UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
(Exact name of registrant as specified in its charter)
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Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 15, 2021,
METALS ACQUISITION CORP
Form 10-Q
For the Quarter Ended September 30, 2021
Table of Contents
Page | ||
PART I. FINANCIAL INFORMATION | ||
Item 1. | Financial Statements (Unaudited) | |
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3 | ||
4 | ||
5 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 20 | |
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25 | ||
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Unregistered Sales of Equity Securities and Use of Proceeds. | 26 | |
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27 | ||
i
METALS ACQUISITION CORP
UNAUDITED CONDENSED BALANCE SHEET
| September 30, 2021 | |||
Assets | ||||
Current assets: | ||||
Cash | $ | | ||
Prepaid expenses |
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Total current assets | | |||
Long-term prepaid expenses |
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Marketable securities held in Trust Account | | |||
Total Assets | $ | | ||
Liabilities, Class A Ordinary Shares Subject to Redemption, and Shareholders’ Deficit |
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Accrued offering costs and expenses | $ | | ||
Total current liabilities |
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Warrant liability | | |||
Deferred underwriting discount | | |||
Total Liabilities | | |||
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Commitments and Contingencies |
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Class A ordinary shares subject to possible redemption, | | |||
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Shareholders' Deficit: |
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Preference shares, $ |
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Class A ordinary shares, $ |
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Class B ordinary shares, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total shareholders’ deficit |
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Total Liabilities, Class A Ordinary Shares Subject to Redemption, and Shareholders’ Deficit | $ | |
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
METALS ACQUISITION CORP
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the period from | ||||||
For the | March 11, 2021 | |||||
three months ended, | (Inception) to | |||||
September 30, | September 30, | |||||
| 2021 |
| 2021 | |||
Formation and operating costs | $ | | $ | | ||
Loss from operations | ( | ( | ||||
Other income/(expense): |
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Decrease in fair value of warrants | | | ||||
Offering expenses related to warrant issuance | ( | ( | ||||
Excess value of Private Placement Warrants | ( | ( | ||||
Trust interest income | | | ||||
G&A bank fee | ( | ( | ||||
Total other income/(expense) | | | ||||
Net income | $ | | $ | | ||
Basic and diluted weighted average shares outstanding, ordinary shares subject to redemption | | | ||||
Basic and diluted net income per share | | | ||||
Basic and diluted weighted average shares outstanding | | | ||||
Basic and diluted net income per ordinary share | | |
The accompanying notes are an integral part of these unaudited condensed financial statements.
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METALS ACQUISITION CORP
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND
FOR THE PERIOD FROM MARCH 11, 2021 (INCEPTION) THROUGH SEPTEMBER 30, 2021
Class A | Class B | Additional | |||||||||||||||||
Ordinary Shares | Ordinary Shares | Paid-In | Accumulated | Shareholders' | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||||
Balance as of March 11, 2021 (Inception) | | $ | | | $ | | $ | | $ | | $ | | |||||||
Class B ordinary shares issued to Sponsor | — | — | | | | — | | ||||||||||||
Net loss | — | — | — | — | — | ( | ( | ||||||||||||
Balance as of March 31, 2021 (unaudited) | — | — | | | | ( | | ||||||||||||
Net loss | — | — | — | — | — | ( | ( | ||||||||||||
Balance as of June 30, 2021 (unaudited) | — | — | | | | ( | | ||||||||||||
Sale of | | | — | — | | — | | ||||||||||||
Sale of | — | — | — | — | | — | | ||||||||||||
Forfeiture of | — | — | ( | ( | | — | — | ||||||||||||
Initial classification of warrant liability | — | — | — | — | ( | — | ( | ||||||||||||
Excess value of Private Placement Warrants | | | |||||||||||||||||
Underwriting fee | — | — | — | — | ( | — | ( | ||||||||||||
Deferred underwriting fee | — | — | — | — | ( | — | ( | ||||||||||||
Fair value of Class B shares sold to Anchor Investors | — | — | — | — | ( | — | ( | ||||||||||||
Capital contribution for sale of Class B shares to Anchor Investors | — | — | — | — | | — | | ||||||||||||
Offering costs charged to the shareholders’ equity | — | — | — | — | ( | — | ( | ||||||||||||
Offering costs allocated to Public Warrants | — | — | — | — | | — | | ||||||||||||
Net income | — | — | — | — | — | | | ||||||||||||
Change in Class A ordinary shares subject to possible redemption | ( | ( | — | — | ( | ( | ( | ||||||||||||
Balance as of September 30, 2021 (unaudited) | — | $ | — | | $ | | $ | — | $ | ( | $ | ( |
The accompanying notes are an integral part of these unaudited condensed financial statements.
