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, 2023

☐ 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 8, 2023, the registrant had 305,161,602 common shares outstanding.

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TMC THE METALS COMPANY INC.

FORM 10-Q

For the quarterly period ended September 30, 2023

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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, 2023 and December 31, 2022 (Unaudited)	5

	Condensed Consolidated Statements of Loss and Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	6

	Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	7

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (Unaudited)	9

	Notes to Condensed Consolidated Financial Statements (Unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	39

Part II	Other Information	40

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3.	Defaults Upon Senior Securities	41

Item 4.	Mine Safety Disclosures	41

Item 5.	Other Information	41

Item 6.	Exhibits	42

Signatures		43

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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, 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”. The combined company’s common shares and warrants to purchase common shares commenced trading on the Nasdaq Global Select Market (“Nasdaq”) on September 10, 2021, under the symbols “TMC” and “TMCWW,” respectively.

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, including the timing and expectations with respect to our receipt of exploitation contracts and our commercialization plans;

●

the supply and demand for nickel, cobalt and battery cathode feedstocks, copper cathode and manganese ores;

●

the future prices of nickel, cobalt 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 and ship 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, the need for additional financing and our ability to continue as a going concern;

●

our ability to raise financing in the future, the nature of any such financing and our plans with respect thereto;

●

any litigation to which we are a party;

●

claims and limitations on insurance coverage;

●

the restatement of our financial statements;

●

geological, metallurgical and geotechnical studies and opinions;

●

mineral resource estimates and our ability to define and declare reserve 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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●

the impact of pandemics 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, 2022 as filed with the Securities and Exchange Commission (“SEC”), on March 27, 2023 (the “2022 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, 2023 as filed with the SEC on August 14, 2023 and this Quarterly Report on Form 10-Q, as updated and/or supplemented in subsequent filings we make 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	2023		2022
Current
Cash		$	22,548	$	46,842
Receivables and prepayments			5,325		2,760
			27,873		49,602
Non-current
Exploration contracts			42,900		43,150
Equipment			2,078		2,025
Right-of-use asset	13		6,198		—
Investment	6		8,525		—
			59,701		45,175

TOTAL ASSETS		$	87,574	$	94,777

LIABILITIES
Current
Accounts payable and accrued liabilities			19,344		41,614
			19,344		41,614
Non-current
Deferred tax liability			10,675		10,675
Warrants liability	9		2,197		983
TOTAL LIABILITIES		$	32,216	$	53,272

EQUITY
Common shares (unlimited shares, no par value – issued: 305,129,856 (December 31, 2022 – 266,812,131))			434,099		332,882
Special Shares			—		—
Additional paid in capital			124,168		184,960
Accumulated other comprehensive loss			(1,216)		(1,216)
Deficit			(501,693)		(475,121)
TOTAL EQUITY			55,358		41,505

TOTAL LIABILITIES AND EQUITY		$	87,574	$	94,777

Nature of Operations (Note 1)

Commitments and Contingent Liabilities (Note 15)

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,
	Note	2023		2022		2023		2022
Operating expenses
Exploration and evaluation expenses	7	$	7,905	$	22,663	$	23,172	$	40,340
General and administrative expenses			4,613		5,944		15,958		22,502
Operating loss			12,518		28,607		39,130		62,842

Other items
Equity-accounted investment loss	6		119		—		475		—
Gain on disposition of asset	6		—		—		(13,750)		—
Change in fair value of warrants liability	9		(117)		(350)		1,214		(892)
Foreign exchange loss (gain)			14		(11)		66		(11)
Interest income			(319)		(352)		(1,092)		(544)
Fees and interest on credit facility	12		252		—		529		—

Net loss and comprehensive loss for the period		$	12,467	$	27,894	$	26,572	$	61,395

Net loss per share - basic and diluted	11	$	0.04	$	0.12	$	0.09	$	0.27

Weighted average number of common shares outstanding – basic and diluted			294,636,496		239,740,984		282,745,892		231,028,587

