TMC the metals company Inc. (TMC) on Q1 2022 Results - Earnings Call Transcript
Operator: Good afternoon, everyone and thank you for participating in the Metals Company’s First Quarter 2022 Corporate Update Conference Call. Joining us today are the Metals Company’s Chairman and Chief Executive Officer, Gerard Baron and Chief Financial Officer, Craig Shesky. Following their remarks, we will open the call for your questions. Before we go any further, I would like to turn the call over to CFO, Craig Shesky, as he reached 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. Please note that during this call, certain statements made by the company that are 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 are forward-looking statements that can be found at the end of our first quarter 2022 corporate update press release. Such statements may also be found in our Form 10-Q when it is available and other reports filed with the SEC 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 required by law, we undertake no obligation to update any forward-looking statement. Our remarks today may also include non-GAAP financial measures, including with respect to free cash flows and additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures can be found in our slide deck being used with this call. And that slide deck is available on our website right now, investors.metals.co. I will now turn it over to Gerry Barron, the Metals Company’s Chairman and Chief Executive Officer. Gerard, please go ahead.
Gerard Baron: Thank you, Craig and good afternoon and thank you all for joining us today for our first quarter 2022 corporate update. You are welcome to follow along with our slide deck or if you are joining us by phone, you can also access it at anytime at investors.metals.co. Today, we will take you through the highlights from Q1, including significant progress offshore and onshore, a discussion of recent market and industry developments, our financial and project development highlights, and the expected upcoming milestones for the company. We will start with a brief reminder of the TMC value proposition. TMC is developing the largest estimated potential source of battery metals on the planet. We believe our portfolio alone has sufficient estimated in situ quantities of nickel, copper, cobalt and manganese to electrify 280 million EVs, about the size of the entire U.S. passenger fleet. And with all of the raw material inflation squeezing automakers, this is a fantastic time to be developing a resource that can actually move the needle for them. The resources also secure nodules sit in international waters and are regulated by the International Seabed Authority, or the ISA. The ISA resumed in-person meetings in December last year after nearly a 2-year hiatus due to COVID. The ISA also met again in March and have additional meetings scheduled in July and November of this year, with a stated target of finalizing the exploitation regime by July 2023. We expect our production costs to be low as nodules contain high grades of four metals in a single resource, which could put us firmly in the bottom quartile of the C1 nickel cost curve. And importantly, we also expect to significantly compress ESG impacts compared to land-based miners, no digging, no blasting, no drilling, no child labor, no social displacement, no deforestation, and no tailings. We anticipate much lower carbon impacts compared to land-based miners and nearly zero solid waste. And finally, the recent rally in metal prices has led to a large increase in the expected NPV for NORI-D, the first project we are developing. Using the initial assessment done by AMC and simply updating the current metal prices, the estimated NPV for NORI-D would be $22 billion, with all other inputs being equal. It’s becoming increasingly obvious that automakers and other metal consumers are very worried about availability, sustainability and price of battery metals. Last month, Tesla’s CEO Elon Musk tweeted, “Tesla might actually have to go into mining and refining directly at scale, unless costs improve.” In a recent letter to shareholders, GM’s CEO Mary Barra expressed confidence in their supplies of lithium, rate earths and cobalt. The exception was the “GM is still working to secure adequate nickel supplies.” And Ford’s CEO, Jim Foley was recently asked about what keeps you up at night, his response was batteries, the raw materials that go into them and localizing that raw material supply chain in the U.S. So, U.S. automakers are clearly recognizing that the raw materials question, it’s not just about how much, but also where is it located and who controls it? TMC not only has the largest nickel project in the world that the top two largest nickel projects in the world according to a Mining.com ranking from March of this year. Importantly, we believe we are the only needle moving future nickel source that isn’t already controlled by Russia or China, the latter of which is winning the battery arms race through deliberate investments over several decades in locations such as Indonesia and the DRC. And while China speeds ahead in these jurisdictions rife with environmental and social difficulties, the U.S. continues to have nearly zero primary production of nickel, cobalt and manganese. And that doesn’t look likely to change anytime soon at least from land-based resources. Just last week, the Environmental Protection Agency recommended against reissuing a key water-related permit, NorthMet nickel project in Minnesota, due to the potential for pollutants like mercury ending up in nearby waterways. The largest potential nickel mine in the U.S. Twin Metals in Minnesota also saw its permit rejected last year. And so headlines like these clearly underscore the massive strategic benefits that resource – that our resource could potentially offer to U.S. companies, especially given the challenges faced by so many projects on land. So, our resource is big, but how big and how do we know? While in early 2021, AMC consultants issued an SEC compliant technical resource statement on the NORI and TOML areas, the yellow and dark blue box on this page, confirming a total estimated resource of 1.6 billion wet tons of nodules. The methodology used to determine this resource with confidence could be found in the appendix to this presentation as well as the NORI initial assessment on our website and our SEC filings. But in short, we can sample it and we can actually take pictures of it, survey pictures of it, just one of the many advantages of having a two dimensional resource sitting on top of the seafloor in an area with zeros plant life. Zooming in on the right lower yellow box on this map, that’s NORI-D, our first project. NORI-D alone is estimated to contain 356 million tons of wet nodules, representing 22% of TMC’s total estimated resource and we expect that it steadies total production, NORI-D could produce up to 125,000 tons of nickel annually, equivalent to roughly 10% of current global production of Class 1 nickel. We also expect to be a material source of cobalt, copper, and a metal which we think is underappreciated, is manganese, but more on that later. I am very proud of our team and our partners for the progress made on the project development during this quarter. We intend to use our cash balance of $69 million as of March 31 to continue this progress in the coming quarters. On the right side of this page, you will see a non-exhaustive summary on what’s occurred at TMC in recent months. And I am pleased to take you through these achievements in further detail. As we discussed on our Q4 call, we wanted to remind you of the strategic developments announced in March that can potentially allow us to get into production in a capital light manner. Project Zero is our first small scale commercial production project expected to collect and process 1.3 million wet tons of nodules annually from the NORI-D area. In March, we signed a non-binding term sheet with Allseas and a non-binding MoU with Epsilon Carbon, which together, if both are taken to definitive agreements, would reduce the share of preproduction costs initially borne by TMC to approximately $55 million, down significantly from the previous estimate of $193 million. Starting with offshore, the term sheet with Allseas lays out the potential framework and the commercial terms for upgrading the pilot collection system into a Project Zero system and operating it in the NORI-D area. Further details on these economics can be found in our press releases and the transcript from our Q4 corporate update call. Already this year, Allseas has made an incredible amount of progress on the system in testing, including web test, dynamic positioning trials, and deepwater tests. And this keeps us on track to test the system in the CCZ later on this summer, when nodules in our contract area will be generally lifted off the seafloor and sent to the Hidden Gem on the surface through the electrolyzer system. And rather than having me simply talk about major offshore milestones achieved this quarter, I’d like to play a short video which allows you to see the progress yourself. Last week, the successful completion of initial deepwater trials of the polymetallic nodule collected vehicle in the Atlantic Ocean. The team had all fees lowered the collected vehicle to the seafloor by depth of 2,470 meters, marking the first time the vehicle is being subjected to ultra deepwater temperatures and pressures. Engineers then subjected the vehicle to extensive testing of its various pumps and critical mobility functions and drove the vehicle over a kilometer across the seafloor. The pilot nodule collection system is so far performing beautifully throughout these trials. And getting the collective vehicle in the deepwater in the Atlantic has given the team the opportunity to really pressure test all the critical components. We are eager to share more offshore progress in the coming quarters. I am sure we announced the signing of a non-binding MoU with Epsilon Carbon in March detailing their intention to finance, engineer, permit, build and operate the world’s first commercial polymetallic nodule processing facility in India, building upon our pilot work finalized in Q4 last year, which successfully turned nodules into nickel, copper, cobalt matte and manganese silicate products. India is a great place for our first processing facility for many reasons, including support for nodules from their government at their highest level. Last year, Prime Minister Modi earmarked $0.5 billion for India’s deep ocean mission, including funds for deep sea nodule collection systems. It’s also worth noting that Ford stated in February that they are “exploring the possibility of using a plant in India as an export base to EV manufacturing.” Even beyond the potential of 3D production in India, the country already represents a major hub for steelmaking. Epsilon Carbon has an exclusive raw material purchase agreement with JSW Steel, India’s largest steel manufacturer. And this April, we announced some very important news on the attractiveness of our manganese silica product for the steelmakers in India and beyond. We retained SINTEF one of Europe’s largest independent researching institutions to analyze our manganese silicate used to produce silica manganese to steelmaking TMC’s high-grade manganese silicate product appears to have significant advantages over conventional land-based manganese ores on cost and CO2 footprint, with the potential for 7% to 17% higher value in use depending on the carbon tax regimes. So