Q2 2023 TMC Metals Co Inc Earnings Call
[music].
Good day and welcome to the metals Company second quarter 2023, corporate update conference call. At this time, all participants are in listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
As a reminder, this call's being recorded I would like to turn the call over to Craig Schatsky CFO you may begin.
Thanks Michelle.
Please note that during this call certain statements made by the company. It was always before bookings based on management's beliefs and assumptions from information available at this time.
These statements are subject to known and unknown risks and uncertainties.
Any of which may be under our control, including those set forth in our safe Harbor provisions for forward looking statements can be found at the end of our second quarter 2023, corporate update press release.
Statements May also be found in our annual reports on Form 10-K for the year end December 31st 2022, and other reports subsequently filed with the FCC, including our 10-Q for the quarter ended June 32023.
They provide further detail about the risks related to our business. Additionally, please note that the company's actual results may differ materially from those anticipated and except as otherwise required by law. We undertake no obligation to update these forward looking statements.
Our remarks today May also include non-GAAP financial measures, including with respect to free cash flows and additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures, which can be found in the slide deck used with this call and of course, you're welcome to follow along with that slide deck work joining us by phone you can access it at any time.
Investors don't metals Darko.
Now first of all I'd.
I'd like to say, thanks to everyone for joining on this quarterly update conference call and.
Given all the news flow and progress in the last few weeks June 30 does feel like ages ago. When we ended the quarter, so before getting into the presentation and turning it over to Jared for of course has been on the road nonstop and summer building support for T. M. C. We just like to remind you of some of what's happened in July alone and its industry.
First of all there are multiple articles from the economist magazine in early July which concluded that the trial is now for the responsible collection of seafood in tangibles and this assertion was followed by an interview in the Guardian showing strong support for seats more money from director and deeply explorer James Cameron. It's personally completed 75 deep dives and have seen more abyssal.
Florida than pretty much anyone else on the planet.
Importantly in the U S. Theres the passage of the House version of the National Defense Authorization Act in mid July , which prioritizes the delivery of a plan a natural processing and we're finding from the Pentagon followed up with a letter from nine Congress people to the president.
And the Secretary of Defense Imploring, the White house to focus on modules as a matter of National security.
Finally, we saw the conclusion of the July session in which compromise was reached between member states to continue work on final rules regulations and procedures also noticed the mining code over the next three sessions in November 2023 March 2024, and July 2024, after which point T. M. C subsidiary Norrie intends to submit an application.
<unk> S. A for an exploitation contract for Nora area deep.
Importantly, the IAC reiterated their obligation to consider a plaintiff work when we're ready to launch it in consultation with their sponsoring state.
He does reserve the legal right to submit an application before final regulations are in place now.
Now focusing very quickly on the I'd say picture of course, we would've liked to exceed in the ISC fulfill their legal obligation to deliver the mining code in 2023.
Targeted but we believe that the hard work and compromise reached in July has increased our regulatory certainty and as we've always said, we will not submit an application for an exploitation contract over the north area D until we finish a world class environmental and social impact assessment, including an environmental impact statement is a key component of our.
Patient.
So considering the initial resorts results that are starting to roll in particularly on bio diversity in whom impacts we are confident that noise application will show the isa's legal and technical Commission, the IFA Council and stakeholders around the world that natural collection can be done responsibly and at the scale that moves the needle in the quest for new sources of these metals, which are.
Needed of course for the clean energy transition.
Now onto the agenda today.
Dave will take you through the following items summary of the recent corporate news, including the capital raise of $2 per share.
A brief market update or a reminder of pmt's value proposition further detail on the regulatory front.
A review of the environmental case for poly metallic modules based on the information that's been coming through and finally, our financial update.
So following a very eventful July TMT released a corporate update on August 1st leg of the estimated project timeline to production cash needs and developments related to the project zero offshore system.
As shown on slide here at TMC subsidiary Norrie intends to submit an application to the RSA.
For an expectation contract over an already area D. Following their July 2024 meeting and assuming a one year review process and approval Ori would expect to be in production in the fourth quarter of 2025.
So as the RSA is continuing to regulatory work, nor we will continue with scientific work.
And based on the feedback received from the <unk> legal and Technical Commission.
Now going to accelerate the timing of the new post collection test campaign. This year focused on environmental regeneration of last year's collection test area.
<unk> 3000 tonnes of modules were successfully lifted to the surface.
We believe this environmental campaign will ultimately strengthen the quality of our application.
And our partner at all CS will also used the time well with new Oriental seasonal planning for increased production capacity for the project offshore system using the hidden gem vessel and adding a second collector vehicle from an estimated $1 3 million tons per annum to a new estimated 3.0 million tonnes per annum potential increase of 130.
Percent.
Of course to deliver a high quality application for an expectation contract. We told the market on August 1st that we would need an incremental $60 million to $70 million of cash on top of our existing cash balance, but not yet, including any drawdown on existing $25 million senior unsecured credit facility that was extended through November of 2024.
So the next slide walks through some of the liquidity and capital resources, we have at our disposal and.
And we have been very clear that we prefer to raise the majority of funds needed to reach first production at the asset level potentially through earn ins or steak sales off takes of royalties.
However, these asset level discussions do take time and as those discussions continue we do need to keep the pace up all the milestones that are being delivered including the recently announced acceleration of that post collection test environmental campaign.
