TMC the metals company - Q2 2023

Transcript

Operator (participant)

Good day, welcome to The Metals Company Second Quarter 2023 Corporate Update conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. As a reminder, this call is being recorded. I would like to turn the call over to Craig Shesky, CFO. You may begin.

Craig Shesky (CFO)

Thanks, Michelle. Please note that during this call, certain statements made by the company are going to be forward-looking and based on management's beliefs and assumptions from information available at this time. These statements are subject to known and unknown risks and uncertainties, many of which may be under our control, including those set forth in our safe harbor provisions for forward-looking statements that can be found at the end of our second quarter 2023 corporate update press release. Such statements may also be found in our annual report on Form 10-K for the year end December 31, 2022, and other reports subsequently filed with the SEC, including our 10-Q for the quarter ended June 30, 2023. All that provide further detail about the risks related to our business.

Additionally, please note that the company's actual results may differ materially from those anticipated, and except as otherwise required by law, we undertake no obligation to update a forward-looking statement. Our remarks today may also include non-GAAP financial measures, including with respect to free cash flows. Additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures, which can be found in our slide deck used with this call. Of course, you're welcome to follow along with that slide deck, or if joining us by phone, you can access it at any time at investors.metals.co. Now, first of all, I'd like to say thanks to everyone for joining on this quarterly update conference call. Given all the news flow and progress in the last few weeks, June 30 does feel like ages ago when we ended the quarter.

So before getting into the presentation and turning it over to Gerard, who of course, has been on the road nonstop this summer building support for TMC, we'd just like to remind you of some of what's happened in July alone in this industry. First of all, there were multiple articles from The Economist magazine in early July, which concluded that the time is now for the responsible collection of seafloor nodules. This assertion was followed by an interview in The Guardian, showing strong support for seafloor mining from director and deep sea explorer James Cameron, who's personally completed 75 deep dives and has seen more of abyssal seafloor than pretty much anyone else on the planet.

Importantly, in the U.S., there was the passage of the House version of the National Defense Authorization Act in mid-July, which prioritizes the delivery of a plan on nodule processing and refining from the Pentagon, followed up with a letter from nine congresspeople to the President and the Secretary of Defense, imploring the White House to focus on nodules as a matter of national security. We saw the conclusion of the July ISA session, in which a compromise was reached between member states to continue work on final rules, regulations, and procedures, also known as the Mining Code, over the next three sessions in November 2023, March 2024, and July 2024. After which point, TMC subsidiary NORI intends to submit an application to the ISA for an exploitation contract for NORI Area D.

Very importantly, the ISA reiterated their obligation to consider a plan of work when we're ready to lodge it in consultation with their sponsoring state. NORI does reserve the legal right to submit an application before final regulations are in place. Now, focusing very quickly on the ISA picture. Of course, we would have liked to have seen the ISA fulfill their legal obligation to deliver the Mining Code in 2023, as they previously targeted. We believe that the hard-won compromise reached in July has increased our regulatory certainty. As we've always said, we will not submit an application for an exploitation contract over the NORI Area D until we finish a world-class Environmental and Social Impact Assessment, including an Environmental Impact Statement as a key component of our application.

Considering the initial results that are starting to roll in, particularly on biodiversity and plume impacts, we are confident that NORI's application will show the ISA's Legal and Technical Commission, the ISA Council, and stakeholders around the world that nodule collection can be done responsibly and at a scale that moves the needle in the quest for new sources of these metals, which are needed, of course, for the clean energy transition. On to the agenda. Today, we'll take you through the following items: summary of the recent corporate news, including the capital raise of $2 per share, a brief market update, a reminder of TMC's value proposition, further detail on the regulatory front, a review of the environmental case for polymetallic nodules based on some of the information that's been coming through, and finally, our financial update.

Following a very eventful July, TMC released a corporate update on August 1st, laying out the estimated project timeline to production, cash needs and developments related to the Project Zero offshore system. As shown on the slides here, TMC subsidiary NORI intends to submit an application to the ISA for an exploitation contract over NORI Area D following their July 2024 meeting. Assuming a 1-year review process and approval, NORI would expect to be in production in the fourth quarter of 2025. As the ISA is continuing their regulatory work, NORI will continue its scientific work.

Based on the feedback received from the ISA's Legal and Technical Commission, we are now going to accelerate the timing of a new post-collection test campaign this year, focused on environmental regeneration of last year's collection test area, during which 3,000 tons of nodules were successfully lifted to the surface. We believe this environmental campaign will ultimately strengthen the quality of our application. Our partner at Allseas will also use the time well, with NORI and Allseas now planning for increased production capacity for the Project Zero offshore system, using the Hidden Gem vessel and adding a second collector vehicle from an estimated 1.3 million wet tons per annum to a new estimated 3.0 million wet tons per annum, a potential increase of 130%. Of course, to deliver a high-quality application for an exploitation contract-...

We told the market on August first that we would need an incremental $60 million-$70 million of cash on top of our existing cash balance, but not yet including any drawdown on the existing $25 million Allseas' unsecured credit facility that was extended through November of 2024. The next slide walks through some of the liquidity and capital resources we have at our disposal. We have been very clear that we prefer to raise the majority of funds needed to reach first production at the asset level, potentially through earnings or stake sales, offtakes or royalties. However, these asset level discussions do take time, as those discussions continue, we do need to keep the pace up of the milestones that are being delivered, including the recently announced acceleration of that post-collection test environmental campaign.

We made the decision to raise some funds at the TMC level to keep the development of this world-class asset on track. This morning, we're happy to announce a capital raise of approximately $27 million in gross proceeds at $2 per share, alongside a half warrant with an exercise price of $3 per share and a forced exercise, also known as a call provision, if our share price trades above $6.50, for at least a 30-day volume weighted average period. There's also the potential for raising up to an incremental $11 million by mid-September at the same terms. This right was granted to the investment advisory clients of certain participants in this transaction, with the extra time to allow for some additional compliance documentation.

