TMC the metals company Inc. (TMC) on Q4 2021 Results - Earnings Call Transcript
Operator: Good afternoon, everyone and thank you for participating in the Metals Company Fourth Quarter and Full Year 2021 Corporate Update Conference Call. Joining us today are the Metals Company's Chairman and Chief Executive Officer; Gerry Baron, the Metal Company's Chief Financial Officer, Craig Shesky; and Epsilon Carbon's Managing Director, Vikram Handa. Following their remarks, we'll open the call for your questions. Before we go 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 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 may be beyond our control, including those set forth in the Safe Harbor provisions are forward-looking statements that can be found at the end of our fourth quarter 2021 corporate update press release. Such statements may also be found in our Form 10-Q when it's 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. 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. This slide deck is available on our website, investors.medals.co. I'll now turn it over to Gerry Barron, the Metals Company, Chairman and Chief Executive Officer. Gerry, please go ahead.
Gerry Baron: Thank you, Craig, and good afternoon and thank you all for joining us today for our fourth quarter corporate update. You're welcome to follow along with our slide deck or as Craig mentioned, you can also access it at investors.medals.co. Today, we're going to take you through an update on strategic relationships, a discussion of recent market developments, our financial and project development highlights, and expected upcoming milestones for the company. But we'll start with a quick reminder of the TMC value proposition. We believe TMC's estimated resource of polymetallic nodules can really move the needle for battery metal supply. It's abundant. It's 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 US passenger fleet. It's secure, nodule sit in international waters and we are regulated by the International Seabed Authority or the ISA, comprised of 167 member states and the European Union. The ISA resumed in-person meetings in December after a nearly two-year hiatus due to COVID and they are meeting again as we speak in Kingston, Jamaica with a stated target of finalizing the exploitation regime by July 9th, 2023. We expect our production cost to be low due to the high grades of four metals. On land, you would possibly need three different mines to obtain these metals and the grades are falling. 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. At potential steady-state production, we expect to be the second lowest cost producer of nickel in the world and lowest outside of Russia. Importantly, we also expect to significantly compress ESG impacts compared to land-based miners. We expect 70% to 99% reduction of life cycle ESG impacts. No child labor, no social displacement, no deforestation, no poison -- poisonous Hexavalent chromium, which was recently reported in communities near nickel mines in Indonesia. Onshore, our production is expected to generate near zero solid waste and zero tailings. We also expect to compress CO2 equivalent emissions by up to 90%. And this is all using conventional technology. But we are pushing to do better than that. And then finally, the recent rally in metal prices has led to a large increase in the expected NPV for NORI-D, the project -- the first project we are developing using current metal prices and nickel at $30,000 per tonne, the estimated NPV for NORI-D would be $22 billion, all other inputs being equal. So we believe TMC is positioned at the intersection of three megatrends in the clean energy transition. At COP26 in Glasgow at end of last year, the world decided to accelerate electrification, now targeting 100% zero emissions car sales by 2025 in major markets and by 2040 globally. At this point in time, these ambitions appear to be divorced from the geological and geopolitical constraints of raw material supply chains. Availability and price of metal supply continue to be a risk for the clean energy transition and reassuring supply chains of critical metals is now a top priority for many governments around the world. It took a few years for the world to realize how effective China has been in cornering the battery material supply chain and how hard it is to achieve mineral independence if your country does not have a sufficient domestic source of the right minerals. And focus on the ESG continues to be a Catch-22. We want to accelerate the clean energy transition, but we also want to end all destruction of nature, including from mining critical minerals needed for the clean energy transition. There are no zero impact critical metals, but we believe TMC can offer much lower impact metals that would not be destroying anyone's backyard nor any Rainforest. Few of this anticipated war in Ukraine, the humanitarian crisis is overwhelming, and it's hard to talk about things like supply chains and amidst death in suffering. The supply chain disruptions have real consequences. Russia controls roughly 20% of Class 1 nickel market, while the Chinese control most of nickel growth. And fears around Russian fly, coupled with the Chinese producers shortening nickel have caused chaos on the London Metals Exchange pushing nickel prices to all-time highs. And this type of volatility is unhelpful for the clean energy transition. At TMC, we are working to become the lowest -- largest, lowest cost and lowest ESG impact source of Class 1 nickel supply outside of Russia. Nickel is a key metal for us, representing about 50% of our expected future revenues at current metal prices. And as you can see on the left-hand side of this page, our estimated resource is significantly larger than other known undeveloped nickel projects. Earlier this year, mining.com ranked just our NORI-D asset as the largest undeveloped nickel project on the planet. Our strategy has always been to develop the polymetallic nodule resource through partnerships, both because this potentially allows us to move faster and because we expect that this will allow us to get into production in a capital-light manner. And the two strategic developments we announced last week are important steps in that direction. Project Zero is our first small-scale commercial production project, expected to collect and process around 1.3 million wet tonnes of nodules from the NORI-D area. And as a result of the two strategic developments with Allseas and Epsilon Carbon, we expect to reduce a share of preproduction costs carried by TMC from US193 million to approximately US55 million. Onshore, we announced a non-binding term sheet with our partner, Allseas. It lays out the potential