So we made the decision to raise some funds at the plc level to keep the development of this world class asset contract and this morning, we're happy to announce a capital raise of approximately $27 million in gross proceeds of $2 per share alongside our path forward with an exercise price of $3 per share and a forced exercise, but also that it is a call provision if our <unk>.
Your price trades above $6 50.
For at least the 30 day volume weighted average period.
And Theres also the potential for raising up to an incremental $11 million by mid September at the same terms and this rate was granted to be investment advisory clients of certain participants in this transaction with the extra time to allow for some additional compliance documentation.
And the current market the vast majority of follow on offerings are issued at discounts to the current share price. So the execution of this transaction and an 82% premium to Friday's close is a major show with force by both our existing and new investors.
So again, we'd like to thank everybody, who participated I know Jared would like to thank some of them as well Jared and I. Both participate in the offering has been double directors our partner all seats and one of our single largest shareholder Hungary car car.
And with that I will turn it over to Jared.
Walk you through the rest of the presentation Jared. Please go ahead.
Michel who we lost Jared if so as we're trying to get them back on I'd be happy to continue with the presentation.
Jared you may be muted.
Please still connected.
Hi, Jared I'll go through some of the slides here and a few connections better feel free to interject I know it must be hard doing this while being on the road.
But onto the market update so we try to do our best to avoid all the media noise around TMC.
But we did feel a shift in media coverage during the last quarter. The economists took what we think is a brave and considered position on the topic with security to verticals and supportive Nigel collection as well as an analysis of the inevitable social and environmental damages to alternatives like Indonesia reinforce nickel.
No less striking with news that film director and prolific deep Ocean explorer James Cameron spoke out in favor of mining <unk> four in the Guardian as a means of taking pressure off of terrestrial ecosystems and human communities and to quote that article directly.
He said I've seen an awful lot of seafloor and while there are some amazing creatures they tend to be clustered in small habitat, what you, mostly habits miles and miles and miles of nothing but quite.
But mining and highly sensitive and highly diverse habitat because they're very very different tank reminding of the abyssal seats for the impact on actual human beings on actual indigenous cultures that are being destroyed their tribal lands being destroyed habitat that they required to survive being destroyed it's pretty horrific and we agree and we expect that more thought leaders will continue to come.
Out of the Shadows and present nuanced science driven views on this topic rather than activates narratives.
Interest in our industry from countries. The company continues to grow and last quarter. We discussed a handful of these developments, including news that Norway was preparing to open its E Z to mineral exploration exploration.
And that offshore leader Transocean will be providing a Samsung 10000 drillship for conversion into a natural production vessel ahead.
Ahead in Belgium contracted GSR is integrated system test currently scheduled for 2025.
There have also been many headlines around China's decision to step up deep sea Nigel exploration and their increased involvement in IFA activities and this has mobilized action elsewhere around the world, including Washington D C.
Congressional leaders have actively been engaging the bite administration and defense Department on the topic of <unk> resources.
<unk> them to ensure nodules are assessed at viable resource to secure critical minerals close supply chain vulnerabilities and counter increasing Chinese investments in the states.
Last month, we were delighted that the department of Energy's inclusion for poly metallic nodules as a means of increasing basic supply availability of critical minerals. It gets critical material assessment.
And as the U S looks to its allies for supporting Us in Denver, The U S. Japan critical mineral trade deal that was signed in March it dovetails perfectly with our own intention to process modules initially with pimco in Japan and that paves the way for downstream consumers to retained <unk> credits from Japanese supply.
And I believe that our Jared has joined US again, so Jared I might turn it back over to you. If we can if we can hear you yes.
Proposition Quad.
Okay can you hear me now.
Yes, we can.
Great apologies for that so onto our value proposition. These slides should be familiar by now outside London algorithm quickly as a reminder, on our resource size and resource grade.
Orient hommel areas containing cte quantities of nickel copper and cobalt manganese equivalent to the requirements of about 280 million vehicles are roughly the entire U S passenger fleet.
In March mining Dotcom released their updated 2023 rankings of the world's largest undeveloped nickel projects and the top two remain the same again this yet tmc's norrie at number one and Tmc's Tamil at number two.
And axiom within the resource sector is is that a result needs to be the very large or high grade to be successfully developed and profitable across commodity cycles.
TMC is an outlier among peers with the largest nickel equivalent resource and the highest grade with minority D nodules, having a nickel equivalent grade of three 2%.
With four key metals in the same results.
Likely that it would have been tapped ages ago.
The results as occurred on mines, where grades metals like nickel and copper had been going down the decades and of course several consortium attempted to develop this resource in the 19 seventies, including BP and shell and Sumitomo and U S steel among others.
Successful successfully collecting thousands of tons of nodules and processing them.
There was not a regulatory environment to allow the exploration and then the exploitation of resources in international waters, and we now have the former and we soon expect to have the LASA.
I'd like to now play a short video summarizing the iOS ace structure and the application process. So that is on the sorry on the video is just under three minutes long.
The noisy area is located in the Permian in the past.
Litigation between Hawaii, and Mexico in International waters.
PMC wholly owned subsidiary is sponsored by the Pacific Island Nation of Norway.
Mineral exploration activity.
Regulated by the international fee Bejel authority and inter governmental body established in 1994 under the UN convention on the law of the sea.
It consists of 168 member state plus the European Union.
<unk> is headquartered in Kingston, Jamaica.
And I know that the secretary at the Assembly to thank Keith All the 168 member States plus the European Union. The 36 member Council elected body Assembly and advisory bodies, including the legal and Technical Commission. The LTC a panel of 41 expat that with these applications.
