UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended AugustMay 31, 20172019
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
| (I.R.S. Employer Identification No.) | |
Suite 1150, 609 Granville Street
| 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 | NYSE American 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. YesxNo¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
YesxNo¨
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 companyx | 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¨Nox
As of October 4, 2017,July 8, 2019, the registrant had 105,674,303138,905,097 Common Shares, no par value, outstanding.
TRILOGY METALS INC.
TABLE OF CONTENTS
ii |
Item 1. | Financial Statements |
Trilogy Metals Inc.
Consolidated Balance Sheets
(unaudited)
in thousands of US dollars
May 31, 2019 $ | November 30, 2018 $ | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | 25,806 | 22,991 | ||||||
Accounts receivable | 171 | 23 | ||||||
Deposits and prepaid amounts | 1,513 | 619 | ||||||
27,490 | 23,633 | |||||||
Rent deposit | 114 | 114 | ||||||
Plant and equipment (note 3) | 250 | 325 | ||||||
Mineral properties and development costs (note 4) | 30,587 | 30,587 | ||||||
58,441 | 54,659 | |||||||
Liabilities | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities (note 5) | 1,481 | 1,657 | ||||||
1,481 | 1,657 | |||||||
Mineral properties purchase option (note 4(c)) | 31,000 | 20,800 | ||||||
32,481 | 22,457 | |||||||
Shareholders’ equity | ||||||||
Share capital (note 6)– unlimited common shares authorized, no par value Issued -132,143,407 (2018 – 131,585,612) | 164,574 | 164,069 | ||||||
Warrants (note 6(c)) | 2,253 | 2,253 | ||||||
Contributed surplus | 122 | 122 | ||||||
Contributed surplus – options (note 6(a)) | 20,936 | 19,076 | ||||||
Contributed surplus – units (note 6(b)) | 1,727 | 1,489 | ||||||
Deficit | (163,652 | ) | (154,807 | ) | ||||
25,960 | 32,202 | |||||||
58,441 | 54,659 |
August 31, 2017 $ | November 30, 2016 $ | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | 10,205 | 7,340 | ||||||
Accounts receivable | 341 | 47 | ||||||
Deposits and prepaid amounts | 864 | 724 | ||||||
Current investments (note 3) | 4,571 | 7,538 | ||||||
15,981 | 15,649 | |||||||
Investments (note 3) | 81 | 297 | ||||||
Plant and equipment | 399 | 215 | ||||||
Mineral properties and development costs (note 4) | 30,587 | 30,586 | ||||||
47,048 | 46,747 | |||||||
Liabilities | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities (note 5) | 4,759 | 593 | ||||||
4,759 | 593 | |||||||
Mineral properties purchase option (note 4) | 10,000 | - | ||||||
14,759 | 593 | |||||||
Shareholders’ equity | ||||||||
Share capital (note 6)– unlimited common shares authorized, no par value; Issued –105,667,125 (2016 – 105,286,469) | 136,494 | 136,357 | ||||||
Warrants (note 6(d)) | 2,163 | 2,163 | ||||||
Contributed surplus | 124 | 124 | ||||||
Contributed surplus – options (note 6(a, b)) | 18,392 | 18,134 | ||||||
Contributed surplus – units (note 6(c)) | 1,258 | 1,140 | ||||||
Deficit | (126,142 | ) | (111,764 | ) | ||||
32,289 | 46,154 | |||||||
47,048 | 46,747 |
Commitments and contingencies(notes 4, 5 andnote 8)
(See accompanying notes to the interim consolidated financial statements)
/s/ Rick Van Nieuwenhuyse, Director | /s/ Kalidas Madhavpeddi, Director | |
Approved on behalf of the Board of Directors |
Approved on behalf of the Board of Directors
2 |
Trilogy Metals Inc.
Consolidated Statements of Loss and Comprehensive Loss
(unaudited)
in thousands of US dollars, except share and per share amounts
For the three months ended | For the nine months ended | |||||||||||||||
August 31, 2017 $ | August 31, 2016 $ | August 31, 2017 $ | August 31, 2016 $ | |||||||||||||
Expenses | ||||||||||||||||
Amortization | 27 | 17 | 66 | 59 | ||||||||||||
Foreign exchange (gain) loss | (592 | ) | 3 | (542 | ) | 8 | ||||||||||
General and administrative | 273 | 311 | 1,050 | 1,030 | ||||||||||||
Investor relations | 107 | 30 | 263 | 80 | ||||||||||||
Mineral properties expense (note 4(d)) | 8,471 | 3,077 | 10,407 | 4,067 | ||||||||||||
Professional fees | 86 | 84 | 404 | 430 | ||||||||||||
Salaries | 218 | 250 | 683 | 719 | ||||||||||||
Salaries – stock-based compensation | 104 | 146 | 603 | 544 | ||||||||||||
Total expenses | 8,694 | 3,918 | 12,934 | 6,937 | ||||||||||||
Other items | ||||||||||||||||
Unrealized loss on held for trading investments | 83 | - | 1,252 | - | ||||||||||||
Loss on sale of investments | 230 | - | 230 | - | ||||||||||||
Loss on disposal of equipment | 8 | - | 8 | - | ||||||||||||
Interest and other income | (23 | ) | (16 | ) | (46 | ) | (52 | ) | ||||||||
Loss from continuing operations for the period | 8,992 | 3,902 | 14,378 | 6,885 | ||||||||||||
Loss from discontinued operations | - | 353 | - | 712 | ||||||||||||
Loss from discontinued operations for the period | - | 353 | - | 712 | ||||||||||||
Loss and comprehensive loss for the period | 8,992 | 4,255 | 14,378 | 7,597 | ||||||||||||
Basic and diluted loss per common share | $ | 0.09 | $ | 0.04 | $ | 0.14 | $ | 0.07 | ||||||||
Weighted average number of common shares outstanding | 105,581,406 | 105,213,320 | 105,524,598 | 105,046,854 |
For the three months ended | For the six months ended | |||||||||||||||
May 31, 2019 $ | May 31, 2018 $ | May 31, 2019 $ | May 31, 2018 $ | |||||||||||||
Expenses | ||||||||||||||||
Amortization | 38 | 42 | 75 | 83 | ||||||||||||
Foreign exchange loss (gain) | 5 | 19 | (29 | ) | (44 | ) | ||||||||||
General and administrative | 436 | 454 | 928 | 799 | ||||||||||||
Investor relations | 175 | 138 | 292 | 202 | ||||||||||||
Mineral properties expense (note 4(d)) | 2,906 | 2,475 | 4,441 | 3,606 | ||||||||||||
Professional fees | 153 | 114 | 244 | 273 | ||||||||||||
Salaries | 282 | 223 | 563 | 452 | ||||||||||||
Salaries – stock-based compensation | 664 | 151 | 2,603 | 1,073 | ||||||||||||
Total expenses | 4,659 | 3,616 | 9,117 | 6,444 | ||||||||||||
Other items | ||||||||||||||||
Loss on held for trading investments | - | 125 | - | 260 | ||||||||||||
Interest and other income | (150 | ) | (77 | ) | (272 | ) | (94 | ) | ||||||||
Loss and comprehensive loss for the period | 4,509 | 3,664 | 8,845 | 6,610 | ||||||||||||
Basic and diluted loss per common share | $ | 0.04 | $ | 0.03 | $ | 0.07 | $ | 0.06 | ||||||||
Weighted average number of common shares outstanding | 132,095,920 | 117,583,238 | 132,007,414 | 111,989,192 |
(See accompanying notes to the interim consolidated financial statements)
3 |
Trilogy Metals Inc.
