SEC Filing | The Metals Company

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39281

TMC THE METALS COMPANY INC.

(Exact name of registrant as specified in its charter)

British Columbia, Canada		Not Applicable
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)


595 Howe Street, 10th Floor
Vancouver, British Columbia		V6C 2T5

(Address of principal executive offices)		(Zip Code)

(574) 252-9333

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Common Shares, without par value	TMC	The Nasdaq Stock Market LLC

Redeemable warrants, each whole warrant exercisable for one Common Share, each at an exercise price of $11.50 per share	TMCWW	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer	☐
Non-accelerated filer ☒	Smaller reporting company	☒
	Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 14, 2022, the registrant had 265,532,666 common shares outstanding.

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TMC THE METALS COMPANY INC.

FORM 10-Q

For the quarterly period ended September 30, 2022

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		Page

	Cautionary Note Regarding Forward-Looking Statements	3

Part I	Financial Information	5

Item 1.	Financial Statements	5

	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (Unaudited)	5

	Condensed Consolidated Statements of Loss and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021 (Unaudited)	6

	Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2022 and 2021 (Unaudited)	7

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (Unaudited)	9

	Notes to Condensed Consolidated Financial Statements (Unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	36

Part II	Other Information	38

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	40

Signatures		41

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In this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company” and “TMC” mean TMC the metals company Inc. (formerly Sustainable Opportunities Acquisition Corp.) and our subsidiaries. On September 9, 2021, Sustainable Opportunities Acquisition Corp. (“SOAC” and after the Business Combination described herein, the “Company”) consummated a business combination (the “Business Combination”) pursuant to the terms of the business combination agreement dated as of March 4, 2021 by and among SOAC, 1291924 B.C. Unlimited Liability Company, an unlimited liability company existing under the laws of British Columbia, Canada (“NewCo Sub”), and DeepGreen Metals Inc., a company existing under the laws of British Columbia, Canada (“DeepGreen”). In connection with the Business Combination, SOAC changed its name to “TMC the metals company Inc”.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that relate to future events, our future operations or financial performance, or our plans, strategies and prospects. These statements are based on the beliefs and assumptions of our management team. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or performance, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or the negative of these terms, or other comparable terminology intended to identify statements about the future, although not all forward-looking statements contain these identifying words. The forward-looking statements are based on projections prepared by, and are the responsibility of, our management. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

●	the commercial and technical feasibility of seafloor polymetallic nodule collection and processing;

●

our and our partners’ development and operational plans, including with respect to the planned uses of polymetallic nodules, where and how nodules will be obtained and processed, the expected environmental, social and governance impacts thereof and our plans to assess these impacts and the timing and scope of these plans;

●	the supply and demand for battery metals and battery cathode feedstocks, copper cathode and manganese ores;

●	the future prices of battery metals and battery cathode feedstocks, copper cathode and manganese ores;

●	the timing and content of International Seabed Authority’s (“ISA”) final exploitation regulations that will create the legal and technical framework for exploitation of polymetallic nodules in the Clarion Clipperton Zone of the Pacific Ocean (“CCZ”);

●	government regulation of mineral extraction from the deep seafloor and changes in mining laws and regulations;

●	technical, operational, environmental, social and governance risks of developing and deploying equipment to collect polymetallic nodules at sea and to process such nodules on land;

●	the sources and timing of potential revenue as well as the timing and amount of estimated future production, costs of production, other expenses, capital expenditures and requirements for additional capital;

●	cash flow provided by operating activities;

●	the expected activities of our partners under our key strategic relationships;

●	the sufficiency of our cash on hand to meet our working capital and capital expenditure requirements and our ability to continue as a going concern;

●	the recently announced private placement financing, including the timing of receipt, and amount, of expected proceeds therefrom;

●	our ability to raise financing in the future and our plans with respect thereto;

●	any litigation to which we are a party;

●	claims and limitations on insurance coverage;

●	our plans to mitigate our material weaknesses in our internal control over financial reporting;

●	the restatement of our financial statements;

●	geological, metallurgical and geotechnical studies and opinions;

●	mineral resource estimates;

●	our status as an emerging growth company, non-reporting Canadian issuer and passive foreign investment company;

●	infrastructure risks;

●	dependence on key management personnel and executive officers;

●	political and market conditions beyond our control;

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●	COVID-19 and the impact of the COVID-19 pandemic on our business; and

●	our financial performance.

