Q1 2023 TMC Metals Co Inc Earnings Call
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Good day and thank you for standing by welcome to the metals Company first quarter 2023, corporate update conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session will need to press star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again.
Please be advised today's conference is being recorded I would now like to hand, the call over to your speaker the metals company CFO Kruszewski. Please proceed.
Thank you very much and please note that during this call certain statements made by the company will be forward looking and based on management's beliefs and assumptions.
Some information available at this time.
These statements are subject to known and unknown risks and uncertainties, many of which maybe beyond our control, including those set forth in our safe Harbor provisions for forward looking statements that can be found at the end of our first quarter 2023, corporate update press release.
Such statements May also be found in our annual report on Form 10-K for the year ended December 31, 2022, and other reports subsequently filed with the SEC, including our 10-Q for the quarter ended March 31, 2023, I'll now 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 statements.
Our remarks today May also include non-GAAP financial measures, including with respect to free cash flows and additional details of these non-GAAP measures can be found on our slide deck and the slide deck is available on our website at investors Dop metals Dot C. O I don't want to turn it over to our chairman and CEO Jerry Byrd Geri. Please go ahead. Thank.
Thank you.
Excuse me.
Thank you Craig and good afternoon, and thank you all for joining us today for our first quarter 2023 corporate update call.
You're welcome to follow along with our slide deck or if you're joining us by phone you can access access at all anytime at investors don't metals Dufka.
It's only been about six weeks into our last update call that the first quarter has set an exciting turn into 2023 with progress at the international feed that authority generating headlines around the world that will cover more on that later.
I'd like to highlight some important financial milestones that occurred during the quarter.
Since going public we've been enhancing our system of controls and procedures now, culminating with the removal of a material weakness from 2021 and with the certification filed by myself and our CFO at the end of 2022 as required under Chubb Haynes Oxley Act.
I'd like to thank al entire finance team, including our Chief Accounting Officer co employed for media a continuous progress as a public company with mature internal controls.
We ended Q1 with over $28 million in cash and also announced in March a nearly 25 million dollar unsecured credit facility with an affiliate of old sees this facility.
<unk> remains untapped today as jobs out $30 million at the market equity program.
We also announced a strategic partnership with low carbon royalties in February in which we can attribute it to a 2% gross overriding royalty on Laurie and exchange for $5 million and a 35% equity stake in LCR and a right to repurchase up to 75% of the royalty at a fixed return.
We mentioned on our last call that LCR has the potential to be an additional source of capital to bring norrie D and other TMC projects into production and we believe LCR management continues to show signs of that potential in.
In March 2023, LCR required additional royalties on N G Energy's natural gas fields in Latin America, effectively doubling its total royalty on the Maria Conchita block to three 1% and adding a 1.4% gross a variety royalty on the scene is nine block indicating.
Upward trend in evaluation of this partnership.
We're excited about <unk> pipeline of other potential royalty acquisitions as well.
<unk> corporate presentation sides of pipeline of term sheets and opportunities with over 200 million of net asset value in their estimation and please head to low carbon royalties dot com for more information.
So onto the agenda today will take you through the following items a summary of recent regulatory use a brief market updates I'll reminder of T. M sees value proposition and an update on the progress of our Norrie D project.
And some more ESG information and of course, our financial update.
At the March 2023, I S. A session member states made significant progress on key aspects of the regulatory text and reiterated their commitment to adopting final rules regulations and procedures.
I would like to thank the 167 member states and the European Union for their tremendous efforts. Both at these formal sessions and the intercession of work that is happening and in between.
It is important to note that all member states are working diligently with the I S. H secretaries and observers to get this innovative regulatory regime in place and this even includes the small minority of member states, calling for a precautionary pause or a moratorium represented in yellow on this page.
Fortunately this industry is guided by the United Nations Convention on the law of the sea and there is no wiggle room to follow certain parts of the convention, while ignoring others.
As Italy's minister of the environment and energy put it last week Unclos contains an obligation to negotiate the regulations and there is no legal basis for a moratorium or a cautionary pause.
Major news coverage on the I S. A progress has also picked up.
Though the reporting has approached the issue from various angles. There is increasing acknowledgment that this is not a question of if this new industry starts but win.
As Sweden following the conclusion of the session by the New York Times reported Eric Lipton.
And on the next slide we'll lay out what we think was some of the major takeaways from the March I S. A session.
Firstly, all states reiterated their commitment to the adoption of the rules regulations and procedures known as the mining code set.
Further we were pleased to see significant progress made by member states on many aspects of the mining code.
Regarding applications submitted before a final mining code is in place the I S. A confirmed that the legal and technical commission or the L. T. C. Shell review, an application and provide a recommendation to the council.
And the council confirmed it has the obligation to consider a plan of work for exploitation. After July 2023.
Of course, we would much prefer to stop my operations with an exploitation contract granted under the final mining code.
However, we reserve our legal rights under on cost to Lodge and exploitation application before the mining code is adopted.
We look forward to continued progress at the upcoming July meeting and through the ongoing intercession will work.