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METALS ACQUISITION CORP
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 11, 2021 (INCEPTION) THROUGH SEPTEMBER 30, 2021
For the period from | |||
March 11, 2021 | |||
(Inception) to | |||
| September 30, 2021 | ||
Cash flows from Operating Activities: | |||
Net income | $ | | |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Offering expenses related to warrant issuance | | ||
Excess value of Private Placement Warrants | | ||
Interest earned on marketable securities held in Trust Account | ( | ||
Decrease in fair value of warrants | ( | ||
Changes in operating assets and liabilities: |
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Prepaid expenses | ( | ||
Net cash used in operating activities |
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Cash Flows from Investing Activities: | |||
Investment held in Trust Account | ( | ||
Net cash used in investing activities | ( | ||
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Cash flows from Financing Activities: |
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Proceeds from Initial Public Offering, net of underwriters' fees | | ||
Proceeds from private placement | | ||
Advances from related parties | | ||
Payments to related parties | ( | ||
Payments of offering costs | ( | ||
Net cash provided by financing activities |
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Net change in cash |
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Cash, beginning of the period |
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Cash, end of the period | $ | | |
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Supplemental disclosure of noncash investing and financing activities: |
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Deferred underwriting commissions charged to additional paid in capital | $ | | |
Initial value of Class A ordinary shares subject to possible redemption | $ | | |
Deferred offering costs paid by Sponsor in exchange for issuance of Class B ordinary shares | $ | | |
Initial classification of warrant liability | $ | |
The accompanying notes are an integral part of these unaudited condensed financial statements.
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METALS ACQUISITION CORP
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and Business Operations
Metals Acquisition Corp (the “Company”) is a newly incorporated blank check company incorporated as a Cayman Islands exempted company on March 11, 2021.The Company was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with
As of September 30, 2021, the Company had not commenced any operations. All activity for the period from March 11, 2021 (inception) through September 30, 2021, relates to the Company’s formation, operating costs, and the initial public offering (IPO), described below. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on investments in the trust account derived from the IPO. The Company has selected December 31 as its fiscal year end.
The Company’s sponsor is Green Mountain Metals LLC, a Cayman Islands limited liability company (the “Sponsor”).
The registration statement for the Company’s IPO was declared effective on July 28, 2021 (the “Effective Date”).On August 2, 2021, the Company consummated its IPO of
Simultaneously with the closing of the IPO, the Company completed the private sale of an aggregate of
The underwriter had a 45-day option from the date of the Company’s IPO (August 2, 2021) to purchase up to an additional
Simultaneously with the issuance and sale of the Over-Allotment Units, the Company consummated the private placement with the Sponsor for an aggregate of
On September 16, 2021, the remaining time on the over-allotment option expired unused and
The Additional Private Placement Warrants (including the Class A ordinary shares issuable upon exercise of such warrants) will not be transferable, assignable or salable until
5
Certain qualified institutional buyers or institutional accredited investors who are unaffiliated with the management team (“Anchor Investors”) each expressed an interest to purchase up to
In addition, the Sponsor sold membership interests representing an aggregate of
The Company estimated the aggregate fair value of these founder shares attributable to Anchor Investors via their purchase of the membership interest to be $
As the IPO included two instruments, Class A ordinary shares and warrants, and as the warrants are classified as a financial liability, it was necessary to allocate the gross proceeds between Class A ordinary shares and warrants. The Company adopted the residual method to allocate the gross proceeds between Class A ordinary shares and warrants based on their relative fair values. The gross proceeds were first allocated to the fair value of the warrants and the residual amount was then allocated to Class A ordinary shares. The percentage derived from this allocation was then used to allocate deferred offering costs between Class A ordinary shares and warrants. Issuance costs of $
The maximum purchase of
Transaction costs of the IPO amounted to $
A total of $
Upon the closing of the IPO, the Company’s management has broad discretion with respect to the specific application of the net proceeds of the IPO and the Private Placement Warrants, although substantially all of the net proceeds are intended to be generally applied toward consummating a Business Combination (less deferred underwriting commissions).
