What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-07 compared with 2021-04-07 · 110 added, 80 removed, 186 unchanged (51% of the section changed)

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Management’s Discussion & Analysis

For the Quarter Ended February 28, 2021

For the Quarter Ended May 31, 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’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;

perceived merit of properties, exploration results and budgets, the Company and Ambler Metals’ 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;

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Trilogy Metals Inc.

For the Quarter Ended February 28, 2021

For the Quarter Ended May 31, 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;

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

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

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● risks related to our ability to commence production and generate material revenues or obtain adequate financing for our planned exploration and development activities;

● risks related to lack of infrastructure including but not limited to the risk whether or not the Ambler Mining District Industrial Access Project, or AMDIAP, will receive the requisite permits and, if it does, whether the Alaska Industrial Development and Export Authority will build the AMDIAP;

● risks related to lack of infrastructure including but not limited to the risk whether or not the Ambler Access Project, (formerly, Ambler Mining District Industrial Access Project, or AMDIAP), will receive all the requisite permits and, if it does, whether the Alaska Industrial Development and Export Authority will build the AMDIAP;

● risks related to inclement weather which may delay or hinder exploration activities at our mineral properties;

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● 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

For the Quarter Ended May 31, 2021

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

development of mineral properties, and related cost increases;

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● 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

For the Quarter Ended May 31, 2021

● 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;

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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 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.

(“Trilogy”, “Trilogy Metals”, “the Company” or “we”) is dated July 6, 2021 and provides an analysis of our unaudited interim financial results for the quarter ended May 31, 2021 compared to the quarter ended May 31, 2020.

The following information should be read in conjunction with our May 31, 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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All amounts are in United States dollars unless otherwise stated.

References to “Canadian dollars” and “C$” and “CDN$” are to the currency of Canada and references to “U.S.

References to “Canadian dollars” and “C$” and “CAD$” are to the currency of Canada and references to “U.S.

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

Richard Gosse, P.Geo., 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.

Richard Gosse, P.Geo., Vice President, Exploration of the Company, is a Qualified Person under National Instrument 43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”), and has approved the scientific and technical information in this MD&A.

Trilogy’s shares are listed on the Toronto Stock Exchange (“TSX”) and the NYSE American Stock Exchange (“NYSE American”) under the symbol “TMQ”.

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i) the Ambler lands which host the Arctic copper-zinc-lead-gold-silver project (the “Arctic Project”);

and ii) the Bornite lands being explored under a collaborative long-term agreement with NANA Regional Corporation, Inc.

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

and ii) the Bornite lands being explored under a collaborative long-term agreement with NANA Regional

Trilogy Metals Inc.

For the Quarter Ended February 28, 2021

For the Quarter Ended May 31, 2021

Corporation, Inc.

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

Project Activities

2021 Operating Budget for the Upper Kobuk Mineral Projects

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.

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

In a press release dated April 19, 2021, the Company announced that the Alaska Industrial Development and Export Authority (“AIDEA”) had formally approved the proposed plan and budget for the 2021 summer field season activities and services of up to $13 million for the Ambler Access Project (“AAP”).

The cost will be shared 50/50 by AIDEA and Ambler Metals.

The Board of AIDEA has authorized up to $6.5 million for field season activities.

These funds will be matched by up to another $6.5 million from Ambler Metals under the terms of the Ambler Access Development Agreement that was approved by the AIDEA Board on February 10, 2021 and subsequently executed by both parties, resulting in a total budget for 2021 of up to $13 million.

The AAP is a proposed 211-mile, east-west running controlled industrial access road that would provide industrial access to the Ambler Mining District in northwestern Alaska.

2021 Exploration Season for the Upper Kobuk Mineral Projects

In a press release dated May 17, 2021, the Company announced that Ambler Metals had finalized the details of the 2021 exploration field program at the UKMP for the previously approved $27 million exploration budget.

The exploration program is aligned with a strategy developed by the Company and South32 which prioritizes the exploration budget within the UKMP.

The strategy defines a program that advances the highest priority projects and exploration targets, both volcanogenic Massive Sulphide (“VMS”) and Carbonate-Hosted Copper (“CHC”), ranging from early-stage geophysical anomalies that were identified during the 2019 airborne Versatile Time Domain Electromagnetic (“VTEM”) survey to advanced VMS and CHC prospects with historical resources.

The site camp opened on June 1, 2021, and drilling has now commenced.

Arctic Project

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.

Exploration activities planned for the 2021 field season at the Arctic Project include geotechnical drilling (8 holes – 2,000 meters), conversion/metallurgical drilling (28 holes – 4,800 meters) and condemnation drilling (4 holes – 800 meters).

The condemnation drilling will target areas proximal to the Arctic Project that may host additional VMS-style mineralization but also provide condemnation information for the processing plant and tailings management facility.

The goal of this summer’s campaign at Arctic is to advance and de-risk the project so the joint venture partners can make a future construction decision.

In total, there is expected to be approximately 7,600 meters of drilling at Arctic during the summer campaign.