framework and commercial terms for upgrading the pilot collection system into a Project Zero system and operating it in NORI-D area. The pilot collection system you see on the image consists of surface production vessel, the Hidden Gem. The collective vehicle used to collect nodules on the seafloor, the launch and recovery system to deploy the collector and airlift riser to move nodules from the collector to the vessel. Allseas is currently in the middle of the test program, and we expect the full system to do a multi-month pilot trial on the NORI-D area in Q3 this year. And after completing these pilot trials, Allseas intends to upgrade this pilot system into our small-scale production system. The total cost to get into production are currently estimated at less than $110 million, and Allseas have agreed to finance these costs with TMC's subsidiary, NORI, reimbursing Allseas 50% of these costs between March 31, 2023, and production start, which is expected in Q4 2024, subject to NORI securing and ISA exploitation contract. And once in production and subject to Allseas achieving certain production targets, NORI expects to pay Allseas a nodule collection and transshipment fee that will cover Allseas operating expenses, Allseas share of preproduction costs and a fee linked to the value of contained metals -- it is currently estimated at around $165 per wet tonne of modules in the first year of potential production and expected to be reduced by over 20% in the following years, as Allseas scales production up to 1.3 million tonnes of wet nodules. Assuming 24% moisture content, this would equate to around $217 of cost per dry tonne. And on the revenue side, at current metal prices, our internal estimates suggest that Project Zero would generate revenue of around $700 per dry tonne based on two products: our nickel, copper mask and our manganese silica material. We intend to further detail and revise the cost estimates in the definitive agreement we intend to enter by December 31, this year. And we also expect to see the per tonne cost to further decrease from these estimates, if Allseas scale production capacity of its surface production vessel by adding multiple collectors on the seafloor. Here, you can see additional images of the pilot collected being lowered into the water and driving on the seafloor of the North Atlantic, earlier this month. We're also excited to report that, Allseas and NORI intend to investigate acquiring a second production vessel similar to the Hidden Gem, a Samsung 10000 that is expected to be engineered to a higher production rate of 3 million tonnes of wet nodules. A higher-production rate system is expected to reduce the, per tonnes nodule collection cost significantly, compared to the first production system. The exciting development onshore is that we have signed a non-binding MoU with Epsilon Carbon to do a pre-feasibility study for renewables powered project zero plant in India that could process 1.3 million tonnes of wet nodule per year, collected using Allseas Project Zero system operating on NORI-D. I have invited the Vikram Handa, Managing Director of Epsilon Carbon, to give you a bit more background on the company.
Vikram Handa: Thank you very much, Gerry. And it's exciting to be here. Epsilon Carbon started in 2010 with an idea that we could turn coal tar, a waste stream from steel making into high-quality carbon products. Since then, we have built a good business around the long-term exclusive raw material supply contract with JSW Steel, which happens to be India's largest steel manufacturer. We've been producing a wide range of carbon-based products for some of India's biggest needs in aluminum, carbon black, tires and other specialty products. We have done so with a low-carbon footprint, because we use waste gases to produce mesocoke and more than 80% renewable power for thermal purification. About five years ago, we decided to expand into battery business and Started Epsilon Advanced Materials deals to focus on that. The Anode Precursor Materials was a logical place for us to start, but we had ambitions to expand into Cathode materials as well. On the Anode material side, we have now had the first plant in India producing Synthetic Graphite, and we are building a plant in Finland to make Natural Graphite as well. In Cathode materials, we are working on making a precursor for the LFP battery chemistry made from the steel plant waste stream. And now with the MoU we have signed with TMC, we are thrilled at the prospect of processing nodules and producing nickel met as well that could cater to NMC and other nickel-rich battery, Cathode chemistries. We have built our entire carbon products business, on an unconventional raw material, a waste stream from the steel plant and then, invested our R&D resources to produce Synthetic Graphite. As a company, we thrive on these types of challenges, doing things that have not been done before. Polymetallic nodule resource truck as, as a game-changing opportunity to tap another unconventional resource with several intrinsic properties that could potentially allow us to develop a Cathode precursor material business with a much lower environmental and social impact. We have already started on the pre-feasibility report, subject to us reaching, binding head of terms in the next couple of months with TMC. We look forward to engineering, permitting, financing, building and operating our Project Zero Plant in India. It is a relatively small-scale plant, but we believe that the scale of TMC's resource portfolio has the potential to turn India, into a significant supply of critical minerals for battery and steel industry as well. So we're looking forward to working together and building this project in the near future.
Craig Shesky: Thank you, Vikram. I'd add here that for the last three years, we have engaged with many potential onshore partners and visited many plants around the world. Metallurgical processing tends to be a rather slow changing capital intensive business, usually run by large, established companies, not necessarily known for their innovation and entrepreneurial spirit. And having recently spent some time in India with Vikram and his team, visiting their plants and potential sites for a Project Zero plant. I can say we were very impressed. The operating philosophy of putting every bit of resource to work and nothing to waste, attention to detail, focus on people and an environment, it felt like we found a kindred spirit. And at a strategic level, I could not imagine the benefit. In Epsilon Carbon, we found a partner who is already in the battery materials and backward integrated with the steel industry, the two target industries for our products.
