TMC the metals company Inc. (TMC) Earnings Call Transcript & Summary

Hello. This is Craig Brelsford with RedChip Companies. Thank you for joining today's event with The Metals Company, which trades on the NASDAQ under the ticker, TMC. Joining us today is Craig Chesky, Chief Financial Officer of The Metals Company. We will begin with a brief presentation in a moment and then we'll open this event to your questions. Welcome to everyone joining us today on X, YouTube, LinkedIn and other social media platforms. [Operator Instructions] Before we begin, please allow me to read the safe harbor statement. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements pertaining to future financial and/or operating results along with other statements about the future expectations, beliefs, goals, plans or prospects expressed by management constitute forward-looking statements. Any statements that are not historical fact should also be considered forward-looking statements. of course, forward-looking statements involve risks and uncertainties. Craig, please go right.

Thanks, Craig. I appreciate it, and thanks, everybody, for joining, especially with the World Cup semifinal going on. Despite that, I've seen a pretty great list of questions that are to come through RedChip, and I see the Q&A populating on the Zoom chat as well. So I'm going to keep my prepared remarks as brief as possible so we can get through as much as we can. Just kind of a high-level overview. Look, if you're investing in TMC stock, thank you. We appreciate it. We know that it's been pretty rough so far this year, not just for TMC, but for others in this space. But for us, it's really an interesting opportunity as we look to some of the catalysts that are coming ahead. Some things, frankly, are taking longer than we would like, but we're about a month into this summer and we are head down on this project pushing forward and very excited about what comes ahead. I would say, if anybody is joining with the expectation of breaking news or new headlines, that's not what this is about. This is a webinar to give an opportunity to many of our retail holders to ask questions. We do a few dozen events like this, conferences, webinars. I saw a few of you actually at the Benchmark Conference in D.C. last month. I'll be seeing more people and institutional investors in New York for the Maxim conference, H.C. Wainwright. And for the first time ever, the Morgan Stanley Industrials Conference coming up in September. But there's a good chance for us to answer questions but also perhaps get some new investors across the story who may not be familiar with it. So again, we'll be reporting second week of August. So stay tuned for that and please join as well. But this is a good opportunity for us to address as much as we can. And thanks, everybody, for joining. I'll start with a short presentation. There is one bit of news to highlight. I know there has been quite a lot of talk over the last month or 2 about what's going on with the International Seabed Authority, what's going on with the International Tribunal [indiscernible] to see. What is that all about? Bottom line, TMC has exclusive rights to very large areas of the Cleary and Clipperton Zone, NORI and [indiscernible] are subsidiaries at exploration contracts through the international seabed authority. And then separately, TMC USA has priority right through applications made through NOAA the U.S. process. Bottom line, we can't talk much about anything that's ongoing in terms of litigation, but it is worth noting that during the International Seabed Authority session occurring as we speak, there is now a draft decision in front of the council and a recommendation from the ISA's Legal and Technical Commission to approve the extension of our NORI exploration contract. So TMC, of course, is always looking to preserve our rights and ensure that corporate entities and rule of law are respected. So we're pretty happy with that outcome and look forward, hopefully, 2 more news on that front next week as a potential extension comes. It's also heartening to see that the United States continues to be very steadfast in support of this industry. The State Department has reiterated over and over again. And again, I reiterated to the United Nations last month. that the U.S. is not bound by the convention of the [indiscernible] and therefore, has every right to regulated citizens and entities in the high seas. So the U.S. position on this is firm that they have the legal right to regulate contractors and companies. And in fact, that's why you've seen a lot of new capital flow into the space over the last 9 months plus, including new entrants to the space and others who I think are trying to catch up to what TMC has been doing, and that's a good thing. We don't want to be the only ones doing this. Of course, it was the executive order that led to this rush of investment within seafloor mining. And now we actually see more areas under application through the NOA process that are under exploration contract through the International Seabed Authority. So more capital coming in, more potential for investors to potentially diversify risk. And it also gives the opportunity for a country like the U.S. to develop on onshore ecosystem for the processing and refining of polymetallic nodules. Now please be patient with me if you are a TMC investor and you know much of this already, but TMC at a glance, we've been around for a long time. This company has been around going back to when it was called Deep Green for the last 15 years. And in fact, we've already spent over $700 million developing commercial operations, and that includes resource definition. It includes our pre-feasibility study last year, which established for the first time ever, reserves per SEC SK1300 standards. It includes the testing alongside our partner, Allseas, of our commercial system and then, of course, in May of this year, the finalization of our commercial agreement, leading up to commercial production. It also includes 22 offshore research campaigns prior to our application to NOAA and really over 