The Company must complete one or more Business Combinations having an aggregate fair market value of at least
6
Upon the closing of the IPO, management has agreed that an aggregate of $
The Company will provide the public shareholders with the opportunity to redeem all or a portion of their public shares upon the completion of the initial Business Combination either (i) in connection with a general meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek shareholder approval of a proposed Business Combination or conduct a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require the Company to seek shareholder approval under applicable law or stock exchange listing requirements. The public shareholders will be entitled to redeem all or a portion of their public shares upon the completion of the initial Business Combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of
business days prior to the consummation of the initial Business Combination, including interest earned on the funds held in the Trust Account and not previously released to the Company to pay its income taxes, if any, divided by the number of the then-outstanding public shares, subject to the limitations described herein.The ordinary shares subject to redemption are recorded at redemption value and have been classified as temporary equity upon the completion of the IPO, in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” In such case, the Company will proceed with a Business Combination if the Company has net tangible assets of at least $
The Company will have only 24 months from the closing of the IPO (the “Combination Period”) to complete the initial Business Combination. If the Company has not completed the initial Business Combination within the Combination Period, the Company will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to the Company to pay its income taxes, if any (less up to $
7
The Sponsor, officers and directors have agreed to (i) waive their redemption rights with respect to any founder shares and public shares they hold, (ii) to waive their redemption rights with respect to any founder shares and any public shares purchased during or after the IPO in connection with a shareholder vote to approve an amendment to the Company’s amended and restated memorandum and articles of association (A) that would modify the substance or timing of the Company’s obligation to provide holders of the Class A ordinary shares the right to have their shares redeemed in connection with the initial Business Combination or to redeem 100% of the public shares if the Company does not complete the initial Business Combination within the Combination Period, or (B) with respect to any other provision relating to the rights of holders of the Class A ordinary shares or pre-initial Business Combination activity and (iii) waive their rights to liquidating distributions from the Trust Account with respect to any founder shares they hold if the Company fails to consummate the initial Business Combination within the Combination Period (although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold if the Company fails to complete the initial Business Combination within the Combination Period).
The Company’s Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party (excluding the Company’s independent registered public accounting firm) for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a transaction agreement, reduce the amounts in the Trust Account to below the lesser of (i) $
Risks and Uncertainties
Management is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that, while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of the Company’s operations and/or its search for a target company, the specific impact is not readily determinable as of the date of this financial statement. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Liquidity and Capital Resources
As of September 30, 2021, the Company had $
As of September 30, 2021, the Company’s liquidity needs had been satisfied through a payment from the Sponsor of $
On August 2, 2021, the Company consummated its IPO and on September 3, 20201 the Underwriter partially exercised its over-allotment option to purchase additional Units. A total of $
To finance transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, provide the Company with Working Capital Loans, as defined below (see Note 6). As of September 30, 2021, there were no amounts outstanding under any Working Capital Loans.
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Based on the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this period, the Company will be using these funds for paying existing accounts payable, paying for costs associated with identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures associated with due diligence, selecting the target business to merge with or acquire, and structuring, negotiating, and consummating the Business Combination.
Note 2 — Restatement of Previously Issued Financial Statements
In the Company’s previously issued financial statements, a portion of the Redeemable Class A Ordinary Shares were classified as permanent equity to maintain shareholders’ equity greater than $
Management determined that the Redeemable Class A Ordinary Shares include certain provisions that require classification as temporary equity regardless of the minimum net tangible asset required by the Company to complete its initial business combination.
In accordance with the Securities and Exchange Commission’s (the “SEC”) Staff Accounting Bulletin No. 99, “Materiality,” and the SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements;” the Company evaluated the changes and has determined that the related impacts were material to previously presented financial statements. Therefore, the Company, in consultation with its Audit Committee, concluded that its impacted previously issued financial statements should be restated to report all public shares as temporary equity. As such the Company is revising those periods on a go-forward basis in its Quarterly Report.
The impact to the financial statement follows:
Unaudited Balance Sheet as of August 2, 2021 |
| Previously Reported |
| Adjustment |
| Restated | |||
Ordinary shares subject to possible redemption ($) | $ | | $ | | $ | | |||
Class A ordinary shares, $ | $ | | $ | ( | $ | — | |||
Class B ordinary shares, $ |
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Additional paid in capital |
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Accumulated deficit |
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Total shareholders' equity (deficit) | $ | | $ | ( | $ | ( | |||
Number of shares subject to possible redemption |
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Note 3 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows of the Company for the periods presented.
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The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s prospectus for its IPO as filed with the SEC on July 30, 2021, as well as the Company’s Current Report on Form 8-K, as filed with the SEC on August 9, 2021. The interim results for the period from March 11, 2021 (inception) to March 31, 2021, for the three months ended June 30, 2021, and for the period from March 11, 2021 (inception) to September 30, 2021, are not necessarily indicative of the results to be expected for the year ending December 31, 2021, or for any future interim periods.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”). The Company may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and qualifying for exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but that any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. Significant estimates made by management include an estimate for private warrant liabilities.