Together with the Republic of Nauru Norrie commenced to only submitting an application for a commercial contract. After we complete our high quality comprehensive and science, driven environmental and social impact assessment or in E. S. I E.
Last quarter, we discussed some of the developments on this page with increased interest and see flow resources for countries and companies with industrial credibility, including Transocean announcement of providing a Samsung 10000 drillship for conversion into a nodule production vessel ahead.
Ahead of Belgium contracted G. S. Ahs integrated system tests currently scheduled for 2025.
I spent time last week in Houston at the offshore Technology Conference and it was amazing to see all of the interest in seafloor resources for major offshore players several of whom have publicly announced their intent intention to invest in this space.
And while interest continues to grow and the potential to see that minerals to reduce the west's reliance upon China.
China itself is accelerating its efforts in this space.
In March the state newspaper, China Daily reported that the world's largest battery metals producer with stepping up its investments in the development of module collection systems and a Chinese official interviewed in the article noted T M seize leadership position in the industry.
China currently holds three exploration licenses for poly metallic nodules and in February China Ocean Mineral resources Research and development Association or camera as we know them signed a second contract extension. So poly metallic module exploration granted on the basis that it will be in a position to proceed to X.
Flotation within five years.
Onto our value proposition the scale of our module resource is enormous each little car on this page represent the metal required to electrify 1 million vehicles with a 75 kilowatt hour battery based on NMC 811 Chemistries.
Our laurean Tamil areas containing situ quantities of nickel copper cobalt in manganese equivalent to the requirements of the dot 218 million vehicles or roughly.
The entire U S passenger fleet.
Earlier this month mining gold Dot Com released their updated 2023 rankings of the world's largest undeveloped nickel projects.
And there was some reshuffling within the 10 largest nickel projects, but the top to remain the same again this year.
Tncs Norrie at number one and Tmc's tunnel at number two.
And you'll notice several Canadian projects in the mix and this is with focusing on nickel equivalent grades is so important.
Impaired on the bottom of this page.
And on land for both nickel and copper grades have declined over time, which is significant for several reasons. It means more or has moved to get the same amount of metal.
And it often negatively impacts the economics for producers requiring higher prices to green light Green light new projects and it requires more land use more energy use and more water use and when you couple falling grades with sharply rising demand for clean energy technologies and metals it.
Becomes an exponential increase in tailings and solid waste.
Norrie D nodules have a nickel equivalent grade of 3.2%.
All key metals in the one resource.
And this grade differential between T M sees projects N. The world's other undeveloped nickel projects as highlighted on the Y axis on.
This top.
T M sees an outlier among peers with the largest nickel equivalent resource and the highest nickel equivalent grade.
And this grade differential is the key attribute which affects Alice our future estimated margins are net present value and which allows for the potential compression of environmental impacts per ton of metal as highlighted in the recent benchmark lifecycle analysis, comparing nodules to convention.
In our land based resources.
Onto our Norrie D projects, starting with an explanation of what the project entails.
While the exploitation application to the I S. A is focused on offshore nodule collection minority project. The first in our portfolio representing 22% of our total estimated resource is actually a fully integrated project from seafloor to the factory Great Gate and on this pro.
<unk>, we've spent in excess of $300 million over the last decade.
At a time when the re shoring of energy transition metal supply chains is taking center stage, we're seeing significant interest from multiple parties and across the logistics and bulk transport sector to see this coming industry as a means to support their growth ambitions in the coming decade.
And Additionally, our lab in bench scale onshore processing work over the past several years.
<unk> has been very successful in showing that nodules can be turned into these critical metal products.
Zooming in on that onshore component of Norrie D. We've made some deliberate choices in the design of outflows sheet with the help of our industry leading partner hatch.
And this flow sheet, we produced new zero solid waste using almost all of the nodules mass while producing zero tailings.
So how is this possible.
Well this slide summarizes the progression of material through the flow sheet with the pyro metallurgical stages successfully demonstrated on a pilot level in 2021.
First is the calcined step where nodules are heated to remove water from the hydroxide minerals.
Next the Calciner smelter, which reduces a metal alloy rich in nickel copper and cobalt and a manganese silica products.
So with relatively straightforward scope the alloy can be upgraded to match, which is a conventional intermediate products with concentrated nickel copper and cobalt.
And since then that is conventional the refining of Matt to battery grade sulfate products is also a conventional if.
If we so choose we can sell the map to existing refineries to reduce the mat battery metals on the right side of this page.
And near zero waste and no tailings as possible because the manganese silicate product contains most of the mass of the nodules.
So there just isn't a lot left over a byproduct aggregate fayalite slag material is produced with the remaining non salable portions and then the nachos also contained naturally lower levels of certain toxic elements, which often require more difficult waste and tailings management on land.
Fayalite Swag is used commonly as road aggregate or other products all around the world today.
The nickel copper cobalt alloy in the manganese silica products are the first possible saleable materials and this is our initial initial plan with Pacific metals, or Japan, or Pam code.
In March we announced that we had signed a nonbinding Mou with tanker to evaluate the tolling of 1.3 million wet tonnes.
