCZ); it had no commercial production or mineral reserves.

Business context and progress

TMC holds exploration rights through NORI and TOML, and commercial rights through an arrangement with Marawa. Its planned products include nickel and cobalt battery feedstocks, copper cathode, and manganese silicate.
In November 2022, TMC and Allseas completed a pilot collection test: approximately 4,500 wet tonnes of nodules were collected, with more than 3,000 tonnes lifted about 4.3 km to the surface. The test demonstrated a pilot system, not commercial-scale production.
The company had not obtained an ISA exploitation contract or the permits needed for commercial collection and onshore processing. Its plan was to submit a NORI Area D application in the second half of 2023 and, subject to approvals and other conditions, target initial commercial production around late 2024 or early 2025.

Financial performance and liquidity

Metric	2022	2021
Revenue	None	None
Exploration and evaluation expense	$144.6 million	$93.0 million
General and administrative expense	$29.5 million	$56.6 million
Net loss	$171.0 million	$141.3 million
Net cash used in operating activities	$66.6 million	$56.1 million
Cash at year-end	$46.8 million	$84.9 million
Current assets / current liabilities	$49.6 million / $41.6 million	$88.6 million / $26.6 million

Annual loss increased 21%. Exploration expense rose 55%, principally reflecting greater project activity and a $69.9 million non-cash charge for the Allseas warrant becoming exercisable after pilot-test completion. G&A declined 48%, largely due to lower share-based compensation.
For the three months ended December 31, 2022, the filing reports a net loss of $109.6 million, versus $19.8 million in the comparable 2021 quarter; exploration expense was $104.3 million versus $12.8 million. The Allseas warrant charge was a major unusual, non-cash item in 2022.
Year-end working capital was approximately $8.0 million. Total liabilities were $53.3 million and equity was $41.5 million. No conventional borrowings are shown on the December 31, 2022 balance sheet; the filing describes a $25 million unsecured affiliate credit facility entered into in March 2023, after year-end.
Management said cash on hand and availability under the new facility were expected to cover obligations due over the following 12 months, while also stating that additional financing would be needed for continued operations. TMC remained dependent on external funding and had no operating revenue.
Profit margins are not meaningful because TMC had no revenue. The auditor gave an unqualified opinion on the financial statements, but did not audit internal-control effectiveness.

Material changes and financing

Cash declined by $38.1 million during 2022. Operating cash use increased year over year; financing provided $29.7 million, mainly from an August 2022 private placement that generated $30.4 million gross proceeds.
In February 2023, TMC settled the final $10 million Allseas pilot milestone and approximately $0.9 million of additional charges by issuing about 10.9 million shares at $1.00 per share.
In February 2023, NORI contributed a 2% gross overriding royalty on its contract area to Low Carbon Royalties in exchange for $5 million cash and a 35% fully diluted ownership interest in that company. TMC may repurchase up to 75% of the royalty under specified terms; if both repurchase rights are exercised, the royalty would fall to 0.5%.
The March 2023 Allseas-affiliate credit facility permits up to $25 million of borrowing through May 2024, subject to conditions. Drawn amounts bear interest at the six-month SOFR 180-day average plus 4% (or plus 5% if paid in kind); an annual 4% underutilization fee applies to undrawn amounts.

Outlook, risks, and unusual items

The filing’s commercial timeline depends on final ISA exploitation rules, approval of an exploitation contract, environmental review and permits, technical scale-up, processing arrangements, and further financing. The filing expected ISA rules to be completed by mid-2023, but explicitly warned that timing and adoption were uncertain.
A non-binding PAMCO memorandum contemplated evaluation of toll processing up to 1.3 million wet tonnes annually from 2025. Binding commercial terms and successful processing were not assured. TMC had shifted from pursuing a new Project Zero plant in India toward evaluating existing facilities.
The NORI Area D initial assessment estimated a post-tax NPV of $6.8 billion and a 27% IRR, but it is preliminary, based on assumptions and a January 1, 2021 valuation date, excludes financing costs, and is not proof of economic viability. No mineral resources had been converted to reserves.
Material risks include regulatory delay or denial, uncertain seabed biodiversity impacts and recovery, unproven commercial-scale collection and processing, reliance on Allseas and other partners, metal-price and cost volatility, capital needs, possible dilution, and opposition or moratorium efforts related to deep-sea mining.
Environmental baseline and pilot monitoring data were still being assessed. TMC acknowledged that impacts on biodiversity and recovery—particularly for species dependent on nodule substrate—may remain uncertain.
Disclosure controls were deemed ineffective at year-end because previously identified material weaknesses in financial reporting had not operated long enough to establish remediation. TMC had restated 2021 interim financial statements and reported that the remediation measures required further testing.
Contingencies include a securities class action, a PIPE investor lawsuit, litigation against investors that failed to fund commitments, and an SEC investigation concerning the TOML acquisition and business combination. The filing states that potential losses in relevant cases could not be reliably estimated.

Important facts for investors to verify

Whether ISA exploitation rules and required permits were adopted or obtained, and whether NORI’s application was filed and advanced.
Whether the pilot-test results support an economically viable commercial system, including verified collection rates, recoveries, costs, and environmental impacts.
Current cash runway, actual borrowing availability and terms under the Allseas-affiliate facility, and the amount and dilution impact of subsequent financing.
Final PAMCO processing arrangements, commercial economics, required modifications, and the status of alternative processing options.
Whether the $6.8 billion preliminary NPV remains supportable under updated prices, costs, taxes, royalties, capital needs, and project schedules; distinguish resources from reserves.
Progress in remediating internal-control weaknesses and the status and potential financial exposure of the disclosed litigation and SEC investigation.