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Item 2. Management’s Discussion and Analysis

2024-07-10 compared with 2024-04-03 · 65 added, 57 removed, 134 unchanged (48% of the section changed)

2 unchanged sentences

Management’s Discussion & Analysis

For the Quarter Ended February 29, 2024

For the Quarter Ended May 31, 2024

(expressed in US dollars)

1 unchanged sentence

Forward-looking statements

This Management’s Discussion and Analysis contains “forward-looking information” and “forward-looking statements” within the meaning of Section 27A of the U.S.

This Management’s Discussion and Analysis (“MD&A”) contains “forward-looking information” and “forward-looking statements” within the meaning of Section 27A of the U.S.

Securities Act of 1933, as amended, Section 21E of the U.S.

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

perceived merit of properties, exploration results and budgets, the impact of the Bureau of Land Management’s (“BLM”) suspension of permits on the right-of-way with the Alaska Industrial Development and Export Authority (“AIDEA”) relating to the Ambler Road Project, the Company and Ambler Metals’ funding requirements, mineral reserves and resource estimates, work programs, capital expenditures, operating costs, cash flow estimates, production estimates and similar statements relating to the economic viability of a project, timelines, strategic plans, statements regarding Ambler Metals’ plans and expectations relating to its Upper Kobuk Mineral Projects (as defined below), sufficiency of the Ambler Meals’ cash to fund the UKMP, impact of COVID-19 on the Company’s operations, market prices for precious and base metals, statements regarding the Ambler Access Project ( also known as the Ambler Mining District Industrial Access Project) , or other statements that are not statements of fact.

perceived merit of properties, exploration results and budgets, the impact of the Bureau of Land Management’s (“BLM”) suspension of permits on the right-of-way with the Alaska Industrial Development and Export Authority (“AIDEA”) relating to the Ambler Road Project, the Company and Ambler Metals’ funding requirements, mineral reserves and resource estimates, work programs, capital expenditures, operating costs, cash flow estimates, production estimates and similar statements relating to the economic viability of a project, timelines, strategic plans, statements regarding Ambler Metals’ plans and expectations relating to its Upper Kobuk Mineral Projects (as defined below), sufficiency of the Ambler Metals’ cash to fund the UKMP, impact of COVID-19 on the Company’s operations, market prices for precious and base metals, statements regarding the Ambler Access Project ( also known as the Ambler Mining District Industrial Access Project) , or other statements that are not statements of fact.

These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.

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Trilogy Metals Inc.

For the Quarter Ended February 29, 2024

For the Quarter Ended May 31, 2024

● 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 29, 2024

For the Quarter Ended May 31, 2024

● our history of losses and expectation of future losses;

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Trilogy Metals Inc.

For the Quarter Ended February 29, 2024

For the Quarter Ended May 31, 2024

● adverse federal income tax consequences for U.S.

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● increased regulatory compliance costs, associated with rules and regulations promulgated by the United States Securities and Exchange Commission, Canadian Securities Administrators, the NYSE American, the Toronto Stock Exchange, and the Financial Accounting Standards Boards, and more specifically, our efforts to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act.

● risks related to the future effect of the COVID-19 pandemic.

This list is not exhaustive of the factors that may affect any of the Company’s forward-looking statements.

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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 3, 2024 and provides an analysis of our unaudited interim financial results for the quarter ended February 29, 2024 compared to the quarter ended February 28, 2023.

The following information should be read in conjunction with our February 29, 2024 unaudited interim 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 10, 2024 and provides an analysis of our unaudited condensed interim financial results for the quarter ended May 31, 2024 compared to the quarter ended May 31, 2023.

The following information should be read in conjunction with our May 31, 2024 unaudited condensed interim 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, 2023.

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Trilogy’s shares are listed on the Toronto Stock Exchange (“TSX”) and the NYSE American Stock Exchange (“NYSE American”) under the symbol “TMQ”.

Additional information related to Trilogy, including our annual report on Form 10-K for the fiscal year ended November 30, 2023, is available on SEDAR+ at www.sedarplus.ca and on EDGAR at www.sec.gov.