These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Important factors could cause actual results, performance or achievements to differ materially from those indicated or implied by forward-looking statements such as those described under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission, or SEC, on March 25, 2022 (the “2021 Annual Report on Form 10-K”), as updated and supplemented under the caption “Risk Factors” in Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 as filed with the SEC on August 15, 2022 as further updated and/or supplemented in subsequent filings with the SEC. Such risks are not exhaustive. New risk factors emerge from time to time, and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

TMC the metals company Inc.

Condensed Consolidated Balance Sheets

(in thousands of US Dollars, except share amounts)

(Unaudited)


		As at		As at
		September 30,		December 31,
ASSETS	Note	2022		2021
Current
Cash		$	66,872	$	84,873
Receivables and prepayments			5,037		3,686
			71,909		88,559
Non-current
Exploration contracts	4		43,150		43,150
Equipment			2,098		1,416
			45,248		44,566

TOTAL ASSETS		$	117,157	$	133,125

LIABILITIES
Current
Accounts payable and accrued liabilities			25,188		26,573
			25,188		26,573
Non-current
Deferred tax liability			10,675		10,675
Warrants liability	5		2,234		3,126
TOTAL LIABILITIES		$	38,097	$	40,374

EQUITY
Common shares (unlimited shares, no par value – issued: 265,529,989 (December 31, 2021 – 225,432,493))			328,911		296,051
Class A - J Special Shares			—		—
Additional paid in capital			116,917		102,073
Accumulated other comprehensive loss			(1,216)		(1,216)
Deficit			(365,552)		(304,157)
TOTAL EQUITY			79,060		92,751

TOTAL LIABILITIES AND EQUITY		$	117,157	$	133,125

Nature of Operations (Note 1)

Commitments and Contingent Liabilities (Note 10)

Subsequent Event (Note 12)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TMC the metals company Inc.

Condensed Consolidated Statements of Loss and Comprehensive Loss

(in thousands of US Dollars, except share and per share amounts)

(Unaudited)


		Three months ended				Nine months ended
		September 30,				September 30,
		2022		2021		2022		2021
	Note			(Note 1)				(Note 1)
Operating expenses
Exploration and evaluation expenses	4	$	22,663	$	23,848	$	40,340	$	80,181
General and administrative expenses			5,944		13,334		22,502		41,138
Operating loss			28,607		37,182		62,842		121,319

Other items
Change in fair value of warrant liability	5		(350)		(878)		(892)		(878)
Foreign exchange loss (gain)			(11)		5		(11)		57
Interest expense (income)			(352)		342		(544)		1,003

Loss and comprehensive loss for the period		$	27,894	$	36,651	$	61,395	$	121,501

Loss per share
– Basic and diluted	7	$	0.12	$	0.18	$	0.27	$	0.61

Weighted average number of common shares outstanding — basic and diluted	7		239,740,984		205,248,258		231,028,587		198,092,309

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TMC the metals company Inc.

Condensed Consolidated Statements of Changes in Equity

(in thousands of US Dollars, except share amounts)

(Unaudited)


										Accumulated
								Additional		Other
	Common Shares			Preferred		Special		Paid in		Comprehensive
Three months ended September 30, 2022	Shares	Amount		Shares		Shares		Capital		Loss		Deficit		Total
June 30, 2022	227,158,455	$	299,056	$	—	$	—	$	113,487	$	(1,216)	$	(337,658)	$	73,669
Issuance of shares under PIPE financing - net proceeds (Note 9)	38,266,180		29,668		—		—		—		—		—		29,668
Exercise of stock options (Note 6)	100,000		120		—		—		(56)		—		—		64
Conversion of restricted share units, net of shares withheld for taxes (Note 6)	5,354		67		—		—		(67)		—		—		—
Share-based compensation (Note 6)	—		—		—		—		3,553		—		—		3,553
Loss for the period	—		—		—		—		—		—		(27,894)		(27,894)
September 30, 2022	265,529,989	$	328,911	$	—	$	—	$	116,917	$	(1,216)	$	(365,552)	$	79,060


