Nature
of Operations (Note 1)
Commitments
and Contingent Liabilities (Note 10)
Subsequent
Event (Note 12)
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
TMC the metals company Inc.
Condensed Consolidated Statements of Loss and
Comprehensive Loss
(in thousands of US Dollars, except share and
per share amounts)
(Unaudited)
| |
| | |
Three months ended | | |
Nine months ended | |
| |
| | |
September 30, | | |
September 30, | |
| |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Note | | |
| | |
(Note 1) | | |
| | |
(Note 1) | |
Operating expenses | |
| | | |
| | | |
| | | |
| | | |
| | |
Exploration and evaluation expenses | |
| 4 | | |
$ | 22,663 | | |
$ | 23,848 | | |
$ | 40,340 | | |
$ | 80,181 | |
General and administrative expenses | |
| | | |
| 5,944 | | |
| 13,334 | | |
| 22,502 | | |
| 41,138 | |
Operating loss | |
| | | |
| 28,607 | | |
| 37,182 | | |
| 62,842 | | |
| 121,319 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Other items | |
| | | |
| | | |
| | | |
| | | |
| | |
Change in fair value of warrant liability | |
| 5 | | |
| (350 | ) | |
| (878 | ) | |
| (892 | ) | |
| (878 | ) |
Foreign exchange loss (gain) | |
| | | |
| (11 | ) | |
| 5 | | |
| (11 | ) | |
| 57 | |
Interest expense (income) | |
| | | |
| (352 | ) | |
| 342 | | |
| (544 | ) | |
| 1,003 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Loss and comprehensive loss for the period | |
| | | |
$ | 27,894 | | |
$ | 36,651 | | |
$ | 61,395 | | |
$ | 121,501 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Loss per share | |
| | | |
| | | |
| | | |
| | | |
| | |
– Basic and diluted | |
| 7 | | |
$ | 0.12 | | |
$ | 0.18 | | |
$ | 0.27 | | |
$ | 0.61 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding — basic and diluted | |
| 7 | | |
| 239,740,984 | | |
| 205,248,258 | | |
| 231,028,587 | | |
| 198,092,309 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
TMC the metals company Inc.
Condensed Consolidated Statements of Changes
in Equity
(in thousands of US Dollars, except share amounts)
(Unaudited)
| |
| | |
| | |
| | |
| | |
| | |
Accumulated | | |
| | |
| |
| |
| | |
| | |
| | |
| | |
Additional | | |
Other | | |
| | |
| |
| |
Common Shares | | |
Preferred | | |
Special | | |
Paid in | | |
Comprehensive | | |
| | |
| |
Three months ended September 30, 2022 | |
Shares | | |
Amount | | |
Shares | | |
Shares | | |
Capital | | |
Loss | | |
Deficit | | |
Total | |
June 30, 2022 | |
| 227,158,455 | | |
$ | 299,056 | | |
$ | — | | |
$ | — | | |
$ | 113,487 | | |
$ | (1,216 | ) | |
$ | (337,658 | ) | |
$ | 73,669 | |
Issuance of shares under PIPE financing - net proceeds (Note 9) | |
| 38,266,180 | | |
| 29,668 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 29,668 | |
Exercise of stock options (Note 6) | |
| 100,000 | | |
| 120 | | |
| — | | |
| — | | |
| (56 | ) | |
| — | | |
| — | | |
| 64 | |
Conversion of restricted share units, net of shares withheld for taxes (Note 6) | |
| 5,354 | | |
| 67 | | |
| — | | |
| — | | |
| (67 | ) | |
| — | | |
| — | | |
| — | |
Share-based compensation (Note 6) | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3,553 | | |
| — | | |
| — | | |
| 3,553 | |
Loss for the period | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (27,894 | ) | |
| (27,894 | ) |
September 30, 2022 | |
| 265,529,989 | | |
$ | 328,911 | | |
$ | — | | |
$ | — | | |
$ | 116,917 | | |
$ | (1,216 | ) | |
$ | (365,552 | ) | |
$ | 79,060 | |
| |
| | |
| | |
| | |
| | |
| | |
Accumulated | | |
| | |
| |
| |
| | |
| | |
| | |
| | |
Additional | | |
Other | | |
| | |
| |
Three months ended September 30, 2021 | |
Common Shares | | |
Preferred | | |
Special | | |
Paid in | | |
Comprehensive | | |
| | |
| |
(Note 1) | |
Shares | | |
Amount | | |
Shares | | |
Shares | | |
Capital | | |
Loss | | |
Deficit | | |
Total | |
June 30, 2021 | |
| 197,794,399 | | |
$ | 188,901 | | |
$ | 550 | | |
$ | — | | |
$ | 72,541 | | |
$ | (1,216 | ) | |
$ | (247,708 | ) | |
$ | 13,068 | |
Exercise of stock options (Note 6) | |
| 2,321,967 | | |
| 6,039 | | |
| — | | |
| — | | |
| (4,366 | ) | |
| — | | |
| — | | |
| 1,673 | |
Share-based compensation (Note 6) | |
| — | | |
| — | | |
| — | | |
| — | | |
| 9,508 | | |
| — | | |
| — | | |
| 9,508 | |
Conversion of debenture | |
| 3,068,672 | | |
| 26,503 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 26,503 | |
Common shares issued for services | |
| 180,485 | | |
| 1,248 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,248 | |
Net equity from Business Combination | |
| — | | |
| 60,987 | | |
| — | | |
| — | | |
| 30,339 | | |
| — | | |
| — | | |
| 91,326 | |
Conversion of preferred shares to common shares | |
| 509,458 | | |
| 550 | | |
| (550 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Loss for the period | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (36,651 | ) | |
| (36,651 | ) |
September 30, 2021 | |
| 203,874,981 | | |
$ | 284,228 | | |
$ | — | | |
$ | — | | |
$ | 108,022 | | |
$ | (1,216 | ) | |
$ | (284,359 | ) | |
$ | 106,675 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
TMC the metals company Inc.
Condensed Consolidated Statements of Changes
in Equity
(in thousands of US Dollars, except share amounts)
(Unaudited)
| |
| | |
| | |
| | |
| | |
| | |
Accumulated | | |
| | |
| |
| |
| | |
| | |
| | |
Additional | | |
Other | | |
| | |
| |
| |
Common Shares | | |
Preferred | | |
Special | | |
Paid in | | |
Comprehensive | | |
| | |
| |
Nine months ended September 30, 2022 | |
Shares | | |
Amount | | |
Shares | | |
Shares | | |
Capital | | |
Loss | | |
Deficit | | |
Total | |
December 31, 2021 | |
| 225,432,493 | | |
$ | 296,051 | | |
$ | — | | |
$ | — | | |
$ | 102,073 | | |
$ | (1,216 | ) | |
$ | (304,157 | ) | |
$ | 92,751 | |
Issuance of shares under PIPE financing - net proceeds (Note 9) | |
| 38,266,180 | | |
| 29,668 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 29,668 | |
Exercise of stock options (Note 6) | |
| 118,461 | | |
| 142 | | |
| — | | |
| — | | |
| (66 | ) | |
| — | | |
| — | | |
| 76 | |
Conversion of restricted share units, net of shares withheld for taxes (Note 6) | |
| 1,670,429 | | |
| 2,984 | | |
| — | | |
| — | | |
| (3,062 | ) | |
| — | | |
| — | | |
| (78 | ) |
Share purchase under Employee Share Purchase Plan (Note 6) | |
| 42,426 | | |
| 66 | | |
| — | | |
| — | | |
| (10 | ) | |
| — | | |
| — | | |
| 56 | |
Share-based compensation (Note 6) | |
| — | | |
| — | | |
| — | | |
| — | | |
| 17,982 | | |
| — | | |
| — | | |
| 17,982 | |
Loss for the period | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (61,395 | ) | |
| (61,395 | ) |
September 30, 2022 | |
| 265,529,989 | | |
$ | 328,911 | | |
$ | — | | |
$ | — | | |
$ | 116,917 | | |
$ | (1,216 | ) | |
$ | (365,552 | ) | |
$ | 79,060 | |
| |
| | |
| | |
| | |
| | |
| | |
Accumulated | | |
| | |
| |
| |
| | |
| | |
| | |
Additional | | |
Other | | |
| | |
| |
Nine months ended September 30, 2021 | |
Common Shares | | |
Preferred | | |
Special | | |
Paid in | | |
Comprehensive | | |
| | |
| |
(Note 1) | |
Shares | | |
Amount | | |
Shares | | |
Shares | | |
Capital | | |
Loss | | |
Deficit | | |
Total | |
December 31, 2020 | |
| 189,493,593 | | |
$ | 154,431 | | |
$ | 550 | | |
$ | — | | |
$ | 45,347 | | |
$ | (1,216 | ) | |
$ | (162,858 | ) | |
$ | 36,254 | |
Exercise of stock options (Note 6) | |
| 6,312,902 | | |
| 14,297 | | |
| — | | |
| — | | |
| (10,061 | ) | |
| — | | |
| — | | |
| 4,236 | |
Common shares to be issued for exploration and evaluation expenses | |
| 4,245,031 | | |
| 25,664 | | |
| — | | |
| — | | |
| (12,879 | ) | |
| — | | |
| — | | |
| 12,785 | |
Share-based compensation (Note 6) | |
| — | | |
| — | | |
| — | | |
| — | | |
| 55,276 | | |
| — | | |
| — | | |
| 55,276 | |
Common shares issued for services | |
| 187,432 | | |
| 1,296 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,296 | |
Net equity from Business Combination | |
| | | |
| 60,987 | | |
| — | | |
| — | | |
| 30,339 | | |
| — | | |
| — | | |
| 91,326 | |
Conversion of debentures | |
| 3,126,565 | | |
| 27,003 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 27,003 | |
Conversion of preferred shares to common shares | |
| 509,458 | | |
| 550 | | |
| (550 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Loss for the period | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (121,501 | ) | |
| (121,501 | ) |
September 30, 2021 | |
| 203,874,981 | | |
$ | 284,228 | | |
$ | — | | |
$ | — | | |
$ | 108,022 | | |
$ | (1,216 | ) | |
$ | (284,359 | ) | |
$ | 106,675 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
TMC the metals company
Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands of US Dollars)
(Unaudited)
| |
| | |
Nine months ended | | |
Nine months ended | |
| |
| | |
September 30, | | |
September 30, | |
| |
| | |
2022 | | |
2021 | |
| |
Note | | |
| | |
(Note 1) | |
Cash provided by (used in) | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Operating activities | |
| | | |
| | | |
| | |
Loss for the period | |
| | | |
$ | (61,395 | ) | |
$ | (121,501 | ) |
Items not affecting cash: | |
| | | |
| | | |
| | |
Amortization | |
| | | |
| 299 | | |
| 324 | |
Expenses settled with share-based payments | |
| 6 | | |
| 16,298 | | |
| 69,357 | |
Interest on convertible debentures | |
| | | |
| — | | |
| 1,003 | |
Change in fair value of warrants liability | |
| 5 | | |
| (892 | ) | |
| (878 | ) |
Unrealized foreign exchange | |
| | | |
| 56 | | |
| (31 | ) |
Changes in working capital: | |
| | | |
| | | |
| | |
