TMC the metals company Inc. — 2021 Form 10-K
Business context and reporting period. Annual report for the fiscal year ended December 31, 2021, filed March 25, 2022. TMC is a pre-revenue, exploration-stage deep-sea minerals company pursuing polymetallic nodules in the Clarion-Clipperton Zone (CCZ), with planned products including nickel and cobalt battery materials, copper, and manganese silicate. The September 9, 2021 business combination with Sustainable Opportunities Acquisition Corp. made TMC a Nasdaq-listed company; the financial statements treat DeepGreen as the accounting acquirer, so prior-period results reflect DeepGreen.
Financial performance and condition
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | None | None |
| Exploration and evaluation expenses | $93.0 million | $48.9 million |
| General and administrative expenses | $56.6 million | $7.7 million |
| Net loss | $141.3 million | $56.6 million |
| Basic and diluted loss per share | $0.69 | $0.32 |
| Cash used in operating activities | $56.1 million | $26.5 million |
| Cash used in investing activities | $3.8 million | $0.6 million |
| Cash provided by financing activities | $134.7 million | $21.3 million |
| Cash and cash equivalents at year-end | $84.9 million | $10.1 million |
Margins and cash generation: Not meaningful because the company had no revenue. The loss increased 150%; expenses rose with greater exploration activity, public-company costs, and share-based compensation. FY 2021 included $60.3 million of share-based payments in the operating cash-flow reconciliation, alongside other non-cash items.
Balance sheet and liquidity: At December 31, 2021, assets were $133.1 million, liabilities $40.4 million, and equity $92.8 million. Current assets were $88.6 million and current liabilities $26.6 million. Liabilities included $26.6 million of accounts payable and accrued liabilities and a $3.1 million private-warrant liability. The $26 million of 7% convertible debentures issued in February 2021, plus accrued interest, converted into shares at the business combination; the filing does not report those debentures as outstanding at year-end. Management said available cash was expected to fund working capital and capital expenditures into Q3 2023, while warning that additional financing may be needed.
Material changes versus the prior comparable period
- Net loss rose to $141.3 million from $56.6 million. Exploration expenses increased by $44.1 million, principally reflecting share-based compensation and offshore campaigns; G&A rose by $48.9 million amid the business combination, increased staffing, and public-company costs.
- Operating cash use more than doubled, from $26.5 million to $56.1 million. Year-end cash increased to $84.9 million, chiefly following financing associated with the business combination.
- The business combination generated $137.6 million of gross cash proceeds, but $33.2 million of transaction costs were paid in cash, leaving $104.5 million net contributions in the cash-flow statement.
- The company expected approximately $330 million from the PIPE financing but received $110.3 million net of transaction costs after two investors failed to fund. TMC sued to enforce their commitments; recovery is uncertain.
Outlook, commentary, risks, and unusual items
- Development targets: TMC planned a pilot collection test in NORI Area D in the second half of 2022, subject to ISA acceptance of the environmental assessment. It aimed to apply for an exploitation contract in Q3 2023 and potentially begin small-scale commercial production in 2024, subject to regulatory approval, successful testing, financing, and processing arrangements. These are targets, not assured outcomes.
- Regulatory dependency: Nauru asked the ISA to complete exploitation regulations by July 2023. The ISA had set a work plan toward that date, but TMC cautioned there was no assurance regulations would be adopted then or at all. No exploitation contracts for international seabed collection had been granted, and TMC had not obtained the required commercial permits.
- Technical and environmental uncertainty: No commercial-scale seafloor nodule collection has occurred. Collection equipment, processing recovery, project costs, and commercial viability remain unproven. The company acknowledged that collection would disturb seabed wildlife and sediment and that biodiversity impacts, mitigation effectiveness, and recovery timelines remain uncertain.
- Project economics are preliminary: The NORI Area D initial assessment estimated a $6.8 billion post-tax NPV at a 9% discount rate and $30.6 billion of undiscounted post-tax cash flow. The filing emphasizes this is a conceptual initial assessment, not a feasibility study; mineral resources are not reserves and do not have demonstrated economic value. Estimates depend on assumed prices, costs, recoveries, and production schedules.
- Funding and dilution: TMC expected substantial increases in capital and working-capital needs and said financing may not be available on acceptable terms. At year-end, 24.5 million public and private warrants were outstanding at an $11.50 exercise price, in addition to options and potential conversion shares that could dilute existing holders.
- Accounting controls and restatements: Management reported two material weaknesses in internal control over financial reporting, including issues involving complex transactions and warrant accounting. Prior quarterly statements were restated; weaknesses were not remediated at year-end, and disclosure controls were deemed ineffective. The auditor issued an unqualified opinion on the financial statements but was not engaged to audit internal-control effectiveness.
- Litigation: A putative shareholder class action alleged misleading statements about operations and prospects; TMC denied wrongdoing and intended to defend itself. The filing said any potential loss or range of loss could not be reliably estimated.
- Other unusual items: A $9.4 million reduction in the fair value of private-warrant liabilities benefited reported loss. Management also stated that COVID-19 had not significantly affected operations to date, while noting future disruption remained possible.
Important facts for investors to verify
- Whether the ISA completes exploitation regulations and whether NORI obtains an exploitation contract and required environmental and operating approvals.
- Results of the planned pilot collection test, including technical performance and measured environmental impacts.
- Actual cash burn, commitments, and financing needs relative to management’s stated cash runway into Q3 2023; also track collection- and processing-system costs as definitive agreements replace non-binding plans.
- Whether the company secures funding from the two defaulting PIPE investors and the status or outcome of the related lawsuit and shareholder class action.
- Progress in remediating the material weaknesses and preventing further financial-statement errors or restatements.
- Assumptions underlying the NORI resource estimate and preliminary $6.8 billion NPV, including commodity prices, recovery rates, capital and operating costs, and the distinction between resources and economically demonstrated reserves.