This prospectus supplement no. 2 (this
“Supplement”) supplements the prospectus dated October 22, 2021 (as previously supplemented, the
“Prospectus”) relating to the issuance by us of up to an aggregate of 24,500,000 of our common shares, without par value
(“Common Shares”), which consists of (i) up to 9,500,000 Common Shares that are issuable upon the exercise of
private placement warrants (the “Private Placement Warrants”) originally issued in a private placement in connection
with the initial public offering of our predecessor company, Sustainable Opportunities Acquisition Corp. (“SOAC”), at an
exercise price of $11.50 per Common Share, and (ii) up to 15,000,000 Common Shares that are issuable upon the exercise of
15,000,000 warrants issued in connection with the initial public offering of SOAC (the “Public Warrants,” and
together with the Private Placement Warrants, the “Warrants”).
The Prospectus and this Supplement also relate
to the resale from time to time by the Selling Securityholders named in the Prospectus (the “Selling Securityholders”) of
up to (i) 9,500,000 Private Placement Warrants, (ii) 9,500,000 Common Shares that may be issued upon exercise of the Private
Placement Warrants, (iii) 11,578,620 Common Shares that may be issued upon exercise of the Allseas Warrant (as defined in the Prospectus),
(iv) 6,759,000 Common Shares held by SOAC’s sponsor, Sustainable Opportunities Holdings LLC (the “Sponsor”), SOAC’s
former directors and certain of their transferees (collectively, the “Founder Shares”), (v) 11,030,000 Common Shares
issued in the PIPE Financing (as defined in the Prospectus), (vi) 131,178,480 Common Shares issued to certain shareholders of DeepGreen
(as defined in the Prospectus) pursuant to the Business Combination Agreement (as defined in the Prospectus), (vii) 77,277,244 Common
Shares issuable to certain shareholders of DeepGreen upon the conversion of DeepGreen Earnout Shares (as defined in the Prospectus) pursuant
to the Business Combination Agreement, (viii) 1,241,000 Common Shares issuable to the Sponsor and its transferees upon the conversion
of Sponsor Earnout Shares (as defined in the Prospects) and (ix) 873,953 Common Shares issued to certain service providers to DeepGreen.
The Prospectus provides you with a general description
of such securities and the general manner in which we and the Selling Securityholders may offer or sell the securities. More specific
terms of any securities that we and the Selling Securityholders may offer or sell may be provided in a prospectus supplement that describes,
among other things, the specific amounts and prices of the securities being offered and the terms of the offering. The prospectus supplement
may also add, update or change information contained in the Prospectus.
We will not receive any proceeds from the sale
of Common Shares or Private Placement Warrants by the Selling Securityholders or of Common Shares by us pursuant to the Prospectus, except
with respect to amounts received by us upon exercise of the Warrants.
However, we will pay the expenses, other than
any underwriting discounts and commissions, associated with the sale of securities pursuant to the Prospectus.
We registered certain of the securities for resale
pursuant to the Selling Securityholders’ registration rights under certain agreements between us and the Selling Securityholders.
Our registration of the securities covered by the Prospectus does not mean that either we or the Selling Securityholders will issue, offer
or sell, as applicable, any of the securities. The Selling Securityholders may offer and sell the securities covered by the Prospectus
in a number of different ways and at varying prices. We provide more information about how the Selling Securityholders may sell the shares
or Warrants in the section entitled “Plan of Distribution” in the Prospectus.
This Supplement incorporates into the Prospectus
the information contained in our attached quarterly report on Form 10-Q, which was filed with the Securities and Exchange Commission
on November 15, 2021.
You should read this Supplement in conjunction
with the Prospectus, including any supplements and amendments thereto. This Supplement is qualified by reference to the Prospectus except
to the extent that the information in this Supplement supersedes the information contained in the Prospectus. This Supplement is not complete
without, and may not be delivered or utilized except in connection with, the Prospectus, including any supplements and amendments thereto.
Our Common Shares and Public Warrants are listed
on Nasdaq under the symbols “TMC” and “TMCWW,” respectively. On November 12, 2021, the closing price of
our Common Shares was $3.31 and the closing price for our Public Warrants was $0.91.
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ¨
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TMC the metals company Inc.
Condensed Consolidated Balance Sheets
(in thousands of US Dollars, except share amounts)
(Unaudited)
|
|
|
|
|
As at
|
|
|
As at
|
|
|
|
|
|
|
September 30
|
|
|
December 31
|
|
|
|
Note
|
|
|
2021
|
|
|
2020
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
112,640
|
|
|
|
10,096
|
|
Receivables and prepayments
|
|
|
|
|
|
139
|
|
|
|
129
|
|
|
|
|
|
|
|
112,779
|
|
|
|
10,225
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
Exploration contracts
|
|
5,6
|
|
|
|
43,150
|
|
|
|
43,150
|
|
Equipment
|
|
|
|
|
|
1,387
|
|
|
|
1,310
|
|
|
|
|
|
|
|
44,537
|
|
|
|
44,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
|
|
|
157,316
|
|
|
|
54,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
6
|
|
|
|
28,343
|
|
|
|
4,316
|
|
Deferred acquisition costs
|
|
5
|
|
|
|
—
|
|
|
|
3,440
|
|
|
|
|
|
|
|
28,343
|
|
|
|
7,756
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
5
|
|
|
|
10,675
|
|
|
|
10,675
|
|
Warrant liability
|
|
8
|
|
|
|
11,623
|
|
|
|
—
|
|
TOTAL LIABILITIES
|
|
|
|
|
|
50,641
|
|
|
|
18,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Common shares (unlimited shares, no par value – issued: 224,385,324 (December 31, 2020 – 189,493,593))
|
|
9
|
|
|
|
284,228
|
|
|
|
154,431
|
|
Preferred shares (unlimited share, no par value – issued: nil (December 31, 2020 - 509,459))
|
|
9
|
|
|
|
—
|
|
|
|
550
|
|
Class A - J Special Shares
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
Additional paid in capital
|
|
|
|
|
|
108,022
|
|
|
|
45,347
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
(1,216
|
)
|
|
|
(1,216
|
)
|
Deficit
|
|
|
|
|
|
(284,359
|
)
|
|
|
(162,858
|
)
|
TOTAL EQUITY
|
|
|
|
|
|
106,675
|
|
|
|
36,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
|
|
|
|
157,316
|
|
|
|
54,685
|
|
Nature
of Operations (Note 1)
Commitments
(Note 13)
Subsequent
Event (Note 16)
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,
|
|
|
|
Note
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration expenses
|
|
6,10
|
|
|
23,848
|
|
|
|
4,556
|
|
|
|
80,181
|
|
|
|
35,744
|
|
General and administrative expenses
|
|
10
|
|
|
13,334
|
|
|
|
2,192
|
|
|
|
41,138
|
|
|
|
3,818
|
|
Operating loss
|
|
|
|
|
37,182
|
|
|
|
6,748
|
|
|
|
121,319
|
|
|
|
39,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
8
|
|
|
(878
|
)
|
|
|
—
|
|
|
|
(878
|
)
|
|
|
—
|
|
Foreign exchange loss
|
|
|
|
|
5
|
|
|
|
41
|
|
|
|
57
|
|
|
|
37
|
|
Interest expense (income)
|
|
7
|
|
|
342
|
|
|
|
(3
|
)
|
|
|
1,003
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and comprehensive loss for the period
|
|
|
|
|
36,651
|
|
|
|
6,786
|
|
|
|
121,501
|
|
|
|
39,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– Basic and diluted
|
|
11
|
|
$
|
0.18
|
|
|
$
|
0.04
|
|
|
$
|
0.61
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding – basic and diluted
|
|
11
|
|
|
205,248,258
|
|
|
|
186,432,173
|
|
|
|
198,092,309
|
|
|
|
175,631,164
|
|
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 Shareholders’
Equity
(in thousands of US Dollars)
(Unaudited)
|
|
Common
|
|
|
Preferred
|
|
|
Special
|
|
|
Additional
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
|
Three months
ended September 30, 2021
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Paid
in Capital
|
|
|
Comprehensive
Loss
|
|
|
Deficit
|
|
|
Total
|
|
June 30, 2021 (restated -
Note 2)
|
|
|
188,901
|
|
|
|
550
|
|
|
|
—
|
|
|
|
72,541
|
|
|
|
(1,216
|
)
|
|
|
(247,708
|
)
|
|
|
13,068
|
|
Exercise of stock options (Note 10)
|
|
|
6,039
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,366
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,673
|
|
Conversion of debentures (Note
7)
|
|
|
26,503
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,503
|
|
Common share options–payments
(Note 10)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,508
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,508
|
|
Common shares issued for services
|
|
|
1,248
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,248
|
|
Net equity from Business Combination
(Note 4)
|
|
|
60,987
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,339
|
|
|
|
—
|
|
|
|
—
|
|
|
|
91,326
|
|
Conversion of preferred shares to common shares
|
|
|
550
|
|
|
|
(550
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(36,651
|
)
|
|
|
(36,651
|
)
|
September 30, 2021
|
|
|
284,228
|
|
|
|
—
|
|
|
|
—
|
|
|
|
108,022
|
|
|
|
(1,216
|
)
|
|
|
(284,359
|
)
|
|
|
106,675
|
|
|
|
Common
|
|
|
Preferred
|
|
|
Special
|
|
|
Additional
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
Three months
ended September 30, 2020
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Paid in Capital
|
|
|
Comprehensive Loss
|
|
|
Deficit
|
|
|
Total
|
|
June 30,
2020
|
|
|
144,065
|
|
|
|
550
|
|
|
|
—
|
|
|
|
32,294
|
|
|
|
(1,216
|
)
|
|
|
(138,987
|
)
|
|
|
36,706
|
|
Private
placements (net of financing costs)
|
|
|
8,531
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,531
|
|
Common
shares to be issued for exploration expenses (Note 6)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,066
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,066
|
|
Common
share options–payments (Note 10)
|
|
|
(74
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,533
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,459
|
|
Loss
for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,786
|
)
|
|
|
(6,786
|
)
|
September 30,
2020
|
|
|
152,522
|
|
|
|
550
|
|
|
|
—
|
|
|
|
35,893
|
|
|
|
(1,216
|
)
|
|
|
(145,773
|
)
|
|
|
41,976
|
|
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 Shareholders’
Equity
(in thousands of US Dollars)
(Unaudited)
|
|
Common
|
|
|
Preferred
|
|
|
Special
|
|
|
Additional
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
Nine months
ended September 30, 2021
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Paid in Capital
|
|
|
Comprehensive Loss
|
|
|
Deficit
|
|
|
Total
|
|
December 31,
2020
|
|
|
154,431
|
|
|
|
550
|
|
|
|
—
|
|
|
|
45,347
|
|
|
|
(1,216
|
)
|
|
|
(162,858
|
)
|
|
|
36,254
|
|
Exercise
of stock options (Note 10)
|
|
|
14,297
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,061
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4,236
|
|
Common
shares issued for exploration expenses (Note 6)
|
|
|
25,664
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,879
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
12,785
|
|
Conversion
of debentures (Note 7)
|
|
|
27,003
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27,003
|
|
Common
share options–payments (Note 10)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,276
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,276
|
|
Common
shares issued for services
|
|
|
1,296
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,296
|
|
Net
equity from Business Combination (Note 4)
|
|
|
60,987
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,339
|
|
|
|
—
|
|
|
|
—
|
|
|
|
91,326
|
|
Conversion
of preferred shares to common shares
|
|
|
550
|
|
|
|
(550
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Loss
for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(121,501
|
)
|
|
|
(121,501
|
)
|
September 30,
2021
|
|
|
284,228
|
|
|
|
—
|
|
|
|
—
|
|
|
|
108,022
|
|
|
|
(1,216
|
)
|
|
|
(284,359
|
)
|
|
|
106,675
|
|
|
|
Common
|
|
|
Preferred
|
|
|
Special
|
|
|
Additional
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
|
Nine months
ended September 30, 2020
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Paid in Capital
|
|
|
Comprehensive
Loss
|
|
|
Deficit
|
|
|
Total
|
|
December 31,
2019
|
|
|
79,824
|
|
|
|
550
|
|
|
|
—
|
|
|
|
35,257
|
|
|
|
(1,216
|
)
|
|
|
(106,227
|
)
|
|
|
8,188
|
|
Private
placement (net of financing costs)
|
|
|
20,374
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,374
|
|
Financing
cost
|
|
|
(26
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(26
|
)
|
Common
shares issued for acquisition of Tonga Offshore Minerals Limited (Note 5)
|
|
|
28,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,000
|
|
Common
shares to be issued for exploration expenses (Note 6)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,957
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,957
|
|
Common
share options–payments (Note 10)
|
|
|
(396
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
2,089
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,693
|
|
Common
shares issued for services
|
|
|
24,746
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,410
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
18,336
|
|
Loss
for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(39,546
|
)
|
|
|
(39,546
|
)
|
September 30,
2020
|
|
|
152,522
|
|
|
|
550
|
|
|
|
—
|
|
|
|
35,893
|
|
|
|
(1,216
|
)
|
|
|
(145,773
|
)
|
|
|
41,976
|
|
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
|
|
|
|
|
|
September 30,
|
|
|
|
Note
|
|
2021
|
|
|
2020
|
|
Cash resources provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
Loss for the period
|
|
|
|
|
(121,501
|
)
|
|
|
(39,546
|
)
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
324
|
|
|
|
421
|
|
Expenses settled in share-based payments
|
|
6,10
|
|
|
69,357
|
|
|
|
16,653
|
|
Interest on convertible debentures
|
|
7
|
|
|
1,003
|
|
|
|
—
|
|
Change in fair value of warrant liability
|
|
8
|
|
|
(878
|
)
|
|
|
—
|
|
Unrealized foreign exchange
|
|
|
|
|
(31
|
)
|
|
|
(1
|
)
|
Changes in working capital:
|
|
|
|
|
|
|
|
|
|
|
Receivables and prepayments
|
|
|
|
|
(8
|
)
|
|
|
(65
|
)
|
Accounts payable and accrued liabilities
|
|
|
|
|
23,395
|
|
|
|
1,188
|
|
Net cash used in operating activities
|
|
|
|
|
(28,339
|
)
|
|
|
(21,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
Acquisition of exploration contract
|
|
5
|
|
|
(3,440
|
)
|
|
|
(607
|
)
|
Acquisition of equipment
|
|
|
|
|
(402
|
)
|
|
|
—
|
|
Net cash used in investing activities
|
|
|
|
|
(3,842
|
)
|
|
|
(607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
10
|
|
|
4,236
|
|
|
|
—
|
|
Proceeds from issuance of convertible debentures
|
|
7
|
|
|
26,000
|
|
|
|
—
|
|
Proceeds from issuance of common shares (net of fees and other costs)
|
|
9
|
|
|
—
|
|
|
|
20,348
|
|
Proceeds from Business Combination (net of fees and other costs)
|
|
4
|
|
|
104,465
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
|
|
134,701
|
|
|
|
20,348
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
102,520
|
|
|
|
(1,609
|
)
|
Impact of exchange rate changes on cash and cash equivalents
|
|
|
|
|
24
|
|
|
|
(4
|
)
|
Cash and cash equivalents – beginning of period
|
|
|
|
|
10,096
|
|
|
|
15,951
|
|
Cash and cash equivalents – end of period
|
|
|
|
|
112,640
|
|
|
|
14,338
|
|
Supplemental cash flow information (Note 14)
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 unless
otherwise stated, except share and per share amounts)
(Unaudited)
1. Nature of Operations
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”) (Note 4). 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, 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, processing and refining of polymetallic nodules found on the seafloor in international
waters of the Clarion Clipperton Zone of the Pacific Ocean (“CCZ”), located about 1,300 nautical miles south-west of San Diego,
California. These nodules contain high grades of four metals (nickel, copper, cobalt, manganese) critical for the transition to clean
energy and infrastructure buildout. The Company is considered to have mining operations and mining properties in accordance with regulations
of the U.S. Securities and Exchange Commission (“SEC”).
Exploration and exploitation of seabed
minerals in international waters is regulated by the International Seabed Authority (the “ISA”), an intergovernmental organization
established in 1994 pursuant to the United Nations Convention on the Law of the Sea (“UNCLOS”). ISA contracts are granted
to sovereign states or have to be sponsored by a sovereign state. The Company’s wholly-owned subsidiary, Nauru Ocean Resources Inc.
(“NORI”), was granted an 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 by the ISA in January 2012 and has exclusive rights to explore for polymetallic nodules covering
an area of 74,713 km2 in the CCZ (“TOML Area”) under the sponsorship of Kingdom of Tonga (“Tonga”).
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”).
The Company entered into an option agreement with Marawa to purchase such tenements granted to exclusively collect nodules from the Marawa
Area in return for a royalty payable to Marawa. The Company is working with its strategic partner, Allseas Group S.A. (“Allseas”),
to develop a system to collect, lift and transport nodules from the seafloor to shore and with its strategic partner, Maersk Supply Service
A/S (“Maersk”) to undertake resource definition and environmental baseline campaigns.
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.
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 may negatively impact the Company’s business operations, exploration and development plans, results of operations, financial
position, and cash flows.
TMC the metals company Inc.
Notes to Condensed Consolidated Financial
Statements
(in thousands of US Dollars unless
otherwise stated, except share and per share amounts)
(Unaudited)
2. Restatement
of Previously Issued Quarterly Financial Statements
The Company has restated its financial
statements as of and for the three month period ended March 31, 2021, and as of and for the six month period ended June 30,
2021 (the “Affected Periods”) in this Quarterly Report on Form 10-Q. The restatement resulted from the following items
identified while preparing the condensed consolidated financial statements as of and for the three and nine months ended September 30,
2021:
|
(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)
|
the Company’s 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 the Company rather than the grant date of
the options on March 4, 2021, as required by US Generally Accepted Accounting Principles (“US 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.
|
Therefore, the Company is restating
its financial statements for the Affected Periods (the “Restatement”).
The Company considered the guidance
in Accounting Standard Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections, and ASC Topic 250-10-S99-1,
Assessing Materiality and ASC Topic 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements
in Current Year Financial Statements, in evaluating whether the Company’s previously issued quarterly financial statements were
materially misstated. The Company concluded the items set forth above were not material individually or in the aggregate to the quarterly
financial statements presented for the Affected Periods. Therefore, amendments of the previously filed report and registration statements
in which such quarterly financial statements were included was not required. The following summarizes the effect of the Restatement on
each financial statement line item for each period presented.
TMC the metals company Inc.
Notes to Condensed Consolidated Financial
Statements
(in thousands of US Dollars unless otherwise stated, except share
and per share amounts)
(Unaudited)
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31,
|
|
|
As at June 30,
|
|
|
|
|
|
2021
|
|
|
2021
|
|
Accounts payable and accrued liabilities
|
|
As previously reported
|
|
|
6,430
|
|
|
|
9,033
|
|
|
|
Adjustments1
|
|
|
—
|
|
|
|
2,663
|
|
|
|
As restated
|
|
|
6,430
|
|
|
|
11,696
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
As previously reported
|
|
|
44,075
|
|
|
|
45,869
|
|
|
|
Adjustments1
|
|
|
—
|
|
|
|
2,663
|
|
|
|
As restated
|
|
|
44,075
|
|
|
|
48,532
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
As previously reported
|
|
|
63,576
|
|
|
|
74,069
|
|
|
|
Adjustments2
|
|
|
(1,848
|
)
|
|
|
(1,528
|
)
|
|
|
As restated
|
|
|
61,728
|
|
|
|
72,541
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
As previously reported
|
|
|
(220,416
|
)
|
|
|
(246,573
|
)
|
|
|
Adjustments1,2
|
|
|
1,848
|
|
|
|
(1,135
|
)
|
|
|
As restated
|
|
|
(218,568
|
)
|
|
|
(247,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
As previously reported
|
|
|
25,631
|
|
|
|
15,731
|
|
|
|
Adjustments1
|
|
|
—
|
|
|
|
(2,663
|
)
|
|
|
As restated
|
|
|
25,631
|
|
|
|
13,068
|
|
1.
|
Reflects increase of $2.7 million in exploration expenses for the six months ended June 30, 2021 to accrue for certain exploration
invoices as at June 30, 2021.
|
2.
|
Reflects decrease of $1.8 million and $1.5 million of stock-based compensation expenses for the three months ended March 31,
2021 and six months ended June 30, 2021, respectively.
|
TMC the metals company Inc.
Notes to Condensed Consolidated Financial
Statements
(in thousands of US Dollars unless otherwise stated, except share
and per share amounts)
(Unaudited)
Condensed Consolidated Statements of Loss and
Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
March 31, 2021
|
|
|
June 30, 20214
|
|
|
June 30, 2021
|
|
Exploration expenses
|
|
As previously reported
|
|
|
39,364
|
|
|
|
15,372
|
|
|
|
54,736
|
|
|
|
Adjustments1,2
|
|
|
(1,257
|
)
|
|
|
2,854
|
|
|
|
1,597
|
|
|
|
As restated
|
|
|
38,107
|
|
|
|
18,226
|
|
|
|
56,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
As previously reported
|
|
|
17,955
|
|
|
|
10,311
|
|
|
|
28,266
|
|
|
|
Adjustments3
|
|
|
(591
|
)
|
|
|
129
|
|
|
|
(462
|
)
|
|
|
As restated
|
|
|
17,364
|
|
|
|
10,440
|
|
|
|
27,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
As previously reported
|
|
|
57,319
|
|
|
|
25,683
|
|
|
|
83,002
|
|
|
|
Adjustments1,2,3
|
|
|
(1,848
|
)
|
|
|
2,983
|
|
|
|
1,135
|
|
|
|
As restated
|
|
|
55,471
|
|
|
|
28,666
|
|
|
|
84,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and comprehensive loss for the period
|
|
As previously reported
|
|
|
57,558
|
|
|
|
26,157
|
|
|
|
83,715
|
|
|
|
Adjustments1,2,3
|
|
|
(1,848
|
)
|
|
|
2,983
|
|
|
|
1,135
|
|
|
|
As restated
|
|
|
55,710
|
|
|
|
29,140
|
|
|
|
84,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - Basic and diluted
|
|
As previously reported
|
|
|
0.30
|
|
|
|
0.13
|
|
|
|
0.43
|
|
|
|
Adjustments1,2,3
|
|
|
(0.01
|
)
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
As restated
|
|
|
0.29
|
|
|
|
0.15
|
|
|
|
0.44
|
|
1.
|
Reflects decrease of $1.3 million for the three months ended March 31, 2021 and increase of $0.2 million and decrease of $1.1
million for the three and six months ended June 30, 2021, respectively, related to stock-based compensation expense.
|
2.
|
Reflects increase of $2.7 million to accrue for certain exploration invoices for the three and six months ended June 30, 2021.
|
3.
|
Reflects decrease of $0.6 million for the three months ended March 31, 2021 and increase of $0.1 million and decrease of $0.5
million for the three and six months ended June 30, 2021, respectively, related to stock-based compensation expense.
|
4.
|
Results for the three month period ended June 30, 2021 have not been previously reported on a standalone basis.
|
TMC the metals company Inc.
Notes to Condensed Consolidated Financial
Statements
(in thousands of US Dollars unless
otherwise stated, except share and per share amounts)
(Unaudited)
Condensed Consolidated Statements of Changes
in Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31,
|
|
|
As at June 30,
|
|
|
|
|
|
2021
|
|
|
2021
|
|
Additional paid in capital
|
|
As previously reported
|
|
|
63,576
|
|
|
|
74,069
|
|
|
|
Adjustments1
|
|
|
(1,848
|
)
|
|
|
(1,528
|
)
|
|
|
As restated
|
|
|
61,728
|
|
|
|
72,541
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
As previously reported
|
|
|
(220,416
|
)
|
|
|
(246,573
|
)
|
|
|
Adjustments1,2
|
|
|
1,848
|
|
|
|
(1,135
|
)
|
|
|
As restated
|
|
|
(218,568
|
)
|
|
|
(247,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
As previously reported
|
|
|
25,631
|
|
|
|
15,731
|
|
|
|
Adjustments2
|
|
|
—
|
|
|
|
(2,663
|
)
|
|
|
As restated
|
|
|
25,631
|
|
|
|
13,068
|
|
1.
|
Reflects decrease of $1.8 million for the three months ended March 31, 2021 and decrease of $1.5 million for the six months ended
June 30, 2021 related to stock-based compensation expense.
|
2.
|
Reflects increase of $2.7 million to accrue for certain exploration invoices for the six months ended June 30, 2021.
|
Condensed Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
March 31, 2021
|
|
|
June 30, 2021
|
|
Loss for the period
|
|
As previously reported
|
|
|
(57,558
|
)
|
|
|
(83,715
|
)
|
|
|
Adjustments1,2
|
|
|
1,848
|
|
|
|
(1,135
|
)
|
|
|
As restated
|
|
|
(55,710
|
)
|
|
|
(84,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Expenses settled in share-based payments
|
|
As previously reported
|
|
|
45,059
|
|
|
|
60,128
|
|
|
|
Adjustments1
|
|
|
(1,848
|
)
|
|
|
(1,528
|
)
|
|
|
As restated
|
|
|
43,211
|
|
|
|
58,600
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
As previously reported
|
|
|
2,114
|
|
|
|
4,719
|
|
|
|
Adjustments2
|
|
|
—
|
|
|
|
2,663
|
|
|
|
As restated
|
|
|
2,114
|
|
|
|
7,382
|
|
1.
|
Reflects decrease of $1.8 million for the three months ended March 31, 2021 and decrease of $1.5 million for the six months ended
June 30, 2021 related to stock-based compensation expense.
|
2.
|
Reflects increase of $2.7 million to accrue for certain exploration invoices for the six months ended June 30, 2021.
|
TMC the metals company Inc.
Notes to Condensed Consolidated Financial
Statements
(in thousands of US Dollars unless
otherwise stated, except share and per share amounts)
(Unaudited)
3. Summary of Significant
Accounting Policies
Basis of Presentation
These
unaudited condensed consolidated financial statements are prepared in accordance with US GAAP for interim financial statements. Accordingly,
certain information and footnote disclosures required by US GAAP have been condensed or omitted in these unaudited condensed consolidated
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, 2021 or for any other period. These unaudited condensed consolidated financial statements should be read in conjunction
with the audited annual consolidated financial statements for the year ended December 31, 2020. 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 (Note 4).
Basis of Measurement
These unaudited condensed consolidated
financial statements have been prepared under the historical cost convention and are presented in US dollars.
Use of Estimates
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts in the unaudited condensed
consolidated financial statements and the notes thereto. Significant estimates and assumptions reflected in these unaudited condensed
consolidated financial statements include, but are not limited to, accounting for the acquisition of TOML, the valuation of common share-based
payments, including valuation of the incentive stock options (Note 10) and the common shares issued to Maersk (Notes 6 and 9), as well
as the valuation of warrant liability (Note 8). 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 US 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 unless otherwise stated, except share
and per share amounts)
(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, 2021 and 2020.
As of September 30, 2021 and December 31,
2020, the carrying values of cash and cash equivalents, accounts payable and accrued expenses and deferred acquisition costs, approximate
their fair values due to the short-term nature of these instruments.
Warrant Liabilities
The Company evaluates all of its financial
instruments, including issued share purchase warrants, to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives, pursuant to ASC 480, Distinguishing Liability from Equity, and ASC 815, Derivatives and Hedging.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed
at the end of each reporting period.