Consolidated Statements of Changes in Shareholders’ Equity
(unaudited)
in thousands of US dollars, except share amounts
Number of | Share $ | Warrants $ | Contributed $ | Contributed $ | Contributed $ | Deficit $ | Total $ | |||||||||||||||||||||||||
Balance – November 30, 2015 | 104,796,421 | 136,040 | 2,163 | 124 | 17,841 | 1,164 | (106,902 | ) | 50,430 | |||||||||||||||||||||||
Restricted Share Units | 108,399 | 34 | - | - | - | (63 | ) | - | (29 | ) | ||||||||||||||||||||||
Deferred Share Units | 218,795 | 218 | - | - | - | (218 | ) | - | - | |||||||||||||||||||||||
Exercise of options | 143,889 | 56 | - | - | (56 | ) | - | - | - | |||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 326 | 218 | - | 544 | ||||||||||||||||||||||||
Loss for the period | - | - | - | - | - | - | (7,597 | ) | (7,597 | ) | ||||||||||||||||||||||
Balance – August 31, 2016 | 105,267,504 | 136,348 | 2,163 | 124 | 18,111 | 1,101 | (114,499 | ) | 43,348 | |||||||||||||||||||||||
Balance – November 30, 2016 | 105,286,469 | 136,357 | 2,163 | 124 | 18,134 | 1,140 | (111,764 | ) | 46,154 | |||||||||||||||||||||||
Exercise of options | 171,458 | 54 | - | - | (54 | ) | - | - | - | |||||||||||||||||||||||
Restricted Share Units | 209,198 | 83 | - | - | - | (173 | ) | - | (90 | ) | ||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 312 | 291 | - | 603 | ||||||||||||||||||||||||
Loss for the period | - | - | - | - | - | - | (14,378 | ) | (14,378 | ) | ||||||||||||||||||||||
Balance – August 31, 2017 | 105,667,125 | 136,494 | 2,163 | 124 | 18,392 | 1,258 | (126,142 | ) | 32,289 |
Number of shares outstanding | Share capital $ | Warrants $ | Contributed surplus $ | Contributed surplus – options $ | Contributed surplus – units $ | Deficit $ | Total shareholders’ equity $ | |||||||||||||||||||||||||
Balance – November 30, 2017 | 105,684,523 | 136,525 | 2,163 | 124 | 18,402 | 1,319 | (132,868 | ) | 25,665 | |||||||||||||||||||||||
Exercise of options | 50,753 | 29 | - | - | (29 | ) | - | - | - | |||||||||||||||||||||||
Restricted share units | 800,000 | 457 | - | - | - | (457 | ) | - | - | |||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 484 | 438 | - | 922 | ||||||||||||||||||||||||
Loss for the period | - | - | - | - | - | - | (2,946 | ) | (2,946 | ) | ||||||||||||||||||||||
Balance – February 28, 2018 | 106,535,276 | 137,011 | 2,163 | 124 | 18,857 | 1,300 | (135,814 | ) | 23,641 | |||||||||||||||||||||||
Bought deal financing | 24,784,482 | 28,750 | 90 | - | - | - | (90 | ) | 28,750 | |||||||||||||||||||||||
Share issuance costs | - | (1,819 | ) | - | - | - | - | - | (1,819 | ) | ||||||||||||||||||||||
Exercise of options | 28,700 | 5 | - | - | (5 | ) | - | - | - | |||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 90 | 61 | - | 151 | ||||||||||||||||||||||||
Loss for the period | - | - | - | - | - | - | (3,664 | ) | (3,664 | ) | ||||||||||||||||||||||
Balance – May 31, 2018 | 131,348,458 | 163,947 | 2,253 | 124 | 18,942 | 1,361 | (139,568 | ) | 47,059 | |||||||||||||||||||||||
Balance – November 30, 2018 | 131,585,612 | 164,069 | 2,253 | 122 | 19,076 | 1,489 | (154,807 | ) | 32,202 | |||||||||||||||||||||||
Exercise of options | 44,230 | 28 | - | - | (28 | ) | - | - | - | |||||||||||||||||||||||
Restricted share units | 412,501 | 424 | - | - | - | (424 | ) | - | - | |||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 1,586 | 353 | - | 1,939 | ||||||||||||||||||||||||
Loss for the period | - | - | - | - | - | - | (4,336 | ) | (4,336 | ) | ||||||||||||||||||||||
Balance – February 28, 2019 | 132,042,343 | 164,521 | 2,253 | 122 | 20,634 | 1,418 | (159,143 | ) | 29,805 | |||||||||||||||||||||||
Exercise of options | 101,064 | 53 | - | - | (53 | ) | - | - | - | |||||||||||||||||||||||
Stock-based compensation | - | - | - | - | 355 | 309 | - | 664 | ||||||||||||||||||||||||
Loss for the period | - | - | - | - | - | - | (4,509 | ) | (4,509 | ) | ||||||||||||||||||||||
Balance – May 31, 2019 | 132,143,407 | 164,574 | 2,253 | 122 | 20,936 | 1,727 | (163,652 | ) | 25,960 |
(See accompanying notes to the interim consolidated financial statements)
4 |
Trilogy Metals Inc.
Consolidated Statements of Cash Flows
(unaudited)
in thousands of US dollars
For nine months ended | ||||||||
August 31, 2017 $ | August 31, 2016 $ | |||||||
Cash flows used in operating activities | ||||||||
Loss for the period | (14,378 | ) | (7,597 | ) | ||||
Items not affecting cash | ||||||||
Amortization | 66 | 154 | ||||||
Loss on disposal of equipment | 8 | - | ||||||
Loss on sale of held for trading investments | 172 | - | ||||||
Unrealized loss on held for trading investments | 1,252 | - | ||||||
Unrealized foreign exchange gain | (472 | ) | - | |||||
Stock-based compensation | 603 | 514 | ||||||
Net change in non-cash working capital | ||||||||
Increase in accounts receivable | (294 | ) | (23 | ) | ||||
(Increase)/decrease in deposits and prepaid amounts | (140 | ) | 132 | |||||
Increase in accounts payable and accrued liabilities | 4,116 | 104 | ||||||
(9,067 | ) | (6,716 | ) | |||||
Cash flows from (used in) financing activities | ||||||||
Settlement of Restricted Share Units | (90 | ) | - | |||||
(90 | ) | - | ||||||
Cash flows from (used in) investing activities | ||||||||
Acquisition of plant & equipment | (209 | ) | (121 | ) | ||||
Mineral properties funding (note 4) | 10,000 | - | ||||||
Proceeds from the sale of investments, net of fees | 2,180 | - | ||||||
11,971 | (121 | ) | ||||||
Increase (decrease) in cash and cash equivalents | 2,814 | (6,837 | ) | |||||
Effect of exchange rate on cash and cash equivalents | 51 | - | ||||||
Cash and cash equivalents – beginning of period | 7,340 | 16,139 | ||||||
Cash and cash equivalents – end of period | 10,205 | 9,302 | ||||||
Less cash and cash equivalents of discontinued operations – end of period | - | (75 | ) | |||||
Cash and cash equivalents of continuing operations – end of period | 10,205 | 9,227 |
For the six months ended | ||||||||
May 31, 2019 $ | May 31, 2018 $ | |||||||
Cash flows used in operating activities | ||||||||
Loss for the period | (8,845 | ) | (6,610 | ) | ||||
Items not affecting cash | ||||||||
Amortization | 75 | 83 | ||||||
Loss on held for trading investments | - | 260 | ||||||
Unrealized foreign exchange loss (gain) | 8 | (64 | ) | |||||
Stock-based compensation | 2,603 | 1,073 | ||||||
Net change in non-cash working capital | ||||||||
Decrease (Increase) in accounts receivable | (148 | ) | 441 | |||||
Increase in deposits and prepaid amounts | (894 | ) | (67 | ) | ||||
Decrease in accounts payable and accrued liabilities | (176 | ) | (1,682 | ) | ||||
(7,377 | ) | (6,566 | ) | |||||
Cash flows from (used in) financing activities | ||||||||
Proceeds from bought deal financing | - | 28,750 | ||||||
Share issuance cost | - | (1,819 | ) | |||||
- | 26,931 | |||||||
Cash flows from investing activities | ||||||||
Acquisition of plant & equipment | - | (13 | ) | |||||
Mineral properties funding (note 4 (c)) | 10,200 | 9,635 | ||||||
Proceeds from the sale of investments, net of fees | - | 2,080 | ||||||
10,200 | 11,702 | |||||||
Increase in cash and cash equivalents | 2,823 | 32,067 | ||||||
Effect of exchange rate on cash and cash equivalents | (8 | ) | 11 | |||||
Cash and cash equivalents – beginning of period | 22,991 | 5,391 | ||||||
Cash and cash equivalents – end of period | 25,806 | 37,469 |
(See accompanying notes to the interim consolidated financial statements)
5 |
Trilogy Metals Inc.
Notes to the Consolidated Financial Statements
1 | Nature of operations |
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”).
2 | Summary of significant accounting policies |
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.
Accounting standards adopted
i. |
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
ii. | Leases |
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
August 31, 2017 $ | November 30, 2016 $ | |||||||
Current investments | 4,571 | 7,538 | ||||||
Long-term investments | 81 | 297 | ||||||
Investments | 4,652 | 7,835 |
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.