Additional information related to Trilogy, including our annual report on Form 10-K for the fiscal year ended November 30, 2023, is available on SEDAR+ at www.sedarplus.com and on EDGAR at www.sec.gov.

Trilogy Metals Inc.

For the Quarter Ended February 29, 2024

For the Quarter Ended May 31, 2024

Description of business

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The Company has a 2024 fiscal year cash budget totaling $2.8 million.

During the quarter ended February 29, 2024 we were on budget with cash expenditures of $0.8 million for personnel costs, professional fees, insurance, regulatory and office expenses.

Our current office lease expires at the end of June 2024 and we have signed a new office lease starting July 1, 2024 for four years.

For the six-month period ended May 31, 2024, we used $1.1 million in operating activities mainly for personnel costs, professional fees, regulatory and office expenses compared with budgeted cash expenditures totaling $1.5 million.

The difference is due to the timing of paying our annual insurance premiums which occurred in June 2024.

Annual General Meeting

The Annual General Meeting of shareholders was held on May 22, 2024.

All directors nominated by the Company were elected by shareholders of the Company, with each director receiving greater than 98% of the votes cast.

The shareholders of the Company also approved the adoption of a new Fixed Deferred Share Unit Plan for non-employee directors to receive up to 1,200,000 common shares of the Company in lieu of cash compensation.

Upon the approval of the new Fixed Deferred Share Unit Plan, the Company terminated the Ambler Metals Equity Plan which had 1,181,519 outstanding common shares available for future grants.

The adoption of the new Fixed Deferred Share Unit Plan along with the termination of the Ambler Metals Equity Plan allows the Company to continue its cash preservation activities without significantly impacting potential dilution.

Ambler Metals LLC

The Board of Ambler Metals approved a 2024 fiscal year budget totaling $5.5 million to support external and community affairs, to maintain the State of Alaska mineral claims in good standing and for the maintenance of physical assets.

During the quarter ended February 29, 2024 Ambler Metals expended $1.2 million on salaries and wages, professional fees and mineral property expenses in engineering and project support costs compared with the budget of $1.4 million for the quarter.

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

In December 2023, the Board of Ambler Metals approved a 2024 fiscal year budget of $2.5 million for the Ambler Access Project to assist AIDEA with funding costs related to the final Supplemental Environmental Impact Statement (“SEIS”) and completion of cultural resource studies and engineering studies related to bridge crossings along the road route.

For the quarter ended February 29, 2024, Ambler Metals expended $0.4 million to AIDEA compared with the budget of $0.6 million for the quarter.

On March 18, 2024 the BLM filed its 11th status report with the Courts stating that they posted the draft SEIS on its ePlanning website on October 13, 2023 and published notice of availability of the draft SEIS in the Federal Register on October 20, 2023.

The public comment period ended on December 22, 2023.

The BLM conducted several public meetings concerning the draft SEIS, and conducted associated ANILCA Section 810 hearings on subsistence use in communities affected by the project.

The BLM had previously reported that it anticipated publishing a final SEIS in the first quarter of calendar year 2024, but now anticipates publishing a final SEIS in the second quarter of calendar year 2024.

The BLM continues to anticipate publishing a Record of Decision within the second quarter of calendar year 2024.

During the six-month period ended May 31, 2024 Ambler Metals expended $2.4 million on salaries and wages, professional fees, engineering, project support costs and mineral property expenses, excluding Ambler Access Project costs compared with the budget of $2.6 million.

The Board of Ambler Metals also approved a 2024 fiscal year budget totaling $2.5 million to support the Ambler Access Project (“AAP”).

During the six-month period ended May 31, 2024 Ambler Metals funded $1.1 million to the Alaska Industrial Development and Export Authority (“AIDEA”) in support of the AAP compared with the budget of $1.3 million.

During the second quarter of 2024, Trilogy and South32 agreed to return excess cash held by Ambler Metals to the owners for ease of cash management.

The owners also agreed to maintain a minimum cash balance at Ambler Metals of $10 million which will be reviewed on a regular basis.

Ambler Metals returned $25 million to Trilogy and South32 prior to the end of May 2024 and another $25 million during the first half of June 2024.

Trilogy Metals Inc.