Receivables and prepayments | |
| | | |
| (1,426 | ) | |
| (8 | ) |
Accounts payable and accrued liabilities | |
| | | |
| 300 | | |
| 23,395 | |
Net cash used in operating activities | |
| | | |
| (46,760 | ) | |
| (28,339 | ) |
| |
| | | |
| | | |
| | |
Investing activities | |
| | | |
| | | |
| | |
Settlement of deferred acquisition costs | |
| | | |
| — | | |
| (3,440 | ) |
Acquisition of equipment | |
| | | |
| (959 | ) | |
| (402 | ) |
Net cash used in investing activities | |
| | | |
| (959 | ) | |
| (3,842 | ) |
| |
| | | |
| | | |
| | |
Financing activities | |
| | | |
| | | |
| | |
Proceeds from PIPE financing | |
| 9 | | |
| 30,400 | | |
| — | |
Expenses paid for PIPE financing | |
| 9 | | |
| (680 | ) | |
| — | |
Proceeds from employee share purchase plan | |
| | | |
| 56 | | |
| — | |
Proceeds from exercise of stock options | |
| | | |
| 76 | | |
| 4,236 | |
Proceeds from issuance of convertible debentures | |
| | | |
| — | | |
| 26,000 | |
Taxes withheld and paid on share-based compensation | |
| | | |
| (78 | ) | |
| — | |
Proceeds from Business Combination (net of fees and other costs) | |
| | | |
| — | | |
| 104,465 | |
Net cash provided by financing activities | |
| | | |
| 29,774 | | |
| 134,701 | |
| |
| | | |
| | | |
| | |
(Decrease) increase in cash | |
| | | |
| (17,945 | ) | |
| 102,520 | |
Impact of exchange rate changes on cash | |
| | | |
| (56 | ) | |
| 24 | |
Cash - beginning of period | |
| | | |
| 84,873 | | |
| 10,096 | |
Cash - end of period | |
| | | |
$ | 66,872 | | |
$ | 112,640 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements
TMC the metals
company Inc.
Notes to Condensed
Consolidated Financial Statements
(in thousands
of US Dollars, except share and per share amounts and unless otherwise stated)
(Unaudited)
TMC
the metals company Inc. (“TMC” or the “Company”), formerly known as Sustainable Opportunities Acquisition Corporation
(“SOAC”), was incorporated as a Cayman Islands exempted company limited by shares on December 18, 2019 and continued
as a corporation under the laws of the province of British Columbia, Canada on September 9, 2021. On September 9, 2021, the
Company completed its business combination (the “Business Combination”) with DeepGreen Metals Inc. (“DeepGreen”).
The Company’s corporate office, registered address and records office is located at 10th floor, 595 Howe Street, Vancouver,
British Columbia, Canada, V6C 2T5. The Company’s common shares and warrants to purchase common shares are listed for trading on
the Nasdaq Global Select Market (“Nasdaq”) under tickers “TMC” and “TMCWW”, respectively. In connection
with closing of the Business Combination, DeepGreen merged with a wholly-owned subsidiary of SOAC and became a wholly-owned subsidiary
of the Company. DeepGreen was determined to be the accounting acquirer and therefore, all information prior to the Business Combination,
including the prior period financial information, represents the financial condition and operating results of DeepGreen.
The
Company is a deep-sea minerals exploration company focused on the collection and processing of polymetallic nodules found on the seafloor
in international waters of the Clarion Clipperton Zone in the Pacific Ocean (“CCZ”), located approximately 1,300 nautical
miles southwest of San Diego, California. These nodules contain high grades of four metals (nickel, copper, cobalt, manganese) which
can be used as (i) feedstock for battery cathode precursors (nickel and cobalt sulfates, or intermediate nickel-copper-cobalt matte)
for electric vehicles (“EV”) and renewable energy storage markets, (ii) copper cathode for EV wiring, clean energy transmission
and other applications and (iii) manganese silicate for manganese alloy production required for steel production.
Exploration
and exploitation of seabed minerals in international waters is regulated by the International Seabed Authority (“ISA”), an
intergovernmental organization established pursuant to the 1994 Agreement Relating to the Implementation of the United Nations Convention
on the Law of the Sea. The ISA grants contracts to sovereign states or to private contractors who are sponsored by a sovereign state.
The Company’s wholly-owned subsidiary, Nauru Ocean Resources Inc. (“NORI”), was granted an exploration contract (the
“NORI Exploration Contract”) by the ISA in July 2011 under the sponsorship of the Republic of Nauru (“Nauru”)
giving NORI exclusive rights to explore for polymetallic nodules in an area covering 74,830 km2 in the CCZ (“NORI Area”).
On March 31, 2020, the Company acquired Tonga Offshore Mining Limited (“TOML”), which was granted an exploration contract
(the “TOML Exploration Contract”) by the ISA in January 2012 under the sponsorship of the Kingdom of Tonga (“Tonga”)
and has exclusive rights to explore for polymetallic nodules covering an area of 74,713 km2 in the CCZ (“TOML Area”).
Marawa Research and Exploration Limited (“Marawa”), an entity owned and sponsored by the Republic of Kiribati (“Kiribati”),
was granted rights by the ISA to polymetallic nodules exploration in an area of 74,990 km2 in the CCZ (“Marawa Area”).
In 2013, the Company through its subsidiary DeepGreen Engineering Pte. Ltd. (“DGE”) entered into an option agreement (the
“Marawa Option Agreement”) with Marawa which granted DGE exclusive rights to manage and carry out all exploration and exploitation
in the Marawa Area in return for a royalty payable to Marawa. The Company is working with its strategic partner and investor, Allseas
Group S.A. (“Allseas”), to develop a system to collect, lift and transport nodules from the seafloor to shore and to subsequently
convert that system into an early commercial production system (Note 4).
The
realization of the Company’s assets and attainment of profitable operations is dependent upon many factors including, among other
things: financing being arranged by the Company to continue operations, development of a nodule collection system for the recovery of
polymetallic nodules from the seafloor as well as development of processing technology for the treatment of polymetallic nodules, the
establishment of mineable reserves, the commercial and technical feasibility of seafloor polymetallic nodule collection and processing,
metal prices, and regulatory approvals and environmental permitting for commercial operations. The outcome of these matters cannot presently
be determined because they are contingent on future events and may not be fully under the Company’s control.
TMC
the metals company Inc.
Notes to Condensed
Consolidated Financial Statements
(in thousands
of US Dollars, except share and per share amounts and unless otherwise stated)
(Unaudited)
Since
March 2020, several measures have been implemented by the governments in Canada, the United States of America (“US”),
Australia, and the rest of the world in the form of office closures and limiting the movement of personnel in response to the increased
impact from the novel coronavirus (“COVID-19”). While the impact of COVID-19 has not been significant to the Company’s
business operations to date, the current circumstances are dynamic and could negatively impact the Company’s business operations,
exploration and development plans, results of operations, financial position, and cash flows.
These
unaudited condensed consolidated interim financial statements are prepared in accordance with US Generally Accepted Accounting Principles
(“U.S. GAAP”) for interim financial statements. Accordingly, certain information and footnote disclosures required by U.S.
GAAP have been condensed or omitted in these unaudited condensed consolidated interim financial statements pursuant to such rules and
regulation. In management’s opinion, these unaudited condensed consolidated interim financial statements include all adjustments
of a normal recurring nature necessary for the fair presentation of the Company’s statement of financial position, operating results
for the periods presented, comprehensive loss, shareholder’s equity and cash flows for the interim periods, but are not necessarily
indicative of the results of operations to be expected for the full year ending December 31, 2022 or for any other period. These
unaudited condensed consolidated interim financial statements should be read in conjunction with the audited annual consolidated financial
statements for the year ended December 31, 2021. The Company has applied the same accounting policies as in the prior year, except
as disclosed below.
All
share and per share amounts have been adjusted to reflect the impact of the Business Combination.
Certain
comparative figures in note 4 have been reclassified to conform to the current period’s presentation.
Use of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts in the consolidated financial statements and the notes thereto. Significant estimates and assumptions reflected in these
condensed consolidated interim financial statements include, but are not limited to, the valuation of share-based payments, including
valuation of incentive stock options (Note 6) and the common shares issued to Maersk Supply Service A/S, and warrants liability (Note
5). Actual results could differ materially from those estimates.
Fair Value of Financial
Instruments
Fair
value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets
and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment,
they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.