In the current market, the vast majority of follow-on offerings are issued at discounts to the current share price. The execution of this transaction at an 82% premium to Friday's close, is a major show of force by both our existing and new investors. Again, we'd like to thank everybody who participated. I know Gerard would like to thank some of them as well. Gerard and I both participated in the offering, as did several directors, our partner, Allseas, and one of our single largest shareholder, Andrei Karkar. And with that, I will turn it over to Gerard, to walk you through the rest of the presentation. Gerard, please go ahead. Michelle, have we lost, Gerard? If so, as we're trying to get him back on, I'd be happy to continue with the presentation.

Operator (participant)

Gerard, you may be muted. He's still connected.

Craig Shesky (CFO)

Gerard, I'll, I'll go through some of the slides here, if your connection is better, feel free to interject. I know it must be hard doing this while being on the road. onto the market update. We try to, to do our best to avoid all the media noise around TMC, we did feel a shift in media coverage during the last quarter. The Economist took what we think is a brave and considered position on the topic, with a series of articles in support of nodule collection, as well as an analysis of the inevitable social and environmental damages of alternatives, like Indonesian rainforest nickel.

No less striking was the news that film director and prolific deep ocean explorer, James Cameron, spoke out in favor of mining the seafloor in The Guardian, as a means of taking pressure off of terrestrial ecosystems and human communities. To quote that article directly, he said, "I've seen an awful lot of seafloor, and while there are some amazing creatures, they tend to be clustered in small habitats. What you mostly have is miles and miles and miles of nothing but clay. Mining in highly sensitive and highly diverse habitats is a very, very different thing from mining in the abyssal seafloor.

The impact on actual human beings, on actual indigenous cultures that are being destroyed, their tribal lands being destroyed, the habitats that they require to survive being destroyed, it's pretty horrific. We agree, and we expect that more thought leaders will continue to come out of the shadows and present nuanced, science-driven views on this topic rather than activist narratives. Interest in our industry from countries and companies continues to grow. Last quarter, we discussed a handful of these developments, including news that Norway was preparing to open its EEZ to mineral exploration, exploration, and that offshore leader Transocean would be providing a Samsung 10,000 drill ship for conversion into a nodule production vessel. Ahead of Belgian contractor GSR's integrated system test, currently scheduled for 2025.

There have also been many headlines around China's decision to step up deep sea nodule exploration and their increased involvement in ISA activities. This has mobilized action elsewhere around the world, including Washington, D.C. Congressional leaders have actively been engaging the Biden administration and Defense Department on the topic of seafloor resources, urging them to ensure nodules are assessed as a viable resource to secure critical minerals, close supply chain vulnerabilities, and counter increasing Chinese investments in the space. Last month, we were delighted at the Department of Energy's inclusion of polymetallic nodules as a means of increasing basic supply availability of critical minerals in its Critical Material Assessment. As the U.S. looks to its allies for support in this endeavor, the U.S.-Japan Critical Minerals Agreement that was signed in March, it dovetails perfectly with our own intention to process nodules, initially with PAMCO in Japan.

That paves the way for downstream consumers to retain the EV credits from Japanese supply. I believe that, Gerard has joined us again. Gerard, I might turn it back over to you, if we can hear you, going through the value proposition slide. Yeah.

Gerard Barron (CEO and Chairman of the Board)

Okay. Can you hear me now?

Operator (participant)

Yes, we can.

Gerard Barron (CEO and Chairman of the Board)

Great. Apologies for that. Onto our value proposition. These slides should be familiar by now, so I'll go over them quickly as a reminder on our resource size and resource grade. Our NORI and TOML areas contain in situ quantities of nickel, copper, cobalt, and manganese equivalent to the requirements of about 280 million-

... vehicles, or roughly the entire U.S. passenger fleet. In March, MINING.COM released their updated 2023 rankings of the world's largest undeveloped nickel projects, and the top two remain the same again this year. TMC's NORI at number one and TMC's TOML at number two. An axiom within the resource sector is that a resource needs to be either very large or high grade to be successfully developed and profitable across commodity cycles. TMC is an outlier among peers with the largest nickel equivalent resource and the highest grade, with the NORI D nodules having a nickel equivalent grade of 3.2%, with four key metals in the same resource. It's likely that it would have been tapped ages ago if the resources occurred on land, where grades for metals like nickel and copper have been going down for decades.

Of course, several consortia attempted to develop this resource in the 1970s, including BP and Shell and Sumitomo and U.S. Steel, among others. Successfully, successfully collecting thousands of tons of nodules and processing them. There was not a regulatory environment to allow the exploration and then the exploitation of resources in international waters, and we now have the former, and we soon expect to have the latter. I'd like to now play a short video summarizing the ISA structure and the application process. For those on the phone, the video is just under three minutes long.

Speaker 6

The NORI D area is located in the Clarion-Clipperton Zone in the Pacific Ocean, between Hawaii and Mexico, in international waters. NORI, TMC's wholly owned subsidiary, is sponsored by the Pacific Island nation of Nauru. Mineral exploration activities here are regulated by the International Seabed Authority, an intergovernmental body established in 1994 under the UN Convention on the Law of the Sea. It consists of 168 member states, plus the European Union. The ISA is headquartered in Kingston, Jamaica. Its main organs are the Secretariat, the Assembly, that includes all the 168 member states, plus the European Union, the 36-member Council, elected by the Assembly and advisory bodies, including the Legal and Technical Commission, the LTC, a panel of 41 experts that reviews applications and recommends plans of work.

Since 2011, NORI has had an exploration contract with the ISA to conduct its resource evaluation, environmental baseline studies, and nodule collector test and monitoring work. NORI's environmental baseline program was designed based on ISA rules and recommendations. With exploration work program nearly complete, we are now preparing an application to the ISA for an exploitation contract to begin collecting nodules on the NORI D area on a commercial scale. NORI anticipates that its application to commercially collect polymetallic nodules in the CCZ will be the world's first. More than 10 years in the making, this complex body of work will consist of a comprehensive environmental and social impact assessment, a detailed mine plan, production and operational plans and procedures, and a mine closure plan.

