Table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended August 31, 2024
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number: 1-35447
TRILOGY METALS INC.
(Exact Name of Registrant as Specified in Its Charter)
British Columbia
98-1006991
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
Suite 901, 510 Burrard Street
Vancouver, British Columbia Canada
V6C 3A8
(Address of Principal Executive Offices)
(Zip Code)
(604) 638-8088
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Shares
TMQ
NYSE American
Toronto Stock Exchange
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. Yes ☒ No ◻
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).
Yes ☒ No ◻
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 ◻
Non-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 ☐ No ☒
As of October 8, 2024, the registrant had 160,902,814 Common Shares, no par value, outstanding.
Trilogy Metals Inc.
Table of Contents
Page
PART I - FINANCIAL INFORMATION
3
Item 1.
Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
22
Item 4.
Controls and Procedures
PART II - OTHER INFORMATION
23
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
Item 1. Financial Statements
Condensed Interim Consolidated Balance Sheets
(unaudited)
in thousands of US dollars
August 31, 2024
November 30, 2023
$
Assets
Current assets
Cash and cash equivalents
25,738
2,590
Accounts receivable
8
33
Deposits and prepaid amounts
352
259
Total current assets
26,098
2,882
Investment in Ambler Metals LLC (note 3)
108,114
135,021
Fixed assets
—
4
Right of use asset (note 5(a))
164
113
Total assets
134,376
138,020
Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 4)
391
432
Current portion of lease liability
37
Total current liabilities
428
465
Long-term portion of lease liability
125
Total liabilities
553
Shareholders’ equity
Share capital (note 6) – unlimited common shares authorized, no par value issued – 160,567,514 (2023 – 155,559,334)
190,200
187,886
Contributed surplus
118
Contributed surplus – options (note 6(a))
28,741
28,237
Contributed surplus – units (note 6(b))
3,528
3,127
Deficit
(88,764)
(81,813)
Total shareholders' equity
133,823
137,555
Total liabilities and shareholders' equity
Subsequent Events (note 8)
(See accompanying notes to the condensed interim consolidated financial statements)
/s/ Tony Giardini, President, CEO and Director
/s/ Diana Walters, Director
Approved on behalf of the Board of Directors
Trilogy Metals Inc.For the Quarter Ended August 31, 2024
Condensed Interim Consolidated Statements of Loss
and Comprehensive Loss
in thousands of US dollars, except share and per share amounts
For the three months ended
For the nine months ended
August 31, 2023
Expenses
Amortization
1
2
6
Exploration expenses
28
Foreign exchange loss (gain)
General and administrative
293
278
1,027
1,014
Investor relations
18
46
71
Professional fees
138
139
530
897
Salaries
158
191
527
621
Salaries and directors expense – stock-based compensation
506
526
3,014
3,379
Total expenses
1,141
1,179
5,179
6,012
Other items
Interest and other income
(152)
(37)
(200)
(83)
Services agreement income
(22)
(47)
Share of loss on equity investment (note 3(b))
624
2,910
2,019
5,998
Loss and comprehensive loss for the period
(1,591)
(4,052)
(6,951)
(11,927)
Basic loss per common share
(0.01)
(0.03)
(0.04)
(0.08)
Diluted loss per common share
Basic weighted average number of common shares outstanding
160,542,286
155,550,284
159,466,414
151,572,299
Diluted weighted average number of common shares outstanding
Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity
in thousands of US dollars, except share amounts
Contributed
Total
surplus –
shareholders’
Number of shares
Share capital
surplus
options
units
equity
outstanding
Balance – November 30, 2022
146,225,035
182,178
122
27,352
2,638
(66,862)
145,428
Restricted Share Units
2,346,366
1,538
(1)
(1,537)
Joint venture contribution
143,505
111
Services settled by common shares
7,793
Stock-based compensation
520
1,700
2,220
Loss for the period
(5,072)
Balance – February 28, 2023
148,722,699
183,831
121
27,872
2,801
(71,934)
142,691
Shares issued for private placement, net of share issue cost
5,854,545
3,115
213,463
Deferred Share Units conversion
415,056
468
(468)
63,533
35
114
257
371
(2,803)
Balance – May 31, 2023
155,269,296
187,570
27,986
(74,737)
143,530
248,092
40,816
20
NovaGold deferred share units conversion
1,130
(3)
268
393
Balance – August 31, 2023
155,559,334
187,715
28,111
2,858
(78,789)
140,013
Balance – November 30, 2023
155,925,990
3,633,065
1,804
(1,804)
143,507
112
64,368
30
318
1,681
1,999
(3,601)
Balance – February 29, 2024
159,766,930
189,832
28,555
3,004
(85,414)
136,095
353,347
155
(155)
66,511
92
417
509
(1,759)
Balance – May 31, 2024
160,186,788
190,017
28,647
3,266
(87,173)
134,875
326,020
153
(153)
54,706
94
415
Balance – August 31, 2024
160,567,514
5
Condensed Interim Consolidated Statements of Cash Flows
Cash flows used in operating activities
Adjustments to reconcile net loss to cash flows used in operating activities
Consulting fees settled by common shares
90
86
Office lease accounting
76
(9)
