UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~August 31, 2020~~February 28, 2021

☐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

Macintosh HD:Vision Projects:Trilogy:Trilogy letterhead logo.jpg

TRILOGY METALS INC.

(Exact Name of Registrant as Specified in Its Charter)


British Columbia	98-1006991
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

Suite 1150, 609 Granville Street Vancouver, British Columbia Canada	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. Yes ⌧☒ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ⌧☒ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer ◻	Accelerated filer ⌧◻	Non-accelerated filer ◻☒	Smaller reporting company☒	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧☒

As of ~~October~~April 7, ~~2020,~~2021, the registrant had ~~143,004,178~~144,292,774 Common Shares, no par value, outstanding.

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Trilogy Metals Inc.

Table of Contents

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Trilogy Metals Inc.

Interim Consolidated Balance Sheets

(unaudited)


		in thousands of US dollars			in thousands of US dollars
	August 31, 2020		November 30, 2019	February 28, 2021		November 30, 2020
	$		$	$		$
Assets
Current assets
Cash and cash equivalents	12,780		19,174	9,631		11,125
Accounts receivable (note 3)	121		264	24		129
Deposits and prepaid amounts	379		719	217		184
	13,280		20,157	9,872		11,438

Equity method investment (note 4)	174,167		—
Plant and equipment (note 5)	222		715
Mineral properties and development costs (note 6)	—		30,631
Rent deposit (note 8 (a))	—		114
Right of use asset (note 8 (a))	503		—
Investment in Ambler Metals LLC (note 4)				172,025		173,145
Fixed assets (note 5)				189		206
Right of use asset (note 7 (a))				448		476
	188,172		51,617	182,534		185,265
Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 7)	1,287		2,354
Accounts payable and accrued liabilities (note 6)				551		888
Current portion of lease liability	152		—	166		158
	1,439		2,354	717		1,046

Long-term portion of lease liability (note 8 (b))	447		—
Mineral properties purchase option	—		31,000
Long-term portion of lease liability (note 7 (b))				374		408
	1,886		33,354	1,091		1,454
Shareholders’ equity
Share capital (note 9) – unlimited common shares authorized, 0 par value Issued – 142,978,805 (2019 – 140,427,761)	179,310		177,971
Share capital (note 8) – unlimited common shares authorized, 0 par value Issued – 144,214,485 (2020 – 144,137,850)				180,080		179,746
Contributed surplus	122		122	122		122
Contributed surplus – options (note 9(a))	23,024		21,123
Contributed surplus – units (note 9(b))	1,549		1,759
Contributed surplus – options (note 8(a))				25,081		23,303
Contributed surplus – units (note 8(b))				1,621		1,585
Deficit	(17,719)		(182,712)	(25,461)		(20,945)
	186,286		18,263	181,443		183,811
	188,172		51,617	182,534		185,265

Commitments (note ~~11)~~10)

(See accompanying notes to the interim consolidated financial statements)


/s/ Tony Giardini, President, CEO and Director		/s/ Kalidas Madhavpeddi, Director

Approved on behalf of the Board of Directors


	Trilogy Metals Inc. For the Quarter Ended ~~August 31, 2020~~February 28, 2021	3

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Trilogy Metals Inc.

Interim Consolidated Statements of Income (Loss)

and Comprehensive Income (Loss)

(unaudited)


	in thousands of US dollars, except share and per share amounts						in thousands of US dollars, except share and per share amounts
	For the three months ended			For the nine months ended			For the three months ended
	August 31, 2020		August 31, 2019		August 31, 2020	August 31, 2019		February 28, 2021	February 29, 2020
	$		$		$	$		$	$
Expenses
Amortization		17	31		75	106		17	42
Feasibility study (note 6(a))		232	—		974	—
Foreign exchange (gain) loss		37	3		44	(26)
Foreign exchange loss								35	23
General and administrative		265	435		1,349	1,363		401	651
Investor relations		156	164		383	456		154	126
Mineral properties expense (note 6(a))		—	10,951		1,545	15,392
Mineral properties expense (note 4(a))								—	1,545
Professional fees		165	414		1,031	658		229	668
Salaries		170	272		620	835		439	224
Salaries – stock-based compensation		1,064	402		3,030	3,005		2,148	1,196
Total expenses		2,106	12,672		9,051	21,789		3,423	4,475
Other items
Gain on derecognition of assets contributed to joint venture (note 4(a))		—	—		(175,770)	—		—	(175,770)
Share of loss on equity investment (note 4(b))		1,094	—		1,833	—		1,120	178
Interest and other income		(16)	(137)		(107)	(409)		(5)	(62)
Comprehensive (loss) earnings for the period		(3,184)	(12,535)		164,993	(21,380)
Services agreement income (note 4(e))								(22)	—
Comprehensive (loss) earnings for the year								(4,516)	171,179
Basic (loss) earnings per common share		(0.02)	(0.09)		1.17	(0.16)		(0.03)	1.22
Diluted (loss) earnings per common share		(0.02)	(0.09)		1.12	(0.16)		(0.03)	1.16
Basic weighted average number of common shares outstanding		141,018,130	136,981,179		140,807,319	133,677,437		144,163,869	140,616,672
Diluted weighted average number of common shares outstanding		141,018,130	136,981,179		146,660,689	133,677,437		144,163,869	147,649,507

(See accompanying notes to the interim consolidated financial statements)


	Trilogy Metals Inc. For the Quarter Ended ~~August 31, 2020~~February 28, 2021	4

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Trilogy Metals Inc.

Interim Consolidated Statements of Changes in Shareholders’ Equity

(unaudited)

in thousands of US dollars, except share amounts


					Contributed	Contributed		Total					Contributed	Contributed		Total
				Contributed	surplus –	surplus –		shareholders’				Contributed	surplus –	surplus –		shareholders’
	Number of shares	Share capital	Warrants	surplus	options	units	Deficit	equity	Number of shares	Share capital	Warrants	surplus	options	units	Deficit	equity
	outstanding	$	$	$	$	$	$	$	outstanding	$	$	$	$	$	$	$
Balance – November 30, 2018	131,585,612	164,069	2,253	122	19,076	1,489	(154,807)	32,202
Balance – November 30, 2019									140,427,761	177,971	—	122	21,123	1,759	(182,712)	18,263
Exercise of options	44,230	28	—	—	(28)	—	—	—	19,514	6	—	—	(6)	—	—	—
Restricted Share Units	412,501	424	—	—	—	(424)	—	—	212,501	330	—	—	—	(330)	—	—
Stock-based compensation	—	—	—	—	1,586	353	—	1,939	—	—	—	—	1,155	41	—	1,196
Loss for the period	—	—	—	—	—	—	(4,336)	(4,336)	—	—	—	—	—	—	171,179	171,179
Balance – February 28, 2019	132,042,343	164,521	2,253	122	20,634	1,418	(159,143)	29,805
Balance - February 29, 2020									140,659,776	178,307	—	122	22,272	1,470	(11,533)	190,638

Balance – November 30, 2020									144,137,850	179,746	—	122	23,303	1,585	(20,945)	183,811
Exercise of options	101,064	53	—	—	(53)	—	—	—	76,635	334	—	—	(334)	—	—	—
Stock-based compensation	—	—	—	—	355	309	—	664	—	—	—	—	2,112	36	—	2,148
Loss for the period	—	—	—	—	—	—	(4,509)	(4,509)	—	—	—	—	—	—	(4,516)	(4,516)
Balance – May 31, 2019	132,143,407	164,574	2,253	122	20,936	1,727	(163,652)	25,960
Exercise of options	57,818	41	—	—	(41)	—	—	—
Stock-based compensation	—	—	—	—	288	114	—	402
Deferred share units	182,132	189	—	—	—	(189)	—	—
Exercise of warrants	6,521,740	12,166	(2,253)					9,913
Loss for the period	—	—	—	—	—	—	(12,535)	(12,535)
Balance – August 31, 2019	138,905,097	176,970	—	122	21,183	1,652	(176,187)	23,740

Balance – November 30, 2019	140,427,761	177,971	—	122	21,123	1,759	(182,712)	18,263
Exercise of options	19,514	6	—	—	(6)	—	—	—
Restricted Share Units	212,501	330	—	—	—	(330)	—	—
Stock-based compensation	—	—	—	—	1,155	41	—	1,196
Earnings for the period	—	—	—	—	—	—	171,179	171,179
Balance – February 29, 2020	140,659,776	178,307	—	122	22,272	1,470	(11,533)	190,638
Exercise of options	63,110	31	—	—	(31)	—	—	—
Restricted Share Units	200,000	312	—	—	—	(312)	—	—
Stock-based compensation	—	—	—	—	420	350	—	770
Loss for the period	—	—	—	—	—	—	(3,002)	(3,002)
Balance – May 31, 2020	140,922,886	178,650	—	122	22,661	1,508	(14,535)	188,406
Exercise of options	2,055,919	660	—	—	(660)	—	—	—
Restricted Share Units	—	—	—	—	—	—	—	—
Stock-based compensation	—	—	—	—	1,023	41	—	1,064
Loss for the period	—	—	—	—	—	—	(3,184)	(3,184)
Balance – August 31, 2020	142,978,805	179,310	—	122	23,024	1,549	(17,719)	186,286
Balance – February 28, 2021									144,214,485	180,080	—	122	25,081	1,621	(25,461)	181,443

(See accompanying notes to the interim consolidated financial statements)


	Trilogy Metals Inc. For the Quarter Ended ~~August 31, 2020~~February 28, 2021	5

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Trilogy Metals Inc.

