TMC the metal company (TMC) - 2025 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements The company's financial statements for the period ended June 30, 2025, reflect its pre-revenue status as an exploration-stage entity, with significant financing activities driving an increase in cash and total assets, and shifting total equity from a deficit to a positive balance, despite a widened net loss due to non-cash warrant expenses Condensed Consolidated Balance Sheets As of June 30, 2025, the company's balance sheet strengthened significantly compared to December 31, 2024, with cash increasing dramatically to $115.8 million due to financing activities, driving total assets up to $173.7 million and shifting total equity from a deficit to a positive $81.9 million Condensed Consolidated Balance Sheet Highlights (in thousands of US Dollars) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash | $115,759 | $3,480 | | Total Current Assets | $117,278 | $5,331 | | Total Assets | $173,694 | $62,998 | | Total Liabilities | $91,834 | $80,116 | | Total Equity | $81,860 | $(17,118) | Condensed Consolidated Statements of Loss and Comprehensive Loss The company reported a net loss of $74.3 million for Q2 2025 and $94.9 million for the first six months of 2025, a substantial increase from prior-year periods, primarily driven by a one-time, non-cash $33.1 million Nauru Warrant cost and a $16.7 million non-cash charge for the change in fair value of warrant liability Net Loss Comparison (in thousands of US Dollars) | Period | 2025 | 2024 | | :--- | :--- | :--- | | Three months ended June 30 | $74,341 | $20,168 | | Six months ended June 30 | $94,929 | $45,362 | - Key drivers for the increased net loss in 2025 were a non-cash Nauru Warrant cost of $33.1 million and a change in fair value of warrant liability of $16.7 million for the six-month period[15] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, the company's cash position increased by $112.3 million, primarily due to $132.1 million in net cash provided by financing activities, including proceeds from the Korea Zinc private placement and registered direct offerings, while net cash used in operating activities decreased to $20.0 million Cash Flow Summary for Six Months Ended June 30 (in thousands of US Dollars) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(20,009) | $(23,966) | | Net cash generated from (used in) investing activities | $226 | $(415) | | Net cash provided by financing activities | $132,069 | $17,712 | | Increase (Decrease) in cash | $112,286 | $(6,669) | - Major financing inflows in H1 2025 included $85.2 million from the Korea Zinc Private Placement and $35.0 million from Registered Direct Offerings[23] Notes to Interim Condensed Consolidated Financial Statements The notes detail the company's focus on deep-sea mineral exploration and its recent strategic shift to pursue commercialization under the U.S. DSHMRA regime, highlighting significant H1 2025 financing activities, a substantial $33.1 million non-cash expense from Nauru warrants, and updates on ongoing legal proceedings - In April 2025, the company's subsidiary, TMC USA, submitted applications to the U.S. National Oceanic and Atmospheric Administration (NOAA) for exploration licenses and a commercial recovery permit under the Deep Seabed Hard Mineral Resources Act (DSHMRA)[26] - The company secured significant funding in Q2 2025, including $85.2 million from Korea Zinc and gross proceeds of $37 million from a registered direct offering[54][56] - A revised sponsorship agreement with the Republic of Nauru led to the issuance of 9.1 million warrants, resulting in a non-cash expense of $33.1 million[75][76] - A shareholder class action (Caper v. TMC) was dismissed with prejudice in July 2025, while other legal proceedings remain ongoing[95] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic shift towards the U.S. regulatory pathway (DSHMRA) for commercial production, highlighted by its April 2025 application submissions to NOAA, significant Q2 2025 financing deals that improved liquidity, and an increased net loss primarily due to non-cash warrant-related expenses, while confirming sufficient liquidity for the next twelve months but acknowledging the need for future financing Overview and Recent Developments The company is focused on becoming a commercial producer of deep-sea polymetallic nodules, marked by the submission of the first-ever application for a commercial recovery permit under the U.S. DSHMRA in Q2 2025, significant capital raises including an $85.2 million strategic investment from Korea Zinc, and the post-quarter publication of a Pre-Feasibility Study declaring the first mineral reserves for a polymetallic nodule project - Submitted the first-ever application for a commercial recovery permit under the U.S. Deep Seabed Hard Mineral Resources Act (DSHMRA) in April 2025[115] - Secured an $85.2 million strategic investment from Korea Zinc and raised $37 million in a registered direct offering[118][120] - Post-quarter end, on August 4, 2025, the company published a Pre-Feasibility Study (PFS) for NORI Area D, which included the first declaration of Mineral Reserves for a polymetallic nodule project[102][122] Regulatory Updates The company's primary regulatory focus is the U.S. DSHMRA, with its April 2025 applications for exploration licenses and a commercial recovery permit now under NOAA review, which has confirmed the exploration applications are in full compliance, initiating the certification process, while existing ISA exploration contracts are maintained - The company's primary regulatory focus is now the U.S. DSHMRA, which provides a