Once completed, the NORI D nodule project application will be submitted to the ISA, where it will undergo a review by the Legal and Technical Commission. There will also be a stakeholder review and comment period. The LTC will then make a recommendation to the Council, which decides whether to award an exploitation contract. The ISA review process is currently expected to take approximately one year. If the application is approved, NORI would then be cleared for a period of 30 years to collect nodules from the NORI D area under continued monitoring and evaluation.

Gerard Barron (CEO and Chairman of the Board)

At the end of July, the ISA closed part 2 of its 28th session, and while some were waiting with bated breath for a thumbs up or a thumbs down moment, the reality is that this is an ongoing process and one that the ISA members are legally obligated to fulfill. As such, it's not a question of if this new industry begins, but when. We were pleased to see the high level of motivation and collaboration among ISA members and the significant progress made in Kingston, for which I would like to express my sincere thanks to all member states. The fact is, this is a massive body of work, and given the nature of multilateral negotiations, it was clear the parties need more time to fulfill their legal obligation of delivering the Mining Code.

After carefully listening during last month's ISA meetings, NORI now intends to submit an application following the July 2024 ISA session. This will give us more time to strengthen our environmental data set through an additional offshore campaign to measure ecosystem recovery 1 year on from our 2022 integrated system test, while providing time for the 3 additional Council sessions and intersessional work outlined under the ISA's agreed roadmap for adoption in 2025. The latest ISA meeting, as in prior sessions, saw a clear majority of participating states expressing their continued support for negotiating robust, robust regulations that ensure the protection of the marine environment in line with their legal obligations...

21 ISA member states, representing a minority of the 169 ISA members, under strong pressure from NGOs, have called for a precautionary pause, a moratorium, or in one case, a ban on deep sea mining. The legal obligation on member states to deliver the Mining Code has not changed, and this obligation was reiterated in July following a compromise consensus decision reached. We believe the finish line is now within insight, and we look forward to the consolidated regulatory text at the next meeting in November this year.

While media, media reporting often only focuses on countries highlighted in yellow, sometimes ignoring entire continents, the UN Convention on the Law of the Sea and the 1994 Implementation Agreement are documents that are legally relied upon by developing member states, such as our sponsoring states, Nauru and Tonga, who, through this system, have a means to participate in this new industry and help solve a climate change problem which they did not create. Turning to our environmental program, we've engaged some of the world's leading marine research institutions and expert industry contractors. In 2022 alone, we gathered over 200 terabytes of data, largely as a result of our successful integrated system test and environmental monitoring campaign, to provide verified in-field data as to the environmental impacts of collecting nodules.

This wealth of data can be added to that compiled from the 17 offshore resource definition and environmental baseline campaigns that NORI has conducted over the past decade. Data, which is now being published in peer-reviewed papers and made available via public databases. In July, we announced that data submitted by NORI to the ISA's DeepData Platform had been published to the Ocean Biodiversity Information System, or OBIS platform, the world's largest scientific knowledge base on the diversity, distribution, and abundance of all marine organisms. With data from just 2 of NORI's 17 campaigns now available on OBIS, NORI has become the single largest data provider to OBIS ISA node, providing 60% of total records.

As one of the largest funders of scientific research in the deep ocean, we're delighted that our investment of time and money is paying off. We look forward to sharing additional data from our campaigns, as well as all remaining data concerning ocean geochemistry, bathymetry, and pelagic, pelagic biodiversity in the coming months. While we go through the labor-intensive process of analyzing this wealth of information, the benefits of making this open to society are clear. Since publication in July, NORI's total data set has been downloaded some 300 times, and specific interrogation of taxa has seen NORI occurrences downloaded over 22 million times. In addition to biodiversity, another key impact we consider is the impact of sediment plumes during and after nodule collection.

While speculation continues to cloud the water as to the environmental impacts of sediment plumes, multiple lines of evidence are now providing a much clearer picture as to how far these plumes are distributed. Leading experts in the field of deep sea sediment plume dynamics, including the team led by Professor Thomas Peacock at MIT and researchers at Scripps, have found that 92%-98% of sediment disturbed during offshore system trials conducted by fellow contractor GSR, remained within 2 meters of the seafloor. As they noted in the conclusion to their study, it's quite a different picture of what these plumes look like compared to some of the conjecture. On our own ground in the NORI Area D, preliminary findings by leading experts at DHI support the findings of MIT.

Our teams had over 50 monitoring stations to monitor every aspect of the plume and noise during NORI's collector trials last year. Using this data, DHI have built a model that brings some clarity to how plumes actually behave at these extreme depths. I'd like to show you a short video clip of this plume. Based on preliminary plume data collected during last year's test mining, this video highlights that a combination of flocculation, impeded water movement at the seafloor, and the formation of a density current, where the mixture of water and sediment spreads under its own weight, not through transport from background currents, have a profound effect on plume dynamics. The cloud represents the plume that was generated, and the colors show the different densities, with yellow representing the highest density of sediment particles and purple the lowest.

The purple and blue bands represent sediment contracts, concentrations of less than 20 mg a liter, which would not be visible to the naked eye. What's important to note here is that the disturbed sediment settles rapidly, with early projections indicating that impacts from the plume will be highly localized around the mining footprint, and are highly unlikely to extend beyond the boundaries of the contract area, as previous speculation has predicted. Speculation, which of course, was based on 0 in-field observation. The final results of NORI's plume study will be released in the coming weeks, but based on these preliminary findings, we are seeing a radically different picture to some of the colorful claims put out there by activists.

On this page, this is a still image from the Blue Peril film, with speculative modeling of plume impacts in the TOML exploration contract area, denoted in red. It's meant to look as scary as possible, but we're now getting infield observed data that shows a very different reality. Preliminary data collected on plume generation during our test mining indicate that the combination of flocculation, impeded water flow, movement at the benthic boundary layer, and the formation of a density current at the seabed, have a profound effect on plume dynamics, resulting in rapid settling of distributed sediment. Early projections indicate that impacts from the plume will be highly localized around the mining footprint and are not predicted to extend beyond boundaries of the lease.