More of poly metallic nodules per annum at their smelting facility in Japan, starting in 2025.
Using a 22 tons sample of the nodules collected during last year's test PATCO have made great strides in their evaluation of the cost of processing nodules using their existing facilities and of any additional recruiting equipment requirements, which are currently expected to be minimal.
Working with PEMCO can help us achieve our stated capital light strategy to getting to initial commercial production potentially reducing both our time to market.
And our upfront costs.
We were pleased to report in the fourth quarter that all CS and Norrie achieved all significant pilot collection system milestones, while collecting approximately four 5000 tonnes of seafood poly metallic nodules and over 3000 tons will lift it up.
The full 0.3 kilometer riser system to the hidden gem vessel.
And as historic as it was to see those first nodules up the pipe, perhaps the most important takeaway from these trials was a wealth of data gathered on the environmental impacts of nodule collection.
Let me share some more detailed information on the important work done by our partners during the environmental impact monitoring campaign, which is part of our $100 million environmental and social impact assessment.
We've engaged some of the world's leading research institutions and companies as part of our E. S. I a program.
In 2022, we collected over 200 terabytes of data alone in March we announced that Norrie had begun submitting data collected during 17 offshore resource definition of environmental campaigns to the I S. A's deep data platform.
The first submission of benthic data, which includes over 270000 occurrences will provide a significant expansion to the biological holdings contained within the deep data platform.
And once fully collated and categorized we expect that the deep sea dataset for the Nori D area alone to be the most extensive catalog of its kind on the planet, which will be available to all of society.
I'd like to play a short video highlighting some of the biological sampling work done during the environmental impact monitoring campaign.
I'm, Brian Omalley from Eckerd College in St Pete, Florida, and Almond benthic ecologist and I'm here on campaigns seven a leading the work scopes of environmental DNA invented form an effort.
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Huron seven a R T setting ecological baselines of environmental health of the benthic environment, which means the sea floor in all of the biological communities that live on this before.
For our first work scope, we're sifting through this PPP sediment for these tiny armored amoebas call benthic Foraminifer theyre. The most ubiquitous organisms down in these deep sea abyssal plain regions. They are very good bio indicators for ecological health because they form the basis of the food web along with bacteria and organic matter and they will be.
Important to monitor before and after this quarter test.
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For our second work scope is environmental DNA or E. DNA organisms are constantly shedding their DNA into the environment. This all gets entrained in the sentiment we can actually with sequencing and get an idea of the entire communities. We will then compare it to a post collector tests sampling and see how this has changed overtime.
I really hope that this research will set a precedent among any future industries relating to the blue economy of setting environmental baseline and monitoring impact responsibly.
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Of course, it's the infield data gathered by contractors lack norrie and others that is forming a fuller picture of the environmental impacts and mitigation measures.
That we can expect in this area of the abyssal plain.
And this is particularly true with regard to sediment plumes, which had previously been the topic of much Hydro Bowl and speculation.
Leading experts in the field of deep sea sediment plume dynamics, including a team led by Professor Tom Peacock at M. I T as well as researches of scripts found that 92% to 98% of sediment disturbed during the offshore system trials conducted by fellow contracted GSR room.
Named within two meters of the sea floor.
And as they note and the conclusion to this study it's quite a different picture of what these claims look like compared to some of the conjecture.
And on our own ground in the Nori D area preliminary research conducted by leading experts a D. H I as part of our own collection system tests last year supports the findings of M. I T and he is a glimpse of this work in the short videos.
Yeah.
[music] My name is Amy banks to work for a company called BHI water environments or we specialize in building numerical simulations of what we can.
Cold water environments, the ocean as rivers estuaries mines, primarily from our decision support capacity.
We have considerable domain expertise and we're monitoring from a pilot quite your vehicle is moving at a good bit of settlement up occupancy button and it's generating a quote from a technical standpoint, we believe that a lot of these principles that we use to monitor and quantify the freight and transport of those kind of sentiment can be applied.
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Okay.
Our main purpose has been to supply the data collection devices and sensors for ehi, so that they can understand and plan where they need to put the sensors that can capture of the data from the Cocker vehicle, we put water quality data center, so ctd's they've got transmissometer.
They've got turbidity sensors, they have D O sensors ADC piece, that's for collecting occurrence getting the current data.
We've got some camera lenders on the seafloor <unk> got some other mid water moorings are that we can talk to we can query those real time with modems conductivity temperature death solidity, all those types of oceanographic water quality sensors.
So at the present moment, we have an array of fixed assets that are sitting in for MSP partners or instruments that measure the amount of suspended sediment and water using acoustic and optical backscatter will also have a similar instrumentation sitting on an RV and some in your view why around and try to reconstruct a three dimensional picture of the firm.
After the project will take all this information that's been collected and integrate them to build a numerical model but described.
<unk> suspended sediment and ultimately of spreading.
Other words, where it lands and how deep and subtle so more broadly that feed them through the environmental impact assessment of the Tia Maria project.
For the project.
