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Item 2. Management’s Discussion and Analysis

2021-04-07 compared with 2020-10-07 · 115 added, 141 removed, 151 unchanged (63% of the section changed)

2 unchanged sentences

Management’s Discussion & Analysis

For the Third Quarter Ended August 31, 2020

For the Quarter Ended February 28, 2021

(expressed in US dollars)

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These forward-looking statements may include statements regarding the Company’s work programs and budgets;

perceived merit of properties, exploration results and budgets, the Company and Ambler Metals LLC’s funding requirements, 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, sufficiency of the $145 million subscription price to fund the UKMP (as defined below) through feasibility and the permitting of the first mine;

perceived merit of properties, exploration results and budgets, the Company and Ambler Metals’s funding requirements, 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, sufficiency of the $145 million subscription price to fund the UKMP;

impact of COVID-19 on the Company’s operations;

market prices for precious and base metals;

the timing of the feasibility study on the Arctic project;

timing of the issuance of the Record of Decision by the BLM (as defined below) and the issuance of the Clean Water Act (CWA) Section 404 permit from the United States Army Corp.

of Engineers, or other statements that are not statements of fact.

statements regarding the Ambler Road 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.

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● our expected ability to develop adequate infrastructure and that the cost of doing so will be reasonable;

● continued good relationships with South32 Limited (“South32”), our joint venture partner, as well as local communities and other stakeholders;

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

For the Quarter Ended February 28, 2021

● continued good relationships with South32 Limited (‘South32”), our joint venture partner, as well as local communities and other stakeholders;

● there being no significant disruptions affecting operations, whether relating to labor, supply, power damage to equipment or other matter;

● expected trends and specific assumptions regarding metal prices and currency exchange rates;

● the potential impact of the novel coronavirus (COVID-19);

● prices for and availability of fuel, electricity, parts and equipment and other key supplies remaining consistent with current levels.

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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:

● risks related to the COVID-19 pandemic;

● risks related to inability to define proven and probable reserves;

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● risks related to our dependence on a third party for the development of our projects;

● none of the Company’s mineral properties are in production or are under development;

● commodity price fluctuations;

● uncertainty related to title to our mineral properties;

● our history of losses and expectation of future losses;

● risks related to increases in demand for equipment, skilled labor and services needed for exploration and

Trilogy Metals Inc.

For the Quarter Ended February 28, 2021

development of mineral properties, and related cost increases;

● uncertainties relating to the assumptions underlying our resource estimates, such as metal pricing, metallurgy, mineability, marketability and operating and capital costs;

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● mining and development risks, including risks related to infrastructure, accidents, equipment breakdowns, labor disputes or other unanticipated difficulties with or interruptions in development, construction or production;

● risks related to market events and general economic conditions;

● risks related to the outbreak of the coronavirus (COVID-19);

● risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of our mineral deposits;

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● risks related to the need for reclamation activities on our properties and uncertainty of cost estimates related thereto;

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

● uncertainty related to title to our mineral properties;

● risks related to the acquisition and integration of operations or projects;

● risks related to increases in demand for equipment, skilled labor and services needed for exploration and development of mineral properties, and related cost increases;

● our need to attract and retain qualified management and technical personnel;

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● risks related to potential future litigation;

● risks related to market events and general economic conditions;

● risks related to future sales or issuances of equity securities decreasing the value of existing Trilogy common

shares, diluting voting power and reducing future earnings per share;

● risks related to the voting power of our major shareholders and the impact that a sale by such shareholders may have on our share price;

● risks related to global climate change;

● risks related to adverse publicity from non-governmental organizations;

● uncertainty as to our ability to maintain the adequacy of internal control over financial reporting as per the requirements of Section 404 of the Sarbanes-Oxley Act;

● increased regulatory compliance costs, associated with rules and regulations promulgated by the United States Securities and Exchange Commission, Canadian Securities Administrators, the NYSE American, the Toronto Stock Exchange, and the Financial Accounting Standards Boards, and more specifically, our efforts to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act;

● uncertainty as to the volatility in the price of the Company’s common shares;

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shareholders should the Company be a passive foreign investment company;

● risks related to global climate change;

● risks related to adverse publicity from non-governmental organizations;

● uncertainty as to our ability to maintain the adequacy of internal control over financial reporting as per the requirements of Section 404 of the Sarbanes-Oxley Act;

Trilogy Metals Inc.

