TRILOGY METALS INC. Trilogy Metals Inc. Management's Discussion & Analysis For the Quarter EndedMay 31, 2022 (expressed in US dollars) Cautionary notes
Forward-looking statements
This Management's Discussion and Analysis contains "forward-looking information" and "forward-looking statements" within the meaning of Section 27A of theU.S. Securities Act of 1933, as amended, Section 21E of theU.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), and other applicable securities laws. These forward-looking statements may include statements regarding the Company's work programs and budgets, including statements about the plans and budget for the 2022 field exploration program; perceived merit of properties, exploration results and budgets, the impact of the BLM's suspension of permits on the right-of-way with AIDEA relating to theAmbler Road Project ; the Company and Ambler Metals' funding requirements, mineral reserves and resource estimates, work programs, capital expenditures, operating costs, cash flow estimates, production estimates and similar statements relating to the economic viability of a project, timelines, strategic plans, statements regarding Ambler Metals' plans and expectations relating to its Upper Kobuk Mineral Projects, sufficiency of the$145 million subscription price to fund the UKMP; impact of COVID-19 on the Company's operations; market prices for precious and base metals; statements regarding theAmbler Access Project (also known as theAmbler Mining District Industrial Access Project ); or other statements that are not statements of fact. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. Statements concerning mineral resource estimates may also be deemed to constitute "forward-looking statements" to the extent that they involve estimates of the mineralization that will be encountered if the property is developed. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, identified by words or phrases such as "expects", "is expected", "anticipates", "believes", "plans", "projects", "estimates", "assumes", "intends", "strategy", "goals", "objectives", "potential", "possible" or variations thereof or stating that certain actions, events, conditions or results "may", "could", "would", "should", "might" or "will" be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statements of historical fact and may be forward-looking statements. Forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made, as well as on a number of material assumptions, which could prove to be significantly incorrect, including about: ? our ability to achieve production at the Upper Kobuk Mineral Projects;
? the accuracy of our mineral resource and reserve estimates;
? the results, costs and timing of future exploration drilling and engineering;
? timing and receipt of approvals, consents and permits under applicable
legislation;
? the adequacy of our financial resources;
the receipt of third party contractual, regulatory and governmental approvals
? for the exploration, development, construction and production of our properties
and any litigation or challenges to such approvals;
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? our expected ability to develop adequate infrastructure and that the cost of
doing so will be reasonable;
? continued good relationships with South32, our joint venture partner, as well
as local communities and other stakeholders;
? there being no significant disruptions affecting operations, whether relating
to labor, supply, power damage to equipment or other matter;
? expected trends and specific assumptions regarding metal prices and currency
exchange rates;
? the potential impact of the novel coronavirus (COVID-19); and
? prices for and availability of fuel, electricity, parts and equipment and other
key supplies remaining consistent with current levels.
We have also assumed that no significant events will occur outside of our normal course of business. Although we have attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. We believe that the assumptions inherent in the forward-looking statements are reasonable as of the date of this MD&A. However, forward-looking statements are not guarantees of future performance and, accordingly, undue reliance should not be put on such statements due to the inherent uncertainty therein. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual events or results to differ from those reflected in the forward-looking statements, including, without limitation:
? risks related to the COVID-19 pandemic;
? risks related to inability to define proven and probable reserves;
risks related to our ability to finance the development of our mineral
? properties through external financing, strategic alliances, the sale of
property interests or otherwise;
? uncertainty as to whether there will ever be production at the Company's
mineral exploration and development properties;
risks related to our ability to commence production and generate material
? revenues or obtain adequate financing for our planned exploration and
development activities;
risks related to lack of infrastructure including but not limited to the risk
? whether or not the
will receive the requisite permits and, if it does, whether theAlaska Industrial Development and Export Authority will build the AMDIAP;
Risks related to the suspension by the BLM of the right-of-way permits with
? AIDEA relating to the Ambler access road to permit the Department of the
Interior to carry out additional work on the environmental impact statement,
and associated delays relating to such suspension;
? risks related to inclement weather which may delay or hinder exploration
activities at our mineral properties;
? risks related to our dependence on a third party for the development of our
