Washington bought into Ambler. The payoff depends on the road being built

The most lucrative piece of the U.S. government's pending stake in the Ambler mining district cannot be cashed until an unbuilt road is finished or the company is sold, under terms Trilogy Metals disclosed this week.

Trilogy signed final agreements with the U.S. Department of War on Aug. 28 and filed them with securities regulators. The company called the signing the last major step before closing, which it expects this month.

The government would be buying into the Upper Kobuk Mineral Projects in northwestern Alaska, a copper and zinc prospect held by Ambler Metals, a 50-50 joint venture between Trilogy and Australia's South32. The Ambler Access Project, a proposed 211-mile industrial-use-only road closed to the general public, would run west from the Dalton Highway across the southern Brooks Range. It has not been built. AIDEA, the state authority behind it, says mining companies would pay for it. Denakkanaaga and the Tanana Chiefs Conference opposed it in 2018 as harmful to Native subsistence ways and lands.

The money

About $35.6 million, in two halves, if the deal closes.

The department would pay roughly $17.8 million to Trilogy for 8,215,570 units at $2.17 apiece, each unit one share plus three-quarters of a warrant. It would pay another $17.8 million to South32 for the same number of Trilogy shares South32 already owns, plus an option on 6,161,678 more shares at a penny each. Trilogy is not part of the South32 side of the deal.

Both companies say the money goes back into Ambler Metals. On closing, the government would hold about 10 percent of Trilogy.

Each warrant buys a Trilogy share for a penny. Neither the warrants nor the South32 option can be exercised until the earlier of two events: completion of Phase 1 of the Ambler road, or a change of control. The common shares carry no such condition.

A cooperation agreement signed the same day commits the parties to discuss a framework "to set the basis on which the Ambler Access Project can be permitted, financed and constructed." It also commits the department to work in good faith to help facilitate construction financing in coordination with the State of Alaska.

A seat at the table

If the deal closes, the department would gain oversight rights. It would hold one independent director seat on Trilogy's board through October 2028. While it holds at least 8 million shares, it would also get a non-voting observer at Trilogy board meetings and at meetings of Ambler Metals' governing body. At a lower share threshold, Ambler Metals must supply quarterly and annual financials, allow office visits and open its books. Trilogy agreed not to take on more than $1 billion in debt without the department's written approval, until 2029 or a change of control.

Much of the agreement reads as a national security document. Ambler Metals has 60 days to form a compliance committee and 90 days to build a security plan for sensitive technology and technical data, subject to the department's approval and annual review. The companies have five business days to report certain new investments by foreign persons or by American entities under foreign control.

If a restricted entity reaches 5 percent ownership of Trilogy or South32, or gains a board seat or material commercial rights with Ambler Metals, the department gets notice. Ambler Metals' organizational documents must then be revised to bar specified investments by restricted persons and to bar transfers of its material assets or products to restricted entities. If restricted entities together reach 10 percent, the department may install a special representative with veto power over certain decisions and the tie-breaking vote in deadlocks, "in each case exercised solely for U.S. national security reasons."

Trilogy, a British Columbia company, agreed that U.S. federal law governs the investment agreement and that disputes go to federal court in Manhattan.

What the filings don't settle

The deal has not closed. It still needs the South32 sale completed, closing documents executed and stock exchange approval. Trilogy's filing summarizes the agreements rather than publishing them in full, so the definition of a restricted entity, what counts as completing the road and the exceptions to each covenant are known only as Trilogy describes them. None of the documents addresses the road's permitting status or commits any agency to approve it.

One oddity sits in the record. Trilogy names the buyer as the Department of War. South32's filing, submitted Sept. 1 and describing the same agreement on the same date, calls the buyer the Department of Defense.

Alaska News reported Aug. 4 that the federal stake had not closed. The terms are now public. Whether the penny-priced warrants and the call option ever pay off depends on Phase 1 of the road, or on a sale of the company.