4.	Mineral properties and development costs

in thousands of dollars

	November 30, 2016		Acquisition costs		May 31, 2017
	$		$		$
Alaska, USA
Ambler (a)		26,586		-		26,586
Bornite (b)		4,000		-		4,000
		30,586		-		30,586

in thousands of dollars

	November 30, 2015		Acquisition costs		November 30, 2016
	$		$		$
Alaska, USA
Ambler (a)		26,586		-		26,586
Bornite (b)		4,000		-		4,000
		30,586				30,586

(a)

Ambler

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

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

(b)

Bornite

On October 19, 2011, NovaCopper 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, NovaCopper 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 NovaCopper 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.

(c)	Option Agreement

On April 10, 2017, Trilogy and NovaCopper US entered into an Option Agreement to Form a Joint Venture with South32 Group Operations Pty Ltd. (“South32”) on the UKMP (“Option Agreement”). NovaCopper US has granted South32 the right to form a 50/50 joint venture to hold all of NovaCopper US’ Alaskan assets. Upon exercise of the option, NovaCopper 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 NovaCopper 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.

The Company received $10.0 million for the first payment following the approval of the year 1 program and budget. As at May 31, 2017, the Company held $9.3 million in a segregated bank account for spending on the approved year 1 program at Bornite. 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. 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 the 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.

(d)	Mineral properties expense

The following table summarizes mineral properties expense for the noted periods and includes expenditures funded by South32.

In thousands of dollars

	Three months		Three months		Six months		Six months
	ended May		ended May		ended May		ended May
	31, 2017		31, 2016		31, 2017		31, 2016
	$		$		$		$
Alaska, USA
Community		78		67		134		122
Drilling		90		-		90		-
Engineering		154		46		423		219
Environmental		59		15		59		23
Geochemistry and geophysics		5		1		5		13
Land and permitting		348		111		452		209
Project support		287		67		334		106
Wages and benefits		276		150		439		298
Mineral property expense		1,297		457		1,936		990

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, 2017 is $64.9 million and cumulative acquisition costs are $30.6 million totaling $95.5 million spent to date.