projects;
? none of the Company's mineral properties are in production or are under
development;
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? commodity price fluctuations;
? uncertainty related to title to our mineral properties;
? our history of losses and expectation of future losses;
risks related to increases in demand for equipment, skilled labor and services
? needed for exploration and development of mineral properties, and related cost
increases;
risks related to increases in costs of fuel and other required supplies and
? concerns relating to supply chain and the ability to obtain needed supplies at
a reasonable cost, or at all;
? risks related to global economic instability, including global supply chain
issues, inflation and fuel and energy costs may affect the Company's business;
uncertainties relating to the assumptions underlying our resource estimates,
? such as metal pricing, metallurgy, mineability, marketability and operating and
capital costs;
? uncertainty related to inferred mineral resources;
mining and development risks, including risks related to infrastructure,
? accidents, equipment breakdowns, labor disputes or other unanticipated
difficulties with or interruptions in development, construction or production;
? risks and uncertainties relating to the interpretation of drill results, the
geology, grade and continuity of our mineral deposits;
risks related to governmental regulation and permits, including environmental
? regulation, including the risk that more stringent requirements or standards
may be adopted or applied due to circumstances unrelated to the Company and
outside of our control;
the risk that permits and governmental approvals necessary to develop and
? operate mines at our mineral properties will not be available on a timely basis
or at all;
? risks related to the need for reclamation activities on our properties and
uncertainty of cost estimates related thereto;
? risks related to the acquisition and integration of operations or projects;
? our need to attract and retain qualified management and technical personnel;
? risks related to conflicts of interests of some of our directors and officers;
? risks related to potential future litigation;
? risks related to market events and general economic conditions;
risks related to future sales or issuances of equity securities decreasing the
? value of existing Trilogy common shares, diluting voting power and reducing
future earnings per share;
? risks related to the voting power of our major shareholders and the impact that
a sale by such shareholders may have on our share price;
? uncertainty as to the volatility in the price of the Company's common shares;
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? the Company's expectation of not paying cash dividends;
? adverse federal income tax consequences for
Company be a passive foreign investment company;
? risks related to global climate change;
? risks related to adverse publicity from non-governmental organizations;
uncertainty as to our ability to maintain the adequacy of internal control over
? financial reporting as per the requirements of Section 404 of the
Sarbanes-Oxley Act; and
increased regulatory compliance costs, associated with rules and regulations
promulgated by the
? Securities Administrators, the NYSE American, the
the Financial Accounting Standards Boards, and more specifically, our efforts
to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act.
This list is not exhaustive of the factors that may affect any of the Company's forward-looking statements. Forward-looking statements are statements about the future and are inherently uncertain, and actual achievements of the Company or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors, including, without limitation, those referred to in Trilogy's Form 10-K datedFebruary 11, 2022 , filed with the Canadian securities regulatory authorities and theSEC , and other information released by Trilogy and filed with the appropriate regulatory agencies. The Company's forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made, and the Company does not assume any obligation to update forward-looking statements if circumstances or management's beliefs, expectations or opinions should change, except as required by law. For the reasons set forth above, investors should not place undue reliance on forward-looking statements.
General
This Management's Discussion and Analysis ("MD&A") of Trilogy Metals Inc.
("Trilogy", "Trilogy Metals", "the Company" or "we") is dated July 5, 2022 and
provides an analysis of our unaudited interim financial results for the quarter
ended May 31, 2022 compared to the quarter ended May 31, 2021 .
The following information should be read in conjunction with our May 31, 2022
unaudited interim condensed consolidated financial statements and related notes
which were prepared in accordance with United States generally accepted
accounting principles ("U.S. GAAP"). The MD&A should also be read in conjunction
with our audited consolidated financial statements and related notes for the
year ended November 30, 2021 . A summary of the U.S. GAAP accounting policies is
outlined in note 2 of the audited consolidated financial statements. All amounts
are in United States dollars unless otherwise stated. References to "Canadian
dollars" and "CDN$" are to the currency of Canada and references to "U.S.
dollars", "$" or "US$" are to the currency of the United States .
Richard Gosse , P.Geo ., Vice President, Exploration of the Company, is a
Qualified Person under National Instrument 43-101 - Standards of Disclosure for
Mineral Projects ("NI 43-101"), and has approved the scientific and technical
information in this MD&A.
