TMC the metals company - Q3 2021

Transcript

Operator (participant)

Good afternoon, everyone, and thank you for participating in The Metals Company's third quarter 2021 corporate update conference call. Joining us today are The Metals Company's Executive Chairman and Chief Executive Officer, Gerard Barron, and Chief Financial Officer, Craig Shesky. Following their remarks, we'll open the call for your questions. I would now like to turn the call over to CFO, Craig Shesky, as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995, that provides important cautions regarding forward-looking statements.

Craig, please go ahead.

Craig Shesky (CFO)

Thank you. Please note that during this call, certain statements made by the company will be forward-looking and based on management's beliefs and assumptions from information currently available at this time. These statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control, including those set forth in the safe harbor provisions for forward-looking statements that can be found at the end of our third quarter 2021 corporate update press release.

Such statements may also be found in our Form 10-Q when it's available, and other reports filed with the SEC, 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 required by law, we undertake no obligation to update any forward-looking statement.

The slide deck is available on our website at investors.metals.co. I'm now happy to turn it over to Gerard Barron, The Metals Company Chairman and Chief Executive Officer. Gerard, please go ahead.

Gerard Barron (Chairman and CEO)

Thank you, Craig, and good afternoon, and thank you all for joining us today for our third quarter corporate update conference call. You are welcome to follow along with our slide deck, or if joining us by phone, you can access it at any time at www.metals.co. So today, we'll be reviewing our recently completed business combination, our financial and project development highlights, and expected upcoming milestones for the company.

I'd like to begin with a recap on recent market developments and how we believe The Metals Company could fit into the big picture. So the green future is metallic. At COP26, the world's governments are committing to a rapid transformation of energy and transport. What's catching people by surprise is that this transition starts and ends with metals.

Last year, The World Bank pointed out that we will need to extract 2-3 billion tons of metal by 2050, a fivefold increase in production. A couple of months back, the International Energy Agency ran an analysis of their own and arrived at the conclusion that to hit net zero globally by 2050 would require six times more mineral inputs than 2040 than today. In an attempt to get the message across, an industry analyst firm, WoodMac, in October, did not mince words.

The energy transition starts and ends with metals, and to hit the 1.5-degree Celsius target, a fivefold increase in base metal supply would be needed, requiring an investment of $2 trillion. Meeting demands could be mission impossible.

As we hurry to get out of one extractive industry in fossil fuels, the fact that the whole enterprise depends on scaling up another extractive industry in metals, is understandably a hard pill to swallow. But we cannot afford to ignore it because you can't build your gigafactories and renewable power out of thin air. If you look at the U.S., it's been a dizzying few months. To electrify U.S. car sales, you need about 1.2 kilowatt in battery cell production capacity.

And in August, President Biden outlined a target of 50% EV sales share in 2030, and his announcement was followed by a flurry of industry announcements to construct gigafactories in the U.S., but not much detail around how these gigafactories will be supplied with raw materials.

They do need to worry about this now because it takes, on average, about a decade to permit and develop a new mine, even longer in the U.S. So 2030 is already yesterday with respect to the United States domestic capability to meet the expected demand. So where will the battery metals come from? Let's imagine that the U.S. implements mining permitting reform and, and moves as quickly as China. In that scenario, we think the U.S. might be able to solve copper and maybe find some more lithium, but we don't think you can solve nickel, cobalt, and manganese because the resources aren't there.

And the plot thickens when you look at the current supply chain, from mining to processing and refining and cathode material production. It's a 50,000-mile supply chain controlled by China.

The United States spends so much effort to achieve energy independence, only to find itself headed for metal dependence. Metal is the new oil, and China is more powerful than OPEC. The Biden administration understands this, and nickel has finally been elevated to most critical status and was mentioned 146 times in the 100-day supply chain review. Building a nickel refinery in the U.S. was framed as the highest short to medium-term priority in that document. It so happens that there is a potential solution off the western seaboard of the United States.

This realization is slowly percolating through the system. Over the summer, The Wilson Center, a key nonpartisan policy forum in the U.S., held a dialogue with key level groups of stakeholders trying to find solutions to the troubling scenario faced by the United States when it comes to the supply chain for critical minerals. Their report acknowledged the significant domestic opportunity to get the nickel, cobalt, and manganese from polymetallic nodules in the Clarion-Clipperton Zone.

And developing the nodule resource offers a 1,500-mile supply chain and an opportunity to reshore processing and refining in the U.S. So here is what a polymetallic nodule field looks like. And these images were taken at 4.3-kilometer depth, and the view is about 1.2 meters above the seafloor, and you can see continuous nodule coverage.