Vikram Handa: Thank you, Gerry. We have certainly enjoyed working with your technical team over the last few months as well. The work done by the TMC team, including a zero solid waste flow sheet and the pilot plan program results have given us a good head start as we aim to deliver a project feasibility report for Project Zero in India by year-end. I think it's important to understand that after China, India is the world's largest steel manufacturer and is planning to triple this production to 300 million tonnes by 2030. This expansion will also require a lot of manganese ore, most of which India has to import today. Project Zero plant is expected to produce a sizable volume of manganese silicate product that could be used in the production of silicon manganese alloys instead of manganese ore and appears to have several advantages, including reducing the CO2 emissions, lowering downstream power consumption and eliminating the need for blending. Over the last month, my team has been meeting with some of India's largest manganese alloy producers and have secured initial expressions of interest in the manganese product. TMC has shipped us the manganese samples, and we look forward to the next stage of testing with these customers and taking their interest ahead.
Gerry Baron: And India is, of course, home to 20% of the world's population and has a strong development led demand for raw materials. And according to un-class, polymetallic nodules in international waters is a common heritage resource. And personally, I believe that putting this resource to work in a country with the world's second largest population that needs a lot of steel for its continued development is putting such a resource to good use. I'd like to thank Vikram for taking the time to join us today, and he has kindly agreed to stay behind bringing questions at the end of this session. So in closing here, offshore, our partner Allseas has enabled us to move at a near impossible speed and capital efficiency. And onshore, we hope that our relationship with Vikram's team will allow us to do the same. In terms of governance, we announced the appointment of Kathleen McAllister to our Board in February. Kathleen is a seasoned CEO, CFO and Board Director who has held diverse leadership roles in global, capital-intensive companies in the energy value chain, including Black Hills Corporation, LNG partners and Transocean Partners. Kathleen is expected to step into the role of Audit Committee Chair in April. And Kathleen's appointment brings our gender parity to 50/50 on TMC's Board. Just 3% of S&P 500 companies Boards are comprised of 50% or more women today. So TMC is joining a small but growing number of companies delivering on gender parity goals. Under the nickel market, we've been talking about impending supply issues for nickel for awhile, that the events of the last several weeks have elevated the urgency of this topic. Since the beginning of Q4 2021, nickel prices have more than doubled, but not in a linear fashion, nickel prices started Q4 '21 at around $18,000 a tonne, steadily rising higher than spiking as high as $100,000 a tonne before the LME stepped in and stopped nickel trading for more than a week. And nickel prices declined significantly as trading reopened and eventually dropped below 30,000 per tonne, but then jumped in the last couple of days to over $37,000 per tonne before the LME halted trading yet again. And higher nickel prices are a major tailwind for our project economics, which Craig will discuss later. The nickel price rally is still playing catch-up to recent rallies in cobalt and lithium. And if you were to run the same chart since the beginning of 2021, you see that cobalt prices are up 350% and lithium carbonate prices are up 600% in that time. In February, Benchmark Mineral Intelligence reported that high lithium prices pushed up the cost of LFP cells above those of high nickel cells on $1 per kilowatt hour basis for the first time in a decade. And this analysis has been a moving target due to the nickel roller coaster this month, but it underscores the fact that there is no safe haven for automakers when it comes to battery materials. They need to lock up abundant, secure and low-impact suppliers of nickel, cobalt, copper and manganese. Manganese may rapidly gain in importance. Elon Musk stated this week in Berlin that there's an interesting potential for manganese for Tesla battery cathodes, and TMC expects to be a top four global producer of manganese through NED alone, and that's just 22% of our total estimated results. The metal intensity of the clean energy transition is now reasonably well understood. There simply is no energy transition without exponential growth in metal supply and supply of some base metals needs to grow six times by 2040 to reach a goal of net zero by 2050, according to the International Energy Agency. It's estimated that roughly 30 million EVs per year globally could be left unbuilt due to battery material shortages and roughly half of what might otherwise be sold without the constraint in metals. And some research analysts are now publicly doubting the medium-term EV sales forecast from automakers due to the recent nickel pickle. So where will battery metals for gigafactories come from? Let's take the US as an example of this global conundrum. The US currently has zero or deminimis production of nickel, manganese and cobalt, the NMC and the N and C and an MMC battery catheter. It takes on average about 16 years to go from discovery to production for a new mine, but many will never get permitted. Permits have already been denied for several proposed copper and nickel mines in the US. So rather than looking for new deposits in people's backyards, we're seeing growing support to look far offshore instead. We hold exploration contracts in the Clarion-Clipperton zone, the colored areas on this page. And in early 2021, AMC Consultants issued SEC compliant technical resource statements on the Nori and TOML areas, confirming a total estimated resource of 1.6 billion wet tonnes of nodules with an in situ resource of nickel, copper, cobalt and manganese, equivalent to the requirements of 280 million electric vehicle batteries. Importantly, the CCZ area under protection has increased to 43% after the ISA set aside three additional blocks in December to make sure all habitat types that could be impacted by nodule collection are represented. The global ambition to protect 30% of the oceans by 2030, so CCZ is already ahead of the curve here. And leaving large areas untouched is a strong measure to protect biodiversity. The sea floor in the CCZ is an abyssal desert that represents the most common area on the planet. Microbes account for over 70% of life, as measured by biomass, and there is 1,500 times less life per square meter in the abyssal desert than in the biodiverse carbon story rainforests of Indonesia. And most of nickel growth is expected to come from these rainforests, with Volkswagen in China just announcing they plan to get 120,000 tons of nickel from Indonesia by partnering with China's Tsingshan. I'm curious what WWF Germany, Greenpeace or VW customers had to say about this announcement. And if you look at the lower right yellow box on this map, that is NORI-D, our first project. And NORI-D is estimated to contain 356 million tons of wet nodules, representing 22% of TMC's total --
Craig Shesky: Hello everybody. We’re having technical difficulties. Please stay on the line.