This new information makes the plume models that have not been informed by actual data collected during test mining as simply uninformed, highly speculative and gross exaggerations of the expected situation. We've taken you through how we think about measuring and mitigating the absolute impacts of nodule collection, but it's also important to consider the relative impacts. For nickel, the country with the highest production also happens to be one with the highest species richness, Indonesia. In contrast, the abyssal desert is the planet's most common ecosystem, covering over 50% of the Earth's surface. While it does have some important biodiversity, the biomass, the amount of life on the seafloor at 4-6 km depth, is a fraction of the amount of life, for example, where nickel laterites are found, and even less than that found in our deserts on land.

In the absence of sunlight, this is a region with 0 flora, what fauna there is must contend with extreme pressures, low temperatures, and poor availability of food at depths of over 4 km. A lower quantity of biomass to be impacted is just the beginning of what sets nodules apart from conventional metal production on land. We recently released the results of a life cycle assessment conducted by Benchmark, which compared the NORI Area D project to key land-based production routes, representing upward of 90% of the supply for nickel and cobalt, roughly 60% for copper. For nickel, the NORI D project outperformed all terrestrial routes in all impact categories assessed, including global warming potential, water consumption, and waste generation.

We believe the potentially lower carbon equivalent emissions level of sourcing key materials from nodules will ultimately drive customers our way, particularly as we continue releasing data from the ESIA, which supports findings from Benchmark. With the development of battery passports and other initiatives like carbon pricing, customers will need to compare the carbon footprint of a kilogram of nickel produced from TMC nodules, with that same kilogram of nickel produced from mines on land. Thanks to science-based tools and studies such as that prepared by Benchmark, we believe the case for nodules is very strong. I'd now like to turn it back to Craig to discuss the financials and valuation.

Craig Shesky (CFO)

Thanks, Gerard. As shared in all of our previous update calls, in March 2021, AMC Consultants issued an SEC Reg S-K 1300 compliant initial assessment of the project economics for the NORI Area D. Gerard, you may need to go on mute. I think there's a bit of an echo. This initial assessment is available in the investors section of our website, and the NORI Area D financial model can be found beginning on page 310 of that document. The initial assessment arrived a net present value of $6.8 billion for NORI D at the beginning of last year. Running the same model, simply updated for current metal prices, the net present value of NORI D would be approximately $10 billion today.

Yet, the market cap on Friday's close represented only 3% of that fundamental asset value. Again, on what is only 22% of our total estimated resource. This compares to a peer nickel developer average of 38% of that price to fundamental asset value. Cutting through all the noise and all of the narratives, the resource is the resource. Through TMC, an investor can get exposure to the largest and second-largest nickel projects in the world at roughly a 90% discount to what you might pay on average for the same amount of this critical metal from land-based developers. What might happen to begin to change this valuation gap? This page lays out some of the critical milestones ahead that can lead to re-ratings in our public valuation.

The capital raise we announced today is certainly a sign that these new and existing investors who know TMC very well, are increasingly convinced of the likelihood of these milestones being achieved, including, reaching definitive commercial agreements with our offshore and onshore partners. Continued progress from the ISA, which Gerard discussed at length. NORI submitting an exploitation application for NORI Area D following the July 2024 ISA session. The ISA eventually granting NORI an exploitation contract, and then the beginning of commercial production shortly thereafter. On to our financial results for the second quarter. TMC reported a net loss of approximately $14.1 million, or $0.05 a share in the second quarter of 2023, compared to a net loss of $12.4 million, or $0.05 a share, for the quarter ended June 30, 2022....

Exploration evaluation expenses during the quarter ended June 30, 2023, were $8.1 million, compared to $10.2 million for the quarter ended June 30, 2022. The decrease was primarily due to a reduction in share-based compensation, a decrease in spend on the PMTS and environmental studies as the collector test was completed in November 2022, and reduced exploration activities in 2023. This was partially offset by an increase in the 2023 period on pre-feasibility studies and mining, technological and process development, due to engineering work which commenced in the fourth quarter of 2022. G&A expenses were $5.1 million for the quarter ended June 30, 2023, compared to $8.1 million for the quarter ended June 30, 2022.

The lower spending in the second quarter of 2023 reflected lower share-based comp and a decrease in insurance costs incurred during the second quarter of 2023. This decrease was partially offset by an increase in personnel, travel, and other expenses. Second quarter 2023 results include a loss of $0.8 million for the change in fair value of warrants liability, compared to a gain of $5.7 million in the comparative quarter of the prior year.

Free cash flow for the second quarter of 2023 was -$8.5 million, compared to -$22.9 million in the second quarter of 2022, reflecting an operating loss of $14.1 million, an increase in payables, and a decrease in prepayments of $2.1 million due to timing, partially offset with equity settled expenses of $3.5 million. Onto the balance sheet. As of June 30, 2023, TMC held cash of $20.0 million and held no debt. We believe that our cash on hand, along with the equity raise we just announced, and the borrowing availability under our recently extended credit facility with an affiliate of Allseas, will be sufficient to meet our working capital and capital expenditure commitments for at least the next 12 months from today.

I'll now turn it back over to the operator for some questions. Then, Gerard, we can probably save your closing remarks for after the Q&A.

Operator (participant)

Thank you. If you'd like to ask a question, please press star one, one. If your question has been answered and you'd like to remove yourself from the queue, please press star one, one again. One moment for questions. Again, that's star one, one to ask a question. Our first question comes from Dmitry Silversteyn with Water Tower Research. Your line is open.

Dmitry Silversteyn (Senior Research Analyst)

Good afternoon, gentlemen, thank you for taking my questions. Congratulations on the new financing that you guys were able to arrange. Maybe I will start there. You know, you, you're a company that's got to spend a lot of capital going forward to get your project online. You know, typically, when companies like that try to raise capital, it's unusual for them to get a premium to their stock price, let alone a significant a premium as you've gotten. Then obviously, with the warrants being an even higher price. Can you talk about sort of what you think it says about the smart money and how they feel about the business that you're in and the opportunities that's in front of you?

