Good day. And welcome to The Metals Company Second Quarter 2023 Corporate Update Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As a reminder, this call is being recorded. I would now like to turn the call over to Craig Shesky, CFO. You may begin.

Thanks, Michelle. Please note that, during this call, certain statements made by the company are going to be forward-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 may be beyond our control, including those set forth in our Safe Harbor provisions for forward-looking statements that can be found at the end of our second quarter 2023 corporate update press release. Such statements may also be found in our annual report on Form 10-K for the year ended December 31st, 2022 and other reports subsequently filed with the SEC, including our 10-Q for the quarter ended June 30, 2023, all that 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 any forward-looking statements. And our remarks today may also include non-GAAP financial measures, including with respect to free cash flows. Additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures, which can be found on our slide deck used with this call. And, of course, you're welcome to follow along with that slide deck. Or if joining us by phone, you can access it at any time at investors.metals.co. Now, first of all, 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 Gerard, of course, he's been on the road non-stop this summer building support…

Gerard, you may be muted. He's still connected. Gerard, I'll go through some of the slides here. And if your connections better, feel free to interject. I know it must be hard doing this while being on the road. But on to the market update. So we tried 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 Economist took what we think is a brave and considered position on the topic with a series of articles in support of nodule collection, as well as an analysis of the inevitable social and environmental damages of alternatives, like Indonesian rainforest nickel. No less striking was the news that film director and prolific deep ocean explorer James Cameron spoke out in favor of mining seafloor in The Guardian as a means of taking pressure off of terrestrial ecosystems and human communities. 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 habitats. What you mostly have is miles and miles of nothing but clay." But mining in highly sensitive and highly diverse habitats is a very, very different thing from mining in the abyssal sea floor. The impact on actual human beings, on actual indigenous cultures that are being destroyed, their tribal lands being destroyed, the habitats that they require 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 activist narratives. Interest in our industry from countries and companies continues to grow. And last quarter, we discussed a handful of…

So on to our value proposition. These slides should be familiar by now. So I'll go over them quickly as a reminder on our resource size and resource grade. Our NORI and TOML areas contain in situ quantities of nickel, copper, cobalt and manganese equivalent to the requirements of about 280 million vehicles or roughly the entire US passenger fleet. In March, mining.com released their updated 2023 rankings of the world's largest undeveloped nickel projects and the top two remain the same again this year, TMCs NORI at number one and TMC's TOML at number two. An axiom within the resource sector is that a resource needs to be either very large or high grade to be successfully developed and profitable across commodity cycles. And TMC is an outlier among peers with the largest nickel equivalent resource and the highest grade, with the NORI D nodules having a nickel equivalent grade of 3.2% with four key metals in the same resource. It's likely that it would have been tapped ages ago if the resources occurred on land, where grade for metals like nickel and copper have been going down for decades. And of course, several consortia attempted to develop this resource in the 1970s, including BP and Shell and Sumitomo and US Steel, among others, successfully collecting thousands of tons of nodules and processing them. But 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 latter. I'd like to now play a short video summarizing the ISA structure and the application process. For those on the phone, the video is just under three minutes long. [Video Presentation] So at the end of July, the ISA closed part…

Thanks, Gerard. As shared in all of our previous update calls, in March 2021, AMC Consultants issued an SEC Reg S-K 1300 compliant initial assessment of the project economics in the NORI area. This initial assessment is available in the Investors section of our website. And the NORI Area D financial model can be found beginning on page 310 of that document. And the initial assessment arrives at net present value of $6.8 billion for NORI D at the beginning of last year. Running the same model, simply updated for current metal prices, the net present value of NORI D would be approximately $10 billion today. And yet, the market cap on Friday's close represented only 3% of that fundamental asset value, again on what is only 22% of our total estimated resource. And this compares to a pure nickel developer average of 38% of that price to fundamental asset value. So cutting through all the noise and all of the narratives, the resource is the resource. And for TMC, an investor can get exposure to the largest and second largest nickel projects in the world at roughly a 90% discount for what you might pay on average for the same amount of this critical metal from land based developers. So what might happen to begin to change this valuation gap? This page lays out some of the critical milestones ahead that can lead to re-ratings in our public valuation. The capital raise we announced today is certainly a sign that these new and existing investors who know TMC very well are increasingly convinced of the likelihood of these milestones being achieved, including reaching definitive commercial agreements with our offshore and onshore partners, continued progress from the ISA which Gerard discussed at length, NORI submitting an exploitation application for NORI…

[Operator Instructions]. Our first question comes from Dmitry Silversteyn with Water Tower Research.