For the Quarter Ended February 28, 2021

This list is not exhaustive of the factors that may affect any of the Company’s forward-looking statements.

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This Management’s Discussion and Analysis (“MD&A”) of Trilogy Metals Inc.

(“Trilogy”, “Trilogy Metals”, “the Company” or “we”) is dated October 6, 2020 and provides an analysis of our unaudited interim financial results for the quarter ended August 31, 2020 compared to the quarter ended August 31, 2019.

The following information should be read in conjunction with our August 31, 2020 unaudited interim condensed consolidated financial statements and related notes which were prepared in accordance with United States generally accepted accounting principles (“U.S.

(“Trilogy”, “Trilogy Metals”, “the Company” or “we”) is dated April 6, 2021 and provides an analysis of our unaudited interim financial results for the quarter ended February 28, 2021 compared to the quarter ended February 29, 2020.

The following information should be read in conjunction with our February 28, 2021 unaudited interim condensed consolidated financial statements and related notes which were prepared in accordance with United States generally accepted accounting principles (“U.S.

The MD&A should also be read in conjunction with our audited consolidated financial statements and related notes for the year ended November 30, 2020.

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dollars”, “$” or “US$” are to the currency of the United States.

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Richard Gosse, P.Geo., 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.

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(“NANA”), a regional Alaska Native Corporation, which hosts the Bornite carbonate-hosted copper project (the “Bornite Project”) and related assets.

Trilogy Metals Inc.

For the Quarter Ended February 28, 2021

Project Activities

Deferral of the 2020 Summer Exploration Programs at the UKMP

Through Ambler Metals, we and our joint venture partner, South32 decided not to proceed with the 2020 exploration program after assessing the current novel coronavirus (COVID-19) environment.

Ambler Metals gave due consideration to the merits of carrying out an abridged work program at the UKMP.

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.

We are disappointed at having to defer the 2020 exploration program as we know this delay affects all stakeholders, including our partner NANA and our NANA shareholder hires.

However, the safety of our employees, contractors and the communities where we work is paramount.

2021 Operating Budget for the Upper Kobuk Mineral Projects

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.

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 Volcanogenic Massive Sulphide (“VMS”) Belt and geological mapping and geochemical soil sampling at the Bornite Project.

However, due to the Coronavirus outbreak, the drilling programs were deferred, see “Deferral of the 2020 Summer Exploration Programs at the UKMP” above and “Impact of Coronavirus (COVID-19)” below.

Project activities during the third quarter consisted of non-drilling and off-site activities described below.

In a press release dated November 19, 2020, the Company announced that Ambler Metals had approved a 2021 program budget of approximately $27 million for the advancement of the UKMP.

The budget is to be 100% funded by Ambler Metals.

The 2021 program budget includes 7,600 meters of infill and metallurgical drilling at the Arctic Project, 7,000 meters of exploration drilling within the Ambler Volcanogenic Massive Sulphide (“VMS”) Belt, geological and engineering work focused on getting the Arctic Project ready for permitting and permitting efforts focused on submission of the Federal 404 permit application in the second half of 2021.

COVID Safety Measures

During the 2021 field season, we will be adhering to a strict COVID safety protocol regime which includes limited personnel rotations, COVID-19 testing, stringent sanitation and disinfection procedures and contact tracing.

These protocols will be followed throughout the summer field season in strict observance to Government of Alaska guidelines.

Arctic Project

During the third quarter, the Company updated the geologic model for the Arctic Project and focused mainly on refining the 2020 Arctic resource and metallurgical drill program for resource definition and variability testing.

In addition, a conditional simulation for the Arctic resource to optimize drill spacing for the conversion of resources to the measured category and to upgrade the talc model and Life of Mine Plan was initiated with Golder and Associates.

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Arctic Project Feasibility Results

In a press release dated August 20, 2020, the Company announced the positive results of its feasibility study (“FS”) for the Arctic Project.