										Accumulated
								Additional		Other
Three months ended September 30, 2021	Common Shares			Preferred		Special		Paid in		Comprehensive
(Note 1)	Shares	Amount		Shares		Shares		Capital		Loss		Deficit		Total
June 30, 2021	197,794,399	$	188,901	$	550	$	—	$	72,541	$	(1,216)	$	(247,708)	$	13,068
Exercise of stock options (Note 6)	2,321,967		6,039		—		—		(4,366)		—		—		1,673
Share-based compensation (Note 6)	—		—		—		—		9,508		—		—		9,508
Conversion of debenture	3,068,672		26,503		—		—		—		—		—		26,503
Common shares issued for services	180,485		1,248		—		—		—		—		—		1,248
Net equity from Business Combination	—		60,987		—		—		30,339		—		—		91,326
Conversion of preferred shares to common shares	509,458		550		(550)		—		—		—		—		—
Loss for the period	—		—		—		—		—		—		(36,651)		(36,651)
September 30, 2021	203,874,981	$	284,228	$	—	$	—	$	108,022	$	(1,216)	$	(284,359)	$	106,675

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TMC the metals company Inc.

Condensed Consolidated Statements of Changes in Equity

(in thousands of US Dollars, except share amounts)

(Unaudited)


										Accumulated
	Common Shares							Additional		Other
				Preferred		Special		Paid in		Comprehensive
Nine months ended September 30, 2022	Shares		Amount	Shares		Shares		Capital		Loss		Deficit		Total
December 31, 2021	225,432,493	$	296,051	$	—	$	—	$	102,073	$	(1,216)	$	(304,157)	$	92,751
Issuance of shares under PIPE financing - net proceeds (Note 9)	38,266,180		29,668		—		—		—		—		—		29,668
Exercise of stock options (Note 6)	118,461		142		—		—		(66)		—		—		76
Conversion of restricted share units, net of shares withheld for taxes (Note 6)	1,670,429		2,984		—		—		(3,062)		—		—		(78)
Share purchase under Employee Share Purchase Plan (Note 6)	42,426		66		—		—		(10)		—		—		56
Share-based compensation (Note 6)	—		—		—		—		17,982		—		—		17,982
Loss for the period	—		—		—		—		—		—		(61,395)		(61,395)
September 30, 2022	265,529,989	$	328,911	$	—	$	—	$	116,917	$	(1,216)	$	(365,552)	$	79,060


										Accumulated
Nine months ended September 30, 2021	Common Shares							Additional		Other
				Preferred		Special		Paid in		Comprehensive
(Note 1)	Shares	Amount		Shares		Shares		Capital		Loss		Deficit		Total
December 31, 2020	189,493,593	$	154,431	$	550	$	—	$	45,347	$	(1,216)	$	(162,858)	$	36,254
Exercise of stock options (Note 6)	6,312,902		14,297		—		—		(10,061)		—		—		4,236
Common shares to be issued for exploration and evaluation expenses	4,245,031		25,664		—		—		(12,879)		—		—		12,785
Share-based compensation (Note 6)	—		—		—		—		55,276		—		—		55,276
Common shares issued for services	187,432		1,296		—		—		—		—		—		1,296
Net equity from Business Combination			60,987		—		—		30,339		—		—		91,326
Conversion of debentures	3,126,565		27,003		—		—		—		—		—		27,003
Conversion of preferred shares to common shares	509,458		550		(550)		—		—		—		—		—
Loss for the period	—		—		—		—		—		—		(121,501)		(121,501)
September 30, 2021	203,874,981	$	284,228	$	—	$	—	$	108,022	$	(1,216)	$	(284,359)	$	106,675