Interim Consolidated Statements of Cash Flows

(unaudited)


	in thousands of US dollars				in thousands of US dollars
	For the nine months ended				For the three months ended
	August 31, 2020		August 31, 2019		February 28, 2021		February 29, 2020
		$		$		$		$
Cash flows used in operating activities
Earnings (loss) for the period		164,993		(21,380)
Items not affecting cash
(Loss) earnings for the period						(4,516)		171,179
Adjustments to reconcile net loss to cash flows in operating activities
Amortization		75		106		17		42
Right of use asset amortization		124		—
Right of use asset amortization and lease accretion						38		60
Office lease payments						(49)		(54)
Loss on working capital written-off upon joint venture formation		18		—		—		18
Gain on derecognition of assets (note 4(a))		(175,770)		—		—		(175,770)
Loss on equity investment in Ambler Metals LLC (note 4(b))		1,833		—		1,120		178
Unrealized foreign exchange loss		12		3		14		25
Stock-based compensation		3,030		3,005		2,148		1,196
Operating lease payments		(142)		—
Net change in non-cash working capital
Decrease (increase) in accounts receivable		143		(336)		105		(154)
Decrease in deposits and prepaid amounts		340		99
(Decrease) increase in accounts payable and accrued liabilities		(1,067)		2,748
		(6,411)		(15,755)
Cash flows from financing activities
Proceeds from exercise of warrants		—		9,913
		—		9,913
Cash flows from investing activities
Acquisition of plant & equipment		—		(494)
Mineral properties funding		—		10,200
		—		9,706
(Decrease) increase in cash and cash equivalents		(6,411)		3,864
Decrease (increase) in deposits and prepaid amounts						(33)		419
(Decrease) in accounts payable and accrued liabilities						(337)		(1,080)
Decrease in cash from operating activities						(1,493)		(3,941)
Effect of exchange rate on cash and cash equivalents		17		(3)		(1)		(16)
Cash and cash equivalents – beginning of period		19,174		22,991		11,125		19,174
Cash and cash equivalents – end of period		12,780		26,852
Cash and cash equivalents – end of the period						9,631		15,217

(See accompanying notes to the interim consolidated financial statements)


	Trilogy Metals Inc. For the Quarter Ended ~~August 31, 2020~~February 28, 2021	6

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Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

1) Nature of operations

Trilogy Metals Inc. (“Trilogy” or the “Company”) was incorporated in British Columbia under the Business Corporations Act (BC) on April 27, 2011. The Company is engaged in the exploration and development of mineral properties, through our equity investee (see note 4), with a focus on the Upper Kobuk Mineral Projects (“UKMP”), including the Arctic and Bornite Projects located in Northwest Alaska in the United States of America (“US”).

2) Summary of significant accounting policies

Basis of presentation

These interim consolidated financial statements have been prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of Trilogy and its wholly owned subsidiary, NovaCopper US Inc. (dba “Trilogy Metals US”). All ~~significant~~ intercompany transactions are eliminated on consolidation. For variable interest entities (“VIEs”) where Trilogy is not the primary beneficiary, we use the equity method of accounting.

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

The unaudited interim consolidated financial statements include all adjustments necessary for the fair presentation of the Company’s financial position as of ~~August 31, 2020~~February 28, 2021 and our results of operations and cash flows for the ~~nine~~three months ended ~~August 31, 2020~~February 28, 2021 and ~~August 31, 2019.~~February 29, 2020. The results of operations for the ~~nine~~three months ended ~~August 31, 2020~~February 28, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending November 30, ~~2020.~~2021.

As these interim consolidated financial statements do not contain all of the disclosures required by U.S. GAAP for annual financial statements, these unaudited interim consolidated financial statements should be read in conjunction with the annual financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended November 30, ~~2019,~~2020, filed with the U.S. Securities and Exchange Commission (“SEC”) and Canadian securities regulatory authorities on February ~~13, 2020.~~12, 2021.

These interim consolidated financial statements were approved by the Company’s Audit Committee on behalf of the Board of Directors for issue on ~~October~~April 6, ~~2020.~~2021.

~~Accounting standards adopted~~

~~Leases~~

In February 2016, the FASB issued new accounting requirements for accounting for, presentation of, and classification of leases (“ASU 2016-02”) which, together with subsequent amendments, is included in ASC 842, Leases. ASC 842 became effective for the Company as of December 1, 2019.

The Company adopted ASC 842 using the modified retrospective transition method by applying the transition provision and recording our cumulative adjustment to opening deficit at the beginning of the period of adoption on December 1, 2019, rather than at the beginning of the comparative period presented. Therefore, in the comparative periods, we continue to apply the legacy guidance in ASC 840, including its disclosure requirements. We elected to apply all of the transition practical expedients available, including:

●

the package of three practical expedients to (1) not reassess whether any expired or existing contracts are or contain leases, (2) not reassess the lease classification for any expired or existing leases, and (3) not reassess initial direct costs for any existing lease;

●

~~the hindsight practical expedient to use hindsight when determining lease term and assessing impairment of right-of-use assets, if any; and~~


	Trilogy Metals Inc. For the Quarter Ended August 31, 2020	7

~~Table of contents~~

~~Trilogy Metals Inc.~~

~~Notes to the Interim Consolidated Financial Statements~~

●

~~the easements practical expedient to continue applying our current policy for accounting for any land easements expired before or existing as of December 1, 2019.~~

In addition, we elected to apply the short-term lease recognition exemption and elected to apply the practical expedient to not separate lease and non-lease components for all applicable leases on transition. The adoption of this new standard resulted in the recognition of right of use assets and lease~~liabilities~~ ~~of $786,000 as at December 1, 2019.~~

~~New accounting policy~~

~~Investment in affiliates~~

Investments in unconsolidated ventures over which the Company has the ability to exercise significant influence, but does not control, are accounted for under the equity method and include the Company’s investment in the Ambler Metals project. We identified Ambler Metals LLC as a VIE as the entity is dependent on funding from its owners. All funding, ownership, voting rights and power to exercise control is shared equally on a 50/50 basis between the owners of the VIE. Therefore, the Company has determined that it is not the primary beneficiary of the VIE. The Company’s maximum exposure to loss is its investment in Ambler Metals LLC.

Ambler Metals LLC is a non-publicly traded equity investee holding exploration and development projects. The Company reviews and evaluates its investment in affiliates for other than temporary impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Events that could indicate impairment of an investment in affiliates include a significant decrease in long-term expected commodity prices, a significant increase in expected operating or capital costs, unfavorable exploration results or technical studies, a significant decrease in reserves, a loss of significant mineral claims or a change in the development plan or strategy for the project. Asset impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset. If the underlying assets are not recoverable, an impairment loss is measured and recorded based on the difference between the carrying amount of the investee and its estimated fair value which may be determined using a discounted cash flow model.

3) Accounts receivable


	in thousands of dollars		in thousands of dollars
	August 31, 2020	November 30, 2019	February 28, 2021	November 30, 2020
	$	$	$	$
GST input tax credits	15	42	23	15
Recoverable payments	—	222
Ambler Metals LLC	106	—	1	114
Accounts receivable	121	264	24	129

The balance due from Ambler Metals LLC (see note 4 below) consists of services rendered by Trilogy and reimbursements for invoices paid by Trilogy on behalf of Ambler Metals LLC per a service agreement. The balance was paid in full by Ambler Metals LLC subsequent to the quarter end.

4) Equity method investment

(a)	Formation of Ambler Metals LLC

On February 11, 2020, the Company completed the formation of a 50/50 joint venture named Ambler Metals LLC with South32 Limited (“South32”). As part of the formation of the joint venture, Trilogy contributed all its assets associated with the UKMP, including the Arctic and Bornite Projects, while South32 contributed US$145 million, resulting in each ~~party’s subsidiaries directly owning a 50% interest in Ambler Metals LLC.~~


	Trilogy Metals Inc. For the Quarter Ended ~~August 31, 2020~~February 28, 2021	87

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Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

party’s subsidiaries directly owning a 50% interest in Ambler Metals LLC. To assist Ambler Metals during the initial set up phase, Trilogy was paying all of Ambler Metals LLC’s invoices and being reimbursed pursuant to a services agreement (the “Services Agreement”) between Trilogy and Ambler Metals LLC until the back office was fully transitioned to a new permanent team employed by the joint venture. The Services Agreement ended on December 31, 2020.

Ambler Metals LLC is an independently operated company jointly controlled by Trilogy and South32 through a four-member board, of which two members are ~~currently~~ appointed by Trilogy based on its 50% equity interest. All significant decisions related to the UKMP require the approval of both companies. We determined that Ambler Metals LLC is a VIE because it is expected to need additional funding from its owners for its significant activities. However, we concluded that we are not the primary beneficiary of Ambler Metals LLC as the power to direct its activities, through its board, is shared under the Ambler Metals LLC limited liability company agreement. As we have significant influence over Ambler Metals LLC through our representation on its board, we use the equity method of accounting for our investment in Ambler Metals LLC. Our investment in Ambler Metals LLC was initially measured at its fair value of $176 million upon recognition. Our maximum exposure to loss in this entity is limited to the carrying amount of our investment in Ambler Metals LLC, which, as at ~~August 31, 2020,~~February 28, 2021, totaled ~~$174 million, as well as $106,000 of amounts receivable per a service agreement.~~$172 million. The following table summarizes the gain on recognition of the UKMP assets upon transfer to the Ambler Metals LLC joint venture on February 11, 2020.


		in thousands of dollars
		$
Fair value ascribed to Ambler Metals LLC interest		176,000
Less: carrying value of contributed /eliminated assets
Mineral properties		(30,631)
Property, plant and equipment		(618)
Elimination of Fairbanks warehouse right of use asset		(93)
Elimination of prepaid State of Alaska mining claim fees		(303)
Add:
Reimbursement of claims staking		44
Demobilization costs of drills		278
Cancellation of Fairbanks warehouse lease liability		93
Fair value of mineral properties purchase option		31,000
Gain on derecognition		175,770

No additional mineral properties expenses were incurred subsequent to February 11, 2020 as upon the formation of the joint venture with South 32, all mineral properties previously held by the Company were contributed to Ambler Metals LLC. Prior to the formation of the joint venture, the Company had also incurred $0.7 million in Arctic Project feasibility costs that are included in the mineral properties expense balance of $1.5 million for the three-month period ended February 29, 2020.