Operator: Ladies and gentlemen, please remain holding. Again, ladies and gentlemen, please remain holding.
Craig Shesky: I think we're back up, Gerry, if you want to begin again. Apologies for the inconvenience there, everybody, but ready to start again.
Gerry Baron: Okay. Apologies everyone. Starting on slide 18. Okay. So the support for nodules has been growing amongst the world's largest economies for some of the most credible voices. India has an exploration contract and Prime Minister Modi is investing $530 million over the next five years in the country's Deep Ocean Mission, including funding for an integrated nodule mining system. And France also has an exploration contract and President, Macron is investing €300 million in deep-sea nodule exploration as a path to mineral independence and reindustrialization of his country. Russia controls two exploration contracts and China controls three exploration contracts, the same number as TMC. And these exploration contracts are strategic holdings with major national security implications. On the top of this page, you can read some of the positive statements made by some respected agencies on the topic of deep-sea minerals. And those opposing deep-sea mining claim that the scientific inquiry on this topic is brand new, and knowledge is insufficient. When it comes to CCZ nodules, we respectfully and strongly disagree. The environmental impacts of nodule collection have been studied for the last 50 years, including a study by NOAA from 1975 to 1980. The findings of NOAA's Deep Ocean Mining Environmental Studies or DOMES was reported to the US Congress in 1995, stating that the DOMES project has basically eliminated virtually all other environmental concerns raised about deep-sea mining, except the collective sediment plume issue that required for the study. Now much progress has been made on plumes since then. Since 2018, we and our partners have undertaken the most intensive deep-sea exploration and environmental baseline data collection effort in history, completing 14 campaigns totaling 450 days at sea, while collecting nearly 1,000 terabytes of data. Senator Lisa Murkowski, a centrist voice in the US Senate, with a long track record on critical mineral issues, wrote a letter in February, urging the Department of Energy to consider new abundant sources of supply like polymetallic nodules, which can offer a pathway to mineral security for the US. In February, 17 retired generals admirals and offices across four branches of the military, wrote to the Pentagon asking that they consider responsible development of polymetallic nondeles as a potential game changer for US critical mineral supply lines. We are also seeing a more nuanced treatment of the nodule solution in the media. Jim Conca from Forbes called nodules much, much less impactful than any land operation and the most optimal method for getting these critical metals between now and 2050. And Steven Brown, an expert on Indonesian nickel operations called out nodules as the only genuine alternative to rain fire cycle. The awareness of the environmental impacts of Indonesian nickel is growing, a Guardian investigation into nickel mining in Indonesia discovered evidence of poisonous hexavalent chromium contamination in the drinking water, near one of Indonesia's largest nickel mines, the same cancer causing chemical made famous by the Aaron Borthwick story in film. The metals for the clean energy transition need to come from somewhere. We believe that an unbiased science-based assessment of life cycle ESG impacts would favor nodules over the alternatives. And life cycle studies published in peer-reviewed journals demonstrate that getting nickel from polymetallic nodules significantly reduces the environmental impacts, compared to getting the same amount of metal from land-based mining. Carbon emissions are reduced by more than 90% compared to nickel pig iron, water usage has reduced significantly, and solid processing waste is reduced to nearly zero and no tailings are produced. Finally, as there is no plant life on the sea floor of the CCZ and no mechanism to release carbon into the atmosphere from nodule collection, nodules represent a 90% reduction or more in terms of carbon zincs at risk compared to both nickel sulfide to nickel laterites. But sometimes seeing the operations is more impactful than seeing the impact numbers. This clip is from a collective test performed in the CCZ by another ISA contractor, GSR, a subsidiary of a Belgian Marine Engineering Group, DEME. Conceptually, we have taken a similar approach to collection. We take advantage of the Coandă effect, the propensity of a fluid to follow and stay attached to a convex surface. And this allows us to direct a water jet in parallel with the seafloor to gently dislodge nodules and then channel the stream with nodules inside the collector along the convex shape. Even I was struck by the footage from GSR's collected tests and wanted to share it with you. So you can see the extent of the impact on the seafloor with your own eyes. Allseas is in the middle of the test program of our pilot collector now, and hopefully, I'll be able to share with you similar footage by the end of the year. And here's what the test area looked like afterwards. You can see the tracks on the sea floor, but I invite you to mentally compare these tracks on the seafloor to images of cut down rain forest, mining waste, coloring rivers and coastlines red, displaced local villages and so on. On the plumes, essentially the seafloor mud disturbed by the collector, it's been a major concern raised by activists who speculated it could travel for hundreds of thousands of miles and stay suspended. Well, last year, we had several plumes studies coming out from universities like MIT and field test by other contractors like GSR and BGR and our own studies. And so far, the takeaway is that the seafloor plume generally only rises five to six meters above the seafloor, and most of it resettles within hours to days and mostly in the test area. The cornerstone of the environmental and social impact assessment is collecting baseline data on the environment. We need to understand the pre-impact state, so we can compare it to what happens after nodule collection. And while we started doing environmental data collection campaign several years ago, this has been a record year for us, with five safe and successful campaigns and 170 days spent at sea throughout the year. And as I noted earlier, since 2018, we have successfully completed 14 campaigns, totaling 450 days at sea, while collecting nearly 1,000 terabytes of data. And onshore, we have developed a low-risk flowsheet with the help of Hatch. And we now demonstrated that we can turn these modules into valuable metal products. First, our pilot planned program turned nodules into a manganese silicate product that can go directly into manganese alloy production and a nickel, copper, cobalt, alloy and intermediate product that can be used as feedstock in some of the existing smelting and refining operations. Here is what the alloy looks like. I just realized that I hadn't turned my camera back on. And we further refine this into that, which I -- on my hand. We're continuing our bench-scale work to refine the nickel, copper, cobalt matte into nickel sulfate, cobalt sulfate and copper cathode. But we're finding that potential customers are quite interested in the matte material. And the payables on the matte material could be 85% to 