Prior to the Business Combination,
SOAC issued 15,000,000 common share warrants (“Public Warrants”) as part of the units offered in its initial public
offering and, simultaneously with the closing of initial public offering, SOAC issued an aggregate of 9,500,000 private placement
common share warrants (“Private Warrants”) in a private placement. For accounting purposes, the Company was considered to
have issued the Public and Private Warrants as part of the Business Combination (Note 4).
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 based
on consideration of the implied volatility from the Company’s Public Warrants market price.
Recent Accounting Pronouncements Issued and Adopted
Accounting for Debt with Conversion and Other Options
In August 2020, the Financial
Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-06, “Debt –
Debt with Conversion and Other Options (Subtopic 470-20) and Derivative and Hedging – Contracts in Entity’s Own Equity (Subtopic
815-40)”, which simplifies the accounting for convertible instruments by reducing the number of accounting models and requiring
that a convertible instrument be accounted for as a single liability measured at amortized cost. Further, ASU 2020-08 amended the earnings
per share guidance by requiring the diluted earnings per share calculation for convertible instruments to follow the if-converted method,
with the use of the treasury stock method no longer permitted. The ASU 2020-08 is effective for fiscal periods after December 15,
2021, with early adoption permitted, but no earlier than fiscal years and interim periods within those fiscal years, beginning after December 15,
2020. The ASU 2020-08 allows either a modified retrospective method of transition or a fully retrospective method of transition, with
any adjustments recognized as an adjustment to the opening balance of deficit. The Company adopted this standard on January 1, 2021.
The standard did not have any impact on the Company’s historical financial statements but was applied to recognize the impact of
the convertible debentures issued during February 2021 (Note 7).
TMC the metals company Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands of US Dollars unless otherwise stated, except share
and per share amounts)
(Unaudited)
4. Business
Combination
On March 4, 2021, SOAC and DeepGreen
entered into a business combination agreement (“BCA”) in which SOAC would combine with DeepGreen, relist on the Nasdaq and
SOAC would be renamed to TMC. The Business Combination was consummated on September 9, 2021, whereby SOAC acquired all of the outstanding
common shares of DeepGreen.
Pursuant to the BCA, shareholders of
DeepGreen exchanged their DeepGreen common shares at a ratio of 1.157862 TMC common shares per DeepGreen common share (“Exchange
Ratio”) and received approximately 203.9 million TMC common shares and a total of 120.1 million Class A to H special shares
(“Special Shares”). Each class of Special Shares automatically convert to TMC common shares if TMC common shares trade at
a price on any twenty trading days within any thirty trading day period that is greater than or equal to the specific trigger price
for the respective class of Special Share. The trigger prices range from $15 per share to $200 per share. Additionally, existing DeepGreen
options were automatically adopted by TMC (the “Rollover Options”) after application of the Exchange Ratio to both the underlying
number of common shares and the exercise price. These Rollover Options did not change in value as a result of the Business Combination.
The Rollover Options also entitle holders thereof to a pro-rata portion of up to an aggregate of 14.9 million Special Shares if exercised.
Lastly, the warrants granted to Allseas to acquire 10 million DeepGreen common shares at a nominal value (the “Allseas Warrant”)
have been assumed by TMC and have become warrants to purchase 11.6 million TMC common shares, in accordance with its terms.
Below is a summary of the Special Shares
and their respective vesting thresholds, assuming the full amount of Special Shares from Rollover Options are issued:
Special Share Class
|
|
A
|
|
B
|
|
C
|
|
D
|
|
E
|
|
F
|
|
G
|
|
H
|
Share Trigger price ($)
|
|
15
|
|
25
|
|
35
|
|
50
|
|
75
|
|
100
|
|
150
|
|
200
|
Special Shares (million)
|
|
5
|
|
10
|
|
10
|
|
20
|
|
20
|
|
20
|
|
25
|
|
25
|
In connection with the Business Combination,
the SOAC sponsors were entitled to additional 0.5 million Class I Special Shares and 0.7 million Class J Special Shares which
are convertible to TMC common shares if TMC common shares trade for a price on any twenty trading days within any thirty trading
day period that is greater than or equal to $50.00 per share and $12.00 per share, respectively.
The following table reconciles the
cash proceeds from the Business Combination:
|
|
|
|
Cash proceeds from SOAC
|
|
$
|
27,328
|
|
Cash proceeds from sale of equity securities
|
|
|
110,300
|
|
Gross cash received by TMC from Business Combination
|
|
|
137,628
|
|
Less: Transaction costs settled in cash
|
|
|
(33,163
|
)
|
Net contributions from Business Combination
|
|
$
|
104,465
|
|
In addition to the amounts above, the
Company incurred $8.7 million of transaction costs which were settled by issuance of 873,953 common shares on October 7, 2021. As
at September 31, 2021, these transaction costs were offset against proceeds with the unissued shares being recorded in additional
paid in capital.
Prior
to the Business Combination, SOAC had 30.0 million shares of Class A common stock with a par value of $0.0001 per share (“SOAC
Class A Shares”) outstanding and 7.5 million shares of Class B common stock with a par value of $0.0001 per share (“SOAC
Class B Shares”) held by Sustainable Opportunities Holdings LLC (the “Sponsor”).
TMC the metals company Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands of US Dollars unless otherwise stated, except share
and per share amounts)
(Unaudited)
In
connection with the Business Combination, 27.3 million SOAC Class A Shares were redeemed by public shareholders. On September 9,
2021, each remaining issued and outstanding share of SOAC Class A Shares automatically converted, on a one-for-one basis, into TMC
common shares and 6.8 million outstanding shares of SOAC Class B Shares automatically converted, on a one-for-one basis, into TMC
common shares and 0.7 million outstanding shares of SOAC Class B Shares converted into Class J Special Shares. The TMC common
shares also changed from having a par value of $0.0001 per share to no par value.
The number of TMC common shares issued
immediately following the consummation of the Business Combination is summarized as follows:
|
|
Number of
|
|
Shares by type
|
|
shares
|
|
SOAC Class A shares outstanding prior to the Business Combination
|
|
|
30,000,000
|
|
Less: Redemption of SOAC Class A shares
|
|
|
(27,278,657
|
)
|
SOAC Class A shares outstanding and converted to TMC common shares
|
|
|
2,721,343
|
|
Shares issued in the Private Investment in Public Equity (“PIPE”)
|
|
|
11,030,000
|
|
Conversion of SOAC Class B shares to TMC common shares
|
|
|
6,759,000
|
|
Shares issued to SOAC and PIPE investors
|
|
|
20,510,343
|
|
Shares issued to the DeepGreen shareholders
|
|
|
203,874,981
|
|
Total TMC common shares outstanding at close of Business Combination
|
|
|
224,385,324
|
|
The
Company incurred transaction costs related to the Business Combination of approximately $46.8 million, of which $0.6 million and $4.9
million, incurred prior to the closing of the Business Combination becoming probable, are included in general and administrative
expenses on the consolidated statements of loss and other comprehensive loss for the three and nine months ended September 30,
2021, respectively. The remaining $41.9 million of transaction costs were capitalized to common shares on the condensed consolidated balance
sheet as of September 30, 2021.
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 the 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 PIPE investors in the Business Combination.
5. TOML
Acquisition
On March 31, 2020, the Company
entered into an acquisition agreement to acquire the polymetallic nodules business unit of TOML and other entities in the group (the “TOML
Group”) from Deep Sea Mining Finance Ltd. (“DSMF”) (the “TOML Acquisition”). Total purchase price of
the TOML Acquisition, before transaction costs, was $32.0 million. TOML holds an ISA exploration contract in the CCZ ("TOML Exploration
Contract") and some exploration related equipment. The TOML Group also holds various patents and an application right with respect
to a prospecting exploration contract in Kiribati.
The purchase price of $32.0 million
was settled through initial cash payments in two tranches of $0.25 million each (paid on March 31, 2020 and May 31, 2020, respectively),
issuance of 9,005,595 common shares after adjustment for the Exchange Ratio, $0.1 million payment to the ISA on behalf of DSMF and deferred
consideration of $3.4 million which was to be paid on January 31, 2021. The common share consideration paid by the Company was valued
at $3.11 per common share, after adjustment for the Exchange Ratio, based on the private placements completed by DeepGreen around the
time of the TOML Acquisition, for a total of $28.0 million.
TMC the metals company Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands of US Dollars unless otherwise stated, except share
and per share amounts)
(Unaudited)
The Company had the option of settling
the deferred consideration in either cash or common shares of the Company at its sole discretion. In January 2021, the arrangement
with DSMF was amended to pay the entire deferred consideration with cash. The deferred consideration was fully settled on June 30,
2021.
The Company incurred legal and regulatory
fees to complete the acquisition totalling $47 thousand.
The Company determined that the value
of TOML Acquisition was substantially concentrated in the TOML Exploration Contract and therefore considered this to be an acquisition
of a group of connected assets rather than an acquisition of business. Consequently, the total cost of the transaction was primarily allocated
to exploration contracts.
The net assets acquired as part of
the TOML Acquisition were as follows:
Net assets acquired
|
|
$
|
|
Cash payments
|
|
|
560
|
|
Common shares issued (9,005,595 common shares @ $3.11, after adjustment for the Exchange Ratio)
|
|
|
28,000
|
|
Transaction costs paid
|
|
|
47
|
|
Deferred consideration
|
|
|
3,440
|
|
Total acquisition cost
|
|
|
32,047
|
|
Allocated to:
|
|
|
|
|
Equipment
|
|
|
21
|
|
Exploration contracts (Note 6)
|
|
|
42,701
|
|
Deferred tax liability1
|
|
|
(10,675
|
)
|
Net assets acquired
|
|
|
32,047
|
|
|
1.
|
A deferred tax liability was recognized by the Company on acquisition related to differences between the
book value and the tax basis of the TOML exploration contract.
|
6. Exploration Contracts
Significant Exploration Agreements
NORI Exploration Contract:
The Company’s wholly-owned subsidiary,
NORI, was granted the NORI Exploration Contract on July 22, 2011 under the sponsorship of Nauru. The contract application fee was
$0.3 million, and provides NORI with exclusive rights to explore for polymetallic nodules in the NORI Area for an initial term of 15 years
(renewable for successive five-year periods) subject to complying with the exploration contract terms (Note 13) and provides NORI
with the priority right to apply for an exploitation contract to collect polymetallic nodules in the same area.
NORI has a right to renounce, without
penalty, in whole or part of its rights in the NORI Area at any time and therefore does not have a fixed commitment with relation to the
NORI Exploration Contract (Note 13).
Marawa Agreements:
Marawa was granted the Marawa Exploration
Contract on May 30, 2012. The Marawa Exploration Contract provides Marawa with exclusive rights to explore for polymetallic nodules
in the Marawa Area for an initial term of 15 years (subject to renewal for successive five-year periods) subject to complying with the
exploration contract terms and the priority right to apply for an exploitation contract to collect polymetallic nodules in the same area.
TMC the metals company Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands of US Dollars unless otherwise stated, except share
and per share amounts)
(Unaudited)
On March 17, 2012, the Company’s
wholly-owned subsidiary, DeepGreen Engineering Pte. Ltd. (“DGE”), entered into an Option Agreement (“Marawa Option
Agreement”) with Marawa and Kiribati. Under the amended Marawa Option Agreement dated October 1, 2013, DGE paid an option
fee of $0.3 million to acquire the right to purchase tenements, as may be granted to Marawa by the ISA or any other regulatory body,
for the greater of $0.3 million or the value of any amounts owing to DGE by Marawa. The exercise period for the option is a maximum of
40 years after the date of the execution of the amended Marawa Option Agreement.
On October 1, 2013, DGE also entered
into a services agreement (“Marawa Services Agreement”) with Marawa and Kiribati, which grants DGE the exclusive right to
carry out all exploration and collection in the Marawa Area. Under the Marawa Services Agreement, DGE will pay to the ISA, on behalf of
Marawa, the following: $47 thousand annual exploration fees, ISA royalties and taxes, and the ISA exploitation application fee of
$0.3 million. In addition, DGE will ensure that the activities carried out in the Marawa Area by DGE and any other service contractor
complies with the ISA regulations and any other required regulations.
The Marawa Services Agreement grants
DGE the right to recover any and all polymetallic nodules from the Marawa Area by paying Kiribati a royalty per wet tonne of polymetallic
nodules collected (adjusted for inflation from October 1, 2013 onwards).
DGE has the right to terminate the
Marawa Services Agreement at its sole discretion by giving written notice to Marawa and Kiribati, and such termination shall take effect
two months following the date of the termination notice, provided that DGE shall pay to the ISA on behalf of Marawa the fees or payments
legally owed to the ISA by Marawa (including the annual ISA exploration fee and ISA royalties and taxes) that are outstanding at the date
of termination or that are incurred within 12 months after the date of such termination. There are no other longer-term commitments
with respect to the Marawa Option Agreement and the Marawa Services Agreement.
As at September 30, 2021, Marawa
had no amounts owing to DGE under the Marawa Services Agreement and no purchase tenements had been granted to Marawa.
TOML Exploration Contract:
TOML was granted the TOML Exploration
Contract on January 11, 2012 under the sponsorship of Tonga. The TOML Exploration Contract provides TOML with exclusive rights to
explore for polymetallic nodules in the 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.
Strategic Partnerships
Marine Vessel Services:
Effective March 15, 2017, the
Company entered into a strategic partnership with Maersk to undertake the exploration, environmental baseline and offshore testing required
to support development of pre-feasibility studies for economic production of polymetallic nodules from the CCZ. Under the agreement, Maersk
provides marine vessel services and project management services, enabling TMC to undertake the various offshore campaigns to support required
pre-feasibility studies. During these offshore campaigns, TMC undertook baseline studies required to complete an Environmental and Social
Impact Assessment (“ESIA”), collected nodules for metallurgical test work and collected samples and survey data for resource
evaluation. Prior to February 5, 2021, the costs related to the marine vessel use were settled through the issuance of DeepGreen
common shares, the number of which was based on a contractual price of $1.08 per common share, after adjustment for the Exchange Ratio.
Project management services provided by Maersk for managing these offshore campaigns are paid in cash.
TMC the metals company Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands of US Dollars unless otherwise stated, except share
and per share amounts)
(Unaudited)
Common shares transactions with Maersk
since the inception of the strategic partnership were as follows:
|
|
Marine vessel
|
|
|
Common
|
|
|
Fair value per
|
|
|
Marine vessel
|
|
|
|
cost invoiced
|
|
|
shares issued
|
|
|
common share
|
|
|
cost recognized
|
|
Year of Service
|
|
$
|
|
|
|
|
|
$1
|
|
|
|
|
$2017/2018
|
|
|
2,566
|
|
|
|
2,376,396
|
|
|
|
0.65
|
|
|
|
1,539
|
|
2018
|
|
|
4,594
|
|
|
|
4,255,215
|
|
|
|
1.51
|
|
|
|
6,431
|
|
2019
|
|
|
5,615
|
|
|
|
5,201,561
|
|
|
|
3.11
|
|
|
|
16,173
|
|
2019/2020
|
|
|
5,120
|
|
|
|
4,742,615
|
|
|
|
3.11
|
|
|
|
14,746
|
|
2020/2021 2
|
|
|
4,583
|
|
|
|
4,245,031
|
|
|
|
6.05
|
|
|
|
25,664
|
|
|
|
|
22,478
|
|
|
|
20,820,818
|
|
|
|
|
|
|
|
64,553
|
|
|
1.
|
The fair value of the common shares was determined based on the private placements completed by DeepGreen
around the time of common shares issued to Maersk, including the application of weighted average probability for the closing of the Business
Combination. The number of common shares issued was based on a contractual price of $1.08 per common share, after adjustment for the Exchange
Ratio.
|
|
2.
|
During the nine months ended September 30, 2021, the Company issued 4,245,031 common shares,
after adjustment for the Exchange Ratio, to Maersk of which 4,142,270 common shares, after adjustment for the Exchange Ratio, pertained
to the marine vessel use during the year ended December 31, 2020. These DeepGreen common shares were recognized at their estimated
fair value of $6.05 per common share, after adjustment for the Exchange Ratio (December 31, 2020 - $3.11 per common share, after
adjustment for the Exchange Ratio).
|
As at September 30, 2021, Maersk
owned 20.8 million TMC common shares (December 31, 2020 – 16.6 million TMC common shares after adjustment for the Exchange
Ratio) which constituted 9.3% (December 31, 2020 – 8.8%) of the total common shares outstanding. Maersk is considered a related
party to the Company.
Total cost incurred to Maersk for offshore
campaigns during the three and nine months ended September 30, 2021 amounted to $4.8 million and $29.5 million, respectively
(three months and nine months ended September 30, 2020 - $2.3 million and $17.9 million, respectively).
On March 4, 2021, the agreement
with Maersk was amended whereby all costs incurred on or after February 5, 2021 pertaining to the use of the marine vessel would
be paid in cash rather than through issuance of common shares. The amended agreement is in place until January 8, 2022, at which
point the parties will negotiate any potential future offshore engagements on a case-by-case basis.
As at September 30, 2021, TMC
had outstanding payables to Maersk of $9.3 million (December 31, 2020 - $1.8 million) included within accounts payable and accrued
liabilities.
Strategic Alliance with Allseas Pilot Mining Test
Project
On March 29, 2019, TMC and Allseas
entered into a Strategic Alliance Agreement (“SAA”) with the objective to develop and operate commercial nodule collection
systems in the Company’s contract areas. The SAA included the intent to develop and deploy a Pilot Mining Test System (“PMTS”),
the successful completion of which would support TMC’s application for an exploitation contract with the ISA. Allseas committed
to a fixed price development contract and would own all intellectual property used and generated in the development of the PMTS. Upon
successful completion of the PMTS, TMC and Allseas have also agreed to enter into a nodule collection and shipping agreement whereby Allseas
would provide commercial services for the collection of the first 200 million metric tonnes of polymetallic nodules on a cost plus 50%
profit basis. Under the terms of the SAA, Allseas subscribed for and ultimately received 7.7 million common shares for a total of $20.0
million paid in cash to the Company.
TMC the metals company Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands of US Dollars unless otherwise stated, except share
and per share amounts)
(Unaudited)
On July 8, 2019, as contemplated
by the SAA, TMC and Allseas entered into the PMTS agreement (“PMTS Agreement”) which governs the terms, design specifications,
procedures, and timetable under which Allseas agreed to complete the PMTS. Under the PMTS Agreement, in exchange for Allseas’ development
efforts, upon successful delivery of the PMTS by Allseas, TMC agreed to pay Allseas: (a) $30.0 million in cash and (b) issue
11.6 million common shares.
Contract Amendments
On February 29, 2020, the original
PMTS Agreement was amended to recognize the acquisition by Allseas of the Hidden Gem, a former drillship to be converted into a surface
production vessel that would first be used as part of PMTS, and later as part of the commercial production system. TMC paid an additional:
(a) $10.0 million in cash and (b) $10.0 million by issuing 3.2 million common shares valued at $3.11 per share.
On March 4, 2021 and June 30,
2021, TMC and Allseas further amended the original PMTS Agreement whereby, instead of issuing 11.6 million common shares upon successful
delivery of the PMTS, TMC issued the Allseas Warrant. The Allseas Warrant 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. Since the Allseas Warrant vests upon the achievement of a performance condition, being the completion of
the PMTS, under US GAAP, the vesting of the Allseas Warrant was not determined to be probable as at September 30, 2021. No expense
or liability has been recorded as at and for the nine month period ended September 30, 2021.
The amendment on March 4, 2021
stipulated that if the market price of the TMC common shares on June 1, 2022 is higher than $12.95 per common share, the aggregate
value of the common shares underlying the Allseas Warrant above $150 million as at June 1, 2022 will automatically become a commercial
credit from Allseas to TMC equal to the excess value. This commercial credit will be effective on the vesting date of the Allseas Warrant
and the Company will be able to exchange this excess value for any future goods and services from Allseas under the nodule collection
and shipping contract for one year after commercial production. There can be no assurance that such future goods and services from Allseas
will occur.
The 2021 contract amendments also restructured
the original $30.0 million lump sum cash payment upon successful delivery of the PMTS to:
|
·
|
$10 million within 10 business days of the closing of the Business Combination and Allseas providing confirmation
of placing an order for certain equipment and demonstrating certain progress on construction of the PMTS;
|
|
·
|
$10 million on the later of (i) January 1, 2022, and (ii) confirmation of successful completion
of the North Sea drive test; and
|
|
·
|
$10 million upon successful completion of the PMTS.
|
As at September 30, 2021, Allseas
has successfully reached the first progress milestone by confirming the order of certain equipment and demonstrating certain progress
on construction of the PMTS and the Business Combination was completed. Accordingly, the first $10 million payment was paid to Allseas
on October 5, 2021.
The Company accounts for the first
two milestone payments in accordance with ASC 730, Research and Development, as these payments represented progress payments. Accordingly,
the Company expenses the payments according to when the services are performed. The research and development related services commenced
in July 2019 and are expected to be performed through January 2023. Therefore, the Company records the expense on a straight-line
basis over the life of the contract which resulted in total expense of $12.9 million recorded within exploration expenses for the three
and nine months ended September 30, 2021. The third milestone payment is determined to be a milestone and is accounted for in accordance
with ASC 450, Contingencies. The Company will record the expense and liability when the milestone becomes probable. The Company
has not recorded a liability as of September 30, 2021.
TMC the metals company Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands of US Dollars unless otherwise stated, except share
and per share amounts)
(Unaudited)
As at September 30, 2021, Allseas
owned 16.2 million TMC common shares (December 31, 2020 – 14.2 million TMC common shares) which constituted 7.2% (December 31,
2020 – 7.5%) of total common shares outstanding. The total share ownership included 3.2 million shares issued in a private placement
in June 2020. Allseas is considered a related party to the Company.
Exploration Expenses
The detail of exploration expenses
is as follows:
|
|
|
|
|
NORI
|
|
|
Marawa
|
|
|
TOML
|
|
|
|
|
For the three months ended
|
|
|
|
|
Exploration
|
|
|
Option
|
|
|
Exploration
|
|
|
|
|
September 30, 2021
|
|
General
|
|
|
Contract
|
|
|
Agreement
|
|
|
Contract
|
|
|
Total
|
|
Exploration labor
|
|
|
—
|
|
|
|
483
|
|
|
|
198
|
|
|
|
168
|
|
|
|
849
|
|
Offshore campaigns
|
|
|
—
|
|
|
|
4,352
|
|
|
|
544
|
|
|
|
544
|
|
|
|
5,440
|
|
Common share options-based payments (Note 10)
|
|
|
—
|
|
|
|
1,578
|
|
|
|
594
|
|
|
|
860
|
|
|
|
3,032
|
|
Amortization
|
|
|
—
|
|
|
|
127
|
|
|
|
—
|
|
|
|
1
|
|
|
|
128
|
|
External consulting
|
|
|
10
|
|
|
|
564
|
|
|
|
118
|
|
|
|
112
|
|
|
|
804
|
|
Travel, workshop and other
|
|
|
—
|
|
|
|
592
|
|
|
|
27
|
|
|
|
76
|
|
|
|
695
|
|
PMTS
|
|
|
—
|
|
|
|
10,244
|
|
|
|
1,376
|
|
|
|
1,280
|
|
|
|
12,900
|
|
|
|
|
10
|
|
|
|
17,940
|
|
|
|
2,857
|
|
|
|
3,041
|
|
|
|
23,848
|
|
TMC the metals company Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands of US Dollars unless otherwise stated, except share
and per share amounts)
(Unaudited)
|
|
|
|
|
NORI
|
|
|
Marawa
|
|
|
TOML
|
|
|
|
|
For the three months ended
|
|
|
|
|
Exploration
|
|
|
Option
|
|
|
Exploration
|
|
|
|
|
September 30, 2020
|
|
General
|
|
|
Contract
|
|
|
Agreement
|
|
|
Contract
|
|
|
Total
|
|
Exploration labor
|
|
|
—
|
|
|
|
423
|
|
|
|
181
|
|
|
|
166
|
|
|
|
770
|
|
Offshore campaigns
|
|
|
—
|
|
|
|
2,089
|
|
|
|
261
|
|
|
|
261
|
|
|
|
2,611
|
|
Common share options-based payments (Note 10)
|
|
|
—
|
|
|
|
148
|
|
|
|
87
|
|
|
|
45
|
|
|
|
280
|
|
Amortization
|
|
|
—
|
|
|
|
139
|
|
|
|
—
|
|
|
|
2
|
|
|
|
141
|
|
External consulting
|
|
|
17
|
|
|
|
397
|
|
|
|
127
|
|
|
|
150
|
|
|
|
691
|
|
Travel, workshop and other
|
|
|
—
|
|
|
|
45
|
|
|
|
9
|
|
|
|
9
|
|
|
|
63
|
|
|
|
|
17
|
|
|
|
3,241
|
|
|
|
665
|
|
|
|
633
|
|
|
|
4,556
|
|
|
|
|
|
|
NORI
|
|
|
Marawa
|
|
|
TOML
|
|
|
|
|
For the nine months ended
|
|
|
|
|
Exploration
|
|
|
Option
|
|
|
Exploration
|
|
|
|
|
September 30, 2021
|
|
General
|
|
|
Contract
|
|
|
Agreement
|
|
|
Contract
|
|
|
Total
|
|
Exploration labor
|
|
|
—
|
|
|
|
1,330
|
|
|
|
552
|
|
|
|
507
|
|
|
|
2,389
|
|
Offshore campaigns
|
|
|
—
|
|
|
|
23,365
|
|
|
|
2,864
|
|
|
|
2,864
|
|
|
|
29,093
|
|
Common share options-based payments (Note 10)
|
|
|
—
|
|
|
|
16,680
|
|
|
|
6,925
|
|
|
|
6,972
|
|
|
|
30,577
|
|
Amortization
|
|
|
—
|
|
|
|
321
|
|
|
|
-
|
|
|
|
3
|
|
|
|
324
|
|
External consulting
|
|
|
10
|
|
|
|
2,648
|
|
|
|
538
|
|
|
|
559
|
|
|
|
3,755
|
|
Travel, workshop and other
|
|
|
—
|
|
|
|
841
|
|
|
|
120
|
|
|
|
182
|
|
|
|
1,143
|
|
PMTS
|
|
|
—
|
|
|
|
10,244
|
|
|
|
1,376
|
|
|
|
1,280
|
|
|
|
12,900
|
|
|
|
|
10
|
|
|
|
55,429
|
|
|
|
12,375
|
|
|
|
12,367
|
|
|
|
80,181
|
|
|
|
|
|
|
NORI
|
|
|
Marawa
|
|
|
TOML
|
|
|
|
|
For the nine months ended
|
|
|
|
|
Exploration
|
|
|
Option
|
|
|
Exploration
|
|
|
|
|
September 30, 2020
|
|
General
|
|
|
Contract
|
|
|
Agreement
|
|
|
Contract
|
|
|
Total
|
|
Exploration labor
|
|
|
—
|
|
|
|
1,171
|
|
|
|
566
|
|
|
|
309
|
|
|
|
2,046
|
|
Offshore campaigns
|
|
|
—
|
|
|
|
13,875
|
|
|
|
2,786
|
|
|
|
771
|
|
|
|
17,432
|
|
PMTS
|
|
|
—
|
|
|
|
9,333
|
|
|
|
1,167
|
|
|
|
1,167
|
|
|
|
11,667
|
|
Common share options-based payments (Note 10)
|
|
|
—
|
|
|
|
265
|
|
|
|
171
|
|
|
|
45
|
|
|
|
481
|
|
Amortization
|
|
|
—
|
|
|
|
417
|
|
|
|
—
|
|
|
|
4
|
|
|
|
421
|
|
External consulting
|
|
|
38
|
|
|
|
1,935
|
|
|
|
464
|
|
|
|
386
|
|
|
|
2,823
|
|
Travel, workshop and other
|
|
|
—
|
|
|
|
617
|
|
|
|
181
|
|
|
|
76
|
|
|
|
874
|
|
|
|
|
38
|
|
|
|
27,613
|
|
|
|
5,335
|
|
|
|
2,758
|
|
|
|
35,744
|
|
7. Convertible
Debentures
In February 2021, the Company
issued a total of $26 million of convertible debentures. The convertible debentures had an interest rate of 7.0% per annum, compounded
annually, and had a maturity date that is 24 months from the date of issuance. The debentures were convertible into shares of the
Company at anytime at the conversion price of $8.64 per common share after adjustment for the Exchange Ratio. Unless any accrued interest
was converted prior to the maturity date, all accrued and unpaid interest was payable at the maturity date in TMC common shares at a conversion
price of $8.64 per common share after adjustment for the Exchange Ratio.
