Item 1. Business
Item 1. BUSINESS
Our principal business is the exploration and development of the Upper Kobuk Mineral Projects (“Upper Kobuk Mineral Projects” or “UKMP Projects”) located in the Ambler mining district in Northwest Alaska, United States. The Upper Kobuk Mineral Projects are held by Ambler Metals LLC (“Ambler Metals”), a limited liability company owned equally by Trilogy and South32 Limited (“South32”) (as defined below), and is comprised of the (i) Arctic Project, which contains a high-grade polymetallic volcanogenic massive sulfide (“VMS”) deposit (“Arctic Project”); and (ii) Bornite Project, which contains a carbonate-hosted copper - cobalt deposit (“Bornite Project”). Our goals include expanding mineral resources and advancing the UKMP Projects through technical, engineering and feasibility studies so that production decisions can be made on those projects. Our interest in Ambler Metals is held by a wholly-owned subsidiary, NovaCopper US Inc. (dba Trilogy Metals US) (“Trilogy Metals US”), registered to do business in the State of Alaska.
Name, Address and Incorporation
Trilogy Metals Inc. was incorporated on April 27, 2011 under the name NovaCopper Inc. pursuant to the terms of the Business Corporations Act (British Columbia). NovaCopper Inc. changed its name to Trilogy Metals Inc. on September 1, 2016 to better reflect its diversified metals resource base. Our registered office is located at Suite 2600, Three Bentall Centre, 595 Burrard Street, Vancouver, British Columbia, Canada, and our executive office is located at Suite 1150, 609 Granville Street, Vancouver, British Columbia, Canada.
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Corporate Organization Chart
The following chart depicts our corporate structure together with the jurisdiction of incorporation of our subsidiaries at November 30, 2020. All ownership is 100% unless otherwise stated.
On February 11, 2020, the Company’s Upper Kobuk Mineral Projects were transferred to Ambler Metals, a newly incorporated limited liability company incorporated under the laws of Delaware. Each of Trilogy and South32 hold a 50% interest in Ambler Metals. All mineral resources and mineral reserve estimates with respect to the Arctic Project and Bornite Project that are disclosed in this Annual Report on Form 10-K are reported on a 100% basis. See “ Significant Developments in 2020 ”.
Business Cycle
Our business, at its current exploration phase, is cyclical. Exploration activities are conducted primarily during snow-free months in Alaska. The optimum field season at the Upper Kobuk Mineral Projects is from late May to late September. The length of the snow-free season at the Upper Kobuk Mineral Projects varies from about May through November at lower elevations and from July through September at higher elevations.
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Trilogy’s Strategy
Our business strategy is focused on creating value for stakeholders through our ownership and advancement of the Arctic Project and exploration and advancement of the Bornite Project with our joint venture partner, South32, and through the pursuit of similarly attractive mining projects. We plan to:
● advance the Arctic Project towards development with key activities including increased definition of the NI 43-101 mineral resources and reserves contained in the Arctic FS (as defined below), additional metallurgical and geotechnical studies and the advancement of baseline environmental studies;
● advance exploration in the Ambler mining district and, in particular, at the Bornite Project, pursuant to the NANA Agreement (as more particularly described under “ History of Trilogy – Agreement with NANA Regional Corporation ”) through resource development and initial technical studies; and
● pursue project level or corporate transactions that are value accretive.
