UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

or

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to       

Commission File Number: 001-39281

TMC THE METALS COMPANY INC.

(Exact name of registrant as specified in its charter)

British Columbia, Canada

    

Not Applicable

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

595 Howe Street, 10th Floor

    

Vancouver, British Columbia

V6C 2T5

(Address of principal executive offices)

(Zip Code)

(574) 252-9333

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Shares, without par value

TMC

The Nasdaq Stock Market LLC

Redeemable warrants, each whole warrant exercisable for one Common Share, each at an exercise price of $11.50 per share

TMCWW

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No

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.

Large accelerated filer 

    

Accelerated filer

    

Non-accelerated filer 

Smaller reporting company

Emerging growth company

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of August 12, 2022, the registrant had 227,158,455 common shares outstanding.

1


TMC THE METALS COMPANY INC.

FORM 10-Q

For the quarterly period ended June 30, 2022

TABLE OF CONTENTS

    

    

Page

 

Cautionary Note Regarding Forward-Looking Statements

3

Part I

Financial Information

5

Item 1.

Financial Statements

5

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (Unaudited)

5

Condensed Consolidated Statements of Loss and Comprehensive Loss for the three and six months ended June 30, 2022 and 2021 (Unaudited)

6

Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 30, 2022 and 2021 (Unaudited)

7

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (Unaudited)

9

Notes to Condensed Consolidated Financial Statements (Unaudited)

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

Part II

Other Information

37

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 3.

Defaults Upon Senior Securities

44

Item 4.

Mine Safety Disclosures

44

Item 5.

Other Information

44

Item 6.

Exhibits

45

Signatures

46

2


In this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company” and “TMC” mean TMC the metals company Inc. (formerly Sustainable Opportunities Acquisition Corp.) and our subsidiaries. On September 9, 2021, Sustainable Opportunities Acquisition Corp. (“SOAC” and after the Business Combination described herein, the “Company”) consummated a business combination (the “Business Combination”) pursuant to the terms of the business combination agreement dated as of March 4, 2021 by and among SOAC, 1291924 B.C. Unlimited Liability Company, an unlimited liability company existing under the laws of British Columbia, Canada (“NewCo Sub”), and DeepGreen Metals Inc., a company existing under the laws of British Columbia, Canada (“DeepGreen”). In connection with the Business Combination, SOAC changed its name to “TMC the metals company Inc”.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that relate to future events, our future operations or financial performance, or our plans, strategies and prospects. These statements are based on the beliefs and assumptions of our management team. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or performance, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or the negative of these terms, or other comparable terminology intended to identify statements about the future, although not all forward-looking statements contain these identifying words. The forward-looking statements are based on projections prepared by, and are the responsibility of, our management. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

the commercial and technical feasibility of seafloor polymetallic nodule collection and processing;
our and our partners’ development and operational plans, including with respect to the planned uses of polymetallic nodules, where and how nodules will be obtained and processed, the expected environmental, social and governance impacts thereof and our plans to assess these impacts and the timing and scope of these plans;
the supply and demand for battery metals and battery cathode feedstocks, copper cathode and manganese ores;
the future prices of battery metals and battery cathode feedstocks, copper cathode and manganese ores;
the timing and content of International Seabed Authority’s (“ISA”) final exploitation regulations that will create the legal and technical framework for exploitation of polymetallic nodules in the Clarion Clipperton Zone of the Pacific Ocean (“CCZ”);
government regulation of mineral extraction from the deep seafloor and changes in mining laws and regulations;
technical, operational, environmental, social and governance risks of developing and deploying equipment to collect polymetallic nodules at sea and to process such nodules on land;
the sources and timing of potential revenue as well as the timing and amount of estimated future production, costs of production, other expenses, capital expenditures and requirements for additional capital;
cash flow provided by operating activities;
the expected activities of our partners under our key strategic relationships;
the sufficiency of our cash on hand to meet our working capital and capital expenditure requirements and our ability to continue as a going concern;
the recently announced private placement financing, including the timing of receipt, and amount, of expected proceeds therefrom;
our ability to raise financing in the future and our plans with respect thereto;
any litigation to which we are a party;
claims and limitations on insurance coverage;
our plans to mitigate our material weaknesses in our internal control over financial reporting;
the restatement of our financial statements;
geological, metallurgical and geotechnical studies and opinions;
mineral resource estimates;
our status as an emerging growth company, non-reporting Canadian issuer and passive foreign investment company;
infrastructure risks;
dependence on key management personnel and executive officers;

3


political and market conditions beyond our control;
COVID-19 and the impact of the COVID-19 pandemic on our business; and
our financial performance.

These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Important factors could cause actual results, performance or achievements to differ materially from those indicated or implied by forward-looking statements such as those described under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 25, 2022 (the “2021 Annual Report on Form 10-K”), as updated and supplemented under the caption “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q as further updated and/or supplemented in subsequent filings with the SEC. Such risks are not exhaustive. New risk factors emerge from time to time, and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

4


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

    

    

June 30, 

    

December 31, 

ASSETS

   

Note

   

2022

   

2021

Current

 

 

  

Cash

$

46,259

 

$

84,873

Receivables and prepayments

 

4,700

 

3,686

 

50,959

 

88,559

Non-current

 

 

Exploration contracts

 

4

 

43,150

 

43,150

Equipment

 

2,008

 

1,416

 

45,158

 

44,566

TOTAL ASSETS

$

96,117

 

$

133,125

LIABILITIES

 

 

Current

 

 

Accounts payable and accrued liabilities

 

 

9,189

 

26,573

 

9,189

 

26,573

Non-current

 

 

Deferred tax liability

 

 

10,675

 

10,675

Warrants liability

 

5

 

2,584

 

3,126

TOTAL LIABILITIES

$

22,448

 

$

40,374

EQUITY

 

 

Common shares (unlimited shares, no par value – issued: 227,158,455 (December 31, 2021 – 225,432,493))

 

 

299,056

 

296,051

Class A - J Special Shares

 

 

Additional paid in capital

 

113,487

 

102,073

Accumulated other comprehensive loss

 

(1,216)

 

(1,216)

Deficit

 

(337,658)

 

(304,157)

TOTAL EQUITY

 

73,669

 

92,751

TOTAL LIABILITIES AND EQUITY

$

96,117

 

$

133,125

Nature of Operations (Note 1)

Commitments and Contingent Liabilities (Note 9)

Subsequent Event (Note 11)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


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

Six months ended

    

    

June 30, 

June 30, 

    

    

2022

    

2021

    

2022

    

2021

(Restated1)

(Restated1)

Note

    

    

(Note 1)

    

    

(Note 1)

Operating expenses

 

  

  

 

 

  

 

  

Exploration and evaluation expenses

 

4

$

9,985

 

$

18,226

 

$

17,328

 

$

56,333

General and administrative expenses

8,343

 

10,440

 

16,907

 

27,804

Operating loss

18,328

 

28,666

 

34,235

 

84,137

Other items

  

 

 

  

 

  

Change in fair value of warrant liability

 

5

(5,730)

 

 

(542)

 

Foreign exchange loss (gain)

(22)

 

33

 

 

52

Interest expense (income)

(192)

 

441

 

(192)

 

661

Loss and comprehensive loss for the period

$

12,384

 

$

29,140

 

$

33,501

 

$

84,850

Loss per share

  

 

 

  

 

– Basic and diluted

 

7

$

0.05

 

$

0.15

 

$

0.15

 

$

0.44

Weighted average number of common shares outstanding basic and diluted

 

7

227,119,216

 

196,508,806

 

226,600,186

 

194,455,031


(1) The condensed consolidated statements of loss and comprehensive loss for the three and six months ended June 30, 2021 were restated. Refer to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 filed with the Securities and Exchange Commission on November 15, 2021.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


TMC the metals company Inc.