manganese might not get as many headlines as nickel and cobalt, but given that manganese could account for almost 30% of our future revenues, we are very pleased by these findings from SINTEF in advance of potential off-take discussions in the near future. As you probably read, critical mineral supplies and by extension polymetallic nodules are a growing area of focus for political and military leaders. You will see on this page a collection of excerpts from recent letters in the political and military spheres regarding seafloor resources. The most recent letter was an absolute haymaker landed by Senator Marco Rubio, against Volkswagen, a company that first virtue signaled their hesitancy on deep sea mining, but then last month signed a large off-take agreement with the Chinese funded cobalt and rainforest nickel supply. In the letter, Senator Rubio asked if VW believes that human trafficking, child labor and rainforest destruction, unnecessary risks and whether they value deep sea sediment over human rights. Senator Lisa Murkowski recent letter to the Department of Energy was a bit less forceful in tone, but every bit is fear and its conclusions, telling the DoE that any credible analysis of critical battery metal supply chains must include seafloor resources and asking the DoE undertake a strategic assessment of polymetallic nodules. And this echoes the sentiments of 17 retired generals, admirals and officers across 4 branches of the military, who wrote to the Pentagon in February, asking that they consider this possible development of polymetallic nodules as a potential game changer for U.S. critical mineral supplies. So to reduce dependence on metals controlled by authoritarian governments and to actually get enough of these metals to make a dent in fossil fuel use, we think that nodules in the Clarion Clipperton Zone are the only real choice. And the video we will now play highlights the potential strategic benefits to the U.S. afforded by this remarkable resource. The metals for the clean energy transition need to come from somewhere. And we believe that science-based assessments of lifecycle ESG impacts favored nodules over land-based mining, especially given some of the geopolitical environmental problems of the alternatives. Fareed Zakaria summarized this well on his CNN Talk Show in late April, while showing images of one of TMC’s environmental campaigns on the Maersk Launcher. He said, if people want to protect the planet from climate change and authoritarian governments, people will need to get on board with new projects, even the ocean floor cannot be off limits. In terms of nickel, the only other material option to supply growth is equatorial nickel laterites, typically coming from underneath the world’s carbon storing rainforests. At TMC, our ESG principles continue to drive us and we are pleased to have new third-party partners who will help us tell the story of our impacts compared to those of land-based miners. The next page summarizes some of our existing peer-reviewed lifecycle analysis, which quantifies the significant impact impression that nodules offer versus land-based metals. Carbon emissions are significantly reduced compared to nickel pig iron and carbon sinks at risk are reduced compared to both nickel sulfides and nickel laterites. Water use is reduced significantly and solid processing waste is reduced to nearly zero and no tailings are produced. We have been shouting from the rooftops about these studies for a long time and we were thrilled to announce in April that we have engaged the benchmark minerals intelligence to provide an independent assessment of how the lifecycle environmental impacts of our NORI-D project compared to producing the same metals from a range of conventional land or methodologies. For nickel, nearly all net supply growth on land is expected to come from Indonesia. According to CIU, the vast majority of that supply already has guaranteed off-take to China. In fact, some analysts predict that supply growth ex-Indonesia could be negative globally through the end of this decade. And if that’s the case and Indonesia is the only other game in town besides nodules, for nickel supply growth, we think people need to be very aware of what nickel mining in Indonesia actually looks like. The answer, well, it isn’t pretty. Deforestation, high carbon impacts, biodiversity loss, massive amounts of waste, toxic tailings that are sometimes dumped directly into the ocean and rivers. Certainly, there are some good actors in the country who are trying to improve things, but we feel those are just marginal improvements coming off a very dirty starting point. I’d ask you to compare images like this to the GSR collected test video from last year, which is on our website in the appendix to our Q1 corporate update presentation, along with a photo taken of the seafloor after the test was completed. Some opponents of DC mining say that we should wait a few decades calling for more science from one side of their mouth or looking to slowdown the companies actually funding that science from the other side of their mouth. And these are often the same people who advocate shutting down all nuclear power plants and taking zero accountability for the fact that they might be doing in the planet due to prolonged dependence on fossil fuels. At best, these opponents maybe unaware of the significant impacts of existing land-based mining or perhaps unaware of the exponential growth needed in metal supply to combat the effects of climate change. But at worst, they are complicit in the future destruction of these biodiverse carbon stored in rainforests, hypocritically, turning a blind eye to increased metal extraction beneath these land habitats in furtherance of their own interests. But sometimes even well-meaning