Cash and Cash Equivalents
The Company had $
Investments Held in Trust Account
As at September 30, 2021, funds held in the Trust Account included $
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Fair Value of Financial Instruments
The fair value of the Company's assets and liabilities, which qualify as financial instruments under the Financial Accounting Standards Board ("FASB") ASC 820, "Fair Value Measurements and Disclosures," approximates the carrying amounts represented in the balance sheet.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Corporation limit of $
Promissory Note - Related Party
As of September 30, 2021, the Company had no borrowings under the promissory note. During the period from March 11, 2021 (inception) through September 30, 2021, the Company borrowed $
Advances from Related Parties
As of September 30, 2021, the Company had
Offering Costs Associated with IPO
The Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A— “Expenses of Offering”. Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the IPO. Offering costs are charged to shareholders’ equity or the statement of operations based on the relative value of the Warrants to the proceeds received from the Units sold upon the completion of the IPO. Accordingly, as of September 30, 2021, offering costs totaling $
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet, primarily due to its short-term nature.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. The Company’s derivative instruments are recorded at fair value as of the IPO (August 2, 2021) and re-valued at each reporting date, with changes in the fair value reported in the statement of operations. Derivative assets and liabilities are classified on the balance sheet as current or non-current based on whether net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date. The Company has determined the warrants are derivative instruments. As the warrants meet the definition of a derivative, the warrants are measured at fair value at issuance and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in the statement of operations in the period of change.
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Warrant Instruments
The Company accounts for the
Fair Value Measurements
Fair value is defined as the price that would be received for the sale of an asset that would be paid for the transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Ordinary Shares Subject to Possible Redemption
The Company accounts for its ordinary shares subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholder’s equity. The Company’s ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet.
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Net Income Per Share
The Company has two classes of ordinary shares, which are referred to as Class A ordinary shares and Class B ordinary shares. Earnings and losses are shared pro rata between the two classes of stock. Private and public warrants to purchase
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For the three months ended | 11, 2021 (inception) through | |||||||||||
September 30, 2021 | September 30, 2021 | |||||||||||
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Basic and diluted net income per share |
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Allocation of net income | $ | | $ | | $ | | $ | | ||||
Denominator |
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Weighted-average shares |
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Basic and diluted net income per share | $ | | $ | | $ | | $ | |
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company’s management determined that the Cayman Islands is the Company’s major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. As of September 30, 2021, there were
The Company is considered to be an exempted Cayman Islands company with no connection to any other taxable jurisdiction and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands or the United States. As such, the Company’s tax provision was zero for the period presented.
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Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt -- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging --Contracts on an Entity’ Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’ Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The Company adopted ASU 2020-06 on August 2, 2021. Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.
The Company’s management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statement.
Note 4 — Initial Public Offering
Units
On August 2, 2021, the Company consummated its IPO of
The underwriter had a 45-day option from the date of the Company’s IPO (August 2, 2021) to purchase up to an additional
On September 3, 2021, the Underwriter partially exercised the over-allotment option to purchase an additional
On September 16, 2021, the remaining time on the over-allotment option expired unused and
Warrants
Each whole warrant entitles the holder to purchase one Class A ordinary share at a price of $
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The warrants cannot be exercised until the later of
The Company will not be obligated to deliver any Class A ordinary shares pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the Class A ordinary shares underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company’s satisfying its obligations described below with respect to registration, or if a valid exemption from registration is available. No warrant will be exercisable, and the Company will not be obligated to issue a Class A ordinary share upon exercise of a warrant unless the Class A ordinary share issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. If the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will the Company be required to net cash settle any warrant. If a registration statement is not effective for the exercised warrants, the purchaser of a Unit containing such warrant will have paid the full purchase price for the Unit solely for the Class A ordinary share underlying such Unit.
Redemption of Warrants When the Price per Class A Ordinary Share Equals or Exceeds $
Once the warrants become exercisable, the Company may redeem the outstanding warrants (except as described herein with respect to the Private Placement Warrants):
● | in whole and not in part; |
● | at a price of $ |
● | upon a minimum of |
● | if, and only if, the last reported sales price (the “Closing Price”) of the Class A ordinary shares equals or exceeds $ |
Redemption of Warrants When the Price per Class A Ordinary Share Equals or Exceeds $
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
● | in whole and not in part; |
● | at $ |
● | if, and only if, the closing price of the Class A ordinary shares equals or exceeds $ |
The “fair market value” of the Class A ordinary shares shall mean the volume-weighted average price of the Class A ordinary shares for the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of warrants. The Company will provide the warrant holders with the final fair market value no later than one business day after the 10-day trading period described above ends. In no event will the warrants be exercisable in connection with this redemption feature for more than
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Note 5 — Private Placement
Simultaneously with the closing of the IPO, the Company’s Sponsor purchased an aggregate of
Simultaneously with the issuance and sale of the Over-Allotment Units, the Company consummated the private placement with the Sponsor for an aggregate of
On September 16, 2021, the remaining time on the over-allotment option expired unused.