3 | Plant and equipment |
During the nine months ended August 31, 2017, the Company sold 1,519,000 common sharesin thousands of GMI during the period for proceedsdollars
May 31, 2019 | ||||||||||||
Cost $ | Accumulated amortization $ |
Net $ | ||||||||||
British Columbia, Canada | ||||||||||||
Furniture and equipment | 63 | (23 | ) | 40 | ||||||||
Leasehold improvements | 53 | (14 | ) | 39 | ||||||||
Computer hardware and software | 115 | (111 | ) | 4 | ||||||||
Alaska, USA | ||||||||||||
Machinery, and equipment | 3,178 | (3,014 | ) | 164 | ||||||||
Vehicles | 348 | (346 | ) | 2 | ||||||||
Computer hardware and software | 35 | (34 | ) | 1 | ||||||||
3,792 | (3,542 | ) | 250 |
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
November 30, 2018 | ||||||||||||
Cost $ | Accumulated amortization $ |
Net $ | ||||||||||
British Columbia, Canada | ||||||||||||
Furniture and equipment | 63 | (17 | ) | 46 | ||||||||
Leasehold improvements | 53 | (10 | ) | 43 | ||||||||
Computer hardware and software | 115 | (109 | ) | 6 | ||||||||
Alaska, USA | ||||||||||||
Machinery, and equipment | 3,178 | (2,964 | ) | 214 | ||||||||
Vehicles | 348 | (333 | ) | 15 | ||||||||
Computer hardware and software | 35 | (34 | ) | 1 | ||||||||
3,792 | (3,467 | ) | 325 |
4 | Mineral properties and development costs |
in thousands of dollars
November 30, 2016 $ | Acquisition costs $ | August 31, 2017 $ | November 30, 2018 $ | Acquisition costs $ | May 31, 2019 $ | |||||||||||||||||||
Alaska, USA | ||||||||||||||||||||||||
Ambler (a) | 26,586 | 1 | 26,587 | 26,587 | - | 26,587 | ||||||||||||||||||
Bornite (b) | 4,000 | - | 4,000 | 4,000 | - | 4,000 | ||||||||||||||||||
30,586 | 1 | 30,587 | 30,587 | - | 30,587 |
in thousands of dollars
November 30, 2015 $ | Acquisition costs $ | November 30, 2016 $ | November 30, 2017 $ | Acquisition costs $ | November 30, 2018 $ | |||||||||||||||||||
Alaska, USA | ||||||||||||||||||||||||
Ambler (a) | 26,586 | - | 26,586 | 26,587 | - | 26,587 | ||||||||||||||||||
Bornite (b) | 4,000 | - | 4,000 | 4,000 | - | 4,000 | ||||||||||||||||||
30,586 | - | 30,586 | 30,587 | - | 30,587 |
(a) | Ambler |
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.
7 |
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”).
(b) | Bornite |
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.
(c) | Option Agreement |
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.
8 |
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.
(d) | Mineral properties expense |
The following table summarizes mineral properties expense for the noted periods and includes expenditures funded by South32.periods.
In thousands of dollars
Three months $ | Three months $ | Nine months $ | Nine months $ | Three months $ | Three months $ | Six months $ | Six months $ | |||||||||||||||||||||||||
Alaska, USA | ||||||||||||||||||||||||||||||||
Community | 67 | 63 | 201 | 184 | 146 | 154 | 264 | 244 | ||||||||||||||||||||||||
Drilling | 3,194 | 712 | 3,284 | 712 | 173 | 180 | 173 | 180 | ||||||||||||||||||||||||
Engineering | 1,085 | 191 | 1,508 | 410 | 303 | 186 | 624 | 505 | ||||||||||||||||||||||||
Environmental | 122 | 212 | 181 | 235 | 136 | 81 | 271 | 169 | ||||||||||||||||||||||||
Geochemistry and geophysics | 146 | 28 | 151 | 41 | 593 | 591 | 758 | 646 | ||||||||||||||||||||||||
Land and permitting | 215 | 113 | 667 | 322 | 174 | 166 | 360 | 359 | ||||||||||||||||||||||||
Project support | 778 | 601 | 1,004 | 677 | ||||||||||||||||||||||||||||
Other income | (26 | ) | (34 | ) | (26 | ) | (34 | ) | - | (2 | ) | (1 | ) | (20 | ) | |||||||||||||||||
Project support | 2,307 | 1,030 | 2,641 | 1,136 | ||||||||||||||||||||||||||||
Wages and benefits | 1,361 | 762 | 1,800 | 1,061 | 603 | 518 | 988 | 846 | ||||||||||||||||||||||||
Mineral property expense | 8,471 | 3,077 | 10,407 | 4,067 | 2,906 | 2,475 | 4,441 | 3,606 |
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.
5 | Accounts payable and accrued liabilities |
in thousands of dollars
August 31, 2017 $ | November 30, 2016 $ | May 31, 2019 $ | November 30, 2018 $ | |||||||||||||
Trade accounts payable | 2,179 | 160 | 834 | 400 | ||||||||||||
Accrued liabilities | 2,494 | 281 | 474 | 503 | ||||||||||||
Accrued salaries and vacation | 86 | 152 | 173 | 746 | ||||||||||||
Due to related parties | - | 8 | ||||||||||||||
Accounts payable and accrued liabilities | 4,759 | 593 | 1,481 | 1,657 |
9 |
6 | Share capital |
Authorized:
unlimited common shares, no par value
inIn thousands of dollars, except share amounts
Number of shares | Ascribed value $ | |||||||
November 30, 2015 | 104,796,421 | 136,040 | ||||||
Exercise of options | 162,854 | 65 | ||||||
Restricted Share Units | 108,399 | 34 | ||||||
Deferred Share Units | 218,795 | 218 | ||||||
November 30, 2016 | 105,286,469 | 136,357 | ||||||
Exercise of options | 171,458 | 54 | ||||||
Restricted Share Units | 209,198 | 83 | ||||||
August 31, 2017, issued and outstanding | 105,667,125 | 136,494 |
Number of shares | Ascribed value $ | |||||||
November 30, 2017 | 105,684,523 | 136,525 | ||||||
Bought deal financing | 24,784,482 | 28,750 | ||||||
Share issuance costs | - | (1,805 | ) | |||||
Exercise of options | 315,148 | 140 | ||||||
Restricted share units | 800,000 | 457 | ||||||
NovaGold DSU conversion | 1,459 | 2 | ||||||
November 30, 2018 | 131,585,612 | 164,069 | ||||||
Exercise of options | 145,294 | 81 | ||||||
Restricted share units | 412,501 | 424 | ||||||
May 31, 2019, issued and outstanding | 132,143,407 | 164,574 |
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.
(a) | Stock options |
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.
Risk-free interest rates | % | |||
Exercise price | ||||
Expected life | 3.0 years | |||
Expected volatility | % | |||
Expected dividends | Nil |
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.
10 |
A summary of the Company’s stock option plan and changes during the nine month period ended May 31, 2019 is as follows:
August 31, 2017 | May 31, 2019 | |||||||||||||||
Number of options | Weighted average $ |
Number of options | Weighted average exercise price $ | |||||||||||||
Balance – beginning of period | 6,049,433 | 0.50 | ||||||||||||||
Balance – beginning of the period | 8,821,434 | 0.60 | ||||||||||||||
Granted | 1,695,000 | 0.57 | 2,527,500 | 2.19 | ||||||||||||
Exercised | (362,477 | ) | 0.40 | (219,153 | ) | 0.77 | ||||||||||
Forfeited | (169,329 | ) | 0.50 | |||||||||||||
Balance – end of period | 7,212,627 | 0.56 | 11,129,781 | 0.95 |
The following table summarizes information about the stock options outstanding at AugustMay 31, 2017.2019.
Outstanding | Exercisable | Unvested | Outstanding | Exercisable | Unvested | |||||||||||||||||||||||||||||||||||||||||||
Range of price | Number of outstanding options | Weighted average years to expiry | Weighted $ | Number of exercisable options | Weighted $ | Number of unvested options | Number of outstanding options | Weighted average years to expiry | Weighted average exercise price $ | Number of exercisable options | Weighted average exercise price $ | Number of unvested options | ||||||||||||||||||||||||||||||||||||
$0.35 to $0.50 | 4,267,627 | 2.95 | 0.41 | 3,588,457 | 0.42 | 679,170 | ||||||||||||||||||||||||||||||||||||||||||
$0.33 to $0.50 | 3,920,614 | 1.22 | 0.38 | 3,920,614 | 0.38 | - | ||||||||||||||||||||||||||||||||||||||||||
$0.51 to $1.00 | 2,890,000 | 3.30 | 0.75 | 2,163,327 | 0.81 | 726,673 | 4,346,667 | 2.45 | 0.71 | 3,898,331 | 0.70 | 448,336 | ||||||||||||||||||||||||||||||||||||
$1.01 to $1.47 | 55,000 | 0.67 | 1.59 | 55,000 | 1.59 | - | ||||||||||||||||||||||||||||||||||||||||||
$1.01 to $1.50 | 225,000 | 3.87 | 1.31 | 125,000 | 1.22 | 100,000 | ||||||||||||||||||||||||||||||||||||||||||
$1.51 to $2.00 | 120,000 | 4.11 | 1.79 | 86,666 | 1.76 | 33,334 | ||||||||||||||||||||||||||||||||||||||||||
$2.01 to $2.52 | 2,517,500 | 4.53 | 2.19 | 1,257,498 | 2.19 | 1,260,002 | ||||||||||||||||||||||||||||||||||||||||||
7,212,627 | 3.07 | 0.56 | 5,806,784 | 0.58 | 1,405,843 | 11,129,781 | 2.53 | 0.95 | 9,288,109 | 0.79 | 1,841,672 |
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).
(b) |
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:
August 31, 2017 | ||||||||
Number of options | Weighted average $ | |||||||
Balance – beginning of period | 312,195 | 4.26 | ||||||
Expired | (312,195 | ) | 4.26 | |||||
Balance – end of period | - | - |
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. 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.