The interesting part about this project for me is that we're working with the high Tech machines are working on a complex problem that quarter 200 meters developers with serious technical and logistical challenge try to take a picture of this three dimensional complex plume basically at a distance and trying to do something that very few if anybody.
<unk> has ever done before and it's quite exciting.
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So recently, we released the results of the comparative lifecycle assessment done by benchmark on the North <unk> project and key land based roots forgetting nickel cobalt and copper.
And for nickel minority project outperforms, all terrestrial routes in all impact categories assessed including global warming potential water consumption and waste generation.
I'd encourage you to read an extensive piece just released by the Washington Post last night to get a better picture of the environmental and human impacts of rainforest nickel.
This slide provides a visual comparisons comparison of nickel from the nori D as compared to nickel from Indonesian laterites processed via RK F and H Pal routes.
The impacts finery D are probably hard to see on your screen represented via a tiny blue line and even when compared to other forms of nickel supply in the bottom table nickel from noisy nodules and gain produces the lowest impacts versus all compared conventional sources that every impact category.
<unk>.
Soon we will be releasing the next part of benchmarks assessment, which quantifies the additional carbon impacts from land based mining associated with the lawsuit carbon sinks in the sequestration services that they provide.
To preview those results the gap between nodules and conventional sources is even greater when sequester carbon and carbon seeing saw considered.
And while carbon is immediately released into the atmosphere when woodland forests, which end up in the Dr. CEO will rainforest are removed in Indonesia. There is no known mechanism. So disturbed seafloor carbon to get anywhere close to the ocean surface or atmosphere.
One of the most remarkable yet overlooked opportunities around sourcing these metals from the C. C. Z is the fact that there is that it's far offshore and away from any human communities and that means that key social challenges that terrestrial mining faces such as human displaced.
And child or forced labor freshwater usage had exposure to toxic elements did not exist when collecting nodules and further unclos created a mechanism to ensure that developing nations could access and benefit from this resolved through the sponsorship as a commercial entity.
Quoting the former Imsa Secretary general of downturn in a speech in to the United Nations in 2011.
The original purpose of the parallel system and exploitation was to provide developing states with a practical and realistic means of participating in seabed mining and this is exactly what happened in the case of now ruined Homer.
He goes on to note. However that this wouldn't have been possible without sufficient confidence in the regulatory system from the private sector.
And with our sponsoring states, we receive access to this incredible resource and we get to partner with them via local grants scholarships and Etsy training.
They also already receive administrative and other fees and once we are in production. They will get substantial income via collection fees per ton of nodules and corporate taxes.
All of which will become a significant part.
Their country's GDP.
And I'd now like to turn it over to our CFO , Craig chassis to discuss valuation and financials.
Thanks Jerry.
So we will start with a familiar slide in March 2021, AMC consultants issued SEC Reg S. K 1300 compliant initial assessments of the project economics for the R&D area.
This initial assessment, which was a point in time analysis grabbed a net present value of $6 8 billion for an OLED at the beginning of 2021.
Now the synergy initial assessment is available in the investors section of our website and minority area <unk> financial model can be found beginning on page 310 of that document but to make it easier for modeling purposes. We've also added the excel tables from this initial assessment as a separate documents again investors dot metals dot com. So.
Of course running the same model simply updated for current metal prices. The net present value minority would be approximately 13 billion under 22% of our total estimated resource so let's talk a little bit about how these underlying project economics can and eventually should translate into evaluation.
Of the slide May also look familiar to many of you who are on our second quarter 2022, corporate update call, but it's actually now in.
In the previous version from last year, we compared price to fundamental value for land based copper developers compared to TMC and using the MPV of Nordea alone. We found that we traded at a discount or roughly 20 times.
On this slide put together with the help of Stifel looks at land base nickel developers instead.
And again the story remains the same <unk> is trading at 20 times discount to these micro peers.
Mall amount of that discount might be tens of course on the ISI uncertainty until the final mining code is in place, but there is also significant regulatory uncertainty on land as well, including for some of the names on this page. So if you just cut through all the noise of narratives the resources the resource and TMC you have an opportunity to invest in the largest nickel resource in the world.
We have five cents on the dollar compared to what you might pay on average for the same amount of its critical metal from land based developers.
On the next page lays out some of the critical milestones that we think can lead to major re ratings interpublic valuation and change this undervalued situations.
<unk> of course continued progress from the IFA, which John discussed at length noise.
Resubmitting, an exploitation application over the northern <unk> area.
The IFC granting an exploitation contract over an already and of course, the beginning our commercial production shortly thereafter.
Onto our financial results.
<unk> reported net income of approximately zero for the quarter ended March 31, 2023, compared to a net loss of $21 1 million or <unk> per share for the quarter ended March 20, excuse me March 31 2022.
First quarter 2023 results include a gain of approximately $14 million on the sale of about 2% royalty on ori asset to low carbon royalties exploration and evaluation expenses. During the quarter ended March 31, 2023 were $7 2 million compared to seven $4 million for the quarter ended March 31 2022.