90% of LME prices for those metals and selling the matte material would mean that we could skip the refining step entirely, saving $2 billion from the Project One CapEx bill. We are regulated by the International Seabed Authority. And as we speak, the ISA session is in progress in Kingston, Jamaica, with the focus on financial regime, regulations and standards and guidelines. Last July, the Republic of Nauru notified the ISA of Nauru’s intention to lodge an application for an exploitation contract in July 2023. And this two-year notice applied is the ISA to consider and provisionally approved Nauru's application based on the state of the exploitation regulations at the time, whether final or draft. And following this two-year notice, the ISA laid out a road map for its work plan in 2022 and 2023, two sessions per year and a third meeting of the council in 2022 could also be considered. So, we expect that the ISA will meet their stated goal of finalizing the exploitation rigs by July 9, 2023, and NORI will be applying for an exploitation contract in the third quarter of 2023 based on final regulations. And this time line keeps us on track to begin commercial production in the NORI-D area in Q4 2024. We will need to raise additional funds in the next 12 months or so, but we're not in a rush to do it. We continue to hit our milestones, which we believe will allow us to raise capital at more attractive terms. Our cash balance was $85 million at the end of December and the amount currently sitting in our bank account as of March 24, was $73 million. Our Board has approved a budget which allows us to achieve many key milestones and to fund operations into Q3 2023. And here are some of the milestones we expect to reach this year. We intend to reach binding Project Zero agreements with both Allseas and Epsilon Carbon, de-risking Project Zero, and reducing the cost to be borne by TMC prior to getting into commercial production. We intend to secure offtakes for Project Zero's nickel, copper and cobalt mass and the manganese silica products. Onshore, we'll analyze and share the results of our pyrometallurgical pilot program and we'll also complete our bench-scale hydro network with SGS. And offshore, we'll be doing a pilot collector trial this summer in NORI area 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're also excited to continue developing the digital twin with Kongsberg, which will give eyes and ears to the regulator and our stakeholders. So, with that, I'm turning it over to Craig to speak on TMC's project economics and our fourth quarter results.
Craig Shesky: Thank you, Gerry. In March 2021, AMC Consultants issued an SEC Regulation SK 1300 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 3(10) of that document. The NORI-D area represents just 22% of our total estimated resource portfolio. The initial assessment arrived in a net present value of $6.8 billion for NORI-D at the beginning of last year, assuming $7 billion of project developer CapEx. As we know, the prices for most of our metals have reached multiyear highs and the current metal prices, except for nickel, which we run at $30,000 per ton, the net present value would triple to almost $22 billion with potential lifetime EBITDA of over $125 billion just for NORI-D lock. As potential steady-state production of 12.5 million tonnes per annum on NORI-D toward the end of this decade, we expect to be the lowest cost nickel producer in the world outside of Russia with estimated steady-state EBITDA margins above 75% at current metal prices according to our internal estimates. We believe these attractive project economics can support us in trading future margin for reduced CapEx upfront on Project One. Our recently announced arrangements with Epsilon Carbon and Allseas show our commitment to our CapEx-light strategy with the initial smaller scale production for Project Zero. And just one last note on nickel, certainly, the events of the past month have shown the world just how sensitive these metal supply chains can be to geopolitical events. And we think the outlook for Class 1 nickel is bright, but predicting future of metal prices is not our business. As such, we've included a sensitivity table to show the NPV for NORI-D at various nickel prices, holding all of their assumptions constant. The rule of thumb is that every $10,000 per ton delta in the nickel price would change today's NPV on NORI-D by around $6 billion. As Gerry mentioned earlier, our cash balance of $85 million as of the end of December remain sufficient to fund operations into the third quarter of 2023, at which point TMCs subsidiary, NORI, is expected to apply to the ISA for an exploitation contract. And despite facing significant financial headwinds as part of the de-SPAC process, we achieved major project development milestones in 2021, which you can see on the right-hand side of this page. The company recorded a net loss of $19.8 million or $0.09 per share for the fourth quarter of 2021 compared to a net loss of $17.1 million or $0.09 per share for the fourth quarter of 2020. The higher net loss was mainly attributable to $2.6 million in non-cash share-based compensation and increased general and administrative expenses as being a public company, partially offset by an $8.5 million reduction in the fair value of the warrants liability as a result of the decrease in our share price. Backing out that $8.5 million warrant liability adjustment results in a net operating loss we show on this page of $28.3 million for Q4 2021. The Exploration expenses of $12.8 million in the fourth quarter of 2021 were similar year-over-year. And general and administrative expenses were $15.5 million for the fourth quarter of 2021 compared to $3.9 million for the fourth quarter of 2020, mainly driven by higher non-cash share-based compensation expense and overall higher cost as a result of being a public company. Excluding nonrecurring items, free cash flow for the fourth quarter of 2021 was negative $27.8 million compared to negative $5.2 million in the fourth quarter of 2020. For the year ended December 31, 2021, the company reported a net loss of $141 million compared to the $56.6 million in the prior year. Backing out the aforementioned $8.5 million more liability adjustment results in a net operating loss of $149.6 million for the full-year 2021. The Exploration expenses increased from $48.9 million to $93.0 million and G&A expenses increased from $7.7 million to $56.6 million when comparing 2020 to 2021. Apart from the higher cost structure as a public company, the largest increases both in exploration expenses and G&A expenses resulted from the issuance of stock options for DeepGreen employees and contractors in Q1 2021 before the business combination was finalized. The options granted in 2021 were awarded in lieu of cash bonuses to retain DeepGreen employees and further into the business combination. The DeepGreen board had the sole discretion to award these options and the exercise of this discretion to do so, as it is not consistently awarded cash bonuses to employees despite multiple years of service. Some of the options were granted subject to the achievement of significant long-term performance goals of DeepGreen, now TMC, and those remain invested. Finally, excluding nonrecurring items, free cash flow for 2021 was negative $51.1 million compared to negative $26.5 million in 2020. And I'll now turn it back over to Gerry, for some final comments before opening it up to Q&A.