1 petabyte of data gathered. Even on the processing side, TMC has delivered many of the world's first in this space and now we're at the point where we feel we have a flow sheet and we have an opportunity to bring some of this processing prowess to the United States. And again, investment in the United States, of course, is going to be contingent, the delivery of some items from that executive order about 15 months ago with respect to potential government funding. And of course, [indiscernible] bringing something domestically is contingent on significant government support. So more on that ahead and more on that as we get to earnings in August. On the permitting front, we've also seen the delivery from NOAA, the regulator who put in place be implementing regulations of the Deep Seabed Hard Minerals Resources Act back in 1980s and they delivered on their end of the executive order in January of this year to have a consolidated application process, which TMC took advantage of and is now moving through having reached full compliance on the USAA consolidated commercial recovery permit and exploration license application. So we continue to move through that process to bring these nodules up from the sea floor to the surface and then hopefully deliver them to the U.S. domestically for processing. Now of course, these metals are all critical, nickel, cobalt, copper and manganese. One of the things, frankly, that's been hanging on the share price in the last several months is the fact that nickel is off about 15% versus the highs this year. Some of that has to do with policy changes in Indonesia. Bottom line, this is why you want to have a basket commodity approach while you don't want to be dependent on any 1 or 2 metals for your economic return. TMC, of course, it can deliver mineral security to the United States and metals where the U.S. is truly dependent on foreign sources, many sources controlled by China through their investment in countries like Indonesia, or elsewhere in Africa. What we can provide to the United States looks like based on 1 billion tons of polymetallic nodules, would equate to about 300 years of manganese, 200 years of cobalt and about 100 years of nickel supply. But importantly, it's the grade of that material that really stands out relative to other resource projects. It's the grade of all 4 of those metals that leads to the better economics for us and allows this to position us in the low first quartile of the nickel cost curve. Now a few more slides, and then we'll kick it over to Q&A. As we noted in our Q1 call, we reached a commercial agreement with a partner Allseas and are working on this offshore system to get it ready for production. It's not something where we're waiting for the permit and then spending the money. Rather, we ended Q1 with a very significant amount of liquidity, over $160 million of liquidity, including an untapped credit facility and that allows us in Allseas to begin getting the system ready for commissioning in the fourth quarter of 2027 and suffice it to say, we and Allseas would not have the confidence to do that unless we felt we were on a very solid ground with the U.S. permitting process. So leading up to that installation and commissioning, of course, there's a lot of work that is ongoing in many of the long lead time items and engineering work on the system are already being kicked off. On the onshore side, obviously, there have been a lot of actions in the critical mineral space. It's frankly hard to keep track. One thing that's probably interesting in the last day, you may have seen the Department of Ores, Office of Strategic Capital announced a new natural security fund finance program that can partner with private capital to make investments in the critical minerals space. So again, I'm sure a lot of folks are hoping for an update on the U.S. government front. Suffice it to say, everybody who is controlling the purse strings with the U.S. government and who has been directed to focus on seafloor resources by President Trump. They are focused on it. They're working their tails off. But many of these cuts are coming in from the buy side and really, I think, doing a very good job. Of course, we would always like things to move quicker. But from our perspective, we're very pleased with where things are heading and also the attention that this resource in this company are still getting. Now in the site-specific feasibility study, of course, we are looking at Brownsville, Texas for the location of our first processing and refining facility, again, contingent on receiving government financial support because we do, of course, have toll processing options at existing facilities. But this is truly an opportunity. It's a window for the U.S. to extricate itself from that cycle of China dominating some of these metals and we've already kicked off much of the feasibility and engineering work, and you'll see some of the 3D models here what we're looking to build on the Brownsville ship channel. In fact, trying to appreciate some of the scale we put together a slide here just so you can get a sense of how large this electric arc furnace building might be, how large the ship unloading facility might be in the context of a space [indiscernible] the stature of Liberty. It is really a huge opportunity. It is a challenge, of course, and that is why cognizant of potential dilution to our shareholders we want to first make sure that there is the majority of funding in place from non-dilutive sources prior to really starting to spend here. But we're very positive on where things are going. Of course always want things to happen quicker. But I think this might be a good time, Craig, to kick it over to our long list of Q&A and then maybe if we have time towards the end of the session, we can go through some of the Q&A that I see coming through on the Zoom channel.

Absolutely, Craig. [Operator Instructions] We have dozens of questions for you, Craig. The stock has been weak, along with many other preproduction metal companies. What's going on in the sector? And how does it affect you day after day?

