Trilogy Metals Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended August 31, 2020. All amounts are in U.S. dollars unless stated otherwise. Trilogy is an exploration-stage base-metals company whose Upper Kobuk Mineral Projects (UKMP) are held through its 50%-owned Ambler Metals joint venture with South32. Trilogy reported no revenue from operations.
Key financial metrics
| Metric | Q3 2020 / August 31, 2020 | Comparable period / prior balance |
|---|---|---|
| Q3 comprehensive loss | $3.184 million; $0.02 loss per basic and diluted share | Q3 2019 loss of $12.535 million; $0.09 per share |
| Nine-month comprehensive earnings (loss) | $164.993 million; $1.17 basic and $1.12 diluted per share | Nine months 2019 loss of $21.380 million; $0.16 per share |
| Cash and cash equivalents | $12.780 million | $19.174 million at November 30, 2019 |
| Working capital | $11.8 million | Not stated as a comparable figure |
| Operating cash flow | $(6.411) million for nine months | $(15.755) million for nine months 2019 |
| Total liabilities | $1.886 million, including $599,000 of lease liabilities | $33.354 million at November 30, 2019, including a $31 million mineral-properties purchase option |
| Equity-method investment in Ambler Metals | $174.167 million | No comparable investment at November 30, 2019 |
The nine-month earnings primarily reflect a non-cash $175.770 million gain recognized when Trilogy contributed UKMP assets to Ambler Metals. Trilogy recorded a $1.833 million share of Ambler Metals’ loss for the period since the joint venture’s formation. The gain should not be viewed as recurring operating income or cash generated.
Cash declined by $6.411 million during the first nine months of 2020. The filing reports no current-period investing or financing cash flows. The company has no operating cash inflows and identifies no material debt; its principal contractual obligations are accounts payable and office lease payments.
Material changes versus prior periods
- On February 11, 2020, Trilogy contributed its UKMP assets, including the Arctic and Bornite projects, to a 50/50 joint venture with South32. South32 contributed $145 million to Ambler Metals. Trilogy accounts for its interest using the equity method and does not consolidate the joint venture.
- Following the joint venture formation, project costs largely shifted to Ambler Metals. Trilogy’s Q3 mineral-properties expense was zero versus $10.951 million in Q3 2019. For the nine months, Trilogy recorded $1.545 million of mineral-properties expense versus $15.392 million in 2019, plus $974,000 of Arctic feasibility-study costs.
- Q3 loss narrowed from $12.535 million to $3.184 million, chiefly because the prior-year quarter included substantial exploration and project costs. The nine-month result changed from a loss to a large profit chiefly because of the one-time joint-venture contribution gain.
- Cash decreased from $19.174 million at November 30, 2019 to $12.780 million at August 31, 2020. Accounts payable and accrued liabilities fell to $1.287 million from $2.354 million.
Outlook, management commentary, and risks
- Management stated that Trilogy’s cash and working capital were sufficient for its ongoing corporate operations for at least the next 12 months. It did not expect to fund its 50% share of UKMP expenditures until Ambler Metals’ $145 million subscription funding is spent. Afterward, the partners are expected to fund costs pro rata.
- Ambler Metals approved a $22.8 million 2020 work-program budget, but the planned summer exploration and drilling programs were deferred because of COVID-19, safety concerns, and field-season delays. Trilogy said the JV was undertaking off-site technical work, including Arctic feasibility work and updates to project models.
- Trilogy announced positive Arctic Project feasibility-study results in August 2020. The study describes a proposed 10,000-tonne-per-day open-pit mine and mill, with a minimum 12-year mine life; the study is on a 100% ownership basis, while Trilogy’s interest is 50%. These are project-study estimates, not current production or company guidance.
- The BLM signed a Record of Decision approving the northern route for the proposed 211-mile Ambler Mining District access road. Permitting, construction, funding, and development remain uncertain; the filing identifies infrastructure and required approvals as important project risks.
- Ambler Metals loaned $57.5 million back to South32 and retained $87.5 million from the subscription proceeds. The loan has a seven-year maturity, is secured by South32’s Ambler Metals membership interest, and is guaranteed by a South32 affiliate. Ambler Metals expects to draw on the loan through cash calls for South32’s share of future budgets.
- Key risks include COVID-19 disruption, permitting and access-road uncertainty, commodity-price volatility, exploration and resource-estimate uncertainty, project financing needs, and reliance on South32 and other stakeholders. No material current, pending, or threatened litigation was reported. Management said disclosure controls were effective.
Important facts for investors to verify
- How much of Ambler Metals’ $145 million funding remains available, including the repayment and availability terms of its loan to South32, and when additional partner funding may be required.
- Whether the Arctic feasibility-study assumptions, project economics, permitting schedule, and proposed access-road approvals remain achievable.
- The effects of the deferred 2020 field season and COVID-19 on future exploration, drilling, feasibility work, and project timelines.
- Trilogy’s cash use and corporate liquidity: cash was $12.780 million at quarter-end, and the company has no operating revenue or cash inflows from operations.
- The non-recurring nature of the $175.770 million joint-venture gain and the ongoing equity-method losses, which materially affect reported results but are not equivalent to operating cash flow.