A nodule is formed by precipitating metals that are in solution in ocean water and the sediment pore water. These are loose rocks, with approximately 95% of nodule mass exposed on top of the seafloor mud. We are using lighting here for visibility, but otherwise, it's a dark, cold, food-poor place, and limited food means limited life. Indeed, it's one of the lowest biomass places on the planet compared to deserts on land and an ice-free Arctic and Antarctic. Most life here is bacterial. Once in a while, you can spot a worm or a sponge or a, or a sea star, and in general, animals tend to be small.

4 centimeters is a giant in this world. It's a fascinating, slow-changing world, but must be protected, and as a precaution, more area is already under protection here than under exploration.

Protected areas account for about 34% of the total Clarion-Clipperton Zone, already exceeding, at least for the CCZ, the global push to protect 30% of the oceans. In addition to the relative proximity to the U.S. and the option to process and refine these nodules in the U.S., this resource has several other advantages. It's abundant. It's the largest estimated source of battery metals on the planet. Our portfolio alone has sufficient estimated in situ quantities of these metals to electrify around 280 million EVs, or the entire U.S. passenger fleet, and it's high grade.

On land, you would possibly need three different mines to obtain these metals, and the grades are falling. Nodules contain high grades of four metals in a single resource. On average, we need to process several times less mass to get at the same amount of metal.

And security, these nodules sit in international waters and are regulated by an intergovernmental organization, the International Seabed Authority, or ISA, comprised of 160 member states and the EU. Decisions are subject to intense scrutiny and consensus takes time, but they cannot be changed on the whim of a single government. And low production costs. At potential steady state production, we expect to be the second lowest cost nickel producer on the planet, la

rgely due to the high-grade, multi-metal nature of the resource. And low ESG costs. We expect between 70% and 99% reduction of lifecycle ESG impacts. No child labor, no social displacement, or no deforestation. Onshore, our production would generate near zero solid waste.

We should be able to compress CO2 equivalent emissions by up to 90%, and this is all using conventional technology, but we're pushing to do better than that. We believe it is a much better than the alternatives, but it isn't a miracle. We would be impacting a deep sea environment, and a lot of care is going into making sure that we characterize and mitigate our impacts on biodiversity. So what does it take to get to production? It all starts with the resource. We have secured exclusive exploration rights to three areas, sponsored by three Pacific Island nations.

Next, we have to figure out how much is there and of what quality. We have resource estimates on two of our exploration areas, and, and to move from exploration to exploitation, we need to secure an ISA exploitation contract.

How do we pick out nodules from 4-kilometer depths? Well, the basic technology was successfully demonstrated back in the 1970s, but we have to design and test our own system, and we're doing this in partnership with Allseas. What are the environmental impacts of nodule collection, and how do we mitigate them? Here, we have a much higher bar than most projects on land. First, we must baseline the marine environment from seafloor to surface. Then we must run our pilot system and monitor and measure its environmental impacts.

The deliverable here is an environmental impact statement that is an important part of our application to the ISA for an exploitation contract. Once you have the nodules, how do you turn them into metals?

Well, we invested effort in developing two different flow sheets and chose to go with the lower risk option for our development and operational plans. It uses conventional equipment, and we expect to generate near zero solid waste. We have to model it, then test it lab and pilot scale. Before any production, we need to make sure our project is economically viable, so we go through a sequence of studies with increasing levels of confidence on project economics.

We started with an initial assessment, but we are now in the middle of our pre-feasibility study, followed by a Bankable Feasibility Study. We currently have sufficient level of cash to fund the milestones highlighted in blue, and we believe that the foremost important are, firstly, to complete our onshore pilot plant program to process and refine polymetallic nodules into critical metals.

Secondly, to build and deploy a pilot collection system to lift nodules to the surface with a dual focus on operational performance and environmental impact mitigation. And thirdly, to complete the offshore environmental impact statement of future production on NORI D. And then finally, submit an application to the ISA for an exploitation contract for the NORI D area. So where do we stand at the end of Q3 2021? As mentioned previously, our business combination with Sustainable Opportunities Acquisition Corp. was completed on September 9, 2021.

The company renamed to TMC The Metals Company, and on September 10, 2021, we commenced trading on NASDAQ. TMC received approximately $137 million in cash prior to transaction fees, including approximately $27 million from the SOAC trust account after accounting for redemptions.

As we've noted previously, SOAC entered into subscription agreements for a $330 million PIPE, but only $110 million of the PIPE funding has been received to date. SOAC and TMC continue to seek to enforce the funding obligations. Two lawsuits have been filed against the non-performing investors in New York State Court. So with cash in bank of approximately $113 million at September 30, we have maintained our expectations of funding our operations through the key milestone of submitting our application for an exploration, exploitation contract to the ISA in Q3 2023.