Loss on equity investment in Ambler Metals LLC (note 3(b))
Unrealized foreign exchange (gain) loss
Net change in non-cash working capital
Decrease in accounts receivable
25
7
Decrease in deposits and prepaid amounts
(93)
(137)
Increase in accounts payable and accrued liabilities
(38)
(42)
Total cash flows used in operating activities
(1,854)
(2,634)
Cash flows from financing activities
Issuance of common shares, net of share issue cost (note 6(a))
Total cash flows from financing activities
Cash flows from investing activities
Return of capital from Ambler Metals LLC (note 3(c))
25,000
Total cash flows from investing activities
Change in cash
23,146
481
Effect of exchange rate on cash
(5)
Cash and cash equivalents – beginning of the period
2,573
Cash and cash equivalents – end of the period
3,049
Notes to the Condensed Interim Consolidated Financial Statements
1) Nature of operations
Trilogy Metals Inc. (“Trilogy” or the “Company”) was incorporated in British Columbia, Canada under the Business Corporations Act (British Columbia) on April 27, 2011. The Company is engaged in the exploration and development of mineral properties, through our equity investee (see note 3), with a focus on the Upper Kobuk Mineral Projects (“UKMP”), including the Arctic and Bornite Projects located in Northwest Alaska in the United States of America (“US”). The Company also conducts early-stage exploration through a wholly owned subsidiary, 995 Exploration Inc.
2) Summary of significant accounting policies
Basis of presentation
These condensed interim consolidated financial statements have been prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of Trilogy and its wholly owned subsidiaries, NovaCopper US Inc. (dba “Trilogy Metals US”) and 995 Exploration Inc. All intercompany transactions are eliminated on consolidation. For variable interest entities (“VIEs”) where Trilogy is not the primary beneficiary, we use the equity method of accounting.
All figures are in United States dollars unless otherwise noted. References to CDN$ refer to amounts in Canadian dollars.
These condensed interim consolidated financial statements include all adjustments necessary for the fair statement of the Company’s financial position as of August 31, 2024 and our results of operations and cash flows for the nine-month periods ended August 31, 2024 and August 31, 2023. The results of operations for the nine-month period ended August 31, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending November 30, 2024.
As these condensed interim consolidated financial statements do not contain all of the disclosures required by U.S. GAAP for annual financial statements, these condensed interim consolidated financial statements should be read in conjunction with the annual financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2023, filed with the U.S. Securities and Exchange Commission (“SEC”) and Canadian securities regulatory authorities on February 9, 2024.
These condensed interim consolidated financial statements were approved by the Company’s Audit Committee on behalf of the Board of Directors for issue on October 7, 2024.
Use of estimates and measurement uncertainties
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions of future events that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of expenditures during the period. Significant estimates include the measurement of income taxes and the valuation of stock-based compensation. Actual results could differ materially from those reported.
Management assesses the possibility of impairment in the carrying value of its equity method investment in Ambler Metals whenever events or circumstances indicate that the carrying amount of the investment may not be recoverable. Ambler Metals is a non-publicly traded equity investment owning exploration and development projects. Significant judgments are made in assessing the possibility of impairment. The Company assesses whether there has been a potential triggering event for other-than-temporary impairment by assessing the underlying assets of Ambler Metals for recoverability and assessing whether there has been a change in the development plan or strategy for the projects. If the Company concludes there is sufficient evidence for an other-than-temporary impairment, an assessment of fair value is performed. If the underlying assets are not recoverable, the Company will record an impairment charge equal to the difference between the carrying amount of the equity investment and its fair value. This assessment is subjective and requires consideration at each period end.
3) Investment in Ambler Metals LLC
(a)
Formation of Ambler Metals LLC
On February 11, 2020, the Company completed the formation of a 50/50 joint venture named Ambler Metals LLC (“Ambler Metals”) with South32 Limited (“South32”). As part of the formation of the joint venture, Trilogy contributed all its assets associated with the UKMP, including the Arctic and Bornite Projects, while South32 contributed cash of $145.0 million, resulting in each party’s subsidiaries directly owning a 50% interest in Ambler Metals.