The FS was prepared on a 100% ownership basis, of which Trilogy’s share is 50%.

The 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.

Bornite Project

The Bornite geologic model was updated during the third quarter incorporating the 2019 drill program results.

A machine learning geochemical modelling project to assist in defining the controls on high-grade copper mineralization was initiated during the third quarter with the Irish Centre for Research in Applied Geosciences.

Metallurgical work continued during the third quarter on five composite samples from the below-pit Bornite resource area.

Test work is ongoing and will continue through the fourth quarter.

Activities at the Arctic Project will focus on an additional 7,600 meters of drilling which will have the dual purpose of extracting additional material for metallurgical work and for the conversion of mineral resources into the measured category.

The metallurgical program that is associated with this drilling will support variability test work and pilot plant work which will commence later in 2021.

Engineering work is continuing at Arctic with the aim of submitting the application for the Notice of Intent for the 404 Dredge and Fill Permit, which is covered by the Clean Water Act, to the United States Army Corps of Engineers.

Regional Exploration Project

Regional project activities during the third quarter consisted mainly of updating the Sunshine prospect geologic model with the 2019 drill results.

Metallurgical work continued during the third quarter on five composite samples from the Sunshine prospect.

Test work is ongoing and will continue through the fourth quarter.

Multispectral WorldView-3 satellite imagery was collected over the central portion of the Ambler VMS Belt during the third quarter.

Processing and interpretation of the imagery will be completed during the fourth quarter.

Following up from the 2019 work performed along the 100-kilometer Ambler VMS belt, Ambler Metals will continue exploration efforts along the belt and around Bornite to discover and define additional deposits.

During the 2021 field season, Ambler Metals plans to conduct a 7,000-meter regional exploration drill campaign at drill-ready targets.

In addition, detailed geologic mapping, geochemical soil sampling and possibly ground geophysics is planned.

Ambler Mining District Industrial Access Project (AMDIAP)

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.

On January 6, 2021, the United States Bureau of Land Management (“BLM”), the National Park Service (“NPS”) and the Alaska Industrial Development and Export Authority (“AIDEA”) signed Right-of-Way agreements giving AIDEA the ability to cross federally owned and managed lands along the route for the Ambler Road Project approved in the Joint Record of Decision.

The agreements grant a 50-year right-of-way on federally owned and managed land by the federal agencies for the future development of the Ambler Mining District Industrial Access Road.

The authorizing documents with the two agencies are the final federal permits required for the Ambler Road Project.

Development Funding Agreement with the Alaska Industrial Development and Export Authority (AIDEA)

In a press release dated February 11, 2021, the Company announced its approval for Ambler Metals to enter into an Ambler Access Development Agreement (the “Development Agreement”) with AIDEA.

The Development Agreement defines how AIDEA and Ambler Metals will work cooperatively together on the pre-development work for the Ambler Access Project to address funding and oversight of the project’s feasibility and permitting activities until the parties reach a decision on the construction of the project by the end of 2024 at the latest.

The cost of the pre-development work and activities will be paid 50% by AIDEA and 50% by Ambler Metals based on an

Trilogy Metals Inc.

For the Quarter Ended February 28, 2021

annually agreed program and budget.

Under the Development Agreement, Ambler Metals and AIDEA agree to contribute up to $35 million each for pre-development costs of the Ambler Access Project through December 31, 2024.

Joint Venture

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With Ambler Metals being well funded, with access to $145 million, Trilogy does not expect to fund programs and budgets to advance the UKMP until the Subscription Price is spent by Ambler Metals.

To assist Ambler Metals during the initial set up phase, Trilogy is paying all of Ambler Metals’ invoices and being reimbursed pursuant to a services agreement (the “Services Agreement”) until the back office is fully transitioned to a new team employed by Ambler Metals, which will be no longer than the end of the year.

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

To assist Ambler Metals during the initial set up phase, Trilogy paid all of Ambler Metals’ invoices and was being reimbursed pursuant to a services agreement (the “Services Agreement”) until the back office was fully transitioned to a new team employed by Ambler Metals.

The Services Agreement ended on December 31, 2020.