Recommend plans of whack since 2011, <unk> has had an exploration contracts with VLSI to conduct its resource evaluation environmental baseline studies, and Nacho collected test and monitoring whack.
Noise environmental baseline program with designs based on resi and recommendation.
Exploration work nearly complete we are now preparing an application to the ISI exploitation contract to begin collecting know Jos on the noisy area on a commercial scale l'oreal.
<unk> anticipates that its application to commercially connect poly metallic note Joseph in FCC.
That will be the world fast.
More than 10 years in the making this complex body of work will consist of a comprehensive environmental and social impact assessment at detailed mine plan production and operational plans and procedures and mine closure plan.
Once completed the noisy Nacho project application will be submitted to the ISI.
A review by the legal and Technical Commission that will also be a stakeholder review and comments period. The LTC will then make a recommendation to the council, which decides whether to reward and exploitation contract.
The IFA review processes.
To take approximately one year.
If the application is approved Norry would then be kit for <unk>.
Thank you.
On the annuity area under continued monitoring and evaluation.
So at the end of the <unk> of July the ISI closed part two of its 28 session and while some are waiting with bated breath for a thumbs up thumbs down done then the reality is that this is an ongoing process and.
One that the OSA members are legally obligated to fulfill as such it's not a question of this this new industry begins that when.
We were pleased to see the high level of motivation and collaboration among members and the significant progress made in Kingston for which I would like to express my sincere thanks to all member states.
The fact is this is a massive body of work and given the nature of multilateral negotiations. It was clear the parties need more time to fulfill their legal obligation that deliver in the mining code.
After carefully listening during last months I'd say meetings Norrie now intends to submit an application following the July 2020 for <unk> session.
This will give us more time to strengthen our environmental dataset through an additional offshore campaign to measure ecosystem recovery one year on from our 2022 integrated system test, while providing time to the three additional counsel sessions ended the session of work outlined on the under the Isa's agreed roadmap for adoption.
In 2025.
The latest ISI meeting as in prior sessions. So a clear majority of participating states expressing their continued support of negotiating robust robust regulations that ensure the protection of the marine environment in line with their legal obligations 21, ISN member states, representing a minority of the <unk>.
169 assay members under strong pressure from Ngos have called for a precautionary pause a moratorium or in one case, a ban on deep sea mining.
However, the legal obligation on member states to deliver the mining code has not changed and this obligation was reiterated in July following a compromise consensus decision reached.
We believe the finish line is now with insight and we look forward to the consolidated regulatory taxed at the next meeting in November this year.
And while neither media reporting often only focuses on countries highlighted in yellow, sometimes ignoring entire continents. The UN convention of the law of the sea in the 1994 implementation agreement documents that are legally relied upon by developing member states such as <unk>.
Our sponsoring states now ruined Tahoe, who through this system have a means to participate in this new industry and help solve a climate change problem, which they did not create.
And turning to our environmental program, we've engaged some of the worlds, leading marine research institutions and expert industry contractors.
In 2022 alone we gathered over 200 terabytes of data largely as a result of our successful integrated system test and environmental monitoring campaign to provide verified infield data as to the environmental impacts of collecting nodules.
The well this wealth of data can be added to the to that compiled from the 17 offshore resource definition and environmental baseline campaigns that norrie has conducted over the past decade data, which has now been published in peer reviewed papers and made available via public databases.
In July we announced that data submitted by <unk> deep data platform had been published to the Ocean biodiversity information system or <unk> platform, the world's largest scientific knowledge base on the diversity distribution and abundance of all marine.
Organisms and with data from just two of noise 17 campaign is now available on Otis Norrie has become the single largest data provider to this ISI node, providing 60% of total records.
As one of the largest funders of scientific research and the devotion. We're delighted that our investment of time and money is paying off and we look forward to sharing additional data from our campaigns as well as all remaining data concerning ocean geochemistry symmetry and pelagic pelagic by diversity in the coming.
<unk>.
So while we go through the labor intensive process of analyzing this wealth of information the benefits of making this open to society are clear.
Since publication in July noise total dataset has been downloaded some 300 times and specific interrogation of taxa has seen norrie occurrences downloaded as a 22 million times.
In addition to biodiversity another key impact we consider is the impact of sediment plans, Gerry and often Nacho collection.
And while speculation continues to cloud the water as to the environmental impacts of sediment plans multiple lines of evidence and now providing a much clearer picture as to how far these plans are distributed.
Leading experts in the field of deep sea sediment pond dynamic reducing to team led by Professor Thomas Peacock and M I T and.
And researchers at Scripps have found that 92% to 98% of sediment disturbed during offshore system trials conducted by fellow contracted GSR remained within two meters of the sea floor.
And as they noted a conclusion to that study it's quite a different picture of what these claims look like compared to some of the conjecture.
And on our own ground and minority area preliminary findings by leading experts at DHA support defined empty.
The teams had over 15 monitoring stations to Manav to every aspect of the plan and noise during noise collected trials last year and.
I'm using this data DHA have built a model that bring some clarity to how plumes actually behave at these extreme depths and I'd like to show you a short video clip with discipline.
Okay.
So based on.
Preliminary plume data collected during last year's test mining. This video highlights that a combination of fluctuation impeded water movement at the sea floor in the formation of a density current where the mixture of water and sediment spreads under its own weight not through transport from background cards have a P.
Profound effect on <unk> dynamics.
The cloud represents the plan that was generated in the colors show the different densities with yellow representing the highest density of sediment particles in purple, the lowest and the purple and blue bonds represent sediment contracts.
