Q4 2023 TMC Metals Co Inc Earnings Call
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Speaker Change: Good afternoon, everyone and thank you for participating in the Meadows company's fourth quarter and full year 2023, corporate update conference call.
Speaker Change: Turning us today are the metals company's chairman and Chief Executive Officer, Gerard Barron and Chief Financial Officer, Craig Schatsky. Following their remarks, we'll open the call for your questions.
Speaker Change: Before we go further I would like to turn the call over to CFO, Craig Schatsky as he reads the company's safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward looking statements and information about the use of non-GAAP measures. Craig. Please go ahead.
Craig Shesky: Thank you very much. Please note that during the call certain statements may be made which will be toward looking and based on management's beliefs and assumptions from information available. At this time. These statements are subject to known and unknown risks and uncertainties, many of which maybe beyond our control.
Craig Shesky: 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.
Craig Shesky: <unk> 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 can be found in our slide deck being used with this call.
Craig Shesky: You're welcome to follow along with our slide deck.
Speaker Change: Joining by phone you can access at any time at Investor and stopped metals Darko I will now turn the call over to our chairman and CEO Jerry Berry Jared. Please go ahead.
Gerard Barron: Thanks, Craig and thanks to all of you for joining us today for our fourth quarter 2023 corporate update call.
Speaker Change: Especially I'd like to mention the great piece that ran last night on 60 minutes regarding seafloor nodules in the United States position on the law of the sea and reflect a bit on just how far we've come.
Speaker Change: She started four years ago, we hosted Bill Whitaker and the 60 minutes team onboard the launch the vessel should provide what was really people that first glimpse of this impending new industry. In fact, some of our team members and keep investors subsided that piece, there's what originally put nodules and our company on their radar.
Speaker Change: And I'm amazed at just how much our team has accomplished in the four years since that original piece in 2021 and advances transaction to go public.
Speaker Change: We put out U S. SEC compliant resource statements and an initial assessment on minority D contract area signed off by AMC consultants Nokia net present value at the time was $6 $8 billion.
Speaker Change: In 2022, we completed the first successful integrated pilot system test.
Speaker Change: The C. C said since the 19 seventies lifting 3000 wet tons of nachos and helping to de risk our future offshore operations alongside our partner <unk> in late 2021 and.
Speaker Change: And we completed a pyro metallurgical processing pilot derisking outflow sheet in advance of future onshore operations.
Speaker Change: We've also now signed a binding Mou with Pam Coe in Japan to initially process nodules that their existing RK Es facility and we're also pleased to announce today that we successfully derived the first at the nickel sulphate from CFO nodules, but more on that in a bit.
Speaker Change: And finally, we wrapped up the lost about 22 pre production offshore campaigns, including the completion in late February of our environmental campaign, one year. Following a pilot collection test and our team is very encouraged by the initial results.
Speaker Change: So last night, Bill Whitaker, and he's 60 minutes team revisited the original story focusing on recent actions by U S political and military and intelligence communities to catch up to China. In this space at the same time the rest of the media seems to have caught up with the importance of this topic, which made.
Speaker Change: New pieces, just this month from the Wall Street Journal and the financial times, PVC political and many many others.
Speaker Change: The takeaway to me is clear at last the time is now for this resource and as the most advanced contract with a multi year head start TMC is well positioned to leverage this increasingly favorable geopolitical landscape.
Speaker Change: Moving onto our current liquidity picture.
Speaker Change: Please to announce that along with Arris capital the family office of director and largest shareholder Andre Qatar. We have today agreed to provide a $20 million unsecured credit facility with a maturity date in 18 months and the interest rate on this unsecured facility in the six months.
Speaker Change: Is the six month secured overnight funding rate plus 4%.
Speaker Change: Our partner <unk> has also agreed to extend their existing credit facility for a further period until August 2025.
Speaker Change: The ATM program, the extended all CS unsecured credit facility and the new.
Speaker Change: Facility credit facility provided by Arris and myself all remain untapped today.
Speaker Change: And with existing cash at year end, plus the $9 million in additional a registered direct offering funds funds from Erez capital received in January pro forma year, ending liquidity of $61 million.
As we have said previously our preferred form of financing moving forward will be at the asset level and we are making good progress with a number of parties. There you can certainly expect to hear more about this very soon.
Speaker Change: And we've seen it uptick this year in both number and quality of inbound financier losses from institutions, including underwritten equity transactions and convertible note of is.
Speaker Change: But even with a rising share price, we'd much rather fund the project through other less diluted beans, as evidenced by today's credit facility announcements.
Speaker Change: And so this now means that TMC has sources of unsecured funding from each of its three largest shareholders.
Speaker Change: So believe us when we say we care deeply about minimizing dilution and I hope this action speaks to our confidence in where things are headed with respect to potential strategic partners.
Speaker Change: The next slide provides an overview of our Q4 results and recent business developments since our last quarterly update.
Speaker Change: Read all of this detail to you, but I did want to flag an update to our expected first commercial production on <unk>.
Speaker Change: We now expect to commence production offshore at the end of the first quarter 2026, assuming and I S. A review process of the approximately one year from the submission of our application for an exploitation contract, which is still expected. Following the July 2020 for <unk> session.
Speaker Change: <unk>.
Speaker Change: Alongside our partner all seeds, we've refined our assumptions to hit the ground running with a larger potential production system on the hidden gem vessel upgraded from the initial target of one 3 million tons annually to the new maximum annual production capacity of 3 million wet tonnes, an increase of 100.
Speaker Change: 30% and this also reflects some revisions to the ISI application review timeline and the latest consolidated draft text released.
Speaker Change: We never like any delays to our production timelines, but we want to make sure that we get everything right. The first time and avoid a situation where production has to slow down for further modifications. After we've begun.
Speaker Change: So on the agenda today will take you through the following items. A brief reminder of team sees value proposition I'll review, some important industry headlines and an update on the progress without Norrie D project, a snapshot of the environmental case, the TMC and nodule collection more broadly a regulatory update.