The
Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the reporting date. In accordance with U.S. GAAP, the Company utilizes a three-tier hierarchy, which prioritizes
the inputs used in the valuation methodologies in measuring fair value:
| · | Level
1 - Valuations based on quoted prices in active markets for identical
assets or liabilities that an entity has the ability to access. |
| · | Level
2 - Valuations based on quoted prices for similar assets or liabilities,
quoted prices for identical assets or liabilities in markets that are not active, or other
inputs that are observable or can be corroborated by observable data for substantially the
full term of the assets or liabilities. |
| · | Level
3 - Valuations based on inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or liabilities. |
TMC
the metals company Inc.
Notes to Condensed
Consolidated Financial Statements
(in thousands
of US Dollars, except share and per share amounts and unless otherwise stated)
(Unaudited)
In some
circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those
instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that
is significant to the fair value measurement.
There
were no transfers between fair value measurement levels during the three and nine months ended September 30, 2022 and 2021.
As at
September 30, 2022 and December 31, 2021, the carrying values of cash, receivables, and accounts payable and accrued liabilities
approximate their fair values due to the short-term nature of these instruments. The financial instruments also include public and private
warrants issued by the Company. The warrants are valued at fair value which is disclosed in Note 5.
Significant
Accounting Policies Adopted during the period
Share-Based
Compensation on Employee Share Purchase Plan
During
the second quarter of 2022, the Company implemented an employee share purchase plan (the “ESPP”) whereby employees can purchase
common shares of the Company at a 15% discount to its share price at the time of purchase, through payroll deductions (Note 6). Employee
contributions are converted into common shares at a discount to the lower of the share price at the beginning of the offering period
and the share price at the end of the purchase period. The fair value of the shares purchased under the ESPP is estimated on the grant
date using a Black-Scholes option-pricing model and is reported as share-based compensation over the offering period, using the accelerated
attribution method. Share-based compensation costs are charged to exploration and evaluation expenses or general and administrative expenses
in the statement of loss and comprehensive loss.
| 3. | Recent
Accounting Pronouncements Issued and Adopted |
Accounting for Certain
Modifications or Exchanges of Freestanding Equity-Classified Written Call Options
In May 2021,
the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2021-04, “Earnings
Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718),
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications
or Exchanges of Freestanding Equity-Classified Written Call Options”, which clarified and reduced diversity in an issuer’s
accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after
modification or exchange. Specifically, an issuer should treat a modification of the terms or conditions or an exchange of a freestanding
equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument
for a new instrument. Modification or an exchange that is a part of or directly related to a modification or an exchange of an existing
debt instrument should be measured as the difference between the fair value of the modified or exchanged written call option and the
fair value of that written call option immediately before it is modified or exchanged. The effect of a modification or an exchange of
a freestanding equity-classified written call option that remains equity classified after modification or exchange on the basis of the
substance of the transaction should be recognized in the same manner as if cash had been paid as consideration. ASU 2021-04 is effective
for fiscal periods ending on or after December 15, 2021, with early adoption permitted. ASU 2021-04 is applied prospectively to
modifications or exchanges occurring on or after the effective date. The adoption of ASU 2021-04 on January 1, 2022 did not have
a material impact on the Company’s condensed consolidated interim financial statements.
TMC
the metals company Inc.
Notes to Condensed
Consolidated Financial Statements
(in thousands
of US Dollars, except share and per share amounts and unless otherwise stated)
(Unaudited)
Strategic Partnerships
Pilot Mining Test Project
with Allseas
The
Company made the second $10 million payment of the amended Pilot Mining Test Agreement (“PMTA”) on April 25, 2022, upon
successful completion of the North Sea drive test on March 25, 2022. The third and final $10 million payment will be payable upon
successful completion of the pilot trial of the Pilot Mining Test System (“PMTS”) in NORI Area D. Completion of the pilot
trial of the PMTS and third and final payment is expected to occur in the fourth quarter of 2022.
Total
cost recorded as exploration and evaluation expenses for the PMTS during the three and nine months ended September 30, 2022 amounted
to $1.3 million and $4 million, respectively (three and nine months ended September 30, 2021 amounted to $12.9 million). The Company
has not recorded a liability for the third payment as at September 30, 2022.
On March 16,
2022, the Company’s subsidiary, NORI, and Allseas entered into a non-binding term sheet which contemplates an upgrade of the PMTS
into a commercial nodule collection system and commercial operation of this system in NORI Area D. The terms are subject to negotiation
between NORI and Allseas and if successful, may result in amendments to the existing Strategic Alliance Agreement.
As at
September 30, 2022, Allseas owned 22.7 million TMC common shares (December 31, 2021 – 16.2 million TMC common shares)
which constituted 8.6% (December 31, 2021 – 7.2%) of total common shares outstanding.
On November 9,
2022, the Company and Allseas agreed to settle the third and final payment of $10 million in either cash or shares of the Company, at
the Company’s election. With the successful completion of the pilot trial of the PMTS, as approved by the Company’s Board
of Directors on November 11, 2022, the Company intends to satisfy the Allseas obligation through the issuance of common shares in
the fourth quarter of 2022, subject to regulatory approval (Note 12).
Exploration and Evaluation
Expenses
The
detail of exploration and evaluation expenses is as follows:
| |
NORI | | |
Marawa | | |
TOML | | |
| |
| |
Exploration | | |
Option | | |
Exploration | | |
| |
For the three months
ended September 30, 2022 | |
Contract | | |
Agreement | | |
Contract | | |
Total | |
Environmental Studies | |
$ | 15,360 | | |
$ | — | | |
$ | — | | |
$ | 15,360 | |
Exploration Labor | |
| 700 | | |
| 167 | | |
| 163 | | |
| 1,030 | |
Mining, Technological and Process Development | |
| 214 | | |
| 16 | | |
| 12 | | |
| 242 | |
PMTS | |
| 3,226 | | |
| 229 | | |
| 230 | | |
| 3,685 | |
Share-based compensation (Note 6) | |
| 1,122 | | |
| 231 | | |
| 234 | | |
| 1,587 | |
Sponsorship, Training and Stakeholder Engagement | |
| 300 | | |
| 62 | | |
| 93 | | |
| 455 | |
Other | |
| 278 | | |
| 11 | | |
| 15 | | |
| 304 | |
| |
$ | 21,200 | | |
$ | 716 | | |
$ | 747 | | |
$ | 22,663 | |
TMC
the metals company Inc.
Notes to Condensed
Consolidated Financial Statements
(in thousands
of US Dollars, except share and per share amounts and unless otherwise stated)
(Unaudited)
| |
NORI | | |
Marawa | | |
TOML | | |
| |
| |
Exploration | | |
Option | | |
Exploration | | |
| |
For the three months
ended September 30, 2021 | |
Contract | | |
Agreement | | |
Contract | | |
Total | |
Environmental Studies | |
$ | 14,871 | | |
$ | 1,852 | | |
$ | 1,847 | | |
$ | 18,570 | |
Exploration Labor | |
| 435 | | |
| 199 | | |
| 185 | | |
| 819 | |
Mining, Technological and Process Development | |
| 429 | | |
| 185 | | |
| 80 | | |
| 694 | |
PMTS | |
| 15 | | |
| 7 | | |
| 4 | | |
| 26 | |
Share-based compensation (Note 6) | |
| 1,578 | | |
| 594 | | |
| 860 | | |
| 3,032 | |
Sponsorship, Training and Stakeholder Engagement | |
| 428 | | |
| 6 | | |
| 65 | | |
| 499 | |
Other | |
| 194 | | |
| 14 | | |
| — | | |
| 208 | |
| |
$ | 17,950 | | |
$ | 2,857 | | |
$ | 3,041 | | |
$ | 23,848 | |
| |
NORI | | |
Marawa | | |
TOML | | |
| |
| |
Exploration | | |
Option | | |
Exploration | | |
| |
For the nine months ended
September 30, 2022 | |
Contract | | |
Agreement | | |
Contract | | |
Total | |
Environmental Studies | |
$ | 20,526 | | |
$ | 8 | | |
$ | — | | |
$ | 20,534 | |
Exploration Labor | |
| 2,308 | | |
| 541 | | |
| 525 | | |
| 3,374 | |
Mining, Technological and Process Development | |
| 704 | | |
| 57 | | |
| 52 | | |
| 813 | |
PMTS | |
| 5,461 | | |
| 499 | | |
| 498 | | |
| 6,458 | |
Share-based compensation (Note 6) | |
| 5,142 | | |
| 1,123 | | |
| 1,134 | | |
| 7,399 | |
Sponsorship, Training and Stakeholder Engagement | |
| 654 | | |
| 148 | | |
| 314 | | |
| 1,116 | |
Other | |
| 573 | | |
| 16 | | |
| 57 | | |
| 646 | |
| |
$ | 35,368 | | |
$ | 2,392 | | |
$ | 2,580 | | |
$ | 40,340 | |
| |
NORI | | |
Marawa | | |
TOML | | |
| |
| |
Exploration | | |
Option | | |
Exploration | | |
| |
For the nine months ended
September 30, 2021 | |
Contract | | |
Agreement | | |
Contract | | |
Total | |
Environmental Studies | |
$ | 35,331 | | |
$ | 4,341 | | |
$ | 4,332 | | |
$ | 44,004 | |
Exploration Labor | |
| 1,286 | | |
| 555 | | |
| 556 | | |
| 2,397 | |
Mining, Technological and Process Development | |
| 960 | | |
| 402 | | |
| 296 | | |
| 1,658 | |
PMTS | |
| 32 | | |
| 9 | | |
| 7 | | |
| 48 | |
Share-based compensation (Note 6) | |
| 16,680 | | |
| 6,925 | | |
| 6,972 | | |
| 30,577 | |
Sponsorship, Training and Stakeholder Engagement | |
| 563 | | |
| 73 | | |
| 166 | | |
| 802 | |
Other | |
| 587 | | |
| 70 | | |
| 38 | | |
| 695 | |
| |
$ | 55,439 | | |
$ | 12,375 | | |
$ | 12,367 | | |
$ | 80,181 | |
For
accounting purposes, the Company was considered to have issued the 15,000,000 common share warrants issued by SOAC as part of the units
offered in its initial public offering (“Public Warrants”) and the 9,500,000 private placement common share warrants issued
by SOAC in a private placement simultaneously with the closing of the initial public offering (“Private Warrants”) as part
of the Business Combination.
