4)Equity method investment

(a)

Formation of Ambler Metals LLC

On February 11, 2020, the Company completed the formation of a 50/50 joint venture named Ambler Metals with South32 Limited (“South32”). As part of the formation of the joint venture, Trilogy contributed all of its assets associated with the Upper Kobuk Mineral Projects (“UKMP”), including the Arctic and Bornite projects, while South32 contributed US$145 million, resulting in each party’s subsidiaries directly owning a 50% interest in Ambler Metals.

Ambler Metals is an independently operated company jointly controlled by Trilogy and South32 through a four-member board, of which two members are currently appointed by Trilogy based on its 50% equity interest. All significant decisions related to the UKMP require the approval of both companies. We determined that Ambler Metals is a VIE because it is expected to need additional funding from its owners for its significant activities. However, we concluded that we are not the primary beneficiary of Ambler Metals as the power to direct its activities, through its board, is shared under the Ambler Metals limited liability company agreement. As we have significant influence over Ambler Metals through our representation on its board, we use the equity method of accounting for our investment in Ambler Metals. Our investment in Ambler Metals was initially measured at its fair value of $176 million upon recognition. Our maximum exposure to loss in this entity is limited to the carrying amount of our investment in Ambler Metals, which totaled $176 million, as well as $0.4 million of amounts receivable per the Service Agreement. The following table summarizes the gain on recognition of the UKMP assets upon transfer to the Ambler Metals joint venture on February 11, 2020.


		in thousands of dollars
		$
Fair value ascribed to Ambler Metals interest		176,000
Less: carrying value of contributed /eliminated assets
Mineral properties		(30,587)
Property, plant and equipment		(618)
Elimination of Fairbanks warehouse right of use asset		(93)
Elimination of prepaid State of Alaska mining claim fees		(303)
Add:
Demobilization costs of drills		278
Cancellation of Fairbanks warehouse lease liability		93
Fair value of mineral properties purchase option		31,000
Gain on derecognition		175,770

(b)

Carrying value of equity method investment

During the three-month period ended February 29, 2020, Trilogy recognized, based on its 50% ownership interest in Ambler Metals, an equity pick-up equivalent to its pro rata share of Ambler Metals’ operating loss of $0.4 million for the period between February 11, 2020 (date of joint venture formation) to February 29, 2020. The carry value of Trilogy’s 50% investment in Ambler Metals as at February 29, 2020 is summarized on the following table.


		in thousands of dollars
		$
February 11, 2020, fair value ascribed to Ambler Metals interest		176,000
Share of loss on equity investment		(178)
February 29, 2020, equity method investment		175,822

(c)

The following table summarizes Ambler Metals Balance Sheet as at February 29, 2020.


		in thousands of dollars
		February 29, 2020
		$
Current assets: Cash, deposits and prepaid expenses		145,049
Non - current assets: Property, equipment and mineral properties		31,454
Current liabilities: Accounts payable and accrued liabilities		(517)
Non - current liabilities: Lease obligation		(91)
Net assets		175,895

(d)

The following table summarizes Ambler Metals comprehensive loss from the formation of the joint venture on February 11, 2020 to the end of the reporting period on February 29, 2020.


		in thousands of dollars
		February 11- 29, 2020
		$
Amortization		12
Mineral properties expense		167
General and administrative expense		219
Interest income		(43)
Comprehensive loss		355