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Item 8. Financial Statements and Supplementary Data

2023-02-14 compared with 2022-02-11 · 147 added, 135 removed, 509 unchanged (36% of the section changed)

24 unchanged sentences

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Trilogy Metals Inc.

Opinion on the Financial Statements

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In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of November 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2022 in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company incurred recurring losses from operations and negative cash flows from operating activities that raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit

matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of impairment indicators related to the Investment in Ambler Metals LLC

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Current assets

Cash and cash equivalents

Accounts receivable (note 3)

Deposits and prepaid amounts

Total current assets

Investment in Ambler Metals LLC (note 4)

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Current portion of lease liability

Total current liabilities

Long-term portion of lease liability (note 8 (b))

Total liabilities

Shareholders’ equity

3 unchanged sentences

Contributed surplus – units (note 9(b))

Total shareholders' equity

Total liabilities and shareholders' equity

Commitments and contingencies (note 13)

8 unchanged sentences

in thousands of US dollars, except share and per share amounts

Exploration expense

Exploration expenses

Feasibility study (note 6(d))

Foreign exchange loss (gain)

Foreign exchange (gain) loss

General and administrative

3 unchanged sentences

Salaries – technical services (note 4(e))

Salaries – stock-based compensation

Salaries and directors expense – stock-based compensation

Total expenses

Share of loss on equity investment (note 4(b))

Gain on disposition of mineral property

Interest and other income

Services agreement income (note 4(e))

Gain on derecognition of assets contributed to joint venture (note 4(a))

Share of loss on equity investment (note 4(b))

Write off mineral properties

Comprehensive (loss) earnings for the year

13 unchanged sentences

Exercise of options

Exercise of warrants

Restricted share units

Deferred share units

Stock-based compensation

Loss for the year

Earnings for the year

Balance – 2020

Exercise of options

Exercise of warrants

Restricted share units

Deferred share units

Stock-based compensation

Earnings for the year

Loss for the year

Balance – 2021

Exercise of options

Restricted share units

Joint venture contribution

Services settled by common shares

Stock-based compensation

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Adjustments to reconcile net loss to cash flows in operating activities

Professional fees settled by common shares

Office lease accounting

Loss on working capital written-off upon joint venture formation

Gain on derecognition of assets (note 4(a))

Gain on disposal of mineral property

Loss on equity investment in Ambler Metals LLC (note 4(b))

Unrealized foreign exchange loss

Unrealized foreign exchange (gain) loss

Stock-based compensation

Write off mineral properties

Net change in non-cash working capital

Decrease (increase) in accounts receivable

Decrease in accounts receivable

Decrease (Increase) in deposits and prepaid amounts

(Decrease) increase in accounts payable and accrued liabilities

Decrease in accounts payable and accrued liabilities

Total cash flows used in operating activities

Cash flows from financing activities

Proceeds from exercise of options

Proceeds from exercise of warrants

Total cash flows from financing activities

Cash flows from investing activities

Acquisition of plant & equipment

Mineral properties funding

Mineral claims

Decrease in cash and cash equivalents

Effect of exchange rate on cash and cash equivalents

Cash and cash equivalents – beginning of year

Cash and cash equivalents – end of the year

Proceeds from disposition of mineral property

Total cash flows from (used in) investing activities

Decrease in cash

Effect of exchange rate on cash

Cash – beginning of the year

Cash – end of the year

(See accompanying notes to the consolidated financial statements)

Trilogy Metals Inc.

Notes to the Consolidated Financial Statements

1) Nature of operations

Trilogy Metals Inc., (“Trilogy”, the “Company”, or “we”) was incorporated in British Columbia under the Business Corporations Act (BC) on April 27, 2011.

Notes to Consolidated Financial Statements

1) Nature of operations and Going Concern

Trilogy Metals Inc.

(“Trilogy”, the “Company”, or “we”) was incorporated in British Columbia under the Business Corporations Act (BC) on April 27, 2011.

The Company is engaged in the exploration and development of mineral properties, through our equity investee (note 4), with a focus on the Upper Kobuk Mineral Projects (“UKMP”), including the Arctic and Bornite Projects located in Northwest Alaska in the United States of America (“US” or “USA”).

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

These consolidated financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.

As at November 30, 2022, the Company had a working capital surplus of $ 2.4 million (2021 - $ 5.6 million) and an accumulated deficit of $ 66.9 million (2021 - $ 42.6 million).