11 |
A summary of the Company’s unit plans and changes during the nine month period ended AugustMay 31, 20172019 is as follows:
Number of RSUs | Number of DSUs | Number of RSUs | Number of DSUs | |||||||||||||
Balance – beginning of period | 400,001 | 925,390 | ||||||||||||||
Balance – beginning of the period | 400,002 | 1,182,106 | ||||||||||||||
Granted | 600,000 | 98,554 | 225,000 | 104,489 | ||||||||||||
Vested/paid | (399,999 | ) | - | (412,501 | ) | - | ||||||||||
Balance – end of period | 600,002 | 1,023,944 | 212,501 | 1,286,595 |
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.
Share Purchase Warrants |
A summary of the Company’s warrants and changes during the nine monthsperiod ended AugustMay 31, 20172019 is as follows:
Number of | Weighted | Weighted $ | Number of warrants | Years to expiry | Exercise price $ | |||||||||||||||||||
Balance – beginning of period | 6,521,740 | 2.35 | 1.60 | |||||||||||||||||||||
Balance – beginning of the period | 6,521,740 | 0.59 | 1.52 | |||||||||||||||||||||
Balance – end of period | 6,521,740 | 1.85 | 1.60 | 6,521,740 | 0.09 | 1.52 |
7 | Financial instruments |
The Company is exposed to a variety of risks arising from financial instruments. These risks and management’s objectives, policies and procedures for managing these risks are disclosed as follows.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, deposits, 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.
Financial risk management
The Company’s activities expose themit 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 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.
(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 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.
12 |
(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. 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
Total $ | < 1 Year $ | 1–2 Years $ | 2–5 Years $ | Thereafter $ | ||||||||||||||||
Accounts payable and accrued liabilities | 4,759 | 4,759 | - | - | - | |||||||||||||||
Office lease (note 8) | 1,349 | 44 | 178 | 580 | 547 | |||||||||||||||
6,108 | 4,803 | 178 | 580 | 547 |
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.
Total $ | < 1 Year $ | 1–2 Years $ | 2–5 Years $ | Thereafter $ | ||||||||||||||||
Accounts payable and accrued liabilities | 1,481 | 1,481 | - | - | - | |||||||||||||||
1,481 | 1,481 | - | - | - |
(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 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.
8 |
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
August 31, 2017 $ | November 30, 2016 $ | |||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
Current investments – shares | 4,571 | - | - | 7,538 | - | - | ||||||||||||||||||
Investments – warrants | - | - | 81 | - | - | 297 | ||||||||||||||||||
South32 purchase option | - | - | - | - | - | - |
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
August 31, 2017 $ | ||||
2017 | 44 | |||
2018 | 178 | |||
2019 | 184 | |||
2020 | 193 | |||
2021 | 203 | |||
2022-2024 | 547 | |||
Total | 1,349 |
May 31, 2019 $ | ||||
One year | 231 | |||
Years 2 through 5 | 457 | |||
Beyond 5 years | 414 | |||
Total | 1,102 |
9 | Subsequent events |
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.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Trilogy Metals Inc.
Management’s Discussion and Analysis
(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 Canadianother applicable securities laws. These forward-looking statements may include statements regarding outlook, perceived merit of properties, the timing and filing of updated technical reports, the timing of permitting,exploration results and budgets, 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 relating to anticipated activity with respect to the Ambler Mining District Industrial Access Project, includingregarding the Company’s plans and expectations relating to its Upper Kobuk Mineral Projects, the adequacy of the funds paid by South32 under the Option Agreement including pursuant to the exercise of the option to fund the UKMP through to feasibility and permitting of the first mine, the exercise of the option by South32, market prices for precious and base metals, 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 a number of material assumptions, including those listed below, which could prove to be significantly incorrect:
· | assumptions made in the interpretation of drill results, and of the geology, grade and continuity of the Company’s mineral deposits; |
· | our ability to achieve production at any of the Company’s mineral exploration and development properties; |
· | our expected ability to develop adequate infrastructure and that the cost of doing so will be reasonable; |
· | assumptions that all necessary permits and governmental approvals will be obtained; |
· | estimated capital costs, operating costs, production and economic returns; |
· | estimated metal pricing, metallurgy, mineability, marketability and operating and capital costs, together with other assumptions underlying the Company’s resource and reserve estimates; |
· | continued good relationships with local communities and other stakeholders; |
· | our expectations regarding demand for equipment, skilled labour and services needed for exploration and development of mineral properties; |
· | assumptions regarding the merit of litigation; and |
· | that our activities will not be adversely disrupted or impeded by development, operating or regulatory risks. |
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 |
· | 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; |
· | none of the Company’s mineral properties are in production or are under development; |
· | uncertainty as to whether South32 will exercise its option under the Option Agreement; |
· | uncertainties relating to the assumptions underlying our resource estimates, such as metal pricing, metallurgy, mineability, marketability and operating and capital costs; |
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· | risks related to lack of infrastructure including but not limited to the risk whether or not the Ambler Mining District Industrial Access Project (“AMDIAP”) will receive the requisite permits and, if it does, whether Alaska Industrial Development |
· | uncertainty as to whether there will ever be production at the Company’s mineral exploration and development properties; |
· | uncertainty as to estimates of capital costs, operating costs, production and economic returns; |
· | 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 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 market events and general economic conditions; |
· | uncertainty related to inferred mineral resources; |
· | uncertainty related to the economic projections |
· | risks related to inclement weather which may delay or hinder exploration activities at its mineral properties; |
· | risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of our mineral deposits; |
· | 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; |
· | 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; |
· | commodity price fluctuations; |
· | 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 its control; |
· | risks related to the need for reclamation activities on our properties and uncertainty of cost estimates related thereto; |
· | 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 development of mineral properties, and related cost increases; |
· | our need to attract and retain qualified management and technical personnel; |
· | risks related to conflicts of interests of some of our |
· | risks related to potential future litigation; |
· | 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; |
· | risks related to global climate change; |
· | risks related to adverse publicity from non-governmental organizations; |
· | uncertainty as to the volatility in the price of the Company’s 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; |
· | 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 |
· | increased regulatory compliance costs, associated with rules and regulations promulgated by the United States Securities and Exchange Commission (the “SEC”), Canadian Securities Administrators, the NYSE American, the TSX, and the Financial Accounting Standards Boards, and more specifically, our efforts to comply with the Dodd-Frank Wall Street Reform and Consumer Protection |
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 2, 2017,11, 2019, 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.
Cautionary note to United States investors
Reserve and resource estimates
This Management’s Discussion and Analysis has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of U.S. securities laws. Unless otherwise indicated, all resource and reserve estimates included in this Management’s Discussion and Analysis have been prepared in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and the 2014 Canadian Institute of Mining, Metallurgy, and Petroleum Definition Standards on Mineral Resources and Mineral Reserves. NI 43-101 is a rule developed by the Canadian Securities Administrators which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. Canadian standards, including NI 43-101, differ significantly from the requirements of the SEC, and resource and reserve information contained herein may not be comparable to similar information disclosed by U.S. companies. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserves”. Under U.S. standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SEC’s disclosure standards normally do not permit the inclusion of information concerning “measured mineral resources”, “indicated mineral resources” or “inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by U.S. standards in documents filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. U.S. investors should also understand that “inferred mineral resources” have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an “inferred mineral resource” has a lower level of confidence than an “indicated mineral resource” and must not be converted to a mineral “reserve”. It is reasonably expected that the majority of “inferred mineral resources” couldwill ever be upgraded to “indicated mineral resources” with continued exploration.a higher category. Under Canadian rules, estimated “inferred mineral resources” may not form the basis of feasibility or pre-feasibility studies except in rare cases. Investors are cautioned not to assume that all or any part of an “inferred mineral resource” exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in-place tonnage and grade without reference to unit measures. The requirements of NI 43-101 for identification of “reserves” are also not the same as those of the SEC, and reserves reported by the Company in compliance with NI 43-101 may not qualify as “reserves” under SEC standards. Accordingly, information concerning mineral deposits set forth herein may not be comparable with information made public by companies that report in accordance with U.S. standards.
General
This Management’s Discussion and Analysis (“MD&A”) of Trilogy Metals Inc. (“Trilogy”, “Trilogy Metals”, “the Company” or “we”) is dated October 4, 2017July 8, 2019 and provides an analysis of our unaudited interim financial results for the quarter ended AugustMay 31, 20172019 compared to the quarter ended AugustMay 31, 2016.
2018.
The following information should be read in conjunction with our AugustMay 31, 20172019 unaudited interim 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, 2016.2018. A summary of the U.S. GAAP accounting policies areis outlined in note 2 of the audited consolidated financial statements and note 2 of the interim 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.
Andrew W. West, P.Geo., an employee and Exploration Manager, for Trilogy, 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-AmericanNYSE 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 atwww.sedar.com and on EDGAR atwww.sec.gov.
Description of business
We are a base metals exploration company focused on exploring and developing our mineral holdings 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.US (“Trilogy Metals US”). Our Upper Kobuk Mineral Projects, (“UKMP” or “UKMP Projects”), consist of: i) the 100% owned 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 host the Bornite carbonate-hosted copper Project (the “Bornite Project”).
Project activities
The focus of this third fiscal quarter has been working to advance our projects. With a combined 2017 budget of $17.1 million for the Bornite and Arctic Projects, this quarter was busy at our remote project sites in northwest Alaska.