Condensed Consolidated Statements of Changes in Equity

(in thousands of US Dollars, except share amounts)

(Unaudited)

Accumulated 

Additional 

Other 

Common Shares

Preferred 

Special 

Paid in

Comprehensive

Three months ended June 30, 2022

    

Shares

    

Amount

    

Shares

    

Shares

    

 Capital

    

 Loss

    

Deficit

    

Total

March 31, 2022

226,780,843

$

298,263

$

$

$

107,952

$

(1,216)

$

(325,274)

$

79,725

Exercise of stock options (Note 6)

18,461

22

(10)

12

Conversion of restricted share units, net of shares withheld for taxes (Note 6)

316,725

705

(705)

Share purchase under Employee Share Purchase Plan (Note 6)

42,426

66

(10)

56

Share-based compensation (Note 6)

 

 

 

 

 

6,305

 

 

 

6,305

Expenses to be settled in share-based payments

 

 

 

 

 

(45)

 

 

 

(45)

Loss for the period

 

 

 

 

 

 

 

(12,384)

 

(12,384)

June 30, 2022

 

227,158,455

 

$

299,056

 

$

 

$

 

$

113,487

 

$

(1,216)

 

$

(337,658)

 

$

73,669

Accumulated 

Three months ended June 30, 2021

Additional 

Other 

(Restated 1)

Common Shares

Preferred 

Special 

Paid in

Comprehensive

(Note 1)

    

Shares

    

Amount

    

Shares

    

Shares

    

 Capital

    

 Loss

    

Deficit

    

Total

March 31, 2021

195,945,508

$

183,137

$

550

$

$

61,728

$

(1,216)

$

(218,568)

$

25,631

Exercise of stock options (Note 6)

1,841,944

5,716

(4,530)

1,186

Share-based compensation (Note 6)

 

 

 

 

 

15,343

 

 

 

15,343

Common shares issued for services

 

6,947

 

48

 

 

 

 

 

 

48

Loss for the period

 

 

 

 

 

 

 

(29,140)

 

(29,140)

June 30, 2021

 

197,794,399

$

188,901

$

550

$

$

72,541

$

(1,216)

$

(247,708)

$

13,068


(1) The condensed consolidated statement of changes in shareholders’ equity for the three months ended June 30, 2021 was restated. Refer to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 filed with the Securities and Exchange Commission on November 15, 2021.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


TMC the metals company Inc.

Condensed Consolidated Statements of Changes in Equity

(in thousands of US Dollars, except share amounts)

(Unaudited)

Accumulated

Additional

Other

Common Shares

Preferred

Special

Paid in

Comprehensive

Six months ended June 30, 2022

    

Shares

    

Amount

    

Shares

    

Shares

    

Capital

    

Loss

    

Deficit

    

Total

December 31, 2021

225,432,493

$

296,051

$

$

 

$

102,073

 

$

(1,216)

 

$

(304,157)

 

$

92,751

Exercise of stock options (Note 6)

18,461

22

(10)

12

Conversion of restricted share units, net of shares withheld for taxes (Note 6)

1,665,075

2,917

 

(2,995)

 

 

 

(78)

Share purchase under Employee Share Purchase Plan (Note 6)

42,426

66

(10)

56

Share-based compensation (Note 6)

 

14,429

 

 

 

14,429

Loss for the period

 

 

 

(33,501)

 

(33,501)

June 30, 2022

227,158,455

$

299,056

$

$

 

113,487

 

$

(1,216)

 

$

(337,658)

 

$

73,669

Accumulated

Six months ended June 30, 2021

Common Shares

    

    

Additional

    

Other

    

    

(Restated 1)

Preferred

Special

Paid in 

Comprehensive

(Note 1)

    

Shares

    

Amount

    

Shares

    

Shares

    

Capital

    

Loss

    

Deficit

    

Total

December 31, 2020

189,493,593

$

154,431

$

550

$

$

45,347

$

(1,216)

$

(162,858)

$

36,254

Exercise of stock options (Note 6)

 

3,990,934

8,258

 

 

(5,702)

 

 

 

2,556

Common shares to be issued for exploration and evaluation expenses

4,245,031

25,664

(12,879)

12,785

Share-based compensation (Note 6)

45,768

45,768

Common shares to be issued for stock options exercise

 

 

 

7

 

 

 

7

Common shares issued for services

6,947

48

48

Conversion of debentures

 

57,894

500

 

 

 

 

 

500

Loss for the period

(84,850)

(84,850)

June 30, 2021

 

197,794,399

$

188,901

$

550

 

$

 

$

72,541

 

$

(1,216)

 

$

(247,708)

 

$

13,068


(1)

The condensed consolidated statement of changes in shareholders’ equity for the six months ended June 30, 2021 was restated. Refer to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 filed with the Securities and Exchange Commission on November 15, 2021.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8


TMC the metals company Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands of US Dollars)

(Unaudited)

Six months ended

Six months ended

June 30, 

June 30, 

    

    

2022

    

2021

(Restated 1)

Note

(Note 1)

Cash provided by (used in)

 

  

  

 

  

Operating activities

 

  

  

 

  

Loss for the period

 

$

(33,501)

 

$

(84,850)

Items not affecting cash:

 

 

Amortization

 

189

 

196

Expenses settled with share-based payments

 

6

12,746

 

58,600

Interest on convertible debentures

 

 

661

Change in fair value of warrants liability

 

5

(542)

 

Unrealized foreign exchange

 

29

 

(8)

Changes in working capital:

 

 

Receivables and prepayments

 

(1,089)

 

74

Accounts payable and accrued liabilities

 

(15,955)

 

7,382

Net cash used in operating activities

(38,123)

 

(17,945)

Investing activities

 

 

Settlement of deferred acquisition costs

(3,440)

Acquisition of equipment

(452)

(402)

Net cash used in investing activities

(452)

 

(3,842)

Financing activities

 

  

 

  

Proceeds from employee share purchase plan

56

Proceeds from exercise of stock options

 

12

 

2,563

Proceeds from issuance of convertible debentures

26,000

Taxes withheld and paid on share-based compensation

(78)

Net cash (used in) provided by financing activities

(10)

 

28,563

(Decrease) increase in cash

 

$

(38,585)

 

$

6,776

Impact of exchange rate changes on cash

 

(29)

 

8

Cash - beginning of period

 

84,873

 

10,096

Cash - end of period

 

$

46,259

 

$

16,880


(1)

The condensed consolidated statement of cash flows for the six months ended June 30, 2021 was restated. Refer to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 filed with the Securities and Exchange Commission on November 15, 2021.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

9


Table of Contents

TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)

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”). The Company’s corporate office, registered address and records office is located at 10th floor, 595 Howe Street, Vancouver, British Columbia, Canada, V6C 2T5. The Company’s common shares and warrants to purchase common shares are listed for trading on the Nasdaq Global Select Market (“Nasdaq”) under tickers “TMC” and “TMCWW”, respectively. In connection with closing of the Business Combination, DeepGreen merged with a wholly-owned subsidiary of SOAC and became a wholly-owned subsidiary of the Company. DeepGreen was determined to be the accounting acquirer and therefore, all information prior to the Business Combination, including the prior period financial information, represents the financial condition and operating results of DeepGreen.