The Private Placement Warrants (including the Class A ordinary shares issuable upon exercise of such warrants) will not be transferable, assignable, or salable until
Note 6 — Related Party Transactions
Founder Shares
In March 2021, the Company’s Sponsor paid $
On September 3, 2021, the Underwriter partially exercised the over-allotment option to purchase an additional
The Company’s initial shareholders have agreed not to transfer, assign or sell any of their founder shares and any Class A ordinary shares issuable upon conversion thereof until the earlier to occur of: (A)
Promissory Note — Related Party
The Sponsor has agreed to loan the Company up to $
Advances from Related Parties
The Sponsor or an affiliate of the Sponsor occasionally incurs expenses on behalf of the Company. The liability is non-interest bearing and due on demand; as of September 30, 2021, there was no amount payable. During the period from March 11, 2021 (inception) through September 30, 2021, the Company received advances from related parties of $
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Working Capital Loans
To finance transaction costs in connection with an intended initial Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (the “Working Capital Loans”). If the Company completes the initial Business Combination, the Company will repay the Working Capital Loans. If the initial Business Combination does not close, the Company may use a portion of the working capital held outside the Trust Account to repay the Working Capital Loans but no proceeds from the Trust Account would be used to repay the Working Capital Loans. Up to $
Note 7 — Recurring Fair Value Measurements
As at September 30, 2021, the Company’s warrant liability was valued at $
The Company’s warrant liability for the Private Placement Warrants is based on a valuation model utilizing inputs from observable and unobservable markets with less volume and transaction frequency than active markets. The fair value of the Private Placement Warrant liability units is classified within Level 3 of the fair value hierarchy.
On September 20, 2021, the Company’s Public Warrants began trading on the New York Stock Exchange. As such, the Company’s warrant liability for the Public Warrants is based on unadjusted quoted prices in an active market (the New York Stock Exchange) for identical assets or liabilities that the Company can access. The fair value of the Public Warrant liability is classified within Level 1 of the fair value hierarchy.
All of the Company’s trust assets on the condensed balance sheet consist of U. S. Money Market funds which are classified as cash equivalents. Fair values of these investments are determined by Level 1 inputs utilizing quoted prices (unadjusted) in active markets for identical assets.
The following table presents information about the Company’s assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2021 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
| September 30, 2021 |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Assets: |
|
|
|
|
|
|
|
| ||||
U.S. Money Market held in Trust Account | $ | | $ | | $ | — | $ | — | ||||
$ | | $ | | $ | — | $ | — | |||||
Liabilities: |
|
|
|
|
|
|
|
| ||||
Public Warrants | $ | | $ | | $ | — | $ | — | ||||
Private Placement Warrants | | — | — | | ||||||||
$ | | $ | | $ | — | $ | |
The Company established the initial fair value for the Warrants on August 2, 2021, the date of the consummation of the Company’s IPO and September 3, 2021, the date of the Underwriter’s exercise of its over-allotment option, respectively. The Company used a Black-Scholes model to value the Public and Private Warrants.
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The following table provides quantitative information regarding Level 3 fair value measurements:
| September 30, |
| August 2, | |||
2021 | 2021 | |||||
Stock price | $ | | $ | | ||
Strike price | $ | | $ | | ||
Term (in years) |
| |
| | ||
Volatility |
| | % |
| | |
Risk-free rate |
| | % |
| | |
Dividend yield |
| | % |
| |
The following table provides a reconciliation of changes in fair value liability of the beginning and ending balances for the Company’s Warrants as Level 3:
Fair value at March 11, 2021 (inception) |
| $ | |
Initial fair value |
| | |
Public Warrants reclassified to level 1(1) |
| ( | |
Change in fair value |
| ( | |
Fair Value at September 30, 2021 | $ | |
(1)Assumes the Public Warrants were reclassified on September 30, 2021.
Except for the transfer from Level 3 to Level 1 for the Public Warrants, there were
Note 8 — Commitments
Registration Rights
The holders of the (i) founder shares (which were issued in a private placement prior to the closing of the IPO), (ii) Private Placement Warrants (which were issued in a private placement simultaneously with the closing of the IPO) and (iii) Private Placement Warrants (that may be issued upon conversion of Working Capital Loans) will have registration rights to require the Company to register a sale of any of the securities held by them pursuant to a registration rights agreement to be signed prior to or on the effective date of the IPO. The holders of these securities are entitled to make up to
Underwriter’s Agreement
The underwriter had a 45-day option from the date of the IPO to purchase up to an additional
On September 3, 2021, the underwriter partially exercised its over-allotment option to purchase an additional
On September 16, 2021, the remaining time on the over-allotment option expired unused.
