Novacopper Inc (NCQ) SEC Quarterly Report (10-Q) for Q2 2018

FORM 10-Q

For the Quarterly Period Ended May 31, 2018

OR

For the Transition Period from            to

Commission File Number: 1-35447

TRILOGY METALS INC.

(Exact Name of Registrant as Specified in Its Charter)

(604) 638-8088

(Registrant's Telephone Number, Including Area Code)

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 x No ¨

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 x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of July 16, 2018, the registrant had 131,467,266 Common Shares, no par value, outstanding.

TRILOGY METALS INC.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Trilogy Metals Inc.

Consolidated Balance Sheets

(unaudited)

in thousands of US dollars

Commitments and contingencies (notes 5, 9)

(See accompanying notes to the interim consolidated financial statements)

Approved on behalf of the Board of Directors

Trilogy Metals Inc.

Consolidated Statements of Loss and Comprehensive Loss

(unaudited)

in thousands of US dollars, except share and per share amounts

(See accompanying notes to the interim consolidated financial statements)

Trilogy Metals Inc.

Consolidated Statements of Changes in Shareholders' Equity

(unaudited)

in thousands of US dollars, except share amounts

(See accompanying notes to the interim consolidated financial statements)

Trilogy Metals Inc.

Consolidated Statements of Cash Flows

(unaudited)

in thousands of US dollars

(See accompanying notes to the interim consolidated financial statements)

Trilogy Metals Inc.

Notes to the Consolidated Financial Statements

Trilogy Metals Inc. ("Trilogy" or the "Company") was incorporated in British Columbia under the Business Corporations Act (BC) on April 27, 2011. 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").

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. (dba "Trilogy Metals US"). All significant intercompany transactions are eliminated on consolidation.

All figures are in United States dollars unless otherwise noted. References to CAD$ refer to amounts in Canadian dollars.

The unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of the Company's financial position as of May 31, 2018 and our results of operations and cash flows for the six months ended May 31, 2018 and May 31, 2017. The results of operations for the six months ended May 31, 2018 are not necessarily indicative of the results to be expected for the year ending November 30, 2018.

As these interim consolidated financial statements do not contain all of the disclosures required by U.S. GAAP for annual financial statements, these unaudited interim consolidated financial statements should be read in conjunction with the annual financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2017 filed with the U.S. Securities and Exchange Commission ("SEC") on February 2, 2018.

These financial statements were approved by the Company's Audit Committee on behalf of the Board of Directors for issue on July 16, 2018.

Recent accounting pronouncements

In February 2016, the Financial Accounting Standards Board ("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 the balance sheets. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, which for us is the first quarter of the fiscal year ending November 30, 2020. We expect the adoption will have an impact as we expect to capitalize leases, specifically our office leases which are not currently recognized on the balance sheets.  We are in the process of analyzing the quantitative impact of this guidance on our results of operations and financial position. The impact of this adoption will increase asset and liability balances as part of recognizing the leases on the balance sheet. It will impact the statement of loss and comprehensive loss due to the recognition of depreciation on the leased assets and interest expense from the lease liability compared to the current recognition of lease expense as incurred.  

In March 2016, the FASB issued new guidance on classifying and measuring financial instruments ("ASU 2016-02"). This update is effective for annual reporting periods beginning after December 15, 2017, and early adoption is permitted. The Company has analyzed the impact of the update and determined that the changes to classification and measurement of financial instruments are not expected to have an impact as the Company's current equity investments are held at fair value with changes recorded to the statement of loss and comprehensive loss. The remaining changes in the update do not have an effect on the Company's accounting for financial instruments.  The standard will be effective for the Company for the fiscal year ending November 30, 2019.

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. The Company has adopted this guidance and made the policy choice of estimating the number of awards expected to be forfeited and adjusting the estimate when it is no longer probable that the employee will fulfill the service condition.  This policy choice is consistent with the Company's previous practice and therefore, no adjustments were necessary on adoption.  The remaining changes in the update do not have an effect on the Company's accounting for stock-based compensation.