Ambler Metals is an independently operated company 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.

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

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, 2020, totaled $174 million as well as $106,000 of amounts receivable per a Service Agreement between Trilogy and Ambler Metals.

The amounts receivable as at August 31, 2020 was subsequently collected.

Our maximum exposure to loss in this entity is limited to the carrying amount of our investment in Ambler Metals, which, as of February 28, 2021, totaled $172 million.

During the three-month period ended May 31, 2020, Ambler Metals loaned $57.5 million back to South32 and retained $87.5 million.

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Once the full amount of the Subscription Price payment of $145 million is expended, the parties will contribute funding pro rata, as contemplated by the operating agreement which governs Ambler Metals.

Trilogy Metals Inc.

For the Quarter Ended February 28, 2021

Summary of results

in thousands of dollars,

except for per share amounts

Three months ended

Nine months ended

August 31, 2020

August 31, 2019

August 31, 2020

August 31, 2019

February 28, 2021

February 29, 2020

Selected expenses

Mineral properties and feasibility study expenses

General and administrative

Mineral properties expense

Feasibility study

Investor relations

Professional fees

Salaries – stock-based compensation

Investor relations

Gain on derecognition of assets contributed to joint venture

Equity in investee

Comprehensive earnings (loss) for the period

Share of loss on equity investment

Comprehensive earnings (loss) for the year

Basic earnings (loss) per common share

Diluted earnings (loss) per common share

For the three months ended August 31, 2020, Trilogy reported a loss of $3.2 million (or $0.02 basic and diluted loss per common share).

For the comparable period in 2019, we reported a net loss of $12.5 million (or $0.09 basic and diluted loss per common share).

The decrease in comprehensive loss is primarily due to the elimination of mineral properties expense as these expenditures became the responsibility of Ambler Metals subsequent to the formation of the joint venture with South32 on February 11, 2020.

For the three-month period ended August 31, 2019, for which there are no current period comparatives, Trilogy spent $11 million in mineral properties expense, mostly consisting of drilling costs for the Bornite,

For the three months ended February 28, 2021, Trilogy reported net loss of $4.5 million (or $0.03 basic and diluted loss per common share).

For the comparable period in 2020, we reported net earnings of $171 million (or $1.22 basic and $1.16 diluted earnings per common share).

This first quarter difference is primarily due to the $176 million gain on derecognition of mineral property assets contributed to Ambler Metals upon formation of the joint venture on February 11, 2020.

This is offset by $1.5 million of mineral property expenses incurred during the first quarter of 2020.

Furthermore, our share of loss in equity in investment is $0.94 million higher in the current quarter as the comparative does not include a full quarter of costs for the equity pick up;

it reflects our pro rata 50% share of Ambler’s net loss from the formation of the joint venture on February 11, 2020 through to the end of the quarter on February 29, 2020.

Other variances noted for the comparable period were:

i) a decrease in general and administrative expenses of $0.3 million, primarily due to $0.1 million in travel cost savings (due to COVID-19 travel restrictions), additional regulatory fees of $0.1 million included in the comparative quarter as well as $0.1 million recruiting fees incurred in the comparative period for which there is no current period cost;

ii) a decrease of $0.4 million in professional fees as the comparative period includes charges for the research and implementation of new accounting standards and legal and accounting fees in relation to the formation and valuation of the joint venture, all of which do not have a current period comparative;

iii) an increase of $0.2 million in salaries is due to the addition of management during the second half of the prior year, for which there is no prior year first quarter comparative;

iv) an increase of $1 million in stock-based compensation driven primarily by a 0.9 million increase in the number of stock options that were granted and vested during the first quarter of 2021 versus the comparative period.

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Arctic and Regional Projects, project support costs such as camp operations, fixed wing charters and helicopters for the field season, and engineering and environment studies for the Arctic Project.

Other variances in relation to the comparative three-month period ended August 31, 2020 consists of the following:

i) feasibility study expenses of $0.2 million were related to the Arctic Project, and include costs incurred subsequent to the formation of Ambler Metals on February 11, 2020;

ii) share of loss in equity investment in Ambler Metals of $1.1 million, which do not exist in the comparable third quarter of 2019;

iii) a decrease of $0.1 million in salaries as CEO compensation that was salary based in the comparative period is stock based in the current period;

iv) a decrease of $0.2 million in professional fees primarily due to lower legal fees;

v) a decrease of $0.2 million in general and administrative expenses primarily due to lower travel cost imposed by COVID-19 restrictions;

and vi) an increase of $0.7 million in stock-based compensation due to 1.8 million more options being granted during the current quarter versus the comparative period.

For the nine-month period ended August 31, 2020, Trilogy reported comprehensive earnings of $165 million (or $1.17 basic and $1.12 diluted earnings per common share).

For the comparable period in 2019, we reported a comprehensive loss of $21.3 million (or $0.16 basic and diluted loss per common share).

The differences for the nine-month period ended August 31, 2020, when compared to the same period in 2019, are primarily due to the gain of $176 million recognized from the contribution of mineral property assets to the joint venture with South32 upon formation of the Ambler Metals on February 11, 2020.

This gain was offset by a $1.8 million loss reflecting the Company’s 50% equity share of Ambler Metals operating loss for the nine-month period ended August 31, 2020.

There is no comparable amount in the third quarter of 2019.

Other variances noted for the comparative nine-month period ended August 31, 2020 consist of the following:

i) a decrease in mineral properties expenses of $13.9 million as all mineral property assets were contributed to Ambler Metals upon formation of the joint venture on February 11, 2020;

ii) feasibility study expenses of $1.0 million for the Arctic project incurred subsequent to the joint venture formation;

iii) an increase of $0.4 million in professional fees primarily attributed to the implementation of new lease accounting standards and legal fees related to the formation of the joint venture;

and iv) a decrease of $0.2 million in salaries due to the inclusion of CEO salaries in stock based compensation.

For the Quarter Ended February 28, 2021

Selected financial data

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Interest and other income

Mineral property expenses

Mineral properties and feasibility study expenses

Share of loss on equity investment

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Factors that can cause fluctuations in our quarterly results include the length of the exploration field season at the properties, the type of program conducted, stock option vesting, and issuance of shares.

Other factors that have caused fluctuations in the quarterly results that would not be expected to re-occur include the acquisition and disposition of assets and financing activities.

Subsequent to the formation

of the Joint Venture on February 11, 2020, project related costs may cause fluctuations in our quarterly results through our 50% share of the Joint Venture’s net operating loss.

For the first quarter of 2021, we reported comprehensive loss of $4.5 million, which consists of $3.4 million in operating expenses and $1.1 million for Trilogy’s 50% share of Ambler Metals’ operating loss.

In the first quarter of 2020, we recognized a gain of $176 million from the contribution of our Alaskan mineral properties to the joint venture for which there is no current period comparative.

Other variances, when compared to the three-month period ended February 29, 2020, include our pro rata share of the joint venture’s operating loss, which is $0.9 million higher in the current period and operating expenses, which are $1.1 million lower for the current period.

The decrease in the operating expenses is primarily due to the elimination of $1.5 million in mineral properties expenses as the mineral properties were contributed to the joint venture during the first quarter of 2020 and a cost savings of $0.4 million from professional fees, offset by an increase of $1.0 million in stock-based compensation.

For the fourth quarter ended November 30, 2020, we incurred a loss of $3.2 million, which consists of $3.1 million in operating expense and $1.0 million for Trilogy’s share of Ambler Metals’ operating loss.

When compared to the fourth quarter of 2019, the operating expenses were $3.5 million lower.

The decrease is primarily due to the elimination of $3.8 million in mineral property expenses, a decrease of $0.4 million in professional fees, $0.3 million lower stock‐based compensation and a decrease of $0.2 million in general and administrative expenses.

These cost savings were offset by a loss of $1.0 million on the equity method investment for which there is no comparatives for the fourth quarter of 2019, and an increase of $0.3 million in salaries due to new hires to the management team in the fourth quarter 2020.

For the third quarter ended August 31, 2020, we reported a comprehensive loss of $3.2 million, which consists of $2.1 million in operating expenses and $1.1 million for Trilogy’s 50% share of Ambler Metals’ operating loss.