Public Warrants
As at
September 30, 2022, 15,000,000 (December 31, 2021 - 15,000,000) Public Warrants were outstanding. Public Warrants may only
be exercised for a whole number of shares.
As
at September 30, 2022, the value of outstanding Public Warrants of $19.5 million was recorded in additional paid in capital.
TMC
the metals company Inc.
Notes to Condensed
Consolidated Financial Statements
(in thousands
of US Dollars, except share and per share amounts and unless otherwise stated)
(Unaudited)
Private Warrants
As at
September 30, 2022, 9,500,000 Private Warrants were outstanding (December 31, 2021 - 9,500,000).
The
Company re-measures the fair value of the Private Warrants at the end of each reporting period. The Private Warrants were valued using
a Black-Scholes model, which resulted in a Level 3 fair value measurement. The primary unobservable input utilized in determining the
fair value of the Private Warrants was the expected volatility of the Company’s common shares. The expected volatility was estimated
using a binomial model based on consideration of the implied volatility from the Company’s Public Warrants adjusted to account
for the call feature of the Public Warrants at prices above $18.00 during 20 trading days within any 30-trading day period.
As at
September 30, 2022, the fair value of outstanding Private Warrants of $2.2 million is recorded as warrants liability. The following
table presents the changes in the fair value of warrants liability:
| |
Private | |
| |
Warrants | |
Warrants liability as at December 31, 2021 | |
$ | 3,126 | |
Decrease in fair value of warrants liability | |
| (892 | ) |
Warrants liability as at September 30, 2022 | |
$ | 2,234 | |
As at
September 30, 2022 and December 31, 2021, the fair value of the Private Warrants was estimated using the following assumptions:
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Exercise price | |
$ | 11.50 | | |
$ | 11.50 | |
Share price | |
$ | 1.05 | | |
$ | 2.08 | |
Volatility | |
| 91.72 | % | |
| 64.6 | % |
Term | |
| 3.9
years | | |
| 4.7
years | |
Risk-free rate | |
| 4.07 | % | |
| 1.2 | % |
Dividend yield | |
| 0.0 | % | |
| 0.0 | % |
There
were no exercises or redemptions of the Public Warrants or Private Warrants during the three and nine months ended September 30,
2022.
Allseas Warrants
Allseas
holds warrants to purchase common shares (the Allseas Warrants), which will vest and become exercisable upon successful completion of
the PMTS and will expire on September 30, 2026. A maximum of 11.6 million warrants to purchase common shares will vest if the PMTS
is completed by September 30, 2023, gradually decreasing to 5.8 million warrants to purchase common shares if the PMTS is completed
after September 30, 2025. The Company will record the expense for the Allseas Warrants upon successful completion of the pilot trial
of the PMTS in the NORI Area D. No expense or liability has been recorded as at and for the three and nine months ended September 30,
2022.
With
the successful completion of the pilot trial of the PMTS, as approved by the Company’s Board of Directors on November 11,
2022, the 11.6 million Allseas Warrants have vested and are exercisable (Note 12).
TMC
the metals company Inc.
Notes to Condensed
Consolidated Financial Statements
(in thousands
of US Dollars, except share and per share amounts and unless otherwise stated)
(Unaudited)
| 6. | Share-Based
Compensation |
The
Company’s 2021 Incentive Equity Plan (the “Plan”) provides that the aggregate number of common shares reserved for
future issuance under the Plan is 33,699,685 common shares, including 9,017,299 shares added to the Plan in January 2022 pursuant
to the Plan’s automatic annual increase provision described below, provided that 2,243,853 of the outstanding common shares shall
only be available for awards made to non-employee directors of the Company. On the first day of each fiscal year beginning in 2022 to
the tenth anniversary of the closing of the Business Combination, the number of common shares that may be issued pursuant to the Plan
is automatically increased by an amount equal to the lesser of 4% of the number of outstanding common shares or an amount determined
by the Board of Directors.
Stock options
As at
September 30, 2022, there were 15,356,340 stock options outstanding under the Company’s Short-Term Incentive Plan (“STIP”)
and 9,783,922 stock options outstanding under the Company’s Long-Term Incentive Plan (“LTIP”). During the three and
nine months ended September 30, 2022, 100,000 STIP stock options and 118,461 STIP stock options, respectively were exercised, and
no new options were granted.
During
the three and nine months ended September 30, 2022, the Company recognized $1.7 million and $9.2 million respectively (three and
nine months ended September 30, 2021 - $9.5 million and $55.2 million, respectively) of share-based compensation expense for stock
options in the statement of loss and comprehensive loss. For the three and nine months ended September 30, 2022 a total of $0.7
million and $4.6 million respectively, was recorded in exploration and evaluation expenses (three and nine months ended September 30,
2021 - $3 million and $30.6 million, respectively). The amount recorded in general and administration expenses for three and nine months
ended September 30, 2022 was $1.0 million and $4.6 million respectively (three and nine months ended September 31, 2021 - $6.4
million and $24.7 million respectively).
During
the third quarter of 2022, the Company extended the expiry dates of 1,237,329 of its issued stock options in recognition of the continued
services provided by the option holders and as a result recorded $0.3 million of share-based compensation expense in general and administrative
expenses for the three months and nine months ended September 30, 2022.
Restricted Share Units
The
details of RSUs granted during the three and nine months ended September 30, 2022 are described below.
Vesting Period | |
Three months ended September 30, | | |
Nine months ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Vesting Immediately | |
| 8,576 | | |
| — | | |
| 1,721,729 | | |
| — | |
Vesting in thirds on each anniversary of the grant date | |
| 95,238 | | |
| 56,224 | | |
| 464,632 | | |
| 56,224 | |
Vesting in fourths on each anniversary of the grant date | |
| — | | |
| — | | |
| 527,800 | | |
| — | |
Vesting fully on the anniversary of the
grant date | |
| — | | |
| — | | |
| 476,189 | | |
| — | |
Out
of the 1,721,729 units vesting immediately on grant date, 1,072,572 units were issued to settle liabilities with a carrying amount of
$1.8 million at a weighted average grant date fair value of $1.75 per RSU.
During
the three and nine months ended September 30, 2022, an aggregate of nil and 476,189 units respectively were granted to the Company’s
non-employee directors under the Company’s Non-employee Director Compensation Policy, which vest upon the Company’s 2023
annual shareholders meeting. The total fair value of units granted as annual grants to the non-employee directors in the first nine months
of 2022 amounted to $700,000 ($nil in the first nine months of 2021).
During
the three and nine months ended September 30, 2022, a total of 339,007 and 396,691 units respectively were forfeited.
TMC the metals
company Inc.
Notes to Condensed
Consolidated Financial Statements
(in thousands
of US Dollars, except share and per share amounts and unless otherwise stated)
(Unaudited)
During
the three and nine months ended September 30, 2022, a total of $1.8 million and $5.7
million respectively (three and nine months ended September 30, 2021 - $35 thousand)
was charged to the statement of loss and comprehensive loss as share-based compensation expense
for RSUs. For the three and nine months ended September 30, 2022, a total of $0.9 million
and $2.8 million respectively, was recorded in exploration and evaluation expenses (three
and nine months ended September 30, 2021 - $nil). The amount recorded in general and
administration expenses for three and nine months ended September 30, 2022 was $0.9
million and $3.0 million respectively (three and nine months ended September 30, 2021-
$35 thousand). As at September 30, 2022, total unrecognized share-based compensation
expense for RSUs was $7.7 million (December 31, 2021 - $12.3 million).
As at September 30,
2022, an aggregate of 19,284 vested units were outstanding and due to be converted into common shares.
Employee
Share Purchase Plan
On May 31,
2022, TMC’s 2021 Employee Share Purchase Plan was approved at the Company’s 2022 annual shareholders meeting, including the
approval of the issuance of up to 5,254,324 common shares under the ESPP. This included 2,254,324 shares added to the ESPP in January 2022
pursuant to the ESPP’s annual increase provision. As per the annual increase provision on the first day of each of the Company’s
fiscal years after 2022, common shares equal to the lesser of (i) 1% percent of the common shares outstanding on the last day of
the immediately preceding fiscal year, or (ii) such lesser number of shares as is determined by the Board of Directors will be added
to the ESPP.
Participation
in the ESPP is available to all full-time and certain part-time employees. The ESPP comprises offering periods that are twenty-four (24)
months in length, which begin on approximately every June 1 and December 1. Each offering period includes four purchase periods
of six months each, which begin on approximately every June 1 and December 1, or at such other times designated by the Board
of Directors or its compensation committee. At the exercise date, which is the last business day of each purchase period, the accumulated
deductions from participating employees are used to purchase common shares of the Company. Shares are purchased at a price equal to 85%
of the lower of either the share price of the Company’s common shares on the first business day of the particular offering period
or the last business day of the purchase period. The plan also has an automatic reset feature wherein, if the share price of the common
share on any exercise date is less than the share price of the common share on the first business day of the applicable offering period,
then such offering period shall automatically terminate immediately after the purchase of the common shares. In such case, a new offering
period shall commence on the first business day following the exercise date.