In January 2017, the FASB issued new guidance to assist in determining if a set of assets and activities being acquired or sold is a business ("ASU 2017-01"). It also provided a framework to assist entities in evaluating whether both an input and a substantive process are present, which at a minimum, must be present to be considered a business.  This update is effective for annual reporting periods beginning after December 15, 2017, and early adoption is permitted in most circumstances. The standard does not have an impact to the Company's historical recognition of asset acquisitions and business combinations.  However, the Company expects there would be an impact to how the Company accounts for assets acquired in the future. The Company has adopted the standard early for the fiscal year ended November 30, 2018.

In July 2017, the FASB issued a two-part Accounting Standards Update ("ASU"), No. 2017-11, Earnings Per Share (ASC 260), Distinguishing Liabilities from Equity (ASC 480), Derivatives and Hedging (ASC 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.  Under the guidance, entities will no longer consider a down round feature when determining whether a free standing financial instrument or an embedded feature that contains a down round feature is considered indexed to the entity's own stock under ASC 815-40 which is required for a freestanding financial instrument to be classified in shareholder's equity and may exempt an embedded feature from bifurcation and derivative accounting.  Entities will recognize the effect of a down round feature only when it is triggered.

ASU 2017-11 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 and early adoption is permitted.  The Company has adopted this guidance at the beginning of this fiscal year.

On September 1, 2016, Trilogy acquired 5,000,000 common shares of GoldMining Inc. ("GMI"), formerly Brazil Resources Inc., a public company listed on the TSX-Venture exchange, and 1,000,000 warrants, with each warrant exercisable into one common share of GMI until September 1, 2018 at an exercise price of CAD$3.50, through its sale of Sunward Investments Ltd.

The common shares and warrants received have been designated as held-for-trading financial assets and are classified as current investments.

in thousands of dollars

During the period ended May 31, 2018, the Company sold 2,085,000 (2017 – 570,000) common shares of GMI for proceeds of $2.1 million (2017 – $0.9 million) and realized a loss on sale of $1.3 million (2017 - $Nil million). During the period, the Company recorded an unrealized gain on the common shares and warrants of GMI of $1.0 million (2017 - loss of $1.2 million).

As at May 31, 2018, the Company held 280,000 (2017 – 2,365,000) common shares of GMI, which were sold In June 2018 and 1,000,000 (2017 – 1,000,000) warrants expiring September 1, 2018 which were valued at $Nil using the Black-Scholes option pricing model at period end.

in thousands of dollars

in thousands of dollars

in thousands of dollars

in thousands of dollars

On January 11, 2010, NovaGold Resources Inc. ("NovaGold"), through Alaska Gold Company ("AGC"), at the time a wholly-owned NovaGold 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 Company can purchase at any time for a one-time payment of $10.0 million.

The Ambler lands were acquired on October 17, 2011 by Trilogy Metals US through a purchase and sale agreement with AGC. On October 24, 2011, NovaGold transferred its ownership of Trilogy Metals US to the Company, then itself a wholly owned subsidiary of NovaGold, which was subsequently spun-out to NovaGold shareholders and publicly listed on April 30, 2012 ("NovaGold Arrangement").

On October 19, 2011, Trilogy Metals 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, Trilogy Metals 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. 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 Trilogy Metals 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.

On April 10, 2017, Trilogy and Trilogy Metals US entered into an Option Agreement to form a Joint Venture with South32 Group Operations Pty Ltd. ("South32 Operations"), a wholly-owned subsidiary of South32 Limited, on the UKMP (the "Option Agreement"), which agreement was later assigned by South32 Operations to its affiliate, South32 USA Exploration Inc. (together with South32 Operations, "South32"). Trilogy Metals US granted South32 the right to form a 50/50 joint venture to hold all of Trilogy Metals US' Alaskan assets. If the option is exercised, Trilogy Metals US will transfer its Alaskan assets, including the UKMP, and South32 will contribute a minimum of $150 million to a newly formed limited liability company ("JV LLC"), plus any amounts Trilogy Metals US spends at the Arctic Project over the next three years to a maximum of $5 million per year (the "Subscription Price"), less an amount of the initial funding contributed by South32.