(b)	Carrying value of equity method investment

During the ~~nine-month~~three-month period ~~ended August 31, 2020,~~ending February 28, 2021, Trilogy recognized, based on its 50% ownership interest in Ambler Metals LLC, an equity loss equivalent to its pro rata share of Ambler Metals LLC's comprehensive loss of ~~$3.67~~$2.2 million for the three month period ~~between~~ending February ~~11, 2020 (date of joint venture formation) to August 31, 2020 and $2.19 million for the three-month period ended August 31, 2020.~~28, 2021. The carrying value of Trilogy’s 50% investment in Ambler Metals LLC as at ~~August 31, 2020~~February 28, 2021 is summarized on the following table.


		in thousands of dollars
		$
~~February 11,~~November 30, 2020, ~~fair value ascribed to~~investment in Ambler Metals ~~LLC interest~~LLC.		~~176,000~~173,145
Share of loss on equity investment for the ~~nine-month~~three month period ~~ended August 31, 2020~~ending February 28, 2021		~~(1,833)~~(1,120)
~~August 31, 2020, equity method~~February 28, 2021, investment in Ambler Metals LLC.		~~174,167~~172,025


	Trilogy Metals Inc. For the Quarter Ended ~~August 31, 2020~~February 28, 2021	98

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Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

(c)	The following table summarizes Ambler Metals LLC's Balance Sheet as at ~~August 31, 2020.~~February 28, 2021.


	in thousands of dollars
	February 28, 2021	November 30, 2020
	$	$
Current assets: Cash, deposits and prepaid expenses	79,576	82,226
Non - current assets: Property, equipment and mineral properties	32,038	31,287
Loan receivable from South32	58,747	58,478
Current liabilities: Accounts payable and accrued liabilities	(1,310)	(1,445)
Non - current liabilities: Lease obligation	(795)	(51)
Net assets	168,256	170,495

~~in thousands of dollars~~

~~August 31, 2020~~

~~Current assets: Cash, deposits and prepaid expenses~~

~~84,245~~

~~Non - current assets: Property, equipment and mineral properties~~

~~31,308~~

~~Loan receivable from South32~~

~~58,205~~

~~Current liabilities: Accounts payable and accrued liabilities~~

~~(1,155)~~

~~Non - current liabilities: Lease obligation~~

~~(64)~~

~~Net assets~~

~~172,539~~

(d)	The following table summarizes Ambler Metals LLC's comprehensive loss ~~from~~for the ~~formation of the joint venture on~~three-month period ending February ~~11, 2020 to the end of the reporting period on August 31, 2020.~~28, 2021.

in thousands of dollars

Three months ended

Nine months ended

August 31, 2020

August 31, 2020


$


$

Amortization

37

87

Mineral properties expense

1,329

2,409

General and administrative expense

1,168

2,072

Interest income

(345)

(902)

Comprehensive loss

2,189

3,666


	in thousands of dollars
	Period ending	Period ending
	February 28, 2021	February 29, 2020
	$	$
Amortization	16	12
Mineral properties expense	1,400	167
General and administrative expense	1,095	219
Interest income	(272)	(43)
Comprehensive loss	2,239	355

(e)	Related party transactions - services agreement income

The Company charged $22,151 of expenses related to technical services, including geological, engineering, environmental and human resources, and accounting services in connection with the Services Agreement. In addition, the Company received payments of $4,053 related to operating expenses paid on behalf of Ambler Metals during the three-month period ending February 28, 2021.

5) ~~Plant and equipment~~Fixed assets


	in thousands of dollars				in thousands of dollars
	August 31, 2020				February 28, 2021
			Assets
		Accumulated	derecognized			Accumulated
	Cost	amortization	note 4(a)	Net	Cost	amortization	Net
	$	$	$	$	$	$	$
British Columbia, Canada
Furniture and equipment	63	(39)	—	24	63	(45)	18
Leasehold improvements	253	(56)	—	197	253	(82)	171
Computer hardware and software	115	(114)	—	1	115	(115)	—
Alaska, USA
Machinery, and equipment	3,667	(3,049)	(618)	—
Vehicles	348	(348)	—	—
Computer hardware and software	4	(4)	—	—
	4,450	(3,610)	(618)	222	431	(242)	189


	Trilogy Metals Inc. For the Quarter Ended ~~August 31, 2020~~February 28, 2021	109

Table of contents

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements


	in thousands of dollars
	November 30, 2020
		Accumulated
	Cost	amortization	Net
	$	$	$
British Columbia, Canada
Furniture and equipment	63	(41)	22
Leasehold improvements	253	(69)	184
Computer hardware and software	115	(115)	—
	431	(225)	206

in thousands of dollars

November 30, 2019



Accumulated


Cost


amortization


Net

$


$


$

British Columbia, Canada




Furniture and equipment

63

(29)

34

Leasehold improvements

53

(17)

36

Computer hardware and software

115

(112)

3

Alaska, USA







Machinery, and equipment

3,667

(3,026)

641

Vehicles

348

(348)

—

Computer hardware and software

4

(3)

1

4,250

(3,535)

715

6)Accounts payable and accrued liabilities


		in thousands of dollars
	February 28, 2021	November 30, 2020
	$	$
Trade accounts payable	275	226
Accrued liabilities	166	198
Accrued salaries and vacation	110	464
Accounts payable and accrued liabilities	551	888

6)~~Mineral properties and development costs~~

in thousands of dollars

November 30, 2019

Assets

August 31, 2020

derecognized

note 4(a)


$


$


$

Alaska, USA







Ambler (a)

26,631

(26,631)

—

Bornite (b)

4,000

(4,000)

—

30,631

(30,631)

—

in thousands of dollars

November 30, 2018

Acquisition costs

November 30, 2019


$


$


$

Alaska, USA







Ambler (a)

26,587

44

26,631

Bornite (b)

4,000

—

4,000

30,587

44

30,631


	Trilogy Metals Inc. For the Quarter Ended August 31, 2020	11

~~Table of contents~~

~~Trilogy Metals Inc.~~

~~Notes to the Interim Consolidated Financial Statements~~

~~(a)~~

~~Mineral properties expense~~

~~The following table summarizes mineral properties expense for the noted periods.~~

In thousands of dollars

Three months ended

Three months ended

Nine months ended

Nine months ended

August 31, 2020

August 31, 2019

August 31, 2020

August 31, 2019


$


$


$


$

Alaska, USA









Community

—

164

137

428

Drilling

—

4,760

—

4,933

Engineering

—

663

723

1,287

Environmental

—

153

99

424

Geochemistry and geophysics

—

252

12

1,010

Land and permitting

—

163

134

523

Project support

—

3,062

249

4,066

Other income

—

—

—

(1)

Wages and benefits

—

1,734

191

2,722

—

10,951

1,545

15,392

NaN additional mineral properties expenses were incurred during the three-month period ended August 31, 2020, as on February 11, 2020, upon the formation of the joint venture with South 32, all mineral properties previously held by the Company were contributed to Ambler Metals LLC. The Company continues to fund the Arctic Project feasibility study, costs for which were $1.0 million since the formation of the joint venture on February 11, 2020. Prior to the formation of the joint venture, the Company had also incurred $0.7 million in Arctic Project feasibility costs that are included in the mineral properties expense balance of $1.5 million for the nine-month period ended August 31, 2020.The table above is for comparison purposes for the respective periods.

~~(b)~~

~~Derecognition~~

As part of the formation of the joint venture with South32 on February 11, 2020, Trilogy contributed all its assets associated with the UKMP, including the Arctic and Bornite projects. As a result, $0.62 million of machinery and equipment as well as $30.6 million of mineral properties related to the UKMP were derecognized in Trilogy on February 11, 2020.

7)~~Accounts payable and accrued liabilities~~

in thousands of dollars

August 31, 2020

November 30, 2019


$


$

Trade accounts payable

142

902

Accrued liabilities

101

721

Accrued salaries and vacation

1,044

731

Accounts payable and accrued liabilities

1,287

2,354


	Trilogy Metals Inc. For the Quarter Ended August 31, 2020	12

~~Table of contents~~

~~Trilogy Metals Inc.~~

~~Notes to the Interim Consolidated Financial Statements~~

8)Leases

(a)	Right-of-use asset


		in thousands of dollars
		$
ASC ~~842~~ transition as at December 1, 2019		681
Amortization		~~(124)~~(162)
Lease accretion		3950
Derecognition of Fairbanks warehouse lease		(93)
Balance as at November 30, 2020		~~503~~476
Amortization		(38)
Lease accretion		10
Balance as at February 28, 2021		448

~~The pre-transition rent deposit of $0.11 million was transferred to the Right-of-use asset upon adoption of ASC 842 on December 1, 2019 and is included in the opening balance of $0.68 million.~~

(b)	Lease liabilities

The Company’s lease arrangements primarily consist of an operating lease for our office space ending in June 2024. There are no extension options.

Total lease expense recorded within general and administrative expenses was comprised of the following components:


	in thousands of dollars
	Three months ended	Three months ended
	February 28, 2021	February 29, 2020
	$	$
Operating lease costs	38	50
Variable lease costs	35	34
Total lease expense	73	84


	~~in thousands of dollars~~
Trilogy Metals Inc. For the Quarter Ended February 28, 2021	~~Nine months ended~~
	~~August 31, 2020~~
	$
~~Operating lease costs~~	~~124~~
~~Variable lease costs~~	97
~~Total lease expense~~	~~221~~	10

Table of contents

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

Variable lease costs consist primarily of the Company’s portion of operating costs associated with the office space lease as the Company elected to apply the practical expedient not to separate lease and non-lease components.

As of ~~August 31, 2020,~~February, 28, 2021, the weighted-average remaining lease term was ~~3.9~~3.3 years and the weighted-average discount rate is 8%. Significant judgment was used in the determination of the incremental borrowing rate which included estimating the Company’s credit rating.

Supplemental cash and non-cash information relating to our leases during the ~~nine~~three months ended ~~August 31, 2020~~February 28, 2021 are as follows:

●

Cash paid for amounts included in the measurement of lease liabilities was ~~$141,784.~~

●

No cash was paid upon termination of a lease for office and warehouse space and reassignment to Ambler Metals LLC that resulted in the derecognition of the right-of-use asset of $92,974 and the operating lease liability of $93,006.$48,830.


	Trilogy Metals Inc. For the Quarter Ended August 31, 2020	13

~~Table of contents~~

~~Trilogy Metals Inc.~~

~~Notes to the Interim Consolidated Financial Statements~~

Future minimum payments relating to the lease recognized in our balance sheet as of ~~August 31, 2020~~February 28, 2021 are as follows:


	in thousands of dollars	in thousands of dollars
	August 31, 2020	February 28, 2021
Fiscal year	$	$
2020	48
2021	195	151
2022	184	206
2023	223	212
2024	122	126
Total undiscounted lease payments	772	695
Effect of discounting	(173)	(155)
Present value of lease payments recognized as lease liability	599	540

9)8) Share capital

Authorized:

unlimited common shares, no par value


	in thousands of dollars, except share amounts		in thousands of dollars, except share amounts
	Number of shares	Ascribed value	Number of shares	Ascribed value
		$		$
November 30, 2018	131,585,612	164,069
Exercise of options	1,725,776	1,123
Restricted Share Units	412,501	424
Deferred Share Units	182,132	189
Exercise of warrants	6,521,740	12,166
November 30, 2019	140,427,761	177,971	140,427,761	177,971
Exercise of options	2,138,543	697	3,297,588	1,133
Restricted Share Units	412,501	642	412,501	642
August 31, 2020, issued and outstanding	142,978,805	179,310
November 30, 2020			144,137,850	179,746
Exercise of options			76,635	334
February 28, 2021, issued and outstanding			144,214,485	180,080

On April 30, 2012, in connection with the transaction with NovaGold Resources Inc. whereby Trilogy was spun-out to NovaGold shareholders and publicly listed, Trilogy committed to issue common shares 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 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 August 31, 2020, 11,927 NovaGold DSUs remained outstanding representing a right to receive 1,988 common shares in Trilogy, which will settle upon certain directors retiring from NovaGold’s board.