The
ESPP includes the following limitations:
| · | an
employee’s contribution is limited to 15% of the employee’s annual gross earnings,
not to exceed $25,000 per year, |
| · | an
employee’s purchases in any offering period cannot exceed 15,000 common shares, and |
| · | an
employee’s purchases are capped, not to exceed 5% of the Company’s total outstanding
common shares |
During
the three and nine months ended September 30, 2022, a total of $39 thousand and $62 thousand respectively was charged to the condensed
consolidated statement of loss and comprehensive loss. For the three and nine months ended September 30, 2022, a total of $12 thousand
and $21 thousand respectively, was recorded in exploration and evaluation expenses. The amount recorded in general and administration
expenses for three and nine months ended September 30, 2022 was $27 thousand and $41 thousand respectively. During the three and
nine months ended September 30, 2022, the Company issued nil and 42,426 common shares respectively to its employees as part of its
ESPP program.
TMC the metals
company Inc.
Notes to Condensed
Consolidated Financial Statements
(in thousands
of US Dollars, except share and per share amounts and unless otherwise stated)
(Unaudited)
Basic
and diluted loss per share was the same for each period presented as the inclusion of all common share equivalents would have been anti-dilutive.
Anti-dilutive equivalent common shares were as follows:
| |
Nine months ended | | |
Nine months ended | |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | |
Outstanding options to purchase common shares | |
| 25,140,262 | | |
| 25,287,670 | |
Outstanding RSUs | |
| 5,021,783 | | |
| 56,224 | |
Outstanding shares under ESPP | |
| 34,116 | | |
| — | |
Outstanding warrants | |
| 36,078,620 | | |
| 36,078,620 | |
Outstanding Special Shares and options
to purchase Special Shares | |
| 136,239,964 | | |
| 136,239,964 | |
Total anti-dilutive common equivalent
shares | |
| 202,514,745 | | |
| 197,662,478 | |
| 8. | Related
Party Transactions |
The
Company’s subsidiary, DeepGreen Engineering Pte. Ltd., is engaged in a consulting agreement with SSCS Pte. Ltd. (“SSCS”)
to manage offshore engineering studies. A director of DGE is employed through SSCS. Consulting services during the three and nine months
ended September 30, 2022 totaled $69 thousand and $206 thousand (three and nine months ended September 30, 2021 - $75 thousand
and $213 thousand respectively) out of which for three and nine months ended September 30, 2022 a total of $55 thousand and $165
thousand, respectively (three and nine months ended September 30, 2021 - $60 thousand and $170 thousand, respectively) is disclosed
as exploration labor within exploration and evaluation expenses (Note 4) and $14 thousand and $41 thousand respectively for three and
nine months ended September 30, 2022 is disclosed as general and administration expenses (three and nine months ended September 30,
2021 - $15 thousand and $43 thousand respectively). As at September 30, 2022, the amount payable to SSCS was $nil (December 31,
2021 - $23 thousand).
The
Company’s Chief Ocean Scientist provides consulting services to the Company through Ocean Renaissance LLC (“Ocean Renaissance”)
where he is a principal. Consulting services during the three and nine months ended September 30, 2022 amounted to $94 thousand
and $281 thousand respectively (three and nine months ended September 30, 2021 $93 thousand and $281 thousand), evenly apportioned
between exploration and evaluation expenses (Note 4) and general and administration expenses for three and nine months ended September 30,
2022 and September 30, 2021. As at September 30, 2022, the amount payable to Ocean Renaissance was $nil (December 31,
2021 - $nil).
On August 12,
2022, the Company entered into three securities purchase agreements for the private placement of an aggregate of 37,978,680 of the Company’s
common shares. The Company entered into a securities purchase agreement (the “PIPE Purchase Agreement”) with the purchasers
named therein (the “PIPE Purchasers”) for the issuance and sale of an aggregate of 31,625,000 Common Shares at a purchase
price of $0.80 per share, a separate securities purchase agreement with Gerard Barron, the Company’s Chief Executive Officer and
Chairman, for the issuance and sale of 103,680 Common Shares at $0.9645 per share, the consolidated closing bid price per Common Share
on August 11, 2022 (the “Barron Purchase Agreement”), and a separate securities purchase agreement with ERAS Capital
LLC, the family fund of the Company’s director, Andrei Karkar, for the issuance and sale of 6,250,000 common shares at a purchase
price of $0.80 per share (the “ERAS Purchase Agreement”, together with the PIPE Purchase Agreement and the Barron Purchase
Agreement, the “Purchase Agreements”). As at September 30, 2022, all of the 37,978,680 shares were issued and the Company
received gross proceeds amounting to $30.4 million. The Company incurred $1.0 million as placement agent fees and offering expenses out
of which expenses amounting to $0.2 million were settled by issuing 287,500 shares at issue price of $0.80 per share.
TMC the metals
company Inc.
Notes to Condensed
Consolidated Financial Statements
(in thousands
of US Dollars, except share and per share amounts and unless otherwise stated)
(Unaudited)
| 10. | Commitments
and Contingent Liabilities |
NORI Exploration Contract
As part
of the NORI Exploration Contract with the ISA, NORI submitted a periodic review report to the ISA in 2021, covering the 2017-2021 period.
The periodic review report, which included a proposed work plan and estimated budget for 2022 to 2026, has been reviewed by and agreed
with the ISA, and we are implementing the next five-year plan. NORI has estimated its work plan for 2022 and 2023 to be approximately
$40 million and $25 million, respectively, which may be settled in cash or equity. The cost of the estimated work plan for 2024 onwards
is contingent on the ISA’s approval of the NORI Area D exploitation application. Should the approval of NORI’s exploitation
application for NORI Area D be delayed or rejected, NORI intends to revise its estimated future work plan in respect of its NORI Area.
Work plans are reviewed annually by the Company, agreed with the ISA and may be subject to change depending on the Company’s progress
to date.
Marawa Exploration
Contract
Through
DGE’s Marawa Option Agreement and Services Agreement with Marawa with respect to the Marawa Area, Marawa and DGE committed to spend
a defined amount of funds on exploration activities on an annual basis. The commitment for fiscal 2022, 2023 and 2024 is Australian dollar
(“AUD”) $1 million, AUD $3 million and AUD $2 million, respectively. Such commitment is negotiated with the ISA as part of
a five-year plan submission and is subject to regular periodic reviews. To date, very limited offshore marine resource definition activities
in the Marawa Contract Area have occurred and DGE expects to commit future resources as contractually agreed with Marawa to evaluate
the future commercial viability of any project in such area. Marawa has not completed adequate exploration to establish the economic
viability of any project in the Marawa Contract Area. Further work will need to be conducted in order to assess the viability of any
potential project in the Marawa Contract Area and such work may take several years until such assessment can be made. Marawa has delayed
certain of its efforts in the Marawa Contract Area while it determines how it will move forward with additional assessment work.
TOML
Exploration Contract
As part
of the TOML Exploration Contract, TOML submitted a periodic review report to the ISA in 2021, covering the 2017-2021 period. The periodic
review report included a summary of work completed over the five-year period and a program of activities and estimated budget for the
next five-year period. TOML had committed to spend $30.0 million over the five-year period from 2017 to 2021. Such commitment has flexibility
where the amount can be reduced and such reduction would be dependent upon various factors including the success of the exploration programs
and the availability of funding.
The
Company has spent approximately $13.3 million in connection with the TOML Exploration Contract from 2017 to 2021. The ISA has reviewed
TOML’s periodic review report for the 2017-2021 period and submitted its initial findings at the end of September 2022, which
management is currently reviewing.
TMC the metals
company Inc.
Notes to Condensed
Consolidated Financial Statements
(in thousands
of US Dollars, except share and per share amounts and unless otherwise stated)
(Unaudited)
Contingent Liability
On October 28,
2021, a shareholder filed a putative class action against the Company and certain of its executives in federal district court for the
Eastern District of New York, styled Caper v. TMC The Metals Company Inc. F/K/A Sustainable Opportunities Acquisition Corp., Gerard
Barron and Scott Leonard. The complaint alleges that all defendants violated Section 10(b) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, and Messrs. Barron and Leonard
violated Section 20(a) of the Exchange Act, by making false and/or misleading statements and/or failing to disclose information
about the Company’s operations and prospects during the period from March 4, 2021 and October 5, 2021. On November 15,
2021, a second complaint containing substantially the same allegations was filed, captioned Tran v. TMC the Metals Company, Inc.
These cases have been consolidated. On March 6, 2022, a lead plaintiff was selected. An amended complaint was filed on May 12,
2022, reflecting substantially similar allegations. The Company denies any allegations of wrongdoing and the Company has filed and served
the plaintiff a motion to dismiss on July 12, 2022 and intends to defend against this lawsuit. As of September 26, 2022, the
motion to dismiss is fully briefed and the parties are awaiting a ruling. There is no assurance, however, that the Company or the other
defendants will be successful in their defense of this lawsuit or that insurance will be available or adequate to fund any settlement
or judgment or the litigation costs of this action. If the motion to dismiss is unsuccessful, there is a possibility that the Company
may incur a loss in this matter. Such losses or range of possible losses either cannot be reliably estimated. A resolution of this lawsuit
adverse to the Company or the other defendants, however, could have a material effect on the Company’s financial position and results
of operations in the period in which the lawsuit is resolved.
The Company’s business
consists of only one operating segment, namely exploration of seafloor polymetallic nodules, which includes the development of a metallurgical
process to treat such seafloor polymetallic nodules.
On November 11,
2022, the Company’s Board of Directors agreed with management’s assessment that the criteria for the successful completion
of the pilot trial of the PMTS in the NORI Area D, as prescribed in the Strategic Alliance Agreement (SAA) with Allseas, had been met.
As a
result, the Company intends to settle the third and final payment of $10 million of the amended PMTA through the issuance of common shares
in the fourth quarter of 2022, at a price of $1.00 per share, subject to regulatory approval (Note 4).
Similarly,
with the successful completion of the pilot trial of the PMTS, the 11.6 million Allseas Warrants have vested and are exercisable (Note
5).