Speaker Change: This month's IFA meeting and finally, a financial update.
Speaker Change: But let's start at first principles why look to the seafloor nodules in the first place.
Speaker Change: Well for starters, the abyssal plain represents an area of the planet with the least life.
Speaker Change: Lois to biomass per square meter second only to polarize.
Speaker Change: And the World has woken up to the fact that we need to shift away from fossil fuels and the current challenges of sourcing metals from the lab.
Speaker Change: Gaining increased attention.
Speaker Change: Nachos off a real tangible advantages over their terrestrial equivalents in containing high grades of full metals in one or sourcing battery metals from nodules requires no dig INO blasting and produces near zero solid waste.
Speaker Change: And for offshore we also don't have to displace human communities, nor build the costly fixed infrastructure necessary.
Speaker Change: To access mineral resources on land.
Speaker Change: And when you put all that together it is clear that nachos holds significant potential to dramatically reduce the human and planetary costs of sourcing metals.
Speaker Change: And this resource is also remarkable.
Speaker Change: For the direct correlation between its mineral composition and that of electric vehicle battery cathodes and wiring rich.
Speaker Change: Rich and nickel copper cobalt in manganese these nodules closely fit the requirements for the majority of the EV battery cathodes being sold today.
Speaker Change: New Chemistries that are in development.
Speaker Change: These can take decades to commercialize it further and based on our conversation with major Oems.
Speaker Change: Many new batteries are expected to continue relying upon nickel rich chemistries of course, we cannot forget the additional demand pressures for the metals contained in nodules, including infrastructure the ongoing industrialization of the developing world and the addition of 2 billion people to the planet.
Speaker Change: As we've said many times before our resource is an outlier among the world's nickel projects not only norrie and tomo ranked by mining Dot com is the largest two undeveloped nickel projects in the world.
Speaker Change: But the nickel equivalent grade of this resource truly stands apart.
Speaker Change: The nickel market has been really over the last year due to an influx of lower cost supply from underneath Indonesian rainforest.
Speaker Change: Estimated recently that 50% of the nickel cost curve was loss, making at current nickel prices.
Speaker Change: On an all in sustaining cost basis.
Speaker Change: So with the nickel equivalent grade of over 3% and four key metals in one resource TMC is able to withstand commodity price volatility to volatility.
Speaker Change: Volatility better than most and provide an economically viable counterweight to the portion of nickel market controlled and funded by China or Russia.
Speaker Change: It's fair to say that the eyes of the world are watching the steel industry with major media outlets.
Speaker Change: Leading think tanks acknowledging that commercial operations will soon be a reality.
Speaker Change: And in a new analysis by the influential breakthrough Institute I should I'll refer and co director of climate and energy <unk> Lange found.
Speaker Change: <unk> found the sourcing key metals like nickel and copper from nodules could deliver follower impacts then sourcing them on land despite much exaggerated claims to the country.
Speaker Change: And in a recent interview with CNBC.
Speaker Change: As a secretary general Michael lodged noted that growing interest in marine minerals by countries like China, India and Norway.
Speaker Change: That commercial operations now appear inevitable.
Speaker Change: This lines up with the takeaway last year from the New York Times reported Eric Limited Lipton.
Speaker Change: That started this industry is a question of when rather than if and when is coming even sooner.
Speaker Change: So the natural resource is also gaining support in Washington D. C. Over the last two years congressional members have made repeated calls to action to the defense and energy departments to begin planning for the development of processing and refining capabilities for deep Sea nodules. Most recently with the introduction.
Speaker Change: One of the responsible use of seafloor resources Act.
Speaker Change: And with the signing into law of the National Defense Authorization Act by President Biden. The Pentagon has now been tasked with formulating a report assessing just how the U S might process nodules domestically.
Speaker Change: More on that shortly.
Speaker Change: Increasingly policymakers and the broader political community are driving the conversation.
Speaker Change: As reported in the Wall Street Journal this month's bill aimed at providing support for domestic nodule collection processing and refining has been introduced by members of the house of Representatives with support from a broad coalition of leaders drawn from the offshore energy industry Marine mineral exploration in global research centers.
Speaker Change: Also this month over 350, former political and military leaders, including former secretaries of state and Defense Hillary Clinton Leon Panetta.
Speaker Change: <unk> the U S Senate to ratify the law of the sea Treaty and take a seat at the table on Ocean matters.
Speaker Change: Of course this recent spate of news is taking place within the context of the pending delivery of a report by the Pentagon to the house Armed Services Committee assessing the opportunities offered by nodules to diversify critical mineral supply chains away from China.
Speaker Change: So at a minimum the report will outline controlling parties of deep Sea resources America's current production and processing capabilities and crucially, our roadmap laid out recommendations for how the U S can leverage its domestic industrial expertise and capabilities to process nodules in play.
Speaker Change: A leading role in the industry.
Speaker Change: The March one deadline was ambitious conversations with relevant parties and the Vod and Congress give us confidence that the team ready in the report are well aware of the challenges of metal supply and the opportunities that nodules presents.
Speaker Change: And we remain optimistic about the prospects of funding to do feasibility work on a potential U S refinery, which can take nacho derived products as feedstock.
Speaker Change: Through our existing Dod ground application or through congressional appropriations.
Speaker Change: This underscores the massive longer term potential that we represent for the United States, which could go from near total import dependence of nickel cobalt manganese to metal independents in all three just from our contract areas alone.
Speaker Change: However, this does not change our capital light plan to begin production at existing <unk>.
Speaker Change: Facilities, such as <unk> in Japan.
Speaker Change: And I'd now like to turn it over to Craig to discuss the progress without nor any of the project.
Craig: Thanks Jerry.
Craig: Speaking of PEMCO, we were pleased to announced in November of last year, we signed a binding Mou with Pam Cove to process. The first modules when commercial production operations are expected to begin in 2026.