General and administrative expenses were $6 $2 million for the quarter ended March 31, 2023, compared to $8 $5 million for the quarter ended March 31 2022 of.
The lower spending in the first quarter of 2023.
Flex lower share based compensation as options with specific market capitalization vesting conditions were fully amortized in 2022 and lower spending on the pilot mind test system as the collector test was completed in November of 2022.
Free cash flow for the first quarter of 2023 was negative $23 $5 million compared to negative $15 7 million in the first quarter of 2022, reflecting an operating loss of $13 $4 million pay down of working capital of $12 3 million due to some timing adjustments, partially offset with equity settled.
Expenses of $1 $8 million.
As of March 31, 2023, TLC held cash of $28 4 million and no debt.
Believes that our cash on hand, and borrowing availability under our recently signed credit facility with an affiliate of <unk> will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months from today.
So I'll now turn it back over to Darren for some closing remarks before we take Q&A from the audience.
Okay.
Thanks, Craig.
I've said, it before and I'll say it again the pieces are falling into place in the fourth quarter of 2022, all season, Norrie announced a major offshore collection achievements lifting of the 3000 tonnes of modules to the surface significantly derisking the technology of Nacho collection.
In the first quarter of this year, we announced strategic initiatives with Pimco and Bechtel and also announced additional flexibility on the financing front, including the $25 million unsecured credit facility provided by our partner <unk> and I continue to be encouraged by the ongoing financing discussions with a host of.
T J parties.
Now, we're seeing great signs on the last piece of the Jigsaw puzzle the finalization of the mining code by the I S. A.
As that important work continues our team will continue to work tirelessly to deliver the best possible application, including what I know is going to be a world class assessment of the environmental and social impacts of the first project in our portfolio, providing confidence to the world that nodules can be responsibly.
Collected and processed into key metals needed to the energy transition of our planet.
Thank you for your interest and attention with that we'd like to turn it back over to the operator for some questions.
Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone. If your question has been answered or you wish to remove yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
One moment for our first question.
Our first question comes from Dmitry Silverstein with water Tower research.
Yeah.
Good afternoon, gentlemen, thank you for taking my call congratulations on coming.
Coming up with a breakeven quarter here.
I understand there were some one time items, there, but still a good to see you guys are controlling your expenses from him.
Youre, keeping the company growing and accomplishing all these great things you talked about let.
Let me get into the questions first of all the kind of maybe it's bookkeeping, but the low carbon steel are the part of the wall carbon royalty, 35% going down to 32%.
Did I hear you right you ended up selling their 2% back too.
L P R.
No no so what happened Dmitry was.
I believe there have been additional transactions subsequent to the deal announcement in February .
So there were additional shares issued which resulted in the acquisition of very valuable natural gas resources in Latin America. So we noted that the Maria Conchita royalty, which other than our normal contribution 2% gross overriding royalty.
Maria Conchita royalty actually doubled in size due to the subsequent transaction.
And then there was an additional natural gas fuel required the senior nine asset owned by Engie energy So with those two transactions.
We increased the value of the natural gas elements of their portfolio T.
T M sees stake was reduced from 35% to 32%. So we think it represents a material increase in the valuation prospects of that entity.
Okay. So you can have a lower percentage of the company, but a higher.
Royalty revenue run rate anyway.
That's correct.
Okay.
Secondly, let's switch to them to the pimco.
Projects that Youre working on.
Can you update us on how they're doing with your samples and where they are in determining.
The feasibility of processing.
Polymeric nodules and sort of what would be the next step and how long would that take for them to figure out if they went out they can do the alloy.
Plus manganese.
Or they can take it down to math or even further.
Yeah, Hi, Dimitri. Thank you for your question.
Sure.
It's worth noting that <unk>.
<unk> had been processing nickel ore since $19 65, and so.
N D.
We're a very credible partner and of course.
The flow sheets, which they use the currently process materials nickel laterites.
Is identical to what we've been piloting what we developed with hatch involves a rotary kiln in electric arc furnace.
And so they know a lot about this and of course, we've been working with.
Tom.
Tom sample.
They're awesome.
There's a very active exchange between their team between our team between our technical providers.
Which is we've worked with over the last five six years and we expect that.
Soon after June 30, and I would suggest that's probably early in Q3, but not far away, we will embedded down the commercial terms that we can then.
<unk> and decide.
How we put that into a binding agreement.
So far a lot of information has been shared and we're encouraged by what we see and and of course, we will continue to push that along and and you know it's hard to imagine another mining project on land.
That can get started without having to spend enormous amounts of capital on processing, that's where the capital is normally spend and we've come up with a solution here and of course at the moment, it's it's not bindings and I will say, it's not the only solution possible. There are other solutions as well, but we.
Come up with a solution here and we've got a fabulous partner in Ponca who have.
Have great ruling.
That requires us to invest no capex, it's a very unique situation and normally of course, what happens with a typical mining project as you wait for the planet.
And then you have to go and get finance to build your processing in that processing is normally measured in billions of dollars. It's really expensive to build this so the fact that we've identified something where we can process a nodules will keep ownership of the material and pay our Italian arrangement is really unique to <unk>.