For the Quarter Ended February 29, 2024

For the Quarter Ended May 31, 2024

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

On April 22, 2024, the Company announced that the United States Bureau of Land Management (“BLM”) had filed the Final Supplemental Environmental Impact Statement (“SEIS”) for the AAP on its website.

The Final SEIS identifies “No Action” as the BLM’s preferred alternative.

The proponent for the AAP is AIDEA which is a public corporation of the State of Alaska.

AIDEA’s purpose is to promote, develop, and advance general prosperity and economic welfare of the people of Alaska.

AIDEA strongly objected to both the process used by the BLM to reach a “No Build” decision and the effect of the decision which illegally blocks access to statehood lands, minerals, and federally patented mining claims.

On May 8, 2024 NANA announced its withdrawal from further involvement with the AAP and stated intentions to not renew the surface access permit with AIDEA upon its expiry this year.

On June 28, 2024, the BLM issued the Record of Decision confirming their selection of the No Action Alternative and thus denies AIDEA’s application for a Right-Of-Way grant (“ROW Grant”) across BLM-managed lands and terminates the BLM ROW Grant issued to AIDEA on January 5, 2021.

Summary of results

1 unchanged sentence

Three months ended

February 29, 2024

February 28, 2023

Six months ended

Selected expenses

6 unchanged sentences

Basic and diluted loss per common share

For the three-month period ended February 29, 2024, we reported a net loss of $3.6 million compared to a net loss of $5.1 million for the three-month period ended February 28, 2023.

The decrease in comprehensive loss in the first quarter of 2024 compared to the same quarter in 2023 is due to the decrease in our share of loss of Ambler Metals, and stock-based compensation and salaries.

The decrease of our share of losses of Ambler Metals is mainly due to the decrease in corporate wages and in mineral property expenses.

The primary drivers in decrease in mineral property expenses over the comparative quarter in the prior year were from the decrease in project support costs and cost in the Ambler Access Project.

For the three-month period ended May 31, 2024, we reported a net loss of $1.8 million compared to a net loss of $2.8 million for the three-month period ended May 31, 2023.

The decrease in comprehensive loss in the second quarter of 2024 compared to the same quarter in 2023 is due to the decrease in general and administrative, professional fees, our share of loss of Ambler Metals, and stock-based compensation and salaries.

The decrease of our share of losses of Ambler Metals is mainly due to the decrease in corporate wages and in mineral property expenses partially offset from the increase in professional fees.

The primary drivers in decrease in mineral property expenses over the comparative quarter in the prior year were from a reduction in activities both at the project level and at the AAP.

For the six-month period ended May 31, 2024, we reported a net loss of $5.4 million compared to a net loss of $7.9 million for the six-month period ended May 31, 2023.

The decrease for the six-month period ended May 31, 2024 when compared to the same period in 2023, is primarily due to the decrease in our share of loss of Ambler Metals, professional fees and stock-based compensation and salaries.

The decrease of our share of losses of Ambler Metals is mainly due to the decrease in corporate wages due to a reduction in staffing and a reduction in mineral property expenses due to a reduction in project activities which was partially offset by the increase in professional consulting fees related to government and external affairs.

Trilogy Metals Inc.

For the Quarter Ended May 31, 2024

Liquidity and capital resources

We expended $0.6 million on operating activities during the three-month period ending February 29, 2024 with the majority of cash spent on professional fees and American and Canadian securities commission fees related to our annual regulatory filings, annual fees paid to the Toronto Stock Exchange and the NYSE American Exchange and corporate salaries.

As at February 29, 2024, we had cash and cash equivalent of $2.0 million and working capital of $1.7 million.

Management continues with cash preservation strategies to reduce 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 deferred share units in an effort to preserve cash.

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

We expended $1.1 million on operating activities during the six-month period ending May 31, 2024 with the majority of cash spent on professional fees and American and Canadian securities commission fees related to our annual regulatory filings, annual fees paid to the Toronto Stock Exchange and the NYSE American Exchange and corporate salaries.

As at May 31, 2024, we had cash and cash equivalents of $14.0 million and working capital of $13.6 million.

At the end of the fiscal quarter, Trilogy received $12.5 million from Ambler Metals as a return of excess cash to the owners.