What was it really that, that drove the, the confidence in the investors to, sign on to this term sheet, term sheet with, with such a, a high premium to the, to the current stock price or to the stock prices of yesterday, I should say, or as of Friday?

Craig Shesky (CFO)

Yeah, thanks for the question, Dmitry. Happy to answer first, and Gerard can weigh in as well. I think, you know, the asset is the asset. This is a very, very large resource that we're developing and very high grade. I think there's a recognition that, certainly from our existing investors or partners like Allseas, our largest shareholder and Director, Andrei Karkar, but also there are institutional investors who have really been building positions over the last year, who recognize that this is, you know, a portfolio of metals for and one single resource that are increasingly important for the clean transition. The political tailwinds are blowing the right way. We've now de-risked the offshore technology. We've de-risked the onshore technology. We've signed up additional partnerships to get us in production.

I mean, you said that it would be a lot of capital, but I would say, you know, capital relative to, to what? If you're measuring it in terms of per ton of metal, it's actually a very small amount of CapEx needed to get this project into first production. I think there's also a bit of a technical dynamic here, too, though. You know, obviously, after going public, it's been a very rocky road in the public markets, but there had been a lot of rotation away from people who were, you know, perhaps traditional SPAC investors, to now building back up an institutional investor base of folks that, you know, can see the long game.

Once you talk about all the de-risking milestones that we've achieved, we're now narrowing into one key question, which is, you know, when is the final code coming and when is NORI going to apply and begin first commercial production? We've really narrowed a lot of those risks down to that process question. I think we now have more clarity on it. Yes, you know, it's disappointing to see elongation of the timeline, but we think there is more certainty now associated with that timeline. What probability weights are you willing to put on us getting that contract approval to begin work?

As we see more environmental data, we think it's very high, and being able to apply that to a very undervalued asset based on NPV, it leads to a recognition that, you know, the share price should be higher, and I think the capital raise reflects that.

Dmitry Silversteyn (Senior Research Analyst)

That, that makes sense, Craig Shesky. Thank you. You know, talking about financing and kind of staying on this topic one more time, the slide 7, where you provided sort of your liquidity capabilities, did not include this $27 million raise or potentially $38 million raise, on the exercise of a $11 million more in stock and warrants. Does that sort of reduce, I mean, it's part of the $30 million, $70 million shelf registration, I would assume. Is that where I should be deducting it when I'm thinking about your total capital raising capabilities?

Craig Shesky (CFO)

Yes. Yes, that's right. Obviously, too, upon exercise of warrants north of $3, that would be more cash in the door as well. That's right.

Dmitry Silversteyn (Senior Research Analyst)

Okay.

Craig Shesky (CFO)

It's capacity on that $100 million S3 shelf.

Dmitry Silversteyn (Senior Research Analyst)

Got you. You mentioned political headwinds and tailwinds changing a little bit. You know, we're kind of seeing a, a carrot and the stick a little bit here with the, you know, carrot perhaps being the U.S. government, or at least the article, one part of the U.S. government, getting more, more concerned about American independence from China. Then obviously, you have the stick of Chinese becoming much more aggressive in, in pursuing this type of resource. How much do you think that will have an impact on the discussions by the ISA over the next three sessions? How do you feel about the, the probability of getting a Mining Code to the...

at least to the point where you can submit your application and having, and having, it evaluated and a reasonable chance of getting approved?

Gerard Barron (CEO and Chairman of the Board)

Yeah. Look, I think the reason that we mentioned that we would not lodge the application until after the July session next year, was really a show of good faith on our side, because we didn't want member countries to be looking over their shoulder, thinking that an application might land on the desk tomorrow. What we want everyone focused on is completing the Mining Code. People have said, "We'd like the Mining Code to be in place." But of course, Article 15 was introduced into UNCLOS in 1994 for a very express purpose, and so we maintain our legal right to lodge that application.

We're confident from where we sit, that combined with the more than a dozen intersessional working groups, plus 3 more sessions where the ISA member states will meet, that should be enough time to get the Mining Code completed. You know, I guess what we did was read the room there. Obviously, geopolitics is playing heavily on all of this. One of the, it was nice to see China be so forthright, is probably the right word, down at the ISA. Of course, they weren't alone. You know, you had Japan and Korea and Singapore and Norway, and all of the African group countries, and Argentina and Mexico. I mean, there were many. I think that people wonder when they hear certain countries joining moratoriums.

That's not they're not saying, "We don't want to see this happen." They're saying: We'd like to see the Mining Code in place. Hey, so would we. That the vast majority, keeping in mind, there's 168 countries plus the European Union, and we're talking 21 of them have stuck their hand up to say, "Hey, we, we'd like to see a precautionary pause." I think that as we display the, the environmental evidence that we are gathering, and if those results remain consistent with how they're looking today, then I know that will engender confidence. There's another big dark cloud, of course, and that dark cloud is what's happening today. For some reason, people in the ocean community don't want to think about what's happening on land today to secure these metals.

Today, I'm in Jakarta, of course, it's where all of the growth in nickel production is coming from, and it's coming at with a very high price. It's coming in at the cost of destroying the sequestered carbon in those biodiverse rainforests. It's coming at the cost of pushing out indigenous communities, generating lots of waste and tailings. I, I do believe that as our scientific evidence becomes more publicly available, that it will produce a groundswell of support heading in this right way. So, you know, geopolitics is certainly going to help there. Of course, it was encouraging to see the NDAA language recently. It's encouraging to know that the Secretary of Defense is focused on evaluating, as he was requested, what are the opportunities to process nodules on North American soil so they can secure mineral independence.

All of these things help. Of course, we're in a unique situation because, you know, the other thing, of course, when land-based projects get a mining permit, then they've got to go out and build a heap of stuff. You know, they've got permitting risk on construction. They've got to be able to finance that construction. Whereas, you know, this is unique. As we've told the market before, we've identified how we can process our nodules using existing infrastructure, and that means we don't have that land-based permitting hurdle to jump over. We already have our first production vessel, which Allseas are working feverishly on converting to a production vessel after the trials last year. These are advantages that we need to get better at communicating.

