Trilogy Metals Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended February 28, 2017; balance-sheet amounts are as of February 28, 2017. Unless stated otherwise, amounts are in U.S. dollars. Trilogy is an exploration-stage company focused on the Upper Kobuk Mineral Projects in Alaska, including the Arctic and Bornite projects. It reported no revenue and has no producing or operating mines.
Financial performance and position
| Metric | Q1 2017 | Comparable period |
|---|---|---|
| Revenue | None reported | None reported |
| Loss from continuing operations | $2.996 million | $1.523 million |
| Net loss | $2.996 million ($0.03 per share) | $1.695 million ($0.02 per share) |
| Total expenses | $1.771 million | $1.541 million |
| Cash used in operating activities | $1.442 million | $1.430 million |
- Cash and liquidity: Cash and cash equivalents were $6.447 million, down from $7.340 million at November 30, 2016. Current investments were $5.869 million; current assets totaled $12.920 million against current liabilities of $421,000, leaving working capital of approximately $12.499 million. Management said available working capital was sufficient for operational requirements for the next year.
- Cash flows: Cash decreased by $893,000 during the quarter. Investment-sale proceeds were $639,000; financing cash outflow for restricted share unit settlements was $90,000.
- Debt and capital: The balance sheet lists no debt. Total liabilities were $421,000, consisting of accounts payable and accrued liabilities. Shareholders’ equity was $43.463 million. Mineral properties and development costs were carried at $30.586 million.
- Margins: Not meaningful because the company had no revenue.
Changes versus the prior comparable period
- Net loss increased to $2.996 million from $1.695 million. The main driver was a $1.239 million unrealized loss on held-for-trading investments received in the 2016 sale of the Titiribi project; there was no comparable investment loss in Q1 2016. Excluding that unrealized loss, management said continuing-operations loss was approximately $1.8 million, versus $1.523 million a year earlier.
- Mineral-property expense rose to $639,000 from $532,000, reflecting ongoing engineering, resource, geotechnical, hydrology, and metallurgical work. Stock-based compensation expense increased to $395,000 from $282,000.
- Operating cash use was broadly stable year over year. Cash and cash equivalents were substantially lower than the $14.654 million of continuing-operations cash reported at February 29, 2016.
Outlook, developments, and risks
- The 2017 program budget is $7.1 million, intended to advance the Arctic Project toward pre-feasibility. Management expected the pre-feasibility study to be completed in Q1 2018, subject to the 2017 field program and other work.
- The Bureau of Land Management’s February 28, 2017 Notice of Intent initiated the NEPA environmental-impact-statement process for the proposed approximately 211-mile Ambler Mining District Industrial Access Project road. Public scoping comments were due May 30, 2017. Permitting and whether the road is ultimately built remain uncertain and are important to project access.
- Arctic work included geotechnical and hydrogeological studies, environmental investigations, resource-model updates, metallurgical testing, and an ongoing ore-sorting study. Bornite mineralogical, metallurgical, and hydrogeological studies were also ongoing.
- The company has no operating cash inflows and says continued operations depend on financing or future cash flows. Potential financing sources include investment sales, equity or debt financing, and convertible debt. Commodity-price volatility could affect project economics and access to financing.
- Financial risks include Canadian-dollar exposure: management estimated that a 10% exchange-rate change would affect net loss by approximately $632,000. A 1% interest-rate change was estimated to affect net loss by $100,000.
- A seven-year office lease effective July 1, 2017 creates total commitments of $1.340 million. The Ambler property is subject to a 1% net smelter return royalty with a stated $10 million buyout. Under the NANA agreement, NANA may elect a 16%–25% mine interest or a 15% net-proceeds royalty, and additional net smelter return royalties may apply.
- The company reported no material current, pending, or threatened litigation. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether cash, investment-sale proceeds, and any future financing will fund the exploration program and obligations beyond management’s stated one-year operating horizon.
- Current value and liquidity of the GoldMining Inc. shares and warrants, which generated the quarter’s $1.239 million unrealized loss; warrant valuation uses significant unobservable inputs.
- Progress and results of the 2017 Arctic field program and the expected Q1 2018 pre-feasibility study.
- Milestones, approvals, route decisions, funding, and construction prospects for the proposed access road.
- The potential economic effect of NANA’s ownership or royalty elections, property royalties, and the lease commitments.
- The filing’s financial statements report Q1 2017 loss per share of $0.03; the quarterly-information table appears to show a conflicting figure. Verify against the filed statements and XBRL.