(a)	Stock options

During the ~~nine-month~~three-month period ended ~~August 31, 2020,~~February 28, 2021, the Company granted ~~4,095,000~~3,374,150 options ~~(2019~~(2020 - ~~2,527,500~~2,050,000 options) at a weighted-average exercise price of CAD$~~2.80 (2019~~2.52 (2020 - CAD$~~2.96)~~3.02) to employees, consultants and directors exercisable for a period of five years with various vesting terms from immediate vesting to vesting over a two-year period. The weighted-average fair value attributable to options granted in the period was ~~$0.90 (2019~~$0.84 (2020 - ~~$1.08)~~$0.99).

For the ~~nine-month~~three-month period ended ~~August 31, 2020,~~February 28, 2021, Trilogy recognized a stock-based compensation charge of ~~$2.60~~$2.10 million (2019 – ~~$2.23~~$1.16 million) for options granted to directors, employees and service providers, net of estimated forfeitures.


	Trilogy Metals Inc. For the Quarter Ended ~~August 31, 2020~~February 28, 2021	1411

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Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

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

Assumptions used in the pricing model for the ~~nine-month~~three-month period ended ~~August 31, 2020~~February 28, 2021 are as provided below.


		~~August 31, 2020~~February 28, 2021
Risk-free interest rates		~~0.97%~~0.31%
Exercise price		CAD$~~2.74~~2.52
Expected life		3 years
Expected volatility		~~64.3%~~64.4%
Expected dividends		Nil

As of ~~August 31, 2020,~~February 28, 2021, there were ~~2,373,337~~3,374,150 non-vested options outstanding with a weighted average exercise price of ~~$2.15;~~$2.07; the non-vested stock option expense not yet recognized was ~~$1.13~~$1.63 million. This expense is expected to be recognized over the next two years.

A summary of the Company’s stock option plan and changes during the ~~nine-month~~three-month period ended ~~August 31, 2020~~February 28, 2021 is as follows:


	August 31, 2020		February 28, 2021
��		Weighted average
				Weighted average
		exercise price		exercise price
	Number of options	$	Number of options	$
Balance – beginning of the period	9,205,600	1.11	8,647,500	1.88
Granted	4,095,000	2.14	3,374,150	1.98
Exercised	(2,924,221)	0.56	(381,373)	1.97
Forfeited	(710,000)	2.26
Balance – end of period	9,666,379	1.63
Cancelled			(120,000)	2.42
Balance – end of the period			11,520,277	1.90

The following table summarizes information about the stock options outstanding at ~~August 31, 2020.~~February 28, 2021.


	Outstanding			Exercisable		Unvested	Outstanding			Exercisable		Unvested
			Weighted		Weighted				Weighted		Weighted
	Number of	Weighted	average	Number of	average	Number of	Number of	Weighted	average	Number of	average	Number of
	outstanding	average years	exercise price	exercisable	exercise price	unvested	outstanding	average years	exercise price	exercisable	exercise price	unvested
Range of price	options	to expiry	$	options	$	options	options	to expiry	$	options	$	options
$0.34 to $0.50	1,304,879	0.24	0.36	1,304,879	0.36	0
$0.51 to $1.00	1,765,000	1.85	0.68	1,765,000	0.68	0
$0.55 to $1.00							1,705,627	1.34	0.69	1,705,627	0.69	0
$1.01 to $1.50	129,000	2.50	1.27	129,000	1.27	0	75,000	1.81	1.15	75,000	1.15	0
$1.51 to $2.00	2,685,000	4.55	1.94	1,448,333	1.89	1,236,667	4,277,150	4.54	1.95	2,779,483	1.94	1,497,667
$2.01 to $2.50	3,695,000	3.84	2.29	2,558,330	2.28	1,136,670	5,425,000	3.72	2.24	3,618,330	2.28	1,806,670
$2.51 to $2.61	87,500	3.61	2.58	87,500	2.58	0
$2.51 to $3.00							37,500	3.23	2.68	37,500	2.68	0
	9,666,379	3.17	1.63	7,293,042	2.77	2,373,337	11,520,277	3.66	1.90	8,215,940	1.82	3,304,337

The aggregate intrinsic value of vested share options (the market value less the exercise price) at ~~August 31, 2020~~February 28, 2021 was ~~$5.2~~$3.3 million ~~(2019~~(2020 - ~~$10.6~~$5.9 million) and the aggregate intrinsic value of exercised options for the ~~nine~~three months ended ~~August 31, 2020~~February 28, 2021 was ~~$4.5~~$0.17 million ~~(2019~~(2020 - ~~$0.50~~$0.04 million).


	Trilogy Metals Inc. For the Quarter Ended August 31, 2020	15

~~Table of contents~~

~~Trilogy Metals Inc.~~

~~Notes to the Interim Consolidated Financial Statements~~

(b)	Restricted Share Units and Deferred Share Units

The Company has a Restricted Share Unit Plan (“RSU Plan”) and a Non-Executive Director Deferred Share Unit Plan (“DSU Plan”) to provide long-term incentives to employees, officers and directors. Awards under the RSU Plan and DSU Plan


	Trilogy Metals Inc. For the Quarter Ended February 28, 2021	12

Table of contents

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

may be settled in cash and/or common shares of the Company at the Company’s election with each restricted share unit (“RSU”) and deferred share unit (“DSU”) entitling the holder to receive ~~one~~1 common share of the Company or equivalent value. All units are accounted for as equity-settled awards.

A summary of the Company’s unit plans and changes during the ~~nine-month~~three-month period ended ~~August 31, 2020~~February 28, 2021 is as follows:

Number of RSUs


Number of DSUs

Balance – beginning of the period

212,501

1,137,488

Granted

200,000

66,682

Vested/paid

(412,501)

—

Balance – end of period

—

1,204,170


		Number of DSUs
Balance – beginning of the period		1,218,520
Granted		19,992
Balance – end of the period		1,238,512

For the ~~nine-month~~three-month period ended ~~August 31, 2020,~~February 28, 2021, Trilogy recognized a stock-based compensation charge of ~~$0.43~~$0.04 million ~~(2019- $0.78~~(2020- $0.04 million), net of estimated forfeitures.

The ~~200,000 RSUs granted and fully vested~~Company did not issue any RSU grants during the three-month period ended February 28, 2021. As of February 28, 2021, there were settled on April 16, 2020 through the issuance of 200,000 common shares. The 225,000 RSUs granted for the annual incentive payout for the 2018 fiscal year vested half on the grant date and half on the first anniversary of the grant date. RSUs vesting in December 2019 were settled on December 17, 2019 through the issuance of 212,501 common shares.0 outstanding RSU grants.

~~10)~~9) Financial instruments

The Company is exposed to a variety of risks arising from financial instruments. These risks and management’s objectives, policies and procedures for managing these risks are disclosed as follows.

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, deposits, and accounts payable and accrued liabilities. The fair value of the Company’s financial instruments approximates their carrying value due to the short-term nature of their maturity. The Company’s financial instruments initially measured at fair value and then held at amortized cost include cash and cash equivalents, accounts receivable, deposits, and accounts payable and accrued liabilities.

Financial risk management

The Company’s activities expose it to certain financial risks, including currency risk, credit risk, liquidity risk, interest risk and price risk.

(a)	Currency risk

Currency risk is the risk of a fluctuation in financial asset and liability settlement amounts due to a change in foreign exchange rates. The Company operates in the United States and Canada. The Company’s exposure to currency risk at ~~August 31, 2020~~February 28, 2021 is limited to the Canadian dollar balances consisting of cash of approximately CDN$~~1,462,000,~~78,000, accounts receivable of approximately CDN$~~20,000~~29,000 and accounts payable of approximately CDN$~~1,500,000.~~413,000. Based on a 10% change in the US-Canadian exchange rate, assuming all other variables remain constant, the Company’s net loss would change by approximately ~~$5,000.~~$24,000.

(b)	Credit risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Company holds cash and cash equivalents with Canadian Chartered financial institutions.


	Trilogy Metals Inc. For the Quarter Ended August 31, 2020	16

~~Table of contents~~

~~Trilogy Metals Inc.~~

~~Notes to the Interim Consolidated Financial Statements~~

The Company’s accounts receivable consists of Canadian Goods and Services Tax receivable from the Federal Government of Canada and other receivables for recoverable expenses. The Company’s exposure to credit risk is equal to the balance of cash and cash equivalents and accounts receivable as recorded in the financial statements.


	Trilogy Metals Inc. For the Quarter Ended February 28, 2021	13

Table of contents

Trilogy Metals Inc.

Notes to the Interim Consolidated Financial Statements

(c)	Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulties raising funds to meet its financial obligations as they fall due. The Company is in the exploration stage and does not have cash inflows from operations; therefore, the Company manages liquidity risk through the management of its capital structure and financial leverage.

Contractually obligated cash flow requirements as at ~~August 31, 2020~~February 28, 2021 are as follows:


	in thousands of dollars					in 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	1,287	1,287	0	0	0	551	551	0	0	0
Office lease						694	201	421	72	0
	1,287	1,287	0	0	0	1,245	752	421	72	0

(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 ~~August 31, 2020,~~February 28, 2021, a 1% change in interest rates would result in a $200 change in net loss, ~~of $0.1 million,~~ assuming all other variables remain constant.

~~11)~~10) Commitment

The Company has commitments with respect to an office lease requiring future minimum lease payments as summarized in note ~~8(b)~~7(b) above.


	Trilogy Metals Inc. For the Quarter Ended ~~August 31, 2020~~February 28, 2021	1714

Table of contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Trilogy Metals Inc.

Management’s Discussion & Analysis

For the ~~Third~~ Quarter Ended ~~August 31, 2020~~February 28, 2021

(expressed in US dollars)

Cautionary notes

Forward-looking statements

This Management’s Discussion and Analysis contains “forward-looking information” and “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other applicable securities laws. These forward-looking statements may include statements regarding the Company’s work programs and budgets; perceived merit of properties, exploration results and budgets, the Company and Ambler ~~Metals LLC’s~~Metals’s funding requirements, mineral reserves and resource estimates, work programs, capital expenditures, operating costs, cash flow estimates, production estimates and similar statements relating to the economic viability of a project, timelines, strategic plans, statements regarding Ambler Metals’ plans and expectations relating to its Upper Kobuk Mineral Projects, sufficiency of the $145 million subscription price to fund the ~~UKMP (as defined below) through feasibility and the permitting of the first mine;~~UKMP; impact of COVID-19 on the Company’s operations; market prices for precious and base metals; statements regarding the ~~timing of~~Ambler Road Project (also known as the feasibility study on the Arctic project; timing of the issuance of the Record of Decision by the BLM (as defined below) and the issuance of the Clean Water Act (CWA) Section 404 permit from the United States Army Corp. of Engineers,Ambler Mining District Industrial Access Project); or other statements that are not statements of fact. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. Statements concerning mineral resource estimates may also be deemed to constitute “forward-looking statements” to the extent that they involve estimates of the mineralization that will be encountered if the property is developed.

Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, identified by words or phrases such as “expects”, “is expected”, “anticipates”, “believes”, “plans”, “projects”, “estimates”, “assumes”, “intends”, “strategy”, “goals”, “objectives”, “potential”, “possible” or variations thereof or stating that certain actions, events, conditions or results “may”, “could”, “would”, “should”, “might” or “will” be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statements of historical fact and may be forward-looking statements.

Forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made, as well as on a number of material assumptions, which could prove to be significantly incorrect, including about:

●

our ability to achieve production at the Upper Kobuk Mineral Projects;

●

the accuracy of our mineral resource and reserve estimates;

●

the results, costs and timing of future exploration drilling and engineering;

●

timing and receipt of approvals, consents and permits under applicable legislation;

●

the adequacy of our financial resources;

●

the receipt of third party contractual, regulatory and governmental approvals for the exploration, development, construction and production of our properties and any litigation or challenges to such approvals;

●

our expected ability to develop adequate infrastructure and that the cost of doing so will be reasonable;

●

~~continued good relationships with South32 Limited (“South32”), our joint venture partner, as well as local communities and other stakeholders;~~


	Trilogy Metals Inc. For the Quarter Ended ~~August 31, 2020~~February 28, 2021	1815

Table of contents

●

continued good relationships with South32 Limited (‘South32”), our joint venture partner, as well as local communities and other stakeholders;

●

there being no significant disruptions affecting operations, whether relating to labor, supply, power damage to equipment or other matter;

●

expected trends and specific assumptions regarding metal prices and currency exchange rates;

●

~~the potential impact of the novel coronavirus (COVID-19);~~ and

●

prices for and availability of fuel, electricity, parts and equipment and other key supplies remaining consistent with current levels.

We have also assumed that no significant events will occur outside of our normal course of business. Although we have attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. We believe that the assumptions inherent in the forward-looking statements are reasonable as of the date of this MD&A. However, forward-looking statements are not guarantees of future performance and, accordingly, undue reliance should not be put on such statements due to the inherent uncertainty therein.

Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual events or results to differ from those reflected in the forward-looking statements, including, without limitation:

●

risks related to the COVID-19 pandemic;

●

risks related to inability to define proven and probable reserves;

●

risks related to our ability to finance the development of our mineral properties through external financing, strategic alliances, the sale of property interests or otherwise;

●

uncertainty as to whether there will ever be production at the Company’s mineral exploration and development properties;

●

risks related to our ability to commence production and generate material revenues or obtain adequate financing for our planned exploration and development activities;

●

risks related to lack of infrastructure including but not limited to the risk whether or not the Ambler Mining District Industrial Access Project, or AMDIAP, will receive the requisite permits and, if it does, whether the Alaska Industrial Development and Export Authority will build the AMDIAP;

●

risks related to inclement weather which may delay or hinder exploration activities at our mineral properties;

●

risks related to our dependence on a third party for the development of our projects;

●

none of the Company’s mineral properties are in production or are under development;

●

commodity price fluctuations;

●

uncertainty related to title to our mineral properties;

●

our history of losses and expectation of future losses;

●

risks related to increases in demand for equipment, skilled labor and services needed for exploration and


	Trilogy Metals Inc. For the Quarter Ended February 28, 2021	16

Table of contents

development of mineral properties, and related cost increases;

●

uncertainties relating to the assumptions underlying our resource estimates, such as metal pricing, metallurgy, mineability, marketability and operating and capital costs;

●

uncertainty related to inferred mineral resources;

●

mining and development risks, including risks related to infrastructure, accidents, equipment breakdowns, labor disputes or other unanticipated difficulties with or interruptions in development, construction or production;

●

~~risks related to market events and general economic conditions;~~

●

~~risks related to the outbreak of the coronavirus (COVID-19);~~

●

risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of our mineral deposits;

●

risks related to governmental regulation and permits, including environmental regulation, including the risk that more stringent requirements or standards may be adopted or applied due to circumstances unrelated to the Company and outside of our control;

●

the risk that permits and governmental approvals necessary to develop and operate mines at our mineral properties will not be available on a timely basis or at all;

●

risks related to the need for reclamation activities on our properties and uncertainty of cost estimates related thereto;


	Trilogy Metals Inc. For the Quarter Ended August 31, 2020	19

~~Table of contents~~

●

~~uncertainty related to title to our mineral properties;~~

●

risks related to the acquisition and integration of operations or projects;

●

~~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 directors and officers;

●

risks related to potential future litigation;

●

risks related to market events and general economic conditions;

●

risks related to future sales or issuances of equity securities decreasing the value of existing Trilogy common

shares, diluting voting power and reducing future earnings per share;

●

risks related to the voting power of our major shareholders and the impact that a sale by such shareholders may have on our share price;

●

uncertainty as to the volatility in the price of the Company’s common shares;

●

the Company’s expectation of not paying cash dividends;

●

adverse federal income tax consequences for U.S. shareholders should the Company be a passive foreign investment company;

●

risks related to global climate change;

●

risks related to adverse publicity from non-governmental organizations;

●

uncertainty as to our ability to maintain the adequacy of internal control over financial reporting as per the requirements of Section 404 of the Sarbanes-Oxley Act; and


	Trilogy Metals Inc. For the Quarter Ended February 28, 2021	17

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●

increased regulatory compliance costs, associated with rules and regulations promulgated by the United States Securities and Exchange Commission, Canadian Securities Administrators, the NYSE American, the Toronto Stock Exchange, and the Financial Accounting Standards Boards, and more specifically, our efforts to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act;

●

~~uncertainty as to the volatility in the price of the Company’s common shares;~~

●

~~the Company’s expectation of not paying cash dividends; and~~

●

~~adverse federal income tax consequences for U.S. shareholders should the Company be a passive foreign investment company.~~

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 ~~13, 2020,~~12, 2021, filed with the Canadian securities regulatory authorities and the SEC, and other information released by Trilogy and filed with the appropriate regulatory agencies.

The Company’s forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made, and the Company does not assume any obligation to update forward-looking statements if circumstances or management’s beliefs, expectations or opinions should change, except as required by law. For the reasons set forth above, investors should not place undue reliance on forward-looking statements.

General

This Management’s Discussion and Analysis (“MD&A”) of Trilogy Metals Inc. (“Trilogy”, “Trilogy Metals”, “the Company” or “we”) is dated ~~October~~April 6, ~~2020~~2021 and provides an analysis of our unaudited interim financial results for the quarter ended ~~August 31, 2020~~February 28, 2021 compared to the quarter ended ~~August 31, 2019.~~February 29, 2020.

The following information should be read in conjunction with our ~~August 31, 2020~~February 28, 2021 unaudited interim condensed consolidated financial statements and related notes which were prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The MD&A should also be read in conjunction with our audited consolidated financial statements and related notes for the year ended November 30, ~~2019.~~2020. A summary of the U.S. GAAP accounting policies is outlined in note 2 of the audited consolidated financial statements. All amounts are in United States dollars unless otherwise stated. References to “Canadian dollars” and “C$” and “CDN$” are to the currency of Canada and references to “U.S. dollars”, “$” or “US$” are to the currency of the United States.


	Trilogy Metals Inc. For the Quarter Ended August 31, 2020	20

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Richard Gosse, P.Geo., is a Qualified Person under National Instrument 43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”), and has approved the scientific and technical information in this MD&A.

Trilogy’s shares are listed on the Toronto Stock Exchange (“TSX”) and the NYSE American Stock Exchange (“NYSE American”) under the symbol “TMQ”. Additional information related to Trilogy, including our annual report on Form 10-K, is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Description of business

We are a base metals exploration company focused on the exploration and development of mineral properties, through our equity investee, in the Ambler mining district located in Alaska, U.S.A. We conduct our operations through a wholly owned subsidiary, NovaCopper US Inc. which is doing business as Trilogy Metals US (“Trilogy Metals US”). Our Upper Kobuk Mineral Projects, (“UKMP” or “UKMP Projects”) were contributed into a 50/50 joint venture named Ambler Metals LLC (“Ambler Metals”) between Trilogy and South32 on February 11, 2020 (see below). The projects contributed to Ambler Metals consist of: i) the Ambler lands which host the Arctic copper-zinc-lead-gold-silver project (the “Arctic Project”); and ii) the Bornite lands being explored under a collaborative long-term agreement with NANA Regional Corporation, Inc. (“NANA”), a regional Alaska Native Corporation, which hosts the Bornite carbonate-hosted copper project (the “Bornite Project”) and related assets.


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Project Activities

~~Deferral of the 2020 Summer Exploration Programs at the UKMP~~

Through Ambler Metals, we and our joint venture partner, South32 decided not to proceed with the 2020 exploration program after assessing the current novel coronavirus (COVID-19) environment. Ambler Metals gave due consideration to the merits of carrying out an abridged work program at the UKMP. However, given the continued uncertainty resulting from COVID-19, ongoing safety concerns (despite added safety protocols including physical distancing, protective equipment and testing) and the fact that, due to COVID-19, the planned field season had already been delayed to the point at which any field season would provide limited critical path benefits, the decision was made not to proceed with a 2020 field season. We are disappointed at having to defer the 2020 exploration program as we know this delay affects all stakeholders, including our partner NANA and our NANA shareholder hires. However, the safety of our employees, contractors and the communities where we work is paramount.

~~2020~~2021 Operating Budget for the Upper Kobuk Mineral Projects

In a press release dated ~~February 26,~~November 19, 2020, the Company announced that Ambler Metals had approved a ~~2020~~2021 program budget of ~~$22.8~~approximately $27 million for the advancement of the UKMP. The budget ~~was~~is to be 100% funded by Ambler Metals. The ~~2020~~2021 program budget ~~included 10,000~~includes 7,600 meters of infill and metallurgical drilling at the Arctic Project, ~~2,500~~7,000 meters of exploration drilling within the Ambler Volcanogenic Massive Sulphide (“VMS”) Belt, geological and ~~geological mapping~~engineering work focused on getting the Arctic Project ready for permitting and ~~geochemical soil sampling at the Bornite Project. However, due to the Coronavirus outbreak, the drilling programs were deferred, see “Deferral~~permitting efforts focused on submission of the ~~2020 Summer Exploration Programs at~~Federal 404 permit application in the ~~UKMP” above~~second half of 2021.

