Good day and thank you for standing by. Welcome to The Metals Company First Quarter 2023 Corporate Update Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the call over to your speaker, The Metals Company CFO, Craig Shesky. Please proceed.

Thank you very much. Please note that during this call, certain statements made by the company will 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 maybe beyond our control, including those set forth in our Safe Harbor provisions for forward-looking statements that can be found at the end of our first quarter 2023 corporate update press release. Such statements may also be found in our annual report on Form 10-K for the year ended December 31st, 2022 and other reports subsequently filed with the SEC, including our upcoming 10-Q for the quarter ended March 31st, 2023. I will then provide further detail about the risks related to our business. Additionally, please note that the company’s actual results may differ materially from those anticipated, and except as required by law, we undertake no obligation to update any forward-looking statements. Our remarks today may also include non-GAAP financial measures, including with respect to free cash flows and additional details regarding these non-GAAP financial measures can be found on our slide deck. And the slide deck is available on our website at investors.metals.co. And now, I'd like to turn it over to our Chairman and CEO, Gerry Barron. Gerry, please go ahead.

Thank you. Thank you, Craig and good afternoon and thank you all for joining us today for our first quarter 2023 corporate update call. You are welcome to follow along with our slide deck or if you're joining us by phone, you can access it all any time at investors.metals.co. It's only been about six weeks since our last update call, but the first quarter has set an exciting turn for 2023, with progress at the International Seabed Authority generating headlines around the world, but we'll cover more on that later. I'd like to highlight some important financial milestones that occurred during the quarter. Since going public, we've been enhancing our system of controls and procedures now culminating with the removal of our material weakness from 2021 and with the certification filed by myself and our CFO at the end of 2022, as required under Sarbanes-Oxley Act. I'd like to thank our entire finance team, including our Chief Accounting Officer, Claude Plourde, for leading our continuous progress as a public company with mature internal controls. We ended Q1 with over $28 million in cash and also announced in March a new $25 million unsecured credit facility with an affiliate of Allseas. This facility remains untapped today as does our $30 million at the market equity program. We also announced a strategic partnership with Low Carbon Royalties in February in which we contributed a 2% gross overriding royalty on NORI in exchange for $5 million and a 35% equity stake in LCR and a right to repurchase up to 75% of the royalty at a fixed return. We mentioned on our last call that LCR has the potential to be an additional source of capital to bring NORI-D and other TMC projects into production, and we believe LCR management continues to…

Thanks, Gerry. So we'll start with the familiar slide. In March 2021, AMC Consultants issued an, SEC REG S-K 1300 Compliant initial Assessments of the project economics for the NORI-D Area. And this initial Assessment, which was a point-in-time analysis, arrived at a net present value of $6.8 billion for NORI-D at the beginning of 2021. Now the NORI's initial Assessment is available in the Investors section of our website and the NORI-D financial model can be found beginning on page 310 of that document. But to make it easier for modeling purposes, we've also added the Excel tables from this initial Assessment as a separate document again, at investors.medals.com. So of course, running the same model is simply updated for current metal prices. The net present value of NORI-D would be approximately $13 billion on just 22% of our total estimated resource. So let's talk a little bit about how these underlying project economics can and eventually should translate into valuation. On this slide, you may also look familiar to many of you who were on our second quarter 2022 Corporate Update Call, but it's actually new. In the previous version from last year, we compared price to fundamental value for land-based copper developers compared to TMC and using an NPV of NORI-D alone, we found that we traded at a discount of roughly 20 times. On this slide, put together with the help of Stifel, looks at land-based nickel developers instead. And again, the story remains the same. NORI-D is trading at a 20 times discount to these nickel peers. A small amount of that discount might be pinned of course, on the ISA uncertainty, until the final Mining Code is in place, but there's also significant regulatory uncertainty on land as well and including for some of…