Concentrations of less than 20 Mg of Liza.
Which would <unk>.
Not be visible to the naked eye.
And what's important to note here is that the disturbed sediment settles rapidly with early projections, indicating that impacts from the plan will be highly localized around the mining footprint.
<unk> are highly unlikely to extend beyond the boundaries of the contract area as previous speculation as predicted <unk>.
Speculation, which of course was based on zero infield observation.
The final results of noise planned study will be released in the coming weeks, but based on these preliminary findings we have seen a radically different picture to some of the colorful claims put out there by actavis.
On this page this is a still image from the blues Harold film with speculative modeling of fluid impacts in the tunnel exploration contract area denoted and read it.
It's meant to look as scary as possible, but we're now getting infield observed data that shows a very different reality.
Preliminary data collected on <unk> generation <unk> test mining indicate that the combination of fluctuation and Peter water slowed.
Is that the dental boundary layer and the formation of the density cards at the seabed have a profound effect on <unk> dynamics, resulting in rapid settling a distributed sentiment.
In early projections indicate that impacts from the flu will be highly localized around the mining footprint.
And are not predicted to extend beyond boundaries of the lease. So this new information makes the plume models that have not been informed by actual data collected during test mining as simply uninformed highly speculative and gross exaggerations of the expected situation.
So we've taking you through how we think about measuring and mitigating the absolute impacts that don't feel collection, but it's also important to consider the relative impacts so nicole the country with the highest production also happens to be one with the highest species richness Indonesia.
In contrast, the abyssal desert is the planet's most common ecosystem covering over 50% of the surface.
And while it does have some important biodiversity the biomass the amount of life on the sea floor at 4% to six kilometers depth is a fraction of the amount of life for example, where nickel laterites without.
And even less than that found in our deserts on land.
In the absence of sunlight. This is a region with zero flora and fauna. There is must contend with extreme pressures low temperatures and poor availability has sued at depths of over four kilometers.
But a lower quantity of biomass.
To be impacted is just the beginning of what sets <unk> apart from conventional metal production on land.
We recently released the results of a lifecycle assessment conducted by benchmark, which compared the nori area D project to key land based production ramps.
Representing I'll put it 90 decided the supply for nickel and cobalt and roughly 60% of copper and nickel the Norway project outperformed all terrestrial routes in all impact categories assessed including globally global warming potential water consumption and waste generation.
So we believe the potentially lower carbon equivalent emissions level of sourcing key materials for nodules will ultimately drive customers outweigh, particularly as we continue releasing data from the ESI, a which supports findings from benchmark and with the development of battery passport and <unk>.
Other initiatives like carbon pricing customers will need to compare the carbon footprint of a kilogram of nickel produced from TNC nodules with that same kilogram of nickel produced from mines on land.
And thanks to science based tools and studies such as that prepared by benchmark. We believe the case the nodules is very strong.
I would now like to turn it back to Craig to discuss the financials in valuation.
Thanks Darren.
Sheridan all of our previous update calls in March 2021, AMC consultants issued an FCC Reg SK <unk> hundred compliant initial assessment of the project is about economics for that area.
Pete.
Jared you may need to go on mute I think theres a bit of an echo.
This initial assessment is available in the investors section of our website and <unk> financial model can be found beginning on page 310 of that document.
In the initial assessment arrived a net present value of $6 8 billion for North didn't you at the beginning of last year running the same model simply updated for current metal prices. The net present value of <unk> would be approximately $10 billion today.
And yet the market cap on Friday's close represented only 3% of that fundamental asset value again, whereas only 22% of our <unk>.
Total estimated resource and this compares to appear nickel developer average of 38% of that price to fundamental asset value. So.
So cutting through all the noise in all of the narratives. The resource is the resource Andrew TMC and Investor can get exposure to the largest and second largest nickel projects in the world.
Roughly 90% discount to what you might pay on average for the same amount of its critical metal from land based developers.
So what might happen to begin to change this valuation gap.
Page lays out some of the critical milestones ahead that can lead to re ratings in our public valuation the.
The capital raise we announced today is certainly a sign that these new and existing investors, who know TMC very well are increasingly convinced that the likelihood of these milestones being achieved including reached.
Reaching definitive commercial agreements with our offshore and onshore partners continued progress from the IFA, which are discussed at length.
Laurie submitting that exploitation application for <unk> following the July 2024 IFA session.
Eventually granting norrie and exploitation contract and then at the beginning of commercial production shortly thereafter.
Onto our financial results for the third quarter excuse me the second quarter TMC reported a net loss of approximately $14 1 million for five cents a share in the second quarter of 2023 compared to a net loss of $12 4 million or five cents a share for the quarter ended June 32022.
Exploration and evaluation expenses during the quarter ended June 32023 were $8 1 million compared to $10 2 million for the quarter ended June 32022. The decrease was primarily due to a reduction in share based compensation.
Recent spend on Pmt's environmental studies as a collector test was completed in November 2022, and reduced exploration activities. In 2023. This was partially offset by an increase in the 2020 through period on pre feasibility studies and mining technological and process development due to engineering work, which commenced in the fourth quarter of 2022.
Yes.
G&A expenses were $5 1 million for the quarter ended June 32023, compared to $8 1 million for the quarter ended June 32022 the.
The lower spending in the second quarter of 2023 reflected lower share based comp and a decrease in insurance costs incurred during the second quarter of 2023.
This decrease was partially offset by an increase in personnel travel and other expenses.
