UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:1)
(cid:2)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended November 30, 2016
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
TRILOGY METALS INC.
(Exact Name of Registrant as Specified in Its Charter)
British Columbia
(State or Other Jurisdiction of
Incorporation or Organization)
Suite 1950, 777 Dunsmuir Street
Vancouver, British Columbia
Canada
(Address of Principal Executive Offices)
98-1006991
(I.R.S. Employer
Identification No.)
V7Y 1K4
(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
Common Shares, no par value
Name of Each Exchange on Which Registered
NYSE MKT
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:2) No (cid:1)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:2) No (cid:1)
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 (cid:1) No (cid:2)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes (cid:1) No (cid:2)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer (cid:2)
Accelerated filer (cid:2)
Non-accelerated filer (cid:2)
(Do not check if a smaller reporting
company)
Smaller reporting company(cid:1)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:2) No (cid:1)
As at May 31, 2016, the aggregate market value of the registrant’s Common Shares held by non-affiliates was approximately
$30.1 million. As of February 2, 2017, the registrant had 105,501,761 Common Shares, no par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A not later than March 30, 2017, in connection with the registrant’s 2017 annual meeting of stockholders, are incorporated
herein by reference into Part III of this Annual Report on Form 10-K.
2
TRILOGY METALS INC.
TABLE OF CONTENTS
Page
CURRENCY ............................................................................................................................................................................................ 2
FORWARD-LOOKING STATEMENTS ................................................................................................................................................ 2
CAUTIONARY NOTE TO UNITED STATES INVESTORS ................................................................................................................ 4
CAUTIONARY NOTE TO ALL INVESTORS CONCERNING ECONOMIC ASSESSMENTS THAT INCLUDE INFERRED
RESOURCES ........................................................................................................................................................................................... 4
GLOSSARY OF TECHNICAL ................................................................................................................................................................ 7
PART I .................................................................................................................................................................................................... 12
Item 1. BUSINESS ................................................................................................................................................................. 12
Item 1A. RISK FACTORS ........................................................................................................................................................ 18
Item 1B. UNRESOLVED STAFF COMMENTS ..................................................................................................................... 30
Item 2. PROPERTIES ............................................................................................................................................................ 30
Item 3. LEGAL PROCEEDINGS .......................................................................................................................................... 57
Item 4. MINE SAFETY DISCLOSURES .............................................................................................................................. 57
PART II .................................................................................................................................................................................................. 58
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES ............................................................................................................................... 58
Item 6. SELECTED FINANCIAL DATA ............................................................................................................................. 68
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................................................................................................................... 69
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ........................................................................... 81
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE ......................................................................................................................................................................... 101
Item 9A. CONTROLS AND PROCEDURES ........................................................................................................................ 101
Item 9B. OTHER INFORMATION........................................................................................................................................ 101
PART III ............................................................................................................................................................................................... 102
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ................................................. 102
Item 11. EXECUTIVE COMPENSATION ........................................................................................................................... 102
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS ................................................................................................................................................. 102
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE ...... 102
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES ......................................................................................... 102
PART IV ............................................................................................................................................................................................... 103
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES ............................................................................... 103
1
Unless the context otherwise requires, the words “we,” “us,” “our,” the “Company” and “Trilogy” refer to
Trilogy Metals Inc., formerly NovaCopper Inc. (“NovaCopper”), a British Columbia corporation, either alone or
together with its subsidiaries as the context requires, as of November 30, 2016.
CURRENCY
All dollar amounts are in United States currency unless otherwise stated. References to C$ or CDN$ refer to
Canadian currency, $ or US$ to United States currency, and references to “Colombian pesos” or “COP” are to the
currency of the Republic of Colombia. All dollar amounts are expressed in dollars, unless otherwise stated.
FORWARD-LOOKING STATEMENTS
The information discussed in this annual report on Form 10-K includes “forward-looking information” and
“forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 (the
“Exchange Act”), and applicable Canadian securities laws. These forward-looking statements may include
statements regarding perceived merit of properties, exploration results and budgets, 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 relating
anticipated activity with respect to the Ambler Mining District Industrial Access Project (“AMDIAP”), the
Company’s plans and expectations relating to the Upper Kobuk Mineral Projects, completion of transactions, market
prices for precious and base metals, 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 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 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;
none of the Company’s mineral properties are in production or are under development;
uncertainties relating to the assumptions underlying our resource estimates, such as metal pricing,
metallurgy, mineability, marketability and operating and capital costs;
risks related to lack of infrastructure including but not limited to the risk whether or not the AMDIAP will
receive the requisite permits and, if it does, whether the Alaska Industrial Development and Export
Authority (“AIDEA”) will build the AMDIAP;
uncertainty as to whether there will ever be production at the Company’s mineral exploration and
development properties;
uncertainty as to estimates of capital costs, operating costs, production and economic returns;
risks related to our ability to commence production and generate material revenues or obtain adequate
financing for our planned exploration and development activities;
3
•
•
•
•
•
•
risks related to future sales or issuances of equity securities decreasing the value of existing Trilogy
common shares (“Common Shares”), diluting voting power and reducing future earnings per share;
risks related to market events and general economic conditions;
uncertainty related to inferred mineral resources;
uncertainty related to the economic projections contained herein derived from the Preliminary Economic
Assessment titled “Preliminary Economic Assessment Report on the Arctic Project, Ambler Mining
District, Northwest Alaska” dated effective September 12, 2013 (the “PEA”);
risks related to inclement weather which may delay or hinder exploration activities at its mineral properties;
risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of our
mineral deposits;
• 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;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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;
commodity price fluctuations;
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 its control;
risks related to the need for reclamation activities on our properties and uncertainty of cost estimates related
thereto;
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
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;
risks related to potential future litigation;
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;
risks related to global climate change;
risks related to adverse publicity from non-governmental organizations;
uncertainty as to the volatility in the price of the Company’s shares;
the Company’s expectation of not paying cash dividends;
4
•
•
•
adverse federal income tax consequences for U.S. shareholders should the Company be a passive foreign
investment company;
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 (“SOX”); and
increased regulatory compliance costs, associated with rules and regulations promulgated by the SEC,
Canadian Securities Administrators, the NYSE-MKT, the TSX, and the Financial Accounting Standards
Boards, and more specifically, our efforts to comply with the Dodd-Frank Wall Street Reform and
Consumer Protection Act (“Dodd-Frank”).
This list is not exhaustive of the factors that may affect any of our forward-looking statements. Forward-looking
statements are statements about the future and are inherently uncertain, and our actual achievements 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 this report under the heading
“Risk Factors” and elsewhere.
Our forward-looking statements are based on the beliefs, expectations and opinions of management on the date the
statements are made, and we do 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.
CAUTIONARY NOTE TO UNITED STATES INVESTORS
Unless otherwise indicated, all resource estimates, and any future reserve estimates, included or incorporated by
reference in this annual report on Form 10-K have been, and will be, prepared in accordance with Canadian National
Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of
Mining, Metallurgy and Petroleum Definition Standards for Mineral Resources and Mineral Reserves (“CIM
Definition Standards”). NI 43-101 is a rule developed by the Canadian Securities Administrators which establishes
standards for all public disclosure an issuer makes of scientific and technical information concerning mineral
projects. NI 43-101 permits the disclosure of an historical estimate made prior to the adoption of NI 43-101 that
does not comply with NI 43-101 to be disclosed using the historical terminology if the disclosure: (a) identifies the
source and date of the historical estimate; (b) comments on the relevance and reliability of the historical estimate; (c)
to the extent known, provides the key assumptions, parameters and methods used to prepare the historical estimate;
(d) states whether the historical estimate uses categories other than those prescribed by NI 43-101; and (e) includes
any more recent estimates or data available.
Canadian standards, including NI 43-101, differ significantly from the requirements of the SEC, and reserve and
resource information contained or incorporated by reference into this annual report on Form 10-K may not be
comparable to similar information disclosed by U.S. companies. In particular, and without limiting the generality of
the foregoing, the term “resource” does not equate to the term “reserves”. Under SEC Industry Guide 7,
mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization
could be economically and legally produced or extracted at the time the reserve determination is made. SEC
Industry Guide 7 does not define and the SEC’s disclosure standards normally do not permit the inclusion of
information concerning “measured mineral resources”, “indicated mineral resources” or “inferred mineral
resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves”
by U.S. standards in documents filed with the SEC. U.S. investors should also understand that “inferred mineral
resources” have a great amount of uncertainty as to their existence and great uncertainty as to their economic and
legal feasibility. It cannot be assumed that all or any part of an “inferred mineral resource” will ever be upgraded to
a higher category. Under Canadian rules, estimated “inferred mineral resources” may not form the basis of
feasibility or pre-feasibility studies except in rare cases. Investors are cautioned not to assume that all or any part of
an “inferred mineral resource” exists or is economically or legally mineable. Disclosure of “contained ounces” in a
resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to
report mineralization that does not constitute “reserves” by SEC standards as in-place tonnage and grade without
reference to unit measures. The requirements of NI 43-101 for identification of “reserves” are also not the same as
those of the SEC, and any reserves reported by us in the future in compliance with NI 43-101 may not qualify as
“reserves” under SEC standards. Accordingly, information concerning mineral deposits set forth herein may not be
comparable to information made public by companies that report in accordance with United States standards.
5
CAUTIONARY NOTE TO ALL INVESTORS CONCERNING ECONOMIC ASSESSMENTS
THAT INCLUDE INFERRED RESOURCES
Mineral resources that are not mineral reserves have no demonstrated economic viability. The preliminary
assessment on the Arctic Project is preliminary in nature and includes “inferred mineral resources” that are
considered too speculative geologically to have economic considerations applied to them that would enable them to
be categorized as mineral reserves. There is no certainty that the feasibility studies or preliminary assessments at the
Arctic Project will ever be realized.
6
GLOSSARY OF TECHNICAL TERMS
We estimate and report our resources and we will estimate and report our reserves according to the definitions set
forth in NI 43-101. We will modify and reconcile the reserves as appropriate to conform to SEC Industry Guide 7
for reporting in the U.S. The definitions for each reporting standard are presented below with supplementary
explanation and descriptions of the parallels and differences.
The following technical terms defined in this section are used throughout this Form 10-K:
“AA” is atomic absorption.
“Ag” is the chemical symbol for silver.
“AMT” is audiomagnetotelluric.
“ARD” is acid rock drainage.
“Au” is the chemical symbol for gold.
“Ba” is barium.
“CIM” is the Canadian Institute of Mining, Metallurgy and Petroleum.
“Co” is the chemical symbol for cobalt.
“CO2” is carbon dioxide.
“CS-AMT” is controlled source audio-frequency magnetotelluric.
“Cu” is the chemical symbol for copper.
“DIGHEM” is a proprietary geophysical survey system.
“dilution” is waste, which is unavoidably mined with ore.
“dip” is the angle of inclination of a geological feature/rock from the horizontal.
“EM” is electromagnetic.
“fault” is the surface of a fracture along which movement has occurred.
“Fe” is the surface of a fracture along which movement has occurred.
“gangue” are non-valuable components of the ore.
“grade” is the measure of concentration of gold within mineralized rock.
“g” is a gram.
“g/t” is grams per metric tonne.
“ha” is a Hectare.
“ICP” is induced couple plasma.
7
“ICP-AES” is inductively coupled plasma atomic emission spectroscopy.
“IRR” is internal rate of return.
“km” is a kilometer.
“m” is a meter.
“masl” is meters above sea level.
“Mg” is the chemical symbol for magnesium.
“micron” or “µm” is 0.000001 meters.
“mm” is a millimeter.
“MS” is massive sulfide.
“MW” is million watts.
“NPV” is net present value
“ounce” or “oz” is a troy ounce.
“Pb” is the chemical symbol for lead.
“ppm” is parts per million.
“QA/QC” is quality assurance and quality control.
“SG” is specific gravity.
“SRM” is standard reference material.
“strike” is the duration of line formed by the intersection of strata surfaces within the horizontal plane, always
perpendicular to the dip direction.
“tailings” is the finely ground waste rock from which valuable minerals or metals have been extracted.
“tonne” is a metric tonne: 1,000 kilograms or 2,204.6 pounds.
“t/d” is tonnes per day.
“XRF” is x-ray fluorescence spectroscopy.
“Zn” is the chemical symbol for zinc.
8
CIM Definition Standards, adopted by CIM Council on May 10, 20141:
“feasibility study means a comprehensive technical and economic study of the selected development option for a
mineral project that includes appropriately detailed assessments of applicable modifying factors together
with any other relevant operational factors and detailed financial analysis that are necessary to demonstrate,
at the time of reporting, that the extraction is reasonably justified (economically mineable). The results of
the study may reasonably serve as the basis for a final decision by a proponent or financial institution to
proceed with, or finance, the development of the project. The confidence level of the study will be higher
than that of a pre-feasibility study.
“indicated mineral resource” means that part of a mineral resource for which quantity, grade or quality, densities,
shape and physical characteristics are estimated with sufficient confidence to allow the application of
modifying factors in sufficient detail to support mine planning and evaluation of the economic viability of
the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and
testing and is sufficient to assume geological and grade or quality continuity between points of observation.
An indicated mineral resource has a lower level of confidence than that applying to a measured mineral
resource and may only be converted to a probable mineral reserve.
“inferred mineral resource” means that part of a mineral resource for which quantity and grade or quality are
estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to
imply but not verify geological and grade or quality continuity. An inferred mineral resource has a lower
level of confidence than that applied to an indicated mineral resource and must not be converted to a
mineral reserve. It is reasonably expected that the majority of inferred mineral resources could be upgraded
to indicated mineral resources with continued exploration.
“measured mineral resource” means that part of a mineral resource for which quantity, grade or quality, densities,
shape and physical characteristics are estimated with confidence sufficient to allow the application of
modifying factors to support detailed mine planning and final evaluation of the economic viability of the
deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is
sufficient to confirm geological and grade or quality continuity between points of observation. A measured
mineral resource has a higher level of confidence than that applying to either an indicated mineral resource
or an inferred mineral resource. It may be converted to a proven mineral reserve or to a probable mineral
reserve.
“mineral reserve” means the economically mineable part of a measured and/or indicated mineral resource. It
includes diluting materials and allowances for losses, which may occur when the material is mined or
extracted and is defined by studies at pre-feasibility or feasibility level as appropriate that include
application of modifying factors. Such studies demonstrate that, at the time of reporting, extraction could
reasonably be justified. The reference point at which mineral reserves are defined, usually the point where
the ore is delivered to the processing plant, must be stated. It is important that, in all situations where the
reference point is different, such as for a saleable product, a clarifying statement is included to ensure that
the reader is fully informed as to what is being reported. The public disclosure of a mineral reserve must be
demonstrated by a pre-feasibility or feasibility study.
“mineral resource” means a concentration or occurrence of solid material of economic interest in or on the Earth’s
crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic
extraction. The location, quantity, grade or quality, continuity and other geologic characteristics of a
mineral resource are known, estimated or interpreted from specific geological evidence and knowledge,
including sampling.
(1) NI 43-101 refers to CIM Definition Standards with respect to the definitions of “feasibility study”, “indicated mineral resource”, “inferred mineral resource”,
“measured mineral resource”, “mineral reserve”, “mineral resource”, “modifying factors”, “pre-feasibility study”, “probable mineral reserve” and “proven mineral
reserve.” The CIM Definition Standards, adopted by CIM council on May 10, 2014, were the relevant standards in effect at the time of the preparation of the current
Bornite Report (defined herein).
9
“modifying factors” means the considerations used to convert mineral resources to mineral reserves. These
include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing,
legal, environmental, social and governmental factors.
“pre-feasibility study (preliminary feasibility study)” means a comprehensive study or a range of options for the
technical and economic viability of a mineral project that has advanced to a stage where a preferred mining
method, in the case of underground mining, or the pit configuration, in the case of an open pit, is
established and an effective method of mineral processing is determined. It includes a financial analysis
based on reasonable assumptions on the modifying factors and the evaluation of any other relevant factors
which are sufficient for a Qualified Person, acting reasonably, to determine if all or part of the mineral
resource many be converted to a mineral reserve at the time of reporting. A pre-feasibility study is at a
lower confidence level than a feasibility study.
“probable mineral reserve” means the economically mineable part of an indicated, and in some circumstances, a
measured mineral resource. The confidence in the modifying factors applying to a probable mineral reserve
is lower than that applying to a proven mineral reserve.
“proven mineral reserve” means the economically mineable part of a measured mineral resource. A proven
mineral reserve implies a high degree of confidence in the modifying factors.
CIM Definition Standards, adopted by CIM Council on November 27, 20102:
“indicated mineral resource” means that part of a mineral resource for which quantity, grade or quality, densities,
shape and physical characteristics can be estimated with a level of confidence sufficient to allow the
appropriate application of technical and economic parameters, to support mine planning and evaluation of
the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing
information gathered through appropriate techniques from locations such as outcrops, trenches, pits,
workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably
assumed.
“inferred mineral resource” means that part of a mineral resource for which quantity and grade or quality can be
estimated on the basis of geological evidence, limited sampling and reasonably assumed, but not verified,
geological and grade continuity. The estimate is based on limited information and sampling gathered
through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.
“measured mineral resource” means that part of a mineral resource for which quantity, grade or quality, densities,
shape and physical characteristics are so well-established that they can be estimated with a level of
confidence sufficient to allow the appropriate application of technical and economic parameters, to support
mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed
and reliable exploration, sampling and testing information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for both
geological and grade continuity to be reasonably assured.
“mineral reserve” means the economically mineable part of a measured or indicated mineral resource demonstrated
by at least a preliminary feasibility study. This study must include adequate information on mining,
processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting,
that economic extraction can be justified. A mineral reserve includes diluting materials and allowances for
losses that may occur when the material is mined.
“mineral resource” means a concentration or occurrence of natural solid inorganic material, or natural solid
fossilized organic material in or on the earth’s crust in such form and quantity and of such a grade or quality
that it has reasonable prospects for economic extraction. The location, quantity, grade, geological
characteristics and continuity of a mineral resource are known, estimated or interpreted from specific
geological evidence and knowledge.
(2) NI 43-101 refers to CIM Definition Standards with respect to the definitions of “indicated mineral resource”, “inferred mineral resource”, “measured mineral
resource”, “mineral reserve”, “mineral resource”, “probable mineral reserve” and “proven mineral reserve.” The CIM Definition Standards, adopted by CIM council
on November 27, 2010, were the relevant standards in effect at the time of the preparation of the Arctic Project PEA (defined herein).
10
“probable mineral reserve” means the economically mineable part of an indicated and, in some circumstances, a
measured mineral resource demonstrated by at least a preliminary feasibility study. This study must
include adequate information on mining, processing, metallurgical, economic and other relevant factors that
demonstrate, at the time of reporting, that economic extraction can be justified.
“proven mineral reserve” means the economically mineable part of a measured mineral resource demonstrated by
at least a preliminary feasibility study. This study must include adequate information on mining,
processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting,
that economic extraction is justified.
SEC Industry Guide 7 Definitions:
“exploration stage” deposit is one which is not in either the development or production stage.
“development stage” project is one which is undergoing preparation of an established commercially mineable
deposit for its extraction but which is not yet in production. This stage occurs after completion of a
feasibility study.
“mineralized material” refers to material that is not included in the reserve as it does not meet all of the criteria for
adequate demonstration for economic or legal extraction.
“probable reserve” refers to reserves for which quantity and grade and/or quality are computed from information
similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement
are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that
for proven reserves, is high enough to assume continuity between points of observation.
“production stage” project is actively engaged in the process of extraction and beneficiation of mineral reserves to
produce a marketable metal or mineral product.
“proven reserve” refers to reserves for which (a) quantity is computed from dimensions revealed in outcrops,
trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling
and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character
is so well defined that size, shape, depth and mineral content of reserves are well-established.
“reserve” refers to that part of a mineral deposit which could be economically and legally extracted or produced at
the time of the reserve determination. Reserves must be supported by a feasibility study done to bankable
standards that demonstrates the economic extraction. (“Bankable standards” implies that the confidence
attached to the costs and achievements developed in the study is sufficient for the project to be eligible for
external debt financing.) A reserve includes adjustments to the in-situ tonnes and grade to include diluting
materials and allowances for losses that might occur when the material is mined.
11
Item 1. BUSINESS
PART I
Our principal business is the exploration and development of our Upper Kobuk Mineral Projects (“Upper Kobuk
Mineral Projects” or “UKMP Projects”) located in the Ambler mining district in Northwest Alaska, United States,
comprising the (i) Arctic Project, which contains a high-grade polymetallic volcanogenic massive sulfide (“VMS”)
deposit (“Arctic Project”); and (ii) Bornite Project, which contains a carbonate-hosted copper deposit (“Bornite
Project”). Our goals include expanding mineral resources and advancing our projects through technical, engineering
and feasibility studies so that production decisions can be made on those projects. Our UKMP Projects are held by a
wholly-owned subsidiary, NovaCopper US Inc. (“NovaCopper US”) (dba Trilogy Metals US), registered to do
business in the State of Alaska.
Name, Address and Incorporation
Trilogy Metals Inc. was incorporated on April 27, 2011 under the name NovaCopper Inc. pursuant to the terms of
the Business Corporations Act (British Columbia) (“BCBCA”). NovaCopper Inc. changed its name to Trilogy
Metals Inc. on September 1, 2016 to better reflect its diversified metals resource base. Our registered office is
located at Suite 2600, Three Bentall Centre, 595 Burrard Street, Vancouver, British Columbia, Canada, and our
executive office is located at Suite 1950, 777 Dunsmuir Street, Vancouver, British Columbia, Canada.
Corporate Organization Chart
The following chart depicts our corporate structure together with the jurisdiction of incorporation of our subsidiary
at November 30, 2016. All ownership is 100%.
Trilogy Metals Inc.
(formerly NovaCopper Inc.)
(British Columbia)
NovaCopper US Inc.
(dba Trilogy Metals US)
(Delaware)
Upper Kobuk
Mineral Projects
(Ambler mining
district, Alaska)
Arctic Project
Bornite Project
12
Business Cycle
Our business, at its current exploration phase, is cyclical. Exploration activities are conducted primarily during
snow-free months in Alaska. The optimum field season at the Upper Kobuk Mineral Projects is from late May to
late September. The length of the snow-free season at the Upper Kobuk Mineral Projects varies from about May
through November at lower elevations and from July through September at higher elevations.
Trilogy’s Strategy
Our business strategy is focused on creating value for stakeholders through our ownership and advancement of the
Arctic Project and exploration of the Bornite Project and through the pursuit of similarly attractive mining projects.
We plan to:
•
•
•
advance the Arctic Project towards development with key activities including increased definition of
the NI 43-101 mineral resources, technical studies to support completion of a pre-feasibility or
feasibility study, and the advancement of baseline environmental studies;
advance exploration in the Ambler mining district and, in particular, at the Bornite Project, pursuant to
the NANA Agreement (as more particularly described under “History of Trilogy – Agreement with
NANA Regional Corporation”) through resource development and initial technical studies; and
pursue project level or corporate transactions that are value accretive.
The Arctic Project PEA represents an early stage study and highlights certain opportunities for us to further expand
upon. Prior to commencing production, further studies that demonstrate the economic viability of the Arctic Project
must be completed including pre-feasibility or feasibility studies, all necessary permits must be obtained, a
production decision must be made by our board of directors (the “Board”), financing for construction and
development must be arranged and construction must be completed. In addition, we will be required to address
certain infrastructure challenges, including a road for access, transportation of supplies and mineral concentrate, and
obtain additional rights, including surface use rights and access rights. See “Item 1A. Risk Factors.”
Significant Developments in 2016
• On April 19, 2016, we released an updated resource estimate on the Bornite Project and on May 16, 2016
filed the NI 43-101 compliant Bornite Report (as defined herein). Shallow mineralization located in the
Ruby Creek Zones, in the Upper and Lower Reefs are reported within a resource limiting pit shell.
Indicated in-pit resources at the Bornite deposit at a 0.50% copper cutoff are 40.5 million tonnes at 1.02%
copper grade. Inferred in-pit resources at the Bornite deposit at a 0.50% copper cutoff are 84.1 million
tonnes at 0.95% copper grade. In addition to the in-pit resources, Inferred below pit resources at the Bornite
deposit are reported (at an elevated 1.5% copper cutoff) as 57.8 million tonnes at 2.89% copper grade.
Contained copper in Indicated Resources has increased from 334 to 913 million pounds constituting a
173% increase in contained metal. Total contained copper in Inferred Resources has decreased from 5,696
to 5,450 million pounds (1,768Mlbs in-pit and 3,683Mlbs below-pit) which constitutes a 4% decrease in
contained metal due principally to moving in-pit Inferred Resources to the Indicated category. The update
incorporated a new 3D lithology, alteration and structural model for the Bornite deposit, as well as results
from previously un-sampled or partially sampled historical Kennecott drill core. Inferred resources have a
great amount of uncertainty as to their existence and whether they can be mined legally or economically. It
cannot be assumed that all or any part of the Inferred resources will ever be upgraded to a higher category.
Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. See
“Cautionary Note to United States Investors.”
• On August 18, 2016, we announced the sale of our wholly-owned subsidiary Sunward Investments Ltd.
(“Sunward Investments”) which indirectly owns the Titiribi property, located in Antioquia Province of
Colombia, to Brazil Resources Inc. (“BRI”) in exchange for 5 million common shares of BRI and 1 million
warrants. Each warrant is exercisable into one common share of BRI at a price of C$3.50 per BRI common
share until September 1, 2018. On September 1, 2016, the close of the transaction, the consideration was
valued at $8.2 million.
13
• On September 8, 2016, the change of our name to Trilogy Metals Inc., which was previously approved by
our shareholders, became effective and our shares began trading on the TSX and the NYSE-MKT under the
new name and symbol “TMQ”. We changed our name to Trilogy to better reflect the diversity of minerals
at our UKMP Projects.
• On October 27, 2016, we released the drill results from the safe and successful 2016 summer field program
for the Arctic Project. We completed thirteen diamond drill holes for a total of 3,058 meters of core. The
2016 drill program was designed to collect data for geotechnical, hydrological, waste rock characterization
and metallurgical studies as well as further resource definition. Three drill holes representing 822 meters
drilled were designed to collect geotechnical and hydrological data within the proposed Arctic open-pit.
Four drill holes representing 1,030 meters drilled were designed to collect metallurgical samples,
specifically targeting material within the initial production years of the Arctic open-pit. Six drill holes
representing 1,206 meters drilled were designed to evaluate vertical and lateral continuity of the high grade
polymetallic copper, gold, silver, lead, and zinc mineralization, and support upgrading of Inferred resources
to Measured and Indicated resource classification within the area of the proposed Arctic open-pit. We were
pleased to announce that all six infill holes encountered mineralized intervals consistent with previous
drilling conducted within the resource area on the property. The updated geology domains and drill data
will be incorporated into an updated resource estimate that will support a future pre-feasibility study. In
addition to the drill program, we conducted an aquatics survey, avian survey, habitat survey, archaeological
survey, and wetlands delineation survey, and continued ongoing baseline environmental data collection and
acid-base-accounting/metal leaching sampling. The LiDAR survey that was incomplete last year due to
weather conditions was also completed during the summer field program.
Significant Developments in 2015
• On June 19, 2015, we announced the completion of a Plan of Arrangement (the “Arrangement”) with
Sunward Resources Ltd. (“Sunward”), a publicly listed company on the TSX, resulting in the acquisition of
Sunward by Trilogy. Under the terms of the Arrangement, Sunward shareholders received 0.3 of a Trilogy
Common Share for each Sunward common share held resulting in the Company issuing approximately 43.1
million Common Shares to Sunward shareholders and Sunward directors holding Sunward deferred share
units. Each Sunward stock option outstanding was exchanged for a fully-vested option to purchase Trilogy
Common Shares (a “Sunward Arrangement Option”) for a period of 90 days, with the number of shares
issuable and exercise price adjusted based on an exchange ratio of 0.3. A total of 2,505,000 Sunward
Arrangement Options were issued to holders of Sunward stock options at closing.
• On October 21, 2015, we announced the drill results from our 2015 summer field program for the Arctic
Project. In total, fourteen diamond drill holes were completed amounting to a total of 3,056 meters drilled.
In addition to the twelve resource estimation drill holes, two drill holes, representing 631 meters drilled,
were completed to support preliminary rock mechanics and geotechnical studies and a hydrogeological
assessment of the proposed Arctic open-pit. All fourteen drill holes encountered mineralized intervals,
defined as a minimum of 1.0 meter copper interval with average grade >0.7% copper.
• On October 22, 2015, we announced that Alaska’s Governor has authorized AIDEA to begin the
environmental impact statement (“EIS”) process on AMDIAP, formerly known as the Ambler Mining
District Industrial Access Road.
Significant Developments in 2014
• On March 18, 2014, Trilogy reported an updated NI 43-101 resource estimate for the Bornite Project in a
report entitled “NI 43-101 Technical Report on the Bornite Project, Northwest Alaska, USA”, dated
effective April 1, 2014, which updated the resource estimate previously released on February 5, 2013. At
the base case 0.5% copper cut-off grade, the Bornite Project was estimated to contain in-pit Indicated
Resources of 14.1 million tonnes of 1.08% Cu or 334 million pounds of contained copper. At the base case
0.5% copper cut-off grade, the Bornite Project was estimated to contain in-pit Inferred Resources of 109.6
million tonnes of 0.94% Cu or 2,259 million pounds of contained copper. Resources were stated as
potentially being economically viable in an open-pit mining scenario based on a projected metal price of
$3.00 per pound copper, total site operating costs of $18.00 per tonne, 87% metallurgical recoveries and an
average pit slope of 43 degrees. At the base case 1.5% copper cut-off grade, the Bornite Project was
estimated to contain below-pit Inferred Resources of 55.6 million tonnes of 2.81% Cu or 3,437 million
14
pounds of contained copper. Inferred resources were stated as potentially being economically viable in an
underground mining scenario based on a projected metal price of $3.00 per pound copper, total site
operating costs of $66.00 per tonne and an average metallurgical recovery of 87%. Inferred resources have
a great amount of uncertainty as to their existence and whether they can be mined legally or economically.
It cannot be assumed that all or any part of the Inferred resources will ever be upgraded to a higher
category. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
See “Cautionary Note to United States Investors.”
• On July 7, 2014, we announced the completion of a non-brokered private placement of approximately $7.5
million in units to existing shareholders. Each unit was priced at $1.15 per unit and consisted of one
Common Share and one Common share purchase warrant. Each common share purchase warrant entitles
the holders to purchase one Common Share at a price of $1.60 per share for a period of five years from the
closing date. Net proceeds from the private placement were $7.2 million. The gross proceeds raised were
allocated for the 12 months following closing to fund $2.7 million on program expenditures, $4.0 million
on general and administrative expenses including costs associated with the offering, and $0.8 million on
one-time expenses incurred in reducing annual general and administrative expenses.
• On August 15, 2014, we announced the departure of our Senior VP Exploration, VP Human Resources and
Workforce Development, and VP Corporate Communications from our senior management team to reduce
our general and administrative expenses.
• On October 28, 2014, we announced the results of our 2014 re-logging and re-sampling program at the
Bornite Project. During the 2014 field season, we re-logged the geology and re-sampled approximately
13,000 meters in 37 historical drill holes, originally drilled by Kennecott on the Bornite Project between
1959 and 1976, and submitted the samples for a complete 42 element Induced Coupled Plasma analysis. Of
the 37 historic drill holes sampled, 5 holes had intervals of copper grading more than 0.5% copper, and 21
holes contained mineralization grading more than 0.2% copper.
History of Trilogy
Spin-Out
We were formerly a wholly-owned subsidiary of NovaGold Resources Inc. (“NovaGold”). At a special meeting of
securityholders of NovaGold held on March 28, 2012, the securityholders voted in favour of a special resolution
approving the distribution of Common Shares of Trilogy to the shareholders of NovaGold as a return of capital
through a statutory Plan of Arrangement under the Companies Act (Nova Scotia).
On April 30, 2012, all of the outstanding Trilogy Common Shares were distributed to shareholders of NovaGold
such that each NovaGold shareholder of record at the close of business on April 27, 2012 received one Trilogy
Common Share for every six common shares in the capital of NovaGold held at that time. The Trilogy Common
Shares were listed and posted for trading on the TSX and on the NYSE-MKT under its previous symbol, NCQ, and
former name, NovaCopper, on April 25, 2012.
Name Change
We changed our corporate name to Trilogy Metals Inc. from NovaCopper Inc. in 2016 to better reflect the diversity
of minerals at our UKMP Projects. On September 8, 2016, upon the opening of the markets our shares began trading
on the TSX and the NYSE-MKT under the symbol “TMQ”.
Agreement with NANA Regional Corporation
On October 19, 2011, NANA Regional Corporation, Inc. (“NANA”), an Alaska Native Corporation headquartered
in Kotzebue, Alaska, and NovaCopper US entered an Exploration Agreement and Option Agreement, as amended
(the “NANA Agreement”) for the cooperative development of NANA’s respective resource interests in the Ambler
mining district of Northwest Alaska. The NANA Agreement consolidates our and NANA’s land holdings into an
approximately 142,831-hectare land package and provides a framework for the exploration and any future
development of this high-grade and prospective poly-metallic belt.
15
The NANA Agreement grants NovaCopper US the nonexclusive right to enter on, and the exclusive right to explore,
the Bornite lands and the Alaska Native Claims Settlement Act (“ANCSA”) lands (each as defined in the NANA
Agreement) and in connection therewith, to construct and utilize temporary access roads, camps, airstrips and other
incidental works. In consideration for this right, NovaCopper US paid to NANA $4 million in cash. NovaCopper
US is also required to make payments to NANA for scholarship purposes in accordance with the terms of the NANA
Agreement. NovaCopper US has further agreed to use reasonable commercial efforts to train and employ NANA
shareholders to perform work for NovaCopper US in connection with its operations on the Bornite lands, ANCSA
lands and Ambler lands (as defined in the NANA Agreement) (collectively, the “Lands”). Under the NANA
Agreement, NANA also has the right to appoint a board member to Trilogy’s Board within a five year period
following our public listing on a stock exchange.
The NANA Agreement has a term of 20 years, with an option in favour of NovaCopper US to extend the term for an
additional 10 years. The NANA Agreement may be terminated by mutual agreement of the parties or by NANA if
NovaCopper US does not meet certain expenditure requirements on the Bornite lands and ANCSA lands.
If, following receipt of a feasibility study and the release for public comment of a related draft environmental impact
statement, we decide to proceed with construction of a mine on the Lands, NovaCopper US will notify NANA in
writing and NANA will have 120 days to elect to either (a) exercise a non-transferrable back-in-right to acquire an
undivided ownership interest between 16% and 25% (as specified by NANA) of that specific project; or (b) not
exercise its back-in-right, and instead receive a net proceeds royalty equal to 15% of the net proceeds realized by
NovaCopper US from such project (following the recoupment by NovaCopper US of all costs incurred, including
operating, capital and carrying costs). The cost to exercise such back-in-right is equal to the percentage interest in
the project multiplied by the difference between (i) all costs incurred by NovaCopper US or its affiliates on the
project, including historical costs incurred prior to the date of the NANA Agreement together with interest on the
costs; and (ii) $40 million (subject to exceptions). This amount will be payable by NANA to NovaCopper US in
cash at the time the parties enter into a joint venture agreement and in no event will the amount be less than zero.
In the event that NANA elects to exercise its back-in-right, the parties will as soon as reasonably practicable form a
joint venture, with NANA’s interest being between 16% to 25% and NovaCopper US owning the balance of the
interest in the joint venture. Upon formation of the joint venture, the joint venture will assume all of the obligations
of NovaCopper US and be entitled to all the benefits of NovaCopper US under the NANA Agreement in connection
with the mine to be developed and the related Lands. A party’s failure to pay its proportionate share of costs in
connection with the joint venture will result in dilution of its interest. Each party will have a right of first refusal
over any proposed transfer of the other party’s interest in the joint venture other than to an affiliate or for the
purposes of granting security. A transfer by either party of any net proceeds royalty interest in a project other than
for financing purposes will also be subject to a first right of refusal. A transfer of NANA’s net smelter return on the
Lands is subject to a first right of refusal by NovaCopper US.
In connection with possible development of a mine on the Bornite lands or ANCSA lands, NovaCopper US and
NANA will execute a mining lease to allow NovaCopper US or the joint venture to construct and operate a mine on
the Bornite lands or ANCSA lands. These leases will provide NANA a 2% net smelter royalty as to production from
the Bornite lands and a 2.5% net smelter royalty as to production from the ANCSA lands. If NovaCopper US
decides to proceed with construction of a mine on the Ambler lands, NANA will enter into a surface use agreement
with NovaCopper US which will afford NovaCopper US access to the Ambler lands along routes approved by
NANA on the Bornite lands or ANCSA lands. In consideration for the grant of such surface use rights, NovaCopper
US will grant NANA a 1% net smelter royalty on production and an annual payment of $755 per acre (as adjusted
for inflation each year beginning with the second anniversary of the effective date of the NANA Agreement and for
each of the first 400 acres (and $100 for each additional acre) of the lands owned by NANA and used for access
which are disturbed and not reclaimed.