The Company is a deep-sea minerals exploration company focused on the collection and processing of polymetallic nodules found on the seafloor in international waters of the Clarion Clipperton Zone in the Pacific Ocean (“CCZ”), located approximately 1,300 nautical miles southwest of San Diego, California. These nodules contain high grades of four metals (nickel, copper, cobalt, manganese) which can be used as (i) feedstock for battery cathode precursors (nickel and cobalt sulfates) for electric vehicles (“EV”) and renewable energy storage markets, (ii) nickel-copper-cobalt matte and/or copper cathode for EV wiring, clean energy transmission and other applications and (iii) manganese silicate for manganese alloy production require for steel production.

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. ISA contracts are granted to sovereign states or to private contractors who are sponsored by a sovereign state. The Company’s wholly-owned subsidiary, Nauru Ocean Resources Inc. (“NORI”), was granted an exploration contract (the “NORI Exploration Contract”) by the ISA in July 2011 under the sponsorship of the Republic of Nauru (“Nauru”) giving NORI exclusive rights to explore for polymetallic nodules in an area covering 74,830 km2 in the CCZ (“NORI Area”). On March 31, 2020, the Company acquired Tonga Offshore Mining Limited (“TOML”), which was granted an exploration contract (the “TOML Exploration Contract”) by the ISA in January 2012 under the sponsorship of the Kingdom of Tonga (“Tonga”) and has exclusive rights to explore for polymetallic nodules covering an area of 74,713 km2 in the CCZ (“TOML Area”). Marawa Research and Exploration Limited (“Marawa”), an entity owned and sponsored by the Republic of Kiribati (“Kiribati”), was granted rights by the ISA to polymetallic nodules exploration in an area of 74,990 km2 in the CCZ (“Marawa Area”). The Company through its subsidiary DeepGreen Engineering Pte. Ltd. (“DGE”) entered into an option agreement (the “Marawa Option Agreement”) with Marawa to acquire the right to purchase tenements, as may be granted to Marawa by the ISA or any other regulatory body, 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 and investor, Allseas Group S.A. (“Allseas”), to develop a system to collect, lift and transport nodules from the seafloor to shore and to subsequently convert that system into an early commercial production system (Note 4).

The realization of the Company’s assets and attainment of profitable operations is dependent upon many factors including, among other things: financing being arranged by the Company to continue operations, development of a nodule collection system for the recovery of polymetallic nodules from the seafloor as well as development of processing technology for the treatment of polymetallic nodules, the establishment of mineable reserves, the commercial and technical feasibility of seafloor polymetallic nodule collection and processing, metal prices, and regulatory approvals and environmental permitting for commercial operations. The outcome of these matters cannot presently be determined because they are contingent on future events and may not be fully under the Company’s control.

10


Table of Contents

TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)

Since March 2020, several measures have been implemented by the governments in Canada, the United States of America (“US”), Australia, and the rest of the world in the form of office closures and limiting the movement of personnel in response to the increased impact from the novel coronavirus (“COVID-19”). While the impact of COVID-19 has not been significant to the Company’s business operations to date, the current circumstances are dynamic and could negatively impact the Company’s business operations, exploration and development plans, results of operations, financial position, and cash flows.

2.Basis of Presentation

These unaudited condensed consolidated interim financial statements are prepared in accordance with US Generally Accepted Accounting Principles (“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 interim financial statements pursuant to such rules and regulation. In management’s opinion, these unaudited condensed consolidated interim financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of the Company’s statement of financial position, operating results for the periods presented, comprehensive loss, shareholder’s equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be expected for the full year ending December 31, 2022 or for any other period. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited annual consolidated financial statements for the year ended December 31, 2021. The Company has applied the same accounting policies as in the prior year, except as disclosed below.

All share and per share amounts have been adjusted to reflect the impact of the Business Combination.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and the notes thereto. Significant estimates and assumptions reflected in these condensed consolidated interim financial statements include, but are not limited to, the valuation of share-based payments, including valuation of incentive stock options (Note 6) and the common shares issued to Maersk Supply Service A/S, and warrants liability (Note 5). Actual results could differ materially from those estimates.

Fair Value of Financial Instruments

Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.

The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the reporting date. In accordance with U.S. GAAP, the Company utilizes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3 - Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)

In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.

There were no transfers between fair value measurement levels during the three and six months ended June 30, 2022 and 2021.

As at June 30, 2022 and December 31, 2021, the carrying values of cash, receivables, and accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these instruments. The financial instruments also include public and private warrants issued by the Company. The warrants are valued at fair value which is disclosed in Note 5.

Significant Accounting Policies Adopted during the period

Share-Based Compensation on Employee Share Purchase Plan

During the second quarter of 2022, the Company implemented an employee share purchase plan (the “ESPP”) whereby employees can purchase common shares of the Company at a 15% discount to its share price at the time of purchase, through payroll deductions (Note 6). Employee contributions are converted into common shares at a discount to the lower of the share price at the beginning of the offering period and the share price at the end of the purchase period. The fair value of the shares purchased under the ESPP is estimated on the grant date using a Black-Scholes option-pricing model and is reported as share-based compensation over the offering period, using the accelerated attribution method. Share-based compensation costs are charged to exploration and evaluation expenses or general and administrative expenses in the statement of loss and comprehensive loss.

3.Recent Accounting Pronouncements Issued and Adopted

i.Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options

In May 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2021-04, “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”, which clarified and reduced diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. Specifically, an issuer should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument. Modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument should be measured as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged. The effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange on the basis of the substance of the transaction should be recognized in the same manner as if cash had been paid as consideration. ASU 2021-04 is effective for fiscal periods ending on or after December 15, 2021, with early adoption permitted. ASU 2021-04 is applied prospectively to modifications or exchanges occurring on or after the effective date. The adoption of ASU 2021-04 on January 1, 2022 did not have a material impact on the Company’s condensed consolidated interim financial statements.

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)

4.Exploration Contracts

Strategic Partnerships

Strategic Alliance with Allseas Pilot Mining Test Project

The Company made the second $10 million payment of the amended Pilot Mining Test Agreement (“PMTA”) on April 25, 2022, upon successful completion of the North Sea drive test on March 25, 2022. The third and final $10 million will be payable upon successful completion of the pilot trial of the Pilot Mining Test System (“PMTS”) in NORI Area D. Completion of the pilot trial of the PMTS and third and final payment is expected to occur in the fourth quarter of 2022.

Total cost recorded as exploration and evaluation expenses for the PMTS during the three and six months ended June 30, 2022 amounted to $1.3 million and $2.6 million, respectively (three and six months ended June 30, 2021 amounted to $nil). The Company has not recorded a liability for the third payment as at June 30, 2022.

On March 16, 2022, the Company’s subsidiary, NORI, and Allseas entered into a non-binding term sheet which contemplates an upgrade of the PMTS into a commercial nodule collection system and commercial operation of this system in NORI Area D. The terms are subject to negotiation between NORI and Allseas and if successful, may result in amendments to the existing Strategic Alliance Agreement.

As at June 30, 2022, Allseas owned 17.2 million TMC common shares (December 31, 2021 – 16.2 million TMC common shares) which constituted 7.6% (December 31, 2021 – 7.2%) of total common shares outstanding.

