What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-05 compared with 2021-07-07 · 124 added, 121 removed, 175 unchanged (58% of the section changed)

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Management’s Discussion & Analysis

For the Quarter Ended May 31, 2021

For the Quarter Ended August 31, 2021

(expressed in US dollars)

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Trilogy Metals Inc.

For the Quarter Ended May 31, 2021

For the Quarter Ended August 31, 2021

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

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● 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 relating to ongoing litigation regarding the AMDIAP;

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

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● uncertainty related to title to our mineral properties;

● our history of losses and expectation of future losses;

Trilogy Metals Inc.

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;

For the Quarter Ended August 31, 2021

● 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 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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● 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 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;

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Trilogy Metals Inc.

For the Quarter Ended May 31, 2021

For the Quarter Ended August 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;

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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 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.

(“Trilogy”, “Trilogy Metals”, “the Company” or “we”) is dated October 4, 2021 and provides an analysis of our unaudited interim financial results for the quarter ended August 31, 2021 compared to the quarter ended August 31, 2020.

The following information should be read in conjunction with our August 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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Description of business

We are a base metals exploration company focused on the exploration and development of mineral properties, through our equity investee, in the Ambler mining district located in Alaska, U.S.A.

We conduct our operations through a wholly owned subsidiary, NovaCopper US Inc.

We are a base metals exploration company focused on the exploration and development of mineral properties located in Alaska, U.S.A.

We conduct our joint venture operations through a wholly owned subsidiary, NovaCopper US Inc.

which is doing business as Trilogy Metals US (“Trilogy Metals US”).

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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

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

(“NANA”), a regional Alaska Native

Trilogy Metals Inc.

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

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.

For the Quarter Ended August 31, 2021

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

We also conduct early-stage exploration through a wholly owned subsidiary, 995 Exploration Inc.

Joint venture project activities

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 exploration program was 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.

The exploration camp opened in May in preparation for the start-up of drilling in June at the Arctic Project.

The drilling program planned for 7,600 meters of drilling at Arctic with most of the drilling targeting infill areas to improve the confidence of the mineral resources, and geotechnical and metallurgical drill holes to further de-risk the project.

An additional 7,000 meters of exploration drilling was planned at targets near the Arctic deposit and elsewhere in the Ambler Mining District.

Drilling productivity at the project was behind schedule during the quarter due to adverse weather conditions in the district and challenges with the contractor staffing the drill rigs.

As a result, a total of 7,325 meters of the originally planned drill program were completed.

Despite the lower-than-expected drill productivity, all planned geotechnical drilling at the Arctic Project was completed and sufficient mineralized material was recovered to complete the planned metallurgical program.

The summer 2021 drill program was completed on September 22, 2021.

Arctic Project

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.

Technical activities at the Arctic Project commenced in early June with initial work focused on infill drilling to further improve the confidence of the mineral resources from the “indicated” to “measured” category.

In addition, metallurgical drilling was conducted at the project.

Most of this drilling has consisted of large diameter PQ-size (96-mm diameter) core which allows for the extraction of large sample-sized material.

During the field season a total of 18 holes were completed at Arctic comprising 4,131 meters of core.

All the core has been logged and sampled with results expected to be announced later this year.

Regional Exploration Project

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

During the quarter, two drill rigs were relocated from the Arctic Project to the Regional drilling program.

Regional drilling was focused on near Arctic (“Arctic Hub”) exploration targets, with the goal of discovering nearby copper-rich satellite deposits within a 3-to-5-kilometer radius of the Arctic deposit.

Drilling was completed at the Arctic East and Southeast Arctic targets before moving drills to investigate other targets within the UKMP, including Snow and the Ambler Lowlands.

During the field season a total of 8 holes were completed totaling 3,194 meters.

Core samples are being logged and sent for assaying with results expected later this year.

In addition to the regional drill program, regional geological mapping and soil geochemistry surveys within the Ambler VMS belt and Cosmos Hills was carried out during the quarter.

The goal of this program has been to follow-up on previous

Trilogy Metals Inc.

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

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.

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

Option agreement

On April 10, 2017, Trilogy and Trilogy Metals US entered into an Option Agreement to form a Joint Venture with South32 Group Operations Pty Ltd., a wholly-owned subsidiary of South32, which agreement was later assigned by South32 Operations Pty Ltd.

to its affiliate, South32 USA Exploration Inc.

on the UKMP (“Option Agreement”).

Under the terms of the Option Agreement, as amended, Trilogy Metals US granted South32 the right to form a 50/50 joint venture to hold all of Trilogy Metals US’ Alaskan assets.

South32 exercised its option on December 19, 2019.

Formation of joint venture

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

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.

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 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.

All significant decisions related to the UKMP require the approval of both companies.