We have formed an oversight committee with NANA, which consists of four representatives from each of Trilogy
and NANA (the “Oversight Committee”). The Oversight Committee is responsible for certain planning and
oversight matters carried out by us under the NANA Agreement. The planning and oversight matters that are the
subject of the NANA Agreement will be determined by majority vote. The representatives of each of Trilogy and
NANA attending a meeting will have one vote in the aggregate and in the event of a tie, the Trilogy representatives
jointly shall have a deciding vote on all matters other than Subsistence Matters, as that term is defined in the NANA
Agreement. There shall be no deciding vote on Subsistence Matters and we may not proceed with such matters
unless approved by majority vote of the Oversight Committee or with the consent of NANA, such consent not to be
unreasonably withheld or delayed.
16
Principal Markets
We do not currently have a principal market. Our principal objective is to become a producer of copper.
Specialized Skill and Knowledge
All aspects of our business require specialized skills and knowledge. Such skills and knowledge include the areas of
geology, mining and accounting. See “Executive Officers of Trilogy” for details as to the specific skills and
knowledge of our directors and management.
Environmental Protection
Mining is an extractive industry that impacts the environment. Our goal is to evaluate ways to minimize that impact
and to develop safe, responsible and profitable operations by developing natural resources for the benefit of our
employees, shareholders and communities and maintain high standards for environmental performance at our
UKMP Projects. We strive to meet or exceed environmental standards at our UKMP Projects. One way we do this
is through collaborations with local communities in Alaska, including Native Alaskan groups. Our environmental
performance will be overseen at the Board level and environmental performance is the responsibility of the project
manager.
• All new activities and operations will be managed for compliance with applicable laws and
regulations. In the absence of regulation, best management practices will be applied to manage
environmental risk.
• We will strive to limit releases to the air, land or water and appropriately treat and dispose of waste.
See “Arctic Project – Environmental Considerations.”
Employees
As of November 30, 2016, we had 7 full-time employees, all of whom were employed at our executive office in
Vancouver, BC. The number of individuals employed by us fluctuates throughout the year depending on the season;
however, during 2016, we had, on average, 15 employees working for us. We have entered into executive
employment agreements with two individuals, the CEO and CFO.
We believe our success is dependent on the performance of our management and key employees, many of whom
have specialized skills in exploration in Alaska and the base metals industry. Substantially all of our exploration site
employees have been active in the Ambler mining district for the last five years and are knowledgeable as to the
geology, metallurgy and infrastructure related to mining development.
Executive Officers of Trilogy
As of November 30, 2016, we had two executive officers, namely Rick Van Nieuwenhuyse and Elaine Sanders.
The following information is presented as of November 30, 2016.
Name and Residence
Rick Van Nieuwenhuyse
British Columbia, Canada
Director, President and Chief Executive
Officer
Age
61
Held Office Since
April 29, 2011(1)
Business Experience During Past Five
Years
Chief Executive Officer of Trilogy
(2011 – present); Former President
and Chief Executive Officer of
NovaGold
17
Name and Residence
Elaine Sanders
British Columbia, Canada
VP, Chief Financial Officer and Corporate
Secretary
Age
47
Held Office Since
January 30, 2012(2)
Business Experience During Past Five
Years
VP and Chief Financial Officer of
Trilogy (2012 – present); Corporate
Secretary of Trilogy (2011 – present);
Vice President, Chief Financial
Officer and Corporate Secretary of
NovaGold (2011 – 2012); and Vice
President Finance of NovaGold (2006
– 2011).
(1) Mr. Van Nieuwenhuyse was appointed President and Chief Executive Officer on April 29, 2011. He became a full-time
employee of the Company on January 9, 2012.
(2) Ms. Sanders was appointed Chief Financial Officer on January 30, 2012. She became a full-time employee of the Company on
November 13, 2012.
Segment Information
The Company’s reportable segments are based on geographic region for the Company’s operations. Segment
information relating to our assets is provided under the section heading “Item 8. Financial Statements and
Supplementary Data” below.
Competitive Conditions
The mineral exploration and development industry is competitive in all phases of exploration, development and
production. There is a high degree of competition faced by us in Alaska and elsewhere for skilled management
employees, suitable contractors for drilling operations, technical and engineering resources, and necessary
exploration and mining equipment, and many of these competitor companies have greater financial resources,
operational expertise, and/or more advanced properties than us. Additionally, our operations are in a remote location
where skilled resources and support services are limited. We have in place experienced management personnel and
continue to evaluate the required expertise and skills to carry out our operations. As a result of this competition, we
may be unable to achieve our exploration and development in the future on terms we consider acceptable or at all.
See “Item 1A. Risk Factors.”
Available Information
We make available, free of charge, on or through our website, at www.trilogymetals.com our annual report on Form
10-K, which includes our audited financial statements, our quarterly reports on Form 10-Q, and our current reports
on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act. You may read and copy any materials filed with the SEC free of charge at the SEC’s Public Reference Room,
100 F Street, N.E., Washington, D.C. 20549 and you may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy
and information statements, and other information at http://www.sec.gov. Our website and the information contained
therein or connected thereto are not intended to be, and are not incorporated into this annual report on Form 10-K.
Item 1A. RISK FACTORS
Investing in our securities is speculative and involves a high degree of risk due to the nature of our business and the
present stage of exploration of our mineral properties. The following risk factors, as well as risks currently unknown
to us, could materially adversely affect our future business, operations and financial condition and could cause them
to differ materially from the estimates described in forward-looking information relating to Trilogy, or our business,
property or financial results, each of which could cause purchasers of securities to lose all or part of their
investments.
We have not defined any proven or probable reserves and none of our mineral properties are in production
or under development.
18
We have no history of commercially producing precious or base metals and all of our properties are in the
exploration stage. We have not defined or delineated any measured mineral resources or proven or probable reserves
on our Upper Kobuk Mineral Projects. Mineral exploration involves significant risk, since few properties that are
explored contain bodies of ore that would be commercially economic to develop into producing mines. We cannot
assure you that we will establish the presence of any measured resources, or proven or probable reserves at the
Upper Kobuk Mineral Projects, or any other properties. The failure to establish measured mineral resources, or
proven or probable reserves, would severely restrict our ability to implement our strategies for long-term growth.
We may not have sufficient funds to develop our mineral projects or to complete further exploration
programs.
We have limited financial resources. We currently generate no mining operating revenue, and must primarily
finance exploration activity and the development of mineral projects by other means. In the future, our ability to
continue exploration, development and production activities, if any, will depend on our ability to obtain additional
external financing. Any unexpected costs, problems or delays could severely impact our ability to continue
exploration and development activities. The failure to meet ongoing obligations on a timely basis could result in a
loss or a substantial dilution of our interests in projects.
The sources of external financing that we may use for these purposes include project or bank financing or public or
private offerings of equity and debt. In addition, we may enter into one or more strategic alliances or joint ventures,
decide to sell certain property interests, or utilize one or a combination of all of these alternatives. The financing
alternative we choose may not be available on acceptable terms, or at all. If additional financing is not available, we
may have to postpone further exploration or development of, or sell, one or more of our principal properties.
Even if one of our mineral projects is determined to be economically viable to develop into a mine, such
development may not be successful.
If the development of one of our projects is found to be economically feasible and approved by our Board, such
development will require obtaining permits and financing, the construction and operation of mines, processing
plants and related infrastructure, including road access. As a result, we are and will continue to be subject to all of
the risks associated with establishing new mining operations, including:
•
•
•
•
•
•
•
the timing and cost, which can be considerable, of the construction of mining and processing facilities
and related infrastructure;
the availability and cost of skilled labor and mining equipment;
the availability and cost of appropriate smelting and refining arrangements;
the need to obtain necessary environmental and other governmental approvals and permits and the
timing of the receipt of those approvals and permits;
the availability of funds to finance construction and development activities;
potential opposition from non-governmental organizations, environmental groups or local groups
which may delay or prevent development activities; and
potential increases in construction and operating costs due to changes in the cost of fuel, power,
materials and supplies.
The costs, timing and complexities of developing our projects may be greater than anticipated because our property
interests are not located in developed areas, and, as a result, our property interests are not currently served by
appropriate road access, water and power supply and other support infrastructure. Cost estimates may increase
significantly as more detailed engineering work is completed on a project. It is common in new mining operations to
experience unexpected costs, problems and delays during construction, development and mine start-up. In addition,
delays in the early stages of mineral production often occur. Accordingly, we cannot provide assurance that we will
ever achieve, or that our activities will result in, profitable mining operations at our mineral properties.
19
In addition, there can be no assurance that our mineral exploration activities will result in any discoveries of new
mineralization. If further mineralization is discovered there is also no assurance that the mineralization would be
economical for commercial production. Discovery of mineral deposits is dependent upon a number of factors and
significantly influenced by the technical skill of the exploration personnel involved. The commercial viability of a
mineral deposit is also dependent upon a number of factors which are beyond our control, including the attributes of
the deposit, commodity prices, government policies and regulation and environmental protection.
The Upper Kobuk Mineral Projects are located in a remote area of Alaska, and access to them is limited.
Exploration and any future development or production activities may be limited and delayed by
infrastructure challenges, inclement weather and a shortened exploration season.
The Upper Kobuk Mineral Projects are located in a remote area of Alaska. Access to the Upper Kobuk Mineral
Projects is limited and there is currently no infrastructure in the area.
We cannot provide assurances that the proposed AMDIAP that would provide access to the Ambler mining district
will be permitted or built, that it will be built in a timely manner, that the cost of accessing the proposed road will be
reasonable, that it will be built in the manner contemplated, or that it will sufficiently satisfy the requirements of the
Upper Kobuk Mineral Projects. In addition, successful development of the Upper Kobuk Mineral Projects will
require the development of the necessary infrastructure. If adequate infrastructure is not available in a timely
manner, there can be no assurance that:
•
•
•
the development of the Upper Kobuk Mineral Projects will be commenced or completed on a timely
basis, if at all;
the resulting operations will achieve the anticipated production volume; or
the construction costs and operating costs associated with the development of the Upper Kobuk
Mineral Projects will not be higher than anticipated.
As the Upper Kobuk Mineral Projects are located in a remote area, exploration, development and production
activities may be limited and delayed by inclement weather and a shortened exploration season.
We have no history of production and no revenue from mining operations.
We have a very limited history of operations and to date have generated no revenue from mining operations. As
such, we are subject to many risks common to such enterprises, including under-capitalization, cash shortages,
limitations with respect to personnel, financial and other resources and lack of significant revenues. There is no
assurance that the Upper Kobuk Mineral Projects, or any other future projects will be commercially mineable, and
we may never generate revenues from our mining operations.
Future sales or issuances of equity securities could decrease the value of any existing Common Shares, dilute
investors’ voting power and reduce our earnings per share.
We may sell additional equity securities (including through the sale of securities convertible into Common Shares)
and may issue additional equity securities to finance our operations, exploration, development, acquisitions or other
projects. We are authorized to issue an unlimited number of Common Shares. We cannot predict the size of future
sales and issuances of equity securities or the effect, if any, that future sales and issuances of equity securities will
have on the market price of the Common Shares. Sales or issuances of a substantial number of equity securities, or
the perception that such sales could occur, may adversely affect prevailing market prices for the Common Shares.
With any additional sale or issuance of equity securities, investors will suffer dilution of their voting power and may
experience dilution in our earnings per share.
Changes in the market price of copper, gold and other metals, which in the past have fluctuated widely, will
affect our ability to finance continued exploration and development of our projects and affect our operations
and financial condition.
Our long-term viability will depend, in large part, on the market price of copper, gold and other metals. The market
prices for these metals are volatile and are affected by numerous factors beyond our control, including:
20
•
•
•
•
•
•
global or regional consumption patterns;
the supply of, and demand for, these metals;
speculative activities;
the availability and costs of metal substitutes;
expectations for inflation; and
political and economic conditions, including interest rates and currency values.
We cannot predict the effect of these factors on metal prices. A decrease in the market price of copper, gold and
other metals could affect our ability to raise funds to finance the exploration and development of any of our mineral
projects, which would have a material adverse effect on our financial condition and results of operations. The market
price of copper, gold and other metals may not remain at current levels. In particular, an increase in worldwide
supply, and consequent downward pressure on prices, may result over the longer term from increased copper
production from mines developed or expanded as a result of current metal price levels. There is no assurance that a
profitable market may exist or continue to exist.
Actual capital costs, operating costs, production and economic returns may differ significantly from those
described in the PEA.
The PEA technical report for the Arctic Project is an early stage study that is preliminary in nature. There can be no
assurance that the results described in the PEA will be realized. The capital costs to take our projects into production
may be significantly higher than anticipated.
None of our mineral properties have an operating history upon which we can base estimates of future operating
costs. Decisions about the development of the Arctic Project (or the Bornite Project) will ultimately be based upon
feasibility studies. Feasibility studies derive estimates of cash operating costs based upon, among other things:
•
•
•
•
anticipated tonnage, grades and metallurgical characteristics of the ore to be mined and processed;
anticipated recovery rates of metals from the ore;
cash operating costs of comparable facilities and equipment; and
anticipated climatic conditions.
Cash operating costs, production and economic returns, and other estimates contained in studies or estimates
prepared by or for us may differ significantly from those anticipated by the PEA and there can be no assurance that
our actual operating costs will not be higher than currently anticipated.
We will incur losses for the foreseeable future.
We expect to incur losses unless and until such time as our mineral projects generate sufficient revenues to fund
continuing operations. The exploration and development of our mineral properties will require the commitment of
substantial financial resources that may not be available.
The amount and timing of expenditures will depend on a number of factors, including the progress of ongoing
exploration and development, the results of consultants’ analyses and recommendations, the rate at which operating
losses are incurred, the execution of any joint venture agreements with strategic partners and the acquisition of
additional property interests, some of which are beyond our control. We cannot provide assurance that we will ever
achieve profitability.
21
Mineral resource and reserve calculations are only estimates.
Any figures presented for mineral resources in this Form 10-K and in our other filings with securities regulatory
authorities and those which may be presented in the future or any figures for mineral reserves that may be presented
by us in the future are and will only be estimates. There is a degree of uncertainty attributable to the calculation of
mineral reserves and mineral resources. Until mineral reserves or mineral resources are actually mined and
processed, the quantity of metal and grades must be considered as estimates only and no assurances can be given
that the indicated levels of metals will be produced. In making determinations about whether to advance any of our
projects to development, we must rely upon estimated calculations as to the mineral resources and grades of
mineralization on our properties.
The estimating of mineral reserves and mineral resources is a subjective process that relies on the judgment of the
persons preparing the estimates. The process relies on the quantity and quality of available data and is based on
knowledge, mining experience, analysis of drilling results and industry practices. Valid estimates made at a given
time may significantly change when new information becomes available. While we believe that the mineral resource
estimates included in this Form 10-K for the Upper Kobuk Mineral Projects are well-established and reflect
management’s best estimates, by their nature mineral resource estimates are imprecise and depend, to a certain
extent, upon analysis of drilling results and statistical inferences that may ultimately prove to be inaccurate. There
can be no assurances that actual results will meet the estimates contained in feasibility studies. As well, further
studies are required.
Estimated mineral reserves or mineral resources may have to be recalculated based on changes in metal prices,
further exploration or development activity or actual production experience. This could materially and adversely
affect estimates of the volume or grade of mineralization, estimated recovery rates or other important factors that
influence mineral reserve or mineral resource estimates. The extent to which mineral resources may ultimately be
reclassified as mineral reserves is dependent upon the demonstration of their profitable recovery. Any material
changes in mineral resource estimates and grades of mineralization will affect the economic viability of placing a
property into production and a property’s return on capital. We cannot provide assurance that mineralization can be
mined or processed profitably.
Our mineral resource estimates have been determined and valued based on assumed future metal prices, cut-off
grades and operating costs that may prove to be inaccurate. Extended declines in market prices for copper, zinc,
lead, gold and silver may render portions of our mineralization uneconomic and result in reduced reported mineral
resources, which in turn could have a material adverse effect on our results of operations or financial condition. We
cannot provide assurance that mineral recovery rates achieved in small scale tests will be duplicated in large scale
tests under on-site conditions or in production scale.
A reduction in any mineral reserves that may be estimated by us in the future could have an adverse impact on our
future cash flows, earnings, results of operations and financial condition. No assurances can be given that any
mineral resource estimates for the Upper Kobuk Mineral Projects will ultimately be reclassified as mineral reserves.
See “Cautionary Note to United States Investors.”
Significant uncertainty exists related to inferred mineral resources.
There is a risk that inferred mineral resources referred to in this Form 10-K cannot be converted into measured or
indicated mineral resources as there may be limited ability to assess geological continuity. Due to the uncertainty
that may attach to inferred mineral resources, there is no assurance that inferred mineral resources will be upgraded
to resources with sufficient geological continuity to constitute proven and probable mineral reserves as a result of
continued exploration. See “Cautionary Note to United States Investors.”
Mining is inherently risky and subject to conditions or events beyond our control.
The development and operation of a mine is inherently dangerous and involves many risks that even a combination
of experience, knowledge and careful evaluation may not be able to overcome, including:
•
unusual or unexpected geological formations;
• metallurgical and other processing problems;
22
• metal losses;
•
•
•
•
•
•
environmental hazards;
power outages;
labor disruptions;
industrial accidents;
periodic interruptions due to inclement or hazardous weather conditions;
flooding, explosions, fire, rockbursts, cave-ins and landslides;
• mechanical equipment and facility performance problems; and
•
the availability of materials and equipment.
These risks could result in damage to, or destruction of, mineral properties, production facilities or other properties,
personal injury or death, including to our employees, environmental damage, delays in mining, increased production
costs, asset write downs, monetary losses and possible legal liability. We may not be able to obtain insurance to
cover these risks at economically feasible premiums, or at all. Insurance against certain environmental risks,
including potential liability for pollution and other hazards associated with mineral exploration and production, is
not generally available to companies within the mining industry. We may suffer a material adverse effect on our
business if we incur losses related to any significant events that are not covered by our insurance policies.
General economic conditions may adversely affect our growth, future profitability and ability to finance.
The unprecedented events in global financial markets in the past several years have had a profound impact on the
global economy. Many industries, including the copper mining industry, are impacted by these market conditions.
Some of the key impacts of the current financial market turmoil include contraction in credit markets resulting in a
widening of credit risk, devaluations, high volatility in global equity, commodity, foreign exchange and precious
metal markets and a lack of market liquidity. A worsening or slowdown in the financial markets or other economic
conditions, including but not limited to, consumer spending, employment rates, business conditions, inflation, fuel
and energy costs, consumer debt levels, lack of available credit, the state of the financial markets, interest rates and
tax rates, may adversely affect our growth and ability to finance. Specifically:
•
•
•
•
•
the volatility of copper, gold and other metal prices would impact our estimates of mineral resources,
revenues, profits, losses and cash flow, and the feasibility of our projects;
negative economic pressures could adversely impact demand for our future production, if any;
construction related costs could increase and adversely affect the economics of any project;
volatile energy, commodity and consumables prices and currency exchange rates would impact our
estimated production costs; and
the devaluation and volatility of global stock markets would impact the valuation of our equity and
other securities.
We cannot provide assurance that we will successfully acquire commercially mineable mineral rights.
Exploration for and development of copper and gold properties involves significant financial risks which even a
combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an ore body
may result in substantial rewards, few properties which are explored are ultimately developed into producing mines.
Major expenses may be required to establish reserves by drilling, constructing mining and processing facilities at a
site, developing metallurgical processes and extracting metals from ore. We cannot ensure that our current
exploration and development programs will result in profitable commercial mining operations.
23
The economic feasibility of development projects is based upon many factors, including the accuracy of mineral
resource estimates; metallurgical recoveries; capital and operating costs; government regulations relating to prices,
taxes, royalties, land tenure, land use, importing and exporting and environmental protection; and metal prices,
which are highly volatile. Development projects are also subject to the successful completion of feasibility studies,
issuance of necessary governmental permits and availability of adequate financing.
Most exploration projects do not result in the discovery of commercially mineable ore deposits, and no assurance
can be given that any anticipated level of recovery of ore reserves, if any, will be realized or that any identified
mineral deposit will ever qualify as a commercially mineable (or viable) ore body which can be legally and
economically exploited. Estimates of mineral reserves, mineral resources, mineral deposits and production costs can
also be affected by such factors as environmental permitting regulations and requirements, weather, environmental
factors, unforeseen technical difficulties, the metallurgy of the mineralization forming the mineral deposit, unusual
or unexpected geological formations and work interruptions. If current exploration programs do not result in the
discovery of commercial ore, we may need to write-off part or all of our investment in our existing exploration stage
properties, and may need to acquire additional properties.
Material changes in mineral reserves, if any, grades, stripping ratios or recovery rates may affect the economic
viability of any project. Our future growth and productivity will depend, in part, on our ability to develop
commercially mineable mineral rights at our existing properties or identify and acquire other commercially mineable
mineral rights, and on the costs and results of continued exploration and potential development programs. Mineral
exploration is highly speculative in nature and is frequently non-productive. Substantial expenditures are required to:
•
•
•
establish mineral reserves through drilling and metallurgical and other testing techniques;
determine metal content and metallurgical recovery processes to extract metal from the ore; and
construct, renovate or expand mining and processing facilities.
In addition, if we discover ore, it would take several years from the initial phases of exploration until production is
possible. During this time, the economic feasibility of production may change. As a result of these uncertainties,
there can be no assurance that we will successfully acquire commercially mineable (or viable) mineral rights.
We are subject to significant governmental regulations.
Our exploration activities are subject to extensive federal, state, provincial and local laws and regulations governing
various matters, including:
•
•
•
•
•
•
•
environmental protection;
the management and use of toxic substances and explosives;
the management of natural resources;
the exploration and development of mineral properties, including reclamation;
exports;
price controls;
taxation and mining royalties;
• management of tailing and other waste generated by operations;
•
•
labor standards and occupational health and safety, including mine safety; and
historic and cultural preservation.
24
Failure to comply with applicable laws and regulations may result in civil or criminal fines or penalties or
enforcement actions, including orders issued by regulatory or judicial authorities enjoining, curtailing or closing
operations or requiring corrective measures, installation of additional equipment or remedial actions, any of which
could result in significant expenditures. We may also be required to compensate private parties suffering loss or
damage by reason of a breach of such laws, regulations or permitting requirements. It is also possible that future
laws and regulations, or more stringent enforcement of current laws and regulations by governmental authorities,
could cause us to incur additional expense or capital expenditure restrictions, suspensions or closing of our activities
and delays in the exploration and development of our properties.
We require further permits in order to conduct current and anticipated future operations, and delays in
obtaining or failure to obtain such permits, or a failure to comply with the terms of any such permits that we
have obtained, would adversely affect our business.
Our current and anticipated future operations, including further exploration, development and commencement of
production on our mineral properties, require permits from various governmental authorities. Obtaining or renewing
governmental permits is a complex and time-consuming process. The duration and success of efforts to obtain and
renew permits are contingent upon many variables not within our control. Due to the preliminary stages of the Upper
Kobuk Mineral Projects, it is difficult to assess what specific permitting requirements will ultimately apply.
Shortage of qualified and experienced personnel in the U.S. federal and Alaskan State agencies to coordinate a
federally led joint environmental impact statement process could result in delays or inefficiencies. Backlog within
the permitting agencies could affect the permitting timeline or potential of the Upper Kobuk Mineral Projects, as
may negative public perception of mining projects in general due to circumstances unrelated to the Company and
outside of its control. Other factors that could affect the permitting timeline include (i) the number of other large-
scale projects currently in a more advanced stage of development which could slow down the review process for the
Upper Kobuk Mineral Projects and (ii) significant public response regarding the Upper Kobuk Mineral Projects.
We cannot provide assurance that all permits that we require for our operations, including any for construction of
mining facilities or conduct of mining, will be obtainable or renewable on reasonable terms, or at all. Delays or a
failure to obtain such required permits, or the expiry, revocation or failure to comply with the terms of any such
permits that we have obtained, would adversely affect our business.
Our activities are subject to environmental laws and regulations that may increase our costs and restrict our
operations.
All of our exploration, potential development and production activities are subject to regulation by governmental
agencies under various environmental laws. These laws address emissions into the air, discharges into water,
management of waste, management of hazardous substances, protection of natural resources, antiquities and
endangered species and reclamation of lands disturbed by mining operations. Environmental legislation is evolving
and the general trend has been towards stricter standards and enforcement, increased fines and penalties for
noncompliance, more stringent environmental assessments of proposed projects and increasing responsibility for
companies and their officers, directors and employees. Compliance with environmental laws and regulations may
require significant capital outlays on our behalf and may cause material changes or delays in our intended activities.
Several regulatory initiatives are currently ongoing within the State of Alaska that have the potential to influence the
permitting process for the Upper Kobuk Mineral Projects. These include revisions to Alaska's Water Quality
Standards regarding mixing zones regulations, which are currently under EPA review, and which revisions may be
required in order to authorize a mixing zone for discharge in Subarctic Creek. Future changes in these laws or
regulations could have a significant adverse impact on some portion of our business, requiring us to re-evaluate
those activities at that time.
Environmental hazards may exist on our properties that are unknown to us at the present time and that have been
caused by previous owners or operators or that may have occurred naturally. We may be liable for remediating such
damage.
Failure to comply with applicable environmental laws, regulations and permitting requirements may result in
enforcement actions thereunder, including orders issued by regulatory or judicial authorities, causing operations to
cease or to be curtailed, and may include corrective measures requiring capital expenditures, installation of
additional equipment or remedial actions.
25
Land reclamation requirements for our exploration properties may be burdensome.
Land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with
mining operations) in order to minimize long term effects of land disturbance. Reclamation may include
requirements to:
•
•
•
treat ground and surface water to drinking water standards;
control dispersion of potentially deleterious effluents; and
reasonably re-establish pre-disturbance land forms and vegetation.
In order to carry out reclamation obligations imposed on us in connection with exploration, potential development
and production activities, we must allocate financial resources that might otherwise be spent on further exploration
and development programs. In addition, regulatory changes could increase our obligations to perform reclamation
and mine closing activities. If we are required to carry out unanticipated reclamation work, our financial position
could be adversely affected.
Title and other rights to our properties may be subject to challenge.
We cannot provide assurance that title to our properties will not be challenged. We own mineral claims which
constitute our property holdings. We may not have, or may not be able to obtain, all necessary surface rights to
develop a property. Title insurance is generally not available for mineral properties and our ability to ensure that we
have obtained a secure claim to individual mining properties may be severely constrained. Our mineral properties
may be subject to prior unregistered agreements, transfers or claims, and title may be affected by, among other
things, undetected defects. We have not conducted surveys of all of the claims in which we hold direct or indirect
interests. A successful claim contesting our title to a property will cause us to lose our rights to explore and, if
warranted, develop that property or undertake or continue production thereon. This could result in our not being
compensated for our prior expenditures relating to the property. In addition, our ability to continue to explore and
develop the property may be subject to agreements with other third parties including agreements with native
corporations and first nations groups, for instance, the lands at the Upper Kobuk Mineral Projects are subject to the
NANA Agreement (as more particularly described under “History of Trilogy – Agreement with NANA Regional
Corporation”).
Risks inherent in acquisitions of new properties.
We may actively pursue the acquisition of exploration, development and production assets consistent with our
acquisition and growth strategy. From time to time, we may also acquire securities of or other interests in companies
with respect to which we may enter into acquisitions or other transactions. Acquisition transactions involve inherent
risks, including but not limited to:
•
•
•
•
•
•
•
•
accurately assessing the value, strengths, weaknesses, contingent and other liabilities and potential
profitability of acquisition candidates;
ability to achieve identified and anticipated operating and financial synergies;
unanticipated costs;
diversion of management attention from existing business;
potential loss of our key employees or key employees of any business acquired;
unanticipated changes in business, industry or general economic conditions that affect the assumptions
underlying the acquisition;
decline in the value of acquired properties, companies or securities;
assimilating the operations of an acquired business or property in a timely and efficient manner;
26
• maintaining our financial and strategic focus while integrating the acquired business or property;
•
•
implementing uniform standards, controls, procedures and policies at the acquired business, as
appropriate; and
to the extent that we make an acquisition outside of markets in which it has previously operated,
conducting and managing operations in a new operating environment.
Acquiring additional businesses or properties could place increased pressure on our cash flow if such acquisitions
involve a cash consideration. The integration of our existing operations with any acquired business will require
significant expenditures of time, attention and funds. Achievement of the benefits expected from consolidation
would require us to incur significant costs in connection with, among other things, implementing financial and
planning systems. We may not be able to integrate the operations of a recently acquired business or restructure our
previously existing business operations without encountering difficulties and delays. In addition, this integration
may require significant attention from our management team, which may detract attention from our day-to-day
operations. Over the short-term, difficulties associated with integration could have a material adverse effect on our
business, operating results, financial condition and the price of Trilogy Shares. In addition, the acquisition of
mineral properties may subject us to unforeseen liabilities, including environmental liabilities, which could have a
material adverse effect on us. There can be no assurance that any future acquisitions will be successfully integrated
into our existing operations.
Any one or more of these factors or other risks could cause us not to realize the anticipated benefits of an acquisition
of properties or companies, and could have a material adverse effect on our financial condition.
High metal prices in past years have encouraged increased mining exploration, development and construction
activity, which has increased demand for, and cost of, exploration, development and construction services and
equipment.
The relative strength of metal prices in past years has encouraged increases in mining exploration, development and
construction activities around the world, which has resulted in increased demand for, and cost of, exploration,
development and construction services and equipment. While recent market conditions have had a moderating effect
on the costs of such services and equipment, increases in such costs may continue with the resumption of an upward
trend in metal prices. Increased demand for and cost of services and equipment could result in delays if services or
equipment cannot be obtained in a timely manner due to inadequate availability, and may cause scheduling
difficulties due to the need to coordinate the availability of services or equipment, any of which could materially
increase project exploration, development and/or construction costs.
We face industry competition in the acquisition of exploration properties and the recruitment and retention
of qualified personnel.
We compete with other exploration and producing companies, many of which are better capitalized, have greater
financial resources, operational experience and technical capabilities or are further advanced in their development or
are significantly larger and have access to greater mineral reserves, for the acquisition of mineral claims, leases and
other mineral interests as well as for the recruitment and retention of qualified employees and other personnel. If we
require and are unsuccessful in acquiring additional mineral properties or in recruiting and retaining qualified
personnel, we will not be able to grow at the rate we desire, or at all.
We may experience difficulty attracting and retaining qualified management and technical personnel to grow
our business.
We are dependent on the services of key executives and other highly skilled and experienced personnel to advance
our corporate objectives as well as the identification of new opportunities for growth and funding. Mr. Van
Nieuwenhuyse and Ms. Sanders are currently our only executive officers. It will be necessary for us to recruit
additional skilled and experienced executives. Our inability to do so, or the loss of any of these persons or our
inability to attract and retain suitable replacements for them, or additional highly skilled employees required for our
activities, would have a material adverse effect on our business and financial condition.
27
Some of our directors and officers have conflicts of interest as a result of their involvement with other natural
resource companies.
Certain of our directors and officers also serve as directors or officers, or have significant shareholdings, in other
companies involved in natural resource exploration and development or mining-related activities, including, in
particular, NovaGold. To the extent that such other companies may participate in ventures in which we may
participate in, or in ventures which we may seek to participate in, our directors and officers may have a conflict of
interest in negotiating and concluding terms respecting the extent of such participation. In all cases where our
directors and officers have an interest in other companies, such other companies may also compete with us for the
acquisition of mineral property investments. Any decision made by any of these directors and officers involving
Trilogy will be made in accordance with their duties and obligations to deal fairly and in good faith with a view to
the best interests of Trilogy and its shareholders. In addition, each of the directors is required to declare and refrain
from voting on any matter in which these directors may have a conflict of interest in accordance with the procedures
set forth in the Business Corporations Act (British Columbia) and other applicable laws. In appropriate cases, the
Company will establish a special committee of independent directors to review a matter in which several directors,
or management, may have a conflict. Nonetheless, as a result of these conflicts of interest, the Company may not
have an opportunity to participate in certain transactions, which may have a material adverse effect on the
Company’s business, financial condition, results of operation and prospects.
In the future, we may be subject to legal proceedings.
Due to the nature of our business, we may be subject to numerous regulatory investigations, claims, lawsuits and
other proceedings in the ordinary course of our business. The results of these legal proceedings cannot be predicted
with certainty due to the uncertainty inherent in litigation, including the effects of discovery of new evidence or
advancement of new legal theories, the difficulty of predicting decisions of judges and juries and the possibility that
decisions may be reversed on appeal. There can be no assurances that these matters will not have a material adverse
effect on our business.
Our largest shareholder has significant influence on us and may also affect the market price and liquidity of
the securities.
Electrum Strategic Opportunities Fund L.P. (“Electrum”) is our single largest shareholder, controlling approximately
21.3% of the outstanding voting securities. Accordingly, Electrum will have significant influence in determining the
outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers,
consolidations and the sale of all or substantially all of our assets and other significant corporate actions. Unless
significant participation of other shareholders takes place in such shareholder meetings, Electrum may be able to
approve such matters itself. The concentration of ownership of the shares by Electrum may: (i) delay or deter a
change of control of the Company; (ii) deprive shareholders of an opportunity to receive a premium for their shares
as part of a sale of the Company; and (iii) affect the market price and liquidity of the shares. Without the consent of
Electrum, we could be prevented from entering into transactions that are otherwise beneficial to us. The interests of
Electrum may differ from or be adverse to the interests of our other shareholders. The effect of these rights and
Electrum’s influence may impact the price that investors are willing to pay for securities. If Electrum sells a
substantial number of shares in the public market, the market price of the shares could fall. The perception among
the public that these sales will occur could also contribute to a decline in the market price of the shares.
Global climate change is an international concern, and could impact our ability to conduct future operations.
Global climate change is an international issue and receives an enormous amount of publicity. We would expect that
the imposition of international treaties or U.S. or Canadian federal, state, provincial or local laws or regulations
pertaining to mandatory reductions in energy consumption or emissions of greenhouse gasses could affect the
feasibility of our mining projects and increase our operating costs.
Adverse publicity from non-governmental organizations could have a material adverse effect on us.
There is an increasing level of public concern relating to the effect of mining production on our surroundings,
communities and environment. Non-governmental organizations (“NGOs”), some of which oppose resource
development, are often vocal critics of the mining industry. While we seek to operate in a socially responsible
manner, adverse publicity generated by such NGOs related to extractive industries, or our operations specifically,
28
could have an adverse effect on our reputation and financial condition or our relationship with the communities in
which we operate.
We may fail to achieve and maintain the adequacy of our internal control over financial reporting as per the
requirements of the Sarbanes-Oxley Act.
We are required to document and test our internal control procedures in order to satisfy the requirements of Section
404 of SOX. It requires an annual assessment by management of the effectiveness of our internal control over
financial reporting. We may in the future fail to achieve and maintain the adequacy of our internal control over
financial reporting, as such standards are modified, supplemented or amended from time to time, and we may not be
able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial
reporting in accordance with Section 404 of SOX. Our failure to satisfy the requirements of Section 404 of SOX on
an ongoing, timely basis could result in the loss of investor confidence in the reliability of our financial statements,
which in turn could harm our business and negatively impact the trading price of our Common Shares. In addition,
any failure to implement required new or improved controls, or difficulties encountered in their implementation,
could harm our operating results or cause us to fail to meet our reporting obligations. Future acquisitions of
companies may provide us with challenges in implementing the required processes, procedures and controls in our
acquired operations. Acquired companies may not have disclosure control and procedures or internal control over
financial reporting that are as thorough or effective as those required by securities laws currently applicable to us.
Our business is subject to evolving corporate governance and public disclosure regulations that have
increased both our compliance costs and the risk of noncompliance, which could have an adverse effect on
our stock price.
We are subject to changing rules and regulations promulgated by a number of United States and Canadian
governmental and self-regulated organizations, including the SEC, the Canadian Securities Administrators, the
NYSE-MKT, the TSX, and the Financial Accounting Standards Board. These rules and regulations continue to
evolve in scope and complexity and many new requirements have been created in response to laws enacted by the
United States Congress, making compliance more difficult and uncertain. Our efforts to comply with new rules and
regulations, including those promulgated under Dodd-Frank, have resulted in, and are likely to continue to result in,
increased general and administrative expenses and a diversion of management time and attention from revenue-
generating activities to compliance activities.
Our Common Shares are subject to various factors that have historically made share prices volatile.
The market price of our Common Shares may be subject to large fluctuations, which may result in losses to
investors. The market price of the Common Shares may increase or decrease in response to a number of events and
factors, including: our operating performance and the performance of competitors and other similar companies;
volatility in metal prices; the arrival or departure of key personnel; the number of Common Shares to be publicly
traded after an offering; the public’s reaction to our press releases, material change reports, other public
announcements and our filings with the various securities regulatory authorities; changes in earnings estimates or
recommendations by research analysts who track the Common Shares or the shares of other companies in the
resource sector; changes in general economic and/or political conditions; acquisitions, strategic alliances or joint
ventures involving us or our competitors; and the factors listed under the heading “Cautionary Statement Regarding
Forward-Looking Information.”
