Mineral properties and development costs

12 Months Ended

Nov. 30, 2020

Mineral properties and development costs

Mineral properties and development costs

6)    Mineral properties and development costs

			in thousands of dollars
	November 30, 2019	Assets	November 30, 2020
		derecognized
		note 4(a)
	$	$	$
Alaska, USA
Ambler (a)	26,631	(26,631)	—
Bornite (b)	4,000	(4,000)	—
	30,631	(30,631)	—

			in thousands of dollars
	November 30, 2018	Acquisition costs	November 30, 2019
	$	$	$
Alaska, USA
Ambler (a)	26,587	44	26,631
Bornite (b)	4,000	—	4,000
	30,587	44	30,631

(a) Ambler

On January 11, 2010, NovaGold Resources Inc. (“NovaGold”), through Alaska Gold Company (“AGC”), its 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 can be purchased 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 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, 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 (“UKMP”) 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, less $40 million, with the difference multiplied by the elected percentage purchased. In no event will the purchase amount 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 Trilogy Metals US entered into the South32 Option Agreement  to form a Joint Venture with South32 Group Operations Pty Ltd., a wholly-owned subsidiary of South32 Limited, which agreement was later assigned by South32 Operations to its affiliate, South32 USA Exploration Inc. (“South32”) on the UKMP (“Option Agreement”). Under the terms of the Option Agreement, as amended, Trilogy Metals US granted South32 the right to form a 50/50 joint venture to hold all of Trilogy Metals US’ Alaskan assets. Upon exercise of the option, the option agreement provided that Trilogy Metals US would transfer its Alaskan assets, including the UKMP, and South32 would contribute the Subscription Price (as defined below) to a newly formed and jointly held, limited liability company (“LLC”) (see note 4(a)).

To maintain the option in good standing, South32 was required to fund a minimum of $10 million per year for up to a three-year period, which funds were to execute a mutually agreed upon program at the UKMP. The funds provided by South32 could only be expended in accordance with an approved program by a technical committee with equal representation from Trilogy and South32. South32 could exercise its option at any time over the three-year period to enter into the 50/50 joint venture. To subscribe for 50% of the joint venture, the Option Agreement provided that South32 must contribute $150 million, plus (i) any amounts Trilogy spends on matched parallel funding to a maximum of $16 million over the three-year period and (ii) $5 million if the option had been exercised between April 1, 2018 and March 31, 2019 or $10 million if the option was exercised between April 1, 2019 and the expiration date of the option, less the amount of the initial funding contributed by South32 (the “Subscription Price”). South32 funded the full three-year option period. During the year ended November 30, 2020, South32 elected to exercise the option to form the LLC and made the Subscription Price payment on February 5, 2020 (see note 4 (a)).

As the initial option payments were credited against the future subscription price upon exercise, the Company accounted for the payments received from South32 as deferred consideration for the purchase of the UKMP interest. The $31.0 million of payments received were recognized as part of the consideration received for the Company’s contribution of the UKMP into the LLC.

The option to form the LLC was recognized as a financial instrument at inception of the arrangement with an initial fair value of $nil.  This option was 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 remained $nil during the option period and through to the formation of the Joint Venture on February 11, 2020.

(d) Mineral properties expense

The following table summarizes mineral properties expense for the years ended November 30, 2020, 2019 and 2018, and includes expenditures funded by South32 up to the formation of the Joint Venture on February 11, 2020, as applicable.

		In thousands of dollars
	2020	2019	2018
	$	$	$
Alaska, USA
Community	137	596	466
Drilling	—	5,194	4,545
Engineering	723	2,410	1,056
Environmental	99	611	806
Geochemistry and geophysics	12	1,259	1,253
Land and permitting	134	744	705
Project support	249	4,652	4,244
Other income	—	(13)	(20)
Wages and benefits	191	3,758	3,435
	1,545	19,211	16,490

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. Other than the feasibility costs related to the Arctic project funded directly by the Company, no additional mineral properties expenses were incurred subsequent to the formation of the joint venture, as on February 11, 2020, upon the formation of the Joint Venture with South32, all mineral properties previously held by the Company were contributed to Ambler Metals LLC.

The Company funded the Arctic Project feasibility study, costs for which were $1.1 million since the formation of the Joint Venture on February 11, 2020. Prior to the formation of the Joint Venture, the Company had also incurred $0.7 million in Arctic Project feasibility costs that are included in the mineral properties expense balance of $1.5 million for the year ended November 30, 2020.

Cumulative mineral properties expense in Alaska from the initial earn‐in agreement on the property in 2004 to the formation of the Joint Venture on February 11, 2020 was $115.3 million and cumulative acquisition costs were $30.6 million. Cumulative spend to date totaled $147 million. On February 11, 2020, upon the formation of the joint venture with South32, the acquisition costs of $30.6 million were derecognized upon the contribution of the mineral properties to Ambler Metals.

(e) Derecognition

As part of the formation of the Joint Venture with South32 on February 11, 2020, Trilogy contributed all its assets associated with the UKMP, including the Arctic and Bornite projects. As a result, machinery and equipment with a carrying value of $0.62 million as well as $30.6 million of mineral properties related to the UKMP were derecognized by Trilogy on February 11, 2020.