Significant Developments in 2020
● On April 10, 2017, we entered into an option agreement, as amended (the “South32 Option Agreement”) with South32 Group Operations Pty Ltd (“South32 Operations”), a wholly-owned subsidiary of South32 Limited, which agreement was later assigned by South32 Operations to its affiliate, South32 USA Exploration Inc. (together with South32 Operations, “South32”). The South32 Option Agreement granted to South32 a three-year option to form a 50/50 joint venture with respect to Trilogy’s Alaskan assets which includes the Upper Kobuk Mineral Projects. South32 was required to contribute a minimum of $10 million each year, for a maximum of three years, to keep the option in good standing (the “Initial Funding”). If South32 elected to exercise the option, the subscription price less certain deductions for Initial Funding was to be paid in one tranche within 45 business days. Had South32 not made its annual minimum payment or elected to withdraw, the option would lapse and South32 would have no claim to ownership or to the funds it had already spent. In order to exercise its option to form the Joint Venture, South32 was required to contribute a minimum of $150 million, plus (i) any amounts Trilogy spent on matched parallel funding to a maximum of $16 million over the three year period and (ii) $10 million, less the amount of the Initial Funding contributed by South32. On December 19, 2019, we announced in a press release that South32 had exercised its option to acquire a 50% interest in a joint venture company to be named “Ambler Metals LLC” which now owns the UKMP Projects.
● On February 11, 2020, we announced that the formation of Ambler Metals had completed, with the Company contributing its assets associated with the UKMP Projects, and South32 contributing a subscription price payment of US$145 million, to the joint venture.
● In a press release dated February 26, 2020, the Company announced that Ambler Metals had approved a 2020 program budget of $22.8 million for the advancement of the UKMP Projects. The budget was to be 100% funded by Ambler Metals. The 2020 program budget included 10,000 meters of drilling at the Arctic Project, 2,500 meters of drilling within the Ambler VMS belt and geological mapping and geochemical soil sampling at the Bornite Project.
● Subsequent to the approval of the 2020 program budget, the Company and its joint venture partner, South32, decided not to proceed with the 2020 exploration program after assessing the coronavirus (COVID-19) environment. Ambler Metals gave due consideration to the merits of carrying out an abridged work program at the UKMP Projects. However, given the continued uncertainty resulting from COVID-19, ongoing safety concerns (despite added safety protocols including physical distancing, protective equipment and testing) and the fact that, due to COVID-19, the planned field season had already been delayed to the point at which any field season would provide limited critical path benefits, the decision was made not to proceed with a 2020 field season.
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● On April 20, 2020, we issued a press release announcing the appointment of Tony Giardini as President and Chief Executive Officer effective June 1, 2020. Mr. Giardini has been a director of the Company since 2012 when the Company was formed and will continue to be an executive director. James (Jim) Gowans, the Interim President and Chief Executive Officer, remained in his role as a director of the Company.
● In a press release dated July 23, 2020, the Company, along with our joint venture partner, South32, announced the signing of the Record of Decision by the United States Bureau of Land Management (“BLM”) for the Ambler Mining District Industrial Access Project. The Record of Decision approves the development of the northern route, which is to be a 211-mile private gravel access road in the southern Brooks Range foothills to provide industrial access to the Ambler Mining District.
● In a press release dated August 20, 2020, the Company announced the positive results of its feasibility study for the Arctic Project (the “Arctic FS”). The Arctic FS was prepared on a 100% ownership basis, of which Trilogy’s share is 50%. The Arctic FS describes the technical and economic viability of establishing a conventional open-pit copper-zinc-lead-silver-gold mine and mill complex for a 10,000 tonne per day operation for a minimum 12-year mine life. See the 2020 Arctic Report (as defined below) and “ Properties ” for additional information.
● On August 25, 2020, we issued a press release to announce that the board of Ambler Metals had appointed Ramzi Fawaz as President and Chief Executive Officer of Ambler Metals effective as of September 1, 2020. Mr Fawaz joined Ambler Metals from Newmont Corporation where he was Senior Vice President Projects from February 2011 to October 2019, with responsibility for the development and execution of Newmont’s major gold and copper projects globally.
● On September 3, 2020, we issued a press release announcing that the Company had hired Richard Gosse as Vice President Exploration of the Company with immediate effect.
