TMC the metal company (US:TMC)2024-05-13 20:11Part I - Financial Information Financial Statements The company, a pre-revenue deep-sea minerals exploration firm, reported a net loss of $25.2 million for Q1 2024, a significant increase from the $13.7 million loss in Q1 2023, with total assets decreasing to $65.5 million and total liabilities increasing to $63.6 million Condensed Consolidated Balance Sheet (in thousands of US Dollars) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Current Assets | | | | Cash | $3,991 | $6,842 | | Total Current Assets | $5,944 | $8,820 | | Total Assets | $65,455 | $68,896 | | Current Liabilities | | | | Accounts payable and accrued liabilities | $36,470 | $31,334 | | Total Liabilities | $63,645 | $57,978 | | Total Equity | $1,810 | $10,918 | Condensed Consolidated Statements of Loss (in thousands of US Dollars) | Account | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Exploration and evaluation expenses | $18,123 | $7,169 | | General and administrative expenses | $6,559 | $6,214 | | Operating loss | $24,682 | $13,383 | | Loss and comprehensive loss | $25,194 | $13,748 | | Loss per share - basic and diluted | $0.08 | $0.05 | Condensed Consolidated Statements of Cash Flows (in thousands of US Dollars) | Activity | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(11,852) | $(23,484) | | Net cash used in investing activities | $(340) | $0 | | Net cash provided by financing activities | $9,048 | $5,000 | | Decrease in cash | $(3,144) | $(18,484) | - The company is a deep-sea minerals exploration company focused on collecting and processing polymetallic nodules from the Clarion Clipperton Zone (CCZ) in the Pacific Ocean, which contain nickel, copper, cobalt, and manganese25 - The company's success is contingent on future events, including securing financing, developing nodule collection and processing technology, establishing mineable reserves, and obtaining regulatory approvals, the outcomes of which are currently uncertain27 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's focus on preparing its first exploitation contract application for the NORI Area with the ISA, targeting submission after the July 2024 meetings, with the net loss for Q1 2024 increasing to $25.2 million primarily due to a $10.9 million rise in exploration and evaluation expenses Overview TMC is a deep-sea minerals exploration company focused on polymetallic nodules in the Clarion Clipperton Zone (CCZ), holding exclusive rights to three contract areas regulated by the ISA, with strategic alliances for collection and processing, and currently preparing its first exploitation contract application for the NORI Area D - The company holds exclusive exploration and commercial rights to three of the 17 polymetallic nodule contract areas in the CCZ through its subsidiaries NORI, TOML, and an arrangement with Marawa91 - Strategic partnerships are in place with Allseas for the offshore collection system and PAMCO of Japan for onshore processing, with a binding MoU for a feasibility study expected to be completed in Q4 202492 - The company is currently focused on preparing its application to the ISA for its first exploitation contract for the NORI Area D, targeting submission after the July 2024 ISA meetings and expecting to commence offshore production by the end of Q1 202693 Recent Developments In Q1 2024 and subsequently, TMC secured significant financial flexibility by amending its credit facility with an Allseas affiliate and establishing a new $20 million credit facility with its CEO and a director, while making progress on regulatory, technical, and board appointments - Key developments in Q1 2024 and shortly after include: - Credit Facilities: Amended the Allseas affiliate credit facility to extend it to August 2025 and entered a new $20 million unsecured credit facility with the CEO and a director9697 - Regulatory Progress: The ISA published a consolidated draft of exploitation regulations, signaling progress in negotiations99 - Technical Milestone: Successfully produced the world's first nickel sulfate derived exclusively from seafloor polymetallic nodules101 - Board Addition: Renowned Silicon Valley investor Steve Jurvetson joined the Board of Directors as Vice Chairman101 Results of Operations The company's net loss increased by 83% to $25.2 million in Q1 2024 from $13.7 million in Q1 2023, driven by a 153% increase in Exploration and Evaluation expenses to $18.1 million from $7.2 million, primarily due to higher costs for mining, technological, and process development Comparison of Results for the Three Months Ended March 31 (in thousands) | Account | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Exploration and evaluation expenses | $18,123 | $7,169 | 153% | | General and administrative expenses | $6,559 | $6,214 | 6% | | Loss for the period | $25,194 | $13,748 | 83% | - Exploration and evaluation expenses increased by $10.9 million, mainly due to a $10.5 million