Equity method investment

3 Months Ended

Feb. 28, 2021

Equity method investment

Equity method investment

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 LLC with South32 Limited (“South32”). As part of the formation of the joint venture, Trilogy contributed all its assets associated with the 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 LLC. To assist Ambler Metals during the initial set up phase, Trilogy was paying all of Ambler Metals LLC’s invoices and being reimbursed pursuant to a services agreement (the “Services Agreement”) between Trilogy and Ambler Metals LLC until the back office was fully transitioned to a new permanent team employed by the joint venture. The Services Agreement ended on December 31, 2020.

Ambler Metals LLC is an independently operated company jointly controlled by Trilogy and South32 through a four-member board, of which two members are 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 LLC 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 LLC as the power to direct its activities, through its board, is shared under the Ambler Metals LLC limited liability company agreement. As we have significant influence over Ambler Metals LLC through our representation on its board, we use the equity method of accounting for our investment in Ambler Metals LLC. Our investment in Ambler Metals LLC 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 LLC, which, as at February 28, 2021, totaled $172 million. The following table summarizes the gain on recognition of the UKMP assets upon transfer to the Ambler Metals LLC joint venture on February 11, 2020.

	in thousands of dollars
	$
Fair value ascribed to Ambler Metals LLC interest	176,000
Less: carrying value of contributed /eliminated assets
Mineral properties	(30,631)
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:
Reimbursement of claims staking	44
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

No additional mineral properties expenses were incurred subsequent to February 11, 2020 as upon the formation of the joint venture with South 32, all mineral properties previously held by the Company were contributed to Ambler Metals LLC. 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 three-month period ended February 29, 2020.

(b) Carrying value of equity method investment

During the three-month period ending February 28, 2021, Trilogy recognized, based on its 50% ownership interest in Ambler Metals LLC, an equity loss equivalent to its pro rata share of Ambler Metals LLC's comprehensive loss of $2.2 million for the three month period ending February 28, 2021. The carrying value of Trilogy’s 50% investment in Ambler Metals LLC as at February 28, 2021 is summarized on the following table.

	in thousands of dollars
	$
November 30, 2020, investment in Ambler Metals LLC.	173,145
Share of loss on equity investment for the three month period ending February 28, 2021	(1,120)
February 28, 2021, investment in Ambler Metals LLC.	172,025

(c) The following table summarizes Ambler Metals LLC's Balance Sheet as at February 28, 2021.

	in thousands of dollars
	February 28, 2021	November 30, 2020
	$	$
Current assets: Cash, deposits and prepaid expenses	79,576	82,226
Non - current assets: Property, equipment and mineral properties	32,038	31,287
Loan receivable from South32	58,747	58,478
Current liabilities: Accounts payable and accrued liabilities	(1,310)	(1,445)
Non - current liabilities: Lease obligation	(795)	(51)
Net assets	168,256	170,495

(d) The following table summarizes Ambler Metals LLC's comprehensive loss for the three-month period ending February 28, 2021.

	in thousands of dollars
	Period ending	Period ending
	February 28, 2021	February 29, 2020
	$	$
Amortization	16	12
Mineral properties expense	1,400	167
General and administrative expense	1,095	219
Interest income	(272)	(43)
Comprehensive loss	2,239	355

(e) Related party transactions - services agreement income

The Company charged $22,151 of expenses related to technical services, including geological, engineering, environmental and human resources, and accounting services in connection with the Services Agreement. In addition, the Company received payments of $4,053 related to operating expenses paid on behalf of Ambler Metals during the three-month period ending February 28, 2021.