This project and you know this we often say it internally.
Of course, there are challenges getting a new industry started this project in this resource just delivers it really delivers benefits because of the nature of the resource of where it's located.
The process have been turning that that alloy material into mass.
Is straight relatively straightforward as a standard piece of equipment that you tag on the yen.
I'm, making it sounds simple and of course, our process. The engine is will be.
Hussein, it's not that easy Jared shortly.
That we've got an amazing team and of course, we've got great operators. So it's a it's a very low risk step to take that next step and of course, there is a sizable market for us to sell that alloy as well and of course, what we're constantly monitoring is the payables. We're confident of the payable number we can get to the alloy.
Which will be very attractive.
We project that the next step and there's no need to do that on the one O. Maybe even year two we will get higher payables will get approaching to all of them contain value of the nickel copper and cobalt. So it's purely a set of numbers.
That's very helpful. I appreciate that Gerard.
It actually leads me into my next question, we provided a very nice.
Flow diagram of <unk>.
<unk> from modules to the finished product.
And if you look at every stop you mentioned alloys manganese. So look it is the first step of them.
The converter slab.
The Max sort of upgrading.
And then finally getting to the nearer to the copper nickel and cobalt salts.
Ammonium sulfate, which is actually a great solution for or your waste on tailings.
Uh huh.
You talked about sort of the table that you can get at each of those steps is can you give us an idea and you know without talking about specific.
The dollar amounts, but maybe in percentage terms of copper nickel cobalt aluminum sulfate being 100%.
<unk> alloy manganese B L.
X percent on sort of what what does <unk> mean for you in terms of value realization for the modules.
Sure sure.
Good.
The manganese silica will get.
We will get 100% of the value there and in fact, we we had an independent company do a value in use report.
Which showed that we should get a premium and we've handed samples of that too many people in the market.
And they love the product they love it because our process takes a lot of the online.
And the material and that makes it a much more friendlier material to us in the steelmaking process.
As for the alloy, we're confident we can get between 65 and 70% of the payables and if we go all the way up to Matt It depends on the market, we might get 85, we might get 90% of the tables.
Okay. Okay. So that's peso.
A lot better mathematics that aren't but I envision going from start to stop.
Okay.
That actually leads me to my last.
Last question.
When you talk about MTV up 13 billion balance where the northern <unk> project.
That includes if I understand correctly by about 1 billion in Capex with you.
Would anticipate spending to getting the project fully develop if you were funding it internally.
You've pretty much secure the offshore.
Portion of the process of being turned back into operating expense versus capital expense with Europe with Europe or <unk> contract.
Pam call May allow you to do the same thing onshore. So when you really talk about MTBE.
I was really talking about pumping closer to maybe like sovereign kimberley's and $1 billion, assuming that you have to put in sort of $3 billion of your own capex.
Well, yes, it's a good question.
We've been very careful not to sort of update every number on this slide given the fact that for putting out something as definitive as an initial assessment and are eager to share some of the new project economics as we move past our pre feasibility work this year.
We want to make sure that we're not getting over our skis until we have sort of third party independent assessments done by qualified personnel.
However, what we've shown on this page is just for the most simple sensitivity of do not make those changes for Capex. As you noted, but also no change opex just change the metal prices, that's what the sensitivity in the model shows now importantly, we haven't said what could that $7 billion of Capex go down too it could be quite a bit lower than <unk>.
The later 3 billion that would likely until however.
Additional amounts paid in terms of operating expenses. So we have this great option in front of us to be able to enhance return on equity for our shareholders by reducing capex in exchange for Opex now does that mean, you would be achieving 60% to 70%.
EBITA margins no no that would be something smaller, but you would still have a very very healthy EBITA margin very strong positive free cash flow and doing it in a way that minimizes capex. So we don't get too specific on that but.
And also make another comment too.
At this point in time, whether we sell alloy or match or let's say take it all the way to the battery grade products on average basket of the metals is 30% higher than it was at the time of that initial assessment. So at the time of initial assessment, even when producing nickel sulfide and cobalt sulfate postwar was at a time.
Expected 2 billion of Capex for the refining work building facility from scratch in that scenario, you would be getting roughly $503 per ton.
We're quite confident that we will be quite a bit above that number even stopping.
Call It an intermediate map product for you.
Nicole Cool for example, so.
Have a nice tailwind when it comes to higher metal prices that allows us that flexibility to make these considerations about trading capex for Opex multimedia production very capital light.
Yeah.
Thank you Craig that that was helpful and my final question just to buy it all up together.
One of the biggest outstanding issues is the financing, which you need to get you there so.
I understand that the deal with Pam called May have gotten you into sort of conversations with maybe some new.
A.
New potential partners.
Is there can you provide any update on how that's going and sort of what your expectations are.
Forgetting either project level financing or some other debt financing.
To allow you to complete to bring those projects to conclusion.
Yeah sure look we have stated.
Several times in recent updates that we remain focused on asset level financing.