The market price of the Common Shares may be affected by many other variables which are not directly related to
our success and are, therefore, not within our control, including other developments that affect the market for all
resource sector securities, the breadth of the public market for the Common Shares and the attractiveness of
alternative investments.
We do not intend to pay any cash dividends in the foreseeable future.
We have not declared or paid any dividends on our Common Shares. Our current business plan requires that for the
foreseeable future, any future earnings be reinvested to finance the growth and development of our business. We do
not intend to pay cash dividends on the Common Shares in the foreseeable future. We will not declare or pay any
dividends until such time as our cash flow exceeds our capital requirements and will depend upon, among other
things, conditions then existing including earnings, financial condition, restrictions in financing arrangements,
29
business opportunities and conditions and other factors, or our Board determines that our shareholders could make
better use of the cash.
We may be a “passive foreign investment company” in future periods, which may have adverse U.S. federal
income tax consequences for U.S. shareholders.
U.S. investors in the Company should be aware that we believe we were not a passive foreign investment company
(“PFIC”) for the years ending November 30, 2014, 2015 and 2016 but may be a PFIC in future tax years. If we are a
PFIC for any year during a U.S. Holder’s (as defined below under Certain U.S. Federal Income Tax Considerations
– U.S. Holders”) holding period, then such U.S. Holder generally will be required to treat any gain realized upon a
disposition of Common Shares and any so-called “excess distribution” received on its Common Shares as ordinary
income, and to pay an interest charge on a portion of such gain or distributions, unless the shareholder makes a
timely and effective “QEF Election” or a “Mark-to-Market Election” (each as defined below under “Certain U.S.
Federal Income Tax Considerations – Default PFIC Rules under Section 1291 of the Code”). A U.S. Holder who
makes a QEF Election generally must report on a current basis its share of our net capital gain and ordinary earnings
for any year in which we are a PFIC, whether or not we distribute any amounts to our shareholders. A U.S. Holder
who makes the Mark-to-Market Election generally must include as ordinary income each year the excess of the fair
market value of the Common Shares over the U.S. Holder’s tax basis therein. This paragraph is qualified in its
entirety by the discussion below the heading “Certain U.S. Federal Income Tax Considerations.” Each U.S.
shareholder should consult its own tax advisor regarding the PFIC rules and the U.S. federal income tax
consequences of the acquisition, ownership, and disposition of Common Shares.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
The following descriptions summarize selected information about our Upper Kobuk Mineral Projects, which are
located in the Ambler mining district of Alaska and include the Arctic Project and the Bornite Project. All of the
UKMP Projects are without known reserves, as defined under SEC Industry Guide 7, and all proposed programs for
the properties are exploratory in nature.
Arctic Project, Ambler Mining District, Alaska
Arctic Project – Technical Report
Except with respect to the land size disclosure and the disclosure regarding the number of claims (which were both
increased subsequent to the effective date of the PEA), and the information under the heading “Arctic Project –
Current Activities”, or as otherwise stated, the scientific and technical information relating to the Arctic Project
contained in this Form 10-K is derived from, and in some instances is an extract from, the technical report titled
“Preliminary Economic Assessment Report on the Arctic Project, Ambler Mining District, Northwest Alaska” dated
effective September 12, 2013 prepared by Tetra Tech and EBA, a Tetra Tech Company (and together with Tetra
Tech, “Tetra Tech”). Erin Workman, P.Geo., an employee and Director, Technical Services, is a Qualified Person
as defined in NI 43-101, and has approved the scientific and technical information contained herein. The
information regarding the Arctic Project is based on assumptions, qualifications and procedures which are not fully
described herein. Reference should be made to the full text of the PEA which has been filed with certain Canadian
securities regulatory authorities pursuant to NI 43-101 and is available for review on SEDAR at www.sedar.com and
on EDGAR at www.sec.gov.
Arctic Project - Property Description and Location
The Arctic Project is located in the Ambler mining district of the southern Brooks Range, in the Northwest Arctic
Borough (“NWAB”) of Alaska. The Arctic Project is located 260 km east of the town of Kotzebue, 30 km north of
the village of Kobuk, 260 km west of the Dalton Highway, an all-weather state maintained public road, at
geographic coordinates N67.17° latitude and W156.38° longitude (Universal Transverse Mercator (UTM) North
American Datum (NAD) 83, Zone 4 coordinates 7453080N, 613110E). The current size of the Ambler lands is
approximately 75 km long x 6 km wide and comprises a total of 45,348 ha.
30
The Ambler lands comprise 45,348 ha of State of Alaska mining claims and US Federal patented mining claims in
the Kotzebue Recording District. The Ambler land tenure consists of 1,358 contiguous claims, including 870 40-
acre State claims, 481 160-acre State claims, 5 State claims ranging from 2-acre to 8-acre, and two Federal patented
claims comprising 110 ha held in the name of NovaCopper US Inc. The Arctic Project is located near the southern
edge of the centre of the claim block. The Federal patented claim corners were located by the US Geological
Survey. There is no expiration date or labor requirement on the Federal patented claims. Rent for each State claim
is paid annually to the Alaska Department of Natural Resources (“ADNR”). An Annual Labor Statement must be
submitted annually to maintain the State claims in good standing.
In 1971, the US Congress passed the Alaska Native Claims Settlement Act which settled land and financial claims
made by the Alaska Natives and provided for the establishment of 13 regional corporations to administer those
claims. These are known as the Alaska Native Regional Corporations. One of these 13 regional corporations is
NANA. ANCSA Lands controlled by NANA bound the southern border of the property claim block. National Park
lands are within 25 km of the northern property border.
Figure 1: Regional Location Map
31
Figure 2: Upper Kobuk Mineral Projects Lands Prospect Location Map
There are no known environmental liabilities due to previous operators or from our ongoing exploration activities at
the Arctic Project. There has been no mine development or production on the Ambler lands.
Multiple permits are required during the exploration phase of the Arctic Project. Permits are issued from Federal,
State, and Regional agencies, including: the Environmental Protection Agency (“EPA”), the US Army Corps of
Engineers (“USACE”), the Alaska Department of Environmental Conservation (“ADEC”), the Alaska Department
of Fish and Game (“ADF&G”), the ADNR, and the NWAB. The State of Alaska permit for exploration on the
Arctic Project, the Annual Hardrock Exploration Activity (“AHEA”) Permit, is obtained and renewed every five
years through the ADNR – Division of Mining, Land and Water. Trilogy holds an AHEA exploration permit in
good standing with the Alaska DNR. The Arctic Project is within the NWAB thus requiring a Title 9 Miscellaneous
Land Use permit for mineral exploration, fuel storage, gravel extraction, and the operation of a landfill. NovaGold
held these permits in good standing during the 2004 to 2008 seasons and renewed the permits for the 2010
exploration season to 2015. The Bornite Camp, Bornite Landfill, and Dahl Creek Camp are permitted by the
ADEC.
A number of statutory reports and payments are required to maintain the claims in good standing on an annual basis.
As the Arctic Project progresses, additional permits for environmental baseline and detailed engineering studies will
be necessary at federal, state, and local levels.
Arctic Project - Accessibility, Climate, Local Resources, Infrastructure and Physiography
Accessibility is one of the most significant challenges of developing the Arctic Project. There is no developed
surface access to the Ambler mining district.
Primary access to the Arctic Project is by air, using both fixed wing aircraft and helicopters. There are four well
maintained, approximately 1,500 m-long gravel airstrips located near the Arctic Project, capable of accommodating
charter fixed wing aircraft. These airstrips are located 66 km west at Ambler, 46 km southwest at Shungnak, 36 km
32
southwest at Kobuk, and 32 km southwest at Dahl Creek. There is daily commercial air service from Kotzebue to
the village of Kobuk, the closest community to the Arctic Project. During the summer months, the Dahl Creek Camp
airstrip is suitable for larger aircraft, such as C-130 and DC-6. In addition to the four 1,500 m airstrips, there is a
700 m airstrip located at the Bornite Camp, approximately 25 km southwest of the Arctic Deposit, and a 400 m
airstrip located approximately 10 km southwest of the Arctic Deposit. The airstrip at Bornite is suited to smaller
aircraft, which support the camp with personnel and supplies. An upgraded one-lane gravel road suitable for
vehicles or construction equipment links the Bornite Camp to the Dahl Creek airstrip and camp southwest of the
Arctic Deposit.
The climate in the region is typical of a sub-arctic environment. Exploration is generally conducted from late May
until late September. Weather conditions on the Ambler lands can vary significantly from year to year and can
change suddenly. During the summer exploration season, average maximum temperatures range from 10°C to 20°C,
while average lows range from -2°C to 7°C. By early October, unpredictable weather limits regular helicopter travel
to the Arctic Project. During winter months, the Arctic Project can be accessed by snow machine, track vehicle, or
fixed wing aircraft. Winter temperatures are routinely below -25°C and can exceed -50°C. Annual precipitation in
the region averages at 395 mm with the most rainfall occurring from June through September, and the most snowfall
occurring from November through January.
The Arctic Project is located along the south slope of the Brooks Range, which separates the Arctic region from the
interior of Alaska. Nearby surface waters include Subarctic Creek, the Shungnak and Kogoluktuk Rivers, the Kobuk
River, and numerous small lakes. The Arctic Project is located at the eastern end of Subarctic Creek, a tributary of
the Shungnak River to the west, along a ridge between Subarctic Creek and the Kogoluktuk River Valley. The
property area is marked by steep and rugged terrain with high topographic relief. Elevations range from 30 masl
along the Kobuk River to 1,180 masl on a peak immediately north of the Arctic Project area. The divide between the
Shungnak and Kogoluktuk Rivers in the Ambler Lowlands is approximately 220 masl. The Kobuk Valley is located
at the transition between boreal forest and Arctic tundra. Spruce, birch, and poplar are found in portions of the
valley, with a ground cover of lichens (reindeer moss). Willow and alder thickets and isolated cottonwoods follow
drainages, and alpine tundra is found at higher elevations. Tussock tundra and low, heath-type vegetation covers
most of the valley floor. Intermittent permafrost exists on the Arctic Project.
Wildlife in the area includes caribou, moose, Dall sheep, bears (grizzly and black), wolves, wolverines, coyotes, and
foxes. Fish species include salmon, sheefish, arctic char, and arctic grayling. The Kobuk River, which briefly enters
the UKMP lands on its southwest corner, is a significant salmon spawning river. Subarctic Creek, which does not
contain anadromous fish, drains into the Shungnak River, which drains into the Kobuk River. The caribou on the
property belong to the Western Arctic herd that migrates twice a year – south in August, from their summer range
north of the Brooks Range, and north in March from their winter range along the Buckland River.
Currently, the Arctic Project does not have access to Alaska power and transportation infrastructure. Beginning in
2009, the Arctic Project has been the focus of the Ambler Mining District Access Corridor study.
The Arctic Deposit proposed access road branches off from the proposed AMDIAP, formerly known as the Ambler
Mining District Access Road or AMDIAR, and ends at the Arctic Deposit. Figure 3 shows the overall road location
plan showing the relationship of the proposed access road to the proposed Brooks East corridor which eventually
connects to the existing Dalton Highway 320 km from the access road intersection. The proposed access road is
17 km long from the AMDIAP corridor to the Arctic Project site.
33
Figure 3: Proposed Access to the Arctic Project Site
AMDIAR
Proposed On Site Road
Proposed Bridge
Proposed Culvert
Kilometres
0
1
2
3
4
N
15 km
17 km
Proposed Arctic Pit Shell
e r
k R i v
a
n
g
n
u
h
S
10 km
Proposed Arctic Airstrip
5 km
0 km
K o g olu ktu k Riv er
AMDIAR
NOTES
CLIENT
The proposed Arctic Project mine site infrastructure is spread over a distance of approximately 6 km within the
upper reaches of the Sub-Arctic Creek Valley. The proposed development for the Arctic Project consists of the
following major infrastructure: roads and an airstrip, mill buildings and related services facilities including
maintenance and truck shops, assay lab, water supply and distribution, waste management, fuel storage, on site
explosive storage, power supply, tailings storage facility (“TSF”) and water management, water treatment plant,
construction and permanent camp accommodation, waste rock storage facilities, and communication infrastructure.
The proposed mine-site infrastructure has been located to take advantage of local topography, minimize pumping
requirements from the mill building to the TSF, minimize environmental impacts to Sub-Arctic Creek, minimize
snow avalanche mitigation requirements, and to reduce the haul distance from the pit to the primary crusher and
TSF.
The proposed location for an airstrip sufficient to support project activities is located in the valley approximately
21 km from the Arctic Project site. Geotechnical data is not available for the site but it is assumed that the facility
will require permafrost protection to ensure year round operations. The proposed airstrip will operate as a private
aerodrome and prior permission will be required for all aircraft utilizing the site. The gravel airstrip will be
approximately 1,524 meters long and capable of landing a Dash 8 – Q400/Hercules C130.
The Arctic Project will require power of 15 MW of peak load for 10,000 t/d operation demand. It is proposed that
power will be generated by five self-contained 3.6 MW prime diesel generators. Four units will be in service with
the fifth unit reserved for maintenance. Heat will be recovered from the generators and used to heat the mill, camp
and related facilities.
Arctic Project - History
During the 1940’s and 1950’s Bear Creek Mining Corporation (“BCMC”), an exploration subsidiary of Kennecott,
conducted regional reconnaissance exploration in the Cosmos Hills and the southern Brooks Range. Stream silt
sampling in 1963 by BCMC revealed a significant copper anomaly in Arctic Creek roughly 17 km northeast of the
previously identified Bornite deposit. The area was subsequently staked and, in 1967, eight core holes were drilled
at the Arctic Deposit yielding impressive massive sulphide intercepts over an almost 500-m strike length. BCMC
conducted intensive exploration on the property until 1977 and then intermittently through 1998. No drilling or
additional exploration was conducted on the Arctic Project between 1998 and 2004.
34
Arctic Project - Historical Metallurgical Testwork
Metallurgical studies during the Kennecott era included: two initial mineralogical studies undertaken by the
Kennecott Research Center (“KRC”) to evaluate and identify the potential beneficiation or metallurgical treatment
of concentrates of the samples from the deposit and a subsequent 1999 Lakefield Research Ltd. (Lakefield)
metallurgical test program to confirm and improve upon the results from the 1970s KRC test work program. In
2012, Trilogy contracted SGS to conduct an extensive metallurgical program in support of the Artic PEA, the results
of which are described and summarized below under the heading “Arctic Project – Metallurgical Testing”.
Arctic Project - Historical Geophysics
Prior to 1998, Kennecott conducted a series of geophysical surveys which are poorly documented or are unavailable
to Trilogy. In March 1998, Kennecott initiated an extensive helicopter-supported airborne electromagnetic (“EM”)
and magnetic survey covering the entire VMS belt, including the Arctic Deposit. Kennecott identified eight EM
anomalies which were deemed to have significant potential for mineralization and followed-up with additional
gravity lines and/or Controlled Source Audio-frequency Magneto-Telluric (“CSAMT”) lines during 1998.
Kennecott conducted no further geophysical field exploration in the district after 1998.
Arctic Project - Historical Drilling
Between 1967 and July 1985, Kennecott (BCMC) completed 86 holes (including 14 large diameter metallurgical
test holes) totalling 16,080 m. In 1998, Kennecott drilled an additional 6 core holes totalling 1,492 m to test for: 1)
extensions of the known Arctic resource; 2) grade and thickness continuity at Arctic; and 3) a nearby airborne
geophysical anomaly. Drilling for all BCMC/Kennecott campaigns in the Arctic Deposit area (1966 to 1998) totals
92 core holes for a combined 17,572 m.
No drilling was performed on the project between 1999 and 2003. NovaGold took control of the project in 2004.
Arctic Project - Historical Geochemistry
Historic geochemistry for the district, compiled in the 1998 Kennecott database, includes 2,255 soil samples, 922
stream silt samples, 363 rock samples, and 37 panned concentrate samples. Data has been sourced from several
companies including Kennecott, Sunshine Mining, Resource Associates of Alaska, and NANA. Sourcing of much of
the data had been poorly documented in the database. During 1998, Kennecott renewed its effort in the district, and,
as a follow-up to the 1998 EM survey, undertook directed soil and rock chip sampling in and around EM anomalies
generated in the geophysical targeting effort. During this period Kennecott collected 962 soils and 107 rocks and for
the first time used extensive multi-element inductively coupled plasma (“ICP”) analysis.
Arctic Project - Geologic Setting
Regional Geology
The Ambler mining district occurs along the southern margin of Brooks Range within an east-west trending zone of
Devonian to Jurassic age submarine volcanic and sedimentary rocks. The district covers both: 1) VMS-like deposits
and prospects hosted in the Devonian age Ambler Sequence (or Ambler Schist belt), a group of metamorphosed
bimodal volcanic rocks with interbedded tuffaceous, graphitic and calcareous volcaniclastic metasediments; and
2) epigenetic carbonate-hosted copper deposits occurring in Devonian age carbonate and phyllitic rocks of the
Bornite Carbonate Sequence. The Ambler Sequence occurs in the upper part of the Anirak Schist, the thickest
member of the Schist belt or Coldfoot subterrane. VMS-like stratabound mineralization can be found along the
entire 110 km strike length of the district. Immediately south of the Schist belt in the Cosmos Hills, a time
equivalent section of the Anirak Schist includes the approximately 1 km thick Bornite Carbonate Sequence.
Mineralization of both the VMS-like deposits of the Schist belt and the carbonate-hosted deposits of the Cosmos
Hills has been dated at 375 to 387 Ma.
In addition, the Ambler mining district is characterized by increasing metamorphic grade north perpendicular to the
strike of the east-west trending units. The district shows isoclinal folding in the northern portion and thrust faulting
to south (Schmidt 1983). The Devonian to Mississippian age Angayucham basalt and the Triassic to Jurassic age
mafic volcanic rocks are in low-angle over thrust contact with various units of the Ambler Schist belt and Bornite
Carbonate Sequence along the northern edge of the Ambler Lowlands.
35
Local/Property Geology
Rocks that form the Ambler Sequence consist of a lithologically diverse sequence of lower Paleozoic Devonian age
carbonate and siliciclastic strata with interlayered mafic lava flows and sills and felsic tuffs. The clastic strata,
derived from terrigenous continental and volcanic sources, were deposited primarily by mass-gravity flow into the
sub-wavebase environment of an extending marginal basin.
Though the Ambler Sequence is exposed over 110 km of strike length, descriptions and comments herein will refer
to an area between the Kogoluktuk River on the east and the Shungnak River on the west where we have focused the
majority of our exploration efforts over the last decade.
The local base of the Ambler Sequence consists of variably metamorphosed carbonates historically referred to as the
Gnurgle Gneiss. We interpret these strata as calc-turbidites, perhaps deposited in a sub-wavebase environment
adjacent to a carbonate bank. Calcareous schists overlie the Gnurgle Gneiss and host sporadically distributed mafic
sills and pillowed lavas. These fine-grained clastic strata indicate a progressively quieter depositional environment
up section, and the presence of pillowed lavas indicates a rifting, basinal environment.
Overlying these basal carbonates and pillowed basalts is a section of predominantly fine-grained carbonaceous
siliciclastic rocks which host a significant portion of the mineralization in the district including the Arctic Deposit.
This quiescent section indicates further isolation from a terrigenous source terrain.
The section above the Arctic Deposit host stratigraphy contains voluminous reworked silicic volcanic strata with the
Button Schist at its base. The Button Schist is a regionally continuous and distinctive albite porphyroblastic unit that
serves as an excellent marker above the main mineralized stratigraphy. The paucity of volcanically derived strata
below the Arctic Deposit host section and abundance above indicates that the basin and surrounding hinterlands
underwent major tectonic reorganization during deposition of the Arctic Deposit section. Greywacke sands that we
interpret as channeled high-energy turbidites occur throughout the section but concentrate high in the local
stratigraphy.
Several rock units show substantial change in thickness and distribution in the vicinity of the Arctic Deposit that
may have resulted from the basin architecture existing at the time of deposition. Between the Arctic Ridge,
geographically above the Arctic Deposit, and the Riley Ridge to the west, several significant differences have been
documented including: 1) the Gnurgle Gneiss, which is thickest in exposures along the northern extension of Arctic
Ridge and appears to thin to the west; 2) mafic lavas and sills which thicken from east to west; they show thick
occurrences in upper Subarctic Creek and to the west, but are sparsely distributed to the east; 3) the quartzite section,
which within and above the Arctic sulphide horizon does not occur in abundance east of Arctic Ridge; it is thicker
and occurs voluminously to the west; 4) the Button Schist which thickens dramatically to the west from exposures
on Arctic Ridge; exposures to the east are virtually nonexistent; and 5) Greywacke sands which do not exist east of
Subarctic Creek but occur in abundance as massive, channeled accumulations to the west, centered on Riley Ridge.
These data are interpreted by us to define a generally north-northwest-trending depocentre through the central
Ambler mining district. Diamictite occurrences described below in concert with these formational changes suggest
that the depocentre had a fault-controlled eastern margin with the basin deepening to the west. This original basin
architecture appears to have controlled mineralization of the sulphide systems at Ambler and Shungnak (Dead
Creek), concentrating fluid flow along structures on the eastern basin margin.
In addition to the underlying pre-deformational structural framework of the district suggested by the stratigraphic
thickening of various facies around the Arctic Deposit, the Ambler Sequence is deformed by two penetrative
deformational events that significantly complicate the distribution and spatial arrangement of the local stratigraphy;
as described below.
F1 Deformation: the earliest penetrative deformation event is associated with greenschist metamorphism and the
development of regional schistosity. True isoclinal folds are developed and fold noses typically are thickened. The
most notable F1 fold is the Arctic antiform that defines the upper and lower limbs of the Arctic Deposit. The fold
closes along a north-northeast- trending fold axis roughly mimicking the trace of Subarctic Creek and opening to the
east. Importantly, the overturned lower limb implies that the permissive stratigraphy should be repeated on a lower
synformal isocline beneath the currently explored limbs and would connect with the permissive mineralized
stratigraphy to the northwest at Shungnak (Dead Creek).
36
F2 Deformation: the earlier F1 schistosity is in turn deformed by the F2 deformational event that resulted in the local
development of an axial planar cleavage. The deformational event is well defined throughout the Schist belt and
results in a series of south verging open to moderately overturned folds that define a series of east-west trending
folds of similar vergence across the entire Schist belt stratigraphies. This event is likely temporarily related to the
emplacement of the Devonian Angayucham volcanics, the obducted Jurassic ophiolites and Cretaceous sediments
over the Schist belt stratigraphies. In addition to the earlier penetrative deformation events, a series of poorly defined
non-penetrative deformation events, likely as a consequence of Cretaceous extension, are seen as a series of warps
or arches across the district. The interplay between the complex local stratigraphy, the isoclinal F1 event, the
overturned south verging F2 event and the series of post-penetrative deformational events makes district geological
interpretation often extremely difficult at a local scale.
Recent work by us defines the Arctic Deposit as two or more discrete horizons of sulphide mineralization contained
in a complexly deformed isoclinal fold with an upright upper limb and an overturned lower limb hosting the main
mineral resources. Nearby drilling suggests a third limb, an upright lower limb, likely occurs beneath the currently
explored stratigraphy.
Mineralization occurs as stratiform semi-massive sulphide (“SMS”) to massive sulphide (“MS”) beds within
primarily graphitic chlorite schists and fine-grained quartz sandstones. The sulphide beds average four meters in
thickness but vary from less than one meter up to as much as eighteen meters in thickness. The bulk of the
mineralization is within six modelled zones lying along the upper and lower limbs of the Arctic isoclinal anticline.
All of the zones are within an area of roughly 1 km2 with mineralization extending to a depth of approximately
250 m below the surface. Mineralization characteristically varies from MS to SMS. Unlike more typical VMS
deposits, mineralization is not characterized by steep metal zonation or massive pyritic zones. Mineralization is
dominantly sheet-like zones of base metal sulphides with variable pyrite and only minor zonation usually on an
extremely small scale. No stockworks or stringer zones in association with the mineralization have been observed.
More importantly, the mineralization in general exhibits characteristics and textures common to replacement-style
mineralization. Mineralization is predominately coarse-grained sulphides consisting mainly of chalcopyrite,
sphalerite, galena, tetrahedrite, arsenopyrite, pyrite and pyrrhotite. Trace amounts of electrum and enargite are also
present. Gangue minerals associated with the mineralized horizons include quartz, barite, white mica, black chlorite,
talc, calcite, dolomite and cymrite.
Talc and magnesium chlorite are the dominant alteration products associated with the sulphide-bearing horizons.
Talc alteration grades downward and outward to mixed talc-magnesium chlorite with minor phlogopite, into zones
of dominantly magnesium chlorite, then into mixed magnesium chlorite-phengite with outer phengite-albite zones of
alteration. Thickness of alteration zones vary with stratigraphic interpretation, but tens of meters for the outer zones
is likely, as seen in phengite-albite exposures on the east side of Arctic Ridge. Stratigraphically above the sulphide-
in
bearing horizons significant muscovite as paragonite
sodium/magnesium ratios across the sulphide bearing horizons. Of particular note are the barium (“Ba”) species
including barite, cymrite (a high-pressure Ba phyllosilicate), and Ba-bearing muscovite, phlogopite and biotite.
These species associated with both alteration and mineralization has also been strongly remobilized during
metamorphism.
is developed and results
in a marked shift
Historic interpretation of the genesis of the Ambler Schist belt deposits have called for a syngenetic VMS origin
with steep thermal gradients in and around seafloor hydrothermal vents resulting in metal deposition due to the rapid
cooling of chloride bound base metals. A variety of VMS types have been well documented in the literature
(Franklin et al. 2005) with the Ambler Schist belt deposits most similar to deposits associated with a bimodal mafic
dominant volcanism related to incipient rifting. The majority of field observations broadly support such a scenario at
the Arctic Deposit and include: 1) the tectonic setting with Devonian volcanism in an evolving continental rift; 2)
the geologic setting with bimodal volcanics including pillow basalts and limited felsic volcanic tuffs; 3) an alteration
assemblage with well-defined magnesium-rich footwall alteration and sodium-rich hanging wall alteration; and
4) typical polymetallic base-metal mineralization with massive and semi-massive sulphides. Although the majority
of field observations support a VMS genesis to the deposits of the Schist belt, a series of other observations and
characteristics suggest a more direct genetic link with that of the carbonate-hosted Bornite Deposit in the Devonian
Bornite Carbonate Sequence. Both deposit types have been dated at 375 to 387 Ma suggesting a clear temporal link.
The principal lithologic units captured in logging and mapping by us, in broad chronological order from oldest to
youngest are as follows: greenstone, chlorite schist, talc schist, grey to black schists, metarhyolites, most notably the
so-called button schist which serves as an important stratigraphic marker, quartz muscovite schists, diamictites and
greywackes.
37
Arctic Project - Exploration
NovaGold began exploration of the Arctic Deposit and surrounding lands of the Schist belt in 2004 after optioning
the property from Kennecott. Previous exploration on the Arctic Project during Kennecott’s tenure is summarized in
“Arctic Project – History”. Field exploration was largely conducted during the period 2004 to 2007 with associated
engineering and characterization studies between 2008 and 2012. Table 2 summarizes the exploration work
conducted by NovaGold and us during our tenure from 2004 to 2012.
Table 2: Summary of Trilogy/NovaGold Exploration Activities Targeting VMS-style Mineralization in the
Ambler Sequence Stratigraphy and the Arctic Deposit (2004 – 2012)
Work Completed
Year
Details
Focus
Geological Mapping
-
-
-
Geophysical Surveys
SWIR Spectrometry
TDEM
Downhole EM
Geochemistry
-
-
-
-
Survey
Collar
Photography/Topography
Technical Studies
Geotechnical
ML/ARD
Metallurgy
Geotechnical
Hydrology
Project Evaluation
Resource Estimation
PEA
and
2004
2005
2006
2004
2005
2006
2007
2007
2005
2006
2007
-
-
-
Arctic Deposit surface geology
Ambler Sequence west of the Arctic Deposit
COU, Dead Creek, Sunshine, Red
2004 drill holes Alteration characterization
2 loops
13 loops
6 loops
4 drill holes
Follow-up of Kennecott DIGHEM EM survey
District targets
Arctic extensions
Arctic Deposit
-
-
-
-
Stream silts – core area prospects
Soils – core area prospects
Stream silts – core area prospects
Soils – Arctic Deposit area
2004 to 2011
2004, 2008
2010
GPS
Resurveys
-
All 2004 to 2011 Trilogy drill holes
Historical Kennecott drill holes
Photography/topography
2010
2011
2012
2012
2008
2011
2012
BGC
SRK
SGS
BGC
SRK
SRK
SRK
Preliminary geotechnical and hazards
Preliminary ML and ARD
Preliminary mineralogy and metallurgy
Preliminary rock mechanics and hydrology
Resource estimation
PEA
PEA update
Note: SWIR = short wave infrared; ML = metal leaching; BGC = BGC Engineering Inc.; SRK = SRK Consulting
The results of the above exploration programs have been incorporated into the PEA results, summarized under the
heading “Arctic Project – Exploration and Development”. For further details, refer to the PEA. Exploration work
conducted during the 2015 and 2016 summer field programs are summarized under the heading “Arctic Project –
Current Activities”.
Arctic Project - Mineralization
In 2013, we updated the mineralization models, representing massive and semi-massive VMS-style mineralization.
Geometrically, the mineralization is confined to six lenticular mineralized zones concentrated along an isoclinal fold
hinge. Five of the six SMS zones contain a core of MS material. For more details regarding length, width, depth and
continuity together with a description of the type, character and distribution of the mineralization see
“Local/Property Geology” above.
38
Arctic Project - Drilling
Drilling at the Arctic Deposit has been ongoing since its initial discovery in 1965. Approximately 31,907 m of
drilling in 135 drill holes have been completed at the deposit or on potential extensions in 23 campaigns spanning 45
years. All of the drill campaigns between 1965 and 2012 have been run under the auspices of either: 1) Kennecott
and its subsidiaries, or 2) NovaGold, our predecessor company.
We and our predecessor company NovaGold, have drilled 17,983 m in 59 different drill holes targeting the Arctic
Deposit and several other prospects of the Ambler Schist belt. Table 3 summarizes all of the Trilogy/NovaGold
tenure drilling on the property. Drilling conducted during the 2015 and 2016 summer field programs are summarized
under the heading “Arctic Project – Current Activities”.
Table 3: Summary of Trilogy/NovaGold Drilling (2004 – 2012)
Year
Meters
No. of
Drill Holes
2004
2005
2006***
2007
2008*
2011**
2012***
2,996
3,030
3,100
2,606
3,306
1,193
1,752
11
9
12
4
14
5
4
Sequence
Purpose of Drilling
AR04-78 to 88
AR05-89 to 97
AR06-98 to 109
AR07-110 to 113
AR08-114 to 126
AR11-127 to 131
SC12-014 to 017
Deposit scoping and verification
Extensions to the Arctic Deposit
Property-wide exploration drilling
Deep extensions of the Arctic Deposit
Grade continuity and metallurgy
Geotechnical studies
Exploration drilling – Sunshine
Notes:
*A total of 12 of the 14 holes drilled in 2008 were utilized in the 2012 SRK resource update. Two holes were
maintained in sealed frozen storage to provide additional metallurgical samples if required.
**Geotechnical holes drilled in 2011 are not included in the current resource estimation contained herein.
***Drilling in 2006 and 2012 targeted exploration targets elsewhere in the VMS belt.
Over the Arctic Project’s history, a relatively limited number of drill companies have been used by Kennecott and
Trilogy/NovaGold at the Arctic Deposit. During Kennecott’s tenure on the property, Sprague and Henwood, a
Pennsylvania-based drilling company was the principal contractor. Sprague and Henwood utilized company
manufactured drill rigs during their tenure on the property. Many of their rigs remain at the Bornite Deposit and
constitute a historical inventory of 1950s and 1960s exploration artifacts. Tonto Drilling provided services to
Kennecott during Kennecott’s short return to the district in the late 1990s. We and NovaGold have utilized Boart
Longyear as our only contractor. The 2004 to 2012 Trilogy/NovaGold drill programs used a single skid-mounted
LF-70 core rig, drilling HQ or NQ core. Wireframes were updated in 2013 to incorporate interpretation of all drill
results to date and have been included in the resource estimate.
Arctic Project - Sampling Methodology and Analysis
The data for the Arctic Deposit resource was generated over three primary drilling campaigns: 1966 to 1986 when
BCMC, a subsidiary of Kennecott Copper Corporation was the primary operator, 1998 when Kennecott Minerals
resumed work after a long hiatus, and 2004 to 2012 with NovaGold and now us as the operators.
Sampling of drill core prior to 1998 by BCMC focused primarily on the mineralized zones; numerous intervals of
weak to moderate mineralization were not sampled during this period. During the 1998 campaign, Kennecott did
sample some broad zones of alteration and weak mineralization, but much of the unaltered and unmineralized drill
core was left unsampled. Little documentation on historic sampling procedures is available.
Between 2004 and 2006, NovaGold conducted a systematic drill core re-logging and re-sampling campaign of
Kennecott and BCMC era drill holes AR-09 to AR-74. NovaGold either took 1 to 2 m samples every 10 m, or
sampled entire lengths of previously unsampled core within a minimum of 1 m and a maximum of 3 m intervals.
The objective of the sampling was to generate a full ICP geochemistry dataset for the Arctic Deposit and ensure
continuous sampling throughout the deposit. Sample preparation procedures for NovaGold era work are described
below.
39
All drill core was transported by helicopter in secure core “baskets” to either the Dahl Creek camp or the Bornite
camp for logging and sampling. Sample intervals were determined by the geologist during the geological logging
process. Sample intervals were labelled with white paper tags and butter (aluminum) tags which were stapled to the
core box. Each tag had a unique number which corresponded to that sample interval. Sample intervals were
determined by the geological relationships observed in the core and limited to a three meter maximum length and
one meter minimum length. An attempt was made to terminate sample intervals at lithological and mineralization
boundaries. Sampling was generally continuous from the top to the bottom of the drill hole. When the hole was in
unmineralized rock, the sample length was generally three meters, whereas in mineralized units, the sample length
was shortened to one to two meters. Geological and geotechnical parameters were recorded based on defined sample
intervals and/or drill run intervals (defined by the placement of a wooden block at the end of a core run). Logged
parameters were reviewed annually and slight modifications have been made between campaigns, but generally
include rock type, mineral abundance, major structures, specific gravity (“SG”), point load testing, recovery and
rock quality designation measurements. Drill logs were converted to a digital format and forwarded to the Database
Manager, who imported them into the master database. Core was photographed and then brought into the saw shack
where it was split in half by the rock saw, divided into sample intervals, and bagged by the core cutters. Not all drill
core was oriented; however, core that had been oriented was identified to samplers by a line drawn down the core
stick. If core was not competent, it was split by using a spoon to transfer half of the core into the sample bag. Once
the core was sawed, half was sent to ALS Chemex Laboratories (“ALS Chemex”) in Vancouver for analysis and the
other half was stored at the Dahl Creek camp, but since has been consolidated at the storage facility at the Bornite
camp facilities or at our warehouse in Fairbanks. Shipment of core samples from the Dahl Creek camp occurred on a
drill hole by drill hole basis. Rice bags, containing two to four poly-bagged core samples each, were marked and
labelled with the ALS Chemex address, project and hole number, bag number, and sample numbers enclosed. Rice
bags were secured with a pre-numbered plastic security tie and a twist wire tie and then assembled into sling loads
for transport by chartered flights on a commercial airline to Fairbanks, where they were met by a contracted
expeditor for delivery directly to the ALS Minerals preparation facility in Fairbanks. In addition to the core, control
samples were inserted into the shipments at the approximate rate of one standard, one blank and one duplicate per 20
core samples:
• Standards: four standards were used at the Arctic Deposit. The core cutter inserted a sachet of the
appropriate standard, as well as the sample tag, into the sample bag.
• Blanks: were composed of an unmineralized landscape aggregate. The core cutter inserted about 150 g of
blank, as well as the sample tag, into the sample bag.
• Duplicates: the assay laboratory split the sample and ran both splits. The core cutter inserted a sample tag
into an empty sample bag.
Samples were logged into a tracking system on arrival at ALS Chemex, and weighed. Samples were then crushed,
dried, and a 250 g split pulverized to greater than 85% passing 75 µm.
Gold assays were determined using fire analysis followed by an atomic absorption spectroscopy finish. The lower
detection limit was 0.005 ppm gold; the upper limit was 1,000 ppm gold. An additional 34-element suite was
assayed by inductively coupled plasma-atomic emission spectroscopy (“ICP-AES”) methodology, following nitric
acid aqua regia digestion. The copper analyses were completed by atomic absorption (“AA”), following a triple acid
digest.
The accreditations of Primary and Secondary assay laboratories used during the 1966 – 1986 campaigns are not
known. ALS Analytical Lab (Fairbanks, Alaska) was the Primary assay lab between 1998 – present. ALS Chemex
has attained International Organization for Standardization (“ISO”) 9001:2000 registration. In addition, the ALS
Chemex laboratory in Vancouver is accredited to ISO 17025 by Standards Council of Canada for a number of
specific test procedures including fire assay of gold by AA, ICP and gravimetric finish, multi-element ICP and AA
assays for silver, copper, lead and zinc. Trilogy has no relationship with any assay labs.