Exploration and Evaluation Expenses

The detail of exploration and evaluation expenses is as follows:

NORI

Marawa

TOML

Exploration

Option

Exploration

For the three months ended June 30, 2022

    

Contract

    

Agreement

    

Contract

    

Total

Exploration labor

 

$

814

 

$

176

 

$

173

 

$

1,163

Offshore campaigns

 

2,515

 

2

 

2

 

2,519

Share-based compensation (Note 6)

 

2,027

 

442

 

444

 

2,913

Amortization

 

93

 

 

1

 

94

External consulting

 

1,476

 

27

 

28

 

1,531

Travel, workshop and other

 

281

 

25

 

141

 

447

PMTS

 

1,054

 

132

 

132

 

1,318

 

$

8,260

 

$

804

 

$

921

 

$

9,985

NORI

Marawa

TOML

For the three months ended June 30, 2021

Exploration

Option

Exploration

(Restated)

    

Contract

    

Agreement

    

Contract

    

Total

Exploration labor

 

$

410

 

$

165

 

$

172

 

$

747

Offshore campaigns

 

5,684

 

654

 

654

 

6,992

Share-based compensation (Note 6)

 

5,123

 

2,092

 

2,194

 

9,409

Amortization

 

97

 

 

1

 

98

External consulting

 

546

 

161

 

157

 

864

Travel, workshop and other

 

99

 

13

 

4

 

116

 

$

11,959

 

$

3,085

 

$

3,182

 

$

18,226

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)

NORI

Marawa

TOML

 

Exploration

Option

Exploration

For the six months ended June 30, 2022

    

Contract

    

Agreement

    

Contract

    

Total

Exploration labor

$

1,619

$

341

$

341

$

2,301

Offshore campaigns

2,700

30

30

2,760

Share-based compensation (Note 6)

 

4,020

 

893

 

899

 

5,812

Amortization

 

187

 

 

2

 

189

External consulting

 

2,828

 

78

 

61

 

2,967

Travel, workshop and other

 

447

 

58

 

173

 

678

PMTS

 

2,097

 

262

 

262

 

2,621

 

$

13,898

 

$

1,662

 

$

1,768

 

$

17,328

NORI

Marawa

TOML 

For the six months ended June 30, 2021

 Exploration 

 Option

Exploration 

(Restated)

    

Contract

    

 Agreement

    

Contract

    

Total

Exploration labor

$

846

$

353

$

338

$

1,537

Offshore campaigns

19,014

2,320

2,320

23,654

Share-based compensation (Note 6)

 

15,102

 

6,332

 

6,113

 

27,547

Amortization

 

194

 

 

2

 

196

External consulting

 

2,085

 

420

 

446

 

2,951

Travel, workshop and other

 

249

 

93

 

106

 

448

$

37,490

$

9,518

$

9,325

$

56,333

5.Warrants

For accounting purposes, the Company was considered to have issued the 15,000,000 common share warrants issued by SOAC as part of the units offered in its initial public offering (“Public Warrants”) and the 9,500,000 private placement common share warrants issued by SOAC in a private placement simultaneously with the closing of the initial public offering (“Private Warrants”) as part of the Business Combination.

Public Warrants

As at June 30, 2022, 15,000,000 (December 31, 2021 - 15,000,000) Public Warrants were outstanding. Public Warrants may only be exercised for a whole number of shares.

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. Following the Company’s filing of its Annual Report on Form 10-K for the year ended December 31, 2021, the Company has filed a post-effective amendment to the Registration Statement on Form S-1, which was declared effective by the SEC on July 12, 2022.

As at June 30, 2022, the value of outstanding Public Warrants of $19.5 million was recorded in additional paid in capital.

Private Warrants

As at June 30, 2022, 9,500,000 Private Warrants were outstanding (December 31, 2021 - 9,500,000).

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)

The Company re-measures the fair value of the Private Warrants at the end of each reporting period. The Private Warrants were valued using a Black-Scholes model, which resulted in a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the Private Warrants was the expected volatility of the Company’s common shares. The expected volatility was estimated using a binomial model based on consideration of the implied volatility from the Company’s Public Warrants adjusted to account for the call feature of the Public Warrants at prices above $18.00 during 20 trading days within any 30-trading day period.

As at June 30, 2022, the fair value of outstanding Private Warrants of $2.6 million is recorded as warrants liability. The following table presents the changes in the fair value of warrants liability:

    

Private

Warrants

Warrants liability as at December 31, 2021

$

3,126

Decrease in fair value of warrants liability

 

(542)

Warrants liability as at June 30, 2022

$

2,584

As at June 30, 2022 and December 31, 2021, the fair value of the Private Warrants was estimated using the following assumptions:

June 30, 

December 31, 

 

    

2022

    

2021

 

Exercise price

$

11.50

$

11.50

 

Share price

$

1.03

$

2.08

Volatility

95.11

%

 

64.6

%

Term

4.2 years

 

4.7 years

Risk-free rate

2.96

%

 

1.2

%

Dividend yield

0.0

%

 

0.0

%

There were no exercises or redemptions of the Public Warrants or Private Warrants during the three and six months ended June 30, 2022.

Allseas Warrants

Allseas holds warrants to purchase common shares (the Allseas Warrants), which will vest and become exercisable upon successful completion of the PMTS and will expire on September 30, 2026. A maximum of 11.6 million warrants to purchase common shares will vest if the PMTS is completed by September 30, 2023, gradually decreasing to 5.8 million warrants to purchase common shares if the PMTS is completed after September 30, 2025. The Company will record the expense for the Allseas Warrants upon successful completion of the pilot trial of the PMTS in the NORI Area D. No expense or liability has been recorded as at and for the three and six months ended June 30, 2022.

6.Share-Based Compensation

The Company’s 2021 Incentive Equity Plan (the “Plan”) provides that the aggregate number of common shares reserved for future issuance under the Plan is 33,699,685 common shares, including 9,017,299 shares added to the Plan in January 2022 pursuant to the Plan’s automatic annual increase provision described below, provided that 2,243,853 of the outstanding common shares shall only be available for awards made to non-employee directors of the Company. On the first day of each fiscal year beginning in 2022 to the tenth anniversary of the closing of the Business Combination, the number of common shares that may be issued pursuant to the Plan is automatically increased by an amount equal to the lesser of 4% of the number of outstanding common shares or an amount determined by the Board of Directors.

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)

Stock options

As at June 30, 2022, there were 15,475,638 stock options outstanding under the Company’s Short-Term Incentive Plan (“STIP”) and 9,783,922 stock options outstanding under the Company’s Long-Term Incentive Plan (“LTIP”). During the three and six months ended June 30, 2022, 18,461 STIP stock options were exercised and no new options were granted.

During the three and six months ended June 30, 2022, the Company recognized $3.6 million and $7.4 million respectively (three and six months ended June 30, 2021 - $15.4 million and $45.8 million, respectively) of share-based compensation expense for stock options in the statement of loss and comprehensive loss. For the three and six months ended June 30, 2022 a total of $1.9 million and $3.9 million respectively, was recorded in exploration and evaluation expenses (three and six months ended June 30, 2021 - $9.5 million and $27.6 million, respectively). The amount recorded in general and administration expenses for three and six months ended June 30, 2022 was $1.7 million and $3.5 million respectively (three and six months ended June 31, 2021 - $5.9 million and $18.2 million respectively).

Restricted Share Units

The details of RSUs granted during the three and six months ended June 30, 2022 are described below.