You know, it's interesting what's happened to our equity value since being a public company. It hasnt been a very impressive chart at the same time.
Now underlying assets as you've seen on Norrie D has doubled in value almost and so it's hard to reconcile that now.
The good news is as we've shown through recent financing, including the $30 million that largely came from existing shareholders in August 2022, and most recently from <unk>.
Our largest investor <unk>, the $25 million, we announced recently the current shareholders.
Our prepared to keep supporting this company. So that's good.
We know this project is transformational in some of those metals, we know that because of the size and quality of it and as we get closer to removing some of the uncertainty.
And the uncertainty involves the permitting as calls and being able to demonstrate those environmental.
Impacts the fact that we can.
Produce reports.
Such as the one that benchmark produced and the other peer reviewed papers that are coming out are good indicators and so I think as we get closer to those certainty points. Both strategics that we continue to talk to.
It makes it easier and easier to get them involved and one of the tremendous things about this project is we're not talking about billions of dollars. We already have our first production vessel, which all season the hidden gem.
We've identified a processing partner that can get us processing. These nodules vanilla capex. So we're not talking about large sums of capital. So I can't say more than the fact that these talks are going are going well we're pleased.
Greg can talk more about the regular approaches we get from financings.
We haven't an at the market facility.
$30 million, we have a shelf registered a $100 million and you'll note we haven't used them.
That tells you we're very confident about the other steps that we have.
The other parts that we're moving down.
Okay I understand you Eric Thank you very much I appreciate the color.
Thanks, Jason.
Dmitry.
One moment for our next question.
Our next question comes from Michael Mcdonald with BMO. Your line is open.
Hey, guys.
And welcome and awesome.
Dmitry just asked a lot of other questions but.
Just regarding the relationship with Mercer.
Can you.
Provide some background on how or why the relationship with Mercer was initially.
Established.
And why they had been selling their position and kind of what their intention is for the future going forward with the remaining shares.
This has obviously been an overhang on.
On the tape so any color or clarity that you can provide there would be very very helpful. Thank you.
So yeah look going back to <unk>.
Part of it.
Extremely instrumental and a lot of our resource definition campaigns.
You had mentioned that you had.
17 on Oreo loan resource definition and environmental campaigns.
Of which were made possible by the Maersk contract vessel.
So they've been an incredible partner.
And they were very happy and eager to take equity and deep Green and then TMC of course.
For some of that compensation for being such a great partner.
The partnership ended at the end of 2021.
And this was really a natural progression given that.
B resource definition work has been completed the environmental baseline campaigns are marginally been completed of course those continue on with the analysis of that data continues but really we're moving away from that exploration pure part of the phase two now pilot mining so having all six carrying more of our water and especially.
Using the hinge on vessel, which would be our first commercial production vessel project zero was a very natural transition.
And during that time, there were some changes on Maersk structurally where this business was held in Maersk supply services.
Which was deemed the other element of their business. So this is really I think after the point that the.
The partnership ended it was kind of a noncore business in what was a noncore segment and then finally.
News came out earlier this year that.
Services was sold to the parent holding company. So in our view. This is not any sort of economic decision or anything kind of machines.
View of deep Sea mining overall, and certainly we continue to have a great.
Relationship with those guys on a personal level.
But you're right you can see from their filings that we've been selling quite a bit in the open market since the fourth quarter going from roughly 21 million shares to a small fraction of that.
So look it's been frustrating frankly to known that that overhang is out there and to see a lot of it is good news that's been coming out over the past few months, including really going back to the collector test last year. If you would've told us that after doing this massive historic collector test the first of its kind in the integrated test system since the 19 seventies effectively day.
Risking many elements of this technology, but of course, none of that is showing.
So many credit yet in the TMC share price. So again, we think this is a spring that keeps getting coil tighter and tighter as a lot of this good news has come out and I think that overhang, while it's been difficult.
And we're not too far away from that being behind us.
Realizing the potential.
On this massive resource.
Thank you very much.
For our next question.
Our next question comes from Jonathan Snowbird Partners. Your line is open.
Craig here, thanks for the time, Thanks Nicole.
Often update so far I think.
Sure Malcolm asked every.
Every question I had.
We haven't talked much about offtake agreements and I know, they're pankow Mou public was first to kind of understanding what products youre going to show in the market, but you guys have any given any thought to.
What youre going to do or how youre going to sell whether it be the alloy that matter if it'll be like an aftermarket processor up here.
Looking to find an off taker before this gets going on other projects here.
Yes, Hi, Frank.
What I can say is watch this space.
What's the space you see it as an important part of the future financing strategy.
And we're talking to strategics at an asset level and that also includes talks around offtake and.
Those metals are all in high demand and.
We're working hard on it.
Hopefully, we'll have some good news around that.
Before the end of the year.
Thank you.
And I'm not showing any further questions on the phone lines.
So we might take a few from the workshop.
So I see from Steve Clark.
He asked the U S because of an action by the U S. Senate is not a party to on cost and only as in service status at the IC meetings.