Thanks, Craig. I've said it before, and I'll say it again, the pieces are falling into place. In the fourth quarter of 2022, whole season NORI announced a major offshore collection achievements lifting over 3,000 tons of modules to the surface, significantly de-risking the technology of nodule collection. In the first quarter of this year, we announced strategic initiatives with PAMCO and Bechtel and also announced additional flexibility on the financing front, including the $25 million unsecured credit facility provided by our partner, royalties. And I continue to be encouraged by the ongoing financing discussions with a host of strategic parties. Now, we're seeing great signs on the last piece of the jigsaw puzzle, the finalization of the mining code by the ISA. As that important work continues, our team will continue to work tirelessly to deliver the best possible application, including what I know is going to be a world-class assessment of the environmental and social impacts of the first project in our portfolio, providing confidence to the world that nodules can be responsibly collected and processed into key metals needed to the energy transition of our planet. Thank you for your interest and attention. With that, we'd like to turn it back over to the operator for some questions.

Good afternoon, gentlemen. Thank you for taking my call. Congratulations on coming up with a breakeven quarter here. I understand, there were some onetime items there, but still good to see you guys controlling your expenses and keeping the company going and accomplishing all these great things you talked about. Let me get into the questions. First of all, the kind of -- maybe it's bookkeeping, but the low carbon steel -- I'm sorry, the low carbon royalty, 35% going down to 32%. Did I hear you right you ended up selling that 2% bag to LCR?

No, no. So, what happened to Dmitry was effectively there have been [Audio Gap] additional transactions subsequent to the deal announcement in February. So there were additional shares issued, which was relative in the acquisition of very valuable natural gas resources in Latin America. So, we noted that the Maria Conchita royalty, which other than our NORI-D contribution, the 2% gross overriding royalty, the Maria Conchita royalty actually doubled in size due to the subsequent transaction. And then there was an additional natural gas field acquired, the seabed mine asset owned by MG Energy. So with those two transactions, we significantly increased the value of the natural gas elements of that portfolio, yet TMC's stake was reduced from just 35% to 32%. So we think, it represents a material increase in the valuation prospects of that entity.

Okay. So you have a lower percentage of the company, but a higher royalty revenue run rate anyway.

That's correct.

Okay. Secondly, let's switch to the PAMCO project that you're working on. Can you update us on how they're doing with your samples and where they are in determining the feasibility of processing your polymetallic nodules? And then, sort of what would be the next step? And how long would that take for them to figure out if they want to -- if they can do the alloy plus manganese or if they can take it down to mat or even further?

Yes. Hi Dmitry, thank you for your question. Look, it's worth noting that PAMCO have been processing nickel ore since 1965. And so they are a very credible partner. And of course, their flow sheet which they use to currently process materials, nickel laterites is identical to what we've been piloting, what we developed with Hatch involves a rotary kiln and electric arc furnace. And so, they know a lot about this. And of course, we've been working with some time 2 tonne sample. There are some there's a very active exchange between their team, between our team, between our technical providers, which is -- we've worked with over the last five, six years, and we expect that soon after June 30, and I'd suggest that's probably early in Q3. So not far away, we will have bedded down the commercial terms that we can then consider and decide how we put that into a binding agreement. So far, a lot of information has been shared and we're encouraged by what we see. And of course, we will continue to push that along. And it's hard to imagine another mining project on land that can get started without having to spend enormous amounts of capital on processing. That's where the capital is normally spent. And we've come up with a solution here and of course, at the moment, it's not binding. And I will say, it's not the only solution possible. There are other solutions as well. But we've come up with a solution here, and we've got a fabulous partner in PAMCO who have great willing that requires us to invest no CapEx. It's a very unique situation. And normally, of course, what happens with a typical mining project as you wait for the permit and then you have…

That's very helpful. I appreciate that, Gerard. And that actually leads to me into my next question. You provided a very nice flow diagram of going from nodules to the finished product. And if you look at every step, you mentioned alloy and manganese silicate is the first step and then a converter slag as the next sort of upgrading step, and then finally getting to the copper, nickel and cobalt salts in the ammonium sulfate, which is actually a great solution for your waste and tailings. You talked about sort of the tables that you can get at each of those steps. Can you give us an idea without talking about specific dollar amounts, but maybe in percentage terms of copper, nickel cobalt, ammonium sulfate being 100% and alloy, manganese being x percent? And sort of what does each of these steps mean for you in terms of value realization for the nodules?