The Company has no recurring source of cash inflows at its current stage.

The Company’s cash outflow from operations was $ 3.9 million for the year ended November 30, 2022.

The Company intends to finance its future requirements through a combination of debt and/or equity issuance.

There is no assurance that the Company will be able to obtain such financings or obtain them on a favourable terms.

These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern.

These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

Such adjustments could be material.

2) Summary of significant accounting policies

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These financial statements were approved by the Company’s Board of Directors for issue on February 13, 2023.

Cash and cash equivalents

Cash and cash equivalents had been comprised of highly liquid investments maturing less than 90 days from date of initial investment.

Cash consists of cash held in banking institutions.

Investment in affiliates

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The Company’s maximum exposure to loss is its investment in Ambler Metals.

Ambler Metals is a non-publicly traded equity investee holding exploration and development projects.

Investments in unconsolidated entities accounted for under the equity method are assessed for impairment whenever changes in the facts and circumstances indicate an other than temporary loss in value has occurred.

When indicators exist, the fair value is estimated and compared to the investment carrying value.

If any impairment is determined to be other than temporary, the carrying value of the investment is written down to fair value.

The fair value of the impaired investment may be based upon the valuation of cohort companies with similar projects or 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.

Judgement is applied in evaluating indicators of impairment.

Events that could indicate impairment of an investment in affiliates include sustained losses by the investment, the absence of the ability to recover the carrying amount of the investment, or a deterioration of market conditions, among others.

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

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

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, sustained losses by the investment, the absence of the ability to recover the carrying amount of the investment, deterioration of market conditions inclusive of 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 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.

Plant and equipment are recorded at cost and amortization begins when the asset is put into service.

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Office furniture and equipment

Machinery and equipment

Mineral properties and development costs

All direct costs related to the acquisition of mineral property interests are capitalized.

Mineral property exploration expenditures is expensed when incurred.

Mineral property exploration expenditures are expensed when incurred.

When it has been established that a mineral deposit is commercially mineable, an economic analysis has been completed and permits are obtained, the costs subsequently incurred to develop a mine on the property prior to the start of mining operations are capitalized.

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The Company has taken steps, in accordance with industry standards, to verify the title to mineral properties.

Although the Company has made efforts to ensure that legal titles to its mining assets are properly recorded through the Joint Venture, there can be no assurance that such title will be secured indefinitely.

Although the Company has made efforts to ensure that legal titles to its mining assets are properly recorded through the 50/ 50 joint venture (the “Joint Venture”) named Ambler Metals with South32 Limited (“South32”), there can be no assurance that such title will be secured indefinitely.

Impairment of long-lived assets

Management assesses the possibility of impairment in the carrying value of long-lived assets whenever events or circumstances indicate that the carrying amounts of the asset or asset group may not be recoverable.

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

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.

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Operating lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected remaining lease term.

Certain adjustments to the ROU asset may be required for items such as

incentives received.

Certain adjustments to the ROU asset may be required for items such as incentives received.

The interest rate implicit in lease contracts is typically not readily determinable.

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In determining these assumptions, management uses readily observable market inputs where available or, where not available, inputs generated by management.

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

Loans and receivables are recorded initially at fair value, net of transaction costs incurred, and subsequently at amortized cost using the effective interest rate method.

Loans and receivables consist of cash and cash equivalents, accounts receivable, and deposits.

Loans and receivables consist of cash, accounts receivable, and deposits.

Other financial liabilities are recorded initially at fair value and subsequently at amortized cost using the effective interest rate method.

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GAAP requires management to make estimates and assumptions of future events that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of expenditures during the period.

Significant judgments include the assessment of potential indicators of impairment of mineral properties and investments in affiliates.

Significant estimates include the measurement of the South32 property acquisition option and subsequent equity method investment, income taxes, and the valuation of stock-based compensation.

Significant judgments include the assessment of potential indicators of impairment of mineral properties and investments in affiliates where key judgement is the delay on the Ambler Access Project is temporary and the delay was considered when assessing indicators of impairment.

Significant estimates include the measurement of the South32 property

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

acquisition option and subsequent equity method investment, income taxes, and the valuation of stock-based compensation.

Actual results could differ materially from those reported.