Craig: PEMCO is planning a commercial sized pilot in the second quarter of 2024.
Craig: In 2000 tonnes of modules that we collected during norrena mining test will be processed through <unk> existing RK yet plant.
Craig: We're also pleased to announce that we've demonstrated we can turn nodules into nickel sulphate.
Craig: <unk> of battery.
Craig: Okay.
Craig: A bit of a change in the slide deck that we got.
Craig: We're also pleased to announce that we've demonstrated we can turn nodules into nickel sulphate indicative of battery market suitability pending the confirmation of the preliminary assays the.
Craig: The sulfate was produced in a program testing our efficient <unk> design the processes intermediate nickel mat direct to nickel sulphate, without making nickel metal and producing fertilizer byproducts instead of waste.
Craig: And critical sulfate, we'd just like to quickly remind everyone. What a game changer that is to potentially produce nickel sulphate at a much smaller carbon footprint than all other nickel associates analyzed and last year's benchmark lifecycle assessment.
Craig: As noted on our last call. We are devoting a majority of our resources to our environmental impact statement and pre feasibility work and we'll start with the pre feasibility work.
Craig: The offshore segment of the PFS together with all six we've gone through several mine planning iterations than design reviews of the project zero Nodule collection and transport system.
Craig: For the onshore segment to the PFS, we've made great progress in Japan, where pimco has been considerable work and has validated the FIFA nodules can be told through their current facility producing intermediate products that align with our specifications.
Craig: We expected binding agreements with all fees and pimco will be key inputs for the PFS modeling work, including Capex and Opex estimates for projects hero expected to be coming later this year.
Craig: Over the past 12 years, we've conducted 22 offshore campaigns to develop an environmental baseline throughout the water column to trial, our pilot collection system and evaluate the impacts of test mining.
Craig: The breadth and the scale of this research program is unprecedented in the deep Ocean and it will provide the regular regulator and society with the data needed to make informed decisions.
Craig: And with our latest offshore campaigns now complete we now have a far greater understanding of what the actual impacts of novel collection looked like as opposed to some of the previous conjecture, which frankly has no basis in any observed data. We can tell you. It's a radically different picture and more on this shortly.
Craig: With the data collection and compilation phase for pre commercial operations now complete our team is working tirelessly on the development of our environmental impact statement that will form the backbone of our application for an exploitation contract.
Craig: The EIF as the most work intensive elements of our application along with our environmental mitigation and monitoring program and it requires the publication of peer reviewed research papers based upon the hundreds of terabytes and gather data before during and after pilot test collections.
Craig: These papers are in preparation and we look forward to sharing our findings in peer reviewed journals in the coming months to support our application to the ISI.
Craig: Last year's collector system test again provided or excuse me 2020 Twos collection system text provided a historic moment in the development of this industry and just beyond the over 3000 tons of nodules collected and lifted and surface. One of the most important outcomes of the test was the ability to observe real time impacts and Jen.
Craig: Those 100 terabytes of infield data.
Craig: And this accumulation of baseline data over the past decade, plus represents the most comprehensive deep C data set ever collected in declaring Clifford Enzo.
Craig: We collected in partnership with many of the world's leading marine research institutions and expert industry contractors. Many of which are named on this page the dataset of generating much excitement among researchers researchers who have acknowledged the rigor and scale of the science program.
Craig: The data is also openly shared the public databases, including the <unk> deep data library of contractor data as well as other open source databases like <unk> Ocean biodiversity information system, the world's largest catalog of marine organisms.
Craig: Zooming in on our post collection test environmental campaign, our own Katie Allen will lay out some of the key tenants of the research performed late last year.
Katie Allen: I'd like to play this video please.
Katie Allen: Last year, we spent six months, let's say implementing an extensive environmental and geotechnical monitoring program. The program was designed to understand the impacts of collecting non Jones from the safer using a fully integrate and test mining system.
Katie Allen: Sure.
Katie Allen: The scientific information collected last year gave us insight into the immediate impact on the environment, but now we'd like to know how the environment has responded to that impact one year on.
We will be studying various signs of influence with settlement has settled out from our mining activities with a specific focus on understanding the limits of impact on the communities in the region.
We're looking for any signs of recovery to the ecosystem and if community structure and ecological function has adapted or changed since our test mining activities last year.
Katie Allen: We will be deploying box score in multiple instruments to collect settlements and nodule samples from the CBI.
Katie Allen: And these samples will be analyzed for specific biological geochemical and geological property.
Katie Allen: We also have a remotely operated vehicle equipped with specialized cameras.
Katie Allen: Megafon on.
Katie Allen: These animals attach themselves to nachos and other hard substrate. So our intention is to revisit known locations of sponges and coral.
Katie Allen: Then photograph last year and to assess the condition.
Katie Allen: Being exposed to the different levels of sedimentation.
Katie Allen: The RFA will also assist in the deployment and placement of our aquatic any covariant slanted.
Katie Allen: These lenders will be strategically placed across our studies to measure also then focuses on the Stifel and to contribute to our understanding of offered an exchange rate of <unk>.
Katie Allen: <unk> animals in the ecosystem.
Katie Allen: These activities are underway bioacoustics drifting array will be measuring acoustic signals in the water column from 1000 to 3000 meters wanted it. So this instrument will drift around the study area throughout the campaign and tell us about the daily vertical migration cycles of biomass at a specific date.
Katie Allen: We also have Mori with a string of different instruments to measure current temperature salinity sedimentation rate noise and various other physical parameters and the water column phase, we'll collect an additional years worth of graphic data and the noise. They license area and that will complement that.
Katie Allen: Baseline data sets that have been collected here in the past few years.
Katie Allen: Another piece of equipment that we have at our disposal is an autonomous underwater vehicle also known as an AE. They also.
<unk> will Matt.
Katie Allen: Before to the.
Katie Allen: To the extent of al sedimentation footprint and assess the megaphone, our communities and the different designs of influence and we will also use it to produce a high resolution base mat.