● On October 2, 2020, we filed the technical report for the Company’s Arctic Project entitled “Arctic Feasibility Study Alaska, USA NI 43-101 Technical Report" with an effective date of August 20, 2020, prepared by Ausenco Engineering Canada Inc., Wood Canada Limited and SRK Consulting (Canada) Inc. (the “2020 Arctic Report”). The technical report describes the Arctic FS on the Arctic Project as discussed above. The 2020 Arctic Report supersedes the Company’s 2018 Arctic Report (as defined below).
● On November 19, 2020, we issued a press release announcing that Ambler Metals had approved the 2021 program and budget of approximately US$27 million for the advancement of the UKMP Projects. The budget will be 100% funded by Ambler Metals.
Significant Developments in 2019
● On March 5, 2019, we issued a press release to announce additional copper and cobalt metallurgical results for the Bornite Project. Nine metallurgical composite samples were prepared from materials obtained from drilling at the Bornite Project during 2017 and 2018. Each of these test samples were approximately 60 to 120 kilograms in mass and represented approximately 30 to 100 meters of drill core. Mineralogical analysis of each of the nine composites was completed, indicating that a majority of the copper mineralization occurred as chalcopyrite, with minor amounts of bornite and variable pyrite levels within the test samples.
● On June 28, 2019, we issued a press release to announce that all the Company’s outstanding warrants had been exercised in advance of the expiry date. Three of the Company’s largest shareholders exercised 6,521,740 in outstanding warrants. As a result of this warrant exercise, we issued a total of 6,521,740 common shares of the Company and received cash proceeds of approximately $9.9 million.
● On August 26, 2019, we issued a press release reporting the public release of the Draft Environmental Impact Statement (“EIS”) Statement by the BLM for the AMDIAP and the Environmental and Economic Analysis by the
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United States National Park Service (“NPS”) for that portion of AMDIAP that traverses the Gates of the Arctic National Park and Preserve. The public comment period of 45 days had commenced with comments on the Draft EIS being accepted through October 15, 2019. On March 27, 2020, we issued a press release announcing that the Final EIS had been publicly released.
● On September 5, 2019, we issued a press release announcing the resignation of Rick Van Nieuwenhuyse as CEO, President and director of Trilogy Metals. James Gowans was appointed CEO and President on an interim basis. Mr. Van Nieuwenhuyse remained a consultant to the Company until February 29, 2020 to assist with transitional matters and with advancing our interests in Alaska.
● On October 31, 2019, we filed a final short form base shelf prospectus with the securities commissions in each of the provinces of Canada, other than Québec, and a corresponding registration statement on Form S-3 with the SEC allowing for the future issuance, from time to time, of up to US$100,000,000 in common shares, warrants to purchase common shares, share purchase contracts of the Company, subscription receipts, units or a combination of those securities. The intention of the base shelf prospectus and shelf registration statement is to allow the Company to more quickly access capital when the capital is needed and as market opportunities permit.
Significant Developments in 2018
● On February 20, 2018, we issued a press release to announce Pre-Feasibility study (“PFS”) results and reserves for the Arctic Project. The PFS was based on a conventional 10,000 tonnes per day truck and shovel, single open pit mine and mill design.
● On April 6, 2018, we filed the corresponding technical report for the Company’s Arctic Project entitled “Arctic Project, Northwest Alaska, USA, NI 43-101 Technical Report on Pre-Feasibility Study” with an effective date of February 20, 2018, prepared by Ausenco Engineering Canada Inc. (the “2018 Arctic Report”). The technical report describes the PFS on the Arctic Project as discussed above. The 2018 Arctic Report is superseded by the 2020 Arctic Report.
● On April 20, 2018, we issued a press release to announce the closing of our bought deal financing. The funds raised consisted of 24,784,482 Common Shares issued at $1.16 per share resulting in aggregate gross proceeds of approximately $28.7 million.