In terms of project development, it's been a record-setting nine months. You can see the highlights on this slide, but, but I'd like to share some of these in more detail.

To date, our technical resource statements were done in compliance with a stringent Canadian 43-101 standard. To become a U.S. listed entity, we had to comply with the SEC Regulation S-K 1300 standards, and accordingly, AMC Consultants reissued technical resource statements on NORI and TOML areas, reconfirming our total estimated resource of 1.6 billion wet tons of nodules in situ resource of nickel, copper, cobalt, and manganese, equivalent to the requirements for 280 million electric vehicles.

One way to understand the significance of this resource is to compare it to other undeveloped and producing projects. Nickel is a key metal for us, representing almost half of our expected future revenues, and as you can see on the left side of this page, our estimated resource is significantly larger than other known undeveloped nickel projects.

Earlier this year, MINING.COM ranked just our NORI D asset as the largest undeveloped nickel project on the planet. If you convert all the metal content into a nickel equivalent grade, at 3.2%, no other undeveloped or producing project comes close. Resource quality translates into attractive economics, and back in March, AMC Consultants issued a SEC Regulation S-K 1300 compliant initial assessment of project economics for the NORI D area. This area represents about 22% of our total estimated portfolio and is expected to have a net present value of $6.8 billion, using very conservative commodity prices.

As you may know, the prices of most of our metals have reached multiyear highs. At current prices, the net present value would nearly double. Q3 saw an important milestone on the regulatory side.

For us to move from exploration to exploitation, the International Seabed Authority needs to complete the adoption of the exploitation regime. And the work on this regime started already back in 2011, but completion was targeted July 2020, was disrupted by COVID.

So to increase regulatory certainty, at the end of June, the Republic of Nauru, the sponsoring state of the NORI area, exercised its sovereign rights under Section 1, Paragraph 15 of the 1994 agreement relating to the implementation of Part 11 of the United Nations Convention of the Law of the Sea, UNCLOS, by submitting a two-year notice. This notice was obliged the ISA to complete the adoption of exploitation regulations within two years of the request made by the member state. And in response, the ISA has put together a work program to meet the deadline.

The outcome we are hoping for is that the ISA to deliver on their work program and complete the adoption of the regulations with the consensus of the 167 nations and the EU behind them. However, the 1994 implementation agreement does lay out what happens if this does not materialize. If the ISA has not completed the adoption of such regulations within the prescribed time, and an application for approval of a plan of work for exploitation is pending before the ISA, the ISA shall nonetheless consider and provisionally approve such plan of work.

So we expect that our subsidiary, Nori, will have submitted its plan of work for exploitation within the prescribed timeframe.

Once we've submitted the application, we expect the ISA to take at least 315 days to review it and decide. As no changes are requested and the application is approved, we can expect to start production in Q3 2024, subject to our ability to fund the development of Project Zero. Putting together an application is a multi-year effort that includes a comprehensive environmental impact statement, or EIS. The foundations of the EIS is collecting baseline data on the environment, and we need to understand the pre-impact state, so we can compare it to what happens after nodule collection.

While we started doing environmental data collection campaigns several years ago, this has been, with 4 campaigns and 148 days spent at sea in the first 9 months of this year, all completed safely, with all the data collection goals accomplished by our research partners and under superb management of our vessel operation partner, Maersk Supply Service. The last completed campaign, 5C, had researchers from the University of Hawaii, Texas A&M, and the Japan Agency for Marine Science and Technology, or JAMSTEC.

One of the campaign achievements was sampling pelagic biodata at depths down to 4,000 meters, marking what we believe was the world's first deep MOCNESS tow in the Eastern Tropical Pacific Ocean. I've just returned from San Diego, where we are mobilizing for the fifth campaign this year and the final of our baseline data collection campaigns.

Baseline data will have been collected by the end of 2021, but the analysis will take some time. In parallel, together with our offshore partner, Allseas, we've been building a pilot collection system in the Netherlands. The system consists of a surface production vessel, seafloor collector robot, and an airlift riser system. The Hidden Gem, a former drill ship acquired by Allseas last year, is in Rotterdam, undergoing conversion into the surface production vessel. It is expected to be the first ship classified as a subsea mining vessel by the American Bureau of Shipping.

The red launch and recovery system that you can see in the middle, used to lower and retrieve collector robots, has already been installed. The collector robot is being assembled as well, and you can see the current state of our collector on the right-hand side picture.