To maintain the option in good standing, South32 is required to fund a minimum of $10 million per year for up to a three year period, which funds will be used to execute a mutually agreed upon program at the UKMP. The funds provided by South32 may only be expended based on the approved program. Provided that all the exploration data and information has been made available to South32 by no later than December 31 of each year, South32 must decide by the end of January of the following year whether: (i) to fund a further tranche of a minimum of $10 million, or (ii) to withdraw and not provide any further annual funding.  If the election to fund a further tranche is not made in January, South32 has until the end of March to exercise the option to form the JV LLC and make the subscription payment.

During the year ended November 30, 2017, the Company received the first payment of $10.0 million for and these funds were expended on the year 1 program at the Bornite Project. During the six months ended May 31, 2018, the Company received the second payment of $10.0 million following the approval of the year 2 program and budget in January 2018.  The Company is responsible for the disbursement of these funds in accordance with the approved program and budget and accordingly has not classified the funds as restricted cash.

As the initial option payments are credited against the future subscription price upon exercise, the Company has accounted for the payment received as deferred consideration for the purchase of the UKMP interest. At such time as the option is exercised, the initial payments received to that date will be recognized as part of the consideration received for the Company's contribution of the UKMP into JV LLC. If South 32 withdraws from the Option Agreement, the consideration will be recognized in the statement of loss at that time.

The option to form the JV LLC is recognized as a financial instrument at inception of the arrangement with an initial fair value of $nil.  This option is required to be re-measured at fair value at each reporting date with any changes in fair value recorded in loss for the period. The Company determined that the fair value of the option is still $nil as at May 31, 2018.

The following table summarizes mineral properties expense for the noted periods.

In thousands of dollars

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 May 31, 2018 is $81.7 million and cumulative acquisition costs are $30.6 million totaling $112.3 million spent to date.

in thousands of dollars

Authorized:

unlimited common shares, no par value

in thousands of dollars, except share amounts

On April 20, 2018, the Company completed a bought-deal financing for gross proceeds of $28.7 million by issuing 24,784,482 common shares at $1.16 per common share.  Expenses including bank commissions, legal fees, stock exchange and other fees totaled $1.8 million for net proceeds of $26.9 million.

As of May 31, 2018, 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 the board of NovaGold Resources Inc.

During the period ended May 31, 2018, 2,125,000 options (2017 – 1,695,000 options) at a weighted-average exercise price of CAD$1.04 (2016 – CAD$0.72) were granted to employees, consultants and directors exercisable for a period of five years with various vesting terms between nil and two years. The weighted-average fair value attributable to options granted in the period was $0.37.

For the period ended May 31, 2018, Trilogy recognized a stock-based compensation charge of $0.58 million (2017– $0.27 million) for options granted to directors, employees and service providers, net of estimated forfeitures.

The fair value of the stock options recognized in the period has been estimated using the Black-Scholes option pricing model.

Assumptions used in the pricing model for the period are as provided below.

As of May 31, 2018, there were 1,403,342 non-vested options outstanding with a weighted average exercise price of CAD$0.96; the non-vested stock option expense not yet recognized was $0.25 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 six month period ended is as follows:

The following table summarizes information about the stock options outstanding at May 31, 2018.

The aggregate intrinsic value of vested share options (the market value less the exercise price) at May 31, 2018 was $5.9 million (2017 - $1.2 million) and the aggregate intrinsic value of exercised options for the six months ended May 31, 2018 was $0.1 million (2017 - $0.31 million).

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.  Awards under the RSU Plan and DSU Plan may be settled in cash and/or common shares of the Company at the Company's election with each restricted share unit ("RSU") and deferred share unit ("DSU") entitling the holder to receive one common share of the Company or equivalent value.  All units are accounted for as equity-settled awards.

