TMC The Metals Company Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited U.S. GAAP statements; amounts are in U.S. dollars unless noted. TMC is a pre-revenue deep-sea minerals exploration company pursuing polymetallic nodule collection and processing in the Clarion-Clipperton Zone.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | None | None |
| Exploration and evaluation expense | $18.1 million | $7.2 million |
| General and administrative expense | $6.6 million | $6.2 million |
| Net loss | $25.2 million | $13.7 million |
| Loss per share, basic and diluted | $0.08 | $0.05 |
| Net cash used in operating activities | $11.9 million | $23.5 million |
| Cash at period end | $4.0 million | $28.4 million |
- Exploration expense rose 153%, mainly from increased engineering, technology and process development, including work and nodule transportation related to PAMCO’s Japan facility. Management reported lower environmental-study costs than in Q1 2023.
- Operating cash use was partly offset by $9.0 million of registered-direct-offering proceeds. Investing cash use was $0.3 million; financing cash provided was $9.0 million. Cash decreased $3.1 million during the quarter.
- At March 31, total assets were $65.5 million, total liabilities $63.6 million and equity $1.8 million. Current assets of $5.9 million were substantially below current liabilities of $36.5 million. Accounts payable and accrued liabilities were $36.5 million; the balance sheet reports no drawn borrowings.
- Accumulated deficit was $574.1 million. No operating margins are meaningful because the company has not generated revenue.
Material changes versus the prior comparable period
- Net loss increased 83%, principally as exploration and evaluation expenses rose by $10.9 million. G&A increased 6%.
- Operating cash use was lower than the prior-year quarter, largely reflecting lower cash spending on environmental work. Cash at quarter-end was substantially lower year over year.
- The company issued 4.5 million common shares and 2.25 million Class A warrants in January after receiving the remaining $9.0 million commitment under its registered direct offering. For the full offering, gross proceeds were $24.9 million and net proceeds were $23.6 million.
- The 2023 comparative financial information was revised to correct prior-period errors, as discussed in the company’s 2023 Form 10-K.
Outlook, financing, risks and unusual items
- TMC expects no revenue before at least 2026, and only if it obtains an ISA exploitation contract and achieves commercial collection and processing. Management targets offshore production at the end of Q1 2026, conditional on regulatory approval and technical and commercial readiness.
- The ISA published consolidated draft exploitation regulations in February 2024; negotiations continued in March. TMC is preparing an exploitation-contract application for NORI Area D. Timing and approval remain uncertain.
- A binding MoU with PAMCO calls for a feasibility study, expected in Q4 2024, on toll treatment of up to 1.3 million wet tonnes annually at its Japan facility, with expected operations beginning in Q2 2026 if approvals and other conditions are met. A definitive agreement is not assured.
- Management said available cash and borrowing capacity were expected to cover obligations due within 12 months, but the company expects continuing losses and will need additional financing over time. The Allseas-affiliate facility permits up to $25 million through August 2025; a separate $20 million related-party facility with CEO Gerard Barron and ERAS Capital matures in September 2025. Neither facility had been drawn at March 31. By May 13, TMC had drawn $2.9 million on the latter facility. In April, it also sold shares under its ATM for $2.6 million gross, or $2.5 million net.
- Facilities carry interest based on average six-month SOFR plus 4% (or 5% if paid in kind at maturity) and generally charge a 4% annual fee on undrawn amounts. The related-party facility terminates automatically if the company raises at least $50 million through specified financing or commercial prepayments.
- Management identified a material weakness in internal controls over accounting for significant, non-routine transactions. Disclosure controls were therefore deemed ineffective at March 31; remediation was in progress. Management nevertheless stated that the interim statements fairly present the company’s financial condition and results.
- Contingencies include a shareholder securities class action awaiting a ruling on a motion to dismiss, an investor suit over private-placement subscription agreements (one claim survived dismissal and is on appeal), and an ongoing SEC investigation. Potential losses could not be reliably estimated.
- Subsequent developments disclosed include pilot-scale production of nickel sulfate from nodules in April and a May submission of environmental data to the ISA. These are not evidence of commercial-scale production or regulatory approval.
Important facts for investors to verify
- Cash runway, near-term obligations, facility availability and actual financing needs; distinguish quarter-end cash and undrawn facilities from post-quarter draws and ATM proceeds.
- Progress and timing of ISA exploitation regulations and NORI Area D application review, plus required sponsorship, environmental approvals and permits.
- Commercial feasibility, costs and timing of the Allseas collection system and PAMCO processing plan; definitive agreements and production assumptions remain conditional.
- Remediation and testing of the material weakness, and any further corrections to previously reported financial statements.
- Developments in the disclosed litigation and SEC investigation, for which potential losses are not estimable.
- Share dilution: 320,510,004 common shares were outstanding as of May 10, 2024; options, restricted share units and warrants may add further dilution.