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
				Special		Paid in		Comprehensive
Three months ended September 30, 2023	Shares		Amount	Shares		Capital		Loss		Deficit		Total
June 30, 2023	281,136,415	$	345,775	$	—	$	188,722	$	(1,216)	$	(489,226)	$	44,055
Exercise of stock options (Note 10)	120,000		144		—		(67)		—		—		77
Exercise of warrant by Allseas (Note 9)	11,578,620		70,016		—		(69,900)		—		—		116
Shares issued to Allseas (Note 13)	4,150,000		6,516		—		—		—		—		6,516
Conversion of restricted share units, net of shares withheld for taxes (Note 10)	183,281		299		—		(299)		—		—		—
Issuance of shares and warrants under Registered Direct Offering, net of expenses (Note 8)	7,961,540		11,349		—		3,179		—		—		14,528
Share-based compensation (Note 10)	—		—		—		2,533		—		—		2,533
Net loss for the period	—		—		—		—		—		(12,467)		(12,467)
September 30, 2023	305,129,856	$	434,099	$	—	$	124,168	$	(1,216)	$	(501,693)	$	55,358


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

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			Special		Paid in		Comprehensive
Nine months ended September 30, 2023	Shares	Amount		Shares		Capital		Loss		Deficit		Total
December 31, 2022	266,812,131	$	332,882	$	—	$	184,960	$	(1,216)	$	(475,121)	$	41,505
Exercise of stock options (Note 10)	120,000		144		—		(67)		—		—		77
Exercise of warrant by Allseas (Note 9)	11,578,620		70,016		—		(69,900)		—		—		116
Shares issued to Allseas (Notes 6 and 13)	15,000,000		15,910		—		—		—		—		15,910
Conversion of restricted share units, net of shares withheld for taxes (Note 10)	3,573,993		3,704		—		(3,674)		—		—		30
Issuance of shares and warrants under Registered Direct Offering, net of expenses (Note 8)	7,961,540		11,349		—		3,179		—		—		14,528
Share purchase under Employee Share Purchase Plan (Note 10)	83,572		94		—		(45)		—		—		49
Expenses settled with share-based payments (Note 10)	—		—		—		2,875		—		—		2,875
Share-based compensation (Note 10)	—		—		—		6,840		—		—		6,840
Net loss for the period	—		—		—		—		—		(26,572)		(26,572)
September 30, 2023	305,129,856	$	434,099	$	—	$	124,168	$	(1,216)	$	(501,693)	$	55,358


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

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,
	Note	2023		2022
Cash provided by (used in)

Operating activities
Net loss for the period		$	(26,572)	$	(61,395)
Items not affecting cash:
Amortization			262		299
Lease Expense	13		318		—
Expenses settled with share-based payments	10		6,839		16,298
Equity-accounted investment loss	6		475		—
Change in fair value of warrants liability	9		1,214		(892)
Gain on disposition of asset	6		(13,750)		—
Unrealized foreign exchange movement			(24)		56
Changes in working capital:
Receivables and prepayments			(2,364)		(1,426)
Accounts payable and accrued liabilities			(10,757)		300
Net cash used in operating activities			(44,359)		(46,760)

Investing activities
Cash received from investment in Low Carbon Royalties	6		5,000		—
Acquisition of equipment			(175)		(959)
Net cash provided by (used in) investing activities			4,825		(959)

Financing activities
Proceeds from employee share purchase plan	10		49		56
Proceeds from exercise of stock options	10		77		76
Proceeds from exercise of warrants by Allseas	9		116		—
Proceeds from Registered Direct Offering	8		15,723		—
Expenses paid for Registered Direct Offering	8		(779)		—
Proceeds from PIPE financing			—		30,400
Expenses paid for PIPE financing			—		(680)
Proceeds from issuance of shares			30		—
Taxes withheld and paid on share-based compensation			—		(78)
Net cash provided by financing activities			15,216		29,774

Decrease in cash		$	(24,318)	$	(17,945)
Impact of exchange rate changes on cash			24		(56)
Cash - beginning of period			46,842		84,873
Cash - end of period			22,548	$	66,872

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”) 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.

The Company is a deep-sea minerals exploration company focused on the collection, processing and refining 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 (1,500 miles or 2,400 kilometers) 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, or nickel-copper-cobalt alloy) 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 ISA requires that a contractor obtain and maintain sponsorship by a host nation that is a member of the ISA and signatory to UNCLOS, and that such nation maintains effective supervision and regulatory control over such sponsored contractor. 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 6).

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)

2.Basis of Presentation

These unaudited condensed consolidated interim financial statements are prepared in accordance with U.S. 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, 2023 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, 2022. The Company has applied the same accounting policies as in the prior year, except as disclosed below.

