Commitments and contingencies(notes 4, 5 andnote 8)

(See accompanying notes to the interim consolidated financial statements)

Approved on behalf of the Board of Directors

Trilogy Metals Inc.

Consolidated Statements of Loss and Comprehensive Loss

(unaudited)

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

(See accompanying notes to the interim consolidated financial statements)

Trilogy Metals Inc.

Consolidated Statements of Changes in Shareholders’ Equity

(unaudited)

in thousands of US dollars, except share amounts

(See accompanying notes to the interim consolidated financial statements)

Trilogy Metals Inc.

Consolidated Statements of Cash Flows

(unaudited)

in thousands of US dollars

(See accompanying notes to the interim consolidated financial statements)

Trilogy Metals Inc.

Notes to the Consolidated Financial Statements

Trilogy Metals Inc., formerly NovaCopper Inc., (“Trilogy”, or the “Company”, or “we”) was incorporated in British Columbia under theBusiness Corporations Act (BC) on April 27, 2011. The Company changed its name from NovaCopper Inc. to Trilogy Metals Inc. on September 1, 2016 to better reflect its diversified metals resource base. The Company is engaged in the exploration and development of mineral properties 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”).

Basis of presentation

These 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., doing business as Trilogy Metals US (“Trilogy (dba “Trilogy Metals US”). These consolidated financial statements included the accounts of Sunward Resources Ltd. (“Sunward”), Sunward Investments Ltd. (“Sunward Investments”) and Sunward Resources Limited (“Sunward BVI”) for the period June 19, 2015 to September 1, 2016, inclusive. Sunward BVI has registered a branch, Sunward Resources Sucursal Colombia, to do business in Colombia. All significant intercompany transactions are eliminated on consolidation.

On June 19, 2015, we completed the acquisition of Sunward, which held 100% ownership in the Titiribi gold-copper exploration project in Colombia through Sunward Investments. Sunward was converted to Sunward Resources Unlimited Liability Company on June 19, 2015 and wound-up on February 29, 2016. On September 1, 2016, we completed the sale of Sunward Investments and the Titiribi project.The Company classified the operations of Sunward Investments as discontinued operations, retrospectively.

All figures are in United States dollars unless otherwise noted. References to CDN$CAD$ refer to amounts in Canadian dollars.

TheThese unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of ourthe Company’s financial position as of AugustMay 31, 2017,2019 and our results of operations for the three months and nine months ended August 31, 2017 and 2016 and our cash flows for the ninesix months ended AugustMay 31, 20172019 and 2016.May 31, 2018. The results of operations for the three and ninesix months ended AugustMay 31, 20172019 are not necessarily indicative of the results to be expected for the fiscal year ending November 30, 2017.2019.

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, 20162018 filed with the U.S. Securities and Exchange Commission (“SEC”) on February 3, 2017.11, 2019.

These financial statements were approved by the Company’s Audit Committee on behalf of the Board of Directors for issue on October 4, 2017.July 8, 2019.

In NovemberMarch 2016, the FASB issued new guidance regarding the presentation of restricted cash in the statement of cash flowson classifying and measuring financial instruments (“ASU 2016-18”2016-01”). This update is effective for annual reporting periods beginning after December 15, 2017, and early adoption is permitted.2017. The Company has analyzedadopted the impactprovisions of the update and determined that the clarification will not affectthis guidance effective November 1, 2018. As the Company’s presentation on itsinvestments in equity instruments were previously classified at fair value with the change in fair value recorded to the statement of cash flows. The Company early adoptedloss and comprehensive loss, the standard in the second quarter of 2017. As there was nonew guidance does not impact on the Company’s statement of cash flows, there were no changes as a result of adopting the standard.accounting or reporting results.

Recent accounting pronouncements

In February 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued new accounting requirements for accounting for, presentation of, and classification of leases (“ASU 2016-02”). This will result in most leases being capitalized as a right of use asset with a related liability on ourthe balance sheets. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, which for usTrilogy is the first quarter of the fiscal year ending November 30, 2020. We expect the adoption will have an impact as we expect to capitalize leases, specifically our office leases thatwhich are not currently recognized on the balance sheet andsheets. We are in the process of analyzing the quantitative impact of this guidance on our results of operations and financial position.