● On June 5, 2018, we issued a press release to announce the release of a maiden inferred cobalt resource of 77 million pounds for the Bornite Project. At a base case of 0.50% copper cut-off grade, the Bornite Project is estimated to contain in-pit inferred resources of 124.6 million tonnes grading at 0.017% Co, resulting in 45 million pounds of contained cobalt. Below the pit shell and at a base case copper cut-off grade of 1.5%, the Bornite Project is estimated to contain an additional inferred resource of 57.8 million tonnes grading 0.025% Co, resulting in an additional 32 million pounds of contained cobalt.
● On July 20, 2018, we filed the corresponding technical report for the Company’s Bornite Project entitled “NI 43-101 Technical Report on the Bornite Project, Northwest Alaska, USA” prepared by BD Resource Consulting, Inc., SIM Geological Inc., and International Metallurgical & Environmental Inc. (the “2018 Bornite Report”).
● On December 14, 2017, we announced that South32 has committed to fund the $10 million for the 2018 program and budget for the Bornite Project. The funds, which represented the second tranche of $10 million, maintained the South32 Option Agreement in good standing, and was fully received by Trilogy on January 24, 2018.
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History of Trilogy
Spin-Out
We were formerly a wholly-owned subsidiary of NovaGold Resources Inc. (“NovaGold”). At a special meeting of securityholders of NovaGold held on March 28, 2012, the securityholders voted in favour of a special resolution approving the distribution of Common Shares of Trilogy to the shareholders of NovaGold as a return of capital through a statutory Plan of Arrangement under the Companies Act (Nova Scotia).
On April 30, 2012, all of the outstanding Trilogy Common Shares were distributed to shareholders of NovaGold such that each NovaGold shareholder of record at the close of business on April 27, 2012 received one Trilogy Common Share for every six common shares in the capital of NovaGold held at that time. The Trilogy Common Shares were listed and posted for trading on the TSX and on the NYSE American (formerly the NYSE MKT) under its previous symbol, NCQ, and former name, NovaCopper Inc., on April 25, 2012.
Name Change
We changed our corporate name to Trilogy Metals Inc. from NovaCopper Inc. in 2016 to better reflect the diversity of minerals at our UKMP Projects. On September 8, 2016, upon the opening of the markets our shares began trading on the TSX and the NYSE American under the symbol “TMQ”.
Agreement with NANA Regional Corporation
On October 19, 2011, NANA Regional Corporation, Inc. (“NANA”), an Alaska Native Corporation headquartered in Kotzebue, Alaska, and Trilogy Metals US entered an Exploration Agreement and Option Agreement (as amended, the “NANA Agreement”) for the cooperative development of NANA’s respective resource interests in the Ambler mining district of Northwest Alaska. Upon the formation of Ambler Metals, the Company assigned its rights and obligations under the NANA Agreement to Ambler Metals. The NANA Agreement consolidates Ambler Metals’ and NANA’s land holdings into an approximately 142,831-hectare land package and provides a framework for the exploration and any future development of this high-grade and prospective poly-metallic belt.
The NANA Agreement grants Ambler Metals the nonexclusive right to enter on, and the exclusive right to explore, the Bornite lands and the Alaska Native Claims Settlement Act (“ANCSA”) lands (each as defined in the NANA Agreement) and in connection therewith, to construct and utilize temporary access roads, camps, airstrips and other incidental works. In consideration for this right, Trilogy Metals US previously paid to NANA $4 million in cash. Ambler Metals is also required to make payments to NANA for scholarship purposes in accordance with the terms of the NANA Agreement. Ambler Metals has further agreed to use reasonable commercial efforts to train and employ NANA shareholders to perform work for Ambler Metals in connection with its operations on the Bornite lands, ANCSA lands and Ambler lands (as defined in the NANA Agreement) (collectively, the “Lands”). The NANA Agreement has a term of 20 years, with an option in favour of Ambler Metals to extend the term for an additional 10 years. The NANA Agreement may be terminated by mutual agreement of the parties or by NANA if Ambler Metals does not meet certain expenditure requirements on the Bornite lands and ANCSA lands.