I think the important thing is that more scientific evidence is going to build much more confidence, and I think it's going to create a very, very different scenario, like I described in the plume. You know, it's one thing to speculate on what might happen, but let's get the data. Let's get the scientific evidence to be able to make better and more informed decisions. Of course, you know, the, the, the wrapper of that is geopolitics, and, you know, I think that's only going to help us as we move forward.

Dmitry Silversteyn (Senior Research Analyst)

Great, Gerard. Thank you for that detailed answer. I have one more question talking about, you know, the year that you're going to be put into good use, before you apply for, for the, for the exploitation permit next summer or somewhere around there. You're, you're looking to more than double the capacity of your Project Zero. You're going to generate. I guess I'm assuming with these two collection vehicles and assuming the pricing of metal stays kind of where it is, about $1 billion in revenue or so. And you need about $60 million-$70 million more to get to the point of the application.

Um, can you parcel that sixty to seventy million dollars in terms of, um, breaking between the environmental study that you're gonna be conducting, uh, in, in the, in the areas where you already mine, the operating expenses that you're gonna be incurring over the next year, um, and, uh, perhaps the, and, and, and then, obviously, the cost of, of, uh, basically more than doubling the capacity of Project Zero, uh, uh, CapEx? What... You know, in, in that sixty to seventy million dollars, how would you partition that, uh, between those main buckets?

Gerard Barron (CEO and Chairman of the Board)

Well, I'll let Craig answer that question in detail. Before he does, just one thing. Obviously, we filed our accounts today. We don't have any going concern, and I'm sure we won't have next quarter either. We do have cash and facilities available to us to get past that collection point, submission point of the application. I'll hand it to you, Craig.

Craig Shesky (CFO)

Yeah, definitely. Yeah, Dmitry, that $60-70 of cash was, you know, from the August 1st 8-K. Obviously, it's, you know, the incremental amount we need to raise is reduced, dollar for dollar for what we are raising now and what, you know, we may raise with this sort of additional closing, potentially, by mid-September. With respect to, you know, the current cash and then what is needed to sort of fund us to that application, I would say roughly about half of the costs are related to the application itself. Finishing our Environmental and Social Impact Assessment, pre-feasibility work. Obviously, there's some regulatory costs in there as well. The single biggest component of that application cost is, no doubt about it, the Environmental and Social Impact Assessment.

I mean, we're going to be talking about nearly $150 million that would have been spent on it by the time it's complete. That would include the additional campaign that we are accelerating. I think it's important to note as well, that campaign, the post-collection test campaign, was always going to be part of our plans. It was just going to be a bit later on, as part of our environmental monitoring and mitigation program, as opposed to doing it pre-application. Yeah, I, I think the remainder of the costs, obviously, there's payroll, G&A, but also there is, you know, some costs to keep the Hidden Gem available, right? Obviously, we're going to be talking with our partner, Allseas, quite regularly over the coming months.

As we've laid out, we expect to get to a binding agreement, with them, by the end of the year. It's a lot of different things that we laid out there. Yeah, I would say, about half of it is the application itself, and the majority of that is the environmental spending.

Dmitry Silversteyn (Senior Research Analyst)

Okay.

Craig Shesky (CFO)

yeah, that's. Oh, go ahead, sorry.

Dmitry Silversteyn (Senior Research Analyst)

No, no, no. I, I'm, I thought you were finished, but go ahead. I, I guess what I'm-

Craig Shesky (CFO)

No.

Dmitry Silversteyn (Senior Research Analyst)

The other point I would make is, or I would, I guess, question is, you, you, you, you generated or you, you spent about $5 million on, on G&A, you know, general administrative expense in the quarter, which is close to where you thought your kind of bare-bone run rate would be if you needed to wait out the ISA and, and make your cash stretch. You've gotten some financing, obviously, now, so it's not as big of a deal, but it's good to see you being able to get to that $4.5 million-$5 million run rate. I think it, it, sort of confirms what you, what you've been telling people as, as far as your ability to, to remain in, in, in the game, if you will, while waiting for this application to get done.

The only question I have, I guess, is when you mentioned that some of the savings or some of the warrant savings year-over-year were offset by the cost of the pre-feasibility studies funding and increased mining and technological and process development, is that related to the PAMCO evaluation trials that are going on? If so, how are those going, and how are, you know, sort of where do you see or when do you see those getting completed and some sort of a more formal arrangement made between you and PAMCO, if it goes that far?

Craig Shesky (CFO)

Yes. Yes, look, that, that was part of it, Dmitry, some of those PAMCO studies. With respect to how it's going, you know, we've had a team spending quite a bit of time in Japan recently. We, we also, of course, delivered initially a 22-ton sample of nodules to PAMCO. They've been making a lot of progress. Gerard, perhaps you can speak a little bit about, where that's going and what we see on the timeline.

Gerard Barron (CEO and Chairman of the Board)

Sure. Yeah, well, we certainly expect to have something binding in the second half of this year, Dmitry. So far, we've not run into any roadblocks. The PAMCO team have been a delight to deal with, and they are very motivated, as we are. Of course, as we've said on our past earnings call, there are other options that we have beyond PAMCO, where we could grow into as well. I think that, you know, we see Japan as being an important partner in the future. They're certainly very focused on securing supplies, given their neighbors. You know, we like the idea of having in-situ processing of nodules up in Japan. There are certainly other growth opportunities. I'm confident we'll progress that agreement in this half, Dmitry.

Dmitry Silversteyn (Senior Research Analyst)

Sounds good, guys. Thank you very much. I'm gonna turn the call over. Thank you for answering my questions.

Gerard Barron (CEO and Chairman of the Board)

Thank you.

Craig Shesky (CFO)

Thank you.

Operator (participant)

Thank you. Our next question comes from Malcolm McDonald with Bank of America. Your line is open.

Malcolm McDonald (Associate in Equity Research)

Hey, Gerard, Craig. How you guys doing? Congrats on the quarter.

Gerard Barron (CEO and Chairman of the Board)

Thank you.