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GST input tax credits

Ambler Metals

Accounts receivable

The balance due from Ambler Metals for the prior year (see note 4 below) consisted of services rendered by Trilogy and reimbursements for invoices paid by Trilogy on behalf of Ambler Metals pursuant to a service agreement.

4) Investment in Ambler Metals LLC

Formation of Ambler Metals LLC

On February 11, 2020, the Company completed the formation of a 50/ 50 joint venture named Ambler Metals with South32 Limited (“South32”).

On February 11, 2020, the Company completed the formation of the 50 / 50 Joint Venture named Ambler Metals with South32.

As part of the formation of the Joint Venture, Trilogy contributed all its assets associated with the UKMP, including the Arctic and Bornite Projects, while South32 contributed $ 145 million, resulting in each party’s subsidiaries directly owning a 50 % interest in Ambler Metals.

21 unchanged sentences

Gain on derecognition

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

Carrying value of investment in Ambler Metals

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November 30, 2021, Investment in Ambler Metals

Joint venture equity contribution

Share of loss on equity investment for the year ending November 30, 2022

November 30, 2022, Investment in Ambler Metals

The following table summarizes Ambler Metals’ Balance Sheet as at November 30, 2022.

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Members' equity (total assets less total liabilities)

The following table summarizes Ambler Metals’ net loss for the year ended November 30, 2021 and from the formation of the joint venture on February 11, 2020 to the end of the reporting period on November 30, 2020.

For the prior year comparative, $ 0.3 million has been reclassed from general and administrative expense to mineral properties expense in order to reflect the current year presentation.

The following table summarizes Ambler Metals’ net loss for the years ended November 30, 2022 and November 30, 2021.

in thousands of dollars

February 11, 2020 to

November 30, 2022

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General and administrative

Lease expense

Mineral property expense

3 unchanged sentences

Comprehensive loss

Related party transactions - services agreement income

During the fiscal year, the Company charged approximately $ 22,000 (2020 - $ 0.9 million) of expenses related to technical services, including geological, engineering, environmental and human resources and accounting services in connection with the Services Agreement.

In addition, the Company received payments of approximately $ 4,000 (2020 - $ 2.8 million) related to operating expenses paid on behalf of Ambler Metals for the year ended November 30, 2021.

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

Related party transactions

During the fiscal year 2022, the Company transferred a mineral claim to Ambler Metals and received net proceeds of approximately $ 140,000 .

During the fiscal year 2021, the Company charged $ 22,000 of expenses related to technical services, including geological, engineering, environmental and human resources and accounting services in connection with the Services Agreement.

In addition, the Company received payments $ 4,000 related to operating expenses paid on behalf of Ambler Metals.

5) Fixed assets

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Furniture and

Machinery and

November 30, 2020

ASC 842 adoption

Assets derecognized (note 4(a))

November 30, 2020

ROU asset reclass

November 30, 2021

Accumulated amortization

Write off fully depreciated assets

November 30, 2022

Assets derecognized (note 4(a))

Accumulated amortization

November 30, 2020

1 unchanged sentence

November 30, 2021

Write off fully depreciated assets

November 30, 2022

Net Book Value

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November 30, 2021

Acquisition costs

November 30, 2022

in thousands of dollars

November 30, 2019

November 30, 2020

On January 11, 2010, NovaGold Resources Inc.

(“NovaGold”), through Alaska Gold Company (“AGC”), its wholly-owned subsidiary, purchased 100 % of the Ambler lands in Northwest Alaska, which contains the copper-zinc-lead-gold-silver Arctic Project and other mineralized targets within the volcanogenic massive sulfide belt, through a series of cash and share payments.

Total fair value of the consideration was $ 26.6 million.

The vendor retained a 1 % net smelter return royalty that can be purchased at any time for a one-time payment of $ 10.0 million.

The Ambler lands were acquired on October 17, 2011 by Trilogy Metals US through a purchase and sale agreement with AGC.

On October 24, 2011, NovaGold transferred its ownership of Trilogy Metals US to the Company, then a wholly owned subsidiary of NovaGold, which was subsequently spun-out to NovaGold shareholders and publicly listed on April 30, 2012 (“NovaGold Arrangement”).

On October 19, 2011, Trilogy Metals US acquired the exclusive right to explore and the non-exclusive right to access and enter on the Bornite lands, and lands deeded to NANA Regional Corporation, Inc.

(“NANA”) through the Alaska Native Claims Settlement Act, located adjacent to the Ambler lands in Northwest Alaska.