These images were taken at the end of October, when we invited key stakeholders to Rotterdam to review progress on the conversion of the Hidden Gem and the assembly of our collector robot. We are targeting system completion at the end of this year, followed by wet collector drive test in the North Sea and full pilot system trial in the Nori D area in the Pacific next year. Even a pilot trial requires an environmental impact statement of its own, and our subsidiary, Nori, submitted the EIS for the upcoming pilot trial to the ISA in July 2021.

We are planning a 12-week trial with about 260 hours of system operation, and the directly impacted area is small. It's 0.5 of 1 square kilometer. One of the high-profile issues addressed in the EIS is the potential environmental impact of plumes.

Plumes are essentially suspended seafloor mud particles, and early speculations about plumes suggested giant clouds of mud would be traveling for thousands of kilometers, either staying suspended for long periods of time or falling out and suffocating organisms in protected areas. We believe these initial speculations are proving to be wildly exaggerated. Modeling by a third-party expert, DHI, using Metocean data collected from the NORI-D and using NORI-D sediment properties, supports predictions that plumes from the pilot system will be limited and localized.

Although the pilot system is similar to production system, we believe it is representative of the relative order of magnitude of the impacts that we can expect from the production system. Results from DHI are consistent with the work published by MIT on seafloor and mid-water plumes.

Furthermore, for seafloor plumes, our results are consistent with field observations by the German contractor, BGR, and the Belgian contractor, GSR, who did a seafloor collector test in the CCZ earlier this year. We look forward to having our own field observations next year. While our work offshore gets a lot of coverage, I personally get as excited about what we've been able to achieve onshore. For anyone wondering whether we can turn nodules into valuable critical metals, the answer now is a resounding yes.

First, our pilot program turned nodules into a Manganese Silica product that can go directly into manganese alloy production, and a nickel, copper, cobalt alloy, an intermediate product that can be used as feedstock in some of the existing smelting and refining operations. I just held up what our alloy looks like.

Then we have been able to convert the nickel, copper, cobalt alloy into matte, a further intermediate product that could go into most nickel refineries. And, and here is what matte looks like. So we have started on the final part of our pilot plant program, and that is turning matte into nickel sulfate, cobalt sulfate, and copper cathode. So looking forward, here is an overview of what we are focusing on next. It will be an equally intense 6-9 months for us.... Firstly, securing funding to get into production in 2024 is my number one priority.

To that end, we are working on multiple fronts: securing bankable offtakes for Project Zero production, finalizing Project Zero economics with Allseas, and securing an onshore partnership and site.

In parallel, we are in active discussions with strategic parties who can help us get to full-scale production, ideally in the United States, and they include carmakers, cathode material manufacturers, mining majors, oil and gas majors, and EPC companies. Offshore, the pilot trial of our offshore collection system is a major event, and while there have been collector robot tests on the seafloor, a full system test, including the riser, has not been done since the 1970s. A digital twin system for a nodule collection operation has never been developed and operated either.

This is another exciting development for us. Onshore, we anticipate that we will complete our pilot plant program, going from nodules to battery cathode precursor materials and copper cathode. With that, I am turning over to Craig to speak on TMC's recent third quarter and year-to-date financial statements.

Craig Shesky (CFO)

Thank you very much, Gerard. Before we get into the results, I do want to draw your attention to certain restatements to our first quarter and second quarter 2021 financials, which were included in our recent press release. Now, the restatements resulted from, A, certain invoices for exploration expenses not being appropriately accrued as of June 30, 2021, and, B, expensing of options granted in the first quarter of 2021, based on the grantee's historical start date with the company, rather than the grant date of the options on March 4, 2021.

More information is provided in the company press release, as well as our soon-to-be-filed 10-Q.

Now, in terms of the financial results for the third quarter of 2021, the company reported a net loss of $36.7 million, or $0.18 per share, compared to TMC's net loss of $6.8 million, or $0.04 per share for the third quarter of 2020. The higher net loss was mainly attributable to $12.9 million in milestone payments accrued under the amended pilot mining test system agreement with Allseas, and a $2.8 million increase in offshore campaign expense, given the increased offshore activity versus the prior year period.

Exploration expenses during the third quarter of 2021 were $23.8 million, compared to $4.6 million for the third quarter of 2020, also explained by the Allseas milestone payments and increased offshore expense.

General and administrative expenses were $13.3 million for the third quarter of 2021, compared to $2.2 million for the third quarter of 2020, mainly driven by higher non-cash stock-based comp expense and overall higher costs as a result of being a public company. Now, excluding direct transaction costs related to the business combination, free cash flow for the third quarter of 2021 was negative $9.8 million, compared to negative $3.8 million in the third quarter of 2020.