A summary of the Company's unit plans and changes during the six month period ended is as follows:

For the six months ended May 31, 2018, Trilogy recognized a stock-based compensation charge of $0.49 million (2017- $0.22 million), net of estimated forfeitures.

As part of the annual incentive payout for the 2017 fiscal year, 300,000 RSUs were granted to officers vesting immediately. In addition, 300,000 RSUs were granted to officers vesting one third immediately, one third on the first anniversary of the grant date, and one third on the second anniversary. On December 27, 2017, 800,000 RSUs vested and were settled through the issuance of 800,000 shares.

A summary of the Company's warrants and changes during the six months ended May 31, 2018 is as follows:

The exercise price of the share purchase warrants was adjusted downward as a result of the financing completed on April 20, 2018 from $1.60 to $1.52.  The Company measured the fair value of the warrants prior to the financing and after the financing and recorded the difference of $90,000 as an adjustment to the warrant value and to retained earnings in shareholders equity during the period.  The warrants expire on July 2, 2019.

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 it to certain financial risks, including currency risk, credit risk, liquidity risk, interest risk and price 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 and Canada. The Company's exposure to currency risk at May 31, 2018 is limited to the Canadian dollar consisting of cash of CAD$1.8 million, deposit amounts of CAD$0.1 million, investments of CAD$0.3 million and accounts payable of CAD$0.4 million. Based on a 10% change in the US-Canadian exchange rate, assuming all other variables remain constant, the Company's net loss would change by approximately $0.2 million.

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 Canadian Goods and Services Tax 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.

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.

Contractually obligated cash flow requirements as at May 31, 2018 are as follows.

in thousands of dollars

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 May 31, 2018, a 1% change in interest rates would result in a change in net loss of $0.1 million, assuming all other variables remain constant.

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:

in thousands of dollars

The Company's investments consist of shares and warrants in a publicly-held mineral exploration 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 Company has commitments in respect of its office lease (denominated in Canadian dollars converted at the foreign exchange rate at the end of the quarter) requiring future minimum lease payments from the date as follows:

in thousands of dollars

Cautionary notes

Forward-looking statements

This Management's Discussion and Analysis contains "forward-looking information" and "forward-looking statements" within the meaning of Canadian Securities laws, Section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the Exchange Act, and other applicable securities laws (collectively, "forward-looking statements"). 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 to anticipated activity with respect to the Ambler Mining District Industrial Access Project, including the Company's plans and expectations relating to its Upper Kobuk Mineral Projects, 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 based on a number of material assumptions, including those listed below, which could prove to be significantly incorrect:

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:

This list is not exhaustive of the factors that may affect any of the Company's forward-looking statements. Forward-looking statements are statements about the future and are inherently uncertain, and actual achievements of the Company 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 Trilogy's annual report on Form 10-K filed with the Canadian securities regulatory authorities and the SEC on February 2, 2018, and other information released by Trilogy and filed with the appropriate regulatory agencies.

The Company's forward-looking statements are based on the beliefs, expectations, and opinions of management on the date the statements are made, and the Company does 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

Reserve and resource estimates

This Management's Discussion and Analysis has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of U.S. securities laws. Unless otherwise indicated, all resource and reserve estimates included in this Management's Discussion and Analysis have been prepared in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101") and the Canadian Institute of Mining, Metallurgy, and Petroleum Definition Standards on Mineral Resources and Mineral Reserves. 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. Canadian standards, including NI 43-101, differ significantly from the requirements of the SEC, and resource and reserve information contained herein 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 U.S. standards, 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. 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. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. 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 reserves reported by the Company 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 with information made public by companies that report in accordance with U.S. standards.

General

This Management's Discussion and Analysis ("MD&A") of Trilogy Metals Inc. ("Trilogy", "Trilogy Metals", "the Company" or "we") is dated July 16, 2018 and provides an analysis of our unaudited interim financial results for the quarter ended May 31, 2018 compared to the quarter ended May 31, 2017.