3.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 evaluation of going concern, the valuation of share-based payments, including valuation of incentive stock options (Note 10), as well as the valuation of warrants liability (Note 9), the valuation of the investment in Low Carbon Royalties Inc. (“Low Carbon Royalties”) (Note 6) and the valuation of leases (Note 5). Actual results could differ materially from those estimates.

4.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 US 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.

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, 2023, and 2022.

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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)

As at September 30, 2023, and December 31, 2022, 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. These warrants are valued at fair value, which is disclosed in Note 9.

5.Significant Accounting Policies Adopted During the Period

Investments

The Company consolidates investments over which it has control in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation (“ASC 810”). Where the Company does not have control over the investment, but has significant influence, the Company records the investment in accordance with ASC 323, Investments-Equity Method and Joint Ventures (“ASC 323”) whereby, after recording the initial investment, the Company recognizes its proportional share of results of operations of the affiliate in its consolidated financial statements. The value of the equity method investments is impaired if it is determined that there is an other-than-temporary decline in value. Investments over which the Company does not have control nor significant influence are recorded at cost.

Leases

The Company records leases in accordance with ASC 842, Leases, and determines if an arrangement contains a lease at inception. If an arrangement contains a lease, the Company performs a lease classification test to determine if the lease is an operating lease or a finance lease. Right-of-use (“ROU”) assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease payments consist of i) fixed payments, less any lease incentives, ii) variable payments, that depend on an index or a rate, iii) exercise price of an option to purchase the underlying asset, iv) payment for penalties for terminating the lease, v) fees disbursed to the owners of special-purpose entities for structuring the transaction, and vi) amounts that are highly probable to be owed under residual value guarantees

Operating lease liabilities are recognized on the commencement date of the lease based on the present value of the future lease payments over the lease term. Operating lease liabilities due within the subsequent 12 months of the reporting date are classified as current lease liabilities and are included in accounts payable and accrued liabilities on the Company’s condensed consolidated balance sheet. Operating lease liabilities payable after the subsequent 12 months of the reporting date are classified as non-current lease liabilities and are presented as non-current lease liability in the condensed consolidated balance sheet.

ROU assets are valued at the initial measurement of the lease liability, plus any indirect costs or rent prepayments, and reduced by any lease incentives and any deferred lease payments. Operating ROU assets are recorded as right-of-use assets, net of any amortization on the condensed consolidated balance sheet and are amortized over the lease term. Lease expense is recognized on a straight-line basis over the life of the lease and, depending on the nature of the ROU asset, is either included in exploration and evaluation expenses or in general and administrative expenses. The Company subsequently measures the right-of-use asset for an operating lease at the amount of the remeasured lease liability (i.e. the present value of the remaining lease payments), adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term and any unamortized initial direct costs.

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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)

6.Strategic Partnerships

Strategic Alliance with Allseas

On February 13, 2023, the Company entered into a Fifth Amendment to the Pilot Mining Test Agreement (the “PMTA”) and Third Amendment to Strategic Alliance Agreement (together with the PMTA, the “Amendments”), which was effective as of February 8, 2023, with DGE, DeepGreen Metals Inc. and Allseas. The Amendments relate to the Company’s settlement of the third and final payment of $10 million due to Allseas upon successful completion of the trial of the pilot mining test system (the “PMTS”) in NORI Area D and certain other costs due to Allseas under the PMTA through the issuance of 10,850,000 common shares to Allseas, priced at $1.00 per share. On February 23, 2023, the Company settled the third milestone payment of $10 million and additional PMTS overage charges amounting to $0.9 million by issuing 10.9 million of its common shares to Allseas.

On August 1, 2023, the Company entered into an Exclusive Vessel Use Agreement with Allseas pursuant to which Allseas will give exclusive use of the vessel (“Hidden Gem”) to the Company in support of the development of the Project Zero Offshore System until the system is completed or December 31, 2026, whichever is earlier (Note 13). In consideration of the exclusivity term, the Company, on August 14, 2023, issued 4.15 million common shares to Allseas and recorded a right-of-use asset of $6.2 million.