For the nine months ended September 30, 2021, the company reported a net loss of $121.5 million, compared to $39.5 million in the prior year period.

Exploration expenses increased from $35.7 million to $80.2 million, and G&A expenses increased from $3.8 million to $41 million during the first nine months of 2021. The largest increases, both in exploration expenses and G&A expenses, were stock options for DeepGreen employees and contractors in the first quarter of 2021 before the business combination was finalized. This represents the catch-up equity awards for key employees who have been progressing the project over the last several years, and of course, retaining our key employees is a very high priority for us.

Excluding non-recurring items, free cash flow for the first nine months of 2021 was negative $23.8 million, compared to negative $21.4 million in the first nine months of 2020. With that, I will turn it back over to you, Gerard, for some final comments.

Gerard Barron (Chairman and CEO)

Thanks, Craig. So before we go to questions, let me address the recent short report. Clearly, this report was written by someone who doesn't know much about resource economics. Resource quality drives the value of exploration contracts, not the fee you pay to apply for the contracts. We acquired the TOML asset for $32 million from a third party who had no relation to any of the shareholders or executives of TMC or DeepGreen. And by the time of the acquisition in 2020, TOML had conducted several resource definition campaigns and had a NI 43-101 compliant resource of 756 million tons of wet nodules.

For comparison, NORI D has a NI 43-101 compliant resource of 356 million tons, so less than half of the TOML resource.

It also has an SEC S-K 1300 compliant initial assessment signed off by independent experts with an NPV of $6.8 billion. And if we use today's commodity prices, that NPV would exceed $12 billion. So I think a $32 million acquisition of the TOML asset was an outstanding deal by any measure. It's also worth noting that, in our opinion, that nearly all of the good ground has already been claimed in the CCZ.

So if the short seller believes getting an exploration contract for an area with high-quality resource and sponsorship from a sovereign nation as easy as paying $250,000 contract application fee, well, we should go ahead and try.

The report also suggests that we overstated our exploration expenses to Nori, and that is also incorrect. As part of the business combination, we were required to adjust our accounting from IFRS to US GAAP, and that meant we needed to fair value the shares we paid to Maersk, resulting in the increase from $14.9 million to $35.4 million. TMC is a SEC-regulated company. We, we take our compliance very seriously, but more importantly, we're a company that values transparency.

Nothing in this agenda-driven report causes me any concern, and we have purposely not commented on this report because the assertions were so unserious, they did not warrant a reply. But given that retail investors have asked me to, however, here it is. So the energy transition starts and ends with metals.

Gigafactories can't make batteries out of thin air, and TMC is developing a massive resource that can truly move the needle in terms of metal feedstock to gigafactories, and while also shortening supply chains, compressing ESG impacts, and helping to ensure mineral independence for the United States. We have made an incredible amount of progress on the project this year, onshore, offshore, and environmental, and we're just getting warmed up. With that, we'll turn it back to the operator for some questions.

Operator (participant)

Certainly. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to generate in queue. The first question is from the line of Daniel Ives with Wedbush. You may proceed.

Daniel Ives (Managing Director of Equity Research)

Thanks. So could we just first talk about how conversations maybe have changed, whether strategic partners or within the auto supply chain over the last, call it 3-6 months? I mean, is there a discernible change, just given more of the acceleration of the EVs need for lithium?

Gerard Barron (Chairman and CEO)

Yeah. Hi, Dan. Absolutely, there has been a discernible change. And of course, we, while there is lithium in our nodules, we don't focus on it as a product. And I think automakers have historically been the very dominant party when it comes to supply chain. And obviously, with the semiconductor experience in the past year, it's highlighted how raw materials can really disrupt the business. Now, the whole transition to electric vehicles has really sped up, I guess, since COVID came, and obviously the stimulus packages being announced by President Biden and others means that everyone wants to catch up and go electric.

And so all of a sudden, while historically they have pushed those conversations onto the supply chain, now it is not that easy. Now they realize that they have to get control of supply.

Availability, price, sustainability are the key drivers for those automakers. Yeah, we're having very different conversations with them today compared to even six months ago.

Daniel Ives (Managing Director of Equity Research)

Great. Okay, can we, so can we just go, I mean, obviously, you've gone through in the slides, but when we think about 2022, what are like, let's call it, like, the three top priorities in terms of from an exploration or from a, we'll call it a, you know, a strategic perspective, that we wanna be at a year from now, you know, as you look ahead? Can you kind of just detail those again?