Gerry Baron: Thanks, Craig. So in closing, the supply chain breakdowns and unprecedented price volatility of 2022 have spotlighted the fragility of global metal markets like nickel. There should no longer be any doubt. Securing the supplies of critical battery metals is a matter not just of national security, but of global security. And our strategy has always been to develop the polymetallic nodule resource through partnerships because it allows us to move faster and because it allows us to get into production in a apital-light manner. The two strategic developments we announced last week are very important milestones in that direction. So in summary, at a time when the inherent risks of battery metal supply chains are becoming apparent, we have taken major steps towards derisking the world's largest estimated undeveloped source of battery metals. And with that, we'd like to turn it back over to the operator for any questions.
Operator: First question comes from the line of Jake Sekelsky with Alliance Global Partners. Please go ahead.
Jake Sekelsky: Hey, thanks for taking my questions.
Gerry Baron: Happy to.
Jake Sekelsky: So just looking at the Epsilon MOU, obviously, a major derisking event, and I know it's early there, but do you have any visibility on when we might see results of the PFS? And then secondly, does the MOU satisfy all processing requirements from Project Zero?
Gerry Baron: Well, we're fortunate to have Vikram on the line, so he can help us answer some of those questions. But -- what we've realized on the processing, if I answer the back end question first, as I mentioned in the presentation, we found there's an appetite for people to take delivery of our matte material. And so the matte that I hold in my hand before contains about 40% nickel, 30% copper and between around 4% cobalt. So it's a very attractive product, if you're a battery cell manufacturer. And what we've heard from some companies is that taking that intermediate product can help them take steps out of the process and thereby reduce the per kilowatt hour cost of production and can also deliver economic benefits to the more -- the heavier investors in the R&D side of the battery cell manufacturing. And so, if we can get almost full payables for the metals contained in that matte material but not have to run through the pyrometallurgical step, then that's a really important part of the process. But Vikram, I might throw it to you just on the timing of what we agreed on the -- with regards to the feasibility.
Vikram Handa: Yes. Thanks, Gerry. So I think on the pre-feasibility side, I think it was already working on doing some kind of basic engineering and get a more accurate number on the CapEx as well. And we aim to finish the pre-feasibility report by September this year. And I think at that stage, we'll be – I would say, plus or minus 10% on CapEx and have a really good idea on the whole project schedule of presentation and what we plan to spend to build it as well in India? I hope I answered your question.
Gerry Baron: Thanks, Vikram.
Jake Sekelsky: Yes, that's helpful. Thank you. And then just to be clear, the MOU is just for Project Zero, correct? It doesn't restrict PMC from exploring discussions with other partners or looking at other locations for processing for other parts of the project?
Gerry Baron: That's correct.
Craig Shesky: Yes -- that's correct.
Jake Sekelsky: Okay. Perfect. And then lastly ...
Gerry Baron: You can expect us to continue to be exploring all of the options. You know, I guess, we see great potential in developing countries like India who have an insatiable demand for these important base metals. And if you'd ask me five years ago, I probably would have predicted that we'd be doing a lot of this onshore processing in China, but that's obviously become problematic. And as you know, a lot of the material we make is in the manganese silicon. And so to do a lot of that onshore processing in a market that has such explosive growth in their steel industry is appearing to make a lot of sense to us.
Jake Sekelsky: Got it. Got it. Okay. And then just lastly, on the pilot collection program slated for later this year. I'm just curious if you're able to shed any light on the time line for when we might see some environmental impact data start to roll in there.
Gerry Baron: Sure. Well, we will -- I mean, we have collected such an enormous amount of baseline data, which we've submitted as part of our EIS. We've submitted half of that. The second half will come as those reports have failed with us from the many scientists that we've got working. And then we have a very aggressive program to monitor the collector program that will be happening in the third quarter. And so we will release a lot of those numbers as and when we submit the application. But we are very fortunate, of course, to have the benefit of some of the other contractors who have completed those trials. And I showed you a video we showed you a video of the Belgium contractor with the machine. And of course, they had a second vessel monitoring all of those activities and have started to report those results, which have been in line with our expectations. We had DHI to a lot of our pull modeling. And the pull modeling that's come in from other contractors has been in line with what we forecast -- so I think we have a pretty good steer on that already, a most. But of course, there'll be learnings that are unique to us during that program.