If, following receipt of a feasibility study and the release for public comment of a related draft environmental impact statement, Ambler Metals decides to proceed with construction of a mine on the Lands, Ambler Metals will notify NANA in writing and NANA will have 120 days to elect to either (a) exercise a non-transferrable back-in-right to acquire an undivided ownership interest between 16% and 25% (as specified by NANA) of that specific project; or (b) not exercise its back-in-right, and instead receive a net proceeds royalty equal to 15% of the net proceeds realized by Ambler Metals from such project (following the recoupment by Ambler Metals of all costs incurred, including operating, capital and carrying costs). The cost to exercise such back-in-right is equal to the percentage interest in the project multiplied by the difference between (i) all costs incurred by Ambler Metals or its affiliates on the project, including historical costs incurred prior to the date of the NANA Agreement together with interest on the costs; and (ii) $40 million (subject to
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exceptions). This amount will be payable by NANA to Ambler Metals in cash at the time the parties enter into a joint venture agreement and in no event will the amount be less than zero.
In the event that NANA elects to exercise its back-in-right, the parties will as soon as reasonably practicable form a joint venture, with NANA’s interest being between 16% to 25% and Ambler Metals owning the balance of the interest in the joint venture. Upon formation of the joint venture, the joint venture will assume all of the obligations of Ambler Metals and be entitled to all the benefits of Ambler Metals under the NANA Agreement in connection with the mine to be developed and the related Lands. A party’s failure to pay its proportionate share of costs in connection with the joint venture will result in dilution of its interest. Each party will have a right of first refusal over any proposed transfer of the other party’s interest in the joint venture other than to an affiliate or for the purposes of granting security. A transfer by either party of any net proceeds royalty interest in a project other than for financing purposes will also be subject to a first right of refusal. A transfer of NANA’s net smelter return on the Lands is subject to a first right of refusal by Ambler Metals.
In connection with possible development of a mine on the Bornite lands or ANCSA lands, Ambler Metals and NANA will execute a mining lease to allow Ambler Metals or the joint venture to construct and operate a mine on the Bornite lands or ANCSA lands. These leases will provide NANA a 2% net smelter royalty as to production from the Bornite lands and a 2.5% net smelter royalty as to production from the ANCSA lands. If Ambler Metals decides to proceed with construction of a mine on the Ambler lands, NANA will enter into a surface use agreement with Ambler Metals which will afford Ambler Metals access to the Ambler lands along routes approved by NANA on the Bornite lands or ANCSA lands. In consideration for the grant of such surface use rights, Ambler Metals will grant NANA a 1% net smelter royalty on production and an annual payment of $755 per acre (as adjusted for inflation each year beginning with the second anniversary of the effective date of the NANA Agreement and for each of the first 400 acres (and $100 for each additional acre) of the lands owned by NANA and used for access which are disturbed and not reclaimed.
Ambler Metals has formed an oversight committee with NANA, which consists of four representatives from each of Ambler Metals and NANA (the “Oversight Committee”). The Oversight Committee is responsible for certain planning and oversight matters carried out by us under the NANA Agreement. The planning and oversight matters that are the subject of the NANA Agreement will be determined by majority vote. The representatives of each of Ambler Metals and NANA attending a meeting will have one vote in the aggregate and in the event of a tie, the Ambler Metals representatives jointly shall have a deciding vote on all matters other than Subsistence Matters, as that term is defined in the NANA Agreement. There shall be no deciding vote on Subsistence Matters and Ambler Metals may not proceed with such matters unless approved by majority vote of the Oversight Committee or with the consent of NANA, such consent not to be unreasonably withheld or delayed.
Principal Markets
We do not currently have a principal market. Our principal objective is to become a producer of copper.