Gerard Barron (Chairman and CEO)

Sure. Well, from the project perspective, the priorities are, this time next year, we will have completed our offshore pilot mining trial, pilot collecting trial, and that will be the full end-to-end system. And as I mentioned earlier, there has been a trial earlier by the Belgian contractor of their collector vehicle. It was very successful. And but this is different. You know, in February last year, Allseas, our partner, acquired the Hidden Gem. It's a 228-meter production vessel, formerly a drill ship, that would be, I think its ticket price was $700 million 10 years ago, and they bought it for low tens of millions of dollars.

And so, you know, we're busy, they are busy converting that now. In fact, I looked at the sheets.

There was around 240 people at Allseas working on that conversion last month. And so by this time next year, we will have successfully, well, we will have been to the license area, we will have conducted that harvesting trial and observed it. And that's an important part of the permitting process because we have to demonstrate, and we have to report on the impacts. The same with onshore. We have already completed our pyrometallurgical pilot plant processing work, and we're in the early phases of our hydrometallurgical.

But as I mentioned, the hydrometallurgical is very low risk. It's, we're adopting a process that is carried out by many other refiners all around the world. So we see that as very low risk.

I guess the really exciting thing will be more environmental papers being published, more environmental results, because of course, you know, that's what everyone wants to know. What are the impacts? And as I reported on the plume, our estimation is that the plume will travel 5-6 meters above the ocean floor, and that is consistent with the MIT-published papers. They've put out 2 papers this year. And the GSR published release, or BGR news, that they released earlier this year from their actual trials in the CCZ, which is an area very near us.

So more of that environmental data being released is something we're really looking forward to.

And then on the strategic side, we are talking, as I said, with companies from the resources sector, the mining sector as we know it, from the oil and gas sector, and also with customers and intermediate players. And I think, you know, the thing that will really get this opportunity alight will be consumer-facing brands engaging. So I think the consumer-facing brands will come as a result of more environmental evidence supporting the lower impact of making battery metals from our nodules compared to land-based ores.

But some of the other players, you know, the resource companies, there's no doubt they'll move faster, in my opinion, and because you just don't find ore bodies around the world of this size and this quality.

Malcolm McDonald (Equity Research Analyst)

Thanks.

Operator (participant)

Thank you, Mr. Ives. The next question is from the line of Subash Chandra with Benchmark. You may proceed.

Subash Chandra (Senior Equity Research Analyst)

Yeah, thank you. So, you know, I'm looking at, I think slide 11. A lot of stuff going on. It doesn't seem like there's been any sort of changes to the to-do list, despite, you know, the failure of a couple of those hedge funds or whoever that came up short on their PIPE commitments or private equity funds, sorry. Curious, you know, what adjustments do you have to make? And, you know, how, at what point do you think, in some of these things you're working on, bankable offtakes, negotiating, you know, with Allseas or, you know, strategic partnerships for Project One and beyond?

What's the event do you think that, you know, I guess, gives the market confidence in the liquidity to get to full production and get through Project Zero?

Gerard Barron (Chairman and CEO)

Sure. Thanks for the question, Subash. Well, there's no doubt we were disappointed to raise less money than we had anticipated, and we always planned to take more money because it would fund us all the way through the production. In fact, it would have funded us through until 2025. But as you pointed out on slide 11, there's still a lot of work to be done.

So, you know, fortunately, we have sufficient capital to do the really value-adding stuff at the moment, which is the offshore pilot, the onshore pilot processing work, all of the environmental impact studies, and of course, be ready to submit our application in Q3 of 2023. What we don't have money for is to fund that first production, what we called Project Zero.

However, you know, one of the great advantages of the partners that we have chosen is that Allseas acquired that production vessel in 2021 ... Sorry, 2020, February. And so that production vessel is being fitted out for the pilot trials. In fact, you know, it came out of dry dock some weeks ago. We had a crew of people on it inspecting it a couple of weeks ago, a stakeholder day. And so it will be in the Atlantic doing trials straight after Christmas.

And so we will be busy figuring out, you know, through all of the strategics that I mentioned during my presentation, about what those funding options will be to get us into that first production. But we have a lot of choices there.

For example, even on the production vessel, there is. You've seen the, the numbers, there's margin in this ore body. And so if we had to, sacrifice some OpEx for CapEx, then that's an option that's always available to us. But I remain confident that based on the size and quality of the resource, that we will have solved that funding issue, before it starts impacting production on 2024.

Craig Shesky (CFO)

Yeah, and let me just add in there, too, you know, one of the big takeaways from the event in Rotterdam a couple of weeks ago was, it was just great to be able to share with a lot of stakeholders, you know, whether potential investors or strategics, et cetera, the tangibility of that progress. Because, you know, they know about the size of the resource, they know how attractive it is, but as we continue to hit these milestones, over the next two years, with the cash that we have on hand, that'll just increase the certainty and continue to de-risk.