Well, I wake up every day thinking about that. And I'm personally very invested in this company as are most of our executives. And while it doesn't feel very good right now, we've seen darker days. We fought through and funded this company through new strategic partners or through Board members or through executives of TMC. And now I feel we are on solid ground. We have a lot better research coverage. We have a lot better access to capital. I think what you should be noticing is the patience of TMC where despite the fact that we are a well-known seasoned issuer and we could be panicking and going out and raising funds we're actually in a very strong cash position. We and our partner, Allseas know what we have to do to keep the project on track and get to our target date for commissioning. We also feel very good about where the permitting process is going. There have been a lot of factors over the last couple of months that haven't been very helpful. Of course, I mentioned earlier, the nickel price is going down. There was also a very large holder who had to sell the position to free up some funds to participate in SpaceX IPO. There are things like that that are sometimes out of your control. What is in our control is doing events like this, talking to investors while a lot of people on the call might be very familiar with the TMC story, I've been at the mines and money online conference for the last couple of days. There's still a lot of smart money out there that doesn't know about this. So that's why you're going to see over the next couple of months, myself and Gerard pounding the pavement and getting in front of institutional investors. We still don't have the BlackRocks, the Fidelities, the really deep pockets. And that's oftentimes leading up to commercial production where you see the inflection point of the stock. So everything is on track, controlling what we can control. But I'm sympathetic to the fact that the stock has been weak. It's our job as an executive team to create shareholder value. But it's also our job to recognize this is a multi-decade project. It's truly transformational. And what we're sitting on is a resource, if you're talking about the revenue potential is in the $1 trillion range. And if you're talking about just the NPV of our projects, it's close to $24 billion. So it doesn't feel going to be trading at a single-digit percent of that NPV. But I don't see anything standing in the way of us getting back to where we should be. So while it's been a rocky, it's been frustrating, no more frustrating than it's been for me and Gerard and the rest of our team, we see the path to get this back on track.

I'll be honest. My concern is politics. You're leaning heavily on the U.S. pathway and an executive order. What happens to this timeline of the makeup of Congress or the administration shifts after the midterm?

Honestly, the midterms are going to have much of an impact on it. I mean we are going through a NOAA process with the implementing regulations were put in place in late [ 80s ]. And this has been the loan in the States for several decades, whether it's a Democratic or Republican administration. So again, because we're going through the process the right way in a measured and transparent manner, and because there are public comment periods, there are checks. There's all of this review process that is required for a project of this size. It doesn't really matter where things shake out in Congress. Now obviously, down the road in 2029 and beyond, who knows what the political environment will be. But this is a situation where we feel once the permits in hand because we've gone through the process in the correct way. it makes it much more difficult for anybody who will inevitably try to challenge it. Any resource project domestically or most places around the world, will get legal challenges. And what really opens you up from a legal perspective is if you skipped over short steps. And we certainly haven't done that. It's also often the case that when you have domestic projects, you might be in somebody's backyard or you might be close to the water table or near an endangered species. TMC, over 1,200 miles of the coast of San Diego in the NORI D area, that creates an additional burden for anybody trying to have injunctive relief to prevent this from going forward. That's really what one is scared about in some of these research projects. People try to get an injunction and delay and starve the project of capital. I think that's a very different situation than what would play out after the eventual NOAA program.

I'm a skeptic and I probably am not alone, you often hear this pitched as cleaner than opening a mine on land. What's the honest side-by-side on environmental impact?

Well, Craig, you said I'm a skeptic. I hope you're not skeptic specifically, but I guess you're reading that question.

I think you're reading. And I'm definitely reading what the person wrote.

I was like, man, I've lost Craig. No. I think to answer that question, you probably have to think about what impact should we be focused on? I would say, by any stretch. And look, I saw this particular question in advance. When you're saying what are the alternatives to the source of supply, they are not pretty. And there was actually a report in nature a couple of months ago talking about the threats of nickel supply growing in tropical regions. This is the Sulawesi area in Indonesia. Take a step back and think of these impacts, where you're talking about a wastewater going directly into the ocean or rivers. You're talking about deforestation, you're talking about digging to get these [indiscernible] rights. And you're also talking about some of the largest carbon sinks on earth, allowing that carbon to release directly into the atmosphere. What TMC is up to is very different. You're picking up a loose resource without any digging or blasting your drilling. So I would say it's 1,000 oranges, but you can measure it. You can say, all right, let's stack up the impacts, what matters to us. If tailings matter to you? Well, this produces no [indiscernible]. If you're talking about waste, this is a much, much smaller potential waste stream. And even on carbon content, benchmark minerals put out a study several years ago noting we could have about a 94% reduction in the carbon emission equivalents per ton of nickel produced here versus the type of environment. I just showed in Sulawesi, Indonesia. So I understand people are skeptics. What I would say is look at the environmental work that TMC and others have done, we alone out of the $700 million that has been spent since our inception. $250 million has been spent on the environmental research. The data is there. And if people want to make informed decisions as opposed to knee-jerk emotional reactions, the data is available. The good news is what truly matters is that the regulator NOAA sees that data. And we, of course, have been providing that information to them, and it's building upon some of the work that they did back in the '70s and '80s, which again confirmed nodule collection should go forward.

