What changed in this filing

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Item 1. Financial Statements

2020-10-07 compared with 2020-07-08 · 298 added, 317 removed, 164 unchanged (79% of the section changed)

Consolidated Balance Sheets

in thousands of US

Financial Statements

Trilogy Metals Inc.

Interim Consolidated Balance Sheets

in thousands of US dollars

August 31, 2020

November 30, 2019

Current assets

12 unchanged sentences

Mineral properties purchase option

Shareholders’

capital (note 9) – unlimited common shares authorized, no par value Issued -140,922,886

(2019 – 140,427,761)

Shareholders’ equity

Share capital (note 9) – unlimited common shares authorized, no par value Issued – 142,978,805 (2019 – 140,427,761 )

Contributed surplus

Contributed surplus –

options (note 9(a))

Contributed surplus –

units (note 9(b))

Contributed surplus – options (note 9(a))

Contributed surplus – units (note 9(b))

Commitments (note 11)

(See accompanying notes to the interim

consolidated financial statements)

Giardini, President, CEO and Director

Madhavpeddi, Director

Approved on behalf of the Board of

Consolidated Statements of Income (Loss)

and Comprehensive

Income (Loss)

in thousands of

US dollars, except share and per share amounts

For the three

Feasibility study

(See accompanying notes to the interim consolidated financial statements)

/s/ Tony Giardini, President, CEO and Director

/s/ Kalidas Madhavpeddi, Director

Approved on behalf of the Board of Directors

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Trilogy Metals Inc.

Interim Consolidated Statements of Income (Loss)

and Comprehensive Income (Loss )

in thousands of US dollars, except share and per share amounts

For the three months ended

For the nine months ended

August 31, 2020

August 31, 2019

August 31, 2020

August 31, 2019

Feasibility study (note 6(a))

Foreign exchange (gain) loss

3 unchanged sentences

Professional fees

Salaries –

stock-based compensation

Salaries – stock-based compensation

Total expenses

2 unchanged sentences

Interest and other income

Comprehensive (loss) earnings for the

Comprehensive (loss) earnings for the period

Basic (loss) earnings per common share

2 unchanged sentences

Diluted weighted average number of common shares outstanding

(See accompanying notes to the interim

consolidated financial statements)

Consolidated Statements of Changes in Shareholders’ Equity

in thousands of US dollars, except share

of shares outstanding

surplus –

shareholders’

November 30, 2018

(See accompanying notes to the interim consolidated financial statements)

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Trilogy Metals Inc.

Interim Consolidated Statements of Changes in Shareholders’ Equity

in thousands of US dollars, except share amounts

shareholders’

Number of shares

Share capital

Balance – November 30, 2018

Exercise of options

2 unchanged sentences

Loss for the period

Balance –

Balance – February 28, 2019

Exercise of options

1 unchanged sentence

Loss for the period

Balance –

Balance – May 31, 2019

Exercise of options

Stock-based compensation

Deferred share units

Exercise of warrants

Loss for the period

Balance – August 31, 2019

Balance – November 30, 2019

Exercise of options

Restricted Share Units

1 unchanged sentence

Earnings for the period

Balance –

Balance – February 29, 2020

Exercise of options

1 unchanged sentence

Stock-based compensation

Earnings for the period

Balance –

(See accompanying notes to the interim

consolidated financial statements)

Consolidated Statements of Cash Flows

Loss for the period

Balance – May 31, 2020

Exercise of options

Restricted Share Units

Stock-based compensation

Loss for the period

Balance – August 31, 2020

(See accompanying notes to the interim consolidated financial statements)

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Trilogy Metals Inc.

Interim Consolidated Statements of Cash Flows

in thousands of US dollars

For the nine months ended

August 31, 2020

August 31, 2019

Cash flows used in operating activities

4 unchanged sentences

Gain on derecognition of assets (note 4(a))

Loss on equity investment in Ambler Metals LLC.

