TMC The Metals Company Inc. — Q1 2022 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2022, with balance-sheet comparisons to December 31, 2021. TMC is a pre-revenue deep-sea minerals exploration company pursuing collection and processing of polymetallic nodules in the Clarion-Clipperton Zone. It has not declared mineral reserves or obtained an ISA exploitation contract.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | None | None |
| Exploration and evaluation expense | $7.3 million | $38.1 million |
| General and administrative expense | $8.6 million | $17.4 million |
| Operating loss | $15.9 million | $55.5 million |
| Net loss | $21.1 million | $55.7 million |
| Basic and diluted loss per share | $0.09 | $0.29 |
| Net cash used in operating activities | $15.5 million | $10.1 million |
- Cash was $69.0 million at March 31, 2022, down from $84.9 million at year-end. Investing cash outflow was $0.2 million; financing cash outflow was $0.1 million.
- Total assets were $116.7 million and total liabilities $37.0 million. Liabilities included $18.0 million of accounts payable and accrued liabilities, $10.7 million of deferred tax liability, and an $8.3 million private-warrant liability. The filing reports no conventional funded debt balance.
- Management believes cash on hand will cover working-capital and capital requirements for at least 12 months, but says additional financing may be needed if conditions change.
- No revenue, gross profit, or operating margin is reported because the company has no commercial operations.
Changes versus the prior comparable period
- Net loss fell by $34.6 million, primarily because exploration spending declined by $30.8 million and G&A declined by $8.8 million. The main drivers were completion of NORI Area D baseline campaigns and substantially lower share-based compensation than in Q1 2021.
- These reductions were partly offset by a $5.2 million non-cash charge from the increase in fair value of private warrants, which had no comparable prior-period expense, and $1.3 million of PMTS-related expense.
- Operating cash outflow increased by $5.5 million year over year, largely reflecting supplier-payment timing and lower accounts payable. Q1 2021 included $27.4 million of financing inflows, mainly convertible debentures; Q1 2022 had no comparable financing proceeds.
- The Q1 2021 comparative financial statements were restated. The filing says the restatement corrected option compensation accounting and reports a $1.8 million overstatement of stock-based compensation for Q1 2021.
Outlook, risks and unusual items
- Management does not expect revenue before at least 2024, and then only if it secures the required ISA exploitation contract and achieves commercial-scale collection and processing. The 2024 timing is an objective, not assured guidance.
- Q1 milestones included harbor and North Sea testing of the pilot collector system. TMC planned a NORI Area D collector test for Q3 2022, subject to required ISA filings and approvals. The company and Allseas had a non-binding term sheet for a commercial system targeted at approximately 1.3 million wet tonnes per year, with production readiness targeted for Q4 2024; definitive terms remained to be negotiated.
- NORI’s estimated work plan is approximately $40 million for 2022 and $25 million for 2023, potentially payable in cash or equity. Additional commitments include Marawa exploration spending of AUD $1 million, $3 million and $2 million for 2022–2024, respectively. The second $10 million Allseas milestone was paid after quarter-end; a final $10 million payment is contingent on successful pilot completion.
- Key uncertainties include ISA regulations and approvals, environmental permits, technical and commercial feasibility, financing, metal prices, and the ability to develop collection and processing systems. The filing cautions that mineral resources are not reserves and do not demonstrate economic value.
- A shareholder securities class action is pending; TMC denies wrongdoing and is seeking dismissal. The company says any loss or range of possible losses cannot be reliably estimated and an adverse outcome could materially affect results or financial position.
- Disclosure controls were concluded to be ineffective as of March 31, 2022 because of previously identified material weaknesses, including financial-reporting controls and warrant accounting. Remediation was underway; management stated the interim statements were fairly stated in all material respects.
Most important facts for investors to verify
- Progress and timing of ISA exploitation regulations, the NORI Area D application, environmental approvals, and planned collector testing.
- Cash burn against the $69.0 million cash balance, planned exploration commitments, Allseas milestone payments, and management’s 12-month liquidity assessment.
- Whether the non-binding Allseas and Epsilon Carbon arrangements become definitive agreements, and whether the targeted commercial capacity and 2024 schedule remain achievable.
- Resolution of the securities litigation and completion and effectiveness of remediation for the disclosed material weaknesses.
- That Q1 2021 comparisons are restated and that the $5.2 million warrant fair-value charge in Q1 2022 is non-cash.