Malcolm McDonald (Associate in Equity Research)

...kind of Dmitry hit everything that I was basically gonna ask. Just in terms of, like, balancing the nickel market, you know, it, we're probably balanced through what? 2025. Then afterwards, you know, it's, it's that question mark. Does the ISA have the ability to expedite the code in the event that the nickel market becomes unbalanced?

Gerard Barron (CEO and Chairman of the Board)

Excuse me. Look, I think it's fair to say that the ISA has a process, and we've tried to speed that process up a little bit. When Nauru lodged the two-year notice, we've then gone back and said: Hey, we've, we've, we've heard the room. We're gonna not lodge an application until after the third session, which will be July next year. My observations on the nickel market is that, you know, we've said, told the market that we hope to plan to be in production in the end of 2025, and I think that's perfect timing. You know, as, as I mentioned, I'm in Jakarta today. We, we talk to those customers. We know what that supply looks like, and I think the nickel market will be marginally oversupplied in 2024 and 2025.

Speaking to all of those customers, they're panicking about what's gonna happen after that. Even Indonesia has publicly stated that they're worried about running out of high-grade nickel as well. Please, God, it never happens, because if it does, it means there's going to be an enormous deforestation continue at a rapid pace in countries like Indonesia, New Caledonia, and the Philippines. I hope that...

Craig Shesky (CFO)

Gerard, did we lose you? Michelle, is he still on the line?

Gerard Barron (CEO and Chairman of the Board)

Yeah. Can you hear me, Craig?

Craig Shesky (CFO)

I can hear you.

Operator (participant)

Yes, he's still on.

Gerard Barron (CEO and Chairman of the Board)

Yeah. Okay. I hope that as we start to increase supply of nickel into the market and potentially even supply nodules into some of the onshore processing operations here in Indonesia.

Craig Shesky (CFO)

Operator, can you tell if Gerard's still connected? In the meantime, Malcolm, with respect to the nickel market too, there's-

Malcolm McDonald (Associate in Equity Research)

Craig, I can, I can hear Gerard.

Craig Shesky (CFO)

Just focusing on total, you know, supply versus demand tonnage. Obviously, there's going to be increasing focus on battery passports. That's already coming in Europe. It's gonna keep coming in elsewhere, including North America. Noting that there's going to be a benefit to having lower carbon nickel. So I think what we can expect is that, you know, the ISA has their timeline laid out. We expect that they're going to stick to it. But this isn't just a, you know, code that's putting in place for polymetallic nodules. It's a code that's going to protect the marine environment. Oh, sorry.

Malcolm McDonald (Associate in Equity Research)

Craig?

Gerard Barron (CEO and Chairman of the Board)

Yeah.

Craig Shesky (CFO)

Hey, sorry, Gerard, I lost you.

Gerard Barron (CEO and Chairman of the Board)

Okay.

Craig Shesky (CFO)

Sorry if I'm talking over you. Go right ahead.

Gerard Barron (CEO and Chairman of the Board)

We're having a few technical difficulties on the platform, I think that that nickel market is primed. You know, we sometimes hear people talk about the fact that other battery chemistries might decrease the demand to nickel. That's wrong. The demand for nickel is growing, and even if things like LFP take more market share, as they have in the last several years, the demand for nickel has grown enormously during that time, and it will continue to grow because no matter which way you look at it, nickel-rich chemistries bring benefits. If we could find a more affordable, reliable, and lower impact supply of nickel, then the world is gonna be a better place. There's no doubt about that. I think the timing about us bringing this supply into the market is perfect.

Malcolm McDonald (Associate in Equity Research)

Agreed. Thank you.

Gerard Barron (CEO and Chairman of the Board)

Thanks, Malcolm.

Operator (participant)

Thank you. Our next question comes from Frank Jones with Norbury Partners. Your line is open.

Frank Jones (Equity Research Analyst)

Hey, how's it going, Craig, Gerard? Thanks for taking the question.

Craig Shesky (CFO)

You got it. How you doing, Frank?

Frank Jones (Equity Research Analyst)

I'm well, too well. I think probably in the same vein as some of these questions around financing, I, I guess to lead off, is there any update you guys can give on the timing or scope for the Bechtel pre-feasibility study? The reason I ask is, is, is the goal or part of the goal of that study to be able to reclassify the resource as reserves and then use said reserves as assets on the balance sheet to raise capital beyond the $60 or $70 you need to get to application? Then I guess the last question on, on that topic is: When you think about the value of those reserves, should they be proved or probable, is it the value of the refined metals or raw nodules?

Do you have any insight as to how the feasibility study will think about those reserves?

Gerard Barron (CEO and Chairman of the Board)

Craig, do you want that or do you want me?

Craig Shesky (CFO)

Well, maybe provide a little context on Bechtel, but Frank, I think post pre-feasibility, you know, obviously we are going to be looking forward to releasing an updated model. We've been, of course, looking and relying upon and directing investors to the AMC initial assessment for March 2021. We recognize that, you know, that's looking at steady state production, for Project Zero and Project One combined. It, it's gonna be increasingly important, especially with a larger capacity production system of 3.0 million tons for the Hidden Gem. It'll be very important to sort of lay out what those economics look like for the first system, and obviously, they would improve from there....

Look, I would anticipate that because we don't yet have a market for nodules themselves, that, you know, we'd basically be looking at the contained metal within, and then putting upon that reasonable assumptions based on some of the binding term sheets that we anticipate reaching with Allseas, and, you know, PAMCO and, you know, our partners to sort of fill in some of those gaps. Gerard, with respect to the timing, happy for you to add more color. I think the takeaway, Frank, is we are eager to get that information out there as well, and we'll put it out as soon as we have the binding information to feed into it and have sort of put together all the techno-economic studies that are gonna be a part of that as well.

Gerard Barron (CEO and Chairman of the Board)

Yeah, that will be that pre-feas will form part of the application, of course. You can assume that it will be available before or as we lodge that application. There's no doubt that moving to proven reserves does increase our financing options. I think the, you know, as Craig mentioned, the, the value applied to them would basically be the deals that we sign on the processing side. Our plan is to process to an intermediate product, to process to a matte material for the nickel, copper, and cobalt, and a manganese silicate. You know, we're looking forward to sharing those. We're encouraged by what we see at the moment.

