Trilogy Metals Inc. 10-Q

Item 1. Financial Statements Trilogy Metals Inc. Condensed Interim Consolidated Balance Sheets (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ in thousands of US dollars ​ ​ ​ August 31, 2024 ​ ​ November 30, 2023 ​ ​ $ $ Assets ​ ​ ​ ​ ​ Current assets ​ ​ ​ ​ ​ Cash and cash equivalents ​ ​ 25,738 ​ ​ 2,590 ​ Accounts receivable ​ ​ 8 ​ ​ 33 ​ Deposits and prepaid amounts ​ ​ 352 ​ ​ 259 ​ Total current assets ​ ​ 26,098 ​ ​ 2,882 ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment in Ambler Metals LLC (note 3) ​ ​ 108,114 ​ ​ 135,021 ​ Fixed assets ​ ​ — ​ ​ 4 ​ Right of use asset (note 5(a)) ​ ​ 164 ​ ​ 113 ​ Total assets ​ ​ 134,376 ​ ​ 138,020 ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities ​ ​ ​ ​ ​ Current liabilities ​ ​ ​ ​ ​ Accounts payable and accrued liabilities (note 4) ​ ​ 391 ​ ​ 432 ​ Current portion of lease liability ​ ​ 37 ​ ​ 33 ​ Total current liabilities ​ ​ 428 ​ ​ 465 ​ ​ ​ ​ ​ ​ ​ ​ ​ Long-term portion of lease liability ​ ​ 125 ​ ​ — ​ Total liabilities ​ ​ 553 ​ ​ 465 ​ ​ ​ ​ ​ ​ ​ ​ ​ Shareholders’ equity ​ ​ ​ ​ ​ Share capital (note 6) – unlimited common shares authorized, no par value issued – 160,567,514 (2023 – 155,559,334 ) ​ ​ 190,200 ​ ​ 187,886 ​ Contributed surplus ​ ​ 118 ​ ​ 118 ​ Contributed surplus – options (note 6(a)) ​ ​ 28,741 ​ ​ 28,237 ​ Contributed surplus – units (note 6(b)) ​ ​ 3,528 ​ ​ 3,127 ​ Deficit ​ ​ ( 88,764 ) ​ ​ ( 81,813 ) ​ Total shareholders' equity ​ ​ 133,823 ​ ​ 137,555 ​ Total liabilities and shareholders' equity ​ ​ 134,376 ​ ​ 138,020 ​ Subsequent Events (note 8) (See accompanying notes to the condensed interim consolidated financial statements) /s/ Tony Giardini, President, CEO and Director /s/ Diana Walters, Director Approved on behalf of the Board of Directors ​ ​ ​ ​ ​ ​ Trilogy Metals Inc. For the Quarter Ended August 31, 2024 3 ​ Table of contents Trilogy Metals Inc. Condensed Interim Consolidated Statements of Loss and Comprehensive Loss (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ in thousands of US dollars, except share and per share amounts ​ ​ ​ For the three months ended ​ ​ For the nine months ended ​ ​ ​ ​ August 31, 2024 ​ ​ August 31, 2023 ​ ​ August 31, 2024 ​ ​ August 31, 2023 ​ ​ ​ $ $ $ $ ​ ​ Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization ​ ​ 1 ​ ​ 2 ​ ​ 4 ​ 6 ​ ​ Exploration expenses ​ ​ 28 ​ ​ 22 ​ ​ 28 ​ ​ 23 ​ ​ Foreign exchange loss (gain) ​ ​ 2 ​ ​ 3 ​ ​ 3 ​ 1 ​ ​ General and administrative ​ ​ 293 ​ ​ 278 ​ ​ 1,027 ​ 1,014 ​ ​ Investor relations ​ ​ 15 ​ ​ 18 ​ ​ 46 ​ 71 ​ ​ Professional fees ​ ​ 138 ​ ​ 139 ​ ​ 530 ​ 897 ​ ​ Salaries ​ ​ 158 ​ ​ 191 ​ ​ 527 ​ 621 ​ ​ Salaries and directors expense – stock-based compensation ​ ​ 506 ​ ​ 526 ​ ​ 3,014 ​ 3,379 ​ ​ Total expenses ​ ​ 1,141 ​ 1,179 ​ ​ 5,179 ​ 6,012 ​ ​ Other items ​ ​ ​ ​ ​ ​ ​ ​ Interest and other income ​ ​ ( 152 ) ​ ​ ( 37 ) ​ ​ ( 200 ) ​ ( 83 ) ​ ​ Services agreement income ​ ​ ( 22 ) ​ ​ — ​ ​ ( 47 ) ​ — ​ ​ Share of loss on equity investment (note 3(b)) ​ ​ 624 ​ ​ 2,910 ​ ​ 2,019 ​ ​ 5,998 ​ ​ Loss and comprehensive loss for the period ​ ​ ( 1,591 ) ​ ( 4,052 ) ​ ​ ( 6,951 ) ​ ( 11,927 ) ​ ​ Basic loss per common share ​ ​ ( 0.01 ) ​ ​ ( 0.03 ) ​ ​ ( 0.04 ) ​ ​ ( 0.08 ) ​ ​ Diluted loss per common share ​ ​ ( 0.01 ) ​ ​ ( 0.03 ) ​ ​ ( 0.04 ) ​ ​ ( 0.08 ) ​ ​ Basic weighted average number of common shares outstanding ​ ​ 160,542,286 ​ ​ 155,550,284 ​ ​ 159,466,414 ​ ​ 151,572,299 ​ ​ Diluted weighted average number of common shares outstanding ​ ​ 160,542,286 ​ ​ 155,550,284 ​ ​ 159,466,414 ​ ​ 151,572,299 ​ ​ (See accompanying notes to the condensed interim consolidated financial statements) ​ ​ ​ ​ ​ ​ Trilogy Metals Inc. For the Quarter Ended August 31, 2024 4 ​ Table of contents Trilogy Metals Inc. Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity (unaudited) in thousands of US dollars, except share amounts ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contributed ​ ​ Contributed ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ ​ ​ Contributed ​ ​ surplus – ​ ​ surplus – ​ ​ ​ ​ ​ shareholders’ ​ ​ Number of shares ​ ​ Share capital ​ ​ surplus ​ ​ options ​ ​ units ​ ​ Deficit ​ ​ equity ​ ​ outstanding $ $ $ $ $ $ Balance – November 30, 2022 146,225,035 ​ ​ 182,178 ​ ​ 122 ​ ​ 27,352 ​ ​ 2,638 ​ ​ ( 66,862 ) ​ ​ 145,428 ​ Restricted Share Units 2,346,366 ​ ​ 1,538 ​ ​ ( 1 ) ​ ​ — ​ ​ ( 1,537 ) ​ ​ — ​ ​ — ​ Joint venture contribution ​ 143,505 ​ ​ 111 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 111 ​ Services settled by common shares 7,793 ​ ​ 4 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 4 ​ Stock-based compensation ​ — ​ ​ — ​ ​ — ​ ​ 520 ​ ​ 1,700 ​ ​ — ​ ​ 2,220 ​ Loss for the period — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 5,072 ) ​ ​ ( 5,072 ) ​ Balance – February 28, 2023 148,722,699 ​ ​ 183,831 ​ 121 ​ 27,872 ​ 2,801 ​ ( 71,934 ) ​ ​ 142,691 ​ Shares issued for private placement, net of share issue cost ​ 5,854,545 ​ ​ 3,115 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 3,115 ​ Restricted Share Units ​ 213,463 ​ ​ 121 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 121 ​ Deferred Share Units conversion ​ 415,056 ​ ​ 468 ​ ​ — ​ ​ — ​ ​ ( 468 ) ​ ​ — ​ ​ — ​ Services settled by common shares ​ 63,533 ​ ​ 35 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 35 ​ Stock-based compensation ​ — ​ ​ — ​ ​ — ​ ​ 114 ​ ​ 257 ​ ​ — ​ ​ 371 ​ Loss for the period — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 2,803 ) ​ ​ ( 2,803 ) ​ Balance – May 31, 2023 ​ 155,269,296 ​ ​ 187,570 ​ ​ 121 ​ ​ 27,986 ​ ​ 2,590 ​ ​ ( 74,737 ) ​ ​ 143,530 ​ Restricted Share Units ​ 248,092 ​ ​ 122 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 122 ​ Services settled by common shares ​ 40,816 ​ ​ 20 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 20 ​ NovaGold deferred share units conversion ​ 1,130 ​ ​ 3 ​ ​ ( 3 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Stock-based compensation ​ — ​ ​ — ​ ​ — ​ ​ 125 ​ ​ 268 ​ ​ — ​ ​ 393 ​ Loss for the period — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 4,052 ) ​ ​ ( 4,052 ) ​ Balance – August 31, 2023 ​ 155,559,334 ​ ​ 187,715 ​ ​ 118 ​ ​ 28,111 ​ ​ 2,858 ​ ​ ( 78,789 ) ​ ​ 140,013 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance – November 30, 2023 ​ 155,925,990 ​ ​ 187,886 ​ ​ 118 ​ ​ 28,237 ​ ​ 3,127 ​ ​ ( 81,813 ) ​ ​ 137,555 ​ Restricted Share Units 3,633,065 ​ ​ 1,804 ​ ​ — ​ ​ — ​ ​ ( 1,804 ) ​ ​ — ​ ​ — ​ Joint venture contribution ​ 143,507 ​ ​ 112 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 112 ​ Services settled by common shares ​ 64,368 ​ ​ 30 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 30 ​ Stock-based compensation — ​ ​ — ​ ​ — ​ ​ 318 ​ ​ 1,681 ​ ​ — ​ ​ 1,999 ​ Loss for the period ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 3,601 ) ​ ​ ( 3,601 ) ​ Balance – February 29, 2024 ​ 159,766,930 ​ ​ 189,832 ​ ​ 118 ​ ​ 28,555 ​ ​ 3,004 ​ ​ ( 85,414 ) ​ ​ 136,095 ​ Restricted Share Units ​ 353,347 ​ ​ 155 ​ ​ — ​ ​ — ​ ​ ( 155 ) ​ ​ — ​ ​ — ​ Services settled by common shares ​ 66,511 ​ ​ 30 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 30 ​ Stock-based compensation ​ — ​ ​ — ​ ​ — ​ ​ 92 ​ ​ 417 ​ ​ — ​ ​ 509 ​ Loss for the period — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,759 ) ​ ​ ( 1,759 ) ​ Balance – May 31, 2024 160,186,788 ​ ​ 190,017 ​ 118 ​ 28,647 ​ 3,266 ​ ( 87,173 ) ​ ​ 134,875 ​ Restricted Share Units ​ 