Trilogy Metals Inc.

Interim Consolidated Statements of Changes in Shareholders’ Equity

(unaudited)

in thousands of US dollars, except share amounts

(See accompanying notes to the interim consolidated financial statements)

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Trilogy Metals Inc.

Interim Consolidated Statements of Cash Flows

(unaudited)

in thousands of US dollars

(See accompanying notes to the interim consolidated financial statements)

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Use of estimates and measurement uncertainties

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions of future events that affect the presentationreported amount of restricted cashassets and liabilities and disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of expenditures during the period. Significant judgments include the assessment of potential indicators of impairment for our equity method investments where key judgement is the delay on the Ambler Access Project is temporary and the delay was considered when assessing indicators of impairment. Significant estimates include the measurement of income taxes, and the valuation of stock-based compensation. Actual results could differ materially from those reported.

Management assesses the possibility of impairment in the statementcarrying value of cash flows (“ASU 2016-18”). This update is effective for annual reporting periods beginning after December 15, 2017, and early adoption is permitted. The Company has analyzedits equity method investment in Ambler Metals whenever events or circumstances indicate that the impactcarrying amount of the update and determinedinvestment may not be recoverable. Significant judgments are made in assessing the possibility of impairment. Management considers factors that the clarification will not affect the Company’s presentation on its statementmay be indicative of cash flows. The Company early adopted the standardan impairment include a loss in the second quartervalue of 2017. As there was no impact onan investment that is not temporary. Factors consider include but are not limited to, sustained losses by the Company’s statement of cash flows, there were no changes as a result of adoptinginvestment, the standard.

In February 2016, the 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 our balance sheets. The requirementsabsence of the new standard are effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, which for us isability to recover the first quarter of fiscal year 2020. We expect the adoption will have an impact as we expect to capitalize leases, specifically our office leases that are not currently recognized on the balance sheet and are in the process of analyzing the quantitative impact of this guidance on our results of operations and financial position.

In March 2016, 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 classification 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 impactcarrying amount 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 remaininginvestment, significant changes in the update do not havelegal, business or regulatory environment, significant adverse changes impacting the investee and internal reporting indicating the economic performance of an effect on the Company’s accounting for stock-based compensation.investment is, or will be, worse than expected. 

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In January 2017, the FASB issued new guidance to assist in determining if a set of assetsThese factors are subjective 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 forrequire consideration of 5,000,000 common shares of GMI valued at $7.8 million and 1,000,000 warrants, with each warrant exercisable into one common share of GMI for a period of two years at an exercise price of CDN$3.50, valued at $0.3 million, for total consideration of $8.1 million. Of the common shares received, 2,500,000 common shares were saleable immediately with the remaining 2,500,000 common shares saleable six months following the close. Sunward Investments, through a subsidiary, owns 100% of the Titiribi gold-copper exploration project.

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

in thousands of dollars

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

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During the nine months ended August 31, 2017,​

3)Investment in Ambler Metals LLC

On February 11, 2020, the Company sold 1,519,000 common sharescompleted the formation of GMI during the period for proceeds 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.

in thousands of dollars

in thousands of dollars

On January 11, 2010, NovaGold Resources Inc. (“NovaGold”), through Alaska Gold Company (“AGC”), at the time a wholly-owned 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 property can purchase at any time for a one-time payment of $10.0 million.

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

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

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

On April 10, 2017, Trilogy and Trilogy Metals US entered into an Option Agreement to Form a Joint Venture with South32 Group Operations Pty Ltd. (“South32”) on the UKMP (“Option Agreement”). Trilogy Metals US has granted South32 the right to form a 50/50 joint venture to hold all of Trilogynamed Ambler Metals US’ Alaskan assets. Upon exerciseLLC (“Ambler Metals”) with South32 Limited (“South32”). As part of the option,formation of the joint venture, Trilogy Metals US will transfercontributed all its Alaskan assets associated with the UKMP, including the UKMP,Arctic and Bornite Projects, while South32 contributed cash of $145 million, resulting in each party’s subsidiaries directly owning a 50% interest in Ambler Metals.

Ambler Metals is an independently operated company jointly controlled by Trilogy and South32 will contributethrough a minimumfour-member board, of $150 millionwhich two members are appointed by Trilogy based on its 50% equity interest. All significant decisions related to the UKMP require the approval of both companies. We determined that Ambler Metals is a newly formedVIE because it is expected to need additional funding from its owners for its significant activities. However, we concluded that we are not the primary beneficiary of Ambler Metals as the power to direct its activities, through its board, is shared under the Ambler Metals LLC limited liability company (“JV LLC”), plus any amounts Trilogyagreement. As we have significant influence over Ambler Metals US spendsthrough our representation on its board, we use the equity method of accounting for our investment in Ambler Metals. Our investment in Ambler Metals was initially measured at its fair value of $176 million upon recognition. Our maximum exposure to loss in this entity is limited to the Arctic Project over the next three years to a maximum of $5 million per year (the “Subscription Price”), less ancarrying amount of the initial funding contributed by South32.

To maintain the optionour investment in good standing, South32 is required to fund a minimum of $10 million per year for up to a three year period,Ambler Metals, which, funds will be used to execute a mutually agreed upon program at the UKMP. The funds provided by South32 may only be expendedas February 29, 2024, totaled $134 million.

Trilogy recognized, based on the approved program. Provided that all the exploration data and information has been made availableits 50% ownership interest in Ambler Metals, an equity loss equivalent to South32 by no later than December 31its pro rata share of each year, South32 must decide by the endAmbler Metals’ comprehensive loss 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 JV LLC and make the subscription payment.

The Company received $10.0$1.6 million for the first payment followingthree-month period ending February 29, 2024 (2023 - $3.0 million).  During the approvalthree-month period ending February 29, 2024, Trilogy made a $112,000 equity contribution to Ambler Metals through the issuance of 143,507 common shares of the year 1 program and budget in April 2017. 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 Bornite. The Company is responsible for the disbursement of these funds in accordance with the approved program and budget and accordingly has not classified the funds as restricted cash.

As the initial option payments are credited against the future subscription price upon exercise, the Company has accounted for the 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 receivedlong-term incentive compensation for the Company’sAmbler Metals executives. Likewise, South32 made an equivalent equity contribution of the UKMP into the JV LLC. If South 32 withdraws from the Option Agreement, the consideration will be recognizedto Ambler Metals for $112,000 in the statement of loss at that time.

cash for their 50% share. The option to form the JV LLC is recognized as a financial instrument at inception of the arrangement with an initial faircarrying value of $nil. This optionTrilogy’s 50% investment in Ambler Metals as at February 29, 2024 is required to be re-measured at fair value at each reporting date with any changes in fair value recorded in loss forsummarized on the period.following table.

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Members’ cash and cash equivalents are held at one bank, the majority of cash and cash equivalent is uninsured as at February 29, 2024.

(d) The following table summarizes mineral properties expenseAmbler Metals' loss for the noted periodsthree-month period ending February 29, 2024 and includes expenditures funded by South32.February 28, 2023.

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During the three-month period ended February 29, 2024, the Company charged $10,000 (2023 - $Nil) related to human resources and accounting services in connection with the Service Agreement. In thousandsaddition, the company received payments of dollars$16,000 (2023 - $Nil) related to operating expenses paid on behalf of Ambler Metals pursuant to the Service Agreement.