Bornite Project
We are currently executing a $10 million exploration program at the Bornite Project, funded by South32 Group Operations Pty Ltd., a subsidiary of South32 Limited (ASX/JSE/LSE: S32), (“South32”) under an Option Agreement on the UKMP entered into on April 10, 2017 (“Option Agreement”). The focus of this year’s program is to target high-grade copper mineralization north and east of the previously identified resources which were last drilled by us in 2013 and to define the edges of the mineralized system. This year’s exploration at Bornite was approved by a joint Trilogy-South32 Technical Committee.
Under the terms of the Option Agreement, Trilogy Metals US granted South32 the right to form a 50/50 joint venture to hold all of the Company’s Alaskan assets currently held directly by Trilogy Metals US. 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, subject to certain adjustments, to a newly formed and jointly held, limited liability company.
To maintain the option in good standing, South32 is required to fund a minimum of $10 million per year for up to a three year period, which funds will be used to execute a mutually agreed upon program at the UKMP. South32 may exercise its option at any time over the next three years to enter into the 50/50 joint venture. Provided that all the exploration data and information has been made available to South32 by no later than December 31 of each year, South32 must decide by the end of January of the following year whether: (i) to fund a further tranche of a minimum of $10 million, or (ii) to withdraw and not provide any further annual funding. If the election to fund a further tranche is not made in January, South32 has until the end of March to exercise the option to form the LLC and make the subscription payment.
ThisOutlook & Project activities
Arctic Project
The $7.0 million engineering and environmental program, which will be funded entirely by Trilogy, has commenced at Arctic with two rigs from Tuuq Drilling LLC currently in operation at the site. Work at the Arctic deposit commenced in late June with a view of completing feasibility level geotechnical and hydrology work. The main goal of this year’s explorationwork program at Bornite is one of the larger programsto complete engineering and environmental studies to prepare a National Instrument 43-101 compliant feasibility study which results are anticipated to be released in the historyfirst half of drilling at the Bornite Project. With an approved budget of $10 million, we will be drilling approximately 9,000 meters at Bornite this field season to test the extension of the mineralization from the drill holes from our 2013 drill campaign along with a ground gravity survey, continuation of hydrology data collection and initiating metallurgy and acid based accounting for Bornite.
Drilling at the Bornite Project began in early June and2020. Work is expected to be finished in early October with results released throughout the fall. We completed 6,037 meters by August 31, 2017 and released our first results on September 18, 2017 from the first three holes comprising 3,083 meters.
Arctic Project
In early June 2017, we announced the engagement of Ausenco Engineering Canada Inc.also being done to prepare the Arctic Project PFS technical report anticipatedfor permitting, which we expect to be completecommence in Q1 2018.2020. The Company has also engaged Amec Foster Wheeler to complete mine planningpermitting preparation work being carried out will support Federal, State and SRK Consulting (Canada) Inc. to complete tailings and waste design, hydrology and environmental studies.Borough permitting requirements.
Bornite Project
The summer field program for
Exploration activities commenced at the Arctic Project PFS was conducted in Julybeginning of June with the completion of 257more than 2,000 meters of geotechnical drilling and 26 test pits completed to determine site facility locations and mine design. We also completed geophysical ground surveys to evaluate ground conditions. We continued our environmental baseline program through the summer of 2017 which includes baseline data collection on aquatic and avian resources, ongoing water quality, hydrology and meteorology. The water quality program was expanded in 2017 to include additional sample locations and increased sample frequency.
The results from this summer’s field program are currently being compiled and analyzed by the PFS consultants. The timing of the field program will provide the information required for completion of the PFS anticipated to be in Q1 2018.
We also completed 455 meters of infill drilling at Arctic in late August collecting core to provide two tonnes of material for an ore-sorting study to be initiated in Q4 2017.
Outlook
Our 2017 program has a total budget of $17.1 million with $7.1 million to be expended during the fiscal year to advance the Arctic Project to pre-feasibility and $10.0 million for the exploration program at the Bornite Project. The Arctic Project PFS will be supported by information collected during the 2015 - 2017 field seasons. The completion of our 2017 field program has completed a staged three-year site investigation program where the first two years focused almost exclusively on collecting data in and around the proposed Arctic open-pit, and the third year focused on infrastructure and mine design. The Arctic Project PFS is anticipated to be completed in Q1 2018.
The exploration programso far at the Bornite Project with three rigs from Major Drilling America, Inc. currently in operation at site. The main goal of the $9.2 million program will be to drill approximately 8,000 meters within 12 holes and will include both infill and expansion drilling. Drilling is an opportunityanticipated to potentially expandcontinue throughout the sizesummer and results from the first few holes of this program are expected to be release in late summer. South32 Limited (“South32”) funded the entire $9.2 million budget in which funds were fully received during the first quarter maintaining the Option Agreement as defined below in good standing.
Regional Exploration
District-wide VTEM and ZTEM helicopter airborne geophysical surveys were completed this spring along the entire 100-kilometer long belt of the favorable stratigraphy hosting known polymetallic volcanogenic-massive sulphide (“VMS”) deposits, as well as the areas around the Bornite deposit and the surrounding Cosmos Hills area. The surveys were flown by drillingGeotech Ltd. and the extensions of mineralization last drilleddata is currently being re-processed by the Company in 2013. Approximately 9,000 metersResource Potential PTY Ltd. The new VTEM and ZTEM surveys will be drilled at Borniteintegrated into our dataset of historical drilling accumulated over a 40-year period of exploration, all of which drillinghas been geo-referenced into an integrated GIS database. This dataset will be focused entirely onanalyzed to determine and prioritize targets for drill testing later in the sizesummer after the Arctic environmental and depthgeotechnical drill program has been completed. The Company and South32 have agreed to equally fund the Regional Exploration budget. Funds were received during the first quarter from South32 for their $1.0 million contribution, which is in excess of the extension of the known deposit. Drilling at the Bornite Project commencedoriginal $30 million in early June and will continue through to early October with drill results anticipated to be released through the fall. Initial drill results were released on September 18, 2017 on the first three drill holes.option payments.
Property review
Our principal assets, the UKMP Projects, are located in the Ambler mining district in Northwest Alaska. Our UKMP Projects comprise approximately 355,385355,323 acres (143,819(143,794 hectares) consisting of the Ambler and Bornite lands.
Arctic Project
The Ambler lands, which host a number ofseveral deposits, including the high-grade copper-zinc-lead-gold-silver Arctic Project, and other mineralized targets within a 100 kilometer long volcanogenic massive sulfide (“VMS”)100-kilometer-long VMS belt, are owned by Trilogy MetalsNovaCopper US. The Ambler lands are located in Northwestern Alaska and consist of 114,500 acres (46,337 hectares) of Federal patented mining claims and State of Alaska mining claims, within which VMS mineralization has been found.
We have recorded the Ambler lands as a mineral property with acquisition costs capitalized and exploration costs expensed in accordance with our accounting policies.
Bornite Project
On October 19, 2011, Trilogy Metals US and NANA signed a collaborative agreement to explore and develop the Ambler mining district. Under the Exploration Agreement and Option to Lease (the “NANA Agreement”), we acquired, in exchange for, among other things, a $4.0 million cash payment to NANA, the exclusive right to explore the Bornite property and lands deeded to NANA through the Alaska Native Claims Settlement Act (“ANCSA”), located adjacent to the Arctic Project, and the non-exclusive right to access and entry onto NANA’s lands. The agreement establishes a framework for any future development of either the Bornite Project or the Arctic Project. Both projects are included as part of a larger area of interest set forth in the NANA Agreement. The agreement with NANA created a total land package incorporating our Ambler lands with the adjacent Bornite and ANCSA lands with a total area of approximately 355,385355,323 acres (143,819(143,794 hectares).
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Upon the decision to proceed with development of a mine within the area of interest, NANA maintains the right to purchase an ownership interest in the mine equal to range between 16%-25% or retain a 15% net proceeds royalty which is payable after we have recovered certain historical costs, including capital and cost of capital. Should NANA elect to purchase an ownership interest in the mine, consideration will be payable based on the elected percentage purchased and all the costs incurred on the properties less $40.0 million, not to be less than zero. The parties would form a joint venture and be responsible for all future costs incurred in connection with the mine, including capital costs of the mine, based on each party’s pro-rata share.
NANA would also be granted a net smelter return royalty 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 particular area of land from which production originates.
We have accounted for the Bornite property as a mineral property with acquisition costs capitalized and exploration costs expensed in accordance with our accounting policies.
South32 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 Limited, which agreement was later assigned by South32 Operations 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. 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 (“LLC”).
To maintain the option in good standing, South32 is required to fund a minimum of $10 million per year for up to a three-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 in 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 three-year period to enter into the 50/50 joint venture. To subscribe for 50% of the JV, South32 must contribute 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 is exercised between April 1, 2018 and March 31, 2019 or $10 million if the option is exercised between April 1, 2019 and the expiration date of the option, less the amount of the initial funding contributed by South32 (the “Subscription Price”). South32 has now funded the full three-year option period. South32 has until the end of January 2020 to exercise the option to form the JV LLC and make the subscription payment.