Katie Allen: Well, we expect small scale commercial production to occur in the future.
Speaker Change: We have a responsibility to educate ourselves and to make conscious decisions about where we track.
Speaker Change: Metals from and how we do it.
Speaker Change: The impact of monitoring what we are doing out here. They will build on the comprehensive scientific data gathered during lawsuits test mining program and it will ensure a greater understanding of ecosystem responses to our mining activities. This is one of the first time instead of a potential new extractive industry is emerging in a responsible way with the <unk>.
<unk> and.
Speaker Change: And governing the regulatory decision making process.
Speaker Change: Okay.
Speaker Change: Currently on the next slide you will also see some of the images on the left side of this page taken right. After that collection test compared on the right side of this page two images taken from the one year following post collection test campaign.
Speaker Change: Now qualitative data shows that these are individual organisms. The exact same organisms on the left as they are on the right that our presence and alive one year. Following the collection test and let's even applies to organisms that were right next to the vehicle trucks.
Speaker Change: This information of course is preliminary and anecdotal and it's going to continue to be analyzed them shared but it is one of the reasons that our team was so encouraged by the initial results of the monitoring campaign one year following the collection test.
Speaker Change: Now during that collection test, we also successfully monitor the pool using myriad assets that were in the water, which are described in the central graphic.
Speaker Change: This is an image presented to scale. Unlike much of the speculative imagery presented by a physician groups.
Speaker Change: You'll notice that the mid water plume is represented by a small white with spin the middle of this page most of it frankly will be so dilutive, but it wouldn't even be visible to the naked eye.
Speaker Change: Seafloor plume alternatives, but <unk> also barely registers on the bottom of the graphic.
Speaker Change: Leading experts in the field deep sea sediment clean dynamics, including a team led by Dr. Thomas Peacock It might see and researchers at the Scripps Ocean Institute found that 92% to 98% of sediment disturb during offshore system trials conducted by your fellow contractor GSR remained within two meters of <unk> four and as noted in the completion of the study.
Speaker Change: It's quite a different picture of what the plans look like compared to some of the conjecture.
Speaker Change: Now on our own ground the minority area preliminary findings by leading experts at BHI support the findings of the night.
Speaker Change: Our team set over 50 monitoring stations to monitor every aspect of a team during moores collector trials last year.
Speaker Change: Infield observed data indicate that the settlement team is low line over 90% of the sediment initially stays listen two meters above sea floor. The sediment flume initially forms the turbidity current which was a gravity driven spreading of sediment, leaving water under the total weight away from the collector tracks following contours, the seafloor behaving more like a liquid.
Speaker Change: Running along seafloor than a gas, which Mike walked higher into the water column.
Speaker Change: In fact as noted on the right hand side of this page most of the Green and Blue bands from this DHA model will be clear enough to Swindon and much of it will be clear enough to drink of course approval freshwater.
Speaker Change: This is a clear example of the speculation of opposition groups initially getting it wrong and frankly, a major leap in Enfield observe data needs to take precedence over such speculation.
Speaker Change: Perhaps this is why green piece in particular, it's pivoted from one's calling for more scientific research to now trying to stop her own scientific research, but in this effort they have not succeeded.
Speaker Change: Key offshore campaigns are now complete prior to the application and they can't stop the increasing flow of data that we're now openly sharing with the world, including the International Seabed Authority, which brings me to the regulatory update we've been very encouraged by the progress that the most recent <unk> meeting in Jamaica is further evidenced by the positive commentary from <unk>.
Speaker Change: Secretary General Michael large on this industry's inevitability.
Teams on the ground in Jamaica, as we speak and we're getting regular real time updates on that ongoing process all going very constructively.
Speaker Change: Guarding negotiations on the final rules regulations and procedures. The consolidated regulatory text was released in late February signaling the transition to the phase of final mining code negotiations.
Speaker Change: And as noted earlier, we maintain our previous guidance on our intention to launch our application for an exploitation contract following.
Speaker Change: The July 2020 for ISC meeting occurring later, this year and assuming a one year.
Speaker Change: Period estimated production occurring towards the end of Q1 of 2026.
Speaker Change: On the next slide Youll see the timeline for expectation application review from the draft regulations. This breakdown has been updated based on the draft consolidated text and has been reflected in our current estimate for beginning production around the end of Q1 2026, assuming a review process of approximately one year.
Speaker Change: To remind everyone of the highlighted portions of the slide.
Speaker Change: Oftentimes people think about the regulatory process is some black box when in reality, the steps for approval or even more clear and qualified than many land based jurisdictions.
Speaker Change: One of the key decisions on our application is the recommendation from the legal and technical condition or LTC. It's another decision made by some executive branch politician back into National capital, where there is a risk of replication whenever there's a new administration. These are 41 individuals have LTC that review of the application and we're all subject matter experts.
Speaker Change: Consensus on approval for our recommendation is not reached a decision is made by a simple majority vote.
Speaker Change: And if the LTC recommends approval the council reviews and acceptable approve that recommendation you would need two thirds majority of the RSA council to overturn otherwise positive LTC recommendation.
Speaker Change: So certainly we expect plenty of back and forth and questions from the LTC, both before and following our application, but we feel very positively about.
Speaker Change: The ability of our application to stand on its merits during what is a well thought out review process.
Speaker Change: On the project economics have shared in previous update calls in March 2021, AMC consultants issued an SEC Reg SK <unk> hundred compliant initial assessment of the project economics for the <unk> area.
Speaker Change: This initial assessment is available in the investors section of our website and the new oriented financial model can be found beginning on page 300 incentive that dock.
Speaker Change: The initial assessment arrived in net present value of $6 8 billion for north <unk> at the beginning of last year.
Speaker Change: Running the same model simply updated for current metal prices. The net present value of new R&D would be approximately $8 1 billion.
Speaker Change: And despite a higher share price now than our previous report.
Still only trading at roughly 6% of the underlying NPV for the mowry the area at current metal prices, which remains a massive discount to peer developers, which to us means that evaluation can naturally improve if we keep on delivering on our project milestones.
So onto the financial update.
And the last quarter of 2023, TMT reported a net loss of $33 $4 million were <unk> 10 per share compared to team sees a net loss of $109 $5 million 41, a share for the same period of 2022.
Speaker Change: Net loss for the last quarter of 2023 included exploration and evaluation expenses of $26 7 million versus $104 3 million in Q4, 2022, and general and administrative expenses of $6 $5 million versus $7 million in Q4 2022.
Speaker Change: Exploration and evaluation expenses decreased by $77 $6 million in the last quarter of 2023 <unk>.
Speaker Change: Compared to the same period in 2022.
Speaker Change: The significant decrease was primarily due to the recognition of cost representing the fair value of your <unk> more into in the last quarter of 2022.
Speaker Change: Completion of the pilot mining test in the same period last year and a reduction in environmental study cost as a collector test was completed in 2022, partially offset by the monitoring work on Northern D, which is carried out in the fourth quarter of 2023.
Speaker Change: These cost reductions are partially offset by an increase in engineering work, which advanced over the course of 2023, an increase in exploration labor costs, mainly attributable to an increase in head count and higher sponsors sponsorship training and stakeholder engagement costs.
Speaker Change: General and administrative expenses decreased slightly by <unk> $5 million in the last quarter of 2023 compared to the last quarter of 2022.
Speaker Change: Within the other items the largest movement between the last quarter of 2023 in the same period of 2022 and the change in the fair value of warrants liability and alignment with the change of the company's share price.
Speaker Change: And the last quarter of 2023, the net cash used in operating activities amounted to $15 2 million compared.
Speaker Change: Compared to $19 8 million for.
For the last quarter of 2022.
Speaker Change: The large gap between the net loss for Q4 2023, and the cash used in operating activities for the same period of last year is due to a change in working capital, including an increase in accounts payable and accrued liabilities free.
Speaker Change: Free cash flow from last quarter of 2023 was negative $15 6 million compared to negative $20 million in the last quarter of 2022.
Speaker Change: Regarding our balance sheet as of December 31, 2023.
Speaker Change: We closed the year with cash balance of $6 8 million and no debt, we believe that our cash on hand, along with the Undrawn $25 million unsecured credit facility. Just now extended through August 2025, with an affiliate of <unk> and the new $20 million unsecured credit facility provided by Jared Barron at <unk> capital LLC will be sufficient to meet our.
Speaker Change: Working capital and capital expenditure requirements for at least the next 12 months from today.
Speaker Change: The right of the right of use asset the new line item here, you see for $5 $7 million and our balance sheet as at December 31, 2023.
Speaker Change: <unk> represents the net carrying value of the exclusive right to use the hidden gem and supported the development of the projects Youre offshore module collection system.
Speaker Change: In consideration for the exclusivity, we issued $4 one 5 million common shares to all feeds in August of 2020 as previously disclosed.
Speaker Change: On February 21st 2023.
Speaker Change: Re-entered into an investment agreement with low carbon royalties to finance low carbon emitting.
Speaker Change: Production in technologies in support of the energy transition the.
Speaker Change: The value of the investment of $8 $4 million at December 31, 2023 represents the company's shareholding in low carbon royalties net of equity accounted loss for the year.
Speaker Change: As part of this agreement Northern contributed 2% gross overriding royalty on future revenue stream to low carbon royalties and there is also a REIT potentially through.
Speaker Change: Funding option to buy back three quarters of that royalty overtime.
Speaker Change: On the right to the royalty payments was heavily discounted reflecting the current stage of the project valued at $14 million and recorded in the first quarter of 2023 is the gain on disposition.
Speaker Change: Now in connection with the preparation of the 2023 year end financial statements and some new information from the technical team of the company's auditors company reevaluated the accounting for this transaction and concluded that the sale of future revenue falls within the scope of ASC 370, and restated the offset setting entry to the proceeds received from <unk>.
Speaker Change: Carbon royalties is a royalty liability.
Speaker Change: This is a non core and noncash item and the impact of this restatement was described in detail in the Companys note 22 of our annual report on Form 10-K. Theres also described in the 8-K that came along with our press release filed post close today.
Speaker Change: I will now turn it back over to Jared for some closing remarks, and then we'll get into Q&A.
Gerard Barron: Thank you Craig and as I said at the beginning the time is now for this new industry.
Gerard Barron: One research vessel back in ports and the heaviest offshore preproduction spending in our review our teams attention is now focused on analyzing the copious amounts of environmental data and putting together an application for an exploitation contract for the nori area expected to be submitted following the <unk>.
Gerard Barron: July 2020 for <unk> session.
After seeing the initial results following the conclusion about latest environmental campaign Im confident there are no show stoppers and we're looking forward to continuing the release of all this data with stakeholders around the world.
Gerard Barron: In the meantime, Alexander <unk> team will continue the work of securing strategic partnerships and this is certainly where I'll be devoting nearly all of my time in the coming weeks.
Gerard Barron: I would like to extend my sincere thanks to the TNC team, including our partners our contracts and of course sponsoring states and thanks to everyone who tuned into two.
Gerard Barron: Our call today and for your attention with that I would like to hand, it back to the operator for Q&A.
Speaker Change: Thank you Sir.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to reserve. Your question. Please press star one again.
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Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: If you have a question or comment at this time. Please press star one one on your telephone.
Speaker Change: As we're waiting for that to compile we're going to take a question from the web chat.
Speaker Change: Mellow Munson has asked is the 6% of share price on Norrie assets are all assets what percentage is that of all assets.
Speaker Change: It's a good question look we've always laid out what the valuation is based on <unk>, which is our most advanced project on which we're spending close to $500 million already on.
Speaker Change: On that project to bring it to where it is now and being able to leverage that investment is something that's really starting to bear fruit now that the geopolitical tail winds are blowing much stronger.