Of course, as we put those agreements that are non-binding into binding agreements, it's going to help people, you know, fill out the pieces between the published PEA that we, is available on our website, and what the ramp-up in production looks like.

Frank Jones (Equity Research Analyst)

Got it. That's helpful. Then, is there any indication or do you have an indication for cash needs beyond application, between, you know, submission of application to the ISA and then beginning with Project Zero?

Gerard Barron (CEO and Chairman of the Board)

Look, we are still focused on, you know. One of the reasons why we, you know, we did, I think, a fair-sized raise that we announced today. Could we have gone and raised more? I'm confident that we could have easily done that. We do have other financing options available to us, of course. The main, you know, the main investment will be the further adaptation of the Hidden Gem. Of course, you know, we have a tremendous partner in Allseas. We're very fortunate that their core business is in fantastic financial health. They're very committed, as you could gauge by their participation in all of our financings since 2019, when they first invested in the company. You know, this, for them, is an exciting project.

You know, this is using their 37 years of deepwater engineering expertise to move into a new vessel. Talking to their engineering teams, and we, we have a, you know, daily interactions with them on the project side, you know, the team are really excited working on this. We, you know, we believe we have a number of financing options, and, and we've walked through them on previous calls, but they include earn-in, they include prepay, they include streaming deals, they include offtake agreements, or they may include equity into the project itself. We have a lot of people that we're talking to. We will continue to talk to them every time we move a little bit closer to that production when there's more certainty.

Even though some people saw the announcement after the ISA session as a delay, to strategic investors, it added more certainty. For them, it's like: Yep, that helps me understand the timeline even better. We will continue to explore all of those. I guess my message to shareholders is, we really care about the equity. We really want to protect the equity. You know, we're very grateful to all of the shareholders who buy our stock and who've invested in the company, and we see it as our responsibility to protect that equity.

Frank Jones (Equity Research Analyst)

Yeah.

Craig Shesky (CFO)

A little context.

Frank Jones (Equity Research Analyst)

Super helpful.

Craig Shesky (CFO)

too. I mean-

Frank Jones (Equity Research Analyst)

Oh, sorry.

Craig Shesky (CFO)

With that being the, with, as Gerard noted, the Hidden Gem and the modifications being the most important element, while the capacity potential for the Hidden Gem, the Project Zero offshore system, could be increasing by 130%, you would expect there should be some efficiencies there. You're not gonna see, you know, the CapEx increase by anywhere like that amount. This is something where a lot of the modifications that were going to be made were part of our initial plan anyway, such as a wider diameter riser pipe, a more powerful compressor spread. This is taking those plans and effectively taking the next step and then adding another collector vehicle. There's, of course, going to be investment on the offloading system as well.

This is something where, you know, as we get more information and sort of chat through with Allseas over the coming months, we'll provide more specificity. It, it shouldn't be something where you can expect a linear relationship between the increase in capacity and the increase in associated CapEx. Then, of course, too, we all, you know, as we have in developing this system and project, you know, having a partner like Allseas, that's willing to put their balance sheet up to, you know, get these modifications going, and that's been very, very helpful as well.

Frank Jones (Equity Research Analyst)

Thanks for that. Sorry, last question. I know these are all timeline related, which could be a bit annoying. You mentioned the promising information coming out of the environmental impact study. Is that something we should expect to get information on before submission to the ISA, or is that something to look for, like, middle of next summer?

Gerard Barron (CEO and Chairman of the Board)

... No, you can expect to see a steady stream of that information becoming available. You know, there's also a lot of collaboration with other contractors as well, because while they haven't been moving at our pace, they do have rich history. Some of those contractors have had their grounds since 2001, and so they actually have a lot of historical data. They've been back to their area recently in some cases. I think what that's going to do is really build a better picture of that ecosystem, and, you know, we'll give people a lot more confidence that, you know, in how we can minimize the impacts, and they will be minimized. Expect a steady stream of those reports coming out.

Frank Jones (Equity Research Analyst)

Awesome. Well, thank you both. Good luck. Thanks for the report. I'm sure we'll speak soon.

Gerard Barron (CEO and Chairman of the Board)

Thanks, Frank.

Operator (participant)

Thank you. There are no further questions at this time on the phone. I'd like to turn the call back over to Gerard Barron.

Gerard Barron (CEO and Chairman of the Board)

Well, thank you.

Craig Shesky (CFO)

We might, we might do one. Sorry, Gerard. There are a few questions in the queue, but anybody whose question wasn't answered, please reach out to [email protected], and we'll try to answer as many as possible. Gerard, back over to you.

Gerard Barron (CEO and Chairman of the Board)

Thanks, Craig. I'd like to reflect on just some of the key de-risking milestones we've seen over the last few quarters. Fourth quarter of 2022, Allseas and NORI announced major offshore collection achievements, lifting over 3,000 tons of nodules to the surface, proving the technology for collecting nodules works. In the first quarter of this year, we announced a strategic initiative with PAMCO to potentially process nodules at a facility requiring minimal modifications and no CapEx to TMC. Also announced additional flexibility on the financing front, including the $25 million unsecured credit facility provided by our partner, Allseas. The support from our key shareholders has only increased, as demonstrated by today's capital raise. Now we're seeing great progress on the last piece of the puzzle, the finalization of the Mining Code by the ISA.

As that important work continues, our team will continue to work tirelessly to deliver the best possible application, including what I know is going to be a world-class, peer-reviewed assessment of the environmental and social impacts of the first project in our portfolio. Providing confidence to the world that nodules can be responsibly collected and processed into the key metals needed for the energy transition of our planet. I'd like to extend my sincerest thanks to my team, our small army of highly skilled partners and contractors, and of course, to our sponsoring States of Nauru, the Kingdom of Tonga and Kiribati. Thanks to everyone who tuned in for your interest and attention, and support. With that, I'd like to wish you all a pleasant rest of your day.

Operator (participant)

Thank you for your participation. This does conclude the program. You may now disconnect.