Loss on equity investment in Ambler Metals LLC (note 4(b))

Unrealized foreign exchange loss

2 unchanged sentences

Net change in non-cash working capital

Increase in accounts receivable

Decrease (increase) in deposits and prepaid amounts

Decrease in accounts payable and accrued liabilities

Decrease (increase) in accounts receivable

Decrease in deposits and prepaid amounts

(Decrease) increase in accounts payable and accrued liabilities

Cash flows from financing activities

Proceeds from exercise of warrants

Cash flows from investing activities

Acquisition of plant & equipment

Mineral properties funding

1 unchanged sentence

Effect of exchange rate on cash and cash equivalents

Cash and cash equivalents –

beginning of period

Cash and cash equivalents –

end of period

(See accompanying

Cash and cash equivalents – beginning of period

Cash and cash equivalents – end of period

(See accompanying notes to the interim consolidated financial statements)

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

to the Interim Consolidated Financial Statements

1) Nature of operations

Trilogy Metals Inc.

or the “Company”) was incorporated in British Columbia under the Business Corporations Act (BC) on April 27, 2011.

The Company is engaged in the exploration and development of mineral properties, through our equity investee (see note 4), 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”).

2) Summary of significant accounting

(“Trilogy” or the “Company”) was incorporated in British Columbia under the Business Corporations Act (BC) on April 27, 2011.

The Company is engaged in the exploration and development of mineral properties, through our equity investee (see note 4), 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”).

2) Summary of significant accounting policies

Basis of presentation

These 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 subsidiary, NovaCopper US Inc.

These 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 subsidiary, NovaCopper US Inc.

(dba “Trilogy Metals US”).

significant 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.

All significant 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 CAD$ refer to amounts in Canadian dollars.

The unaudited interim consolidated financial

statements include all adjustments necessary for the fair presentation of the Company’s financial position as of May 31,

2020 and our results of operations and cash flows for the six months ended May 31, 2020 and May 31, 2019.

of operations for the six months ended May 31, 2020 are not necessarily indicative of the results to be expected for the

fiscal year ending November 30, 2020.

As these interim consolidated financial

statements do not contain all of the disclosures required by U.S.

GAAP for annual financial statements, these unaudited 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, 2019, filed with the U.S.

Securities and Exchange

Commission (“SEC”) and Canadian securities regulatory authorities on February 13, 2020.

These interim consolidated financial statements

were approved by the Company’s Audit Committee on behalf of the Board of Directors for issue on July 7, 2020.

The unaudited interim consolidated financial statements include all adjustments necessary for the fair presentation of the Company’s financial position as of August 31, 2020 and our results of operations and cash flows for the nine months ended August 31, 2020 and August 31, 2019.

The results of operations for the nine months ended August 31, 2020 are not necessarily indicative of the results to be expected for the fiscal year ending November 30, 2020.

As these interim consolidated financial statements do not contain all of the disclosures required by U.S.

GAAP for annual financial statements, these unaudited 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, 2019, filed with the U.S.

Securities and Exchange Commission (“SEC”) and Canadian securities regulatory authorities on February 13, 2020.

These interim consolidated financial statements were approved by the Company’s Audit Committee on behalf of the Board of Directors for issue on October 6, 2020.

Accounting standards adopted

In February 2016, the FASB issued

new accounting requirements for accounting for, presentation of, and classification of leases (“ASU 2016-02”) which,

together with subsequent amendments, is included in ASC 842, Leases.

In February 2016, the FASB issued new accounting requirements for accounting for, presentation of, and classification of leases (“ASU 2016-02”) which, together with subsequent amendments, is included in ASC 842, Leases.

ASC 842 became effective for the Company as of December 1, 2019.

The Company adopted ASC 842 using the

modified retrospective transition method by applying the transition provision and recording our cumulative adjustment to opening

deficit at the beginning of the period of adoption on December 1, 2019, rather than at the beginning of the comparative period

Therefore, in the comparative periods, we continue to apply the legacy guidance in ASC 840, including its disclosure

requirements.