Ambler Metals is a company jointly controlled by Trilogy and South32 through a four-member board, of which two members are appointed by Trilogy based on its 50% equity interest. All significant decisions related to the UKMP require the approval of both companies. We determined that Ambler Metals is a VIE because it is expected to need additional funding from its owners for its significant activities. However, we concluded that we are not the primary beneficiary of Ambler Metals as the power to direct its activities, through its board, is shared under the Ambler Metals LLC limited liability company agreement. As we have significant influence over Ambler Metals through our representation on its board, we use the equity method of accounting for our investment in Ambler Metals. Our maximum exposure to loss in this entity is limited to the carrying amount of our investment in Ambler Metals, which, as of August 31, 2024, totaled $108.1 million (2023 - $136.9 million).
(b)
Carrying value of equity method investment
Trilogy recognized, based on its 50% ownership interest in Ambler Metals, an equity loss equivalent to its pro rata share of Ambler Metals’ comprehensive loss of $1.2 million for the three-month period ending August 31, 2024 (2023 - $5.8 million) and $4.0 million for the nine-month period ending August 31, 2024 (2023 - $12.0 million). During the nine-month period ending August 31, 2024, Trilogy made a $112,000 equity contribution to Ambler Metals through the issuance of 143,507 common shares of the Company as part of the long-term incentive compensation for Ambler Metals executives. Likewise, South32 made an equivalent equity contribution to Ambler Metals for $112,000 in cash for their 50% share. The carrying value of Trilogy’s 50% investment in Ambler Metals as at August 31, 2024 is summarized on the following table.
in thousands of dollars
November 30, 2023, Investment in Ambler Metals
Joint venture equity contribution
Return of capital
(25,000)
Share of loss on equity investment for the nine-month period ending August 31, 2024
(2,019)
August 31, 2024, Investment in Ambler Metals
(c)
The following table summarizes Ambler Metals’ Balance Sheet as at August 31, 2024.
41,888
97,180
9,848
63,829
Mineral properties
30,899
(1,455)
(2,931)
Accounts payable and accrued liabilities
(1,209)
(2,500)
Members' equity (total assets less total liabilities)
40,433
94,249
Ambler Metals’ cash and cash equivalents are held at one bank of which the majority is uninsured. During the second and third quarters, Ambler Metals returned $50 million of excess cash to the members.
(d) The following table summarizes Ambler Metals' loss for the three-month and nine-month periods ended August 31, 2024 and August 31, 2023.
Three months ended
Nine months ended
Depreciation
38
Corporate salaries and wages
49
478
411
1,417
93
43
343
389
Mineral property expense
1,024
5,210
3,348
10,002
325
181
755
397
Foreign exchange loss
(6)
(281)
(125)
(933)
(319)
Comprehensive loss
1,248
5,819
4,039
11,996
(e) Related party transactions
During the nine-month period ended August 31, 2024, the Company charged $47,000 (2023 - $Nil) related to human resources and accounting services in connection with a service agreement between the Company and Ambler Metals. In addition, the Company received payments of $64,000 (2023 - $Nil) related to operating expenses paid on behalf of Ambler Metals pursuant to the service agreement.
4) Accounts payable and accrued liabilities
Trade accounts payable
51
146
Accrued liabilities
88
54
Accrued salaries and vacation
252
232
Subsequent to the end of the third quarter, on September 3, 2024, approximately $153,000 of accrued salaries was settled through the issuance of common shares of the Company.
9
5) Leases
Balance as at November 30, 2023
Net amortization for lease ended June 30, 2024
(113)
ROU assets recognized for lease commenced July 1, 2024
170
Net amortization for lease commenced July 1, 2024
Balance as at August 31, 2024
The Company’s previous office lease ended on June 30, 2024. The Company entered into a new office lease commencing on July 1, 2024, with a 4-year term ending in June 2028, and with no renewal option. During the quarter ended August 31, 2024, the Company recognized a ROU asset of $170,000 for the new office lease.
The Company’s lease arrangement consists of an operating lease for our office space ending in June 2028. There are no extension options.
Total lease expense recorded within general and administrative expenses was comprised of the following components:
Operating lease costs
140
Variable lease costs
103
Total lease expense
225
243
Variable lease costs consist primarily of the Company’s portion of operating costs associated with the office space lease as the Company elected to apply the practical expedient not to separate lease and non-lease components.
As at August 31, 2024, the weighted-average remaining lease term is 3.8 years and the weighted-average discount rate is 9%. Significant judgment was used in the determination of the incremental borrowing rate which included estimating the Company’s credit rating.
