Trilogy Metals Inc. — Form 10-Q Summary
Reporting period: Third quarter and nine months ended August 31, 2022. Financial figures are in U.S. dollars; unless noted otherwise, amounts below are in millions. Trilogy is an exploration and development company whose Upper Kobuk Mineral Projects (UKMP) are held through its 50%-owned joint venture, Ambler Metals LLC, with South32.
Financial results and position
- Revenue: The filing reports no operating revenue. Trilogy remains in the exploration stage.
- Net loss: Third-quarter comprehensive loss was $9.94 million, versus $7.66 million in the comparable 2021 quarter; nine-month loss was $19.04 million, versus $15.59 million. Loss per share was $0.07 for the quarter and $0.13 for the nine months, compared with $0.05 and $0.11, respectively.
- Main loss driver: Trilogy’s equity-method share of Ambler Metals’ loss was $8.93 million for the quarter and $13.30 million year to date, compared with $6.07 million and $8.89 million in 2021.
- Expenses: Trilogy’s standalone expenses were $1.17 million for the quarter and $5.75 million for nine months, compared with $1.60 million and $6.74 million in 2021. Stock-based compensation was $3.15 million for the nine months.
- Cash flow: Operating activities used $3.37 million over nine months, versus $4.28 million in 2021. Cash declined by $3.17 million to $3.13 million; investing activities provided $0.14 million, including proceeds from a mineral-property disposition.
- Liquidity: Working capital was $2.9 million at quarter-end. Management said Trilogy’s resources and cash-preservation measures were expected to fund planned operations for 12 months from financial-statement issuance.
- Assets and investment: The carrying value of the Ambler Metals investment was $146.82 million, down from $160.06 million at November 30, 2021. Ambler Metals separately reported $93.53 million of cash and $85.8 million of working capital.
- Debt and obligations: The filing reports no borrowings. Lease liabilities totaled $0.28 million ($0.19 million current and $0.09 million long term); the office lease runs through June 2024.
Changes and notable items
- Compared with 2021, Trilogy’s losses increased primarily because Ambler Metals incurred higher mineral-property, drilling, project-support, and Ambler Access Project pre-development costs. Cash-preservation measures reduced Trilogy’s general and administrative, investor-relations, professional-fee, and salary costs by $0.5 million for the quarter and $0.9 million for nine months.
- Ambler Metals’ nine-month loss increased to $26.59 million from $17.78 million; mineral-property expense rose to $24.53 million from $15.11 million.
- South32 repaid the remaining Ambler Metals loan balance on June 21, 2022. Trilogy recorded an $84,000 gain on disposition of a mineral property and a $90,000 year-to-date mineral-property write-off.
- After quarter-end, directors and senior management received 344,323 restricted share units in settlement of approximately $207,000 of accrued salaries and director fees, as part of cash-preservation efforts.
Outlook, operations, and risks
- Ambler Metals’ approved 2022 budget was $26.2 million; forecast spending was approximately $28.5 million, or 8.8% above budget. The 2022 field program included 10,739 meters of drilling. Trilogy said it expected to begin announcing drill results in the fourth quarter of 2022.
- The Bureau of Land Management planned a supplemental environmental impact statement for the Ambler Access Project and anticipated a draft in the second quarter of 2023. The access road is critical to UKMP development; permit suspension, litigation, further review, financing, and construction uncertainty could delay or prevent development.
- Management said Ambler Metals had sufficient funds for the current fiscal-year UKMP and access-project budget and that Trilogy did not expect to fund the joint venture until its cash was expended. Trilogy expects to need additional financing in the future for its own operations and administration.
- Key risks include the absence of production and operating cash inflows, future financing needs, permitting and infrastructure uncertainty, commodity-price volatility, inflation and fuel or supply costs, exploration and resource-estimation uncertainty, and potential dilution from future share issuance. The company reported no material changes to other previously disclosed risk factors and no material pending or threatened litigation.
Important facts for investors to verify
- Whether Trilogy’s cash-preservation measures and stated 12-month funding outlook remain adequate, given ongoing losses and future financing needs.
- Ambler Metals’ spending against its budget, cash balance, and the timing of any future funding requirement from Trilogy.
- Progress and timing of the supplemental environmental review, permit status, litigation, and prospects for the Ambler Access Project.
- Upcoming UKMP drill results and any effects on project plans, resource estimates, or the carrying value of Trilogy’s Ambler Metals investment.
- The potential dilution from outstanding options and share units, and the continued use of share-based compensation to conserve cash.