TMC the metals company Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands of US Dollars unless otherwise stated, except share
and per share amounts)
(Unaudited)
The terms of the convertible debentures
provided that in the event that the Company completed the Business Combination (Note 4) or another change of control transaction at any
time prior to the maturity date, the debenture value would be automatically converted into the common shares at the conversion price immediately
prior to the Business Combination or the change of control transaction. If the debentures, or any portion thereof, were not converted
by the holder upon the earlier of the maturity date or the completion of the Business Combination or the change of control transaction,
the outstanding debenture value would automatically convert into the common shares at the conversion price of $8.64 per common share,
after adjustment for the Exchange Ratio.
On February 18, 2021, convertible
debentures with a principal amount of $0.5 million were converted into 57,894 common shares of the Company, after adjustment for the Exchange
Ratio.
During the three and nine months
ended September 30, 2021, the Company accrued $0.3 million and $1.0 million as interest expense on the convertible debentures, respectively.
On September 9, 2021, the Company
issued 3,068,673 common shares, after adjustment for the Exchange Ratio, upon conversion of the outstanding debentures consisting of $25.5
million and $1.0 million of principal and accrued interest, respectively.
8. Warrant
Liability
The Company accounts for the Public
and Private Warrants in accordance with the guidance contained in ASC 815 (Subtopic 40), Derivative and Hedging – Contracts in
Entity’s Own Equity, and the SEC Division of Corporation Finance’s April 12, 2021 Public Statement, Staff Statement
on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SEC Statement”),
under which the Public Warrants are determined to meet the criteria for equity classification, while the Private Warrants do not meet
the criteria for equity classification and must be recorded as liabilities. Specifically, the terms of the Private Warrants provide for
potential changes to the settlement amounts dependent upon the characteristics of the warrant holder, and, because the holder of a Private
Warrant is not an input into the pricing of a fixed-for-fixed option on equity shares, such provision would preclude the Private Warrants
from being classified in equity and should be classified as a liability. Accordingly, the Company classified the Private Warrants as liabilities
measured at fair value and adjusts the Private Warrants to their fair value at the end of each reporting period. The warrant liability
is subject to re-measurement at each balance sheet date until exercised with any changes in fair value being recognized in the Company’s
statement of loss and comprehensive loss.
Public Warrants
Each whole Public Warrant entitles
the holder to purchase one TMC common share at a price of $11.50 per share beginning on October 9, 2021. As at September 30,
2021, 15,000,000 Public Warrants were outstanding. Public Warrants may only be exercised for a whole number of shares. No fractional Public
Warrants will be issued upon separation of the units and only whole Public Warrants will trade. The Public Warrants will expire on September 9,
2026 or earlier upon redemption or liquidation. Public Warrant holders do not have the rights or privileges of holders of common shares
nor any voting rights until they exercise their warrants and receive common shares.
TMC the metals company Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands of US Dollars unless otherwise stated, except share
and per share amounts)
(Unaudited)
The Company will not be obligated
to deliver any common shares pursuant to the exercise of a Public Warrant and will have no obligation to settle such warrant exercise
unless a registration statement under the Securities Act of 1933 (“Securities Act”) with respect to the common shares underlying
the Public Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations
with respect to registration, or a valid exemption from registration is available. No Public Warrants will be exercisable and the Company
will not be obligated to issue a common share upon exercise of a Public Warrant unless the common share issuable upon such warrant exercise
has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of
the warrants. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a Public
Warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless.
In no event will the Company be required to net cash settle any Public Warrants. In the event that a registration statement is not effective
for the exercised Public Warrants, the purchaser of a unit containing such warrant will have paid the full purchase price for the unit
solely for the common share underlying such unit. On October 7, 2021, the Company filed a Registration Statement on Form S-1
with respect to the common shares underlying the Public Warrants, as well as the Private Warrants, which was declared effective by the
SEC on October 22, 2021.
The Company may call the Public Warrants
for redemption:
|
·
|
in
whole and not in part;
|
|
·
|
at
a price of $0.01 per warrant;
|
|
·
|
upon
a minimum of 30 days’ prior written notice of redemption; and
|
|
·
|
if,
and only if, the closing price of the common shares equals or exceeds $18.00 per share (as
adjusted for share subdivisions, share capitalizations, reorganizations, recapitalizations
and the like) for any 20 trading days within a 30-day trading period ending on the third
trading day prior to the date on which the Company sends the notice of redemption to the
warrant holders.
|
If the Company calls the Public Warrants
for redemption in certain circumstances, management will have the option to require all holders that wish to exercise the Public Warrants
to do so on a cashless basis, by surrendering the Public Warrants for a number of common shares per warrant equal to the lesser of:
|
·
|
the
quotient obtained by dividing (x) the product of the number of common shares underlying
such warrant, multiplied by the excess of the average reported closing price of common shares
for the ten trading days ending on the third trading day prior to the date on which the notice
of redemption is sent to the holders (“Fair Market Value”) over the warrant price
by (y) the Fair Market Value, and
|
Private Warrants
As at September 30, 2021, 9,500,000
Private Warrants were outstanding. The Private Warrants (including the common shares issuable upon exercise of the Private Warrants)
were not transferable, assignable or salable until October 9, 2021, except to permitted transferees. The Private Warrants are identical
to the Public Warrants, except that so long as they are held by the Sponsor or any of its permitted transferees:
|
(i)
|
the Private Warrants are exercisable for
cash or on a cashless basis, at the holder’s option, and
|
|
(ii)
|
the Private Warrants are not redeemable
by the Company.
|
TMC the metals company Inc.
Notes to Condensed Consolidated Financial
Statements
(in thousands of US Dollars unless
otherwise stated, except share and per share amounts)
(Unaudited)
The Private Warrants are subject to
the Company’s redemption option at the price of $0.01 per warrant, if not held by the Sponsor or any of its permitted transferees,
provided that the other conditions of such redemption are met, as described above. If holders of the Private Warrants elect to exercise
the warrants on a cashless basis, the holder would pay the exercise price by surrendering their Private Warrants for a number of common
shares equal to:
|
·
|
the
quotient obtained by dividing (x) the product of the number of common shares underlying
the warrants, multiplied by the excess of the average reported closing price of the common
shares for the ten trading days ending on the third trading day prior to the date on which
the notice of warrant exercise is sent to the warrant agent (“fair market value”)
over the exercise price of the warrants by (y) the fair market value.
|
If the Private Warrants are held by
a holder other than the Sponsor or any of its permitted transferees, the Private Warrants are redeemable by the Company in all redemption
scenarios applicable to the Public Warrants and exercisable by such holders on the same basis as the Public Warrants.
The Company evaluated the Private
Warrants under ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, in conjunction with the SEC
Statement, and concluded that they do not meet the criteria to be classified in shareholders’ equity. Specifically, the
terms of the warrants provide for potential changes to the settlement amounts dependent upon the characteristics of the warrant holder,
and, because the holder of a warrant is not an input into the pricing of a fixed-for-fixed option on equity shares, such provision would
preclude the warrant from being classified in equity and thus the warrant should be classified as a liability.
The following table presents the changes
in the fair value of warrant liabilities:
|
|
Private
|
|
|
|
Warrants
|
|
Warrant liability as at
September 9, 2021
|
|
$
|
12,501
|
|
Gain
on change in fair value of warrant liability
|
|
|
(878
|
)
|
Warrant liability
as at September 30, 2021
|
|
$
|
11,623
|
|
There were no exercises or redemptions
of the Public Warrants or Private Warrants during the three and nine months ended September 30, 2021.
The fair value of the Private Warrants
were estimated with the following assumptions:
|
|
As of
|
|
|
|
September 30,
|
|
|
|
2021
|
|
Exercise price
|
|
$
|
11.50
|
|
Stock price
|
|
$
|
4.57
|
|
Volatility
|
|
|
58
|
%
|
Term
|
|
|
4.9
years
|
|
Risk-free rate
|
|
|
1.0
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
TMC the metals company Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands of US Dollars unless otherwise stated, except share
and per share amounts)
(Unaudited)
9. Common Shares
Authorized and Issued
As at September 30, 2021, the
authorized, issued and outstanding common shares and Special Shares of the Company are as follows:
|
|
|
|
Issued and
|
|
|
|
Authorized
|
|
Outstanding
|
|
Common shares
|
|
Unlimited, with no par value
|
|
|
224,385,324
|
|
|
|
|
|
|
|
|
Class A Special Shares
|
|
5,000,000, with no par value
|
|
|
4,448,259
|
|
|
|
|
|
|
|
|
Class B Special Shares
|
|
10,000,000, with no par value
|
|
|
8,896,399
|
|
|
|
|
|
|
|
|
Class C Special Shares
|
|
10,000,000, with no par value
|
|
|
8,896,399
|
|
|
|
|
|
|
|
|
Class D Special Shares
|
|
20,000,000, with no par value
|
|
|
17,792,922
|
|
|
|
|
|
|
|
|
Class E Special Shares
|
|
20,000,000, with no par value
|
|
|
17,792,922
|
|
|
|
|
|
|
|
|
Class F Special Shares
|
|
20,000,000, with no par value
|
|
|
17,792,922
|
|
|
|
|
|
|
|
|
Class G Special Shares
|
|
25,000,000, with no par value
|
|
|
22,241,179
|
|
|
|
|
|
|
|
|
Class H Special Shares
|
|
25,000,000, with no par value
|
|
|
22,241,179
|
|
|
|
|
|
|
|
|
Class I Special Shares
|
|
500,000, with no par value
|
|
|
500,000
|
|
|
|
|
|
|
|
|
Class J Special Shares
|
|
741,000, with no par value
|
|
|
741,000
|
|
The holders of the Company's common
shares are entitled to one vote for each share of common share held.
Each class of Special Shares do not
have voting rights and do not participate in earnings. The Special Shares automatically convert to TMC common shares if TMC common shares
trade at a price on any twenty trading days within any thirty trading day period that is greater than or equal to the specific trigger
price for the respective class of Special Share. The trigger prices range from $15 per share to $200 per share (refer to Note 4
for details).
TMC the metals company Inc.
Notes to Condensed Consolidated Financial
Statements
(in thousands of US Dollars unless
otherwise stated, except share and per share amounts)
(Unaudited)
Common Share Continuity
In accordance with ASC 805, Business
Combinations, under a reverse recapitalization, the equity structure reflects the equity structure of SOAC, as the legal acquirer,
including the equity interests SOAC issued to affect the Business Combination. Accordingly, the Company has restated its equity structure
using the Exchange Ratio of the Business Combination to reflect the number of shares of SOAC issued in the reverse acquisition. The share
amounts stated below have been recast from the historical share totals of DeepGreen to reflect the Exchange Ratio.
Common shares
|
|
Number
|
|
|
$
|
|
Balance – December 31,
2019
|
|
|
163,331,904
|
|
|
|
79,824
|
|
Private placement
|
|
|
6,553,409
|
|
|
|
20,374
|
|
Financing cost incurred
– Cash
|
|
|
—
|
|
|
|
(26
|
)
|
Financing cost incurred
- Stock option-based payments
|
|
|
—
|
|
|
|
(397
|
)
|
Issued
for TOML acquisition (Note 5)
|
|
|
9,005,595
|
|
|
|
28,000
|
|
Issued
for services (Note 6)
|
|
|
7,997,496
|
|
|
|
24,866
|
|
Exercise of stock
options
|
|
|
2,605,189
|
|
|
|
1,790
|
|
Balance – December 31,
2020
|
|
|
189,493,593
|
|
|
|
154,431
|
|
Issued
for services (Note 6)
|
|
|
4,432,606
|
|
|
|
26,960
|
|
Exercise of stock options
|
|
|
6,312,756
|
|
|
|
14,297
|
|
Conversion of preferred shares to
common shares
|
|
|
509,459
|
|
|
|
550
|
|
Issued
in Business Combination (Note 4)
|
|
|
20,510,343
|
|
|
|
60,987
|
|
Conversion
of debentures (Note 7)
|
|
|
3,126,567
|
|
|
|
27,003
|
|
Balance
– September 30, 2021
|
|
|
224,385,324
|
|
|
|
284,228
|
|
10. 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 24,682,386 common shares, 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
Pursuant to the Company’s stock
option plan, directors may, from time to time, authorize the issuance of stock options to directors, officers, employees, and consultants
of the Company and its subsidiaries. The board of directors grants such options with vesting periods and the exercise prices determined
at its sole discretion. As described in Note 4, existing DeepGreen options were automatically adopted by TMC after application of
the Exchange Ratio to both the underlying number of common shares and the exercise price and provided for additional Special Shares to
be issued to optionholders on a pro-rata basis, if exercised. The Rollover Options did not change in value as a result of the Business
Combination. Comparative information below have been restated by adjusting for the number of options and exercise prices for the Exchange
Ratio.
As at September 30, 2021, there
were 15,503,755 stock options outstanding under the Company’s STIP and 9,783,922 stock options outstanding under the Company’s
Long-Term Incentive Plan (“LTIP”).
TMC the metals company Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands of US Dollars unless otherwise stated, except share
and per share amounts)
(Unaudited)
A continuity schedule of the Company’s
stock options in the Company’s STIP is as follows:
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
average
|
|
|
Intrinsic
|
|
|
Weighted
|
|
|
|
|
|
|
exercise
|
|
|
value of
|
|
|
average
|
|
|
|
Options
|
|
|
price per
|
|
|
stock
|
|
|
contractual
|
|
|
|
Outstanding
|
|
|
option
|
|
|
options
|
|
|
life (years)
|
|
Outstanding – December 31,
2020
|
|
|
15,549,977
|
|
|
|
0.80
|
|
|
|
36,126
|
|
|
|
7.34
|
|
Granted
|
|
|
6,373,203
|
|
|
|
2.10
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(50,946
|
)
|
|
|
0.39
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited
|
|
|
(57,891
|
)
|
|
|
0.65
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,310,588
|
)
|
|
|
0.67
|
|
|
|
|
|
|
|
|
|
Outstanding
– September 30, 2021
|
|
|
15,503,755
|
|
|
|
1.39
|
|
|
|
52,579
|
|
|
|
6.10
|
|
Vested
and expected to vest – September 30, 2021
|
|
|
15,503,755
|
|
|
|
1.39
|
|
|
|
52,579
|
|
|
|
6.10
|
|
Vested
and exercisable – September 30, 2021
|
|
|
13,513,779
|
|
|
|
0.86
|
|
|
|
50,155
|
|
|
|
6.22
|
|
A summary of the Company’s stock
options granted and outstanding under TMC’s STIP as at September 30, 2021 is as follows:
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
|
|
|
|
life to expiry
|
|
|
Options
|
|
|
Options
|
|
Expiry Date
|
|
Exercise price
|
|
(years)
|
|
|
Outstanding
|
|
|
Exercisable
|
|
March 5, 2022
|
|
$0.65
|
|
|
0.43
|
|
|
|
634,541
|
|
|
|
634,541
|
|
March 5, 2023
|
|
$2.59
|
|
|
1.43
|
|
|
|
405,251
|
|
|
|
135,084
|
|
March 31, 2024
|
|
$0.65
|
|
|
2.50
|
|
|
|
73,811
|
|
|
|
73,811
|
|
March 5, 2025
|
|
$8.64
|
|
|
3.43
|
|
|
|
405,251
|
|
|
|
—
|
|
December 31, 2025
|
|
$0.65
|
|
|
4.25
|
|
|
|
11,578
|
|
|
|
11,578
|
|
February 2, 2026
|
|
$0.65
|
|
|
4.35
|
|
|
|
57,893
|
|
|
|
57,893
|
|
February 17, 2026
|
|
$0.22 - $0.52
|
|
|
4.39
|
|
|
|
448,861
|
|
|
|
448,861
|
|
June 1, 2028
|
|
$0.65 - $8.64
|
|
|
6.67
|
|
|
|
12,192,921
|
|
|
|
10,878,363
|
|
June 30, 2028
|
|
$2.59
|
|
|
6.75
|
|
|
|
1,273,648
|
|
|
|
1,273,648
|
|
|
|
|
|
|
|
|
|
|
15,503,755
|
|
|
|
13,513,779
|
|
The total grant date fair value of
STIP stock options that vested during the nine months ended September 30, 2021, was $29.6 million. As of September 30, 2021,
total unrecognized stock-based compensation expense of $3.7 million is expected to be recognized over a weighted-average recognition
period of approximately 1.70 years.
During the nine months ended
September 30, 2021, the Company also granted 9,783,922 stock options under its LTIP. Such stock options have an exercise price of
$0.65 per option and expire on June 1, 2028. The aggregate intrinsic value of LTIP stock options as at September 30, 2021 was
$38.4 million. None of the LTIP stock options were exercisable on September 30, 2021. The Company expects LTIP options to vest as
and when the market and performance milestones described below are achieved. As at September 30, 2021, total unrecognized stock-based
compensation expense for the LTIP stock options was $33.2 million.
As at September 30, 2021, the
fair value of the Company’s common shares was $4.57 per share. As at September 30, 2021, the Company used the closing market
price of its common shares to estimate the intrinsic value of outstanding stock options. Prior to September 9, 2021, there was no
quoted market price for the Company’s common shares. Accordingly, the Company estimated the fair value of common shares based on
observable transactions in the Company’s common shares and by applying a probability-weighted approach to various outcomes. The
approach involves estimates, judgments and assumptions that are highly complex and subjective. Changes in any or all of these estimates
and assumptions, or the relationships between these assumptions, impact the Company’s valuation of its common shares as of each
valuation date which may have a material impact on the valuation of the Company’s common shares and equity awards for accounting
purposes.
TMC the metals company Inc.
Notes to Condensed Consolidated Financial
Statements
(in thousands of US Dollars unless
otherwise stated, except share and per share amounts)
(Unaudited)
The
aggregate intrinsic value of stock options exercised during the period ended September 30, 2021, was $39.4 million.
Activity and Valuation
On February 17,
2021, the Company granted a total of 568,120 incentive stock options to certain directors and non-employees. These options have an exercise
price of between $0.22 per share and $0.65 per share, vested immediately upon grant, and expire between February 17, 2026 and February 26,
2026.
On February 26,
2021, the Company granted a total of 46,777 incentive stock options to a consultant. These options have an exercise price of $0.22 per
share, vested immediately upon grant, and expire on February 26, 2026.
On March 4,
2021, the Company granted 5,758,306 incentive stock options to certain employees, directors and consultants under the Company’s
STIP, as well as 9,783,922 incentive stock options to the same individuals under its LTIP.
The
stock options granted under the STIP expire on June 1, 2028 or earlier, have and exercise prices ranging between $0.65 per share
and $8.64 per share, and have vesting periods to a maximum of three years.
The
fair value of the options granted under the Company’s STIP was estimated on the date of grant using the Black-Scholes option pricing
model, with the following weighted average assumptions:
|
|
2021
|
|
Expected dividend yield
|
|
|
0.0
|
%
|
Expected stock price volatility
|
|
|
89.4
|
%
|
Risk-free interest rate
|
|
|
0.5
|
%
|
Expected life of options (years)
|
|
|
3.7
|
|
Estimated per share fair value of the Company’s common shares
|
|
|
7.0
|
|
The
stock options granted under the LTIP have an exercise price of $0.65 per share and expire on June 1, 2028. The LTIP awards vest
as follows:
|
(1)
|
Tranche
1 - 25% when the Company’s market capitalization equals $3 billion;
|
|
(2)
|
Tranche
2 - 35% when the Company’s market capitalization equals $6 billion;
|
|
(3)
|
Tranche
3 - 20% upon the date that the ISA grants an exploitation contract to the Company; and
|
|
(4)
|
Tranche
4 - 20% upon the commencement of the first commercial production following the grant of the
exploitation contract.
|
Tranche
1 and Tranche 2 vest based on the Company’s market capitalization of $3 billion and $6 billion, respectively. Accordingly, these
options are determined to be market-based awards for which the Company has calculated fair value and derived a service period through
which to expense the related fair value. The options included in Tranche 1 and Tranche 2 had a grant date fair value of $5.59 per share
and $5.42 per share and derived service periods of 0.33 years and 1.41 years, respectively. The Company will expense these
awards ratably over the remaining service period.
TMC the metals company Inc.
Notes to Condensed Consolidated Financial
Statements
(in thousands of US Dollars unless
otherwise stated, except share and per share amounts)
(Unaudited)
Tranche
3 and Tranche 4 of the LTIP stock options vest based on the date the ISA grants an exploitation contract and the commencement of commercial
production. These options are determined to be performance-based awards. The Company will recognize compensation costs for the performance-based
awards if and when the Company concludes that it is probable that the performance conditions will be achieved. As at September 30,
2021, no compensation expense related to the performance based awards was recorded as the awarding of an ISA contract is outside the
control of the Company. The Company will reassess the probability of the vesting of the performance-based awards at each reporting period
and adjust the compensation cost when determined to be probable.
The
fair value of awards granted under the LTIP was estimated on the date of grant with the following weighted average assumptions:
|
|
Tranche 1 and
|
|
|
|
|
|
|
|
|
|
Tranche 21
|
|
|
Tranche 32
|
|
|
Tranche 42
|
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected stock price volatility
|
|
|
91.0
|
%
|
|
|
91.2
|
%
|
|
|
91.2
|
%
|
Risk-free interest rate
|
|
|
1.3
|
%
|
|
|
0.8
|
%
|
|
|
0.9
|
%
|
Expected life of options (years)
|
|
|
7.3
|
|
|
|
5.2
|
|
|
|
5.4
|
|
Estimated per share fair value of the Company’s common shares
|
|
|
7.00
|
|
|
|
7.00
|
|
|
|
7.00
|
|
|
1.
|
The
fair value of the market-based awards granted under the LTIP was estimated on the date of
grant using a Monte-Carlo model to simulate a distribution of future stock prices.
|
|
2.
|
The
fair value of the performance-based awards granted under the LTIP was estimated on the date
of grant using the Black-Scholes option pricing model.
|
Changes
in these assumptions could have a material impact on the Company's loss and comprehensive loss.
In
September 2021, the board of directors approved amendments for certain stock option grants to extend their term beyond the retirement
provisions in the Plan, resulting in an expense of $3.9 million.
During
the three and nine months ended September 30, 2021, the Company recognized $9.5 million and $55.2 million as common share option-based
payments expense, respectively, in the statement of loss and comprehensive loss (three and nine months ended September 30,
2020 - $1.5 million and $1.7 million, respectively).
A total
of $6.4 million and $24.7 million related to general and administration matters was charged to the statement of loss and comprehensive
loss as common share options-based payments for the three and nine months ended September 30, 2021, respectively (three and
nine months ended September 30, 2020 – $1.2 million and $1.2 million, respectively). The Company allocated a total
of $3.0 million and $30.6 million of common share options-based payments related to exploration activities within exploration expenses
for the three and nine months ended September 30, 2021, respectively (three and nine months ended September 30, 2020 –
$0.3 million and $0.5 million, respectively).
Restricted Stock Units
(“RSUs”)
During
the nine months ended September 30, 2021, the Company granted 56,224 RSUs to non-executive directors of the Company vesting
in thirds on each anniversary of the grant date. On each vesting date, RSU holders are entitled to receive TMC common shares equivalent
to the number of RSUs held provided the holder is providing service to the Company on such vesting date. A total of $35 thousand was
charged to the statement of loss and comprehensive loss as common share options-based payments for the three and nine months ended
September 30, 2021.
TMC the metals company Inc.
Notes to Condensed Consolidated Financial
Statements
(in thousands of US Dollars unless
otherwise stated, except share and per share amounts)
(Unaudited)
A summary
of the RSU activity is presented in the table below:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average grant-
|
|
|
|
Number of
|
|
|
date fair value
|
|
|
|
RSUs
|
|
|
per option
|
|
|
|
Outstanding
|
|
|
$
|
|
Outstanding – December 31, 2020
|
|
|
—
|
|
|
|
—
|
|
Granted
|
|
|
56,224
|
|
|
|
12.45
|
|
Outstanding – September 30, 2021
|
|
|
56,224
|
|
|
|
12.45
|
|
The grant date fair value of RSUs is
equivalent to the closing share price of TMC common shares on the date of grant.
Basic
loss per share is computed by dividing the loss by the weighted-average number of shares of common share of the Company outstanding during
the period. Diluted loss per share is computed by giving effect to all common share equivalents of the Company, including outstanding
stock options, RSUs, warrants, Special Shares and options to purchase Special Shares, to the extent dilutive. 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
common equivalent shares were as follows:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Outstanding options to purchase common shares
|
|
|
25,287,677
|
|
|
|
17,933,833
|
|
|
|
25,287,677
|
|
|
|
17,933,833
|
|
Outstanding RSUs
|
|
|
56,224
|
|
|
|
—
|
|
|
|
56,224
|
|
|
|
—
|
|
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
|
|
|
197,662,485
|
|
|
|
17,933,833
|
|
|
|
197,662,485
|
|
|
|
17,933,833
|
|
12.
|
Related Party Transactions
|
The
Company’s subsidiary, DGE, 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,
2021 amounted to $75 thousand and $213 thousand, respectively (three months and nine months ended September 30, 2020 -
$80 thousand and $218 thousand, respectively), and are disclosed as external consulting and exploration labor within exploration expenses
(Note 6). As at September 30, 2021, the amount payable to SSCS was $30 thousand (December 31, 2020 - $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, 2021 amounted to $93 thousand
and $0.3 million, respectively (three months and nine months ended September 30, 2020 - $92 thousand and $0.3 million,
respectively), and are disclosed as exploration labor within exploration expenses (Note 6). As at September 30, 2021, the amount
payable to Ocean Renaissance was $nil (December 31, 2020 - $nil).
TMC the metals company Inc.
Notes to Condensed Consolidated Financial
Statements
(in thousands of US Dollars unless
otherwise stated, except share and per share amounts)
(Unaudited)
NORI Exploration Contract
As part
of the NORI Exploration Contract with the ISA (Note 6), NORI committed to spending $5 million over the five-year period from 2017
to 2021. The commitment has already been met.
Marawa Exploration
Contract
As part
of DGE’s Marawa Option Agreement and Services Agreement with Marawa with respect to the Marawa Area (Note 6), Marawa committed
to spending funds on exploration activities on an annual basis. The commitment for fiscal 2020 was Australian dollar $1 million and for
2021 is Australian dollar $2 million. Such commitment is negotiated with the ISA for five-year plans and is subject to regular periodic
reviews.