We determined that Ambler Metals is a variable interest entity, or VIE, because it is expected to need additional funding from its owners for its significant activities.

However, we concluded that we are not the primary beneficiary of Ambler Metals as the power to direct its activities, through its board, is shared under the limited liability company agreement.

As we have significant influence over Ambler Metals through our representation on its board, we use the equity method of accounting for our investment in Ambler Metals.

Our 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 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

For the Quarter Ended August 31, 2021

anomalous geochemical results and to investigate geophysical anomalies that were identified during the 2019 airborne VTEM survey.

Arctic Mine Permitting

Arctic mine permitting preparation work was ongoing during the quarter for the filing of the Notice of Intent (“NOI”), which marks the commencement of formal federal permitting activities at the Arctic Project.

The next step before the submittal of the NOI is a permit preparedness review which will be an independent third-party audit of the draft NOI.

The Company expects to file the NOI before the end of the year and anticipates the overall permitting process to take 24 to 30 months.

Ambler Mining District Industrial Access Project (“AMDIAP” or “Ambler Access Project”)

On July 23, 2020, the United States Bureau of Land Management (“BLM”) issued the Joint Record of Decision (“JROD”) for the AMDIAP.

The JROD approves the development of the northern or “A” route which is to be a 211-mile-long gravel private access road in the southern Brooks Range foothills to provide industrial access to the Ambler Mining District.

Along with the JROD, a Section 404 Permit, which is governed by the Clean Water Act (“CWA”), was issued by the United States Army Corp.

of Engineers (“USACE”) to the Alaska Industrial Development and Export Authority (“AIDEA”).

On August 3, 2020, a coalition of national and Alaska environmental non-government organizations (“ENGO”) filed the first of two lawsuits against the federal agencies responsible for issuing the JROD.

A second similar lawsuit was filed in October 2020.

The ENGO’s main position is that due process was not carried out during the permitting of the AMDIAP.

Subsequently, AIDEA, Ambler Metals, the State of Alaska and NANA have filed for and received intervenor status in each of the lawsuits and will be defending the issuance of the JROD and the permits.

On January 6, 2021, BLM, the National Park Service and AIDEA signed Right-of-Way agreements giving AIDEA the ability to cross federally owned and managed lands along the route for the Ambler Access Project approved in the JROD.

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

On September 28, 2021, the Department of Justice (“DOJ”) requested a 60-day stay with respect to each of the above referenced lawsuits.

In its request for the stay, the DOJ stated that it was necessary to “accommodate review of this matter by officials within the United States Department of the Interior who have engaged in various discussions with multiple parties involving this matter and in government-to-government consultations with tribal entities”.

Development Funding Agreement regarding the Ambler Access Project with the Alaska Industrial Development and Export Authority

The summer field season for the Ambler Access Project commenced during the quarter with cultural heritage work along the proposed 211-mile, east-west-running controlled industrial access road that would provide industrial access to the Ambler Mining District in Northwestern Alaska.

The Alaska Industrial Development and Export Authority has prioritized cultural heritage work, aquatic habitat studies and geotechnical planning for this year’s and next year’s field seasons to progress the feasibility engineering and permitting work for the road.

On August 9, 2021, the Governor of Alaska, Mike Dunleavy, visited the UKMP.

During the visit, the Governor reiterated his strong support for the development of the Ambler Mining District and for the development of the Ambler Access Project.

He also announced the formation of the Subsistence Advisory Committee Working Group which is to include Native stakeholders within the Northwest Arctic Borough and the Doyon Region who could be affected by the proposed road.

This committee is being formed to develop the terms of reference for the formal Subsistence Advisory Committee that will provide guidance on subsistence and other matters for the design and operation of the road.

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.

Trilogy currently estimates that the Subscription Price, which includes the funds to be repaid under the loan, will fund the UKMP through feasibility and the permitting of the first mine to be developed in the Ambler mining district.

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.

For the Quarter Ended August 31, 2021

COVID Safety Measures

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

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

Early-stage exploration

Trilogy has acquired, through staking, mineral claims located in Alaska, USA outside of the UKMP.

During the quarter ended August 31, 2021, the Company executed a 10-day preliminary reconnaissance program of the claims to confirm government-mapped geology and to collect rock and stream sediment samples.

Summary of results

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Three months ended

Six months ended

Nine months ended

August 31, 2021

August 31, 2020

August 31, 2021

August 31, 2020

Selected expenses

Exploration expense

Mineral properties and feasibility study expenses

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Diluted earnings (loss) per common share

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).

Three months ended August 31, 2021

For the three-month period ended August 31, 2021, overall cash costs related to general and administrative expenses, investor relations, professional fees and salaries were primarily tracking to budget.

Trilogy reported a net loss of $7.7 million (or $0.05 basic and diluted loss per common share).

For the comparable period in 2020, we reported a net loss of $3.2 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.

This third quarter difference is primarily due to a $5.0 million increase in our 50% pro rata share of Ambler Metals’ comprehensive loss.

This was offset by a one-time charge of $0.2 million in feasibility study costs incurred during the third quarter of 2020.

The share of loss in equity investment is higher versus the comparative period as the current quarter includes mineral property expenses that Ambler Metals incurred during the quarter for the 2021 summer drill program.

These 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 $0.10 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

i) an increase in general and administrative expenses of $0.2 million primarily due to an increase in insurance premiums and additional stock exchange fees incurred for updates to the Company’s equity incentive plans;

ii) exploration costs of $0.1 million incurred during the current period for geological review work for which there is no comparative;

iii) an increase of $0.2 million in salaries as the current period cost reflects additions to the executive team in September 2020;

and iv) a decrease of $0.7 million in stock-based compensation as the Company did not award any new grants during the current period, compared to 1.8 million options that were awarded during the comparative quarter in the prior year.

Trilogy Metals Inc.

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;

For the Quarter Ended August 31, 2021

Nine months ended August 31, 2021

For the nine-month period ended August 31, 2021, overall cash costs related to general and administrative expenses, investor relations, professional fees and salaries were primarily tracking to budget.

Trilogy reported a net loss of $15.6 million (or $0.11 basic and diluted loss per common share).

For the comparable period in 2020, we reported net earnings of $165 million (or $1.17 basic and $1.12 diluted earnings per common share).

The difference for the nine-month period ended August 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 $1.0 million of feasibility study costs incurred during the comparable prior period for which there are no current period comparatives.

Furthermore, our share of loss on the equity investment in Ambler Metals was $7.1 million higher for the nine-month period ended August 31, 2021, and reflects costs incurred by Ambler Metals for the 2021 summer drill program.

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

i) a decrease of $0.2 million in general and administrative expenses, primarily due to $0.2 million in recruiting fees incurred in the comparative prior year period, offset by an increase in insurance costs and stock exchange fees during the current 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.

and iii) an increase of $0.6 million in salaries reflecting additions to the executive team in September 2020.

Selected financial data

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Interest and other income

Exploration expense

Mineral properties and feasibility study expenses

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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 third quarter of 2021, we reported a comprehensive loss of $7.7 million, which consisted of $1.6 million in operating expenses and $6.1 million for Trilogy’s 50% share of Ambler Metals’ operating loss.

In the third quarter of 2020, we reported a comprehensive loss of $3.2 million which consisted of $2.1 million in operating expenses and $1.1 million for Trilogy’s share of Ambler Metals’ operating loss.

When compared to the third quarter of 2020, our pro rata share of the joint venture’s operating loss is $5 million higher.

The increase is due to the project drilling costs incurred in

Trilogy Metals Inc.

For the Quarter Ended August 31, 2021

the 2021 field season.

Ambler Metals did not incur these costs during the third quarter of 2020 due to the cancellation of the 2020 field season because of the COVID-19 pandemic.

The $0.5 million decrease in operating expenses for the current period versus the comparative was primarily due to a decrease of $0.7 million in stock-based compensation, offset by a $0.2 million increase in salaries as in the current period, CEO compensation is salary-based verses stock based in the comparative third quarter of 2020.

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.

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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.

Ambler Metals did not incur these costs during the second quarter of 2020 due to the cancellation of the 2020 field season because 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.

For the first quarter of 2021, we reported a 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.

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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 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.

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.

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

Liquidity and capital resources

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.

At August 31, 2021, we had $6.8 million in cash and working capital of $6.8 million, which is sufficient to fund our ongoing operations for at least the next 12 months.

The UKMP Projects are fully funded by Ambler Metals and we do not anticipate needing to fund our 50% share of future expenditures to advance the UKMP until the subscription price paid by South32 into Ambler Metals of $145 million is spent.

Trilogy Metals Inc.

For the Quarter Ended August 31, 2021

Contractual obligations

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

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

In thousands of dollars

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Outstanding share data

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.

At October 4, 2021, we had 144,451,485 common shares issued and outstanding.

At October 4, 2021, we had outstanding, 11,118,316 stock options with a weighted-average exercise price of $1.94, no RSUs, as well as 1,277,447 DSUs and 11,927 NovaGold Resources Inc.

(“NovaGold”) DSUs for which the holder is entitled to receive one common share for every six NovaGold shares received.

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Impairment of Investment in Ambler Metals LLC

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

Management assesses the possibility of impairment in the carrying value of its equity 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.

5 unchanged sentences

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

Trilogy Metals Inc.

For the Quarter Ended August 31, 2021

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

of the equity method investment.

of the equity 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.

4 unchanged sentences

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.

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

Additional information

4 unchanged sentences

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