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis provide information which management believes is relevant to an assessment and understanding of our
condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the consolidated
financial statements and notes thereto for the year ended December 31, 2021 contained in our 2021 Annual Report on Form 10-K.
This discussion contains forward looking statements and involves numerous risks and uncertainties, including, but not limited to, those
described in “Risk Factors” in Item 1A of Part I of the 2021 Annual Report on Form 10-K, as updated and supplemented
under the caption “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q, as further updated
and/or supplemented in subsequent filings with the SEC. Actual results may differ materially from those contained in any forward-looking
statements. Unless the context otherwise requires, references to “we”, “us”, “our”, “TMC”
and “the Company” are intended to mean the business and operations of TMC the metals company Inc. and its consolidated subsidiaries.
The unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2022 and 2021,
respectively, present the financial position and results of operations of TMC the metals company Inc. and its consolidated subsidiaries.
Overview
We
are a deep-sea minerals exploration company focused on the collection and processing of polymetallic nodules found on the seafloor in
international waters of the Clarion Clipperton Zone (“CCZ”), about 1,300 nautical miles south-west of San Diego, California.
The CCZ is a geological submarine fracture zone of abyssal plains and other formations in the Eastern Pacific Ocean, with a length of
around 7,240 km (4,500 miles) that spans approximately 4,500,000 square kilometers (1,700,000 sq mi). Polymetallic nodules are discrete
rocks that sit unattached to the seafloor, occur in significant quantities in the CCZ and have high concentrations of nickel, manganese,
cobalt and copper in a single rock.
These
four metals contained in the polymetallic nodules are critical for the transition to clean energy. Our resource definition work to date
shows that nodules in our contract areas represent the world’s largest estimated undeveloped source of critical battery metals.
If we are able to collect polymetallic nodules from the seafloor on a commercial scale, we plan to use such nodules to produce three
types of metal products: (i) feedstock for battery cathode precursors (nickel and cobalt sulfates, or intermediate nickel-copper-cobalt
matte) for electric vehicles (“EV”) and renewable energy storage markets, (ii) copper cathode for EV wiring, clean energy
transmission and other applications and (iii) manganese silicate for manganese alloy production required for steel production. Our
mission is to build a carefully managed shared stock of metal (a “metal commons”) that can be used, recovered and reused
for generations to come. Significant quantities of newly mined metal are required because existing metal stocks are insufficient to meet
rapidly rising demand.
Exploration
and exploitation of seabed minerals in international waters is regulated by the International Seabed Authority (“ISA”), an
intergovernmental organization established pursuant to the 1994 Agreement Relating to the Implementation of the United Nations Convention
on the Law of the Sea (“UNCLOS”). The ISA grants contracts to sovereign states or to private contractors who are sponsored
by a sovereign state. The ISA requires that a contractor obtains and maintains sponsorship by a host nation that is a member of the ISA
and signatory to UNCLOS and such nation must maintain effective supervision and regulatory control over such sponsored contractor. The
ISA has issued a total of 19 polymetallic nodule exploration contracts covering approximately 1.28 million km2, or 0.4% of the global
seafloor, 17 of which are in the CCZ. We hold exclusive exploration and commercial rights to three of the 17 polymetallic nodule contract
areas in the CCZ: two based on the ISA exploration contracts through our subsidiaries Nauru Ocean Resources Inc. (“NORI”)
and Tonga Offshore Mining Limited (“TOML”), sponsored by the Republic of Nauru (“Nauru”) and the Kingdom of Tonga
(“Tonga”), respectively, and exclusive commercial rights through our subsidiary, DeepGreen Engineering Pte. Ltd.’s
(“DGE”), arrangement with Marawa Research and Exploration Limited (“Marawa”), a company owned and sponsored by
the Republic of Kiribati (“Kiribati”).
We
have key strategic alliances with (i) Allseas Group S.A. (“Allseas”), a leading global offshore contractor, which has
developed and is currently testing a pilot collection system, expected to be modified into an initial smaller-scale commercial production
system and serve as the basis for the design of a full-scale commercial production system and (ii) Glencore International AG (Glencore)
holding offtake rights to 50% of NORI nickel and copper production from the NORI area. In addition, we have worked with engineering firm
Hatch Ltd. and consultants Kingston Process Metallurgy Inc. to develop a near-zero solid waste flowsheet. The pyrometallurgical stages
of the flowsheet were tested as part of our pilot plant program at FLSmidth & Co. A/S’s and XPS Solutions’ (Glencore
subsidiary) facilities and bench-scale hydrometallurgical refining work is being carried out with SGS SA. The near-zero solid waste flowsheet
provides a design that is expected to serve as the basis for our onshore processing facilities. In March 2022, we entered into a
non-binding memorandum of understanding with Epsilon Carbon Pvt, LTD. (“Epsilon Carbon”) in which Epsilon Carbon expressed
its intent to conduct pre-feasibility work to potentially finance, engineer, permit, construct and operate a commercial polymetallic
nodule processing plant in India. Together with Epsilon Carbon, we selected a suitable plant site in India, developed and issued a Request
for Proposal for Project Zero Pre-feasibility and Feasibility Study. Due to overstressed process engineering capacity across all markets
with expertise in Rotary Kiln-Electric arc Furnace (“RKEF”) plants, compliant bids were received in September 2022 later
than initially expected, and are currently under review.
We
are currently focused on applying for our first exploitation contract from the ISA on the NORI Area D contract area and, subject to regulatory
review by the ISA, intend to start commercial production in 2024. To reach our objective, we are: (i) defining our resource and
project economics, (ii) developing and testing an offshore nodule collection system, (iii) assessing the ESG impacts of offshore
nodule collection, and (iv) developing and testing onshore technology and system to process collected polymetallic nodules into
a manganese silicate product, and an intermediate nickel-copper-cobalt matte product and/or end-products like nickel and cobalt sulfates,
and copper cathode.
We
are still in the exploration phase and have not yet declared mineral reserves. We have yet to obtain exploitation contracts from the
ISA to commence commercial scale polymetallic nodule collection in the CCZ and have yet to obtain the applicable environmental permits
and other permits required to build and operate commercial scale polymetallic nodule processing and refining plants on land.
Developments in the Third Quarter
2022
Below are some
of the major developments that occurred in the third quarter of 2022:
NORI Area D Project:
| · | Project
Zero Research: In July 2022, our Australian subsidiary entered into a research funding
agreement with a consortium of institutions led by Australia’s Commonwealth Scientific
Industrial Research Organization (CSIRO) to create a framework for the development of an
ecosystem-based Environmental Management and Monitoring Plan (EMMP) for our proposed deep-sea
polymetallic nodule collection operations in the CCZ. |
| · | Pilot
Collection System Trials and Monitoring Campaign: |
| · | ISA
Recommendation: In September 2022, following the completion of its review of NORI’s
Environmental Impact Statement (EIS) and EMMP, the International Seabed Authority recommended
that we proceed with independently monitored pilot collection system trials in NORI Area
D in the CCZ. |
| · | Start
of Trials and Campaign: With the ISA recommendation, the team of engineers at Allseas
and scientists from some of the world’s leading deep-sea research institutions and
contractors, began technology trials and our impact monitoring campaign. The environmental
and operational data gathered during these trials will be an important step in ensuring the
safe and efficient collection of polymetallic nodules to meet expected demand for critical
minerals for the clean energy transition and the ISA’s review of our expected submission
of an application for an exploitation contract for the NORI Area D. |
TMC Financing:
| · | PIPE
Financing: On August 15, 2022, we announced a private placement financing which
raised aggregate gross cash proceeds of $30.4 million (approximately $30 million net proceeds,
after deducting placement agent fees and offering expenses) through the issuance of approximately
38.0 million common shares. A majority of the committed funds came from our existing shareholders
and insiders. We filed a resale registration statement for the common shares issued to the
investors in the financing with the SEC on September 16, 2022, which the SEC declared
effective on October 14, 2022. |
UAW Agreement:
In September 2022,
we announced that we had entered into a labor neutrality agreement with the International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America (“UAW”) designed to bolster the critical mineral supply chain, which we believe lays the groundwork
for sustainable production of electric car batteries while also creates a path to potential job growth in the United States.
