TRILOGY METALS INC. UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended February 28, 2021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number: 1-35447
TRILOGY METALS INC.
(Exact Name of Registrant as Specified in Its Charter)
British Columbia | 98-1006991 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| |
Suite 1150, 609 Granville Street
Vancouver, British Columbia | V7Y 1G5 |
(Address of Principal Executive Offices) | (Zip Code) |
(604) 638-8088
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares | TMQ | NYSEAmerican Toronto Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of 'large accelerated filer,' 'accelerated filer,' 'smaller reporting company,' and 'emerging growth company' in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻ | Accelerated filer ◻ | Non-accelerated filer ☒ | Smaller reporting company☒ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
As of April 7, 2021, the registrant had 144,292,774Common Shares, no par value, outstanding.
Trilogy Metals Inc.
Table of Contents
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Management's Discussion and Analysis of Financial Condition and Results of Operations | 15 | |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Trilogy Metals Inc.
Interim Consolidated Balance Sheets
(unaudited)
| | | | | | |
| | in thousands of US dollars | | |||
| | February 28, 2021 | | | November 30, 2020 | |
| $ | $ | ||||
Assets | | | | |||
Current assets | | | | |||
Cash and cash equivalents | | 9,631 | | 11,125 | | |
Accounts receivable (note 3) | | 24 | | 129 | | |
Deposits and prepaid amounts | | 217 | | 184 | | |
| | 9,872 | | 11,438 | | |
| | | | | | |
Investment in Ambler Metals LLC (note 4) | | 172,025 | | | 173,145 | |
Fixed assets (note 5) | | 189 | | 206 | | |
Right of use asset (note 7 (a)) | | 448 | | | 476 | |
| | 182,534 | | 185,265 | | |
Liabilities | | | | |||
Current liabilities | | | | |||
Accounts payable and accrued liabilities (note 6) | | 551 | | 888 | | |
Current portion of lease liability | | 166 | | | 158 | |
| | 717 | | 1,046 | | |
| | | | | | |
Long-term portion of lease liability (note 7 (b)) | | 374 | | | 408 | |
| | 1,091 | | 1,454 | | |
Shareholders' equity | | | | |||
Share capital (note 8) - unlimited common shares authorized, no par value Issued - 144,214,485 (2020 - 144,137,850) | | 180,080 | | 179,746 | | |
Contributed surplus | | 122 | | 122 | | |
Contributed surplus - options (note 8(a)) | | 25,081 | | 23,303 | | |
Contributed surplus - units (note 8(b)) | | 1,621 | | 1,585 | | |
Deficit | | (25,461) | | (20,945) | | |
| | 181,443 | | 183,811 | | |
| | 182,534 | | 185,265 | |
Commitments (note 10)
(See accompanying notes to the interim consolidated financial statements)
/s/ Tony Giardini, President, CEO and Director | /s/ Kalidas Madhavpeddi, Director | |
Approved on behalf of the Board of Directors |
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Trilogy Metals Inc. | 3 |
`
Trilogy Metals Inc.
Interim Consolidated Statements of Income (Loss)
and Comprehensive Income (Loss)
(unaudited)
| | | | | | | | |
| | in thousands of US dollars, except share and per share amounts | | | ||||
| | For the three months ended | | | ||||
| | | February 28, 2021 | | | February 29, 2020 | | |
| $ | $ | | | ||||
Expenses | | | | | | |||
Amortization | | | 17 | | 42 | | | |
Foreign exchange loss | | | 35 | | 23 | | | |
General and administrative | | | 401 | | 651 | | | |
Investor relations | | | 154 | | 126 | | | |
Mineral properties expense (note 4(a)) | | | - | | 1,545 | | | |
Professional fees | | | 229 | | 668 | | | |
Salaries | | | 439 | | 224 | | | |
Salaries - stock-based compensation | | | 2,148 | | 1,196 | | | |
Total expenses | | | 3,423 | | 4,475 | | | |
Other items | | | | | | |||
Gain on derecognition of assets contributed to joint venture (note 4(a)) | | | - | | | (175,770) | | |
Share of loss on equity investment (note 4(b)) | | | 1,120 | | | 178 | | |
Interest and other income | | | (5) | | (62) | | | |
Services agreement income (note 4(e)) | | | (22) | | - | | | |
Comprehensive (loss) earnings for the year | | | (4,516) | | 171,179 | | | |
Basic (loss) earnings per common share | | | (0.03) | | | 1.22 | | |
Diluted (loss) earnings per common share | | | (0.03) | | | 1.16 | | |
Basic weighted average number of common shares outstanding | | | 144,163,869 | | | 140,616,672 | | |
Diluted weighted average number of common shares outstanding | | | 144,163,869 | | | 147,649,507 | | |
(See accompanying notes to the interim consolidated financial statements)
| | |
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Trilogy Metals Inc. | 4 |
Trilogy Metals Inc.
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 | | | Warrants | | | surplus | | | options | | | units | | | Deficit | | | equity | |
| outstanding | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
Balance - November 30, 2019 | 140,427,761 | | | 177,971 | | - | | 122 | | 21,123 | | 1,759 | | (182,712) | | | 18,263 | | ||||||
Exercise of options | 19,514 | | | 6 | | - | | - | | (6) | | - | | - | | | - | | ||||||
Restricted Share Units | | 212,501 | | | 330 | | | - | | | - | | | - | | | (330) | | | - | | | - | |
Stock-based compensation | | - | | | - | | | - | | | - | | | 1,155 | | | 41 | | | - | | | 1,196 | |
Loss for the period | | - | | | - | | | - | | | - | | | - | | | - | | | 171,179 | | | 171,179 | |
Balance - February 29, 2020 | | 140,659,776 | | | 178,307 | | | - | | | 122 | | | 22,272 | | | 1,470 | | | (11,533) | | | 190,638 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance - November 30, 2020 | | 144,137,850 | | | 179,746 | | | - | | | 122 | | | 23,303 | | | 1,585 | | | (20,945) | | | 183,811 | |
Exercise of options | | 76,635 | | | 334 | | | - | | | - | | | (334) | | | - | | | - | | | - | |
Stock-based compensation | | - | | | - | | | - | | | - | | | 2,112 | | | 36 | | | - | | | 2,148 | |
Loss for the period | - | | | - | | - | | - | | - | | - | | (4,516) | | | (4,516) | | ||||||
Balance - February 28, 2021 | 144,214,485 | | | 180,080 | | - | | 122 | | 25,081 | | 1,621 | | (25,461) | | | 181,443 | |
(See accompanying notes to the interim consolidated financial statements)
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Trilogy Metals Inc. | 5 |
Trilogy Metals Inc.
