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 August 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 October 8, 2024, the registrant had 160,902,814 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	22

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	23
Item 5.	Other Information	23
Item 6.	Exhibits	23

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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
	August 31, 2024	November 30, 2023
	$	$
Assets
Current assets
Cash and cash equivalents	25,738	2,590
Accounts receivable	8	33
Deposits and prepaid amounts	352	259
Total current assets	26,098	2,882

Investment in Ambler Metals LLC (note 3)	108,114	135,021
Fixed assets	—	4
Right of use asset (note 5(a))	164	113
Total assets	134,376	138,020

Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 4)	391	432
Current portion of lease liability	37	33
Total current liabilities	428	465

Long-term portion of lease liability	125	—
Total liabilities	553	465

Shareholders’ equity
Share capital (note 6) – unlimited common shares authorized, no par value issued – 160,567,514 (2023 – 155,559,334)	190,200	187,886
Contributed surplus	118	118
Contributed surplus – options (note 6(a))	28,741	28,237
Contributed surplus – units (note 6(b))	3,528	3,127
Deficit	(88,764)	(81,813)
Total shareholders' equity	133,823	137,555
Total liabilities and shareholders' equity	134,376	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 August 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 nine months ended
		August 31, 2024	August 31, 2023	August 31, 2024	August 31, 2023
		$	$	$	$
Expenses
Amortization		1	2	4	6
Exploration expenses		28	22	28	23
Foreign exchange loss (gain)		2	3	3	1
General and administrative		293	278	1,027	1,014
Investor relations		15	18	46	71
Professional fees		138	139	530	897
Salaries		158	191	527	621
Salaries and directors expense – stock-based compensation		506	526	3,014	3,379
Total expenses		1,141	1,179	5,179	6,012
Other items
Interest and other income		(152)	(37)	(200)	(83)
Services agreement income		(22)	—	(47)	—
Share of loss on equity investment (note 3(b))		624	2,910	2,019	5,998
Loss and comprehensive loss for the period		(1,591)	(4,052)	(6,951)	(11,927)
Basic loss per common share		(0.01)	(0.03)	(0.04)	(0.08)
Diluted loss per common share		(0.01)	(0.03)	(0.04)	(0.08)
Basic weighted average number of common shares outstanding		160,542,286	155,550,284	159,466,414	151,572,299
Diluted weighted average number of common shares outstanding		160,542,286	155,550,284	159,466,414	151,572,299

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


	Trilogy Metals Inc. For the Quarter Ended August 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
Restricted Share Units	248,092	122	—	—	—	—	122
Services settled by common shares	40,816	20	—	—	—	—	20
NovaGold deferred share units conversion	1,130	3	(3)	—	—	—	—
Stock-based compensation	—	—	—	125	268	—	393
Loss for the period	—	—	—	—	—	(4,052)	(4,052)
Balance – August 31, 2023	155,559,334	187,715	118	28,111	2,858	(78,789)	140,013

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
Restricted Share Units	326,020	153	—	—	(153)	—	—
Services settled by common shares	54,706	30	—	—	—	—	30
Stock-based compensation	—	—	—	94	415	—	509
Loss for the period	—	—	—	—	—	(1,591)	(1,591)
Balance – August 31, 2024	160,567,514	190,200	118	28,741	3,528	(88,764)	133,823

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


	Trilogy Metals Inc. For the Quarter Ended August 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 nine months ended
			August 31, 2024	August 31, 2023
			$	$
Cash flows used in operating activities
Loss for the period			(6,951)	(11,927)
Adjustments to reconcile net loss to cash flows used in operating activities
Amortization			4	6
Consulting fees settled by common shares			90	86
Office lease accounting			76	(9)
Loss on equity investment in Ambler Metals LLC (note 3(b))			2,019	5,998
Unrealized foreign exchange (gain) loss			—	5
Stock-based compensation			3,014	3,379
Net change in non-cash working capital
Decrease in accounts receivable			25	7
Decrease in deposits and prepaid amounts			(93)	(137)
Increase in accounts payable and accrued liabilities			(38)	(42)
Total cash flows used in operating activities			(1,854)	(2,634)
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))			25,000	—
Total cash flows from investing activities			25,000	—
Change in cash			23,146	481
Effect of exchange rate on cash			2	(5)
Cash and cash equivalents – beginning of the period			2,590	2,573
Cash and cash equivalents – end of the period			25,738	3,049

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


	Trilogy Metals Inc. For the Quarter Ended August 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 August 31, 2024 and our results of operations and cash flows for the nine-month periods ended August 31, 2024 and August 31, 2023. The results of operations for the nine-month period ended August 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 October 7, 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 requires consideration at each period end.


	Trilogy Metals Inc. For the Quarter Ended August 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 August 31, 2024, totaled $108.1 million (2023 - $136.9 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 $1.2 million for the three-month period ending August 31, 2024 (2023 - $5.8 million) and $4.0 million for the nine-month period ending August 31, 2024 (2023 - $12.0 million). During the nine-month period ending August 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 August 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		(25,000)
Share of loss on equity investment for the nine-month period ending August 31, 2024		(2,019)
August 31, 2024, Investment in Ambler Metals		108,114

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


	in thousands of dollars
	August 31, 2024	November 30, 2023
	$	$
Total assets	41,888	97,180
Cash and cash equivalents	9,848	63,829
Mineral properties	30,899	30,899
Total liabilities	(1,455)	(2,931)
Accounts payable and accrued liabilities	(1,209)	(2,500)
Members' equity (total assets less total liabilities)	40,433	94,249


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

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Trilogy Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

Ambler Metals’ cash and cash equivalents are held at one bank of which the majority is uninsured. During the second and third quarters, Ambler Metals returned $50 million of excess cash to the members.

(d) The following table summarizes Ambler Metals' loss for the three-month and nine-month periods ended August 31, 2024 and August 31, 2023.


			in thousands of dollars
	Three months ended			Nine months ended
	August 31, 2024	August 31, 2023		August 31, 2024	August 31, 2023
	$	$		$	$
Depreciation	38	38		113	113
Corporate salaries and wages	49	478		411	1,417
General and administrative	93	43		343	389
Mineral property expense	1,024	5,210		3,348	10,002
Professional fees	325	181		755	397
Foreign exchange loss	—	(6)		2	(3)
Interest and other income	(281)	(125)		(933)	(319)
Comprehensive loss	1,248	5,819		4,039	11,996

(e) Related party transactions

During the nine-month period ended August 31, 2024, the Company charged $47,000 (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 $64,000 (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
		August 31, 2024	November 30, 2023
		$	$
Trade accounts payable		51	146
Accrued liabilities		88	54
Accrued salaries and vacation		252	232
Accounts payable and accrued liabilities		391	432

Subsequent to the end of the third quarter, on September 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 August 31, 2024	9

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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 for lease ended June 30, 2024		(113)
ROU assets recognized for lease commenced July 1, 2024		170
Net amortization for lease commenced July 1, 2024		(6)
Balance as at August 31, 2024		164

The Company’s previous office lease ended on June 30, 2024. The Company entered into a new office lease commencing on July 1, 2024, with a 4-year term ending in June 2028, and with no renewal option. During the quarter ended August 31, 2024, the Company recognized a ROU asset of $170,000 for the new office lease.

(b)	Lease liabilities

The Company’s lease arrangement consists of an operating lease for our office space ending in June 2028. There are no extension options.

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


	in thousands of dollars
	Nine months ended	Nine months ended
	August 31, 2024	August 31, 2023
	$	$
Operating lease costs	122	140
Variable lease costs	103	103
Total lease expense	225	243

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 August 31, 2024, the weighted-average remaining lease term is 3.8 years and the weighted-average discount rate is 9%. 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-month period ending August 31, 2024 are as follows:

●

Cash paid for amounts included in the measurement of lease liabilities was $45,561, of which $33,159 related to the office lease that expired on June 30, 2024 and $12,402 related to the new office lease that commenced on July 1, 2024.


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

Table of contents

Trilogy Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

Future minimum payments relating to the lease recognized in our balance sheet as of August 31, 2024 are as follows:


		in thousands of dollars
		August 31, 2024
Fiscal year		$
2024		13
2025		50
2026		51
2027		51
2028		30
Total undiscounted lease payments		195
Effect of discounting		(33)
Present value of lease payments recognized as lease liability		162

6) Share capital

Authorized:

unlimited common shares, no par value

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