Trilogy's shares are listed on the Toronto Stock Exchange ("TSX") and the NYSE
American Stock Exchange ("NYSE American") under the symbol "TMQ". Additional
information related to Trilogy, including our annual report on Form 10-K, is
available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
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Table of contents Description of business We are a base metals exploration company focused on the exploration and development of mineral properties, through our equity investee, in the Ambler mining district located inAlaska, U.S.A. We conduct our operations through a wholly owned subsidiary,NovaCopper US Inc. which is doing business as Trilogy Metals US ("Trilogy Metals US"). Our Upper Kobuk Mineral Projects, ("UKMP" or "UKMP Projects") were contributed into a 50/50 joint venture namedAmbler Metals LLC ("Ambler Metals") betweenTrilogy and South32 Limited ("South32") onFebruary 11, 2020 (see below). The projects contributed to Ambler Metals consist of: i) the Ambler lands which hostthe Arctic copper-zinc-lead-gold-silver project (the "Arctic Project "); and ii) the Bornite lands being explored under a collaborative long-term agreement withNANA Regional Corporation, Inc. ("NANA"), a regionalAlaska Native Corporation , which hosts the Bornite carbonate-hosted copper project (the "Bornite Project ") and related assets. The Company also conducts early-stage exploration through a wholly owned subsidiary, 995Exploration Inc.
Joint venture project activities
Budget for 2022 Field Exploration Program
In a press release datedJune 8, 2022 , the Company announced that Ambler Metals had commenced mobilization for the summer 2022 field program at the UKMP. The drill program will be helicopter-supported and will be based out of Ambler Metals' expanded 90-person camp at Bornite. The previously announced$28.5 million fiscal 2022 budget was updated to approximately$26.2 million . The field season is entirely funded by Ambler Metals and consists of a minimum 10,000 meters of diamond drilling with additional meters contingent on drill performance, weather and approval of supplementary budgets. The field season program prioritizes advancing theArctic Project with additional infill drilling to further improve the confidence in the resource and the completion of a geotechnical study to further de-risk the Project. Exploration outside ofthe Arctic deposit will focus on discovering copper-rich satellite deposits near Arctic, theCosmos Hills and the Ambler Lowlands. The 2022 Arctic program involves a minimum 6,000 meters in 27 holes, as part of an 8,400-meter infill program to increase confidence from the Indicated to Measured category. In addition, three to five holes totaling 500 to 750 meters are planned to complete a geotechnical and hydrogeological assessment of Arctic that was initiated last year. The 2022 exploration program for theCosmos Hills and Ambler Lowlands includes drilling of approximately 2,400 meters as well as detailed mapping and soil sampling to build on the work performed during the prior year. In addition, a minimum 2,000 meters of trenching is planned around Pardner Hill and the Bornite East target area.Arctic Project In a press release datedApril 20, 2022 , the Company announced the final set of infill drill results for the remaining 9 infill/metallurgical drill holes from the 2021 summer field season at theArctic Project . The 2021 Arctic drill program included 4,131 meters of diamond drilling, comprising 18 holes, that were designed to convert part of the resources from the Indicated category to the Measured category, and provide material for metallurgical testing and geotechnical information. Based on a cut-off grade of 0.5% copper equivalent, significant zones of high-grade copper, zinc, lead, gold, and silver mineralization were intersected. In addition to providing important geotechnical data and increasing the certainty of future resource estimates, the 2021 drill program results at Arctic found mineralization extending beyond the pit boundary used in the 2020 Arctic Feasibility Study.