Interim Consolidated Statements of Cash Flows
(unaudited)
| | | | | | | |
| in thousands of US dollars | | |||||
| For the three months ended | | |||||
| February 28, 2021 | | | February 29, 2020 | | ||
| $ | | $ | | |||
Cash flows used in operating activities | | | | | |||
(Loss) earnings for the period | | (4,516) | | | 171,179 | | |
Adjustments to reconcile net loss to cash flows in operating activities | | | | | | ||
Amortization | | 17 | | | 42 | | |
Right of use asset amortization and lease accretion | | 38 | | | | 60 | |
Office lease payments | | (49) | | | | (54) | |
Loss on working capital written-off upon joint venture formation | | - | | | | 18 | |
Gain on derecognition of assets (note 4(a)) | | - | | | | (175,770) | |
Loss on equity investment in Ambler Metals LLC (note 4(b)) | | 1,120 | | | | 178 | |
Unrealized foreign exchange loss | | 14 | | | 25 | | |
Stock-based compensation | | 2,148 | | | 1,196 | | |
Net change in non-cash working capital | | | | | | ||
Decrease (increase) in accounts receivable | | 105 | | | (154) | | |
Decrease (increase) in deposits and prepaid amounts | | (33) | | | 419 | | |
(Decrease) in accounts payable and accrued liabilities | | (337) | | | (1,080) | | |
Decrease in cash from operating activities | | (1,493) | | | (3,941) | | |
Effect of exchange rate on cash and cash equivalents | | (1) | | | (16) | | |
Cash and cash equivalents - beginning of period | | 11,125 | | | 19,174 | | |
Cash and cash equivalents - end of the period | | 9,631 | | | 15,217 | |
(See accompanying notes to the interim consolidated financial statements)
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Trilogy Metals Inc. | 6 |
1) Nature of operations
Trilogy Metals Inc. ('Trilogy' or the 'Company') 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 (see 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').
2) Summary of significant accounting policies
Basis of presentation
These 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 subsidiary, NovaCopper US Inc. (dba 'Trilogy Metals US'). 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 CAD$ refer to amounts in Canadian dollars.
The unaudited interim consolidated financial statements include all adjustments necessary for the fair presentation of the Company's financial position as of February 28, 2021 and our results of operations and cash flows for the three months ended February 28, 2021 and February 29, 2020. The results of operations for the three months ended February 28, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending November 30, 2021.
As these interim consolidated financial statements do not contain all of the disclosures required by U.S. GAAP for annual financial statements, these unaudited 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, 2020, filed with the U.S. Securities and Exchange Commission ('SEC') and Canadian securities regulatory authorities on February 12, 2021.
These interim consolidated financial statements were approved by the Company's Audit Committee on behalf of the Board of Directors for issue on April 6, 2021.
3) Accounts receivable
| | | | | | |
| in thousands of dollars | |||||
| February 28, 2021 | | | November 30, 2020 | | |
| $ | $ | | |||
GST input tax credits | | 23 | | 15 | | |
Ambler Metals LLC | | 1 | | 114 | | |
Accounts receivable | | 24 | | 129 | |
The balance due from Ambler Metals LLC (see note 4 below) consists of services rendered by Trilogy and reimbursements for invoices paid by Trilogy on behalf of Ambler Metals LLC per a service agreement. The balance was paid in full by Ambler Metals LLC subsequent to the quarter end.
4) Equity method investment
(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 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 US$145 million, resulting in each
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Trilogy Metals Inc. | 7 |
party's subsidiaries directly owning a 50% interest in Ambler Metals LLC. To assist Ambler Metals during the initial set up phase, Trilogy was paying all of Ambler Metals LLC's invoices and being reimbursed pursuant to a services agreement (the 'Services Agreement') between Trilogy and Ambler Metals LLC until the back office was fully transitioned to a new permanent team employed by the joint venture. The Services Agreement ended on December 31, 2020.
Ambler Metals LLC is an independently operated 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 LLC 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 LLC 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 LLC through our representation on its board, we use the equity method of accounting for our investment in Ambler Metals LLC. Our investment in Ambler Metals LLC was initially measured at its fair value of $176 million upon recognition. Our maximum exposure to loss in this entity is limited to the carrying amount of our investment in Ambler Metals LLC, which, as at February 28, 2021, totaled $172 million. The following table summarizes the gain on recognition of the UKMP assets upon transfer to the Ambler Metals LLC joint venture on February 11, 2020.
| | | |
| in thousands of dollars | ||
| $ | | |
Fair value ascribed to Ambler Metals LLC interest | | 176,000 | |
Less: carrying value of contributed /eliminated assets | | | |
Mineral properties | | (30,631) | |
Property, plant and equipment | | (618) | |
Elimination of Fairbanks warehouse right of use asset | | (93) | |
Elimination of prepaid State of Alaska mining claim fees | | (303) | |
Add: | | | |
Reimbursement of claims staking | | 44 | |
Demobilization costs of drills | | 278 | |
Cancellation of Fairbanks warehouse lease liability | | 93 | |
Fair value of mineral properties purchase option | | 31,000 | |
Gain on derecognition | | 175,770 | |
No additional mineral properties expenses were incurred subsequent to February 11, 2020 as upon the formation of the joint venture with South 32, all mineral properties previously held by the Company were contributed to Ambler Metals LLC. Prior to the formation of the joint venture, the Company had also incurred $0.7 million in Arctic Project feasibility costs that are included in the mineral properties expense balance of $1.5 million for the three-month period ended February 29, 2020.