TOML Exploration Contract
As part
of the TOML Exploration Contract (Note 6), TOML has committed to spending $30 million for a five-year period from 2016 to 2021 in the
first five-year review finalized in 2016. Such commitment has flexibility where the amount can be reduced by the ISA and any reduction
would be dependent upon various factors including the success of the exploration programs and the availability of funding. As at September 30,
2021, the Company expended approximately $17.2 million in connection with the TOML Exploration Contract. TOML will submit a five-year
review to the ISA in 2021 which will summarize the work completed by TOML from 2017 to 2021, as well as propose TOML’s next year
work program.
Offtake Agreements
On May 25,
2012, the Company’s wholly owned subsidiary, DGE, and Glencore International AG (“Glencore”) entered into a copper
offtake agreement and a nickel offtake agreement. DGE has agreed to deliver to Glencore 50% of the annual quantity of copper and nickel
produced at a DGE owned processing facility from nodules derived from the NORI Area at London Metal Exchange referenced market pricing
with allowances for product quality and delivery location. Both the copper and nickel offtake agreements are for the life of the Company’s
rights to the NORI Area. Either party may terminate the agreement upon a material breach or insolvency of the other party. Glencore may
also terminate the agreement by giving twelve months’ notice.
Sponsorship Agreements
On July 5,
2017, Nauru, the Nauru Seabed Minerals Authority and NORI entered into a sponsorship agreement formalizing certain obligations of the
parties in relation to NORI’s exploration and potential exploitation of the NORI Area. Upon reaching the minimum recovery level
within the exploitation contract area, NORI will pay Nauru a seabed mineral recovery payment based on the polymetallic nodules recovered
from the exploitation contract area. In addition, NORI will pay an administration fee each year to Nauru for such administration and
sponsorship, which is subject to review and increase in the event NORI is granted an ISA exploitation contract
On March 8,
2008, Tonga and TOML entered into the TOML sponsorship agreement formalizing certain obligations of the parties in relation to TOML’s
exploration and potential exploitation of the TOML Area (“TOML Sponsorship Agreement”). Upon reaching the minimum recovery
level within the exploitation contract area, TOML has agreed to pay Tonga a seabed mineral recovery payment based on the polymetallic
nodules recovered from the exploitation contract area. In addition, TOML has agreed to pay the reasonable direct costs incurred by Tonga
to administer the ISA obligations of Tonga to the ISA. On September 23, 2021, Tonga updated the TOML Sponsorship Agreement harmonizing
the terms of its engagement with TOML with those held by Nauru.
TMC the metals company Inc.
Notes to Condensed Consolidated Financial
Statements
(in thousands of US Dollars unless
otherwise stated, except share and per share amounts)
(Unaudited)
14.
|
Supplemental Cash Flow Information
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
Non-Cash Investing and Financing Activities
|
|
2021
|
|
|
2020
|
|
Common shares issued to settle accounts payable and accrued liabilities (Note 6)
|
|
|
12,879
|
|
|
|
14,746
|
|
Common shares issued for TOML Acquisition (Note 5)
|
|
|
—
|
|
|
|
28,000
|
|
Conversion of debentures (Note 7)
|
|
|
27,003
|
|
|
|
—
|
|
15.
|
Segmented Information
|
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. Details on the geographical basis of the Company’s
long-lived assets based on where each legal entity is domiciled are as follows:
|
|
September 30,
|
|
|
December 31,
|
|
Equipment
|
|
2021
|
|
|
2020
|
|
Republic of Nauru
|
|
|
1,373
|
|
|
|
1,292
|
|
Tonga
|
|
|
12
|
|
|
|
15
|
|
North America
|
|
|
2
|
|
|
|
3
|
|
Total
|
|
|
1,387
|
|
|
|
1,310
|
|
On October 28,
2021, a shareholder filed a putative class action against the Company and certain 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. The Company denies
any allegations of wrongdoing and intends to vigorously defend against this lawsuit. 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. 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 resolve.
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, 2020 contained in our proxy statement/prospectus filed with
the SEC on August 13, 2021 (the “proxy statement/prospectus”). This discussion
contains forward looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in
the “Risk Factors” section of this Quarterly Report on Form 10-Q. 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 financial statements for the three and nine months ended September 30,
2021 and 2020, respectively, present the financial position and results of operations of TMC the metals company Inc. and its consolidated
subsidiaries.
This
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” to gives effect to the restatement
of our financial statements, as more fully described in Note 2 to our condensed consolidated financial statements included in this Quarterly
Report on Form 10-Q. For further detail regarding the restatement, see “Restatement of Previously Issued Quarterly Financial
Statements” below and Part II, Item 4, Controls and Procedures included in this Quarterly Report on Form 10-Q.
Overview
We
are a deep-sea minerals exploration company focused on the collection, processing and refining 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.
These
nodules contain high grades of four metals (nickel, copper, cobalt, manganese) critical for the transition to clean energy and infrastructure
buildout. 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. We plan to use polymetallic nodules to produce three types of metal products: (i) feedstock
for battery cathode precursors (nickel and cobalt sulfates), (ii) copper cathode for wiring for electric vehicles (“EV”)
and renewable energy storage markets, and (iii) manganese silicate for manganese alloy production required for steel. Our mission
is to build a carefully managed metal commons - a shared stock of metal that can be used, recovered and reused for generations to come.
We
believe our company is well positioned to meet the growing demand for critical battery metals as follows:
|
·
|
Increasing
demand: The response to the climate change crisis is increasing demand for EVs and renewable
energy storage. In August, the United States (“U.S.”) government announced a
target of 50% EV sales by 2030. The announcement was followed by a ramp-up of industry commitments
to build battery cell manufacturing gigafactories in the U.S. To manufacture battery cells,
gigafactories will need critical battery metals like nickel, cobalt, manganese and copper.
|
|
·
|
Rising
battery metal and battery cell prices: Commodity prices for metals like nickel and copper
have recently reached multi-year highs and battery cell production costs are rising for the
first time since the introduction of gigafactories going back to 2014.
|
|
·
|
Availability
of abundant and high-grade resource off the U.S. western seaboard: There are four key
battery metals (nickel, copper, cobalt and manganese) in relatively high concentrations in
a single nodule and we believe our contract areas have estimated in situ quantities
of these metals equivalent to the requirement for 280 million EVs, roughly the size of the
entire U.S. passenger vehicle fleet on the road today.
|
|
·
|
Opportunity
to re-shore battery metal production in the U.S.: Current supply chain of battery materials
to the U.S. is approximately 50,000 miles long and is predominantly controlled by nations
and companies outside of the U.S., which is leading to increasing concerns about supply chain
security in the U.S. and interest in breaking the U.S. mineral dependence by re-shoring battery
material supply chain in the U.S. Our resource is 1,300 nautical miles from San Diego and
we believe we can eventually process and refine our polymetallic nodules in the U.S.
|
|
·
|
Opportunity
to reuse existing assets and skills: We believe the downturn in new offshore oil and
gas exploration is creating an opportunity for us to partner with offshore service providers
with deep operational experience in subsea environments gained in the oil and gas industry
and with existing assets that can be repurposed for our offshore operations.
|
|
·
|
Lower
expected production cost: At our potential steady state production, we expect to be the
second lowest cost nickel producer in the world.
|
|
·
|
Lower
expected environmental, social and governance footprint: Based on several lifecycle assessments
(“LCAs”) and an LCA white paper that we commissioned and certain of our executive
officers’ co-authored, we expect a potential 70-99% reduction of most lifecycle environmental,
social and governance impacts as compared to metal production from conventional land sources
by developing a new type of high-grade multi-metal source found on the abyssal plain - a
low biomass, low carbon sequestration deep-sea environment removed from human settlement.
|
The
Company holds exclusive exploration and commercial rights to three polymetallic nodule contract areas in international waters in the
CCZ. Exploration and exploitation of seabed minerals in international waters is regulated by the International Seabed Authority (“ISA”),
an intergovernmental organization established in 1994 pursuant to 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 must obtain and maintain sponsorship by a host nation that is a member of the ISA and such nation must maintain effective
supervision and regulation over such sponsored contractor. In the event the sponsorship is terminated, a contractor will be required
to seek a new sponsorship from another nation that is a member of the ISA. We currently hold exclusive exploration rights 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”). The details of each
exploration, commercial and sponsorship contract are discussed below under the heading “Exploration Contracts” and
“Sponsorship Agreements”.
To
commence commercial production, we need to obtain an ISA exploitation contract for NORI and TOML and to initiate activity as a contractor
of Marawa, respectively. We are currently focused on applying for our first exploitation contract on the NORI-D Area, as defined below,
with the goal of potentially starting commercial production in 2024. An ISA exploitation contract application is comprised of several
components, including an Environmental Impact Statement (“EIS”), the end-product of a comprehensive Environmental and Social
Impact Assessment (“ESIA”) program.
To
reach our objective to start commercial production in 2024, we are: (i) defining our resource and project economics, (ii) engaging
in offshore nodule collection system development, (iii) assessing the environmental and social impacts of offshore nodule collection,
and (iv) engaging in onshore technology development to process collected polymetallic nodules into battery metal sulfates, copper
cathode and a manganese silicate product. We have also entered into a number of strategic relationships with industry-leading partners.
Our partnership with Maersk Supply Service A/S (“Maersk”) has enabled us to leverage industry leading expertise in marine
vessel management and project management for complex offshore resource definition and environmental baseline campaigns. Our partnership
with Allseas Group S.A. (“Allseas”) has enabled the Company to access industry-leading offshore engineering expertise and
benefit from the repurposing of assets that were previously used in the oil and gas sector at below market rates for the development
of our nodule collection system.
|
(i)
|
Resource
definition and project economics: Having completed a total of five offshore resource
definition campaigns and collected samples and completed subsea surveys for resource evaluation,
we have defined the size and quality of our resource in the NORI and TOML Areas, as described
below, in our SEC Regulation S-K (subpart 1300) compliant Technical Report Summary - Initial
Assessment of the NORI Property, Clarion-Clipperton Zone, Pacific Ocean dated March 17,
2021 (“NORI Initial Assessment”) and Technical Report Summary - TOML Mineral
Resource, Clarion-Clipperton Zone, Pacific Ocean dated March 26, 2021 (“TOML
Mineral Resource Statement”), respectively, prepared by AMC Consultants Ltd. (“AMC”).
In addition to the mineral resource estimate, the NORI Initial Assessment indicates a project
net present value (at the report date) of $6.8 billion, discounted at 9% per annum, for the
NORI-D Area, as defined below. We plan to continue to define our resource in the NORI and
TOML Areas and develop the project economics.
|
|
(ii)
|
Offshore
nodule collection system development: We are working with our strategic partner and investor,
Allseas, to develop a system to collect, lift and transport nodules from the seafloor to
shore. The offshore collection system consists of collector robots on the seafloor, a riser
and lift system, and a surface production support vessel. The nodules would be expected to
be collected from the seafloor by self-propelled, tracked collector robots using seawater
jets aimed at nodules in parallel with the seafloor. No rock cutting, digging, drill-and-blast
or other breakage are expected to be required at the point of collection. The collectors
would be remotely controlled and supplied with electric power via umbilical cables from the
production support vessel. To test the system and assess its environmental impacts, we entered
into a contract with Allseas to undertake a pilot trial of the collection system in subsection
D of the NORI Area described below (the “NORI-D Area”) in the second half of
2022 (the Pilot Mining Test System or “PMTS”). The successful completion of the
PMTS would support our application for an exploitation contract with the ISA. Until the successful
completion of the PMTS, Allseas is contracted to cover the development cost associated with
the PMTS. We have developed and submitted the Environmental Impact Statement for this test
to the ISA in July 2021. The surface production support vessel, the Hidden Gem, was
acquired by Allseas in February 2020 and has strategic importance to us, since it will
support the PMTS and will then be upgraded to a small-scale, low-capital early production
system. This vessel is currently undergoing modifications in Rotterdam, Netherlands. The
pilot collector robot is being assembled at a fabrication facility in Heijningen, Netherlands.
|
|
(iii)
|
Environmental
and social impact assessment (“ESIA”) for offshore nodule collection: The
ESIA is an integral part of preparing our application for the ISA exploitation contract on
the NORI-D Area. Our planned ESIA program consists of over 100 discrete studies and relies
on the work of several independent deep-sea research institutions. We have a strategic partnership
with Maersk for marine vessel operations and project management services, enabling us to
undertake complex multi-objective offshore campaigns, each with multiple teams of scientists
using various types of equipment. The total of seven offshore environmental campaigns (approximately
290 days at sea) focusing on collecting environmental baseline data are expected to have
been completed by the end of 2021. We are currently in the planning stage of the last component
of the program: testing the offshore pilot nodule collection system and monitoring its environmental
impacts while it collects nodules in the NORI-D Area next year.
|
|
(iv)
|
Onshore
technology development: To process and refine collected nodules into critical metals,
we have developed a flowsheet together with a metallurgical process design firm, Hatch Ltd.
(“Hatch”). This flowsheet uses conventional equipment, modified for the unique
nature of the polymetallic nodule resource to deliver a process that is expected to generate
nearly zero solid waste. The key products generated by this process are nickel sulfate, cobalt
sulfate, copper cathode, manganese silicate and fertilizer-grade ammonium sulfate. Nickel
is expected to account for almost half of future production revenues. We have completed lab-scale
test work and offshore campaigns to collect a bulk sample for pilot-scale metallurgical testing.
We are now in the middle of the pilot plant program. Earlier this year, we successfully completed
calcining and smelting of nodules into a manganese silicate product and nickel-copper-cobalt
alloy intermediate, followed by converting and sulfidation of the alloy into matte. We are
currently testing the hydrometallurgical refining phase where matte is processed to produce
nickel sulfate, cobalt sulfate, copper cathode and fertilizer grade ammonium sulfate. Additionally,
we are engaged in a technical scoping study for a potential site for our first small-scale
production plant in South-East Asia.
|
We
are currently an exploration stage company with no revenue to date and a net loss of $121.5 million for the nine months ended September 30,
2021, compared to $39.5 million in the same period of the prior year. We incurred a net loss of $56.6 million for the year ended December 31,
2020 and had an accumulated deficit of approximately $284.4 million from inception through September 30, 2021.
The Business Combination
On
September 9, 2021, we completed the Business Combination with SOAC. The Business Combination was approved by SOAC’s shareholders
at its extraordinary general meeting held on September 3, 2021. 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 approximately $137.6 million.
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 the 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 through our subsidiaries NORI and TOML and exclusive commercial rights through agreement
with Marawa, to certain polymetallic nodule areas in the CCZ.
NORI Exploration
Contract
NORI
was granted the NORI Exploration Contract on July 22, 2011 under the sponsorship of Nauru. The contract application fee was $0.3
million, and 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. The Marawa Exploration Contract
provides Marawa with exclusive rights to explore for polymetallic nodules in an area covering 74,990 km2 in the CCZ (“Marawa
Area”) for an initial term of 15 years (subject to renewal for successive five-year periods) subject to complying with the
exploration contract terms and the priority right to apply for an exploitation contract to collect polymetallic nodules in the same area.
On
March 17, 2012, DGE entered into an Option Agreement (“Marawa Option Agreement”) with Marawa and Kiribati. Under the
amended Marawa Option Agreement dated October 1, 2013, DGE paid an option fee of $0.3 million to acquire the right to purchase tenements,
as may be granted to Marawa by the ISA or any other regulatory body, for the greater of $0.3 million or the value of any amounts owing
to DGE by Marawa. The exercise period for the option is a maximum of 40 years
after the date of the execution of the amended Marawa Option Agreement.
On
October 1, 2013, DGE also entered into a services agreement (“Marawa Services Agreement”) with Marawa and Kiribati,
which grants DGE the exclusive right to carry out exploration and collection in the Marawa Area. Under the Marawa Services Agreement,
DGE will pay to the ISA on behalf of Marawa, the following: $47 thousand annual exploration fees, ISA royalties and taxes, and the
ISA exploitation application fee of $0.3 million. In addition, DGE will ensure that the activities carried out in the Marawa Area by
DGE and any other service contractor complies with the ISA and any other required regulations.
The
Marawa Services Agreement grants DGE the right to recover any and all polymetallic nodules from the Marawa Area by paying Kiribati a
royalty per wet tonne of polymetallic nodules collected (adjusted for inflation from October 1, 2013 onwards).
DGE
has the right to terminate the Marawa Services Agreement at its sole discretion by giving written notice to Marawa and Kiribati, and
such termination shall take effect two months following the date of the termination notice, provided that DGE shall pay to the ISA on
behalf of Marawa the fees or payments legally owed to the ISA by Marawa (including the annual ISA exploration fee and ISA royalties and
taxes) that are outstanding at the date of termination or that are incurred within 12 months after the date of such termination. There
are no other longer-term commitments with respect to the Marawa Option Agreement and the Marawa Services Agreement.
As
at September 30, 2021, Marawa had no amounts owing by DGE under the Marawa Services Agreement and no purchase tenements had been
granted to Marawa.
TOML Exploration
Contract
TOML
was granted the TOML Exploration Contract on January 11, 2012 under the sponsorship of Tonga. 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.
TOML Acquisition
On
March 31, 2020, DeepGreen entered into an acquisition agreement to acquire the polymetallic nodules business unit of TOML and other
entities in the group (the “TOML Group”) from DSMF (the “TOML Acquisition”). Total purchase price of the TOML
Acquisition, before transaction costs, was $32.0 million. TOML holds the TOML Exploration Contract, and some exploration related equipment.
The TOML Group also holds various patents and an application right with respect to a prospecting exploration contract in Kiribati.
The
purchase price of $32.0 million was settled through initial cash payments in two tranches of $0.25 million each (paid on March 31,
2020 and May 31, 2020, respectively), issuance of 9,005,595 common shares, $0.1 million payment to the ISA on behalf of DSMF and
deferred consideration of $3.4 million which was to be paid on January 31, 2021. The common share consideration paid by DeepGreen
was valued at $3.11 per DeepGreen common share based on the recent private placements completed by DeepGreen for a total of $28.0 million.
DeepGreen
had the option of settling the deferred consideration in either cash or common shares of DeepGreen at its sole discretion. In January 2021,
the arrangement with DSMF was amended to pay the entire deferred consideration in cash. The deferred consideration was fully settled
on June 30, 2021.
DeepGreen
determined that the value of TOML Acquisition was substantially concentrated in the TOML Exploration Contract and therefore considered
this to be an acquisition of a group of connected assets rather than an acquisition of a business. Consequently, the total cost of the
transaction was primarily allocated to exploration contracts.
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 polymetallic nodules and process the 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, developing environmental
regulations associated with our business and successful 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” included in this
Quarterly Report on Form 10-Q.
Impact of Climate Change
TMC is committed to adopting
the Task Force on Climate-Related Financial Disclosures recommendations. In our upcoming inaugural impact report, we will be providing
the same type of climate-related disclosure to the one in this Quarterly Report on Form 10-Q. 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 of 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.
Regulatory risks
Regulations related to emissions
limits, such as cap and trade schemes and carbon taxes, would likely increase our future cost of operations, energy purchase, and equipment
selection in addition to costs associated with potential carbon tax and/or purchase of carbon offsets. It is difficult to estimate the
impact of potential future regulations on future operations.
We are working on developing
operations with as close to zero emissions as possible along with a plan for continuous reduction of emissions. When selecting the location
of our onshore plant, one of our requirements is access to renewable energy as our metallurgical process will be the most energy intensive
step in our operations. In addition, we are looking to replace metallurgical coal used as reductant during calcining of nodules, and have
tested potential renewable alternatives. We are also identifying the best approach for decarbonizing our offshore operations. To date,
we have not experienced any material impact to our business related to potential regulations, but will continue to evaluate and monitor
future developments.
Public policy risks
Awareness of climate change
related impacts, and commitments made by companies and governments to achieve net zero emissions, continues to grow. We support the ambition
of the U.S. to achieve net zero greenhouse gas emissions by no later than 2050 and to reach half of all new vehicles sales to be EVs by
2030. We are committed to achieving net zero emissions and are reviewing and designing technologies to achieve this goal. The location
of our onshore plant will be key, and we will be working on science-based targets and scenario analysis in 2022.
To support the EV and battery
storage value chain, we are looking to close the emerging supply gap of critical battery metals needed for the transition to renewable
energy and adoption of EVs. We plan to take advantage of this opportunity to supply lower carbon battery metals, avoid deforestation,
and help reduce the cost of batteries.
Technology risks
The timing and deployment
of technologies to support the transition to a lower carbon economy can be uncertain. Investments in assets with long lifespans require
the selection of not only the proper technology, but also the proper timing to retain the ability to adapt to future developments. There
are also risks associated with the additional costs of lower emissions technology and transition to renewables. To mitigate this risk,
we based our flowsheet development on existing proven technology, while retaining sufficient flexibility to be able to retrofit processes
with new lower carbon technology as they become available.
Physical risks
Our main activity currently
consists of offshore exploration campaigns for research and testing purposes, and technology development at partner facilities. However,
once a location is selected for our onshore metallurgical plant, we will assess the risks associated with hurricanes, floods, and extreme
weather.
COVID-19
In March 2020, the World
Health Organization declared the global outbreak of COVID-19 a pandemic. Since then there have been actions, of varying severity, taken
around the world to mitigate and manage the spread of COVID-19. The disparate actions undertaken by local governments to mitigate or manage
the spread have had and are expected to continue to have an adverse impact on supply chains and labor markets worldwide. On March 27,
2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act to provide financial stimulus and
support as a result of the initial economic fallout from events related to the COVID-19 pandemic.
As
we are a pre-revenue company, the impacts of COVID-19 are relatively smaller than companies with commercial operations. Depending on the
duration and evolution of the pandemic and our supply chains and future customers’ ability to operate normally, there could be future
challenges to our business which we cannot currently foresee. It is critical for our partners to have access to supplies and competent
human capital for us to collectively meet our business objectives. As we have seen during the height of the pandemic and continuing regulations
in certain countries, many of our contractors and service providers have modified their business practices to limit travel and in-person
meetings. While there are positive signs that the current situation is being managed well worldwide and country-wide restrictions and
lockdowns are subsiding, there can be no guarantee that a new COVID-19 variant would not result in reinstating restrictions. If significant
portions of our contractors, service providers and partners are unable to work effectively, including due to illness, lockdowns, quarantine
measures or other government actions, our current development activities and future operations may be impacted negatively. For
instance, the final exploitation regulations were expected to be adopted by the ISA during 2020 but were delayed due to COVID-19.
Offshore, in the first nine
months of 2021, we have safely and successfully completed four complex campaigns to the NORI-D Area in the CCZ involving crew and scientists
departing from and returning to San Diego from around the world. In close coordination with our partner, Maersk, we have implemented rigid
quarantining and testing protocols designed to provide a safe COVID-19 free work environment. Onshore, our pilot plant program at third-party
facilities has proceeded without COVID-19 related incidents. Our corporate and project development teams have adopted a virtual working
environment without a traditional office setting. This means we have been minimally impacted by countrywide lockdowns across the globe.
We continue to work and collaborate through virtual channels on an ongoing basis.
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” included in this Quarterly Report on Form 10-Q
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 reassess the impacts of COVID-19.
Restatement of Previously Issued Quarterly
Financial Statements
We have restated our financial
statements as of and for the three month period ended March 31, 2021, and as of and for the six month period ended June 30,
2021 (the “Affected Periods”) in the accompanying unaudited condensed financial statements included in this Quarterly Report
on Form 10-Q.
The restatement resulted from the following items
we identified while preparing the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q:
|
(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, 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 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 U.S. 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.
|
Therefore, the Company is restating in this Quarterly
Report on Form 10-Q its financial statements for the Affected Periods (the “Restatement”).
The
Company considered the guidance in Accounting Standard Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections,
and ASC Topic 250-10-S99-1, Assessing Materiality and ASC Topic 250-10-S99-2, Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements, in evaluating whether the Company’s previously issued quarterly
financial statements were materially misstated. The Company concluded the items set forth above were not material individually or in the
aggregate to the quarterly financial statements presented for the Affected Periods. Therefore, amendments of the previously filed report
and registration statements in which such quarterly financial statements were included was not required. The Company has not amended
its previously filed reports or registration statements to reflect the Restatement. The financial information that has been previously
filed or otherwise reported for the Affected Periods is superseded by the information in this Quarterly Report on Form 10-Q, including
Note 2 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Additionally, the effect of the Restatement on
each line item set forth below in the unaudited pro forma condensed combined financial information previously filed with our Current Report
on Form 8-K, as amended, filed with the SEC on September 15, 2021 for each period presented is set forth in Item 5 of Part II
of this Quarterly Report on Form 10-Q.
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.
The below reflect the results after considering
the restatement of our historical financial statements to correct for errors related to stock-based compensation expensing and accrual
of exploration expenses and associated liabilities as further described above under “Restatement of Previously Issued Quarterly
Financial Statements” and in Note 2 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Components of Results of Operations
We are an exploration-stage
company and 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 2024 and only if NORI receives an exploitation contract from the
ISA and we are able to successfully collect polymetallic nodules and process the nodules into saleable products on a commercial scale.
Any revenue from initial production is difficult to predict.
Exploration 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 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 stock-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.
Stock-based compensation
cost from the issuance of stock options is measured at the grant date based on the fair value of the award and is recognized over the
related service period. Stock-based compensation costs are charged to exploration expenses and general and administrative expenses depending
on the function fulfilled by the option holder. In instances where stock options are 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 income consists
primarily of interest income earned on our cash and cash equivalents.
Interest expense 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.
Foreign Exchange Loss
The foreign exchange income
or loss for the periods primarily relates to our cash held in Canadian dollars and also 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 Warrant Liabilities
Change in fair value of warrant
liabilities 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.
Results of Operations
The
following is a discussion of our results of operations for the three and nine months ended September 30, 2021 and 2020. Our accounting
policies are described in Note 3 “Summary of Significant Accounting Policies” in our financial statements included elsewhere
in this Quarterly Report on Form 10-Q. The activity below reflects the results after considering the restatement of our historical
financial statements as more fully described in Note 2 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q
and above under "Restatement of Previously Issued Quarterly Financial Statements".
Comparison of the Three Months Ended September 30, 2021
and 2020
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in thousands)
|
|
Exploration expenses
|
|
|
23,848
|
|
|
|
4,556
|
|
|
|
19,292
|
|
|
|
423
|
%
|
G&A
|
|
|
13,334
|
|
|
|
2,192
|
|
|
|
11,142
|
|
|
|
508
|
%
|
Interest expense (income)
|
|
|
342
|
|
|
|
(3
|
)
|
|
|
345
|
|
|
|
(11,500
|
)%
|
Change in fair value of warrant liabilities
|
|
|
(878
|
)
|
|
|
—
|
|
|
|
(878
|
)
|
|
|
N/A
|
|
Foreign exchange loss
|
|
|
5
|
|
|
|
41
|
|
|
|
(36
|
)
|
|
|
(88
|
)%
|
|
|
|
36,651
|
|
|
|
6,786
|
|
|
|
29,865
|
|
|
|
440
|
%
|
Exploration Expenses
Exploration expenses increased
by approximately $19.3 million, or 423%, to $23.8 million during the three months ended September 30, 2021, compared to $4.6 million
during the three months ended September 30, 2020. This increase was mainly due to $12.9 million related to the first two milestone
payments accrued to Allseas in 2021 under the amended PMTS agreement, $2.8 million higher cost of offshore campaigns as a result of greater
offshore activities in the 2021 period as compared to the 2020 period, and $2.8 million higher stock-based compensation expense in the
2021 period as compared to the 2020 period due to the timing of recognition of expense for stock options granted in the first quarter
of 2021. We have a strategic partnership with Maersk pursuant to which we settled the costs for vessel services provided by Maersk through
the issuance of common shares. Such common shares were recognized at their fair value and the changes in such fair value had a significant
impact on our exploration expenditures. During March 2021, we revised our arrangement with Maersk so that the costs of vessel services
are now paid in cash instead of the issuance of common shares. As a result, going forward, such costs are expected to reflect the cost
of the offshore campaigns undertaken with no additional impact on the costs resulting from the change in the fair value of our common
shares. We expect exploration expenses to remain elevated in fourth quarter 2021 and then decrease in the first half of 2022 due to completion
of the offshore data collection component of the environmental baseline surveys to support the ESIA and completion of the metallurgical
plant program. Work continuing in the first half of 2022 is the expected completion of fabrication of the pilot nodule collection system,
expected completion of the hydrometallurgical pilot testing and preparations for the pilot nodule collection system test monitoring campaign.