Supplemental cash and non-cash information relating to our leases during the nine-month period ending August 31, 2024 are as follows:
10
Future minimum payments relating to the lease recognized in our balance sheet as of August 31, 2024 are as follows:
Fiscal year
2024
13
2025
50
2026
2027
2028
Total undiscounted lease payments
195
Effect of discounting
(33)
Present value of lease payments recognized as lease liability
162
6) Share capital
Authorized:
unlimited common shares, no par value
in thousands of dollars, except share amounts
Ascribed value
4,312,432
2,112
185,585
Joint venture equity contribution (note 3(a))
August 31, 2024, issued and outstanding
Stock options
During the three-month period ended February 29, 2024, the Company granted 2,775,000 stock options (2023 - 3,230,000 stock options) at an exercise price of CDN$0.59 (2023 - CDN$0.78) to employees, consultants and directors exercisable for a period of five years with various vesting terms from immediate vesting to vesting over a two-year period. The fair value attributable to each of these option grants was CDN$0.27 (2023 - CDN$0.37). No grants were made during the three-month periods ended May 31, 2024 or August 31, 2024.
For the three-month period ended August 31, 2024, Trilogy recognized a stock-based compensation charge of $0.1 million (2023 - $0.1 million) for options granted to directors, employees and service providers, net of estimated forfeitures. For the nine-month period ended August 31, 2024, Trilogy recognized a stock-based compensation charge of $0.5 million (2023 - $0.8 million) for options granted to directors, employees and service providers, net of estimated forfeitures.
The fair value of the stock options recognized in the period has been estimated using the Black-Scholes option pricing model.
11
Assumptions used in the pricing model for the nine-month period ended August 31, 2024 are as provided below.
Risk-free interest rates
3.84%
Exercise price
CDN$0.59
Expected life
3 years
Expected volatility
65.5%
Expected dividends
Nil
As at August 31, 2024, there were 2,533,339 non-vested options outstanding with a weighted average exercise price of CDN$0.66. The value of non-vested stock option expense not yet recognized was $0.2 million of which approximately $0.1 million will be recognized during the quarter ending November 30, 2024 and the remainder throughout the next fiscal year.
A summary of the Company’s stock options outstanding and changes during the nine-month period ended August 31, 2024 is as follows:
Weighted average
exercise price
Number of options
CDN$
Balance – beginning of the period
12,649,400
2.15
Granted
2,775,000
0.59
Expired
(1,107,500)
2.96
Balance – end of the period
14,316,900
1.78
There were no stock options exercised during the nine-month period ended August 31, 2024.
The following table summarizes information about the stock options outstanding at August 31, 2024.
Outstanding
Exercisable
Unvested
Weighted
Number of
average
average years
exercisable
unvested
Range of exercise price - CDN
to expiry
$0.59 to $1.00
5,955,000
3.73
0.69
3,421,661
0.72
2,533,339
$2.01 to $3.00
7,016,900
1.21
2.47
$3.01 to $3.02
1,345,000
0.32
3.02
2.18
11,783,561
2.03
The aggregate intrinsic value of vested stock options (the market value less the exercise price) at August 31, 2024 was $Nil (2023 - $Nil) and the aggregate intrinsic value of exercised options for the nine-month period ending August 31, 2024 was $Nil (2023 - $Nil).
Restricted Share Units and Deferred Share Units
The Company has a Restricted Share Unit Plan (“RSU Plan”) to provide long-term incentives to employees and consultants, a Non-Executive Director Deferred Share Unit Plan (“DSU Plan”), and a Non-Executive Directors Fixed Deferred Share Unit Plan (“Fixed DSU Plan”) to offset cash payments for fees to directors. Awards under the RSU Plan, DSU Plan and Fixed DSU Plan will be settled in common shares of the Company with each restricted share unit (“RSU”) and deferred share unit (“DSU”) entitling the holder to receive one common share of the Company. All units are accounted for as equity-settled awards.
12
A summary of the Company’s unit plans and changes during the nine-month period ending August 31, 2024 is as follows:
Number of RSUs
Number of DSUs
Number of Fixed DSUs
1,610,638
2,428,701
5,705,718
551,676
Vested/Converted
(4,498,017)
2,818,339
2,980,377
For the three-month period ending August 31, 2024, Trilogy recognized a combined RSU and DSU stock-based compensation charge of $0.2 million (2023 - $0.2 million), net of estimated forfeitures. For the nine-month period ending August 31, 2024, Trilogy recognized a combined RSU and DSU stock-based compensation charge of $1.8 million (2023 - $2.0 million), net of estimated forfeitures.