The Company adopted ASC 842 using the modified retrospective transition method by applying the transition provision and recording our cumulative adjustment to opening deficit at the beginning of the period of adoption on December 1, 2019, rather than at the beginning of the comparative period presented.

Therefore, in the comparative periods, we continue to apply the legacy guidance in ASC 840, including its disclosure requirements.

We elected to apply all of the transition practical expedients available, including:

package of three practical expedients to (1) not reassess whether any expired or

existing contracts are or contain leases, (2) not reassess the lease classification

for any expired or existing leases, and (3) not reassess initial direct costs for

any existing lease;

hindsight practical expedient to use hindsight when determining lease term and assessing

impairment of right-of-use assets, if any;

easements practical expedient to continue applying our current policy for accounting

for any land easements expired before or existing as of December 1, 2019.

In addition, we elected to apply the short-term

lease recognition exemption and elected to apply the practical expedient to not separate lease and non-lease components for all

applicable leases on transition.

The adoption of this new standard resulted in the recognition of right of use assets and lease

liabilities of $786,000 as at December 1, 2019.

● the package of three practical expedients to (1) not reassess whether any expired or existing contracts are or contain leases, (2) not reassess the lease classification for any expired or existing leases, and (3) not reassess initial direct costs for any existing lease;

● the hindsight practical expedient to use hindsight when determining lease term and assessing impairment of right-of-use assets, if any;

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

● the easements practical expedient to continue applying our current policy for accounting for any land easements expired before or existing as of December 1, 2019.

In addition, we elected to apply the short-term lease recognition exemption and elected to apply the practical expedient to not separate lease and non-lease components for all applicable leases on transition.

The adoption of this new standard resulted in the recognition of right of use assets and lease liabilities of $ 786,000 as at December 1, 2019.

New accounting policy

Investment in affiliates

Investments in unconsolidated ventures

over which the Company has the ability to exercise significant influence, but does not control, are accounted for under the equity

method and include the Company’s investment in the Ambler Metals project.

We identified Ambler Metals LLC as a VIE as the

entity is dependent on funding from its owners.

All funding, ownership, voting rights and power to exercise control is shared

equally on a 50/50 basis between the owners of the VIE.

Therefore, the Company has determined that it is not the primary beneficiary

Investments in unconsolidated ventures over which the Company has the ability to exercise significant influence, but does not control, are accounted for under the equity method and include the Company’s investment in the Ambler Metals project.

We identified Ambler Metals LLC as a VIE as the entity is dependent on funding from its owners.

All funding, ownership, voting rights and power to exercise control is shared equally on a 50 /50 basis between the owners of the VIE.

Therefore, the Company has determined that it is not the primary beneficiary of the VIE.

The Company’s maximum exposure to loss is its investment in Ambler Metals LLC.

Ambler Metals LLC is a non-publicly traded

equity investee holding exploration and development projects.

The Company reviews and evaluates its investment in affiliates for

other than temporary impairment when events or changes in circumstances indicate that the related carrying amounts may not be

Events that could indicate impairment of an investment in affiliates include a significant decrease in long-term

expected commodity prices, a significant increase in expected operating or capital costs, unfavorable exploration results or technical

studies, a significant decrease in reserves, a loss of significant mineral claims or a change in the development plan or strategy

for the project.

Asset impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are

less than the carrying amount of the asset.

If the underlying assets are not recoverable, an impairment loss is measured and recorded

based on the difference between the carrying amount of the investee and its estimated fair value which may be determined using

a discounted cash flow model .

Ambler Metals LLC is a non-publicly traded equity investee holding exploration and development projects.

The Company reviews and evaluates its investment in affiliates for other than temporary impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable.

Events that could indicate impairment of an investment in affiliates include a significant decrease in long-term expected commodity prices, a significant increase in expected operating or capital costs, unfavorable exploration results or technical studies, a significant decrease in reserves, a loss of significant mineral claims or a change in the development plan or strategy for the project.