advocates cite the precautionary principle to conclude that the world should wait a while before tapping this potential resource. However, a true reading of the precautionary principle would actually favor the responsible collection of nodules as soon as practical Part 1 of the precautionary principle from the 1992 Vienna Convention is the one that many people focus on. It says in order to protect the environment the precautionary approach shall be widely adopted. We agree, as does the International Seabed Authority, and this is why over 43% of the CCZ is set aside as area that will never be touched even above the 30% target laid out in that Rio Convention. It’s why this industry is only now getting started, after over 50 years of intense research, including a major study from NOAA from 1975 to 1980. It’s also why we will deploy a digital trend to give unprecedented transparency of our operations to the global community, something that you will rarely find from a land-based operation. But Part 2 of the precautionary principle is equally important. And I “where there are threats of serious or irreversible damage lack of full scientific certainty shall not be used as a reason for postponing, cost effective measures to prevent environmental degradation.” While we don’t have to go far to find two major threats of irreversible damage and environmental degradation, firstly, there is the obvious threat to the world’s rainforests carbon sinks posed by land-based mining on which the world would be even more dependent without an alternative like nodules that there is also the threat of continued climate change exasperated by a lack of battery metal supply. In fact, Princeton came out with a groundbreaking report last week in the Journal of Science confirming what we are now seeing with ocean scientists have been saying for years. The biggest threat to the world’s oceans is climate change. And if climate change continues unabated, marine life worldwide would suffer a massive die off, the likes of which hasn’t been seen in hundreds of millions of years. It is our company’s mission to do everything we can to spur along the development of this incredibly important resource, accelerating the green transition and bringing us closer to the day when the circular economy can be made possible. Opponents of deep sea mining often paint a picture of big scary machines digging up and churning the seafloor, which is totally inaccurate when it comes to polymetallic nodules. I’d again encourage you to watch the GSR collected test video in the appendix of this presentation as well as a slide differentiating nodules from other more invasive forms of deep sea mining. But opponents also like to make it seem that if one contractor goes ahead, that the genie will be let out of the bottle and a large swathe of the seafloor are going to be affected, but nothing could be further from the truth. This slide shows the size of the CCZ relative to the global seafloor. It also shows TMC’s exploration contractor is in yellow, which are each larger than any other nickel project in development. But I have just tiny drops in the bucket compared to protected areas of the CCZ and much smaller compared to the total global seafloor. Even when we begin operations, we will only be touching a tiny proportion per year of our contract area. And this slide lays out that area, a small sliver of blue in comparison to the global seafloor. It is also dwarfed by the annual seafloor footprint of offshore wind and even smaller compared to annual trawling impacts that you can see here in blue. Given the size of this important potential source of battery metal supply, along with a relatively limited footprint of potential operations and the transparency offered by our digital credits, it’s worth questioning why some would prefer to stop this before it starts even on such a relatively small scale. But thankfully, this industry has a regulator that has been working hard for nearly three decades to come up with a robust set of rules and regulations even before commercial operations begin, a feat that’s nearly unprecedented that any extractive industry in history. We also believe we have significant clarity on the permitting timeline. Last year, the Republic of Nauru notified the ISA of NORI’s intention to lodge an application for an exploitation contract in July 2023. This 2-year notice obliges the ISA to consider and provisionally approve NORI’s application based on the state of the exploitation regulations at the time whether final or not. And following this 2-year notice, the ISA laid out a roadmap through its plan in 2022 and 2023, which includes an increased cadence of meetings. So, after nearly a 3-year hiatus due to COVID, the ISA resumed in meetings this past December. They held another session in March and expect two more this year. And we expect that NORI will be applying for an exploitation contract in the second half of 2023. And so, this timeline keeps us on track to begin commercial production in the NORI-D area in Q4 2024. We have already completed several of our stated 2022 milestones and we intend to continue this cadence of progress. One of the biggest upcoming milestones will be the pilot collector trial beginning this summer in NORI-D. And this trial will include a second vessel as part of our collective test monitoring campaign, which will observe and analyze the impacts of pilot collection. We are all excited to continue developing the digital twin with Kongsberg, which will give eyes and ears to the regulator and our stakeholders. And we will soon release our impact report, a landmark document which lays out our company’s ESG story and long-term goals. With that, I will turn it over to Craig to speak on TMC’s project economics and the first quarter results.
