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Item 1.01
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Entry into a Material Definitive Agreement.
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As
previously disclosed in the Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”),
on April 10, 2017, Trilogy Metals Inc. (the “Company”) entered into an Option Agreement to Form Joint Venture (the
“Agreement”) with NovaCopper US Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“NovaCopper
US”), and South32 Group Operations Pty Ltd (“South32 Operations”). The Agreement was subsequently assigned by
South32 Operations to South32 USA Exploration Inc., a Delaware corporation (“South32”), as amended (the “Option
Agreement”). The Option Agreement granted to South32 an option (the “Option”) to form a 50/50 joint venture (the
“JV”) with the Company (the “JV Transaction”) with respect to the Company’s Alaskan assets, known
collectively as the Upper Kobuk Mineral Projects (the “UKMP”), which includes the Arctic and Bornite Projects,
the Exploration and Option to Lease Agreement with NANA Regional Corporation, Inc., dated October 19, 2011, as amended, and the
remainder of Trilogy’s state mining claims along the 100km volcanogenic massive sulphide belt (each as described in the Option
Agreement and collectively, the “UKMP Assets”). For a description of the UKMP Assets, please see “Part 1. Item
2 – Properties” in the Company’s Annual Report Form 10-K for the year ended November 30, 2019 (the “2019
10-K”). Please note that all mineral resources and mineral reserve estimates with respect to the Arctic and Bornite Projects
that are disclosed in the 2019 10-K are reported on a 100% basis.
Contribution Agreement and Joint Venture Formation
On December 19, 2019, South32 exercised the Option to form the
JV and on February 11, 2020, the Company and South32 completed the formation of the JV. As contemplated by the Option Agreement,
the Company contributed, assigned and transferred all of its interests in the UKMP Assets to Ambler Metals LLC, a Delaware limited
liability company (the “LLC”), pursuant to a contribution agreement dated February 11, 2020 (the “Contribution
Agreement”) between South32, NovaCopper US and the Company. South32 made a subscription payment of approximately $145 million
to the joint venture. For their respective contribution and subscription, NovaCopper US and South32 each received a 50% interest
in the LLC. The State mining claims and federal patented claims were contributed to the JV pursuant to lease agreements and quitclaim
deeds.
The foregoing summary of the Contribution Agreement and the
transactions contemplated thereby does not purport to be a complete description of all the parties’ rights and obligations
under the Contribution Agreement and is qualified in its entirety by reference to the Contribution Agreement, a copy of which is
filed as Exhibit 2.1 hereto and is incorporated herein by reference.
Limited Liability Company Agreement
In connection with the JV Transaction, on February 11, 2020,
the Company, NovaCopper US and South32 entered into an Amended and Restated Limited Liability Company Agreement of Ambler Metals
LLC (the “LLC Agreement”) which is the primary operating document governing the LLC.
Membership Interests
As contemplated in the Option Agreement, South32 and NovaCopper
US each own an initial 50% percentage interest in the LLC, which interests are governed by the LLC Agreement. Such percentage interests
are subject to, among other requirements, certain transfer restrictions. In addition, prior to a transfer of all or any part of
a member’s membership interest to a third party, each member must first offer such membership interest to the other member,
subject to certain exceptions including transfer to an affiliate of the selling member.
Board and Officers
The members of the LLC have established a board which shall
be responsible for managing the business and affairs of the LLC and shall initially consist of four individuals. Each of South32
and NovaCopper US will be entitled to appoint two representatives to the board. Trilogy (through NovaCopper US) has appointed James
(Jim) Gowans and Kalidas Madhavpeddi to the Ambler Metals Board. South32 has appointed Simon Collins and Pat Risner to the Ambler
Metals Board.
Jim
Gowans: Mr. Gowans is currently Interim President and Chief Executive Officer and a director of Trilogy. Mr. Gowans
has experience in Alaska, having worked for Cominco Limited where he oversaw the completion of a feasibility study and the subsequent
design and construction of the Red Dog Mine. Mr. Gowans then operated the Red Dog Mine for three years following its commissioning.
Kalidas
Madhavpeddi: Mr. Madhavpeddi is a director of Trilogy and has an extensive career in the mining industry spanning over
30 years including Chief Executive Officer of CMOC International and previously Senior Vice President of Phelps Dodge Corp. (now
Freeport McMoran).
Simon
Collins: Mr. Collins is the Chief Development Officer of South32 based in Vancouver. Prior to this role, Mr. Collins
was Head of Corporate Development of South32. He brings over 25 years’ experience in the resources industry, working in senior
leadership and business development roles.