(b) | Carrying value of equity method investment |
During the three-month period ending February 28, 2021, Trilogy recognized, based on its 50% ownership interest in Ambler Metals LLC, an equity loss equivalent to its pro rata share of Ambler Metals LLC's comprehensive loss of $2.2 million for the three month period ending February 28, 2021. The carrying value of Trilogy's 50% investment in Ambler Metals LLC as at February 28, 2021 is summarized on the following table.
| | | |
| in thousands of dollars | ||
| $ | | |
November 30, 2020, investment in Ambler Metals LLC. | | 173,145 | |
Share of loss on equity investment for the three month period ending February 28, 2021 | | (1,120) | |
February 28, 2021, investment in Ambler Metals LLC. | | 172,025 | |
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Trilogy Metals Inc. | 8 |
(c) | The following table summarizes Ambler Metals LLC's Balance Sheet as at February 28, 2021. |
| | | | | | |
| in thousands of dollars | |||||
| | February 28, 2021 | | | November 30, 2020 | |
| $ | | | $ | | |
Current assets: Cash, deposits and prepaid expenses | | 79,576 | | | 82,226 | |
Non - current assets: Property, equipment and mineral properties | | 32,038 | | | 31,287 | |
Loan receivable from South32 | | 58,747 | | | 58,478 | |
Current liabilities: Accounts payable and accrued liabilities | | (1,310) | | | (1,445) | |
Non - current liabilities: Lease obligation | | (795) | | | (51) | |
Net assets | | 168,256 | | | 170,495 | |
(d) | The following table summarizes Ambler Metals LLC's comprehensive loss for the three-month period ending February 28, 2021. |
| | | | | | |
| | in thousands of dollars | ||||
| | Period ending | | | Period ending | |
| | February 28, 2021 | | | February 29, 2020 | |
| $ | $ | ||||
Amortization | | 16 | | | 12 | |
Mineral properties expense | | 1,400 | | | 167 | |
General and administrative expense | | 1,095 | | | 219 | |
Interest income | | (272) | | | (43) | |
Comprehensive loss | | 2,239 | | | 355 | |
(e) | Related party transactions - services agreement income |
The Company charged $22,151 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 $4,053 related to operating expenses paid on behalf of Ambler Metals during the three-month period ending February 28, 2021.
5) Fixed assets
| | | | | | | | | |
| | in thousands of dollars | | ||||||
| | February 28, 2021 | | ||||||
| | | | | | | | ||
| | | | | Accumulated | | | | |
| Cost | | amortization | | Net | ||||
| | $ | $ | $ | |||||
British Columbia, Canada | | | | | | | | ||
Furniture and equipment | 63 | | | (45) | | | 18 | | |
Leasehold improvements | 253 | | | (82) | | | 171 | | |
Computer hardware and software | 115 | | | (115) | | | - | | |
| 431 | | | (242) | | | 189 | |
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Trilogy Metals Inc. | 9 |
| | | | | | | | | |
| | in thousands of dollars | |||||||
| | November 30, 2020 | |||||||
| | | | Accumulated | | | | ||
| Cost | | amortization | | Net | ||||
| | $ | $ | $ | |||||
British Columbia, Canada | | | | | | | | ||
Furniture and equipment | 63 | | | (41) | | | 22 | | |
Leasehold improvements | 253 | | | (69) | | | 184 | | |
Computer hardware and software | 115 | | | (115) | | | - | | |
| 431 | | | (225) | | | 206 | |
6) Accounts payable and accrued liabilities
| | | | | | |
| | | | | in thousands of dollars | |
| | February 28, 2021 | | | November 30, 2020 | |
| $ | $ | ||||
Trade accounts payable | | 275 | | | 226 | |
Accrued liabilities | 166 | | 198 | | ||
Accrued salaries and vacation | 110 | | 464 | | ||
Accounts payable and accrued liabilities | 551 | | 888 | |
7) Leases
| (a) | Right-of-use asset |
| | | |
| | in thousands of dollars | |
| $ | | |
ASC transition as at December 1, 2019 | | 681 | |
Amortization | | (162) | |
Lease accretion | | 50 | |
Derecognition of Fairbanks warehouse lease | | (93) | |
Balance as at November 30, 2020 | | 476 | |
Amortization | | (38) | |
Lease accretion | | 10 | |
Balance as at February 28, 2021 | | 448 | |
| (b) | Lease liabilities |
The Company's lease arrangements primarily consist of an operating lease for our office space ending in June 2024. There are noextension options.
Total lease expense recorded within general and administrative expenses was comprised of the following components:
| | | | | | |
| in thousands of dollars | |||||
| | Three months ended | | | Three months ended | |
| | February 28, 2021 | | | February 29, 2020 | |
| $ | | | $ | | |
Operating lease costs | | 38 | | | 50 | |
Variable lease costs | | 35 | | | 34 | |
Total lease expense | | 73 | | | 84 | |
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Trilogy Metals Inc. | 10 |
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 of February, 28, 2021, the weighted-average remaining lease term was 3.3years and the weighted-average discount rate is 8%. 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 three months ended February 28, 2021 are as follows:
| ● | Cash paid for amounts included in the measurement of lease liabilities was $48,830. |
Future minimum payments relating to the lease recognized in our balance sheet as of February 28, 2021 are as follows:
| | | |
| in thousands of dollars | ||
| | February 28, 2021 | |
Fiscal year | $ | ||
2021 | 151 | | |
2022 | 206 | | |
2023 | 212 | | |
2024 | 126 | | |
Total undiscounted lease payments | 695 | | |
Effect of discounting | (155) | | |
Present value of lease payments recognized as lease liability | 540 | |
8) Share capital
Authorized:
unlimited common shares, no par value
| | | | | | |
| | in thousands of dollars, except share amounts | | |||
| | Number of shares | | | Ascribed value | |
| | $ | ||||
November 30, 2019 | 140,427,761 | | | 177,971 | | |
Exercise of options | 3,297,588 | | | 1,133 | | |
Restricted Share Units | 412,501 | | | 642 | | |
November 30, 2020 | 144,137,850 | | | 179,746 | | |
Exercise of options | | 76,635 | | | 334 | |
February 28, 2021, issued and outstanding | | 144,214,485 | | | 180,080 | |
(a) | Stock options |
During the three-month period ended February 28, 2021, the Company granted 3,374,150 options (2020 - 2,050,000 options) at a weighted-average exercise price of CAD$2.52 (2020 - CAD$3.02) 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 weighted-average fair value attributable to options granted in the period was $0.84 (2020 - $0.99).
For the three-month period ended February 28, 2021, Trilogy recognized a stock-based compensation charge of $2.10 million (2019 - $1.16 million) for options granted to directors, employees and service providers, net of estimated forfeitures.
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Trilogy Metals Inc. | 11 |
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 three-month period ended February 28, 2021 are as provided below.
| | |
| February 28, 2021 | |
Risk-free interest rates | 0.31% | |
Exercise price | CAD$2.52 | |
Expected life | 3 years | |
Expected volatility | 64.4% | |
Expected dividends | Nil |
As of February 28, 2021, there were 3,374,150 non-vested options outstanding with a weighted average exercise price of $2.07; the non-vested stock option expense not yet recognized was $1.63 million. This expense is expected to be recognized over the next two years.