Vesting Period

    

Three months ended June 30,

    

Six months ended June 30,

2022

    

2021

2022

    

2021

Vesting Immediately

255,749

1,713,153

Vesting in thirds on each anniversary of the grant date

 

 

 

369,394

 

Vesting in fourths on each anniversary of the grant date

 

 

 

527,800

 

Vesting fully on the anniversary of the grant date

 

476,189

 

 

476,189

 

Out of the 1,713,153 units vesting immediately on grant date, 1,072,572 units were issued to settle liabilities with a carrying amount of $1.8 million at a weighted average grant date fair value of $1.75 per RSU.

During the three and six months ended June 30, 2022, an aggregate of 476,189 RSUs were granted to the Company’s non-employee directors under the Company’s Non-employee Director Compensation Policy, which vest upon the Company’s 2023 annual shareholders meeting. The total fair value of units granted as annual grants to the non-employee directors amounted to $700,000.

During the three and six months ended June 30, 2022, a total of $2.1 million and $4.0 million respectively (three and six months ended June 30, 2021 - $nil) was charged to the statement of loss and comprehensive loss as share-based compensation expense for RSUs. For the three and six months ended June 30, 2022, a total of $1 million and $1.9 million respectively, was recorded in exploration and evaluation expenses (three and six months ended June 30, 2021 - nil). The amount recorded in general and administration expenses for three and six months ended June 30, 2022 was $1.1 million and $2.1 million respectively (three and six months ended June 31, 2021 -$nil). As at June 30, 2022, total unrecognized share-based compensation expense for RSUs was $10.6 million (December 31, 2021 - $12.3 million).

Employee Share Purchase Plan

On May 31, 2022, TMC’s 2021 Employee Share Purchase Plan was approved at the Company’s 2022 annual shareholders meeting, including the approval of the issuance of up to 5,254,324 common shares under the ESPP. This included 2,254,324 shares added to the ESPP in January 2022 pursuant to the ESPP’s annual increase provision. As per the annual increase provision on the first day of each of the Company’s fiscal years after 2022, common shares equal to the lesser of (i) 1% percent of the common shares outstanding on the last day of the immediately preceding fiscal year, or (ii) such lesser number of shares as is determined by the Board will be added to the ESPP.

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)

Participation in the ESPP is available to all full-time and certain part-time employees. The ESPP comprises offering periods that are twenty-four (24) months in length, which begin on approximately every June 1 and December 1. Each offering period includes four purchase periods of six months each, which begin on approximately every June 1 and December 1, or at such other times designated by the board of directors or its compensation committee. At the end of each purchase period, the accumulated deductions from participating employees are used to purchase common shares of the Company. Shares are purchased at a price equal to 85% of the lower of either the share price of the Company’s common shares on the first business day of the particular offering period or the last business day of the purchase period. The plan also has an automatic reset feature wherein, if the share price of the common share on any exercise date is less than the share price of the common share on the first business day of the applicable offering period, then such offering period shall automatically terminate immediately after the purchase of the common shares. In such case, a new offering period shall commence on the first business day following the exercise date.

The ESPP includes the following limitations:

an employee’s contribution is limited to 15% of the employee’s annual gross earnings, not to exceed $25,000 per year,
an employee’s purchases in any offering period cannot exceed 15,000 common shares, and
an employee’s purchases are capped, not to exceed 5% of the Company’s total outstanding common shares

During the three and six months ended June 30, 2022, a total of $23 thousand was charged to the condensed consolidated statement of loss and comprehensive loss out of which a total of $8 thousand was recorded in exploration and evaluation expenses and $15 thousand was recorded in general and administration expenses. The Company issued 42,426 common shares to its employees as part of its ESPP program during the three and six months ended June 30, 2022.

7.Loss per Share

Basic and diluted loss per share was the same for each period presented as the inclusion of all common share equivalents would have been anti-dilutive. Anti-dilutive equivalent common shares were as follows:

Six months ended

Six months ended

June 30,

June 30,

    

2022

    

2021

Outstanding options to purchase common shares

25,259,560

  

25,287,670

Outstanding RSUs

5,262,330

  

Outstanding shares under ESPP

13,846

Outstanding warrants

36,078,620

Outstanding Special Shares and options to purchase Special Shares

136,239,964

Total anti-dilutive common equivalent shares

202,854,320

  

25,287,670

8.Related Party Transactions

The Company’s subsidiary, DeepGreen Engineering Pte. Ltd., is engaged in a consulting agreement with SSCS Pte. Ltd. (“SSCS”) to manage offshore engineering studies. A director of DGE is employed through SSCS. Consulting services during the three and six months ended June 30, 2022 totaled $69 thousand and $138 thousand (three and six months ended June 30, 2021 - $64 thousand and $138 thousand respectively) out of which for three and six months ended June 30, 2022 a total of $55 thousand $110 thousand, respectively (three and six months ended June 30, 2021 - $51 thousand and $110 thousand, respectively) is disclosed as exploration labor within exploration and evaluation expenses (Note 4) and $14 thousand and $28 thousand respectively for three and six months ended June 30, 2022 is disclosed as general and administration expenses (three and six months ended June 30, 2021 - $13 thousand and $28 thousand respectively). As at June 30, 2022, the amount payable to SSCS was $49 thousand (December 31, 2021 - $23 thousand).

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)

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 six months ended June 30, 2022 amounted to $94 thousand and $188 thousand respectively (three and six months ended June 30, 2021 -$94 thousand and $188 thousand), evenly apportioned between exploration and evaluation expenses (Note 4) and general and administration expenses for three and six months ended June 30, 2022 and June 30, 2021. As at June 30, 2022, the amount payable to Ocean Renaissance was $nil (December 31, 2021 - $nil).

9.Commitments and Contingent Liabilities

NORI Exploration Contract

As part of the NORI Exploration Contract with the ISA, NORI submitted a periodic review report to the ISA in 2021, covering the 2017-2021 period. NORI had committed to spend $5 million over the five-year period from 2017 to 2021, which it has exceeded. The periodic review report, which included a proposed work plan and estimated budget for 2022 to 2026, has been reviewed by and agreed with the ISA, and we are implementing the next five-year plan. NORI has estimated its work plan for 2022 and 2023 to be approximately $40 million and $25 million, respectively, which may be settled in cash or equity. The cost of the estimated work plan for 2024 onwards is contingent on the ISA’s approval of the NORI Area D exploitation application. Should the approval of NORI’s exploitation application for NORI Area D be delayed or rejected, NORI intends to revise its estimated future work plan in respect of its NORI Area. Work plans are reviewed annually by the Company, agreed with the ISA and may be subject to change depending on the Company’s progress to date.

Marawa Exploration Contract

Through DGE’s Marawa Option Agreement and Services Agreement with Marawa with respect to the Marawa Area, Marawa and DGE committed to spend a defined amount of funds on exploration activities on an annual basis. The commitment for fiscal 2022, 2023 and 2024 is Australian dollar (“AUD”) $1 million, AUD $3 million and AUD $2 million, respectively. Such commitment is negotiated with the ISA as part of a five-year plan submission and is subject to regular periodic reviews. To date, very limited offshore marine resource definition activities in the Marawa Contract Area have occurred and DGE expects to commit future resources as contractually agreed with Marawa to evaluate the future commercial viability of any project in such area. Marawa has not completed adequate exploration to establish the economic viability of any project in the Marawa Contract Area. Further work will need to be conducted in order to assess the viability of any potential project in the Marawa Contract Area and such work may take several years until such assessment can be made. Marawa has delayed certain of its efforts in the Marawa Contract Area while it determines how it will move forward with additional assessment work.

TOML Exploration Contract

As part of the TOML Exploration Contract, TOML submitted a periodic review report to the ISA in 2021, covering the 2017-2021 period. The periodic review report included a summary of work completed over the five-year period and a program of activities and estimated budget for the next five-year period. TOML had committed to spend $30.0 million over the five-year period from 2017 to 2021. Such commitment has flexibility where the amount can be reduced by the ISA and such reduction would be dependent upon various factors including the success of the exploration programs and the availability of funding.

The Company has spent approximately $13.3 million in connection with the TOML Exploration Contract from 2017 to 2021. Discussions with the ISA are underway to review the progress achieved to date and agree on program activities for the next 5-years, at which point the next five-year commitment will be finalized.

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Table of Contents

TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)

Contingent Liability

On October 28, 2021, a shareholder filed a putative class action against the Company and certain of its executives in federal district court for the Eastern District of New York, styled Caper v. TMC The Metals Company Inc. F/K/A Sustainable Opportunities Acquisition Corp., Gerard Barron and Scott Leonard. The complaint alleges that all defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, and Messrs. Barron and Leonard violated Section 20(a) of the Exchange Act, by making false and/or misleading statements and/or failing to disclose information about the Company’s operations and prospects during the period from March 4, 2021 and October 5, 2021. On November 15, 2021, a second complaint containing substantially the same allegations was filed, captioned Tran v. TMC the Metals Company, Inc. These cases have been consolidated. On March 6, 2022, a lead plaintiff was selected. An amended complaint was filed on May 12, 2022, reflecting substantially similar allegations. The Company denies any allegations of wrongdoing and the Company has filed and served the plaintiff a motion to dismiss on July 12, 2022 and intends to defend against this lawsuit. There is no assurance, however, that the Company or the other defendants will be successful in their defense of this lawsuit or that insurance will be available or adequate to fund any settlement or judgment or the litigation costs of this action. If the motion to dismiss is unsuccessful, there is a possibility that the Company may incur a loss in this matter. Such losses or range of possible losses either cannot be reliably estimated. A resolution of this lawsuit adverse to the Company or the other defendants, however, could have a material effect on the Company’s financial position and results of operations in the period in which the lawsuit is resolved.

10.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.

11.Subsequent Events

On August 15, 2022, the Company announced a private placement financing with 25 accredited investors pursuant to three securities purchase agreements the Company entered into with the investors on August 12, 2022. The Company will issue an aggregate of 37,978,680 common shares to the investors at a price per share of $0.80 ($0.9645 with respect to approximately $100,000 of common shares purchased by the Company’s Chief Executive Officer and Chairman in the private placement financing). The Company expects to receive aggregate gross cash proceeds of approximately $30.4 million this quarter from the private placement and net cash proceeds of approximately $30 million, after deducting placement agent fees and offering expenses.  The Company agreed to file a resale registration statement for the common shares issued to the investors in the financing with the SEC on or before September 16, 2022.

19


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provide information which management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto for the year ended December 31, 2021 contained in our 2021 Annual Report on Form 10-K. This discussion contains forward looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in “Risk Factors” in Item 1A of Part I of the 2021 Annual Report on Form 10-K, as updated and supplemented under the caption “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q, as further updated and/or supplemented in subsequent filings with the SEC. Actual results may differ materially from those contained in any forward-looking statements. Unless the context otherwise requires, references to “we”, “us”, “our”, “TMC” and “the Company” are intended to mean the business and operations of TMC the metals company Inc. and its consolidated subsidiaries. The unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2022 and 2021, respectively, present the financial position and results of operations of TMC the metals company Inc. and its consolidated subsidiaries.

Overview

We are a deep-sea minerals exploration company focused on the collection and processing of polymetallic nodules found on the seafloor in international waters of the Clarion Clipperton Zone (“CCZ”), about 1,300 nautical miles south-west of San Diego, California. The CCZ is a geological submarine fracture zone of abyssal plains and other formations in the Eastern Pacific Ocean, with a length of around 7,240 km (4,500 miles) that spans approximately 4,500,000 square kilometers (1,700,000 sq mi). Polymetallic nodules are discrete rocks that sit unattached to the seafloor, occur in significant quantities in the CCZ and have high concentrations of nickel, manganese, cobalt and copper in a single rock.

These four metals contained in the polymetallic nodules are critical for the transition to clean energy. Our resource definition work to date shows that nodules in our contract areas represent the world’s largest estimated undeveloped source of critical battery metals. If we are able to collect polymetallic nodules from the seafloor on a commercial scale, we plan to use such nodules to produce three types of metal products: (i) feedstock for battery cathode precursors (nickel and cobalt sulfates) for electric vehicles (“EV”) and renewable energy storage markets, (ii) nickel-copper-cobalt matte and/or copper cathode for EV wiring, clean energy transmission and other applications and (iii) manganese silicate for manganese alloy production required for steel production. Our mission is to build a carefully managed shared stock of metal (a “metals common”) that can be used, recovered and reused for generations to come. Significant quantities of newly mined metal are required because existing metal stocks are insufficient to meet rapidly rising demand.

Exploration and exploitation of seabed minerals in international waters is regulated by the International Seabed Authority (“ISA”), an intergovernmental organization established pursuant to the 1994 Agreement Relating to the Implementation of the United Nations Convention on the Law of the Sea (“UNCLOS”). The ISA grants contracts to sovereign states or to private contractors who are sponsored by a sovereign state. The ISA requires that a contractor must obtain and maintain sponsorship by a host nation that is a member of the ISA and signatory to UNCLOS and such nation must maintain effective supervision and regulatory control over such sponsored contractor. The ISA has issued a total of 19 polymetallic nodule exploration contracts covering approximately 1.28 million km2, or 0.4% of the global seafloor, 17 of which are in the CCZ. We hold exclusive exploration and commercial rights to three of the 17 polymetallic nodule contract areas in the CCZ 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”).

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We have key strategic alliances with (i) Allseas Group S.A. (“Allseas”), a leading global offshore contractor, which is developing a pilot collection system, which is expected to be modified into an initial smaller-scale commercial production system and serve as the basis for the design of a full-scale commercial production system and (ii) Glencore International AG (Glencore) which holds offtake rights on 50% of the NORI nickel and copper production. In addition, we have worked with an engineering firm Hatch Ltd. and consultants Kingston Process Metallurgy Inc. to develop a near-zero solid waste flowsheet. The pyrometallurgical stages of the flowsheet were tested as part of our pilot plant program at FLSmidth & Co. A/S’s and XPS Solutions’ (Glencore subsidiary) facilities and bench-scale hydrometallurgical refining work is being carried out with SGS SA. The near-zero solid waste flowsheet provides a design that is expected to serve as the basis for our onshore processing facilities. In March 2022, we entered into a non-binding memorandum of understanding with Epsilon Carbon Pvt, LTD. (“Epsilon Carbon”) in which Epsilon Carbon expressed its intent to conduct pre-feasibility work to potentially finance, engineer, permit, construct and operate a commercial polymetallic nodule processing plant in India. Together with Epsilon Carbon, we have recently selected a suitable plant site in India and developed and issued a Request for Proposal for Project Zero Pre-feasibility and Feasibility Study.

We are currently focused on applying for our first exploitation contract from the ISA on the NORI Area D contract area and, subject to regulatory review by the ISA, intend to start commercial production in 2024. To reach our objective, we are: (i) defining our resource and project economics, (ii) developing an offshore nodule collection system, (iii) assessing the ESG impacts of offshore nodule collection, and (iv) developing onshore technology to process collected polymetallic nodules into a manganese silicate product, and an intermediate nickel-copper-cobalt matte product and/or end-products like nickel and cobalt sulfates, and copper cathode.

We are still in the exploration phase and have not yet declared mineral reserves. We have yet to obtain exploitation contracts from the ISA to commence commercial scale polymetallic nodule collection in the CCZ and have yet to obtain the applicable environmental permits and other permits required to build and operate commercial scale polymetallic nodule processing and refining plants on land.

Developments in the Second Quarter 2022

Below are some of the major developments that occurred in the second quarter 2022:

Pilot Collection System Trials:

Atlantic Deepwater Trials: In May 2022, the pilot collector vehicle underwent extensive testing of its various pumps and critical mobility functions in ultra-deep water in the Atlantic Ocean. Engineers successfully lowered the collector vehicle to depths of 2,470 meters and drove 1,018 meters across the seafloor, in advance of pilot trials in the NORI Area D in the CCZ expected in the second half of 2022.
Riser & Jumper Trials: In May 2022, the pilot riser system and jumper hose was successfully deployed in the Atlantic Ocean. Engineers aboard the Hidden Gem deployed the flexible jumper hose, connected it to the base of the riser and then launched the pilot riser, lowering the assembly to a depth of around 650 meters before making a sub-sea connection between the jumper hose and collector vehicle in 745 meters water depth.

Onshore Processing:

SINTEF Manganese Study: In May 2022, we announced that we had retained SINTEF, one of Europe’s leading independent research institutions, to analyze our manganese silicate product that can be used to produce silicomanganese alloy for steelmaking. SINTEF found that our high-grade nodule-derived manganese silicate, which we estimate could account for approximately one third of potential future revenues, behaves similarly to traditional land-based manganese sources and appears to have significant advantages on cost and carbon dioxide footprint, with the potential for 7 to 17% higher value-in-use, depending on carbon tax regimes.

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Environmental, Social and Governance (ESG):

Impact Report 2021: In May 2022, we published our inaugural Impact Report setting out our motivations for collecting nodules and providing a forward-looking view of the potential environmental impacts of our expected operations and the efforts underway to potentially eliminate or reduce them.
Independent Lifecycle Impact Assessment of NORI Area D Project: In April 2022, we announced that we chose the leading lithium-ion battery supply chain research firm, Benchmark Mineral Intelligence (“Benchmark”), to conduct an independent lifecycle assessment of the environmental impacts of our planned NORI Area D polymetallic nodule project and compare these impacts to producing the same metals from commonly used production pathways using conventional land ores. Benchmark anticipates completing its comprehensive Lifecycle Impact Assessment for us by the end of the third quarter of 2022.

Developments Subsequent to June 30, 2022

Project Zero Research: In July, our Australian subsidiary entered into a research funding agreement with a consortium of institutions led by Australia’s Commonwealth Scientific Industrial Research Organization (CSIRO) to create a framework for the development of an ecosystem-based Environmental Management and Monitoring Plan (EMMP) for our proposed deep-sea polymetallic nodule collection operations in the CCZ.
NORI Collector Test Environmental Impact Statement (EIS): The Legal and Technical Commission (the “LTC”) reviewed the EIS submitted to the ISA as part of NORI’s program to undertake a test of the collector system during their July 2022 meeting and provided their comments to NORI on July 15, 2022. The LTC noted that while the generic framework and spatial components of the monitoring program described in the EMMP were good, the monitoring program lacked sufficient detail on the overall sampling design and integrated environmental monitoring specifications that the LTC needs to adequately evaluate the accuracy and statistical reliability of the EIS and the Monitoring Plan. As such, the LTC decided that it was unable to recommend to the Secretary-General of the Authority that the EIS be included in the program of activities of NORI until NORI provided more detail on its proposed survey design, the level of benthic sediment plume monitoring, pelagic sampling of biological impacts of the plume discharge, temporal issues of survey timing and duration, and the extent of noise monitoring. NORI submitted its responses to the LTC on July 29, 2022 and it is under review by the LTC. We continue to expect that the planned collector test in the CCZ will commence in the third quarter of 2022, as initially planned.
PIPE Financing: On August 15, 2022, we announced a private placement financing with 25 accredited investors, pursuant to three securities purchase agreements the Company entered into with the investors on August 12, 2022. We will issue an aggregate of 37,978,680 common shares to the investors at a price per share of $0.80 ($0.9645 with respect to approximately $100,000 of common shares purchased by our Chief Executive Officer and Chairman in the private placement financing). The Company expects to receive aggregate gross cash proceeds of approximately $30.4 million this quarter from the private placement and net proceeds of approximately $30 million, after deducting placement agent fees and offering expenses.  The Company agreed to file a resale registration statement for the common shares issued to the investors in the financing with the SEC on or before September 16, 2022.

The Business Combination

On September 9, 2021, we completed the Business Combination with SOAC. The transaction resulted in the combined company being renamed “TMC the metals company Inc.” and the combined company’s common shares and warrants to purchase common shares commenced trading on the Nasdaq Global Select Market (“Nasdaq”) on September 10, 2021 under the symbols “TMC” and “TMCWW,” respectively. As a result of the Business Combination, we received gross proceeds of $137.6 million ($104.5 million net of transaction fees).

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The Business Combination was accounted for as a reverse recapitalization and DeepGreen was deemed the accounting acquirer. Under this method of accounting, SOAC was treated as the acquired company for financial statement reporting purposes. The Business Combination was accounted for as a reverse acquisition with no goodwill or intangible assets being recorded. As SOAC had no operations, the net assets acquired were recorded at their historical cost. Adjustments related to the Business Combination including consideration paid to DeepGreen shareholders and any other adjustments to eliminate the historical equity of SOAC and recapitalize the equity of DeepGreen were recorded to common shares to reflect the effective issuance of common shares to SOAC and Private Investment in Public Equity investors in the Business Combination.

Following the Business Combination, we became the successor to an SEC-registered company, which resulted in us hiring additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices to ensure ongoing compliance with applicable law and Nasdaq listing requirements. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, additional internal and external accounting, legal and administrative resources, including increased personnel costs, audit and other professional service fees.

Exploration Contracts

We currently hold exclusive exploration rights to certain polymetallic nodule areas in the CCZ through our subsidiaries NORI and TOML, sponsored by Nauru and Tonga, respectively, and exclusive commercial rights through our subsidiary, DGE’s, arrangement with Marawa, a company owned and sponsored by Kiribati.

NORI Exploration Contract

NORI, our wholly-owned subsidiary, was granted a polymetallic nodule exploration contract in the CCZ by the ISA on July 22, 2011 under the sponsorship of Nauru. This Exploration Contract provides NORI with exclusive rights to explore for polymetallic nodules in an area covering 74,830 km2 in the CCZ (“NORI Area”) for an initial term of 15 years (renewable for successive five-year periods) subject to complying with the exploration contract terms and provides NORI with the priority right to apply for an exploitation contract to collect polymetallic nodules in the same area.