The following information should be read in conjunction with our May 31, 2018 unaudited interim consolidated financial statements and related notes, including recent accounting pronouncements, which were prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP"). The MD&A should also be read in conjunction with our audited consolidated financial statements and related notes for the year ended November 30, 2017. 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 and references to "U.S. dollars", "$" or "US$" are to the currency of the United States.

Andrew W. West, P.Geo., an employee and Exploration Manager of Trilogy, 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 American Stock Exchange ("NYSE American") 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 ("Trilogy Metals 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 (the "Arctic 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 (the "Bornite Project").

Project activities

Arctic Project

In a press release dated January 18, 2018 the Company announced additional in-fill drill results at its Arctic Project from the 2017 field program which included 785.2 meters of diamond drilling to collect representative sample material to conduct bulk ore sorting studies for the Arctic deposit. An additional 273.8 meters of sonic drilling was completed to collect geotechnical, hydrological, geothermal, and hydrogeological information for the tailings management facilities and waste rock dump for the project in support of the Pre-Feasibility Study titled "Arctic Project, Northwest Alaska, USA, NI 43-101 Technical Report on Pre-Feasibility Study" with an effective date of February 20, 2018 and a release date of April 6, 2018 (the "ArcticPFS").

In a press release dated February 20, 2018, the Company announced the positive results of its PFS for the Arctic PFS. These results convert indicated mineral resources at Arctic to probable mineral reserves.

Highlights of the Arctic PFS study are as follows:

The Arctic PFS was prepared under National Instrument 43-101 standards by independent consultant, Ausenco Engineering Canada Inc. ("Ausenco") of Vancouver, Canada and the full technical report was filed on SEDAR on April 6, 2018 and on EDGAR on April 12, 2018.  The Company also engaged Amec Foster Wheeler ("Amec") to complete mine planning and SRK Consulting (Canada) Inc. ("SRK") to complete tailings and waste design, hydrology and water management studies.

In a press release dated May 29, 2018, the Company announced that our board of directors approved a $6.7 million budget to advance the Arctic Project towards feasibility and permitting. The focus of the Arctic work program for the remainder of the year is to be on geotechnical and hydrological engineering studies at the Arctic Project's proposed waste and tailings sites with the objective to advance the engineering design for these facilities to a feasibility level of study. A number of geotechnical and hydrological drill holes are to be completed to support this effort. The Company also expects to gather extensive environmental data for a variety of studies to support the submission of a mine permit application in 2019.

Bornite Project

In a press release dated December 4, 2017, the Company announced the final set of drill results at the Bornite Project from the 2017 exploration drill program and in a press release dated January 10, 2018 the Company announced the results of a metallurgical test work program demonstrating that a high quality, 30% copper concentrate containing no deleterious metals can be produced at the currently defined in-pit resource at the Bornite Project.

In a press release dated December 14, 2017, the Company announced that South32 Limited ("South32") had committed to fund the second tranche of $10 million under an Option Agreement on the UKMP entered into on April 10, 2017 ("Option Agreement").  The funds necessary to maintain the Option Agreement in good standing were fully received during the first quarter.

On May 3, 2018 the Company announced work had been initiated to estimate a cobalt resource for the Bornite Project and on June 5, 2018 the Company announced a maiden cobalt resource with the following highlights:

Table 1: Estimate of Cobalt Mineral Resources for the Bornite Deposit

Corporate developments

Financing

On April 16, 2018, the Company entered into an underwriting agreement with a syndicate of underwriters (the "Underwriters") led by Cantor Fitzgerald Canada Corporation, acting as sole lead underwriter and book-running manager, and including Cormark Securities Inc., BMO Capital Markets and Roth Capital Partners, LLC, under which the Underwriters agreed to buy, on a bought deal underwritten basis, 21,551,724 common shares of the Company at a price of $1.16 per common share  for aggregate gross proceeds of approximately $25 million (the "Offering").  On April 20, 2018, we announced the closing of the Offering of 24,784,482 common shares, including the exercise in full by the Underwriters of the over-allotment option, at a price of $1.16 per common share for aggregate gross proceeds of approximately $28.7 million.