Second quarter 2020 results include a loss of <unk> 8 million.
The change in fair value of warrants liability compared to a gain of $5 7 million in the comparable quarter of the prior year.
Free cash flow for the second quarter of 2023 was negative $8 $5 million.
Compared to negative $22 9 million in the second quarter of 2022, reflecting an operating loss of $14 1 million an increase in payables. The decrease in prepayments of $2 $1 million due to timing, partially offset with equity settled expenses of $3 5 billion.
Onto the balance sheet as of June 32023, P&C held cash of 20.0 million and held no debt.
And we believe that our cash on hand, along with the equity raise we just announced and the borrowing availability under our recently extended credit facility with an affiliate of <unk> will be sufficient to meet our working capital and capital expenditure commitments for at least the next 12 months from today.
I'll now turn it back over to the operator for some questions and then Jerry we can probably say you're closing remarks for after the Q&A.
Thank you if you'd like to ask a question. Please press star one one.
If your question has been answered and you'd like to remove yourself from the queue. Please press star one again.
For questions.
Okay.
Again, Thats Star one wanted to ask a question.
Our first question comes from Dmitry Silverstein.
With water Tower research your line is open.
Good afternoon, gentlemen, and thank you for taking my questions congratulations on the.
The new financing that you guys were able to arrange and maybe I will start there.
You are a company that's got to spend a lot of capital going forward to get your project online.
Typically when companies like that tried to raise capital.
Unusual for them to get a premium to the stock price, let alone a significant premium as you have gotten.
And then obviously with the warrants being higher priced can.
Can you talk about sort of what do you think it's SaaS about the smart money and how they feel about the business that you're in and the opportunities that's in front of you.
What wasn't really that drove the confidence that you may investors too.
Sign onto this term sheet term sheet with such a high premium to the to the current stock price, which of the stock price as of yesterday I should say.
Today.
Okay.
Yes. Thanks for the question Dmitry happy to answer first and Cherokee.
In as well.
I think the asset is the asset. This is a very very large with a resource that we're developing and very high grade.
And I think there's a recognition that.
Certainly from our existing investors or partners like all fees.
Our.
Largest shareholder and director Andre car car, but also for institutional investors, who have really been building positions over the last year, who recognize that this is.
Portfolio of metals for in one single resource that are increasingly important for the clean transition the political tail winds are blowing in the right way. We've now de risked be offshore technology, we derisked. The onshore technology, we've signed up additional partnerships to get us some production.
You said that it would be a lot of capital, but I would say capital relative to what you're measuring it in terms of per ton of metal that's actually very small amount of capex needed to get this project into production.
I think there is also a bit of a technical dynamic here too though.
After going public it's been a very rocky road in the public markets, but there had been a lot of rotation away from people, who are perhaps traditional stack investors to now building backup and institutional investor base of folks that can.
See the long game and once you talk about on the Derisking milestones that we've achieved we're now narrowing into one.
Question, which is when is the final code coming in when is it or are you going to apply and begin first commercial production. So we've really narrowed a lot of those risks down to that process question. I think we now have more clarity on it yes. It was disappointing to see elongation of the timeline, but we think theres more certainty now associated with that timeline.
What probability weight or are you willing to put on us getting that contract approval to begin work as we see more environmental data, we think that is very high.
And being able to apply that to a very undervalued asset based on NPV. It leads to a recognition that the share price should be higher and I think the capital raise reflects that.
That makes sense correct. Thank you.
<unk>.
Talking about financing and kind of staying on this topic one more time.
The slide seven where you provided sort of your liquidity capabilities.
It did not include the $27 million raise or potentially $38 million raise.
On the exercise of about $11 million more in stock and warrants.
Does that sort of review is it's part of the $30 million $70 million shelf registration I would assume.
So is that where the where actually be deducted, Nick what I'm thinking about your total capital raising capabilities.
Yes, yes, that's right and obviously two upon exercise of warrants north of $3 that would be more cash in the door as well, but thats right capacity on that $100 million S. Three shelf.
Got you you mentioned political.
Headwinds <unk> changing at all but.
We're kind of seeing a carrot and stick a little bit here with the caret, perhaps being the U S government or at least the article one part of the U S government getting more concerned about American independence from China.
And then obviously you have the spec of Chinese becoming much more aggressive in pursuing this type of resource how much do you think that will have an impact on the discussions by the ISI over the next three recessions and how do you feel about the probability of.
Getting the mining code at least to the point, where you can submit your application and Kevin and having it evaluated on a reasonable chance of getting approved.
Okay.
Yeah. So look I think the the reason that we mentioned that we would not launch the application until after the July session next year was really a show a good faith on our side because we didn't want member countries to be looking over their shoulder thinking that an application might land on the desk.
Tomorrow.
What we want everyone focused on is completing the mining code people have said, we'd like the mining code to be in place.
But of course article 15 was introduced into impasse in 1994 for very express purpose and so we maintain our legal right to launch that application, but were confident from where we sit that combined with the.
More than a dozen intercession of working groups plus three more sessions, where the ISI member states will meet that should be enough time to get the mining code completed and so.
I guess, what we did was read the room there, but obviously geopolitics is playing heavily on all of this one of the.
It was nice to see China V. So forthright is probably the right word down at the RSA, but of course, they wanted to learn you have Japan, and Korea, and Singapore, and Norway, and all of the African group countries in Argentina and Mexico.