Asset impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset.

If the underlying assets are not recoverable, an impairment loss is measured and recorded based on the difference between the carrying amount of the investee and its estimated fair value which may be determined using a discounted cash flow model.

3) Accounts receivable

in thousands of dollars

August 31, 2020

November 30, 2019

GST input tax credits

2 unchanged sentences

Accounts receivable

The balance due from Ambler Metals LLC

(see note 4 below) consists of services rendered by Trilogy and reimbursements for invoices paid by Trilogy on behalf of Ambler

Metals LLC per a service agreement.

The balance due from Ambler Metals LLC (see note 4 below) consists of services rendered by Trilogy and reimbursements for invoices paid by Trilogy on behalf of Ambler Metals LLC per a service agreement.

The balance was paid in full by Ambler Metals LLC subsequent to the quarter end.

4) Equity method investment

(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 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 US$145 million, resulting in each party’s subsidiaries directly owning a

50% interest in Ambler Metals LLC.

Ambler Metals LLC is an independently

operated company jointly controlled by Trilogy and South32 through a four-member board, of which two members are currently appointed

by Trilogy based on its 50% equity interest.

Formation of Ambler Metals LLC

On February 11, 2020, the Company completed the formation of a 50/50 joint venture named Ambler Metals LLC 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 US$ 145 million, resulting in each party’s subsidiaries directly owning a 50 % interest in Ambler Metals LLC.

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

Ambler Metals LLC is an independently operated company jointly controlled by Trilogy and South32 through a four-member board, of which two members are currently 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 LLC is a VIE because it is expected to need additional funding from its owners for its significant

However, we concluded that we are not the primary beneficiary of Ambler Metals LLC 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 LLC through our representation on its board, we use the equity method of accounting for our investment in Ambler

We determined that Ambler Metals LLC 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 LLC 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 LLC through our representation on its board, we use the equity method of accounting for our investment in Ambler Metals LLC.

Our investment in Ambler Metals LLC was initially measured at its fair value of $ 176 million upon recognition.

maximum exposure to loss in this entity is limited to the carrying amount of our investment in Ambler Metals LLC, which totaled

$176 million, as well as $668 thousand of amounts receivable per a service agreement.

The following table summarizes the gain

on recognition of the UKMP assets upon transfer to the Ambler Metals LLC joint venture on February 11, 2020.

thousands of dollars

Our maximum exposure to loss in this entity is limited to the carrying amount of our investment in Ambler Metals LLC, which, as at August 31, 2020, totaled $ 174 million, as well as $ 106,000 of amounts receivable per a service agreement.

The following table summarizes the gain on recognition of the UKMP assets upon transfer to the Ambler Metals LLC joint venture on February 11, 2020.

in thousands of dollars

Fair value ascribed to Ambler Metals LLC interest

4 unchanged sentences

Elimination of prepaid State of Alaska mining claim fees

Reimbursement of claims staking

Demobilization costs of drills

2 unchanged sentences

Gain on derecognition

(b) Carrying value of equity method investment

During the six-month period ended May 31,

2020, Trilogy recognized, based on its 50% ownership interest in Ambler Metals LLC, an equity loss equivalent to its pro rata

share of Ambler Metals LLC’s comprehensive loss of $1.48 million for the period between February 11, 2020 (date of

joint venture formation) to May 31, 2020.

The carrying value of Trilogy’s 50% investment in Ambler Metals LLC as at

May 31, 2020 is summarized on the following table.

thousands of dollars

February 11, 2020, fair value ascribed to Ambler Metals LLC

Share of loss on equity investment for the six-month period ended May 31, 2020

May 31, 2020, equity method investment

Metals LLC’s Balance Sheet as at May 31, 2020.

thousands of dollars

Carrying value of equity method investment

During the nine-month period ended August 31, 2020, Trilogy recognized, based on its 50 % ownership interest in Ambler Metals LLC, an equity loss equivalent to its pro rata share of Ambler Metals LLC's comprehensive loss of $ 3.67 million for the period between February 11, 2020 (date of joint venture formation) to August 31, 2020 and $ 2.19 million for the three-month period ended August 31, 2020.