When compared to the three-month period ended August 31, 2019, the operating expenses for the third quarter was $10.6 million lower.

The decrease is primarily due to the elimination of $11 million in mineral properties expenses due to the formation of the joint venture for which there are no comparable expenses in the third quarter of 2020, offset by $1 million in feasibility study costs in the same period.

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

For the three-month period ended August 31, 2020, we reported a comprehensive loss of $3.2 million, which consists of $2.1 million in operating expenses and $1.1 million for Trilogy’s 50% share of Ambler Metals’ operating loss.

When compared to the three-month period ended August 31, 2019, the current period operating expenses was $10.6 million lower.

The decrease is primarily due to the elimination of $11 million in mineral properties expenses due to the formation of the joint venture, for which there are no comparable expenses in the current period, offset by $1 million in feasibility study costs in the current period.

For the three-month period ended May 31, 2020, we reported a comprehensive loss of $3.0 million, which consists of $2.4 million in operating expenses and $0.6 million for Trilogy’s 50% share of Ambler Metals’ operating loss.

There is no prior period comparative for the pro rata share of Ambler Metals operating loss as the joint venture formation was completed during fiscal 2020.

When compared to the three-month period ended May 31, 2019, the operating expenses for the second quarter of current year was $2.1 million lower.

The decrease is primarily due to the elimination of $2.9 million of mineral properties expense for which there are no comparable expenses for the same quarter in the 2019 period, offset by $0.7 million in feasibility study costs in the second quarter of 2020.

For the first quarter of 2020, we reported comprehensive earnings of $171 million which consisted of a gain of $176 million arising from the derecognition of our Alaskan mineral properties upon contribution to the joint venture with South32, offset by Trilogy’s 50% share of Ambler Metals’ operating loss for the period from February 11, 2020 to February 29, 2020 and total expenses of $4.5 million for the period.

There are no prior period comparatives for the gain on contribution of Alaskan assets or the pro rata share of Ambler Metals’ operating loss.

The expense of $4.4 million incurred for the first quarter of 2020 was slightly higher than the loss of $4.3 million for the first quarter of 2019 primarily due to higher professional fees, general and administrative expense, share of loss on equity investment offset by a lower stock-based compensation cost.

The loss of $6.5 million for the fourth quarter ended November 30, 2019 is higher when compared to the net loss of $5.3 million incurred in the fourth quarter ended November 30, 2018.

The primary drivers for the difference were $0.7 million higher stock-based compensation, $0.6 million higher professional fees and $0.1 million increase in general and administrative expenses, all offset by $0.2 million in decreased salaries and benefits in the fourth quarter 2019.

For the Quarter Ended February 28, 2021

For the second quarter ended May 31, 2020, we reported a comprehensive loss of $3.0 million, which consists of $2.4 million in operating expenses and $0.6 million for Trilogy’s 50% share of Ambler Metals’ operating loss.

There is no prior period comparative for our pro rata share of Ambler Metals’ operating loss as the joint venture formation was completed during fiscal 2020.

When compared to the three-month period ended May 31, 2019, the operating expenses for the second quarter of 2020 was $2.1 million lower.

The decrease is primarily due to the elimination of $2.9 million of mineral properties expense, offset by $0.7 million in feasibility study costs incurred in the second quarter of 2020.

Liquidity and capital resources

At August 31, 2020, we had $12.8 million in cash and cash equivalents and working capital of $11.8 million, which is sufficient to fund our ongoing operations for at least the next 12 months.

At February 28, 2021, we had $9.6 million in cash and cash equivalents and working capital of $9.2 million, which is sufficient to fund our ongoing operations for at least the next 12 months.

The projects are fully funded by Ambler Metals and we do not anticipate needing to fund our 50% share of future expenditures to advance the projects until Ambler Metals’ $145 million is spent.

Contractual obligations

Contractual obligated undiscounted cash flow requirements as at August 31, 2020 are as follows.

Contractual obligated undiscounted cash flow requirements as at February 28, 2021 are as follows.

In thousands of dollars

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We have no material off-balance sheet arrangements.