326,020 ​ ​ 153 ​ ​ — ​ ​ — ​ ​ ( 153 ) ​ ​ — ​ ​ — ​ Services settled by common shares ​ 54,706 ​ ​ 30 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 30 ​ Stock-based compensation ​ — ​ ​ — ​ ​ — ​ ​ 94 ​ ​ 415 ​ ​ — ​ ​ 509 ​ Loss for the period — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,591 ) ​ ​ ( 1,591 ) ​ Balance – August 31, 2024 160,567,514 ​ ​ 190,200 ​ 118 ​ 28,741 ​ 3,528 ​ ( 88,764 ) ​ ​ 133,823 ​ (See accompanying notes to the condensed interim consolidated financial statements) ​ ​ ​ ​ ​ ​ Trilogy Metals Inc. For the Quarter Ended August 31, 2024 5 ​ Table of contents Trilogy Metals Inc. Condensed Interim Consolidated Statements of Cash Flows (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ in thousands of US dollars ​ ​ For the nine months ended ​ ​ ​ ​ August 31, 2024 ​ ​ August 31, 2023 ​ ​ ​ $ $ Cash flows used in operating activities ​ ​ ​ ​ Loss for the period ​ ​ ( 6,951 ) ​ ( 11,927 ) ​ Adjustments to reconcile net loss to cash flows used in operating activities ​ ​ ​ ​ ​ Amortization ​ ​ 4 ​ 6 ​ Consulting fees settled by common shares ​ ​ 90 ​ ​ 86 ​ Office lease accounting ​ ​ 76 ​ ​ ( 9 ) ​ Loss on equity investment in Ambler Metals LLC (note 3(b)) ​ ​ 2,019 ​ ​ 5,998 ​ Unrealized foreign exchange (gain) loss ​ ​ — ​ 5 ​ Stock-based compensation ​ ​ 3,014 ​ 3,379 ​ Net change in non-cash working capital ​ ​ ​ ​ ​ ​ Decrease in accounts receivable ​ ​ 25 ​ 7 ​ Decrease in deposits and prepaid amounts ​ ​ ( 93 ) ​ ( 137 ) ​ Increase in accounts payable and accrued liabilities ​ ​ ( 38 ) ​ ( 42 ) ​ Total cash flows used in operating activities ​ ​ ( 1,854 ) ​ ( 2,634 ) ​ Cash flows from financing activities ​ ​ ​ ​ Issuance of common shares, net of share issue cost (note 6(a)) ​ ​ — ​ 3,115 ​ Total cash flows from financing activities ​ ​ — ​ 3,115 ​ Cash flows from investing activities ​ ​ ​ ​ Return of capital from Ambler Metals LLC (note 3(c)) ​ ​ 25,000 ​ — ​ Total cash flows from investing activities ​ ​ 25,000 ​ — ​ Change in cash ​ ​ 23,146 ​ 481 ​ Effect of exchange rate on cash ​ ​ 2 ​ ( 5 ) ​ Cash and cash equivalents – beginning of the period ​ ​ 2,590 ​ 2,573 ​ Cash and cash equivalents – end of the period ​ ​ 25,738 ​ 3,049 ​ (See accompanying notes to the condensed interim consolidated financial statements) ​ ​ ​ ​ ​ ​ ​ Trilogy Metals Inc. For the Quarter Ended August 31, 2024 6 ​ Table of contents Trilogy Metals Inc. Notes to the Condensed Interim Consolidated Financial Statements 1) Nature of operations Trilogy Metals Inc. (“Trilogy” or the “Company”) was incorporated in British Columbia, Canada under the Business Corporations Act (British Columbia) on April 27, 2011. The Company is engaged in the exploration and development of mineral properties, through our equity investee (see note 3), 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”). The Company also conducts early-stage exploration through a wholly owned subsidiary, 995 Exploration Inc. 2) Summary of significant accounting policies Basis of presentation These condensed interim consolidated financial statements have been prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of Trilogy and its wholly owned subsidiaries, NovaCopper US Inc. (dba “Trilogy Metals US”) and 995 Exploration Inc. All intercompany transactions are eliminated on consolidation. For variable interest entities (“VIEs”) where Trilogy is not the primary beneficiary, we use the equity method of accounting. All figures are in United States dollars unless otherwise noted. References to CDN$ refer to amounts in Canadian dollars. These condensed interim consolidated financial statements include all adjustments necessary for the fair statement of the Company’s financial position as of August 