Speaker Change: <unk> represents roughly 22% of the total estimated resource across new Oriental.
Speaker Change: Now we did estimate when we went public that the full field net present value if extrapolating the same assumptions from Nordea.
Speaker Change: We'd be 31 billion.
Speaker Change: <unk> value, but again, we like just focusing on the $6 8 billion as calculated with AMC consultants in the northern <unk> initial assessment as evaluation guidepost and our market cap represents roughly 6% of the updated value adds that nor <unk> initial assessments. If you just use current metal prices roughly $8 billion.
Speaker Change: So to answer your question its focus really just on the R&D recognizing that there is significant upside from the other 78% of our total estimated resource.
Speaker Change: Okay.
Speaker Change: Thank you and I'm sure we have a question on the phone line.
Speaker Change: Okay.
Speaker Change: And our question from the phone line comes from the line of Dmitry Silverstein from water Tower Research. Please go ahead.
Dmitry Silversteyn: Good afternoon. Thank you for taking my call just wanted to get maybe a little bit more detail.
Dmitry Silversteyn: What was or what were the main elements that resulted in the modest expansion of the time to offshore production.
Dmitry Silversteyn: Into the first quarter of 2026 versus the original date.
Dmitry Silversteyn: Which I think was given out of the fourth quarter of 2025.
Dmitry Silversteyn: Yeah.
Dmitry Silversteyn: Okay.
Speaker Change: Look there's one driving reason and that is moving the production number of that both from $1 3 million tons to 3 million tons.
Speaker Change: And.
Speaker Change: It was a decision that we had to take at the time.
Speaker Change: But of course, the economics are so much better when we can be handling the peak production.
Speaker Change: Production capacity, but what that requires is an upgrade it requires us to make a couple of modifications for material handling it required a slightly difference riser configurations, all of which is being managed by <unk> and so that put a little bit of that.
Speaker Change: They are in the supply chain and.
Speaker Change: That's what resulted in that later timeframe.
Speaker Change: Understood and then if I can follow up on the March meetings that are going on right now with ISI.
Speaker Change: As you look at what will come out of it on the other on what would be sort of the.
Speaker Change: A likely outcome that you're looking for that you would interpret as good news.
Speaker Change: Versus let's say a disappointing outcome.
Speaker Change: Look this is the first time that a consolidated text has ever been.
Speaker Change: <unk> presented to the council and so it's a really important milestone and what we're looking out of this session is continued progress and that's what we're seeing it was a productive week last week.
Speaker Change: There were.
Speaker Change: This week, we received we expect to see the same and that is just making progress towards.
Speaker Change: Further refining that consolidated text and what we are also noting is that there is a lot of intercession will work continuing to be done by the member states.
Speaker Change: And.
Speaker Change: That is increasing and we expect that.
Speaker Change: The period between the end of the March session at the beginning of the July session is when we're going to see a lot of those loose ends tied it up and so as for that news look we haven't seen any.
Speaker Change: Always see a bit of noise around at this time of course.
Speaker Change: And.
But fundamentally the noise is very different to the reality of what's happening you have 168 members who are working earnestly to put in place regulations, because the one thing that everyone agrees is that.
Regulating this industry is the best way of protecting the ocean environment and so.
Speaker Change: That's what people are doing and of course, we are.
Speaker Change: Very close to those regulations, because we're going to need to operate under them and.
Speaker Change: We're not seeing anything thats, keeping us up at night.
Speaker Change: Got it got it that's helpful. And then final question if I may.
Speaker Change: The cash on hand, and the liquidity that you have.
Speaker Change: Us too.
Speaker Change: Typically you talk about lastly, bad for the next 12 months or something like that I didn't hear that statement on this call. So how do you see your liquidity position right now and how urgently.
Speaker Change: <unk> is the need to find a strategic partner.
Speaker Change: Let's say 2024.
Speaker Change: Yes.
Speaker Change: So sorry, Jared I can go first if you don't mind just quickly on that Dmitry I did say that.
Speaker Change: We didn't included in our press release that yes, we do.
Speaker Change: Do you believe that cash on hand, plus these credit facilities totaling $45 million.
Speaker Change: Is sufficient.
To meet our working capital and Capex requirements for at least the next 12 months.
Speaker Change: Keep in mind, the last number that we provided which I still think is a good guide post was 35% to $45 billion of additional cash needed.
Speaker Change: To launch our application and I think what you should keep in mind is while we continue to get many inbound proposals for financing.
Speaker Change: We have our three largest shareholders who care very much about minimizing dilution in fact, if you look at our total shareholder base in excess of 50%, but PNC shares are held either by insiders are affiliates.
Speaker Change: So there is very much in desire internally to do the right deal.
Speaker Change: That's why all of our focus is on the strategic side right now.
Think confidence provided by not only the extension will be all six.
Speaker Change: Credit facility, but the new credit facility from Jared and Andre I think it just shows the confidence in those potential options.
Speaker Change: Okay. Okay. Thank you.
Speaker Change: Yes.
Speaker Change: The easiest thing to do is to print print.
Speaker Change: <unk> equity.
Speaker Change: And that.
Speaker Change: As Craig said, we really do care about that equity stack, because that's where.
Speaker Change: All we care about our shareholders, we care about our employees, who have closer incentivized by the equity.
Speaker Change: We have a very direct insight into obviously, how those negotiations are going with interested parties and we think this is the right course for the benefit of all shareholders.
Speaker Change: Fair enough. Thank you Joe.
Joe: Thanks Dmitry.
Speaker Change: Thank you.
Speaker Change: And I show. Our next question comes from the line of Matthew O'keefe from Cantor Fitzgerald. Please go ahead.
Matthew O'Keefe: Yes. Thanks for taking my question just wanted to touch on the.
Matthew O'Keefe: If you could touch on the timing and maybe some of the scope of the upcoming feasibility study.
Matthew O'Keefe: On track for kind of mid year end.