7) Financial instruments
The Company is exposed to a variety of risks arising from financial instruments. These risks and management’s objectives, policies and procedures for managing these risks are disclosed as follows.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, deposits, and accounts payable and accrued liabilities. The fair value of the Company’s financial instruments approximates their carrying value due to the short-term nature of their maturity. The Company’s financial instruments initially measured at fair value and then held at amortized cost include cash and cash equivalents, accounts receivable, deposits, and accounts payable and accrued liabilities.
Financial risk management
The Company’s activities expose it to certain financial risks, including currency risk, credit risk, liquidity risk, interest risk and price risk.
Currency risk
Currency risk is the risk of a fluctuation in financial asset and liability settlement amounts due to a change in foreign exchange rates. The Company operates in the United States and Canada. The Company’s exposure to currency risk at August 31, 2024 is limited to the Canadian dollar balances consisting of cash of approximately CDN$11,000, accounts receivable of approximately CDN$11,000 and accounts payable of approximately CDN$34,000. Based on a 10% change in the US-Canadian exchange rate, assuming all other variables remain constant, the Company’s net loss would change by approximately $1,000.
Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Company holds cash with a Canadian chartered financial institution of which the majority is uninsured as at August 31, 2024. The Company’s only significant exposure to credit risk is equal to the balance of cash as recorded in the financial statements.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulties raising funds to meet its financial obligations as they fall due. The Company is in the exploration stage and does not have cash inflows from operations; therefore, the Company manages liquidity risk through the management of its capital structure and financial leverage.
Contractually obligated undiscounted cash flow requirements as at August 31, 2024 are as follows:
< 1 Year
1–2 Years
2–5 Years
Thereafter
Office lease
102
586
441
Included in accounts payable and accrued liabilities approximately $153,000 is for accrued salaries that were settled, subsequent to the end of the third quarter, on September 3, 2024, by the way of a grant of RSUs which was paid out through the issuance of common shares of the Company (note 8).
(d)
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk with respect to interest earned on cash. Based on balances as at August 31, 2024 of approximately $25 million, a 1% change in interest rates would result in a change of approximately $250,000 over a one year period, assuming all other variables remain constant.
As we are currently in the exploration phase, none of our financial instruments are exposed to commodity price risk; however, our ability to obtain long-term financing and its economic viability could be affected by commodity price volatility.
8) Subsequent events
On September 3, 2024, pursuant to previous elections, the Board of Directors were granted 153,035 DSUs in settlement of approximately $78,250 of director fees and senior management were granted 298,263 RSUs in lieu of cash salaries of approximately $153,000, all vesting immediately. The grants were in support of continued cash preservation efforts.
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion & Analysis
For the Quarter Ended August 31, 2024
(expressed in US dollars)
Cautionary notes
Forward-looking statements
This Management’s Discussion and Analysis (“MD&A”) contains “forward-looking information” and “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other applicable securities laws. These forward-looking statements may include statements regarding the Company’s work programs and budgets; perceived merit of properties, exploration results and budgets, the impact of the Bureau of Land Management’s (“BLM”) suspension of permits on the right-of-way with the Alaska Industrial Development and Export Authority (“AIDEA”) relating to the Ambler Road Project, the Company and Ambler Metals’ funding requirements, the Company’s cash preservation strategies, the Company’s future funding of Ambler Metals, mineral reserves and resource estimates, work programs, capital expenditures, operating costs, cash flow estimates, production estimates and similar statements relating to the economic viability of a project, timelines, strategic plans, statements regarding Ambler Metals’ plans and expectations relating to its Upper Kobuk Mineral Projects (the “UKMP”, as defined below), sufficiency of the Ambler Metals’ cash to fund the UKMP, impact of COVID-19 on the Company’s operations, market prices for precious and base metals, statements regarding the Ambler Access Project (also known as the Ambler Mining District Industrial Access Project), or other statements that are not statements of fact. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. Statements concerning mineral resource estimates may also be deemed to constitute “forward-looking statements” to the extent that they involve estimates of the mineralization that will be encountered if the property is developed.
Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, identified by words or phrases such as “expects”, “is expected”, “anticipates”, “believes”, “plans”, “projects”, “estimates”, “assumes”, “intends”, “strategy”, “goals”, “objectives”, “potential”, “possible” or variations thereof or stating that certain actions, events, conditions or results “may”, “could”, “would”, “should”, “might” or “will” be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statements of historical fact and may be forward-looking statements.
Forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made, as well as on a number of material assumptions, which could prove to be significantly incorrect, including about:
We have also assumed that no significant events will occur outside of our normal course of business. Although we have attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. We believe that the assumptions inherent in the forward-looking statements are reasonable as of the date of this MD&A. However, forward-looking statements are not guarantees of future performance and, accordingly, undue reliance should not be put on such statements due to the inherent uncertainty therein.
Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual events or results to differ from those reflected in the forward-looking statements, including, without limitation:
16
17
This list is not exhaustive of the factors that may affect any of the Company’s forward-looking statements. Forward-looking statements are statements about the future and are inherently uncertain, and actual achievements of the Company or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors, including, without limitation, those referred to in Trilogy’s Form 10-K for the fiscal year ended November 30, 2023, filed with the Canadian securities regulatory authorities and the SEC on February 9, 2024, and other information released by Trilogy and filed with the appropriate regulatory agencies.
The Company’s forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made, and the Company does not assume any obligation to update forward-looking statements if circumstances or management’s beliefs, expectations or opinions should change, except as required by law. For the reasons set forth above, investors should not place undue reliance on forward-looking statements.
General
This Management’s Discussion and Analysis (“MD&A”) of Trilogy Metals Inc. (“Trilogy”, “Trilogy Metals”, “the Company” or “we”) is dated October 8, 2024 and provides an analysis of our unaudited condensed interim financial results for the quarter ended August 31, 2024 compared to the quarter ended August 31, 2023.
The following information should be read in conjunction with our August 31, 2024 unaudited condensed interim consolidated financial statements and related notes which were prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The MD&A should also be read in conjunction with our audited consolidated financial statements and related notes for the year ended November 30, 2023. A summary of the U.S. GAAP accounting policies is outlined in note 2 of the audited consolidated financial statements. All amounts are in United States dollars unless otherwise stated. References to “Canadian dollars” and “CDN$” are to the currency of Canada and references to “U.S. dollars”, “$” or “US$” are to the currency of the United States.
Richard Gosse, P.Geo., Vice President, Exploration of the Company, is a Qualified Person under National Instrument 43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”), and has approved the scientific and technical information in this MD&A.
Trilogy’s shares are listed on the Toronto Stock Exchange (“TSX”) and the NYSE American Stock Exchange (“NYSE American”) under the symbol “TMQ”. Additional information related to Trilogy, including our annual report on Form 10-K for the fiscal year ended November 30, 2023, is available on SEDAR+ at www.sedarplus.com and on EDGAR at www.sec.gov.
Description of business
We are a base metals exploration company focused on the exploration and development of mineral properties, through our equity investee, in the Ambler mining district located in Alaska, U.S.A. We conduct our operations through a wholly owned subsidiary, NovaCopper US Inc. which is doing business as Trilogy Metals US (“Trilogy Metals US”). Our Upper Kobuk Mineral Projects (“UKMP” or “UKMP Projects”) were contributed into a 50/50 joint venture named Ambler Metals LLC (“Ambler Metals”) between Trilogy and South32 Limited (“South32”) on February 11, 2020 (see below). The projects contributed to Ambler Metals consist of: i) the Ambler lands which host the Arctic copper-zinc-lead-gold-silver project (the “Arctic Project”); and ii) the Bornite lands being explored under a collaborative long-term agreement with NANA Regional Corporation, Inc. (“NANA”), a regional Alaska Native Corporation, which hosts the Bornite carbonate-hosted copper project (the “Bornite Project”) and related assets. The Company may also conduct early-stage exploration through a wholly owned subsidiary, 995 Exploration Inc.
Corporate and project activities
The Company has a 2024 fiscal year cash budget totaling $2.8 million. For the nine-month period ended August 31, 2024, we used $1.9 million in operating activities mainly for personnel costs, professional fees, regulatory and office expenses compared with budgeted cash expenditures totaling $2.1 million.
Ambler Metals LLC
The board of Ambler Metals approved a 2024 fiscal year budget totaling $5.5 million to support external and community affairs, to maintain the State of Alaska mineral claims in good standing, and for the maintenance of physical assets. During the nine-month period ended August 31, 2024, Ambler Metals expended $3.5 million on salaries and wages, professional fees, engineering, project support costs and mineral property expenses, excluding the Ambler Access Project (the “AAP”) costs, compared with the budget of $4.5 million.
The board of Ambler Metals also approved a 2024 fiscal year budget totaling $2.5 million to support the AAP. During the nine-month period ended August 31, 2024, Ambler Metals funded $1.4 million to the Alaska Industrial Development and Export Authority (“AIDEA”) in support of the AAP compared with the budget of $1.9 million.
During the third quarter of 2024, we received additional cash from Ambler Metals. In total, Ambler Metals returned $50 million to Trilogy and South32 as at August 31, 2024.