The underwriter was paid a cash underwriting discount of two percent (
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Note 9 — Shareholders’ Equity
Preference Shares— The Company is authorized to issue a total of
Class A Ordinary Shares— The Company is authorized to issue a total of
Class B Ordinary Shares— The Company is authorized to issue a total of
Pursuant to the Anchor Investment, the Sponsor sold
The founder shares are designated as Class B ordinary shares and will automatically convert into Class A ordinary shares on the first business day following the consummation of the initial Business Combination at a ratio such that the number of Class A ordinary shares issuable upon conversion of all founder shares will equal, in the aggregate, on an as-converted basis,
With respect to any other matter submitted to a vote of the shareholders, including any vote in connection with the initial Business Combination, except as specified in the Company’s amended and restated memorandum and articles of association or as required by law or the applicable rules of the NYSE then in effect, holders of the founder shares and holders of the public shares will vote together as a single class, with each share entitling the holder to
Note 10 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date through the date that the financial statements were available to be issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “Metals Acquisition Corp,” “MAC,” “our,” “us” or “we” refer to Metals Acquisition Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim condensed financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q, including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and variations thereof and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s final prospectus for its Initial Public Offering filed with the SEC on March 10, 2021. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
The Company is a newly incorporated blank check company, incorporated as a Cayman Islands exempted company on March 11, 2021. The Company was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”).
Following the closing of the IPO on August 2, 2021 and the underwriter's partial exercise of its over-allotment option on September 3, 2021, $265,147,800 ($10.00 per Unit) from the net proceeds of the sale of the Units in the IPO and the sale of the Private Placement Warrants was placed in the Trust Account and invested only in U.S. government treasury obligations, within the meaning set forth in Section Rule 2a-7 under the Investment Company Act. Except with respect to interest earned on the funds held in the Trust Account that may be released to the Company to pay its income taxes, if any, the Company’s amended and restated memorandum and articles of association, subject to the requirements of law and regulation, provides that the proceeds from the IPO and the sale of the Private Placement Warrants held in the Trust Account will not be released from the Trust Account (1) to the Company, until the completion of the initial Business Combination, or (2) to the public shareholders, until the earliest of (a) the completion of the initial Business Combination, and then only in connection with those Class A ordinary shares that such shareholders properly elected to redeem, subject to the limitations described herein, (b) the redemption of any public shares properly tendered in connection with a (A) shareholder vote to amend the Company’s amended and restated memorandum and articles of association to modify the substance or timing of the Company’s obligation to provide holders of the Class A ordinary shares the right to have their shares redeemed in connection with the initial Business Combination or to redeem 100% of the public shares if the Company does not complete the initial Business Combination within 24 months from the closing of the IPO, or (B) with respect to any other provision relating to the rights of holders of the Class A ordinary shares or pre-initial Business Combination activity, and (c) the redemption of the public shares if the Company has not consummated the initial Business Combination within 24 months from the closing of the IPO. Public shareholders who redeem their Class A ordinary shares in connection with a shareholder vote described in clause (b) in the preceding sentence shall not be entitled to funds from the Trust Account upon the subsequent completion of an initial Business Combination or liquidation if the Company has not consummated an initial Business Combination within 24 months from the closing of the IPO, with respect to such Class A ordinary shares so redeemed.
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Our management has broad discretion with respect to the specific application of the net proceeds of the IPO and the sale of Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination.
Results of Operations
As of September 30, 2021, the Company was actively identifying potential targets as well as conducting due diligence on identified targets for a Business Combination. Activity for the period from March 11, 2021, through September 30, 2021, relates to the preparation and consummation of the IPO, the search for a target to consummate a Business Combination and conducting due diligence on identified targets for a Business Combination. We will at the earliest generate any operating revenues after the completion of a Business Combination. We will generate non-operating income in the form of interest income from the proceeds derived from the IPO and placed in the Trust Account as well as interest income on operating cash balances.
For the three months ended September 30, 2021, we had a net income of $10,220,328, consisting mostly of the change in the fair value of warrant liabilities of $13,400,065 partially offset by $90,299 in formation and operating costs, $1,066,666 in the excess value of the Public Warrants, and $2,024,525 in Public Warrant offering costs.
Liquidity and Capital Resources
As of September 30, 2021, we had cash outside our trust account equating to $1,293,794, available for working capital and operational needs. All remaining cash was held in the trust account and is generally unavailable for our use, prior to an initial Business Combination.