Matthew O'Keefe: Maybe you could discuss a little bit about how it's going to differ from the one hand.
Matthew O'Keefe: Sure.
Speaker Change: Joe Me to say that Greg.
Greg: Sure happy to add color on that too.
Yes look the it'll be appreciate is that is going to be completed by mid year and of course normally when you move from <unk> to <unk>.
Greg: Do with.
Greg: Tightening up the cost scope and certainty around the budget and it normally has to do with <unk>.
Greg: Large capital expenditure now of course.
Greg: We already have our first production asset it's the hidden gem, it's owned by <unk> and the.
The vessel that we use for the collective test.
Greg: And we're working honestly with our onshore partner at the moment.
Greg: Specific metals up in Japan, who have an existing purpose built.
Greg: Nicole processing plant, which we're able to tap directly into that pre fees is going to be really significant to just add.
Greg: So many of the technical issues and support our application. That's the main purpose of it because we have a good insight into how those numbers are looking.
Speaker Change: Okay. Thanks.
Speaker Change: So.
Speaker Change: When we get a sense from it.
Speaker Change: As investors and analysts.
Speaker Change: Sort of what the what youll be paying Pam Coe.
Speaker Change: Saying all of <unk>.
Speaker Change: Collect ineligible for the process.
Speaker Change: With that kind of detail will be available in that and because in my model. It. It shows some fairly robust potential for some fairly robust economics.
Speaker Change: Absolutely yes.
Speaker Change: Certainly.
Speaker Change: Matt, Yes, we would anticipate that.
Speaker Change: Pre feasibility is coming out and we're preparing can be application theres going to be a point, where we're going to be able to provide guidance to the market and our viewpoint of.
Speaker Change: What do you expect from project for your economics, especially now that we're talking about a larger initial production system. So absolutely.
Speaker Change: Frankly, we've had a lot of investors who have been waiting for that and we want to make sure that we've got all the I's and cross the Ts.
Speaker Change: Before we can release that but.
Speaker Change: Rest assured it's coming and we agree with you. We believe the economics are going to be robust.
Okay, No that's great. Thanks.
Speaker Change: Looking good so far I appreciate it thank you.
Speaker Change: Thanks, Matt.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: And I show. Our next question comes from the line of vessels Patel from <unk> Holdings LLC. Please go ahead.
Vessels Patel: Hi, so.
Vessels Patel: One of the questions I have is for the application for the I would say that we're spending for <unk>.
Vessels Patel: As said in the past is can be cost attached to it is their approximate.
Amount value to what the costs are and will they be covered from the cash assets or to any of the credit facilities have to be tapped into.
Speaker Change: Yes look I mean, the application itself.
Speaker Change: You're in the ballpark of $1 billion fee for the application, but the real cost of the application is all of the work that goes into analyzing and correlating the data and putting forth document on many many hundreds of pages.
We've already finished now or.
Speaker Change: Our.
Offshore campaign following one year on from the collection tests and a lot of that information is all being analyzed there's going to be a key tenant of the.
Speaker Change: It'll impact statement.
We're also talking about the pre feasibility study.
Speaker Change: Jordan I just mentioned.
Speaker Change: B.
Speaker Change: Amount that we said $35 million to $45 million of incremental funding, which does not include any tapping of our credit facilities.
Speaker Change: That is still a good number to keep in mind for what it's going to take to get the application over the line.
Speaker Change: So yes, there is more work to be done and it will cost some money, but we feel very very good about the liquidity options at our disposal.
Speaker Change: Got it and this question really refers to the future.
Speaker Change: Mining.
Speaker Change: Around 2026 as of right now there is one vessel there is a hidden gem vessel, but looking forward how will production be ramped up wins the application for exploration.
Speaker Change: Approved.
Good question the one of the one of the things we've established is that.
Speaker Change: Processing modules can happen.
Speaker Change: Through retro kiln electric set us on what we know is that there are hundreds of those lines that had been built in.
Speaker Change: China, and Japan, and more recently in Indonesia.
Speaker Change: And they've been built to process nickel lateral idle and so it's a win win.
Speaker Change: That industry has the capacity to take.
Speaker Change: All of the production that will come off the northern D block and more into parties that we're currently in talks with so we do not see the.
Speaker Change: The need to have to go and spend money process building processing plants to handle the scale up for the first phase and think of processing in two steps one of it is known as the pyro metallurgical process and the other is the hydro metallurgical process and one of the things that I think the United States.
Speaker Change: And Washington D. C policymakers have clocked answer is that.
Speaker Change: They could potentially imports that intermediate products that we will produce from nodules into the United States for use battery makers to make battery cells and of course once you do that it means the material is in the United States and it will stay here it will be used to make batteries, but at the end of <unk>.
Speaker Change: It will be recycled and recycling and decades to come we will become a very important part of the supply chain. So the onshore side means there are no limitations to how we scale up the onshore processing when it comes to the offshore.
Speaker Change: What we are already doing as we announced in our previous release is looking for.
Speaker Change: Second production vessel, but as we get closer to production. We're also finding people knocking on our door, saying, Hey, we have one of those ships exactly like the hidden gem and we'd like to see it dizzy or we'd like to.
Speaker Change: Explore could all cease use it as their production vessel number two and so.
Speaker Change: Think of it as a cookie cutter approach, but and that's how we're going to do the early scale up to the northern D block in the future I think what we'll have is bigger production platforms as we start to drive costs out of the business better economics and the simple math is that we just announced that we're <unk>.
Speaker Change: Moving the production platform to 3 million tonnes. There is the possibility of moving production well beyond that but it would not be with the boat like we have now.
Speaker Change: But for the moment, it's cookie cutter put more boats on the water.
Speaker Change: It's tapping into already built permitted and financed onshore processing plants in parts of Asia.
Speaker Change: Sounds good thank you so much.
Okay.
Speaker Change: And we're going to move from the phone line to some questions in the chat.