During 2013, we conducted a 26% audit of the NovaGold era assay database fields: sample interval, Au, Ag, Cu, Zn,
and Pb. This audit is documented in a series of memos. Our staff did not identify and/or correct any transcription
and/or coding errors in the database prior to resource estimation. We also retained independent consultant Caroline
Vallat, P.Geo. of GeoSpark Consulting Inc. to: 1) re-load 100% of the historical assay certificates, 2) conduct a
QA/QC review of paired historical assays and NovaGold era re-assays; 3) monitor an independent check assay
program for the 2004 to 2008 and 2011 drill campaigns; and 4) generate QA/QC reports for the 2004 to 2008 and
2011 drill campaigns.
40
Arctic – Security of Samples
Security measures taken during historical Kennecott and BCMC programs are unknown to NovaGold or us. We are
not aware of any reason to suspect that any of these samples have been tampered with. The 2004 to 2011 samples
were either in the custody of NovaGold personnel, contractors or the assay laboratories at all times as discussed
above, and the chain of custody of the samples is well documented.
Arctic Project - Mineral Resource Estimate
The mineral resource estimate was prepared by Tetra Tech with an effective date of the resource estimate as of
July 30, 2013. Mineral Resources are classified in accordance with the 2010 CIM Definition Standards for Mineral
Resources and Mineral Reserves.
The mineral resource model prepared by Tetra Tech considers diamond drill holes drilled by different operators
during the period 1965 to 2011. The majority of the assaying has been completed in recent years by us and our
previous parent company NovaGold. The mineral resource for the Arctic Project is supported by 43 core holes
(approximately 13,500 m) drilled by NovaGold and 92 core holes (approximately 17,600 m) drilled by previous
owners Kennecott, and/or a Kennecott subsidiary. The geological and assay database used to estimate the Arctic
Project mineral resources have been reviewed and audited by Tetra Tech.
Leapfrog™ software (version 2.5.1) was used to review and verify the resource estimation domains, prior to being
imported into Isatis™ software (version 2012.1) to prepare assay data for geostatistical analysis, variography, block
model construction, metal grade estimation and mineral resource tabulation. Mineral Resources were estimated into
five MS and six SMS lenses, and then combined for an overall grade for the mineralized portion of the 10 m by
10 m by 5 m block. Extreme lead and gold assays were capped prior to compositing. Ordinary kriging and inverse
distance squared estimates were run, with ordinary kriging used for resource reporting and inverse distance squared
used for validation. Search parameters were constrained within each mineralized domain and required an optimum
number of 15 composites, minimum number of 5 composites, minimum number of 2 drill holes, and maximum
search distance range of 200 m. In general, blocks categorized as Indicated were supported by at least two drill holes
within a 75 m search radii, and blocks categorized as Inferred were supported by at least 2 drill holes within a 150 m
search radii. Estimated resources for the Arctic Deposit are reported in the following Table 4 and Table 5.
The Arctic Project has no known reserves.
The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative
geologically to have the economic considerations applied to them that would enable them to be categorized as
mineral reserves. There is no certainty that the estimates contained in the PEA will ever be realized. Mineral
resources that are not mineral reserves do not have demonstrated economic viability.
Table 4 Indicated Resource Estimate for the Arctic Project (NSR Cut-off of $35/t)
Cautionary Note to United States Investors concerning estimates of Indicated Resources. This section uses the term
“indicated resources”. We advise United States investors that these terms are not recognized by the SEC. United
States investors are cautioned not to assume that estimates of indicated mineral resources are economically minable,
or will be upgraded into measured mineral resources. See “Risk Factors” and “Cautionary Note to United States
Investors.”
Category Mt
Cu
(%)
Zn
(%)
Pb
(%)
Indicated
23.848
3.26
4.45
0.76
Au
(g/t)
0.71
Ag
(g/t)
53.2
Cu
(Mlb)
Zn
(Mlb)
Pb
(Mlb)
Au
(Moz)
Ag
(Moz)
1,713
2,338
400.9
0.55
40.8
Notes:
1. These resource estimates have been prepared in accordance with NI 43-101 and the Canadian
Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition Standards. Mineral resources
that are not mineral reserves do not have demonstrated economic viability. See “Risk Factors” and
“Cautionary Note to United States Investors.”
2. Mineral Resources are reported within mineralization wireframes, contained within an Indicated pit
design using an assumed copper price of $2.90/lb, zinc price of $0.85/lb, lead price of $0.90/lb,
silver price of $22.70/oz, and gold price of $1,300/oz.
3. Appropriate mining costs, processing costs, metal recoveries and inter ramp pit slope angles were
used to generate the pit design.
41
4. The $35.01/t milled cut-off is calculated based on a process operating cost of $19.03/t, G&A of
$7.22/t and site services of $8.76/t. NSR equals payable metal values, based on the metal prices
outlined in Note 2 above, less applicable treatment, smelting, refining costs, penalties, concentrate
transportation costs, insurance and losses and royalties.
5. The LOM strip ratio was estimated at 8.39.
6. Rounding as required by reporting guidelines may result in apparent summation differences
between tonnes, grade and contained metal content.
7. Tonnage and grade measurements are in metric units. Contained copper, zinc and lead pounds are
reported as imperial pounds, contained silver and gold ounces as troy ounces.
Table 5 Inferred Resource Estimate for the Arctic Project (NSR Cut-off of $35/t)
Cautionary Note to United States Investors concerning estimates of Inferred Resources. This section uses the term
“inferred resources”. We advise United States investors that these terms are not recognized by the SEC. The
estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than the
estimation of other categories of resources. United States investors are cautioned not to assume that estimates of
inferred mineral resources exist, are economically minable, or will be upgraded into measured or indicated mineral
resources. See “Risk Factors” and “Cautionary Note to United States Investors.”
Category Mt
Cu
(%)
Inferred
3.363
3.22
Zn
(%)
3.84
Pb
(%)
0.58
Au
(g/t)
0.59
Ag
(g/t)
41.5
Cu
(Mlb)
Zn
(Mlb)
Pb
(Mlb)
Au
(Moz)
Ag
(Moz)
239
285
43.2
0.06
4.5
Notes:
1. These resource estimates have been prepared in accordance with NI 43-101 and the CIM Definition
Standards. See “Risk Factors” and “Cautionary Note to United States Investors.”
2. Mineral Resources are reported within mineralization wireframes, contained within an Inferred pit
design using an assumed copper price of $2.90/lb, zinc price of $0.85/lb, lead price of $0.90/lb,
silver price of $22.70/oz, and gold price of $1,300/oz.
3. Appropriate mining costs, processing costs, metal recoveries and inter ramp pit slope angles were
used to generate the pit design.
4. The $35.01/t milled cut-off is calculated based on a process operating cost of $19.03/t, G&A of
$7.22/t and site services of $8.76/t. NSR equals payable metal values, based on the metal prices
outlined in Note 2 above, less applicable treatment, smelting, refining costs, penalties, concentrate
transportation costs, insurance and losses and royalties.
5. The LOM strip ratio was estimated at 8.39.
6. Rounding as required by reporting guidelines may result in apparent summation differences
between tonnes, grade and contained metal content.
7. Tonnage and grade measurements are in metric units. Contained copper, zinc and lead pounds are
reported as imperial pounds, contained silver and gold ounces as troy ounces.
Arctic Project – Mining Operations
The Arctic Project is not currently in production; for contemplated exploration or development activities see below.
Arctic Project – Exploration and Development
As noted in the summary Arctic Project – Technical Report above, we engaged Tetra Tech to prepare a PEA for the
Arctic Project. The following summary describes the main results and assumptions of the PEA not previously
discussed above. See “Arctic Project – Current Activities” below for a description of the Company’s current and
contemplated exploration.
The PEA is based on a conventional truck-and-shovel, open-pit mine design at a single pit. The mining schedule was
developed based on a maximum mill capacity of 10,000 t/d. The Arctic Project’s total mine life is 13 years,
including 1 year of pre-stripping followed by 12 years of production. The pit uses four pushbacks and a minimum
mining width of 40 m. Over the 13-year life, the pit is producing 35.7 Mt of mineralized material and 299.4 Mt of
waste rock. The life-of-mine (“LOM”) stripping ratio is 8.39 and the stripping ratio excluding the pre-stripping
waste rock is 7.94. The mining schedule does not currently consider a low-grade stockpiling option but this can be
assessed in more detail in future studies.
Mineral Processing and Metallurgical Testing
42
Since 1970, metallurgical test work has been conducted to determine the flotation response of various samples
extracted from the Arctic Deposit. In general, the samples tested produced similar metallurgical performances. In
2012, SGS Mineral Services (“SGS”) conducted a metallurgical test program to further study metallurgical
responses of the samples produced from Zones 1, 2, 3, and 5 of the Arctic Deposit. The flotation test procedures
used talc pre-flotation, conventional copper-lead bulk flotation and zinc flotation, followed by copper and lead
separation. In general, the 2012 test results indicated that the samples responded well to the flowsheet tested. Below
is a summary of average results of the locked cycle tests (without copper and lead separation).
• The copper recoveries to the bulk copper-lead concentrates ranged from 89 to 93% excluding the Zone 1 &
2 composite which produced a copper recovery of approximately 84%; the copper grades of the bulk
concentrates were 24 to 28%.
• Approximately 92 to 94% of the lead was recovered to the bulk copper-lead concentrates containing 9 to
13% lead.
• The zinc recovery was 84.2% from Composite Zone 1 & 2, 93.0% from Composite Zone 3 and 90.5% from
Composite Zone 5. On average, the zinc grades of the concentrates produced were higher than 55%,
excluding the concentrate generated from Composite Zone 1 & 2, which contained only 44.5% zinc.
• Gold and silver were predominantly recovered into the bulk copper-lead concentrates. Gold recoveries to
this concentrate ranged from 65 to 80%, and silver recoveries ranged from 80 to 86%.
Using an open circuit procedure, the copper and lead separation tests on the bulk copper-lead concentrate produced
from the locked cycle tests generated reasonable copper and lead separation. The copper concentrates produced
contained approximately 28 to 31% copper, while the grades of the lead concentrates were in the range of 41% to
67% lead. Also, it appears that most of the gold reported to the copper concentrate and on average the silver was
equally recovered into the copper and lead concentrates.
The 2012 grindability test results showed that the Bond ball millwork index tests ranged from 6.5 to 11 kWh/t and
abrasion index tests fluctuated from 0.017 to 0.072 g for the mineralized samples. The data indicates that the
samples are neither resistant nor abrasive to ball mill grinding. The materials are considered to be soft or very soft in
terms of grinding requirements.
Recovery Methods
A 10,000 t/d process plant has been designed to process the massive and semi-massive sulphide mineralization of
the Arctic property. The main economic elements found in the deposit are copper, zinc, lead, and associated gold
and silver. The process plant will operate two twelve hour shifts per day, 365 days per year with an overall plant
availability of 92%. The process plant will produce three concentrates: 1) copper concentrate, 2) zinc concentrate,
and 3) lead concentrate. Gold and silver are expected to be payable at a smelter and are recovered in both the copper
and lead concentrates. The process plant feed will be supplied from the Arctic open pit mine.
The mill feed will be hauled from the open pit to a primary crushing facility where the material will be crushed by a
jaw crusher to a particle size of 80% passing 125 mm.
The crushed material will be ground by two stages of grinding, consisting of one SAG mill and one ball mill in
closed circuit with hydrocyclones (SAB circuit). The hydrocyclone overflow with a grind size of approximately
80% passing 70 µm will first undergo pre-talc flotation, and then be processed by conventional bulk flotation (to
recover copper, lead, and associated gold and silver), followed by zinc flotation. The rougher bulk concentrate will
be cleaned and followed by copper and lead separation to produce a lead concentrate and a copper concentrate. The
final tailings from the zinc flotation circuit will be pumped to the TSF. Copper, lead, and zinc concentrates will be
thickened and pressure-filtered before being transported by truck to a port and shipped to smelters.
The LOM average mill feed is expected to contain 2.28% copper, 0.53% lead, 3.13% zinc, 0.5 g/t gold, and 37 g/t
silver. According to the mine plan developed for the PEA study and metallurgical test results, the LOM average
metal recoveries and concentrate grades are projected below:
•
copper concentrate recovery: 87.1% copper; 57.9% gold; 40.2% silver; copper grade: 29%
43
•
•
lead concentrate recovery: 74.0% lead; 6.8% gold; 40.2% silver; lead grade: 50%
zinc concentrate recovery: 86.8% zinc; zinc grade: 56%.
Tailings and Storage Facility
The co-disposal TSF will be a fully lined facility consisting of rockfill embankment constructed across the Sub-
Arctic Creek drainage, creating an impoundment that will extend up the drainage. The rockfill embankment will be
constructed to an ultimate crest elevation of 655 masl with the embankment being raised in stages to minimize the
initial capital construction cost. During operations, potential acid generating (“PAG”) waste rock will be placed at
the bottom and sides of the basin forming layers with consecutive disposal on tailings that will be filling the voids.
The tailings has the potential to generate acid and, therefore, the tailings and the PAG waste rock will be placed
under water and remain permanently submerged in order to reduce the potential for acid generation. Additional
studies will be required to determine the most suitable method of co-disposal and potential requirements for acid
rock drainage (“ARD”) management and mitigation programs will need to be part of the design of the TSF.
The TSF will be required to contain 110.5 Mm3 total over the 12-year LOM, with 23.8 Mm3 to accommodate the
tailings at an assumed stored dry density of 1.5 t/m3 and 86.7 Mm3 of PAG waste rock at an assumed stored dry
density of 1.9 t/m3. The TSF will be sited as a staged rockfill embankment with an upstream geomembrane liner.
The starter embankment will have a crest elevation of 560 m and impound 1 year of mining production, which is
approximately 670,000 m3 of tailings and 12.3 Mm3 of waste rock.
Arctic Project - Environmental Considerations
Environmental baseline data collection was initiated in 2007, including surface water quality sampling, wetlands
mapping, stream flow monitoring, aquatic life surveys, subsistence, meteorological monitoring, and acid base
accounting sampling. Additional baseline environmental data in the Ambler Lowlands, the Subarctic Creek
drainage, the Shungnak River drainage and downstream receiving environments will be required to support future
mine design, development of an environmental impact statement, permitting, construction and operations.
The Arctic Project has the potential to significantly improve work opportunities for local and regional residents. In
October 2011, we signed an agreement with NANA which in addition to consolidating landholdings in the Ambler
district has language establishing native hiring preferences and preferential use of NANA subsidiaries for contract
work. Furthermore, the agreement formalized an Oversight Committee, with equal representation from NANA and
us, to regularly review project plans and activities. In addition, a Subsistence Subcommittee has been formed to
protect subsistence and the Iñupiaq way of life and a Workforce Development Subcommittee is also in place to
address current and future employment needs. We meet monthly, during summer months, with the residents of
Kobuk, Shungnak and Ambler, the three villages closest to the project area. We also meet annually with eight other
NANA region villages including Noatak, Kivalina, Kotzebue, Kiana, Deering, Buckland, Selawik and Noorvik, for
the purpose of updating residents on project plans and fielding their questions and concerns. We have also
developed a good working relationship with the NWAB government.
The Arctic Project will be subject to a mine permitting process which will include compliance with the National
Environmental Policy Act and will require a number of major mine permits from state and federal agencies as well
as a significant number of minor permits. Although a number of federal conservation units are located in the general
vicinity of the Arctic Project, including but not limited to the Gates of the Arctic National Parks, Kobuk Preserve,
Selawik National Wildlife Refuge, and Kobuk Valley and Selawik Wilderness areas, there presence does not change
the permitting process nor add to the number of permits required for the Arctic Project.
We will be required to develop a formal project description and detailed reclamation and closure plan to support a
successful permit application strategy. The mine plan will embrace the concept of “design for closure”. In order to
reduce any lasting risk of environmental impacts, the plan will minimize surface disturbances during operations and
promote long-term stability of the site after closure.
No assurance can be given that new laws and regulations will not be enacted or that existing laws and regulations
will not be applied in a manner that could limit or curtail the Arctic Project. Amendments to current laws,
regulations, licenses and permits governing operations and activities of mining companies, or more stringent
implementation thereof, could have a material adverse impact on the Arctic Project and cause increases in capital
44
expenditures or production costs, or reduction in levels of production, or abandonment, or delays in the development
of the business.
Arctic Project - Current Activities
2015
The focus of work on the Arctic Project in 2015 was drilling, surficial field investigations and desktop studies to
support pre-feasibility. Trilogy completed fourteen diamond drill holes for a total of 3,056 m of core; including
twelve in-fill drill holes, representing 2,425 m, designed to evaluate vertical and lateral continuity of the high-grade
polymetallic copper, gold, silver, lead and zinc mineralization, and support upgrading of inferred resources to
measured and indicated resource classification within the area of the proposed Arctic open-pit as outlined in the
PEA, and two drill holes, representing 631 m, specifically targeting geotechnical and hydrogeological information.
Based on a cut-off grade of 1.0% copper all fourteen drill holes intersected significant intervals; defined as a
minimum of 1.0 meter copper interval with average grade >0.7% copper.
The 2015 drill program, sampling protocol and data verification were managed and overseen by qualified persons
employed by Trilogy. The twelve in-fill diamond drill holes were drilled at NQ diameter drill core and the two
geotechnical drill holes were drilled at HQ diameter drill core by Boart Longyear of South Jordan, Utah. Samples in
mineralized core were collected using a 0.3-meter minimum length, 2.0-meter maximum length and 0.9-meter
average sample length. Samples in un-mineralized core were collected using 2.0-meter minimum length, 10-meter
maximum length and 4-meter average sample length. Drill core recovery averaged 94% without overburden. Three
quality control samples (one blank, one standard and one duplicate) were inserted into each batch of 20 samples.
The drill core was either sawn or shipped as whole core, with samples sent to ALS Minerals, Fairbanks, Alaska for
sample preparation and the sample pulps forwarded to ALS’s North Vancouver facility for analysis. ALS Minerals
in North Vancouver, B.C., Canada, is a facility certified as ISO 9001:2008 and accredited to ISO / IEC 17025:2005
from the Standards Council of Canada.
In addition to the drill program, Trilogy contracted SRK Consulting of Vancouver, Canada (SRK) to conduct a
dedicated field investigation comprised of drill logging, mapping, laboratory test work and downhole installations. A
summary report detailing a gap analysis, desktop study findings and field investigation recommendations was issued
prior to the drill program. Two dual purpose drill holes were completed for geotechnical (soil and rock) and
hydrogeological data acquisition. Additionally, SRK hydrogeologists re-visited previously installed vibrating wire
piezometers to ensure data loggers were operational and to download pore pressure measurement data. A civil
geotechnical site visit was conducted to investigate surface conditions and provide comment on potential
infrastructure and waste management facilities layout. Furthermore, structural mapping of exposed rock faces along
the Arctic ridge along with downhole televiewer and structural logging of newly acquired drill core were
consolidated with prior work to support a 3D structural model.
Under the guidance of SRK, Trilogy initiated acid-base-accounting kinetic test work at Arctic in 2015; both on-site
barrel testing and parallel laboratory humidity cells. In addition, Trilogy collected samples from the 2015 drill
program to increase static testing coverage over the Arctic deposit.
Environmental baseline data collection continued in 2015, including 34,000 acres of wetlands delineation within the
project area, which was completed by WHPacific of Anchorage, Alaska. Seventy percent of a LiDAR survey over
the UKMP was completed by WHPacific and Quantum Spatial before weather conditions became unfavorable.
2016
Site investigation activities continued at the UKMP Projects in 2016 and were mainly focused on advancing the
Arctic project towards pre-feasibility. We completed thirteen diamond drill holes for a total of 3,058 meters of core.
The 2016 drill program was designed to collect data for geotechnical, hydrological, waste rock characterization and
metallurgical studies as well as further resource definition.
Three drill holes representing 822 meters drilled were designed to collect geotechnical and hydrological data within
the proposed Arctic open-pit. Data collected from the geotechnical/hydrological drill program and outcrop/seeps
mapping was used to update a 3D structure model, rock mass model, and hydrogeology model and these results have
been integrated into a combined geotechnical model that will be used for characterization of geotechnical domains
and slope stability evaluation in a future pre-feasibility study.
45
Four drill holes representing 1,030 meters drilled were designed to collect metallurgical samples, specifically
targeting material within the initial production years of the Arctic open-pit. A metallurgical test work program is
currently underway and expected to be complete in Q1-2017.
Six drill holes representing 1,206 meters drilled were designed to evaluate vertical and lateral continuity of the high
grade polymetallic copper, gold, silver, lead, and zinc mineralization, and support upgrading of Inferred resources to
Measured and Indicated resource classification within the area of the proposed Arctic open-pit. We are pleased to
announce that all six infill holes encountered mineralized intervals consistent with previous drilling conducted
within the resource area on the property. Data collected from the drill program was used to update the 3D geology
model. The updated geology domains and drill data will be incorporated into an updated resource estimate that will
support a future pre-feasibility study.
The drill program, sampling protocol and data verification were managed and overseen by qualified persons
employed by Trilogy Metals. Thirteen diamond drill holes were drilled at HQ and NQ diameter drill core by Boart
Longyear of South Jordan, Utah. Samples in mineralized core were collected using a 0.2-meter minimum length,
5.0-meter maximum length and 1.4-meter average sample length. Samples in un-mineralized core were collected
using 0.2-meter minimum length, 5.0-meter maximum length and 3.2-meter average sample length. Drill core
recovery averaged 94% with overburden. Three quality control samples (one blank, one standard and one duplicate)
were inserted into each batch of 20 samples. The drill core was either sawn or shipped as whole core, with samples
sent to ALS Minerals, Fairbanks, Alaska for sample preparation and the sample pulps forwarded to ALS's North
Vancouver facility for analysis. ALS Minerals in North Vancouver, B.C., Canada, is a facility certified as ISO
9001:2008 and accredited to ISO / IEC 17025:2005 from the Standards Council of Canada.
In addition to the drill program, we conducted an aquatics survey, avian survey, habitat survey, archaeological
survey, and wetlands delineation survey, and continued ongoing baseline environmental data collection in 2016.
An aquatics survey of rivers and creeks over the UKMP Projects included identification of fish species present and
tissues metals testing. An avian survey over the UKMP Projects was conducted in May to identify bird nest
locations, with a follow-up survey in July to measure fledging success. A habitat survey was completed in
conjunction with the wetlands survey and will be used to inform future biological surveys. Approximately 2,400
acres were surveyed for archaeological resources in or around the potential Arctic open-pit and facilities locations.
Approximately 2,900 acres of wetlands were delineated using techniques approved by the Army Corps of Engineers.
On-going baseline environmental data collection included maintenance of three hydrologic gauging stations and one
meteorological station. Surface water quality samples were taken from sixteen surface water locations and analyzed
for a full suite of parameters including total and dissolved metals.
We continue to advance the acid-base-accounting static and kinetic test work at Arctic. Continuous down-hole
samples were collected from the 2016 drill program to support static testing coverage over the Arctic deposit. On-
site barrel sampling was successfully completed in the spring and fall of 2016 to support the kinetics program, and
in August we achieved the 40-week milestone for the parallel laboratory humidity cells; maintenance and
monitoring of all kinetic tests will continue into 2017.
The LiDAR survey that was incomplete last year due to weather conditions was also completed during the summer.
Final deliverables received in the fall of 2016 are being utilized to support on-going engineering design and
geological modeling.
Bornite Project, Ambler District, Alaska
Bornite Project
Except for the information under the heading “Bornite Project – Current Activities” and except as otherwise stated,
the scientific and technical information relating to the Bornite Project contained in this Form 10-K is derived from,
and in some instances is an extract from, the technical report titled “NI 43-101 Technical Report on the Bornite
Project, Northwest Alaska, USA” report dated effective April 19, 2016 released May 16, 2016 (the “Bornite
Report”) prepared by BD Resource Consulting, Inc., SIM Geological Inc., and International Metallurgical &
Environmental Inc. Erin Workman, P.Geo., an employee and Director, Technical Services, is a Qualified Person as
defined in NI 43-101, and has approved the scientific and technical information contained herein. The information
regarding the Bornite Project is based on assumptions, qualifications and procedures which are not fully described
46
herein. Reference should be made to the full text of the Bornite Report which has been filed with certain Canadian
securities regulatory authorities pursuant to NI 43-101 and is available for review on SEDAR at www.sedar.com and
on EDGAR at www.sec.gov.
Bornite Project - Property Description and Location
The property is located in the Ambler mining district of the southern Brooks Range, in the NWAB of Alaska. The
property is located in Ambler River A-2 quadrangle, Kateel River Meridian T 19N, R 9E, sections 4, 5, 8 and 9. The
Bornite Project is located 248 km east of the town of Kotzebue, 19 km north of the village of Kobuk, 275 km west
of the Dalton Highway, an all-weather state maintained public road, at geographic coordinates N67.07° latitude and
W156.94° longitude (Universal Transverse Mercator (UTM) North American Datum (NAD) 83, Zone 4W
coordinates 7440449N, 589811E).
Bornite Project - Accessibility, Climate, Local Resources, Infrastructure, and Physiography
Primary access to the Bornite Project is by air, using both fixed wing aircraft and helicopters. There are four well
maintained, approximately 1,500 m-long gravel airstrips located near the property, capable of accommodating
charter fixed wing aircraft. These airstrips are located 40 km west at Ambler, 23 km southwest at Shungnak, 19 km
south at Kobuk, and 15 km south at Dahl Creek. There is daily commercial air service from Kotzebue to the village
of Kobuk, the closest community to the property. During the summer months, the Dahl Creek Camp airstrip is
suitable for larger aircraft, such as C-130 and DC-6. In addition to the four 1,500 m airstrips, there is a 700 m
airstrip located at the Bornite Camp. The airstrip at Bornite is suited to smaller aircraft, which support the Bornite
Camp with personnel and supplies.
There is no direct water access to the property. During spring runoff, river access is possible by barge from
Kotzebue Sound to Ambler, Shungnak, and Kobuk via the Kobuk River.
A two-lane, two-wheel drive gravel road links the Bornite Project’s main camp to the 1,525 m Dahl Creek airstrip
and village of Kobuk.
The climate in the region is typical of a sub-arctic environment. Exploration is generally conducted from late May
until late September. Weather conditions on the Bornite Project can vary significantly from year to year and can
change suddenly. During the summer exploration season, average maximum temperatures range from 10°C to 20°C,
while average lows range from -2°C to 7°C. By early October, unpredictable weather limits safe helicopter travel to
the property. During winter months, the property can be accessed by snow machine, track vehicle, or fixed wing
aircraft. Winter temperatures are routinely below -25°C and can exceed -50°C. Annual precipitation in the region
averages at 395 mm with the most rainfall occurring from June through September, and the most snowfall occurring
from November through January.
Drilling and mapping programs are seasonal and have been supported out of the Main Bornite Camp and Dahl Creek
Camp. The main Bornite Camp facilities are located on Ruby Creek on the northern edge of the Cosmos Hills. The
camp provides office space and accommodations for the geologists, drillers, pilots, and support staff. There are four
2-person cabins installed by NANA prior to our tenure. In 2011, the main Bornite Camp was expanded to 20
sleeping tents, 3 administrative tents, 2 shower/bathroom tents, 1 medical tent, and 1 dining/cooking tent. With these
additions, the camp capacity was increased to 49 beds. A 30 m by 9 m core logging facility was also built in summer
of 2011. An incinerator was installed near the Bornite airstrip to manage waste created by the Bornite Project. Power
for the Bornite Project is supplied by a 175 kW Caterpillar diesel generator. Water is provided by a permitted
artesian well located 250 m from the Bornite Camp. In 2012, the camp was further expanded with the addition of a
laundry tent, a women's shower/washroom tent, a recreation tent, several additional sleeping tents, and a 2 x
enlargement of the kitchen tent. Camp capacity increased to 76 beds. The septic field was upgraded to accommodate
the increase in camp population. One of the two-person cabins was winterized for use by the winter caretaker. A
permitted landfill was established to allow for the continued cleanup and rehabilitation of the historic shop facilities
and surroundings. The Dahl Creek camp is a leased facility used as an overflow or alternative facility to the main
Bornite Camp. The Dahl Creek camp has a main cabin for dining and administrative duties, and a shower facility.
Sleeping facilities include two hard-sided sleeping cabins with seven beds (primarily used for staff), one 4-person
sleeping tent, and three 2-person sleeping tents for a total of 17 beds. There are support structures, including a shop
and storage facilities.
47
The Bornite Project is located on Ruby Creek on the northern edge of the Cosmos Hills. The Cosmos Hills are part
of the southern flank of the Brooks Range in Northwest Alaska. Topography in the area is moderately rugged.
Maximum relief in the Cosmos Hills is approximately 1,000 masl with an average of 600 masl. Talus covers the
upper portions of the hills; glacial and fluvial sediments occupy valleys. The Kobuk Valley is located at the
transition between boreal forest and Arctic tundra. Spruce, birch, and poplar are found in portions of the valley, with
a ground cover of lichens (reindeer moss). Willow and alder thickets and isolated cottonwoods follow drainages, and
alpine tundra is found at higher elevations. Tussock tundra and low, heath-type vegetation covers most of the valley
floor. Patches of permafrost exist on the property. Wildlife in the property area is typical of Arctic and Subarctic
fauna. Larger animals include caribou, moose, Dall sheep, bears (grizzly and black), wolves, wolverines, coyotes,
and foxes. Fish species include salmon, sheefish, arctic char, and arctic grayling. The Kobuk River, which briefly
enters the Upper Kobuk Mineral Projects on its southwest corner, is a significant salmon spawning river. The
caribou on the property belong to the Western Arctic herd that migrates twice a year – south in August, from their
summer range north of the Brooks Range, and north in March from their winter range along the Buckland River.
Bornite Project - History
Kennecott and Bear Creek Mining Tenure
Regional exploration began in the early 1900s when gold prospectors noted copper occurrences in the hills north of
Kobuk, Alaska. In 1947, local prospector Rhinehart “Rhiny” Berg along with various partners traversing in the area
located outcropping mineralization along Ruby Creek (Bornite) on the north side of the Cosmos Hills. They
subsequently staked claims over the Ruby Creek showings and constructed an airstrip for access. In 1957, BCMC,
Kennecott's exploration subsidiary, optioned the property from Berg. Exploration drilling in 1961 and 1962
culminated in the discovery of the “No.1 Ore Body” where drill hole RC-34 cut 20 m of 24% copper (the “No.1 Ore
Body” is a historic term used by BCMC that does not connote economic viability in the present context; it is
convenient to continue to use the term to describe exploration work and historic resource estimation in a specific
area of what is now generally known as Ruby Creek Upper Reef). The discovery of the “No.1 Ore Body” led to the
development of an exploration shaft in 1966. The shaft, which reached a depth of 328 m, encountered a significant
watercourse and was flooded near completion depth. The shaft was subsequently dewatered and an exploration drift
was developed to provide access for sampling and mapping, and to accommodate underground drilling to further
delineate mineralization. A total of 59 underground holes were drilled and, after the program, the shaft was allowed
to re-flood. The discovery of the Arctic Project in 1965 prompted a hiatus in exploration at Bornite, and only limited
drilling occurred up until 1976.
In the late 1990s, Kennecott resumed its evaluation of the Bornite deposit and the mineralization in the Cosmos Hills
with an intensive soil, stream, and rock chip geochemical sampling program using 32 element ICP analyses. Grid
soil sampling yielded 765 samples. Ridge and spur sampling resulted in an additional 850 soil samples in the
following year. Skeletonized core samples (85 samples) from key historic drill holes were also analyzed using 32
element ICP analytical methods. Geochemical sampling identified multiple areas of elevated copper and zinc in the
Bornite region.
Kennecott completed numerous geophysical surveys as an integral part of exploration throughout their tenure on the
property. Various reports, notes, figures, and data files stored in Kennecott’s Salt Lake City exploration office
indicated that geophysical work included, but was not limited to, the following:
• Airborne magnetic and EM surveys (fixed-wing INPUT) (1950s)
• Gravity, single point (“SP”), Audio-Frequency Magneto-Telluric (“AMT”), EM, borehole and surface
IP/resistivity surveys (1960s)
• Gravity, airborne magnetic, and CSAMT surveys (1990s)
We have little information or documentation associated with these geophysical surveys conducted prior to the
1990s. Where data are available in these earlier surveys, the lack of details in data acquisition, coordinate systems,
and data reduction procedures limit their usefulness. The only complete geophysical report available concerns down-
hole IP/resistivity results. Most notable is the 1996 Bouger gravity survey from the Bornite deposit into the Ambler
lowlands. The Bornite deposit itself is seen as a significant 3 milligal anomaly. Numerous 2 milligal to > 6 milligal
anomalies occur under cover in the Ambler lowlands and near the Aurora Mountain and Pardner Hill occurrences. In
48
addition to the geophysical surveys conducted by Kennecott, the ADNR completed an aeromagnetic survey of
portions of the Ambler mining district in 1974-1975.
Several studies have been undertaken reviewing the geology and geochemistry of the Bornite deposit. Most notable
is Murray Hitzman’s PhD dissertation at Stanford University and Don Runnel’s PhD dissertation at Harvard
University. Bernstein and Cox reported on mineralization of the “No. 1 Ore Body” in a 1986 paper in Economic
Geology. In addition to the historical work, Ty Connor at the Colorado School of Mines recently completed a
Master’s thesis which reported on the timing of alteration and mineralization at the Bornite deposit.
Kennecott conducted two technical reviews of the groundwater conditions and a summary of the findings related to
the flooding of the exploration shaft. In 1961, Kennecott collected 32 coarse reject samples from five drill holes to
support preliminary metallurgical test work at Bornite. Samples targeted high-grade (> 10%) copper mineralization
from the Upper Reef at Ruby Creek.
Bornite Project - Geological Setting and Mineralization
The Bornite Project is located within the Arctic Alaska Terrane, a sequence of mostly Paleozoic continental margin
rocks that make up the Brooks Range and North Slope of Alaska. It is within the Phyllite Belt geologic subdivision,
which together with the higher-grade Schist Belt, stretches almost the entire length of the Brooks Range and is
considered to represent the hinterland of the Jurassic Brooks Range orogeny. The southern margin of the Phyllite
Belt is marked by mélange and low angle faults associated with the Kobuk River fault zone, while the northern
boundary is thought to be gradational with the higher-grade metamorphic rocks of the Schist Belt.
The geology of the Bornite resource area is composed of alternating beds of carbonate rocks (limestone and
dolostone) and calcareous phyllite. Limestone transitions laterally into dolostone, which hosts the majority of the
mineralization and is considered to be hydrothermal in origin. Spatial relationships and petrographic work establish
dolomitization as genetically related to early stages of the copper mineralizing system.
Work by Trilogy in 2015 focused on furthering the understanding of the distribution and nature of the various
lithologic units and their context in a sedimentary depositional model. The updated model, based on
lithogeochemical signatures of the various units along with their historical visual logging, shows stacked debris
flows composed of basal non-argillaceous channelized debris flows breccias with a fining upward sequence of
increasingly argillaceous-rich breccias capped by high calcium (Ca) phyllites, confined laterally in channels between
either massive or thin-bedded platform carbonates. Two stacked debris flow sequences are apparent, the Lower and
Upper reefs. The Upper reef grades vertically into capping argillaceous limestones instead of discrete high Ca
phyllites indicating a shallowing upward or filling of the debris flow channels. Based on this updated interpretation,
a series individual debris flow cycles have been modeled. Low calcium (Ca) phyllites, such as the Anirak schist
(QP) and the Beaver Creek phyllite respectively underlie and cap the local stratigraphy suggesting different sourcing
than the locally derived high Ca phyllites of the debris flow dominated Bornite Carbonate sequence stratigraphy.
The Beaver Creek is in structural contact with the Bornite Carbonate Sequence while the contact with the underlying
Anirak schist is an unconformity. In addition to the stacked sedimentary stratigraphy, a crosscutting breccia dubbed
the P-Breccia has been identified in and around the recently discovered South Reef mineralization. Though poorly
defined by the overall lack of drilling in the area, the body which contains excellent copper grade lies at or near the
Iron Mountain discontinuity. It remains unclear whether the P Breccia is a post-depositional structural,
hydrothermal or solution-collapse induced breccia.
Structural fabrics observed on the property include bedding and two separate foliations. Bedding (S0) can be
measured only rarely where phyllite and carbonate are interbedded and it is unclear to what extent it is transposed.
The pervasive foliation (S1) is easily measured in phyllites and may be reflected by colour banding and/or
stylolamination (flaggy habit in outcrop) of the carbonates. Core logging shows that S1 is folded gently on the 10 m
scale and locally tightly folded at the decimetre scale. S2 axial planar cleavage is locally developed in decimetre
scale folds of S1. Both S1 and S2 foliations are considered to be Jurassic in age. Owing to their greater strength,
bodies of secondary dolostone have resisted strain and foliation development, whereas the surrounding limestone
and calc-phyllite appear in places to have been attenuated during deformation. This deformation, presumably
Jurassic, complicates sedimentological interpretations. Potentially the earliest and most prominent structural feature
in the resource area is the northeast-trending Iron Mountain discontinuity which is still problematic in its
interpretation.