Ambler Mining District Industrial Access Project (“AMDIAP” or “Ambler Access Project”)
On April 22, 2024, the Company announced that the United States Bureau of Land Management (“BLM”) had filed the Final Supplemental Environmental Impact Statement (“SEIS”) for the AAP on its website. The Final SEIS identifies “No Action” as the BLM’s preferred alternative. The proponent for the AAP is AIDEA which is a public corporation of the State of Alaska. AIDEA’s purpose is to promote, develop, and advance general prosperity and economic welfare of the people of Alaska. AIDEA strongly objected to both the process used by the BLM to reach a “No Build” decision and the effect of the decision which AIDEA believes illegally blocks access to statehood lands, minerals, and federally patented mining claims. On May 8, 2024, NANA announced its withdrawal from further involvement with the AAP and stated its intentions to not renew the surface access permit with AIDEA upon the permit’s expiry this year.
On June 28, 2024, the BLM issued the Record of Decision confirming their selection of the No Action alternative and thus denied AIDEA’s application for a right-of-way grant (“ROW Grant”) across BLM-managed lands which terminated the BLM ROW Grant issued to AIDEA on January 5, 2021.
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Summary of results
in thousands of US dollars, except per share amounts
Selected expenses
Share of loss on equity investment
Comprehensive loss for the period
Basic and diluted loss per common share
For the three-month period ended August 31, 2024, we reported a net loss of $1.6 million compared to a net loss of $4.1 million for the three-month period ended August 31, 2023. The decrease in comprehensive loss in the third quarter of 2024 compared to the same quarter in 2023 is primarily due to the decrease in our share of loss of Ambler Metals. The decrease of our share of losses of Ambler Metals is mainly due to the decrease in corporate wages and in mineral property expenses partially offset from the increase in professional fees. The primary drivers in decrease in mineral property expenses over the comparative quarter in the prior year were from a reduction in activities both at the project level and at the AAP.
For the nine-month period ended August 31, 2024, we reported a net loss of $7.0 million compared to a net loss of $11.9 million for the nine-month period ended August 31, 2023. The decrease for the nine-month period ended August 31, 2024, when compared to the same period in 2023, is primarily due to the decrease in our share of losses of Ambler Metals, professional fees and stock-based compensation and salaries. The decrease of our share of losses of Ambler Metals is mainly due to the decrease in corporate wages due to a reduction in staffing and a reduction in mineral property expenses due to a reduction in project activities which was partially offset by the increase in professional fees related to part-time contractors engaged to assist with management of Ambler Metals, along with consultants engaged in government and external affairs.
Liquidity and capital resources
We expended $1.9 million on operating activities during the nine-month period ending August 31, 2024 with the majority of cash spent on professional fees and American and Canadian securities commission fees related to our annual regulatory filings, annual fees paid to the Toronto Stock Exchange and the NYSE American Exchange and corporate salaries.
As at August 31, 2024, we had cash and cash equivalents and working capital of $25.7 million. During the nine months ended August 31, 2024, Trilogy received a total of $25.0 million from Ambler Metals as a return of excess cash to the owners. Although the Company has a strong cash position, management continues with cash preservation strategies to reduce cash expenditures where feasible, including but not limited to reductions in marketing and investor conferences and office expenses. In addition, the Company’s board of directors continue to take all of their fees in deferred share units in an effort to preserve cash. The Company’s senior management team is also continuing to take a portion of their base salaries and all of their short and long term compensation in shares of the Company to preserve cash.
All project related costs are funded by Ambler Metals. Ambler Metals had $9.8 million in cash and cash equivalents and $8.7 million in working capital as at August 31, 2024. There are sufficient funds at Ambler Metals to fund this fiscal year’s budget for the UKMP and the AAP.
Off-balance sheet arrangements
We have no material off-balance sheet arrangements.
Outstanding share data
As at October 8, 2024, we had 160,902,814 common shares issued and outstanding. As at October 8, 2024, we had 14,316,900 stock options outstanding with a weighted-average exercise price of CDN$1.78, 3,133,412 Deferred Share Units (“DSUs”), and 2,818,339 Restricted Share Units (“RSUs”) outstanding. As at October 8, 2024 we hold 5,144 NovaGold Resources Inc. (“NovaGold”) DSUs for which the NovaGold director is entitled to receive one common share of Trilogy for every six NovaGold shares to be received upon their retirement from the NovaGold board. A total of 859 common shares will be issued upon redemption of the NovaGold DSUs. Upon the exercise of all the foregoing convertible securities, the Company would be required to issue an aggregate of 20,268,651 common shares.
New accounting pronouncements
There are no new accounting pronouncements affecting the Company.