Craig Shesky: Thank you very much, Gerard. So as of the end of March, we had a cash balance of $69 million, which we will use to continue progressing the work on our critical milestones, including the pilot collection system test in the CCZ beginning this summer and further advancement of our environmental impact statement, both of which are prerequisites for application to the ISA for exploitation contract. And we make that application in the second half of 2023. We believe that the cash on hand $69 million could find us for at least the next 12 months from today. Now like most companies and individuals, we certainly are noticing some cost inflation, including fuel prices and vessel rates. And of course, we are always constantly evaluating our internal cost estimates. But when you are exposed to the basket of metals that we are, inflation can actually be a significant tailwind. The supply limitations of these metal markets are becoming increasingly worrisome to, as Gerard noted, politicians, military leaders, automakers and the general public. In nickel, the short squeeze and the 10-day trading shutdown at the London Metals Exchange in March showed just how precarious the situation is. And since February, nickel liquidity on the LME has been cut in half, which we think could provide further incentive for nickel customers to think long and hard about locking up long-term production. So, how do these higher metal prices translate into affecting our project economics? In short, it’s a massively positive impact. In March 2021, AMC consultants issued an SEC regulation SK1300 compliant initial assessment of the project economics for the NORI-D 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. The NORI-D area represents just 22% of our total estimated resource portfolio and the initial assessment arrived in the net present value of $6.8 billion for NORI-D at the beginning of last year. And that’s assuming a very conservative assumption of $7 billion of project development CapEx. Keep in mind that our announcements with all season Epsilon Carbon provide a playbook for how that CapEx amount can and we expect will be reduced significantly going forward. So running the same model simply updated for current metal prices, the net present value of NORI-D would be approximately $22 billion today, and again, that’s just 22% of our total estimated resource. By focusing on the first quarter of 2022, TMC reported a net loss for the first quarter of $21.1 million or $0.09 per share compared to a net loss of $55.7 million or $0.29 per share for the first quarter of 2021. Net operating loss, which excludes the loss on fair value changes with warrant liabilities of $5.2 million, was $15.9 million for the first quarter of 2022 mainly driven by non-cash share-based comp of $5.7 million and $1.3 million expensed for the pilot mining test system. Exploration expenses during the first quarter of 2022 were $7.3 million compared to $38.1 million for the first quarter of 2021. The first quarter of 2022 reflects a decrease in offshore campaign spending following the completion of NORI Area D environmental baseline campaigns in the fourth quarter of 2021 as well as a decrease in share-based compensation, while Q1 2021 included a fair value increase in common shares issued to Maersk. General and administrative expenses or G&A were $8.6 million for the first quarter of 2022 compared to $17.4 million for the first quarter of 2021, reflecting a reduction in share-based compensation. Both exploration expenses and G&A expenses in the first quarter of 2021 were impacted by significant awards of stock options in March of 2021. Excluding non-recurring items, free cash flow for the first quarter of 2022 was negative $15.7 million compared to negative $7.4 million in the first quarter of 2021. I would like to provide some context, of course on the nature of the cash outflows in Q1 2022, as well as in the previous quarter of Q4 2021. I would strongly caution against extrapolating those amounts to determine our cash reach, since they were driven mainly by items which would not be occurring every quarter. For example, in the fourth quarter of 2021, over half of the cash outflow of $28 million was driven by two things. First, the first $10 million cash milestone payment to Allseas, given much of the progress that they have made on that offshore system. And number two $5.3 million in campaign costs for the environmental program. In the first quarter of 2022, nearly half of the $15.7 million cash outflow can be attributed to environmental campaign costs. So, at this point, I will turn the call back over to Gerard for some closing remarks. And then we will turn it over to the operator for some questions. Gerard, please go ahead.