And so I think that people wonder when they hear certain countries, joining moratoriums and thats not they are not saying, we don't see this happen theyre, saying, we'd like to see the mining code in place Okay. So weak.
The vast majority keep in mind, there's 168 countries plus the European Union and we're talking 21 of them have stopped their hand up to say, hey, wed like to see.
Or should we pause.
I think that as we did.
Display the environmental evidence that we are gathering.
And if those results remained consistent with how they are looking today.
I know that will engender confidence because there's another big dark cloud of course and that top cloud is what's happening today.
And.
For some reason.
All in the Ocean community don't want to think about what's happening on land today to secure these metals and today I'm in Chicago of course, Thats, where all of the growth in nickel production is coming from and is coming in with a very high price it's coming in at the cost is destroying the sequester carbon in those by diverse range for us it's coming at the.
Cost of pushing out indigenous communities generating lots of waste and tailings and I do believe that as our scientific evidence becomes more publicly available that it will produce a groundswell of support heading in the right way and so.
Geopolitics is certainly going to help that and of course it was encouraging to see the NDAA language recently, it's encouraging to know that the.
The Secretary of Defense is focused on evaluating as he was requested.
What are the opportunities to process nodules on north American soil. So they can secure mineral independence. So all of these things help and of course, we're in a unique situation because.
The other thing of course, when land based projects get a mining tenant and they've got to go out and build a heap of stuff they've got permitting risk on construction, they've got to be able to finance that construction, whereas.
This is unique as we've told the market before we've identified how we can process or nodules using existing infrastructure and that means we don't have that land base permitting hurdle to jump over we already have assets production vessel, which all season working feverishly on converting to a production vessel after the trials last year.
So these are advantages that we need to get better at communicating that I think the important thing is that more scientific evidence is going to build much more confidence and I think it is going to create a very very different scenarios like I described in the plume. It's one thing to speculate on what might happen.
Sure.
Let's get the data, let's get the scientific evidence to be able to make better more informed decisions and of course.
The wrapper of that as geopolitics and.
I think thats only going to help us as we move forward.
Alright. Thank you for that detailed answer and then one more question talking about the year that you are going to be put it to good use.
Before you apply for four P M.
For the.
Exploration permit.
Next summer or somewhere around there.
Youre looking to more than double the capacity of your project zero, you're going to generate.
Yes, Im assuming with these two.
Collection vehicles, assuming the pricing metal space got and where it is about $1 billion in revenue or so.
And you need about $60 million to $70 million more to get to the point of the application.
Can you parcel that $60 million to $70 million in terms of.
Breaking even between the environmental study that youre going to be conducting.
The areas, where you're already mined the operating expenses that you're going to be incurring over the next year.
And perhaps.
Obviously, the cost of basically more than doubling the capacity project zero.
Capex, what you may have.
$60 million to $70 million, how would you partition.
Between those main buckets.
Well I'll, let I'll, let Craig answer the answer that question in detail, but before he does just one thing obviously, we halted our accounts today, we don't have any going concern and I'm sure. We wont have next quarter either.
So we do have.
Cash and facilities available to us to get past that collection point submission of the application, but I'll hand, it to you Greg.
Yes, definitely and Dmitry that 60 to 70 of cash was from the August 8-K, So obviously the incremental amount we need to raise as reduced.
A dollar for dollar for what we are raising now and what we may raise with this sort of additional closing potentially by mid September .
With respect to the current cash and then what is needed to sort of fund it's to that application.
I would say roughly about half of the costs.
Are related to the application itself, finishing our environmental and social impact assessment pre feasibility work.
Obviously, there is some regulatory costs in there as well.
But the single biggest component of that application cost, there's no doubt about it the environmental and social impact assessment I mean, we're going to be talking about nearly $150 million that would have been spent on it by the time, it's complete and that would include the additional campaign that we are accelerating I think it's important to note as well that campaign. The post collection test campaign was always going to be par.
<unk> of our plans it was just going to be a bit later on.
As part of our environmental monitoring and mitigation program.
As opposed to doing it pre application.
But yes I think.
The remainder of the cost on the <unk> payroll G&A.
But also there is.
Some cost to keep the hidden gem today available right.
Obviously, we're going to be talking with our partner <unk>.
Quite regularly over the coming months as we've laid out we expect to get to binding agreement.
With them by the end of the year.
So it's a lot of different things that we laid out there but.
But yes, I would say about half of it is the application itself.
And the majority of that Athene environmental spending.
Okay.
Okay. That's all.
Go ahead sorry.
I don't know.
But you will finish but go ahead.
I guess what im.
The other point that would make us.
The question is.
You generated or you've spent about $5 million.
General and administrate expense in the quarter, which is close to where you thought your kind of bare bones run rate would be if you can give it to wait out the IFA and make your cash stretched.
Got some financing obviously amount so it's not as big of a deal, but it's good to see you being able to get to that 455 million dollar run rate and I think at the.
Sort of confirms what <unk> been telling people as far as your ability to remain in the game. If you will while waiting for this application to get them.
The only question I have I guess you mentioned before.
The savings on some of the warrant savings year over year were offset by the cost of box.
The pre feasibility studies, finding an increased mining of technological and process development is that related to the Pam colored validation trials that are going on and if so how are those going and how are.
Sort of where do you see or when do you see those getting completed in some sort of a more formal arrangements made between U S. AMCOL if it goes that far yet.
Yes look that was part of it.
Dmitry some of those Kimco studies.
But with respect to how it's going we've had a team it's been a quite a bit of time in Japan recently.