Although the Company has a strong cash position, Management continues with cash preservation strategies to reduce 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 continue to take all of their fees in deferred share units in an effort to preserve cash.

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

All project related costs are funded by Ambler Metals.

Amber Metals is well funded to advance the UKMP with $61.3 million in cash and cash equivalents and $61.1 million in working capital as at February 29, 2024.

There are sufficient funds at Ambler Metals 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 and cash equivalent balance of $61.3 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 are likely in the form of an equity financing but may include debt financing, convertible debts, 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 February 29, 2024

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

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

Amber Metals had $35.1 million in cash and cash equivalents and $34.9 million in working capital as at May 31, 2024.

During the first half of June, Ambler Metals retuned $25 million to the owners, resulting in a cash position of approximately $11 million which is sufficient for Ambler Metals to fund this fiscal year’s budget for the UKMP and the Ambler Access Project.

Off-balance sheet arrangements

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Outstanding share data

As at April 3, 2024, we had 160,166,788 common shares issued and outstanding.

As at April 3, 2024, we had 14,354,400 stock options outstanding with a weighted-average exercise price of CDN$1.79, 2,812,190 Deferred Share Units (“DSUs”), and 2,293,339 Restricted Share Units (“RSUs”) outstanding.

As at April 3, 2024 we hold 5,144 NovaGold Resources Inc.

As at July 10, 2024, we had 160,552,808 common shares issued and outstanding.

As at July 10, 2024, we had 14,316,900 stock options outstanding with a weighted-average exercise price of CDN$1.78, 2,980,377 Deferred Share Units (“DSUs”), and 2,318,339 Restricted Share Units (“RSUs”) outstanding.

As at July 10, 2024 we hold 5,144 NovaGold Resources Inc.

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

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The most critical accounting estimates upon which our financial status depends are those requiring estimates of the recoverability of our equity method investment in Ambler Metals, income taxes and valuation of stock‐based compensation.

Trilogy Metals Inc.

For the Quarter Ended May 31, 2024

Impairment of Investment in Ambler Metals LLC

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

Ambler Metals is a non-publicly traded equity investment owning exploration and development projects.

Significant judgments are made in assessing the possibility of impairment.

Management considers factors that may be indicative of an impairment include a loss in the value of an investment that is not temporary.

Factors consider include but are not limited to, sustained losses by the investment, the absence of the ability to recover the carrying amount of the investment, significant changes in the legal, business or regulatory environment, significant adverse changes impacting the investee and internal reporting indicating the economic performance of an investment is, or will be, worse than expected.

These factors are subjective and require consideration at each period end.

If an indicator of impairment is determined to exist, the fair value of the impaired investment is determined based on the valuation of cohort companies with similar projects or upon the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and observed market earnings multiples of comparable companies.

The Company assesses whether there has been a potential triggering event for other-than-temporary impairment by assessing the underlying assets of Ambler Metals for recoverability and assessing whether there has been a change in the development plan or strategy for the projects.

If the Company concludes there is sufficient evidence for an other-than-temporary impairment, an assessment of fair value is performed.

If the underlying assets are not recoverable, the Company will record an impairment charge equal to the difference between the carrying amount of the equity investment and its fair value.

This assessment is subjective and require consideration at each period end.

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.

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

Trilogy Metals Inc.

For the Quarter Ended February 29, 2024

effectively settled issues.

The evaluation of an uncertain tax position requires significant judgment, and a change in such recognition would result in an additional charge to the income tax expense and liability.

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Additional information

Additional information regarding the Company, including our annual report on Form 10-K for the fiscal year ended November 30, 2023, is available on SEDAR+ at www.sedarplus.ca and EDGAR at www.sec.gov and on our website at www.trilogymetals.com.

Additional information regarding the Company, including our annual report on Form 10-K for the fiscal year ended November 30, 2023, is available on SEDAR+ at www.sedarplus.com and EDGAR at www.sec.gov and on our website at www.trilogymetals.com.

Information contained on our website is not incorporated by reference.

1 unchanged sentence

Not applicable.

Trilogy Metals Inc.

For the Quarter Ended May 31, 2024

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