Sure. Well, please -- the manganese silicate, we'll get 100% of the value there. And in fact, we had an independent company to a value in news report, which showed that we should get a premium, and we've handed samples of that to many people in the market, and they love the product. They love it because our process takes a lot of the [indiscernible] material and that makes it a much more friendlier material to use in the steelmaking process. As for the alloy, we're confident we can get between 65% and 70% of the payables. And if we go all the way up to mat, it depends on the market. We might get 85%, we might get 90% of the payables.

Okay. Okay. So that's a lot better mathematics than I envisioned going from step to step. Okay. That actually leads me into my last question. When you talk about NPV of $13 billion for the NORI-D project, that includes, if I understand correctly, about $7 billion in CapEx that you would anticipate spending to getting the project fully developed if you were funding it internally. You've pretty much secured the offshore portion of the process and turn that into operating expense versus capital expense with your Allseas contract, and PAMCO may allow you to do the same thing onshore. So when you really talk about NPV, are we really talking about something closer to maybe like $17 billion to $18 billion, assuming that you have to put in $2 billion to $3 billion of your own CapEx?

Well, yes. No, it's a great question. We've been very careful not to sort of update every number on that slide given the fact that for putting out something as definitive as an initial assessment, and we're very eager to share some of the new project economics as we move past our prefeasibility work this year. We want to make sure that we're not getting out of our skis until we've had sort of third-party independent assessments done by qualifying person. However, what we've shown on this page is just for the most simple sensitivity of do not make those changes for CapEx, as you know, but also no change OpEx, just change the metal prices, that's what the sensitivity in the model shows. Now importantly, we haven't said what could that $7 billion of CapEx go down to, it could be quite a bit lower than $2 billion or $3 billion that would likely entail however, additional amounts paid in terms of operating expenses. So we have this great option in front of us to be able to enhance return on equity for our shareholders by reducing CapEx and exchange for OpEx. Now does that mean you would be achieving 60% to 70% EBITDA margins? No, no, that would be something smaller. But you would still have a very, very healthy EBITDA margin, very strong positive free cash flow and doing it in a way that minimizes CapEx. So we don't want to get too specific on that. But I would also make another comment to Jared's point on whether we sell alloy or Mats or, let's say, take it all the way to the battery great products. On average, our basket of metals is 30% higher than it was at the time of that initial assessment. So at…

Yes, sure. Look, we have stated several times in recent updates that we remain focused on asset level financing. It's interesting what's happened to our equity value since being a public company, it hasn't been a very impressive chart. At the same time, our underlying assets, as you've seen on NORI-D have doubled in value almost. And so it's hard to reconcile that. Now the good news is, as we've shown through recent financings, including the $30 million that largely came from existing shareholders in August 2022 and most recently from our largest investor Allseas the $25 million we announced recently, the current shareholders are prepared to keep supporting this company. So that's good. We know this project is transformational in some of those metals. We know that because of the size and quality of it. And as we get closer to removing some of the uncertainty and the uncertainty involves the permitting, of course, and being able to demonstrate those environmental impact, the fact that we can produce reports such as the one that benchmark produced and the other peer-reviewed papers that are coming out are good indicators. And so I think as we get closer to those certainty points, those strategics that we continue to talk to, it makes it easier and easier to get them involved. And one of the tremendous things about this project is we're not talking about billions of dollars. We already have our first production vessel, which obviously is Hidden Gem. We've identified a processing partner that can get us processing these nodules for no CapEx. So we're not talking about large tons of capital. So I can't say more than the fact that these talks are going well. We're pleased. Craig can talk more about the regular approaches we get from financings. We have and at the market facility of $30 million. We have a shelf registered of $100 million. And you'll note we haven't used them. That tells you we're very confident about the other steps that we have -- the other paths that we're moving down.