We also of course deliberate initially at 'twenty two ton sample of nodules to kimco.
We're making a lot of progress on <unk>, perhaps you can speak a little bit about where that's going and what we see in the timeline.
Sure, Yes, well, we certainly expect to have.
Something binding in the second half of this year Dmitry.
So so far we've not run into any roadblocks. The PEMCO team have been a delight to deal with and they are very motivated as we are and of course as we've said on our past earnings call. There are other options that we have beyond patent because where we could grow into as well.
And I think that we see Japan as being an important partner in the future.
Certainly very focused on securing supplies given the neighbors.
We like the idea of having in situ processing of nachos op in Japan, but there are certainly other growth opportunities, but I am confident we will we'll progress that agreement in this half to meet you.
Sounds good guys. Thank you very much I'm.
Im going to turn the call over thank you for answering my questions.
Thank you.
Thanks, Thank you.
Our next question comes from Malcolm Macdonald with Bank of America. Your line is open.
Hey, Jared Craig how are you guys doing and congrats on the quarter.
Thank you.
Dmitry.
Everything that I was basically going to ask but just in terms of like balancing the nickel market.
We're probably balanced through 2025, but then afterwards.
The question Mark.
Does the ISI you have the ability to expedite the code.
The event that the nickel market becomes unbalanced.
Okay.
Excuse me look I think it's fair to say that the RSA has a process.
And we've tried to speed that process up a little bit, but when <unk> launched the two youll notice.
We've then gone back and said Hey, we've we've heard the room, we get are not legit application until after the third session, which will be July of next year.
My observations on the nickel market is that.
Said told the market that we hope to.
Glad to be in production and the end of 2025, and I think thats perfect timing because.
As I mentioned I'm in Chicago today, we talk to those customers, we know what that supply looks like and I think the nickel market will be marginally as a supplier.
In 2024 and 2025.
Speaking to all of those customers that panicking about what's going to happen after that and even Indonesia has publicly stated that they're worried about running out of high grade nickel as well now please god it never happens because if it does it means there's going to be an enormous deforestation continue at a rapid pace and countries.
Like Indonesia, and new Caledonia in the Philippines, So I hoped.
Did we lose you Michelle if he is still in line.
Yes, I can.
Can you hear me Craig.
Yes, okay.
I hope that as we start to increase supply of nickel into the market and potentially even supply nodules into some of the onshore processing operations here in Indonesia, operator can you tell if it here and still connected in the meantime, Malcolm with respect to the nickel market too.
I didn't hear Joan and just focusing on total.
Supply versus demand tonnage, obviously theres going to be increasing focus on battery passports, that's already coming in Europe , it's going to keep coming.
Elsewhere, including North America.
Adding that theres going to be a benefit.
Lower carbon nickel.
So I think what we can expect is that the IFA has their timeline laid out we expect that they're going to stick to it.
This isn't just a code that's putting in place for poly metallic nodules at the code that's going to protect the rate environment.
Yes.
Sorry.
Greg.
Yeah, Hey.
Sorry, I couldnt be Jerry So I lost you sorry, second overheated right now.
We're having a few technical difficulties on the platform.
But look I think that that nickel market is primed and of course.
We sometimes hear people talk about the fact that other battery chemistries might decrease the demand to nickel.
Thats wrong, the demand to nickel is growing and even if things like LSP take more market share as they have in the last several years.
The demand for nickel has grown enormously during that time and it will continue to grow because no matter, which way you look at nickel rich chemistries, bringing benefits and if we could find a more affordable reliable and lower impact supply of nickel in the world is going to be a better place there's no doubt about that but I think the timing about.
US, bringing this supply into the market as is perfect.
Our grid.
Thank you.
Thanks Anthony.
Thank you. Our next question comes from Frank Jones with no very partners. Your line is open.
Hey, How's it going Craig Terry Thanks for taking the question.
We got it on doing Frank.
Sure.
So I think probably in that same vein if some of these questions around financing.
I guess it would be off is there any update you guys can give on the timing or scope for the bechtel pre feasibility study.
And the reason I ask is is the goal or part of the goal of that study to be able to reclassify the resource as reserves.
Hughes said reserves as assets on the balance sheet to raise capital beyond the 60 or 70 to get the application.
And then I guess the last question on that topic is when you think about the value.
Those reserves should they be proved or probable.
The value of the refined metals or Rob modules or how.
As Eric do you have any insight as to how the feasibility study will think about.
Those reserves.
Okay.
Greg do you want that whole domain.
Well, maybe provide a little context on bechtel, but frankly, I think post pre feasibility.
Obviously, we are going to be looking forward to releasing an updated model. We've been of course looking relying upon any direct investors to the AMC initial assessment for March 2021, but we recognize that that's looking at steady state production.
For the project Zero and project one combined.
So it's going to be increasingly important, especially with a larger capacity production system of 3.0 million tonnes for the hidden gem it'll be very important to sort of lay out what those economics look like for the first system and obviously they would improve from there.
So look I would anticipate that because we don't yet have a market for modules themselves.
Net.
Basically be looking at the contained metal within and then putting upon that reasonable assumptions based on some of the binding term sheets that we anticipate reaching with all fees.
Camco.
Partners to sort of fill in some of those gaps.
Jared with respect to the timing of happy for you to add more color, but I think the takeaway Frank as we are eager to get that information out there as well and we'll put it out of students we have the binding information feed into it.
I am just sort of put together all the techno economic studies.
We're going to be a part of that as well.