Certain large shareholders participated in the Offering with South32 purchasing approximately 40% or $11.5 million, Electrum Strategic Opportunities Fund L.P. taking approximately 20% or $5.8 million, The Baupost Group LLC taking approximately 10% or $2.8 million, and Selz Capital LLC taking approximately 4% or $1.2 million of the common shares. South32's involvement in this financing represented the maximum allocation of their rights to participate to a minimum of 20% to a maximum of 40% in future financings, private or public, subject to a maximum aggregate ownership of 19.9% in the Company.

The Company intends to use the net proceeds from the Offering for an anticipated period of three years (i) to finance advancing the Arctic Project towards feasibility and permitting, (ii) for exploration in the Ambler mining district, and (iii) for general corporate purposes.

Annual General Meeting

The Annual General Meeting of shareholders was held on May 15, 2018.  In a press release dated May 15, 2018, we were pleased to report all directors nominated by the Company and standing for election were resoundingly elected by shareholders of the Company.

Additions to the Senior Management Team

On May 31, 2018, we announced the additions of Patrick ("Pat") Donnelly as Vice President, Corporate Communications and Development and Robert ("Bob") Jacko as Vice President, Projects to the Company's senior management team.

Outlook

The 2018 program and budget at the Bornite Project of $10 million, which includes in-fill and off-set drilling to better define and expand the high grade copper resources at Bornite, is currently underway.  Camp opened mid-May and a seismic program was completed in early June.  Three drill rigs have started up in June to complete a planned field program of approximately 8,000 meters of drilling.  Assay results from the drilling program are anticipated to be released throughout the fall.  The Company also anticipates filing an updated technical report for the Bornite Project by July 20, 2018 incorporating the Company's cobalt resources and updated from the 2017 drill program at Bornite.

The 2018 program and budget at the Arctic Project of $6.7 million includes the work performed to date on the Arctic PFS and work to advance the Arctic Project towards feasibility and permitting. In May 2018, the Company completed an ore sorting test at the Steinert facility in Kentucky, Ohio and results are being incorporated into a final ore sorting study expected by the end of the third quarter. One drill has started up in June at Arctic for feasibility level geotechnical drilling at the sites identified in the Arctic PFS for the tailings dam and waste storage facilities. We are anticipating drilling 580 meters for geotechnical and hydrological studies. Engineering studies are planned to include additional metallurgical, tailings and waste dump design, water treatment and water balance studies for the feasibility study and permitting. We will also continue with baseline environmental studies which include hydrology, meteorological, sampling and archeology data collection.

We will be continuing to work closely with The Alaska Industrial Development and Export Authority ("AIDEA") (the proponent for the Ambler Mining District Industrial Access Project ("AMDIAP")) to advance the permitting process on the AMDIAP throughout 2018.  On April 30, 2018 the Bureau of Land Management ("BLM") released the Ambler Road Environmental Impact Statement Scoping Summary Report.  Permitting of the AMDIAP under the National Environmental Policy Act ("NEPA") Environmental Impact Statement ("EIS") process has now concluded the "Scoping Phase" of permitting and has moved to the "Draft EIS Phase".  Per the BLM's website, the Draft EIS is scheduled for the end of March 2019.

Property review

Our principal assets, the UKMP Projects, are located in the Ambler mining district in Northwest Alaska. Our UKMP Projects comprise approximately 355,323 acres (143,794 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 114,500 acres (46,337 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.

Bornite Project

On October 19, 2011, Trilogy Metals 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, in exchange for, among other things, a $4.0 million cash payment to NANA, the exclusive right to explore the Bornite Project 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 355,323 acres (143,794 hectares).

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 Project as a mineral property with acquisition costs capitalized and exploration costs expensed in accordance with our accounting policies.