Okay. I understand Gerry. Thank you very much. I appreciate that color.

Thanks, Dimitri.

Thanks, Dimitri.

One moment for our next question. Our next question comes from Malcolm McDonald with BAML. Your line is open.

Hey guys.

Hi, Malcolm.

Hey, Malcolm.

Just, Dmitry just asked a lot of the questions. But just regarding the relationship with Maersk, can you provide some background on how or why the relationship with Maersk was initially established and why they have been selling their position and what their intention is for the future going forward with the remaining shares this has, obviously, been an overhang on the tape. So any color or clarity that you could provide there would be very, very helpful. Thank you.

So, yeah, look, going back to Maersk as part, they've been extremely instrumental in a lot of our resource definition campaigns. As Gerry mentioned, we've had 17 loan, resource definition and environmental campaigns, most of which were made possible by the Maersk Launcher vessel. So they've been an incredible partner. And they were very happy and eager to take equity in DeepGreen and then TMC, of course, for some of that compensation for being such a great partner. That partnership ended at the end of 2021. And this was really a natural progression given that a lot of the resource definition work has been completed. The environmental baseline campaigns and margin been completed, of course, those continue the analysis of that data continues. But really, we're moving away from that exploration pure part of the phase two, now pilot mining. So having all seas carry more of that water and especially using the Hidden Gem vessel, which wouldn’t be our first commercial production vessel in Project Zero was a very natural transition. And during that time, there were some changes at Maersk structurally where this business was held in Maersk Supply Services, which was deemed other element of their business. So this is really, I think, after the point that the partnership ended. It was kind of a non-core business in what was a noncore segment. And then finally, news came out earlier this year that Maersk Supply Services was sold to the parent holding company. So in our view, this is not any sort of economic decision or anything that happens the view of deep sea mining overall. And certainly, we continue to have a great relationship with those guys on a personal level. But you're right, you can see from their filings that they've been selling quite a bit in the open market since the fourth quarter, going from roughly 21 million shares to a small fraction of that. So look, it's been frustrating, frankly, to know that, that overhang is out there. And to see a lot of this good news that's been coming out over the past few months, including really going back to the collector test last year. If you would have told us that after doing this massive historic collector test, the first of its kind and integrated test system since the 1970s, effectively de-risking many elements of this technology. But of course, none of that is shown any credit yet in the TMC share price. So again, we think this is a spring that keeps getting coiled tighter and tighter if a lot of this good news has come out. And I think that overhang, while it's been difficult, and we're not too far away from that being behind us and we start realizing the potential of this massive resource.

Thank you very much.

One moment for our next question. Our next question comes from Frank Jones with Norbury Partners. Your line is open.

Craig and Gerry, thanks for the time. Thanks for the call. Awesome update so far. I think Dmitry and Malcolm asked every question I had, except -- we haven't talked much about off-take agreements. And I know the PAMCO MoU probably was first to kind of understanding what products you're going to sell in the market. But do you guys have any -- given any thought to what you're going to do or how you're going to sell, whether it be that or the mad if it will be like an at the market process or if you're looking to find an offtaker before this is going other projects here?

Yes. Frank, what I can say is watch this space. Watch this space. You see it as an important part of the future financing strategy. And we're talking to strategic at an asset level, and that also includes talks around offtake. And those metals are all in high demand, and we're working hard on it. But hopefully, we'll have some good news around that before the end of the year.

Awesome. Thank you.

And I'm not showing any further questions on the phone lines.