In March 2016, The impact of this adoption will increase asset and liability balances as part of recognizing the FASB issued new guidance simplifying the accounting for stock-based compensation transactions, including income tax consequences, classification of awards as equity or liabilities, forfeitures, and classificationleases on the statement of cash flows (“ASU 2016-09”). This update is effective for annual reporting periods beginning after December 15, 2016, and early adoption is permitted. The Company has analyzed the impact of the update and determined that the simplification applied to accounting for forfeitures will affect the results of operations and financial position as it will alter the timing of recognition of forfeitures. The Company is currently considering its policy choice. The remaining changes in the update do not have an effect on the Company’s accounting for stock-based compensation.balance sheet.

In January 2017, the FASB issued new guidance to assist in determining if a set of assets and activities being acquired or sold is a business (“ASU 2017-01”). It also provided a framework to assist entities in evaluating whether both an input and a substantive process are present, which at a minimum, must be present to be considered a business. This update is effective for annual reporting periods beginning after December 15, 2017, and early adoption is permitted in most circumstances. It expects there could be an impact to how the Company accounts for assets acquired in the future.

On September 1, 2016, Trilogy completed the sale to GoldMining Inc. (“GMI”), formerly Brazil Resources Inc., a public company listed on the TSX-Venture exchange, of all of the issued and outstanding shares of Sunward Investments for consideration of 5,000,000 common shares of GMI valued at $7.8 million and 1,000,000 warrants, with each warrant exercisable into one common share of GMI for a period of two years at an exercise price of CDN$3.50, valued at $0.3 million, for total consideration of $8.1 million. Of the common shares received, 2,500,000 common shares were saleable immediately with the remaining 2,500,000 common shares saleable six months following the close. Sunward Investments, through a subsidiary, owns 100% of the Titiribi gold-copper exploration project.

The common shares and warrants received have been designated as held-for-trading financial assets, with the classification as current investments and long-term investments, respectively.

in thousands of dollars

The fair value of the common shares is determined based on the closing price at each period end. The fair value of the BRI warrants is determined using the Black-Scholes option pricing model at each period end.

During the nine months ended August 31, 2017, the Company sold 1,519,000 common sharesin thousands of GMI during the period for proceedsdollars

in thousands of $2.2 million and realized a loss on sale of $0.2 million. For the nine months ended August 31, 2017, the Company recorded an unrealized loss on the common shares and warrants of GMI of $1.3 million.dollars

in thousands of dollars

in thousands of dollars

On January 11, 2010, NovaGold Resources Inc. (“NovaGold”), through Alaska Gold Company (“AGC”), at the time a wholly-owned NovaGold subsidiary, purchased 100% of the Ambler lands in Northwest Alaska, which contains the copper-zinc-lead-gold-silver Arctic Project and other mineralized targets within the volcanogenic massive sulfide belt, through a series of cash and share payments. Total fair value of the consideration was $26.6 million. The vendor retained a 1% net smelter return royalty that the owner of the propertyCompany can purchase at any time for a one-time payment of $10.0 million.

The Ambler lands were acquired on October 17, 2011 by Trilogy Metals US through a purchase and sale agreement with AGC. On October 24, 2011, NovaGold transferred its ownership of Trilogy Metals US to the Company, then itself a wholly owned subsidiary of NovaGold, which was subsequently spun-out to NovaGold shareholders and publicly listed on April 30, 2012 (“NovaGold Arrangement”).