As consideration, Trilogy Metals US paid $ 4 million to acquire the right to explore and develop the combined Upper Kobuk Mineral Projects (“UKMP”) through an Exploration Agreement and Option to Lease with NANA.

Upon a decision to proceed with construction of a mine on the lands, NANA maintains the right to purchase between a 16 %- 25 % ownership interest in the mine or retain a 15 % net proceeds royalty which is payable after Trilogy Metals US has recovered certain historical costs, including capital and cost of capital.

Should NANA elect to purchase an ownership interest, consideration will be payable equal to all historical costs incurred on the properties, less $ 40 million, with the difference multiplied by the elected percentage purchased.

In no event will the purchase amount be less than zero .

The parties would form a joint venture and be responsible for all future costs, including capital costs of the mine based on their pro-rata share.

NANA would also be granted a net smelter return royalty of between 1 % and 2.5 % upon the execution of a mining lease or a surface use agreement, the amount of which is determined by the classification of land from which production originates.

Option Agreement

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

(“South32”) on the UKMP (“Option Agreement”).

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

Upon exercise of the option, the option agreement provided that Trilogy Metals US would transfer its Alaskan assets, including the UKMP, and South32 would contribute the Subscription Price (as defined below) to a newly formed and jointly held, limited liability company (“LLC”) (see note 4(a)).

To maintain the option in good standing, South32 was required to fund a minimum of $ 10 million per year for up to a three-year period, which funds were to execute a mutually agreed upon program at the UKMP.

The funds provided by South32 could only be expended in accordance with an approved program by a technical committee with equal representation from Trilogy and South32.

South32 could exercise its option at any time over the three-year period to enter into the 50/50 joint venture.

To subscribe for 50 % of the joint venture, the Option Agreement provided that South32 must contribute $ 150 million, plus (i) any amounts Trilogy spends on matched parallel funding to a maximum of $ 16 million over the three-year period and (ii) $ 5 million if the option had been exercised between April 1, 2018 and March 31, 2019 or $ 10 million if the option was exercised between April 1, 2019 and the expiration date of the option, less the amount of the initial funding contributed by South32 (the “Subscription Price”).

funded the full three-year option period.

During the year ended November 30, 2020, South32 elected to exercise the option to form the LLC and made the Subscription Price payment on February 5, 2020 (see note 4 (a)).

As the initial option payments were credited against the future subscription price upon exercise, the Company accounted for the payments received from South32 as deferred consideration for the purchase of the UKMP interest.

The $ 31.0 million of payments received were recognized as part of the consideration received for the Company’s contribution of the UKMP into the LLC.

The option to form the LLC was recognized as a financial instrument at inception of the arrangement with an initial fair value of $nil.

This option was required to be re-measured at fair value at each reporting date with any changes in fair value recorded in loss for the period.

The Company determined that the fair value of the option remained $nil during the option period and through to the formation of the Joint Venture on February 11, 2020.

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

Mineral properties expense

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As a result, machinery and equipment with a carrying value of $ 0.62 million as well as $ 30.6 million of mineral properties related to the UKMP were derecognized by Trilogy on February 11, 2020.

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

7) Accounts payable and accrued liabilities

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in thousands of dollars

ASC transition as at December 1, 2019

Net amortization

Derecognition of Fairbanks warehouse lease

Balance as at November 30, 2020

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Balance as at November 30, 2021

The pre-transition rent deposit of approximately $ 114,000 was transferred to the Right-of-use asset upon adoption of ASC 842 on December 1, 2019 and is included in the opening balance of approximately $ 681,000 .

Net amortization

Balance as at November 30, 2022

(b) Lease liabilities

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● Cash paid for amounts included in the measurement of lease liabilities was $ 203,001 .

During the year ended November 30, 2020, no cash was paid upon termination of a lease for office and warehouse space and reassignment to Ambler Metals that resulted in the derecognition of the right-of-use asset of $ 92,974 and the operating lease liability of $ 93,006 .

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

Future minimum payments relating to the lease recognized in our balance sheet as of November 30, 2022 are as follows:

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Exercise of options

Restricted Share Units

November 30, 2021

Exercise of options

Restricted Share Units

Services settled by common shares

Joint venture equity contribution (note 4(b))

November 30, 2022, issued and outstanding

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The options are exercisable for a maximum of five years from the date of grant and may be subject to vesting provisions.