Specialized Skill and Knowledge
All aspects of our business require specialized skills and knowledge. Such skills and knowledge include the areas of geology, mining and accounting. See “ Executive Officers of Trilogy ” for details as to the specific skills and knowledge of our directors and management.
Environmental Protection
Mining is an extractive industry that impacts the environment. Along with our joint venture partner, South32, our goal is to evaluate ways to minimize that impact and to develop safe, responsible and profitable operations by developing natural resources for the benefit of our employees, shareholders and communities and maintain high standards for environmental performance at the UKMP Projects. We strive to meet or exceed environmental standards at the UKMP Projects. One way Ambler Metals does this is through collaborations with local communities in Alaska, including Native Alaskan groups. Ambler Metals’ environmental performance will be overseen at the Ambler-board and Trilogy-board
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level and environmental performance is the responsibility of the project manager. All new activities and operations will be managed for compliance with applicable laws and regulations. In the absence of regulation, best management practices will be applied to manage environmental risk. Furthermore, we will strive to limit releases to the air, land or water and appropriately treat and dispose of waste.
For a more detailed discussion of the various government laws and regulations applicable to our operations and potential negative effects of these laws and regulations, see Item 1A. Risk Factors , and Item 2 Properties, Environmental, Permitting, Social and Closure Considerations below .
Employees
As of November 30, 2020, we had 8 full-time employees, all of whom were employed at our executive office in Vancouver, BC. We have entered into executive employment agreements with the CEO and CFO (each as defined herein). In the past, the number of individuals we employed fluctuated throughout the year depending on the season; however, during 2020, we contributed the UKMP Projects to Ambler Metals and no longer directly employ any seasonal staff.
Information About Our Executive Officers
As of November 30, 2020, we had two executive officers, namely Tony Giardini and Elaine Sanders. The following information is presented as of November 30, 2020.
Name and Residence
Age
Held Office Since
Business Experience During Past Five Years
Tony Giardini
British Columbia, Canada
Director, President and Chief Executive Officer
61
June 1, 2020 (1)
Chief Executive Officer of Trilogy (2020 – present); President of Ivanhoe Mines Ltd. (May 2019 – March 2020); Chief Financial Officer of Kinross Gold Corporation (December 2012 - April 2019)
Elaine Sanders
British Columbia, Canada
VP, Chief Financial Officer and Corporate Secretary
51
January 30, 2012 (2)
Vice President and Chief Financial Officer of Trilogy (2012 – present); Corporate Secretary of Trilogy (2011 – present)
(1) Mr. Giardini was appointed President and Chief Executive Officer on June 1, 2020.
(2) Ms. Sanders was appointed Chief Financial Officer on January 30, 2012. She became a full-time employee of the Company on November 13, 2012.
Segment Information
The Company’s reportable segments are based on geographic region for the Company’s operations. Segment information relating to our assets is provided under the section heading “ Item 8. Financial Statements and Supplementary Data ” below.
Competitive Conditions
The mineral exploration and development industry is competitive in all phases of exploration, development and production. There is a high degree of competition faced by us in Alaska and elsewhere for skilled management employees, suitable contractors for drilling operations, technical and engineering resources, and necessary exploration and mining equipment, and many of these competitor companies have greater financial resources, operational expertise, and/or more advanced properties than us. Additionally, our operations are in a remote location where skilled resources and support services are limited. We have in place experienced management personnel and continue to evaluate the required expertise and skills to carry out our operations. As a result of this competition, we may be unable to achieve our exploration and development in the future on terms we consider acceptable or at all. See “ Item 1A. Risk Factors. ”
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Available Information
We make available, free of charge, on or through our website, at www.trilogymetals.com our Annual Report on Form 10-K, which includes our audited financial statements, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. The SEC maintains a website that contains reports, proxy and information statements, and other information at www.sec.gov. Our website and the information contained therein or connected thereto are not intended to be, and are not incorporated into this Annual Report on Form 10-K.