General and Administrative Expenses
G&A expenses increased $11.1 million, or 508%,
to $13.3 million during the three months ended September 30, 2021, compared to $2.2 million during the three months ended September 30,
2020. The increase in G&A expenses were a result of increased stock-based compensation expense of $5.3 million as compared to the
2020 period due to a $3.9 million expense recognized in the third quarter of 2021 as the board of directors approved amendments for certain
stock option grants to extend their term beyond the retirement provisions in the 2021 Incentive Equity Plan (“Plan”) and timing
of recognition of expense for stock options granted in the first quarter of 2021. In addition, we incurred an increase in professional
fees in connection with the Business Combination and other costs associated with being a public company of $2.4 million. The professional
fees are in addition to $41.9 million related to the Business Combination which were included in common shares. Overall, our business
activities increased and we incurred additional marketing costs of $2.2 million and personnel and director fees of $0.7 million during
the three months ended September 30, 2021 over those incurred in the same period of the prior year. We expect G&A expenses, excluding
those related to the Business Combination, to continue to increase as we expand our infrastructure to commence production and due to additional
legal, accounting, insurance and other expenses associated with being a public company.
Interest Expense
During the three months ended
September 30, 2021, we recognized interest expense of $0.3 million as a result of accrued interest on the 7% convertible debentures
of $26 million issued during February 2021 prior to their conversion into DeepGreen common shares on September 9, 2021.
Change
in Fair Value of Warrant Liabilities
Change
in fair value of warrant liabilities resulted in a gain of $0.9 million for the three months ended September 30, 2021. The
gain was primarily due to a decrease in our share price from September 9, 2021 to September 30, 2021. The warrant liabilities
were initially recorded as part of the Business Combination and therefore did not exist in the prior year.
Comparison of the Nine Months Ended September 30, 2021 and
2020
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in thousands)
|
|
Exploration expenses
|
|
|
80,181
|
|
|
|
35,744
|
|
|
|
44,437
|
|
|
|
124
|
%
|
G&A
|
|
|
41,138
|
|
|
|
3,818
|
|
|
|
37,320
|
|
|
|
977
|
%
|
Interest expense (income)
|
|
|
1,003
|
|
|
|
(53
|
)
|
|
|
1,056
|
|
|
|
(1,992
|
)%
|
Change in fair value of warrant liabilities
|
|
|
(878
|
)
|
|
|
—
|
|
|
|
(878
|
)
|
|
|
N/A
|
|
Foreign exchange loss
|
|
|
57
|
|
|
|
37
|
|
|
|
20
|
|
|
|
54
|
%
|
|
|
|
121,501
|
|
|
|
39,546
|
|
|
|
81,955
|
|
|
|
207
|
%
|
Exploration Expenses
Exploration expenses increased
by approximately $44.4 million, or 124%, to $80.2 million during the nine months ended September 30, 2021, compared to $35.7 million
during the nine months ended September 30, 2020. This increase was primarily due to the recognition of $30.6 million of stock-based
compensation from the issuance of stock options granted to personnel during the nine months ended September 30, 2021 as compared
to $0.5 million during the same period in 2020. The stock-based compensation cost for the stock options granted to individuals involved
in the exploration activities is included within exploration expenses for the periods presented. In addition, the cost of offshore campaigns
that we undertook during the nine months ended September 30, 2021 was $29.1 million, as compared to $17.4 million during the same
period in 2020, as the scale of our exploration campaigns increased, and the fair value of common shares issued to Maersk increased compared
to the prior year period. Furthermore, we expensed $12.9 million of exploration costs during the nine months ended September 30,
2021 related to the first two milestone payments accrued to Allseas under the amended PMTS agreement. The increases were partially offset
by a decrease of $11.7 million in costs recognized related to our agreement with Allseas under which we paid Allseas $10 million and issued
3.2 million common shares to Allseas during the nine months ended September 30, 2020.
General and Administrative Expenses
G&A expenses increased
$37.3 million, or 977%, to $41.1 million during the nine months ended September 30, 2021, compared to $3.8 million during the nine
months ended September 30, 2020. The increase in G&A expenses were a result of an increase in stock-based compensation expense
due to a $3.9 million expense recognized in the third quarter of 2021 as the board of directors approved amendments for certain stock
option grants to extend their term beyond the retirement provisions in the Plan and recognition of expense for stock options granted in
the first quarter of 2021. Professional fees also increased by $7.0 million compared to the prior period consisting of transaction costs
in connection with the Business Combination and indirect costs associated with being a public company. The professional fees are in addition
to $41.9 million related to the Business Combination which were included in common shares. Our activities overall also increased and we
incurred additional marketing costs of $4.5 million, personnel and director fees of $1.0 million and consulting fees of $0.8 million over
those incurred in the same prior year period.
Interest Expense
During the nine months ended
September 30, 2021, we recognized interest expense of $1.0 million as a result of accrued interest on the 7% convertible debentures
of $26.0 million issued during February 2021 prior to their conversion into DeepGreen common shares on September 9, 2021.
Change
in Fair Value of Warrant Liabilities
Change
in fair value of warrant liabilities resulted in a gain of $0.9 million for the nine months ended September 30, 2021. The
gain was primarily due to a decrease in our share price from September 9, 2021 to September 30, 2021. The warrant liabilities
were initially recorded as part of the Business Combination and therefore did not exist in the prior year.
Liquidity and Capital Resources
Prior to closing of the Business
Combination, our primary sources of capital have been private placements of DeepGreen common shares and DeepGreen preferred shares and
the issuance of convertible debentures completed in February 2021, which were automatically converted into DeepGreen common shares
immediately prior to the completion of the Business Combination. In addition, on September 9, 2021, we completed the Business Combination
with SOAC, and as a result we received gross proceeds of approximately $137.6 million. As of September 30, 2021, we had cash and
cash equivalents of $112.6 million and an accumulated deficit of $284.4 million.
We have yet to generate any
revenue from our business operations. We are an exploration-stage company and the recovery of our investment in mineral exploration contracts
and attainment of profitable operations is dependent upon many factors including, among other things, the development of production system
for collecting polymetallic nodules from the seafloor as well as the development of our processing technology for the metallurgical treatment
of such nodules, the establishment of mineable reserves, the demonstration of commercial and technical feasibility of seafloor polymetallic
nodule collection and processing systems, metal prices, and securing ISA exploitation contracts. While we have obtained financing in the
past, there is no assurance that such financing will continue to be available on favorable terms, if at all.
We expect our capital expenditures
and working capital requirements to increase materially in the near future as NORI and TOML seek to obtain exploitation contracts, perform
the required environmental studies, complete pre-feasibility and feasibility studies. We believe that our cash on hand will be sufficient
to meet our working capital and capital expenditure requirements to at least the third quarter of 2023. With these funds, we expect to
be able to complete pilot nodule system collection trials in 2022, complete our environmental impact studies by 2023, and lodge our application
to move from exploration phase to exploitation phase in the third quarter of 2023. We may, however, need additional cash resources due
to changes in business conditions or other developments, including, but not limited to, deferral of approvals, capital cost escalation,
currently unrecognized technical and development challenges or changes in external business environment. To the extent that our current
resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. If the financing
is not available, or if the terms of financing are less desirable than we expect, we may be forced to delay our exploration and/or exploitation
activities or scale back our operations, which could have a material adverse impact on our business and financial prospects.
ITEM 1A. RISK FACTORS.
Careful
consideration should be given to the following risk factors, in addition to the other information set forth in this Quarterly Report on
Form 10-Q, including the section of this Quarterly
Report on Form 10-Q titled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
and our consolidated financial statements and related notes, and in other documents that we file with the SEC, in evaluating our company
and our business. Investing in our securities involves a high degree of risk. If any of the events described in the following risk factors
actually occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely
affected and the trading price of our securities could decline. Our actual results could differ materially from those anticipated in the
forward-looking statements as a result of factors that are described below and elsewhere in this Quarterly Report on Form 10-Q.
I. Regulatory
and Environmental Risks.
Our business is subject to numerous regulatory
uncertainties which, if not resolved in our favor, would have a material adverse impact on our business.
To
date, no commercial-scale collection (also referred to as “mining,”
“exploitation” or “harvesting”)
of nodules has occurred on the seafloor in the area of the high seas beyond national jurisdiction (the “Area”),
which includes the CCZ. Moreover, despite the release by the ISA
of the Draft Regulations on Exploitation of Mineral Resources (the “Draft
Regulations”), finalization of such regulations remains subject
to approval and adoption by the ISA. The ISA was intending to have
these regulations finalized by July 2020, but the COVID-19 pandemic
disrupted ISA meetings and discussions. Once adopted, these regulations will create the legal and technical framework for exploitation
of the polymetallic nodules in the NORI, TOML and Marawa contract areas.
Section 1,
paragraph 15 of the 1994 Agreement relating to the Implementation of Part XI
of UNCLOS allows a member state whose national intends to apply for approval of a plan of work for exploitation to notify the ISA of such
intention. This notice obliges the ISA to complete the adoption of exploitation regulations within two years
of the request made by the member state.
On
June 25, 2021, Nauru submitted its notice to the ISA requesting
that it complete, by July 9, 2023, the adoption of regulations necessary
to facilitate the approval of plans of work for the commercial exploitation of polymetallic nodules. The notice submitted by Nauru to
the ISA has increased the likelihood that regulations will be adopted that will govern and enable commercial scale polymetallic nodule
collection. If the ISA has not completed the adoption of such regulations within the prescribed time and an application for approval of
a plan of work for exploitation is pending before the ISA, the ISA shall nonetheless consider and provisionally approve such plan of work
based on: (i) the provisions of the UNCLOS; (ii) any
rules, regulations and procedures that the ISA may have adopted provisionally at the time, (iii) the
basis of the norms contained in the UNCLOS and (iv) the principle
of non-discrimination among contractors.
We
expect the final regulations (“Final Regulations”)
to be approved within the next two years, but there can be no assurance
that such regulations will be approved then, or at all. The Draft Regulations and several supporting standards and guidelines are at an
advanced stage, but there remains uncertainty regarding the final form that these will take, as well as the impact that such regulations,
standards and guidelines will have on our ability to meet our objectives.
The
collection of polymetallic nodules within the CCZ, where our exploration areas are located, will require approval of an ISA Exploitation
Contract (which will authorize commercial collection activities). As part of the application for an ISA Exploitation Contract, all contractors
will be required to complete baseline studies and an ESIA, culminating in an EIS, prior to collecting nodules. The EIS would be accompanied
by an Environmental Management and Monitoring Plan (“EMMP”).
The EMMP is expected to specify the objectives and purpose of all monitoring requirements, the components to be monitored, frequency of
monitoring, methods of monitoring, analysis required in each monitoring component, monitoring data management and reporting.
In
order to collect the mineral resources and commercialize our projects, our wholly-owned subsidiaries,
NORI and TOML will each need to obtain an ISA Exploitation Contract, as will our partner, Marawa, in addition to related permits that
may be required by our commercial partners. There can be no assurance that the ISA will evaluate any exploration contract application
by our subsidiaries in a timely manner. Even if the ISA timely evaluates such applications(s), our subsidiaries may be required to submit
a supplementary EIS before obtaining approval. As such, there is a risk that an ISA Exploitation Contract may not be granted by the ISA,
may not be granted on a timely basis, or may be granted on uneconomic terms.
Similarly,
with respect to sponsor state regulation, no assurance can be given that new rules and
regulations will not be enacted or that existing rules and regulations
will not be applied in a manner that would limit or curtail production or development by our subsidiaries. Amendments to current laws
and regulations governing the operations and activities of deep-sea mineral resources companies, or changes in interpretation thereto,
or the unwillingness of countries throughout the world to enforce such laws and regulations, could have a material adverse impact on our
business, and could cause increases in exploration expenses, capital expenditures, production costs, or put the security of our equipment
at risk to activism or piracy. Such amendments could also cause reductions in our future production, or the delay or abandonment in the
development of our polymetallic mineral resource properties. There can be no certainty that actions by governmental and regulatory authorities,
including changes in regulation, taxation and other fiscal regimes, will not adversely impact our projects or our business. Further, our
operations depend on the continuation of the sponsorship arrangements between our subsidiaries NORI and TOML and each of their host sponsoring
nations, Tonga and Nauru, respectively. Each subsidiary has been registered and incorporated within such host nation and each nation has
maintained effective supervision, regulation, and sponsorship over the conduct of such subsidiary. While we have beneficial ownership
over such subsidiaries, we operate under the regulation and sponsorship of Nauru and Tonga. If such arrangement is challenged, or sponsorship
is terminated, we may have to restructure the ownership or operations of such subsidiary to ensure continued state sponsorship. Failure
to maintain sponsorship, or secure new state sponsorship, will have a material impact on such subsidiary and on our overall business and
operations.
While
the rates of payments are yet to be set by the ISA, the 1994 Agreement relating to the Implementation of Part XI
of the UNCLOS of 10 December 1982 (the “1994
Implementation Agreement”) prescribes a relevant framework that
the rates of payments “shall be within the range of those prevailing
in respect of land-based mining of the same or similar minerals in
order to avoid giving deep seabed miners an artificial competitive advantage or imposing on them a competitive disadvantage.”
The ISA has held workshops with stakeholders to discuss and seek comments on the potential financial regime for the collecting of polymetallic
nodules in the Area. There can be no assurance that the ISA will put in place Final Regulations in a timely manner or at all. Such regulations
may also impose burdensome obligations or restrictions on us, and/or may contain terms that do not enable us to develop our projects.
Our resource activities are subject to changes
in government regulation and political instability.
Parties
carrying out exploration and collection operations in the Area must be sponsored by a State that is a member of the ISA. The
sponsoring States of our subsidiaries NORI and TOML are Nauru and Tonga, respectively. If either country ceases such sponsorship, NORI
or TOML would need to seek sponsorship elsewhere, which could impact our operations as a group.
In
addition, our subsidiary, DGE, has an exclusive contract with Marawa, which is sponsored by Kiribati that permits DGE to conduct activities
in connection with the exploration contract held by Marawa with the ISA. There
is a risk that a State sponsoring activities in a project area ceases to be a sponsor, or is not permitted to be a sponsor, or that NORI
and TOML cease to remain as sponsored contractors by such State; and if an agreement cannot be reached with a substitute sponsoring State,
or if we are unable to transfer our sponsorship to another State, such subsidiary could be forced to cease activities in the Area.
Additionally,
there is little jurisprudence or interpretative guidance regarding the application of the sponsorship regulations that are applicable
to our business. For example, with respect to the question over the regulation of which State can impact the activities of any contractor
(such as NORI or TOML), we have taken the view that incorporation, registration and the grant of nationality are critical factors, amongst
others, notwithstanding the beneficial ownership of a subsidiary by its parent (“beneficial
ownership”). While this position has not been challenged by our
sponsoring States or the ISA, certain organizations that oppose the deep-sea polymetallic nodule exploration and collecting industry have
advocated for the use of a beneficial ownership test for state sponsorship, and there are no guarantees that our interpretation will be
universally accepted in the future.
The
mineral exploration activities of our subsidiaries and their future project development prospects could be affected in varying degrees
by political instability and changes in government regulation relating to foreign investment and the deep-sea polymetallic collecting
business, including expropriation. Operations may also be affected in varying degrees by possible terrorism, military conflict, crime,
piracy, fluctuations in currency rates, and high inflation. In addition, from time to time, governments may nationalize private businesses,
including companies such as ours. There can be no assurance that the governments of countries where we or our affiliates or third-party contractors
operate or the governments with which our subsidiaries work in the Area will not nationalize companies such as ours and our assets in
the future, or impose burdensome obligations or restrictions. There can also be no assurance that the ISA will not impose burdensome obligations
or restrictions on our business or our projects (or those of our affiliates and third-party contractors),
or that they will not implement policies or regulations that would prevent us from accomplishing our objectives.
Changes to any of the laws, rules, regulations
or policies to which we are subject could have a significant impact on our business.
Changes to any of the laws,
rules, regulations, taxation or other policies to which we are subject could have a significant impact on our business. There can be no
assurance that we will be able to comply with any future laws, rules, regulations and policies. Failure to comply with applicable laws,
rules, regulations, and policies may subject us to civil or regulatory proceedings, including fines or injunctions, which may have a material
adverse effect on our business, financial condition, liquidity, and results of operations. In addition, compliance with any future laws,
rules, regulations, and policies could negatively impact our profitability, and could have a material adverse effect on our business,
financial condition, liquidity and results of operations.
Furthermore, we may seek
to expand our production capabilities in the future, which would require additional regulatory approvals that may not be provided in a
timely manner or at all. Furthermore, such additional approvals could require changes to environmental offset areas and related environmental
protections which, if overly burdensome, could impact our operations.
Our exploration, collecting, processing
and refining activities are subject to extensive and costly environmental requirements, and current and future laws, regulations, and
permits may impose significant costs, liabilities, or obligations, or could limit or prevent our ability to continue our operations as
currently contemplated or to undertake new operations.
All phases of exploring for
and collecting and processing polymetallic nodules will be subject to environmental regulation in various jurisdictions and under national
as well as international laws and conventions. No seafloor polymetallic nodule deposit has been collected on a commercial scale, and it
is not clear what environmental parameters may need to be measured to satisfy regulatory authorities for an ISA Exploitation Contract
should be granted. A full ESIA for deep sea collecting operations has yet to be completed and approved by the ISA, and the full impact
of any polymetallic nodule collecting operation on the environment has yet to be determined. Further, the required standards for an ESIA
are currently unclear and have not been finalized by the ISA, which could require changes to any submissions made by our subsidiaries
in connection with an ISA Exploitation Contract application. Environmental legislation is evolving in a manner which is likely to require
strict standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed
projects and a heightened degree of responsibility for companies and their officers, directors and employees. Additionally, while we intend
to produce seafloor polymetallic nodules in a way that mitigates and reduces potential damage to the seafloor and marine environmental
conditions, we do not know whether the ISA or any other regulatory body will seek to impose onerous methods for the restoration of the
area or rehabilitation obligations on our collecting process. Any such obligations, to the extent they are overly burdensome, could result
in material changes to our business as currently contemplated.
Although the environmental
impact review process has not yet been finalized, all contractors have been made aware of the requirement to complete baseline studies
and an ESIA, culminating in an EIS, prior to collecting. The EIS would be accompanied by an EMMP, which will be required as part of the
application for an ISA Exploitation Contract within the contract areas of NORI, TOML and Marawa. The EMMP is expected to specify the objectives
and purpose of all monitoring requirements, the components to be monitored, frequency of monitoring, methods of monitoring, analysis required
in each monitoring component, monitoring data management and reporting.
The
EMMP will also be submitted to the ISA for approval as part of the ISA Exploitation Contract application. There are no guarantees that
the ISA will evaluate any exploitation contract application by our subsidiaries in a timely manner, and even if the ISA does timely evaluate
such applications(s), such subsidiary may be required to submit a supplementary EIS before being approved. This may result in delays that
could impact our projected timeframe. Furthermore, in the event that the ISA timely evaluates and approves an application, any aspect
of such application and approval theoretically could be subject to legal challenges which could result in further delays that could detrimentally
impact our business. For example, certain conservation groups have sought to impose a ten-year moratorium
on deep-sea polymetallic nodule collection. While this agenda does
not appear to have directly impacted the current proposed Final Regulations and implementation of the policies of the ISA, any such moratorium
would have a material adverse effect on our business.
The
environmental permitting process, which includes considerations on the impacts of our activities on the biodiversity of the CCZ, is expected
to involve a series of checks and balances with reviews being conducted by the ISA, including technical evaluations by the ISA secretariat
and a constituent body of the ISA known as the Legal and Technical Commission (the “LTC”).
The recommendations of the LTC will then go before the ISA Council (“Council”),
a core policy-making body of the ISA, which will then review and,
if it deems appropriate, approve the contractor’s application. It
would require a two-thirds majority of the Council to reject a development
proposal that is recommended to it by the LTC. There are no assurances
that the work our subsidiaries have done to date or their contemplated future operations will satisfy the final environmental rules and
regulations adopted by the ISA, and any future changes could delay the timing of such submissions to the ISA or our subsidiaries operations
more generally, which could have a material adverse effect on our business. Sponsoring State approvals and permits are currently and may
in future be required in connection with our operations. To the extent such approvals are required and not obtained, our subsidiaries
may be curtailed or prohibited from proceeding with planned exploration or development of mineral properties. Failure to comply with applicable
laws, regulations, and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or
judicial authorities causing operations to cease or be curtailed and may include corrective measures requiring capital expenditures, installation
of additional equipment, or remedial actions. Parties engaged in collection operations may be required to compensate those suffering loss
or damage by reason of the collection activities and may have civil or criminal fines or penalties imposed for violations of applicable
laws and regulations.
We may become subject to environmental liabilities
as a result of noncompliance or newly imposed regulations.
All
of the exploration and development operations of our subsidiaries will be subject to environmental permitting and regulations, which can
make operations expensive or prohibit them altogether. We may also be subject to potential risks and liabilities associated with pollution
of the environment that could occur as a result of our subsidiaries’
exploration, development, and production activities.
To the extent that a subsidiary
becomes subject to environmental liabilities, the payment of such liabilities, or the costs incurred to remedy environmental pollution,
would reduce funds otherwise available to us, which could have a material adverse effect on our business. If we or our subsidiaries are
unable to fully remedy an environmental problem, they might be required to suspend operations or enter into interim compliance measures
pending completion of the required remedy. The potential exposure could be material to our business.
All of our exploration, development,
production and processing activities will be subject to regulation under certain environmental laws and regulations. Our subsidiaries
may be required to obtain permits for their activities. They may be required to update and review permits from time to time, and may also
be subject to environmental impact analyses and public review processes prior to the approval of any future activities. It is possible
that future changes in applicable laws, regulations and permits, or changes in their enforcement or regulatory interpretation by local
governments, sponsor states, and other regulatory bodies, could have a significant impact on our business.
Our planned activities may affect biodiversity in the CCZ and
those potential effects are not definitively known at this time. This is an area currently under study.
Nodule
collection operations in the CCZ are certain to disturb wildlife in the operating area. The nature and severity of these impacts on CCZ
wildlife are expected to vary by species and are currently subject to significant uncertainty. Our studies cataloguing wildlife and ecosystem
function, piloting the nodule collection system and assessing impacts arising from the use of this system are all currently in progress
and, similar to studies conducted in respect of land-based mining, may not definitely establish the impacts of activities on the biodiversity
in the CCZ. Given the significant volume of deep water and the difficulty of sampling or retrieving biological specimens in the Area,
a complete biological inventory might never be established. Accordingly, impacts on CCZ biodiversity may never be, completely and definitively
known. For the same reasons, it may also not be possible to definitively say whether the impact of nodule collection on global biodiversity
will be less significant than those estimated for land-based mining
for a similar amount of produced metal.
It
is also currently not definitively known how the risk of biodiversity loss in the CCZ could be eliminated or reduced through mitigation
strategies or how long it will take for disturbed seabed areas to recover naturally. Prior research indicates that the density, diversity
and function of fauna representing most of resident biomass (including mobile, pelagic and microbial life) are expected to recover naturally
over years to decades. However, a high level of uncertainty
exists around recovery of fauna that requires the hard substrate of nodules for critical life function. The extent to which planned measures,
such as leaving behind 15% of nodule cover (by mass) and setting aside no-take zones,
would aid recruitment and recovery of nodule-dependent species in
impacted areas will depend on factors like habitat connectivity, which is an area that is still under study.
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II.
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Resource and Market Risks.
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The grade and quality of the polymetallic
nodule deposits that we intend to develop are estimates, and there are no guarantees that such deposits will be suitable for collecting
or commercialization.
The grades and abundances
of the seafloor polymetallic nodule deposits that we intend to develop and commercialize are estimates that may prove to be inaccurate.
While limited samples have been collected and analyzed, there are no guarantees that our projections of quality will hold true with respect
to the polymetallic nodule deposits that we are able to collect from the seafloor. Actual nodule grades and abundances may vary from our
estimates, which could have a material adverse impact on our projections for future revenues, cash flows, royalties, and development and
operating expenditures.
In addition, the precise
form of mineral occurrence, grade, abundance, and tonnage, which is projected based on the mapping and analysis of samples, are not yet
known. There is a risk that the sampling and imaging that has been completed to date, and that which will need to be completed in the
future, has not and/or will not allow us to accurately quantify the tonnage, abundance and grade of identified polymetallic nodule deposits.
Moreover, the projections or classifications based on such sampling could result in inaccurate environmental, geological or metallurgical
assumptions (including with respect to the size, grade, abundance, and/or recoverability of minerals) or incorrect assumptions concerning
economic recoverability.
No seafloor polymetallic nodule deposit
has ever been commercially developed, and our collection and development plans and processes may not be sufficient to accomplish our objectives.
Seafloor
polymetallic nodules have never been commercially mined, and there is a risk that our collection and recovery methods and the equipment
that we intend to utilize during this process may not be adequate for the economic development of seafloor polymetallic nodule deposits.
The equipment and technology that we intend to utilize has not been fully proven in such sub-sea conditions
and for this specific material and application, and failure to adapt existing equipment or to develop suitable equipment or recovery and
development techniques for the prevailing material and seafloor conditions would have a material adverse effect on the business of our
subsidiaries, and the results of their operations and financial condition. We have partnered with Allseas, a leading global offshore contractor,
to undertake a pre-production pilot collection system test in which
a collector vehicle, a riser and lift system and other systems will be tested. Although we expect the pilot collection system test to
be successful, there can be no assurance that it will be, or that their technology will eventually be adequate for full scale commercial
production, or that our intention to partner with Allseas in the initial production activities in one or more of our contract areas will
be agreed with Allseas, hence we may be delayed in obtaining offshore collection equipment in the event we do not reach agreement with
Allseas and have to develop such equipment on our own or through new third-party contractual relationships.
We are reliant on third parties to conduct
independent analyses with respect to our business, and any inaccuracies in such analyses could have a material adverse effect on our collection
and development objectives.
We rely upon third-party
consultants, engineers, analysts, scientists, and others to provide analyses, reviews, reports, advice, and opinions regarding our potential
projects. For example, the NORI Initial Assessment and the TOML Mineral Resource Statement, contain mineral resource estimates and other
information with respect to our contract areas. There is a risk that such analyses, reviews, reports, advice, opinions, and projects are
incorrect, in particular with respect to resource estimation, process development, and recommendations for products to be produced, as
well as with respect to economic assessments, including estimating the capital and operating costs of our project and forecasting potential
future revenue streams. Uncertainties are also inherent in such estimations.
Mineral resource estimates from the contract
areas of NORI and TOML are only estimates.