Speaker Change: Jerry There is a question for you specifically on the current influence from China.
Gerard Barron: On <unk> mining as well as.
Gerard Barron: Further new five year agreement between Russia, and the Imsa, maybe if you want to comment at all on.
What youre seeing from China in terms of on the ground Nick.
Gerard Barron: Negotiations with the international Seabed authority.
Gerard Barron: Sure look China is.
Speaker Change: I guess, the most powerful voice at the RSA and if you listen to Bill Whitaker is 60 minutes on.
On Sunday the reason for that is the United States and all that and.
Speaker Change: And what China.
Speaker Change: Doing.
Speaker Change: Which we appreciate is saying all of the member states have signed onto the convention of the lower the C and that came up with that came with it legal obligations to put in place the exploration and exploitation regulations to allow the development of this industry.
Speaker Change: No matter, which way you look at our China has.
Speaker Change: The absolutes market leadership when it comes to these base metals and the reason for that is they are very forward looking and we could learn a lot from how they deploy capital and how they see.
Speaker Change: <unk> bonds into the future and do things about it and so I think that we're encouraged to see China in the in the industry. We know they have five contracts two of them are in the Ccs Z, which is where we operate.
Speaker Change: China once regulations to be established to protect the environment and we want them as well and I think that's one of the great gifts.
Speaker Change: <unk> come from this legal framework to have a central regulator that represents 168, and then the countries plus the European Union.
Speaker Change: It means that you have a chance of getting it right because when you outsource mining to developing countries. You are also outsourcing the environmental oversight and that doesn't always work out so well.
Speaker Change: Think there's no doubt China already has a position at the table.
Speaker Change: They.
Obviously, a strong advocate for environmental regulations, and I think we should embrace that and appreciate that they are there.
Supporting the establishment of this industry.
Speaker Change: Thanks, There was a.
Speaker Change: A question from Thailand, Mcneill any updates to the DPA Department of defense title III grants.
Mcneill: Yes, we've been in communication and we'd also.
Mcneill: <unk> been looking very closely at the Dod Grant program.
Mcneill: Nearly $400 million of new funds allocated to it earlier this year.
Mcneill: So that process is ongoing.
I would say stay tuned on that front. These processes always tend to take a little bit longer than one anticipates in I think that applies to the.
Mcneill: <unk>.
Mcneill: The direction.
Direction from the House Armed Services Committee to the Pentagon to deliver reports on the potential processing and refining of nodules, but frankly that report we think is going to be very important to underscore our.
Mcneill: National Security relevance.
Mcneill: For the United States.
Mcneill: And I think we're also seeing that it's really not just about the department of defense DPA title III program, but increasing focus on nodules from the United States.
Mcneill: So means that there are other more direct forms of potentially getting funding to do similar feasibility work. So rest assured the team sees aggressively pursuing all potential opportunities on that front.
Mcneill: And it's really has to do with the fact that I think now there is a growing momentum.
Mcneill: From the military political and intelligence communities.
Mcneill: When you are talking about hundreds of these former leaders signing onto something that's really a momentum of its.
Mcneill: Of its own and showing that a lot of the education frankly that we've been doing along with other contractors about what this resources.
Mcneill: Has been fruitful and we expect more of that this year.
Also Jeremy a question for you from Sean Dre.
Speaker Change: Certainly we have a strong partnership with <unk> do we have any other plans in the near future to develop further partnerships with countries any other expectations of countries, who might want to become sponsoring states any focus on us on that front.
Speaker Change: Okay.
Jeremy: Look we.
Jeremy: Frequently contacted by.
Jeremy: Countries, particularly developing countries who would like.
Jeremy: Help or our partnership to help them get into this industry and.
Jeremy: At the moment, our hands are pretty full however.
Jeremy: We are exploring how we can help some of those nations participate because.
Jeremy: Particularly developing countries, who would otherwise not have access to any economic opportunities like this now is the time for them to participate.
Jeremy: Nothing to report and we do have a laser focus inside the business.
Jeremy: Norrie contract area at the moment of course and.
Jeremy: But there might be something in the future.
Jeremy: And the last question that we have time for from Tim Canetti do we have any updates in terms of discussions with auto Oems and <unk>.
Jeremy: Any news on their focus on this new industry.
Well I can confirm that we continue to talk to them.
Jeremy: But.
Jeremy: I don't think the auto Oems are going to move until we're closer to production and quite frankly.
Jeremy: Our job at the moment is to keep them informed keep them up to date on the environmental evidence that is coming to hand and at the right time, we will be a.
Jeremy: A great partner for them because in the future of course between carbon equalization measures and battery passport initiatives. The cotwo footprint is going to be really important.
Jeremy: We know what our CEO to footprint is going to look like we also noted.
Jeremy: Through our lifecycle analyses, what our impacts on other areas will be as well, whether it's a sequester carbon or water usage fresh water systems, and so on and I think that those matters are going to be really important to measure because when you compare them to alternative supply in the marketplace.
Jeremy: They are going to look really low impact to the bottom end of the scale and that means that customers will be rewarded to choosing those products are the materials that come with a higher impact. So our job is to continue to develop those systems continue to provide that environmental evidence, which of course will make it.
Jeremy: Available to the world that help put it into context as it becomes available for those Oems and <unk>.
Jeremy: We've got a cordial respectful relationship some data.
Jeremy: Than others.
Jeremy: When the time is right.
Jeremy: I am confident that they will be there.
Jeremy: Sure.
Jeremy: Thanks.
Speaker Change: Look thanks to everybody for taking the time to join US on the call today and we are certainly looking forward to sharing more progress on our next quarterly call, which is just right around the corner.
Speaker Change: And we will turn that back over to the operator for any final comments some disconnection.
Speaker Change: Thank you Sir This concludes today's conference call. Thank you all for participating.
Speaker Change: May all disconnect.
Speaker Change: Okay.
Speaker Change: [music].
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Speaker Change: Thank you.
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Okay.
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