Critical accounting estimates
The most critical accounting estimates upon which our financial status depends are those requiring estimates of the recoverability of our equity method investment in Ambler Metals, income taxes and valuation of stock‐based compensation.
Impairment of Investment in Ambler Metals LLC
Management assesses the possibility of impairment in the carrying value of its equity method investment in Ambler Metals whenever events or circumstances indicate that the carrying amount of the investment may not be recoverable. Ambler Metals is a non-publicly traded equity investment owning exploration and development projects. Significant judgments are made in assessing the possibility of impairment. The Company assesses whether there has been a potential triggering event for other-than-temporary impairment by assessing the underlying assets of Ambler Metals for recoverability and assessing whether there has been a change in the development plan or strategy for the projects. If the Company concludes there is sufficient evidence for an other-than-temporary impairment, an assessment of fair value is performed. If the underlying assets are not recoverable, the Company will record an impairment charge equal to the difference between the carrying amount of the equity investment and its fair value. This assessment is subjective and require consideration at each period end.
Income taxes
We must make estimates and judgments in determining the provision for income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits including interest and penalties. We are subject to income tax law in the United States and Canada. The evaluation of tax liabilities involving uncertainties in the application of complex tax regulation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues. The evaluation of an uncertain tax position requires significant judgment, and a change in such recognition would result in an additional charge to the income tax expense and liability.
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Compensation expense for options granted to employees, directors and certain service providers is determined based on estimated fair values of the options at the time of grant using the Black-Scholes option pricing model, which takes into account, as of the grant date, the fair market value of the shares, expected volatility, expected life, expected forfeiture rate, expected dividend yield and the risk-free interest rate over the expected life of the option. The use of the Black-Scholes option pricing model requires input estimation of the expected life of the option, volatility, and forfeiture rate which can have a significant impact on the valuation model, and resulting expense recorded.
Additional information
Additional information regarding the Company, including our annual report on Form 10-K for the fiscal year ended November 30, 2023, is available on SEDAR+ at www.sedarplus.com and EDGAR at www.sec.gov and on our website at www.trilogymetals.com. Information contained on our website is not incorporated by reference.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Disclosure controls and procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted by the Company under U.S. and Canadian securities legislation is recorded, processed, summarized and reported within the time periods specified in those rules, including providing reasonable assurance that material information is gathered and reported to senior management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to permit timely decisions regarding public disclosure. Management, including the CEO and CFO, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules of Canadian Securities Administration, as of August 31, 2024. Based on this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective.
Internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act and National Instrument 52-109 Certification of Disclosure in Issuer’s Annual and Interim filings. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Changes in internal control over financial reporting
There have been no changes in our internal controls over financial reporting during the fiscal quarter ended August 31, 2024 which have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We continue to evaluate our internal control over financial reporting on an ongoing basis to identify improvements.
Item 1. Legal Proceedings
From time to time, we are a party to routine litigation and proceedings that are considered part of the ordinary course of its business. We are not aware of any material current, pending, or threatened litigation.
Item 1A. Risk Factors
Trilogy and its future business, operations and financial condition are subject to various risks and uncertainties due to the nature of its business and the present stage of exploration of its mineral properties. Certain of these risks and uncertainties are under the heading “Risk Factors” under Trilogy’s Form 10-K for the fiscal year ended November 30, 2023 (“Form 10-K”) which is available on SEDAR+ at www.sedarplus.com and EDGAR at www.sec.gov and on our website at www.trilogymetals.com. There have been no material changes to the risk factors set forth in Trilogy’s Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
These disclosures are not applicable to us.
Item 5. Other Information
Item 6. Exhibits
Exhibit No.
Description
3.1
Certificate of Incorporation, dated April 27, 2011 (incorporated by reference Exhibit 99.2 to the Registration Statement on Form 40-F as filed on March 1, 2012, File No. 001-35447)
3.2
Articles of Trilogy Metals Inc., effective April 27, 2011, as altered March 20, 2011 (incorporated by reference to Exhibit 99.3 to Amendment No. 1 to the Registration Statement on Form 40-F as filed on April 19, 2012, File No. 001-35447)
3.3
Notice of Articles and Certificate of Change of Name, dated September 1, 2016 (incorporated by reference to Exhibit 3.1 to the Form 8-K dated September 8, 2016)
31.1
Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)
31.2
Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)
32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101
Interactive Data Files
101.INS
Inline XBRL Instance 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 Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
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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.
Date: October 8, 2024
By:
/s/ Tony Giardini
Tony Giardini
President and Chief Executive Officer
/s/ Elaine M. Sanders
Elaine M. Sanders
Vice President and Chief Financial Officer