Form 10-Q - Quarterly report [Sections 13 or 15(d)]

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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 May 31, 2024

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

For the Transition Period from to

Commission File Number: 1-35447

TRILOGY METALS INC.

(Exact Name of Registrant as Specified in Its Charter)


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

Suite 901, 510 Burrard Street Vancouver, British Columbia Canada	V6C 3A8
(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 July 10, 2024, the registrant had 160,552,808 Common Shares, no par value, outstanding.

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Trilogy Metals Inc.

Table of Contents


		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	15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22
Item 4.	Controls and Procedures	23

PART II - OTHER INFORMATION		23
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	24

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Trilogy Metals Inc.

Condensed Interim Consolidated Balance Sheets

(unaudited)


	in thousands of US dollars
	May 31, 2024	November 30, 2023
	$	$
Assets
Current assets
Cash and cash equivalents	14,022	2,590
Accounts receivable	15	33
Deposits and prepaid amounts	46	259
Total current assets	14,083	2,882

Investment in Ambler Metals LLC (note 3)	121,238	135,021
Fixed assets	1	4
Right of use asset (note 5(a))	16	113
Total assets	135,338	138,020

Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 4)	463	432
Current portion of lease liability	—	33
Total current liabilities	463	465

Total liabilities	463	465

Shareholders’ equity
Share capital (note 6) – unlimited common shares authorized, no par value issued – 160,186,788 (2023 – 155,269,296)	190,017	187,886
Contributed surplus	118	118
Contributed surplus – options (note 6(a))	28,647	28,237
Contributed surplus – units (note 6(b))	3,266	3,127
Deficit	(87,173)	(81,813)
Total shareholders' equity	134,875	137,555
Total liabilities and shareholders' equity	135,338	138,020

Subsequent Events (note 8)

(See accompanying notes to the condensed interim consolidated financial statements)


/s/ Tony Giardini, President, CEO and Director		/s/ Diana Walters, Director

Approved on behalf of the Board of Directors


	Trilogy Metals Inc. For the Quarter Ended May 31, 2024	3

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Trilogy Metals Inc.

Condensed Interim Consolidated Statements of Loss

and Comprehensive Loss

(unaudited)




in thousands of US dollars, except share and per share amounts
	For the three months ended			For the six months ended
		May 31, 2024	May 31, 2023	May 31, 2024	May 31, 2023
		$	$	$	$
Expenses
Amortization		2	2	3	4
Exploration expenses		—	—	—	1
Foreign exchange loss (gain)		(1)	2	1	(2)
General and administrative		319	328	734	736
Investor relations		19	23	31	53
Professional fees		192	188	392	758
Salaries		178	193	369	430
Salaries and directors expense – stock-based compensation		509	491	2,508	2,853
Total expenses		1,218	1,227	4,038	4,833
Other items
Interest and other income		(46)	(27)	(48)	(46)
Services agreement income		(15)	—	(25)	—
Share of loss on equity investment (note 3(b))		602	1,603	1,395	3,088
Loss and comprehensive loss for the period		(1,759)	(2,803)	(5,360)	(7,875)
Basic loss per common share		(0.01)	(0.02)	(0.03)	(0.05)
Diluted loss per common share		(0.01)	(0.02)	(0.03)	(0.05)
Basic weighted average number of common shares outstanding		160,168,185	151,315,185	158,925,539	149,561,449
Diluted weighted average number of common shares outstanding		160,168,185	151,315,185	158,925,539	149,561,449

(See accompanying notes to the condensed interim consolidated financial statements)


	Trilogy Metals Inc. For the Quarter Ended May 31, 2024	4

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Trilogy Metals Inc.

Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity

(unaudited)

in thousands of US dollars, except share amounts


				Contributed	Contributed		Total
			Contributed	surplus –	surplus –		shareholders’
	Number of shares	Share capital	surplus	options	units	Deficit	equity
	outstanding	$	$	$	$	$	$
Balance – November 30, 2022	146,225,035	182,178	122	27,352	2,638	(66,862)	145,428
Restricted Share Units	2,346,366	1,538	(1)	—	(1,537)	—	—
Joint venture contribution	143,505	111	—	—	—	—	111
Services settled by common shares	7,793	4	—	—	—	—	4
Stock-based compensation	—	—	—	520	1,700	—	2,220
Loss for the period	—	—	—	—	—	(5,072)	(5,072)
Balance – February 28, 2023	148,722,699	183,831	121	27,872	2,801	(71,934)	142,691
Shares issued for private placement, net of share issue cost	5,854,545	3,115	—	—	—	—	3,115
Restricted Share Units	213,463	121	—	—	—	—	121
Deferred Share Units conversion	415,056	468	—	—	(468)	—	—
Services settled by common shares	63,533	35	—	—	—	—	35
Stock-based compensation	—	—	—	114	257	—	371
Loss for the period	—	—	—	—	—	(2,803)	(2,803)
Balance – May 31, 2023	155,269,296	187,570	121	27,986	2,590	(74,737)	143,530

Balance – November 30, 2023	155,925,990	187,886	118	28,237	3,127	(81,813)	137,555
Restricted Share Units	3,633,065	1,804	—	—	(1,804)	—	—
Joint venture contribution	143,507	112	—	—	—	—	112
Services settled by common shares	64,368	30	—	—	—	—	30
Stock-based compensation	—	—	—	318	1,681	—	1,999
Loss for the period	—	—	—	—	—	(3,601)	(3,601)
Balance – February 29, 2024	159,766,930	189,832	118	28,555	3,004	(85,414)	136,095
Restricted Share Units	353,347	155	—	—	(155)	—	—
Services settled by common shares	66,511	30	—	—	—	—	30
Stock-based compensation	—	—	—	92	417	—	509
Loss for the period	—	—	—	—	—	(1,759)	(1,759)
Balance – May 31, 2024	160,186,788	190,017	118	28,647	3,266	(87,173)	134,875

(See accompanying notes to the condensed interim consolidated financial statements)


	Trilogy Metals Inc. For the Quarter Ended May 31, 2024	5

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Trilogy Metals Inc.

Condensed Interim Consolidated Statements of Cash Flows

(unaudited)


	in thousands of US dollars
		For the six months ended
			May 31, 2024	May 31, 2023
			$	$
Cash flows used in operating activities
Loss for the period			(5,360)	(7,875)
Adjustments to reconcile net loss to cash flows used in operating activities
Amortization			3	4
Consulting fees settled by common shares			60	56
Office lease accounting			64	(5)
Loss on equity investment in Ambler Metals LLC (note 3(b))			1,395	3,088
Unrealized foreign exchange (gain) loss			(1)	2
Stock-based compensation			2,508	2,853
Net change in non-cash working capital
Decrease in accounts receivable			18	1
Decrease in deposits and prepaid amounts			213	262
Increase in accounts payable and accrued liabilities			31	97
Total cash flows used in operating activities			(1,069)	(1,517)
Cash flows from financing activities
Issuance of common shares, net of share issue cost (note 6(a))			—	3,115
Total cash flows from financing activities			—	3,115
Cash flows from investing activities
Return of capital from Ambler Metals LLC (note 3(c))			12,500	—
Total cash flows from investing activities			12,500	—
Change in cash			11,431	1,598
Effect of exchange rate on cash			1	(5)
Cash and cash equivalents – beginning of the period			2,590	2,573
Cash and cash equivalents – end of the period			14,022	4,166

(See accompanying notes to the condensed interim consolidated financial statements)


	Trilogy Metals Inc. For the Quarter Ended May 31, 2024	6

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Trilogy Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

1) Nature of operations

Trilogy Metals Inc. (“Trilogy” or the “Company”) was incorporated in British Columbia, Canada under the Business Corporations Act (British Columbia) on April 27, 2011. The Company is engaged in the exploration and development of mineral properties, through our equity investee (see note 3), 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”). The Company also conducts early-stage exploration through a wholly owned subsidiary, 995 Exploration Inc.

2) Summary of significant accounting policies

Basis of presentation

These condensed 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 subsidiaries, NovaCopper US Inc. (dba “Trilogy Metals US”) and 995 Exploration Inc. All intercompany transactions are eliminated on consolidation. For variable interest entities (“VIEs”) where Trilogy is not the primary beneficiary, we use the equity method of accounting.

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

These condensed interim consolidated financial statements include all adjustments necessary for the fair statement of the Company’s financial position as of May 31, 2024 and our results of operations and cash flows for the six-month period ended May 31, 2024 and May 31, 2023. The results of operations for the six-month period ended May 31, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending November 30, 2024.

As these condensed interim consolidated financial statements do not contain all of the disclosures required by U.S. GAAP for annual financial statements, these condensed 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, 2023, filed with the U.S. Securities and Exchange Commission (“SEC”) and Canadian securities regulatory authorities on February 9, 2024.

These condensed interim consolidated financial statements were approved by the Company’s Audit Committee on behalf of the Board of Directors for issue on July 9, 2024.

Use of estimates and measurement uncertainties

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions of future events that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of expenditures during the period. Significant estimates include the measurement of income taxes and the valuation of stock-based compensation. Actual results could differ materially from those reported.

Management assesses the possibility of impairment in the carrying value of its equity method investment in Ambler Metals whenever events or circumstances indicate that the carrying amount of the investment may not be recoverable. Ambler Metals is a non-publicly traded equity investment owning exploration and development projects. Significant judgments are made in assessing the possibility of impairment. The Company assesses whether there has been a potential triggering event for other-than-temporary impairment by assessing the underlying assets of Ambler Metals for recoverability and assessing whether there has been a change in the development plan or strategy for the projects. If the Company concludes there is sufficient evidence for an other-than-temporary impairment, an assessment of fair value is performed. If the underlying assets are not recoverable, the Company will record an impairment charge equal to the difference between the carrying amount of the equity investment and its fair value. This assessment is subjective and require consideration at each period end.


	Trilogy Metals Inc. For the Quarter Ended May 31, 2024	7

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Trilogy Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

3) Investment in Ambler Metals LLC

(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 (“Ambler Metals”) 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 cash of $145.0 million, resulting in each party’s subsidiaries directly owning a 50% interest in Ambler Metals.

Ambler Metals is a company jointly controlled by Trilogy and South32 through a four-member board, of which two members are appointed by Trilogy based on its 50% equity interest. All significant decisions related to the UKMP require the approval of both companies. We determined that Ambler Metals 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 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 through our representation on its board, we use the equity method of accounting for our investment in Ambler Metals. Our maximum exposure to loss in this entity is limited to the carrying amount of our investment in Ambler Metals, which, as of May 31, 2024, totaled $121.2 million.

(b)	Carrying value of equity method investment

Trilogy recognized, based on its 50% ownership interest in Ambler Metals, an equity loss equivalent to its pro rata share of Ambler Metals’ comprehensive loss of $0.6 million for the three-month period ending May 31, 2024 (2023 - $1.6 million) and $1.4 million for the six-month period ending May 31, 2024 (2023 - $3.1 million). During the six-month period ending May 31, 2024, Trilogy made a $112,000 equity contribution to Ambler Metals through the issuance of 143,507 common shares of the Company as part of the long-term incentive compensation for Ambler Metals executives. Likewise, South32 made an equivalent equity contribution to Ambler Metals for $112,000 in cash for their 50% share. The carrying value of Trilogy’s 50% investment in Ambler Metals as at May 31, 2024 is summarized on the following table.


		in thousands of dollars
		$
November 30, 2023, Investment in Ambler Metals		135,021
Joint venture equity contribution		112
Return of capital		(12,500)
Share of loss on equity investment for the six-month period ending May 31, 2024		(1,395)
May 31, 2024, Investment in Ambler Metals		121,238

(c)	The following table summarizes Ambler Metals’ Balance Sheet as at May 31, 2024.


	in thousands of dollars
	May 31, 2024	November 30, 2023
	$	$
Total assets	67,557	97,180
Cash and cash equivalents	35,139	63,829
Mineral properties	30,899	30,899
Total liabilities	(875)	(2,931)
Accounts payable and accrued liabilities	(571)	(2,500)
Members' equity (total assets less total liabilities)	66,682	94,249


	Trilogy Metals Inc. For the Quarter Ended May 31, 2024	8

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Trilogy Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

Members’ cash and cash equivalents are held at one bank, the majority of cash and cash equivalent is uninsured as at May 31, 2024. During the second quarter, Ambler Metals returned $25 million of excess cash to the members. Subsequent to May 31, 2024, Ambler Metals returned another $25 million of excess cash to the members.

(d) The following table summarizes Ambler Metals' loss for the six-month period ended May 31, 2024 and May 31, 2023.


			in thousands of dollars
	Three months ended			Six months ended
	May 31, 2024	May 31, 2023		May 31, 2024	May 31, 2023
	$	$		$	$
Depreciation	37	38		75	75
Corporate salaries and wages	128	495		362	939
General and administrative	121	213		248	346
Mineral property expense	1,230	2,507		2,324	4,792
Professional fees	253	57		430	216
Foreign exchange loss	—	3		2	3
Interest and other income	(565)	(105)		(652)	(194)
Comprehensive loss	1,204	3,208		2,789	6,177

(e) Related party transactions

During the six-month period ended May 31, 2024, the Company charged $25,000 (2023 - $Nil) related to human resources and accounting services in connection with a service agreement between the company and Ambler Metals. In addition, the company received payments of $52,000 (2023 - $Nil) related to operating expenses paid on behalf of Ambler Metals pursuant to the Service Agreement.

4) Accounts payable and accrued liabilities


	in thousands of dollars
		May 31, 2024	November 30, 2023
		$	$
Trade accounts payable		85	146
Accrued liabilities		123	54
Accrued salaries and vacation		255	232
Accounts payable and accrued liabilities		463	432

Subsequent to the end of the second quarter, on June 3, 2024, approximately $153,000 of accrued salaries was settled through the issuance of common shares of the Company.


	Trilogy Metals Inc. For the Quarter Ended May 31, 2024	9

Table of contents

Trilogy Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

5) Leases

(a)	Right-of-use asset


		in thousands of dollars
		$
Balance as at November 30, 2023		113
Net amortization		(97)
Balance as at May 31, 2024		16

(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
	Six months ended	Six months ended
	May 31, 2024	May 31, 2023
	$	$
Operating lease costs	97	93
Variable lease costs	95	71
Total lease expense	192	164

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 at May 31, 2024, the weighted-average remaining lease term is 0.1 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 six-month period ending May 31, 2024 are as follows:

●

Cash paid for amounts included in the measurement of lease liabilities was $33,158.


	Trilogy Metals Inc. For the Quarter Ended May 31, 2024	10

Table of contents

Trilogy Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

6) Share capital

Authorized:

unlimited common shares, no par value


	in thousands of dollars, except share amounts
	Number of shares	Ascribed value
		$
November 30, 2023	155,925,990	187,886
Restricted Share Units	3,986,412	1,959
Services settled by common shares	130,879	60
Joint venture equity contribution (note 3(a))	143,507	112
May 31, 2024, issued and outstanding	160,186,788	190,017

On April 30, 2012, under the NovaGold Arrangement, Trilogy committed to issue common shares to satisfy holders of NovaGold deferred share units (“NovaGold DSUs”), once vested, 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 at May 31, 2024, a total of 5,144 NovaGold DSUs remain outstanding representing a right to receive 859 Common Shares in Trilogy, which will settle upon certain directors retiring from NovaGold’s board.

(a)	Stock options

During the three-month period ended February 29, 2024, the Company granted 2,775,000 stock options (2023 - 3,230,000 stock options) at an exercise price of CDN$0.59 (2023 - CDN$0.78) 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 fair value attributable to each of these option grants was CDN$0.27 (2023 - CDN$0.37). No grants were made during the three-month period ended May 31, 2024 or 2023.

For the six-month period ended May 31, 2024, Trilogy recognized a stock-based compensation charge of $0.4 million (2023 - $0.6 million) for options granted to directors, employees and service providers, net of estimated forfeitures.

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 six-month period ended May 31, 2024 are as provided below.


		May 31, 2024
Risk-free interest rates		3.84%
Exercise price		CDN$0.59
Expected life		3 years
Expected volatility		65.5%
Expected dividends		Nil

As at May 31, 2024, there were 2,533,339 non-vested options outstanding with a weighted average exercise price of CDN$0.66; the value of non-vested stock option expense not yet recognized was $0.3 million. This expense is expected to be recognized over the next 12 months.


	Trilogy Metals Inc. For the Quarter Ended May 31, 2024	11

Table of contents

Trilogy Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

A summary of the Company’s stock options outstanding and changes during the six-month period ended May 31, 2024 is as follows:


		May 31, 2024
		Weighted average
		exercise price
	Number of options	CDN$
Balance – beginning of the period	12,649,400	2.15
Granted	2,775,000	0.59
Expired	(1,107,500)	2.96
Balance – end of the period	14,316,900	1.78

There were no stock options exercised during the six-month period ended May 31, 2024.

The following table summarizes information about the stock options outstanding at May 31, 2024.

Outstanding

Exercisable

Unvested

Weighted

Number of

Weighted

average

Number of

average

Number of

outstanding

average years

exercise price

exercisable

exercise price

unvested

Range of exercise price - CDN

options

to expiry

CDN$

options

CDN$

options

$0.59 to $1.00

5,955,000

3.85

0.69

3,421,661

0.72

2,533,339

$2.01 to $3.00

7,016,900

1.47

2.47

7,016,900

2.47

—

$3.01 to $3.41

1,345,000

0.57

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