49
Mineralization at Bornite occurs as tabular mineralized zones that coalesce into crudely stratiform bodies hosted in
secondary dolomite. Two significant dolomitic horizons that host mineralization have been mapped by drilling and
include: 1) the Lower Reef, a thick 100 to 300 m thick dolomitized zone lying immediately above the basal quartz
phyllite unit of the Anirak Schist; and 2) the Upper Reef, a 100 to 150 m thick dolomite horizon roughly 300 m
higher in section.
The Lower Reef dolomite outcrops along the southern margin of the Ruby Creek zone and is spatially extensive
throughout the deposit area. It hosts a significant portion of the shallow resources in the Ruby Creek zone as well as
higher grade resources down dip and to the northeast in the South Reef. The Upper Reef zone hosts relatively high-
grade resources to the north in the Ruby Creek zone. The Upper reef zone appears to lie at an important NE-
trending facies transition to the NW of the main drilled area and locally appears to be at least partially thrust over the
Lower Reef stratigraphy to the southeast.
Drill results from 2013 show dolomitization and copper mineralization in the Upper and Lower Reefs coalescing
into a single horizon along the northern limits of current exploration. The NE- trending Ruby Creek and South Reef
zones also coalesce into a roughly 1000 m wide zone of >200 m thick dolomite containing significant copper
mineralization dipping north at roughly 5-10 degrees.
Bornite Project – Mineralization
Copper mineralization at Bornite is comprised of chalcopyrite, bornite, and chalcocite distributed in stacked, roughly
stratiform zones exploiting favourable stratigraphy within the dolomitized limestone package. Mineralization occurs,
in order of increasing grade, as disseminations, irregular and discontinuous stringer-style veining, breccia matrix
replacement, and stratiform massive sulphides. The distribution of copper mineral species is zoned around the
bottom-centre of each zone, with bornite-chalcocite-chalcopyrite at the core and progressing outward to
chalcopyrite-pyrite. Additional volumetrically minor copper species include carrollite, digenite, tennantite-
tetrahedrite, and covellite. Stringer pyrite and locally significant sphalerite occur above and around the copper
zones, while locally massive pyrite and sparse pyrrhotite occur in association with siderite alteration below copper
mineralization in the Lower Reef.
In addition to the copper mineralization, significant cobalt mineralization is found accompanying bornite-chalcocite
mineralization. Cobalt occurs with high-grade copper as both carrollite (Co2CuS4) and as cobaltiferous rims on
recrystallized pyrite grains.
Appreciable silver values are also found with bornite-rich mineralization in the South Reef and Ruby Creek zones.
Bornite Project – Exploration
Exploration in and around the Bornite Project by Kennecott from 1957 to 1998 is summarized above. In addition to
the extensive drilling completed during the more than 40 year tenure of Kennecott in the district, Kennecott
completed widespread surface geochemical sampling, regional and property scale mapping, and numerous
geophysical surveys employing a wide variety of techniques. The majority of this data has been acquired by us and
forms the basis for renewed exploration that targets Bornite-style mineralization in the Bornite carbonate sequence.
NovaGold as the precursor company to us began to actively pursue an agreement to explore the Bornite Project with
NANA in 2005 resulting in an initial airborne geophysical survey in 2006. Negotiations on the consolidation and
exploration of the entire Ambler district continued for the next several years culminating in the NANA Agreement
in October, 2011.
With the NANA Agreement approaching completion, NovaGold initiated work in 2010 to begin to characterize the
exploration potential and depositional controls by re-logging and re-analyzing select drill holes with a Niton portable
x-ray fluorescence (“XRF”) to determine geochemical variability. In 2011, NovaGold began an initial drill program
to verify the historical database and exploration potential and conducted additional geophysical surveys to provide
better targeting tools for continued exploration in the district. In 2012, we expanded the IP geophysical coverage
completing a major district-wide survey that targeted the prospective Bornite Carbonate sequence. Subsequent
resource drilling between 2011 and 2013 based on the exploration targeting is discussed in the “Bornite Project -
Mineral Resource Estimates” section below.
50
2006 NovaGold Exploration
In 2006, NovaGold contracted Fugro Airborne Surveys to complete a detailed helicopter DIGHEM magnetic, EM
and radiometric survey of the Cosmos Hills. The survey covered a rectangular block approximately 18 km by 49
km which totaled 2,852 line kilometres. The survey was flown at 300 m line spacing with a line direction of N20E.
The DIGHEM helicopter survey system produced detailed profile data of magnetics, EM responses and radiometrics
(total count, uranium, thorium, and potassium) and was processed into maps of magnetics, discrete EM anomalies,
EM apparent resistivity, and radiometric responses.
2010 NovaGold Exploration
In 2010, in anticipation of completing the NANA Agreement, NANA granted NovaGold permission to begin low
level exploration at Bornite; this consisted of re-logging and re-analyzing select drill holes using a Niton portable
XRF. In addition to the 2010 re-logging effort, NovaGold contracted a consulting geophysicist, Lou O'Connor, to
compile a unified airborne magnetic map for the Ambler mining district from Kennecott, Alaska DNR, and
NovaGold airborne geophysical surveys.
2011 NovaGold Exploration
In 2011, NovaGold contracted Zonge International Inc. (“Zonge”) to conduct both dipole-dipole complex resistivity
induced polarization (“CRIP”) and natural source audio-magnetotelluric (“NSAMT”) surveys over the northern end
of the prospect to develop tools for additional exploration targeting under cover to the north.
NSAMT data were acquired along two lines totaling 5.15 line-km, with one line oriented generally north-south
through the centre of the survey area and one being the southernmost east-west line in the survey area. CRIP data
were acquired on five lines: four east-west lines and one north-south line, for a total coverage of 14.1 line-km and 79
collected CRIP stations. The initial objective of the survey was to investigate geological structures and the
distribution of sulphides possibly associated with copper mineralization.
Results from the paired surveys show that wide-spaced dipole-dipole resistivity is the most effective technique to
directly target the mineralization package. Broad low resistivity anomalies reflecting pyrite haloes and
mineralization appear to define the limits of the fluid package. Well-defined and often very strong chargeability
anomalies are also present, but appear in part to be masked by phyllitic units which also have strong chargeability
signatures. The NSAMT show similar resistivity features as the IP, but are less well resolved.
2012 Trilogy Exploration
In light of the success of the 2011 geophysical program, we contracted Zonge to conduct a major district-wide
dipole/dipole IP survey, a down-hole IP radial array survey in the South Reef area, and an extensive physical
property characterization study of the various lithologies to better interpret the existing historical geophysical data.
Zonge completed 48 line km of 200 m dipole/dipole IP during 2012, infilling and expanding on the 2011 survey, and
stretching across the most prospective part of the outcropping permissive Bornite Carbonate sequence. The results
show a well-defined low resistivity area associated with mineralization and variable IP signatures attributed both to
mineralization and the overlying Beaver Creek phyllite. Numerous target areas occur in the immediate Bornite area
with lesser targets occurring in the Aurora Mountain and Pardner Hill areas and in the far east of the survey area.
During the 2012 drill program at South Reef, a single drill hole was targeted on a low resistivity area approximately
500 m to 600 m southeast of the South Reef mineralization trend. Although the drill hole intersected some dolomite
alteration in the appropriate stratigraphy, no significant sulphides were encountered.
In addition to the extensive ground IP survey, Zonge also completed 9 km of down-hole radial IP using an electrode
placed in drill hole RC12-0197 to further delineate the trend and potential in and around the South Reef. In addition
to the 2012 ground geophysical surveys, extensive physical property data including resistivity, chargeability,
specific gravity, and magnetic susceptibility were captured for use in modelling the existing ground IP and gravity
surveys, and the airborne EM and magnetic surveys.
In addition to geophysical focused exploration, a district wide geologic map was compiled integrating Kennecott’s
1970’s mapping of the Cosmos Hills with selective Trilogy mapping in 2012.
51
2013 Trilogy Exploration
The emphasis of the 2013 program was to further validate and refine the 2012 geologic map of the Cosmos Hills.
A deep penetrating soil and vegetation geochemical orientation survey was completed over the South Reef deposit,
utilizing various partial leaches and pH methods. The initial, approximately 1 km, test lines suggest a good response
for several of the partial leaches of the soils but little response in the vegetative samples; further follow-up is
warranted to the north of the deposit into the Ambler lowlands.
2014 Trilogy Exploration
During 2014, exploration work was limited to a re-logging and re-sampling program of historical Kennecott drill
core.
2015 Trilogy Exploration
As a follow-up to the 2013 field program, a deep penetrating soil and vegetation geochemical survey was extended
north of the deposit into the Ambler lowlands. Trilogy geologists completed a lithogeochemical desktop study and a
comprehensive update to the 3D lithology model; the updated domains have been utilized in the most recent
resource estimation.
Bornite Project – Drilling
A total of 183 surface core holes and 51 underground core holes, totaling 78,147 m have been drilled, targeting the
Bornite deposit during 21 different annual campaigns dating from 1957 through 2013. All of the drill campaigns,
with the exception of the 2011 NovaGold campaign and the 2012 and 2013 Trilogy campaigns were completed by
Kennecott or their exploration subsidiary BCMC. All drill holes (except RC13-230 and RC13-232 which have been
reserved for metallurgical studies) were utilized in the estimation of the current resource.
Sprague and Henwood, a Pennsylvania-based drilling company, completed all of the Kennecott drilling, with the
exception of the 1997 program (three drill holes) completed by Tonto Drilling Services, Inc. (a NANA-Dynatech
company). The 2011 thru 2013 NovaGold/Trilogy programs used Boart Longyear Company as the drill contractor.
In the initial years of drilling at Bornite, Kennecott relied on AX core (1.1875 in or 30.2 mm diameter), but, as
drilling migrated towards deeper targets, a change to BX core (1.625 in or 41.3 mm diameter) was implemented to
help limit deviation. From 1966 to 1967, drilling activity at Bornite moved underground and EX diameter core
(0.845 in or 21.5 mm diameter) was implemented to define the Ruby Creek Upper Reef zone “No.1 Ore Body”.
Drilling activity moved back to the surface in 1968, and, from 1968 to 1972, BX core was most commonly drilled.
In later years, core size increased to NX (2.125 in or 54.0 mm diameter) and finally, in 2011, core size increased to
NQ (1.874 in or 47.6 mm diameter) and HQ (2.5 in or 63.5 mm diameter). Progressively larger diameter drill rods
have been continually used over the years in an attempt to minimize drill hole deviations.
There is only partial knowledge of specific drill core handling procedures used by Kennecott during their tenure at
the Bornite Deposit. All of the drill data collected during the Kennecott drilling programs (1958 to 1997) was logged
on paper drill logs, copies of which are stored in the Kennecott office in Salt Lake City, Utah. Electronic scanned
copies of the paper logs, in PDF format, are held by Trilogy. Drill core was sawed or split with a splitter, with half
core submitted to various assay labs and the remainder stored in the Kennecott core storage facility at the Bornite
Deposit. In 1995, Kennecott entered the drill assay data, the geologic core logs, and the down hole collar survey data
into an electronic format. In 2009, NovaGold geologists verified the geologic data from the original paper logs
against the Kennecott electronic format and then merged the data into a Microsoft™ SQL database. Sampling of
drill core by Kennecott and BCMC focused primarily on the moderate to high grade mineralized zones. Intervals of
visible sulphide mineralization containing roughly >0.5 to 1% copper were selected for analysis by Union Assay
Office Inc. of Salt Lake City, Utah. This approach left numerous intervals containing weak to moderate copper
mineralization un-sampled in the historic drill core. During the 2012 exploration program, we began sampling a
portion of this remaining drill core in select holes in the South Reef area. Trilogy extended this sampling program to
the Ruby Creek area in 2013 and 2014.
Throughout our tenure at Bornite, the following core handling procedures have been implemented. Core is slung by
helicopter, or transported by truck or ATV, from the drill rig to the core-logging facility. Upon delivery, geologists
and geotechnicians open and inspect the core boxes for any irregularities. They first mark the location of each
52
drilling block on the core box, and then convert footages on the blocks into metric equivalents. Geotechnicians or
geologists measure the intervals (or “from/to”) for each box of core and include this information, together with the
drill hole ID and box number, on a metal tag stapled to the end of each box. Geotechnicians then measure the core to
calculate percent recovery and rock quality designation (“RQD”). RQD is the sum of the total length of all pieces of
core over 12 cm in a run. The total length of core in each run is measured and compared to the corresponding run
length to determine percent recovery. Core is then logged with lithology and visual alteration features captured on
observed interval breaks. Mineralization data, including total sulphide (recorded as percent), sulphide type (recorded
as a relative amount), and gangue and vein mineralogy are collected for each sample interval with an average
interval of approximately 2 m. Structural data is collected as point data. Geologists then mark sample intervals to
capture each lithology or other geologically appropriate intervals. Sample intervals of core are typically between
1 m and 3 m in length but are not to exceed 3 m in length. Occasionally, if warranted by the need for better
resolution of geology or mineralization, smaller sample intervals have been employed. Geologists staple sample tags
on the core boxes at the start of each sample interval, and mark the core itself with a wax pencil to designate sample
intervals. This sampling approach is considered sound and appropriate for this style of mineralization and alteration.
Drill core is digitally photographed prior to sampling. Drill core is cut in half using diamond core saws. Specific
attention to core orientation is maintained during core sawing to ensure that representative samples are obtained.
One-half of the core is retained in the core box for storage on site, or at our Fairbanks warehouse, and the other half
bagged and labeled for analysis. Samples are selected for specific gravity measurements.
In 2013, 33 historic drill holes in the Ruby Creek area, and in 2014, 37 historic drill holes in the Ruby Creek Area
were re-logged, re-sampled and re-assayed as these holes had previously only been selectively sampled by
Kennecott. Entire holes were re-logged utilizing Trilogy protocols discussed above. Samples were submitted either
as halfcore, where previously sampled, or whole core where un-sampled (this was done to ensure that a sufficient
volume of material was provided for analysis). Sample intervals were matched to historic intervals whenever
possible, or selected to reflect Trilogy sampling procedures described above. The objectives of the re-assay/re-
logging program were threefold: 1) to implement a QA/QC program on intervals previously sampled by Kennecott
in order to confirm the validity of their results; 2) to identify additional lowergrade (0.2-0.5% copper), which was
not previously sampled; and 3) to provide additional multi-element ICP data to assist in the geologic interpretation
of the deposit.
Bornite Project - Sample Preparation, Analyses and Security
Sample preparation, analytical lab accreditation and security measures taken during historical Kennecott and BCMC
programs are unknown to us; however, we are not aware of any reason to suspect that any of these samples have
been tampered with. The 2011 to 2013 samples were either in the custody of NovaGold or Trilogy personnel or the
assay laboratories at all times, and the chain of custody of the samples is well documented.
Once drill core was sawed, one half was retained for future reference and the other half was sent to ALS Minerals
(formerly ALS Chemex) in Vancouver for analyses. Shipment of core samples from the Bornite camp occurred
whenever backhaul capacity was available on the chartered aircraft, which was generally 5 to 6 days a week. Rice
bags, containing two to four individual poly-bagged core samples, were marked and labeled with the ALS Minerals
address, project name (Bornite), drill hole number, bag number, and sample numbers enclosed. Rice bags were
secured with a pre-numbered plastic security tie, assembled into loads for transport by chartered flights on a
commercial airline to Fairbanks, and directly delivered by a contracted expeditor to the ALS Minerals preparation
facility in Fairbanks. In addition to the core samples, control samples were inserted into the shipments at the
approximate rate of one standard, one blank and one duplicate per 17 core samples. Samples were logged into a
tracking system on arrival at ALS Minerals, and weighed. Samples were then crushed, dried, and a 250 g split was
pulverized to greater than 85% passing 75 µm.
Gold assays in 2011 and 2012 were determined using fire analysis followed by an atomic absorption spectroscopy
(“AAS”) finish; gold was not analyzed in 2013 or 2014. The lower detection limit was 0.005 ppm gold; the upper
limit was 10 ppm gold. An additional 48-element suite was assayed by inductively coupled plasma-mass
spectrometry (“ICP-MS”) and ICP-AES methodologies, following a four acid digest. Over limit (>1.0%) copper and
zinc analyses were completed by AA, following a four acid digest.
ALS Minerals has attained International Organization for Standardization (ISO) 9001:2000 registration. In addition,
the ALS Minerals laboratory in Vancouver is accredited to ISO 17025 by Standards Council of Canada for a number
of specific test procedures including fire assay of gold by AA, ICP and gravimetric finish, multi-element ICP and
53
AA assays for silver, copper, lead and zinc. Trilogy has no relationship with any primary or check assay labs
utilized.
During 2012, 2013 and 2014, Trilogy staff performed continuous validation of the drill data; both while logging was
in progress and after the field program was complete. Trilogy also retained independent consultant Caroline Vallat,
P.Geo. of GeoSpark Consulting Inc. to: 1) import digital drill data to the master database and conduct QA/QC
checks upon import, 2) conduct a QA/QC review of paired historical assays and Trilogy 2012, 2013 and 2014 re-
assays; 3) monitor an independent check assay program for the 2012, 2013, and 2014 campaigns; and 4) generate a
QA/QC report for the 2012, 2013, and 2014 campaigns.
Bornite Project - Mineral Resource Estimates
The mineral resource estimate has been prepared by Bruce M. Davis, FAusIMM, BD Resource Consulting, and
Robert Sim, P.Geo., SIM Geological Inc., both “Independent Qualified Persons” as defined in NI 43-101. We have
filed three previous NI 43-101 Technical Reports on the Bornite Project dated March 18, 2014, February 5, 2013
and July 18, 2012. The effective date of this resource is April 19, 2016.
The Bornite Project database comprises a total of 235 diamond drill (core) holes totaling 78,745 m; 174 holes target
the Ruby Creek zone and 42 holes target the South Reef zone. The remaining 19 holes in the database are
exploratory in nature and test for satellite mineralization proximal to the Bornite Deposit. The database contains a
total of 29,262 samples that have been analyzed for copper content. During 2014, Trilogy geologists re-logged and
sampled 37 Kennecott drill holes comprising approximately 13,000 meters with partial or no assays. The new
resource estimate incorporates the results from the 2014 field program as well as advancements to the 3D geological
model completed during 2015.
Mineralization in the Ruby Creek zone occurs as two discrete strata bound lenses: a Lower Reef which outcrops and
dips approximately 10-15 degrees to the northeast; and an Upper Reef lying roughly 150+ meters above the Lower
Reef stratigraphy and which includes a small high-grade zone historically referred to as the "No.1 Orebody" by
Kennecott. Mineralization is hosted by a Devonian age carbonate sequence containing broad zones of dolomite
alteration and associated sulfide mineralization including bornite, chalcopyrite, and chalcocite occurring as
disseminations and vein stockworks as well as crackle and mosaic breccia fillings and locally massive to semi-
massive replacement bodies. The geological and assay database have been reviewed and audited by BDRC and SGI.
It is of the opinion of BDRC and SGI that the current drilling information is sufficiently reliable to interpret with
confidence the boundaries for copper mineralization and that the assay data are sufficiently reliable to support
mineral resource estimation. That estimation utilizes two-meter compositing of assays from 216 drill holes
completed between 1961 and 2013. Estimated blocks were 5 x 5 x 5 meters on a side.
Sixty domains were established for the estimation, all of which were treated as hard boundaries with no mixing of
data between the domains. A series of carbonate and phyllite lithology domains together with grade probability
shells at 2% copper and 0.2% copper thresholds were used to constrain the estimates. Visual inspections of the
probability shells show that they fit well with observed levels of bornite, chalcocite and chalcopyrite mineralization.
Based on the interpreted local high-grade nature of the mineralization, both capping and outlier restriction strategies
were implemented to control the influence of high-grade mineralization in the resource model. This methodology
removed approximately 3% of the contained copper in the Ruby Creek area and 7% of the contained copper in the
South Reef area.
A total of 5,366 samples containing specific gravity measurements were utilized to estimate densities in the block
model. Specific gravity values were estimated into model blocks using inverse distance squared moving averages
using the domains described previously.
Copper grades in model blocks were estimated using ordinary kriging. A dynamic search orientation strategy was
utilized, during both grade and specific gravity interpolations, which is controlled by the interpreted trends of
mineralization in the Upper, Lower and South Reef zones. The block model has been validated through a
combination of visual and statistical methods to ensure that the grade and density estimates are an appropriate
representation of the underlying sample data.
The Bornite deposit comprises several zones of relatively continuous moderate- to high-grade copper mineralization
that extends from surface to depths of more than 800 m below surface. The deposit is potentially amenable to a
54
combination of open pit and underground extraction methods. It is important to recognize that these discussions of
underground and surface mining parameters are used solely for the purpose of testing the “reasonable prospects for
economic extraction,” and do not represent an attempt to estimate mineral reserves. No mineral reserves have been
calculated for the Bornite Project.
Indicated Mineral Resources includes blocks in the model that are potentially amenable to open pit extraction
methods and are delineated by drilling with holes spaced at a maximum distance of 75 meters, and exhibit a
relatively high degree of confidence in the grade and continuity of mineralization. Resources in the Inferred category
require a minimum of one drill hole within a maximum distance of 100 m and exhibit reasonable confidence in the
grade and continuity of mineralization.
In the opinion of the Qualified Persons, the level of understanding of the geologic controls that influence the
distribution of copper mineralization at the Bornite Deposit is relatively good. The drilling, sampling and validation
practices utilized by Trilogy during the various campaigns have been conducted in a professional manner and adhere
to accepted industry standards. The confidence in older, historic, drilling conducted by Kennecott has been
demonstrated through a series of validation checks and, overall, the underlying database is considered sufficient for
the estimation of Indicated and Inferred mineral resources. The mineral resources have been estimated in conformity
with generally accepted CIM Estimation of Mineral Resources and Mineral Reserves Best Practices Guidelines and
are reported in accordance with the Canadian Securities Administrators’ NI 43-101. Mineral resources are not
mineral reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the
mineral resource will be converted into mineral reserve. The estimate of mineral resources for the Bornite Project
are summarized in, “Bornite Project – Mineral Resource Statement”.
Bornite Project - Mineral Resource Statement
Mineral Resources are classified in accordance with the 2014 CIM Definition Standards for Mineral Resources and
Mineral Reserves.
The Qualified Persons for the Mineral Resource estimate are Bruce Davis and Robert Sim, both Qualified Person’s
independent of us. Mineral Resources for the Bornite Project are found in Table 7 and Table 8.
Table 7: Indicated Resource Estimate for the Bornite Project
See “Cautionary Note to United States Investors” This section uses the term “indicated resources”. We advise
United States investors that these terms are not recognized by the SEC. United States investors are cautioned not to
assume that estimates of indicated mineral resources are economically minable, or will be upgraded into measured
mineral resources. See “Risk Factors” and “Cautionary Note to United States Investors”.
Type
Cut-off
(Cu %)
M tonnes
Grade
(Cu %)
Contained
Metal
(Mlbs Cu)
In-Pit(2)
0.5
40.5
1.02
913
Indicated
Notes:
1. These resource estimates have been prepared in accordance with NI 43-101 and the CIM Definition
Standards. Mineral resources that are not mineral reserves do not have demonstrated economic
viability. See “Risk Factors” and “Cautionary Note to United States Investors.”
2. Resources stated as contained within a pit shell developed using a metal price of US$3.00/lb Cu,
mining costs of US$2.00/tonne, milling costs of US$11/tonne, G&A cost of US$5.00/tonne, 87%
metallurgical recoveries and an average pit slope of 43 degrees.
3. Rounding as required by reporting guidelines may result in apparent summation differences
between tonnes, grade and contained metal content.
4. Tonnage and grade measurements are in metric units. Contained copper are reported as imperial
pounds.
5. All amounts are stated in U.S. dollars unless otherwise noted.
55
Table 8: Inferred Resource Estimate for the Bornite Project
See “Cautionary Note to United States Investors” This section uses the term “inferred resources”. We advise United
States investors that these terms are not recognized by the SEC. The estimation of inferred resources involves far
greater uncertainty as to their existence and economic viability than the estimation of other categories of resources.
United States investors are cautioned not to assume that estimates of inferred mineral resources exist, are
economically minable, or will be upgraded into measured or indicated mineral resources. See “Risk Factors” and
“Cautionary Note to United States Investors”.
Type
Cut-off
(Cu %)
M tonnes
Grade
(Cu %)
Contained
Metal
(Mlbs Cu)
Inferred
In-Pit (2)
Below-Pit (3)
Total Inferred
0.5
1.5
84.1
57.8
141.9
0.95
2.89
1.74
1,768
3,683
5,450
Notes:
1. These resource estimates have been prepared in accordance with NI 43-101 and the CIM Definition
Standards. See “Risk Factors” and “Cautionary Note to United States Investors.”
2. Resources stated as contained within a pit shell developed using a metal price of US$3.00/lb Cu,
mining costs of US$2.00/tonne, milling costs of US$11/tonne, G&A cost of US$5.00/tonne, 87%
metallurgical recoveries and an average pit slope of 43 degrees.
3. Mineral resources at a 1.5% cut-off are considered as potentially economically viable in an
underground mining scenario based on an assumed projected copper price of $3.00/lb, underground
mining costs of $65.00 per tonne, milling costs of $11.00 per tonne, G&A of $5.00 per tonne, and
an average metallurgical recovery of 87%.
4. Rounding as required by reporting guidelines may result in apparent summation differences
between tonnes, grade and contained metal content.
5. Tonnage and grade measurements are in metric units. Contained copper are reported as imperial
pounds.
6. All amounts are stated in U.S. dollars unless otherwise noted.
There are no known factors related to environmental, permitting, legal, title, taxation, socio-economic, marketing or
political issues which could materially affect the mineral resource.
Bornite Project – Metallurgy
Metallurgical testwork to date indicates that the Bornite Project can be treated using standard grinding and flotation
methods to produce copper concentrates. Initial testing indicates copper recoveries of approximately 87% resulting
in concentrate grades of approximately 28% copper with very low potential penalty elements. Further metallurgical
testwork is warranted to test these assumptions.
Bornite Project – Environmental Considerations
The Bornite Project area includes NANA’s Bornite and ANCSA lands, the Ruby Creek drainage (a tributary of the
Shungnak River), the Shungnak River drainage, and portions of the Ambler Lowlands. Since 2007, baseline
environmental data collection has occurred in the area including archaeology, aquatic life surveys, sediment
sampling, wetlands mapping, surface water quality sampling, hydrology, meteorological monitoring, and
subsistence. Additional baseline environmental data in NANA’s Bornite and ANCSA lands, the Ruby Creek
drainage, the Shungnak River drainage, portions of the Ambler Lowlands, and downstream receiving environments
will be required to support future mine design, development of an EIS, permitting, construction and operations.
56
Bornite Project – Mining Operations
The Bornite Project is not currently in production; for contemplated exploration or development activities see below.
Bornite Project – Exploration and Development Permitting
Development of the Bornite Project will require a significant number of permits and authorizations from state,
federal, and regional organizations. Much of the groundwork to support a successful permitting effort must be
undertaken prior to submission of permit applications so that issues can be identified and resolved, baseline data can
be acquired, and regulators and stakeholders can become familiar with the proposed project. The comprehensive
permitting process for the Bornite Project can be divided into three categories:
1. Exploration state/regional permitting: required to obtain approval for drilling, camp operations,
engineering, and environmental baseline studies.
2. Pre-application phase: conducted in conjunction with engineering feasibility studies. This stage includes
the collection of environmental baseline data and interaction with stakeholders and regulators to facilitate
the development of a project that can be successfully permitted.
3. The National Environmental Policy Act phase: formal agency review of the Federal and State requirements
for public and agency participation to determine if and how the Bornite Project can be done in an
acceptable manner.
The permit review process will determine the number of management plans required to address all aspects of the
Project to ensure compliance with environmental design and permit criteria. Each plan will describe the appropriate
environmental engineering standard and the applicable operations requirements, maintenance protocols, and
response actions.
Bornite Project – Current Activities
Following the release in the spring of 2016 of the Bornite Report, we focused field investigations and drilling
activities on advancing our Arctic Project towards pre-feasibility. Field work at the Bornite Project consisted of
continued environmental baseline data collection and the completion of the LiDAR survey over the greater project
area initiated in 2015. We continue to evaluate geological and hydrogeological data to support internal desktop
evaluations and planning of future field investigations at the Bornite project.
Item 3. LEGAL PROCEEDINGS
From time to time, we are a party to routine litigation and proceedings that are considered part of the ordinary course
of business. We are not aware of any material current, pending, or threatened litigation. There are no material
proceedings pursuant to which any of our directors, officers or affiliates or any owner of record or beneficial owner
of more than 5% of our securities or any associate of any such director, officer or security holder is a party adverse
to us or has a material interest adverse to us.
Item 4. MINE SAFETY DISCLOSURES
Operations are subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the
Federal Mine Safety and Health Act of 1977 (the “Mine Act”). At our current stage of exploration, we are not yet
subject to MSHA.
Companies required to file periodic reports under the Exchange Act, that operate mines regulated under the Mine
Act are required to make certain disclosures pursuant to Section 1503(a) of Dodd-Frank. We have nothing to
disclose pursuant to Section 1503(a) of Dodd-Frank for the fiscal year ended November 30, 2016.
57
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Price Range of Common Shares
The Trilogy Shares are listed on the TSX and the NYSE-MKT under the symbol “TMQ”. On February 2, 2017,
there were 1,507 holders of record of our shares, which does not include shareholders for which shares are held in
nominee or street name. The following tables set out the market price range of the Common Shares on the TSX and
NYSE-MKT for the two fiscal years prior to the date hereof.
Fiscal Quarter
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
December 2016 – February 2, 2017
NYSE-MKT
TSX (C$)
High
0.72
0.74
0.65
0.55
0.39
0.86
0.68
0.85
0.59
Low
0.41
0.52
0.35
0.33
0.15
0.32
0.44
0.41
0.44
High
0.90
0.93
0.80
0.70
0.55
1.08
0.86
1.00
0.80
Low
0.53
0.65
0.45
0.41
0.20
0.43
0.57
0.59
0.58
On February 2, 2017, the closing price of our Common Shares on the TSX was CDN$0.66 per Common Share and
on the NYSE-MKT was $0.50 per Common Share.
Dividend Policy
We have not declared or paid any dividends on our Common Shares. Our current business plan requires that for the
foreseeable future, any future earnings be reinvested to finance the growth and development of our business. We
will not declare or pay any dividends until such time as our cash flow exceeds our capital requirements and will
depend upon, among other things, conditions then existing including earnings, financial condition, restrictions in
financing arrangements, business opportunities and conditions and other factors, or our Board determines that our
shareholders could make better use of the cash.
Securities Authorized for Issuance under Equity Compensation Plans
The following table is as of February 2, 2017.
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
Weighted-average exercise
price of outstanding options,
warrants and rights
Plan category
Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column
(a))
Equity
plans
security holders
compensation
by
approved
compensation
Equity
plans not approved by
security holders
(a)
9,191,526
-
Total
9,191,526
(b)
$0.46
-
$0.46
58
(c)
6,703,849
-
6,703,849
Unregistered Sales of Equity Securities
None.
Repurchase of Securities
During 2016, neither Trilogy nor any affiliate of Trilogy repurchased Trilogy Common Shares.
Exchange Controls
There are no governmental laws, decrees or regulations in Canada that restrict the export or import of capital,
including foreign exchange controls, or that affect the remittance of dividends, interest or other payments to non-
resident holders of the securities of Trilogy, other than Canadian withholding tax.
Certain Canadian Federal Income Tax Considerations for U.S. Holders
The following is a general summary of the principal Canadian federal income tax considerations generally
applicable under Income Tax Act (Canada) (the “Tax Act”) to a holder of Common Shares, each of whom, at all
relevant times, for the purposes of the Tax Act, holds such Common Shares as capital property, deals at arm’s length
with the Company, is not affiliated with the Company and, for purposes of the Tax Act, is not, and is not deemed to
be, a resident of Canada and has not and will not use or hold or be deemed to use or hold the Common Shares in the
course of carrying on business in Canada (a “Non-Resident Holder”). Special rules, which are not discussed below,
may apply to a non-resident of Canada that is an insurer which carries on business in Canada and elsewhere.
The Common Shares will generally be considered capital property to a Non-Resident Holder unless either (i) the
Non-Resident Holder holds the Common Shares in the course of carrying on a business of buying and selling
securities or (ii) the Non-Resident Holder has acquired the Common Shares in a transaction or transactions
considered to be an adventure or concern in the nature of trade.
The term “U.S. Holder,” for the purposes of this section, means a Non-Resident Holder who, for purposes of the
Canada-United States Income Tax Convention (1980) as amended, (the “Convention”), is at all relevant times a
resident of the United States and is a “qualifying person” within the meaning of the Convention. In some
circumstances, fiscally transparent entities (including limited liability companies) will be entitled to benefits under
the Convention. U.S. Holders are urged to consult with their own tax advisors to determine their entitlement to
benefits under the Convention based on their particular circumstances.
This summary is based on the current provisions of the Tax Act, the regulations thereunder (the “Regulations”), the
current provisions of the Convention, counsel’s understanding of the current published administrative policies and
assessing practices of the Canada Revenue Agency (the “CRA”) publicly available prior to the date hereof.
This summary also takes into account all specific proposals to amend the Tax Act and Regulations publicly
announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (collectively, the “Proposed
Tax Amendments”). No assurances can be given that the Proposed Tax Amendments will be enacted or will be
enacted as proposed. Other than the Proposed Tax Amendments, this summary does not take into account or
anticipate any changes in law or the administration policies or assessing practice of CRA, whether by judicial,
legislative, governmental or administrative decision or action, nor does it take into account provincial, territorial or
foreign income tax legislation or considerations, which may differ significantly from those discussed herein.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax
advice to any particular U.S. Holder and no representations with respect to the income tax consequences to any
particular U.S. Holder are made. This summary is not exhaustive of all Canadian federal income tax
considerations. Accordingly, U.S. Holders should consult their own tax advisors with respect to their own
particular circumstances. The discussion below is qualified accordingly.
Currency Conversion
Subject to certain exceptions that are not discussed herein, for purposes of the Tax Act, all amounts relating to the
acquisition, holding or disposition of Common Shares, including dividends, adjusted cost base and proceeds of
dispositions must be determined in Canadian dollars using the daily noon rate (or, beginning March 1, 2017, the
59
single daily exchange rate) of the Bank of Canada on the particular date the particular amount arose or such other
rate of exchange as acceptable to the CRA.
Disposition of Common Shares
A Non-Resident Holder will not be subject to tax under the Tax Act in respect of any capital gain realized by such
Non-Resident Holder on a disposition of the Common Shares, nor will capital losses arising from the disposition be
recognized under the Tax Act, unless the Common Shares constitute “taxable Canadian property” (as defined in the
Tax Act) of the Non-Resident Holder at the time of disposition and the Non-Resident Holder is not entitled to relief
under an applicable income tax treaty or convention. As long as the shares are then listed on a “designated stock
exchange” (as defined in the Tax Act) (which currently includes the TSX and the NYSE-MKT) at the time of
disposition, the Common Shares generally will not constitute taxable Canadian property of a Non-Resident Holder,
unless at any time during the 60-month period immediately preceding the disposition the following two conditions
are not met concurrently: (i) the Non-Resident Holder, persons with whom the Non-Resident Holder did not deal at
arm’s length, partnerships in which the taxpayer or persons with whom the taxpayer did not deal at arm’s length
holds a membership interest directly or indirectly through one or more partnerships, or the Non-Resident Holder
together with all such persons, owned or was considered to own 25% or more of the issued shares of any class or
series of shares of the capital stock of the Company; and (ii) more than 50% of the fair market value of the Common
Shares was derived directly or indirectly from one or any combination of real or immovable property situated in
Canada, “Canadian resource properties” (as defined in the Tax Act), “timber resource properties” (as defined in the
Tax Act) or a options in respect of, or interests in, or civil law rights in, such properties, whether or not it exists.
If the Common Shares are taxable Canadian property to a Non-Resident Holder, any capital gain realized on the
disposition or deemed disposition of such shares, may not be subject to Canadian federal income tax pursuant to the
terms of an applicable income tax treaty or convention between Canada and the country of residence of a Non-
Resident Holder, including the Convention.
A Non-Resident Holder whose shares are taxable Canadian property should consult their own advisors.
Dividends on Common Shares
Under the Tax Act, dividends on shares paid or credited to a Non-Resident Holder will be subject to Canadian
withholding tax at the rate of 25% of the gross amount of the dividends. This withholding tax may be reduced
pursuant to the terms of an applicable income tax treaty or convention between Canada and the country of residence
of a Non-Resident Holder. Under the Convention, a U.S. Holder will generally be subject to Canadian withholding
tax at a rate of 15% of the gross amount of such dividends (or 5% in the case of a U.S. Holder that is a company
beneficially owning at least 10% of the Company’s voting shares). In addition, under the Convention, dividends
may be exempt from Canadian non-resident withholding tax if paid to certain U.S. Holders that are qualifying
religious, scientific, literary, educational or charitable tax-exempt organizations and qualifying trusts, companies,
organizations or arrangements operated exclusively to administer or provide pension, retirement or employee
benefits that are exempt from tax in the United States and that have complied with specific administrative
procedures.
Certain U.S. Federal Income Tax Considerations
The following is a general summary of certain anticipated U.S. federal income tax considerations applicable to a U.S.
Holder (as defined below) arising from and relating to the acquisition, ownership and disposition of Common Shares.
This summary is for general information purposes only and does not purport to be a complete analysis or listing of
all potential U.S. federal income tax considerations that may apply to a U.S. Holder as a result of acquisition of
Common Shares. Furthermore, this summary does not take into account the individual facts and circumstances of
any particular U.S. Holder that may affect the U.S. federal income tax considerations applicable to such U.S. Holder
of Common Shares. Except as specified below, this summary does not discuss applicable tax reporting
requirements. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal
income tax advice with respect to any U.S. Holder. U.S. Holders should consult their own tax advisors regarding the
U.S. federal, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership and disposition
of Common Shares.
60
No ruling from the U.S. Internal Revenue Service (the “IRS”) or legal opinion has been requested, or will be
obtained, regarding the potential U.S. federal income tax considerations applicable to U.S. Holders as discussed in
this summary. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is
different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which
this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or
more of the positions taken in this summary.
Scope of this Summary
Authorities
This summary is based on the U.S. Internal Revenue, as amended (“Code”), regulations promulgated by the
Department of the Treasury (whether final, temporary or proposed) (“Treasury Regulations”), U.S. court decisions,
published rulings and administrative positions of the IRS, and the Convention, that are applicable and, in each case,
in effect as of the date of this document. Any of the authorities on which this summary is based could be changed in
a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective
basis, which could affect the U.S. federal income tax considerations described in this summary. This summary does
not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be
applied on a retroactive basis.
U.S. Holders
For purposes of this section, a “U.S. Holder” is a beneficial owner of Common Shares that, for U.S. federal income
tax purposes, is (a) an individual who is a citizen or resident of the United States for U.S. federal income tax
purposes; (b) a corporation, or other entity classified as a corporation for U.S. federal income tax purposes, that is
created or organized in or under the laws of the United States or any state in the United States, including the District
of Columbia; (c) an estate if the income of such estate is subject to U.S. federal income tax regardless of the source
of such income; or (d) a trust if (i) such trust has validly elected to be treated as a U.S. person for U.S. federal
income tax purposes, or (ii) a U.S. court is able to exercise primary supervision over the administration of such trust
and one or more U.S. persons have the authority to control all substantial decisions of such trust.
Non-U.S. Holders
For purposes of this summary, a “Non-U.S. Holder” is a beneficial owner of Common Shares that is neither a U.S.
Holder nor a U.S. partnership (or other “pass-through” entity). This summary does not address the U.S. federal
income tax considerations applicable to Non-U.S. Holders relating to the acquisition, ownership and disposition of
Common Shares. Accordingly, Non-U.S. Holders should consult their own tax advisors regarding the U.S. federal,
U.S. state and local, and foreign tax consequences (including the potential application of and operation of any tax
treaties) relating to the acquisition, ownership, and disposition of Common Shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject
to special provisions under the Code, including (a) U.S. Holders that are tax-exempt organizations, qualified
retirement plans, individual retirement accounts or other tax-deferred accounts; (b) U.S. Holders that are financial
institutions, underwriters, insurance companies, real estate investment trusts or regulated investment companies or
that are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting
method; (c) U.S. Holders that have a “functional currency” other than the U.S. dollar; (d) U.S. Holders that own
Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale or other
arrangement involving more than one position; (e) U.S. Holders that acquired Common Shares in connection with
the exercise of employee stock options or otherwise as compensation for services; (f) U.S. Holders that hold
Common Shares other than as a capital asset (generally property held for investment purposes) within the meaning of
Section 1221 of the Code; or (g) U.S. Holders that own, directly, indirectly or by attribution, 10% or more, by voting
power or value, of the outstanding shares of the Company. The summary below also does not address the impact on
persons who are U.S. expatriates or former long-term residents of the United States subject to Section 877 of the
Code. U.S. Holders and others that are subject to special provisions under the Code, including U.S. Holders
described immediately above, should consult their own tax advisors.
61
If an entity that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes
holds Common Shares, the U.S. federal income tax consequences applicable to such partnership (or “pass-through”
entity) and the partners of such partnership (or owners of such “pass-through” entity) generally will depend on the
activities of the partnership (or “pass-through” entity) and the status of such partners (or owners). Partners of entities
that are classified as partnerships (and owners of “pass-through” entities) for U.S. federal income tax purposes
should consult their own tax advisors regarding the U.S. federal income tax consequences relating to the acquisition,
ownership and disposition of Common Shares.
Tax Consequences Other than U.S. Federal Income Tax Consequences Not Addressed
This summary does not address the U.S. state and local, U.S. estate and gift, U.S. alternative minimum tax, or
foreign tax consequences to U.S. Holders relating to the acquisition, ownership, and disposition of Common Shares.
Each U.S. Holder should consult its own tax advisor regarding the U.S. state and local, U.S. estate and gift, U.S.
federal alternative minimum tax and foreign tax consequences relating to the acquisition, ownership, and disposition
of Common Shares.
U.S. Federal Income Tax Consequences of the Acquisition, Ownership and Disposition of Common Shares
Distributions on Common Shares
Subject to the PFIC rules discussed below, a U.S. Holder that receives a distribution, including a constructive
distribution, with respect to a Common Share will be required to include the amount of such distribution in gross
income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent
of the current or accumulated “earnings and profits” of the Company, as computed for U.S. federal income tax
purposes. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the
Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder’s tax
basis in the Common Shares and thereafter as a gain from the sale or exchange of such Common Shares (see “Sale or
Other Taxable Disposition of Common Shares” below). However, the Company does not intend to maintain the
calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder
should therefore assume that any distribution by the Company with respect to the Common Shares will constitute
ordinary dividend income. Subject to applicable limitations, dividends paid by the Company to non-corporate U.S.
Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital
gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company
not be classified as a PFIC (as discussed below) in the tax year of distribution or in the preceding tax year.
Dividends received on Common Shares by corporate U.S. Holders will not be eligible for the “dividends received
deduction”. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the
application of such rules.
Sale or Other Taxable Disposition of Common Shares
Subject to the PFIC rules discussed below, upon the sale or other taxable disposition of Common Shares a U.S.
Holder generally will recognize capital gain or loss in an amount equal to the difference between (a) the amount of
cash plus the fair market value of any property received and (b) its tax basis in such Common Shares sold or
otherwise disposed of. Such gain generally will be treated as “U.S. source” for purposes of applying the U.S. foreign
tax credit rules unless the gain is subject to tax in Canada and is re-sourced as “foreign source” under the Convention
and such U.S. Holder elects to treat such gain or loss as “foreign source” (see a more detailed discussion at “Foreign
Tax Credit” below). Any such gain or loss generally will be capital gain or loss, which will be long-term capital gain
or loss if, at the time of the sale or other disposition, such Common Shares are held for more than one year.
Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are
currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for
capital losses are subject to significant limitations under the Code.
Foreign Tax Credit
A U.S. Holder who pays (whether directly or through withholding) Canadian income tax with respect to dividends
paid on the Common Shares generally may elect to deduct or credit such tax. This election is made on a year-by-
year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a
year.
62
Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the
proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source”
taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s
various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S.
source”. In addition, this limitation is calculated separately with respect to specific categories of income. Dividends
paid by the Company generally will constitute “foreign source” income and generally will be categorized as “passive
category income”. However, and subject to certain exceptions, a portion of the dividends paid by a foreign
corporation will be treated as U.S. source income for United States foreign tax credit purposes, in proportion to its
U.S. source earnings and profits, if United States persons own, directly or indirectly, 50 percent or more of the voting
power or value of the foreign corporation’s shares. A portion of any dividends paid with respect to the Common
Shares may be treated as U.S. source income under these rules, which may limit the ability of a U.S. Holder to claim
a foreign tax credit for any Canadian withholding taxes payable in respect of such amount. Because the foreign tax
credit rules are complex, U.S. Holders should consult their own tax advisors regarding the foreign tax credit rules,
including the source of any dividends paid to U.S. Holders.
Subject to certain specific rules, foreign income and withholding taxes paid with respect to any distribution in respect
of stock in a PFIC should qualify for the foreign tax credit. The rules relating to distributions by a PFIC are
complex, and a U.S. Holder should consult with its own tax advisor with respect to any distribution received from a
PFIC.
Receipt of Foreign Currency
The amount of any distribution paid in foreign currency to a U.S. Holder in connection with the ownership of
Common Shares, or on the sale, exchange or other taxable disposition of Common Shares, generally will be equal to
the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of actual or
constructive receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). If the
foreign currency received is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in
the foreign currency equal to its U.S. dollar value on the date of receipt. A U.S. Holder that receives foreign
currency and converts such foreign currency into U.S. dollars at a conversion rate other than the rate in effect on the
date of receipt may have a foreign currency exchange gain or loss, which generally would be treated as U.S. source
ordinary income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual
method of tax accounting. U.S. Holders should consult their own U.S. tax advisors regarding the U.S. federal income
tax consequences of receiving, owning and disposing of foreign currency.
Additional Tax on Passive Income
Individuals, estates and certain trusts whose income exceeds certain thresholds will be required to pay a 3.8%
Medicare surtax on “net investment income” including, among other things, dividends and net gain from disposition
of property (other than property held in certain trades or businesses). U.S. Holders should consult with their own tax
advisors regarding the effect, if any, of this tax on their ownership and disposition of Common Shares.
Passive Foreign Investment Company Rules
If the Company is considered a PFIC within the meaning of Section 1297 of the Code at any time during a U.S.
Holder’s holding period, then certain different and potentially adverse tax consequences would apply to such U.S.
Holder’s acquisition, ownership and disposition of Common Shares.
PFIC Status of the Company
The Company generally will be a PFIC if, for a given tax year, (a) 75% or more of the gross income of the Company
for such tax year is passive income or (b) 50% or more of the assets held by the Company either produce passive
income or are held for the production of passive income, based on the fair market value of such assets. “Gross
income” generally includes all revenues less the cost of goods sold plus income from investments and from
incidental or outside operations or sources, and “passive income” includes, for example, dividends, interest, certain
rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities
transactions. Active business gains arising from the sale of commodities generally are excluded from passive income
if substantially all (85% or more) of a foreign corporation’s commodities are stock in trade or inventory, depreciable
property used in a trade or business, or supplies regularly used or consumed in a trade or business, and certain other
requirements are satisfied.
63
For purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly,
25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it
(a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share
of the income of such other corporation. In addition, for purposes of the PFIC income test and asset test described
above, “passive income” does not include any interest, dividends, rents or royalties that are received or accrued by
the Company from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are
properly allocable to the income of such related person that is not passive income.
Under certain attribution rules, if the Company is a PFIC, U.S. Holders will be deemed to own their proportionate
share of any subsidiary of the Company which is also a PFIC (a “Subsidiary PFIC”), and will be subject to U.S.
federal income tax on (a) a distribution on the shares of a Subsidiary PFIC and (b) a disposition of shares of a
Subsidiary PFIC, both as if the U.S. Holder directly held the shares of such Subsidiary PFIC.
The Company believes that it was not a PFIC for the tax years ended November 30, 2014, 2015, and 2016, but may
be a PFIC in future tax years. No opinion of legal counsel or ruling from the IRS concerning the status of the
Company as a PFIC has been obtained or is currently planned to be requested. The determination of whether the
Company (or a subsidiary of the Company) was, or will be, a PFIC for a tax year depends, in part, on the application
of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether the
Company (or subsidiary) will be a PFIC for any tax year depends on the assets and income of the Company (and
each such subsidiary) over the course of each such tax year and, as a result, cannot be predicted with certainty as of
the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any determination
made by the Company (or subsidiary) concerning its PFIC status or that the Company (and any subsidiary) was not,
or will not be, a PFIC for any tax year. U.S. Holders should consult their own tax advisors regarding the PFIC status
of the Company and any subsidiary of the Company.
Default PFIC Rules under Section 1291 of the Code
If the Company is a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership
and disposition of Common Shares will depend on whether such U.S. Holder makes a QEF election or makes a
mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”) with respect to Common
Shares. A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in
this summary as a “Non-Electing U.S. Holder”.
A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to (a) any gain
recognized on the sale or other taxable disposition of Common Shares and (b) any excess distribution paid on the
Common Shares. A distribution generally will be an “excess distribution” to the extent that such distribution
(together with all other distributions received in the current tax year) exceeds 125% of the average distributions
received during the three preceding tax years (or during a U.S. Holder’s holding period for the Common Shares, if
shorter).
If the Company is a PFIC, under Section 1291 of the Code any gain recognized on the sale or other taxable
disposition of Common Shares (including an indirect disposition of shares of a Subsidiary PFIC), and any excess
distribution paid on Common Shares (or a distribution by a Subsidiary PFIC to its shareholder that is deemed to be
received by a U.S. Holder) must be ratably allocated to each day of a Non-Electing U.S. Holder’s holding period for
the Common Shares. The amount of any such gain or excess distribution allocated to the tax year of disposition or
excess distribution and to years before the Company became a PFIC, if any, would be taxed as ordinary income. The
amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax applicable to
ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year,
calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a
corporation must treat any such interest paid as “personal interest”, which is not deductible.
If the Company is a PFIC for any tax year during which a Non-Electing U.S. Holder holds Common Shares, the
Company will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether
the Company ceases to be a PFIC in one or more subsequent years. If the Company ceases to be a PFIC, a Non-
Electing U.S. Holder may terminate this deemed PFIC status with respect to Common Shares by electing to
recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such
Common Shares were sold on the last day of the last tax year for which the Company was a PFIC.
64
Under proposed Treasury Regulations, if a U.S. Holder has an option, warrant or other right to acquire stock of a
PFIC, such option, warrant or right is considered to be PFIC stock subject to the default rules of Section 1291 of the
Code. Under rules described below, if the Company was a PFIC, the holding period for the option, warrant or other
right would begin on the day after the date a U.S. Holder acquired the option, warrant or other right. This would
impact the availability of the QEF Election and Mark-to-Market Election with respect to an option, warrant or other
right. Thus, a U.S. Holder would have to account for an option, warrant or other right and Common Shares under the
PFIC rules and the applicable elections differently (see discussion below under “QEF Election” and “Market-to-
Market Election”.)
QEF Election
In the event the Company is a PFIC and a U.S. Holder makes a QEF Election for the first tax year in which its
holding period of its Common Shares begins, such U.S. Holder generally will not be subject to the rules of
Section 1291 of the Code discussed above with respect to its Common Shares. However, a U.S. Holder that makes a
QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the net capital
gain of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary
earnings of the Company, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain”
is the excess of (a) net long-term capital gain over (b) net short-term capital gain, and “ordinary earnings” are the
excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be
subject to U.S. federal income tax on such amounts for each tax year in which the Company is a PFIC, regardless of
whether such amounts are actually distributed to such U.S. Holder by the Company. However, a U.S. Holder that
makes a QEF Election may, subject to certain limitations, elect to defer payment of current U.S. federal income tax
on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will
be treated as “personal interest”, which is not deductible.
A U.S. Holder that makes a QEF Election generally (a) may receive a tax-free distribution from the Company to the
extent that such distribution represents “earnings and profits” of the Company that were previously included in
income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the
Common Shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF
Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the
sale or other taxable disposition of Common Shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election,
will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely” if it is made for the
first year in the U.S. Holder’s holding period for the Common Shares in which the Company was a PFIC. A U.S.
Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S.
Holder files a U.S. federal income tax return for such year.
A QEF Election will apply to the tax year for which such QEF Election is made and to all subsequent tax years,
unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a
U.S. Holder makes a QEF Election and, in a subsequent tax year, the Company ceases to be a PFIC, the QEF
Election will remain in effect (although it will not be applicable) during those tax years in which the Company is not
a PFIC. Accordingly, if the Company becomes a PFIC in a subsequent tax year, the QEF Election will be effective,
and the U.S. Holder will be subject to the QEF rules described above during a subsequent tax year in which the
Company qualifies as a PFIC.
As discussed above, under proposed Treasury Regulations, if a U.S. Holder has an option, warrant or other right to
acquire stock of a PFIC, such option, warrant or right is considered to be PFIC stock subject to the default rules of
Section 1291 of the Code on its disposition. However, a holder of an option, warrant or other right to acquire stock
of a PFIC may not make a QEF Election that will apply to the option, warrant or other right to acquire PFIC stock.
In addition, under proposed Treasury Regulations, if a U.S. Holder holds an option, warrant or other right to acquire
stock of a PFIC, the holding period with respect to shares of stock of the PFIC acquired upon exercise of such
option, warrant or other right will include the period that the option, warrant or other right was held. U.S. Holders
should consult their own tax advisors regarding the application of the PFIC rules to Common Shares.
The Company will make available to U.S. Holders, upon their written request, timely and accurate information as to
its status as a PFIC, and will provide to a U.S. Holder all information and documentation that a U.S. Holder making a
QEF Election with respect to the Company, and any Subsidiary PFIC in which the Company owns, directly or
indirectly, more than 50% of such Subsidiary PFIC’s total aggregate voting power, is required to obtain for U.S.
65
federal income tax purposes in the event it is a PFIC. However, U.S. Holders should be aware that the Company can
provide no assurances that it will provide any such information relating to any Subsidiary PFIC, in which the
Company owns, directly or indirectly, 50% or less of such Subsidiary PFIC’s aggregate voting power. Because the
Company may own shares in one or more Subsidiary PFICs, and may acquire shares in one or more Subsidiary
PFICs in the future, they will continue to be subject to the rules discussed above with respect to the taxation of gains
and excess distributions with respect to any Subsidiary PFIC for which the U.S. Holders do not obtain the required
information. U.S. Holders should consult their tax advisor regarding the availability of, and procedure for making, a
QEF Election with respect to the Company and any Subsidiary PFIC.
Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market Election only if the Common Shares are marketable stock. The
Common Shares generally will be “marketable stock” if they are regularly traded on (a) a national securities
exchange that is registered with the SEC; (b) the national market system established pursuant to section 11A of the
Securities and Exchange Act of 1934; or (c) a foreign securities exchange that is regulated or supervised by a
governmental authority of the country in which the market is located, provided that (i) such foreign exchange has
trading volume, listing, financial disclosure and other requirements and the laws of the country in which such foreign
exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually
enforced; and (ii) the rules of such foreign exchange ensure active trading of listed stocks. If such stock is traded on
such a qualified exchange or other market, such stock generally will be “regularly traded” for any calendar year
during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar
quarter. Each U.S. Holder should consult its own tax advisor regarding whether the Common Shares constitute
marketable stock.
A U.S. Holder that makes a Mark-to-Market Election with respect to its Common Shares generally will not be
subject to the rules of Section 1291 of the Code discussed above. However, if a U.S. Holder does not make a Mark-
to-Market Election beginning in the first tax year of such U.S. Holder’s holding period for Common Shares or such
U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to
certain dispositions of, and distributions on, the Common Shares.
A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which the
Company is a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the Common Shares, as of
the close of such tax year over (b) such U.S. Holder’s tax basis in such Common Shares. A U.S. Holder that makes a
Mark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (i) such U.S.
Holder’s adjusted tax basis in the Common Shares over (ii) the fair market value of such Common Shares (but only
to the extent of the net amount of previously included income as a result of the Mark-to-Market Election for prior tax
years).
U.S. Holders that make a Mark-to-Market Election generally also will adjust their tax basis in the Common Shares to
reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In
addition, upon a sale or other taxable disposition of Common Shares, a U.S. Holder that makes a Mark-to-Market
Election will recognize ordinary income or loss (not to exceed the excess, if any, of (a) the amount included in
ordinary income because of such Mark-to-Market Election for prior tax years over (b) the amount allowed as a
deduction because of such Mark-to-Market Election for prior tax years).
A Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each
subsequent tax year, unless the Common Shares cease to be “marketable stock” or the IRS consents to revocation of
such election. U.S. Holders should consult their own tax advisors regarding the availability of, and procedure for
making, a Mark-to-Market Election.
Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to Common Shares, no
such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning
because such stock is not marketable. Hence, the Mark-to-Market Election will not be effective to eliminate the
interest charge described above with respect to deemed dispositions of Subsidiary PFIC stock or distributions from a
Subsidiary PFIC.
66
Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain
exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss)
upon certain transfers of Common Shares that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to
corporate reorganizations) in the event the Company is a PFIC during such U.S. Holder’s holding period for the
relevant shares. However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the
manner in which Common Shares are transferred.
Certain additional adverse rules will apply with respect to a U.S. Holder if the Company is a PFIC, regardless of
whether such U.S. Holder makes a QEF Election. For example, under Section 1298(b)(6) of the Code, a U.S. Holder
that uses Common Shares as security for a loan will, except as may be provided in Treasury Regulations, be treated
as having made a taxable disposition of such Common Shares.
In any year in which the Company is classified as a PFIC, a U.S. Holder will be required to file an annual report with
the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. U.S. Holders
should consult their own tax advisors regarding the requirements of filing such information returns under these rules,
including the requirement to file an IRS Form 8621.
In addition, a U.S. Holder who acquires Common Shares from a decedent will not receive a “step up” in tax basis of
such Common Shares to fair market value unless such decedent had a timely and effective QEF Election in place.
Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a
PFIC.
The PFIC rules are complex, and U.S. Holders should consult their own tax advisors regarding the PFIC rules and
how they may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of
Common Shares in the event the Company is a PFIC at any time during such holding period for such Common
Shares.
Information Reporting, Backup Withholding Tax
Certain U.S. Holders are required to report information relating to an interest in Common Shares subject to certain
exceptions (including an exception for Common Shares held in accounts maintained by certain financial institutions),
by attaching a completed IRS Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for
each year in which they hold an interest in Common Shares. U.S. Holders are urged to consult their own tax
advisors regarding information reporting requirements relating to their ownership of Common Shares.
Payments made within the United States, or by a U.S. payor or U.S. middleman, of dividends on Common Shares,
and proceeds arising from certain sales or other taxable dispositions of Common Shares, may be subject to
information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to furnish such U.S.
Holder’s correct U.S. social security or other taxpayer identification number (generally on Form W-9); (b) furnishes
an incorrect U.S. taxpayer identification number; (c) is notified by the IRS that such U.S. Holder has previously
failed to properly report items subject to backup withholding tax; or (d) fails under certain circumstances to certify,
under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that
the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, U.S. Holders that
are corporations generally are excluded from these information reporting and backup withholding tax rules. Any
amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s
U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder timely furnishes the required
information to the IRS. U.S. Holders should consult their own tax advisors regarding the information reporting and
backup withholding tax rules.
67
Item 6. SELECTED FINANCIAL DATA
The selected financial data in the table below have been selected in part, from our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. The
selected financial data should be read in conjunction with those consolidated financial statements and the notes
thereto.
in thousands of dollars, except per share amounts
Results of operations
Loss and comprehensive loss for the
period
Basic and diluted loss per share
Financial position
Working capital
Total assets
Total long-term liabilities
Shareholders’ equity
2016
$
4,862
0.05
15,056
46,747
-
46,154
Year ended November 30
2014
$
2015
$
2013
$
2012
$
9,532
0.12
16,134
51,181
-
50,430
9,648
24,394
31,018
0.17
0.47
0.67
4,846
36,826
-
35,847
5,423
38,899
-
37,157
21,190
55,696
-
53,723
68
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Trilogy Metals Inc.
(An Exploration-Stage Company)
Management’s Discussion and Analysis
For the Fourth Quarter and Year Ended November 30, 2016
(expressed in US dollars)
General
This Management’s Discussion and Analysis (“MD&A”) of Trilogy Metals Inc. (“Trilogy”, “the Company” or
“we”) is dated February 2, 2017 and provides an analysis of our audited financial results for the year ended
November 30, 2016 compared to the year ended November 30, 2015.
The following information should be read in conjunction with our November 30, 2016 audited consolidated
financial statements and related notes which were prepared in accordance with United States generally accepted
accounting principles (“U.S. GAAP”). A summary of the U.S. GAAP accounting policies are 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, references to “U.S. dollars”,
“$” or “US$” are to the currency of the United States and references to “Colombian pesos” or “COP” are to the
currency of the Republic of Colombia.
Erin Workman, P.Geo., an employee and the Director, Technical Services, 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-MKT 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 exploring and developing our mineral holdings 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 (“NovaCopper US”). Our Upper Kobuk Mineral
Projects, (“UKMP” or “UKMP Projects”), consist of: i) the 100% owned Ambler lands which host the Arctic
copper-zinc-lead-gold-silver 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 host
the Bornite carbonate-hosted copper Project.
Property review
Our principal assets, the UKMP Projects, are located in the Ambler mining district in Northwest Alaska. Our UKMP
Projects comprise approximately 352,943 acres (142,831 hectares) consisting of the Ambler and Bornite lands.
Arctic Project
The Ambler lands, which host a number of deposits, including the high-grade copper-zinc-lead-gold-silver Arctic
Project, and other mineralized targets within a 100 kilometer long volcanogenic massive sulfide (“VMS”) belt, are
owned by NovaCopper US. The Ambler lands are located in Northwestern Alaska and consist of 112,058 acres
(45,348 hectares) of Federal patented mining claims and State of Alaska mining claims, within which VMS
mineralization has been found.
We have recorded the Ambler lands as a mineral property with acquisition costs capitalized and exploration costs
expensed in accordance with our accounting policies. As a result of the spin-out of Trilogy from NovaGold
Resources Inc. (“NovaGold”) in 2012, the consolidated financial statements have been presented under the
69
continuity of interest basis of accounting whereby the amounts are based on the amounts originally recorded by
NovaGold as if we had held the property from inception.
Bornite Project
On October 19, 2011, NovaCopper US and NANA signed a collaborative agreement to explore and develop the
Ambler mining district. Under the Exploration Agreement and Option to Lease (the “NANA Agreement”), we
acquired the exclusive right to explore the Bornite property and lands deeded to NANA through the Alaska Native
Claims Settlement Act (“ANCSA”), located adjacent to the Arctic Project, and the non-exclusive right to access and
entry onto NANA’s lands. The agreement establishes a framework for any future development of either the Bornite
Project or the Arctic Project. Both projects are included as part of a larger area of interest set forth in the NANA
Agreement. The agreement with NANA created a total land package incorporating our Ambler lands with the
adjacent Bornite and ANCSA lands with a total area of approximately 352,900 acres (142,831 hectares).
As consideration, $4.0 million was paid to NANA upon signing the NANA agreement and we gave NANA the right
to appoint a member to Trilogy’s board of directors before April 2017. NANA has not exercised their right to
appoint a board member at this time. Upon the decision to proceed with development of a mine within the area of
interest, NANA maintains the right to purchase an ownership interest in the mine equal to between 16%-25% or
retain a 15% net proceeds royalty which is payable after we have recovered certain historical costs, including capital
and cost of capital. Should NANA elect to purchase an ownership interest in the mine, consideration will be payable
based on the elected percentage purchased and all the costs incurred on the properties less $40.0 million, not to be
less than zero. The parties would form a joint venture and be responsible for all future costs incurred in connection
with the mine, including capital costs of the mine, based on each party’s pro-rata share.
NANA would also be granted a net smelter return royalty between 1% and 2.5% upon the execution of a mining
lease or a surface use agreement, the amount of which is determined by the particular area of land from which
production originates.
We have accounted for the Bornite property as a mineral property with acquisition costs capitalized and exploration
costs expensed in accordance with our accounting policies.
Titiribi Project
On June 19, 2015, Trilogy completed an arrangement to acquire Sunward Resources Ltd. (“Sunward”). As a result,
Trilogy, through wholly-owned subsidiaries, Sunward Investments Ltd. (“Sunward Investments”), owned 100% of
the Titiribi gold-copper exploration project located approximately 70 kilometers southwest of the city of Medellin,
in Antioquia Department, Colombia. The Titiribi project’s principal mining title is concession 5085, which was
created by the consolidation of five concessions and four exploration licenses. This concession, comprising of an
area of 3,919 hectares, was registered with the National Mining Registry on April 18, 2013 and expires in 2043.
Following the announcement of the sale of Sunward Investments (see “Corporate developments – Sale of Sunward
Investments Ltd.”), and its ownership of the Titiribi project, we have accounted for it as a discontinued operation.
The financial results have been adjusted retrospectively for the treatment as a discontinued operation.
Corporate developments
Name Change
In September 2016, we changed our name to Trilogy Metals Inc. to better reflect our Company’s naturally
diversified resource base. The UKMP is located in the Ambler mining district in Northwest Alaska; a region known
to host deposits rich in copper, zinc, lead, gold and silver. The Company controls the mineral rights to
approximately 353,000 acres of land containing two known mineral belts, the Ambler Schist Belt and the Bornite
Carbonate Sequence. The Ambler Schist Belt hosts VMS type mineralization occurring as a series of high-grade
polymetallic copper-lead-zinc-gold-silver deposits along the entire 100 kilometer (70 mile) long belt. The Bornite
Carbonate Sequence hosts several copper replacement targets around the Aurora and Pardner Hill prospects, in
addition to an established resource identified at Bornite. Mineralization at Bornite is open to further exploration.
Upon opening of the markets on September 8, 2016, our shares began trading on the TSX and the NYSE-MKT
under the symbol “TMQ”. Shareholders approved the name change to Trilogy at our annual and special meeting of
shareholders held on May 18, 2016.
70
Sale of Sunward Investments
On September 1, 2016, Trilogy completed the sale of all of the issued and outstanding shares of Sunward
Investments to Brazil Resources Inc. (“BRI”) for consideration of 5,000,000 common shares of BRI, of which
2,500,000 common shares are subject to a six month holding period, and 1,000,000 BRI warrants, with each warrant
exercisable into one common share of BRI for a period of two years from the completion date at an exercise price of
CDN$3.50. The total consideration was valued at approximately $8.1 million. Sunward Investments, through a
subsidiary, owns 100% of the Titiribi gold-copper exploration project. On December 7, 2016 BRI changed its name
to GoldMining Inc.
The Company reclassified the operations of Sunward Investments as a discontinued operation, retrospectively, and
recognized a gain on the sale of $4.4 million in the fourth quarter of 2016.
Long-term incentives
During the year ended November 30, 2016, the Board of Directors approved the granting of 1,785,000 stock options
to employees, consultants and directors with various vesting terms over two years and 600,000 restricted share units
(“RSUs”) to officers vesting equally in thirds on the grant date, the first anniversary of the grant date, and the second
anniversary of the grant date.
Project activities
In the spring of 2016 we announced the release of an updated resource estimate and National Instrument 43-101
Technical Report on the Bornite Project. The update incorporated a new 3D lithology, alteration and structural
model for the Bornite deposit, as well as results from previously un-sampled or partially sampled historical
Kennecott drill core. A positive update with contained copper in Indicated Resources increasing from 334 to 913
million pounds constituting a 173% increase in contained metal. Total contained copper in Inferred Resources
decreased from 5.7 to 5.5 billion pounds (1.8Blbs in-pit and 3.7Blbs below-pit) which constitutes a 4% decrease in
contained metal due principally to moving in-pit Inferred Resources to the Indicated category. We continue to
evaluate geological and hydrogeological data to support internal desktop evaluations and planning of future field
investigations at the Bornite project.
In fiscal 2016, we expended $5.0 million on the UKMP Projects, mainly at Arctic, consisting of $1.3 million in
wages and benefits, $0.7 million in drilling, $0.7 million in engineering expenses, $1.3 million in project support
expenses, $0.4 million in land maintenance and permit expenses, and $0.3 million in environmental studies. The
Company completed another successful field season in 2016 advancing the Arctic deposit towards pre-feasibility.
We accomplished a 3,058 meter drill program at the Arctic Project, significant baseline environmental data
collection, and furthered the engineering of the project. The summer field season was completed on time and 10%
under budget, with a total spend of $5.0 million in 2016. The 2016 drill program was designed to collect data for
geotechnical, hydrological, waste rock characterization and metallurgical studies as well as further resource
definition.
Three drill holes representing 822 meters drilled were designed to collect geotechnical and hydrological data within
the proposed Arctic open-pit. Data collected from the geotechnical/hydrological drill program was used to update a
3D structure model, rock mass model, and hydrogeology model and these results have been integrated into a
combined geotechnical model that will be used for characterization of geotechnical domains and slope stability
evaluation in a future pre-feasibility study.
Four drill holes representing 1,030 meters drilled were designed to collect metallurgical samples, specifically
targeting material within the initial production years of the Arctic open-pit. A metallurgical test work program is
currently underway and expected to be complete in Q1-2017.
Six drill holes representing 1,206 meters drilled were designed to evaluate vertical and lateral continuity of the high
grade polymetallic copper, gold, silver, lead, and zinc mineralization, and support upgrading of Inferred resources to
Measured and Indicated resource classification within the area of the proposed Arctic open-pit. We are pleased to
announce that all six infill holes encountered mineralized intervals consistent with previous drilling conducted
within the resource area on the property. Data collected from the drill program was used to update the 3D geology
model. The updated geology domains and drill data will be incorporated into an updated resource estimate that will
support a future pre-feasibility study.
71
Substantial field work was also completed to support the continuation of baseline environmental data collection.
During the course of the field season, data collection was completed to support an aquatic survey, an avian and large
mammal habitat survey, an archaeological survey and expansion of the wetlands delineation and surface quality
work. An aquatics survey of rivers and creeks over the UKMP included identification of fish species present and
tissues metals testing. An avian survey over the UKMP was conducted in May to identify bird nest locations, with a
follow-up survey in July to measure fledging success. A habitat survey was completed in conjunction with the
wetlands survey and will be used to inform future biological surveys. Approximately 2,400 acres were surveyed for
archaeological resources in or around the potential Arctic open-pit and facilities locations. Approximately 2,900
acres of wetlands were delineated using techniques approved by the Army Corps of Engineers. On-going baseline
environmental data collection included maintenance of three hydrologic gauging stations and one meteorological
station. Surface water quality samples were taken from sixteen surface water locations and analyzed for a full suite
of parameters including total and dissolved metals.
We continue to advance the acid-base-accounting static and kinetic test work at Arctic. Continuous down-hole
samples were collected from this year’s drill program to support static testing coverage over the Arctic deposit. On-
site barrel sampling was successfully completed in the spring and fall of 2016 to support the kinetics program, and
in August we achieved the 40-week milestone for the parallel laboratory humidity cells; maintenance and
monitoring of all kinetic tests will continue into 2017.
The LiDAR survey that was incomplete last year due to weather conditions was also completed during the summer.
Final deliverables were received this fall has have already proven helpful in supporting on-going engineering design
and geological modeling.
We continued our efforts on supporting the Alaska Industrial Development Export Authority ("AIDEA”) throughout
2016 towards drafting an Environmental Impact Statement (“EIS”) as prescribed under the National Environmental
Policy Act process to permit the Ambler Mining District Industrial Access Project (“AMDIAP”). The AMDIAP is
anticipated to provide surface access to the Ambler mining district and our UKMP Projects – Arctic and Bornite.
The project design is modeled on AIDEA’s successful DeLong Mountain Transportation System (“DMTS”), which
includes an industrial access road from the Red Dog Mine to the DMTS port. AIDEA worked with private industry
to develop the DMTS industrial access road, and the costs of road construction were paid back through tolls on road
use. AMDIAP, once complete, will provide access to the Ambler Mining District through Gates of the Arctic
National Preserve. This access is guaranteed in the Alaska National Interest Lands Conservation Act (“ANILCA”).
On October 21, 2015, Alaska’s Governor authorized AIDEA to begin the EIS process and shortly thereafter, the
Consolidated SF299 ANILCA applications were submitted by AIDEA to the relevant federal agencies, including the
National Park Service (“NPS”), the U.S. Army Corp of Engineers (“USACE”), Bureau of Land Management
(“BLM”), U.S. Coast Guard (“USCG”), and the U.S. Federal Highway Administration (“FHWA”). NPS, USACE,
BLM, and FHWA have accepted the application to move forward and have determined that BLM will be the lead
federal agency for the EIS, along with NPS taking the lead on the Environmental and Economic Analysis (“EEA”)
per ANILCA Section 201.4(d). A project kickoff meeting with State of Alaska and Federal agencies was held in
early December 2016 to discuss next steps which include the scope of work for the third party EIS contractor,
anticipated timing of BLM issuance of the Notice of Intent between March 2017 and May 2017, and NPS and
FHWA working on the EEA. More information on the AMDIAP and the ANILCA permitting process is available
on AIDEA’s website at www.ambleraccess.org, which website is not incorporated by reference.
Outlook
In 2017, we will continue to advance the development of our UKMP Projects. We are currently working on
incorporating new surface mapping, a LiDAR survey, and drill hole information into an updated 3D geology model
for the Arctic deposit. The new 3D geology model will update structural, lithology, mineralization and alteration
domains into an integrated geology model that can support pre-feasibility level resource evaluations and mine
planning. In the first quarter of 2017, we expect to complete a resource model update for the Arctic project that will
include new assays collected from 2015 and 2016 drill core, specific gravity determinations collected from waste
and mineralized material, and ABA static analyses collected from the hanging wall of the Arctic deposit – these data
will support upgrading of Inferred resources to Measured and Indicated resource classification as well as future pre-
feasibility level mine planning and open-pit design. During summer 2016, five drill holes were completed at the
Arctic project to support a pre-feasibility level metallurgical test program. We retained ALS Metallurgy of
Kamloops, British Columbia to complete the test work. The study will include confirmation of the metallurgical
response of a Master Composite of approximately 400 kilograms, assessment of the variance in metallurgical
72
responses across the deposit, and completion of copper-lead separation testing – work is on-going and expected to
continue into the second quarter of 2017. We continue to advance our understanding of ABA/ML waste
characterization at the Arctic project, in support of this task we plan to continue monthly sampling of laboratory
Humidity Cell Tests through the end of 2017.
During summer 2013, two drill holes were completed in the open-pittable Ruby Creek zone of the Bornite deposit;
the core was logged as per Company standard logging procedures, sampled and shipped to the Fairbanks warehouse
where samples remained in cold storage pending processing. In September 2016, we retained SGS Minerals
Services of Burnaby, British Columbia to perform a mineralogical and metallurgical test program for the retained
samples of the open pit zone of the Bornite deposit. The study will include mineralogical characterization through
quantitative analysis (QEMSCAN) and optimization of the metallurgical parameters to best recover the base and
precious metal values in the mineralized material – work is on-going and expected to continue into the second
quarter of 2017. In November 2016, we retained SRK Consulting of Vancouver, British Columbia to review
hydrogeological conditions at the Bornite property, update the hydrogeological conceptual model and provide
recommendations for future data collection – work is on-going and expected to continue into the second quarter of
2017.
In the first half of 2017, we expect to complete a number of stand-alone and district trade-off studies that will
include updated information on the Arctic and Bornite projects. These trade-off studies will guide planning of future
site investigations to support pre-feasibility.
We continue to work with NANA on workforce development within NANA’s region. Through the Oversight
Committee and the Workforce Development sub-committee, NANA and the Company jointly work on programs to
facilitate local hiring of NANA shareholders. The Company has contributed a total of $140,000 to a scholarship
fund which grants awards to NANA shareholders for either (i) the recipient’s student expenses directly related to
education, i.e., academic education at an accredited institution; or (ii) the recipient’s student expenses directly
related to vocational or technical schooling or training at a recognized institution intended to qualify the recipient for
enhanced employment opportunities. The Workforce Development sub-committee which consists of equal
representation from NANA and the Company will review all applications for 2017 and will select recipients for
grant awards. We are committed to training and hiring locally. We have been very successful in hiring NANA
shareholders at the UKMP Projects, achieving over 50% local hire each year over the past 5 years. In 2016, our
field season employees consisted of 55% NANA shareholders and in 2017, we are committed to the continuation of
hiring locally at the project.
We are also working closely with AIDEA to amend the Memorandum of Understanding (“MOU”) , originally
signed in 2013, as the industrial road route has been selected and permitting documents have been submitted to the
relevant US federal agencies. We will work with AIDEA, as the proponent for the AMDIAP, to have a direct input
into the permitting process for the road and have the ability to attend meetings with the BLM, as the lead federal
agency for the EIS process.
73
Summary of results
Selected expenses
General and administrative
Mineral properties expense
Professional fees
Salaries
Salaries – stock-based compensation
Loss from continued operations for the year
(Income)/loss from discontinued operations for the
year
Loss and comprehensive loss for the year
Basic and diluted loss per common share
Year ended
November 30,
2016
$
1,337
5,037
442
1,003
615
8,712
(3,850)
in thousands of dollars,
except for per share amounts
Year ended
November 30,
2014
$
1,484
2,512
952
3,012
887
9,648
-
Year ended
November 30,
2015
$
1,346
4,167
1,346
1,085
831
9,134
398
4,862
$0.05
9,532
$0.12
9,648
$0.17
For the year ended November 30, 2016, we reported a net loss of $4.9 million (or $0.05 basic and diluted loss per
common share) compared to a net loss for the corresponding period in 2015 of $9.5 million (or $0.12 basic and
diluted loss per common share) and a net loss of $9.6 million for the corresponding period in 2014 (or $0.17 basic
and diluted loss per common share). This variance was primarily due to a one-time gain on the sale of Sunward
Investments. Additionally, there were decreases in annual professional fees and stock-based compensation expense
offset against an increase in mineral properties expenses in 2016.
The significant variance in 2016 relates to the gain recognized on the sale of Sunward Investments and the Titiribi
Project of $4.4 million, pre-tax. This was a one-time event for which there is no comparable gain in prior years.
Additionally, as a result of the sale, the operations of Sunward Investments were reclassified as a discontinued
operation, retrospectively. Expenses of $0.6 million for the year ended November 30, 2016 and $0.4 million for the
year ended November 30, 2015 related to the Sunward Investments operations were reclassified to discontinued
operations. As Sunward was purchased by the Company in June 2015, there are no amounts prior to June 2015
included in the consolidated results. In addition to the gain recognized on the sale, we also realized $0.1 million in
gains on the sale of investments received as consideration for the year ended November 30, 2016.
Professional fees for the year ended November 30, 2016 were $0.4 million, a reduction of $0.9 million from the $1.3
million incurred for the year ended November 30, 2015, and a reduction from the $1.0 million incurred for the year
ended November 30, 2014. Expenses in 2016 were down significantly due to less corporate transaction activity as
well as $0.2 million in costs related to the sale of Sunward recorded in discontinued operations. In 2015, expenses
were incurred for legal and technical due diligence and regulatory approvals associated with the acquisition of
Sunward and, in 2014, legal costs associated with private placement financing were incurred for which there is no
comparable amount in the current year.
The variance in the mineral properties expense was primarily due to the differing magnitude of the field programs at
our UKMP Project in 2016, 2015 and 2014. In 2016, we completed a similar-sized drill program consisting of 3,058
meters at the Arctic Project, however, we significantly increased the environmental baseline data collection and
engineering site investigations compared to the 2015 program. In 2015, we completed fourteen diamond drill holes
amounting to 3,056 meters at the Arctic Project, as well as engineering and environmental site investigations. In
2014, we completed a re-sampling and re-assaying program of approximately 13,000 meters of historical drill core
from Bornite. Mineral property expenses consist of direct drilling, personnel, community, resource reporting and
other exploration expenses, as well as indirect project support expenses such as fixed wing charters, helicopter
support, fuel, and other camp operation costs.
The other reduction in expenses is from a charge of $0.6 million in stock-based compensation in 2016 compared to
$0.8 million in 2015, and $0.9 million in 2014. The expense recognized for the current year includes $0.4 million in
expense relating to stock options and $0.3 million in expense relating to RSUs and deferred share units (“DSUs”).
The 2015 expense included $0.7 million in expense relating to stock options and $0.1 million in expense relating to
DSUs issued to non-executive directors in lieu of cash remuneration. The expense recognized for 2014 included
$0.5 million in expense relating to stock options and $0.4 million in expense relating to previously granted RSUs
and DSUs.
74
Other important variances for the year ended November 30, 2016 compared to the same period in 2015 and 2014 are
as follows: (a) $1.3 million in general and administrative expenses in 2016 and 2015 compared to $1.5 million in
due to cost reduction efforts as well as a favorable foreign exchange movement; and (b) $1.0 million in salaries in
2016 compared to $1.1 million in 2015 and $3.0 million in 2014 primarily related to cost reduction initiatives
implemented in the third quarter of 2014 that reduced the number of employees in the corporate office. The salaries
in 2014 also included a one-time severance cost of $1.3 million paid to former employees offset by a recovery of
$0.3 million due to a reversal of accrued bonuses from 2013 to employees no longer eligible to receive payment.
The comparable basic and diluted loss per common share for 2016 is lower than 2015 and 2014 due to the gain on
the sale of Sunward Investments. The 2015 basic and diluted loss per common share is lower than 2014 mainly as a
result of the additional shares issued during 2015 as a result of the Sunward acquisition completed in June 2015 as
well as a lower loss figure.
Fourth quarter results
During the fourth quarter of 2016, we earned income of $2.0 million compared to a net loss of $2.1 million for the
comparable period in 2015. The earnings in the fourth quarter of 2016 were due to the gain on sale of Sunward
Investments of $4.4 million offsetting net expenses of $2.4 million. We incurred $1.4 million of mineral property
expenses in the fourth quarter of 2016 compared to $0.8 million in the fourth quarter of 2015 for fairly comparable
expenses including assaying costs from the summer drill program and engineering costs for the Arctic deposit. We
recognized $0.2 million in foreign exchange losses in the fourth quarter of 2016 mainly due to the movement of the
Canadian dollar as a result of holding the investments in BRI. As we acquired the investments in the fourth quarter
of 2016, there is no comparable amount in 2015.
Selected financial data
Annual information
The following annual information is prepared in accordance with U.S. GAAP.
Interest income
Expenses
(Income)/Loss from discontinued operations for the
year
Loss and comprehensive loss for the year
Total assets
Total liabilities
Year ended
November 30,
2016
$
61
8,918
(3,850)
Year ended
November 30,
2015
$
24
9,158
398
in thousands of dollars
Year ended
November 30,
2014
$
2
9,650
-
4,862
46,747
593
9,532
51,181
751
9,648
36,826
979
Quarterly information
Interest and other income
Mineral property expenses
Income (loss) from
discontinued operations for
the period
Earnings (loss) for the period
Earnings (loss) per common
share – basic and diluted
Q4 2016
11/30/16
$
10
1,430
4,561
Q3 2016
08/31/16
$
15
2,617
(352)
Q2 2016
05/31/16
$
18
458
(187)
Q1 2016
02/28/16
$
18
532
(172)
Q4 2015
11/30/15
$
12
779
(200)
Q3 2015
08/31/15
$
8
2,771
(198)
in thousands of dollars,
except per share amounts
Q1 2015
02/28/15
$
-
327
-
Q2 2015
05/31/15
$
4
291
-
2,025
0.02
(3,544)
(0.03)
(1,648)
(0.02)
(1,695)
($0.02)
(2,090)
(0.02)
(4,162)
(0.04)
(1,750)
(0.03)
(1,530)
(0.03)
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
75
caused fluctuations in the quarterly results that would not be expected to re-occur include the acquisition and
disposition of Sunward and financing activities.
Our loss for the first quarter ended February 28, 2015 was significantly reduced in comparison to previous first
quarter periods due to the Company’s cost cutting efforts to reduce professional fees, salaries and mineral property
expenses. During the first quarter of 2015, we incurred mineral property expense of $0.3 million mainly on
community support and project staff salaries as our field season this year did not commence until early in the third
quarter. During the second quarter of 2015, we incurred $0.3 million in mineral property expenses, the same level of
activities as the first quarter of 2015. We also incurred $0.7 million in professional fees during the second quarter of
2015 mainly due to the acquisition of Sunward. During the third quarter of 2015, we incurred mineral property
expenses of $2.8 million as we completed our drilling program. We also incurred $0.2 million of discontinued
operation costs operating Sunward. As a result, our loss for the third quarter ended August 31, 2015 is higher
compared to previous quarter losses. Our net loss for the fourth quarter of 2015 of $2.1 million consists of $0.8
million in mineral property expenses incurred for assay costs and engineering studies conducted in the fall as well as
$0.2 million in discontinued operation costs from Sunward.
Our loss for the first quarter ended February 28, 2016 is slightly increased compared to the first quarter ended
February 28, 2015 due to increased mineral property expenses relating to engineering studies completed in advance
of the 2016 field program, as well as costs related to operating Sunward. During the second quarter of 2016, we
incurred $0.5 million in mineral property expenses due to field season starting up in the last month of the second
quarter and $0.2 million in discontinued operations relating to Sunward. During the third quarter of 2016, we
incurred mineral property expenses of $2.6 million as we completed our drilling program. As a result, our loss for
the third quarter ended August 31, 2016 is higher compared to previous third quarter losses. We recognized earnings
for the fourth quarter of 2016 of $2.0 million due to the gain on the sale of Sunward. Adjusted for the discontinued
operations, the fourth quarter periods are comparable.
Liquidity and capital resources
At November 30, 2016, we had $7.3 million in cash and cash equivalents. We expended $8.9 million on operating
activities during the 2016 fiscal year compared with $8.4 million for operating activities for the same period in 2015,
and expenditures of $8.6 million for operating activities for the same period in 2014. A majority of cash spent on
operating activities during all periods was expended on mineral property expenses, professional fees, salaries and
general and administrative expenses. The increase in cash spent in the year ended November 30, 2016 is mainly due
to increased mineral property expenses of $0.9 million, increased discontinued operations expense of $0.2 million
expended on Sunward offset by decreased professional fees of $0.9 million. As at November 30, 2016, the
Company continues to manage its cash expenditures and management believes that the working capital available is
sufficient to meet its operational requirements for the next year. Future financings are anticipated through equity
financing, debt financing, the sale of investments, convertible debt, or other means.
During the year ended November 30, 2014, we raised $7.2 million in proceeds from the completion of a private
placement in July 2014. There was no comparable amount from financing activities in 2015 or 2016.
During the year ended November 30, 2016, we raised $0.2 million in sales from investments acquired through the
sale of Sunward Investments. During the year ended November 30, 2015, we generated $19.4 million from investing
activities through the acquisition of Sunward. There was no comparable amount from investing activities in 2014. In
2014 and 2015, to conserve cash, our expenditures were minimal and limited to replacements that were absolutely
necessary. In 2016, we spent $0.1 million purchasing vehicles and equipment to replace older vehicles.
Contractual obligations
Contractual obligated undiscounted cash flow requirements as at November 30, 2016 are as follows.
Accounts payable and accrued liabilities
Office lease
Total
Total
$
593
75
668
< 1 Year
$
593
75
668
1–3 Years
$
-
-
-
in thousands of dollars,
unless otherwise specified
> 5 Years
$
-
-
-
3–5 Years
$
-
-
-
76
On January 25, 2013, the Company entered into a commitment to lease office space effective May 1, 2013 for a
period of four years with a remaining total commitment at November 30, 2016 of $0.08 million.
Off-balance sheet arrangements
We have no material off-balance sheet arrangements. The Company has lease commitments for office spaces with a
remaining total commitment of $0.08 million.
Outstanding share data
At February 2, 2017, we had 105,501,761 common shares issued and outstanding. At February 2, 2017, we had
outstanding 6,521,740 warrants with an exercise price of $1.60 each, 7,562,765 stock options with a weighted-
average exercise price of $0.53, 958,648 DSUs, 600,002 RSUs, 66,664 NovaGold Arrangement Options with a
weighted-average exercise price of $3.91, and 20,685 NovaGold DSUs for which the holder is entitled to receive
one common share for every six NovaGold shares received. For additional information on NovaGold Arrangement
Options and NovaGold DSUs, please refer to note 8 in our November 30, 2016 audited consolidated financial
statements. Upon exercising all of forgoing convertible securities, the Company would be required to issue an
aggregate of 15,713,266 common shares.
Financial instruments
Our financial instruments consist of cash and cash equivalents, accounts receivable, deposits, investments, 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. Our investments are held for trading and are marked-to-market at each period end with
changes in fair value recorded to the statement of loss.
(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. We operate in the United States, Canada, and previously operated in Colombia with some expenses
incurred in Canadian dollars and Colombian pesos. Our exposure to currency risk at November 30, 2016 is limited
to the Canadian dollar consisting of cash of CDN$451,000, accounts receivable of CDN$32,000, deposits amounts
of CDN$146,000, investments of CDN$10,521,000 and accounts payable of CDN$528,000. Based on a 1% change
in the US-Canadian exchange rate, assuming all other variables remain constant, the Company’s net loss would
change by approximately $79,000.
(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. The Company’s accounts receivable consist of GST 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.
(c) Liquidity risk
Liquidity risk is the risk that we will encounter difficulties raising funds to meet our financial obligations as they fall
due. The Company does not have cash inflows from operations; therefore, the Company manages liquidity risk
through the management of our 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 “Liquidity and capital resources.”
(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
77
and cash equivalents. Based on balances as at November 30, 2016, 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.
New accounting pronouncements
Certain recent accounting pronouncements have been included under note 2 in our November 30, 2016 audited
consolidated financial statements
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, accounting for business
combinations, income taxes and valuation of 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
Management assesses the possibility of impairment in the carrying value of its long-lived assets whenever events or
circumstances indicate that the carrying amounts of the asset or asset group may not be recoverable. Significant
judgments are made in assessing the possibility of impairment. 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 of physical
condition of the asset. 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 future net cash flows relating
to the asset or asset group using estimated future prices, mineral resources, and operating, capital and reclamation
costs. When the carrying value 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. Management’s estimates of
mineral prices, mineral resources, foreign exchange rates, 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.
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 including interest and penalties. We are subject to income
tax law in the United States, Canada and previously in Colombia. 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.
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,
78
volatility, and forfeiture rate which can have a significant impact on the valuation model, and resulting expense
recorded.
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 US Exchange Act
and the rules of Canadian Securities Administration, as at November 30, 2016. 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 U.S. 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. Management has used
the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated
Framework (2013) to evaluate the effectiveness of the Company’s internal control over financial reporting. Based on
this assessment, management has concluded that as at November 30, 2016, the Company’s internal control over
financial reporting was effective.
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. Certain of these risks and
uncertainties are under the heading “Risk Factors” under Trilogy’s Form 10-K dated February 2, 2017 available on
SEDAR at www.sedar.com and EDGAR at www.sec.gov and on our website at www.trilogymetals.com.
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.
79
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
80
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Supplementary Data
For the required supplementary data, please see the section heading “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Summary of Quarterly Results and Fourth Quarter Results”
above.
Trilogy Metals Inc.
(An Exploration-Stage Company)
Consolidated Financial Statements
November 30, 2016, 2015 and 2014
(expressed in US dollars)
Management’s Report on Internal Control over Financial Reporting
The management of Trilogy Metals Inc. is responsible for establishing and maintaining adequate internal control
over financial reporting under Rule 13a-15(f) and 15d-15(f) of the U.S. Exchange Act. The Securities Exchange Act
of 1934 defines this as a process designed by, or under the supervision of, the Company’s principal executive and
principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles in the United States of
America, and includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles in the United States of America,
and that receipts and expenditures of the Company are being made only in accordance with authorizations
of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that may have a material effect on the consolidated financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
November 30, 2016. In making this assessment, the Company’s management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework
(2013).
Based upon our assessment and those criteria, management concluded that the Company’s internal control over
financial reporting is effective as of November 30, 2016.
/s/ Rick Van Nieuwenhuyse
/s/ Elaine Sanders
Rick Van Nieuwenhuyse
President & Chief Executive Officer
February 2, 2017
Elaine Sanders
Vice President & Chief Financial Officer
81
Report of Independent Registered Public Accounting Firm
To the Shareholders of Trilogy Metals Inc. (formerly known as NovaCopper Inc.)
the accompanying consolidated balance sheets of Trilogy Metals
We have audited
Inc. as of
November 30, 2016 and 2015 and the related consolidated statements of loss and comprehensive loss, changes in
shareholders’ equity and cash flows for each of the years in the three-year period ended November 30, 2016.
Management is responsible for these consolidated financial statements. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. Our audits of the consolidated
financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall consolidated financial statement presentation. We were not engaged to
perform an audit of the company’s internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal
control over financial reporting. Accordingly, we express no such opinion. Our audits also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Trilogy Metals Inc. as of November 30, 2016 and 2015 and the results of its operations and its
cash flows for each of the years in the three-year period ended November 30, 2016 in conformity with accounting
principles generally accepted in the United States of America.
signed “PricewaterhouseCoopers LLP”
Chartered Professional Accountants
Vancouver, British Columbia
February 2, 2017
82
Trilogy Metals Inc.
(An Exploration-Stage Company)
Consolidated Balance Sheets
As at November 30, 2016 and 2015
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Deposits and prepaid amounts
Current investments (note 10)
Current assets held for sale (note 3)
Assets held for sale (note 3)
Investments (note 10)
Plant and equipment (note 5)
Mineral properties and development costs (note 6)
Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 7)
Current liabilities held for sale (note 3)
Shareholders’ equity
Share capital (note 8) – unlimited common shares authorized, no par value
Issued -105,286,469 (2015 – 104,796,421)
Warrants (note 8(e))
Contributed surplus
Contributed surplus – options (note 8(a, b, c))
Contributed surplus – units (note 8(d))
Deficit accumulated during the exploration stage
Commitments and contingencies (notes 6, 8, 12, 13)
Subsequent events (note 13)
November 30, 2016
$
in thousands of US dollars
November 30, 2015
$
7,340
47
724
7,538
-
15,649
-
297
215
30,586
46,747
593
-
593
136,357
2,163
124
18,134
1,140
(111,764)
46,154
46,747
16,064
39
688
-
94
16,885
3,537
-
173
30,586
51,181
712
39
751
136,040
2,163
124
17,841
1,164
(106,902)
50,430
51,181
(See accompanying notes to the consolidated financial statements)
/s/ Rick Van Nieuwenhuyse, Director
/s/ Kalidas Madhavpeddi, Director
Approved on behalf of the Board of Directors
83
Trilogy Metals Inc.
(An Exploration-Stage Company)
Consolidated Statements of Loss and Comprehensive Loss
For the Years Ended November 30
in thousands of US dollars, except share and per share amounts
Expenses
Amortization
Foreign exchange loss
General and administrative
Investor relations
Mineral properties expense (note 6(c))
Professional fees
Salaries
Salaries – stock-based compensation
Total expenses
Other items
Unrealized gain on held for trading investments
Gain on sale of investments
Interest and other income
Loss from continuing operations for the year
Loss from discontinued operations
Gain on sale of Sunward Investments Ltd.
(Income)/loss from discontinued operations for the
year (note 3)
Loss and comprehensive loss for the year
Basic and diluted loss from continuing operations per
common share
Basic (earnings)/loss from discontinued operations per
common share
Diluted (earnings)/loss from discontinued operations per
common share
Basic and diluted loss per common share
Weighted average number of common shares
outstanding
2016
$
79
204
1,337
201
5,037
442
1,003
615
8,918
(88)
(57)
(61)
8,712
598
(4,448)
(3,850)
4,862
$0.08
$(0.04)
$(0.04)
$0.05
2015
$
292
3
1,346
88
4,167
1,346
1,085
831
9,158
-
-
(24)
9,134
398
-
398
9,532
$0.11
$0.01
$0.01
$0.12
2014
$
750
2
1,484
51
2,512
952
3,012
887
9,650
-
-
(2)
9,648
-
-
-
9,648
$0.17
-
-
$0.17
105,103,952
80,312,913
56,268,326
(See accompanying notes to the consolidated financial statements)
84
Trilogy Metals Inc.
(An Exploration-Stage Company)
Consolidated Statements of Changes in Shareholders’ Equity
For the Years Ended November 30
Number of
shares
outstanding
53,066,656
46,929
14,166
6,521,740
492,501
154,373
-
-
60,296,365
43,116,312
-
7,499
347,999
795,368
232,878
-
-
104,796,421
162,854
108,399
218,795
-
-
105,286,469
Share capital
$
104,895
631
28
5,068
929
282
-
-
111,833
22,851
-
7
177
819
353
-
-
136,040
65
34
218
-
-
136,357
Warrants
$
-
-
-
2,163
-
-
-
-
2,163
-
-
-
-
-
-
-
-
2,163
-
-
-
-
-
2,163
Contributed
surplus
$
152
-
(28)
-
-
-
-
-
124
-
-
-
-
-
-
-
-
124
-
-
-
-
-
124
Contributed
surplus –
options
$
17,248
(615)
-
-
-
-
456
-
17,089
108
-
(7)
(35)
-
-
686
-
17,841
(65)
-
-
358
-
18,134
(See accompanying notes to the consolidated financial statements)
Balance – 2013
Exercise of NovaGold Arrangement Options
NovaGold Performance Share Units
Private placement
Restricted Share Units
Deferred Share Units
Stock-based compensation
Loss for the year
Balance – 2014
Issuance pursuant to Sunward Arrangement
Restricted Share Units to settle liability
Exercise of options
Exercise of Sunward Arrangement Options
Restricted Share Units
Deferred Share Units
Stock-based compensation
Loss for the year
Balance – 2015
Exercise of options
Restricted Share Units
Deferred Share Units
Stock-based compensation
Loss for the year
Balance – 2016
85
in thousands of US dollars, except share amounts
Total
shareholders’
equity
$
37,157
16
-
7,231
-
204
887
(9,648)
35,847
22,959
183
-
142
-
-
831
(9,532)
50,430
-
(29)
-
615
(4,862)
46,154
Deficit
$
(87,722)
-
-
-
-
-
-
(9,648)
(97,370)
-
-
-
-
-
-
-
(9,532)
(106,902)
-
-
-
-
(4,862)
(111,764)
Contributed
surplus –
units
$
2,584
-
-
-
(929)
(78)
431
-
2,008
-
183
-
-
(819)
(353)
145
-
1,164
-
(63)
(218)
257
-
1,140
Trilogy Metals Inc.
(An Exploration-Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended November 30
Cash flows used in operating activities
Loss for the year
Items not affecting cash
Amortization
Gain on sale of Sunward Investments Ltd.
Unrealized gain on held for trading investments
Unrealized foreign exchange loss
Gain on sale of investments
Stock-based compensation
Net change in non-cash working capital
Decrease (increase) in accounts receivable
Decrease (increase) in deposits and prepaid amounts
Increase (decrease) in accounts payable, accrued
liabilities and due to related parties
Cash flows from (used in) financing activities
Proceeds from private placement, net
Proceeds received on exercise of options
Proceeds received on exercise of Sunward
Arrangement Options
Settlement of Restricted Share Units
Cash flows from (used in) investing activities
Acquisition of plant & equipment
Proceeds from disposition of equipment
Proceeds from the sale of investments
Net cash outflow from the disposition of Sunward
Investments Ltd.
Cash acquired through Sunward Arrangement
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents – beginning of year
Cash and cash equivalents – end of year
Less cash and cash equivalents of discontinued
operations – end of year
Cash and cash equivalents of continuing operations
– end of year
Non-cash investing and financing activities
Acquisition of investments from the sale of Sunward
Investments Ltd.
Issuance of common shares and arrangement options
on acquisition of Sunward
2016
$
(4,862)
174
(4,448)
(88)
184
(57)
615
(8)
(59)
(143)
(8,692)
-
-
-
(29)
(29)
(122)
-
228
(184)
-
(78)
(8,799)
16,139
7,340
-
7,340
2016
$
8,102
-
in thousands of US dollars
2015
$
(9,532)
355
-
-
-
-
831
156
(28)
(217)
2014
$
(9,648)
750
-
-
-
-
887
(86)
16
(558)
(8,435)
(8,639)
-
-
142
-
142
(48)
7
-
-
19,399
19,358
11,065
5,074
16,139
(75)
16,064
2015
$
-
22,959
7,231
16
-
-
7,247
(18)
-
-
-
-
(18)
(1,410)
6,484
5,074
-
5,074
2014
$
-
-
(See accompanying notes to the consolidated financial statements)
86
Trilogy Metals Inc.
(An Exploration-Stage Company)
Notes to the Consolidated Financial Statements
1 Nature of operations
Trilogy Metals Inc., formerly NovaCopper Inc., (“Trilogy” or the “Company”) was incorporated in British Columbia under the
Business Corporations Act (BC) on April 27, 2011. The Company changed its name from NovaCopper Inc. to Trilogy Metals Inc. on
September 1, 2016 to better reflect its diversified metals resource base. The Company is engaged in the exploration and development
of mineral properties 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 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. (“NovaCopper US”).
These consolidated financial statements include the accounts of Sunward Resources Ltd. (“Sunward”), Sunward Investments Ltd.
(“Sunward Investments”) and Sunward Resources Limited (“Sunward BVI”) for the period June 19, 2015 to September 1, 2016, as
applicable. Sunward BVI has registered a branch, Sunward Resources Sucursal Colombia, to do business in Colombia. All significant
intercompany transactions are eliminated on consolidation.
On June 19, 2015, we completed the acquisition of Sunward, which held 100% ownership in the Titiribi gold-copper exploration
project in Colombia through Sunward Investments. Sunward was converted to Sunward Resources Unlimited Liability Company on
June 19, 2015 and wound-up on February 29, 2016. On September 1, 2016, we completed the sale of Sunward Investments and the
Titiribi project.
All figures are in United States dollars unless otherwise noted. References to CDN$ refer to amounts in Canadian dollars.
These financial statements were approved by the Company’s Board of Directors for issue on February 2, 2017.
Cash and cash equivalents
Cash and cash equivalents comprise of highly liquid investments maturing less than 90 days from date of initial investment. Cash and
cash equivalents are designated as loans and receivables.
Plant and equipment
Plant and equipment are recorded at cost and amortization begins when the asset is put into service. Amortization is calculated on a
straight-line basis over the respective assets’ estimated useful lives. Amortization periods by asset class are:
Computer hardware and software
Machinery and equipment
Office furniture and equipment
Vehicles
Leasehold Improvements
3 years
3 years
5 years
3 years
lease term
Mineral properties and development costs
All direct costs related to the acquisition of mineral property interests are capitalized. Mineral property exploration expenditures are
expensed when incurred. When it has been established that a mineral deposit is commercially mineable, an economic analysis has
been completed in accordance with SEC Industry Guide 7 and permits are obtained, the costs subsequently incurred to develop a mine
on the property prior to the start of mining operations are capitalized. Capitalized costs will be amortized following commencement of
production using the unit of production method over the estimated life of proven and probable reserves.
87
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 titles to its mining assets are properly recorded, there can be no assurance that such title will be secured indefinitely.
Impairment of long-lived assets
Management assesses the possibility of impairment in the carrying value of long-lived assets whenever events or circumstances
indicate that the carrying amounts of the asset or asset group may not be recoverable. Management calculates the estimated
undiscounted future net cash flows relating to the asset or asset group using estimated future prices, proven and probable reserves and
other mineral resources, and operating, capital and reclamation costs. When the carrying value 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. Management’s estimates of mineral prices, mineral resources, foreign exchange rates, 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. It is possible that material changes could occur that may adversely affect management’s estimates.
Income taxes
The liability method of accounting for income taxes is used and is based on differences between the accounting and tax bases of assets
and liabilities. Deferred income tax assets and liabilities are recognized for temporary differences between the tax and accounting
basis of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes using
enacted income tax rates expected to be in effect for the period in which the differences are expected to reverse. Deferred income tax
assets are evaluated and, if realization is not considered more likely than not, a valuation allowance is provided.
Uncertainty in income tax positions
The Company recognizes tax benefits from uncertain tax positions only if it is at least more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position. Any tax benefits recognized in the
financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being
realized upon settlement with the taxing authorities. Related interest and penalties, if any, are recorded as tax expense in the tax
provision.
Financial instruments
Held-for-trading financial assets and liabilities are recorded at fair value as determined by active market prices or valuation models, as
appropriate. Valuation models require the use of assumptions which may include the expected life of the instrument, the expected
volatility, dividend payouts, and interest rates. In determining these assumptions, management uses readily observable market inputs
where available or, where not available, inputs generated by management. Changes in fair value of held-for-trading financial
instruments are recorded in income or loss for the period. Held-for-trading financial assets consist of common share and warrant
investments in a publicly-held mining company.
Available-for-sale financial assets are recorded at fair value as determined by active market prices. Unrealized gains and losses on
available-for-sale investments are recognized in other comprehensive income. If a decline in fair value is deemed to be other than
temporary, the unrealized loss is recognized in net earnings. Investments in equity instruments that do not have an active quoted
market price are measured at cost. The Company has no available-for-sale financial assets.
Loans and receivables are recorded initially at fair value, net of transaction costs incurred, and subsequently at amortized cost using
the effective interest rate method. Loans and receivables consist of cash and cash equivalents, accounts receivable, and deposits.
Other financial liabilities are recorded initially at fair value and subsequently at amortized cost using the effective interest rate method.
Other financial liabilities include accounts payable and accrued liabilities.
Translation of foreign currencies
Monetary assets and liabilities are translated into United States dollar at the exchange rate in effect at the balance sheet date, and non-
monetary assets and liabilities at the exchange rate in effect at the time of acquisition or issue. Income and expenses are translated at
rates approximating the exchange rate in effect at the time of transactions. Exchange gains or losses arising on translation are included
in income or loss for the period.
The functional currency of the Company and its subsidiaries and the Company’s reporting currency is the United States dollar.
88
Earnings and loss per share
Earnings and loss per common share is calculated based on the weighted average number of common shares outstanding during the
year. The Company follows the treasury stock method in the calculation of diluted earnings per share. Under the treasury stock
method, the weighted average number of common shares outstanding used for the calculation of diluted loss per share assumes that
the proceeds to be received on the exercise of dilutive stock options and warrants are used to repurchase common shares at the average
market price during the period.
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 dividend yield and the risk-free interest rate over the expected life of
the option. The compensation cost is recognized using the graded attribution method over the vesting period of the respective options.
The expense relating to the fair value of stock options is included in expenses and is credited to contributed surplus. Shares are issued
from treasury in settlement of options exercised.
Compensation expense for restricted share units (“RSUs”) and deferred share units (“DSUs”) granted to employees and directors,
respectively, is determined based on estimated fair values of the units at the time of grant using quoted market prices or at the time the
units qualify for equity classification under ASC 718. The cost is recognized using the graded attribution method over the vesting
period of the respective units. The expense relating to the fair value of the units is included in expenses and is credited to other
liabilities or contributed surplus based on the unit’s classification. Units may be settled in either i) cash, and/or ii) shares purchased in
the open market, and/or iii) shares issued from treasury, at the Company’s election at the time of vesting.
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 basis of impairment of
mineral properties, accounting for business combinations, income taxes, and the valuation of stock-based compensation. Actual results
could differ materially from those reported.
Accounting standards adopted
Development stage entity
In June 2014, the FASB issued “Development Stage Entities – Elimination of Certain Financial Reporting Requirements, Including an
Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation” (“ASU 2014-10”). ASU 2014-10 eliminates the
concept of a development stage entity, of which Trilogy had been classified. Upon adoption, certain financial reporting disclosures
have been eliminated including the presentation of an inception-to-date statement of income and cash flow. ASU 2014-10 is effective
for fiscal years, and interim periods within those years, beginning after December 15, 2014. The Company adopted this standard as of
December 1, 2015. As a result of adopting the standard, the Company no longer includes the cumulative during exploration stage
column previously presented on the statement of loss and comprehensive loss and statement of cash flows.
Recent accounting pronouncements
i. Extraordinary Items
In January 2015, the FASB issued guidance to eliminate the concept of extraordinary items (“ASU 2015-01”). This will mean
the Company will not present any items as extraordinary items in the future. This update is effective for annual reporting
periods beginning after December 15, 2015, and interim periods within those annual periods. We have assessed that there is
no impact and the Company will adopt the standard beginning December 1, 2016.
ii. Leases
In February 2016, the FASB issued new accounting requirements for accounting for, presentation of, and classification of
leases (“ASU 2016-02”). This will result in most leases being capitalized as a right of use asset with a related liability on our
balance sheets. The requirements of the new standard are effective for annual reporting periods beginning after December 15,
89
2018, and interim periods within those annual periods, which for us is the first quarter of fiscal year 2020. We expect the
adoption will have an impact as we expect to capitalize leases that are not currently recognized on the balance sheet and are
in the process of analyzing the quantitative impact of this guidance on our results of operations and financial position.
iii. Stock-based compensation
In March 2016, the FASB issued new guidance simplifying the accounting for stock-based compensation transactions,
including income tax consequences, classification of awards as equity or liabilities, forfeitures, and classification on the
statement of cash flows (“ASU 2016-09”). This update is effective for annual reporting periods beginning after December 15,
2016, and early adoption is permitted. We are in the process of analyzing the impact of this guidance on our results of
operations, financial position, and disclosures.
3 Sale of Sunward Investments Ltd
On September 1, 2016, Trilogy completed the sale of Sunward Investments to Brazil Resources Inc. (“BRI”), a public company listed
on the TSX-Venture exchange, of all of the issued and outstanding shares of Sunward Investments for consideration of 5,000,000
common shares of BRI valued at $7.8 million and 1,000,000 warrants, with each warrant exercisable into one common share of BRI
for a period of two years at an exercise price of Cdn$3.50, valued at $0.3 million for total consideration of $8.1 million. On December
7, 2016, BRI changed its name to GoldMining Inc. Of the common shares received, 2,500,000 common shares were saleable
immediately with the remaining 2,500,000 common shares saleable six months following the close. Sunward Investments, through a
subsidiary, owns 100% of the Titiribi gold-copper exploration project located approximately 70 kilometers southwest of the city of
Medellin, in Antioquia Department, Colombia. Trilogy acquired Sunward Investments and the Titiribi project as part of its acquisition
of Sunward in a business combination which closed on June 19, 2015 (Note 4).
The Company recognized a gain on the sale of Sunward Investments of $4.4 million as of September 1, 2016 as outlined below.
Consideration received
Cash reimbursement from BRI
Net assets sold
Transaction costs
Gain on sale of Sunward Investments
in thousands of dollars
$
8,102
51
(3,545)
(160)
4,448
The fair value of the common shares received was determined based on the closing price of BRI of $1.56 (CDN$2.04) at the date of
completion. The fair value of the BRI warrants was determined using the Black-Scholes option pricing model. Assumptions used in
the pricing model in the measurement of the fair value of the warrants are as follows:
Risk-free interest rates
Exercise price
Expected life
Expected forfeiture rate
Expected volatility
Expected dividends
0.59%
CDN$3.50
2 years
0%
66.9%
Nil
The common shares and warrants received have been designated as held-for-trading financial assets.
Following the announcement, the Company classified the operations of Sunward Investments as discontinued operations,
retrospectively. The following expenses comprise the discontinued operations of Sunward Investments and substantially the entire
Colombian segment of the Company for the periods of ownership noted.
90
Amortization
Foreign exchange loss
General and administrative
Mineral properties expense
Professional fees
Discontinued operations expense for the year
Gain on sale of Sunward Investments Ltd.
(Income)/loss from discontinued operations for the year
4 Acquisition of Sunward Resources Ltd.
December 1, 2015 -
September 1, 2016
$
95
4
5
460
34
598
(4,448)
(3,850)
in thousands of dollars
June 19, 2015 –
November 30, 2015
$
63
23
3
309
-
398
-
398
On June 19, 2015, the Company closed a definitive agreement to acquire all of the issued and outstanding common shares of Sunward,
by way of a court-approved plan of arrangement (the “Sunward Arrangement”). Under the terms of the Sunward Arrangement,
Sunward shareholders received 0.3 of a Trilogy common share for each Sunward common share held. On June 19, 2015, the Company
issued 43,116,312 common shares of Trilogy (“Common Shares”) to Sunward shareholders and holders of Sunward deferred share
units pursuant to the Sunward Arrangement. Each Sunward stock option outstanding was exchanged for a fully-vested option
(“Sunward Arrangement Option”) to purchase Trilogy Common Shares for a period of 90 days, with the number of shares issuable
and exercise price adjusted based on an exchange ratio of 0.3 Trilogy options for each of Sunward’s 8,350,000 options outstanding
immediately prior to completion of the arrangement. As a result, 2,505,000 Sunward Arrangement Options were exchanged for the
Sunward options and all have subsequently been exercised or expired. Consideration transferred to consummate the Sunward
Arrangement comprised of the issuance of 43,116,312 Common Shares valued at $22.9 million and 2,505,000 Sunward Arrangement
options valued at $0.1 million. The value of the Common Shares issued was calculated based on the closing price of Trilogy Common
Shares on June 18, 2015 of $0.53, the date of last trading prior to the closing of the acquisition. The fair value of the Sunward
Arrangement Options was determined using the Black-Scholes option pricing model.
Assumptions used in the pricing model in the measurement of the fair value of the Sunward Arrangement Options are as follows:
Risk-free interest rates
Exercise price
Expected life
Expected forfeiture rate
Expected volatility
Expected dividends
0.62%
CDN$0.54-6.27
0.245 years
0%
50.2%
Nil
This acquisition has been accounted for as a business combination under ASC 805. The Company incurred $0.8 million in acquisition
costs related to the Sunward Arrangement which are included in professional fees on the consolidated statement of loss and
comprehensive loss for the year ended November 30, 2015.
The following summarizes the consideration and the fair value of assets acquired and liabilities assumed as of the date of acquisition:
Consideration:
Common shares issued (43,116,312 at $0.53 per share)
Sunward Arrangement Options
Total consideration
Fair value of net assets acquired:
Cash
Accounts receivable
Deposits and prepaid amounts
Plant and equipment
Mineral properties and developments costs
Accounts payable and accrued liabilities
Net Assets
in thousands of dollars
$
22,851
108
22,959
19,399
19
104
343
3,264
(170)
22,959
The consolidated financial statements included herein reflect the results of operations of Sunward since the June 19, 2015 acquisition
date. Following the announcement of the sale of Sunward Investments outlined in Note 3, the operations have been classified as
discontinued operations.
91
5 Plant and equipment
British Columbia, Canada
Furniture and equipment
Leasehold improvements
Computer hardware and software
Alaska, USA
Machinery, and equipment
Vehicles
Computer hardware and software
British Columbia, Canada
Furniture and equipment
Leasehold improvements
Computer hardware and software
Alaska, USA
Machinery, and equipment
Vehicles
Computer hardware and software
6 Mineral properties and development costs
Alaska, USA
Ambler (a)
Bornite (b)
Alaska, USA
Ambler (a)
Bornite (b)
(a) Ambler
in thousands of dollars
November 30, 2016
Accumulated
amortization
$
(33)
(28)
(96)
(2,798)
(285)
(31)
(3,271)
Accumulated
amortization
$
(24)
(20)
(77)
(2,777)
(262)
(31)
(3,191)
Net
$
13
4
12
123
63
-
215
in thousands of dollars
November 30, 2015
Net
$
22
12
26
100
13
-
173
Cost
$
46
32
108
2,921
348
31
3,486
Cost
$
46
32
103
2,877
275
31
3,364
November 30, 2015
$
Acquisition costs
26,586
4,000
30,586
$
-
-
-
November 30, 2014
$
Acquisition costs
26,586
4,000
30,586
$
-
-
-
in thousands of dollars
November 30, 2016
$
26,586
4,000
30,586
in thousands of dollars
November 30, 2015
$
26,586
4,000
30,586
On January 11, 2010, NovaGold Resources Inc. (“NovaGold”), through Alaska Gold Company (“AGC”), at the time a wholly-
owned subsidiary, purchased 100% of the Ambler lands in Northwest Alaska, which contains the copper-zinc-lead-gold-silver
Arctic Project and other mineralized targets within the volcanogenic massive sulfide belt, through a series of cash and share
payments. Total fair value of the consideration was $26.6 million. The vendor retained a 1% net smelter return royalty that the
owner of the property can purchase at any time for a one-time payment of $10.0 million.
The Ambler lands were acquired on October 17, 2011 by NovaCopper US through a purchase and sale agreement with AGC. On
October 24, 2011, NovaGold transferred its ownership of NovaCopper US to the Company, then a wholly owned subsidiary of
NovaGold, which was subsequently spun-out to NovaGold shareholders and publicly listed on April 30, 2012 (“NovaGold
Arrangement”).
92
(b) Bornite
On October 19, 2011, NovaCopper US acquired the exclusive right to explore and the non-exclusive right to access and enter on
the Bornite lands, and lands deeded to NANA Regional Corporation, Inc. (“NANA”) through the Alaska Native Claims
Settlement Act, located adjacent to the Ambler lands in Northwest Alaska. As consideration, NovaCopper US paid $4 million to
acquire the right to explore and develop the combined Upper Kobuk Mineral Projects through an Exploration Agreement and
Option to Lease with NANA. NANA also has the right to appoint a member to Trilogy’s board of directors before April 2017.
NANA has not exercised their right to appoint a board member at this time. Upon a decision to proceed with construction of a
mine on the lands, NANA maintains the right to purchase between a 16%-25% ownership interest in the mine or retain a 15% net
proceeds royalty which is payable after NovaCopper US has recovered certain historical costs, including capital and cost of
capital. Should NANA elect to purchase an ownership interest, consideration will be payable equal to all historical costs incurred
on the properties at the elected percentage purchased less $40 million, not to be less than zero. The parties would form a joint
venture and be responsible for all future costs, including capital costs of the mine based on their pro-rata share.
NANA would also be granted a net smelter return royalty of between 1% and 2.5% upon the execution of a mining lease or a
surface use agreement, the amount of which is determined by the classification of land from which production originates.
(c) Mineral properties expense
The following table summarizes mineral properties expense for the years ended November 30, 2016, 2015 and 2014.
Alaska, USA
Community
Drilling
Engineering
Environmental
Geochemistry and geophysics
Land and permitting
Other income
Project support
Wages and benefits
Mineral property expense
2016
$
299
712
699
314
82
426
(34)
1,254
1,285
5,037
2015
$
126
698
441
88
70
421
(209)
1,411
1,122
4,167
In thousands of dollars
2014
$
137
-
117
36
238
378
(9)
438
1,177
2,512
Mineral property expenses consist of direct drilling, personnel, community, resource reporting and other exploration expenses as
outlined above, as well as indirect project support expenses such as fixed wing charters, helicopter support, fuel, and other camp
operation costs. Cumulative mineral properties expense in Alaska from the initial earn-in agreement on the property in 2004 to
November 30, 2016 is $63.0 million and cumulative acquisition costs are $30.6 million totaling $93.6 million spent to date.
7 Accounts payable and accrued liabilities
Trade accounts payable
Accrued liabilities
Accrued salaries and vacation
Accounts payable and accrued liabilities
November 30, 2016
$
160
281
152
593
in thousands of dollars
November 30, 2015
$
161
442
109
712
93
8 Share capital
Authorized:
unlimited common shares, no par value
November 30, 2013
Exercise of NovaGold Arrangement Options
NovaGold Performance Share Units
Private placement
Restricted Share Units
Deferred Share Units
November 30, 2014
Issued pursuant to the Sunward Arrangement
Exercise of options
Exercise of Sunward Arrangement Options
Restricted Share Units
Deferred Share Units
November 30, 2015
Exercise of options
Restricted Share Units
Deferred Share Units
November 30, 2016, issued and outstanding
in thousands of dollars, except share amounts
Number of shares
53,066,656
46,929
14,166
6,521,740
492,501
154,373
60,296,365
43,116,312
7,499
347,999
795,368
232,878
104,796,421
162,854
108,399
218,795
105,286,469
Ascribed value
$
104,895
631
28
5,068
929
282
111,833
22,851
7
177
819
353
136,040
65
34
218
136,357
On April 30, 2012, under the NovaGold Arrangement, Trilogy committed to issue up to 6,181,352 common shares, once vested and
exercised, to satisfy holders of NovaGold warrants (“NovaGold Warrants”), performance share units (“NovaGold PSUs”) and
deferred share units (“NovaGold DSUs”) on record as of the close of business April 27, 2012. When exercised or 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. All NovaGold Warrants have been exercised and all NovaGold PSUs have vested. As of
November 30, 2016, 20,685 NovaGold DSUs remain outstanding representing a right to receive 3,447 Common Shares in Trilogy,
which will settle upon certain directors retiring from NovaGold’s board, and 312,195 NovaGold Arrangement Options remain
outstanding as disclosed in note 8b.
Refer to note 4 for a description of Common Shares issued pursuant to the Sunward Arrangement. All Sunward Arrangement Options
have been exercised or expired.
(a) Stock options
The Company has a stock option plan providing for the issuance of options with a rolling maximum number equal to 10% of the
issued and outstanding Common Shares at any given time. The Company may grant options to its directors, officers, employees and
service providers. The exercise price of each option cannot be lower than the greater of market price or fair market value of the
Common Shares (as such terms are defined in the plan) at the date of the option grant. The number of Common Shares optioned to any
single optionee may not exceed 10% of the issued and outstanding Common Shares at the date of grant. The options are exercisable
for a maximum of five years from the date of grant, and may be subject to vesting provisions.
During the year ended November 30, 2016, 1,785,000 options (2015 – 3,813,350 options) at a weighted-average exercise price of
CDN$0.43 (2015 - CDN$0.55) were granted to employees, consultants and directors exercisable for a period of five years with
various vesting terms from immediate vesting to over a two year period. The weighted-average fair value attributable to options
granted in 2016 was $0.13 (2015 - $0.17).
The fair value of the stock options recognized in the period has been estimated using the Black-Scholes option pricing model.
94
Assumptions used in the pricing model for the period are as provided below.
Risk-free interest rates
Exercise price
Expected life
Expected volatility
Expected dividends
November 30, 2016
0.52%
CDN$0.43
3.0 years
59.4%
Nil
November 30, 2015
0.42-1.12%
CDN$0.55
3.0 years
56.8-59.5%
Nil
November 30, 2014
1.16%
CDN$1.22
3.0 years
60.2%
Nil
The Company recognized a stock option payments charge of $0.4 million for the year ended November 30, 2016 (2015 - $0.7 million;
2014 - $0.5 million), net of forfeitures.
As of November 30, 2016, there were 1,401,675 non-vested options outstanding with a weighted average exercise price of $0.37; the
non-vested stock option expense not yet recognized was $0.05 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 year ended is as follows:
Balance – beginning of year
Granted
Exercised
Forfeited
Balance – end of year
November 30, 2016
Weighted average exercise
price
$
0.57
0.33
0.38
0.58
0.50
Number of options
5,288,350
1,785,000
(422,199)
(601,718)
6,049,433
The following table summarizes information about the stock options outstanding at November 30, 2016.
Range of price
$0.33 to $0.99
$1.00 to $1.47
Number of
outstanding
options
5,994,433
55,000
6,049,433
Weighted
average years to
expiry
3.51
1.42
3.49
Outstanding
Weighted
average exercise
price
$
0.50
1.47
0.50
Exercisable
Weighted
average exercise
price
$
0.53
1.47
0.55
Unvested
Number of
unvested options
1,401,675
-
1,401,675
Number of
exercisable
options
4,592,758
55,000
4,647,758
The aggregate intrinsic value of vested share options (the market value less the exercise price) at November 30, 2016 was $0.6 million
(2015 - $nil, 2014 - $nil) and the aggregate intrinsic value of exercised options in 2016 was $0.1 million.
(b) NovaGold Arrangement Options
Under the NovaGold Arrangement, holders of NovaGold stock options received one option in Trilogy for every six options held in
NovaGold (“NovaGold Arrangement Options”). All NovaGold Arrangement Options are vested and subject to NovaGold’s stock
option plan. The options were fully expensed during the year ended November 30, 2014 and no further expense is recognized.
A summary of the NovaGold Arrangement Options and changes during the year ended is as follows:
Balance – beginning of year
Forfeited
Expired
Balance – end of year
95
November 30, 2015
Weighted average exercise
price
$
4.77
4.68
5.61
4.28
Number of options
509,272
(27,199)
(169,878)
312,195
The following table summarizes information about the NovaGold Arrangement Options outstanding at November 30, 2016.
Range of price
$2.75 to $3.99
$4.00 to $5.99
$6.00 to $6.48
Number of outstanding
options
49,998
245,531
16,666
312,195
Weighted average years
to expiry
0.33
0.02
0.50
0.09
Outstanding and exercisable
Weighted average
exercise price
$
2.91
4.41
6.45
4.28
The aggregate intrinsic value of vested NovaGold Arrangement Options (the market value less the exercise price) at November 30,
2016 was $nil (2015 - $nil, 2014 – $nil).
(c) Sunward Arrangement Options
Under the Sunward Arrangement, each Sunward stock option outstanding was exchanged for a fully-vested Sunward Arrangement
Option to purchase Trilogy Common Shares for a period of 90 days, such number and exercise price adjusted based on an exchange
ratio of 0.3 Trilogy options for each Sunward option. A total of 2,505,000 options were exchanged and all were exercised or expired
during the year ended November 30, 2015.
During the year ended November 30, 2015, 347,999 Sunward Arrangement Options were exercised for proceeds of approximately
CDN$188,000 (US$142,000), and 2,157,001 expired. The aggregate intrinsic value of exercised Sunward Arrangement Options in
2015 was $0.01 million.
(d) 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. The RSU Plan and DSU Plan may be settled in cash and/or
Common Shares at the Company’s election with each RSU and DSU entitling the holder to receive one common share of the
Company or equivalent value. All units are accounted for as equity-settled awards.
On June 15, 2016, 75,000 DSUs were granted to a new director which vested immediately and are to be paid out at the time of
retirement from the Board of Directors. The remaining 164,582 DSUs were granted to directors throughout the year ended November
30, 2016 based on their election to receive 50% of their annual retainer in DSUs.
On December 23, 2015, 600,000 RSUs were granted to officers vesting over a two year period.
A summary of the Company’s unit plans and changes during the year ended is as follows:
Balance – beginning of year
Granted
Vested/paid
Balance – end of year
Number of RSUs
-
600,000
(199,999)
400,001
Number of DSUs
904,603
239,582
(218,795)
925,390
For the year ended November 30, 2016, Trilogy recognized a stock-based compensation charge of $0.3 million (2015 - $0.1 million,
2014 - $0.4 million), net of forfeitures for RSUs and DSUs.
(e) Share Purchase Warrants
A summary of the Company’s warrants and changes during the year ended November 30, 2016 is as follows:
Balance – beginning of year
Balance – end of year
Number of Warrants
6,521,740
6,521,740
Weighted average
years to expiry
2.60
2.60
Weighted average
exercise price
$
1.60
1.60
96
9 Management of capital risk
The Company relies upon management to manage capital in order to accomplish the objectives of safeguarding the Company’s ability
to continue as a going concern in order to pursue the development of its mineral properties and maintain a capital structure which
optimizes the costs of capital at an acceptable risk. The Company’s current capital consists of equity funding through capital markets,
cash acquired from the Sunward Arrangement, and the sale of marketable securities.
As the Company is currently in the exploration phase none of its financial instruments are exposed to commodity price risk; however,
the Company’s ability to obtain long-term financing and its economic viability may be affected by commodity price volatility.
To facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as
necessary depending on various factors, including successful capital deployment and general industry conditions.
10 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, investments, 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. The Company’s
investments are held for trading and are marked-to-market at each period end with changes in fair value recorded to the statement of
loss.
Financial risk management
The Company’s activities expose them to certain financial risks, including currency risk, credit risk, liquidity risk, interest risk and
price risk.
(e) 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, Canada, and previously operated in Colombia with some expenses incurred in Canadian
dollars and Colombian pesos. The Company’s exposure to currency risk at November 30, 2016 is limited to the Canadian dollar
(“CDN”) consisting of cash of CDN$451,000, accounts receivable of CDN$32,000, deposit amounts of CDN$146,000, investments of
CDN$10,521,000 and accounts payable of CDN$528,000. Based on a 1% change in the US-Canadian exchange rate, assuming all
other variables remain constant, the Company’s net loss would change by approximately $79,000.
(f) 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. The Company’s accounts
receivable consist of GST 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.
(g) 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.
97
Contractually obligated cash flow requirements as at November 30, 2016 are as follows.
Accounts payable and accrued liabilities
Office lease (note 12)
(h) Interest rate risk
Total
$
593
75
668
< 1 Year
$
593
75
668
1–2 Years
$
-
-
-
2–5 Years
$
-
-
-
in thousands of dollars
Thereafter
$
-
-
-
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 November 30, 2016, 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.
Fair value accounting
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the
significance of the inputs used in making the measurement. The three levels of the fair value hierarchy are as follows:
Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted
assets or liabilities;
Level 2 — Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for
substantially the full term of the asset or liability; and
Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and
unobservable (supported by little or no market activity)
The levels in the fair value hierarchy into which the Company’s financial assets and liabilities that are measured and recognized at fair
value on a recurring basis were categorized as follows:
Current investments – shares
Investments – warrants
November 30, 2016
$
Level 3
-
297
Level 2
-
-
Level 1
7,538
-
Level 1
-
-
in thousands of dollars
November 30, 2015
$
Level 3
-
-
Level 2
-
-
The Company’s investments consist of shares and warrants in a publicly-held mining company. The share investments are recorded as
current investments and are valued using quoted market prices in active markets and as such are classified as a Level 1 financial
instrument. The warrants are valued using a Black-Scholes pricing model and are considered a Level 3 financial instrument because
the valuation models have significant unobservable inputs.
11 Income taxes
Income tax expense differs from the amount that would result from applying the Canadian federal and provincial income tax rates to
earnings before income taxes. These differences result from the following items:
98
Combined federal and provincial statutory tax rate
Income taxes at statutory rate
Difference in foreign tax rates
Effect of foreign exchange changes
Non-taxable gain on the sale of Sunward Investments
Non-deductible expenditures
Return to provision adjustments
Other
Disposition of Sunward Investments
Valuation allowance
Income tax expense
November 30, 2016
$
26.00%
(1,264)
(750)
(339)
(545)
175
(510)
(68)
7,051
(3,750)
-
November 30, 2015
$
26.00%
(2,479)
(680)
2,264
-
239
(102)
-
-
758
-
in thousands of dollars
November 30, 2014
$
26.00%
(2,508)
(580)
-
-
243
(224)
-
-
3,069
-
Deferred income taxes arise from temporary differences in the recognition of income and expenses for financial reporting and tax
purposes. The significant components of deferred income tax assets and liabilities at November 30, 2016 and 2015 are as follows:
November 30, 2016
$
in thousands of dollars
November 30, 2015
$
Deferred income tax assets
Non-capital losses
Mineral property interest
Deferred interest
Property, plant and equipment
Share issuance costs
Other deductible temporary differences
Total deferred tax assets
Valuation allowance
Net deferred income tax assets
Deferred income tax liabilities
Mineral property interest
Other taxable temporary differences
Deferred income tax liabilities
Net deferred income tax assets
58,204
14,491
9,040
47
126
450
82,358
(82,344)
14
-
(14)
(14)
-
63,397
14,116
9,040
61
198
575
87,387
(86,094)
1,293
(1,109)
(184)
(1,293)
-
The Company has loss carry-forwards of approximately $153.1 million that may be available for tax purposes. Certain of these losses
occurred prior to the incorporation of the Company and are accounted for in the financial statements as if they were incurred by the
Company, as described in note 1. Prior to the NovaGold Arrangement, the Company undertook a tax reorganization in order to
preserve the future deductibility of these losses for the Company, subject to the limitations below. Deferred tax assets have been
recognized to the extent of future taxable income and the future taxable amounts related to taxable temporary differences for which a
deferred tax liability is recognized can be offset. A valuation allowance has been provided against deferred income tax assets where it
is not more likely than not that the Company will realize those benefits.
The losses expire as follows in the following jurisdictions:
2017
2018
2019
2020
Thereafter
Non-capital losses
Canada
$
-
-
-
-
31,262
31,262
in thousands of dollars
Operating losses
United States
$
-
4,206
975
830
115,797
121,808
Future use of U.S. loss carry-forwards is subject to certain limitations under provisions of the Internal Revenue Code including
limitations subject to Section 382, which relates to a 50% change in control over a three-year period, and are further dependent upon
the Company attaining profitable operations. An ownership change under Section 382 occurred on January 22, 2009 regarding losses
incurred by AGC, of which the attributes of those losses were transferred to NovaCopper US with the purchase of the mineral property
99
in October 2011. Therefore, approximately $39.4 million of the U.S. losses above are subject to limitation under Section 382.
Accordingly, the Company’s ability to use these losses may be limited.
An additional change in control may have occurred after November 30, 2011 which may further limit the availability of losses prior to
the date of change in control.
On June 19, 2015, we completed the Sunward acquisition which resulted in an acquisition of control of Sunward Resources ULC
under of the Income Tax Act in Canada. Therefore, the Company’s ability to use approximately $15.2 million of losses in Canada may
be limited.
12 Commitment
The Company has commitments in respect of office leases requiring future minimum lease payments as follows:
2017
Total
13 Subsequent events
in thousands of dollars
November 30, 2016
$
75
75
On January 30, 2017, the Company entered into a commitment to lease office space for a period of seven years with a total
commitment of $1.3 million.
On December 15, 2016, 525,000 stock options were granted to directors vesting immediately and 1,070,000 stock options were
granted to employees vesting equally in thirds on the grant date, the first anniversary of the grant date, and the second anniversary of
the grant date. Also on December 15, 2016, 600,000 RSUs were granted to officers vesting equally in thirds on the grant date, the first
anniversary of the grant date, and the second anniversary of the grant. The first tranche of the RSUs vesting on December 15, 2016
were settled through the issuance of 104,599 Common Shares and cash payment of $0.06 million used to satisfy payroll withholding
taxes.
On December 23, 2016, 200,000 RSUs vested and were settled through the issuance of 104,599 Common Shares and cash payment of
$0.06 million used to satisfy payroll withholding taxes.
100
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. 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) and15d-15(e) of the Exchange Act and
the rules of Canadian Securities Administration, as at November 30, 2016. 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. Management has used the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control – Integrated Framework (2013) to evaluate the effectiveness of the Company’s internal control over financial
reporting. Based on this assessment, management has concluded that as at November 30, 2016, the Company’s internal control over
financial reporting was effective.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control
over financial reporting. As a smaller reporting company, management’s report was not subject to attestation by the company’s
registered public accounting firm pursuant to Dodd-Frank, which exempts smaller reporting companies from complying with Section
404(b) of SOX.
Changes in Internal Controls
There has been no change in our internal control over financial reporting during the year ended November 30, 2016 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
101
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information in our 2017 Proxy Statement regarding directors and executive officers and Section 16 reporting information
appearing under the headings “Election of Directors” and “Information Concerning The Board Of Directors And Executive Officers”
is incorporated by reference in this section. The information under the heading “Executive Officers of Trilogy” in Part I, Item 1 of this
Form 10-K is also incorporated by reference in this section. The information in our 2017 Proxy Statement regarding our Code of
Business Conduct and Ethics under the subheading “Ethical Business Conduct” under “Statement of Corporate Governance Practices”
is also incorporated by reference in this section. Finally, the information in our 2017 Proxy Statement regarding the Audit Committee
under the heading “Statement of Corporate Governance Practices” is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information appearing in our 2017 Proxy Statement under the headings “Compensation Committee Interlocks and Insider
Participation”, “Statement of Executive Compensation”, and “Director Compensation” is incorporated by reference in this section.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information appearing in our 2017 Proxy Statement under the heading “Securities Authorized For Issuance Under Equity
Compensation Plans” (which is also contained in this report in Part II, Item 5) and the information under the heading “Security
Ownership Of Certain Beneficial Owners And Management And Related Shareholder Matters” is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information appearing in our 2017 Proxy Statement under the heading “Independence of Directors” under the heading
“Information Concerning The Board Of Directors And Executive Officers” and under the heading “Statement of Corporate
Governance Practices” is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information appearing in our 2017 Proxy Statement regarding Audit Fees, Audit-Related Fees, Tax Fees, All Other Fees and
Audit Committee Pre-Approval Policies under the subheading “Appointment of Auditors” is incorporated herein by reference.
102
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
Documents Filed With This Report
1.
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Loss and Comprehensive Loss
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
82
83
84
85
86
87
2.
FINANCIAL STATEMENT SCHEDULES
None.
3.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
NovaCopper Inc. Equity Incentive Plan identified in exhibit list below.
Employment Agreement between the Registrant and Rick Van Nieuwenhuyse, dated January 9, 2012, identified in exhibit list
below.
Employment Agreement between the Registrant and Elaine Sanders, dated November 5, 2012, identified in exhibit list below.
2004 Stock Award Plan of NovaGold Resources Inc. (as amended) identified in exhibit list below.
NovaGold 2009 Performance Share Unit Plan identified in exhibit list below.
NovaGold 2009 Deferred Share Unit Plan identified in exhibit list below.
NovaCopper Inc. 2012 Restricted Share Unit Plan identified in exhibit list below.
NovaCopper Inc. 2012 Deferred Share Unit Plan identified in exhibit list below.
(b)
Exhibits
Exhibit
No.
3.1
3.2
3.3
Description
Certificate of Incorporation (incorporated by reference Exhibit 99.2 to the Registration Statement on Form 40-F as
filed on March 1, 2012, File No. 001-35447)
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)
Notice of Articles and Certificate of Name Change, dated September 1, 2016 (incorporated by reference to Exhibit 3.1
to the Form 8-K dated September 8, 2016)
103
Exhibit
No.
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
21.1
23.1
23.2
23.3
23.4
23.5
23.6
31.1
31.2
Description
Commitment Agreement between NovaGold Resources Inc. and Trilogy Metals Inc. dated effective April 19, 2012
(incorporated by reference to Exhibit 99.1 to the Form 6-K dated April 25, 2012)
Exploration Agreement and Option to Lease between NovaCopper US Inc. and NANA Regional Corporation, Inc.
dated October 19, 2011(incorporated by reference to Exhibit 99.1 to the Form 6-K dated April 25, 2012)
Net Smelter Returns Royalty Agreement among Kennecott Exploration Company, Kennecott Arctic Company, Alaska
Gold Company, and NovaGold Resources Inc. dated effective January 7, 2010 (incorporated by reference to Exhibit
99.1 to the Form 6-K dated April 25, 2012)
Employment Agreement between the Registrant and Rick Van Nieuwenhuyse, dated January 9, 2012 (incorporated by
reference to Exhibit 4.4 of the Registrant’s registration statement on Form S-8 as filed on April 27, 2012, File No.
333-181020)
Employment Agreement between the Registrant and Elaine Sanders, dated November 5, 2012 (incorporated by
reference to Exhibit 10.5 to the Registration Statement on Form 10-K as filed on February 12, 2013, File No. 001-
35447)
2004 Stock Award Plan of NovaGold Resources Inc. (as amended) (incorporated by reference to Appendix A of
Exhibit 99.2 of NovaGold Resources Inc.’s report on Form 6-K as filed on April 29, 2009), as amended pursuant to
the Plan of Arrangement (incorporated by reference to Exhibit 99.1 of NovaGold Resources Inc.’s report on Form 6-K
as filed on March 1, 2012)
NovaGold 2009 Performance Share Unit Plan (incorporated by reference to Appendix C of Exhibit 99.2 of NovaGold
Resources Inc.’s report on Form 6-K as filed on April 29, 2009), as amended pursuant to the Plan of Arrangement
(incorporated by reference to Exhibit 99.1 of NovaGold Resources Inc.’s report on Form 6-K as filed on March 1,
2012)
NovaGold 2009 Deferred Share Unit Plan (incorporated by reference to Appendix E of Exhibit 99.2 of NovaGold
Resources Inc.’s report on Form 6-K as filed on April 29, 2009), as amended pursuant to the Plan of Arrangement
(incorporated by reference to Exhibit 99.1 of NovaGold Resources Inc.’s report on Form 6-K as filed on March 1,
2012)
Form of NovaCopper Inc. Stock Option Agreement (incorporated by reference to Exhibit 4.5 of the Registrant’s
registration statement on Form S-8 as filed on April 27, 2012, File No. 333-181020)
NovaCopper Inc. 2012 Restricted Share Unit Plan (incorporated by reference to Exhibit 10.11 to the Registration
Statement on Form 10-K as filed on February 12, 2013, File No. 001-35447)
NovaCopper Inc. 2012 Deferred Share Unit Plan (incorporated by reference to Exhibit 10.12 to the Registration
Statement on Form 10-K as filed on February 12, 2013, File No. 001-35447)
Form of Unit Subscription Agreement (incorporated by reference to Exhibit 99.3 to the Form 8-K filed July 8, 2014)
Form of Warrant (incorporated by reference to Exhibit 99.4 to the Form 8-K filed July 8, 2014)
Arrangement Agreement, dated April 22, 2015, between NovaCopper and Sunward (incorporated by reference to
Exhibit 2.1 to the Form 8-K filed on April 27, 2015)
Subsidiaries of the Registrant
Consent of PricewaterhouseCoopers LLP
Consent of Erin Workman
Consent of Tetra Tech
Consent of BD Resource Consulting, Inc.
Consent of SIM Geological Inc.
Consent of International Metallurgical & Environmental Inc.
Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)
Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)
104
Exhibit
No.
32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350
Description
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350
Item 16. FORM 10-K SUMMARY
None.
105
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
TRILOGY METALS INC.
By: /s/ Rick Van Nieuwenhuyse
Name: Rick Van Nieuwenhuyse
Title: President and Chief Executive Officer
Date: February 2, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Rick Van Nieuwenhuyse
Rick Van Nieuwenhuyse
President, Chief Executive Officer and
February 2, 2017
Director (Principal Executive Officer)
/s/ Elaine Sanders
Elaine Sanders
/s/ Tony Giardini
Tony Giardini
/s/ William Hayden
William Hayden
/s/ Gregory Lang
Gregory A. Lang
/s/ Kalidas Madhavpeddi
Kalidas V. Madhavpeddi
/s/ Gerald McConnell
Gerald McConnell
/s/ Janice Stairs
Janice Stairs
/s/ Diana Walters
Diana Walters
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
February 2, 2017
Director
Director
Director
February 2, 2017
February 2, 2017
February 2, 2017
Director and Authorized US Representative
February 2, 2017
February 2, 2017
February 2, 2017
February 2, 2017
Director
Director
Director
106
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary
Jurisdiction of Organization
NovaCopper US Inc. ………………………………………. Delaware
107
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (No. 333-208149, No. 333-205102,
No. 333-188950, and No. 333-181020) of Trilogy Metals Inc. of our report dated February 2, 2017, relating to the consolidated
financial statements which appears in this Annual Report on Form 10-K for the year ended November 30, 2016.
Exhibit 23.1
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, British Columbia
February 2, 2017
108
Exhibit 23.2
CONSENT OF ERIN WORKMAN
I hereby consent to the inclusion in this Annual Report on Form 10-K, which is being filed with the United States
Securities and Exchange Commission, of references to my name and to the use of the technical information included in
the “Arctic Project” and the “Bornite Project” sections, in Trilogy Metals Inc.’s Annual Report on Form 10-K for the year
ended November 30, 2016.
I also consent to the incorporation by reference in Trilogy Metals Inc.’s Registration Statements on Form S-8 (No. 333-
208149, No. 333-205102, No. 333-188950, and No. 333-181020), of references to my name and to the use of the technical
information included in the Annual Report on Form 10-K as described above.
DATED: February 2, 2017
/s/ Erin Workman
Name: Erin Workman
109
CONSENT OF TETRA TECH
Exhibit 23.3
We hereby consent to the inclusion in this Annual Report on Form 10-K, which is being filed with the United States
Securities and Exchange Commission, of references to our name and to the use of the technical report titled “Preliminary
Economic Assessment Report on the Arctic Project, Ambler Mining District Northwest Alaska” dated effective
September 12, 2013 (the “Technical Report”).
We also consent to the incorporation by reference in Trilogy Metals Inc.’s Registration Statements on Form S-8 (No. 333-
208149, No. 333-205102, No. 333-188950, and No. 333-181020), of references to our name and to the use of the
Technical Report, which is included in the Annual Report on Form 10-K.
DATED: February 2, 2017
/s/ Hassan Ghaffari
Name: Tetra Tech
110
Exhibit 23.4
CONSENT OF BD RESOURCE CONSULTING, INC.
We hereby consent to the inclusion in this Annual Report on Form 10-K, which is being filed with the United States
Securities and Exchange Commission, of references to our name and to the use of the technical report titled “NI 43-101
Technical Report on the Bornite Project, Northwest Alaska, USA” dated effective April 19, 2016 (the “Technical
Report”).
We also consent to the incorporation by reference in Trilogy Metals Inc.’s Registration Statements on Form S-8 (No. 333-
208149, No. 333-205102, No. 333-188950, and No. 333-181020), of references to our name and to the use of the
Technical Report, which is included in the Annual Report on Form 10-K.
DATED: February 2, 2017
/s/ Bruce Davis
Name: BD Resource Consulting, Inc.
111
CONSENT OF SIM GEOLOGICAL INC.
Exhibit 23.5
We hereby consent to the inclusion in this Annual Report on Form 10-K, which is being filed with the United States
Securities and Exchange Commission, of references to our name and to the use of the technical report titled “NI 43-101
Technical Report on the Bornite Project, Northwest Alaska, USA” dated effective April 19, 2016 (the “Technical
Report”).
We also consent to the incorporation by reference in Trilogy Metals Inc.’s Registration Statements on Form S-8 (No. 333-
208149, No. 333-205102, No. 333-188950, and No. 333-181020), of references to our name and to the use of the
Technical Report, which is included in the Annual Report on Form 10-K.
DATED: February 2, 2017
/s/ Robert Sim
Name: SIM Geological Inc.
112
Exhibit 23.6
CONSENT OF INTERNATIONAL METALLURGICAL & ENVIRONMENTAL INC.
We hereby consent to the inclusion in this Annual Report on Form 10-K, which is being filed with the United States
Securities and Exchange Commission, of references to our name and to the use of the technical report titled “NI 43-101
Technical Report on the Bornite Project, Northwest Alaska, USA” dated effective April 19, 2016 (the “Technical
Report”).
We also consent to the incorporation by reference in Trilogy Metals Inc.’s Registration Statements on Form S-8 (No. 333-
208149, No. 333-205102, No. 333-188950, and No. 333-181020), of references to our name and to the use of the
Technical Report, which is included in the Annual Report on Form 10-K.
DATED: February 2, 2017
/s/ Jeff Austin
Name: International Metallurgical & Environmental Inc.
113
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 31.1
I, Rick Van Nieuwenhuyse, certify that:
1. I have reviewed this annual report on Form 10-K of Trilogy Metals Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 2, 2017
By:
/s/ Rick Van Nieuwenhuyse
Rick Van Nieuwenhuyse
Chief Executive Officer
114
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 31.2
I, Elaine Sanders, certify that:
1. I have reviewed this annual report on Form 10-K of Trilogy Metals Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 2, 2017
By:
/s/ Elaine Sanders
Elaine Sanders
Chief Financial Officer
115
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Trilogy Metals Inc. (the “Company”) on Form 10-K for the year ended November 30, 2016,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rick Van Nieuwenhuyse, Chief Executive
Officer of the Company, certify that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 2, 2017
By:
/s/ Rick Van Nieuwenhuyse
Rick Van Nieuwenhuyse
President and Chief Executive Officer
116
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Trilogy Metals Inc. (the “Company”) on Form 10-K for the year ended November 30, 2016,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Elaine Sanders, Chief Financial Officer of
the Company, certify that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 2, 2017
By:
/s/Elaine Sanders
Elaine Sanders
Chief Financial Officer
117