During the year ended November 30, 2021, a total of 3,374,150 options (2020 – 4,445,000 options, 2019 – 3,077,500 ) at a weighted-average exercise price of CDN$ 2.52 (2020 - CDN$ 2.79 , 2019 – CDN$ 2.86 ) were granted to employees, service providers and directors exercisable for a period of five years with various vesting terms from immediate vesting to over a two-year period.

The weighted-average fair value attributable to options granted in 2021 was $ 0.84 (2020 - $ 0.90 , 2019 - $ 1.03 ).

The fair value of the stock options recognized in the period has been estimated using the Black-Scholes option pricing model.

Assumptions used in the pricing model for the period are as provided below.

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

During the year ended November 30, 2022, the Company granted 1,734,500 stock options (2021 – 3,374,150 stock options, 2020 – 4,445,000 ) at an exercise price of CDN$ 2.21 (2021 - CDN$ 2.52 , 2020 – CDN$ 2.79 ) to employees, consultants and directors exercisable for a period of five years with various vesting terms from immediate vesting to over a two-year period.

The fair value attributable to options granted in 2022 was $ 0.71 (2021 -$ 0.84 , 2020 - $ 0.90 ).

The fair value of the stock options recognized for the year ended November 30, 2022 has been estimated using the Black-Scholes option pricing model.

Assumptions used in the pricing model for the year are as provided below.

November 30, 2022

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2020 - $ 3.1 million), net of forfeitures.

As of November 30, 2021, there were 2,526,338 non-vested options outstanding with a weighted average exercise price of $ 2.06 .

As of November 30, 2022, there were 1,379,836 non-vested options outstanding with a weighted average exercise price of CDN$ 2.35 .

The non-vested stock option expense not yet recognized was $ 0.1 million.

This expense is expected to be recognized over the next two years .

The exercise prices have been converted to US dollars based on the November 30, 2021 closing foreign exchange rate of CAD$1.00 = US$ 0.7817 .

This expense is expected to be recognized over the next twelve months .

A summary of the Company’s stock option plan and changes during the year ended is as follows:

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Balance – beginning of the year

( 1,330,326 )

Balance – end of the year

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

During the year ended November 30, 2022, the Company received net proceeds of $ 54,295 upon the exercise of 81,674 options.

The following table summarizes information about the stock options outstanding at November 30, 2022.

2 unchanged sentences

exercise price

Range of exercise price

$ 0.55 to $ 1.00

Range of exercise price - CDN

$ 1.00 to $ 1.50

2 unchanged sentences

$ 3.01 to $ 3.41

The aggregate intrinsic value of vested share options (the market value less the exercise price) at November 30, 2021 was $ 0.8 million (2020 - $ 2.4 million, 2019 - $ 7.2 million) and the aggregate intrinsic value of exercised options for the year ended November 30, 2021 was $ 1.4 million (2020 - $ 2.6 million, 2019 - $ 2.6 million).

The aggregate intrinsic value of vested share options (the market value less the exercise price) at November 30, 2022 was $nil (2021 - $ 0.8 million, 2020 - $ 2.4 million) and the aggregate intrinsic value of exercised options for the year ended November 30, 2022 was $ 0.04 million (2021 - $ 1.4 million, 2020 - $ 2.6 million).

Restricted Share Units and Deferred Share Units

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All units are accounted for as equity-settled awards.

There were no RSUs granted during the fiscal year ended November 30, 2021.

There were 1,359,349 RSUs granted during the fiscal year ended November 30, 2022 (2021 – nil , 2019 – nil ).

Directors were granted 283,289 DSUs throughout the year ended November 30, 2022 (2021 – 58,925 , 2020 – 83,775 ) based on their election to receive 50 % of their annual retainer in DSUs.

A summary of the Company’s DSU Plan and changes during the year ended November 30, 2021 is as follows:

A summary of the Company’s RSU and DSU Plan and changes during the year ended November 30, 2022 is as follows:

Number of RSUs

Number of DSUs

Balance – beginning of the year

( 1,102,081 )

Balance – end of the year

For the year ended November 30, 2022, Trilogy recognized a stock-based compensation expense of $ 2.0 million (2021 - $ 0.1 million, 2020 - $ 0.5 million).

During the year ended November 30, 2019, all the outstanding warrants were exercised in advance of the July 2, 2019 expiry date.