The carrying value of Trilogy’s 50 % investment in Ambler Metals LLC as at August 31, 2020 is summarized on the following table.

in thousands of dollars

February 11, 2020, fair value ascribed to Ambler Metals LLC interest

Share of loss on equity investment for the nine-month period ended August 31, 2020

August 31, 2020, equity method investment

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

The following table summarizes Ambler Metals LLC's Balance Sheet as at August 31, 2020.

in thousands of dollars

August 31, 2020

Current assets:

7 unchanged sentences

Lease obligation

(d) The following table summarizes Ambler

Metals LLC’s comprehensive loss from the formation of the joint venture on February 11,

2020 to the end of the reporting period on May 31, 2020.

– May 31, 2020

The following table summarizes Ambler Metals LLC's comprehensive loss from the formation of the joint venture on February 11, 2020 to the end of the reporting period on August 31, 2020.

in thousands of dollars

Three months ended

Nine months ended

August 31, 2020

Mineral properties expense

2 unchanged sentences

Comprehensive loss

and equipment

in thousands of

5) Plant and equipment

in thousands of dollars

August 31, 2020

British Columbia, Canada

4 unchanged sentences

Computer hardware and software

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

in thousands of dollars

6 unchanged sentences

Computer hardware and software

properties and development costs

6) Mineral properties and development costs

in thousands of dollars

costs reimbursable

November 30, 2019

August 31, 2020

in thousands of dollars

November 30, 2018

Acquisition costs

November 30, 2019

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

(a) Mineral properties expense

The following table summarizes mineral

properties expense for the noted periods.

In thousands of

The following table summarizes mineral properties expense for the noted periods.

In thousands of dollars

Three months ended

Nine months ended

August 31, 2020

August 31, 2019

August 31, 2020

August 31, 2019

Environmental

3 unchanged sentences

Wages and benefits

No additional mineral properties expenses

were incurred during the three-month period ended May 31, 2020, as on February 11, 2020, upon the formation of the joint

venture with South 32, all mineral properties previously held by the Company were contributed to Ambler Metals LLC.

continues to fund the Arctic Project feasibility study, costs for which were $0.7 million since the formation of the joint venture

on February 11, 2020.

The table above is for comparison purposes for the respective periods.

No additional mineral properties expenses were incurred during the three-month period ended August 31, 2020, as on February 11, 2020, upon the formation of the joint venture with South 32, all mineral properties previously held by the Company were contributed to Ambler Metals LLC.

The Company continues to fund the Arctic Project feasibility study, costs for which were $ 1.0 million since the formation of the joint venture on February 11, 2020.

Prior to the formation of the joint venture, the Company had also incurred $ 0.7 million in Arctic Project feasibility costs that are included in the mineral properties expense balance of $ 1.5 million for the nine-month period ended August 31, 2020.The table above is for comparison purposes for the respective periods.

(b) Derecognition

part of the formation of the joint venture with South32 on February 11, 2020, Trilogy contributed all its assets associated

with the UKMP, including the Arctic and Bornite projects.

As a result, $0.62 million of machinery and equipment as well as $30.6

million of mineral properties related to the UKMP were derecognized in Trilogy on February 11, 2020.

payable and accrued liabilities

As part of the formation of the joint venture with South32 on February 11, 2020, Trilogy contributed all its assets associated with the UKMP, including the Arctic and Bornite projects.

As a result, $ 0.62 million of machinery and equipment as well as $ 30.6 million of mineral properties related to the UKMP were derecognized in Trilogy on February 11, 2020.