Jake Sekelsky: Okay. That's helpful. That's all for me. Thanks, again.
Gerry Baron: Thank you for the question...
Operator: Thank you, Mr. Sekelsky. Our next question comes from the line of David Snow with Energy Equities. Please go ahead.
David Snow: Hi. Could you walk us through the model for 1.3 million tons a year of wet nodules selling price and the fee to your partner and any other costs if you could place starting with the selling price.
Gerry Baron: Sure. Yes, happy to take that one. So the assumption, and we noted on some of Jared's comments, is that for that 1.3 million, the products would be nickel, copper, cobalt matched and the manganese silica product. So first of all, the equation would be what payables would you give for those products as a percent of the prices from those metals on the LME. And we believe you would get 85% to 90% or more of LME pricing for that basket. One thing to keep in mind in terms of just converting web modules to dry, we've actually noted in prior disclosure that there's a 24% of moisture content. So when you're converting wet nodules to dry, we would multiply by 76%. So all-in for the products that we would intend to sell with Project Zero, total revenue per tonne would be roughly $700 at current oil prices.
David Snow: 700? In terms of dry or what?
Craig Shesky: That's for dry tonne.
David Snow: Okay. And then on a dry tonne basis, what fee would you pay for the modules to be collected and transported?
Craig Shesky: Yeah, in terms of the collection and transshipment fee that we've agreed with Allseas, it would begin at roughly €150 per wet tonne, which if you convert to US dollars and then convert that to cost for dry tonne, it would approximate $217 per dry tonne. We have not given any detailed disclosure in terms of the onshore processing side of things, but it would be roughly $217 per dry tonne for the collection and shipment and then roughly $700 per dry tonne in revenue.
David Snow: And do you have any additional costs in getting it to the point of collecting in transporting, or is that including everything on that $217?
Craig Shesky: So that's getting into short, but we would hope that we -- sorry, can you repeat that?
David Snow: You're breaking up by the way.
Craig Shesky: That is everything in order to get it to shore. We haven't provided detailed guidance in terms of the cost per tonne for the processing element for Project Zero. But as we progress further along with our partner, Epsilon Carbon, we would hope to be able to provide additional information in future calls.
David Snow: All right. Okay. So that would give you the cost to shore. And ballpark processing costs would be half of that or about one quarter of that?
Gerry Baron: Yes, we're not…
Craig Shesky: Go ahead, Gerry.
Gerry Baron: No, that's -- there'll be a healthy margin lift in it for us. We haven't -- we won't release that data until Vikram and his team have betted down some of those costs a little bit further. But, of course, we have a firm idea where they are, but it's a little bit early for us to release those. But even at this small scale, the project, we predict will show some attractive margin.
David Snow: And then is the -- do you split the resulting profits 50/50 with Allseas, or how does that work?
Craig Shesky: No, no. As we mentioned, there is a royalty that will be paid to Allseas, and we -- on top of their costs. And so their return is aligned with the metal value of the ore at the time. But we released the numbers on the cost, and that would be the numbers that we expect will be -- reflect the entire offshore cost.
David Snow: Okay.
Gerry Baron: I think we're ready for our next question.
Operator: Thank you, Mr. Snow. Our next question comes from the line of John Katsingris with Wedbush Securities. Please go ahead.
John Katsingris: Hello. Can you hear me?
Gerry Baron: We got you.
Craig Shesky: Yes. We can.
John Katsingris: Hello. Sounds great. Thanks for taking my question. Just looking at, I guess, bird's eye view for 2022, the two or three key strategic initiatives or goals? Thank you.
Gerry Baron: Sorry. Did you say for 2023 or 2022?
John Katsingris: 2022.
Gerry Baron: 2022, yeah. So, I guess the most important thing is -- I really want to emphasize the importance of the deal we announced with Epsilon Carbon and with Allseas, because they really provide the foundation stones for us to be able to deliver on our future production. And so bedding those MOUs into binding heads of terms is going to be obviously important. But we have a very high degree of confidence that they will close in a way that we've outlined. Putting that aside, the collector trial in the second half of the year is clearly important. But it's important to recognize that Allseas have been up in the North Sea now, and basically, those trials have been going very well. And so you saw some pictures of the harvest being launched and recovered and operating on the sea floor. I guess the theme that I said on our last earnings call is that we can expect this year will be customer offtakes. And the customer offtakes will come in two forms. They will come in for our manganese silicate material. And Vikram and his team are helping us in that regard with regard to local customers in India. And as Vikram said on the call today, already, we're getting some very strong expressions of interest. But the other offtake will be for the matte material. And as I stated previously, our belief is that we will attract a consumer-facing brand into that. We already have an offtake with Glencore for some of the nickel and some of the copper, but having a consumer-facing brand way into this, because if you're an EV maker, you're staying and wait at night worried about availability, price and sustainability of your raw materials. And so clearly, those conversations have stepped up a gear this year, because of what's been going on globally in supply chains. But I think that's probably going to be the one that people will most be looking forward to. And I remain super confident that we'll deliver on both of those -- both for the manganese silicate and also for the matte material this year.