Pat
Risner: Mr. Risner is the President of South32’s Hermosa Project located in Southern Arizona. He is an experienced
mining operator, having worked in technical, planning and operational roles in both the United States and Australia.
The
board will establish an advisory technical committee and may establish other committees as the board deems it advisable. Decisions
of the board will generally be determined by a majority vote, with the voting representative of each member having voting power
in proportion to such member’s percentage interest in the LLC. However, pursuant to the LLC Agreement, certain actions require
60% board approval, including material tax elections, the institution of litigation or arbitration where the amount in controversy
exceeds $5 million, and cash distributions. Unanimous board approval is required to amend the LLC Agreement; liquidate, merge,
spin-off or consolidate the LLC; incur debt out of the ordinary course of business; incur any encumbrance in or over the LLC’s
assets; file for bankruptcy; sell all or substantially all of the LLC’s assets; conduct activities outside the purposes for
which the LLC was formed; approve material tax changes; dissolve the LLC; surrender or abandon the LLC’s property; enter
into a mineral stream agreement or similar agreement or transfer 10% or less of all membership interests.
The board shall appoint a President, who shall have responsibility
for general management of the day-to-day business and affairs of the LLC, and a Vice President Finance and a Vice President Operations.
Darryl Steane, South32’s Business Development Manager will take on the duties as Interim President; Elaine Sanders, Trilogy’s
Chief Financial Officer will take on the duties as Interim Vice President Finance; and Robert (Bob) Jacko, Trilogy’s Senior
Vice President Operations will take on duties as Interim Vice President Operations.
The technical team of Trilogy, who have been operating the UKMP
in northwest Alaska, will be transitioning to Ambler Metals.
Projects
The mutual objective of the members pursuant to the LLC Agreement
is to progress the Arctic and Bornite Projects through the various project phases in order to develop one or more mining operations
within the specified initial project area. To that end, the LLC Agreement sets out the various requirements for the advancement
and development of the projects, including the project phases, the initial program and budget and the procedures for proposing
and approving updated programs and budgets.
Monthly Statements, Cash Calls and Penalties
The President or Vice President Finance will prepare and submit
monthly statements of account to the board. Once the full amount of the subscription payment is expended and in accordance with
the then-adopted program and budget, the President will submit to each member at least 30 days prior to each calendar quarter a
billing for the estimated cash requirements for the next calendar quarter. A member’s failure to contribute the required
cash will result in a default under the LLC Agreement and defaulting member’s percentage interest may be reduced in favor
of the non-defaulting member in accordance with the LLC Agreement.
The foregoing summary of the LLC Agreement and the transactions
contemplated thereby does not purport to be a complete description of all the parties’ rights and obligations under the LLC
Agreement and is qualified in its entirety by reference to the LLC Agreement, a copy of which is filed as Exhibit 10.1 hereto
and is incorporated herein by reference.
Loan to South32
It is anticipated that the LLC will retain US$87.5 million of
the US$145 million subscription payment from South32 to fund its activities and exploration programs with the balance of US$57.5
million loaned back to South32. The loan is anticipated to have a 7 year maturity date but the LLC can demand earlier repayment
in installments, on notice by the LLC as required to advance development studies, resource drilling and regional exploration programs.
The loan is anticipated to be secured by South32’s membership interest in the LLC and guaranteed by South32 International
Investment Holdings Pty Ltd.
Cautionary Note Regarding Forward-Looking Statements
This Form 8-K includes certain "forward-looking information”
and "forward-looking statements” (collectively "forward-looking statements”) within the meaning of applicable
Canadian and United States securities legislation including the United States Private Securities Litigation Reform Act of 1995.
All statements, other than statements of historical fact, included herein, including, without limitation, the use of proceeds from
South32’s subscription payment and the information about the loan to South32 are forward-looking statements. Forward-looking
statements involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate, and
actual results and future events could differ materially from those anticipated in such statements. Important factors that could
cause actual results to differ materially from the Company's expectations include the uncertainties involving the startup of Ambler
Metals’ success of exploration, and other risks and uncertainties disclosed in the Company’s Annual Report on Form
10-K for the year ended November 30, 2019 filed with Canadian securities regulatory authorities and with the United States Securities
and Exchange Commission and in other Company reports and documents filed with applicable securities regulatory authorities from
time to time. The Company's forward-looking statements reflect the beliefs, opinions and projections on the date the statements
are made. The Company assumes no obligation to update the forward-looking statements or beliefs, opinions, projections, or other
factors, should they change, except as required by law.