In a press release datedFebruary 23, 2022 , the Company announced that theUnited States Department of the Interior ("DOI") filed a motion onFebruary 22, 2022 to remand the Final Environmental Impact Statement ("FEIS") and suspend the right-of-way permits issued to theAlaska Industrial Development and Export Authority ("AIDEA") for theAmbler Access Project . The DOI stated that the suspension of the road permits will allow it to carry out additional supplemental
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work on the FEIS. The motion also indicated that the DOI has requested that the lawsuits filed in 2021 against the DOI by a coalition of national andAlaska environmental non-government organizations be suspended. The lawsuits had been filed in response to theUnited States Bureau of Land Management's ("BLM") issuance of the Joint Record of Decision ("JROD"), that authorized a right-of-way across federally managed lands for AIDEA and theAmbler Access Project . Inmid-March 2022 , the BLM and the DOI suspended the right-of-way grant and the right-of-way permit ("ROW permits") to AIDEA relating to theAmbler Access Project over federal land while the DOI conducts further analysis and consultation. While the suspension decisions are in place: AIDEA may not conduct any activities that rely on the authority of the ROW permits; the terms and conditions of the ROW permits are tolled; and all rental fee obligations are suspended. The suspension does not preclude AIDEA from applying for special use permits to conduct activities on the lands subject to the ROW permits pursuant to applicable law or authority other than the suspended ROW permits. OnMarch 22, 2022 , the Intervenor Defendants (theState of Alaska , NANA, AIDEA, and Ambler Metals filed briefs in opposition to the DOI's motion for a voluntary remand. In its brief, Ambler Metals stated that it does not oppose the voluntary remand motion subject to the following conditions: (i) no vacatur or termination of the permits; (ii) the remand must be completed within nine months; (iii) that there must be status updates to the court every 60 days during the remand period; and (iv) the federal defendants (DOI) must lodge the administrative record within 30 days of issuing any new decision. Also onMarch 22, 2022 , the plaintiffs filed a motion asking the court to deny the motion for voluntary remand without vacatur of the permits and either allow merits briefing to proceed or simply vacate the Federal Defendants reviews and decisions. OnApril 5, 2022 , the Federal Defendants responded to the plaintiffs' arguments against voluntary remand and argued that vacatur of the decisions was not appropriate. Federal Defendants also argued that the court should retain jurisdiction, but disagreed with arguments requesting a court-imposed schedule. The Federal Defendants proposed filing a status report every 90 days. In press release datedMay 18, 2022 , the Company provided an update on the AMDIAP. InMay 17, 2022 , theUnited States District Court (the "Court") granted the DOI motion for voluntary remand without vacatur. The DOI had requested the voluntary remand of the previously issued JROD.Judge Gleason also ruled that the Court shall retain jurisdiction over this matter, and the Court is requiring that the DOI file a status report with the Court within 60 days from the date of the order and every 60 days thereafter. In addition, any party involved in the action may move for a status conference upon a showing of good cause. The DOI had indicated that the remand was necessary because the DOI had identified deficiencies in their analysis of impacts to subsistence uses under theAlaska National Interest Lands Conservation Act ("ANILCA") section 810 and their consultation with Tribes pursuant to the National Historic Preservation Act ("NHPA") Section 106.27. They requested a remand in order to supplement the administrative record in these regards. OnJune 14, 2022 , the Court denied the plaintiffs motion to reconsider the Court'sMay 17th remand order. The Company will continue discussions with its partners, includingNANA Regional Corporation, Inc. , AIDEA, the Northwest Arctic Borough, the State ofAlaska and South32 Limited to determine the impact of the above decision on AIDEA's proposed plan and budget for the 2022 summer field season activities that were previously announced. Corporate developments Annual General Meeting The Annual General Meeting of shareholders was held onMay 13, 2022 . All directors nominated by the Company and standing for election were elected by shareholders of the Company. Other items of business included the approval of amendments to, and unallocated entitlements under, the Company's Restricted Share Unit Plan ("RSU Plan") and Deferred Share Unit Plan ("DSU Plan"). The Company asked shareholders to approve a change to the RSU Plan to remove the option for the Company to cash settle RSUs granted to Canadian resident directors due to potential Canadian tax
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restrictions. The Company also asked shareholders to approve a change to the DSU Plan to allow directors to elect to receive up to 100% of their annual compensation in DSUs.