Developments
Subsequent to September 30, 2022
| · | Board
of Director Changes: On October 3, 2022, we announced the appointment of Andrew
C. Greig to our Board as an Independent Director to replace outgoing director Gina Stryker.
Mr. Greig brings extensive experience working on international construction projects
in the mining sector during a 35-year career at leading engineering, procurement and construction
company, Bechtel Group. On November 10, 2022, Mr. Greig was appointed to the Compensation
Committee and on November 11, 2022, he was appointed as Lead Independent Director, replacing
Andrew Hall. Mr. Hall will remain on the Board of Directors, including as a member of
the Audit Committee. |
| · | NORI
Collector Test Monitoring: On October 5, 2022, we announced that a multidisciplinary
team of independent scientists from leading research institutions around the world and industry-leading
contractors commenced the next phase of an extensive environmental baseline and impact monitoring
campaign in preparation for NORI’s ongoing pilot nodule collection system trials in
NORI Area D area of the CCZ. Scientists aboard a dedicated 103-meter-long monitoring vessel
conducted pre-disturbance monitoring studies on a sub-section of the NORI Area D exploration
area to establish an environmental baseline before NORI’s offshore strategic partner,
Allseas, began testing a system consisting of a prototype nodule collector at the seafloor
connected to a riser system to bring nodules to the surface production vessel, Hidden
Gem. |
| · | NORI
Collector Test Milestone: On October 12, 2022, we announced the successful collection
of an initial batch of seafloor polymetallic nodules, which were lifted up a 4-kilometer-long
riser system to the surface, in what represents the first integrated collection system test
conducted in the CCZ since the 1970s. The dedicated team of 130 crew and engineers aboard
the Hidden Gem commenced initial nodule collection runs, driving the pilot collector
147 meters in one hour on a pre-determined path and collecting 14 tonnes of nodules, while
expert industry contractors and independent scientists continued their complex monitoring
program to assess the environmental impacts of the collector system trials using an array
of over 50 subsea sensors and monitoring stations. |
| · | Executive
Changes: On October 20, 2022, we announced the appointment of Grant Lindner as Project
Director for NORI, as we look to potentially commercialize our first polymetallic nodule
project in the NORI Area D. Mr. Lindner has delivered over $26 billion in project value
during his 25-year career at Bechtel Group and BHP, holding senior executive roles for large-scale
mining, smelter and refinery, material handling and marine projects. Mr. Lindner will
play a key role in advancing all areas of the NORI Area D project including the submission
of the Environmental Impact Assessment and exploitation application to the ISA, and the safe
delivery of offshore and onshore development plans. We also announced that Anthony O’Sullivan
had tendered his resignation on October 14, 2022 for personal and health reasons, although
he will remain in the position through a twelve-month transition period. |
| · | Successful
Conclusion of NORI Collector Test: On November 14, 2022, we announced that NORI
and Allseas have successfully concluded the first integrated system test in the Clarion Clipperton
Zone of the Pacific Ocean since the 1970s, achieving all significant pilot milestones while
collecting approximately 4,500 tonnes of seafloor polymetallic nodules. Over 3,000 tonnes
were transported up a 4.3-kilometer-long riser system to the surface production vessel, Hidden
Gem, while the additional 1,500 tonnes of nodules were purposely left behind on the seafloor
as part of the trials. |
The Business
Combination
On
September 9, 2021, we completed the Business Combination with SOAC. The transaction resulted in the combined company being renamed
“TMC the metals company Inc.” and the combined company’s common shares and warrants to purchase common shares commenced
trading on the Nasdaq Global Select Market (“Nasdaq”) on September 10, 2021 under the symbols “TMC” and
“TMCWW,” respectively. As a result of the Business Combination, we received gross proceeds of $137.6 million ($104.5 million
net of transaction fees).
The
Business Combination was accounted for as a reverse recapitalization and DeepGreen was deemed the accounting acquirer. Under this method
of accounting, SOAC was treated as the acquired company for financial statement reporting purposes. The Business Combination was accounted
for as a reverse acquisition with no goodwill or intangible assets being recorded. As SOAC had no operations, the net assets acquired
were recorded at their historical cost. Adjustments related to the Business Combination including consideration paid to DeepGreen shareholders
and any other adjustments to eliminate the historical equity of SOAC and recapitalize the equity of DeepGreen were recorded to common
shares to reflect the effective issuance of common shares to SOAC and Private Investment in Public Equity investors in the Business Combination.
Following
the Business Combination, we became the successor to an SEC-registered company, which resulted in us hiring additional personnel and
implement procedures and processes to address public company regulatory requirements and customary practices to ensure ongoing compliance
with applicable law and Nasdaq listing requirements. We expect to incur additional annual expenses as a public company for, among other
things, directors’ and officers’ liability insurance, director fees, additional internal and external accounting, legal and
administrative resources, including increased personnel costs, audit and other professional service fees.
Exploration
Contracts
We
currently hold exclusive exploration rights to certain polymetallic nodule areas in the CCZ through our subsidiaries NORI and TOML, sponsored
by Nauru and Tonga, respectively, and exclusive commercial rights through our subsidiary, DGE’s, arrangement with Marawa, a company
owned and sponsored by Kiribati.
NORI Exploration
Contract
NORI,
our wholly-owned subsidiary, was granted a polymetallic nodule exploration contract in the CCZ by the ISA on July 22, 2011 under
the sponsorship of Nauru. This Exploration Contract provides NORI with exclusive rights to explore for polymetallic nodules in an area
covering 74,830 km2 in the CCZ (“NORI Area”) for an initial term of 15 years (renewable for successive five-year
periods) subject to complying with the exploration contract terms and provides NORI with the priority right to apply for an exploitation
contract to collect polymetallic nodules in the same area.
Marawa Agreements
Marawa,
an entity owned and sponsored by Kiribati, was granted the Marawa Exploration Contract on May 30, 2012. DGE, our wholly-owned subsidiary,
entered into agreements with Marawa and Kiribati which provide DGE with exclusive exploration and exploitation (if awarded) rights to
an area covering 74,990 km2 in the CCZ (the “Marawa Contract Area”). The exploration contract between Marawa and the ISA
(the “Marawa Exploration Contract”) was signed on January 19, 2015. To date, very limited offshore marine resource definition
activities in the Marawa Contract Area have occurred and DGE expects to commit future resources as contractually agreed with Marawa to
evaluate the future commercial viability of any project in such area. Marawa has not completed adequate exploration to establish the
economic viability of any project in the Marawa Contract Area. Further work will need to be conducted in order to assess the viability
of any potential project in the Marawa Contract Area and such work may take several years until such assessment can be made. Marawa has
delayed certain of its efforts in the Marawa Contract Area while it determines how it will move forward with additional assessment work.
TOML Exploration
Contract
TOML,
our wholly-owned subsidiary, was granted an exploration contract on January 11, 2012 by the ISA and sponsored by the Kingdom of
Tonga pursuant to the TOML Exploration Contract . TOML was acquired by us on March 31, 2020 for $32 million from Deep Sea Mining
Finance Ltd. (“DSMF”). The TOML Exploration Contract provides TOML with exclusive rights to explore for polymetallic nodules
in an area covering 74,713 km2 in the CCZ (“TOML Area”) for an initial term of 15 years (renewable for successive
five-year periods) subject to complying with the exploration contract terms and a priority right to apply for an exploitation contract
to collect polymetallic nodules in the same area. On March 8, 2008, Tonga and TOML entered into a sponsorship agreement formalizing
certain obligations of the parties in relation to TOML’s exploration application to the ISA (subsequently granted) for the TOML
Contract Area. The sponsorship agreement was updated on September 23, 2021.
Key Trends,
Opportunities and Uncertainties
We
are currently a pre-revenue company and we do not anticipate earning revenues until such time as NORI receives an exploitation contract
from the ISA and we are able to successfully collect and process polymetallic nodules into saleable products on a commercial scale. We
believe that our performance and future success pose risks and challenges, including those related to: finalization of ISA regulations
to allow for commercial exploitation, approval of an application for the ISA exploitation contract, development of environmental regulations
associated with our business and development of our technologies to collect and process polymetallic nodules. These risks, as well as
other risks, are discussed in the section entitled “Risk Factors” in Item 1A of Part I of the 2021 Annual Report
on Form 10-K, as updated and supplemented under the caption “Risk Factors” in Item 1A of Part II of this
Quarterly Report on Form 10-Q, as further updated and/or supplemented in subsequent filings with the SEC.
Impact of Global Inflation
As
a pre-revenue company, persistent inflation may affect our ultimate cash requirements prior to our ability to begin commercial production.
In
2022, the global inflation rate has risen sharply. Marine fuel prices and vessel day rates are higher year-over-year and have increased
our exploration expenses beyond what we had originally expected. Additionally, we are experiencing higher offshore labor costs through
our contractors due to an upturn in the offshore oil and gas market.
Impact of Climate Change
We
are committed to adopting the Task Force on Climate-Related Financial Disclosures recommendations. In our first inaugural impact report
published in May 2022, we provided climate-related disclosures and shared how we believe our mission is aligned with supporting
a clean energy transition and contributing to a circular metals economy. We recognize that climate change may have a meaningful impact
on our financial performance over time, and we have begun the process of consolidating key risks and corresponding action plans to mitigate
their negative impact on climate change and create value.
Our
climate related transition risks and opportunities are likely to be driven by changes in regulation, public policy, and technology, as
disclosed in our 2021 Annual Report on Form 10-K.
COVID-19
During
the third quarter of 2022, active work comprised the commencement of deep-water test of the full collector system deployed from the Hidden
Gem in the NORI Area D project area in the CCZ. There were COVID-19 outbreaks, but these were effectively managed and had no impact
on the project schedule and delivery of the collector test.
We
continue to closely monitor the recent developments surrounding the continued spread and potential resurgence of COVID-19 from variants.
The COVID-19 pandemic may have an adverse impact on our operations, particularly because of preventive and precautionary measures that
our company, other businesses, and governments are taking. Refer to the section entitled “Risk Factors” in Item 1A of Part I
of the 2021 Annual Report on Form 10-K, as updated and supplemented under the caption “Risk Factors” in Item 1A of Part II
of this Quarterly Report on Form 10-Q, as further updated and/or supplemented in subsequent filings with the SEC for more information.
We are unable to predict the full impact that the COVID-19 pandemic will have on our future results of operations, liquidity and financial
condition due to numerous uncertainties, including the duration of the pandemic and the actions that may be taken by government authorities.
However, COVID-19 is not expected to result in any significant changes to our business or our costs in the near term. We will continue
to monitor the performance of our business and re-assess the impacts of COVID-19.
Restatement
of Previously Issued Quarterly Financial Statements
As
disclosed in our 2021 Annual Report on Form 10-K, we have restated our financial statements as of and for the three and six-months
period ended June 30, 2021 in the accompanying unaudited condensed consolidated financial statements included in this Quarterly
Report on Form 10-Q.
The
restatement resulted from the following items:
| a) | certain
invoices for exploration expenses were not appropriately accrued as of June 30, 2021,
resulting in a $2.7 million understatement of each of exploration expenses and accounts payable
and accrued liabilities as of and for the six-month period ended June 30, 2021; and |
| b) | our
expensing of options granted in the first quarter of 2021 under the Company’s Short-Term
Incentive Plan (“STIP”) based on the grantee’s historical start date with
us rather than the grant date of the options on March 4, 2021, as required by US Generally
Accepted Accounting Principles (“U.S. GAAP”), resulting in a $1.8 million overstatement
of stock-based compensation expenses as of and for the three-month period ended March 31,
2021, and $0.3 million understatement and $1.5 million overstatement of stock-based compensation
expenses as of and for the six month period ended June 30, 2021, respectively. |
Basis of Presentation
We currently conduct
our business through one operating segment. As a pre-revenue company with no commercial operations, our activities to date have been
limited. Our historical results are reported under U.S. GAAP and in U.S. dollars. All share and per share amounts have been adjusted
to reflect the impact of the Business Combination.