COVID Safety Measures

During the 2021 field season, we will be adhering to a strict COVID safety protocol regime which includes limited personnel rotations, COVID-19 testing, stringent sanitation and ~~“Impact~~disinfection procedures and contact tracing. These protocols will be followed throughout the summer field season in strict observance to Government of ~~Coronavirus (COVID-19)” below. Project activities during the third quarter consisted of non-drilling and off-site activities described below.~~Alaska guidelines.

Arctic Project

~~During the third quarter, the Company updated the geologic model for~~Activities at the Arctic Project ~~and focused mainly~~will focus on ~~refining~~an additional 7,600 meters of drilling which will have the ~~2020 Arctic resource~~dual purpose of extracting additional material for metallurgical work and ~~metallurgical drill program for resource definition and variability testing. In addition, a conditional simulation for the Arctic resource to optimize drill spacing~~ for the conversion of mineral resources into the measured category. The metallurgical program that is associated with this drilling will support variability test work and pilot plant work which will commence later in 2021. Engineering work is continuing at Arctic with the aim of submitting the application for the Notice of Intent for the 404 Dredge and Fill Permit, which is covered by the Clean Water Act, to the ~~measured category~~United States Army Corps of Engineers.

Regional Exploration Project

Following up from the 2019 work performed along the 100-kilometer Ambler VMS belt, Ambler Metals will continue exploration efforts along the belt and around Bornite to ~~upgrade~~discover and define additional deposits. During the ~~talc model~~2021 field season, Ambler Metals plans to conduct a 7,000-meter regional exploration drill campaign at drill-ready targets. In addition, detailed geologic mapping, geochemical soil sampling and ~~Life~~possibly ground geophysics is planned.

Ambler Mining District Industrial Access Project (AMDIAP)

On January 6, 2021, the United States Bureau of ~~Mine Plan was initiated~~Land Management (“BLM”), the National Park Service (“NPS”) and the Alaska Industrial Development and Export Authority (“AIDEA”) signed Right-of-Way agreements giving AIDEA the ability to cross federally owned and managed lands along the route for the Ambler Road Project approved in the Joint Record of Decision. The agreements grant a 50-year right-of-way on federally owned and managed land by the federal agencies for the future development of the Ambler Mining District Industrial Access Road. The authorizing documents with ~~Golder~~the two agencies are the final federal permits required for the Ambler Road Project.

Development Funding Agreement with the Alaska Industrial Development and ~~Associates.~~Export Authority (AIDEA)

In a press release dated February 11, 2021, the Company announced its approval for Ambler Metals to enter into an Ambler Access Development Agreement (the “Development Agreement”) with AIDEA.

The Development Agreement defines how AIDEA and Ambler Metals will work cooperatively together on the pre-development work for the Ambler Access Project to address funding and oversight of the project’s feasibility and permitting activities until the parties reach a decision on the construction of the project by the end of 2024 at the latest. The cost of the pre-development work and activities will be paid 50% by AIDEA and 50% by Ambler Metals based on an


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~~Arctic Project Feasibility Results~~

~~In a press release dated August 20, 2020,~~annually agreed program and budget. Under the ~~Company announced the positive results of its feasibility study (“FS”)~~Development Agreement, Ambler Metals and AIDEA agree to contribute up to $35 million each for the Arctic Project. The FS was prepared on a 100% ownership basis, of which Trilogy’s share is 50%. The FS describes the technical and economic viability of establishing a conventional open-pit copper-zinc-lead-silver-gold mine and mill complex for a 10,000 tonne per day operation for a minimum 12-year mine life.

~~Bornite Project~~

The Bornite geologic model was updated during the third quarter incorporating the 2019 drill program results. A machine learning geochemical modelling project to assist in defining the controls on high-grade copper mineralization was initiated during the third quarter with the Irish Centre for Research in Applied Geosciences. Metallurgical work continued during the third quarter on five composite samples from the below-pit Bornite resource area. Test work is ongoing and will continue through the fourth quarter.

~~Regional Exploration Project~~

Regional project activities during the third quarter consisted mainly of updating the Sunshine prospect geologic model with the 2019 drill results. Metallurgical work continued during the third quarter on five composite samples from the Sunshine prospect. Test work is ongoing and will continue through the fourth quarter. Multispectral WorldView-3 satellite imagery was collected over the central portionpre-development costs of the Ambler ~~VMS Belt during the third quarter. Processing and interpretation of the imagery will be completed during the fourth quarter.~~

~~Ambler Mining District Industrial~~ Access Project ~~(AMDIAP)~~

In a press release dated July 23, 2020, the Company, along with our joint venture partner South32, announced the signing of the Record of Decision by the United States Bureau of Land Management (“BLM”) for the Ambler Mining District Industrial Access Project. The Record of Decision approves the development of the northern route which is to be a 211-mile private gravel access road in the southern Brooks Range foothills to provide industrial access to the Ambler Mining District.through December 31, 2024.

Joint Venture

Option agreement

On April 10, 2017, Trilogy and Trilogy Metals US entered into an Option Agreement to form a Joint Venture with South32 Group Operations Pty Ltd., a wholly-owned subsidiary of South32, which agreement was later assigned by South32 Operations Pty Ltd. to its affiliate, South32 USA Exploration Inc. on the UKMP (“Option Agreement”). Under the terms of the Option Agreement, as amended, Trilogy Metals US granted South32 the right to form a 50/50 joint venture to hold all of Trilogy Metals US’ Alaskan assets. South32 exercised its option on December 19, 2019.

Formation of joint venture

On February 11, 2020, Trilogy completed the formation of the 50/50 joint venture with South32. Trilogy contributed all its assets associated with the 172,675-hectare UKMP, including the Arctic and Bornite Projects, while South32 contributed a subscription price of US$145 million (the “Subscription Price”), resulting in each party owning a 50% interest in Ambler Metals. The Subscription Price will be used to advance the Arctic and Bornite Projects, along with exploration in the Ambler mining district. With Ambler Metals being well funded, with access to $145 million, Trilogy does not expect to fund programs and budgets to advance the UKMP until the Subscription Price is spent by Ambler Metals. To assist Ambler Metals during the initial set up phase, Trilogy ~~is paying~~paid all of Ambler Metals’ invoices and was being reimbursed pursuant to a services agreement (the “Services Agreement”) until the back office iswas fully transitioned to a new team employed by Ambler ~~Metals, which will be no longer than the end of the year.~~Metals. The Services Agreement ended on December 31, 2020.


	Trilogy Metals Inc. For the Quarter Ended August 31, 2020	22

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Ambler Metals is an independently operated company controlled by Trilogy and South32 through a four-member board of which two members are currently appointed by Trilogy based on its 50% equity interest. All significant decisions related to the UKMP require the approval of both companies. We determined that Ambler Metals is a variable interest entity, or VIE, because it is expected to need additional funding from its owners for its significant activities. However, we concluded that we are not the primary beneficiary of Ambler Metals as the power to direct its activities, through its board, is shared under the limited liability company agreement. As we have significant influence over Ambler Metals through our representation on its board, we use the equity method of accounting for our investment in Ambler Metals. Our investment in Ambler Metals was initially measured at its fair value of $176 million upon recognition. Our maximum exposure to loss in this entity is limited to the carrying amount of our investment in Ambler Metals, which, as of ~~August 31, 2020,~~February 28, 2021, totaled ~~$174 million as well as $106,000 of amounts receivable per a Service Agreement between Trilogy and Ambler Metals. The amounts receivable as at August 31, 2020 was subsequently collected.~~$172 million.

During the three-month period ended May 31, 2020, Ambler Metals loaned $57.5 million back to South32 and retained $87.5 million. The loan has a 7-year maturity date, but Ambler Metals will begin to draw down on the loan with cash calls to South32 to fund its 50% share of the 2021 budget to advance development studies, resource drilling and regional exploration programs. The loan is secured by South32’s membership interest in Ambler Metals and guaranteed by South32 International Investment Holdings Pty Ltd. Trilogy currently estimates that the Subscription Price, which includes the funds to be repaid under the loan, will fund the UKMP through feasibility and the permitting of the first mine to be developed in the Ambler mining district. Once the full amount of the Subscription Price payment of $145 million is expended, the parties will contribute funding pro rata, as contemplated by the operating agreement which governs Ambler Metals.


	Trilogy Metals Inc. For the Quarter Ended February 28, 2021	20

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Summary of results



	in thousands of dollars,
	except for per share amounts
	Three months ended				Nine months ended				Three months ended
	August 31, 2020		August 31, 2019		August 31, 2020		August 31, 2019		February 28, 2021		February 29, 2020
Selected expenses	$		$		$		$		$		$
Mineral properties and feasibility study expenses										—		1,545
General and administrative		265		435		1,349		1,363		401		651
Mineral properties expense		—		10,951		1,545		15,392
Feasibility study		232		—		974
Investor relations										154		126
Professional fees		165		414		1,031		658		229		668
Salaries		170		272		620		835		439		224
Salaries – stock-based compensation		1,064		402		3,030		3,005		2,148		1,196
Investor relations		156		164		383		456
Gain on derecognition of assets contributed to joint venture		—		—		(175,770)		—		—		(175,770)
Equity in investee		1,094		—		1,833		—
Comprehensive earnings (loss) for the period		3,184		(12,535)		164,993		(21,380)
Share of loss on equity investment										1,120		178
Comprehensive earnings (loss) for the year										(4,516)		171,179
Basic earnings (loss) per common share	$	(0.02)	$	(0.09)	$	1.17	$	(0.16)		(0.03)		1.22
Diluted earnings (loss) per common share	$	(0.02)	$	(0.09)	$	1.12	$	(0.16)		(0.03)		1.16

For the three months ended ~~August 31, 2020,~~February 28, 2021, Trilogy reported anet loss of ~~$3.2~~$4.5 million (or ~~$0.02~~$0.03 basic and diluted loss per common share). For the comparable period in ~~2019,~~2020, we reported a net ~~loss~~earnings of ~~$12.5~~$171 million (or ~~$0.09~~$1.22 basic and $1.16 diluted ~~loss~~earnings per common share).