7) Accounts payable and accrued liabilities

in thousands of dollars

August 31, 2020

November 30, 2019

3 unchanged sentences

Accounts payable and accrued liabilities

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

(a) Right-of-use asset

in thousands of dollars

ASC 842 transition as at December 1, 2019

Lease accretion

Derecognition of

Fairbanks warehouse lease

The pre-transition rent deposit of $114

thousand was transferred to the Right-of-use asset upon adoption of ASC 842 on December 1, 2019 and is included in the opening

balance of $681 thousand.

Derecognition of Fairbanks warehouse lease

The pre-transition rent deposit of $ 0.11 million was transferred to the Right-of-use asset upon adoption of ASC 842 on December 1, 2019 and is included in the opening balance of $ 0.68 million.

(b) Lease liabilities

Company’s lease arrangements primarily consist of an operating lease for our office space ending in June 2024.

are no extension options.

lease expense recorded within general and administrative expenses was comprised of the following components:

The Company’s lease arrangements primarily consist of an operating lease for our office space ending in June 2024.

There are no extension options.

Total lease expense recorded within general and administrative expenses was comprised of the following components:

in thousands of dollars

Nine months ended

August 31, 2020

Operating lease costs

1 unchanged sentence

Total lease expense

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.

of May 31, 2020, the weighted-average remaining lease term was 4.1 years and the weighted-average discount rate is 8%.

judgment was used in the determination of the incremental borrowing rate which included estimating the Company’s credit

cash and non-cash information relating to our leases during the six months ended May 31, 2020 are as follows:

paid for amounts included in the measurement of lease liabilities was $96,842.

cash was paid upon termination of a lease for office and warehouse space and reassignment

to Ambler Metals LLC that resulted in the derecognition of the right-of-use asset of

$92,974 and the operating lease liability of $93,006.

minimum payments relating to the lease recognized in our balance sheet as of May 31, 2020 are as follows:

thousands of dollars

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 of August 31, 2020, the weighted-average remaining lease term was 3.9 years and the weighted-average discount rate is 8 % .

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 months ended August 31, 2020 are as follows:

● Cash paid for amounts included in the measurement of lease liabilities was $ 141,784 .

● No cash was paid upon termination of a lease for office and warehouse space and reassignment to Ambler Metals LLC that resulted in the derecognition of the right-of-use asset of $ 92,974 and the operating lease liability of $ 93,006 .

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

Future minimum payments relating to the lease recognized in our balance sheet as of August 31, 2020 are as follows:

in thousands of dollars

August 31, 2020

Total undiscounted lease payments

Effect of discounting

Present value of lease payments recognized as

lease liability

unlimited common shares,

thousands of dollars, except share amounts

Present value of lease payments recognized as lease liability

9) Share capital

unlimited common shares, no par value

in thousands of dollars, except share amounts

Number of shares

Ascribed value

November 30, 2018

6 unchanged sentences

Restricted Share Units

May 31, 2020, issued

and outstanding

On April 30, 2012,

under the NovaGold Arrangement, Trilogy committed to issue common shares to satisfy holders of NovaGold deferred share units (“NovaGold

DSUs”) on record as of the close of business April 27, 2012.

When vested, Trilogy committed to deliver one common share

to the holder for every six shares of NovaGold the holder is entitled to receive, rounded down to the nearest whole number.

of May 31, 2020, 11,927 NovaGold DSUs remained outstanding representing a right to receive 1,988 common shares in Trilogy,

which will settle upon certain directors retiring from NovaGold’s board.

During the period ended

May 31, 2020, the Company granted 2,325,000 options (2019 – 2,527,500 options) at a weighted-average exercise price

of CAD$2.93 (2019 – CAD$2.96) 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 weighted-average fair value attributable to options

granted in the period was $0.96 (2019 - $1.08).

For the period ended May 31,

2020, Trilogy recognized a stock-based compensation charge of $1.58 million (2019 – $1.94 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.

Assumptions used in the

pricing model for the period are as provided below.

August 31, 2020, issued and outstanding

On April 30, 2012, in connection with the transaction with NovaGold Resources Inc.

whereby Trilogy was spun-out to NovaGold shareholders and publicly listed, Trilogy committed to issue common shares to satisfy holders of NovaGold deferred share units (“NovaGold DSUs”) on record as of the close of business April 27, 2012.