domestic legal framework for U.S. citizens to conduct deep-sea mining[126] - In May 2025, NOAA determined the company's exploration license applications were in substantial compliance, and in July 2025, confirmed they were fully compliant, beginning the certification process[137] Results of Operations The net loss for Q2 2025 was $74.3 million, and $94.9 million for the first six months, a significant increase primarily driven by non-cash items: a $33.1 million Nauru Warrant cost and a $16.2 million change in the fair value of warrant liability, while exploration expenses decreased by 34% and G&A expenses increased by 38% Comparison of Operating Results (in thousands of US Dollars) | Item | Six months ended June 30, 2025 | Six months ended June 30, 2024 | % Change | | :--- | :--- | :--- | :--- | | Exploration and evaluation expenses | $20,011 | $30,526 | (34)% | | General and administrative expenses | $19,979 | $14,451 | 38% | | Net Loss for the period | $94,929 | $45,362 | 109% | - The significant increase in net loss was mainly due to a $33.1 million non-recurring, non-cash Nauru Warrant cost and a $16.7 million non-cash charge for the change in fair value of warrant liability[160][167][168] Liquidity and Capital Resources The company's liquidity position improved dramatically, with cash on hand increasing to $115.8 million at June 30, 2025, due to $132.1 million in net cash from financing activities in H1 2025, primarily from the Korea Zinc investment and registered direct offerings, and management believes it has sufficient funds for the next twelve months but will require additional financing for long-term operations - As of June 30, 2025, the company had cash on hand of $115.8 million[170] - Financing activities in H1 2025 provided $132.1 million in net cash, primarily from the Korea Zinc investment and registered direct offerings[186][193] - Management believes it has sufficient funds for the next twelve months but will need additional financing for continued operations over time[174][175] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's most significant market risk is regulatory, stemming from the uncertainty of obtaining a commercial recovery permit from NOAA under the DSHMRA, a framework not yet tested for full-scale commercial projects, while other risks like interest rate and credit risk are currently considered low - The primary risk is regulatory uncertainty related to the U.S. DSHMRA regime, as NOAA has not previously issued a commercial recovery permit, and there is no assurance of a favorable or timely outcome for the company's application[228] - Interest rate and credit risks are considered low. Excess cash is invested in investment-grade short-term deposits, and receivables are primarily from the Canadian government[226][227] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to a previously disclosed material weakness in internal controls over financial reporting concerning the accounting for significant non-routine transactions, which persists despite implemented remediation efforts as the new controls require a longer period of operation and testing to be deemed effective - Disclosure controls and procedures were concluded to be not effective as of June 30, 2025[232] - The ineffectiveness is due to a previously identified material weakness in internal controls over accounting for significant non-routine transactions[233] - Remediation efforts are underway, but the material weakness persists as the new controls require a longer period of operation and testing to be deemed effective[235] Part II - Other Information Item 1. Legal Proceedings The company provides an update on three key legal cases: a shareholder class action, Caper v. TMC, was dismissed with prejudice in July 2025 and is now closed; a lawsuit from 2021 private placement investors, Atalaya v. TMC, is proceeding to the discovery phase; and another shareholder class action, Lin v. TMC, related to a prior financial restatement, is ongoing with a motion to dismiss pending - The shareholder class action Caper v. TMC was dismissed with prejudice on July 9, 2025, and is now considered closed[243] - The Atalaya lawsuit, filed by investors in the 2021 private placement, is ongoing and has moved into the discovery phase[244] - The Lin v. TMC class action, concerning a financial restatement, is also ongoing. The company's motion to dismiss the Second Amended Complaint was filed on August 6, 2025[245] Item 1A. Risk Factors The company states there are no material changes to its previously disclosed risk factors but emphasizes its reliance on third-party technical studies, which are based on assumptions that may prove inaccurate, and underscores that mineral resource and reserve estimates are inherently uncertain and subject to change, with no guarantee of profitable recovery - The company relies on third-party analyses for its technical reports, and inaccuracies in these reports could adversely affect its objectives[247] - Mineral resource and reserve estimates are inherently uncertain and may not be realized. There is no assurance that resources can be profitably collected and processed[248] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended June 30, 2025, the company did not repurchase any of its own equity securities - No repurchases of the company's equity securities were made during the second quarter of 2025[250] Item 5. Other Information The company reports that none of its directors or officers adopted, modified, or terminated a Rule 10b5-1 trading plan or any non-Rule 10b5-1 trading arrangement during the second quarter of 2025 - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[253]