You know, obviously we are disappointed in the situation with the PIPE, but it did refocus us on making sure, you know, we get the boat on the water, we show the successful collector test, we show that we can convert these nodules into usable metal, which we're making great strides on, and that'll put us in even better position when it comes to raising the additional capital.

Subash Chandra (Senior Equity Research Analyst)

... Okay, great. And so maybe a little help there. You know, two years is a long time, and it certainly seems like, you know, the macro trends are in your favor, and your options, you know, should solidify, if not improve. But when at what point do we sort of need to solve Project Zero capital question?

Gerard Barron (Chairman and CEO)

Yeah, we need to solve that by Q1 2023.

Subash Chandra (Senior Equity Research Analyst)

Okay, great. A follow-up here, maybe my second follow-up. I think you talked about the public comment period. I think for Nauru, I just, I think, you know, for the pilot test in the CCZ. And it might be on the website, but I haven't checked. Any, you know, color on what the initial comments look like and, and, you know, what they might be concerned about or, or how excited they might be about, the CCZ mining pilot?

Gerard Barron (Chairman and CEO)

Suresh, would you just repeat the first part of that question? The comments about what the... Was it about the environmental?

Subash Chandra (Senior Equity Research Analyst)

Y-yeah.

Gerard Barron (Chairman and CEO)

Maybe that we launched.

Subash Chandra (Senior Equity Research Analyst)

So I think... No, I, yeah. So I think the, the, you know, there's a public comment period for the CCZ mining pilot. And I thought the public comment period had already opened. And if you had any color on what some of those initial comments have been focusing on.

Gerard Barron (Chairman and CEO)

Sorry. I understand now. Yeah, look, it's an open period now, and we're engaging with all those stakeholders through a stakeholder engagement program. I think the feedback we've been receiving from the extensive paper that we lodged, and that's available on our website, and also the ISA website, has been very complimentary to the range of the scope of that study. You know, we certainly don't see any showstoppers in it.

Subash Chandra (Senior Equity Research Analyst)

Okay. Thank you.

Operator (participant)

Thank you, Mr. Chandra. Again, to ask a question, please press star followed by one on your telephone keypad. The next question is from the line of Malcolm McDonald with Bank of America. You may proceed.

Malcolm McDonald (Equity Research Analyst)

Hey, guys. Quick question. Why does it take 315 days for the ISA to make a decision? I mean, I would assume-

Gerard Barron (Chairman and CEO)

Yeah. Hi, Malcolm.

Malcolm McDonald (Equity Research Analyst)

I would assume you're spending-

Gerard Barron (Chairman and CEO)

Yeah, that is a mm-hmm.

Malcolm McDonald (Equity Research Analyst)

Sorry, go ahead.

Gerard Barron (Chairman and CEO)

Yeah. No, that's a process that they have laid out. It goes to the Legal and Technical Commission, and it's a big document. You know, there'll be wheelbarrows to carry it in there. And so that is, you know, that's just a process that they have laid out. It's encouraging to see how the ISA is preparing for that as well. You know, they are recruiting heavily. They are bringing in lots of expertise to be able to make these assessments and also to become the regulator. And so it's a pretty reliable timeframe from our perspective.

I think the one point I would highlight about the approval process that we have, and we often talk about the ISA as a regulator, why we're very happy with them.

I mean, the ISA was set up in 1994, and it was set up to govern the high seas, and to put in place a regulatory framework to allow the development of this resource. With land-based applications, if I just use them as a comparison, you know, what you end up finding, of course, are, you know, changes. You know, you might find governments who get voted out because of their position or their approval. You might find native title claims, and so on. And of course, we don't have those issues, and so we don't see the delays that some land-based projects that are located in a certain jurisdiction would be subjected to.

We don't. We just don't have those.

Malcolm McDonald (Equity Research Analyst)

Would it be possible for the ISA to make a decision sooner than the 315 days they're allotted?

Gerard Barron (Chairman and CEO)

We hope so, and we'll be doing everything to encourage it, but we're, we're not banking on it at the moment. By the way, what happens when we get the boat back? Well, when Allseas bring the boat back from the pilot, it goes straight back into dry dock to have some more modifications made to make it ready for Project Zero production. So, you know, we're using the time pretty effectively. We would clearly like to bring this resource into production as soon as possible, but I think that's a good timeframe.

And keep in mind, you know, I made the point during the presentation that permitting process on land is becoming more and more challenging, and I think that, you know, getting anything approved in a developed country or a developing country, you know, does not have a lot of certainty around it in this day and age.

Malcolm McDonald (Equity Research Analyst)

... Just a quick follow-up there. So, given Macron's statement the other week at, or the other day at, at COP26, have they been in touch with you guys regarding any sort of offtake? And, just a follow-up on that, where is China relative to TMC?

Gerard Barron (Chairman and CEO)

Well, you know, let me first address Macron. Firstly, thank you, President Macron, for, you know, making those comments, because for those that weren't across it, he gave an update on his 2030 plan and, you know, made the pitch that for France's future, they need to re-industrialize. They need to develop secure supply lines. They need to create local jobs, and that means they're going to need a lot of metals. France is a very large ocean economic zone holder. They also have a license in the same area that we do, and he said polymetallic nodules, you know, look like being the solution to that.

So they have allocated some $ billions for the development of that. I think that's significant, to have a G7 leader, a European leader, come out and support.

Of course, we have the leaders from our developing nations, and we have China and Japan and Korea, but to have a president, you know, so vocally supporting that was, you know, good news. In regard to China, there is no doubt they have, you know, 3 licenses, two of them in, you know, very close to us. We were in Changsha before COVID struck, and, you know, my team and I, and we visited China Minmetals onshore processing pilot plant. They had been processing nodules for 20 years. The same nodules that we're picking up, they had been processing for 20 years.

We also inspected their harvesting system, and we understand they've been doing more trials, but not in the CCZ, more in their territorial waters. So I think it's safe to assume that China is moving.

We know they have an insatiable appetite for these important base metals. And so, you know, we always saw it as a good thing that China was involved, and so, but I still remain confident that we'll be the first out of the gate.

Craig Shesky (CFO)

Certainly just to expand on that a little bit, you know, as more and more focus has come on this topic over the last year, the more focus from policymakers, not just in Europe and Asia, but more so in North America as well. When there was the news earlier this year that China was doing some deep water testing for their collector system, there were a lot of inbound calls and emails asking what the implications were. So certainly, you know, we don't shy away from any competition.

And in fact, you know, nothing validates the business model in the company more than other people looking at this resource as well.

Malcolm McDonald (Equity Research Analyst)

Thank you. And just one more-

Gerard Barron (Chairman and CEO)

If China are collecting, if China are collecting nodules to make battery metals, then hopefully that means they're going to be destroying less carbon sinks, less rainforest, less biodiversity. Because if you look at the only growth avenue for nickel is from nickel laterites, and we know where they form. They form in some of the most biodiverse carbon sinks on our planet. So that's the real enemy here.

Malcolm McDonald (Equity Research Analyst)

Awesome. And just one more kind of follow-up on what you just mentioned. Would you guys, when you go into production and start generating revenue, would you guys consider taking it one more step further in regards to the race to net zero and actually, you know, allocate a percentage possibly of your revenue to maybe even reforestation or, you know, becoming a leader in terms of ESG and electrifying the world and decarbonization?

Gerard Barron (Chairman and CEO)

Well, there's no doubt, we want to take that leadership role. And of course, there are a lot of economic benefits that flow from this project, not only to our sponsoring nations, you know, the nations that have impacted climate change least, yet are in the front row to be impacted by the effects of climate change through rising sea levels. And so, once we're in production, this will deliver them royalties that will provide, you know, jobs, training opportunities, and have a meaningful impact on their GDP. And of course, a much bigger royalty gets paid into the International Seabed Authority.

And UNCLOS was very prescriptive about what should happen to those royalties. They should be, after paying for the costs of the regulator, they should be distributed to the developing nations of the world, particularly the landlocked nations.

So, you know, there is. We are building this on an ESG platform. There is no doubt about it. And, you know, so I guess you can expect us to strive for the gold standard when it comes to all of those ESG metrics.

Malcolm McDonald (Equity Research Analyst)

Awesome. Thank you so much.

Operator (participant)

Thank you, Mr. McDonald. There are no additional questions waiting at this time. I would like to pass the conference back to Craig Sheskey for any closing remarks.

Craig Shesky (CFO)

I'll pass that right back to you, Gerard Barron, our CEO.

Gerard Barron (Chairman and CEO)

Well, to conclude, our recent accomplishments have been significant, and our strategic priorities remain on track to achieve four key milestones by the end of the third quarter, 2023, when we expect to submit our application to the International Seabed Authority for an exploitation contract for our NORI area, the area. So thank you for taking the time to join us on the conference call today. It's our first earnings call, so we've been very much looking forward to it, and we look forward to speaking to you on our fourth quarter corporate update call in not so many months. Thank you.

Operator (participant)

That concludes The Metals Company's third quarter 2021 corporate update conference call. I hope you all enjoy the rest of your day. You may now disconnect your lines.