TMC the metals Co Inc. (TMC) Q1 2022 Earnings Call Transcript

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.

Thank you. Please note that during this call, certain statements made by the company 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 may be beyond our control, including those set forth in our Safe Harbor provisions for forward-looking statements that can be found at the end of our 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 statements. Our remarks today may also include non-GAAP financial measures, including with respect to free cash flows, and additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures can be found in our slide deck being used with this call. 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.

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. 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 two-year hiatus due to COVID. They 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. 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. 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, rare earths and cobalt; the exception was that “GM is still working to secure adequate nickel supplies.” Ford’s CEO, Jim Foley, was recently asked about what keeps him 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 is not just about how much, but also about where it is located and who controls it. TMC not only has the largest nickel project in the world but 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 game-changing 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. 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. Unfortunately, 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 for the NorthMet nickel project in Minnesota due to the potential for pollutants like mercury to end up in nearby waterways. The largest potential nickel mine in the U.S., Twin Metals in Minnesota, also saw its permit rejected last year. Headlines like these clearly underscore the massive strategic benefits that our resource could potentially offer to U.S. companies, especially given the challenges faced by so many projects on land. Our resource is large, but how big and how do we know? In early 2021, AMC consultants issued an SEC compliant technical resource statement on the NORI and TOML areas, confirming a total estimated resource of 1.6 billion wet tons of nodules. The methodology used to determine this resource with confidence can be found in the appendix to this presentation as well as the NORI initial assessment on our website and our SEC filings. 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 zero 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. We expect that it 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 and a metal which we think is underappreciated, 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. To the right, you will see a non-exhaustive summary of 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 significant progress on the system in testing, including web tests, dynamic positioning trials, and deepwater tests. This keeps us on track to test the system in the CCZ later this summer, when nodules in our contract area will be lifted off the seafloor and sent to the surface through the electrolyzer system. Rather than just discussing major offshore milestones achieved this quarter, I’d like to share a short video that allows you to see the progress yourself. Last week, we successfully completed the initial deepwater trials of the polymetallic nodule collection vehicle in the Atlantic Ocean. The team lowered the collection vehicle to the seafloor at a depth of 2,470 meters, marking the first time the vehicle has been subjected to ultra-deepwater temperatures and pressures. Engineers performed 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 performing exceptionally well during these trials. Getting the collection vehicle into deepwater in the Atlantic has provided the team with the opportunity to thoroughly test all the critical components. We are eager to share more offshore progress in the coming quarters. We announced the signing of a non-binding MoU with Epsilon Carbon in March outlining 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 of last year, which successfully turned nodules into nickel, copper, cobalt matte, and manganese silicate products. India is an excellent location for our first processing facility for many reasons, including government support for nodules at the highest level. Last year, Prime Minister Modi allocated $0.5 billion for India’s deep ocean mission, which includes funding 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. This April, we announced some very important news on the attractiveness of our manganese silica product for steelmakers in India and beyond. We retained SINTEF, one of Europe’s largest independent research institutions, to analyze our manganese silicate used to produce silica manganese for 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. Though manganese might not get as many headlines as nickel and cobalt, 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 a powerful statement made by Senator Marco Rubio against Volkswagen, a company that first showed hesitancy on deep-sea mining but then last month signed a large off-take agreement with a Chinese funded cobalt and rainforest nickel supply. In the letter, Senator Rubio asked if VW believes that human trafficking, child labor and rainforest destruction are unnecessary risks and whether they value deep-sea sediment over human rights. Senator Lisa Murkowski's recent letter to the Department of Energy was a bit less forceful in tone, but every bit as significant in its conclusions, telling the DoE that any credible analysis of critical battery metal supply chains must include seafloor resources and asking the DoE to undertake a strategic assessment of polymetallic nodules. This echoes the sentiments of 17 retired generals, admirals, and officers across four branches of the military who wrote to the Pentagon in February asking that they consider the possible development of polymetallic nodules as a potential game changer for U.S. critical mineral supplies. 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. The video we will now play highlights the potential strategic benefits to the U.S. afforded by this remarkable resource. The metals needed for the clean energy transition must come from somewhere, and we believe that science-based assessments of lifecycle ESG impacts favor nodules over land-based mining, especially in light of the geopolitical environmental problems associated with the alternatives. Fareed Zakaria captured this succinctly on his CNN Talk Show in late April, showcasing images from one of TMC’s environmental campaigns on the Maersk Launcher. He stated that if people want to protect the planet from climate change and authoritarian governments, they need to support 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 advocating for these studies for a long time, and we were thrilled to announce in April that we have engaged Benchmark Minerals Intelligence to provide an independent assessment of how the lifecycle environmental impacts of our NORI-D project compare to producing the same metals from a range of conventional land-based 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. If that’s the case and Indonesia is the only other alternative 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 is not pretty: deforestation, high carbon impacts, biodiversity loss, and massive amounts of waste with 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 these 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. Some opponents of deep-sea mining say that we should wait a few decades, calling for more science from one side of their mouths and looking to slow down the companies actually funding that science from the other side. Often, these are the same people who advocate shutting down all nuclear power plants, taking zero accountability for the fact that they might be contributing to prolonged dependence on fossil fuels. At best, these opponents may be 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-storing rainforests, hypocritically turning a blind eye to increased metal extraction beneath these land habitats in furtherance of their own interests. 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 that 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 an area that will never be touched, even exceeding the 30% target laid out in the Rio Convention. This is 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 twin to give unprecedented transparency of our operations to the global community, something that you will rarely find from a land-based operation. Part 2 of the precautionary principle is equally important. It states that 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. There is also the threat of continued climate change exacerbated 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 saying that the biggest threat to the world’s oceans is climate change. If climate change continues unabated, marine life worldwide will suffer a massive die-off, the likes of which haven’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. 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 will be affected. 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 in yellow, which is each larger than any other nickel project in development. However, these are 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. 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. 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. 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 in 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 two-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. Following this two-year notice, the ISA laid out a roadmap through its plan in 2022 and 2023 that includes an increased cadence of meetings. After nearly a three-year hiatus due to COVID, the ISA resumed in-person meetings this past December. They held another session in March and expect two more this year. We anticipate that NORI will be applying for an exploitation contract in the second half of 2023, keeping 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. 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 visibility to the regulator and our stakeholders. We will soon release our impact report, a landmark document that 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.