Congratulations on the new financing that you guys were able to arrange. And maybe I will start there. You're a company that's got to spend a lot of capital going forward to get your project online. And, typically, when companies like that try to raise capital, it's unusual for them to get a premium to their stock price, let alone a significant premium as you've gotten. And then, obviously, with the warrants being in higher price. Can you talk about sort of what you think it says 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 was it really that drove the confidence in the investors to sign on to this term sheet with such a high premium to the to the current stock price or to the stock price as of yesterday, I should say, or as of Friday?

Happy to answer first and Gerard can weigh in as well. I think the asset is the asset. This is a very, very large resource that we're developing and very high grade. And I think there's a recognition that, certainly, from our existing investors, partners like Allseas, largest shareholder and director, Andrei Karkar, but also there are institutional investors who have really been building positions over the last year who recognize that this is a portfolio of metals for and one single resource that are increasingly important for the clean transition, the political tailwinds are blowing the right way. We've now derisked the offshore technology. We derisked the onshore technology. We've signed up additional partnerships to get us in production. You said that it would be a lot of capital, but I would say capital relative to what – you're measuring in terms of per tonne of metal. It's actually a very small amount of CapEx needed to get this project into first production. I think there's also a bit of a technical dynamic here too, though. Obviously, 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 were perhaps traditional SPAC investors to now building back up an institutional investor base of folks that can see the long game. And once you talk about all the derisking milestones that we've achieved, we're now narrowing into one key question, which is when is the final code coming and when is NORI going to apply and begin first commercial production. So you've really narrowed a lot of those risks down to that process question. I think we now have more clarity on it. Yes, it's disappointing to see elongation on the timeline. But we think there's more certainty now associated with that timeline. So what probability weight are you willing to put on us getting that contract approval to begin work? As we see more environmental data, we think it's 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.

Talking about financing and kind of staying on this topic one more time. Just slide 7 where you provided sort of your liquidity capabilities did not include this $27 million raise or potentially $38 million raise on the exercise of an $11 million more in stock and warrants. It's part of the $30 million shelf registration, I would assume. So is that where I actually be deducting it when I'm thinking about your total capital raising capabilities?

Yes. Yes, that's right. And, obviously, upon exercise of warrants, north of $3, that would be more cash in the door as well. But that's right. Capacity on that $100 million S-3 shelf.

You mentioned political headwinds and tailwinds changing a little bit. We're kind of seeing a carrot and the stick a little bit here, with the carrot perhaps being the US government or at least the Article 1 part of the US government getting more concerned about American independence from China. And then, obviously, you have the stick 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 ISA over the next three sessions? And how do you feel about the probability of getting a mining code at least to the point where you can submit your application and having it evaluated in a reasonable chance of getting approved?

Look, I think the reason that we mentioned that we would not launch the application until after the July session next year was really a show of 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 UNCLOS in 1994 for a very express purpose. And so, we maintain our legal right to launch that application. But we're confident from where we sit that combined with the more than a dozen intersessional working groups, plus three more sessions where the ISA 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. It was nice to see China be so forthright, is probably the right word, down at the ISA. But of course, they weren't alone. You had Japan and Korea and Singapore and Norway and all of the African group countries and Argentina and Mexico. There were many. And so, I think that people wonder when they hear certain countries joining moratoriums, and they're not saying we don't want to see this happen. They're saying we'd like to see the mining code in place. Hey, so would we. The vast majority – keep in mind, there's 168 countries plus the European Union. And we're talking 21 of them have stuck their hand up to say, hey, we'd like to see a cautionary pause. But I think that as we display the environmental evidence that we…

One more question talking about the year that you're going to be putting to good use before you apply for the exploitation permit next summer or somewhere around there, you're looking to more than double the capacity of your Project Zero, you're going to generate – I guess I'm assuming with these two collection vehicles and assuming the pricing of metal stays kind of 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 in between the environmental study that you're going to be conducting in the areas where you already mine, the operating expenses that you're going to be incurring over the next year and then, obviously, the cost of basically more than doubling the capacity on Project Zero CapEx. In that $60 million to $70 million, how would you partition between those main buckets?

Well, I'll let Craig answer that question in detail. But before he does just one thing. Obviously, we filed our accounts today. We don't have any growing concern, and I'm sure we won't have next quarter either. So we do have cash and facilities available to us to get past that submission point of the application. But I'll hand it to you, Craig.