So we might take a few from the web chat. So I see from Steve Clarke. He asked the US because of an action by the US Senate is not a party down cost and only as observer status of the ISA meetings. But the US does have an outside influence in terms of the need for battery minerals. They seem to be playing both sides of the base on quickly passing RRPs and exploitation licenses -- so how do you see the US role in proceedings this July? Well, it's a good question, Steve. I think overall, the role as observer will continue, but the US does respect on cost and the ISA mandate over the high seas and the US, of course, funds a lot of the ISA operations, along with many of the other member states. But you're absolutely right. Look, a lot of the demand for these metals is coming from the United States, which if you're looking at nickel, manganese and cobalt, the US effectively has zero or de minimis primary production of all three of those. So I think, on the one hand, while the US may not rise above observer status anytime soon and may not be much of an active participant in the debate, and actually getting these final rules and regulations as part of the mining code to the finish line, the US does certainly have a need for these metals, and you've seen a lot in the Inflation Reduction Act, for example, a potential funding from the US Department of Defense and Department of Energy, which shows that there is a mandate to get primary production of a lot of these metals. And there was a letter from Senator, Lisa Murkowski in 2022 to the US Department of Energy, wondering…

Sure. Look, the – what I could only describe as a much over exaggerated events. And of course, the Hidden Gem had about 125 people on it, including many scientists. We had an observer vote with more than 80 people on it, many of them scientists. And so I heard some people say that we weren't as transparent, which is total nonsense. We had a procedure in place. As soon as possible, we closed down the system. We made an assessment. We notified the regulator, which basically, we found the fix. And the fix was, of course, was the transport mechanism, which is water that is used to carry the nodules up to 4.3 kilometer pipe had a collar on it. And as it turned out, the collar needed to be a little bit taller. And so of these to their credit we're able to fix that in situ and it took a couple of days. And of course, the system restarted and no such problems reoccurred. But let's just put this in perspective. We were lifting water and a small amount of sediments and some nodules from the bottom of the seafloor and some of them spilled off the side of the boat. And so the material that came out of the ocean went back to the -- back into the ocean. And so there was no risk of any serious harm. And of course, that is the purpose of these trials, that's exactly why you do it. And there were some learnings to be taken away from it. So there were other things that we learned along the way as well. And of course, we're fortunate to have such a high-quality and experienced partner in Allseas, who, for 37 years, have been solving very complex problems in the deep ocean and they operate production vessels, laying very important infrastructure pipes for the oil and gas industry, 24 hours a day, 365 days a year on some of their vessels. And so they're able to identify and fix these issues. But no, it was -- we -- of course, there are some learnings of it and those learnings will be taken into the full production system. And I know that the regulator carried out a full review. They sought some external advice to review the review. And I think everyone was satisfied so.

We have time for one more question. I think we'll take it from unless operator can't if you see any other in the queue, let me know. But one from Ryan Bully is enhanced worker safety appeal. Is it an appeal for the offshore companies that are showing interest in collecting polymetallic nodules. Gerard, I would love your perspective on this, too, overall on what are some of the factors that some of these offshore companies, and we're getting increasing headlines about offshore companies looking at this space and putting resources to it. But Ryan, yes, I think that safety is certainly one. But also, it's really an opportunity to repurpose existing assets, but also devote capital and really devote human capital as well, a lot of the talent within offshore oil and gas that as we decarbonize as a society over the course of the next few decades, there's obviously going to be exponential growth in metal demand. And it's a great opportunity to take existing assets and really talented workers and devote it to a new space. But it's a new space that they know very well and just like our partner Allseas, that expertise in operating and the deep ocean with very low temperatures and very high pressure. It's a unique set of skills. So we're really happy to have that sort of expertise on display. And I know a lot of that was a big theme of the Offshore Technology Conference in Houston earlier this month. So I think that's it for the Q&A. Gerard, I'll turn it back over to you for any closing comments.

Great. Well, thank you again for taking the time to join us for this conference call. We look forward to sharing even more progress on our second quarter corporate update call in August to The Metals Company team, and our suppliers, and contractors, and Board members, but especially to our team, thank you for an amazing quarter. Thank you for the enormously high level of commitment that you bring to this mission, and we look forward to speaking to all of our shareholders again in August.

Thank you all

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.