Thank you very much, Gerard. 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 an exploitation contract, which we intend to submit in the second half of 2023. We believe that the cash on hand of $69 million could fund us for at least the next 12 months from today. Like most companies and individuals, we certainly are noticing some cost inflation, including fuel prices and vessel rates. We are constantly evaluating our internal cost estimates. However, when you are exposed to the basket of metals that we are, inflation can be a significant tailwind. The supply limitations of these metal markets are becoming increasingly worrisome to 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. 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. The NORI Area D financial model can be found on Page 310 of that document. The NORI-D area represents just 22% of our total estimated resource portfolio, and the initial assessment arrived at a net present value of $6.8 billion for NORI-D at the beginning of last year. This assumes a very conservative assumption of $7 billion of project development CapEx. Keep in mind that our announcements with Allseas and Epsilon Carbon provide a playbook for how that CapEx amount can and we expect will be reduced significantly going forward. 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 compensation of $5.7 million, and $1.3 million expensed for the pilot mining test system. Exploration expenses for 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 occur every quarter. For example, in the fourth quarter of 2021, over half of the cash outflow of $28 million was driven by two large expenses: first, the first $10 million cash milestone payment to Allseas, given much of the progress that they have made on that offshore system. Secondly, $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. 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.

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. We fully intend to keep this progress going to achieve that target. 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. We believe our current market cap represents less than 1% of the fundamental value of our estimated resource. 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. Thank you for your interest and attention today. With that, we would like to turn it back to the operator for some Q&A.

Speaker, our first question is from Jake Sekelsky of AGP. Your line is now open.

Hey, guys. Thanks for taking my questions. So, just starting the deep-sea trials in April, I’m 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?

I am happy to say, no. I mean there were minor operational things, perhaps a part needed replacing or a bolt needed tightening. However, the pressure testing and putting this machine together and planning it as Allseas has been doing since 2019 worked seamlessly when dropped into the water 2,500 meters below sea level. This was very 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. Still, I’m sure there were some very happy engineers on that boat as well, so far, so good. I guess that also connects to our strategy. Our strategy was to bring industry expertise in to support us. At the peak, Allseas had up to 400 people working on that project, contributing considerable skill and manpower to ensure it all worked.

Got it. Okay. That makes sense. And then just looking at capital spending, 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?

So we have laid out that, it’s again, dependent upon getting to final agreements with Allseas and Epsilon Carbon, but we would expect, at some point to have capital spending of $55 million for the pre-production CapEx for the Project Zero commercial system, as well as some engineering costs. We are, obviously, like everyone else, looking at inflation closely and ensuring that we manage costs as best as we 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 difficult last few days for metals trading, is still significantly up; nickel is up 45% already this year. Thus, we are managing that closely and always engaging in discussions with our team and the Board. What we can say is that the cash on hand will be sufficient to fund our operations and capital expenditure needs for at least the next 12 months from today.