31, 2024 and our results of operations and cash flows for the nine-month periods ended August 31, 2024 and August 31, 2023. The results of operations for the nine-month period ended August 31, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending November 30, 2024. As these condensed interim consolidated financial statements do not contain all of the disclosures required by U.S. GAAP for annual financial statements, these condensed interim consolidated financial statements should be read in conjunction with the annual financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2023, filed with the U.S. Securities and Exchange Commission (“SEC”) and Canadian securities regulatory authorities on February 9, 2024. These condensed interim consolidated financial statements were approved by the Company’s Audit Committee on behalf of the Board of Directors for issue on October 7, 2024. Use of estimates and measurement uncertainties The preparation of financial statements in conformity with U.S. 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 estimates include the measurement of income taxes and the valuation of stock-based compensation. Actual results could differ materially from those reported. 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. 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 requires consideration at each period end. ​ ​ ​ ​ ​ ​ Trilogy Metals Inc. For the Quarter Ended August 31, 2024 7 ​ Table of contents Trilogy Metals Inc. Notes to the Condensed Interim Consolidated Financial Statements 3) Investment in Ambler Metals LLC (a) Formation of Ambler Metals LLC On February 11, 2020, the Company completed the formation of a 50 / 50 joint venture named Ambler Metals LLC (“Ambler Metals”) with South32 Limited (“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 cash of $ 145.0 million, resulting in each party’s subsidiaries directly owning a 50 % interest in Ambler Metals. Ambler Metals is a company jointly controlled by Trilogy and South32 through a four -member board, of which two members are appointed by Trilogy based on its 50 % equity interest. All significant decisions related to the UKMP require the approval of both companies. We determined that Ambler Metals is a VIE because it is expected to need additional funding from its owners for its significant activities. However, we concluded that we are not the primary beneficiary of Ambler Metals as the power to direct its activities, through its board, is shared under the Ambler Metals LLC limited liability company agreement. As we have significant influence over Ambler Metals through our representation on its board, we use the equity method of accounting for our investment in Ambler Metals. Our maximum exposure to loss in this entity is limited to the carrying amount of our investment in Ambler Metals, which, as of August 31, 2024, totaled $ 108.1 million (2023 - $ 136.9 million). (b) Carrying value of equity method investment Trilogy recognized, based on its 50 % ownership interest in Ambler Metals, an equity loss equivalent to its pro rata share of Ambler Metals’ comprehensive loss of $ 1.2 million for the three-month period ending August 31, 2024 (2023 - $ 5.8 million) and $ 4.0 million for the nine-month period ending August 31, 2024 (2023 - $ 12.0 million). During the nine-month period ending August 31, 2024, Trilogy made a $ 112,000 equity contribution to Ambler Metals through the issuance of 143,507 common shares of the Company as part of the long-term incentive compensation for Ambler Metals executives. Likewise, South32 made an equivalent equity contribution to Ambler Metals for $ 112,000 in cash for their 50 % share. The carrying value of Trilogy’s 50 % investment in Ambler Metals as at