When vested, Trilogy committed to deliver one common share to the holder for every six shares of NovaGold the holder is entitled to receive, rounded down to the nearest whole number.

As of August 31, 2020, 11,927 NovaGold DSUs remained outstanding representing a right to receive 1,988 common shares in Trilogy, which will settle upon certain directors retiring from NovaGold’s board.

Stock options

During the nine-month period ended August 31, 2020, the Company granted 4,095,000 options (2019 - 2,527,500 options) at a weighted-average exercise price of CAD$ 2.80 (2019 - CAD$ 2.96 ) 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 weighted-average fair value attributable to options granted in the period was $ 0.90 (2019 - $ 1.08 ).

For the nine-month period ended August 31, 2020, Trilogy recognized a stock-based compensation charge of $ 2.60 million (2019 – $ 2.23 million) for options granted to directors, employees and service providers, net of estimated forfeitures.

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

The fair value of the stock options recognized in the period has been estimated using the Black-Scholes option pricing model.

Assumptions used in the pricing model for the nine-month period ended August 31, 2020 are as provided below.

August 31, 2020

Risk-free interest rates

3 unchanged sentences

Expected dividends

As of May 31, 2020,

there were 1,453,338 non-vested options outstanding with a weighted average exercise price of $2.15;

the non-vested stock option

expense not yet recognized was $0.71 million.

As of August 31, 2020, there were 2,373,337 non-vested options outstanding with a weighted average exercise price of $ 2.15 ;

the non-vested stock option expense not yet recognized was $ 1.13 million.

This expense is expected to be recognized over the next two years .

A summary of the Company’s

stock option plan and changes during the period ended May 31, 2020 is as follows:

A summary of the Company’s stock option plan and changes during the nine-month period ended August 31, 2020 is as follows:

August 31, 2020

Weighted average

exercise price

Balance –

beginning of the period

Balance –

end of period

The following table summarizes information about

the stock options outstanding at May 31, 2020.

outstanding options

Number of options

Balance – beginning of the period

( 2,924,221 )

Balance – end of period

The following table summarizes information about the stock options outstanding at August 31, 2020.

average years

1 unchanged sentence

exercise price

unvested options

The aggregate intrinsic

value of vested share options (the market value less the exercise price) at May 31, 2020 was $8.3 million (2019 - $17.6 million)

and the aggregate intrinsic value of exercised options for the three months ended May 31, 2020 was $0.18 million (2019 -

$0.30 million).

(b) Restricted

Share Units and Deferred Share Units

The Company has a Restricted

Share Unit Plan (“RSU Plan”) and a Non-Executive Director Deferred Share Unit Plan (“DSU Plan”) to provide

long-term incentives to employees, officers and directors.

Awards under the RSU Plan and DSU Plan may be settled in cash and/or

common shares of the Company at the Company’s election with each restricted share unit (“RSU”) and deferred

share unit (“DSU”) entitling the holder to receive one common share of the Company or equivalent value.

are accounted for as equity-settled awards.

A summary of the Company’s

unit plans and changes during the period ended May 31, 2020 is as follows:

Balance –

beginning of the period

Balance –

For the period ended May 31,

2020, Trilogy recognized a stock-based compensation charge of $0.39 million (2019- $0.66 million), net of estimated forfeitures.

The 200,000 RSUs granted

and fully vested during the period were settled on April 16, 2020 through the issuance of 200,000 common shares.

RSUs granted for the annual incentive payout for the 2018 fiscal year vested half on the grant date and half on the first anniversary

of the grant date.

RSUs vesting in December 2019 were settled on December 17, 2019 through the issuance of 212,501 common

10) Financial

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.