We intend to use all the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (excluding deferred underwriting commissions) to complete our Business Combination. We may withdraw interest to pay our taxes. To the extent that equity or third-party debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
Further, our Sponsor, officers, directors, or their respective affiliates may, but are not obligated to, loan us funds as may be required (the “Working Capital Loans”). If we complete a Business Combination, we will repay the Working Capital Loans out of the proceeds of the Trust Account released to us. Otherwise, the Working Capital Loans will be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, we may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon the consummation of a Business Combination or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into warrants of the post Business Combination entity at a price of $1.50 per warrant. The warrants would be identical to the Private Placement Warrants. To date, we had no borrowings under Working Capital Loans.
We do not believe we will need to raise additional funds to meet the expenditures required for operating our business. However, if our estimates of the costs for identifying a target business, undertaking in-depth due diligence, and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. To fund working capital deficiencies or finance transaction costs in connection with an intended Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required (as described under “Working Capital Loans”). Prior to the completion of our Business Combination, we do not expect to seek loans from parties other than our Sponsor or an affiliate of our Sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account.
Off-Balance Sheet Financing Arrangements
We did not have any off-balance sheet arrangement as of September 30, 2021.
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Contractual Obligations
As of September 30, 2021, we did not have any long-term debt, finance or operating lease obligations.
Critical Accounting Policies and Estimates
The preparation of condensed financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Derivative Financial Instruments
We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. Our derivative instruments are recorded at fair value as of the IPO on August 2, 2021, and re-valued at each reporting date, with changes in the fair value reported in the statement of operations. Derivative assets and liabilities are classified on the balance sheet as current or non-current based on whether net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date. We have determined the warrants are derivative instruments. As the warrants meet the definition of a derivative, the Warrants are measured at fair value at issuance and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in the statement of operations in the period of change.
Warrant Instruments
We account for the 13,666,666 warrants issued in connection with the IPO and Private Placement and an additional 504,927 Public Warrants with the exercise of the underwriter’s over-allotment option in accordance with the guidance contained in FASB ASC 815 “Derivatives and Hedging”. Under FASB ASC 815 the warrants do not meet the criteria for equity treatment and must be recorded as a liability. Accordingly, we classify the warrant instrument as a liability at fair value and adjust the instrument to fair value at each reporting period. This liability will be re-measured at each balance sheet date until the warrants are exercised or expire, and any change in fair value will be recognized in the Company’s statement of operations. The fair value of warrants will be estimated using an internal valuation model. The valuation model utilizes inputs and other assumptions and may not be reflective of the price at which they can be settled. Such warrant classification is also subject to re-evaluation at each reporting period.
Ordinary Shares Subject to Possible Redemption
We account for ordinary shares subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholder’s equity. Our ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of the balance sheet.
Net Income Per Share
We have two classes of ordinary shares, Class A ordinary shares and Class B ordinary shares. Earnings and losses are shared pro rata between the two classes of stock. Private and public warrants to purchase 10,684,361 Class A ordinary shares at $11.50 per share were issued on August 2, 2021, and September 3, 2021. No warrants were exercised during the period from March 11, 2021 (inception) through September 30, 2021. The calculation of diluted income per common share does not consider the effect of the warrants issued in connection with the (i) IPO, (ii) exercise of over-allotment, and (iii) Private Placement, since the exercise of the warrants is contingent upon the occurrence of future events. As a result, diluted net income per common share is the same as basic net income per common share for the periods. Accretion associated with the redeemable Class A ordinary shares is excluded from earnings per share as the redemption value approximates fair value.
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Income Taxes
The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company’s management determined that the Cayman Islands is the Company’s major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. As of September 30, 2021, there were no unrecognized tax benefits and no amounts accrued for interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals, or material deviation from its position. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
The Company is an exempted Cayman Islands company with no connection to any other taxable jurisdiction and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands or the United States. As such, the Company’s tax provision was zero for the period presented.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and we are not required to provide the information otherwise required under this item. Over the reporting period ending September 30, 2021, the Company was not subject to any market or interest rate risk.
We have not engaged in any hedging activities since our inception, and we do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.
Quantitative and Qualitative Disclosures About Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Corporation limit of $250,000. At September 30, 2021, the Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Item 4. Controls and Procedures
We conducted an evaluation of the effectiveness of our disclosure controls and procedures as of March 11, 2021, through to the end of September 30, 2021. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, refers to controls and other procedures of the Company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and the filed financial statements present fairly in all material respects the Company’s financial position, results of operations and cash flows for the period.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
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Management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2021, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were ineffective due to the material weakness described below.
Material Weakness
Management conducted an assessment of the accounting for redemption provisions associated with its Class A Ordinary Shares. Based on ASC 480-10-S99, redemption provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity.