In addition, approximately 2,250 meters of drilling is planned for three high-priority target areas that are within 5 kilometers of the Arctic project.

Regional Exploration Project

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)

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

During the 2021 field season, Ambler Metals plans to focus approximately 2,900 meters of drilling on the three drill-ready VMS Belt prospects that have the best potential for shallow open-pit mineralization.

These targets consist of the Sunshine, Snow and Cliff prospects, all of which are within 30 km from the Arctic Project.

Ambler Metals plans to perform additional geological mapping and soil sampling at several other VMS prospects in the belt, including Ambler, Dead Creek, South Cliff and Nora, as well as at approximately 10 high-priority VTEM anomalies that were identified from the 2019 VTEM survey.

Included in the 2021 field season is exploration, including drilling, for carbonate-hosted copper-cobalt mineralization in the Cosmos Hills, host to the Bornite deposit, and along strike in the Ambler Lowlands.

Outside of exploration work on the Bornite deposit itself, the Cosmos Hills have not been systematically explored since historical work was carried out by Kennecott in the 1990s.

Mapping and soil sampling planned for 2021 cover an area approximately 10 kilometers in length, from the Aurora and Pardner Hill copper prospects in the west to Bornite East and will be used to define drill

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.

For the Quarter Ended May 31, 2021

targets for 2022.

The Ambler Lowlands form a 10-kilometer-wide glaciated valley separating Arctic and Bornite that is virtually unexplored despite its proximity to Bornite.

COVID Safety Measures

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

Corporate Developments

Annual General Meeting

The Annual General Meeting of shareholders was held on May 19, 2021.

At the Annual General Meeting, all directors nominated by the Company and standing for election were elected by shareholders of the Company, with each director receiving no less than 99.77% of the votes cast.

Joint Venture

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On February 11, 2020, Trilogy completed the formation of the 50/50 joint venture with South32.

Trilogy contributed all its assets associated with the 172,675-hectare UKMP, including the Arctic and Bornite Projects, while South32 contributed a subscription price of US$145 million (the “Subscription Price”), resulting in each party owning a 50% interest in Ambler Metals.

Trilogy contributed all its assets associated with the UKMP, including the Arctic and Bornite Projects, while South32 contributed a subscription price of US$145 million (the “Subscription Price”), resulting in each party owning a 50% interest in Ambler Metals.

The Subscription Price will be used to advance the Arctic and Bornite Projects, along with exploration in the Ambler mining district.

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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 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.

The loan has a 7-year maturity date, but Ambler Metals will begin to draw down on the loan with cash calls to South32 to fund its 50% share of the 2021 budget to advance development studies, resource drilling and regional exploration programs.

Our maximum exposure to loss in this entity is limited to the carrying amount of our investment in Ambler Metals, which, as of May 31, 2021, totaled $170 million.

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

The loan has a 7-year maturity date, but Ambler Metals has begun drawing

Trilogy Metals Inc.

For the Quarter Ended May 31, 2021

down on the loan with cash calls to South32 to fund its 50% share of the 2021 budget to advance development studies, resource drilling and regional exploration programs.

The loan is secured by South32’s membership interest in Ambler Metals and guaranteed by South32 International Investment Holdings Pty Ltd.

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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

February 28, 2021

February 29, 2020

Six months ended

Selected expenses

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Diluted earnings (loss) per common share

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.

For the three-month period ended May 31, 2021, Trilogy reported a net loss of $3.4 million (or $0.02 basic and diluted loss per common share).

For the comparable period in 2020, we reported a net loss of $3.0 million (or $0.02 basic and diluted loss per common share).

This second quarter difference is primarily due to a $1.1 million increase in our 50% pro rata share of Ambler Metals’ comprehensive loss.

This was offset by a one-time amount of $0.7 million in feasibility study costs incurred during the second quarter of 2020.

The share of loss in equity investment is higher versus the comparative period as the current quarter includes costs incurred to ready the camp for the 2021 field season.

These set up costs were not incurred in the comparative period as the 2020 field season had been cancelled due to the COVID-19 pandemic.

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.

i) a decrease in general and administrative expenses of $0.10 million primarily due to recruiting fees incurred in the comparative period for which there are no current period costs as well as the elimination of travel costs due to COVID-19 travel restrictions;

ii) an increase of $0.07 million in professional fees primarily driven by an increase of $0.12 million for geological consulting, offset by $0.04 million in savings for auditing and legal services as the comparative period included charges for new accounting standard implementation and joint venture set up;

iii) an increase of $0.18 million in salaries as the current period cost reflects additions to the executive team during the third quarter of 2020 for which there are no prior year second quarter comparatives;

and iv) a decrease of $0.30 million in stock-based compensation driven primarily by RSUs that vested during the second quarter of 2020, for which there are no current quarter comparatives.

For the six-month period ended May 31, 2021, Trilogy reported a net a loss of $7.9 million (or $0.05 basic and diluted loss per common share).

For the comparable period in 2020, we reported net earnings of $168 million (or $1.20 basic and $1.13 diluted earnings per common share).