<unk> does have an outside influence in terms of the need for battery minerals, we seem to be playing both sides of the base on quickly passing rfps and exploitation licenses. So obviously the U S rule in proceedings. This July .
Well, it's a good question, Steve I think overall you know their role as observer will continue but the U S and does respect on costs and the ISC mandate over the high seas in the U S of course funds a lot of EIC operations.
Along with many of the other member states.
But you're absolutely right. We've got a lot of the demand for these metals is coming from the United States, which if youre looking at nickel manganese cobalt U S effectively has zero or de Minimis primary production all three of those.
So I think on one hand, while the U S may not rise above observer status anytime soon and may not be much of an active participant in the debate and actually getting these.
Final rules and regulations as part of the mining code.
To the finish line.
The U S does certainly have a need for these metals and you've seen a lot in the inflation reduction Act for example.
Funding from the U S Department of Defense and Department of Energy, which shows that there is a mandate to get primary production of one of these metals.
There was a letter from Senator Lisa Murkowski in 2022 to the U S Department of energy wondering why is the what's not doing more wide dividing.
100 days supply chain review not focus more on these on the response from Secretary Granholm under Department of Energy was on the U S is well aware of that.
While this topic was beyond the scope of the report that they're well aware of the potential of modules and I believe I'll paraphrase or quote that eventually the U S. Does expect this will be a significant source of future supply.
So what we can tell you is that.
We spent a lot more time in D. C that we used to.
And.
So as Jerry mentioned on the optic.
<unk> to watch this space as well because we recognize that it is a very.
Important part if not necessarily for the IC process, but certainly from a narrative around these battery metals.
Okay.
Andy Whitmore I appreciate the question there too we had one on Maersk. So I believe we answered that Melco Mcdonald Jeremy a question here from David <unk> from Edison Research do you have any update on the recent norrie over full report and the engineer who will review of the airlift system required.
So perhaps you can talk a little bit about the ISO audit of that.
Second question on it will be this impact.
The impact would be required before finally for further commercial operations.
Sure look the.
What I could only described as a.
Ah much over exaggerated events and of course the.
Hidden gem had about 125 people on it including many scientists.
We had an observable with more than 80 people on it many of them scientists sensor.
I heard some people say that.
We weren't as transparent which is total nonsense.
We had a procedure in place.
As soon as possible, we closed down the system.
We made an assessment we notified the regulator.
Hmm.
Which.
Basically we found the VIX and the fix was of course was the transport mechanism, which is water that is used to carry the modules up to $4 three kilometers of pipe.
Colorado and as it turned out the collar needed to be a little bit taller.
And so all fees.
To their credit we're able to fix that in seats you and it took a couple of days and of course, the system restarted and it knows such problems reoccur.
Let's just put this in perspective, you know we were lifting water and a small amount of sediment and so nodules from the bottom of the sea for and some of them spilled off the side of the boat and so the material that came out of the ocean went back to the back into the Ocean and so you know there was a risk of any serious.
Harm and of course that is the purpose of these trials that's exactly why you do it and there were some learnings to be taken away from them. So.
There were other things that we learned along the way as well and of course, you know we're fortunate to have such a high quality and experienced partner and also you sued for 37 years have been solving very complex problems in the deep ocean and they operate production vessels lane are very.
<unk> infrastructure pipes for the oil and gas industry 24 hours, a day 365 days, a year and some of the vessels and so they're able to identify and fix these issues.
No it was.
Of course, there are some learnings over those learnings will be taken into the full production system.
And I know that the regulator carried out a full review they sold some external advice to to review the review.
And I think everyone was satisfied.
We have time for one more question I think we'll take it from the webcast.
Unless operator kind of if you see any other Q, let me know, but one for Brian <unk>.
Is enhanced worker safety appeal.
Is it an appeal for the offshore companies that are showing interest in collecting polymer telecom rules.
Love Your perspective on this two overall on where some of the factors that.
Some of these offshore companies and we're getting increasing headlines about offshore companies looking at the space and putting resources to it.
Brian Yes, I think that safety is certainly one but also it's really an opportunity to repurpose existing assets.
But also devote capital and really into the human capital as well a lot of the talent with an offshore oil and gas that now as we decarbonize as a society over the course of the next few decades, there's obviously going to be exponential growth in demand and it's a great opportunity to take existing assets and really talented workers and devoted to.
Our new space, but it's a new space that may know very well and just like our partner <unk>.
Expertise in operating in the deep ocean with very low temperatures and very high pressure, it's a unique set of skills.
So we're really happy to have that sort of expertise.
Display and I know a lot of that was a big theme of the op.
Sure Technology conference in Houston earlier this month.
Indeed.
So I think that's it for the Q&A, Jerry I'll turn it back over to you for any closing comments.
Great.
Well. Thank you again for taking the time to join US for this conference call.
We look forward to sharing even more progress on our second quarter corporate update call in August .
To the metals company team and our suppliers and contractors and board members.
But especially to our team. Thank you for an amazing quarter.
<unk> for the enormously high level of commitment that you bring to this this mission and we look forward to speaking to all of our shareholders again in August .
Thank you all.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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