I would just add that when we reached our agreement with Allseas, we agreed to a fixed price contract which has worked out favorably. Allseas only likes to do things to very precise standards, thus they spent considerably more than was budgeted to deliver that pilot collecting system. This has indeed worked out well for us and has helped with managing our capital outflow.

Okay. And then just lastly, on the PFS for the Project Zero plant, is the plant being designed in a modular fashion? I guess, is it 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?

Yes, absolutely. We selected this flow sheet after working with various companies, including Hatch. We chose a flow sheet that works in many locations globally today, primarily used for the treatment of nickel laterite. We found through all the pilot trials that nickel laterites and polymetallic nodules behave very similarly in the kiln and electric arc furnace, which was encouraging. Our flow sheet includes a pyrometallurgical front end, where we dry the nodules and introduce them into an electric arc furnace. This produces alloy material, along with a significant quantity of manganese silicate, which you heard us mention earlier. We then take that alloy and convert it into a matte material, which currently contains about 40% nickel, 30% copper, and approximately 7% cobalt. The goal is to refine that into battery materials, namely sulfates and copper cathode. So, we have designed it with options in mind; we could do the pyrometallurgical process in one location and the hydrometallurgical process in another, or we might just sell that intermediate product since today in the market, we would receive between 90% and 95% of the payable for the matte. This offers us a lot more flexibility in our approach.

Got it. Okay, so it sounds like you're not necessarily reinventing the wheel with the plant design at all.

No, we are not.

It’s the same approach offshore. We are trying to be efficient. We absolutely want to emphasize how crucial these tests are and the impressive achievements made by Allseas this quarter. This is a good example, both onshore in terms of our flow sheet, and offshore, highlighting the existing technology that has been tested. While it isn't quite at commercial scale, we are leveraging the learnings from what's been done before us to build upon them in a more efficient manner. It’s been really remarkable to see the progress from our partner Allseas this quarter.

Yes, absolutely. And that’s helpful. That was all on my end. Thanks again, guys.

Yes, thanks, Jake.

Thanks.

Speakers, the next question is from the line of John Katsingris of Wedbush Securities. Your line is now open.

I am on for Dan.

Hi John.

I had a quick question. Looking at the world supply chain problems and macro headwinds, do you see any potential headwinds looking forward into 2022 or 2023? Thank you.

Look, I see tailwinds. The headwinds are likely supply chain risks, but we have been managing those supply chain risks for the last two years, like many companies engaged in manufacturing. If you look at how we have managed that, last year, we spent 170 days at sea completing five environmental campaigns while moving 50 to 65 people on and off a boat, without a single day lost to COVID. During that same year, we were building an offshore pilot collector system with Allseas. What we have achieved between ourselves and our partners is exemplary. I see tailwinds on the horizon. As noted during today’s presentation, it's becoming more apparent that we need to prepare to explore new frontiers. The issues surrounding this problem are not going away. On the environmental front, climate change and global warming are the biggest threats facing our oceans. When you add on the security of supply of these metals, which are essential for battery production, I believe all these elements work favorably for our projects. I feel fortunate about this project. However, the challenges can be addressed with the support of our solid partnerships. Cost of capital is always something we must address, and we will work hard to secure that. We are confident we will achieve our milestones on this project.

Thank you.

Thank you, John. Say hi to Dan.

Craig, there was a question on the chat about our relationship with Glencore. Gerard, could you provide an overall update on that relationship and whether their GM transaction has impacted TMC in any way?

Sure. I would say that we have a good relationship with Glencore. They are a small shareholder in the company, and they have off-take for some of the nickel and copper from one of their license areas. They are always available for advice and assistance when we need it, so there have been no changes.

One other question from the chat was regarding the ISA process. We talked about it quite a bit, but has there been any change in our confidence regarding the process over the Nauru zone and the timeline to potentially get that exploitation contract?

We remain confident that the ISA is on track to have the exploitation code adopted by the time the council concludes its session in July 2023. As you heard in our presentation, we do have a fallback solution, thanks to Nauru lodging that two-year notice. At this time, we are pleased with the progress being made by the Secretariat and the member states.

Jessie, I think we are about to wrap up. So, unless there are any more questions in your queue, we will turn it back to Gerard to conclude the call.

Speakers, no further questions at this time.

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. Have a great day. Thank you.

This concludes today’s conference call. Thank you all for joining. You may now disconnect.