What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-11 compared with 2021-02-12 · 132 added, 120 removed, 262 unchanged (49% of the section changed)

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

(“Trilogy”, “the Company”, “us” or “we”) is dated February 11, 2021 and provides an analysis of our audited financial results for the year ended November 30, 2020 compared to the years ended November 30, 2019 and November 30, 2018.

(“Trilogy”, “the Company”, “us” or “we”) is dated February 10, 2022 and provides an analysis of our audited financial results for the year ended November 30, 2021 compared to the year ended November 30, 2020.

A discussion of our year ended November 30, 2020 compared to November 30, 2019 is contained in our report on Form 10-K for the year ended Novemebr 30, 2020.

The following information should be read in conjunction with our November 30, 2021 audited consolidated financial statements and related notes which were prepared in accordance with United States generally accepted accounting principles (“U.S.

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

The Company also conducts early-stage exploration through a wholly owned subsidiary, 995 Exploration Inc.

Property review

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On October 19, 2011, Trilogy Metals US and NANA signed a collaborative agreement to explore and develop the Ambler mining district.

Under the Exploration Agreement and Option to Lease (as amended, the “NANA Agreement”), we

acquired, in exchange for, among other things, a $4.0 million cash payment to NANA, the exclusive right to explore the Bornite property and lands deeded to NANA through the Alaska Native Claims Settlement Act (“ANCSA”), located adjacent to the Arctic Project, and the non-exclusive right to access and entry onto NANA’s lands.

Under the Exploration Agreement and Option to Lease (as amended, the “NANA Agreement”), we acquired, in exchange for, among other things, a $4.0 million cash payment to NANA, the exclusive right to explore the Bornite property and lands deeded to NANA through the Alaska Native Claims Settlement Act (“ANCSA”), located adjacent to the Arctic Project, and the non-exclusive right to access and entry onto NANA’s lands.

The NANA Agreement establishes a framework for any future development of either the Bornite Project or the Arctic Project.

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Prior to the formation of the Joint Venture on February 11, 2020, we had accounted for the Bornite property as a mineral property with acquisition costs capitalized and exploration costs expensed in accordance with our accounting policies.

Corporate developments

Appointment of CEO

Tony Giardini was appointed as President and CEO of the Company effective June 1, 2020.

Giardini has been a director of the Company since 2012 and will continue to be an executive director.

Giardini has extensive experience as an executive officer and key leadership team member with his previous roles as President of Ivanhoe Mines Ltd.

(“Ivanhoe”), a base metals development and exploration company, and as Chief Financial Officer at Kinross Gold Corporation, a senior gold producer.

Giardini has extensive experience with joint ventures and large capital projects, including Ivanhoe’s three large development assets, Platreef, Kipushi and Kamoa-Kakula.

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.

the back office is fully transitioned to a new permanent team employed by the Joint Venture.

To assist Ambler Metals during the initial set up phase, Trilogy was paying all of Ambler Metals’ invoices and being reimbursed pursuant to a services agreement (the “Services Agreement”) between Trilogy and Ambler Metals until the back office was fully transitioned to a new permanent team employed by the Joint Venture in fiscal 2021.

The Services Agreement ended on December 31, 2020.

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and Robert (Bob) Jacko, Trilogy’s Senior Vice President Operations assumed the duties as Interim Vice President Operations of Ambler Metals.

Prior to the end of the year, the permanent management team at Ambler Metals was hired and are all now based in Alaska.

Prior to the end of fiscal 2020, the permanent management team at Ambler Metals was

hired and are all now based in Alaska.

The joint venture company is led by President and Chief Executive Officer, Ramzi Fawaz, Vice President Operations, Kevin Torpy and Vice President Finance, Rebecca Donald.

In addition to the appointment of the leadership team at Ambler Metals, the Trilogy technical team has transitioned over to the joint venture entity.

In addition to the appointment of the leadership team at Ambler Metals, the Trilogy technical team was also transitioned over to the joint venture entity during fiscal 2020.

Ambler Metals is an independently operated company, jointly controlled by Trilogy and South32 through a four-member board of which two members are currently appointed by Trilogy based on its 50% equity interest.

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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 November 30, 2020, totaled $173 million as well as approximately $114,000 of amounts receivable per the Services Agreement.

The amounts receivable as at November 30, 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 November 30, 2021, totaled $160.1 million.

During the year ended November 31, 2020, Ambler Metals loaned $57.5 million back to South32 and retained $87.5 million of the $146 million contributed by South32.

The loan has a 7-year maturity date, but we anticipate that Ambler Metals will begin to draw down on the loan with cash calls to South32 before the end of 2021 to fund South32’s 50% share of the 2021 budget.

The loan has a 7-year maturity date.

During fiscal 2021, Ambler Metals began to draw down on the loan with cash calls to South32 to fund their 50% share of the 2021 budget.

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

Project activities

2020 Program and Budget

In a press release dated February 26, 2020, the Company announced that Ambler Metals had approved a 2020 budget of $22.8 million for the advancement of the UKMP Projects.

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

The 2020 program budget included 10,000 meters of drilling at the Arctic Project, 2,500 meters of drilling within the Ambler VMS belt and geological mapping and geochemical soil sampling at the Bornite Project.

Prior to the start of the field season, 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.

The Company and South32 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.

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 budget was 100% funded by Ambler Metals and included 7,600 meters of infill and metallurgical drilling at the Arctic Project as well as 7,000 meters of exploration drilling within the Ambler VMS Belt.

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

The strategy defined a program that advances the highest priority projects and exploration targets, both 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 with the summer drill program completed on September 22, 2021.

Drilling productivity at the project was behind schedule during the 2021 field season 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.

Arctic Project

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

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

The Arctic FS

describes the technical and economic viability of establishing a conventional open-pit copper-zinc-lead-silver-gold mine and mill complex for a 10,000 tonne per day operation for a minimum 12-year mine life.

On October 2, 2020, we filed the technical report for the Company’s Arctic Project entitled “Arctic Feasibility Study Alaska, USA NI 43-101 Technical Report"

with an effective date of August 20, 2020, prepared by Ausenco Engineering Canada Inc., Wood Canada Limited and SRK Consulting (Canada) Inc.

(the “2020 Arctic Report”).

The 2020 Arctic report describes the Arctic FS as discussed above.

The 2020 Arctic Report supersedes the Company’s 2018 technical report for the Arctic Project.

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

On March 27, 2020, the BLM, the lead federal agency for the permitting of the AMDIAP, released the Final Environmental Impact Statement (“EIS”) for the AMDIAP.

This follows on the Draft EIS completed on August 23, 2019.

On July 23, 2020, the BLM issued the Joint Record of Decision (“JROD”) for the Ambler Road Project.

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 AIDEA.

Subsequent to the issuance of the JROD, a coalition of national and Alaska environmental non-government organizations (“ENGO”) have filed a lawsuit against the federal agencies responsible for issuing the JROD.

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

Subsequently, AIDEA and Ambler Metals have filed for and received intervenor status in the lawsuit and will be defending the issuance of the JROD and the permits.

On January 6, 2021, BLM, NPS and 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 JROD.

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

Ambler Metals is continuing discussions with AIDEA on securing a predevelopment funding agreement for the detailed engineering work for the Ambler Road Project.

On November 19, 2020, the Company announced the approval of the 2021 program and budget for Ambler Metals of approximately $27 million to advance the UKMP.

The 2021 field season plan for the Arctic Project focused on an additional 7,600 meters of drilling in order to extract additional material for metallurgical work and for the conversion of mineral resources into the measured category.

The metallurgical program associated with this drilling was to support variability test work and pilot plant work.

T echnical 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.

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.

Regional Exploration Project

During the 2021 field season, 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.

A total of 8 holes were completed totaling 3,194 meters.

In addition to the regional drill program, geologists also carried out regional geological mapping within the Ambler VMS belt.

Traverses were completed along creeks within the Center of the Universe prospect, the DH prospect, and in Jackass Creek (between the DH and Cliff prospects), the Bud-Sunshine-West Dead Creek prospect cluster, Dead Creek, Pipe, and the Nora prospects.

Geochemical soil sampling is ongoing within the Cosmos Hills around Bornite and the Ambler VMS Belt.

The goal of this program is to follow-up on previous anomalous geochemical results and to investigate geophysical anomalies that were identified during the 2019 airborne versatile time domain electromagnetic survey.

Arctic Mine Permitting

Arctic mine permitting preparation work was ongoing during fiscal 2021 for filing formal federal permitting documentation for the Arctic Project.

An independent consulting company has completed a preparedness review of the draft permitting package for the Arctic Project and presented the results of this review to the technical teams of South32 and Trilogy.

The review concluded that the Ambler Metals permitting strategy is sound and the permitting package can proceed with minor changes.

Ambler Metals is now making the recommended changes to the permitting package and expects to file the permitting application, which expects to start the formal permitting process for the Arctic Project, with the United States Army Corps.

of Engineers (“USACE”) in 2022.

The Company expects the overall permitting process to take 24 to 30 months to be completed.

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

During the summer of 2020, the United States Bureau of Land Management ("BLM") issued the Joint Record of Decision ("JROD") for the AMDIAP.

Lawsuits were filed shortly thereafter by a coalition of national and Alaska environmental non-government organizations in response to the BLM's issuance of the JROD for the Ambler Access Project.

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.

During the second quarter of 2021, AIDEA signed a land access agreement with Doyon Limited to conduct feasibility and permitting activities to advance the Ambler Access Project and in September 2021 AIDEA signed a land access agreement with NANA Regional Corporation, Inc.

to conduct similar activities.

On October 27, 2021, the federal defendants were granted a 60-day stay with respect to each of the 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”.

On February 7, 2022, the court granted a second request from the federal defendants for an extension to file their response to the plaintiff’s brief.

Ambler Metals had opposed the extension request.

The federal defendants are now required to file their response no later than February 22, 2022.

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

The 2021 field season for the Ambler Access Project consisted of 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.

Early-stage exploration

During the year, the Company acquired, through staking, mineral claims located in Alaska, USA outside of the UKMP.

During the 2021 field season, 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.

On January 11, 2022, the Company announced the approval of the 2022 program and budget for Ambler Metals of approximately $28.5 million to advance the UKMP.

The budget is fully funded by Ambler Metals.

Activities planned at the Arctic Project include 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 will continue 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.

The Company currently anticipates Ambler Metals will submit the permit applications during the second half of 2021.

Following up from the 2019 work performed along the 70-mile (100 kilometer) Ambler VMS belt, Ambler Metals will continue exploration efforts along the belt to discover and define additional deposits that may provide feed to a future Arctic mill.

Ambler Metals plans to conduct a 7,000-meter regional exploration drill campaign at the Sunshine prospect and at other drill-ready targets.

The drill program is expected to commence in early summer and finish before the end of September.

The drilling may be preceded by detailed geologic mapping, geochemical soil sampling and ground geophysics.

The Company has approved a 2021 cash budget for corporate activities of approximately $5.3 million.

The corporate budget consists of personnel and related costs of $2.0 million, professional fees of $1.1 million, investor relations and

marketing costs of $0.6 million, office related costs of $0.5 million, insurance costs of $0.4 million and regulatory costs of $0.3 million.

The Company’s management team is focused on the oversight of our investment in Ambler Metals and will closely work with Ambler Metals as it starts its first field season as a new team and prepares to submit the permit applications for the Arctic Project during the second half of the year.

The 2022 budget for Ambler Metals, approved by the owners, Trilogy and South32, will cover up to 10,000 meters of helicopter-supported diamond drilling that is expected to commence in early June.

The meterage will be divided between resource development drilling at Arctic and scout drilling of both VMS targets in the Ambler Belt, with a focus on targets near Arctic, and Carbonate-Hosted Copper targets around Bornite and the Cosmos Hills.

A greater effort on the ground to identify and evaluate new targets for drilling, including the use of ground and down-hole electro-magnetic (EM) surveys, is planned.

On February 7, 2022, the Company announced the approval of the 2022 program and budget for the Ambler Access Project of approximately $30.8 million of which $15.4 million will be funded by AIDEA and $15.4 million will be funded by Ambler Metals.

During the 2022 field season, AIDEA will be carrying out additional work including, geotechnical investigations, right-of-way surveys, environmental studies, road and bridge engineering design work, and cultural resources work.

The Company has approved a 2022 cash budget for corporate activities of approximately $5.5 million (2021 - $5.3 million).

The corporate budget consists of personnel and related costs of $2.1 million (2021 - $2.0 million), professional fees of $0.9 million (2021 - $1.1 million), investor relations and marketing costs of $0.6 million ( 2021 - $0.6 million), office related costs of $0.5 million (2021 - $0.5 million), insurance costs of $0.5 million (2021 - $0.4 million), regulatory costs of $0.3 million (2021 - $0.3 million) and exploration activities of $0.15 million (2021 - Nil).

The 2022 budget has increased slightly from the prior year due mainly to an increase in insurance costs, addition of exploration activities and foreign exchange impacts on Canadian dollar sourced amounts for personnel and office related costs.

The Company’s management team is focused on the oversight of our investment in Ambler Metals and will closely work with Ambler Metals.

The Company’s technical staff will work closely with South32’s technical team and Ambler Metals exploration staff to review opportunities on advancing its known deposits and look at potential new targets in the large land package that is held by Ambler Metals.

The Company plans to participate in investor meetings and conferences virtually and online for most of the year and has therefore reduced its travel budget for 2021 from previous years.

A significant amount of uncertainty exists with the Company’s annual renewal of its insurance policies and costs are currently unpredictable.

A significant amount of uncertainty continues to exist with the Company’s annual renewal of its insurance policies and costs are currently unpredictable.

Insurance premiums may differ significantly from our budget.

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Selected expenses

Exploration expense

Mineral properties and feasibility study expenses

General and administrative

Investor relations

Professional fees

Salaries – technical services

Salaries – stock-based compensation

Loss on held for trading investments

Gain on derecognition of assets contributed to joint venture

Equity in investee

Share of loss on equity investment

Comprehensive earnings (loss) for the year

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Diluted earnings (loss) per common share

For the year ended November 30, 2020, we reported a net earnings of $161.8 million (or $1.14 basic earnings and $1.12 diluted earnings per common share) compared to a net loss in 2019 of $27.9 million (or $0.21 basic and diluted loss per common share) and a net loss of $21.8 million in 2018 (or $0.18 basic and diluted loss per common share).

The 2020 movement to net earnings was primarily due to the $175.8 million gain realized on the derecognition of assets contributed to the joint venture, offset by our 50% share of the joint venture’s net operating loss and feasibility study charges incurred for the Arctic project subsequent to the formation of the joint venture.

Mineral properties expense was eliminated after the contribution of mineral properties to the joint venture at the end of the first quarter of 2020.

This resulted in a significant cost savings of $17.7 million in relation to the prior year comparative.

Going forward, all project related costs will be captured through our 50% equity recognition of the joint venture’s operating loss.

Adding to the variances in 2020 were incremental decreases in general and administrative expenses, professional fees and stock-based compensation offset by an increase in salaries.

The increase in salaries resulted from the addition of management during the current year for which there is no prior year comparative.

Pursuant to the Services Agreement, $0.9 million of salaries and wages were incurred by the Company in support of the joint venture back office while Ambler set up its permanent team.

Salaries were lower in the prior year due to the resignation of the CEO in the fourth quarter.

The 2019 movement in net loss was primarily due to the increased size and magnitude of the field programs undertaken at our mineral properties.

Adding to this variance in 2019 were incremental increases in general and administrative expenses, professional fees and stock-based compensation offset by a slight decrease in salaries.

Additionally, there were losses recognized on both the sale of investments as well as investments designated as held for trading in the prior year that did not exist in the fiscal 2019 year.

We executed a $18.2 million program at the UKMP in 2019, with $9.2 million on

the Bornite Project funded by South32 under the Option Agreement, $2 million on a new regional exploration program funded 50/50 by Trilogy and South 32 and $7 million on the Arctic Project funded entirely by Trilogy.

For the year ended November 30, 2021, we reported a net loss of $21.7 million (or $0.15 basic and diluted loss per common share) compared to a net earnings of $161.8 million (or $1.14 basic earnings and $1.12 diluted earnings per common share) in fiscal 2020.

The $183.4 million decrease in comprehensive earnings in the current year, when compared to fiscal 2020, is primarily due to the $175.8 million gain on the derecognition of assets contributed to the joint venture during fiscal 2020.

This variance is offset by $2.6 million in mineral property and feasibility study expenses incurred in 2020 that were not incurred during 2021.

Adding to the variances in 2021 were an increase of $10.2 million in our 50% share of the joint venture’s net operating loss and an increase of $0.6 million in salaries, offset by a decrease of $0.5 million in professional fees.

Our share of loss on equity investment was higher versus the 2020 comparative due to project related drill program costs incurred by Ambler Metals during the 2021 field season.

These costs were not incurred during the prior year as the 2020 field season had been cancelled due to the COVID-19 pandemic.

The increase in salaries reflects the additions to the executive team during the third quarter of 2020.

Professional fees were higher in 2020 due to one-time charges incurred for the implementation of new accounting standards and legal and accounting fees in relation to the formation of the joint venture.

Additionally, the Company incurred exploration costs of $0.1 million for a preliminary reconnaissance program on new mineral claims that were staked outside of the UKMP during fiscal 2021.

Fourth quarter results

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The primary drivers for the difference were as follows:

a) $3.8 million lower mineral property expenses as the prior year included project activity (field season was extended to October 2019) for which there are no comparatives in the current period as the mineral properties were contributed to the joint venture during the first quarter of 2020;

b) $0.4 million lower professional fees as the comparative includes additional legal fees for corporate matters as well as consulting fees for our former CEO;

c) $0.3 million lower stock-based compensation as the prior year included Restricted Share Units (“RSUs”) that vested during the fourth quarter;

and d) a decrease of $0.2 million in general and administrative expenses mostly due to travel cost savings due to COVID-19 restrictions.

These cost savings were offset by a loss of $1.0 million on the equity method investment for which there is no prior year comparative, Arctic feasibility study costs of $0.1 million and an increase of $0.3 million in salaries due to new hires to the management team in the fourth quarter 2020.

a) an increase of $3.2 million in our share of loss on equity investment as the current quarter results include project activity costs that Ambler Metals incurred for completing the 2021 drill program as well as pre-development costs for the Ambler Access Project for which there are no prior year fourth quarter comparatives;

b) $0.1 million lower professional fees as the comparative includes additional legal fees for corporate matters and tax consulting fees;

and c) $0.1 million lower stock-based compensation as the comparative includes a Restricted Share Unit (“RSU”) grant that vested during the fourth quarter of 2020.

There were no RSUs granted during 2021.

Selected financial data

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Services agreement income

Gain (Loss) from continuing operations for the year

Gain (Loss) and comprehensive loss for the year

Comprehensive (loss) earnings for the year

Total liabilities

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Interest and other income

Exploration expense

Mineral properties and feasibility study expenses

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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.

Subsequent to the formation of the Jont Venture, project related costs may cause fluctuations in our quarterly results through our 50% share of the Joint Venture’s net operating loss.

We realized a net earnings of $171.2 million for the first quarter ended February 28, 2020, and comparatively incurred a net loss of $4.3 million for the first quarter ended February 28, 2019.

The difference of $175.5 million is primarily due to the gain realized on transfer of assets to Ambler Metals, offset by the loss on equity method investment.

Additionally, there was a decrease in stock-based compensation offset by higher professional fees incurred due to the formation of the joint venture and the implementation of the new lease accounting standard.

General and administrative expenses were higher due primarily to an executive search for a new CEO in the first quarter of 2020.

Our net loss for the second quarter ended May 31, 2020 of $3.0 million was $1.5 million lower versus the comparative period.

The difference was primarily due to the elimination of mineral property expenses upon the transfer of UKMP assets to the joint venture in the first quarter of 2020, offset by a $0.6 million loss on equity method investment and $0.7 million Arctic feasibility study costs incurred during the quarter.

Similarly, our net loss for the third quarter ended August 31, 2020 of $3.2 million decreased by $9.3 million from the comparative period.

The decrease was 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 during the third quarter of 2020.

Subsequent to the formation of the Joint Venture, 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 during 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.

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 because of the COVID-19 pandemic.

The $0.8 million decrease in operating expenses for the second second quarter 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 comparatives for the same quarter in 2021.

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 was no comparative in fiscal 2021.

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 period and operating expenses, which are $1.1 million lower for the 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.

Liquidity and capital resources

We expended $5.1 million on operating activities during the 2021 fiscal year compared with $8.3 million for operating activities for the same period in 2020.

A majority of cash spent on operating activities during the prior fiscal year was expended on mineral property expenses, general and administrative expenses, salaries and professional fees.

Ambler Metals assumed responsibility for project funding upon formation of the Joint Venture on February 11, 2020.

As a result, the majority of cash spent on operating activities during the 2021 fiscal year was expended on general and administrative expenses, salaries and professional fees.

At November 30, 2021, we had $6.3 million in cash and cash equivalents and working capital of $5.6 million.

We expended $8.3 million on operating activities during the 2020 fiscal year compared with $23.5 million for operating activities for the same period in 2019, and expenditures of $22.1 million for operating activities for the same period in 2018.

A majority of cash spent on operating activities during all periods was expended on mineral property expenses, general and administrative expenses, salaries and professional fees.

Ambler assumed responsibility for project funding upon formation of the Joint Venture on February 11, 2020.

This resulted in a decrease in cash spent during the year ended November 30, 2020, mainly due to decreased mineral property expenses of $17.7 million offset by $1.1 million on Arctic feasibility study costs.

The Company continues to manage its cash expenditures through its working capital and management believes that the working capital available is sufficient to meet its operational requirements for the next two years.

During the year ended November 30, 2020, we received proceeds of $0.2 million from directors and officers exercise of stock options.

Comparatively, during the year ended November 30, 2019, we received proceeds of approximately $9.9 million as a result of an exercise of 6,521,740 warrants and $0.2 million from directors and officers exercise of stock options.

During the year ended November 30, 2020, we did not have any investing activities.

During the year ended November 30, 2019, we raised $9.6 million from investing activities.

The investing proceeds consist of $10.2 million raised through mineral property funding from South32 offset by outflows of $0.6 million on the purchase of a new septic system for our remote exploration camp.

During the year ended November 30, 2018, we raised $12.7 million from investing activities.

These investing proceeds consist of $10.4 million of mineral property funding from South32 and $2.3 million proceeds received from the disposition of shares classified as held for trading investment.

Contractual obligations

Contractual obligated undiscounted cash flow requirements as at November 30, 2020 are as follows.

In thousands of dollars

Accounts payable and accrued liabilities

On February 21, 2017, the Company entered into a lease for office space effective July 1, 2017 for a period of seven years with a total commitment of $1.3 million.

Management believes that the cash available is sufficient to meet its budgeted $5.5 million operating requirements for the next twelve months.

The Company continues to manage its cash expenditures through its working capital.

All project related costs are funded by the joint venture.

Amber Metals is well funded to advance the UKMP with $61.2 million in cash and $55.4 million loan receivable from South32 as at November 30, 2021 and an operating budget of $28.5 million for fiscal 2022.

Trilogy does not anticipate having to fund the activities of Ambler Metals until the initial contribution of $145 million is expended.

Future cash requirements may vary materially from current expectations due to a number of factors, including foreign exchange denominated office related costs and insurance renewal costs.

The Company will need to raise additional funds to support its operations and administration expenses.

Future sources of liquidity may include debt financing, equity financing, convertible debt, exercise of options, or other means.

The continued operations of the Company are dependent on its ability to obtain additional financing or to generate future cash flows.

Off-balance sheet arrangements

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At February 11, 2022, we had 145,464,286 common shares issued and outstanding.

At February 12, 2021, we had 11,951,650 stock options outstanding with a weighted-average exercise price of $1.92 and 1,251,253 Deferred Share Units (“DSUs”) outstanding.

At February 11, 2022, we had 12,242,150 stock options outstanding with a weighted-average exercise price of $1.98 and 1,438,186 Deferred Share Units (“DSUs”) and 257,267 Restricted Share Units (“RSUs”) outstanding.

We continue to hold 11,927 NovaGold Resources Inc.

(“NovaGold”) DSUs for which the NovaGold director is entitled to receive one common share of Trilogy for every six NovaGold shares to be received upon their retirement from the NovaGold board.

A total of 1,988 common shares will be issued upon redemption of the NovaGold DSUs.

For additional information on NovaGold DSUs, please refer to note 9 in our November 30, 2021 audited consolidated financial statements.

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Our financial instruments initially measured at fair value and then held at amortized cost include cash and cash equivalents, accounts receivable, deposits, and accounts payable and accrued liabilities.

Our investments were held for trading and marked-to-market at each period end with changes in fair value recorded to the statement of loss.

The South32 purchase option was a derivative financial liability measured at fair value with changes in value recorded to the statement of loss.

(a) Currency risk

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Future sources of liquidity may arise from equity financing, debt financing, convertible debt, or other means.

Our contractually obligated cash flow is disclosed under the section titled “Contractual Obligations.”

(d) Interest rate risk

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The Company is exposed to interest rate risk with respect to interest earned on cash and cash equivalents.

Based on balances as at November 30, 2020, a 1% change in interest rates would result in a change in net loss of $0.1 million, assuming all other variables remain constant.

Based on balances as at November 30, 2021, a 1% change in interest rates would result in a change in net loss of $160, assuming all other variables remain constant.

As we are currently in the exploration phase none of our financial instruments are exposed to commodity price risk;

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New accounting pronouncements

Certain recent accounting pronouncements have been included under note 2 in our November 30, 2020 audited consolidated financial statements.

There were no new accounting pronouncements requiring management consideration during fiscal 2021.

Critical accounting estimates

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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 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 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.

Management considers several factors in considering if an indicator of impairment has occurred, including but not limited to, sustained losses by the investment, the absence of the ability to recover the carrying amount of the investment, significant changes in the legal, business or regulatory environment, 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, 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.

Management calculates the estimated undiscounted future net cash flows relating to the asset or asset group using estimated future prices, proven and probable reserves and other 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 operating, capital and reclamation costs are subject to risk and uncertainties that may affect the determination of the recoverability of the long-lived asset.

It is possible that material changes could occur that may adversely affect management’s estimates.

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.

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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-K

Item 7. Management’s Discussion and Analysis