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Outstanding share data

At October 6, 2020, we had 143,004,178 common shares issued and outstanding.

At October 6, 2020, we had outstanding, 9,952,500 stock options with a weighted-average exercise price of $1.62, no RSUs, as well as 1,221,262 DSUs and 11,927 NovaGold DSUs for which the holder is entitled to receive one common share for every six NovaGold shares received.

At April 6, 2021, we had 144,292,774 common shares issued and outstanding.

At April 6, 2021, we had outstanding, 11,404,650 stock options with a weighted-average exercise price of $1.93, no RSUs, as well as 1,251,726 DSUs and 11,927 NovaGold DSUs for which the holder is entitled to receive one common share for every six NovaGold shares received.

Upon exercise of all the foregoing convertible securities, the Company would be required to issue an aggregate of 12,658,364 common shares.

New accounting pronouncements

Certain recent accounting pronouncements have been included under note 2 in our August 31, 2020 unaudited interim consolidated financial statements

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 capitalized mineral properties, impairment of long-lived assets, equity method investment, income taxes and valuation of stock-based compensation.

Mineral properties and development costs

All direct costs related to the acquisition of mineral property interests are capitalized.

The acquisition of title to mineral properties is a complicated and uncertain process.

The Company has taken steps, in accordance with industry standards, to verify the title to mineral properties in which it has an interest.

Although the Company has made efforts to ensure that legal title to its mining assets is properly recorded, there can be no assurance that such title will be secured indefinitely.

Impairment of long-lived assets

Management assesses the possibility of impairment in the carrying value of its long-lived assets whenever events or circumstances indicate that the carrying amounts of the asset or asset group may not be recoverable.

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 LLC, 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 LLC whenever events or circumstances indicate that the carrying amount of the investment may not be recoverable.

Significant judgments are made in assessing the possibility of impairment.

Management considers several factors in considering if an indicator of impairment has occurred, including but not limited to, indications of value from external sources, significant changes in the legal, business or regulatory environment, and adverse changes in the use of physical condition of the asset.

Factors that may be indicative of

Trilogy Metals Inc.

For the Quarter Ended February 28, 2021

an impairment include a loss in the value of an investment that is not temporary.

Management considers several factors in considering if an indicator of impairment has occurred, including but not limited to, significant changes in the legal, business or regulatory environment, adverse changes in the use or physical condition of the underlying mineral properties asset, changes in the market interest rates or other market rates of return that are likely to significantly affect the discount rate used in the impairment assessment, significant adverse changes impacting the investee and internal reporting indicating the economic performance of an investment is, or will be, worse than expected.

These factors are subjective and require consideration at each period end.

If an indicator of impairment is determined to exist, management calculates the estimated undiscounted future net cash flows relating to the asset or asset group using estimated future prices, mineral resources, and operating, capital and reclamation costs.

When the carrying value of an asset exceeds the related undiscounted cash flows, the asset is written down to its estimated fair value, which is usually determined using discounted future cash flows.

Management’s estimates of mineral prices, mineral resources, foreign exchange rates, production levels and operating capital and reclamation costs are subject to risk and uncertainties that may affect the determination of the recoverability of the long-lived asset.

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.

If an indicator of impairment is determined

to exist, the fair value of the impaired investment is determined based on the valuation of cohort companies with similar projects or upon the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and observed market earnings multiples of comparable companies.

Management’s estimates of mineral prices, mineral resources, foreign exchange rates and projected future production

levels and operating capital are subject to risk and uncertainties that may affect the determination of the recoverability

of the equity method investment.

We must make estimates and judgments in determining the provision for income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized charges including interest and penalties.

We are subject to income tax law in the United States and Canada.

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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.

Trilogy Metals Inc.

For the Quarter Ended August 31, 2020

Stock-based compensation

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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.

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 Ambler Metals.

We identified Ambler Metals as a Variable Interest Entity (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.

Ambler Metals 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 copper price, 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.

Additional information

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Information contained on our website is not incorporated by reference.

Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Trilogy Metals Inc.

For the Quarter Ended February 28, 2021

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 2. Management’s Discussion and Analysis