On August 9, 2023, 11,578,620 common shares were issued to Allseas upon the exercise of the warrant that were granted to Allseas in March 2021, and receipt of the exercise fee of $115.8 thousand. The warrant vested and became exercisable on successful completion of the PMTS in November 2022 (refer “Allseas Warrant”, Note 9).

As a part of the Registered Direct Offering in August 2023 (Note 8), Allseas purchased 3,500,000 common shares and accompanying Class A Warrants to purchase 1,750,000 Common Shares (Note 9) for a total purchase price of $7 million.

As at September 30, 2023, Allseas owned 52.8 million TMC common shares (2022: 22.7 million TMC common shares) which constituted 17.3% (December 31, 2022: 8.9%) of total common shares outstanding.

Investment in Low Carbon Royalties

On February 21, 2023 (the “Closing Date”), the Company and its wholly-owned subsidiary, NORI, entered into an investment agreement (the “Royalty Agreement”) with Low Carbon Royalties, a private corporation formed under the laws of British Columbia, Canada, to finance low carbon emitting energy production and technologies (natural gas, nuclear, renewables), transition metals and minerals required for energy storage and electrification (Cu, Li, Ni, Co, Mn), and the evolving environmental markets (the “Partnership”). In connection with the Royalty Agreement, NORI contributed a 2% gross overriding royalty (the “NORI Royalty”) on the Company’s NORI project area in the CCZ in which NORI currently holds exclusive exploration rights for polymetallic nodules from the ISA to Low Carbon Royalties. The Company retained the right to repurchase up to 75% of the NORI Royalty at an agreed capped return, exercisable in two transactions, between the second and the tenth anniversaries of the Partnership. If both repurchase transactions are executed, the NORI Royalty will be reduced to 0.5%. At the Closing Date, Low Carbon Royalties also owned a 1.56% gross overriding royalty on a producing natural gas field in Latin America. In consideration of the NORI Royalty, TMC received 35.0% of the common shares issued by Low Carbon Royalties and $5 million in cash, as of the Closing Date. In connection with the Royalty Agreement the Company entered into an Investor Rights Agreement with Low Carbon Royalties and a shareholder of Low Carbon Royalties, pursuant to which the Company and this shareholder each has a right, subject to certain percentage maintenance, to nominate a director to Low Carbon Royalties’ board of directors, along with registration and information rights.

The Company has accounted for the investment in Low Carbon Royalties in accordance with ASC 323-10 and has thus applied the equity method of accounting to this investment. When considering the royalty liability instrument as well as the embedded repurchase features, management has elected to account for the royalty liability under the fair value option in accordance with ASC 825-10.

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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)

On March 21, 2023, Low Carbon Royalties acquired additional gross overriding royalties on natural gas fields in Latin America, increasing its total gross overriding royalty on the existing first license block from 1.56% to 3.13% and acquiring a new gross overriding royalty of 1.44% on a second license block. The royalty acquisitions were financed through the issuance of Low Carbon Royalties common shares to the third-party vendor of such royalties, thereby reducing the Company’s ownership in the Partnership to 32% from 35%.

Based on the fair value of the NORI Royalty and the cash received on the Closing Date, the Company recorded $9 million as investment in Low Carbon Royalties. For the three and nine months ended September 30, 2023, the Company’s share of the net loss generated by the Low Carbon Royalties was $0.1 million and $0.5 million, respectively.


	Investment
Fair value of NORI Royalty	$	14,000
Cash received	$	(5,000)
Cost of Investment on Closing Date	$	9,000
Equity-accounted investment loss for the nine months ended September 30, 2023		(475)
Investment as at September 30, 2023	$	8,525

The net consideration received of $14 million exceeded the NORI Exploration Contract’s carrying value of $0.25 million, resulting in a gain on disposition of asset of $13.75 million recorded in the Company’s first quarter of 2023 statements of loss and comprehensive loss. NORI is in the exploration phase of the project and under the Company’s policy, exploration spending is expensed.

7.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, 2023	Contract		Agreement		Contract		Total
Environmental Studies	$	906	$	—	$	—	$	906
Exploration Labor		1,392		50		161		1,603
Share-Based Compensation (Note 10)		1,242		43		132		1,417
Mining, Technological and Process Development		2,300		—		207		2,507
Prefeasibility Studies		300		—		—		300
Sponsorship, Training and Stakeholder Engagement		654		55		297		1,006
Other		163