Summary of results

in thousands of dollars,

except for per share amounts

For the three months ended May 31, 2018, Trilogy reported a net loss of $3.7 million (or $0.03 basic and diluted loss per common share) compared to a net loss of $2.4 million for the corresponding period in 2017 (or $0.02 basic and diluted loss per common share).  This variance was primarily due to the difference in mineral properties expense with the preparation of the Arctic PFS in 2018 with no comparable activity in 2017.  An increase of $1.2 million of mineral property expenses occurred during the three months ended May 31, 2018 compared to the three months ended May 31, 2017.  

Other differences noted for the comparable periods were i) an increase in general and administrative expenses to support the increased field program at the UKMP; ii) a decrease in professional fees as the main activity in the second quarter of 2018 was related to the financing completed on April 20, 2018 with the associated  legal fees recorded as issuance costs in shareholders equity; and iii) an increase in investor relations expenses due to the Company's increased level of marketing activity including attendance at more investor conferences in 2018 compared with 2017.

The basic and diluted loss per common share of $0.03 for the three months ended May 31, 2018 is increased from the basic and diluted loss per common share of $0.02 for the three months ended May 31, 2017 due to the increased activities affecting the loss for the period as described above.

For the six months ended May 31, 2018, Trilogy reported a net loss of $6.6 million (or $0.06 basic and diluted loss per common share) compared to a net loss of $5.4 million for the corresponding period in 2017 (or $0.05 basic and diluted loss per common share).  This variance was primarily due to the increased activity level at our projects which amounts are recorded as mineral properties expense.  An increase of $1.7 million of mineral property expenses occurred during the six months ended May 31, 2018 compared to the six months ended May 31, 2017 due to the work performed for the Arctic PFS in 2018 with no comparable activity in 2017.  Similar to the activity levels for the three months ended May 31, 2018, other differences noted relate to i) a small increase in general and administrative expenses; ii) a decrease in professional fees due to the legal costs related to the financing completed on April 20, 2018 are recorded as issuance costs in shareholders equity; and iii) an increase in investor relations expenses due to an increase in the number of investor conferences attended in 2018 compared with 2017.

The basic and diluted loss per common share of $0.06 for the six months ended May 31, 2018 is increased from the basic and diluted loss per common share of $0.05 for the six months ended May 31, 2017 due to the increased activities affecting the loss as described above.

Selected financial data

Quarterly information

in thousands of dollars,

except per share amounts

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. Realized and unrealized losses or gains on held for trading investments had significant movements period-to-period which affect the quarterly earnings or loss for the period. The investments consist of common shares and warrants in GoldMining Inc. ("GMI") acquired as consideration for the sale of Sunward Investments Limited ("Sunward") and its Titiribi gold-copper exploration project in Colombia on September 1, 2016. Other factors that have 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 second quarter ended May 31, 2018 of $3.7 million has increased over the loss for the first quarter ended February 28, 2017 of $3.0 million due to an increase in mineral property expenses related specifically to the work performed on the Arctic PFS results of which were released on February 20, 2018 with work related to writing and filing of the technical report performed during the second quarter prior to filing on April 6, 2018.  Our loss for the first quarter ended February 28, 2018 of $2.9 million was lower compared to two prior quarterly periods and is a reflection of the seasonality of the mineral property expenses which are mostly incurred during the summer and fall field season.  

Our loss for the fourth quarter ended November 30, 2017 of $6.7 million and third quarter ended August 31, 2017 of $9.0 million respectively, significantly increased compared to prior quarterly periods due to the size and length of the 2017 field program which was more than double the 2016 field program. The loss of $6.7 million for the fourth quarter ended November 30, 2017 is significantly increased compared to the earnings of $2.7 million recognized for the fourth quarter ended November 30, 2016. In 2016, a gain of $4.4 million was recognized on the sale of Sunward Investments. The loss for the fourth quarter ended November 30, 2017 of $6.7 million also increased significantly due to the length of the field program undertaken in 2017 which operated during the majority of the fourth quarter. In 2016, the field program did not extend into the fourth quarter and as such, mineral property expenses of $1.0 million incurred were related to engineering and other desktop studies undertaken during the comparable period.