August 31, 2024 is summarized on the following table. ​ ​ ​ ​ ​ ​ in thousands of dollars ​ ​ $ November 30, 2023, Investment in Ambler Metals ​ 135,021 ​ Joint venture equity contribution ​ 112 ​ Return of capital ​ ( 25,000 ) ​ Share of loss on equity investment for the nine-month period ending August 31, 2024 ​ ( 2,019 ) ​ August 31, 2024, Investment in Ambler Metals ​ 108,114 ​ ​ (c) The following table summarizes Ambler Metals’ Balance Sheet as at August 31, 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ in thousands of dollars ​ ​ August 31, 2024 ​ ​ November 30, 2023 ​ ​ $ $ Total assets ​ 41,888 ​ ​ 97,180 ​ Cash and cash equivalents ​ 9,848 ​ ​ 63,829 ​ Mineral properties ​ 30,899 ​ ​ 30,899 ​ Total liabilities ​ ( 1,455 ) ​ ​ ( 2,931 ) ​ Accounts payable and accrued liabilities ​ ( 1,209 ) ​ ​ ( 2,500 ) ​ Members' equity (total assets less total liabilities) ​ 40,433 ​ ​ 94,249 ​ ​ ​ ​ ​ ​ ​ Trilogy Metals Inc. For the Quarter Ended August 31, 2024 8 ​ Table of contents Trilogy Metals Inc. Notes to the Condensed Interim Consolidated Financial Statements Ambler Metals’ cash and cash equivalents are held at one bank of which the majority is uninsured. During the second and third quarters, Ambler Metals returned $ 50 million of excess cash to the members. (d) The following table summarizes Ambler Metals' loss for the three-month and nine-month periods ended August 31, 2024 and August 31, 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ in thousands of dollars ​ ​ Three months ended ​ ​ Nine months ended ​ ​ ​ August 31, 2024 ​ ​ August 31, 2023 ​ ​ August 31, 2024 ​ ​ August 31, 2023 ​ ​ $ $ $ $ Depreciation ​ 38 ​ ​ 38 ​ ​ 113 ​ ​ 113 ​ Corporate salaries and wages ​ 49 ​ ​ 478 ​ ​ 411 ​ ​ 1,417 ​ General and administrative ​ 93 ​ ​ 43 ​ ​ 343 ​ ​ 389 ​ Mineral property expense ​ 1,024 ​ ​ 5,210 ​ ​ 3,348 ​ ​ 10,002 ​ Professional fees ​ 325 ​ ​ 181 ​ ​ 755 ​ ​ 397 ​ Foreign exchange loss ​ — ​ ​ ( 6 ) ​ ​ 2 ​ ​ ( 3 ) ​ Interest and other income ​ ( 281 ) ​ ​ ( 125 ) ​ ​ ( 933 ) ​ ​ ( 319 ) ​ Comprehensive loss ​ 1,248 ​ ​ 5,819 ​ ​ 4,039 ​ ​ 11,996 ​ ​ (e) Related party transactions ​ During the nine-month period ended August 31, 2024, the Company charged $ 47,000 (2023 - $ Nil ) related to human resources and accounting services in connection with a service agreement between the Company and Ambler Metals. In addition, the Company received payments of $ 64,000 (2023 - $ Nil ) related to operating expenses paid on behalf of Ambler Metals pursuant to the service agreement. ​ 4) Accounts payable and accrued liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ in thousands of dollars ​ ​ August 31, 2024 ​ ​ November 30, 2023 ​ ​ $ $ Trade accounts payable ​ 51 ​ ​ 146 ​ Accrued liabilities 88 ​ 54 ​ Accrued salaries and vacation 252 ​ 232 ​ Accounts payable and accrued liabilities 391 ​ 432 ​ ​ ​ ​ ​ ​ Subsequent to the end of the third quarter, on September 3, 2024, approximately $ 153,000 of accrued salaries was settled through the issuance of common shares of the Company. ​ ​ ​ ​ ​ ​ ​ Trilogy Metals Inc. For the Quarter Ended August 31, 2024 9 ​ Table of contents Trilogy Metals Inc. Notes to the Condensed Interim Consolidated Financial Statements 5) Leases (a) Right-of-use asset ​ ​ ​ ​ ​ ​ ​ in thousands of dollars ​ $ Balance as at November 30, 2023 ​ 113 ​ Net amortization for lease ended June 30, 2024 ​ ( 113 ) ​ ROU assets recognized for lease commenced July 1, 2024 ​ 170 ​ Net amortization for lease commenced July 1, 2024 ​ ( 6 ) ​ Balance as at August 31, 2024 ​ 164 ​ ​ The Company’s previous office lease ended on June 30, 2024. The Company entered into a new office lease commencing on July 1, 2024, with a 4-year term ending in June 2028, and with