And here's a positive take. One thing I like, he writes, is that you've got 4 metals in 1 rock rather than betting on a single commodity. How much does that actually cushion you if that metal nickel, like you mentioned in your presentation, would stay soft for a while longer.

It helps. I mean nickel would be the most important metal. It feels like it's now kind of got a new floor north of $16,000 a ton. I was a former commodity analyst at a hedge fund. I can tell you, I've been wrong just as often as I've been right in terms of where these metals are going. But you've seen copper prices continue to be very strong over the course of this year. So that obviously helps mitigate the impact. I think what one should keep in mind is that typically, when you are providing capital to a new project on land, whether it's greenfield or brownfield, you might get a permit and then you start building and then the price of the commodity goes down 10% or 15% you're just stuck and you can't be profitable. Here, you have a very large margin of safety given the fact that with 4 metals in 1 resource, you're in a first quartile cost position. So yes, if nickel prices go down, it does come into profitability. If copper prices go up, it mitigates that and will help. So there are a lot of independently moving variables but I would rather be in the position where you do have that cushion. And I feel TMC does.

As you mentioned in your presentation, Craig, your studies point to a combined value in the billions and personally, I think you even said trillion possibly and you mentioned...

Revenue potential, revenue potential -- people down the wrong road.

Yes, yes, yes. Okay. Now -- and you'll agree that the stock is trading at a fraction of just about anything you were saying there. What do you think the market is missing, Craig, once again? And what has to happen for that gap to start closing?

Well, it's not just retail investors. I talked about this, but some institutions who have long positions in TMC. When things get a little rough, I get a lot more e-mails than I typically do. And oftentimes, there is the view where people look around and like when they have to ask themselves, what am I missing that doesn't help the confidence? I think the answer is you're not missing anything. Do you think that TMC has the ability to get this permit, okay? If that's the case, then do we have the ability to execute on our plans and get the vessel on the water. Well, yes, I think between TMC and Allseas, we've proven that. And we've also shown over and over and over again, going back to what was a very difficult go public transaction late 2021. A lot of other teams could have just folded up shop and said, "Well, this is too hard." And we scraped and [indiscernible] through the dark days of 2022, '23, '24. So what are people missing? I think it's more a lot of people hear an idea like this and they dismiss it out of hand because it is a little bit different. It's an oil and gas offshore technology married with 4 metals, and you have to know the metal market but also know the tech between -- around offshore oil and gas, it's not for everybody. And on top of that, you have the regulatory environment, and it's easy to throw on hands up and say, "well, it's a quagmire, who knows." That's not the case. We have a clear legal path forward through NOAA and anybody wants to take the time to analyze it, I think, generally comes to the same conclusion. So I think what we're fighting against is not convincing people that have already heard the story, but getting more people to hear the story. And that's why we continue to be out there on the road over the coming months ahead, too, talking to investors and getting them across it. I -- over the last 3 days, I've met with a lot of huge funds who I was kind of surprised how little they knew about the space. And a lot of people might just say, "Well, the UN says one thing, the U.S. says the other, I can't make up my mind." If you actually dive a little bit deeper, you see how clear the permitting path really is.

On the processing side here in the United States and without getting into anything that you cannot share yet, how are you thinking about where and how this material eventually gets refined.

Well, what we'll say on that point is our plans domestically are contingent on government capital support. We're not a large issuer with a high credit rating, and we can just go out and have a term loan and some convertible debt, and we can put together a multibillion-dollar funding package on our own. That's not our game. We're focused on the resource definition. We're focused on the offshore work. And while we do have the expertise of the onshore processing and refining flow sheets, that capital is something that we are going to be very careful about how it integrates it. This is why it's important to remember that there are toll processing options if necessary. That's not what our main focus is. And I think the reason we continue to be focused on progressing our work in Brownsville, Texas is because we feel very good about our prospects of getting some of that necessary split.

The Allseas agreement felt like a big step when it hit the wire. Can you talk about what that partnership actually gets you and how close the collection system is to being ready to go.

Yes. The collection system, I would say, is close to being ready to go but at a smaller scale. What we are investing in is the higher scale that eventually get us to ramp up to that 3 million tons per year, which requires the construction of larger collector vehicles and the implementation of a wider diameter riser pipe and a more powerful compressor spread, another launching recovery system, some solutions on the transfer vessel side. So all of these, I think, are -- even though they're challenging, but they're not anything outside of the capability of teams, your Allseas team. So I say the technology to do it has been well proven. Now it's a question of, all right, if you have this vacuum cleaner system at this size, what does it take to ramp it up to a larger scale? That's what we're focusing on, and that's where the dollars are going to be spent. The initial dollars are focused mainly on some of the longer lead time items. For example, the umbilical cord that connects the riser pipe to the collector vehicle. So we want to make sure that anything that does have a slightly longer lead time can be ordered in due course. But we and also feel very confident we have that in hand.