As a result of the warrants exercised, the Company issued a total of 6,521,740 common shares and received cash proceeds of approximately $ 9.9 million.

The Company had no warrants outstanding as at November 30, 2021.

10) Management of capital risk

The Company relies upon management to manage capital in order to accomplish the objectives of safeguarding the Company’s ability to continue as a going concern in order to pursue the development of our main mineral properties, at the UKMP, through our equity investee (note 4) and maintain a capital structure which optimizes the costs of capital at an acceptable risk.

The Company relies upon management to manage capital in order to accomplish the objectives of safeguarding the Company’s ability to continue as a going concern in order to pursue the development of the mineral properties, at the UKMP, through our equity investee (note 4) and maintain a capital structure which optimizes the costs of capital at an acceptable risk.

The Company’s current capital consists of equity funding through capital markets.

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

As the Company is currently in the exploration phase none of its financial instruments are exposed to commodity price risk;

6 unchanged sentences

These risks and management’s objectives, policies and procedures for managing these risks are disclosed as follows.

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, deposits, and accounts payable and accrued liabilities.

The Company’s financial instruments consist of cash, accounts receivable, deposits, and accounts payable and accrued liabilities.

The fair value of the Company’s financial instruments approximates their carrying value due to the short-term nature of their maturity.

The Company’s 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.

The Company’s financial instruments initially measured at fair value and then held at amortized cost include cash, accounts receivable, deposits, and accounts payable and accrued liabilities.

Financial risk management

6 unchanged sentences

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations.

The Company holds cash and cash equivalents with Canadian Chartered financial institutions.

The Company’s only significant exposure to credit risk is equal to the balance of cash and cash equivalents as recorded in the financial statements.

The Company holds cash with Canadian chartered financial institutions.

The Company’s only significant exposure to credit risk is equal to the balance of cash as recorded in the financial statements.

Liquidity risk

2 unchanged sentences

therefore, the Company manages liquidity risk through the management of its capital structure and financial leverage.

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

Contractually obligated cash flow requirements as at November 30, 2022 are as follows.

3 unchanged sentences

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

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, 2021, a 1 % change in interest rates would result in a change in net loss of approximately $ 160 , assuming all other variables remain constant.

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

Based on balances as at November 30, 2022 a 1 % change in interest rates would result in a negligible change in net loss, 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;

7 unchanged sentences

The Company did not have any financial assets and liabilities that were measured and recognized at fair value as at November 30, 2022.

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

12) Income taxes

8 unchanged sentences

Difference in foreign tax rates

Impact of change in tax rate

Effect of foreign exchange changes

1 unchanged sentence

Income from option payments applied as proceeds of sale

Return to provision adjustments

Change in estimates in respect of prior years

Impact of new lease accounting rules (ASC 842 adoption)

Expiry of Losses

Change in valuation allowance

8 unchanged sentences

Mineral property interest

Mineral property impairment

Deferred interest

9 unchanged sentences

Right of use asset

Other taxable temporary differences

Deferred income tax liabilities

Net deferred income tax assets

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

The Company has loss carry-forwards of approximately $ 203 million that may be available for tax purposes.

21 unchanged sentences

The Company has commitments with respect to an office lease requiring future minimum lease payments as summarized in note 8(b).

Trilogy Metals Inc.

Notes to Consolidated Financial Statements

14) Subsequent events

On December 9, 2021 directors were granted 350,000 stock options and 144,200 DSUs, all vesting immediately.

Employees and service providers were granted 1,734,500 stock options, of which 578,166 options vested immediately, with the remainder vesting equally on the first anniversary of the grant date and the second anniversary of the grant date.

Employees were also granted 648,600 RSUs, of which 391,332 units vested on the grant date.

The remaining 257,268 units vest equally on the first anniversary of the grant date and the second anniversary of the grant date.

On December 1, 2022, senior management and the Board of Directors were granted 392,497 RSUs and 60,519 DSUs in settlement of approximately $ 170,000 for salaries and $ 35,000 for director fees.

On December 8, 2022, the Company granted 1,056,350 RSUs for short term incentives to executive and employees, all vesting immediately.

Directors were granted 700,000 DSUs and 580,000 stock options, all vesting immediately.

Employees and consultants were granted 2,650,000 stock options and 2,250,000 RSUs with vesting schedule one-third vesting immediately, one-third to vest on the one year anniversary of the grant date and one-third to vest on the second year anniversary of the grand date.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data