~~The decrease in comprehensive loss~~ This first quarter difference is primarily due to the ~~elimination~~$176 million gain on derecognition of mineral ~~properties expense as these expenditures became the responsibility of~~property assets contributed to Ambler Metals ~~subsequent to~~upon formation of the joint venture on February 11, 2020. This is offset by $1.5 million of mineral property expenses incurred during the first quarter of 2020. Furthermore, our share of loss in equity in investment is $0.94 million higher in the current quarter as the comparative does not include a full quarter of costs for the equity pick up; it reflects our pro rata 50% share of Ambler’s net loss from the formation of the joint venture ~~with South32~~ on February 11, ~~2020. For~~2020 through to the ~~three-month~~end of the quarter on February 29, 2020.

Other variances noted for the comparable period ~~ended August 31, 2019,~~were: i) a decrease in general and administrative expenses of $0.3 million, primarily due to $0.1 million in travel cost savings (due to COVID-19 travel restrictions), additional regulatory fees of $0.1 million included in the comparative quarter as well as $0.1 million recruiting fees incurred in the comparative period for which there ~~are~~is no current period ~~comparatives, Trilogy spent $11~~cost; ii) a decrease of $0.4 million in ~~mineral properties expense, mostly consisting of drilling costs~~professional fees as the comparative period includes charges for the ~~Bornite,~~research and implementation of new accounting standards and legal and accounting fees in relation to the formation and valuation of the joint venture, all of which do not have a current period comparative; iii) an increase of $0.2 million in salaries is due to the addition of management during the second half of the prior year, for which there is no prior year first quarter comparative; iv) an increase of $1 million in stock-based compensation driven primarily by a 0.9 million increase in the number of stock options that were granted and vested during the first quarter of 2021 versus the comparative period.


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~~Arctic and Regional Projects, project support costs such as camp operations, fixed wing charters and helicopters for the field season, and engineering and environment studies for the Arctic Project.~~

Other variances in relation to the comparative three-month period ended August 31, 2020 consists of the following: i) feasibility study expenses of $0.2 million were related to the Arctic Project, and include costs incurred subsequent to the formation of Ambler Metals on February 11, 2020; ii) share of loss in equity investment in Ambler Metals of $1.1 million, which do not exist in the comparable third quarter of 2019; iii) a decrease of $0.1 million in salaries as CEO compensation that was salary based in the comparative period is stock based in the current period; iv) a decrease of $0.2 million in professional fees primarily due to lower legal fees; v) a decrease of $0.2 million in general and administrative expenses primarily due to lower travel cost imposed by COVID-19 restrictions; and vi) an increase of $0.7 million in stock-based compensation due to 1.8 million more options being granted during the current quarter versus the comparative period.

For the nine-month period ended August 31, 2020, Trilogy reported comprehensive earnings of $165 million (or $1.17 basic and $1.12 diluted earnings per common share). For the comparable period in 2019, we reported a comprehensive loss of $21.3 million (or $0.16 basic and diluted loss per common share). The differences for the nine-month period ended August 31, 2020, when compared to the same period in 2019, are primarily due to the gain of $176 million recognized from the contribution of mineral property assets to the joint venture with South32 upon formation of the Ambler Metals on February 11, 2020. This gain was offset by a $1.8 million loss reflecting the Company’s 50% equity share of Ambler Metals operating loss for the nine-month period ended August 31, 2020. There is no comparable amount in the third quarter of 2019.

Other variances noted for the comparative nine-month period ended August 31, 2020 consist of the following: i) a decrease in mineral properties expenses of $13.9 million as all mineral property assets were contributed to Ambler Metals upon formation of the joint venture on February 11, 2020; ii) feasibility study expenses of $1.0 million for the Arctic project incurred subsequent to the joint venture formation; iii) an increase of $0.4 million in professional fees primarily attributed to the implementation of new lease accounting standards and legal fees related to the formation of the joint venture; and iv) a decrease of $0.2 million in salaries due to the inclusion of CEO salaries in stock based compensation.

Selected financial data

Quarterly information


		in thousands of dollars,								in thousands of dollars,
		except per share amounts								except per share amounts
	Q3 2020	Q2 2020	Q1 2020	Q4 2019	Q3 2019	Q2 2019	Q1 2019	Q4 2018	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020	Q4 2019	Q3 2019	Q2 2019
	08/31/20	05/31/20	02/29/20	11/30/19	08/31/19	05/31/19	02/28/19	11/30/18	02/28/21	11/30/20	08/31/20	05/31/20	02/29/20	11/30/19	08/31/19	05/31/19
	$	$	$	$	$	$	$	$	$	$	$	$	$	$	$	$
Interest and other income	16	29	62	91	137	150	122	117	5	5	8	12	62	91	137	150
Mineral property expenses	—	—	1,545	3,819	10,951	2,906	1,535	3,833
Mineral properties and feasibility study expenses									—	91	232	742	1,545	3,819	10,951	2,906
Share of loss on equity investment	1,094	561	178	—	—	—	—	—	1,120	1,022	1,094	561	178	—	—	—
Earnings (loss) for the period	(3,184)	(3,002)	171,179	(6,525)	(12,535)	(4,509)	(4,336)	(5,319)	(4,516)	(3,226)	(3,184)	(3,002)	171,179	(6,525)	(12,535)	(4,509)
Earnings (loss) per common share – basic	(0.02)	(0.02)	1.22	(0.05)	(0.09)	(0.04)	(0.03)	(0.04)	(0.03)	(0.04)	(0.02)	(0.02)	1.22	(0.05)	(0.09)	(0.04)
Earnings (loss) per common share – diluted	(0.02)	(0.02)	1.16	(0.05)	(0.09)	(0.04)	(0.03)	(0.04)	(0.03)	(0.01)	(0.01)	(0.02)	1.16	(0.05)	(0.09)	(0.04)

Factors that can cause fluctuations in our quarterly results include the length of the exploration field season at the properties, the type of program conducted, stock option vesting, and issuance of shares. ~~Other factors that have caused~~Subsequent to the formation

of the Joint Venture on February 11, 2020, project related costs may cause fluctuations in ~~the~~our quarterly results ~~that would not be expected to re-occur include~~through our 50% share of the ~~acquisition and disposition of assets and financing activities.~~Joint Venture’s net operating loss.

For the first quarter of 2021, we reported comprehensive loss of $4.5 million, which consists of $3.4 million in operating expenses and $1.1 million for Trilogy’s 50% share of Ambler Metals’ operating loss. In the first quarter of 2020, we recognized a gain of $176 million from the contribution of our Alaskan mineral properties to the joint venture for which there is no current period comparative. Other variances, when compared to the three-month period ended February 29, 2020, include our pro rata share of the joint venture’s operating loss, which is $0.9 million higher in the current period and operating expenses, which are $1.1 million lower for the current period. The decrease in the operating expenses is primarily due to the elimination of $1.5 million in mineral properties expenses as the mineral properties were contributed to the joint venture during the first quarter of 2020 and a cost savings of $0.4 million from professional fees, offset by an increase of $1.0 million in stock-based compensation.
	Trilogy Metals Inc. For the Quarter Ended August 31, 2020	24

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For the ~~three-month period~~fourth quarter ended November 30, 2020, we incurred a loss of $3.2 million, which consists of $3.1 million in operating expense and $1.0 million for Trilogy’s share of Ambler Metals’ operating loss. When compared to the fourth quarter of 2019, the operating expenses were $3.5 million lower. The decrease is primarily due to the elimination of $3.8 million in mineral property expenses, a decrease of $0.4 million in professional fees, $0.3 million lower stock‐based compensation and a decrease of $0.2 million in general and administrative expenses. These cost savings were offset by a loss of $1.0 million on the equity method investment for which there is no comparatives for the fourth quarter of 2019, and an increase of $0.3 million in salaries due to new hires to the management team in the fourth quarter 2020.

For the third quarter ended August 31, 2020, we reported a comprehensive loss of $3.2 million, which consists of $2.1 million in operating expenses and $1.1 million for Trilogy’s 50% share of Ambler Metals’ operating loss. When compared to the three-month period ended August 31, 2019, the ~~current period~~ operating expenses for the third quarter was $10.6 million lower. The decrease is primarily due to the elimination of $11 million in mineral properties expenses due to the formation of the joint venture for which there are no comparable expenses in the ~~current period,~~third quarter of 2020, offset by $1 million in feasibility study costs in the ~~current~~same period.


	Trilogy Metals Inc. For the Quarter Ended February 28, 2021	22

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For the ~~three-month period~~second quarter ended May 31, 2020, we reported a comprehensive loss of $3.0 million, which consists of $2.4 million in operating expenses and $0.6 million for Trilogy’s 50% share of Ambler Metals’ operating loss. There is no prior period comparative for ~~the~~our pro rata share of Ambler ~~Metals~~Metals’ operating loss as the joint venture formation was completed during fiscal 2020. When compared to the three-month period ended May 31, 2019, the operating expenses for the second quarter of ~~current year~~2020 was $2.1 million lower. The decrease is primarily due to the elimination of $2.9 million of mineral properties expense, ~~for which there are no comparable expenses for the same quarter in the 2019 period,~~ offset by $0.7 million in feasibility study costs incurred in the second quarter of 2020.

For the first quarter of 2020, we reported comprehensive earnings of $171 million which consisted of a gain of $176 million arising from the derecognition of our Alaskan mineral properties upon contribution to the joint venture with South32, offset by Trilogy’s 50% share of Ambler Metals’ operating loss for the period from February 11, 2020 to February 29, 2020 and total expenses of $4.5 million for the period. There are no prior period comparatives for the gain on contribution of Alaskan assets or the pro rata share of Ambler Metals’ operating loss. The expense of $4.4 million incurred for the first quarter of 2020 was slightly higher than the loss of $4.3 million for the first quarter of 2019 primarily due to higher professional fees, general and administrative expense, share of loss on equity investment offset by a lower stock-based compensation cost.

The loss of $6.5 million for the fourth quarter ended November 30, 2019 is higher when compared to the net loss of $5.3 million incurred in the fourth quarter ended November 30, 2018. The primary drivers for the difference were $0.7 million higher stock-based compensation, $0.6 million higher professional fees and $0.1 million increase in general and administrative expenses, all offset by $0.2 million in decreased salaries and benefits in the fourth quarter 2019.

Liquidity and capital resources

At ~~August 31, 2020,~~February 28, 2021, we had ~~$12.8~~$9.6 million in cash and cash equivalents and working capital of ~~$11.8~~$9.2 million, which is sufficient to fund our ongoing operations for at least the next 12 months. The projects are fully funded by Ambler Metals and we do not anticipate needing to fund our 50% share of future expenditures to advance the projects until Ambler Metals’ $145 million is spent.

Contractual obligations

Contractual obligated undiscounted cash flow requirements as at ~~August 31, 2020~~February 28, 2021 are as follows.


	In thousands of dollars					In 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	1,287	1,287	—	—	—	551	551	—	—	—
Office lease	772	193	404	175	—	694	201	421	72	—
	2,059	1,480	404	175	—	1,245	752	421	72	—

Off-balance sheet arrangements

We have no material off-balance sheet arrangements.


	Trilogy Metals Inc. For the Quarter Ended August 31, 2020	25

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Outstanding share data

At ~~October~~April 6, ~~2020,~~2021, we had ~~143,004,178~~144,292,774 common shares issued and outstanding. At ~~October~~April 6, ~~2020,~~2021, we had outstanding, ~~9,952,500~~11,404,650 stock options with a weighted-average exercise price of ~~$1.62,~~$1.93, no RSUs, as well as ~~1,221,262~~1,251,726 DSUs and 11,927 NovaGold DSUs for which the holder is entitled to receive one common share for every six NovaGold shares received. Upon exercise of all the foregoing convertible securities, the Company would be required to issue an aggregate of ~~11,175,749~~12,658,364 common shares.

New accounting pronouncements

~~Certain recent~~There are no new accounting pronouncements ~~have been included under note 2 in our August 31, 2020 unaudited interim consolidated financial statements~~affecting the company.

Critical accounting estimates

The most critical accounting estimates upon which our financial status depends are those requiring estimates of the

recoverability of our ~~capitalized mineral properties, impairment of long-lived assets,~~ equity method investment in Ambler Metals LLC, income taxes and valuation of ~~stock-based~~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. The Company has taken steps, in accordance with industry standards, to verify the title to mineral properties in which it has an interest. Although the 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.

Impairment of ~~long-lived assets~~Investment in Ambler Metals LLC

Management assesses the possibility of impairment in the carrying value of its ~~long-lived assets~~equity method investment in Ambler Metals LLC whenever events or circumstances indicate that the carrying ~~amounts~~amount of the ~~asset or asset group~~investment may not be recoverable. Significant judgments are made in assessing the possibility of impairment. Factors that may be indicative of


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an impairment include a loss in the value of an investment that is not temporary. Management considers several factors in considering if an indicator of impairment has occurred, including but not limited to, ~~indications of value from external sources,~~ significant changes in the legal, business or regulatory environment, ~~and~~ adverse changes in the use ofor physical condition of the ~~asset.~~ underlying mineral properties asset, changes in the market interest rates or other market rates of return that are likely to significantly affect the discount rate used in the impairment assessment, significant adverse changes impacting the investee and internal reporting indicating the economic performance of an investment is, or will be, worse than expected.

These factors are subjective and require consideration at each period end. If an indicator of impairment is determined

to exist, ~~management calculates~~ the ~~estimated undiscounted~~fair value of the impaired investment is determined based on the valuation of cohort companies with similar projects or upon the present value of expected future ~~net~~ cash flows ~~relating~~using discount rates and other assumptions believed to ~~the asset or asset group using estimated future prices, mineral resources,~~be consistent with those used by principal market participants and ~~operating, capital and reclamation costs. When the carrying value~~observed market earnings multiples 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.~~ comparable companies.

Management’s estimates of mineral prices, mineral resources, foreign exchange rates and projected future 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.~~equity method investment.

Income taxes

We must make estimates and judgments in determining the provision for income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized ~~tax benefits~~charges including interest and penalties. We are subject to income tax law in the United States and Canada. The evaluation of tax liabilities involving uncertainties in the application of complex tax regulation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues. The evaluation of an uncertain tax position requires significant judgment, and a change in such recognition would result in an additional charge to the income tax expense and liability.


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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.

~~Investment in affiliates~~

Investments in unconsolidated ventures over which the Company has the ability to exercise significant influence, but does not control, are accounted for under the equity method and include the Company’s investment in Ambler Metals. We identified Ambler Metals as a Variable Interest Entity (VIE) as the entity is dependent on funding from its owners. All funding, ownership, voting rights and power to exercise control is shared equally on a 50/50 basis between the owners of the VIE. Therefore, the Company has determined that it is not the primary beneficiary of the VIE. The Company’s maximum exposure to loss is its investment in Ambler Metals.

Ambler Metals is a non-publicly traded equity investee holding exploration and development projects. The Company reviews and evaluates its investment in affiliates for other than temporary impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Events that could indicate impairment of an investment in affiliates include a significant decrease in long-term expected copper price, a significant increase in expected operating or capital costs, unfavorable exploration results or technical studies, a significant decrease in reserves, a loss of significant mineral claims or a change in the development plan or strategy for the project. Asset impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset. If the underlying assets are not recoverable, an impairment loss is measured and recorded based on the difference between the carrying amount of the investee and its estimated fair value which may be determined using a discounted cash flow model.

Additional information

Additional information regarding the Company, including our annual report on Form 10-K, is available on SEDAR at www.sedar.com and EDGAR at www.sec.gov and on our website at www.trilogymetals.com. Information contained on our website is not incorporated by reference.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our financial instruments consist of cash and cash equivalents, accounts receivable, deposits, 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.Not applicable.

~~(a) Currency risk~~

Currency risk is the risk of a fluctuation in financial asset and liability settlement amounts due to a change in foreign exchange rates. The Company operates in the United States and Canada. The Company’s exposure to currency risk at August 31, 2020 is limited to the Canadian dollar consisting of cash of CDN$1,462,000, accounts receivable of CDN$20,000 and accounts payable of CDN$1,500,000. 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 $5,000.


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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 hold cash and cash equivalents with Canadian Chartered financial institutions. Our accounts receivable consists of Canadian Goods and Services Tax receivable from the Federal Government of Canada and other receivables for recoverable expenses. Our 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 financings 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.”

~~(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 are exposed to interest rate risk with respect to interest earned on cash and cash equivalents. Based on balances as at August 31,2020, a 1% change in interest rates would result in a change in net loss of $0.1 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.

Item 4. Controls and Procedures

Disclosure controls and procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted by the Company under U.S. and Canadian securities legislation is recorded, processed, summarized and reported within the time periods specified in those rules, including providing reasonable assurance that material information is gathered and reported to senior management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to permit timely decisions regarding public disclosure. Management, including the CEO and CFO, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules of Canadian Securities Administration, as of ~~August 31, 2020.~~February 28, 2021. Based on this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective.

Internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act and National Instrument 52-109 Certification of Disclosure in Issuer’s Annual and Interim filings. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.


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Changes in internal control over financial reporting

~~Except for the implementation of certain internal controls over the formation of the Ambler Metals joint venture, there~~There have been no changes in our internal controls over financial reporting during the fiscal quarter ended ~~August 31, 2020~~February 28, 2021 which have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We continue to evaluate our internal control over financial reporting on an ongoing basis to identify improvements. In connection with the formation of the Ambler Metals joint venture in February 2020, we modified our internal control over financial reporting to reflect the impact of the formation of the joint venture, which modifications were finalized during the third quarter, prior to the filing of the Form 10-Q for the period ended May 31, 2020.


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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are a party to routine litigation and proceedings that are considered part of the ordinary course of its business. We are not aware of any material current, pending, or threatened litigation.

Item 1A. Risk Factors

Trilogy and its future business, operations and financial condition are subject to various risks and uncertainties due to the nature of its business and the present stage of exploration of its mineral properties and the formation of the joint venture. ~~Except as set forth below, certain~~Certain of these risks and uncertainties are under the heading “Risk Factors” under Trilogy’s Form 10-K dated February ~~13, 2020~~12, 2021 which is available on SEDAR at www.sedar.com, EDGAR at www.sec.gov and on our website at www.trilogymetals.com.

~~The outbreak of the coronavirus (COVID-19) may affect our operations.~~

The Company faces risks related to health epidemics and other outbreaks of communicable diseases, which could significantly disrupt its operations and may materially and adversely affect its business and financial conditions.

The Company’s business could be adversely impacted by the effects of the coronavirus or other epidemics. In December 2019, a novel strain of the coronavirus emerged in China and the virus has now spread to several other countries, including Canada and the U.S., and infections have been reported globally. The extent to which the coronavirus impacts the Company’s business, including exploration and development activities at Ambler Metals and the market for its securities, will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the outbreak and the actions taken to contain or treat the coronavirus outbreak. In particular, the continued spread of the coronavirus and travel and other restrictions established to curb the spread of the coronavirus, has and could continue to materially and adversely impact the Company’s business including without limitation, the planned exploration programs at Ambler Metals (see “Deferral of the 2020 Summer Exploration Program at the UKMP” above), employee health, workforce productivity, increased insurance premiums, limitations on travel, the availability of industry experts and personnel, the timing to process drill and other metallurgical testing, and other factors that will depend on future developments beyond the Company’s control, which may have a material and adverse effect on the its business, financial condition and results of operations.

There can be no assurance that the Company's personnel will not be impacted by these pandemic diseases and ultimately see its workforce productivity reduced or incur increased medical costs or insurance premiums as a result of these health risks.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Securities

None.

Item 4. Mine Safety Disclosures

These disclosures are not applicable to us.


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Item 5. Other Information

None.

Item 6. Exhibits


Exhibit No.		Description
3.1		Certificate of Incorporation, dated April 27, 2011 (incorporated by reference Exhibit 99.2 to the Registration Statement on Form 40-F as filed on March 1, 2012, File No. 001-35447)

3.2		Articles of Trilogy Metals Inc., effective April 27, 2011, as altered March 20, 2011 (incorporated by reference to Exhibit 99.3 to Amendment No. 1 to the Registration Statement on Form 40-F as filed on April 19, 2012, File No. 001-35447)

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


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101		Interactive Data Files

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: ~~October~~April 7, ~~2020~~2021	TRILOGY METALS INC.


	By:	/s/ Tony Giardini
		Tony Giardini

		President and Chief Executive Officer


	By:	/s/ Elaine M. Sanders
		Elaine M. Sanders

		Vice President and Chief Financial Officer


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		Page
PART I - FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1815
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2724
Item 4.	Controls and Procedures	2825

PART II - OTHER INFORMATION		3026
Item 1.	Legal Proceedings	3026
Item 1A.	Risk Factors	3026
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3026
Item 3.	Defaults Upon Senior Securities	3026
Item 4.	Mine Safety Disclosures	3026
Item 5.	Other Information	3126
Item 6.	Exhibits	3126


			in thousands of dollars
	November 30, 2018	Acquisition costs	November 30, 2019
	$	$	$
Alaska, USA
Ambler (a)	26,587	44	26,631
Bornite (b)	4,000	—	4,000
	30,587	44	30,631


	Number of RSUs	Number of DSUs
Balance – beginning of the period	212,501	1,137,488
Granted	200,000	66,682
Vested/paid	(412,501)	—
Balance – end of period	—	1,204,170