On October 19, 2011, Trilogy Metals US acquired the exclusive right to explore and the non-exclusive right to access and enter on the Bornite lands, and lands deeded to NANA Regional Corporation, Inc. (“NANA”) through the Alaska Native Claims Settlement Act, located adjacent to the Ambler lands in Northwest Alaska. As consideration, Trilogy Metals US paid $4 million to acquire the right to explore and develop the combined Upper Kobuk Mineral Projects through an Exploration Agreement and Option to Lease with NANA. Upon a decision to proceed with construction of a mine on the lands, NANA maintains the right to purchase between a 16%-25% ownership interest in the mine or retain a 15% net proceeds royalty which is payable after Trilogy Metals US has recovered certain historical costs, including capital and cost of capital. Should NANA elect to purchase an ownership interest, consideration will be payable equal to all historical costs incurred on the properties at the elected percentage purchased less $40 million, not to be less than zero. The parties would form a joint venture and be responsible for all future costs, including capital costs of the mine based on their pro-rata share.

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

On April 10, 2017, Trilogy and Trilogy Metals US entered into an Option Agreement to Formform a Joint Venture with South32 Group Operations Pty Ltd., a wholly-owned subsidiary of South32 Limited, which agreement was later assigned by South32 Operations to its affiliate, South32 USA Exploration Inc. (“South32”) on the UKMP (“Option Agreement”). Under the terms of the Option Agreement, as amended, Trilogy Metals US has granted South32 the right to form a 50/50 joint venture to hold all of Trilogy Metals US’ Alaskan assets. Upon exercise of the option, Trilogy Metals US will transfer its Alaskan assets, including the UKMP, and South32 will contribute a minimum of $150 million, to a newly formed and jointly held, limited liability company (“JV LLC”), plus any amounts Trilogy Metals US spends at the Arctic Project over the next three years to a maximum of $5 million per year (the “Subscription Price”), less an amount of the initial funding contributed by South32.

.

To maintain the option in good standing, South32 is required to fund a minimum of $10 million per year for up to a three yearthree-year period, which funds will be used to execute a mutually agreed upon program at the UKMP. The funds provided by South32 may only be expended based onin accordance with an approved program by a technical committee with equal representation from Trilogy and South32. South32 may exercise its option at any time over the approved program. Provided that allthree-year period to enter into the exploration data and information has been made available to South32 by no later than December 3150/50 joint venture. To subscribe for 50% of each year,the JV, South32 must decide by the end of January of the following year whether: (i) to fund a further tranche ofcontribute a minimum of $150 million, plus (i) any amounts Trilogy spends on matched parallel funding to a maximum of $16 million over the three year period and (ii) $5 million if the option had been exercised between April 1, 2018 and March 31, 2019 or $10 million or (ii) to withdrawif the option is exercised between April 1, 2019 and not provide any further annual funding. If the election to fund a further tranche is not made in January,expiration date of the option, less the amount of the initial funding contributed by South32 (the “Subscription Price”). South32 has now funded the full three-year option period. South32 has until the end of MarchJanuary 2020 to exercise the option to form the JV LLC and make the subscription payment. Should South32 not make its annual minimum payment or elect to withdraw, the option will lapse and South32 will have no claim to ownership or the funds it had already spent

The

During the year ended November 30, 2017, the Company received $10.0 million for the first payment of $10.0 million and these funds were expended on the year 1 program at the Bornite Project. In October 2017, the Company received $0.4 million as a first instalment towards the year 2 program and budget to begin preparatory work. During the year ended November 30, 2018, the Company received payments totaling $10.4 million following the approval of the year 12 program and budget in April 2017. As at August 31, 2017,January 2018, including a $0.80 million advance on South32’s year three funding obligation per the Option Agreement. During the quarter ended February 28, 2019, the Company held $2.7received payments totaling $10.2 million in a segregated bank accountfollowing the approval of the year 3 program and budget, including $1 million funding for spending on the approved regional exploration program. The receipt of the year 1 program at Bornite.3 funding represents receipt of the final tranche of funding from South32. The Company is responsible for the disbursement of these funds in accordance with the approved program and budget and accordingly has not classified the funds as restricted cash.

As the initial option payments are credited against the future subscription price upon exercise, the Company has accounted for the paymentpayments received from South32 as deferred consideration.consideration for the purchase of the UKMP interest. At such time as the option is exercised, the initial$31.0 million of payments received to that date will be recognized as part of the consideration received for the Company’s contribution of the UKMP into the JV LLC. If South 32South32 withdraws from the Option Agreement, the consideration will be recognized as income in the statement of loss at that time.

The option to form the JV LLC is recognized as a financial instrument at inception of the arrangement with an initial fair value of $nil. This option is required to be re-measured at fair value at each reporting date with any changes in fair value recorded in loss for the period. The Company determined that the fair value of the option remains $nil as at May 31, 2019.

The following table summarizes mineral properties expense for the noted periods and includes expenditures funded by South32.periods.

In thousands of dollars

Mineral property expenses consist of direct drilling, personnel, community, resource reporting and other exploration expenses as outlined above, as well as indirect project support expenses such as fixed wing charters, helicopter support, fuel, and other camp operation costs. Cumulative mineral properties expense in Alaska from the initial earn-in agreement on the property in 2004 to AugustMay 31, 20172019 is $73.4$99.0 million and cumulative acquisition costs are $30.6 million totaling $104.0$129.6 million spent to date.

in thousands of dollars

Authorized:

unlimited common shares, no par value

inIn thousands of dollars, except share amounts

On April 30, 2012, under the NovaGold Arrangement, Trilogy committed to issue common shares once vested, to satisfy holders of NovaGold deferred share units (“NovaGold DSUs”) on record as of the close of business April 27, 2012. When vested, Trilogy committed to deliver one common shareCommon Share to the holder for every six shares of NovaGold the holder is entitled to receive, rounded down to the nearest whole number. As of AugustMay 31, 2017, 20,6852019, there remains 11,927 NovaGold DSUs remain outstanding representing a right to receive 3,447 common shares1,988 Common Shares in Trilogy, which will settle upon certain directors retiring from NovaGold’s board.

On April 20, 2018, the Company completed a bought-deal financing for gross proceeds of $28.7 million by issuing 24,784,482 common shares at $1.16 per common share. Expenses including bank commissions, legal fees, stock exchange and other fees totaled $1.8 million for net proceeds of $26.9 million.

During the nine month period ended AugustMay 31, 2017, 1,695,0002019, the Company granted 2,527,500 options (August 31, 2016(2018 – 1,785,0002,125,000 options) at a weighted-average exercise price of CDN$0.72 (August 31, 2016CAD$2.96 (2018 – CDN$0.44) were grantedCAD$1.04) to employees, consultants and directors exercisable for a period of five years with various vesting terms between nil and two years.from immediate vesting to over a two-year period. The weighted-average fair value attributable to options granted in the period was $0.22 per option.$1.08 (2018 - $0.37).

For the nine month period ended AugustMay 31, 2017,2019, Trilogy recognized a stock-based compensation charge of $0.31$1.94 million (August 31, 2016– $0.33(2018– $0.58 million) for options granted to directors, employees and service providers, net of estimated forfeitures.

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

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

As of AugustMay 31, 2017,2019, there were 1,405,8431,841,672 non-vested options outstanding with a weighted average exercise price of $0.48;$1.79; the non-vested stock option expense not yet recognized was $0.1$0.90 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 nine month period ended May 31, 2019 is as follows:

The following table summarizes information about the stock options outstanding at AugustMay 31, 2017.2019.

The aggregate intrinsic value of vested share options (the market value less the exercise price) at AugustMay 31, 20172019 was $2.8$17.6 million (August 31, 2016(2018 - $0.49$5.9 million) and the aggregate intrinsic value of exercised options for the ninesix months ended AugustMay 31, 20172019 was $0.15$0.3 million (August 31, 2016(2018 - $0.09$0.1 million).

Under the NovaGold Arrangement, holders of NovaGold stock options received one option in Trilogy for every six options held in NovaGold (“NovaGold Arrangement Options”). All NovaGold Arrangement Options remaining expired during the nine months ended August 31, 2017.

A summary of the NovaGold Arrangement Options and changes during the nine month period ended is as follows:

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. TheAwards under the RSU Plan and DSU Plan may be settled in cash and/or Common Sharescommon shares of the Company at the Company’s election with each RSUrestricted share unit (“RSU”) and DSUdeferred 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 nine month period ended AugustMay 31, 20172019 is as follows:

For the nine monthsperiod ended AugustMay 31, 2017,2019, Trilogy recognized a stock-based compensation charge of $0.29$0.66 million (August 31, 2016- $0.22(2018- $0.49 million), net of estimated forfeitures.

On December 15, 2016, 600,000As part of the annual incentive payout for the 2018 fiscal year, 225,000 RSUs were granted to officers, vesting one third immediately, one thirdhalf on the grant date and half on the first anniversary of the grant date, and one thirddate. RSUs vesting in December 2018 were settled on the second anniversary. On December 23, 2016, 399,999 RSUs vested and were settled21, 2018 through the issuance of 209,198 shares and a cash payment of $90,000 to cover tax withholdings.412,501 common shares.

A summary of the Company’s warrants and changes during the nine monthsperiod ended AugustMay 31, 20172019 is as follows:

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, investments, and accounts payable and accrued liabilities. The fair value of the Company’s financial instruments approximates their carrying value due to the short-term nature of their maturity. The Company’s financial instruments initially measured at fair value and then held at amortized cost include cash and cash equivalents, accounts receivable, deposits, and accounts payable and accrued liabilities. The Company’s investments arewere held for trading and arewere marked-to-market at each period end with changes in fair value recorded to the statement of loss. The South32 purchase option is a derivative financial liability measured at fair value with changes in value recorded to the statement of loss.

The Company’s activities expose themit to certain financial risks, including currency risk, credit risk, liquidity risk, interest risk and price 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 AugustMay 31, 20172019 is limited to Canadian dollar balances consisting of cash of CDN$2,596,000,244,000, accounts receivable of CDN$421,000, deposit amounts of CDN$116,000, investments of CDN$5,833,00026,000 and accounts payable of CDN$859,000.442,000. 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 $647,000.

$13,000.

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 consistconsists of GSTCanadian 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.

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. Management does expect to monetize its investments held over the next year to assist in meeting its operational requirements. Future financings are anticipated through the sale of investments, equity financing, the exercise of mineral properties option, debt financing, convertible debt, or other means.

Contractually obligated cash flow requirements as at AugustMay 31, 20172019 are as follows.follows:

in thousands of dollars

On February 21, 2017, the Company entered into a lease for office space effective July 1, 2017 for a period of seven years with a total commitment of $1.3 million.

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 AugustMay 31, 2017,2019, a 1% change in interest rates would result in a change in net loss of $0.1$0.3 million, 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.

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the significance of the inputs used in making the measurement. The three levels of the fair value hierarchy are as follows:

Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 — Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity)

The levels in the fair value hierarchy into which the Company’s financial assets and liabilities that are measured and recognized at fair value on a recurring basis were categorized as follows:

in thousands of dollars

The Company’s investments consist of shares and warrants in a publicly-held mining company. The share investments are recorded as current investments and are valued using quoted market prices in active markets and as such are classified as a Level 1 financial instrument. The warrants are valued using a Black-Scholes pricing model and are considered a Level 3 financial instrument because the valuation models have significant unobservable inputs.

The South32 purchase option received is recorded at fair value. As the inputs to valuing the purchase option are significant to the measurement of the option and are unobservable, it is considered a Level 3 financial instrument.

The Company has commitments inwith respect ofto office and warehouse leases requiring future minimum lease payments as follows:

in thousands of dollars

On June 28, 2019, the Company announced all its outstanding warrants were exercised in advance of the July 2, 2019 expiry date.  As a result of the warrants exercised, the Company issued a total of 6,521,740 common shares and received cash proceeds of approximately $9.9 million.

Trilogy Metals Inc.

Management’s Discussion and Analysis

(expressed in US dollars)

Cautionary notes

Forward-looking statements