rise in mining, technological, and process development costs from increased engineering work and expenses for transporting nodules to PAMCO's facility in Japan122 - General & Administrative expenses increased by $0.4 million due to higher share-based compensation amortization and consulting fees, which were partially offset by lower legal costs123 Liquidity and Capital Resources As of March 31, 2024, the company had $4.0 million in cash and believes it has sufficient funds for the next twelve months through its cash balance and available credit facilities, but acknowledges the need for significant additional financing for long-term operations and commercialization - The company had $4.0 million in cash as of March 31, 2024, and believes it has sufficient funds for the next 12 months based on its cash balance and available credit facilities125128 - The company has access to a $25 million credit facility with an Allseas affiliate (undrawn) and a new $20 million credit facility with its CEO and a director, from which it drew $2.9 million subsequent to the quarter end132136 - Significant additional financing will be required to fund continued operations over time, and the company has effective shelf registration statements to sell up to $200 million in securities129130 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks including interest rate fluctuations on its cash investments and foreign currency risks, which are mitigated by holding cash in highly liquid, investment-grade short-term deposits, with credit risk considered low and commodity price risk becoming a factor upon commercial production - The company's primary market risks are interest rate risk on cash investments and foreign currency risk, managed by investing excess cash in investment-grade, short-term, highly liquid instruments175176 - Credit risk is currently low as receivables consist mainly of sales tax due from the Canadian government177 Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2024, due to a previously identified material weakness in internal control over financial reporting related to the accounting for significant non-routine transactions, for which remediation efforts are underway - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of March 31, 2024181 - A material weakness exists in the internal controls over the accounting for significant non-routine transactions, stemming from inadequate involvement of technical experts, which led to errors in the 2023 quarterly reports182183 - Remediation efforts are underway, including developing training and evaluating the use of technical advisors, but the material weakness has not yet been fully remediated184185 Part II - Other Information Legal Proceedings The company is involved in several material legal proceedings, including a putative class action lawsuit from shareholders, a lawsuit from 2021 private placement investors, and an ongoing SEC investigation concerning a 2020 acquisition and business combination - A consolidated putative class action lawsuit alleges the company made false or misleading statements between March and October 2021, with a motion to dismiss pending195 - The company is under investigation by the SEC regarding its 2020 acquisition of Tonga Offshore Mining Limited and its business combination with SOAC196 - Investors from the 2021 private placement have filed a lawsuit alleging breach of representations and warranties in their subscription agreements, with the company's motion to dismiss partially denied and a notice of appeal filed197 Risk Factors There have been no material changes or additions to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K - No material changes have occurred from the risk factors disclosed in the 2023 Annual Report on Form 10-K199 Unregistered Sales of Equity Securities and Use of Proceeds On January 31, 2024, the company issued 4,500,000 common shares and 2,250,000 Class A Warrants to ERAS Capital LLC, an entity affiliated with a director, as part of a Registered Direct Offering, with a sale price of $2.00 per unit - On January 31, 2024, the company issued 4,500,000 common shares and 2,250,000 Class A Warrants to ERAS Capital LLC, the family fund of director Andrei Karkar, for proceeds of $9 million200 Defaults Upon Senior Securities Not applicable - Not applicable202 Mine Safety Disclosures Not applicable - Not applicable203 Other Information During the first quarter of 2024, none of the company's directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading arrangements during the quarter ended March 31, 2024204 Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including credit facility agreements, a consulting agreement, an employment agreement, and certifications by the Principal Executive Officer and Principal Financial Officer - The report includes several exhibits, such as amendments to credit facilities, new agreements, and required officer certifications under the Sarbanes-Oxley Act207