John Katsingris: Thank you.
Operator: Thank you, Mr. Katsingris. The next question comes from the line of Malcolm MacDonald with Bank of America. Please go ahead.
Malcolm MacDonald: Hey, guys. Just a quick question. I mean, you basically answered it a second ago, but if you could elaborate further just regarding customer offtake and Epsilon and how that would relate potentially with some other companies involved with Epsilon, that would be wonderful?
Gerry Baron: Well, Vikram, I might let you talk on the manganese side, if you're comfortable to.
Vikram Handa: Yes, sure. I'll take that question. So on the manganese side, we've been discussing the material specifications with the payer alloys customers and steel customers in India. And we'll be getting samples of the manganese silicate from the pilot planned that TMC has been running, and we'll be giving that to customers for further sampling. And we expect that soon thereafter, we can enter into some MoUs with them to take that offtake as well. So I think once the material gets with them, well, the sampling will go pretty fast, but the initial feedback has been very positive on what they're seeing on the specification side. So that's on the manganese side. On the Epsilon side, we also manufacture graphite for lithium-ion batteries, whether it's EV or ESS. So we are very plugged into the whole ecosystem of anode, cathode and from a precursor to a CAM. So we understand this space very well. So it's a very natural fit to work with TMC and develop this unique way of getting nickel, copper and cobalt into the sector.
Malcolm MacDonald : Thank you very much. And Gerry, just one question. I mean, how much interested have you guys gotten just in light of recent nickel prices from other potential offtake customers. I mean, has it been out of this world or?
Gerry Baron: Well, I wouldn't say, it's been out of this world. But we -- as I've said previously, we are talking to a number of automakers and it served us very well by not entering into those agreements previously, because, of course, customers want to secure an economic benefit if you're -- if they're the first in or if you're some years away from production. But every day that we get closer to production, and of course, world events as they have unfolded have started to make automakers panic just a little bit a sense. And it's not just automakers, of course. It's other industries that are looking to secure the supply of these materials, including, of course, the intermediate players. But I would say we're feeling pretty confident about where we sit at the moment, Malcolm. And we're not panicking about trying to get a deal done for the sake of getting a deal done. We've been very deliberate about saying we will do the right deal at the right time. And of course, every day that goes by, we are gathering more and more environmental data, which we're sharing as soon as we can because it's consistent with our belief that making battery metals from these polymetallic nodules comes at a much lower environmental and societal costs. And so the more that we get hold of those results, the more confidence not only gives us, but of course, our customers. And so consistent with what I said before, I'm sure, by the end of this year, I'm confident by the end of this year that we will have one of those consumer-facing brands to mark down as one of our customers. And of course, having the Epsilon Carbon partnership is also really important to us because as part of the arrangement, and we spent some really quality time working with Vikram's team over the last many months. And more recently, we toured his facilities in India there's a real focus in his organization about ESG. There's a real focus on efficiency. There's a real focus on automation. And we really feel confident that with their relationship with the JSW Steel Group as well, that it's a reminder that our manganese product is just so important as a stable to any growing economy. We all talk about battery metals, but the manganese, of course, is required to make every ton of steel on the planet. And as I mentioned in my presentation, we're now seeing the EV industry look at using more manganese and battery cathodes as well. And so that's very encouraging for us and for the industry as they try and control costs that are moving in raw materials that are in short supply.
Malcolm MacDonald: Thank you very much.
Operator: Thank you, Mr. MacDonald. Our next question was submitted by Peter Fiorella , and the question is, what is the estimated date of completion on the pilot trial?
Gerry Baron: So we're not releasing that number that date, but for only one reason, and that is just for security reasons. But what I can tell you is that, the first trials were completed in the North Sea very recently. And of course, what we have announced is that, the trials will happen in the third quarter. And so we expect to see the hidden gem back in port by the end of the year.
Operator: Thank you. The next question was submitted by Jacob Basel . The question is, if I am not mistaken, TMC currently has plans for our processing plants to be located in Texas in the future. Could you comment if this indicates strategic placement for potential off-takers?
Gerry Baron: We have been exploring where we would locate our processing plant. And by all means, we have not given up on the idea that one day our processing plant might exist in Texas. But our first priority is to get our first processing plant up and running. And our intention is to do that in collaboration with Epsilon carbon, and that first plant will be in India. Will a future plant be on USA soil? Maybe, it would make sense to, right? I mean, you heard all the statistics I talked about in my presentation. And – but there seems to be a lot of talk and just not as much action coming out of the US as we're seeing in some other markets.
Vikram Handa: Yeah. And it's worth mentioning, too, we would have seen the news today from the Biden administration drafting an order invoking the Defense Production Act for critical metals based on some feedback from several US Senators. So there is quite a bit of momentum within the US, and frankly, a lot of other jurisdictions who want to locate this battery material processing onshore. But it's very important for TMC as we look to get into first production with Project Zero to find a first partner who is very supportive and as a country and the government that's very supportive as well. And as Gerry noted, some of the statements and initiatives and capital investment from Prime Minister Modi certainly underscores the welcome reception that we've been receiving in India, and we're looking forward to continuing that relationship. Bethany, I believe that's all the time we have.
Operator: Great. Thank you. There are no additional questions floating at this time. That concludes the Metals Company's Fourth Quarter and Full Year 2021 Corporate Update Conference Call. Hope you all enjoy the rest of your day. You may now disconnect your lines.