A summary of the Company's stock option plan and changes during the three-month period ended February 28, 2021 is as follows:
| | | | | | |
| | February 28, 2021 | | |||
| | | | | Weighted average | |
| | | | | exercise price | |
| Number of options | $ | ||||
Balance - beginning of the period | 8,647,500 | | | 1.88 | | |
Granted | 3,374,150 | | | 1.98 | | |
Exercised | (381,373) | | | 1.97 | | |
Cancelled | (120,000) | | | 2.42 | | |
Balance - end of the period | 11,520,277 | | | 1.90 | |
The following table summarizes information about the stock options outstanding at February 28, 2021.
| | | | | | | | | | | | | | | | | | |
| | 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 price | options | to expiry | $ | options | $ | options | ||||||||||||
$0.55 to $1.00 | 1,705,627 | | 1.34 | | | 0.69 | | | 1,705,627 | | | 0.69 | | | - | | ||
$1.01 to $1.50 | 75,000 | | 1.81 | | | 1.15 | | | 75,000 | | | 1.15 | | | - | | ||
$1.51 to $2.00 | 4,277,150 | | 4.54 | | | 1.95 | | | 2,779,483 | | | 1.94 | | | 1,497,667 | | ||
$2.01 to $2.50 | 5,425,000 | | 3.72 | | | 2.24 | | | 3,618,330 | | | 2.28 | | | 1,806,670 | | ||
$2.51 to $3.00 | | 37,500 | | | 3.23 | | | 2.68 | | | 37,500 | | | 2.68 | | | - | |
| | 11,520,277 | | | 3.66 | | | 1.90 | | | 8,215,940 | | | 1.82 | | | 3,304,337 | |
The aggregate intrinsic value of vested share options (the market value less the exercise price) at February 28, 2021 was $3.3 million (2020 - $5.9 million) and the aggregate intrinsic value of exercised options for the three months ended February 28, 2021 was $0.17 million (2020 - $0.04 million).
(b) | Restricted Share Units and Deferred Share Units |
The Company has a Restricted Share Unit Plan ('RSU Plan') and a Non-Executive Director Deferred Share Unit Plan ('DSU Plan') to provide long-term incentives to employees, officers and directors. Awards under the RSU Plan and DSU Plan
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Trilogy Metals Inc. | 12 |
may be settled in cash and/or common shares of the Company at the Company's election with each restricted share unit ('RSU') and deferred share unit ('DSU') entitling the holder to receive one common share of the Company or equivalent value. All units are accounted for as equity-settled awards.
A summary of the Company's unit plans and changes during the three-month period ended February 28, 2021 is as follows:
| | | |
| Number of DSUs | ||
Balance - beginning of the period | 1,218,520 | | |
Granted | 19,992 | | |
Balance - end of the period | 1,238,512 | |
For the three-month period ended February 28, 2021, Trilogy recognized a stock-based compensation charge of $0.04 million (2020- $0.04 million), net of estimated forfeitures. The Company did not issue any RSU grants during the three-month period ended February 28, 2021. As of February 28, 2021, there were no outstanding RSU grants.
9) 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 February 28, 2021 is limited to the Canadian dollar balances consisting of cash of approximately CDN$78,000, accounts receivable of approximately CDN$29,000 and accounts payable of approximately CDN$413,000. 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 $24,000.
(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 and cash equivalents with Canadian Chartered financial institutions. The Company's accounts receivable consists of Canadian Goods and Services Tax receivable from the Federal Government of Canada and other receivables for recoverable expenses. The Company's exposure to credit risk is equal to the balance of cash and cash equivalents and accounts receivable as recorded in the financial statements.
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Trilogy Metals Inc. | 13 |
(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.
Contractually obligated cash flow requirements as at February 28, 2021 are as follows:
| | | | | | | | | | | | | | | |
| | in thousands of dollars | |||||||||||||
| Total | < 1 Year | 1-2 Years | 2-5 Years | Thereafter | | |||||||||
| | $ | | | $ | | | $ | | | $ | | | $ | |
Accounts payable and accrued liabilities | 551 | | 551 | | - | | | - | | | - | | |||
Office lease | 694 | | | 201 | | | 421 | | | 72 | | | - | ||
| 1,245 | | 752 | | 421 | | | 72 | | | - | |
(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 and cash equivalents. Based on balances as at February 28, 2021, a 1% change in interest rates would result in a $200 change in net loss, assuming all other variables remain constant.
10) Commitment
The Company has commitments with respect to an office lease requiring future minimum lease payments as summarized in note 7(b) above.
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Trilogy Metals Inc. | 14 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Trilogy Metals Inc.
Management's Discussion & Analysis
For the Quarter Ended February 28, 2021
(expressed in US dollars)
Cautionary notes
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. Securities Act of 1933, as amended, Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and other applicable securities laws. These forward-looking statements may include statements regarding the Company's work programs and budgets; perceived merit of properties, exploration results and budgets, the Company and Ambler Metals's 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, sufficiency of the $145 million subscription price to fund the UKMP; impact of COVID-19 on the Company's operations; market prices for precious and base metals; statements regarding the Ambler Road 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. Statements concerning mineral resource estimates may also be deemed to constitute 'forward-looking statements' to the extent that they involve estimates of the mineralization that will be encountered if the property is developed.
Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, identified by words or phrases such as 'expects', 'is expected', 'anticipates', 'believes', 'plans', 'projects', 'estimates', 'assumes', 'intends', 'strategy', 'goals', 'objectives', 'potential', 'possible' or variations thereof or stating that certain actions, events, conditions or results 'may', 'could', 'would', 'should', 'might' or 'will' be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statements of historical fact and may be forward-looking statements.
Forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made, as well as on a number of material assumptions, which could prove to be significantly incorrect, including about:
| ● | our ability to achieve production at the Upper Kobuk Mineral Projects; |
| ● | the accuracy of our mineral resource and reserve estimates; |
| ● | the results, costs and timing of future exploration drilling and engineering; |
| ● | timing and receipt of approvals, consents and permits under applicable legislation; |
| ● | the adequacy of our financial resources; |
| ● | the receipt of third party contractual, regulatory and governmental approvals for the exploration, development, construction and production of our properties and any litigation or challenges to such approvals; |
| ● | our expected ability to develop adequate infrastructure and that the cost of doing so will be reasonable; |
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Trilogy Metals Inc. | 15 |
| ● | continued good relationships with South32 Limited ('South32'), our joint venture partner, as well as local communities and other stakeholders; |
| ● | there being no significant disruptions affecting operations, whether relating to labor, supply, power damage to equipment or other matter; |
| ● | expected trends and specific assumptions regarding metal prices and currency exchange rates; and |
| ● | prices for and availability of fuel, electricity, parts and equipment and other key supplies remaining consistent with current levels. |
We have also assumed that no significant events will occur outside of our normal course of business. Although we have attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. We believe that the assumptions inherent in the forward-looking statements are reasonable as of the date of this MD&A. However, forward-looking statements are not guarantees of future performance and, accordingly, undue reliance should not be put on such statements due to the inherent uncertainty therein.
Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual events or results to differ from those reflected in the forward-looking statements, including, without limitation:
| ● | risks related to the COVID-19 pandemic; |
| ● | risks related to inability to define proven and probable reserves; |
| ● | risks related to our ability to finance the development of our mineral properties through external financing, strategic alliances, the sale of property interests or otherwise; |
| ● | uncertainty as to whether there will ever be production at the Company's mineral exploration and development properties; |
| ● | risks related to our ability to commence production and generate material revenues or obtain adequate financing for our planned exploration and development activities; |
| ● | risks related to lack of infrastructure including but not limited to the risk whether or not the Ambler Mining District Industrial Access Project, or AMDIAP, will receive the requisite permits and, if it does, whether the Alaska Industrial Development and Export Authority will build the AMDIAP; |
| ● | risks related to inclement weather which may delay or hinder exploration activities at our mineral properties; |
| ● | risks related to our dependence on a third party for the development of our projects; |
| ● | none of the Company's mineral properties are in production or are under development; |
| ● | commodity price fluctuations; |
| ● | uncertainty related to title to our mineral properties; |
| ● | our history of losses and expectation of future losses; |
| ● | risks related to increases in demand for equipment, skilled labor and services needed for exploration and |
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Trilogy Metals Inc. | 16 |
development of mineral properties, and related cost increases;
| ● | uncertainties relating to the assumptions underlying our resource estimates, such as metal pricing, metallurgy, mineability, marketability and operating and capital costs; |
| ● | uncertainty related to inferred mineral resources; |
| ● | mining and development risks, including risks related to infrastructure, accidents, equipment breakdowns, labor disputes or other unanticipated difficulties with or interruptions in development, construction or production; |
| ● | risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of our mineral deposits; |
| ● | risks related to governmental regulation and permits, including environmental regulation, including the risk that more stringent requirements or standards may be adopted or applied due to circumstances unrelated to the Company and outside of our control; |
| ● | the risk that permits and governmental approvals necessary to develop and operate mines at our mineral properties will not be available on a timely basis or at all; |
| ● | risks related to the need for reclamation activities on our properties and uncertainty of cost estimates related thereto; |
| ● | risks related to the acquisition and integration of operations or projects; |
| ● | our need to attract and retain qualified management and technical personnel; |
| ● | risks related to conflicts of interests of some of our directors and officers; |
| ● | risks related to potential future litigation; |
| ● | risks related to market events and general economic conditions; |
| ● | risks related to future sales or issuances of equity securities decreasing the value of existing Trilogy common |
shares, diluting voting power and reducing future earnings per share;
| ● | risks related to the voting power of our major shareholders and the impact that a sale by such shareholders may have on our share price; |
| ● | uncertainty as to the volatility in the price of the Company's common shares; |
| ● | the Company's expectation of not paying cash dividends; |
| ● | adverse federal income tax consequences for U.S. shareholders should the Company be a passive foreign investment company; |
| ● | risks related to global climate change; |
| ● | risks related to adverse publicity from non-governmental organizations; |
| ● | uncertainty as to our ability to maintain the adequacy of internal control over financial reporting as per the requirements of Section 404 of the Sarbanes-Oxley Act; and |
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Trilogy Metals Inc. | 17 |
| ● | 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; |
This list is not exhaustive of the factors that may affect any of the Company's forward-looking statements. Forward-looking statements are statements about the future and are inherently uncertain, and actual achievements of the Company or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors, including, without limitation, those referred to in Trilogy's Form 10-K dated February 12, 2021, filed with the Canadian securities regulatory authorities and the SEC, and other information released by Trilogy and filed with the appropriate regulatory agencies.
The Company's forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made, and the Company does not assume any obligation to update forward-looking statements if circumstances or management's beliefs, expectations or opinions should change, except as required by law. For the reasons set forth above, investors should not place undue reliance on forward-looking statements.
General
This Management's Discussion and Analysis ('MD&A') of Trilogy Metals Inc. ('Trilogy', 'Trilogy Metals', 'the Company' or 'we') is dated April 6, 2021 and provides an analysis of our unaudited interim financial results for the quarter ended February 28, 2021 compared to the quarter ended February 29, 2020.
The following information should be read in conjunction with our February 28, 2021 unaudited interim condensed consolidated financial statements and related notes which were prepared in accordance with United States generally accepted accounting principles ('U.S. GAAP'). The MD&A should also be read in conjunction with our audited consolidated financial statements and related notes for the year ended November 30, 2020. A summary of the U.S. GAAP accounting policies is outlined in note 2 of the audited consolidated financial statements. All amounts are in United States dollars unless otherwise stated. References to 'Canadian dollars' and 'C$' and 'CDN$' are to the currency of Canada and references to 'U.S. dollars', '$' or 'US$' are to the currency of the United States.
Richard Gosse, P.Geo., is a Qualified Person under National Instrument 43-101 - Standards of Disclosure for Mineral Projects ('NI 43-101'), and has approved the scientific and technical information in this MD&A.
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, is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Description of business
We are a base metals exploration company focused on the exploration and development of mineral properties, through our equity investee, in the Ambler mining district located in Alaska, U.S.A. We conduct our operations through a wholly owned subsidiary, NovaCopper US Inc. which is doing business as Trilogy Metals US ('Trilogy Metals US'). Our Upper Kobuk Mineral Projects, ('UKMP' or 'UKMP Projects') were contributed into a 50/50 joint venture named Ambler Metals LLC ('Ambler Metals') between Trilogy and South32 on February 11, 2020 (see below). The projects contributed to Ambler Metals consist of: i) the Ambler lands which host the Arctic copper-zinc-lead-gold-silver project (the 'Arctic Project'); and ii) the Bornite lands being explored under a collaborative long-term agreement with NANA Regional Corporation, Inc. ('NANA'), a regional Alaska Native Corporation, which hosts the Bornite carbonate-hosted copper project (the 'Bornite Project') and related assets.