no renewal option. During the quarter ended August 31, 2024, the Company recognized a ROU asset of $ 170,000 for the new office lease. (b) Lease liabilities The Company’s lease arrangement consists of an operating lease for our office space ending in June 2028. There are no extension options. Total lease expense recorded within general and administrative expenses was comprised of the following components: ​ ​ ​ ​ ​ ​ ​ ​ ​ in thousands of dollars ​ ​ Nine months ended ​ ​ Nine months ended ​ ​ ​ August 31, 2024 ​ ​ August 31, 2023 ​ ​ ​ $ $ Operating lease costs ​ 122 ​ ​ 140 ​ Variable lease costs ​ 103 ​ ​ 103 ​ Total lease expense ​ 225 ​ ​ 243 ​ ​ Variable lease costs consist primarily of the Company’s portion of operating costs associated with the office space lease as the Company elected to apply the practical expedient not to separate lease and non-lease components. As at August 31, 2024, the weighted-average remaining lease term is 3.8 years and the weighted-average discount rate is 9 % . Significant judgment was used in the determination of the incremental borrowing rate which included estimating the Company’s credit rating. Supplemental cash and non-cash information relating to our leases during the nine-month period ending August 31, 2024 are as follows: ● Cash paid for amounts included in the measurement of lease liabilities was $ 45,561 , of which $ 33,159 related to the office lease that expired on June 30, 2024 and $ 12,402 related to the new office lease that commenced on July 1, 2024. ​ ​ ​ ​ ​ Trilogy Metals Inc. For the Quarter Ended August 31, 2024 10 ​ Table of contents Trilogy Metals Inc. Notes to the Condensed Interim Consolidated Financial Statements Future minimum payments relating to the lease recognized in our balance sheet as of August 31, 2024 are as follows: ​ ​ ​ ​ ​ ​ in thousands of dollars ​ ​ August 31, 2024 Fiscal year ​ $ 2024 13 ​ 2025 50 ​ 2026 51 ​ 2027 51 ​ 2028 30 ​ Total undiscounted lease payments 195 ​ Effect of discounting ( 33 ) ​ Present value of lease payments recognized as lease liability 162 ​ ​ ​ ​ ​ ​ 6) Share capital Authorized: unlimited common shares, no par value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ in thousands of dollars, except share amounts ​ ​ ​ Number of shares ​ ​ Ascribed value ​ ​ ​ $ November 30, 2023 155,925,990 ​ ​ 187,886 ​ Restricted Share Units ​ 4,312,432 ​ ​ 2,112 ​ Services settled by common shares ​ 185,585 ​ ​ 90 ​ Joint venture equity contribution (note 3(a)) ​ 143,507 ​ ​ 112 ​ August 31, 2024, issued and outstanding ​ 160,567,514 ​ ​ 190,200 ​ ​ (a) Stock options During the three-month period ended February 29, 2024, the Company granted 2,775,000 stock options (2023 - 3,230,000 stock options) at an exercise price of CDN$ 0.59 (2023 - CDN$ 0.78 ) to employees, consultants and directors exercisable for a period of five years with various vesting terms from immediate vesting to vesting over a two-year period. The fair value attributable to each of these option grants was CDN$ 0.27 (2023 - CDN$ 0.37 ). No grants were made during the three-month periods ended May 31, 2024 or August 31, 2024. For the three-month period ended August 31, 2024, Trilogy recognized a stock-based compensation charge of $ 0.1 million (2023 - $ 0.1 million) for options granted to directors, employees and service providers, net of estimated forfeitures. For the nine-month period ended August 31, 2024, Trilogy recognized a stock-based compensation charge of $ 0.5 million (2023 - $ 0.8 million) for options granted to directors, employees and service providers, net of estimated forfeitures. The fair value of the stock options recognized in the period has been estimated using the Black-Scholes option pricing model. ​ ​ ​ ​ ​ Trilogy Metals Inc. For the Quarter Ended August 31, 2024 11 ​ Table of contents Trilogy Metals Inc. Notes to the Condensed Interim Consolidated Financial Statements Assumptions used in the pricing model for the nine-month period ended August 31, 2024 are as provided below. ​ ​ ​ ​ ​ August 31, 2024 Risk-free interest rates 3.84 % Exercise price CDN$ 0.59 Expected life 3 years Expected volatility 65.5 % Expected dividends Nil ​ As at August 31, 2024, there were 2,533,339 non-vested options outstanding with a weighted average exercise price of CDN$ 0.66 . The value of non-vested stock option expense not yet recognized was $ 0.2 million of which approximately $ 0.1 million will be recognized during the quarter ending November 30, 2024 and the remainder throughout the next fiscal year. A summary of the Company’s stock options outstanding and changes during the nine-month period ended August 31, 2024 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ August 31, 2024 ​ ​ ​ ​ ​ ​ Weighted average ​ ​ ​ ​ ​ ​ exercise price ​ ​ Number of options CDN$ Balance – beginning of the period 12,649,400 ​ ​ 2.15 ​ Granted 2,775,000 ​ ​ 0.59 ​ Expired ( 1,107,500 ) ​ ​ 2.96 ​ Balance – end of the period 14,316,900 ​ ​ 1.78 ​ ​ There were no stock options exercised during the nine-month period ended August 31, 2024. The following table summarizes information about the stock options outstanding at August 31, 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Outstanding ​ ​ Exercisable ​ ​ Unvested ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ Number of ​ ​ Weighted ​ ​ average ​ ​ Number of ​ ​ average ​ ​ Number of ​ ​ outstanding ​ ​ average years ​ ​ exercise price ​ ​ exercisable ​ ​ exercise price ​ ​ unvested ​ Range of exercise price - CDN options to expiry CDN$ options CDN$ options $ 0.59 to $ 1.00 5,955,000 ​ ​ 3.73 ​ ​ 0.69 ​ ​ 3,421,661 ​ ​ 0.72 ​ ​ 2,533,339 ​ $ 2.01 to $ 3.00 7,016,900 ​ ​ 1.21 ​ ​ 2.47 ​ ​ 7,016,900 ​ ​ 2.47 ​ ​ — ​ $ 3.01 to $ 3.02 ​ 1,345,000 ​ ​ 0.32 ​ ​ 3.02 ​ ​ 1,345,000 ​ ​ 3.02 ​ ​ — ​ ​ ​ 14,316,900 ​ ​ 2.18 ​ ​ 1.78 ​ ​ 11,783,561 ​ ​ 2.03 ​ ​ 2,533,339 ​ ​ The aggregate intrinsic value of vested stock options (the market value less the exercise price) at August 31, 2024 was $Nil (2023 - $Nil) and the aggregate intrinsic value of exercised options for the nine-month period ending August 31, 2024 was $Nil (2023 - $Nil). (b) Restricted Share Units and Deferred Share Units The Company has a Restricted Share Unit Plan (“RSU Plan”) to provide long-term incentives to employees and consultants, a Non-Executive Director Deferred Share Unit Plan (“DSU Plan”), and a Non-Executive Directors Fixed Deferred Share Unit Plan (“Fixed DSU Plan”) to offset cash payments for fees to directors. Awards under the RSU Plan, DSU Plan and Fixed DSU Plan will be settled in common shares of the Company with each restricted share unit (“RSU”) and deferred share unit (“DSU”) entitling the holder to receive one common share of the Company. All units are accounted for as equity-settled awards. ​ ​ ​ ​ ​ Trilogy Metals Inc. For the Quarter Ended August 31, 2024 12 ​ Table of contents Trilogy Metals Inc. Notes to the Condensed Interim Consolidated Financial Statements A summary of the Company’s unit plans and changes during the nine-month period ending August 31, 2024 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of RSUs Number of DSUs Number of Fixed DSUs Balance – beginning of the period ​ 1,610,638 ​ 2,428,701 ​ ​ — ​ Granted 5,705,718 ​ ​ 551,676 ​ ​ — ​ Vested/Converted ( 4,498,017 ) ​ ​ — ​ ​ — ​ Balance – end of the period 2,818,339 ​ 2,980,377 ​ ​ — ​ ​ For the three-month period ending August 31, 2024, Trilogy recognized a combined RSU and DSU stock-based compensation charge of $ 0.2 million (2023 - $ 0.2 million), net of estimated forfeitures. For the nine-month period ending August 31, 2024, Trilogy recognized a combined RSU and DSU stock-based compensation charge of $ 1.8 million (2023 - $ 2.0 million), net of estimated forfeitures. 