The difference for the six-month period ended May 31, 2021, when compared to the same period in 2020, 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 variance is offset by $1.5 million of mineral property expenses and $0.7 million of feasibility study cost incurred during the comparable prior

Trilogy Metals Inc.

For the Quarter Ended February 28, 2021

For the Quarter Ended May 31, 2021

period for which there are no current period comparatives.

Furthermore, our share of loss on equity investment was $2 million higher for the six-month period ended May 31, 2021, and reflects costs incurred by Ambler Metals to ready the project site for the 2021 field season.

These set up costs were not incurred by Ambler Metals in 2020 as the field season was cancelled due to the COVID-19 pandemic.

Other variances noted for the comparative six-month period ended May 31, 2021 consist of:

i) a decrease of $0.3 million in general and administrative expenses, primarily due to additional stock exchange fees of $0.1 million as well as $0.2 million in recruiting fees incurred in the comparative prior year period;

ii) a decrease of $0.4 million in professional fees as the comparative period includes one-time charges for the implementation of new accounting standards and legal and accounting fees in relation to the formation of the joint venture;

iii) an increase of $0.4 million in salaries reflecting additions to the executive team during the third quarter of 2020;

iv) an increase of $0.7 million in stock-based compensation, driven primarily by a $1.0 million increase in stock based compensation due to a higher fair value per award (2021 -$0.97/option;

2021 - $0.65/option) and an increase in total awards vested during the period (2021 - 2.7 million;

2020 – 2.4 million), offset by a $0.3 million reduction in stock based compensation from DUSs that vested during the prior year comparative period.

Selected financial data

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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 second quarter of 2021, we reported a comprehensive loss of $3.4 million, which consisted of $1.7 million in operating expenses and $1.7 million for Trilogy’s 50% share of Ambler Metals’ operating loss.

In the second quarter of 2020, we recognized a comprehensive loss of $3.0 million which consisted of $2.5 million in operating expenses and $0.6 million for Trilogy’s share of Ambler Metals’ operating loss.

When compared to the second quarter of 2020, our pro rata share of the joint venture’s operating loss is $1.1 million higher for the second quarter of 2021.

The increase is due to camp set up costs in relation to the 2021 field season.

Ambler Metals did not incur these costs during the second quarter of 2020 due to the cancellation of the 2020 field season as a result of the COVID-19 pandemic.

The $0.8 million decrease in operating expenses for the current period versus the comparative was primarily due to the Arctic project feasibility study costs that were incurred by Trilogy during the second quarter of 2020 for which there are no current period comparatives.

Trilogy Metals Inc.

For the Quarter Ended May 31, 2021

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.

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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.

These cost savings were offset by a loss of $1.0 million on the equity method investment for which there is no comparative amounts 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.

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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 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 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.

At May 31, 2021, we had $8.4 million in cash and working capital of $8.1 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 the subscription price paid by South32 into Ambler Metals of $145 million is spent.

Contractual obligations

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

Contractually obligated undiscounted cash flow requirements as at May 31, 2021 are as follows.

In thousands of dollars

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Outstanding share data

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.

At July 6, 2021, we had 144,446,485 common shares issued and outstanding.

At July 6, 2021, we had outstanding, 11,123,316 stock options with a weighted-average exercise price of $1.98, no RSUs, as well as 1,265,275 DSUs and 11,927

Trilogy Metals Inc.

For the Quarter Ended May 31, 2021

NovaGold Resources Inc.

(“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 12,390,580 common shares.

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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.

recoverability of our equity method investment in Ambler Metals, income taxes and valuation of stock‐based compensation.

Impairment of Investment in Ambler Metals LLC

Management assesses the possibility of impairment in the carrying value of its equity method investment in Ambler Metals LLC whenever events or circumstances indicate that the carrying amount of the investment may not be recoverable.

Management assesses the possibility of impairment in the carrying value of its equity method investment in Ambler Metals whenever events or circumstances indicate that the carrying amount of the investment may not be recoverable.

Significant judgments are made in assessing the possibility of impairment.

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.

Factors that may be indicative of 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.

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Stock-based compensation

Compensation expense for options granted to employees, directors and certain service providers is determined based on estimated fair values of the options at the time of grant using the Black-Scholes option pricing model, which takes into account, as of the grant date, the fair market value of the shares, expected volatility, expected life, expected forfeiture rate, expected dividend yield and the risk-free interest rate over the expected life of the option.

The use of the Black-Scholes option pricing model requires input estimation of the expected life of the option, volatility, and forfeiture rate which can have a significant impact on the valuation model, and resulting expense recorded.

Compensation expense for options granted to employees, directors and certain service providers is determined based on estimated fair values of the options at the time of grant using the Black-Scholes option pricing model, which considers, as of the grant date, the fair market value of the shares, expected volatility, expected life, expected forfeiture rate, expected dividend yield and the risk-free interest rate over the expected life of the option.

The use of the Black-Scholes

Trilogy Metals Inc.

For the Quarter Ended May 31, 2021

option pricing model requires input estimation of the expected life of the option, volatility, and forfeiture rate which can have a significant impact on the valuation model, and resulting expense recorded.

Additional information

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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