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Trilogy Metals Inc. | 18 |
Project Activities
2021 Operating Budget for the Upper Kobuk Mineral Projects
In a press release dated November 19, 2020, the Company announced that Ambler Metals had approved a 2021 program budget of approximately $27 million for the advancement of the UKMP. The budget is to be 100% funded by Ambler Metals. The 2021 program budget includes 7,600 meters of infill and metallurgical drilling at the Arctic Project, 7,000 meters of exploration drilling within the Ambler Volcanogenic Massive Sulphide ('VMS') Belt, geological and engineering work focused on getting the Arctic Project ready for permitting and permitting efforts focused on submission of the Federal 404 permit application in the second half of 2021.
COVID Safety Measures
During the 2021 field season, we will be adhering to a strict COVID safety protocol regime which includes limited personnel rotations, COVID-19 testing, stringent sanitation and disinfection procedures and contact tracing. These protocols will be followed throughout the summer field season in strict observance to Government of Alaska guidelines.
Arctic Project
Activities at the Arctic Project will focus on an additional 7,600 meters of drilling which will have the dual purpose of extracting additional material for metallurgical work and for the conversion of mineral resources into the measured category. The metallurgical program that is associated with this drilling will support variability test work and pilot plant work which will commence later in 2021. Engineering work is continuing at Arctic with the aim of submitting the application for the Notice of Intent for the 404 Dredge and Fill Permit, which is covered by the Clean Water Act, to the United States Army Corps of Engineers.
Regional Exploration Project
Following up from the 2019 work performed along the 100-kilometer Ambler VMS belt, Ambler Metals will continue exploration efforts along the belt and around Bornite to discover and define additional deposits. During the 2021 field season, Ambler Metals plans to conduct a 7,000-meter regional exploration drill campaign at drill-ready targets. In addition, detailed geologic mapping, geochemical soil sampling and possibly ground geophysics is planned.
Ambler Mining District Industrial Access Project (AMDIAP)
On January 6, 2021, the United States Bureau of Land Management ('BLM'), the National Park Service ('NPS') and the Alaska Industrial Development and Export Authority ('AIDEA') signed Right-of-Way agreements giving AIDEA the ability to cross federally owned and managed lands along the route for the Ambler Road Project approved in the Joint Record of Decision. The agreements grant a 50-year right-of-way on federally owned and managed land by the federal agencies for the future development of the Ambler Mining District Industrial Access Road. The authorizing documents with the two agencies are the final federal permits required for the Ambler Road Project.
Development Funding Agreement with the Alaska Industrial Development and Export Authority (AIDEA)
In a press release dated February 11, 2021, the Company announced its approval for Ambler Metals to enter into an Ambler Access Development Agreement (the 'Development Agreement') with AIDEA.
The Development Agreement defines how AIDEA and Ambler Metals will work cooperatively together on the pre-development work for the Ambler Access Project to address funding and oversight of the project's feasibility and permitting activities until the parties reach a decision on the construction of the project by the end of 2024 at the latest. The cost of the pre-development work and activities will be paid 50% by AIDEA and 50% by Ambler Metals based on an
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Trilogy Metals Inc. | 19 |
annually agreed program and budget. Under the Development Agreement, Ambler Metals and AIDEA agree to contribute up to $35 million each for pre-development costs of the Ambler Access Project through December 31, 2024.
Joint Venture
Option agreement
On April 10, 2017, Trilogy and Trilogy Metals US entered into an Option Agreement to form a Joint Venture with South32 Group Operations Pty Ltd., a wholly-owned subsidiary of South32, which agreement was later assigned by South32 Operations Pty Ltd. to its affiliate, South32 USA Exploration Inc. 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. South32 exercised its option on December 19, 2019.
Formation of joint venture
On February 11, 2020, Trilogy completed the formation of the 50/50 joint venture with South32. Trilogy contributed all its assets associated with the 172,675-hectare UKMP, including the Arctic and Bornite Projects, while South32 contributed a subscription price of US$145 million (the 'Subscription Price'), resulting in each party owning a 50% interest in Ambler Metals. The Subscription Price will be used to advance the Arctic and Bornite Projects, along with exploration in the Ambler mining district. With Ambler Metals being well funded, with access to $145 million, Trilogy does not expect to fund programs and budgets to advance the UKMP until the Subscription Price is spent by Ambler Metals. To assist Ambler Metals during the initial set up phase, Trilogy paid all of Ambler Metals' invoices and was being reimbursed pursuant to a services agreement (the 'Services Agreement') until the back office was fully transitioned to a new team employed by Ambler Metals. The Services Agreement ended on December 31, 2020.
Ambler Metals is an independently operated company controlled by Trilogy and South32 through a four-member board of which two members are currently 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 variable interest entity, or 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 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 investment in Ambler Metals was initially measured at its fair value of $176 million upon recognition. Our maximum exposure to loss in this entity is limited to the carrying amount of our investment in Ambler Metals, which, as of February 28, 2021, totaled $172 million.
During the three-month period ended May 31, 2020, Ambler Metals loaned $57.5 million back to South32 and retained $87.5 million. The loan has a 7-year maturity date, but Ambler Metals will begin to draw down on the loan with cash calls to South32 to fund its 50% share of the 2021 budget to advance development studies, resource drilling and regional exploration programs. The loan is secured by South32's membership interest in Ambler Metals and guaranteed by South32 International Investment Holdings Pty Ltd. Trilogy currently estimates that the Subscription Price, which includes the funds to be repaid under the loan, will fund the UKMP through feasibility and the permitting of the first mine to be developed in the Ambler mining district. Once the full amount of the Subscription Price payment of $145 million is expended, the parties will contribute funding pro rata, as contemplated by the operating agreement which governs Ambler Metals.
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Trilogy Metals Inc. | 20 |
Summary of results
| | | | | | | | |
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| | | | | | | | |
| | | | | | | | |
| | Three months ended | | |||||
| | February 28, 2021 | | | February 29, 2020 | | ||
Selected expenses | $ | | $ | |||||
Mineral properties and feasibility study expenses | | | - | | | | 1,545 | |
General and administrative | | | 401 | | | | 651 | |
Investor relations | | | 154 | | | | 126 | |
Professional fees | | | 229 | | | | 668 | |
Salaries | | | 439 | | | | 224 | |
Salaries - stock-based compensation | | | 2,148 | | | | 1,196 | |
Gain on derecognition of assets contributed to joint venture | | | - | | | | (175,770) | |
Share of loss on equity investment | | | 1,120 | | | | 178 | |
Comprehensive earnings (loss) for the year | | | (4,516) | | | | 171,179 | |
Basic earnings (loss) per common share | | | (0.03) | | | | 1.22 | |
Diluted earnings (loss) per common share | | | (0.03) | | | | 1.16 | |
For the three months ended February 28, 2021, Trilogy reported net loss of $4.5 million (or $0.03 basic and diluted loss per common share). For the comparable period in 2020, we reported net earnings of $171 million (or $1.22 basic and $1.16 diluted earnings per common share). This first quarter difference is primarily due to the $176 million gain on derecognition of mineral property assets contributed to Ambler Metals upon formation of the joint venture on February 11, 2020. This is offset by $1.5 million of mineral property expenses incurred during the first quarter of 2020. Furthermore, our share of loss in equity in investment is $0.94 million higher in the current quarter as the comparative does not include a full quarter of costs for the equity pick up; it reflects our pro rata 50% share of Ambler's net loss from the formation of the joint venture on February 11, 2020 through to the end of the quarter on February 29, 2020.
Other variances noted for the comparable period were: i) a decrease in general and administrative expenses of $0.3 million, primarily due to $0.1 million in travel cost savings (due to COVID-19 travel restrictions), additional regulatory fees of $0.1 million included in the comparative quarter as well as $0.1 million recruiting fees incurred in the comparative period for which there is no current period cost; ii) a decrease of $0.4 million in professional fees as the comparative period includes charges for the research and implementation of new accounting standards and legal and accounting fees in relation to the formation and valuation of the joint venture, all of which do not have a current period comparative; iii) an increase of $0.2 million in salaries is due to the addition of management during the second half of the prior year, for which there is no prior year first quarter comparative; iv) an increase of $1 million in stock-based compensation driven primarily by a 0.9 million increase in the number of stock options that were granted and vested during the first quarter of 2021 versus the comparative period.
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Trilogy Metals Inc. | 21 |
Selected financial data
Quarterly information
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | in thousands of dollars, | ||||||||||||||||||
| | | | | except per share amounts | ||||||||||||||||||
| | Q1 2021 | | | Q4 2020 | | | Q3 2020 | | Q2 2020 | | | Q1 2020 | | | Q4 2019 | | | Q3 2019 | | | Q2 2019 | |
| | 02/28/21 | | | 11/30/20 | | | 08/31/20 | | 05/31/20 | | | 02/29/20 | | | 11/30/19 | | | 08/31/19 | | | 05/31/19 | |
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||
Interest and other income | | 5 | | | 5 | | | 8 | | 12 | | | 62 | | | 91 | | | 137 | | | 150 | |
Mineral properties and feasibility study expenses | - | | 91 | | 232 | | 742 | | 1,545 | | 3,819 | | 10,951 | | 2,906 | | |||||||
Share of loss on equity investment | | 1,120 | | | 1,022 | | | 1,094 | | 561 | | | 178 | | | - | | | - | | | - | |
Earnings (loss) for the period | (4,516) | | (3,226) | | (3,184) | | (3,002) | | 171,179 | | (6,525) | | (12,535) | | (4,509) | | |||||||
Earnings (loss) per common share - basic | | (0.03) | | | (0.04) | | | (0.02) | | (0.02) | | | 1.22 | | | (0.05) | | | (0.09) | | | (0.04) | |
Earnings (loss) per common share - diluted | | (0.03) | | | (0.01) | | | (0.01) | | (0.02) | | | 1.16 | | | (0.05) | | | (0.09) | | | (0.04) | |
Factors that can cause fluctuations in our quarterly results include the length of the exploration field season at the properties, the type of program conducted, stock option vesting, and issuance of shares. Subsequent to the formation
of the Joint Venture on February 11, 2020, project related costs may cause fluctuations in our quarterly results through our 50% share of the Joint Venture's net operating loss.
For the first quarter of 2021, we reported comprehensive loss of $4.5 million, which consists of $3.4 million in operating expenses and $1.1 million for Trilogy's 50% share of Ambler Metals' operating loss. In the first quarter of 2020, we recognized a gain of $176 million from the contribution of our Alaskan mineral properties to the joint venture for which there is no current period comparative. Other variances, when compared to the three-month period ended February 29, 2020, include our pro rata share of the joint venture's operating loss, which is $0.9 million higher in the current period and operating expenses, which are $1.1 million lower for the current period. The decrease in the operating expenses is primarily due to the elimination of $1.5 million in mineral properties expenses as the mineral properties were contributed to the joint venture during the first quarter of 2020 and a cost savings of $0.4 million from professional fees, offset by an increase of $1.0 million in stock-based compensation.
For the fourth quarter ended November 30, 2020, we incurred a loss of $3.2 million, which consists of $3.1 million in operating expense and $1.0 million for Trilogy's share of Ambler Metals' operating loss. When compared to the fourth quarter of 2019, the operating expenses were $3.5 million lower. The decrease is primarily due to the elimination of $3.8 million in mineral property expenses, a decrease of $0.4 million in professional fees, $0.3 million lower stock‐based compensation and a decrease of $0.2 million in general and administrative expenses. These cost savings were offset by a loss of $1.0 million on the equity method investment for which there is no comparatives for the fourth quarter of 2019, and an increase of $0.3 million in salaries due to new hires to the management team in the fourth quarter 2020.
For the third quarter ended August 31, 2020, we reported a comprehensive loss of $3.2 million, which consists of $2.1 million in operating expenses and $1.1 million for Trilogy's 50% share of Ambler Metals' operating loss. When compared to the three-month period ended August 31, 2019, the operating expenses for the third quarter was $10.6 million lower. The decrease is primarily due to the elimination of $11 million in mineral properties expenses due to the formation of the joint venture for which there are no comparable expenses in the third quarter of 2020, offset by $1 million in feasibility study costs in the same period.