And that will be that pre fees will form part of the application of course, and so you can assume that it will be available before as we launched that application and there is no doubt that moving to proven reserves does increase our financing options and I think the.
As Greg mentioned the value applied to them would basically be the deals that we signed on the processing side.
Our plan is to process to an intermediate products.
Process to a mat material for the nickel copper and cobalt and a manganese silicate and so.
We're looking forward to sharing those we're encouraged by what we see at the moment and of course as we put those agreements.
Nonbinding into binding agreements, it's going to help people.
That fill out the pieces between the published PPA that we.
Is available on our website.
What the ramp up in production looks like.
Got it that's helpful and then.
Is there any indication or do you have an indication for cash needs beyond application between.
Submission of applications I would say.
Beginning with product.
Okay.
Look we are.
Still focused on.
And one of the reasons why we.
We did.
A fair sized raise that we announced today.
Could we have gone and raised more im confident that we could have easily done that.
But we do have other financing options available to us of course, but the main.
The main investment will be to further.
Adaptation of the hidden gem and of course, we have a tremendous partner and <unk>. We're very fortunate that the core business is in fantastic financial health.
They're very committed as you could gauge by participation and all of that.
Financing since 2000 and.
On my team when they first invested in the company.
This for them is an exciting project.
This is using that 37 years of deepwater engineering expertise to move into a new <unk>.
So in talking to their engineering teams and we have.
Daily interactions with them on the project side.
The team are really excited working on this and so we believe we have a number of financing options and we've walked through them on previous calls but they include unearned. They include prepay. They include streaming deals. They include offtake agreements or they may include equity into the project itself.
And so we have a lot of people that we're talking to we will continue to talk to them every time, we move a little bit closer to that production. When there is more certainty even though some people saw the announcements after the <unk> session is a delay to strategic investors added more certainty so for them. It's.
That helps me understand the timeline even better.
And so we will continue to explore all of those and I guess my message to shareholders is we really care about the equity.
We really wanted to protect the equity and where.
Very grateful to all of the shareholders, who buy our stock can who've invested in the company and we see it as our responsibility to protect that equity.
Yes.
And then we will contact you for <unk>.
With that being the yes.
Yes.
As Jerry noted the hidden gem in the modifications being the most important element.
While the capacity potential.
The hidden gem that projects are offshore system could be increasing by 130%.
You would expect there should be.
<unk> fees, there you're not going to see the capex increased by anywhere like that amount that is something where a lot of the modifications that were going to be made where part of our initial plan anyway, such as a wider diameter riser place a more powerful compressor spread this is taking those plans and effectively taking the next step and then adding another collector vehicle.
There is of course going to be investment on.
The offloading systems as well.
This is something where as we get more information and sort of chat through with all screens over the coming months, we'll provide more specificity.
But it shouldnt be something where you can expect a linear relationship between the increase in capacity and the increase in associated Capex and then of course two wheel.
As we have been developing this system and project.
Having a partner like all season, that's willing to put their balance sheet up to get these modifications going and that's been very very helpful as well.
Okay.
Thanks for that.
Sorry last question I know these are all timeline related which can be very annoying.
You mentioned the promise of information coming out on the environmental impact study is that something we should expect to get information on before submission to the RSA or is that something that looks more like middle of next summer.
No you can expect to see a steady stream that that information becoming available and theirs.
There's also a lot of collaboration with other contractors as well because while they haven't been moving at a pace.
They do have rich history, some of those contractors that had the ground since 2000, a month and so they actually have a lot of historical data that have been back to the area.
Recently in some cases, and so I think what that's going to do is really build a better picture of that ecosystem.
We will give people a lot more confidence but.
And how we can minimize the impact.
And they will be minimized so expect a steady stream of those reports coming out.
Awesome well. Thank you both good luck. Thanks for the report I'm sure was consumables.
Right.
Thank you there are no further questions at this time.
On the phone.
I'd like to turn the call back over to Jared Baron.
Okay well. Thank you then we might we might do one sorry Jared.
There are a few questions in the queue, but anybody who's question wasn't answered please reach out to.
Investors at metals Dot Com and we'll try to answer as many as possible, but jared back over to you.
No.
Thanks, Rick so I'd like to reflect on just some of the key derisking milestones we've seen over the last few quarters.
Fourth quarter of 2022, all season, Noria announced major offshore collection achievements listening at 3000 tonnes of modules to the surface, providing proving the technology for collecting nodules works.
In the first quarter of this year, we announced a strategic initiative with <unk> to potentially process modules at a facility requiring minimal modifications and no capex TNC and also announced additional flexibility on the financing front, including the $25 million unsecured credit facility provided by our partner <unk>.
And the support from our key shareholders as any increased as demonstrated by today's capital raise and now we're seeing great progress on the last piece of the puzzle the finalization of the mining code by the ISI.
And as that important work continues our team will continue to work tirelessly to deliver the best possible application, including what I know is going to be a world class peer reviewed assessment of the environmental and social impacts of the SaaS projected our portfolio provide.
Providing confidence to the world that nodules can be responsibly collected and processed into the key metals needed to the energy transition of our planet. So I'd like to extend my sincerest. Thanks to my my team.
Small army of highly skilled partners and contractors and of course to our sponsoring states have now route the kingdom of Tomo and care Das and thanks to everyone, who tuned in for your interest and attention and support and with that.
I'd like to wish you all a.
Pleasant rest of your day.
Thank you for your participation. This does conclude the program and you may now disconnect.
Okay.
[music].
Okay.