What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-06 compared with 2022-04-06 · 92 added, 67 removed, 202 unchanged (44% of the section changed)

2 unchanged sentences

Management’s Discussion & Analysis

For the Quarter Ended February 28, 2022

For the Quarter Ended May 31, 2022

(expressed in US dollars)

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Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other applicable securities laws.

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

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

the plans and budget for the 2022 field exploration program ;

perceived merit of properties, exploration results and budgets, the impact of the BLM’s suspension of permits on the right-of-way with AIDEA relating to the Ambler Road Project;

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Trilogy Metals Inc.

For the Quarter Ended February 28, 2022

For the Quarter Ended May 31, 2022

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

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Trilogy Metals Inc.

For the Quarter Ended February 28, 2022

For the Quarter Ended May 31, 2022

● commodity price fluctuations;

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Trilogy Metals Inc.

For the Quarter Ended February 28, 2022

For the Quarter Ended May 31, 2022

● the Company’s expectation of not paying cash dividends;

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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 5, 2022 and provides an analysis of our unaudited interim financial results for the quarter ended February 28, 2022 compared to the quarter ended February 28, 2021.

The following information should be read in conjunction with our February 28, 2022 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 5, 2022 and provides an analysis of our unaudited interim financial results for the quarter ended May 31, 2022 compared to the quarter ended May 31, 2021.

The following information should be read in conjunction with our May 31, 2022 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, 2021.

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Trilogy Metals Inc.

For the Quarter Ended February 28, 2022

For the Quarter Ended May 31, 2022

Description of business

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Joint venture project activities

Budget for 2022 Field Exploration Program

In a press release dated June 8, 2022, the Company announced that Ambler Metals had commenced mobilization for the summer 2022 field program at the UKMP.

The drill program will be helicopter-supported and will be based out of Ambler Metals’ expanded 90-person camp at Bornite.

The previously announced $28.5 million fiscal 2022 budget was updated to approximately $26.2 million.

The field season is entirely funded by Ambler Metals and consists of a minimum 10,000 meters of diamond drilling with additional meters contingent on drill performance, weather and approval of supplementary budgets.

The field season program prioritizes advancing the Arctic Project with additional infill drilling to further improve the confidence in the resource and the completion of a geotechnical study to further de-risk the Project.

Exploration outside of the Arctic deposit will focus on discovering copper-rich satellite deposits near Arctic, the Cosmos Hills and the Ambler Lowlands.

The 2022 Arctic program involves a minimum 6,000 meters in 27 holes, as part of an 8,400-meter infill program to increase confidence from the Indicated to Measured category.

In addition, three to five holes totaling 500 to 750 meters are planned to complete a geotechnical and hydrogeological assessment of Arctic that was initiated last year.

The 2022 exploration program for the Cosmos Hills and Ambler Lowlands includes drilling of approximately 2,400 meters as well as detailed mapping and soil sampling to build on the work performed during the prior year.

In addition, a minimum 2,000 meters of trenching is planned around Pardner Hill and the Bornite East target area.

Arctic Project

In a press release dated March 17, 2022, the Company announced additional drill results from the 2021 summer field season at the Arctic Project .

In a press release dated April 20, 2022, the Company announced the final set of infill drill results for the remaining 9 infill/metallurgical drill holes from the 2021 summer field season at the Arctic Project .

The 2021 Arctic drill program included 4,131 meters of diamond drilling, comprising 18 holes, that were designed to convert part of the resources from the Indicated category to the Measured category, and provide material for metallurgical testing and geotechnical information.

These latest drilling results from the 2021 program contained mineralized intervals consistent with previous drilling conducted within the resource area on the property.

Based on a cut-off grade of 0.5% copper equivalent, significant zones of high-grade copper, zinc, lead, gold, and silver mineralization were intersected.

Bornite Project

The Company announced a new resource estimate for the Bornite Project in January of 2022 and subsequently filed a National Instrument 43-101 compliant Technical Report on February 11, 2022.

The report details the Bornite Project’s copper grades, specifically the South Reef area which hosts inferred resources of 35.3 million tonnes at a grade of 3.4% copper.

Overall, Bornite has indicated in-pit resources grading over 1% copper, containing almost a billion pounds of copper and inferred in-pit resources of just over two billion pounds of copper at a grade of almost 1% copper.

In addition to providing important geotechnical data and increasing the certainty of future resource estimates, the 2021 drill program results at Arctic found mineralization extending beyond the pit boundary used in the 2020 Arctic Feasibility Study.

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

In a press release dated February 23, 2022, the Company announced that the United States Department of the Interior (“DOI”) filed a motion on February 22, 2022 to remand the Final Environmental Impact Statement (“FEIS”) and suspend the right-of-way permits issued to the Alaska Industrial Development and Export Authority (“AIDEA”) for the Ambler Access Project.

The DOI stated that the suspension of the road permits will allow it to carry out additional supplemental work on the FEIS.

The DOI stated that the suspension of the road permits will allow it to carry out additional supplemental

Trilogy Metals Inc.

For the Quarter Ended May 31, 2022

work on the FEIS.

The motion also indicated that the DOI has requested that the lawsuits filed in 2021 against the DOI by a coalition of national and Alaska environmental non-government organizations be suspended.

The lawsuits had been filed in response to the United States Bureau of Land Management’s (“BLM”) issuance of the Joint Record of Decision (“JROD”), that authorized a right-of-way across federally managed lands for AIDEA and the Ambler Access Project.

The Company has commenced discussions with its partners, including NANA Regional Corporation Inc., AIDEA, the Northwest Arctic Borough, the State of Alaska and South32 Limited to understand the potential impact of the above decision by the DOI on AIDEA’s proposed plan and budget for the 2022 summer field season activities that were previously announced.

In mid-March 2022, the BLM and the DOI suspended the right-of-way grant and the right-of-way permit (“ROW permits”) to AIDEA relating to the Ambler Access Project over federal land while the DOI conducts further analysis and consultation.

While the suspension decisions are in place:

AIDEA may not conduct any activities that rely on the authority of the ROW

Trilogy Metals Inc.

For the Quarter Ended February 28, 2022

AIDEA may not conduct any activities that rely on the authority of the ROW permits;

the terms and conditions of the ROW permits are tolled;

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The suspension does not preclude AIDEA from applying for special use permits to conduct activities on the lands subject to the ROW permits pursuant to applicable law or authority other than the suspended ROW permits.

On March 22, 2022, the Intervenor Defendants (the State of Alaska, NANA, AIDEA, and Ambler Metals LLC (“Ambler Metals”)) filed briefs in opposition to the DOI’s motion for a voluntary remand.

On March 22, 2022, the Intervenor Defendants (the State of Alaska, NANA, AIDEA, and Ambler Metals filed briefs in opposition to the DOI’s motion for a voluntary remand.

In its brief, Ambler Metals stated that it does not oppose the voluntary remand motion subject to the following conditions:

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Federal Defendants also argued that the court should retain jurisdiction, but disagreed with arguments requesting a court-imposed schedule.

The Federal Defendants propose filing a status report every 90 days.

The Federal Defendants proposed filing a status report every 90 days.

In press release dated May 18, 2022, the Company provided an update on the AMDIAP.

In May 17, 2022, the United States District Court (the “Court”) granted the DOI motion for voluntary remand without vacatur.

The DOI had requested the voluntary remand of the previously issued JROD.

Judge Gleason also ruled that the Court shall retain jurisdiction over this matter, and the Court is requiring that the DOI file a status report with the Court within 60 days from the date of the order and every 60 days thereafter.

In addition, any party involved in the action may move for a status conference upon a showing of good cause.

The DOI had indicated that the remand was necessary because the DOI had identified deficiencies in their analysis of impacts to subsistence uses under the Alaska National Interest Lands Conservation Act (“ANILCA”) section 810 and their consultation with Tribes pursuant to the National Historic Preservation Act (“NHPA”) Section 106.27.

They requested a remand in order to supplement the administrative record in these regards.

On June 14, 2022, the Court denied the plaintiffs motion to reconsider the Court’s May 17 th remand order.

The Company will continue discussions with its partners, including NANA Regional Corporation, Inc., AIDEA, the Northwest Arctic Borough, the State of Alaska and South32 Limited to determine the impact of the above decision on AIDEA’s proposed plan and budget for the 2022 summer field season activities that were previously announced.

Corporate developments

Annual General Meeting

In a press release dated March 29, 2022, the Company announced that the Annual General Meeting of shareholders will be held on May 13, 2022.

All current directors will stand for re-election at the AGM.

Other items of business include the approval of amendments to, and unallocated entitlements under, the Company’s Restricted Share Unit Plan (“RSU Plan”) and Deferred Share Unit Plan (“DSU Plan”).

The Company is asking shareholders to approve a change to the RSU Plan to remove the option for the Company to cash settle RSUs granted to Canadian resident directors due to potential Canadian tax restrictions.

The Company is asking shareholders to approve a change to the DSU Plan to allow directors to elect to receive up to 100% of their annual compensation in DSUs.

Both these amendments will provide the Company flexibility to pay our directors fees in the form of stock in an effort to preserve cash and build share ownership.

The Annual General Meeting of shareholders was held on May 13, 2022.

All directors nominated by the Company and standing for election were elected by shareholders of the Company.

Other items of business included the approval of amendments to, and unallocated entitlements under, the Company’s Restricted Share Unit Plan (“RSU Plan”) and Deferred Share Unit Plan (“DSU Plan”).

The Company asked shareholders to approve a change to the RSU Plan to remove the option for the Company to cash settle RSUs granted to Canadian resident directors due to potential Canadian tax

Trilogy Metals Inc.

For the Quarter Ended May 31, 2022

restrictions.

The Company also asked shareholders to approve a change to the DSU Plan to allow directors to elect to receive up to 100% of their annual compensation in DSUs.

Summary of results

in thousands of US dollars

Three months ended

February 28, 2022

February 28, 2021

Six months ended

Selected expenses

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Basic and diluted loss per common share

For the three-month period ended February 28, 2022, overall cash costs related to general and administrative expenses, investor relations, professional fees and salaries were primarily tracking to budget.

For the three-months period ended February 28, 2022, Trilogy reported a net loss of $5.0 million (or $0.03 basic and diluted loss per common share).

For the three-month period ended May 31, 2022, cash preservation strategies resulted in overall cash savings of $0.3 million in general and administrative expenses, investor relations, professional fees and salaries when compared to budget.

For the three-month period ended May 31, 2022, Trilogy reported a net loss of $4.1 million (or $0.03 basic and diluted loss per common share).

For the comparable period in 2021, we reported a net loss of $3.4 million (or $0.02 basic and diluted loss per common share).

This difference is primarily due to the Company’s equity pickup of Ambler Metals’ comprehensive loss, offset by a

This difference is primarily due to a $0.8 million increase in the Company’s equity pick-up of Ambler Metals’ comprehensive loss in the current period.

The current quarter includes pre-development costs for the Ambler Access Project for which there are no prior year comparatives.

This increase in the equity pick-up is offset by reductions in general and administrative expenses, investor relations and professional fees due to management implemented cost savings strategies during the quarter.

The combined total of salaries and stock-based compensation is consistent between the current period quarter and the comparative period.

For the six-month period ended May 31, 2022, Trilogy reported a net a loss of $9.1 million (or $0.06 basic and diluted loss per common share).

For the comparable period in 2021, we reported a net loss of $7.9 million (or $0.05 basic and diluted loss per common share).

The difference for the six-month period ended May 31, 2022, when compared to the same period in 2021, is primarily due to a $1.6 million increase in the Company’s equity pick up of Ambler Metals comprehensive loss for the six-month period ending May 31, 2022.

The current period includes pre-development costs for the Ambler Access Project for which there are no prior year comparatives as well as higher engineering and project related salaries and wages versus the comparative period.

Other variances noted for the comparative six-month period ended May 31, 2022 consist of:

i) a decrease of $0.13 million in investor relations activities;

ii) a decrease of $0.2 million in salaries as the executive team agreed to receive a portion of their salary in Restricted Share Units;

and iii) a decrease of $0.1 million in stock-based compensation, driven by a $0.3 million decrease in the fair value amortization of awards granted during the period (due to a 0.7 million units reduction of overall stock-based awards granted versus the comparative period), and offset by $0.2 million increase from executives and directors taking equity in lieu of cash compensation.

Trilogy Metals Inc.

For the Quarter Ended February 28, 2022

reduction in stock-based compensation.

Our 50% pro rata share of Ambler Metals’ comprehensive loss increased by $0.8 million when compared to the prior year comparative as the current quarter includes pre-development costs for the Ambler Access Project for which there are no prior year comparatives.

Salaries and directors expense - stock based-compensation decreased by $0.2 million in comparison to the prior year comparative mainly due to a reduction of 0.9 million units of overall stock-based awards granted during the current quarter.

For the Quarter Ended May 31, 2022

Selected financial data

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Project related costs may cause fluctuations in our quarterly results through our share of losses on equity investment where we record 50% of the net operating loss of Ambler Metals.

For the first quarter of 2022, we reported a comprehensive loss of $5.0 million, which consists of $3.1 million in operating expenses and $1.9 million for Trilogy’s 50% share of Ambler Metals’ operating loss.

For the second quarter of 2022, we reported a comprehensive loss of $4.1 million, which consisted of $1.5 million in operating expenses, $2.5 million for Trilogy’s 50% share of Ambler Metals’ operating loss and $0.1 million in mineral properties that were written off during the quarter.

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

When compared to the second quarter of 2021, our pro rata share of the joint venture’s operating loss is $0.8 million higher for the second quarter of 2022.

The increase is primarily due to increased funding for the AAP, engineering and project related salaries and wages in comparison to the second quarter of 2021.

The $0.2 million decrease in operating expenses for the current period versus the comparative is primarily due to cost savings strategies implemented during the period after management review of discretionary items in general and administrative expenses, investor relations and professional fees.

Furthermore, during the second quarter of 2022, in an effort to preserve cash, the executive team received stock-based compensation in lieu of salaries, further contributing to the reduction in operating expenses versus the comparative period.

For the first quarter of 2022, we reported a comprehensive loss of $5.0 million, which consisted of $3.1 million in operating expenses and $1.9 million for Trilogy’s 50% share of Ambler Metals’ operating loss.

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

When compared to the first quarter of 2021, our pro rata share of the joint venture’s operating loss was $0.8 million higher for the first quarter of 2022 as the current quarter includes pre-development costs incurred by Ambler Metals for the Ambler Access Project.

The $0.3 million decrease in operating expenses for the first quarter of 2022 versus the comparative was primarily due to a decrease of $0.2 million in stock-based compensation during the current quarter.

When compared to the first quarter of 2021, our pro rata share of the joint venture’s operating loss was $0.8 million higher for the first quarter of 2022 as it included pre-development costs incurred by Ambler Metals for the Ambler Access Project.

The remaining $0.1 million in cost reduction was spread over the general and administrative, investor relations, professional fees and salaries cost categories.

Trilogy Metals Inc.

For the Quarter Ended May 31, 2022

For the fourth quarter of 2021, we reported a comprehensive loss of $6.1 million, which consisted of $1.9 million in operating expense and $4.2 million for Trilogy’s share of Ambler Metals’ operating loss.

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The decrease was primarily due to a $0.9 million reduction in salaries as Trilogy provided technical services to Ambler Metals per the Services Agreement during the comparative period.

In addition, there was $0.1 million in cost

Trilogy Metals Inc.

For the Quarter Ended February 28, 2022

savings for professional fees as the comparative included additional legal fees for corporate matters and tax consulting charges.

In addition, there was $0.1 million in cost savings for professional fees as the comparative included additional legal fees for corporate matters and tax consulting charges.

Lastly, stock-based compensation was $0.1 million lower in the fourth quarter of 2021 as the comparative included a RSU grant that vested during the fourth quarter of 2020.

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The $0.5 million decrease in operating expenses for the third quarter 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 third quarter, CEO compensation was 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 was $1.1 million higher for the second quarter of 2021.

The increase was 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 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.

Liquidity and capital resources

We expended $1.5 million on operating activities during the first quarter of 2022 which is consistent with the prior year comparative.

The majority of cash spent on operating activities during the quarter was on corporate salaries, annual fees paid to the Toronto Stock Exchange and the NYSE American Exchange and professional fees related to our annual regulatory filings with the American and Canadian securities commissions.

At February 28, 2022, we had $4.8 million in cash and cash equivalents and working capital of $4.3 million.

We expended $2.9 million on operating activities during the six-month period ending May 31, 2022 with the majority of cash spent on corporate salaries, annual insurance renewal, annual fees paid to the Toronto Stock Exchange and the NYSE American Exchange and professional fees related to our annual regulatory filings with the American and Canadian securities commissions.

At May 31, 2022, we had $3.5 million in cash and cash equivalents and working capital of $3.4 million.

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

Management has begun a review of the fiscal 2022 budget for cash preservation opportunities and has reduced cash expenditures where feasible, including but not limited to, reductions in marketing and investor conferences and office expenses.

The Company’s Board of Directors are considering taking all of their fees in shares of the Company in an effort to preserve cash and increase share ownership.

The Company’s senior management team are also considering taking a portion of their base salaries in shares of the Company to preserve cash.

Management believes that these cost reduction efforts results in sufficient cash to fund the Company’s operations for the next twelve months.

Management continues to review the fiscal 2022 budget for cash preservation opportunities and has reduced cash expenditures where feasible, including but not limited to, reductions in marketing and investor conferences and office expenses.

In addition, the Company’s Board of Directors have agreed to take all of their fees in shares of the Company in an effort to preserve cash and increase share ownership.

The Company’s senior management team are also taking a portion of their base salaries in shares of the Company to preserve cash.

Management believes that the combination of these cost reduction efforts results in sufficient cash to fund the Company’s operations for the next twelve months.

All project related costs are funded by the joint venture.

Amber Metals is well funded to advance the UKMP with $58.2 million in cash and $53.2 million loan receivable from South32 as at February 28, 2022.

There is sufficient funds at the joint venture to fund the previously announced budgets for the UKMP of $28.5 million and the Ambler Access Project of $15.4 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 in the future to support its operations and administration expenses.

Future sources of liquidity may include debt

Amber Metals is well funded to advance the UKMP with $52.8 million in cash and $53.5 million loan receivable from South32 as at May 31, 2022.

Subsequent to the quarter end, South32 paid the full balance of the loan, consisting of $53.1 million principal and $0.5 million interest, resulting in Ambler Metals having over $100 million in Cash.

There are sufficient funds at the joint venture to fund the updated budgets for the UKMP of $26.2 million and the Ambler Access Project of $15.4 million for fiscal 2022.

Trilogy does not anticipate having to fund the activities of Ambler Metals until the current cash balance of approximately $100 million is expended.

Trilogy Metals Inc.

For the Quarter Ended February 28, 2022

financing, equity financing, convertible debt, exercise of options, or other means.

For the Quarter Ended May 31, 2022

Future cash requirements may vary materially from current expectations.

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

Future sources of liquidity may include equity financing, debt 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.

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Outstanding share data

At April 5, 2022, we had 145,464,286 common shares issued and outstanding.

At April 5, 2022, we had outstanding, 12,242,150 stock options with a weighted-average exercise price of CDN$2.50, as well as 2,387,668 DSUs, 257,268 RSUs, and 11,927 NovaGold Resources Inc.

At July 5, 2022, we had 145,853,395 common shares issued and outstanding.

At July 5, 2022, we had outstanding, 12,187,150 stock options with a weighted-average exercise price of CDN$2.50, as well as 1,507,656 DSUs, 257,268 RSUs, 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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Trilogy Metals Inc.

For the Quarter Ended February 28, 2022

For the Quarter Ended May 31, 2022

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.

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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-Q

Item 2. Management’s Discussion and Analysis