Investment in Ambler Metals LLC

6 Months Ended

May 31, 2024

Investment in Ambler Metals LLC

Investment in Ambler Metals LLC

3)    Investment in Ambler Metals LLC

(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 (“Ambler Metals”) 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 cash of $145.0 million, resulting in each party’s subsidiaries directly owning a 50% interest in Ambler Metals.

Ambler Metals is a 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 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 LLC 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 maximum exposure to loss in this entity is limited to the carrying amount of our investment in Ambler Metals, which, as of May 31, 2024, totaled $121.2 million.

(b) Carrying value of equity method investment

Trilogy recognized, based on its 50% ownership interest in Ambler Metals, an equity loss equivalent to its pro rata share of Ambler Metals’ comprehensive loss of $0.6 million for the three-month period ending May 31, 2024 (2023 - $1.6 million) and $1.4 million for the six-month period ending May 31, 2024 (2023 - $3.1 million).  During the six-month period ending May 31, 2024, Trilogy made a $112,000 equity contribution to Ambler Metals through the issuance of 143,507 common shares of the Company as part of the long-term incentive compensation for Ambler Metals executives. Likewise, South32 made an equivalent equity contribution to Ambler Metals for $112,000 in cash for their 50% share. The carrying value of Trilogy’s 50% investment in Ambler Metals as at May 31, 2024 is summarized on the following table.

	in thousands of dollars
	$
November 30, 2023, Investment in Ambler Metals	135,021
Joint venture equity contribution	112
Return of capital	(12,500)
Share of loss on equity investment for the six-month period ending May 31, 2024	(1,395)
May 31, 2024, Investment in Ambler Metals	121,238

(c) The following table summarizes Ambler Metals’ Balance Sheet as at May 31, 2024.

	in thousands of dollars
	May 31, 2024	November 30, 2023
	$	$
Total assets	67,557	97,180
Cash and cash equivalents	35,139	63,829
Mineral properties	30,899	30,899
Total liabilities	(875)	(2,931)
Accounts payable and accrued liabilities	(571)	(2,500)
Members' equity (total assets less total liabilities)	66,682	94,249

Members’ cash and cash equivalents are held at one bank, the majority of cash and cash equivalent is uninsured as at May 31, 2024.  During the second quarter, Ambler Metals returned $25 million of excess cash to the members.  Subsequent to May 31, 2024, Ambler Metals returned another $25 million of excess cash to the members.

(d) The following table summarizes Ambler Metals' loss for the six-month period ended May 31, 2024 and May 31, 2023.

			in thousands of dollars
	Three months ended			Six months ended
	May 31, 2024	May 31, 2023		May 31, 2024	May 31, 2023
	$	$		$	$
Depreciation	37	38		75	75
Corporate salaries and wages	128	495		362	939
General and administrative	121	213		248	346
Mineral property expense	1,230	2,507		2,324	4,792
Professional fees	253	57		430	216
Foreign exchange loss	—	3		2	3
Interest and other income	(565)	(105)		(652)	(194)
Comprehensive loss	1,204	3,208		2,789	6,177

(e) Related party transactions

During the six-month period ended May 31, 2024, the Company charged $25,000 (2023 - $Nil) related to human resources and accounting services in connection with a service agreement between the company and Ambler Metals. In addition, the company received payments of $52,000 (2023 - $Nil) related to operating expenses paid on behalf of Ambler Metals pursuant to the Service Agreement.