TMC the metal company (US:TMC)2022-05-09 20:07Part I - Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2022, showing a net loss of $21.1 million and cash reserves of $69.0 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :--- | :--- | :--- | | Cash | 69,048 | 84,873 | | Total Assets | 116,718 | 133,125 | | Total Liabilities | 36,993 | 40,374 | | Total Equity | 79,725 | 92,751 | Condensed Consolidated Statements of Loss (Unaudited) | Account | Three months ended March 31, 2022 ($ thousands) | Three months ended March 31, 2021 ($ thousands) | | :--- | :--- | :--- | | Exploration and evaluation expenses | 7,343 | 38,107 | | General and administrative expenses | 8,564 | 17,364 | | Operating loss | 15,907 | 55,471 | | Loss and comprehensive loss | 21,117 | 55,710 | | Loss per share – Basic and diluted | $0.09 | $0.29 | Condensed Consolidated Statements of Cash Flows (Unaudited) | Activity | Three months ended March 31, 2022 ($ thousands) | Three months ended March 31, 2021 ($ thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | (15,529) | (10,060) | | Net cash used in investing activities | (210) | (2,190) | | Net cash (used in) provided by financing activities | (78) | 27,377 | | (Decrease) increase in cash | (15,817) | 15,127 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022 financial condition and operations, highlighting a reduced net loss of $21.1 million and $69.0 million cash on hand Overview and Recent Developments TMC focuses on deep-sea polymetallic nodule exploration, advancing collection systems with Allseas and exploring processing with Epsilon Carbon - The company focuses on collecting and processing polymetallic nodules from the Clarion Clipperton Zone (CCZ) for battery and critical metals7475 - Key strategic alliances include Allseas for offshore collection and Glencore for 50% offtake rights on NORI's nickel and copper production77 - A non-binding term sheet with Allseas aims to upgrade the pilot system to a commercial system with a target capacity of 1.3 Mtpa of wet nodules by Q4 202483 - A non-binding MOU was signed with Epsilon Carbon to study a commercial processing plant in India83 - The pilot collector vehicle successfully completed functional tests in the Port of Rotterdam and mobility trials in the North Sea83 Results of Operations Net loss for Q1 2022 decreased to $21.1 million from $55.7 million in Q1 2021, driven by reduced expenses and share-based compensation Comparison of Operating Results ($ in thousands) | Expense Category | Q1 2022 | Q1 2021 (Restated) | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Exploration and evaluation expenses | 7,343 | 38,107 | (30,764) | (81%) | | G&A expenses | 8,564 | 17,364 | (8,800) | (51%) | | Total Loss | 21,117 | 55,710 | (34,593) | (62%) | - Exploration and evaluation expenses decreased by $30.8 million, primarily due to reduced offshore campaign costs and share-based compensation115 - General and administrative expenses decreased by $8.8 million, mainly from lower share-based compensation, partially offset by public company costs116 - A $5.2 million charge was recorded for the change in fair value of warrants liability, driven by a 25% increase in share price117 Liquidity and Capital Resources The company held $69.0 million in cash as of March 31, 2022, with management believing it sufficient for the next twelve months, though future financing may be needed - The company held $69.0 million in cash as of March 31, 2022118 - Management believes current cash is sufficient for at least the next twelve months, but additional financing may be required for future activities120 Cash Flow Summary ($ in thousands) | Cash Flow Activity | Q1 2022 | Q1 2021 (Restated) | | :--- | :--- | :--- | | Net cash used in operating activities | (15,529) | (10,060) | | Net cash used in investing activities | (210) | (2,190) | | Net cash (used in) provided by financing activities | (78) | 27,377 | Contractual Obligations and Commitments The company has significant contractual obligations, including $40 million for NORI in 2022 and a $10 million payment to Allseas - NORI has an estimated work plan commitment of approximately $40 million for 2022 and $25 million for 2023125 - The Marawa agreement requires spending of AUD $1 million in 2022, AUD $3 million in 2023, and AUD $2 million in 2024126 - A $10 million payment was made to Allseas on April 25, 2022, with a final $10 million contingent on PMTS pilot trial completion135 - The company has an offtake agreement with Glencore for 50% of annual copper and nickel produced from the NORI Area139 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks including interest rate, credit, foreign currency, and future commodity price fluctuations for key metals - The company's primary market risks include interest rate, credit, foreign currency, and commodity price fluctuations152 - Foreign currency risk from CAD, AUD, and GBP transactions is minimized by holding USD cash and prompt payable settlement156 - Commodity price risk for nickel, copper, manganese, and cobalt poses a significant future risk upon production commencement158 Item 4. Controls and Procedures Disclosure controls and procedures were ineffective as of March 31, 2022, due to material weaknesses in financial reporting and warrant accounting - Management concluded that disclosure controls and procedures were not effective as of March 31, 2022161 - Two material weaknesses were identified: deficiencies in financial statement close process and inaccurate warrant accounting163164 - Remediation efforts are underway, including hiring experienced finance personnel and implementing more robust controls166175 Part II - Other Information Item 1. Legal Proceedings The company is defending against a class-action lawsuit alleging false statements about operations and prospects - A putative class action lawsuit was filed against the company and certain executives on October 28, 2021174 - The complaint alleges violations of Section 10(b) of the Exchange Act for false statements about operations and prospects70174 - The company denies allegations and intends to defend, but an adverse resolution could materially affect its financial position70177 Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the 2021 Annual Report on Form 10-K - No material changes have occurred to the risk factors disclosed in the 2021 Annual Report on Form 10-K178 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales or repurchases of equity securities occurred during the three months ended March 31, 2022 - No unregistered sales of equity securities occurred during the quarter179 - The company did not repurchase any of its equity securities during the three months ended March 31, 2022180 Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - Not applicable181 Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - Not applicable182 Item 5. Other Information The company entered into amended employment agreements with its CFO and CDO, detailing salaries, bonuses, and severance terms - Entered into an amended employment agreement with CFO Craig Shesky, including an annual base salary of $350,000 and a $91,667 signing payment185 - Entered into an amended employment agreement with CDO Anthony O'Sullivan, with an annual base salary of AUD $670,985 (USD $475,000)191193 - Both agreements include eligibility for an annual performance bonus targeted at 50% of base salary and specific severance packages185189193 Item 6. Exhibits This section lists exhibits filed with the 10-Q, including executive employment agreements and SOX certifications - Exhibits include amended employment agreements for CFO Craig Shesky and CDO Anthony O'Sullivan201 - Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, signed by the CEO and CFO, are included201