Summary of results
in thousands of US dollars
Three months ended Six months ended
May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021Selected expenses $ $ $ $ General and administrative 338 351 735 762 Investor relations 38 116 137 270 Professional fees 192 275 437 504 Salaries 261 407 675 846 Salaries and directors expense - stock-based compensation 662 524 2,584 2,672 Share of loss on equity investment 2,460 1,700 4,370 2,820 Comprehensive loss for the period (4,074) (3,413) (9,097) (7,929) Basic and diluted loss per common share (0.03) (0.02) (0.06) (0.05) For the three-month period endedMay 31, 2022 , cash preservation strategies resulted in overall cash savings of$0.3 million in general and administrative expenses, investor relations, professional fees and salaries when compared to budget. For the three-month period endedMay 31, 2022 , Trilogy reported a net loss of$4.1 million (or$0.03 basic and diluted loss per common share). For the comparable period in 2021, we reported a net loss of$3.4 million (or$0.02 basic and diluted loss per common share). This difference is primarily due to a$0.8 million increase in the Company's equity pick-up of Ambler Metals' comprehensive loss in the current period. The current quarter includes pre-development costs for theAmbler Access Project for which there are no prior year comparatives. This increase in the equity pick-up is offset by reductions in general and administrative expenses, investor relations and professional fees due to management implemented cost savings strategies during the quarter. The combined total of salaries and stock-based compensation is consistent between the current period quarter and the comparative period. For the six-month period endedMay 31, 2022 , Trilogy reported a net a loss of$9.1 million (or$0.06 basic and diluted loss per common share). For the comparable period in 2021, we reported a net loss of$7.9 million (or$0.05 basic and diluted loss per common share). The difference for the six-month period endedMay 31, 2022 , when compared to the same period in 2021, is primarily due to a$1.6 million increase in the Company's equity pick up of Ambler Metals comprehensive loss for the six-month period endingMay 31, 2022 . The current period includes pre-development costs for theAmbler Access Project for which there are no prior year comparatives as well as higher engineering and project related salaries and wages versus the comparative period. Other variances noted for the comparative six-month period endedMay 31, 2022 consist of: i) a decrease of$0.13 million in investor relations activities; ii) a decrease of$0.2 million in salaries as the executive team agreed to receive a portion of their salary in Restricted Share Units; and iii) a decrease of$0.1 million in stock-based compensation, driven by a$0.3 million decrease in the fair value amortization of awards granted during the period (due to a 0.7 million units reduction of overall stock-based awards granted versus the comparative period), and offset by$0.2 million increase from executives and directors taking equity in lieu of cash compensation.
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Selected financial data
Quarterly information
in thousands of dollars,
except per share amounts
Q2 2022 Q1 2022 Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Q3 2020
05/31/22 02/28/22 11/30/21 08/31/21 05/31/21 02/28/21 11/30/20 08/31/20
$ $ $ $ $ $ $ $
Interest and other
income 2 2 2 4 5 5 5 8
Mineral properties
and feasibility study
expenses - - - - - - 91 232
Operating expenses 1,497 3,115 1,879 1,596 1,718 3,401 2,209 2,098
Share of loss on
equity investment 2,460 1,910 4,190 6,072 1,700 1,120 1,022 1,094
Loss for the period (4,074) (5,023) (6,067) (7,664) (3,413) (4,516) (3,226) (3,184)
Loss per common share
- basic (0.03) (0.03) (0.05) (0.05) (0.02) (0.03) (0.04) (0.02)
Loss per common share
- diluted (0.03) (0.03) (0.05) (0.05) (0.02) (0.03) (0.01) (0.01)
Factors that can cause fluctuations in our quarterly results include our general and administrative expenses, stock option vesting and the type of programs conducted and length of the field season at the UKMP. Project related costs may cause fluctuations in our quarterly results through our share of losses on equity investment where we record 50% of the net operating loss of Ambler Metals. For the second quarter of 2022, we reported a comprehensive loss of$4.1 million , which consisted of$1.5 million in operating expenses,$2.5 million for Trilogy's 50% share of Ambler Metals' operating loss and$0.1 million in mineral properties that were written off during the quarter. In the second quarter of 2021, we recognized a comprehensive loss of$3.4 million which consisted of$1.7 million in operating expenses and$1.7 million for Trilogy's share of Ambler Metals' operating loss. When compared to the second quarter of 2021, our pro rata share of the joint venture's operating loss is$0.8 million higher for the second quarter of 2022. The increase is primarily due to increased funding for the AAP, engineering and project related salaries and wages in comparison to the second quarter of 2021. The$0.2 million decrease in operating expenses for the current period versus the comparative is primarily due to cost savings strategies implemented during the period after management review of discretionary items in general and administrative expenses, investor relations and professional fees. Furthermore, during the second quarter of 2022, in an effort to preserve cash, the executive team received stock-based compensation in lieu of salaries, further contributing to the reduction in operating expenses versus the comparative period. For the first quarter of 2022, we reported a comprehensive loss of$5.0 million , which consisted of$3.1 million in operating expenses and$1.9 million for Trilogy's 50% share of Ambler Metals' operating loss. In the first quarter of 2021, we reported a comprehensive loss of$4.5 million which consisted of$3.4 million in operating expenses and$1.1 million for Trilogy's share of Ambler Metals' operating loss. When compared to the first quarter of 2021, our pro rata share of the joint venture's operating loss was$0.8 million higher for the first quarter of 2022 as it included pre-development costs incurred by Ambler Metals for theAmbler Access Project . The$0.3 million decrease in operating expenses for the first quarter of 2022 versus the comparative was primarily due to a decrease of$0.2 million in stock-based compensation during the first quarter of 2022. The remaining$0.1 million in cost reduction was spread over the general and administrative, investor relations, professional fees and salaries cost categories.
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For the fourth quarter of 2021, we reported a comprehensive loss of$6.1 million , which consisted of$1.9 million in operating expense and$4.2 million for Trilogy's share of Ambler Metals' operating loss. In the fourth quarter of 2020, we reported a comprehensive loss of$3.2 million which consisted of$3.1 million in operating expenses and$1.0 million for Trilogy's share of Ambler Metals' operating loss, all offset by$0.9 million in services agreement income charged to Ambler Metals. When compared to the fourth quarter of 2020, our pro rata share of the joint venture's operating loss was$3.2 million higher as the fourth quarter results included project activity costs that Ambler Metals incurred to complete the 2021 drill program as well as pre-development costs for theAmbler Access Project for which there were no fourth quarter 2020 comparatives. When compared to the fourth quarter of 2020, the operating expenses were$1.2 million lower. The decrease was primarily due to a$0.9 million reduction in salaries as Trilogy provided technical services to Ambler Metals per the Services Agreement during the comparative period. In addition, there was$0.1 million in cost savings for professional fees as the comparative included additional legal fees for corporate matters and tax consulting charges. Lastly, stock-based compensation was$0.1 million lower in the fourth quarter of 2021 as the comparative included a RSU grant that vested during the fourth quarter of 2020. For the third quarter of 2021, we reported a comprehensive loss of$7.7 million , which consisted of$1.6 million in operating expenses and$6.1 million for Trilogy's 50% share of Ambler Metals' operating loss. In the third quarter of 2020, we reported a comprehensive loss of$3.2 million which consisted of$2.1 million in operating expenses and$1.1 million for Trilogy's share of Ambler Metals' operating loss. When compared to the third quarter of 2020, our pro rata share of the joint venture's operating loss was$5 million higher. The increase was due to the project drilling costs incurred in the 2021 field season. Ambler Metals did not incur these costs during the third quarter of 2020 due to the cancellation of the 2020 field season because of the COVID-19 pandemic. The$0.5 million decrease in operating expenses for the third quarter versus the comparative was primarily due to a decrease of$0.7 million in stock-based compensation, offset by a$0.2 million increase in salaries, as in the third quarter, CEO compensation was salary-based verses stock based in the comparative third quarter of 2020.
Liquidity and capital resources
We expended$2.9 million on operating activities during the six-month period endingMay 31, 2022 with the majority of cash spent on corporate salaries, annual insurance renewal, annual fees paid to theToronto Stock Exchange and the NYSE American Exchange and professional fees related to our annual regulatory filings with the American and Canadian securities commissions. AtMay 31, 2022 , we had$3.5 million in cash and cash equivalents and working capital of$3.4 million . The Company continues to manage its cash expenditures through its working capital. Management continues to review the fiscal 2022 budget for cash preservation opportunities and has reduced cash expenditures where feasible, including but not limited to, reductions in marketing and investor conferences and office expenses. In addition, the Company's Board of Directors have agreed to take all of their fees in shares of the Company in an effort to preserve cash and increase share ownership. The Company's senior management team are also taking a portion of their base salaries in shares of the Company to preserve cash. Management believes that the combination of these cost reduction efforts results in sufficient cash to fund the Company's operations for the next twelve months. All project related costs are funded by the joint venture.Amber Metals is well funded to advance the UKMP with$52.8 million in cash and$53.5 million loan receivable from South32 as atMay 31, 2022 . Subsequent to the quarter end, South32 paid the full balance of the loan, consisting of$53.1 million principal and$0.5 million interest, resulting in Ambler Metals having over$100 million in Cash. There are sufficient funds at the joint venture to fund the updated budgets for the UKMP of$26.2 million and theAmbler Access Project of$15.4 million for fiscal 2022. Trilogy does not anticipate having to fund the activities of Ambler Metals until the current cash balance of approximately$100 million is expended.
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Future cash requirements may vary materially from current expectations. The Company will need to raise additional funds in the future to support its operations and administration expenses. Future sources of liquidity may include equity financing, debt financing, convertible debt, exercise of options, or other means. The continued operations of the Company are dependent on its ability to obtain additional financing or to generate future cash flows.
Off-balance sheet arrangements
We have no material off-balance sheet arrangements.
Outstanding share data
AtJuly 5, 2022 , we had 145,853,395 common shares issued and outstanding. AtJuly 5, 2022 , we had outstanding, 12,187,150 stock options with a weighted-average exercise price ofCDN$2.50 , as well as 1,507,656 DSUs, 257,268 RSUs, and 11,927 NovaGold Resources Inc. ("NovaGold") DSUs for which the holder is entitled to receive one common share for every six NovaGold shares received. Upon exercise of all the foregoing convertible securities, the Company would be required to issue an aggregate of 13,954,061 common shares.
New accounting pronouncements
There are no new accounting pronouncements affecting the Company.
Critical accounting estimates
The most critical accounting estimates upon which our financial status depends are those requiring estimates of the recoverability of our equity method investment in Ambler Metals, income taxes and valuation of stockbased compensation.
Impairment of Investment in
Management assesses the possibility of impairment in the carrying value of its equity method investment in Ambler Metals whenever events or circumstances indicate that the carrying amount of the investment may not be recoverable. Significant judgments are made in assessing the possibility of impairment. Factors that may be indicative of an impairment include a loss in the value of an investment that is not temporary. Management considers several factors in considering if an indicator of impairment has occurred, including but not limited to, sustained losses by the investment, the absence of the ability to recover the carrying amount of the investment, significant changes in the legal, business or regulatory environment, significant adverse changes impacting the investee including the status of the Ambler Access Project and internal reporting indicating the economic performance of an investment is, or will be, worse than expected. These factors are subjective and require consideration at each period end. If an indicator of impairment is determined to exist, the fair value of the impaired investment is determined based on the valuation of cohort companies with similar projects or upon the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and observed market earnings multiples of comparable companies.
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Management calculates the estimated undiscounted future net cash flows relating to the asset or asset group using estimated future prices, proven and probable reserves and other mineral resources, and operating, capital and reclamation costs. When the carrying value of an asset exceeds the related undiscounted cash flows, the asset is written down to its estimated fair value, which is usually determined using discounted future cash flows. Management's estimates of mineral prices, mineral resources, foreign exchange rates, production levels operating, capital and reclamation costs are subject to risk and uncertainties that may affect the determination of the recoverability of the long-lived asset. It is possible that material changes could occur that may adversely affect management's estimates.
Income taxes
We must make estimates and judgments in determining the provision for income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits including interest and penalties. We are subject to income tax law inthe United States andCanada . The evaluation of tax liabilities involving uncertainties in the application of complex tax regulation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues. The evaluation of an uncertain tax position requires significant judgment, and a change in such recognition would result in an additional charge to the income tax expense and liability.
Stock-based compensation
Compensation expense for options granted to employees, directors and certain service providers is determined based on estimated fair values of the options at the time of grant using the Black-Scholes option pricing model, which takes into account, as of the grant date, the fair market value of the shares, expected volatility, expected life, expected forfeiture rate, expected dividend yield and the risk-free interest rate over the expected life of the option. The use of the Black-Scholes option pricing model requires input estimation of the expected life of the option, volatility, and forfeiture rate which can have a significant impact on the valuation model, and resulting expense recorded.
Additional information
Additional information regarding the Company, including our annual report on Form 10-K, is available on SEDAR at www.sedar.com and EDGAR at www.sec.gov and on our website at www.trilogymetals.com. Information contained on our website is not incorporated by reference.
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