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TMC the metals company Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands of US Dollars)

(Unaudited)


		Nine months ended		Nine months ended
		September 30,		September 30,
		2022		2021
	Note			(Note 1)
Cash provided by (used in)

Operating activities
Loss for the period		$	(61,395)	$	(121,501)
Items not affecting cash:
Amortization			299		324
Expenses settled with share-based payments	6		16,298		69,357
Interest on convertible debentures			—		1,003
Change in fair value of warrants liability	5		(892)		(878)
Unrealized foreign exchange			56		(31)
Changes in working capital:
Receivables and prepayments			(1,426)		(8)
Accounts payable and accrued liabilities			300		23,395
Net cash used in operating activities			(46,760)		(28,339)

Investing activities
Settlement of deferred acquisition costs			—		(3,440)
Acquisition of equipment			(959)		(402)
Net cash used in investing activities			(959)		(3,842)

Financing activities
Proceeds from PIPE financing	9		30,400		—
Expenses paid for PIPE financing	9		(680)		—
Proceeds from employee share purchase plan			56		—
Proceeds from exercise of stock options			76		4,236
Proceeds from issuance of convertible debentures			—		26,000
Taxes withheld and paid on share-based compensation			(78)		—
Proceeds from Business Combination (net of fees and other costs)			—		104,465
Net cash provided by financing activities			29,774		134,701

(Decrease) increase in cash			(17,945)		102,520
Impact of exchange rate changes on cash			(56)		24
Cash - beginning of period			84,873		10,096
Cash - end of period		$	66,872	$	112,640

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)

1.Nature of Operations

TMC the metals company Inc. (“TMC” or the “Company”), formerly known as Sustainable Opportunities Acquisition Corporation (“SOAC”), was incorporated as a Cayman Islands exempted company limited by shares on December 18, 2019 and continued as a corporation under the laws of the province of British Columbia, Canada on September 9, 2021. On September 9, 2021, the Company completed its business combination (the “Business Combination”) with DeepGreen Metals Inc. (“DeepGreen”). The Company’s corporate office, registered address and records office is located at 10^th floor, 595 Howe Street, Vancouver, British Columbia, Canada, V6C 2T5. The Company’s common shares and warrants to purchase common shares are listed for trading on the Nasdaq Global Select Market (“Nasdaq”) under tickers “TMC” and “TMCWW”, respectively. In connection with closing of the Business Combination, DeepGreen merged with a wholly-owned subsidiary of SOAC and became a wholly-owned subsidiary of the Company. DeepGreen was determined to be the accounting acquirer and therefore, all information prior to the Business Combination, including the prior period financial information, represents the financial condition and operating results of DeepGreen.

The Company is a deep-sea minerals exploration company focused on the collection and processing of polymetallic nodules found on the seafloor in international waters of the Clarion Clipperton Zone in the Pacific Ocean (“CCZ”), located approximately 1,300 nautical miles southwest of San Diego, California. These nodules contain high grades of four metals (nickel, copper, cobalt, manganese) which can be used as (i) feedstock for battery cathode precursors (nickel and cobalt sulfates, or intermediate nickel-copper-cobalt matte) for electric vehicles (“EV”) and renewable energy storage markets, (ii) copper cathode for EV wiring, clean energy transmission and other applications and (iii) manganese silicate for manganese alloy production required for steel production.

Exploration and exploitation of seabed minerals in international waters is regulated by the International Seabed Authority (“ISA”), an intergovernmental organization established pursuant to the 1994 Agreement Relating to the Implementation of the United Nations Convention on the Law of the Sea. The ISA grants contracts to sovereign states or to private contractors who are sponsored by a sovereign state. The Company’s wholly-owned subsidiary, Nauru Ocean Resources Inc. (“NORI”), was granted an exploration contract (the “NORI Exploration Contract”) by the ISA in July 2011 under the sponsorship of the Republic of Nauru (“Nauru”) giving NORI exclusive rights to explore for polymetallic nodules in an area covering 74,830 km² in the CCZ (“NORI Area”). On March 31, 2020, the Company acquired Tonga Offshore Mining Limited (“TOML”), which was granted an exploration contract (the “TOML Exploration Contract”) by the ISA in January 2012 under the sponsorship of the Kingdom of Tonga (“Tonga”) and has exclusive rights to explore for polymetallic nodules covering an area of 74,713 km² in the CCZ (“TOML Area”). Marawa Research and Exploration Limited (“Marawa”), an entity owned and sponsored by the Republic of Kiribati (“Kiribati”), was granted rights by the ISA to polymetallic nodules exploration in an area of 74,990 km² in the CCZ (“Marawa Area”). In 2013, the Company through its subsidiary DeepGreen Engineering Pte. Ltd. (“DGE”) entered into an option agreement (the “Marawa Option Agreement”) with Marawa which granted DGE exclusive rights to manage and carry out all exploration and exploitation in the Marawa Area in return for a royalty payable to Marawa. The Company is working with its strategic partner and investor, Allseas Group S.A. (“Allseas”), to develop a system to collect, lift and transport nodules from the seafloor to shore and to subsequently convert that system into an early commercial production system (Note 4).

The realization of the Company’s assets and attainment of profitable operations is dependent upon many factors including, among other things: financing being arranged by the Company to continue operations, development of a nodule collection system for the recovery of polymetallic nodules from the seafloor as well as development of processing technology for the treatment of polymetallic nodules, the establishment of mineable reserves, the commercial and technical feasibility of seafloor polymetallic nodule collection and processing, metal prices, and regulatory approvals and environmental permitting for commercial operations. The outcome of these matters cannot presently be determined because they are contingent on future events and may not be fully under the Company’s control.

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)

Since March 2020, several measures have been implemented by the governments in Canada, the United States of America (“US”), Australia, and the rest of the world in the form of office closures and limiting the movement of personnel in response to the increased impact from the novel coronavirus (“COVID-19”). While the impact of COVID-19 has not been significant to the Company’s business operations to date, the current circumstances are dynamic and could negatively impact the Company’s business operations, exploration and development plans, results of operations, financial position, and cash flows.

2.Basis of Presentation

These unaudited condensed consolidated interim financial statements are prepared in accordance with US Generally Accepted Accounting Principles (“U.S. GAAP”) for interim financial statements. Accordingly, certain information and footnote disclosures required by U.S. GAAP have been condensed or omitted in these unaudited condensed consolidated interim financial statements pursuant to such rules and regulation. In management’s opinion, these unaudited condensed consolidated interim financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of the Company’s statement of financial position, operating results for the periods presented, comprehensive loss, shareholder’s equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be expected for the full year ending December 31, 2022 or for any other period. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited annual consolidated financial statements for the year ended December 31, 2021. The Company has applied the same accounting policies as in the prior year, except as disclosed below.

All share and per share amounts have been adjusted to reflect the impact of the Business Combination.

Certain comparative figures in note 4 have been reclassified to conform to the current period’s presentation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and the notes thereto. Significant estimates and assumptions reflected in these condensed consolidated interim financial statements include, but are not limited to, the valuation of share-based payments, including valuation of incentive stock options (Note 6) and the common shares issued to Maersk Supply Service A/S, and warrants liability (Note 5). Actual results could differ materially from those estimates.

Fair Value of Financial Instruments

Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.

The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the reporting date. In accordance with U.S. GAAP, the Company utilizes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

●

Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.

●

Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

●

Level 3 - Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)

In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.

There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2022 and 2021.

As at September 30, 2022 and December 31, 2021, the carrying values of cash, receivables, and accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these instruments. The financial instruments also include public and private warrants issued by the Company. The warrants are valued at fair value which is disclosed in Note 5.

Significant Accounting Policies Adopted during the period

Share-Based Compensation on Employee Share Purchase Plan

During the second quarter of 2022, the Company implemented an employee share purchase plan (the “ESPP”) whereby employees can purchase common shares of the Company at a 15% discount to its share price at the time of purchase, through payroll deductions (Note 6). Employee contributions are converted into common shares at a discount to the lower of the share price at the beginning of the offering period and the share price at the end of the purchase period. The fair value of the shares purchased under the ESPP is estimated on the grant date using a Black-Scholes option-pricing model and is reported as share-based compensation over the offering period, using the accelerated attribution method. Share-based compensation costs are charged to exploration and evaluation expenses or general and administrative expenses in the statement of loss and comprehensive loss.

3.Recent Accounting Pronouncements Issued and Adopted

Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options

In May 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2021-04, “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”, which clarified and reduced diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. Specifically, an issuer should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument. Modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument should be measured as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged. The effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange on the basis of the substance of the transaction should be recognized in the same manner as if cash had been paid as consideration. ASU 2021-04 is effective for fiscal periods ending on or after December 15, 2021, with early adoption permitted. ASU 2021-04 is applied prospectively to modifications or exchanges occurring on or after the effective date. The adoption of ASU 2021-04 on January 1, 2022 did not have a material impact on the Company’s condensed consolidated interim financial statements.

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)

4.Exploration Contracts

Strategic Partnerships

Pilot Mining Test Project with Allseas

The Company made the second $10 million payment of the amended Pilot Mining Test Agreement (“PMTA”) on April 25, 2022, upon successful completion of the North Sea drive test on March 25, 2022. The third and final $10 million payment will be payable upon successful completion of the pilot trial of the Pilot Mining Test System (“PMTS”) in NORI Area D. Completion of the pilot trial of the PMTS and third and final payment is expected to occur in the fourth quarter of 2022.

Total cost recorded as exploration and evaluation expenses for the PMTS during the three and nine months ended September 30, 2022 amounted to $1.3 million and $4 million, respectively (three and nine months ended September 30, 2021 amounted to $12.9 million). The Company has not recorded a liability for the third payment as at September 30, 2022.

On March 16, 2022, the Company’s subsidiary, NORI, and Allseas entered into a non-binding term sheet which contemplates an upgrade of the PMTS into a commercial nodule collection system and commercial operation of this system in NORI Area D. The terms are subject to negotiation between NORI and Allseas and if successful, may result in amendments to the existing Strategic Alliance Agreement.

As at September 30, 2022, Allseas owned 22.7 million TMC common shares (December 31, 2021 – 16.2 million TMC common shares) which constituted 8.6% (December 31, 2021 – 7.2%) of total common shares outstanding.

On November 9, 2022, the Company and Allseas agreed to settle the third and final payment of $10 million in either cash or shares of the Company, at the Company’s election. With the successful completion of the pilot trial of the PMTS, as approved by the Company’s Board of Directors on November 11, 2022, the Company intends to satisfy the Allseas obligation through the issuance of common shares in the fourth quarter of 2022, subject to regulatory approval (Note 12).

Exploration and Evaluation Expenses

The detail of exploration and evaluation expenses is as follows:


	NORI		Marawa		TOML
	Exploration		Option		Exploration
For the three months ended September 30, 2022	Contract		Agreement		Contract		Total
Environmental Studies	$	15,360	$	—	$	—	$	15,360
Exploration Labor		700		167		163		1,030
Mining, Technological and Process Development		214		16		12		242
PMTS		3,226		229		230		3,685
Share-based compensation (Note 6)		1,122		231		234		1,587
Sponsorship, Training and Stakeholder Engagement		300		62		93		455
Other		278		11		15		304
	$	21,200	$	716	$	747	$	22,663

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars, except share and per share amounts and unless otherwise stated)

(Unaudited)


	NORI		Marawa		TOML
	Exploration		Option		Exploration
For the three months ended September 30, 2021	Contract		Agreement		Contract		Total
Environmental Studies	$	14,871	$	1,852	$	1,847	$	18,570
Exploration Labor		435		199		185		819
Mining, Technological and Process Development		429		185		80		694
PMTS		15		7		4		26
Share-based compensation (Note 6)		1,578		594		860		3,032
Sponsorship, Training and Stakeholder Engagement		428		6		65		499
Other		194