Dmitry, that $60 million to $70 million of cash was from the August 1 8-K. So obviously, the incremental amount we need to raise is reduced 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 us 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, prefeasibility work. Obviously, there's some regulatory costs in there as well. But the single biggest component of that application cost is, no doubt about it, the environmental and social impact assessment. We're going to be talking of 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 part 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 preapplication. But, yeah, I think the remainder of the cost, obviously, there's payroll, G&A, but also there is some costs to keep the hidden gem that they have available, right? Obviously, we're going to be talking with our partner Allseas quite regularly over the coming months. And as we've laid out, we expect to get to binding agreements with them by the end of the year. So it's a lot of different things that we laid out there. But, yeah, I would say about half of it is the application itself. And the majority of that is the environmental spending.

The other point I would make is – or I would guess question is, you generated – you've spent about $5 million on general and administrative expense in the quarter, which is close to where you thought you're kind of bare bones run rate would be if you needed to wait out the ISA and make your cash stretch. You've gotten some financing, obviously, now. So it's not as big of a deal. But it's good to see you being able to get to that $4.5 million, $5 million run rate. And I think it sort of confirms what you've been telling people as far as your ability to remain in the game, if you will, while waiting for this application to get done. The only question I had, I guess, is you mentioned that some of the savings or some of the warrant savings year-over-year were offset by the cost of the prefeasibility study funding and increased mining and technological and process development. You said related to the PAMCO affiliation 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 arrangement made between you and PAMCO, if it goes that far?

Yes. Yes, look, that was part of it, Dmitry, some of those PAMCO studies. But with respect to how it's going, we've had a team spend quite a bit of time in Japan recently. We also, of course, delivered initially a 22 ton sample of nodules to PAMCO. They've been making a lot of progress. And, Gerard, perhaps you can speak a little bit about where that's going and what we see on the timeline.

We certainly expect to have something binding in the second half of this year, Dmitry. And so, so far, we've not run into any roadblocks. The PAMCO 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 PAMCO where we could grow into as well. And I think that we see Japan as being an important partner in the future. They're certainly very focused on securing supplies, given their neighbors. And we like the idea of having in situ processing of nodules up in Japan. But there are certainly other growth opportunities. But I'm confident we'll progress that agreement in this half, Dmitry.

Our next question comes from Malcolm McDonald with Bank of America.

Congrats the quarter. Dmitry hit 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 is the fat question mark. So does the ISA have the ability to expedite the code in the event that the nickel market becomes unbalanced?

Look, I think it's fair to say that the ISA has a process. And we've tried to speed that process up a little bit back when Nauru launched the two year notice. We've then gone back and said, hey, we've, we've heard the room, we're going to not launch an application until after the third session, which will be July next year. My observations on the nickel market is that we've said told the market that we hope to plan to be in production in the end of 2025. And I think that's perfect timing. Because as I mentioned, I'm in Jakarta today, we talk to those customers, we know what that supply looks like. And I think the nickel market will be marginally over supplied in 2024 and 2025. But speaking to all of those customers, they're 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, that never happens. Because if it does, it means there's going to be an enormous deforestation continue at a rapid pace in countries like Indonesia, New Caledonia, and the Philippines. So 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 us Gerard is still conducted? In the meantime, Malcolm, with respect to the nickel market [Multiple Speakers] just focusing on total supply versus demand tonnage, obviously, there's going to be increasing focus on battery passports. That's already coming in Europe. It's going to keep coming elsewhere, including North America, noting that there's going to be a benefit to having lower carbon nickel. So I think what we can expect is that the ISA has their timeline laid out. We expect that they're going to stick to it. But this isn't just a code that's putting in place for polymetallic nodules. It's the code that's going to protect the marine environment. [Technical Difficulty]

We're having a few technical difficulties on the platform. But, look, I think 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. That's 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 it, nickel rich chemistry is bringing benefits. And if we could find a more affordable, reliable and lower impact supply of nickel, then 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 is perfect.

Our next question comes from Frank Jones with Norbury Partners.

I think probably in the same vein as some of these questions around financing, I guess, [indiscernible] is there any update you guys can give on the timing or scope for the Bechtel prefeasibility study? And the reason I ask is the goal or part of the goal of that study to be able to reclassify the resource as reserves and then use said reserves as assets on the balance sheet to raise capital beyond the $60 million to $70 million you need to get to application? I guess the last question on that topic is, when you think about the value of those reserves, should they be proved or probable? Is it the value of the refined metals or raw nodules? Or do you have any insight as to how the feasibility study will think about those reserves?