Components of
Results of Operations
We
are an exploration-stage company with no revenue to date and a net loss of $25.9 million and $59.4 million for the three and nine months
ended September 30, 2022, respectively, compared to a net loss of $36.7 million and $121.5 million in the same periods of 2021,
respectively. We have an accumulated deficit of approximately $363.6 million from inception through September 30, 2022.
Our
historical results may not be indicative of our future results for reasons that may be difficult to anticipate. Accordingly, the drivers
of our future financial results, as well as the components of such results, may not be comparable to our historical or projected results
of operations.
Revenue
To
date, we have not generated any revenue. We do not expect to generate revenue until at least 2025 and only if NORI receives an exploitation
contract from the ISA and we are able to successfully collect and process polymetallic nodules into saleable products on a commercial
scale. Any revenue from initial production is difficult to predict.
Exploration
and Evaluation Expenses
We
expense all costs relating to exploration and development of mineral claims. Such exploration and development costs include, but are
not limited to, ISA contract management, geological, geochemical and geophysical studies, environmental baseline studies, process
development and payments to Allseas for the Pilot Mining Test System (“PMTS”). Our exploration expenses are impacted by the
amount of exploration work conducted during each period. The acquisition cost of ISA polymetallic nodule exploration contracts will be
charged to operations as amortization expense on a unit-of-production method based on proven and probable reserves should commercial
production commence in the future.
General and
Administrative Expenses
General
and administrative (“G&A”) expenses consist primarily of compensation for employees, consultants and directors, including
share-based compensation, consulting fees, investor relations expenses, expenses related to advertising and marketing functions, insurance
costs, office and sundry expenses, professional fees (including legal, audit and tax fees), travel expenses and transfer and filing fees.
Share-based
compensation costs from the issuance of stock options and restricted share units (“RSUs”) is measured at the grant date based
on the fair value of the award and is recognized over the related service period. Share-based compensation costs are charged to exploration
expenses and general and administrative expenses depending on the function fulfilled by the holder of the award. In instances where an
award is issued for financing related services, the costs are included within equity as part of the financing costs. We recognize forfeiture
of any awards as they occur.
Interest
Income/Expense
Interest
expense in the first nine months of 2021 resulted from our financing transactions, specifically the convertible debentures issued in
February 2021, which accrued interest at 7% per annum. The convertible debentures were fully converted into DeepGreen common shares
on September 9, 2021. Interest income recorded in the first nine months of 2022 resulted from the interest earned on the funds we
received from the Business Combination which closed in September 2021 and from the PIPE financing which closed in August 2022.
Foreign Exchange
Loss
The
foreign exchange income or loss for the periods reported primarily relates to our cash held in Canadian dollars and to the settlement
of costs incurred in foreign currencies, depending on either the strengthening or weakening of the U.S. dollar.
Change
in Fair Value of Warrants Liability
The
change in fair value of warrants liability primarily consists of the change in the fair value of the 9,500,000 warrants issued to Sustainable
Opportunities Holdings LLC concurrently with SOAC’s initial public offering (the “Private Warrants”). For accounting
purposes, the Company was considered to have issued the Private Warrants as part of the Business Combination, and we are required to
re-measure the fair value of our Private Warrants at the end of each reporting period.
Results of Operations
DeepGreen
was determined to be the accounting acquirer and therefore, all information prior to the Business Combination, including the prior period
financial information, represent the financial condition and operating results of DeepGreen.
The
following is a discussion of our results of operations for the three and nine months ended September 30, 2022 and 2021. Our
accounting policies are described in Note 3 “Summary of Significant Accounting Policies” in our financial statements
filed as part of the 2021 Annual Report on Form 10-K.
Comparison of the Three and Nine
Months Ended September 30, 2022 and 2021
| |
For the Three
Months Ended | | |
For the Nine
Months Ended | |
| |
September 30, | | |
September 30, | |
| |
| | |
2021 | | |
| | |
| | |
2021 | | |
| |
(Dollar amounts in thousands,
except as noted) | |
2022 | | |
(Restated) | | |
%
Change | | |
2022 | | |
(Restated) | | |
% Change | |
Exploration and evaluation
expenses | |
$ | 22,663 | | |
$ | 23,848 | | |
| (5 | )% | |
$ | 40,340 | | |
$ | 80,181 | | |
| (50 | )% |
General and administrative expenses | |
| 5,944 | | |
| 13,334 | | |
| (55 | )% | |
| 22,502 | | |
| 41,138 | | |
| (45 | )% |
Change in fair value of warrants
liability | |
| (350 | ) | |
| (878 | ) | |
| (60 | )% | |
| (892 | ) | |
| (878 | ) | |
| 2 | % |
Foreign exchange loss (gain) | |
| (11 | ) | |
| 5 | | |
| (320 | )% | |
| (11 | ) | |
| 57 | | |
| (119 | )% |
Interest
expense (income) | |
| (352 | ) | |
| 342 | | |
| (203 | )% | |
| (544 | ) | |
| 1,003 | | |
| (154 | )% |
Loss for
the period | |
$ | 27,894 | | |
$ | 36,651 | | |
| (24 | )% | |
$ | 61,395 | | |
$ | 121,501 | | |
| (49 | )% |
Three Months
ended September 30, 2022 compared to Three Months ended September 30, 2021
We
reported a net loss of $27.9 million in the third quarter of 2022, compared to $36.7 million in the same period of 2021. The following
explains the major reasons for the reduction in the net loss in the third quarter of 2022.
Exploration
and Evaluation Expenses
Exploration
and evaluation expenses for the three months ended September 30, 2022 were $22.7 million, compared to $23.8 million for the same
period in 2021. The decrease of $1.2 million was primarily due to a decrease in environmental studies of $3.4 million, due to the completion
of the NORI Area D baseline campaigns in the fourth quarter of 2021 and a reduction in share-based compensation of $1.4 million in the
2022 period, as the cost of the LTIP options with vesting condition of $3 billion market capitalization was completely amortized in 2021
in addition to the decrease in the amortization cost of STIP sign-up options granted in 2021 offset by the increase amortization cost
of the RSUs issued to employees and contractors in 2022. The above expense reductions were partially offset by increased work on the
PMTS which progressed in the third quarter of 2022 resulting in increased expenses of $3.7 million.
General and Administrative Expenses
G&A
expenses for the three months ended September 30, 2022 were $5.9 million compared to $13.3 million for the same period in 2021.
The decrease of $7.4 million in G&A expenses was mainly the result of lower share-based compensation in the 2022 period as the cost
of the LTIP options with vesting condition of $3 billion market capitalization was completely amortized in 2021 in addition to the decrease
in the amortization cost of STIP sign-up options granted in 2021, offset by the increase amortization cost of the RSUs issued to employees
and contractors in 2022. This decrease was partially offset by higher G&A expenses in the third quarter of 2022, reflecting an increase
in personnel, legal and other expenses associated with being a public company. The third quarter of 2021 also included higher expenses
for consulting and communications related to the Business Combination.
Change in
Fair Value of Warrants Liability
The
change in fair value of warrants liability during the third quarter of 2022 resulted in a credit of $0.4 million. The credit was primarily
due to a 15% decrease in the price of our warrants in the third quarter of 2022. The warrants liability was initially recorded as part
of the Business Combination.
Nine Months ended September 30,
2022 compared to Nine Months ended September 30, 2021
We
reported a net loss of $59.5 million in the first nine months of 2022, compared to $121.5 million in the same period of 2021. The following
explains the major reasons for the reduction in the net loss in the first nine months of 2022.
Exploration and Evaluation Expenses
Exploration
and evaluation expenses for the nine months ended September 30, 2022 were $40.3 million, compared to $80.2 million for the same
period in 2021. The decrease of $39.8 million was primarily due to a decrease in environmental studies of $23.5 million, due to the completion
of the NORI Area D environmental baseline campaigns in the fourth quarter of 2021. In the first nine months of 2021, offshore campaign
costs in support of environmental studies included a fair value increase of $12.2 million that was recognized on the issuance of DeepGreen
common shares to Maersk Supply Service A/S (“Maersk”). The decrease in the first nine months of 2022 also reflects a reduction
in share-based compensation of $23.2 million, as a significant number of stock options were awarded in March 2021, in recognition
of past services and in anticipation of the Business Combination, while no stock options were awarded in the first nine months of 2022.
The above expense reductions were partially offset by increased work on the PMTS which progressed in the first nine months of 2022 resulting
in increased expenses of $6.4 million.
General and Administrative Expenses
G&A
expenses for the nine months ended September 30, 2022 were $22.5 million compared to $41.1 million for the same period in 2021.
The decrease of $18.6 million in G&A expenses in the first nine months of 2022 was mainly the result of lower share-based compensation
in the 2022 period as the first nine months of 2021 included the award of a significant number of stock options in recognition of past
services and in anticipation of the Business Combination. This decrease was partially offset by higher G&A expenses in the first
nine months of 2022, reflecting an increase in personnel, legal and other expenses associated with being a public company. In addition,
the first nine months of 2021 included higher expenses for consulting and communications related to the Business Combination.
Change
in Fair Value of Warrants Liability
The
change in fair value of warrants liability during the first nine months of 2022 resulted in a credit of $0.9 million, similar to the
same period of 2021. The credit was primarily due to a 39% decrease in the price of our warrants in the first nine months of 2022. The
warrants liability was initially recorded as part of the Business Combination.