10-Q 1 tmq-20240531x10q.htm 10-Q
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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

OR

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

For the Transition Period from to

Commission File Number: 1-35447

Graphic

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.

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

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

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

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

Table of contents

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

Table of contents

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

Table of contents

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

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

3.02

1,345,000

3.02

14,316,900

2.06

1.78

11,783,561

2.03

2,533,339

The aggregate intrinsic value of vested stock options (the market value less the exercise price) at May 31, 2024 was $Nil (2023 - $Nil) and the aggregate intrinsic value of exercised options for the six-month period ending May 31, 2024 was $Nil (2023 - $Nil).

(b)

Restricted Share Units and Deferred Share Units

The Company has a Restricted Share Unit Plan (“RSU Plan”) to provide long-term incentives to employees and consultants, a Non-Executive Director Deferred Share Unit Plan (“DSU Plan”), and a Non-Executive Directors Fixed Deferred Share Unit Plan (“Fixed DSU Plan”) to offset cash payments for fees to directors.  Awards under the RSU Plan and DSU Plan have been settled in common shares of the Company with each restricted share unit (“RSU”) and deferred share unit (“DSU”) entitling the holder to receive one common share of the Company.  All units are accounted for as equity-settled awards.

A summary of the Company’s unit plans and changes during the six-month period ending May 31, 2024 is as follows:

    

Number of RSUs

  

  

Number of DSUs

  

  

Number of Fixed DSUs

  

Balance – beginning of the period

1,610,638

 

2,428,701

Granted

 

5,324,992

383,489

Vested/Converted

 

(4,617,291)

Balance – end of the period

 

2,318,339

 

2,812,190

For the six-month period ending May 31, 2024, Trilogy recognized a combined RSU and DSU stock-based compensation charge of $1.6 million (2023 - $1.8 m