Liquidity and capital resources

At May 31, 2018, we had $37.5 million in cash and cash equivalents and working capital of $36.1 million. The increase in cash and working capital was a result of fully receiving the $10.0 million Year 2 funding from South32 and closing of a bought-deal financing for net proceeds of $26.9 million.

We expended $6.6 million on operating activities during the three months ended May 31, 2018 compared with $3.6 million for operating activities for the same period in 2017.  A majority of cash spent on operating activities during all periods was expended on mineral property expenses, general and administrative, salaries and professional fees.  During the three months ended May 31, 2018, we generated $2.1 million (2017 - $0.9 million) in proceeds from the sale of investments. As at May 31, 2018 we have sold a total of 4,720,000 GoldMining Inc. ("GMI") shares and subsequent to the end of the quarter, in June 2018 we sold the remaining 280,000 GMI shares that we held for a grand total of 5 million GMI shares sold for gross proceeds of C$7.6 million.  The proceeds were used for general operating activities.

As at May 31, 2018 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 three years.    

Contractual obligations

Contractual obligated undiscounted cash flow requirements as at May 31, 2018 are as follows.

in thousands of dollars

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 $1.2 million.

Outstanding share data

At July 16, 2018, we had 131,467,266 common shares issued and outstanding. At July 16, 2018, we had outstanding 6,521,740 warrants with an exercise price of $1.52 each, 9,076,043 stock options with a weighted-average exercise price of $0.61, 1,136,629 deferred share units, and 400,002 restricted share units. Upon exercise of all of the foregoing convertible securities, the Company would be required to issue an aggregate of 17,150,027 common shares.

New accounting pronouncements

Certain recent accounting pronouncements have been included under note 2 in our May 31, 2018 unaudited interim consolidated financial statements which are available on the Company's SEDAR profile at www.sedar.com and on the Company's EDGAR profile at www.sec.gov.

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 or 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 and Canada. 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, volatility, and forfeiture rate which can have a significant impact on the valuation model, and resulting expense recorded.

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. Our financial instruments are subject to the following risks:

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 and Canada. The Company's exposure to currency risk at May 31, 2018 is limited to the Canadian dollar consisting of cash of C$1.8 million, deposit amounts of C$0.1 million, investments of C$0.3 million and accounts payable of C$0.4 million. Based on a 10% change in the US-Canadian exchange rate, assuming all other variables remain constant, the Company's net loss would change by approximately $0.2 million.

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. We hold cash and cash equivalents with Canadian Chartered financial institutions. Our accounts receivable consists of Canadian Goods and services Tax receivable from the Federal Government of Canada and other receivables for recoverable expenses. Our exposure to credit risk is equal to the balance of cash and cash equivalents and accounts receivable as recorded in the financial statements.

Liquidity risk is the risk that we will encounter difficulties raising funds to meet our financial obligations as they fall due. We are in the exploration stage and do not have cash inflows from operations; therefore, we manage liquidity risk through the management of the 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 financing completed this year is disclosed under the section titled "Corporate Developments".  Our contractually obligated cash flow is disclosed under the section titled "Contractual Obligations."  

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. We are exposed to interest rate risk with respect to interest earned on cash and cash equivalents. Based on balances as at May 31, 2018, 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.

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 . Information contained on our website is not incorporated by reference.

Management, with the participation of our President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of May 31, 2018. On the basis of this review, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have not been any changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated by the SEC under the Exchange Act) during the Company's most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting. 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.

PART II - OTHER INFORMATION

From time to time, we are a party to routine litigation and proceedings that are considered part of the ordinary course of its business. We are not aware of any material current, pending, or threatened litigation.

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, 2018, which is available on SEDAR www.sedar.com and EDGAR at www.sec.gov and on our website at www.trilogymetals.com .

None

None.

These disclosures are not applicable to us.

None.

Exhibits

See Exhibit Index.

SIGNATURES

Pursuant to the requirements 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.

EXHIBIT INDEX