Estimates of mineral resources
from the contract areas of NORI and TOML described in our SEC filings and reported in technical reports prepared by AMC are only estimates
and depend on geological interpretation and statistical inferences or assumptions drawn from survey data and recovery and sampling analysis,
which might prove to be materially inaccurate. While these reports have been provided by experts, there is a degree of uncertainty attributable
to the estimation of mineral resources. Mineral reserves have not been defined and will require completion of further studies. Until mineral
resources are actually collected and processed, the quantity of metal and nodule abundance must be considered as estimates only and no
assurance can be given that the indicated levels of metals will be produced. In making determinations about whether to advance any of
our projects to further development, we must rely upon calculated estimates for the mineral resources and grades of mineralization in
our contract areas and estimated equipment production rates, equipment availability and utilization and collection efficiency.
The estimation of mineral
reserves and mineral resources is a subjective process that is partially dependent upon the judgment of the persons preparing the estimates.
The process relies on the quantity and quality of available data and is based on knowledge, experience, statistical analysis of data and
industry practices. Valid estimates made at a given time may significantly change when new information becomes available.
Estimated
mineral reserves and mineral resources may have to be recalculated based on changes in metal prices, further exploration or development
activity or actual production experience. This could materially and adversely affect estimates of the volume or grade of mineralization,
estimated recovery rates or other important factors that influence mineral reserves and mineral resources estimates. The extent to which
mineral resources may ultimately be reclassified as mineral reserves is dependent upon the demonstration of their profitable recovery.
Any material changes in volume and grades of mineralization will affect the economic viability of placing a property into production and
a property’s return on capital. We cannot provide assurance
that polymetallic nodules can be collected or processed profitably.
The
mineral resource estimates in our SEC filings have been determined and valued based on assumed future metal prices, cut-off grades,
production rates and operating costs that may prove to be inaccurate. Extended declines in the market price for nickel, manganese, copper
and cobalt may render portions of our mineralization uneconomic and result in reduced reported volume and grades, which in turn could
have a material adverse effect on our financial performance, financial position and results of operations.
In addition, inferred mineral
resources have a great amount of uncertainty as to their existence and their economic and legal feasibility. You should not assume that
any part of an inferred mineral resource will be upgraded to a higher category or that any of the mineral resources will be reclassified
as mineral reserves. Currently 97% of the NORI-D Area resource is classified into indicated and measured categories.
Our business is subject to significant risks,
and we may never develop minerals in sufficient grade or quantities to justify commercial operations.
Mineral
resource exploration, development, and operations are highly speculative and are characterized by a number of significant risks, including,
among other things, unprofitable efforts resulting not only from the failure to discover mineral resources, and from finding mineral resources
which, though present, are insufficient in quantity and quality to return a profit from production. Once mineralization is discovered,
it may take a number of years from the initial exploration
phases before production is possible, during which time the potential feasibility of the project may change adversely. Substantial expenditures
are required to establish mineral resources and reserves, to determine processes to collect and transport the minerals and, if required,
to construct processing facilities.
No deep-sea polymetallic
properties in the Area that have been identified have as of today been developed into production. Exploration risk exists in the discovery,
location, definition and recovery of seafloor polymetallic nodule deposits. Many companies fail to ever locate an economic deposit, and
given that no seafloor polymetallic nodule deposit has ever been commercially developed, such risks may have a material impact on our
ability to accomplish our objectives. Operations may be affected by the availability of suitable vessels and equipment, prevailing sea
conditions, changes in meteorological conditions and climate change, currents close to the seafloor and throughout the water column, recovery
of materials sampled, lack of experience in delineating deposits, or unsuitability of equipment for recovering such material in prevailing
conditions. Substantial expenditures are required to establish mineral reserves, to develop metallurgical processes, and to construct
collection and transportation vessels, and we will be required to rely upon the expertise of consultants and others for exploration, development,
construction and operational knowhow, and such consultants and third parties may not always be available to support our operations. If
we are not able to obtain such expertise or identify alternative sources of expertise, our operations and financial results will be negatively
impacted.
While
we believe that seafloor polymetallic nodules in the contract areas of our subsidiaries account for some of the world’s
largest aggregated estimated deposits of battery metals, no assurance can be given that minerals will be discovered in sufficient grade
or quantities to justify commercial operations. Whether an exploration property will be commercially viable depends on a number of factors,
including: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices, which are highly
cyclical; availability of and effectiveness of technology to recover, trans-ship, transport and process nodules; government regulations,
including regulations relating to prices, taxes, royalties, land tenure, land use, and environmental protection; availability of required
personnel, third-party partners and contractors, any required financing and commercial demand in the marketplace for such metals. The
precise impact of these factors cannot accurately be predicted, but the combination of these factors may result in the inability of our
subsidiaries to operate or generate an adequate return on invested capital.
While we and our subsidiaries
will evaluate the political and economic factors in determining an exploration strategy, there can be no assurance that significant restrictions
will not be placed on intended development areas. Such restrictions may have a material adverse effect on our business and results of
operation.
Uncertainty in our estimates of polymetallic
nodule deposits could result in lower than expected revenues and higher costs.
We base our estimates of
polymetallic nodule deposits on engineering, economic, and geological data assembled and analyzed by outside firms, which are reviewed
by third-party expert consultants including engineers and geologists. Such estimates, however, are necessarily imprecise and depend to
some extent on professional interpretation, including statistical inferences drawn from available data, which may prove unreliable. There
are numerous uncertainties inherent in estimating quantities and qualities of the polymetallic nodules that we intend to collect and the
costs associated therewith, including many factors beyond our control. Estimates of economically recoverable minerals necessarily depend
upon a number of variable factors and assumptions, all of which may vary considerably from actual results, such as:
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environmental, geological, geotechnical, collecting and processing conditions that may not be fully identified
by available data or that may differ from experience;
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changes to the strategic approach to collecting and processing, which will depend in large part on market
demand, corporate strategy and other prevailing economic and financial conditions;
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assumptions concerning future prices of products (including, most notably, battery metals) foreign exchange
rates, production rates, process recovery rates, transportation costs, operating costs, capital costs and reclamation costs; and
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assumptions concerning future effects of regulation, including the issuance of required permits and taxes
by governmental agencies and foreign government policies relating to our collecting of the mineral resources from our contract areas.
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Uncertainty
in estimates related to the availability of polymetallic nodules could result in lower than expected revenues and higher than expected
costs or a shortened estimated life for our projects. Fluctuations in factors out of our control such as changes in future product pricing,
foreign government policies and foreign exchange rates can have a significant impact on the estimates of mineral resources and reserves
and can result in significant changes in the quantum of our resources and/or reserves period-to-period.
We operate in a highly competitive industry,
and there are no assurances that our efforts will be successful.
The battery metals collection
and processing industry is capital intensive and competitive. Production of battery metals and manganese alloys is largely dominated by
Chinese competitors amongst other nation states and private contractors. These competitors may have greater financial resources, as well
as other strategic advantages to operate, maintain, improve and possibly expand their facilities. Additionally, domestic Chinese resources
firms have historically been able to produce minerals and/or process metals from land-based operations at relatively low costs due to
domestic economic and regulatory factors, including less stringent environmental and governmental regulations and lower labor and benefit
costs. Many contractors currently hold ISA exploration contracts to assess the value of polymetallic nodule fields for future collecting
in the Area. Each of these various contractors are potential competitors with respect to the collection of polymetallic nodules and the
production of nickel, manganese, copper and cobalt products. We will be competing with several other contractors that may possess greater
financial and/or technical resources. There is increasing competition from new and existing players in the search for polymetallic nodule
deposits, the availability of marine exploration and support vessels, related marine equipment and specialized personnel, desirable exploration
leases, suitable processing equipment, and available funds. There is a risk that competitors may find more promising resources, identify
or develop more economic technologies, enter into strategic partnerships that constrain our optionality, or may develop novel methods
to process nodules into metals (either on the seafloor or on land) that are more economic than we currently contemplate.
The prevailing market prices of nickel,
manganese, copper, cobalt, and other commodities will have a material impact on our ability to achieve commercial success.
The
profitability of our nodule collection operations is significantly affected by changes in the market price of battery metals (cobalt,
nickel and copper) and manganese alloys and the cost of power, petroleum fuels, and oil, among other commodities and supply requirements.
Prices of such metals are affected by numerous factors beyond our control, including: prevailing interest rates and returns on other asset
classes; expectations regarding inflation, monetary policy and currency values; speculation; governmental and exchange decisions regarding
the disposal of metal stockpiles; political and economic conditions; available supplies of battery metals from mine production, inventories
and recycled metal; sales by holders and producers of battery metals; and demand for products containing nickel, manganese, copper and
cobalt. The price of nickel, manganese, copper, cobalt and other minerals and oil has fluctuated widely in recent years.
Depending on the prevailing price of nickel, manganese, copper, and cobalt, and the cost of power, chemical reagents, petroleum fuels
and oil, cash flow from our collection operations and commercialization may not be sufficient to cover our operating costs or the costs
to servicing any outstanding debt. In addition, our proposed full scale production plans would involve placing a large percentage of global
manganese production in the market, and we may be constrained in our ability to sell such large volumes, or such production may negatively
impact the market price of manganese, which would, in either case, negatively impact our overall economic position.
We are not currently party
to any commodity hedging contracts, as we do not yet have any production. Debt financing may not be available on commercially reasonable
terms, or at all.
We may be adversely affected by fluctuations
in demand for nickel, manganese, copper, cobalt, and other commodities.
Because our revenue is expected
to be from the collection and processing of minerals, changes in demand for, and taxes and other tariffs and fees imposed upon, such minerals
and derived mineral products (most notably, nickel, manganese, copper, and cobalt) could significantly affect our profitability. A prolonged
or significant economic contraction in the U.S. or worldwide could put downward pressure on market prices of minerals. Protracted periods
of low prices for minerals could significantly reduce revenues and the availability of required development funds in the future. This
could cause substantial reductions to, or a suspension of, our exploration, collecting and production operations, and impair asset values.
Demand for our minerals may
be impacted by changes in supply dynamics and sources, and changes in demand for downstream products, including batteries for electric
vehicles and energy storage that consume high volumes of the metals we intend to produce, as well as demand for manganese alloys used
in steel-making, the targeted market for most of our manganese production. Lack of growth or material increases in new sources of supply
in this or in any other related markets may adversely affect the demand for our minerals and any related products, and if the market for
these critical existing and emerging technologies does not grow as we expect, grows more slowly than we expect, or if the demand for our
products in these markets decreases, then our business, prospects, financial condition and operating results could be harmed. Notably,
our financial success in part will depend in part on the expansion of the global manganese market to consume the additional volume of
manganese that we intend to produce.
In
contrast, extended periods of high commodity prices may create economic dislocations that could be destabilizing to the supply and demand
of minerals, and ultimately to the broader markets. Periods of high market prices for our minerals are generally beneficial to our financial
performance. However, strong prices also create economic pressure to identify or create new sources of supply and alternate technologies
requiring consumption of metals that ultimately could depress future long-term demand
for nickel, cobalt, copper and related products, and at the same time may incentivize development of competing properties.
We may experience difficulty in creating
market acceptance for a novel manganese product.
We will be producing a novel
manganese silicate product which does not have recognition in the marketplace with customers. Metallurgical testwork, market studies by
CRU International Limited and initial engagement with customers indicate that this manganese silicate product will be a premium product
with high value in use as an input into silicomanagese alloy production that we believe will receive strong market acceptance. However,
mineral processing industries may be slow to change feed stocks and suppliers, even in the face of potential improvements.
Additionally, manganese silicate
is not a conventional mineral product and may require additional approvals for export and import from our processing facilities to our
future customers.
Our ability to generate revenue will be
diminished if we are unable to compete with substitutions for the minerals that we intend to process.
Technology changes rapidly
in the industries and end markets that utilize our materials. If these industries introduce new technologies or products that no longer
require the minerals that we intend to collect and process, or if suitable substitutes become available, it could result in a decline
in demand for our materials. If the demand for our materials decreases, it will have a material adverse effect on our business and the
results of our operations and financial condition.
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III.
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Social License and Public Perceptions Risks.
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Negative perceptions related to the collection
of polymetallic nodules could have a material adverse effect on our business.
There exist certain negative
perceptions related to acquiring metals produced from deep sea minerals. Some market proponents have recently expressed opposition to
acquiring deep-sea mineral derived metals, given concerns associated with the effects on marine animals and the potential for loss of
biodiversity. If this position gains broad traction by governments and commercial customers alike in relation to battery metals sourced
from polymetallic nodules, it could have a material impact on our business and operations.
Our
future growth may be dependent upon consumers’
willingness to adopt electric vehicles.
Given that the minerals we
intend to collect and process are contemplated to be significantly linked to growing metals demand in batteries for electric vehicles,
our growth is highly dependent upon the adoption by consumers of, and we are subject to an elevated risk of any reduced demand for, alternative
fuel vehicles in general and electric vehicles in particular. While it has been projected that demand for such electric vehicles will
surge over time, if the market for electric vehicles does not develop as we expect, or develops more slowly than we expect, our business,
prospects, financial condition and operating results may be harmed. The market for alternative fuel vehicles is relatively new, rapidly
evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and
industry standards, frequent new vehicle announcements and changing consumer demands and behaviors. Factors that may influence the adoption
of alternative fuel vehicles, and specifically electric vehicles, include:
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perceptions about electric vehicle quality, safety, design, performance and cost, especially if adverse
events or accidents occur that are linked to the quality or safety of electric vehicles;
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the material composition necessary for electric vehicle batteries and the potential of change in chemistry
and engineering requirements that may move away from expected demand for nickel and cobalt;
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perceptions about vehicle safety in general, in particular safety issues that may be attributed to the
use of advanced technology, including vehicle electronics and regenerative braking systems;
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the limited range over which electric vehicles may be driven on a single battery charge;
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the decline of an electric vehicle’s
range resulting from deterioration over time in the battery’s ability
to hold a charge;
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concerns about electric grid capacity and reliability;
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the availability of alternative fuel vehicles, including plug-in hybrid
electric vehicles;
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improvements in the fuel economy of the internal combustion engine;
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the availability of service for electric vehicles;
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the environmental consciousness of consumers;
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volatility in the cost of oil and gasoline;
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consumers’ perceptions of the dependency
of the U.S. on oil from unstable or hostile countries;
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government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;
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access to charging stations, standardization of electric vehicle charging systems and consumers’
perceptions about convenience and cost to charge an electric vehicle;
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the availability of tax and other governmental incentives to purchase and operate electric vehicles or
future regulation requiring increased use of nonpolluting vehicles;
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perceptions about and the actual cost of alternative fuel; and
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We may become subject to pressure and lobbying
from non-governmental organizations.
Like
other businesses that operate in the resources industry, we may become subject to pressure and lobbying from non-governmental organizations,
particularly with respect to environmental concerns, including potential damage to the deep-sea environment. There is a risk that the
demands and actions of such non-governmental organizations may cause
significant disruption to our business, which could have a material adverse effect on our operations and financial condition. It is possible
that direct action from environmental groups could physically impact ongoing operation during exploration, project development and commercial
operations.
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IV.
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Offshore and Onshore Technology Risks and Operational
Risks.
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Nodule Collection, development and processing
operations pose inherent risks and costs that may negatively impact our business.
Collection, development and
processing operations involve many hazards and uncertainties, including, among others:
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metallurgical or other processing problems;
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technical and operational challenges in the collection and expansion of maritime collection activities;
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difficulties in transferring nodules to transport vessels and delivering nodules to port;
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unusual and unexpected water conditions;
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unexpected seafloor conditions
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unexpected environmental conditions, including contamination or leakage;
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periodic interruptions due to inclement or hazardous weather conditions or other acts of nature;
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piracy and disruptive action by non-governmental actors
opposed to deep sea collection;
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organized labor disputes or work slow-downs;
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mechanical equipment failure and facility performance problems;
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the availability of financing, market demand, critical technology and equipment, and skilled labor; and
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the inability of suppliers to provide key process inputs like electricity, gas, coal and processing reagents
on a timely basis at the prices that have been forecast.
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These
occurrences could result in damage to, or destruction of, production facilities, personal injury or death, environmental damage, delays
in processing, increased production costs, asset write downs, monetary losses and legal liability, any of which could have an adverse
effect on our results of operations and financial condition and adversely affect our projected development and production estimates. In
addition, our operations could be interrupted by or negatively influenced by non-governmental actors
which could negatively impact our or our subsidiaries’ ability to
operate in the CCZ and international markets, obtain capital, collect, transport, process or sell metals, or otherwise conduct business.
Our business is contingent on our ability
to successfully identify, collect and process polymetallic nodules, and in doing so, we will need to rely on certain existing and future
strategic relationships, some of which we may be unable to maintain and/or develop.
In conducting our business,
we will rely on continuing existing strategic relationships as well as new relationships in a variety of disciplines, including the offshore
equipment and services industries (such as our partnerships with Maersk and Allseas), the onshore mineral processing industry, and others
involved in the mineral exploration industry. We will also need to continue to develop new relationships with third-party contractors,
as well as with certain regulatory and governmental departments.
For
example, we have been working with Hatch, a global engineering, project management, and professional services firm, to develop onshore
processing technology for the production of readily saleable copper and manganese products, as well as products such as high-grade nickel
and cobalt sulphates for the electric vehicle battery markets. In connection therewith, Hatch has developed a near zero solid waste flowsheet.
We are also party to certain agreements with Maersk and Maersk Supply Service Subsea UK Limited (“Maersk
UK”), pursuant to which Maersk and Maersk UK agreed to supply us
with vessels and offshore services with respect to vessel operations and supplier management to support environmental studies within the
NORI, TOML and Marawa Areas, though these arrangements are scheduled to terminate in 2022 unless extended by mutual agreement. Additionally,
we are party to certain agreements with Allseas, pursuant to which, among other things, Allseas has agreed to design, engineer and construct
an integrated offshore collection system to collect nodules from
NORI Areas, and to assist with shipping efforts thereafter. Allseas is contractually required to develop a test system to demonstrate
this capability, but it is not certain that Allseas will convert, or will be able to convert such system into a full-scale commercial
operation or that we will reach contractual terms with Allseas for such commercial arrangements.
There
can be no assurance that we will be able to continue to maintain and develop our existing relationships, or that we will be able to form
the new relationships that are required in order for our business to be successful. Additionally, one of our material agreements with
a strategic partner includes performance-based metrics that will adjust depending on the success of our business and the trading activity
in our shares. We issued a warrant to purchase 11.6 million common shares to Allseas (“Allseas
Warrant”), which shall vest upon certain milestones into such number
of our common shares that is based on the formula described therein. On June 1,
2022, the value of the Allseas Warrant will be determined by multiplying the total number of our common shares underlying the warrant
by the price per common share (“Warrant Credit Value”).
In the event that the Warrant Credit Value is greater than $150,000,000, then on the vesting date of the Allseas Warrant, we shall receive
a “credit”
for the amount by which such Warrant Credit Value exceeds $150,000,000. We will be able to exchange such credit value for future goods
and services from Allseas. However, if our common shares do not perform well, there is a chance that we will receive little or no such
credit, in which case we will be required to pay more than is currently anticipated to Allseas in connection with future services that
may be provided. In addition, there can be no assurance that services will be required from Allseas to utilize any such credit.
Some of the equipment that we will need
to accomplish our objectives has not been manufactured and/or tested.
Our
subsidiaries will need to rely on high-value equipment for collection and transport of materials. Much of this equipment, particularly
as it pertains to sub-sea engineering and recovery systems,
has yet to have completion of engineering, and has not been constructed and fully tested, and may not be suitable or may prove unreliable,
and may not be delivered to us on a timely basis, thereby delaying our contemplated timetable. Moreover, our future needs with respect
to sub-sea engineering and recovery systems have yet to be fully
determined, and as such, the capital costs, performance, reliability, and maintenance associated with the necessary equipment is currently
unknown. There can be no guarantees that the necessary sub-sea engineering
and recovery systems can be developed, or if developed, that such systems will be deployable in an economically viable manner. Any equipment
downtime or delayed mobilization of equipment may impact operations. Additionally, as we launch exploration, collection, and development
initiatives, our subsidiaries may need to compete for the availability of suitable vessels and equipment, even though we have a close
commercial relationship with our partners, Allseas and Maersk, there is a risk that certain vessels and equipment will be under long-term charter
and will thus not be available to them when needed, if at all.
The polymetallic nodules that we may recover
will require specialized treatment and processing, and there is no certainty that such processes will result in a recovery of metals that
is consistent with our expectations, or that we will be able to develop or otherwise access processing plants that are suitable for our
purposes.
The polymetallic nodules
that our subsidiaries may recover will comprise a mixture of base metals in varying proportions, which will likely necessitate specialized
treatment by mineral processing plants or smelters. To date, no polymetallic nodule deposits have been collected and treated for recovery
of metal products on a commercial scale, and there is a risk that such treatment may not be economically viable and/or that the nodules
being treated will contain elements or compounds that would render them unsuitable for treatment.
To
date, no commercial-scale plants have been built to process
polymetallic nodules. While Hatch, a global engineering, project management, and professional services firm, has helped us to develop
a processing flowsheet with near zero solid waste and is working with us in the development of a pilot plant processing program, the actual
percentage recovery of metals may vary significantly from that forecast, and we are in the process of conducting a pilot scale metallurgical
test-work program to determine our ability to expand such program
into a full operational system.
Should
our nodule collection plans become successful, we intend to develop land-based processing
plants or partner with existing land-based processing partners. Furthermore,
our future needs with respect to such processing plants have yet to be fully determined, and as such, the capital costs, performance,
reliability, and maintenance of such plants is currently uncertain. While we believe that we have identified specific sites for the potential
construction of such plants (based on factors such as proximity to deep-water ports,
cost and source of electric power and natural gas, and proximity to customers), there is a risk that we will be unable to secure one or
more of these sites on suitable terms. In the event that we are unable to secure one or more of the sites we have identified, or if construction
delays impact our ability to develop one or more of such sites, our ability to process polymetallic nodules would be detrimentally impacted.
Additionally, there can be no guarantees that such plants can be developed, or if developed, that such plants will perform in an economically
viable manner or provide the projected metal recovery rates at the estimated project capital and operating costs, which could impact projections
for our future revenues, cash flows, royalties, and development and operating expenditures.
We
have identified potential tolling facilities to process nodules to copper, nickel and cobalt alloy
and manganese silicate, and developed a marketing strategy to place these products into existing smelting and refining facilities. There
is no guarantee that these facilities will be available at the required times or that we would be able to secure them at commercially
attractive rates. Additionally, even if we are able to secure appropriate processing facilities (either through ground-up construction
or tolling arrangements), there is no guarantee that we will be able to provide them with the required nodule feedstocks at the required
times. Accordingly, the timing in which we expand our operations may vary depending on geological, operational and financial developments,
in addition to regulatory approvals from the ISA, among other factors, and these may impact our revenue and financial performance.
Our exploration and polymetallic nodule
collecting activities may be affected by natural hazards, which could have a material adverse effect on our business.
Deep-sea mineral exploration
and collection activities are inherently difficult and dangerous and may be delayed or suspended by severe weather events and climate
change, sea conditions or other natural hazards, including storms, hurricanes and unpredictable weather patterns. In addition, even though
sea conditions in a particular location may be somewhat predictable, the possibility exists that unexpected conditions may occur that
adversely affect our operations. Seafloor mineral collection activities may be subject to interruptions resulting from weather and related
marine conditions that adversely affect our collection operations or the ports of delivery and any such delays could have a material adverse
effect on our business.
Fluctuations in transportation costs or
disruptions in transportation services or damage or loss during transport could decrease our competitiveness or impair our ability to
supply polymetallic nodules, processed minerals or products to our customers, which could adversely affect our results of operations.
Once our subsidiaries have
been able to successfully collect the polymetallic nodules, they will be required to transport them to facilities for processing. Furthermore,
once they have reached a point of commercialization, we will need to transport our products to our future customers, wherever they may
be located. Finding affordable and dependable transportation is important because it allows us to supply customers around the world. Labor
disputes, embargos, government restrictions, work stoppages, pandemics, derailments, damage or loss events, adverse weather conditions,
vessel groundings inhibiting access to key navigation routes, other environmental events, changes to rail or ocean freight systems or
other events and activities beyond our control could interrupt or limit available transport services, which could result in customer dissatisfaction
and loss of sales potential and could materially adversely affect our results of operations.
Actual capital costs, financing strategies,
operating costs, production and economic returns may differ significantly from those we have anticipated and there can be no assurance
that any future development activities will result in profitable collecting operations.
The
actual operating costs of our subsidiaries to collect polymetallic nodules and transport and process such nodules on a commercial scale
will depend upon changes in the availability of financing or partners who undertake capital developments in partnership with us, and prices
of labor, equipment and infrastructure, shipping costs, variances in ore recovery from those currently assumed, operational risks, changes
in governmental regulation, including taxation, environmental, permitting and other regulations and other factors, many of which are beyond
our control. Due to any of these or other factors, our capital and operating costs may be significantly higher than those set forth in
the NORI Initial Assessment and TOML Mineral Resource Statement prepared by AMC and filed as exhibits to our registration statement on
Form S-1 on October 7,
2021. As a result of higher capital and operating costs, our financing ability may be impacted, and this may be further affected by lower
commodity prices in the international markets that could impact production or economic returns which may differ significantly from those
set forth in the NORI Initial Assessment and TOML Mineral Resource Statement and there can be no assurance that any of our development
activities will result in profitable operations.
We have a limited operating history, and
there can be no assurance that we will be able to commercially develop our resource areas or achieve profitability in the future.
We
have a limited operating history, and we expect that our losses will continue until we achieve profitable commercial production. NORI
currently intends to explore and collect mineral resources in the NORI areas identified in the exploration contract executed by NORI with
the ISA, and we hope to expand such operations if viable in certain other parts of the CCZ, including by TOML in the TOML areas identified
in the exploration contract executed between TOML and the ISA and DGE in the Marawa areas identified in the exploration contract executed
by Marawa with the ISA. Although NORI expects to achieve early-stage commercial production for the NORI-D Area
on or around 2024, there can be no assurance that it will be able to commercially develop these properties or that it will be able to
generate profits in the future.
Our operating expenses and
capital expenditures will increase in the future as consultants and new employees are engaged, equipment associated with advancing exploration
is leased or purchased, and properties are developed. There can be no assurance that we will generate any revenues or achieve profitability,
or that the assumed levels of expense associated with our exploration, development, and commercialization processes will prove to be accurate.
Our profitability could be adversely affected
if we fail to maintain satisfactory labor relations.
Our
exploration and production initiatives will be dependent upon the efforts of our employees. Although none of our employees are currently
subject to any collective bargaining arrangements, our employees could, in the future, choose to be represented as a collective unit,
which may result in labor disputes, work stoppages or other
disruptions in our production efforts that could adversely affect us.
Work
stoppages or similar difficulties could significantly
disrupt our operations, reduce our revenues and materially adversely affect our results of operations.
A
work stoppage by any of the third parties providing
services in connection with our operations or those of our strategic partners (such as for on-shore or
off-shore operations) could significantly disrupt our activities,
reduce our future revenues and materially adversely affect our results of operations.
A shortage of skilled technicians and engineers
may further increase operating costs, which could materially adversely affect our results of operations.
Efficient collection, transport
and processing using modern techniques and equipment requires skilled technicians and engineers. In addition, our optimization and eventual
downstream efforts will significantly increase the number of skilled operators, maintenance technicians, engineers and other personnel
required to successfully operate our business. If we are unable to hire, train and retain the necessary number of skilled technicians,
engineers and other personnel there could be an adverse impact on our labor costs and our ability to reach anticipated production levels
in a timely manner, which could have a material adverse effect on our results of operations.
We depend on key personnel for the success
of our business. The loss of key personnel or the hiring of ineffective personnel could negatively impact our operations and profitability.
We depend on the services
of our senior management team, our board of directors, our strategic partners and other key personnel. The loss of the services of any
member of senior management, our board of directors or a key employee, or similar personnel within our strategic partners could have an
adverse effect on our business. We and our partners may not be able to locate, attract or employ on acceptable terms qualified replacements
for senior management, board of directors or other key employees if their services are no longer available.
Our growth will depend on our ability, and
on the ability of our management team, board of directors and other employees, to execute on our plans and expand our operations and controls
while maintaining effective cost controls.
Deep-sea exploration, collection,
and production is a burgeoning industry, and our ability to implement our strategy requires effective planning and management control
systems. Our plans may place a significant strain on our management and on our operational, financial and personnel resources. As such,
our future growth and prospects will depend on our ability to manage this growth and to continue to expand and improve operational, financial
and management information and quality control systems on a timely basis, while at the same time maintaining effective cost controls.
Any failure to expand and improve operational, financial and management information and quality control systems in line with our growth
could have a material adverse effect on our business, financial condition and results of operations. There are also risks associated with
establishing and maintaining systems of internal controls.
We are dependent upon information technology
systems, which are subject to cyber threats, disruption, damage and failure.
We depend upon information
technology systems in the conduct of operations. Such information technology systems are subject to disruption, damage or failure from
a variety of sources, including, without limitation, computer viruses, security breaches, cyber-attacks, natural disasters and defects
in design. Cybersecurity incidents, in particular, are evolving and include, but are not limited to, malicious software, attempts to gain
unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of
confidential or otherwise protected information or the corruption of data. Various measures have been implemented to manage our risks
related to information technology systems and network disruptions. However, given the unpredictability of the timing, nature and scope
of information technology disruptions, we could potentially be subject to downtimes, operational delays, the compromising of confidential
or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems
and networks or financial losses from remedial actions, any of which could have a material adverse effect on our business, operating results
and financial condition.
Our business is subject to a variety of
risks, some of which may not be covered by our future or existing insurance policies.
In
the course of the exploration, development, and production of our mineral resource properties, we may be subject to a variety of risks
that could result in: (i) damage to, or destruction of, transportation
vessels and processing facilities, (ii) personal injury or death,
(iii) environmental damage, (iv) delays
in collecting, transporting or processing, (v) monetary losses, (vi) natural
disasters, (vii) environmental matters, and (viii) legal
liability, among others. It is not always possible to fully insure against such risks, and we may determine not to insure against all
such risks as a result of high premiums or for other reasons. Should such liabilities arise, they could reduce or eliminate any future
profitability and result in an increase in cost and a decline in the value of our securities. We cannot be certain that insurance for
some or all of these risks will be available on acceptable terms or conditions, if at all, and in some cases, coverage may not be acceptable
or may be considered too expensive relative to the perceived risk.
We may not be able to adequately protect
our intellectual property rights. If we fail to adequately enforce or defend our intellectual property rights, our business may be harmed.
Much
of the technology used in the markets in which we compete is or may become protected by patents and trade secrets, and our commercial
success will depend in significant part on our ability to access, obtain and maintain patent and trade secret protection for future products
and methods or those of any of our strategic partners such as Allseas or onshore processing partners. To compete in these markets, we
rely or may need to rely on a combination of trade secret protection, nondisclosure and licensing agreements, patents and trademarks to
establish and protect our proprietary intellectual property rights. Our intellectual property rights (or those of our partners) may be
challenged or infringed upon by third parties, or we may be unable to maintain, renew or enter into new license agreements with third-party owners
of intellectual property on reasonable terms. In addition, our intellectual property may be subject to infringement or other unauthorized
use outside of the U.S. In such case, our ability to protect our intellectual property rights by legal recourse or otherwise may be limited,
particularly in countries where laws or enforcement practices are undeveloped or do not recognize or protect intellectual property rights
to the same extent as the U.S. Unauthorized use of our intellectual property rights (or those of our partners) or our inability (or the
inability of our partners) to preserve our existing intellectual property rights (or those of our partners) could adversely impact our
competitive position and results of operations. The loss of our patents could reduce the value of the related products. In addition, the
cost to litigate infringements of our patents, or the cost to defend ourselves against patent infringement actions by others, could be
substantial and, if incurred, could materially affect our business and financial condition.
Proprietary
trade secrets and unpatented know-how may
become important to our business. We will likely rely on trade secrets to protect certain aspects of our business systems and designs,
especially where we do not believe that patent protection is appropriate or obtainable. However, trade secrets are difficult to protect.
Our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose
our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized
disclosure of confidential or proprietary information. Enforcing a claim that a third-party illegally obtained and is using our trade
secrets is expensive and time consuming, and the outcome is unpredictable. Moreover, our competitors may independently develop equivalent
knowledge, methods and know-how. Failure
to obtain or maintain trade secret protection could adversely affect our competitive business position.
We
or our partners may not be able to obtain necessary patents and the legal protection afforded by any patents may not adequately protect
our or our partners’ rights or permit us to
gain or keep any competitive advantage.
Our ability (or that of our
partners) to obtain necessary patents is uncertain, and the legal protection to be afforded by any patents we (or they) may be issued
in the future may not adequately protect our (or their) rights or permit us (or them) to gain or keep any competitive advantage necessary
for our operations or our partnerships. In addition, the specific content required of patents and patent applications that are necessary
to support and interpret patent claims is highly uncertain due to the complex nature of the relevant legal, scientific and factual issues.
Changes in either patent laws or interpretations of patent laws in the U.S. or elsewhere may diminish the value of our intellectual property
or narrow the scope of our patent protection. Even if patents are issued regarding our products and processes, our competitors may challenge
the validity of those patents. Patents also will not protect our products and processes if competitors devise ways of making products
without infringing our patents.
If we infringe, or are accused of infringing,
on the intellectual property rights of third parties, it may increase our costs or prevent us from being able to commercialize new products.
There
is a risk that we (or our partners) may infringe, or may be accused of infringing, the proprietary rights of third parties under patents
and pending patent applications belonging to third parties that may exist in the U.S. and elsewhere in the world that relate to our products
and processes (or those of our strategic partners). Because the patent application process can take several years
to complete, there may be currently pending applications that may later result in issued patents that cover our products and processes.
In addition, our products and processes may infringe existing patents.
Defending
ourselves against third-party claims, including litigation
in particular, would be costly and time consuming and would divert management’s
attention from our business, which could lead to delays in our exploration, collecting, processing, and commercialization efforts. If
third parties are successful in their claims, we might have to pay substantial damages or take other actions that are adverse to our business.
As a result of intellectual property infringement claims, or to avoid potential claims, we might:
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be prohibited from, or delayed in, selling or licensing some of our products or using some of our processes
unless the patent holder licenses the patent to us, which it is not required to do;
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be required to pay substantial royalties or grant a cross license to our patents to another patent holder;
or
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be required to redesign a product or process so it does not infringe a third-party’s
patent, which may not be possible or could require substantial funds and time.
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In addition, we could be
subject to claims that our employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information
of third parties.
If we are unable to resolve
claims that may be brought against us by third parties related to their intellectual property rights on terms acceptable to us, we may
be precluded from offering some of our products or using some of our processes.
In
addition, we have not obtained definitive global trademark protection for the name “The
Metals Company” and we may not be able to secure such protection
over time. If we are unable to secure such protection, we may need to rebrand or otherwise modify our name, which could result in costs,
delays and loss of market recognition.
We may be required to take write-downs or
write-offs, restructurings and impairments or other charges that could have a significant negative effect on our financial condition,
results of operations and the share price of our securities, which could cause you to lose some or all of your investment.
We
may be forced to write-down or write-off assets,
restructure our operations, or incur impairment or other charges that could result in our reporting losses. Unexpected risks may arise
and previously known risks may materialize which could have a material adverse effect on our financial condition and results of operations
and could contribute to negative market perceptions about our securities or our company. Accordingly, our shareholders could suffer a
reduction in the value of our common shares and warrants. Our shareholders are unlikely to have a remedy for such reduction in value unless
they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary
duty owed to them, or if they are able to successfully bring a private claim under securities laws that our filings with the SEC contain
an actionable material misstatement or material omission.
The COVID-19 pandemic could have an adverse
effect on our business.
The
current COVID-19 pandemic
has materially impacted the national and global economy and commodity and financial markets. The full extent and impact of the COVID-19 pandemic
is unknown and to date has included, among other things, extreme volatility in financial markets, a slowdown in economic activity, volatility
in commodity prices, strained supply chains, and an increased possibility of a global recession. The response to COVID-19 has
led to significant restrictions on travel, temporary business closures, quarantines, global stock market volatility and a general reduction
in consumer activity and sentiment, globally. The outbreak has affected our business and operations and may continue to do so by, among
others, increasing the cost of operations and reducing employee productivity, limiting travel of our personnel, adversely affecting the
health and welfare of our personnel, or preventing or delaying important third-party service providers from performing normal and contracted
activities crucial to the operation of our business.
The
outbreak has resulted in significant governmental measures being implemented to control the spread of the virus, including, among others,
restrictions on manufacturing and the movement of employees in many regions of the U.S. and
other countries. These disruptions could continue to impact the market for minerals, which in turn could impact our business or business
prospects.
Decisions
beyond our control, such as canceled events, restricted travel, barriers to entry, temporary closures or limited availability of county,
state or federal government agencies, or other factors, may affect our ability to perform collecting operations, corporate activities,
and other actions that would normally be accomplished without such limitations. For instance, the final exploitation regulations were
expected to be adopted by the ISA during 2020 but were delayed due to COVID-19. The extent to which the COVID-19 outbreak
will further impact our operations, our business and the economy is highly uncertain. We cannot predict the impact of the COVID-19 pandemic,
but it may materially and adversely affect our business, financial condition and results of operations.
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V.
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Public Company Risks and Risks Related to our Securities
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We may issue additional common shares or
other equity securities without shareholder approval, which would dilute your ownership interests and may depress the market price of
our common shares.
As
of September 30, 2021, we had 224,385,324 common shares and
24,500,000 warrants to acquire common shares issued and outstanding. In addition, the Allseas Warrant is exercisable for up to 11,578,620
common shares subject to the terms and conditions thereof. Subject to the requirements of the Business Corporations Act (British Columbia)
(“BCBCA”),
our Articles authorize us to issue common shares and rights relating to our common shares for the consideration and on the terms and conditions
established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. In addition, 24,682,385
common shares are reserved for issuance under the TMC Incentive Equity Plan, subject to adjustment in certain events. In addition, up
to 77,277,244 common shares, subject to adjustment in certain events, may be issued to the holders upon conversion of special shares if
certain common share price thresholds are met (“Special Shares”).
Any common shares issued, including in connection with the exercise of warrants, upon conversion of the Special Shares or under the TMC
Incentive Equity Plan, or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by
you.
Our issuance of additional
common shares or other equity securities of equal or senior rank would have the following effects:
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our existing shareholders’ proportionate
ownership interest in the Company will decrease;
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the amount of cash available per share, including for payment of dividends in the future, may decrease;
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the relative voting strength of each previously outstanding common share may be diminished; and
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the market price of our common shares may decline.
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Our
outstanding warrants have become exercisable for our common shares beginning on October 9,
2021, which if exercised, will increase the number of shares eligible for future resale in the public market and result in dilution to
our stockholders.
We
have 15,000,000 outstanding Public Warrants to purchase 15,000,000 common shares at an exercise price of $11.50 per share, which warrants
became exercisable beginning on October 9, 2021. In addition,
there are 9,500,000 Private Warrants outstanding exercisable for 9,500,000 shares of our common shares at an exercise price of $11.50
per share. In certain circumstances, the Public Warrants and Private Warrants may be exercised on a cashless basis. To the extent such
warrants are exercised, additional shares of our common shares will be issued, which will result in dilution to the holders of our common
shares and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the
public market could adversely affect the market price of our common shares, the impact of which is increased as the value of our stock
price increases.
Our warrants are accounted for as liabilities
and the changes in value of our warrants could have a material effect on our financial results.
On
April 12, 2021, the Acting Director of the Division of Corporation
Finance and Acting Chief Accountant of the SEC together issued a statement regarding the accounting and reporting considerations for warrants
issued by special purpose acquisition companies entitled Staff Statement on Accounting and Reporting Considerations for Warrants Issued
by Special Purpose Acquisition Companies (“SPACs”)
dated April 12, 2021 (the “SEC
Staff Statement”). Specifically, the SEC Staff Statement focused
on certain settlement terms and provisions related to certain tender offers following a business combination, which terms are similar
to those contained in the warrant agreement governing our warrants. As a result of the SEC Staff Statement, SOAC reevaluated the accounting
treatment of its Public Warrants and Private Warrants, and determined to classify the warrants as derivative liabilities measured at fair
value, with changes in fair value each period reported in earnings.
As
a result, included on SOAC’s balance sheet as of December 31,
2020 are derivative liabilities related to SOAC’s warrants. Accounting
Standards Codification 815, Derivatives and Hedging, provides for the remeasurement of the fair value of such derivatives at each balance
sheet date, with a resulting non-cash gain or loss related to the change in the fair value being recognized in earnings in the statement
of operations. As a result of the recurring fair value measurement, our financial statements and results of operations may fluctuate quarterly,
based on factors that are outside of our control. Due to the recurring fair value measurement, it is expected that we will recognize non-cash
gains or losses on the warrants each reporting period and that the amount of such gains or losses could be material.
Prior to the close of the
Business Combination, SOAC accounted for the Public Warrants and Private Warrants as derivative liabilities as the warrant agreements
include a provision that in the event of a tender or exchange offer made to and accepted by holders of more than 50% of the outstanding
shares of a single class of common stock, all holders of the warrants would be entitled to receive cash for their warrants. In the event
of a qualifying cash tender offer (which could be outside the control of the Company), all warrant holders would be entitled to cash,
while only certain holders of the underlying common stock would be entitled to cash.
On closing of the Business
Combination, TMC had only one class of common stock. In the event of a tender or exchange offer, all stockholders will be offered the
tender. As a result, the Public Warrants were re-classified to equity. The Private Warrants continue to be classified within liabilities
as it contain features that could change the settlement amount depending on the holder of the Private Warrants. Therefore, we will have
continuing remeasurement impacts from the Private Warrants which will result in non-cash gains or losses each reporting period, which
could be material to the financial statements.
We have identified material weaknesses in
our internal control over financial reporting. If we are unable to develop and maintain an effective system of internal control over financial
reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence
in us and materially and adversely affect our business and operating results and the value of our common shares.
In
connection with the preparation of DeepGreen’s financial
statement for the years ended December 31, 2020 and 2019 and three
months ended March 31, 2021 that were included in the proxy statement/prospectus
filed with the SEC on August 13, 2021, as well as the financial statements
for the six months ended June 30, 2021 that were included in the
Current Report on Form 8-K, as amended, filed with the SEC on September 15,
2021, we identified a material weakness in our internal control over financial reporting as of December 31,
2020, March 31, 2021 and June 30,
2021 which related to deficiencies in the design and operation of the financial statement close and reporting controls, including maintaining
sufficient written policies and procedures and the need to use appropriate technical expertise when accounting for complex or non-routine
transactions. In the process of preparing the Company’s third quarter
2021 financial statements, management discovered misstatements related to the understatement of exploration expense and overstatement
of stock option expenses related to the three month period ended March 31,
2021 and six month period ended June 30, 2021. For further detail
regarding the restatement, see Part II, Item
2 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Restatement of Previously Issued Quarterly Financial Statements”
and Part II, Item
4 “Controls and Procedures”.
These misstatements resulted in the Company having to restate its unaudited condensed consolidated financial statements for the three
months ended March 31, 2021 and six months ended June 30,
2021. Our management has concluded that this material weakness was due to the fact that, prior to the Business Combination, we were a
private company with limited resources. We have taken the following remediation measures to date:
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appointed a Chief Financial Officer to oversee the finance and accounting function;
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hired individuals for the core accounting function with the requisite education, designation, and technical
accounting and public company experience;
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until we have the full complement of accounting staff in place, we are utilizing experienced and competent
contract accountants to supplement our internal accounting team;
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developed a plan to bring our finance and accounting function in-house and are nearing completion of the
transition from our outsourced accounting service provider;
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evaluated the accounting impacts of all new contracts and arrangements through a detailed analysis against
accounting standards and technical interpretations;
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performed a thorough analysis of key issues to be addressed, have prioritized these issues and we are
now in the process of addressing these issues;
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began a project to design and implement robust controls over all our key processes and address all key
company risks; and
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started adding formality and rigor to our financial reporting process by continuously developing structured
roles, policies, processes, procedures and controls.
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In
response to the material weaknesses, we have expended, and will continue to expend, a substantial amount of effort and resources to improve
the internal controls environment, particularly those over financial reporting. Our remediation plan can only be accomplished over time
and will be continually reviewed to determine that it is achieving its objectives. The material weaknesses will not be considered remediated
until sufficient time has elapsed to provide sufficient sample evidence that the newly designed and implemented controls are operating
effectively. This is no assurance that these initiatives will ultimately have the intended effects. The material weaknesses remain unremediated
as of September 30, 2021.
If the material weaknesses
are not remediated in a timely manner, this could result in material misstatements to our annual or interim financial statements that
would not be prevented or detected on a timely basis, or in the delayed filing of required periodic reports. If we are unable to assert
that our internal control over financial reporting is effective, or when required in the future, if our independent registered public
accounting firm is unable to express an unqualified opinion as to the effectiveness of the internal control over financial reporting,
investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our securities could be adversely
affected and we could become subject to litigation or investigations by Nasdaq, the SEC, or other regulatory authorities, which could
require additional financial and management resources.
In
addition, following this issuance of the SEC Staff Statement, on May 24,
2021, after consultation with SOAC’s independent registered public
accounting firm, SOAC’s management and its audit committee concluded
that, in light of the SEC Staff Statement, it was appropriate to restate SOAC’s
previously issued audited financial statements as of and for the period ended December 31,
2020 (the “Restatement”).
See “— Our warrants are accounted for as liabilities
and the changes in value of SOAC’s warrants could have a material
effect on its financial results.” As part of such process, SOAC
identified a material weakness in its internal controls over financial reporting.
We may face litigation and other risks as
a result of the material weaknesses in our internal control over financial reporting.
Following
the issuance of the SEC Staff Statement, after consultation with its independent registered public accounting firm, SOAC’s
management and its audit committee concluded that it was appropriate to restate its previously issued audited financial statements as
of and for the period ended December 31, 2020. See “— Our
warrants are accounted for as liabilities and the changes in value of SOAC’s
warrants could have a material effect on its financial results.”
As part of the Restatement, SOAC concluded there was a material weakness in its internal controls over financial reporting.
We
have also restated our financial statements as of and for the three month period ended March 31,
2021, and as of and for the six month period ended June 30, 2021
in the accompanying unaudited condensed financial statements included in this Quarterly Report on Form 10-Q.
As a result of the material
weaknesses, the restatements, the change in accounting for the warrants, the adjustments relating to the accrual of exploration expenses
and stock option accounting, and other matters raised or that may in the future be raised by the SEC, we may be subject to potential litigation
or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other
claims arising from the Restatement and material weaknesses in our internal control over financial reporting and the preparation of our
financial statements. We can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or
dispute, whether successful or not, could have a material adverse effect on our business, results of operations and financial condition.
We
are involved in litigation that may adversely affect us, and may not be successful in our litigation related to non-performing Private
Investment in Public Equity (“PIPE”)
investors.
Due
to the nature of our business, we may be subject to regulatory investigations, claims, lawsuits and other proceedings in the ordinary
course of our business. The results of these legal proceedings cannot be predicted with certainty due to the uncertainty inherent in litigation,
including the effects of discovery of new evidence or advancement of new legal theories, the difficulty of predicting decisions of judges
and juries and the possibility that decisions may be reversed on appeal. We can provide no assurances that these matters will not have
a material adverse effect on our business. Following periods of volatility in the market, securities class-action litigation has often
been instituted against companies. On October 28, 2021, a
shareholder filed a putative class action against us and certain executives alleging that all defendants violated Section 10(b) of
the Exchange Act and Rule 10b-5 promulgated thereunder, and certain
defendants violated Section 20(a) of
the Exchange Act by making false and/or misleading statements and/or failing to disclose information about our operations and prospects
during the period from March 4, 2021 and October 5,
2021. See Part II, Item
1 “Legal Proceedings”
of this Quarterly Report on Form 10-Q for additional information
about this lawsuit. Although we deny any allegations of wrongdoing and intend to vigorously defend against this lawsuit, there is no assurance
that we or the other defendants will be successful in our 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. A resolution of this lawsuit adverse to us or the other defendants,
however, could have a material effect on our financial position and results of operations in the period in which the lawsuit is resolved.
Additionally, this and other litigation, if instituted against us, could result in substantial costs and diversion of management’s
attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth
prospects.
We
expected to receive approximately $330 million of proceeds
in the PIPE Financing but only received $110.3 million due to two
investors that failed to fulfill their funding obligations under their subscription agreements with us with respect to the PIPE Financing.
We have initiated litigation against the two non-performing investors in order to enforce the funding obligations. See Part II, Item
1 “Legal Proceedings”
of this Quarterly Report on Form 10-Q for additional information
about the lawsuits against these investors. There can be no assurances, however, that we will be successful in our efforts against these
investors.
There can be no assurance that the Public
Warrants and Private Warrants will be in the money at the time they become exercisable, and they may expire worthless.
The exercise price for the
outstanding Public Warrants and Private Warrants is $11.50 per common share. There can be no assurance that such warrants will be in the
money following the time they become exercisable and prior to their expiration, and as such, such warrants may expire worthless.
There
are currently outstanding an aggregate of 24,500,000 warrants
to acquire our common shares (not including the Allseas Warrant), which comprise 9,500,000 Private Warrants held by SOAC’s
initial shareholders at the time of SOAC’s initial public offering
and 15,000,000 Public Warrants. Each of our outstanding whole warrants is exercisable commencing on October 9,
2021, for one common share in accordance with its terms. Therefore, as of September 30,
2021, if we assume that each outstanding whole warrant is exercised and one common share is issued as a result of such exercise, with
payment of the exercise price of $11.50 per share, our fully-diluted share capital would increase by a total of 24,500,000 shares, with
approximately $281,750,000 paid to us to exercise the warrants.
We
are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain
exemptions from disclosure requirements available to “emerging
growth companies” or “smaller
reporting companies,” this could make our securities less attractive
to investors and may make it more difficult to compare our performance with other public companies.
We
are an “emerging growth company”
within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not “emerging
growth companies” including, but not limited to, not being required
to comply with the auditor attestation requirements of Section 404
of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements,
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important.
We could be an emerging growth company for up to five years, although
circumstances could cause us to lose that status earlier, including if the market value of our common shares held by non-affiliates exceeds
$700 million as of the end of any second quarter of a fiscal year,
in which case we would no longer be an emerging growth company as of the last day
of such fiscal year. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions.
If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities
may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our
securities may be more volatile.
Further,
Section 102(b)(1) of
the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until
private companies (that is, those that have not had a registration statement under the Securities Act declared effective or do not have
a class of securities registered under the Exchange Act) are required
to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended
transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable.
We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different
application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time
private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company
that is not an emerging growth company or is an emerging growth company which has opted out of using the extended transition period difficult
or impossible because of the potential differences in accounting standards used.
Additionally,
we are a “smaller reporting company”
as defined in Item 10(f)(1) of
Regulation S-K. Smaller
reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years
of audited financial statements. We will remain a smaller reporting company until the last day
of the fiscal year in which (i) the market value of our common shares
held by non-affiliates is greater than or equal to $250 million as
of the end of that fiscal year’s second fiscal quarter, and (ii) our
annual revenues are greater than or equal to $100 million during
the last completed fiscal year and the market value of our common shares held by non-affiliates exceeds $700 million
as of the end of that fiscal year’s second fiscal quarter. To the
extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public
companies difficult or impossible.
Our business is capital intensive, and we
may be required to raise additional funds in the future in order to accomplish our objectives.
The
continuing exploration and development of the contract areas in NORI, TOML and Marawa may depend upon our ability to obtain dilutive and/or
non-dilutive financing through debt financing, equity financing,
joint ventures, or other means. Additionally, the actual amount of capital raised for our projects may vary materially from our current
estimates, which could require that we raise additional funds. There is no assurance that we will be successful in obtaining the required
financing for these or other purposes, including for general working capital, or that any funds raised will be sufficient for the purposes
contemplated. We will not initially have any producing properties and will have no source of significant operating cash flow until 2024
at the earliest. There is no precedent for projects like ours, and therefore, debt financing may not be available in commercially available
terms, or at all. Failure to obtain additional financing on a timely basis could cause us to reduce or terminate our operations. There
can be no certainty that capital will be available to us on acceptable terms.
If additional funds are raised
through further issuances of equity or convertible debt securities, existing shareholders could suffer significant dilution, and any new
equity securities issued could have rights, preferences and privileges superior to those they possess prior to such issuances. Any debt
financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational
matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential
acquisitions.
We may incur debt in the future, and our
ability to satisfy our obligations thereunder remains subject to a variety of factors, many of which are not within our control.
We may seek to incur debt
in the future in order to fund our exploration and operational programs, which would reduce our financial flexibility and could have a
material adverse effect on our business, financial condition or results of operation.
Should we incur debt, our
ability to satisfy any resulting debt obligations and to reduce our level of indebtedness will depend on future performance. General economic
conditions, mineral prices, and financial, business and other factors will have an impact on our operations and future performance, and
many of these factors are beyond our control. As such, we cannot assure investors that we will be able to generate sufficient cash flow
to pay the interest on any debt, or that future working capital, borrowings, or equity financing will be available to pay or refinance
such debt or meet future debt covenants. Factors that will affect our ability to raise cash through an offering of securities or a refinancing
of any debt include financial market conditions, the value of our assets, and our performance at the time we are seeking to raise capital.
We cannot assure investors that we will have sufficient funds to make such payments. If we do not have sufficient funds and are otherwise
unable to negotiate renewals of our current borrowings or to arrange for new financing, we might be required to take measures to generate
liquidity, such as selling some or all of our assets. Any such sales could have a material adverse effect on our business, operations
and financial results. Moreover, failure to obtain additional financing, if required, on a timely basis, could cause us to reduce or delay
our proposed operations.
We may need to raise additional
capital in order to complete our programs and commence commercial operations and there is no assurance that we will be able to obtain
adequate financing in the future or that such financing will be available to us on advantageous terms.
An active trading market for our common
shares and warrants may not be sustained, which would adversely affect the liquidity and price of our securities.
An
active trading market for our securities may not be sustained. In addition, the price of our securities could fluctuate significantly
for various reasons, many of which are outside our control, such as our performance, large purchases or sales of our common shares, legislative
changes and general economic, political or regulatory conditions. The release of our financial results may also cause our share price
to vary. The continued existence of an active trading market for our securities will depend to a significant extent on our ability to
continue to meet Nasdaq’s listing requirements, which we
may be unable to accomplish.
There can be no assurance that we will be
able to comply with the continued listing standards of Nasdaq.
On
September 10, 2021, our common shares and Public Warrants
began trading on Nasdaq under the symbols “TMC”
and “TMCWW,”
respectively. If in the future Nasdaq delists our common shares from trading on its exchange for failure to meet the listing standards,
we and our securityholders could face significant material adverse consequences including:
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a limited availability of market quotations for our securities;
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reduced liquidity for our securities;
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a determination that our common shares are “penny
stock” which will require brokers trading in our common shares to
adhere to more stringent rules and possibly result in a reduced level
of trading activity in the secondary trading market for our securities;
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a limited amount of news and analyst coverage; and
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a decreased ability to issue additional securities or obtain additional financing in the future.
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The market price of our securities may be
volatile, which could cause the value of your investment to decline.
The
market price of our securities may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in our
common shares and Public Warrants may fluctuate and cause significant price variations to occur. Securities markets worldwide experience
significant price and volume fluctuations. This market volatility, as well as general economic, market and political conditions (including
as a result of the COVID-19 pandemic), could reduce the market price of our securities in spite of our operating performance. If we are
unable to operate as profitably as investors expect, the market price of our common shares will likely decline when it becomes apparent
that the market expectations may not be realized. In addition, our results of operations could be below the expectations of public market
analysts and investors due to a number of potential factors, including variations in our quarterly or annual results of operations, operating
results of other companies in the same industry, additions or departures of key management personnel, changes in our earnings estimates
(if provided) or failure to meet analysts’ earnings estimates,
publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations
or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or
securities it may issue in the future, changes in market valuations of similar companies or speculation in the press or the investment
community with respect to us or our industry, negative media coverage, adverse announcements by us or others and developments affecting
us, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital
commitments, actions by institutional shareholders, the possible effects of war, terrorism and other hostilities, adverse weather conditions,
changes in general conditions in the economy or the financial markets or other developments affecting the industry in which we operate,
and increases in market interest rates that may lead investors in our common shares to demand a higher yield, and in response the market
price of our common shares could decrease significantly.
These
broad market and industry factors may decrease the market price of our common shares, regardless of our actual operating performance.
The stock market in general has, from time to time, experienced extreme price and volume fluctuations. In addition, in the past, following
periods of volatility in the overall market and the market price of a company’s
securities, securities class action litigation has often been instituted
against these companies. Such litigation, if instituted against us, could result in substantial costs, a material negative impact on our
liquidity and a diversion of our management’s attention and resources.
There may be sales of a substantial amount
of our common shares after the Business Combination by former SOAC shareholders and/or former legacy DeepGreen shareholders, and these
sales could cause the price of our securities to fall.
As
of September 30, 2021, we had 224,385,324 common shares and
24,500,000 Warrants to acquire common shares issued and outstanding. In addition, the Allseas Warrant is exercisable for up to 11,578,620
Common Shares subject to the terms and conditions thereof. All of our public shares are freely transferable (subject to any contractual
lock-up agreements), except for common shares issued in connection with the PIPE and any shares held by our and legacy DeepGreen’s
“affiliates,”
as that term is defined in Rule 144 under the Securities Act. Our
common shares issued to Sustainable Opportunities Holdings LLC (“Sponsor”)
and the independent directors of SOAC in exchange for their founder shares are subject to certain contractual lock-up agreements. In addition,
an aggregate of 124,969,517 common shares held by legacy DeepGreen shareholders are subject to certain lock-up arrangements ending on
the earlier of (A) 180 days
after the close of the Business Combination and (B) the date on which
(x) the common shares have traded at a price that is greater than
or equal to $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) during any
20 trading days within any 30 consecutive trading
days after the close of the Business Combination, or (y) we complete
a liquidation, merger, stock exchange, reorganization or other similar transaction that results in all of our public stockholders having
the right to exchange their common shares for cash, securities or other property. Further, up to 77,277,244 common shares may be issued
to the holders upon conversion of the Special Shares if certain price thresholds are met and such common shares could be sold in the public
market. Sales of substantial amounts of our common shares in the public market, or the perception that such sales will occur, could adversely
affect the market price of our common shares.
We may redeem your unexpired warrants prior
to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
We
have the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of
$0.01 per warrant, provided that
the closing price of our common shares equals or exceeds $18.00 per share (as adjusted for share subdivisions, share capitalizations,
reorganizations, recapitalizations and the like) for any 20 trading
days within a 30-trading day period ending on the third trading
day prior to proper notice of such redemption and provided that certain other conditions are met. If and when the warrants become redeemable
by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all
applicable state securities laws. Redemption of the outstanding warrants could force you to (i) exercise
your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) sell
your warrants at the then-current market price when you might otherwise
wish to hold your warrants or (iii) accept the nominal redemption
price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value
of your warrants. None of the private placement warrants will be redeemable by us on such terms so long as they are held by Sponsor or
its permitted transferees.
Reports published by analysts, including
projections in those reports that differ from our actual results, could adversely affect the price and trading volume of our common shares.
Securities research analysts
may establish and publish their own periodic projections for us. These projections may vary widely and may not accurately predict the
results we actually achieve. Our common share price may decline if our actual results do not match the projections of these securities
research analysts. Similarly, if one or more of the analysts who write reports on us downgrades our shares or publishes inaccurate or
unfavorable research about our business, our share price could decline. If one or more of these analysts ceases coverage of us or fails
to publish reports on us regularly, our share price or trading volume could decline. While we expect research analyst coverage, if no
analysts commence coverage of us, the market price and volume for our common shares could be adversely affected.
As we are not a reporting issuer in Canada,
our common shares and Special Shares may be subject to restrictions on resale in Canada.
Our
common shares and Special Shares were distributed pursuant to an exemption from the prospectus requirements in Canada. As we are not a
reporting issuer in Canada and we do not intend to become a reporting issuer in Canada in the future, any distributions of ours will be
a distribution that is subject to the prospectus requirements in Canada unless an exemption therefrom is available. An exemption from
the prospectus requirements would be available to holders of shares of a class (and any underlying shares of such class) in respect of
a trade if residents of Canada (the “Canadian Owners”)
own, directly or indirectly, not more than 10% of the outstanding shares of such class or any underlying shares of such class, and represent
in number not more than 10% of the total number of owners, directly or indirectly, of shares of the applicable class or underlying shares,
on any distribution date (collectively, the “Ownership Cap”)
and the trade is made through an exchange or market outside of Canada or to a person or company outside of Canada. There can be no assurance
that any future securities offerings held by Canadian Owners will be freely transferable by the Canadian Owners.
Because there are no current plans to pay
cash dividends on our common shares for the foreseeable future, you may not receive any return on investment unless you sell your common
shares for a price greater than that which you paid for it.
We intend to retain future
earnings, if any, for future operations, expansion and debt repayment, and there are no current plans to pay any cash dividends for the
foreseeable future. The declaration, amount, and payment of any future dividends on our common shares will be at the sole discretion of
our board of directors. Our board of directors may take into account general and economic conditions, our financial condition and results
of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory
restrictions, implications on the payment of dividends by us to our shareholders, and such other factors as our board of directors may
deem relevant. In addition, our ability to pay dividends may be limited by covenants of any future indebtedness we may in the future incur.
As a result, you may not receive any return on an investment in our common shares unless you sell your common shares for a price greater
than that which you paid for it.
We are exposed to risks in our international
operations, which could adversely affect our business.
We are exposed to foreign
currency risk in connection with the business we conduct in foreign currencies to the extent that the exchange rates of the foreign currencies
are subject to adverse change over time. It has not been our practice to enter into foreign exchange contracts to protect against adverse
foreign currency fluctuations, and we cannot predict whether exchange rate fluctuations will significantly harm our operations or financial
results in the future. In addition to adverse fluctuations in foreign currency exchange rates, we are exposed to further risks inherent
in doing business abroad, including limitations on asset transfers, changes in foreign regulations and political turmoil, all of which
could adversely affect us.
We
are expected to be a PFIC, which could result in adverse U.S. federal
income tax consequences to U.S. Holders.
We
are expected to be a passive foreign investment company (“PFIC”)
for the tax year ended December 31, 2021. As a result, U.S. Holders
(defined below) of our public shares and Public Warrants may be subject to certain adverse U.S. federal
income tax consequences and may be subject to additional reporting requirements. See “U.S. Federal
Income Tax Considerations — Tax Consequences of Ownership
and Disposition of Public Shares and Public Warrants — Passive
Foreign Investment Company Rules” included in our registration
statement on Form S-1 filed with the SEC on October 7,
2021 for a more detailed discussion with respect to our PFIC status and the application of the PFIC rules. U.S. Holders
of our public shares and Public Warrants are urged to consult their tax advisors regarding the application of the PFIC rules to
them.
Canadian law and our Notice and Articles
contain certain provisions, including anti-takeover provisions, that limit the ability of shareholders to take certain actions and could
delay or discourage takeover attempts that shareholders may consider favorable.
Provisions in our Notice
of Articles and Articles, as well as certain provisions under the BCBCA and applicable Canadian laws, may discourage, delay or prevent
a merger, acquisition or other change in control of TMC that shareholders may consider favorable, including transactions in which they
might otherwise receive a premium for their common shares.
For
instance, our Notice of Articles and Articles contain provisions that establish certain advance notice procedures for nomination of candidates
for election as directors at shareholders’ meetings.
Limitations
on the ability to acquire and hold common shares may also be imposed by the Competition
Act (Canada). This legislation permits the Commissioner of Competition,
or Commissioner, to review any acquisition or establishment, directly or indirectly, including through the acquisition of shares, of control
over or of a significant interest in TMC. Moreover, a non-Canadian must
file an application for review with the Minister responsible for the Investment
Canada Act and obtain approval of the Minister prior to acquiring
control of a “Canadian business”
within the meaning of the Investment Canada Act, where prescribed
financial thresholds are exceeded.
Further, changes to critical
minerals policies and regulations in Canada and the U.S. and elsewhere may impact our ability to conduct our businesses internationally,
including processing and sales of minerals and metals, and the ability to negotiate or agree any merger, acquisition or change of control.
Our Notice of Articles and Articles will
provide that any derivative actions, actions relating to breach of fiduciary duties and other matters relating to our internal affairs
will be required to be litigated in the Province of British Columbia, Canada, and will contain an exclusive federal forum provision for
certain claims under the Securities Act, which could limit your ability to obtain a favorable judicial forum for disputes with us.
Our
Notice of Articles and Articles include a forum selection provision that provides that, unless we consent in writing to the selection
of an alternative forum, the Supreme Court of British Columbia, Canada and the appellate courts therefrom, will be the sole and exclusive
forum for (i) any derivative action or proceeding brought
on our behalf; (ii) any action or proceeding asserting a claim of
breach of a fiduciary duty owed by any of our directors, officers, or other employees to us; (iii) any
action or proceeding asserting a claim arising pursuant to any provision of the BCBCA or TMC Notice of Articles and Articles (as either
may be amended from time to time); or (iv) any action or proceeding
asserting a claim otherwise related to the relationships among us, our affiliates and their respective shareholders, directors and/or
officers, but excluding claims related to our business or of such affiliates. The forum selection provision also provides that our securityholders
are deemed to have consented to personal jurisdiction in the Province of British Columbia and to service of process on their counsel in
any foreign action initiated in violation of the foregoing provisions. The forum selection provision may impose additional litigation
costs on securityholders in pursuing any such claims. This provision will not apply to suits brought to enforce any duty or liability
created by the Securities Act or the Exchange Act, or the rules and
regulations thereunder.
Section 22
of the Securities Act creates concurrent jurisdiction for federal and state courts over all claim brought to enforce any duty or liability
created by the Securities Act or the rules and regulations thereunder
and our Notice and Articles will provide that the federal district courts of the U.S. will, to the fullest extent permitted by law, be
the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (the “Federal
Forum Provision”). Application of the Federal Forum Provision means
that suits brought by our securityholders to enforce any duty or liability created by the Securities Act must be brought in federal court
and cannot be brought in any state court.
Section 27
of the Exchange Act creates exclusive federal jurisdiction over all
claims brought to enforce any duty or liability created by the Exchange Act
or the rules and regulations thereunder. Accordingly, actions by
our shareholders to enforce any duty or liability created by the Exchange Act
or the rules and regulations thereunder must be brought in federal
court. Our shareholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated
thereunder.
Any
person or entity purchasing or otherwise acquiring or holding any interest in any of our securities shall be deemed to have notice of
and consented to the aforementioned forum selection provisions, including the Federal Forum Provision. Additionally, our securityholders
cannot waive compliance with the federal securities laws and the rules and
regulations thereunder. These provisions may limit our securityholders’
ability to bring a claim in a judicial forum they find favorable for disputes with us or our directors, officers, or other employees,
which may discourage lawsuits against us and our directors, officers, and other employees. Alternatively, if a court were to find the
choice of forum provision contained in our Notice and Articles to be inapplicable or unenforceable in an action, we may incur additional
costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
Our Notice and Articles will permit us to
issue an unlimited number of common shares and preferred shares without seeking approval of the holders of our common shares.
Our Notice of Articles and
Articles will permit us to issue an unlimited number of common shares. Subject to the requirements of the BCBCA and applicable securities
exchange, we will not be required to obtain the approval of shareholders for the issuance of additional common shares. Any further issuances
of common shares will result in immediate dilution to existing shareholders and may have an adverse effect on the value of their shareholdings.
The TMC Notice of Articles
and Articles will also permit us to issue an unlimited number of preferred shares, issuable in series and, subject to the requirements
of the BCBCA, having such designations, rights, privileges, restrictions and conditions, including dividend and voting rights, as our
board of directors may determine and which may be superior to those of the common shares. The issuance of preferred shares could, among
other things, have the effect of delaying, deferring or preventing a change in control and might adversely affect the market price of
the common shares. Subject to the provisions of the BCBCA and the Nasdaq, we will not be required to obtain the approval of the holders
of common shares for the issuance of preferred shares or to determine the maximum number of shares of each series of preferred shares,
create an identifying name for each series and attach such special rights or restrictions as our board of directors may determine.
As a company incorporated in British Columbia
with some of our directors and officers residing outside of the U.S., it may be difficult for investors in the U.S. to enforce civil liabilities
against us based solely upon the federal securities laws of the U.S.
We
are incorporated under the laws of British Columbia with our registered office located in British Columbia, Canada. Many of our directors
and officers reside outside of the U.S. and all or a substantial portion of our assets and those of such persons are located outside the
U.S. Consequently, it may be difficult for U.S. investors
to effect service of process within the U.S. upon us or our directors or officers who are not residents of the U.S., or to realize in
the U.S. upon judgments of courts of the U.S. predicated upon civil liabilities under the Securities Act. Investors should not assume
that Canadian courts: (i) would enforce judgments of U.S. courts
obtained in actions against us or such persons predicated upon the civil liability provisions of the U.S. federal
securities laws or the securities or blue sky laws of any state within the U.S. or (ii) would
enforce, in original actions, liabilities against us or such persons predicated upon the U.S. federal
securities laws or any such state securities or blue sky laws.
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
We did not repurchase any
of our equity securities during the three months ended September 30, 2021.
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES.
|
Not applicable.
ITEM 4.
|
MINE SAFETY DISCLOSURES.
|
Not applicable.
ITEM 5.
|
OTHER INFORMATION.
|
The following summarizes
the effect of the Restatement on each line item set forth below in the unaudited pro forma condensed combined financial information previously
filed with our Current Report on form 8-K, as amended, filed with the SEC on September 15, 2021 for each period presented.
Unaudited Pro Forma Condensed Consolidated
Balance Sheets
As of June 30, 2021
(Amounts in U.S. dollars)
|
|
|
|
|
|
|
DeepGreen
|
|
|
Pro Forma
|
|
|
Combined
|
|
|
|
|
|
SOAC
|
|
|
Metals
|
|
|
Transaction
|
|
|
Pro
|
|
|
|
|
|
(Historical)
|
|
|
(Historical)
|
|
|
Adjustments
|
|
|
Forma
|
|
Accounts payable and accrued liabilities
|
|
As previously reported
|
|
|
7,289
|
|
|
|
9,033
|
|
|
|
(6,713
|
)
|
|
|
9,609
|
|
|
|
Adjustments1
|
|
|
—
|
|
|
|
2,663
|
|
|
|
—
|
|
|
|
2,663
|
|
|
|
As restated
|
|
|
7,289
|
|
|
|
11,696
|
|
|
|
(6,713
|
)
|
|
|
12,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
As previously reported
|
|
|
53,544
|
|
|
|
45,869
|
|
|
|
(55,614
|
)
|
|
|
43,799
|
|
|
|
Adjustments1
|
|
|
—
|
|
|
|
2,663
|
|
|
|
—
|
|
|
|
2,663
|
|
|
|
As restated
|
|
|
53,544
|
|
|
|
48,532
|
|
|
|
(55,614
|
)
|
|
|
46,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
As previously reported
|
|
|
—
|
|
|
|
74,069
|
|
|
|
21,600
|
|
|
|
95,669
|
|
|
|
Adjustments2
|
|
|
—
|
|
|
|
(1,528
|
)
|
|
|
—
|
|
|
|
(1,528
|
)
|
|
|
As restated
|
|
|
—
|
|
|
|
72,541
|
|
|
|
21,600
|
|
|
|
94,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
As previously reported
|
|
|
(53,118
|
)
|
|
|
(246,573
|
)
|
|
|
43,759
|
|
|
|
(255,932
|
)
|
|
|
Adjustments1,2
|
|
|
—
|
|
|
|
(1,135
|
)
|
|
|
—
|
|
|
|
(1,135
|
)
|
|
|
As restated
|
|
|
(53,118
|
)
|
|
|
(247,708
|
)
|
|
|
43,759
|
|
|
|
(257,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
As previously reported
|
|
|
(53,117
|
)
|
|
|
15,731
|
|
|
|
159,639
|
|
|
|
122,253
|
|
|
|
Adjustments1
|
|
|
—
|
|
|
|
(2,663
|
)
|
|
|
—
|
|
|
|
(2,663
|
)
|
|
|
As restated
|
|
|
(53,117
|
)
|
|
|
13,068
|
|
|
|
159,639
|
|
|
|
119,590
|
|
1.
|
Reflects increase of $2.7 million in exploration expenses for the six months ended June 30, 2021 to accrue for certain exploration
invoices as at June 30, 2021.
|
2.
|
Reflects decrease of $1.5 million of stock-based compensation
expenses for the six months ended June 30, 2021.
|
Unaudited Pro Forma Condensed Consolidated
Statement of Operations
For the six months ended June 30, 2021
(Amounts in U.S. dollars, except per share data)
|
|
|
|
|
|
|
DeepGreen
|
|
|
Pro Forma
|
|
|
Combined
|
|
|
|
|
|
SOAC
|
|
|
Metals
|
|
|
Transaction
|
|
|
Pro
|
|
|
|
|
|
(Historical)
|
|
|
(Historical)
|
|
|
Adjustments
|
|
|
Forma
|
|
Exploration expenses
|
|
As previously reported
|
|
|
—
|
|
|
|
54,736
|
|
|
|
2,343
|
|
|
|
57,079
|
|
|
|
Adjustments1,2
|
|
|
—
|
|
|
|
1,597
|
|
|
|
—
|
|
|
|
1,597
|
|
|
|
As restated
|
|
|
—
|
|
|
|
56,333
|
|
|
|
2,343
|
|
|
|
58,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
As previously reported
|
|
|
6,490
|
|
|
|
28,266
|
|
|
|
—
|
|
|
|
34,756
|
|
|
|
Adjustments3
|
|
|
—
|
|
|
|
(462
|
)
|
|
|
—
|
|
|
|
(462
|
)
|
|
|
As restated
|
|
|
6,490
|
|
|
|
27,804
|
|
|
|
—
|
|
|
|
34,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
As previously reported
|
|
|
6,490
|
|
|
|
83,002
|
|
|
|
2,343
|
|
|
|
91,835
|
|
|
|
Adjustments1,2,3
|
|
|
—
|
|
|
|
1,135
|
|
|
|
—
|
|
|
|
1,135
|
|
|
|
As restated
|
|
|
6,490
|
|
|
|
84,137
|
|
|
|
2,343
|
|
|
|
92,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) loss for the period
|
|
As previously reported
|
|
|
(14,694
|
)
|
|
|
83,715
|
|
|
|
13,841
|
|
|
|
82,862
|
|
|
|
Adjustments1,2,3
|
|
|
—
|
|
|
|
1,135
|
|
|
|
—
|
|
|
|
1,135
|
|
|
|
As restated
|
|
|
(14,694
|
)
|
|
|
84,850
|
|
|
|
13,841
|
|
|
|
83,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (income) loss for the period
|
|
As previously reported
|
|
|
(14,694
|
)
|
|
|
83,715
|
|
|
|
13,841
|
|
|
|
82,862
|
|
|
|
Adjustments1,2,3
|
|
|
—
|
|
|
|
1,135
|
|
|
|
—
|
|
|
|
1,135
|
|
|
|
As restated
|
|
|
(14,694
|
)
|
|
|
84,850
|
|
|
|
13,841
|
|
|
|
83,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) loss per share - Basic and diluted
|
|
As previously reported
|
|
|
(1.46
|
)
|
|
|
0.43
|
|
|
|
—
|
|
|
|
0.37
|
|
|
|
Adjustments1,2,3
|
|
|
—
|
|
|
|
0.01
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
As restated
|
|
|
(1.46
|
)
|
|
|
0.44
|
|
|
|
—
|
|
|
|
0.37
|
|
1.
|
Reflects decrease of $1.1 million for the six months ended June 30, 2021 related to stock-based compensation expense.
|
2.
|
Reflects increase of $2.7 million to accrue for certain exploration invoices for the six months ended June 30, 2021.
|
3.
|
Reflects decrease of $0.5 million for the six months ended June 30, 2021 related to stock-based compensation expense.
|
ITEM 6. EXHIBITS
The following exhibits are filed as part of, or
incorporated by reference into, this Quarterly Report on Form 10-Q.
Exhibit
Number
|
|
Exhibit Description
|
|
Filed
Herewith
|
|
Incorporated by Reference Herein
from Form or Schedule
|
|
Filing
Date
|
|
SEC File/
Reg.
Number
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Notice of Articles of TMC the metals company Inc.
|
|
|
|
Form 8-K (Exhibit 3.1)
|
|
9/15/2021
|
|
001-39281
|
3.2
|
|
Articles of TMC the metals company Inc.
|
|
|
|
Form 8-K (Exhibit 3.2)
|
|
9/15/2021
|
|
001-39281
|
4.1
|
|
TMC the metals company Inc. Common Share Certificate
|
|
|
|
Form 8-K (Exhibit 4.1)
|
|
9/15/2021
|
|
001-39281
|
4.2
|
|
Warrant to Purchase Common Shares issued by DeepGreen Metals Inc. to Allseas Group S.A. on March 4, 2021
|
|
|
|
Form S-4 (Exhibit 4.4)
|
|
4/8/2021
|
|
333-255118
|
10.1
|
|
Amended and Restated Registration Rights Agreement, by and between Sustainable Opportunities Acquisition Corp., Sustainable Opportunities Holdings LLC, the parties listed under Sponsor Group Holders on the signature page(s) thereto and the parties listed under DeepGreen Holders on the signature page(s) thereto
|
|
|
|
Form S-4/A (Exhibit 10.5 – Annex H)
|
|
8/5/2021
|
|
333-255118
|
10.2†
|
|
Strategic Alliance Agreement, dated as of March 29, 2019, by and between DeepGreen Metals Inc. and Allseas Group S.A.
|
|
|
|
Form S-4 (Exhibit 10.7)
|
|
4/8/2021
|
|
333-255118
|
10.3†
|
|
Pilot Mining Test Agreement dated as of July 8, 2019, by and between DeepGreen Metals Inc. and Allseas Group S.A.
|
|
|
|
Form S-4 (Exhibit 10.8)
|
|
4/8/2021
|
|
333-255118
|
10.4†
|
|
Third Amendment to Pilot Mining Test Agreement and First Amendment to Strategic Alliance Agreement, dated as of March 4, 2021, by and between DeepGreen Metals Inc. and Allseas Group S.A.
|
|
|
|
Form S-4 (Exhibit 10.9)
|
|
4/8/2021
|
|
333-255118
|
10.5
|
|
Fourth Amendment to Pilot Mining Test Agreement and Second Amendment to Strategic Alliance Agreement, dated as of June 30, 2021, by and between DeepGreen Metals Inc. and Allseas Group S.A.
|
|
|
|
Form S-4/A (Exhibit 10.23)
|
|
7/14/2021
|
|
333-255118
|
10.6
|
|
Investment and Participation Agreement, dated as of March 15, 2017, by and among DeepGreen Metals Inc., Maersk Supply Service NS, and Maersk Supply Service Subsea UK Limited
|
|
|
|
Form S-4 (Exhibit 10.10)
|
|
4/8/2021
|
|
333-255118
|
10.7
|
|
Project Management Framework Agreement, dated as of April 6, 2018, by and among Nauru Ocean Resources Inc. and Maersk Supply Service Integrated Solutions A/S
|
|
|
|
Form S-4 (Exhibit 10.11)
|
|
4/8/2021
|
|
333-255118
|
10.8
|
|
Letter Agreement, dated as of March 3, 2021, by and among DeepGreen Metals Inc., Maersk Supply Service NS, and Maersk Supply Service Subsea UK Limited
|
|
|
|
Form S-4 (Exhibit 10.12)
|
|
4/8/2021
|
|
333-255118
|
10.9†
|
|
Sponsorship Agreement, dated as of March 8, 2008, by and between the Kingdom of Tonga and Tonga Offshore Mining Limited
|
|
|
|
Form S-4 (Exhibit 10.13)
|
|
4/8/2021
|
|
333-255118
|
10.10†
|
|
Sponsorship Agreement, dated as of September 23, 2021, by and between the Kingdom of Tonga and Tonga Offshore Mining Limited
|
|
|
|
Form S-1 (Exhibit 10.13)
|
|
10/7/2021
|
|
333-260126
|
10.11†
|
|
Sponsorship Agreement, dated as of June 5, 2017, by and among the Republic of Nauru, the Nauru Seabed Minerals Authority, and Nauru Ocean Resources Inc.
|
|
|
|
Form S-4 (Exhibit 10.14)
|
|
4/8/2021
|
|
333-255118
|
10.12
|
|
Certificate of the Sponsorship signed by the Government of Nauru on April 11, 2011
|
|
|
|
Form S-4/A (Exhibit 10.24)
|
|
7/28/2021
|
|
333-255118
|
10.13
|
|
ISA Contract for Exploration (Republic of Nauru) dated as of July 22, 2011
|
|
|
|
Form S-4 (Exhibit 10.15)
|
|
4/8/2021
|
|
333-255118
|
10.14
|
|
ISA Contract for Exploration (Kingdom of Tonga) dated as of January 11, 2012
|
|
|
|
Form S-4 (Exhibit 10.16)
|
|
4/8/2021
|
|
333-255118
|
10.15+
|
|
Form of Indemnity Agreement
|
|
|
|
Form 8-K (Exhibit 10.18)
|
|
9/15/2021
|
|
001-39281
|
101.INS
|
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
|
|
X
|
|
|
|
|
|
|
101.SCH
|
|
Inline XBRL Taxonomy Extension Schema Document
|
|
X
|
|
|
|
|
|
|
101.CAL
|
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
|
X
|
|
|
|
|
|
|
101.DEF
|
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
|
X
|
|
|
|
|
|
|
101.LAB
|
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
|
X
|
|
|
|
|
|
|
101.PRE
|
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
|
X
|
|
|
|
|
|
|
104
|
|
Cover Page Interactive Data File (embedded within the Inline XBRL document)
|
|
X
|
|
|
|
|
|
|
+ Certain confidential portions (indicated by brackets and asterisks)
have been omitted from this exhibit.
+ Management contract or compensatory plan or
arrangement.
* The certifications attached as Exhibit 32
that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to
be incorporated by reference into any filing of TMC the metals company Inc. under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended (whether made before or after the date of such Form 10-Q), irrespective of any general incorporation
language contained in such filing.