Well, maybe provide a little context on Bechtel. But, Frank, I think post prefeasibility, obviously, we're going to be looking forward to releasing an updated model. We've been, of course, looking and relying upon and directing investors to the AMC initial assessment from 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 tons 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 nodules themselves that we'd 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 breaching, with Allseas and PAMCO and our partners to sort of fill in some of those gaps. Gerard, with respect to the timing, happy for you to add more color. But I think the takeaway, Frank, is we are eager to get that information out there as well. And we'll put it out as soon as we have the binding information to feed into it and sort of put together all the technical, economic studies that are going to be a part of that as well.

That pre-feas will form part of the application, of course, and so you can assume that it will be available before or as we launch that application. And there's no doubt that moving to proven reserves does increase our financing options. And I think, as Craig mentioned, the value applied to them would basically be the deals that we sign on the processing side. And our plan is to process to an intermediate product, process to a matte material for the nickel, copper, and cobalt and 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, that non-binding into binding agreements, it's going to help people fill out the pieces between the published PEA that is available on our website and what the ramp up in production looks like.

And then is there any indication or do you have an indication for cash needs beyond application between submission of application to the ISA and then beginning with Project Zero?

Look, we are still focused on – and one of the reasons why we did, I think, a fair-sized raise that we announced today – could we've gone and raised more, I'm confident that we could have easily done that. But we do have other financing options available to us, of course, but the main investment will be the further adaptation of the Hidden Gem. And of course, we have a tremendous partner in Allseas. We're very fortunate that their core business is in fantastic financial health. They're very committed, as you could gauge, by their participation in all of our financings since 2019 when they first invested in the company. This for them is an exciting project. This is using their 37 years of deep water engineering expertise to move into a new vessel and talking to their engineering teams. And we have daily interactions with them on the project side. The team are really excited working on this. We believe we have a number of financing options, and we've walked through them on previous calls, but they include earn-in, 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's more certainty. Even though some people saw the announcement after the ISA share session as a delay, to strategic investors, it added more certainty. So, for them, it's like, yeah, that helps me understand the timeline even better. 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 want to protect the equity. And we're very grateful to all of the shareholders who buy our stock and who've invested in the company and we see it as our responsibility to protect that equity.

As Gerard noted, the Hidden Gem and the modifications being the most important element, while the capacity potential for the Hidden Gem, the Project Zero offshore system could be increasing by 130%. You would expect there should be some efficiencies there. You're not going to see the CapEx increase by anywhere like that amount. This is something where a lot of the modifications that were going to be made were part of our initial plan anyway, such as a wider diameter riser pipe, a more powerful compressor spread. This is taking those plans and effectively taking the next step, and then adding another collector vehicle. There's, of course, going to be investment on the offloading system as well. But this is something where, as we get more information, and sort of chat through with Allseas over the coming months, will provide a bit more specificity. But it shouldn't be something where you can expect a linear relationship between the increase in capacity and the increase in associated CapEx. And then, of course, too, as we have been developing this system and project, having a partner like Allseas that's willing to put their balance sheet up to get these modifications going, that's been very, very helpful as well.

Last question. I know these are all timeline related, which can be a bit annoying. You mentioned the promising information coming out of the environmental impact study, is that something we should expect to get information on before submission to the ISA? Or is that something to look for in the middle of next summer?

No, you can expect to see a steady stream of that information becoming available. And there's also a lot of collaboration with other contractors as well because while they haven't been moving at our pace, they do have rich history. Some of those contractors has had their ground since 2001. And so, they actually have a lot of historical data. They've been back to their area recently, in some cases. And so, I think what that's going to do is really build a better picture of that ecosystem. It will give people a lot more confidence in how we can minimize the impacts, and they will be minimized. So expect a steady stream of those reports coming out.

There are no further questions at this time on the phone. I'd like turn the call back over to Gerard Barron.

There are a few questions in the queue. But anybody whose question wasn't answered, please reach out to investors@metals.co and we'll try to answer as many as possible. But, Gerard, back over to you.

Thanks, Craig. So, I'd like to reflect on just some of the key derisking milestones we've seen over the last few quarters. Fourth quarter 2022, Allseas and NORI announced major offshore collection achievements, lifting over 3,000 tons of nodules to the surface, proving the technology for collecting nodules works. And then, in the first quarter of this year, we announced a strategic initiative with PAMCO to potentially process nodules at a facility requiring minimal modifications and no CapEx to TMC and also announced additional flexibility on the financing front, including the $25 million unsecured credit facility provided by our partner Allseas. And the support from our key shareholders has only 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 ISA. 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 first project in our portfolio, 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 team, our small army of highly skilled partners and contractors and, of course, to our sponsoring states of Nauru, the Kingdom of Tonga and Kiribati. 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.