Previously, a portion of the Shares were classified as permanent equity to maintain shareholder’s equity above $5 million on the basis that the Company will consummate its initial business combination only if the Company has net tangible assets of at least $5,000,001. The Company can only complete a business combination and continue to exist as a public company with trading public shares, if there are sufficient public shares that do not redeem at the time of the business combination and so it is appropriate to classify a portion of its Shares, required to keep its shareholder's equity above $5 million, as "shares not subject to redemption" and part of permanent equity.
Upon re-evaluation, management determined that the Shares include certain provisions that require classification as temporary equity regardless of the minimum net tangible asset required by the Company to complete its initial business combination. As such, management concluded that all Shares be reported as temporary equity on the Company’s balance sheet and that there was a material weakness in disclosure controls relating to the Shares in the audited closing balance sheet on August 2, 2021, that we filed with the SEC on Form 8-K on August 9, 2021.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.
We have corrected the accounting for the Shares in this Quarterly Report on Form 10-Q. The effect of the restatement of the specific line items in our August 2, 2021, audited closing date balance sheet can be found in footnote 2 of the Notes to the Condensed Financial Statements.
Evaluation of Disclosure Controls and Procedures
In connection with the revision of our August 2, 2021, audited closing balance sheet, management reassessed the effectiveness of our disclosure controls and procedures. As a result of that reassessment and in light of the SEC Comment Letters, management determined that the disclosure controls and procedures as of September 30, 2021, were not effective, solely as a result of its classification of part of the Redeemable Class A Ordinary Shares as permanent equity instead of temporary equity. Due solely to the events that led to our revision, management has made changes in internal controls related to the accounting for redeemable public shares issued in connection with our Initial Public Offering. In light of the material weakness that we identified, we performed additional analysis as deemed necessary to ensure that our financial statements for the period from March 11, 2021 (inception) through September 30, 2021, were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects the Company’s financial position, results of operations and cash flows for the period presented.
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Remedial Actions
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as the circumstances that led to the restatement of our previously filed financial statements described above had been identified. In light of the restatement of the previously filed financial statements, we plan to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements. Our plans currently include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors.
The significant factors known to us that could materially adversely affect our business, financial condition, or operating results are described in the Risk Factors section of the final prospectus for the initial public offering as filed with the SEC on July 28, 2021. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. Except as set forth below, as of the date of this Quarterly Report on Form 10-Q, there have been no material changes from the risk factors previously disclosed in our final prospectus for the Initial Public Offering.
We have identified a material weakness in our internal control over financial reporting. This material weakness could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management will likewise be required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Recently, the Staff of the Securities and Exchange Commission (the “SEC”) issued comment letters to multiple SPACs (the “Comment Letters”) that address certain accounting and reporting considerations related to redeemable equity instruments similar to the Redeemable Class A Ordinary Shares (the “Shares”) of the Company. Management learned about the comment letters through ongoing discussions with our accountants, legal counsel and auditors and observed recent public filings by certain SPACs to this effect. Based on ASC 480-10-S99, redemption provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity.
In light of the Comment Letters, our board of directors, after discussion with management, determined that the audited closing balance sheet as of August 2, 2021 (the “Original Financial Statements”) included in our Current Report on Form 8-K filed with the SEC on August 9, 2021 (the “Original Report”) should no longer be relied upon and that the Original Financial Statements should be restated. Considering the Comment Letters, management re-evaluated our accounting classification of the Shares. Upon re-evaluation, management determined that the Shares include certain provisions that require classification as temporary equity regardless of the minimum net tangible asset required by the Company to complete its initial business combination. As such, management concluded that all Shares be reported as temporary equity on our balance sheet. See Note 2 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q for a restated balance sheet and related disclosures as of August 2, 2021.
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In connection with this restatement, SGAC’s management concluded that its disclosure controls and procedures were not effective as of August 2, 2021, due to a material weakness in internal control over financial reporting with respect to the classification of a portion of the Shares as permanent equity instead of temporary equity. This material weakness resulted in a material misstatement of our stockholders’ equity as of August 2, 2021.
In light of the restatement of the Original Financial Statements, we plan to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements. Our plans currently include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
Any failure to maintain such internal control could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the New York Stock Exchange, the SEC or other regulatory authorities. In either case, there could result a material adverse effect on our business. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our Shares or our ability to complete a business combination.
We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls, and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit |
| Description |
1.1 | ||
3.2 | ||
4.4 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 15th day of November, 2021.
METALS ACQUISITION CORP | ||
By: | /s/ Michael James McMullen | |
Name: | Michael James McMullen | |
Title: | Chief Executive Officer |
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