Option Funding Phase
Provided that all the exploration data and information has been made available to South32 by no later than December 31 of each year, South32 must decide by the end of January of the following year whether; (i) to fund a further tranche of a minimum of $10 million, or (ii) to withdraw and not provide any further annual funding. In years 1 and 2, if the election to fund a further tranche is not made in January, South32 has until the end of March to exercise the option to form the LLC and make the subscription payment. If South32 elects to exercise the option, the Subscription Price shall be paid in one tranche within 45 business days. 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 option payment for the first year was paid by South32 in April 2017 and expended on the Year 1 exploration program at the Bornite Project. Early in December 2017, South32 committed to fund the $10 million 2018 program for the Bornite Project. The funds, which represent the second tranche, maintain the Option Agreement in good standing, and were fully received on January 24, 2018. An additional $0.80 million was received during the year ended November 30, 2018 from South32 as an advance on the year three funding.
On January 31, 2019, we announced the 2019 program and budgets with South32 committing to fund the $9.2 million budget for the Bornite Project. The funds, which represent the third and final tranche, maintain the Option Agreement in good standing, and were fully received during the quarter ended February 28, 2019.
Subscription Funding Phase
At any time during the option funding phase of the agreement, South32 may elect to subscribe for a 50% interest in a newly formed LLC which will take transfer of, and hold, Trilogy Metals US’ Alaskan Assets. As part of the Subscription Price, South32 will match any spending expended by us at the Arctic Project over 3 years (2017, 2018 and 2019), to a cumulative maximum of $16 million. Depending on when the option is exercised, certain amounts of the Initial Funding will be deducted from the Subscription Price.
Trilogy currently estimates that the Subscription Price would 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 payment of approximately $150 million is expended, the parties will contribute funding pro rata, as contemplated by the operating agreement which will govern the LLC (the “LLC Agreement”). The LLC Agreement anticipates a General Manager, Chief Financial Officer and Chief Operating and Technical Officer to be appointed by the LLC’s Board, which will have equal representation from Trilogy and South32.
As the initial option payments are credited against the future subscription price upon exercise, we have accounted for the payment received as deferred consideration. At such time as the option is exercised, the initial payments received to that date will be recognized as part of the consideration received for our contribution of the Alaska assets, including the UKMP, into the joint venture. If South 32 withdraws from the Option Agreement, the consideration will be recognized in the statement of loss at that time.
Summary of results
in thousands of dollars,
except for per share amounts
Three months ended | Nine months ended | Three months ended | Six months ended | |||||||||||||||||||||||||||||
Selected expenses | August 31, $ | August 31, $ | August 31, $ | August 31, $ | May 31, 2019 $ | May 31, 2018 $ | May 31, 2019 $ | May 31, 2018 $ | ||||||||||||||||||||||||
Foreign exchange (gain) loss | (592 | ) | 3 | (542 | ) | 8 | ||||||||||||||||||||||||||
General and administrative | 273 | 311 | 1,050 | 1,030 | 436 | 454 | 928 | 799 | ||||||||||||||||||||||||
Mineral properties expense | 8,471 | 3,077 | 10,407 | 4,067 | 2,906 | 2,475 | 4,441 | 3,606 | ||||||||||||||||||||||||
Professional fees | 86 | 84 | 404 | 430 | 153 | 114 | 244 | 273 | ||||||||||||||||||||||||
Salaries | 218 | 250 | 683 | 719 | 282 | 223 | 563 | 452 | ||||||||||||||||||||||||
Salaries – stock-based compensation | 104 | 146 | 603 | 544 | 664 | 151 | 2,603 | 1,073 | ||||||||||||||||||||||||
Unrealized loss on held for trading investments | 83 | - | 1,252 | - | ||||||||||||||||||||||||||||
Loss from continuing operations for the period | 8,992 | 3,902 | 14,378 | 6,885 | ||||||||||||||||||||||||||||
Loss from discontinued operations for the period | - | 353 | - | 712 | ||||||||||||||||||||||||||||
Investor relations | 175 | 138 | 292 | 202 | ||||||||||||||||||||||||||||
Loss and comprehensive loss for the period | 8,992 | 4,255 | 14,378 | 7,597 | 4,509 | 3,664 | 8,845 | 6,610 | ||||||||||||||||||||||||
Basic and diluted loss per common share | $ | 0.09 | $ | 0.04 | $ | 0.14 | $ | 0.07 | $ | 0.04 | $ | 0.03 | $ | 0.07 | $ | 0.06 |
For the three monthsmonth period ended AugustMay 31, 2017,2019, Trilogy reported a net loss of $9.0$4.5 million (or $0.09$0.04 basic and diluted loss per common share) which was higher than the net loss of $3.7 million for the comparative period in 2018 (or $0.03 basic and diluted loss per common share).
The differences in relation to the comparative three month period ended May 31, 2018 are primarily due to: i) an increase of $0.4 million in mineral properties expense mostly consisting of engineering work related to the scoping study for Bornite and Arctic projects, environmental work related to meteorological and air quality study for the Arctic project during the second quarter of 2019, personnel costs and project support costs including camp facilities repair and maintenance, fixed wing costs and set-up costs incurred for the new office and warehouse in Fairbanks; and ii) an increase of $0.5 million in stock-based compensation due to a higher share price contributing to a higher fair value vesting for stock options, RSUs and DSUs granted during the six month period ended May 31, 2019.
Other differences noted for the comparable periods were: i) an increase in salaries as the current period includes compensation for a new hire during the third quarter of 2018 for which there is no comparative for the second quarter of 2018; ii) an increase in professional fees due to an increase in accounting and audit fees; iii) an increase in investor relations expenses due to the Company’s increased level of marketing activity including attendance at more investor conferences and meetings in the current period; and iv) a slight decrease in general and administrative expenses in the current period.
The comparative period also included a $0.1 million loss on held for trading investments resulting from the disposition of 725,000 common shares of Gold Mining Inc. (“GMI”) for which there are no comparative figures for the three month period ended May 31, 2019 as the remaining investment in GMI was fully disposed during fiscal 2018.
For the six month period ended May 31, 2019, Trilogy reported a net loss of $8.8 million (or $0.07 basic and diluted loss per common share) compared to a net loss of $4.3$6.6 million for the corresponding period in 20162018 (or $0.04$0.06 basic and diluted loss per common share). This variance of $4.7 million was primarily due to the size of the field programs at the UKMP in 2017 as well as the timing of the program. An increase of $5.4 million in mineral property expenses incurred during the three months ended August 31, 2017 compared to the three months ended August 31, 2016 accounted for the increase in its entirety. The 2017 program consists of a $10.0 million exploration program at the Bornite Project, funded by South32, and a $7.1 million program towards completing a pre-feasibility study at the Arctic Project expected to be completed in Q1 2018. Comparably, in 2016, the field program consisted of a drill program at Arctic to prepare the project for pre-feasibility work. The field program in 2017 began in late May and continued through the third quarter. In 2016, the field program consisted of a 45-day program that wrapped up in late July. The increase in the mineral property expenses is due to the size and variety of the programs being undertaken. The increase was offset by slight decreases in general and administrative, salaries and stock-based compensation expense during the three months ended August 31, 2017 compared to the three months ended August 31, 2016.
Trilogy recognized a gain on foreign exchange during the three months ended August 31, 2017 of $0.6 million due to the appreciation of the Canadian dollar in the current fiscal year. We were holding a higher average volume of cash and cash equivalents in Canadian dollars during the third quarter of 2017 mainly due to the sale of investments which consist of shares in Gold Mining Inc. (“GMI”). The investments are also denominated in Canadian dollars and benefited from the appreciation of the Canadian dollar in the third quarter. We acquired the investments on September 1, 2016 as consideration for the sale of Sunward Investments Limited (“Sunward”) and its Titiribi gold-copper exploration project in Colombia. As such, a comparable foreign currency movement did not exist in the third quarter of 2016. There was also a loss from discontinued operations of $0.4 million for the three months ended August 31, 2016 which relates to the sale of Sunward. There is no comparable amount in the current fiscal year as the sale was completed on September 1, 2016. Other minor differences noted for the comparable periods were i) a small decrease in general and administrative expenses; ii) a small decrease in salaries due to lower level of staff in the third quarter of 2017 compared to 2016; and iii) a small decrease in stock-based compensation due to the timing of the amortization of expense.
The basic and diluted loss per common share of $0.09 for the three months ended August 31, 2017 increased from the basic and diluted loss per common share of $0.04 for the three months ended August 31, 2016 due to the increased loss as described above.