Gerard Baron: Thanks Craig. First of all, I would just like to thank our team and our partner Allseas for hitting some very important milestones already this year. In the world of metals, our expected production date of Q4 2024 is just around the corner. And we fully intend to keep this progress going to achieve that target. And in closing, I will paraphrase what I said during our last quarter update call, because it’s even more apparent now. At a time when the inherent risks of battery metal supply chains are becoming increasingly obvious to the media, automakers, politicians, military leaders and investors, we have taken major steps towards de-risking the world’s largest estimated undeveloped source of battery metals. And we believe our current market cap represents less than 1% of the fundamental value of our estimated resource. So, while I am convinced that TMC shares are extremely undervalued, our stock today represents a very inexpensive way to gain exposure to the world’s number one and number two largest nickel projects on the planet. So, thank you for your interest and attention today. And with that, we would like to turn it back to the operator for some Q&A.
Operator: Speaker, our first question is from the line of Jake Sekelsky of AGP. Your line is now open.
Jake Sekelsky: Hey, guys. Thanks for taking my questions. So, just starting the deep-sea trials in April, I am just curious, were there any surprises with the equipment? I mean it sounds like everything functioned properly. But I am just wondering if you came across any surprises or any areas for improvement as you move towards commercialization?
Gerard Baron: I am happy to say, no. I mean there were minor operational things, a part needed replacing or a bolt needed tightening. But the pressure testing and putting this machine together and planning it as Allseas has been doing since 2019. To then drop it in the water for it to work so seamlessly, 2,500 meters below sea level was really exciting from our perspective. I think if you were to ask Allseas that question, they would say, it was always going to work that way. But I am sure there were some very happy engineer faces on that boat as well and so – and yes, so far, so good. And I guess that plays into our strategy, right. I mean, if you – our strategy was to bring industry expertise in to support us, because, at the peak, Allseas had up to 400 people working on that project. And so, they threw a lot of skills and hands at making sure that it all worked.
Jake Sekelsky: Got it. Okay. That makes sense. And then just looking at capital spending, and Craig, you touched on this a bit with the trials underway, I am just sort of curious if you are able to give us any color on capital spend over the next couple of quarters as we head into the second half of the year?
Craig Shesky: Well, so we have laid out that, it’s again, this is dependent upon getting to final ingredients with Allseas and Epsilon Carbon, but we would expect, at some point to have capital spending of $55 million. And that’s pre-production CapEx for the Project Zero commercial system, as well as some engineering costs. We are, obviously, as everybody else is looking at inflation closely and making sure that we are managing costs. As you know, is we best possibly can. As I mentioned, we do have the benefit of actually getting a tailwind from inflation in terms of project economics, given that, the basket of metals, even after a pretty difficult last few days for metals trading, it’s still up very significantly, nickel is up 45% already this year. So, we were managing that closely and always assessing and discussing with our team and the Board. But we can say that the cash on hand is going to be sufficient to fund our operations and our capital expenditure needs for at least the next 12 months from today.
Gerard Baron: And I will just add to that, that would be when we reached our agreement with Allseas, we did agree a fixed price contract as well, which I think has worked out pretty favorably, because firstly, Allseas only like to do things to a very exacting standard. And so they spent considerably more than was budgeted to deliver that pilot, main system, collective system. So, it’s worked out pretty well. And it certainly helped us in managing our capital outflow.
Jake Sekelsky: Okay. And then just lastly, on the PFS for the Project Zero plant, is the plant being designed in a modular fashion, I guess that being designed as an off the shelf type plant where you can take the results from the PFS and apply it to potential additional plants down the road?
Gerard Baron: Yes, absolutely. I mean, we chose this flow sheet. We worked with a variety of companies, including Hatch on it. And we chose a flow sheet that works in many locations around the world today. Primarily, it’s used for the treatment of nickel laterite. And so what we found through all of the pilot trials was that nickel laterites and polymetallic nodules behave very analogously when they are in the kiln and the electric arc furnace, so that was encouraging. And there are many dozens of those operating globally. And so if you think about our flow sheet, it comes with a pyrometallurgical front end, which was where we dry the nodules and we throw them into an electric arc furnace. And then we produce an alloy material, and a big pile of manganese silicate, which you heard us talk about on the call. And then we take that alloy and convert that into a matte material. And that matte material currently contains about 40% nickel and 30% cobalt and several percent of sorry, 30% copper and 7% cobalt. The plan was to then refine that into battery materials, into sulfates and copper cathode. And so that’s like a separate, if you like flow sheet and so optionality, we could do the pyrometallurgical stuff in one location, and the hydro net in another, or we could just sell that intermediate product, because today in the market, we would get paid between 90% and 95% of the payable that matte. So, it affords us a whole lot more flexibility to the way that we have designed it.
Jake Sekelsky: Got it. Okay, so it sounds like you are not necessarily reinventing the wheel with the plant design at all.
Gerard Baron: No, we are not.
Craig Shesky: It’s the same thing, Jake. It’s the same thing too, of course offshore. And we are trying to thread the needle. We absolutely in no way want to diminish just how important that these tests are and how impressive it is and what the team at Allseas has been able to do. But I think it’s a good example, both onshore in terms of that flow sheet. And offshore, it’s really building on a lot of technology that has been tested. It’s not quite at commercial scale. So, we are able to take the learnings on a lot of people have done before us and build upon them in a more efficient manner. But still pretty amazing achievements, especially from our partner Allseas this quarter.
Jake Sekelsky: Yes, absolutely. And that’s helpful. That was all on my end. Thanks again, guys.
Gerard Baron: Yes. Thanks Jake.
Craig Shesky: Thanks.
Operator: Speakers, next question is from the line of John Katsingris of Wedbush Securities. Your line is now open.
John Katsingris: I am on for Dan.
Gerard Baron: Hi John.
John Katsingris: I had a quick question. So, taking a look for more of a bird’s eye view, looking at what’s going on in the world supply chain problems and more so macro headwinds, do you see any potential headwinds looking forward into 2022 or 2023? Thank you.
Gerard Baron: Look, I see tailwinds. I think the headwinds are probably supply chain risk. But we have been facing those supply chain risks for the last 2 years as have other manufacturing or companies who are building to that side, or but if you look at how we have managed that, last year, we spent 170 days at sea. We completed five environmental campaigns with moving, 50 to 65 people on a boat, off a boat, all without a single day loss to COVID. We had multiple vendors on every campaign. During that same year, we with Allseas, we are building an offshore pilot collector system. And as you have heard today, it’s in the water been tested. And so, between ourselves and our partners, we have a lot of expertise and success. We have chosen our partners very, very well. And along with our own disciplines, I think when you compare our progress, it’s been exemplary. Now, what I do see the tailwinds. And I think those tailwinds will further, as you heard in today’s presentation, just make it obvious to people that, we need to be prepared to go to new frontiers. This problem is not going away. If I go to the environmental issue, climate change is and global warming is the biggest threat to our oceans. And so then you add on top of that the security of supply of these metals that, without the battery materials, you can’t build the batteries. And so, I think all of these things work in favor of our projects. And I feel fortunate on this project. But I think the challenge is we can overcome with the help are very, very solid partnerships. Of course, cost of capital is always something that will be something we have to earn. We have to work hard with the investigation to make sure that we can reduce that. And we are confident by delivering the milestones on this project that we will achieve it.
John Katsingris: Thank you.
Gerard Baron: Thank you, John. Say hi to Dan.
John Katsingris: Will do.
Operator:
Craig Shesky: While we are waiting for that queue to popping up, Jessie, there was a question on the chat regarding our relationship with Glencore. Just an overall update on that relationship, Gerard, if you have any comments, and I guess the question was, given their GM transaction, has that changed anything via the relationship with TMC?
Gerard Baron: Sure. Look, I would say that we have a good relationship with Glencore. They have their small shareholder in the company. They have off-take for some of the nickel and copper on one of their license areas. And they are always at the other end of the phone when we need some advice or some help on something and so, no changes.
Craig Shesky: And one other question from the chat, from Steven Clark, regarding the ISA process, we talked about it quite a bit, but any change in our competence for the process over the Nauru zone and the timeline to potentially get that exploitation contract.
Gerard Baron: We would remain confident that the ISA is on track to have the exploitation code adopted by the time the council finishes sitting in July 2023. And so, as you heard in our presentation we do you have a fallback solution, thanks to Nauru lodging that 2 year notice. But at this point in time, I think we are pleased with the amount of progress and the hard work that is happening by everyone at the Secretariat and also the member states who are all chipping into, to do what needs to be done.
Craig Shesky: Jessie, I think we are about to wrap anyway. So, unless there are any more questions in your queue, we will just turn it back over to Gerard to conclude the call.
Operator: Speakers, no further questions at this time.
Gerard Baron: Okay. Well, look, thank you everyone for taking the time to join us on the conference call. We look forward to sharing even more progress in our second quarter update. And wish you all a good day. Thank you.
Operator: This concludes today’s conference call. Thank you all for joining. You may now disconnect.