Marawa Agreements

Marawa, an entity owned and sponsored by Kiribati, was granted the Marawa Exploration Contract on May 30, 2012. DGE, our wholly-owned subsidiary, entered into agreements with Marawa and Kiribati which provide DGE with exclusive exploration rights to an area covering 74,990 km2 in the CCZ (the “Marawa Contract Area”). The exploration contract between Marawa and the ISA (the “Marawa Exploration Contract”) was signed on January 19, 2015. To date, very limited offshore marine resource definition activities in the Marawa Contract Area have occurred and DGE expects to commit future resources as contractually agreed with Marawa to evaluate the future commercial viability of any project in such area. Marawa has not completed adequate exploration to establish the economic viability of any project in the Marawa Contract Area. Further work will need to be conducted in order to assess the viability of any potential project in the Marawa Contract Area and such work may take several years until such assessment can be made. Marawa has delayed certain of its efforts in the Marawa Contract Area while it determines how it will move forward with additional assessment work.

TOML Exploration Contract

TOML, our wholly-owned subsidiary, was granted an exploration contract on January 11, 2012 by the ISA and sponsored by the Kingdom of Tonga pursuant to the TOML Exploration Contract . TOML was acquired by us on March 31, 2020 for $32 million from Deep Sea Mining Finance Ltd. (“DSMF”). The TOML Exploration Contract provides TOML with exclusive rights to explore for polymetallic nodules in an area covering 74,713 km2 in the CCZ (“TOML Area”) for an initial term of 15 years (renewable for successive five-year periods) subject to complying with the exploration contract terms and a priority right to apply for an exploitation contract to collect polymetallic nodules in the same area. On March 8, 2008, Tonga and TOML entered into a sponsorship agreement formalizing certain obligations of the parties in relation to TOML’s exploration application to the ISA (subsequently granted) for the TOML Contract Area. The sponsorship agreement was updated on September 23, 2021.

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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” in Item 1A of Part I of the 2021 Annual Report on Form 10-K, as updated and supplemented under the caption “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q, as further updated and/or supplemented in subsequent filings with the SEC.

Impact of Global Inflation

As a pre-revenue company, persistent inflation may affect our ultimate cash requirements prior to our ability to begin commercial production.

In 2022, the global inflation rate has risen sharply. Marine fuel prices and vessel day rates are higher year-over-year and have increased our exploration expenses beyond what we had originally expected. Additionally, we are experiencing higher offshore labor costs through our contractors due to an upturn in the offshore oil and gas market.

Impact of Climate Change

We are committed to adopting the Task Force on Climate-Related Financial Disclosures recommendations. In our first inaugural impact report published in May 2022, we provided climate-related disclosures and shared how we believe our mission is aligned with supporting a clean energy transition and contributing to a circular metals economy. We recognize that climate change may have a meaningful impact on our financial performance over time, and we have begun the process of consolidating key risks and corresponding action plans to mitigate their negative impact on climate change and create value.

Our climate related transition risks and opportunities are likely to be driven by changes in regulation, public policy, and technology, as disclosed in our 2021 Annual Report on Form 10-K.

COVID-19

During the second quarter of 2022, active work comprised the deep-water test of the collector system as well test deployment of the riser system and test connection of the jumper hose to the collector test all deployed by the Hidden Gem. These tests were all completed successfully without any COVID outbreaks given the pre-departure COVID protocols that Allseas implemented. At the end of the second quarter, the Hidden Gem was steaming from the Atlantic to the west coast of North America to commence mobilization for the collector test which is planned to commence in the third quarter 2022.

We continue to closely monitor the recent developments surrounding the continued spread and potential resurgence of COVID-19 from variants. The COVID-19 pandemic may have an adverse impact on our operations, particularly because of preventive and precautionary measures that our company, other businesses, and governments are taking. Refer to the section entitled “Risk Factors” in Item 1A of Part I of the 2021 Annual Report on Form 10-K, as updated and supplemented under the caption “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q, as further updated and/or supplemented in subsequent filings with the SEC for more information. We are unable to predict the full impact that the COVID-19 pandemic will have on our future results of operations, liquidity and financial condition due to numerous uncertainties, including the duration of the pandemic and the actions that may be taken by government authorities. However, COVID-19 is not expected to result in any significant changes to our business or our costs in the near term. We will continue to monitor the performance of our business and re-assess the impacts of COVID-19.

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Restatement of Previously Issued Quarterly Financial Statements

As disclosed in our 2021 Annual Report on Form 10-K, we have restated our financial statements as of and for the three and six-months period ended June 30, 2021 in the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

The restatement resulted from the following items:

a)

certain invoices for exploration expenses were not appropriately accrued as of June 30, 2021, resulting in a $2.7 million understatement of each of exploration expenses and accounts payable and accrued liabilities as of and for the six-month period ended June 30, 2021; and

b)

our expensing of options granted in the first quarter of 2021 under the Company’s Short-Term Incentive Plan (“STIP”) based on the grantee’s historical start date with us rather than the grant date of the options on March 4, 2021, as required by US Generally Accepted Accounting Principles (“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.

Basis of Presentation

We currently conduct our business through one operating segment. As a pre-revenue company with no commercial operations, our activities to date have been limited. Our historical results are reported under U.S. GAAP and in U.S. dollars. All share and per share amounts have been adjusted to reflect the impact of the Business Combination.

Components of Results of Operations

We are an exploration-stage company with no revenue to date and a net loss of $12.4 million and $33.5 million for the three and six months ended June 30, 2022, respectively, compared to a net loss of $29.1 million and $84.9 million in the same periods of 2021, respectively. We have an accumulated deficit of approximately $337.7 million from inception through June 30, 2022.

Our historical results may not be indicative of our future results for reasons that may be difficult to anticipate. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical or projected results of operations.

Revenue

To date, we have not generated any revenue. We do not expect to generate revenue until at least 2025 and only if NORI receives an exploitation contract from the ISA and we are able to successfully collect polymetallic nodules and process the nodules into saleable products on a commercial scale. Any revenue from initial production is difficult to predict.

Exploration and Evaluation Expenses

We expense all costs relating to exploration and development of mineral claims. Such exploration and development costs include, but are not limited to, ISA contract management, geological, geochemical and geophysical studies, environmental baseline studies, process development and payments to Allseas for the Pilot Mining Test System (“PMTS”). Our exploration expenses are impacted by the amount of exploration work conducted during each period. The acquisition cost of ISA polymetallic nodule exploration contracts will be charged to operations as amortization expense on a unit-of-production method based on proven and probable reserves should commercial production commence in the future.

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General and Administrative Expenses

General and administrative (“G&A”) expenses consist primarily of compensation for employees, consultants and directors, including share-based compensation, consulting fees, investor relations expenses, expenses related to advertising and marketing functions, insurance costs, office and sundry expenses, professional fees (including legal, audit and tax fees), travel expenses and transfer and filing fees.

Share-based compensation costs from the issuance of stock options and restricted share units (“RSUs”) is measured at the grant date based on the fair value of the award and is recognized over the related service period. Share-based compensation costs are charged to exploration expenses and general and administrative expenses depending on the function fulfilled by the holder of the award. In instances where an award is issued for financing related services, the costs are included within equity as part of the financing costs. We recognize forfeiture of any awards as they occur.

Interest Income/Expense

Interest expense in the first half of 2021 resulted from our financing transactions, specifically the convertible debentures issued in February 2021, which accrued interest at 7% per annum. The convertible debentures were fully converted into DeepGreen common shares on