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Trilogy Metals Inc. | 22 |
For the second quarter ended May 31, 2020, we reported a comprehensive loss of $3.0 million, which consists of $2.4 million in operating expenses and $0.6 million for Trilogy's 50% share of Ambler Metals' operating loss. There is no prior period comparative for our pro rata share of Ambler Metals' operating loss as the joint venture formation was completed during fiscal 2020. When compared to the three-month period ended May 31, 2019, the operating expenses for the second quarter of 2020 was $2.1 million lower. The decrease is primarily due to the elimination of $2.9 million of mineral properties expense, offset by $0.7 million in feasibility study costs incurred in the second quarter of 2020.
Liquidity and capital resources
At February 28, 2021, we had $9.6 million in cash and cash equivalents and working capital of $9.2 million, which is sufficient to fund our ongoing operations for at least the next 12 months. The projects are fully funded by Ambler Metals and we do not anticipate needing to fund our 50% share of future expenditures to advance the projects until Ambler Metals' $145 million is spent.
Contractual obligations
Contractual obligated undiscounted cash flow requirements as at February 28, 2021 are as follows.
| | | | | | | | | | | | | | | |
| | In thousands of dollars | |||||||||||||
| | Total | | | <1 Year | | | 1-2 Years | | | 2-5 Years | | | Thereafter | |
| $ | $ | $ | $ | $ | ||||||||||
Accounts payable and accrued liabilities | | 551 | | | 551 | | - | | | - | | | - | ||
Office lease | | 694 | | | 201 | | | 421 | | | 72 | | | - | |
| 1,245 | | 752 | | 421 | | 72 | | - | |
Off-balance sheet arrangements
We have no material off-balance sheet arrangements.
Outstanding share data
At April 6, 2021, we had 144,292,774 common shares issued and outstanding. At April 6, 2021, we had outstanding, 11,404,650 stock options with a weighted-average exercise price of $1.93, no RSUs, as well as 1,251,726 DSUs and 11,927 NovaGold DSUs for which the holder is entitled to receive one common share for every six NovaGold shares received. Upon exercise of all the foregoing convertible securities, the Company would be required to issue an aggregate of 12,658,364 common shares.
New accounting pronouncements
There are no new accounting pronouncements affecting the company.
Critical accounting estimates
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 LLC, income taxes and valuation of stock‐based compensation.
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 LLC 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
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an 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, significant changes in the legal, business or regulatory environment, adverse changes in the use or physical condition of the underlying mineral properties asset, changes in the market interest rates or other market rates of return that are likely to significantly affect the discount rate used in the impairment assessment, 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's estimates of mineral prices, mineral resources, foreign exchange rates and projected future production
levels and operating capital are subject to risk and uncertainties that may affect the determination of the recoverability
of the equity method investment.
Income taxes
We must make estimates and judgments in determining the provision for income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized charges 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 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.
Stock-based compensation
Compensation expense for options granted to employees, directors and certain service providers is determined based on estimated fair values of the options at the time of grant using the Black-Scholes option pricing model, which takes into account, as of the grant date, the fair market value of the shares, expected volatility, expected life, expected forfeiture rate, expected dividend yield and the risk-free interest rate over the expected life of the option. The use of the Black-Scholes option pricing model requires input estimation of the expected life of the option, volatility, and forfeiture rate which can have a significant impact on the valuation model, and resulting expense recorded.
Additional information
Additional information regarding the Company, including our annual report on Form 10-K, is available on SEDAR at www.sedar.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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
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Item 4. Controls and Procedures
Disclosure controls and procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted by the Company under U.S. and Canadian securities legislation is recorded, processed, summarized and reported within the time periods specified in those rules, including providing reasonable assurance that material information is gathered and reported to senior management, including the Chief Executive Officer ('CEO') and Chief Financial Officer ('CFO'), as appropriate, to permit timely decisions regarding public disclosure. Management, including the CEO and CFO, has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) of the U.S. Securities Exchange Act of 1934, as amended (the 'Exchange Act') and the rules of Canadian Securities Administration, as of February 28, 2021. Based on this evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures were effective.
Internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act and National Instrument 52-109 Certification of Disclosure in Issuer's Annual and Interim filings. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Changes in internal control over financial reporting
There have been no changes in our internal controls over financial reporting during the fiscal quarter ended February 28, 2021 which have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We continue to evaluate our internal control over financial reporting on an ongoing basis to identify improvements.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are a party to routine litigation and proceedings that are considered part of the ordinary course of its business. We are not aware of any material current, pending, or threatened litigation.
Item 1A. Risk Factors
Trilogy and its future business, operations and financial condition are subject to various risks and uncertainties due to the nature of its business and the present stage of exploration of its mineral properties and the formation of the joint venture. Certain of these risks and uncertainties are under the heading 'Risk Factors' under Trilogy's Form 10-K dated February 12, 2021 which is available on SEDAR at www.sedar.com, EDGAR at www.sec.gov and on our website at www.trilogymetals.com.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Securities
None.
Item 4. Mine Safety Disclosures
These disclosures are not applicable to us.
Item 5. Other Information
None.
Item 6. Exhibits
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Exhibit No. | Description | |
3.1 | | Certificate of Incorporation, dated April 27, 2011 (incorporated by reference Exhibit 99.2 to the Registration Statement on Form 40-F as filed on March 1, 2012, File No. 001-35447) |
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3.2 | | Articles of Trilogy Metals Inc., effective April 27, 2011, as altered March 20, 2011 (incorporated by reference to Exhibit 99.3 to Amendment No. 1 to the Registration Statement on Form 40-F as filed on April 19, 2012, File No. 001-35447) |
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3.3 | | Notice of Articles and Certificate of Change of Name, dated September 1, 2016 (incorporated by reference to Exhibit 3.1 to the Form 8-K dated September 8, 2016) |
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31.1 | | Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) |
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31.2 | | Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) |
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32.1 | | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 |
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32.2 | | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 |
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101 | | Interactive Data Files |
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101.INS | | Inline XBRL Instance Document |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: April 7, 2021 | TRILOGY METALS INC. | |
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| By: | /s/ Tony Giardini |
| | Tony Giardini |
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| | President and Chief Executive Officer |
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| By: | /s/ Elaine M. Sanders |
| | Elaine M. Sanders |
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| | Vice President and Chief Financial Officer |
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Trilogy Metals Inc. published this content on 07 April 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 07 April 2021 10:55:01 UTC.