Range of price

$ 0.34 to $ 0.50

$ 0.51 to $ 1.00

$ 1.01 to $ 1.50

$ 1.51 to $ 2.00

$ 2.01 to $ 2.50

$ 2.51 to $ 2.61

The aggregate intrinsic value of vested share options (the market value less the exercise price) at August 31, 2020 was $ 5.2 million (2019 - $ 10.6 million) and the aggregate intrinsic value of exercised options for the nine months ended August 31, 2020 was $ 4.5 million (2019 - $ 0.50 million).

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

Restricted Share Units and Deferred Share Units

The Company has a Restricted Share Unit Plan (“RSU Plan”) and a Non-Executive Director Deferred Share Unit Plan (“DSU Plan”) to provide long-term incentives to employees, officers and directors.

Awards under the RSU Plan and DSU Plan may be settled in cash and/or common shares of the Company at the Company’s election with each restricted share unit (“RSU”) and deferred share unit (“DSU”) entitling the holder to receive one common share of the Company or equivalent value.

All units are accounted for as equity-settled awards.

A summary of the Company’s unit plans and changes during the nine-month period ended August 31, 2020 is as follows:

Number of RSUs

Number of DSUs

Balance – beginning of the period

Balance – end of period

For the nine-month period ended August 31, 2020, Trilogy recognized a stock-based compensation charge of $ 0.43 million (2019- $ 0.78 million), net of estimated forfeitures.

The 200,000 RSUs granted and fully vested during the period were settled on April 16, 2020 through the issuance of 200,000 common shares.

The 225,000 RSUs granted for the annual incentive payout for the 2018 fiscal year vested half on the grant date and half on the first anniversary of the grant date.

RSUs vesting in December 2019 were settled on December 17, 2019 through the issuance of 212,501 common shares.

10) 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 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 May 31, 2020 is limited to the Canadian

dollar balances consisting of cash of CDN$87,000, accounts receivable of CDN$42,000 and accounts payable of CDN$347,000.

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 $16,000.

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.

holds cash and cash equivalents with Canadian Chartered financial institutions.

The Company’s accounts receivable consists

of Canadian Goods and Services Tax receivable from the Federal Government of Canada and other receivables for recoverable expenses.

The Company’s exposure to credit risk is equal to the balance of cash and cash equivalents and accounts receivable as recorded

in the financial statements.

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

cash flow requirements as at May 31, 2020 are as follows:

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, 2020 is limited to the Canadian dollar balances consisting of cash of CDN$ 1,462,000 , accounts receivable of CDN$ 20,000 and accounts payable of CDN$ 1,500,000 .

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 $ 5,000 .

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 and cash equivalents with Canadian Chartered financial institutions.

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

The Company’s accounts receivable consists of Canadian Goods and Services Tax receivable from the Federal Government of Canada and other receivables for recoverable expenses.

The Company’s exposure to credit risk is equal to the balance of cash and cash equivalents and accounts receivable 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 cash flow requirements as at August 31, 2020 are as follows:

in thousands of dollars

Accounts payable and accrued

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.

Accounts payable and accrued liabilities

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 and cash equivalents.

Based on balances as

at May 31, 2020, a 1% change in interest rates would result in a change in net loss of $0.1 million, assuming all other variables

remain constant.

Based on balances as at August 31, 2020, a 1 % change in interest rates would result in a change in net loss of $ 0.1 million, assuming all other variables remain constant.

11) Commitment

The Company has commitments

with respect to an office lease requiring future minimum lease payments as summarized in note 8(b) above.

12) Subsequent

Subsequent to the end of

the second quarter, on June 1, 2020, the newly appointed CEO was granted a one-time stock option grant, per his employment

agreement, of 1.6 million stock options vesting equally in thirds on the grant date, the first anniversary of the grant date,

and the second anniversary of the grant date.

In addition to this grant, the new CEO was also granted 170,000 stock options in

lieu of salary for the June 1, 2020 to September 30, 2020 employment period.

These options fully vest on September 30,

The Company has commitments with respect to an office lease requiring future minimum lease payments as summarized in note 8(b) above.

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements