What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-05 compared with 2022-07-06 · 47 added, 138 removed, 156 unchanged (54% of the section changed)

2 unchanged sentences

Management’s Discussion & Analysis

For the Quarter Ended May 31, 2022

For the Quarter Ended August 31, 2022

(expressed in US dollars)

23 unchanged sentences

Trilogy Metals Inc.

For the Quarter Ended May 31, 2022

For the Quarter Ended August 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 May 31, 2022

For the Quarter Ended August 31, 2022

● commodity price fluctuations;

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Trilogy Metals Inc.

For the Quarter Ended May 31, 2022

For the Quarter Ended August 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 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.

(“Trilogy”, “Trilogy Metals”, “the Company” or “we”) is dated October 4, 2022 and provides an analysis of our unaudited interim financial results for the quarter ended August 31, 2022 compared to the quarter ended August 31, 2021.

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

For the Quarter Ended August 31, 2022

Description of business

9 unchanged sentences

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 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.

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.

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.

2022 Exploration Season for the Upper Kobuk Mineral Projects

Field season activities at the UKMP Projects commenced in late May, with the camp opening on May 20 and drilling was completed on September 16.

The Bornite camp is expected to be fully shut down during the first week of October.

The $26.2 million approved budget for Ambler Metals LLC, our 50/50 joint venture with South32 Limited, for this year was mainly spent on the summer field program, which included 10,739 meters of diamond drilling that prioritized 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 Arctic Project.

Exploration outside of the Arctic deposit focused on discovering copper-rich satellite deposits near Arctic in the VMS Belt and the Cosmos Hills.

The forecasted spend at Ambler Metals for the fiscal year is estimated to be approximately $28.5 million which is $2.3 million or 8.8% higher than budget.

For the 2022 Arctic field program, Ambler Metals completed 8,376 meters in 47 holes as part of an 8,400-meter infill program to increase confidence of the resource from the Indicated to Measured category.

This includes five holes totaling 815 meters completed for the geotechnical assessment of Arctic that was initiated last year and two infill holes instrumented for the ongoing geohydrological assessment.

The 2022 exploration program for the Cosmos Hills and Ambler VMS Belt includes drilling of approximately 7 holes totaling 2,363 meters as well as detailed mapping and soil sampling to build on the work performed during the prior year.

In addition, 1,350 meters of trenching was completed around Pardner Hill.

The Company expects to begin announcing drill results during the fourth quarter of 2022.

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

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.

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 permits;

the terms and conditions of the ROW permits are tolled;

and all rental fee obligations are suspended.

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 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:

(i) no vacatur or termination of the permits;

(ii) the remand must be completed within nine months;

(iii) that there must be status updates to the court every 60 days during the remand period;

and (iv) the federal defendants (DOI) must lodge the administrative record within 30 days of issuing any new decision.

Also on March 22, 2022, the plaintiffs filed a motion asking the court to deny the motion for voluntary remand without vacatur of the permits and either allow merits briefing to proceed or simply vacate the Federal Defendants reviews and decisions.

On April 5, 2022, the Federal Defendants responded to the plaintiffs’ arguments against voluntary remand and argued that vacatur of the decisions was not appropriate.

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

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

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

In a press release dated September 21, 2022, the Company provided an update on the AMDIAP.

The BLM published in the Federal Register a Notice of Intent (“NOI”) that it will prepare a Supplemental Environmental Impact Statement (“SEIS”) for the proposed AMDIAP.

The NOI includes a 45-day comment period on the SEIS, which will allow the BLM to determine if any additional impacts and resources related to previously identified deficiencies should be more thoroughly assessed.

The NOI also indicated that input by Alaska Native Tribes and Corporations will continue to be of critical importance and that the BLM will continue to consult with these entities under applicable guidance.

The BLM anticipates publishing a Draft SEIS during the second quarter of 2023, after which it will accept public comments on the Draft SEIS.

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.

For the Quarter Ended August 31, 2022

Summary of results

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Three months ended

Six months ended

Nine months ended

August 31, 2022

August 31, 2021

August 31, 2022

August 31, 2021

Selected expenses

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Professional fees

Salaries and directors expense – stock-based compensation

Share of loss on equity investment

Comprehensive loss for the period

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 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 May 31, 2022

Selected financial data

Quarterly information

in thousands of dollars,

except per share amounts

Interest and other income

Mineral properties and feasibility study expenses

Operating expenses

Share of loss on equity investment

Loss for the period

Loss per common share – basic

Loss per common share – diluted

Factors that can cause fluctuations in our quarterly results include our general and administrative expenses, stock option vesting and the type of programs conducted and length of the field season at the UKMP.

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 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 it included 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 first quarter of 2022.

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.

In the fourth quarter of 2020, we reported a comprehensive loss of $3.2 million which consisted of $3.1 million in operating expenses and $1.0 million for Trilogy’s share of Ambler Metals’ operating loss, all offset by $0.9 million in services agreement income charged to Ambler Metals.

When compared to the fourth quarter of 2020, our pro rata share of the joint venture’s operating loss was $3.2 million higher as the fourth quarter results included project activity costs that Ambler Metals incurred to complete the 2021 drill program as well as pre-development costs for the Ambler Access Project for which there were no fourth quarter 2020 comparatives.

When compared to the fourth quarter of 2020, the operating expenses were $1.2 million lower.

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 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.

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 was $5 million higher.

The increase was due to the project drilling costs incurred in 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 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 three-month period ended August 31, 2022, cash preservation strategies resulted in overall cash savings of $0.5 million in general and administrative expenses, investor relations, professional fees and salaries when compared to the three-month period ended August 31, 2021.

The increase in our share of losses of Ambler Metals of $2.9 million was mainly due to an increase in mineral property expenses over the comparative quarter in the prior year from higher drilling and project support costs as well as higher pre-development costs for the Ambler Access Project.

For the nine-month period ended August 31, 2022, cash preservation strategies resulted in overall cash savings of $0.9 million in general and administrative expenses, investor relations, professional fees and salaries when compared to the nine-month period ended August 31, 2021.

The increase in our share of losses of Ambler Metals of $4.4 million was mainly due to an increase in mineral property expenses over the comparative period in the prior year from higher drilling and project support costs as well as higher pre-development costs for the Ambler Access Project.

Liquidity and capital resources

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.

We expended $3.4 million on operating activities during the nine-month period ending August 31, 2022 with the majority of cash spent on corporate salaries, professional fees related to our annual regulatory filings, annual insurance renewal, annual fees paid to the Toronto Stock Exchange and the NYSE American Exchange and with the American and Canadian securities commissions.

At August 31, 2022, we had $3.1 million in cash and cash equivalents and working capital of $2.9 million.

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

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All project related costs are funded by the joint venture.

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 May 31, 2022

Amber Metals is well funded to advance the UKMP with $93.5 million in cash and $85.8 million in working capital as at August 31, 2022.

There are sufficient funds at the joint venture to fund this fiscal year’s budget for the UKMP and the Ambler Access Project.

Trilogy does not anticipate having to fund the activities of Ambler Metals until the current cash balance $93.5 million is expended.

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.

Future sources of liquidity are likely in the form of an equity financing but may include 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.

Trilogy Metals Inc.

For the Quarter Ended August 31, 2022

Off-balance sheet arrangements

1 unchanged sentence

Outstanding share data

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.

At October 4, 2022, we had 146,225,035 common shares issued and outstanding.

At October 4, 2022, we had outstanding, 12,151,150 stock options with a weighted-average exercise price of CDN$2.51, as well as 1,560,737 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.

11 unchanged sentences

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.

Trilogy Metals Inc.

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.

3 unchanged sentences

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.

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

We are subject to income tax law

Trilogy Metals Inc.

For the Quarter Ended August 31, 2022

in the United States and Canada.

The evaluation of tax liabilities involving uncertainties in the application of complex tax regulation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues.

9 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