ForThe differences in relation to the nine monthscomparative six month period ended AugustMay 31, 2017, Trilogy reported a net loss2018 are primarily due to: i) an increase of $14.4$0.8 million (or $0.14 basicin mineral properties expense mostly consisting of Geophysics work including core scan work for the Arctic project, aerial electromagnetic survey for Bornite and diluted loss per common share) comparedthe region, engineering work related to additional metallurgical and scoping studies, environmental work related to meteorological and air quality study, personnel costs and project support costs including camp facilities repair and maintenance, and fixed wing costs and set-up costs incurred for the new office and warehouse in Fairbanks; ii) an increase of $1.5 million in stock-based compensation due to a net losshigher share price contributing to a greater fair value amortization of $7.6 million forstock options, RSUs and DSUs granted during the correspondingsix month period in 2016 (or $0.07 basic and diluted loss per common share). The increase in net loss is primarily due toended May 31, 2019; iii) an increase of $0.1 million in mineral property expensegeneral and administration costs; iv) an increase of $6.3$0.9 million from $4.1 million for the nine months ended August 31, 2016 to $10.4 million for the nine months ended August 31, 2017. Similarly to the variance in the three-month periods, the field program being executed in 2017 is significantly larger and more varied than the field program completed in 2016. The variance is also due to an unrealized loss on investments on the GMI securities of $1.3 million classified as held for trading for which changes in the fair value of the investments are recorded through the statement of loss. There are no comparable amounts for the nine months ended August 31, 2016 as the Company acquired the investments in September 2016.
Trilogy recognized a gain on foreign exchange during the nine months ended August 31, 2017 of $0.5 millioninvestor relations expenses due to the appreciationCompany’s increased level of marketing activity including attendance at more investor conferences and meetings during the Canadian dollarsix month period ended May 31, 2019 and v) an increase of $0.1 million in the current quarter as well as the volume of funds held in Canadian dollars. There is no comparable amount in 2016salaries due to a new hire during the timingthird quarter of acquiring the GMI investments. Additionally, there was a loss from discontinued operations of $0.7 million for the nine months ended August 31, 2016 from the operations of Sunward2018 for which there is no comparable amount in 2017. Other minor differences notedcomparative for the comparable periods were i) a small increase in general and administrative expenses; ii) a small decrease in professional fees due to a lower level of corporate activity compared to 2016, iii) a small decrease in salaries due to lower level of staff in the third quarter of 2017 compared to 2016; and iv) a small increase in stock-based compensation due to increasing Black-Scholes valuations from an increased share price.six month period ended May 31, 2018.
The basic and dilutedDuring the six month period ended May 31, 2018, the Company recorded a loss peron held for trading investments of $0.3 million upon disposition of 2,085,000 common shareshares of $0.14GMI for which there are no comparative figures for the nine monthssix month period ended AugustMay 31, 2017 increased from2019 as the basic and diluted loss per common share of $0.07 for the nine months ended August 31, 2016 due to the increased loss as described above.remaining investment in GMI was fully disposed during fiscal 2018.
Selected financial data
Quarterly information
inIn thousands of dollars,
except per share amounts
Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | Q2 2018 | Q1 2018 | Q4 2017 | Q3 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Q3 2017 | Q2 2017 | Q1 2017 | Q4 2016 | Q3 2016 | Q2 2016 | Q1 2016 | Q4 2015 | 05/31/19 | 02/28/19 | 11/30/18 | 08/31/18 | 05/31/18 | 02/28/17 | 11/30/17 | 08/31/17 | |||||||||||||||||||||||||||||||||||||||||||||||||
08/31/17 $ | 05/31/17 $ | 02/28/17 $ | 11/30/16 $ | 08/31/16 $ | 05/31/16 $ | 02/29/16 $ | 11/30/15 $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
Interest and other income | 23 | 12 | 11 | 10 | 16 | 18 | 18 | 12 | 150 | 122 | 117 | 135 | 77 | 17 | 13 | 23 | ||||||||||||||||||||||||||||||||||||||||||||||||
Mineral property expenses | 8,471 | 1,297 | 639 | 970 | 3,077 | 458 | 532 | 779 | 2,906 | 1,535 | 3,833 | 9,051 | 2,475 | 1,131 | 4,693 | 8,471 | ||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations for the period | - | - | - | 4,561 | (352 | ) | (187 | ) | (172 | ) | (200 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (loss) for the period | (8,992 | ) | (2,390 | ) | (2,996 | ) | 2,736 | (4,255 | ) | (1,648 | ) | (1,695 | ) | (2,090 | ) | (4,509 | ) | (4,336 | ) | (5,319 | ) | (9,920 | ) | (3,664 | ) | (2,946 | ) | (6,726 | ) | (8,992 | ) | |||||||||||||||||||||||||||||||||
Earnings (loss) per common share – basic and diluted | (0.09 | ) | (0.02 | ) | (0.03 | ) | 0.03 | (0.04 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) | (0.04 | ) | (0.03 | ) | (0.04 | ) | (0.08 | ) | (0.03 | ) | (0.03 | ) | (0.06 | ) | (0.09 | ) |
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. Other factors that have caused fluctuations in the quarterly results that would not be expected to re-occur include the acquisition and disposition of SunwardGMI shares and financing activities.
During the quarter ended May 31, 2019, mineral property expense increased by $1.4 million when compared to the prior quarter as the Company prepared for the commencement of the 2019 drill program and field season. Our netloss of $4.5 million for the quarter ended May 31, 2019 is consistent with the prior quarter as the increase in the second quarter mineral property expenses were offset by higher first quarter stock-based compensation due to the fair value amortization of new option grants during the first quarter. The current period loss is $0.9 million higher when compared to the loss for the fourthsecond quarter ended May 31, 2018 of 2015 of $2.1$3.7 million consists of $0.8 milliondue mostly to an increase in mineral property expenses incurred for assay costsproperties expense and engineering studies conducted in the fall as well as $0.2 million in discontinued operation costs from Sunward.stock-based compensation.
Our loss for the first quarter ended February 29, 201628, 2019 of $4.3 million was lower when compared to the two prior quarterly periods and reflects the seasonality of the mineral property expenses which are mostly incurred during the summer and fall season.
During the fourth quarter of 2018, we had a loss of $5.3 million compared to a loss of $6.7 million in the fourth quarter of 2017. The primary drivers for the difference were $0.9 million lower mineral properties expenses, loss on disposition of investments of $0.8 million in the fourth quarter of 2017 for which the comparative is comparable to typical firstnil in the fourth quarter losses2018, all offset by $0.5 million in that it consists mainlyincreased salaries benefits in the fourth quarter 2018. We incurred $3.8 million of mineral property expenses relating to engineering studies completed in advance of the 2016 field program. The loss is increased slightly due to costs related to operating Sunward of $0.2 million when compared to periods when Trilogy did not own Sunward. During the second quarter of 2016, we incurred $0.5 million in mineral property expenses due to the field season starting up in the last month of the second quarter and $0.2 million in discontinued operations relating to Sunward. During the third quarter of 2016, we incurred mineral property expenses of $3.1 million as we completed our drilling program. As a result, our loss for the third quarter ended August 31, 2016 is higher compared to previous quarter losses and consistent with the spending in the third quarter of 2015. We recognized earnings for the fourth quarter of 20162018 compared to $4.7 million of $2.7 million due to the gain on the sale of Sunward. Adjusted for the discontinued operations,mineral property expenses in the fourth quarter periods are substantially comparable.
of 2017 as the camp closed earlier in the 2018 program (October 13, 2018) versus the 2017 program (October 31, 2017).
Our loss for the first quarter ended February 28, 2017 of $3.0 million is significantly increased compared to prior quarterly periods due to an unrealized loss on held for trading investments of $1.2 million. The investments are classified as held for trading and changes in the fair value of the investments are recorded through the statement of loss. Our loss for the second quarter ended May 31, 2017 of $2.4 million is significantly increased from the comparable period due to a significant increase is the size of our field program resulting in increased mineral property expenses of $1.3 million. Similarly, our loss for the third quarter ended August 31, 20172018 of $9.0$9.9 million is significantly increased fromslightly higher than the comparable loss of $4.3$9.0 million in the third quarter ended August 31, 20162017 due to the size of the 20172018 field program which added an additional $0.6 million in mineral property expenses. The remaining $0.3 million difference is more than double the 2016 field program.mostly due to increased general and administrative expenses, salaries and stock-based compensation.
Liquidity and capital resources
At AugustMay 31, 2017,2019, we had $10.2$25.8 million in cash and cash equivalents. equivalents and working capital of $26.0 million. The increase in cash was a result of fully receiving the $9.2 million Year 3 funding from South32 as well as an additional $1.0 million for the regional exploration program. The increase in working capital for the period was a result of higher accounts receivable and prepaids balances as well as a lower accounts payable balance as at May 31, 2019. Subsequent to the end of the second quarter, the Company received additional proceeds of approximately $9.9 million as a result of an exercise of 6,521,740 warrants.
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We expended $9.1$7.4 million on operating activities during the ninesix months ended AugustMay 31, 20172019 compared with $6.7$6.6 million for operating activities for the same period in 2016. The majority of2018. Most cash spent on operating activities during all periods was expended on mineral property expenses. Other operating expenses, consisted of cash spent on general and administrative, costs, salaries and professional fees and investor relations. At August 31, 2017, the Company had working capital available of $11.2 million. As at August 31, 2017, thefees.