7) Financial instruments The Company is exposed to a variety of risks arising from financial instruments. 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 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. Financial risk management The Company’s activities expose it to certain financial risks, including currency risk, credit risk, liquidity risk, interest risk and price risk. (a) Currency risk Currency risk is the risk of a fluctuation in financial asset and liability settlement amounts due to a change in foreign exchange rates. The Company operates in the United States and Canada. The Company’s exposure to currency risk at August 31, 2024 is limited to the Canadian dollar balances consisting of cash of approximately CDN$ 11,000 , accounts receivable of approximately CDN$ 11,000 and accounts payable of approximately CDN$ 34,000 . Based on a 10 % change in the US-Canadian exchange rate, assuming all other variables remain constant, the Company’s net loss would change by approximately $ 1,000 . (b) Credit risk 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 with a Canadian chartered financial institution of which the majority is uninsured as at August 31, 2024. The Company’s only significant exposure to credit risk is equal to the balance of cash as recorded in the financial statements. (c) Liquidity risk Liquidity risk is the risk that the Company will encounter difficulties raising funds to meet its financial obligations as they fall due. The Company is in the exploration stage and does not have cash inflows from operations; therefore, the Company manages liquidity risk through the management of its capital structure and financial leverage. ​ ​ ​ ​ ​ Trilogy Metals Inc. For the Quarter Ended August 31, 2024 13 ​ Table of contents Trilogy Metals Inc. Notes to the Condensed Interim Consolidated Financial Statements Contractually obligated undiscounted cash flow requirements as at August 31, 2024 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ in thousands of dollars ​ Total < 1 Year 1–2 Years 2–5 Years Thereafter ​ ​ $ ​ ​ $ ​ ​ $ ​ ​ $ ​ ​ $ ​ Accounts payable and accrued liabilities 391 ​ 391 ​ — ​ ​ — ​ ​ — ​ Office lease 195 ​ ​ 50 ​ ​ 102 ​ ​ 43 ​ ​ — ​ 586 ​ 441 ​ 102 ​ ​ 43 ​ ​ — ​ ​ Included in accounts payable and accrued liabilities approximately $ 153,000 is for accrued salaries that were settled, subsequent to the end of the third quarter, on September 3, 2024, by the way of a grant of RSUs which was paid out through the issuance of common shares of the Company (note 8). (d) Interest rate risk 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. Based on balances as at August 31, 2024 of approximately $ 25 million, a 1 % change in interest rates would result in a change of approximately $ 250,000 over a one year period, 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; however, our ability to obtain long-term financing and its economic viability could be affected by commodity price volatility. 8) Subsequent events On September 3, 2024, pursuant to previous elections, the Board of Directors were granted 153,035 DSUs in settlement of approximately $ 78,250 of director fees and senior management were granted 298,263 RSUs in lieu of cash salaries of approximately $ 153,000 , all vesting immediately. The grants were in support of continued cash preservation efforts. ​ ​ ​ ​ ​ ​ ​ ​ Trilogy Metals Inc. For the Quarter Ended August 31, 2024 14 ​ Table of contents