The Company continues to managefund its cash expenditures through its working capital. As the Company is not currently in production, the Company will need to raise additional funds to support its operations and management believes that the working capital available is sufficient to meet its operational requirements for the next year. Management does expect to monetize its current investments by selling shares of GMIadministration expenses in the nextfuture. Future sources of liquidity may include debt financing, equity financing, convertible debt, exercise of options, or other means. The continued operations of the Company are dependent on its ability to obtain additional financing or to generate future cash flows.
All cash generated from investing activities during the six months to assist in meeting its operational requirements. Future financings are anticipated throughended May 31, 2019 were from the saleSouth 32 Option Agreement funding of investments, equity financing, the exercise of mineral properties option, convertible debt, or other means.
During the nine months ended August 31, 2017, we received $10.0$10.2 million in funding from South32 for the exploration program at the Bornite Project which is categorized as an investing activity as the funds are being utilized on the UKMP. The Company is responsible for the disbursement of these funds in accordance with the approved program(2018 - $9.6 million) and budget and accordingly has not classified the funds as restricted cash. Funds are transferred to operating accounts on a monthly basis in accordance with the approved budget and working capital needs. As at August 31, 2017, the Company held $2.7 million in a segregated bank account for spending on the approved year 1 program at the Bornite Project.
During the nine months ended August 31, 2017, we generated $2.2 million inthere were no proceeds from the sale of investments. The proceedsinvestments (2018 - $2.1 million) as all GMI shares were used for general operating activities. There was no comparable amount from investing activities in 2016 as we acquired the investments in September 2016. Subsequent to quarter-end, we have generated approximately an additional C$1.0 million in proceeds from the sale of investments.
full disposed during fiscal 2018. During the ninesix months ended AugustMay 31, 2017, $0.1 million2019, no cash was used in financing activities to pay statutory employee withholding taxes on Restricted Share Units that vested. There were no comparable amountsgenerated from financing activities in 2016.(2018 - $26.9 million).
Contractual obligations
ContractuallyContractual obligated undiscounted cash flow requirements as at AugustMay 31, 20172019 are as follows.
inIn thousands of dollars
Total | < 1 Year | 1–2 Years | 2–5 Years | Thereafter | ||||||||||||||||||||||||||||||||||||
Total $ | < 1 Year $ | 1–2 Years $ | 2–5 Years $ | Thereafter $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities | 4,759 | 4,759 | - | - | - | 1,481 | 1,481 | - | - | - | ||||||||||||||||||||||||||||||
Office lease | 1,349 | 44 | 178 | 580 | 547 | 963 | 174 | 375 | 414 | - | ||||||||||||||||||||||||||||||
Office and warehouse lease | 139 | 57 | 82 | - | - | |||||||||||||||||||||||||||||||||||
6,108 | 4,803 | 178 | 580 | 547 | 2,583 | 1,712 | 457 | 414 | - |
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.
Off-balance sheet arrangements
We have no material off-balance sheet arrangements. The Company has lease commitments for office and warehouse spaces with a remaining total commitment of $1.3$1.1 million.
Outstanding share data
At October 4, 2017,July 8, 2019, we had 105,674,303138,905,097 common shares issued and outstanding. At October 4, 2017,July 8, 2019, we had outstanding 6,521,740 warrants with an exercise price of $1.60 each, 7,197,50011,042,502 stock options with a weighted-average exercise price of $0.56, 1,041,232 DSUs, 600,002 RSUs, and 20,685$0.98. We also had, 1,286,595 deferred share units (“DSUs”), 11,927 NovaGold DSUs for whichdeferred share units entitling the holder is entitled to receive one common share for every six NovaGold shares received. For additional information on NovaGold Arrangement Optionsreceived, and NovaGold DSUs, please refer to note 6 in our August 31, 2017 interim consolidated financial statements.212,501 RSUs. Upon exercise of all of the forgoingforegoing convertible securities, the Company would be required to issue aggregate of 15,363,92112,543,586 common shares.
New accounting pronouncements
Certain recent accounting pronouncements have been included under note 2 in our AugustMay 31, 20172019 unaudited interim consolidated financial statements
Critical accounting estimates
The most critical accounting estimates upon which our financial status depends are those requiring estimates of the recoverability of our capitalized mineral properties, impairment of long-lived assets, income taxes and valuation of stock-based compensation.
Mineral properties and development costs
All direct costs related to the acquisition of mineral property interests are capitalized. The acquisition of title to mineral properties is a complicated and uncertain process. We haveThe Company has taken steps, in accordance with industry standards, to verify the title to mineral properties in which it has an interest. Although we havethe Company has made efforts to ensure that legal title to its mining assets is properly recorded, there can be no assurance that such title will be secured indefinitely.
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Impairment of long-lived assets
Management assesses the possibility of impairment in the carrying value of its long-lived assets whenever events or circumstances indicate that the carrying amounts of the asset or asset group may not be recoverable. Significant judgments are made in assessing the possibility of impairment. Management considers several factors in considering if an indicator of impairment has occurred, including but not limited to, indications of value from external sources, significant changes in the legal, business or regulatory environment, and adverse changes in the use orof physical condition of the asset. These factors are subjective and require consideration at each period end. If an indicator of impairment is determined to exist, management calculates the estimated undiscounted future net cash flows relating to the asset or asset group using estimated future prices, mineral resources, and operating, capital and reclamation costs. When the carrying value of an asset exceeds the related undiscounted cash flows, the asset is written down to its estimated fair value, which is usually determined using discounted future cash flows. Management’s estimates of mineral prices, mineral resources, foreign exchange rates, production levels and operating capital and reclamation costs are subject to risk and uncertainties that may affect the determination of the recoverability of the long-lived asset.
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 tax benefits including interest and penalties. We are subject to income tax law in the United States and Canada. The evaluation of tax liabilities involving uncertainties in the application of complex tax regulation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity, and 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 informationSouth32 Option Agreement
Additional information regardingThe option to form the Company, including our annual report on Form 10-K,JV LLC is available on SEDARrecognized as a financial instrument atwww.sedar.com and EDGAR inception of the arrangement with an initial fair value of $nil. This option is required to be re-measured atwww.sec.govand on our website fair value atwww.trilogymetals.com. Information contained on our website is not incorporated by reference. each reporting date with any changes in fair value recorded in loss for the period.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Our financial instruments consist of cash and cash equivalents, accounts receivable, deposits, investments, and accounts payable and accrued liabilities. The fair value of the financial instruments approximates their carrying value due to the short-term nature of their maturity. Our 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. Our investments are held for trading and are 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 fair value recorded to the statement of loss.
(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. We operateThe Company operates in the United States and Canada. OurThe Company’s exposure to currency risk at AugustMay 31, 20172019 is limited to Canadian dollar balancesamounts 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, ourthe Company’s net loss would change by approximately $647,000.$13,000.
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(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. We holdThe Company holds cash and cash equivalents with Canadian Chartered financial institutions. OurThe Company’s accounts receivable consistconsists of GSTCanadian Goods and Services Tax receivable from the Federal Government of Canada and other receivables for recoverable expenses. OurThe 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.
(c) | Liquidity risk |
Liquidity risk is the risk that we will encounter difficulties raising funds to meet our financial obligations as they fall due. We are in the exploration stage and do not have cash inflows from operations; therefore, we manage liquidity risk through the management of the capital structure and financial leverage. Future financingsfinancing may be obtained through debt financing, equity financing, sales of investments, convertible debt, exercise of options, or other means. Continued operations are dependent on our ability to obtain additional financing or to generate future cash flows. Our contractually obligated cash flow is disclosed under the section titled “Contractual obligations.Obligations.” Please see further discussion of our liquidity under “Liquidity and capital resources”
(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. We areThe 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.
Additional information
Additional information regarding the Company, including our annual report on Form 10-K, is available on SEDAR atwww.sedar.com and EDGAR atwww.sec.gov and on our website atwww.trilogymetals.com. Information contained on our website is not incorporated by reference.
Item 4. | Controls and Procedures |
Management, with the participation of our President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of AugustMay 31, 2017.2019. On the basis of this review, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There have not been any changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated by the SEC under the Exchange Act) during the Company’s most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting. 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.
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.
Item1A. | 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. Certain of these risks and uncertainties are under the heading “Risk Factors” under Trilogy’s Form 10-K dated February 2, 2017,11, 2019, which is available on SEDAR at www.sedar.com and EDGAR atwww.sec.govand on our website at www.trilogymetals.com.www.trilogymetals.com.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosures |
These disclosures are not applicable to us.
Item 5. | Other Information. |
None.
Item 6. | Exhibits |
Exhibits
See Exhibit Index.
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.
Date: | TRILOGY METALS INC. | |
By: | /s/ Rick Van Nieuwenhuyse | |
Rick Van Nieuwenhuyse | ||
President and Chief Executive Officer |
By: | /s/ Elaine M. Sanders | |
Elaine M. Sanders | ||
Vice President and Chief Financial Officer |
EXHIBIT INDEX
Exhibit No. | Description | |
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) |
31.1 | ||
Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) | ||
31.2 | Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) | |
32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 | |
32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | |
101 | Interactive Data Files | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |