UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 or 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November 2017
Commission File No. 001-32500
TANZANIAN ROYALTY EXPLORATION CORPORATION
(Translation of registrant’s name into English)
82 Richmond Street East, Suite 200, Toronto, Ontario M5C 1P1 Canada
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under the cover Form 20-F or Form 40-F
Form 20-F x Form 40-F o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
Documents included as part of this Report:
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TANZANIAN ROYALTY EXPLORATION CORPORATION | |
(Registrant) |
By: | /s/ James Sinclair | |
James E. Sinclair | ||
President and Director |
Date: | November 29, 2017 |
Exhibit 99.1
Tanzanian Royalty Exploration Corporation
Consolidated Financial Statements
For the years ended
August 31, 2017 and 2016
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Tanzanian Royalty Exploration Corporation were prepared by management in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board. Management acknowledges responsibility for the preparation and presentation of the consolidated financial statements, including responsibility for significant accounting judgments and estimates and the choice of accounting principles and methods that are appropriate to the Company’s circumstances. The significant accounting policies of the Company are summarized in Note 3 to the consolidated financial statements.
Management has established processes, which are in place to provide them with sufficient knowledge to support management representations that they have exercised reasonable diligence that (i) the consolidated financial statements do not contain any untrue statement of material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it is made, as of the date of and for the year presented by the consolidated financial statements and (ii) the consolidated financial statements fairly present in all material respects the financial condition and results of operations of the Company, as of the date of and for the year presented by the consolidated financial statements.
The Board of Directors is responsible for ensuring that management fulfills its financial reporting responsibilities and for reviewing and approving the consolidated financial statements together with other financial information. An Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the internal controls over the financial reporting process. The Audit Committee meets with management as well as with the independent auditors to review the consolidated financial statements and the auditors' report. The Audit Committee also reviews the Annual Report to ensure that the financial information reported therein is consistent with the information presented in the consolidated financial statements. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the consolidated financial statements together with other financial information of the Company for issuance to the shareholders.
Management recognizes its responsibility for conducting the Company’s affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.
“Jeffrey R. Duval” | “Marco Guidi” | |
Jeffrey R. Duval | Marco Guidi | |
Acting Chief Executive Officer | Chief Financial Officer |
2
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Tanzanian Royalty Exploration Corporation:
We have audited the accompanying consolidated financial statements of Tanzanian Royalty Exploration Corporation, which comprise the consolidated statements of financial position as at August 31, 2017 and 2016, and the consolidated statements of comprehensive loss, changes in equity, and cash flow for the years then ended, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Tanzanian Royalty Exploration Corporation as at August 31, 2017 and 2016, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements which describes certain conditions that indicate the existence of a material uncertainty that casts substantial doubt about Tanzanian Royalty Exploration Corporation's ability to continue as a going concern.
/s/ DMCL LLP
DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED PROFESSIONAL ACCOUNTANTS
Vancouver, Canada
November 27, 2017
3
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of August 31, 2017. In making this assessment, the Company’s management used the criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO 2013”). The Company’s management has completed their review and testing of the Company’s internal control over financial reporting and concluded that they are appropriately designed and operating effectively as of August 31, 2017.
4
Tanzanian Royalty Exploration
Corporation Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
As at | August 31, 2017 | August 31, 2016 | ||||||
Assets | ||||||||
Current Assets | ||||||||
Cash (Note 16) | $ | 1,011,293 | $ | 84,913 | ||||
Other receivables (Note 12) | 329,008 | 254,389 | ||||||
Inventory (Note 15) | 507,489 | 539,608 | ||||||
Prepaid and other assets (Note 13) | 74,298 | 153,409 | ||||||
1,922,088 | 1,032,319 | |||||||
Property, plant and equipment (Note 5) | 2,510,697 | 3,050,368 | ||||||
Mineral properties and deferred exploration (Note 4) | 46,920,303 | 45,802,858 | ||||||
$ | 51,353,088 | $ | 49,885,545 | |||||
Liabilities | ||||||||
Current Liabilities | ||||||||
Trade, other payables and accrued liabilities (Note 14) | $ | 5,216,703 | $ | 4,827,508 | ||||
Due to related parties (Note 9) | - | 86,000 | ||||||
Leases payable (Note 5) | 56,631 | 370,103 | ||||||
Convertible loan (Note 23) | 865,656 | 245,497 | ||||||
Derivative in convertible loan (Note 23) | - | 108,000 | ||||||
Gold bullion loans (Note 21) | 2,335,474 | 2,180,425 | ||||||
Derivative in gold bullion loans (Note 21) | - | 5,051,000 | ||||||
8,474,464 | 12,868,533 | |||||||
Warrant liability (Note 6) | 4,850,000 | 215,000 | ||||||
Gold bullion loans (Note 21) | 1,059,524 | 941,406 | ||||||
Asset Retirement Obligation (Note 19) | 715,057 | 704,123 | ||||||
15,099,045 | 14,729,062 | |||||||
Shareholders’ equity | ||||||||
Share capital (Note 6) | 125,174,377 | 122,380,723 | ||||||
Share based payment reserve (Note 8) | 7,674,233 | 1,066,863 | ||||||
Warrants reserve (Note 7) | 1,248,037 | 941,037 | ||||||
Accumulated other comprehensive loss | (2,176,352 | ) | - | |||||
Accumulated deficit | (96,566,577 | ) | (90,600,819 | ) | ||||
Equity attributable to owners of the Company | 35,353,718 | 33,787,804 | ||||||
Non-controlling interests (Note 20, 4(a)) | 900,325 | 1,368,679 | ||||||
Total shareholders’ equity | 36,254,043 | 35,156,483 | ||||||
$ | 51,353,088 | $ | 49,885,545 |
Nature of operations and Going Concern (Note 1)
Segmented information (Note 17)
Commitments (Notes 4 and 18)
Events subsequent to the reporting period (Note 25)
The accompanying notes are an integral part of these consolidated financial statements
5
Tanzanian Royalty Exploration Corporation
Consolidated Statements of Comprehensive Loss
(Expressed in Canadian Dollars)
Year ended August 31, | 2017 | 2016 | ||||||
Administrative expenses | ||||||||
Depreciation (Note 5) | $ | 421,983 | $ | 478,699 | ||||
Consulting (Note 9) | 805,943 | 432,316 | ||||||
Directors’ fees (Note 9) | 186,826 | 285,188 | ||||||
Office and general | 197,457 | 246,938 | ||||||
Shareholder information | 476,285 | 249,645 | ||||||
Professional fees (Note 9) | 754,738 | 387,177 | ||||||
Salaries and benefits (Note 6) | 458,700 | 623,716 | ||||||
Share based payments (Note 6) | 1,772,663 | (38,996 | ) | |||||
Travel and accommodation | 31,267 | 61,681 | ||||||
(5,105,862 | ) | (2,726,364 | ) | |||||
Other income (expenses) | ||||||||
Foreign exchange gain | 161,593 | 111,352 | ||||||
Interest, net | (22,528 | ) | (26,054 | ) | ||||
Interest accretion (Note 21 and 23) | (725,696 | ) | (1,028,568 | ) | ||||
Accretion on asset retirement obligation (Note 19) | (10,934 | ) | (24,123 | ) | ||||
Finance costs (Note 22) | (347,418 | ) | (262,213 | ) | ||||
Exploration costs | (53,194 | ) | (197,683 | ) | ||||
Change in value of derivative liability (Notes 21 and 23) | - | (3,905,000 | ) | |||||
Interest on leases (Note 5) | (24,362 | ) | (76,847 | ) | ||||
Gain on disposal of property, plant and equipment | 2,030 | 34,476 | ||||||
Loss on shares issued for settlement of debt (Note 9 and 21) | (141,108 | ) | (172,467 | ) | ||||
Change in value of warrant liability (Note 6) | - | (946,600 | ) | |||||
Write off of mineral properties and deferred exploration costs (Note 4) | (124,717 | ) | (3,516,268 | ) | ||||
Withholding tax costs | (41,916 | ) | (45,543 | ) | ||||
Net loss | $ | (6,434,112 | ) | $ | (12,781,902 | ) | ||
Other comprehensive loss | ||||||||
Foreign currency translation | (2,176,352 | ) | - | |||||
Comprehensive loss | $ | (8,610,464 | ) | $ | (12,781,902 | ) | ||
Loss attributable to: | ||||||||
Parent | (5,965,758 | ) | (12,629,864 | ) | ||||
Non-controlling interests | (468,354 | ) | (152,038 | ) | ||||
$ | (6,434,112 | ) | $ | (12,781,902 | ) | |||
Comprehensive loss attributable to: | ||||||||
Parent | (7,983,689 | ) | (12,629,864 | ) | ||||
Non-controlling interests | (626,775 | ) | - | |||||
$ | (8,610,464 | ) | $ | (12,781,902 | ) | |||
Loss per share – basic and diluted attributable to Parent | $ | (0.05 | ) | $ | (0.12 | ) | ||
Weighted average # of shares outstanding – basic and diluted | 117,699,647 | 108,200,190 |
The accompanying notes are an integral part of these consolidated financial statements
6
Tanzanian Royalty Exploration Corporation
Consolidated Statements of Changes in Equity
(Expressed in Canadian Dollars)
Share Capital | Reserves | |||||||||||||||||||||||||||||||||||
Number of Shares | Amount | Share based payments | Warrants | Accumulated other comprehensive income | Accumulated deficit | Owner's equity | Non-controlling interests | Total equity | ||||||||||||||||||||||||||||
Balance at September 1, 2015 | 107,853,554 | $ | 120,532,634 | $ | 1,048,757 | $ | 941,037 | $ | - | $ | (77,970,955 | ) | $ | 44,551,473 | $ | 1,520,717 | $ | 46,072,190 | ||||||||||||||||||
Issued pursuant to Restricted Share Unit ("RSU") Plan (Note 6) | 50,000 | 120,500 | (120,500 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||
Shares issued for interest on gold loans (Note 21) | 536,137 | 372,130 | - | - | - | - | 372,130 | - | 372,130 | |||||||||||||||||||||||||||
Shares issued as financing fee for gold loan facility (Note 21) | 320,543 | 477,609 | - | - | - | - | 477,609 | - | 477,609 | |||||||||||||||||||||||||||
Shares issued for services | 75,000 | 26,250 | - | - | - | - | 26,250 | - | 26,250 | |||||||||||||||||||||||||||
Exercise of warrants | 233,258 | 851,600 | - | - | - | - | 851,600 | - | 851,600 | |||||||||||||||||||||||||||
Share based compensation | - | 471,799 | - | - | - | 471,799 | - | 471,799 | ||||||||||||||||||||||||||||
RSU shares forfeited (Note 6) | - | (333,193 | ) | - | - | - | (333,193 | ) | - | (333,193 | ) | |||||||||||||||||||||||||
Total comprehensive loss for the year | - | - | - | - | (12,629,864 | ) | (12,629,864 | ) | (152,038 | ) | (12,781,902 | ) | ||||||||||||||||||||||||
Balance at August 31, 2016 | 109,068,492 | $ | 122,380,723 | $ | 1,066,863 | $ | 941,037 | $ | - | $ | (90,600,819 | ) | $ | 33,787,804 | $ | 1,368,679 | $ | 35,156,483 | ||||||||||||||||||
Issued for private placement, net of issuance costs | 7,197,543 | 5,589,501 | - | - | - | - | 5,589,501 | - | 5,589,501 | |||||||||||||||||||||||||||
Warrants issued on private placement | (6,592,000 | ) | - | - | - | - | (6,592,000 | ) | - | (6,592,000 | ) | |||||||||||||||||||||||||
Agent warrants issued on private placement | (92,000 | ) | - | 92,000 | - | - | - | - | - | |||||||||||||||||||||||||||
Issued pursuant to Restricted Share Unit ("RSU") Plan (Note 6) | 695,991 | 1,040,990 | (1,040,990 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||
Shares issued for interest on gold loans (Note 21) | 814,089 | 542,447 | - | - | - | - | 542,447 | - | 542,447 | |||||||||||||||||||||||||||
Issued for settlement of leases (Note 5) | 458,329 | 288,747 | - | - | - | - | 288,747 | - | 288,747 | |||||||||||||||||||||||||||
Issued for settlement of amounts due to related parties (Note 9) | 187,321 | 131,998 | - | - | - | - | 131,998 | - | 131,998 | |||||||||||||||||||||||||||
Issued for settlement of convertible loans (Note 23) | 83,333 | 49,166 | - | - | - | - | 49,166 | - | 49,166 | |||||||||||||||||||||||||||
Shares issued as financing fee for convertible loans (Note 23) | 132,577 | 92,805 | - | - | - | - | 92,805 | - | 92,805 | |||||||||||||||||||||||||||
Exercise of warrants | 3,146,944 | 1,742,000 | - | - | - | - | 1,742,000 | - | 1,742,000 | |||||||||||||||||||||||||||
Conversion component of convertible loans (Note 23) | - | 625,000 | - | - | - | 625,000 | - | 625,000 | ||||||||||||||||||||||||||||
Reversal of warrant liability upon change of functional currency to USD | - | - | 215,000 | - | - | 215,000 | - | 215,000 | ||||||||||||||||||||||||||||
Reversal of derivative in gold bullion loans upon change of functional currency to USD | - | 5,051,000 | - | - | - | 5,051,000 | - | 5,051,000 | ||||||||||||||||||||||||||||
Reversal of derivative in gold convertible loans upon change of functional currency to USD | - | 108,000 | - | - | - | 108,000 | - | 108,000 | ||||||||||||||||||||||||||||
Share based compensation - RSU | - | 262,931 | - | - | - | 262,931 | - | 262,931 | ||||||||||||||||||||||||||||
Share based compensation - Stock options | - | 1,725,000 | - | - | - | 1,725,000 | - | 1,725,000 | ||||||||||||||||||||||||||||
RSU shares forfeited (Note 6) | - | (123,571 | ) | - | - | - | (123,571 | ) | - | (123,571 | ) | |||||||||||||||||||||||||
Exchange on translation of foreign subsidiaries | - | - | - | (2,176,352 | ) | - | (2,176,352 | ) | - | (2,176,352 | ) | |||||||||||||||||||||||||
Total comprehensive loss for the year | - | - | - | - | (5,965,758 | ) | (5,965,758 | ) | (468,354 | ) | (6,434,112 | ) | ||||||||||||||||||||||||
Balance at August 31, 2017 | 121,784,619 | $ | 125,174,377 | $ | 7,674,233 | $ | 1,248,037 | $ | (2,176,352 | ) | $ | (96,566,577 | ) | $ | 35,353,718 | $ | 900,325 | $ | 36,254,043 |
The accompanying notes are an integral part of these consolidated financial statements
7
Tanzanian Royalty Exploration Corporation
Consolidated Statements of Cash Flow
(Expressed in Canadian Dollars)
Year ended August 31, | 2017 | 2016 | ||||||
Operating | ||||||||
Net loss | $ | (6,434,112 | ) | $ | (12,781,902 | ) | ||
Adjustments to reconcile net loss to cash flow from operating activities: | ||||||||
Depreciation | 421,984 | 478,699 | ||||||
Change in value of warrant liability | - | 946,600 | ||||||
Change in value of derivative liability | - | 3,905,000 | ||||||
Write-off of mineral properties and deferred exploration costs | 124,717 | 3,516,268 | ||||||
Share based payments | 1,772,663 | (38,996 | ) | |||||
Accretion on asset retirement obligation | 10,934 | 24,123 | ||||||
Interest accretion | 725,696 | 1,036,303 | ||||||
Foreign exchange | (384,216 | ) | 7,906 | |||||
Shares issued for payment of interest on bullion loans | 429,426 | 174,076 | ||||||
Loss on shares issued for settlement of debt | 141,108 | 172,467 | ||||||
Gain on sale of property, plant and equipment | (2,030 | ) | (34,476 | ) | ||||
Shares issued for services | - | 26,250 | ||||||
Cash interest paid | - | (50,926 | ) | |||||
Non cash directors’ fees | 75,200 | 157,813 | ||||||
Net change in non-cash operating working capital items: | ||||||||
Other receivables | (74,619 | ) | (38,217 | ) | ||||
Inventory | 32,119 | (52,033 | ) | |||||
Prepaid expenses | 79,111 | (72,566 | ) | |||||
Trade, other payables and accrued liabilities | (1,201,470 | ) | 709,116 | |||||
Cash used in operations | (4,283,489 | ) | (1,914,495 | ) | ||||
Investing | ||||||||
Mineral properties and exploration expenditures, net of recoveries | (1,568,614 | ) | (688,296 | ) | ||||
Property, plant and equipment, net of proceeds from sale | 13,803 | (88,339 | ) | |||||
Cash used in investing activities | (1,554,811 | ) | (776,635 | ) | ||||
Financing | ||||||||
Loans (repayment) of loans from related parties | (32,686 | ) | 133,632 | |||||
Interest on leases | 25,872 | - | ||||||
Repayment of leases | - | (75,530 | ) | |||||
Proceeds from gold bullion loan | - | 1,729,000 | ||||||
Proceeds from convertible loan | 1,181,993 | 221,115 | ||||||
Cash provided by financing activities | 6,764,680 | 2,008,217 | ||||||
Net increase (decrease) in cash and cash equivalents | 926,380 | (682,913 | ) | |||||
Cash and cash equivalents, beginning of year | 84,913 | 767,826 | ||||||
Cash and cash equivalents, end of year | $ | 1,011,293 | $ | 84,913 |
The accompanying notes are an integral part of these consolidated financial statements
8
Tanzanian Royalty Exploration Corporation
Consolidated Statements of Cash Flow
(Expressed in Canadian Dollars)
Supplementary information: | 2017 | 2016 | ||||||
Non-cash transactions: | ||||||||
Share based payments capitalized to mineral properties | $ | 16,497 | $ | 18,733 | ||||
Shares issued pursuant to RSU plan | 1,040,990 | 120,500 | ||||||
Shares issued for interest on gold loans | 542,447 | 372,130 | ||||||
Exercise of warrants – cashless exercise | 1,742,000 | 851,600 | ||||||
Shares issued for finders’ fee on gold bullion loan | - | 477,609 | ||||||
Shares issued as financing fee for convertible loans | 92,805 | - |
The accompanying notes are an integral part of these consolidated financial statements
9
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
1. | Nature of Operations and Going Concern |
The Company was originally incorporated under the corporate name “424547 Alberta Ltd.” in the Province of Alberta on July 5, 1990, under the Business Corporations Act (Alberta). The name was changed to “Tan Range Exploration Corporation” on August 13, 1991. The name of the Company was again changed to “Tanzanian Royalty Exploration Corporation” (“TREC” or the “Company”) on February 28, 2006. The address of the Company’s registered office is 22 Adelaide Street West, Suite 3400, Toronto, Ontario M5H 4E3 Canada. The Company’s principal business activity is in the exploration and development of mineral property interests. The Company’s mineral properties are located in United Republic of Tanzania (“Tanzania”).
The Company is in the process of exploring and evaluating its mineral properties. The business of exploring and mining for minerals involves a high degree of risk. The underlying value of the mineral properties is dependent upon the existence and economic recovery of mineral resources and reserves, the ability to raise long-term financing to complete the development of the properties, government policies and regulations, and upon future profitable production or, alternatively, upon the Company’s ability to dispose of its interest on an advantageous basis; all of which are uncertain.
The amounts shown as mineral properties and deferred expenditures represent costs incurred to date, less amounts amortized and/or written off, and do not necessarily represent present or future values. The underlying value of the mineral properties is entirely dependent on the existence of economically recoverable reserves, securing and maintaining title and beneficial interest, the ability of the Company to obtain the necessary financing to complete development, and future profitable production.
At August 31, 2017 the Company had a working capital deficiency of $6,552,376 (August 31, 2016 – $11,836,214 working capital deficiency), had not yet achieved profitable operations, has accumulated losses of $96,566,577 (August 31, 2016 – $90,600,819) and expects to incur further losses in the development of its business. The Company will require additional financing in order to conduct its planned work programs on mineral properties, meet its ongoing levels of corporate overhead and discharge its future liabilities as they come due.
The Company’s current funding sources and taking into account the working capital position and capital requirements at August 31, 2017, indicate the existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern and is dependent on the Company raising additional debt or equity financing. The Company must obtain additional funding in order to continue development and construction of the Buckreef Project. The Company is continuing to pursue additional financing to fund the construction of the Buckreef Project and additional projects. Whilst the Company has been successful in obtaining financing in the past, there is no assurance that such additional funding and/or project financing will be obtained or obtained on commercially favourable terms.
These consolidated financial statements do not give effect to any adjustment which would be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the consolidated financial statements.
10
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
2. | Basis of Preparation |
2.1 Statement of compliance
The Company’s consolidated financial statements, including comparatives, have been prepared in accordance with and using accounting policies in full compliance with the International Financial Reporting Standards (“IFRS”) and International Accounting Standards (“IAS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”), effective for the Company’s reporting for the year ended August 31, 2017.
These consolidated financial statements were approved and authorized by the Board of Directors of the Company on November 27, 2017.
2.2 Basis of presentation
The consolidated financial statements of the Company as at and for the years ended August 31, 2017 and 2016 comprise of the Company and its subsidiaries (together referred to as the “Company” or “Group”).
The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair value, as explained in the accounting policies set out in note 3.
2.3 | Adoption of new and revised standards and interpretations |
New standards and interpretations adopted
The Company applies, for the first time, certain standards and amendments that require restatement of previous financial statements. These include IAS 1 Presentation of Financial Statements, IAS 16 Property Plant and Equipment, IAS 38 Intangible Assets and IFRS 11 Joint Arrangements. The nature and effect of these changes are disclosed below.
Several other new standards and amendments apply for the first time in 2016. However, they
did not impact the consolidated financial statements of the Company.
The nature and impact of each new standard/amendment is described below:
• | In December 2014, the IASB issued amendments to IAS 1 – Presentation of Financial Statements (“IAS 1”) to improve the effectiveness of presentation and disclosure in financial reports with the objective of reducing immaterial note disclosure. The amendments are effective for annual periods beginning on or after January 1, 2016 with early adoption permitted. The adoption of the standard has not had an impact on the Company’s financial statements. |
• | IAS 16 Property Plant and Equipment and IAS 38 Intangible Assets – The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data on either the gross or net carrying amount. In addition, the accumulated depreciation or amortization is the difference between the gross and carrying amounts of the asset. The policy became effective for annual periods starting after, or on January 1, 2016. The adoption of the standard has not had an impact on the Company’s financial statements. |
11
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
2. | Basis of Preparation (continued) |
2.3 | Adoption of new and revised standards and interpretations (continued) |
New standards and interpretations adopted (continued)
• | Amendments to IFRS 11 Joint Arrangements - The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business must apply the relevant IFRS 3 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not re-measured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. The adoption of the standard has not had an impact on the Company’s financial statements. |
• | IAS 38 - Intangible Assets (“IAS 38”) and IAS 16 – Property, Plant and Equipment (“IAS 16”), were amended in May 2014 to introduce a rebuttable presumption that the use of revenue-based amortization methods is inappropriate. The amendments are effective for annual periods beginning on or after January 1, 2016. The adoption of the standard has not had an impact on the Company’s financial statements. |
New standards and interpretations to be adopted in future
At the date of authorization of these Financial Statements, the IASB and IFRIC has issued the following new and revised Standards and Interpretations which are not yet effective for the relevant reporting periods and which the Company has not early adopted these standards, amendments and interpretations. However, the Company is currently assessing what impact the application of these standards or amendments will have on the consolidated financial statements of the Company.
• IFRS 9 Financial Instruments. IFRS 9 covers the classification and measurement, impairment and hedge accounting of financial assets and financial liabilities and the effective date is for annual periods on or after January 1, 2018, with earlier application permitted. The Company is assessing the impact of adopting IFRS 9 but does not expect it will have a significant impact on its consolidated financial statements. Amendments to IFRS 9 also provide relief from the requirement to restate comparative financial statements for the effect of applying IFRS 9. Instead, additional transition disclosures will be required to help investors understand the effect that the initial application of IFRS 9 has on the classification and measurement of financial instruments.
• | IFRS 15 Revenue from Contracts with Customers. In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. IFRS 15 specifies how and when to recognize revenue as well as requires entities to provide users of financial statements with more informative, relevant disclosures. The standard supersedes IAS 18, Revenue, IAS 11, Construction Contracts, and a number of revenue-related interpretations. Application of the standard is mandatory for all IFRS reporters and it applies to nearly all contracts with customers: the main exceptions are leases, financial instruments and insurance contracts. IFRS 15 must be applied in an entity’s first annual IFRS financial statements for periods beginning on or after January 1, 2018. Application of the standard is mandatory and early adoption is permitted. The Company has not yet determined the impact of the amendments on the Company’s financial statements. |
12
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
2. | Basis of Preparation (continued) |
2.4 | Adoption of new and revised standards and interpretations (continued) |
New standards and interpretations to be adopted in future (continued)
• | IFRS 16 - In 2016, the IASB issued IFRS 16, Leases (“IFRS 16”), replacing IAS 17, Leases and related interpretations. The standard introduces a single on-balance sheet recognition and measurement model for lessees, eliminating the distinction between operating and finance leases. Lessors continue to classify leases as finance and operating leases. IFRS 16 becomes effective for annual periods beginning on or after January 1, 2019, and is to be applied retrospectively. Early adoption is permitted if IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) has been adopted. The Company is assessing the impact of the amendments on the Company’s financial statements, but does not anticipate that the impact will be significant. |
2.5 | Change in functional currency |
The functional currency of the Company and each of its subsidiaries is the U.S. dollar. The consolidated financial statements are presented in Canadian Dollars which is the Company’s presentation currency.
The Company changed its functional currency from the Canadian dollar (“CAD”) to the U.S. dollar (“USD”) as of September 1, 2016. The change in functional currency coincides with the September 1, 2016 closing of the first tranche of the USD unit private placement as described in note 6. Considering the Company’s business activities, which have changed over the years to being comprised primarily of USD expenditures as well as the Company now receiving most of its financing through USD denominated financings, management determined that the functional currency of the Company changed to the USD.
As a result, translation adjustments for prior periods were not removed from equity and the translated amounts for nonmonetary assets at the end of the prior period become the accounting basis for those assets in the period of the change and subsequent periods. These changes have been accounted for prospectively.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of comprehensive loss.
The operation’s assets and liabilities are translated to the presentation currency at the closing rate as at the date of the consolidated statements of financial position, and revenue and expenses are translated using the rate as at the time of the transaction. All exchange differences resulting from the translation are recognized in other comprehensive income.
13
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
3. | Summary of Significant Accounting Policies |
3.1 Basis of consolidation
The consolidated financial statements include the financial statements of the Company and its controlled subsidiaries: Tanzania American International Development Corporation 2000 Limited (“Tanzam”), Tancan Mining Co. Limited (“Tancan”), Buckreef Gold Company Ltd. (“Buckreef”), and Northwestern Base Metals Company Limited (“NWBM”). Control is achieved when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
Subsidiaries are consolidated from the date of acquisition, being the date on which the Company obtains control, and continued to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.
The consolidated financial statements of the Company set out the assets, liabilities, expenses, and cash flows of the Corporation and its subsidiaries, namely:
Ownership interest as at August 31, | ||||||||||||||
Country of incorporation | 2017 | 2016 | ||||||||||||
Tanzam | Tanzania | 100 | % | 100 | % | |||||||||
Tancan | Tanzania | 100 | % | 100 | % | |||||||||
Buckreef | Tanzania | 55 | % | 55 | % | |||||||||
NWBM | Tanzania | 75 | % | 75 | % |
All inter-company transactions, balances, income and expenses are eliminated in full on consolidation.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Company’s equity therein. Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if it results in a negative balance.
3.2 Mineral properties
All direct costs related to the acquisition and exploration and development of specific properties are capitalized as incurred. If a property is brought into commercial production, these costs will be amortized against the income generated from the property. If a property is abandoned, sold or impaired, an appropriate charge will be made to the statement of comprehensive loss at the date of such impairment. Discretionary option payments arising on the acquisition of mining properties are only recognized when paid. Amounts received from other parties to earn an interest in the Company's mining properties are applied as a reduction of the mining property and deferred exploration and development costs until all capitalized costs are recovered at which time additional reimbursements are recorded in the statement of comprehensive loss, except for administrative reimbursements which are credited to operations.
Consequential revenue from the sale of metals, extracted during the Company's test mining activities, is recognized on the date the mineral concentrate level is agreed upon by the Company and customer, as this coincides with the transfer of title, the risk of ownership, the determination of the amount due under the terms of settlement contracts the Company has with its customer, and collection is reasonably assured. Revenues from properties earned prior to the commercial production stage are deducted from capitalized costs.
The amounts shown for mining claims and related deferred costs represent costs incurred to date, less amounts expensed or written off, reimbursements and revenue, and do not necessarily reflect present or future values of the particular properties. The recoverability of these costs is dependent upon discovery of economically recoverable reserves and future production or proceeds from the disposition thereof.
14
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
3. | Summary of Significant Accounting Policies (continued) |
The Company reviews the carrying value of a mineral exploration property when events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying value of the property exceeds its fair value, the property will be written down to fair value with the provision charged against operations in the year of impairment. An impairment is also recorded when management determines that it will discontinue exploration or development on a property or when exploration rights or permits expire.
Ownership in mineral properties involves certain risks due to the difficulties in determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history characteristic of many mineral interests. The Company has investigated the ownership of its mineral properties and, to the best of its knowledge, ownership of its interests are in good standing.
Capitalized mineral property exploration costs are those directly attributable costs related to the search for, and evaluation of mineral resources that are incurred after the Company has obtained legal rights to explore a mineral property and before the technical feasibility and commercial viability of a mineral reserve are demonstrable. Any cost incurred prior to obtaining the legal right to explore a mineral property are expensed as incurred. Field overhead costs directly related to exploration are capitalized and allocated to mineral properties explored. All other overhead and administration costs are expensed as incurred.
Once an economically viable reserve has been determined for a property and a decision has been made to proceed with development has been approved, acquisition, exploration and development costs previously capitalized to the mineral property are first tested for impairment and then classified as property, plant and equipment under construction.
3.3 Property, plant and equipment
Property, plant and equipment (“PPE”) are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of PPE consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.
Depreciation is provided at rates calculated to write off the cost of PPE, less their estimated residual value, using the declining balance method over the following expected useful lives:
Assets | Rate | |||
Machinery and equipment | 20% to 30 | % | ||
Automotive | 30 | % | ||
Computer equipment | 30 | % | ||
Drilling equipment and automotive equipment | 6.67 | % | ||
Leasehold improvements | 20 | % | ||
Heap leach pads | 20 | % |
An item of PPE is derecognized upon disposal, when held for sale or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in the consolidated statement of comprehensive loss.
Assets under construction are capitalized as construction-in-progress. The cost of construction-in-progress comprises of its purchase price and any costs directly attributable to bringing it into working condition for its intended use. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. Construction-in-progress assets are not depreciated until it is completed and available for use.
15
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
3. | Summary of Significant Accounting Policies (continued) |
The Company conducts an annual assessment of the residual balances, useful lives and depreciation methods being used for PPE and any changes arising from the assessment are applied by the Company prospectively.
Where an item of plant and equipment comprises major components with different useful lives, the components are accounted for as separate items of plant and equipment. Expenditures incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditures are capitalized.
3.4 Decommissioning, restoration and similar liabilities (“Asset retirement obligation” or “ARO”)
The Company recognizes liabilities for statutory, contractual, constructive or legal obligations, including those associated with the reclamation of mineral properties and PPE, when those obligations result from the acquisition, construction, development or normal operation of the Company’s assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement obligation is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using the declining balance method. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the current market-based discount rate, and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.
3.5 Share based payments
Share based payment transactions
Employees (including directors and senior executives) of the Company receive a portion of their remuneration in the form of share based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).
In situations where equity instruments are issued and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at fair value of the share-based payment.
Equity settled transactions
The costs of equity settled transactions with employees are measured by reference to the fair value at the date on which they are granted.
The costs of equity-settled transactions are recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“the vesting date”). The cumulative expense is recognized for equity-settled transactions at each reporting date until the vesting date reflects the Company’s best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and the corresponding amount is represented in share based payment reserve.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied provided that all other performance and/or service conditions are satisfied.
16
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
3. | Summary of Significant Accounting Policies (continued) |
Where the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.
The effect of outstanding options is considered in the computation of earnings per share, if dilutive.
3.6 Taxation
Income tax expense represents the sum of tax currently payable and deferred tax.
Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the date of the statement of financial position.
Deferred income tax
Deferred income tax is provided using the liability method on temporary differences at the date of the statement of financial position between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, except:
• where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
• in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized except:
• where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
• in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
The carrying amount of deferred income tax assets is reviewed at each date of the statement of financial position and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each date of the statement of financial position and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
17
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
3. | Summary of Significant Accounting Policies (continued) |
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the date of the statement of financial position.
Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the statement of comprehensive loss.
Deferred income tax assets and deferred income tax liabilities are offset if, and only if, a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend to either settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.
Sales tax
Expenses and assets are recognized net of the amount of sales tax, except:
• | When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable; or |
• | When receivables and payables are stated with the amount of sales tax included. |
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.
3.7 Loss per share
The basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The diluted loss per share reflects the potential dilution of common share equivalents, such as outstanding restricted stock units and share purchase warrants, in the weighted average number of common shares outstanding during the year, if dilutive.
3.8 Financial assets
All financial assets are initially recorded at fair value and designated upon inception into one of the following four categories: held-to-maturity, available-for-sale, loans-and-receivables or at fair value through profit or loss (“FVTPL”). The Company initially recognizes loans and receivables on the date they are originated. All other financial assets are recognized on the trade date at which the Company becomes party to the contractual provisions of the instruments.
Subsequent to initial recognition, financial assets classified as FVTPL are measured at fair value with unrealized gains and losses recognized through earnings. The Company’s other financial assets are classified as FVTPL.
Financial assets classified as loans-and-receivables and held-to-maturity are measured at amortized cost. The Company’s cash and cash equivalents and trade and other receivables are classified as loans-and-receivables.
Subsequent to initial recognition, financial assets classified as available-for-sale are measured at fair value with unrealized gains and losses recognized in other comprehensive income (loss) except for losses in value that are considered other than temporary. During the periods presented, the Company has not classified any financial assets as available-for-sale.
18
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
3. | Summary of Significant Accounting Policies (continued) |
Transactions costs associated with FVTPL financial assets are expensed as incurred, while transaction costs associated with all other financial assets are included in the initial carrying amount of the asset.
The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the rights and rewards of ownership of the financial asset are transferred.
3.9 Financial liabilities
All financial liabilities are initially recorded at fair value and designated upon inception as FVTPL or other-financial-liabilities on the trade date at which the Company becomes party to the contractual provisions of the instrument.
Financial liabilities classified as other-financial-liabilities are initially recognized at fair value less directly attributable transaction costs. After initial recognition, other-financial-liabilities are subsequently measured at amortized cost using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. The Company’s trade and other payables and convertible debt are classified as other-financial-liabilities.
Financial liabilities classified as FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as FVTPL. Derivatives, including separated embedded derivatives are also classified as FVTPL unless they are designated as effective hedging instruments. Fair value changes on financial liabilities classified as FVTPL are recognized through the statement of comprehensive loss. At August 31, 2017 and 2016 the Company’s warrant liability and the derivative in gold bullion loans have been classified as FVTPL.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, as they expire.
3.10 Impairment of financial assets
The Company assesses at each date of the statement of financial position whether a financial asset is impaired.
Assets carried at amortized cost
If there is objective evidence that an impairment loss on assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is then reduced by the amount of the impairment. The amount of the loss is recognized in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed to the extent that the carrying value of the asset does not exceed what the amortized cost would have been had the impairment not been recognized. Any subsequent reversal of an impairment loss is recognized in profit or loss.
19
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
3. | Summary of Significant Accounting Policies (continued) |
In relation to trade receivables, a provision for impairment is made and an impairment loss is recognized in profit and loss when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Company will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are written off against the allowance account when they are assessed as uncollectible.
Available-for-sale
If an available-for-sale asset is impaired, an amount comprising the difference between its cost and its current fair value, less any impairment loss previously recognized in profit or loss, is transferred from equity to profit or loss. Reversals in respect of equity instruments classified as available-for-sale are not recognized in profit or loss.
3.11 Impairment of non-financial assets
At each date of the statement of financial position, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the assets belong.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of comprehensive loss, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years.
3.12 Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand, and short term deposits with an original maturity of three months or less, which are readily convertible into a known amount of cash.
3.13 Related party transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are considered to be related if they are subject to common control or are controlled by parties that have significant influence over the entity. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related party transactions that are in the normal course of business and have commercial substance are measured at the exchange amount, being the amount agreed by the parties to the transaction.
20
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
3. | Summary of Significant Accounting Policies (continued) |
3.14 Foreign currency transactions
Functional and presentation currency
Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The functional currency of the Company and each of its subsidiaries is USD. The consolidated financial statements are presented in Canadian Dollars (“CDN”) which is the Company’s presentation currency.
Transactions and balances
Transactions in foreign currencies are initially recorded by the Company’s subsidiaries at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date.
Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Company’s net investment in a foreign operation. These are recognised in OCI until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in OCI.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss, respectively).
Group companies
On consolidation, the assets and liabilities of foreign operations are translated into CDN at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognized in OCI. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is reclassified to profit or loss.
3.15 Significant accounting judgments and estimates
The preparation of these consolidated financial statements requires management to make judgements and estimates and form assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its judgements and estimates in relation to assets, liabilities, revenue and expenses. Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgements and estimates. Actual outcomes may differ from these estimates under different assumptions and conditions. The most significant estimates relate to the appropriate depreciation rate for property, plant and equipment, the valuation of warrant liability, the recoverability of accounts receivable, the valuation of deferred income tax amounts, impairment testing of mineral properties and deferred exploration and property, plant and equipment and the calculation of share-based payments. The most significant judgements relate to the recognition of deferred tax assets and liabilities and asset retirement obligations, the determination of the economic viability of a project or mineral property and the determination of functional currencies.
21
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
3. | Summary of Significant Accounting Policies (continued) |
3.16 Inventory
Stockpiled ore and consumables are physically measured or estimated and valued at the lower of cost or net realizable value. Net realizable value is the estimated future sales price of the product the entity expects to realize when the product is processed and sold, less estimated costs to complete production and bring the product to sale. Where the time value of money is material, these future prices and costs to complete are discounted.
Consumables are valued at the lower of cost or net realizable value. Any provision for obsolescence is determined by reference to specific items. A regular review is undertaken to determine the extent of any provision for obsolescence.
3.17 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
4. | Mineral Properties |
The Company explores or acquires gold or other precious metal concessions through its own efforts or through the efforts of its subsidiaries. All of the Company’s concessions are located in Tanzania.
The Company’s mineral interests in Tanzania are initially held under prospecting licenses granted pursuant to the Mining Act, 2010 (Tanzania) for a period of up to four years, and are renewable two times for a period of up to two years each. Annual rental fees for prospecting licenses are based on the total area of the license measured in square kilometres, multiplied by USD$100/sq.km for the initial period, USD$150/sq.km for the first renewal and USD$200/sq.km for the second renewal. With each renewal at least 50% of the licensed area, if greater than 20 square kilometres, must be relinquished and if the Company wishes to keep the relinquished one-half portion, it must file a new application for the relinquished portion. There is also an initial one-time “preparation fee” of USD$500 per license. Upon renewal, there is a renewal fee of USD$300 per license.
Section 30 of the Mining Act states that the amount that is to be spent on prospecting operations is to be prescribed by Regulation.
Period | Minimum expenditure (US$) | |
Initial period (4 years) | $500 per sq km for annum | |
First renewal (3 years) | $1,000 per sq km for annum | |
Second renewal (2 years) | $2,000 per sq km for annum |
Certain of the Company’s prospecting licenses are currently being renewed.
The Company assessed the carrying value of mineral properties and deferred exploration costs as at August 31, 2017 and recorded a write-down of $124,717 during the year ended August 31, 2017 (2016 - $3,516,268).
22
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
4. | Mineral Properties (continued) |
The continuity of expenditures on mineral properties is as follows:
Buckreef (a) | Kigosi (b) | Itetemia (c) | Luhala (d) | Lunguya (e) | Total | |||||||||||||||||||
Balance, September 1, 2015 | $ | 23,153,374 | $ | 12,208,394 | $ | 6,080,438 | $ | 3,354,062 | $ | 3,353,923 | $ | 48,150,191 | ||||||||||||
Exploration expenditures: | ||||||||||||||||||||||||
Camp, field supplies and travel | 386,911 | 23,354 | - | - | - | 410,265 | ||||||||||||||||||
License fees and exploration and field overhead | 773,388 | 222,506 | 35,865 | 5,853 | - | 1,037,612 | ||||||||||||||||||
Geological consulting and field wages | 261 | - | - | - | - | 261 | ||||||||||||||||||
Geophysical and geochemical | - | - | - | - | - | - | ||||||||||||||||||
Property acquisition costs | - | - | - | - | - | - | ||||||||||||||||||
Trenching and drilling | - | - | - | - | - | - | ||||||||||||||||||
Recoveries | (279,203 | ) | - | - | - | - | (279,203 | ) | ||||||||||||||||
881,357 | 245,860 | 35,865 | 5,853 | - | 1,168,935 | |||||||||||||||||||
24,034,731 | 12,454,254 | 6,116,303 | 3,359,915 | 3,353,923 | 49,319,126 | |||||||||||||||||||
Write-offs | - | - | (153,588 | ) | (8,757 | ) | (3,353,923 | ) | (3,516,268 | ) | ||||||||||||||
Balance, August 31, 2016 | $ | 24,034,731 | $ | 12,454,254 | $ | 5,962,715 | $ | 3,351,158 | $ | - | $ | 45,802,858 | ||||||||||||
Exploration expenditures: | ||||||||||||||||||||||||
Camp, field supplies and travel | 187,940 | 19,565 | - | - | - | 207,505 | ||||||||||||||||||
License fees and exploration and field overhead | 2,527,005 | 67,942 | 17,738 | 5,988 | - | 2,618,673 | ||||||||||||||||||
Geological consulting and field wages | 206,722 | - | - | - | - | 206,722 | ||||||||||||||||||
Geophysical and geochemical | - | - | - | - | - | - | ||||||||||||||||||
Property acquisition costs | 168,284 | - | - | - | - | 168,284 | ||||||||||||||||||
Trenching and drilling | - | - | - | - | - | - | ||||||||||||||||||
Recoveries | (25,408 | ) | - | - | - | - | (25,408 | ) | ||||||||||||||||
Foreign exchange translation | (1,037,832 | ) | (513,491 | ) | (244,842 | ) | (137,449 | ) | - | (1,933,614 | ) | |||||||||||||
2,026,711 | (425,984 | ) | (227,104 | ) | (131,461 | ) | - | 1,242,162 | ||||||||||||||||
26,061,442 | 12,028,270 | 5,735,611 | 3,219,697 | - | 47,045,020 | |||||||||||||||||||
Write-offs | - | (124,717 | ) | - | - | - | (124,717 | ) | ||||||||||||||||
Balance, August 31, 2017 | $ | 26,061,442 | $ | 11,903,553 | $ | 5,735,611 | $ | 3,219,697 | $ | - | $ | 46,920,303 |
23
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
4. | Mineral Properties (continued) |
(a) Buckreef Gold Project:
On December 21, 2010, the Company announced it was the successful bidder for the Buckreef Gold Mine Re-development Project in northern Tanzania (the “Buckreef Project”). Pursuant to the agreement dated December 16, 2010, the Company paid USD $3,000,000 to the State Mining Company (“Stamico”). On October 25, 2011, a Definitive Joint Venture Agreement was entered into with Stamico for the development of the Buckreef Gold Project. Through its wholly-owned subsidiary, Tanzam, the Company holds a 55% interest in the joint venture company, Buckreef Gold Company Limited, with Stamico holding the remaining 45%.
The Company has 100% control over all aspects of the joint venture. In accordance with the joint venture agreement, the Company has to arrange financing, incur expenditures, make all decisions and operate the mine in the future. The Company’s obligations and commitments include completing a preliminary economic assessment, feasibility study and mine development. Stamico’s involvement is to contribute the licences and rights to the property and receive a 45% interest in Buckreef Project.
The joint venture agreement contains an obligation clause regarding the commissioning date for the plant. The clause becomes effective only in the event the property is not brought into production before a specified future date which was originally estimated to be in December 2015. The Company shall be entitled to extend the date for one additional year:
i) for the extension year, on payment to Stamico of US$500,000;
ii) for the second extension year, on payment to Stamico of US$625,000; and
iii) for each subsequent extension year, on payment to Stamico of US$750,000.
The Company has received a request letter from Stamico regarding the status of the penalty payment and has responded that no penalty is due at this time. The Company has received a subsequent letter from Stamico regarding request for payment. It remains the Company’s position that no penalty is due at this time, but the Company and Stamico have been engaged in settlement discussions to resolve this issue, and a payment of $172,330 has been made in connection with the settlement discussions to be applied towards the amount owing with the remainder to be paid out of proceeds of production.
The Company has recognized a non-controlling interest (NCI) in respect of Stamico’s 45% interest in the Consolidated Financial Statements based on the initial payment by the Company to Stamico and will be adjusted based on annual exploration and related expenditures. Stamico has a free carried interest and does not contribute to exploration expenses.
There is a supervisory board made up of 4 directors of Tanzam and 3 directors of Stamico, whom are updated with periodic reports and review major decisions. Amounts paid to Stamico and subsequent expenditures on the property are capitalized under Mineral Properties or Inventories for costs directly related to the extraction and processing of ore and reported under Buckreef Gold Company Limited.
Force Majeure:
On February 5, 2016, the Company, through its subsidiary Tanzam provided notice of Force Majeure under its agreement with STAMICO. The notice of Force Majeure is based upon the invasion and forced occupation by several hundred illegal miners of the Company’s properties including the South Pit and other areas within the Buckreef site, thereby endangering the Company’s team and preventing Tanzam from continuing its mining operations.
24
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
4. | Mineral Properties (continued) |
(a) Buckreef Gold Project (continued):
Force Majeure (continued):
The Company was requested by the Deputy Minister of Energy and Minerals to provide an area of access for artisanal miners within 14 days of notice. The Company identified three potential areas with one to be designated for true artisanal mining, meaning without the use of mechanized mining equipment. Mining would not be allowed below the water table. The Company would also require artisanal miners to operate responsibly in accordance with Tanzanian mining and environmental law, and land and water requirements.
On the 15th day following notice, the occupation by illegal miners occurred as the Company refused to allow access to areas that represent a material portion of the deposit according to the Company’s NI 43-101 technical reports. The Company has communicated to both the Minister and the Deputy Minister, indicating its willingness to provide an area of access to legitimate artisanal miners.
On June 9th, 2016, Force Majeure was lifted.
(b) Kigosi:
The Kigosi Project is principally located within the Kigosi Game Reserve controlled area. Through prospecting and mining option agreements, the Company has options to acquire interests in several Kigosi prospecting licenses. The Company has an agreement with Stamico providing Stamico a 15% carried interest in the Kigosi Project.
The Kigosi Mining License was granted by the Ministry of Energy and Minerals to Tanzam, (wholly owned subsidiary of Tanzanian Royalty). The official signing ceremony of the Kigosi Mining License was held in October 2013 and was attended by the Company and Ministry for Energy and Minerals representatives. The area remains subject to a Game Reserve Declaration Order. Upon repeal or amendment of that order by degazzeting the respective license by the Tanzanian Government, the Company will be legally entitled to exercise its rights under the Mineral Rights and Mining Licence.
During the year ended August 31, 2017, the Company decided to abandon certain licenses within the Kigosi project as they come up for renewal, as such, a write off of $124,717 was taken for these licenses related to the property (year ended August 31, 2016 - $nil).
(c) Itetemia Project:
Through prospecting and mining option agreements, the Company has options to acquire interests in several ltetemia property prospecting licenses. The prospecting licenses comprising the Itetemia property are held by the Company; through the Company's subsidiaries, Tancan or Tanzam. In the case of one prospecting license, Tancan acquired its interest pursuant to the Stamico Venture Agreement dated July 12, 1994, as amended June 18, 2001, July 2005, and October 13, 2008.
Stamico retains a 2% royalty interest as well as a right to earn back an additional 20% interest in the prospecting license by meeting 20% of the costs required to place the property into production. The Company retains the right to purchase one-half of Stamico's 2% royalty interest in exchange for USD$1,000,000.
The Company is required to pay Stamico an annual option fee of USD$25,000 per annum until commercial production.
25
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
4. | Mineral Properties (continued) |
(c) Itetemia Project (continued):
During the year ended August 31, 2017, the Company did not abandon any licenses in the area and no write off was taken in this area (year ended August 31, 2016 - $153,588) related to deferred exploration costs associated with licenses the Company does not intend to renew.
(d) Luhala Project:
The Company has selected a consultant to prepare the resource report for the Luhala Project in anticipation of filing for a Mining License for development of the site. Once funds are available the contract to engage the Consultant to carry out the work will be initiated.
During the year ended August 31, 2017, the Company did not abandon any licenses in the area and no write off was taken in this area (year ended August 31, 2016 - $8,757).
(e) Lunguya:
During the year ended August 31, 2016, the Company abandoned certain licenses in the area and a write off $3,353,923 was taken in this area for all previously deferred expenditures. Although the Company retains certain licenses on the project, the Company will no longer pursue this project as it focuses its resources on core assets.
26
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
5. | Property, plant and equipment |
Drilling equipment | Automotive | Computer Equipment | Machinery and equipment | Leasehold improvements | Heap leach pads | Construction- in-progress * | Total | |||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||||||
As at September 1, 2015 | $ | 464,487 | $ | 302,640 | $ | 95,330 | $ | 1,844,110 | $ | 100,328 | $ | 1,496,078 | $ | 1,252,816 | $ | 5,555,789 | ||||||||||||||||
Additions | - | - | 4,306 | 27,360 | - | - | 126,196 | 157,862 | ||||||||||||||||||||||||
Disposals | - | (111,272 | ) | - | (165,511 | ) | - | - | - | (276,783 | ) | |||||||||||||||||||||
As at August 31, 2016 | $ | 464,487 | $ | 191,368 | $ | 99,636 | $ | 1,705,959 | $ | 100,328 | $ | 1,496,078 | $ | 1,379,012 | $ | 5,436,868 | ||||||||||||||||
Additions | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Disposals | - | (47,967 | ) | (32,462 | ) | (81,990 | ) | - | - | - | (162,419 | ) | ||||||||||||||||||||
Foreign exchange | (19,662 | ) | (7,943 | ) | (4,079 | ) | (71,028 | ) | (4,215 | ) | (64,262 | ) | (62,155 | ) | (233,344 | ) | ||||||||||||||||
As at August 31, 2017 | $ | 444,825 | $ | 135,458 | $ | 63,095 | $ | 1,552,941 | $ | 96,113 | $ | 1,431,816 | $ | 1,316,857 | $ | 5,041,105 |
Accumulated depreciation | ||||||||||||||||||||||||||||||||
As at September 1, 2015 | $ | 275,578 | $ | 251,501 | $ | 82,820 | $ | 1,335,005 | $ | 57,639 | $ | 146,994 | $ | - | $ | 2,149,537 | ||||||||||||||||
Depreciation expense | 12,594 | 11,614 | 10,385 | 129,076 | 8,842 | 306,188 | - | 478,699 | ||||||||||||||||||||||||
Disposals | - | (95,288 | ) | - | (146,448 | ) | - | - | - | (241,736 | ) | |||||||||||||||||||||
As at August 31, 2016 | $ | 288,172 | $ | 167,827 | $ | 93,205 | $ | 1,317,633 | $ | 66,481 | $ | 453,182 | $ | - | $ | 2,386,500 | ||||||||||||||||
Depreciation expense | 11,754 | 3,062 | 8,728 | 87,072 | 7,036 | 304,331 | - | 421,983 | ||||||||||||||||||||||||
Disposals | - | (35,233 | ) | (49,672 | ) | (65,741 | ) | - | - | - | (150,646 | ) | ||||||||||||||||||||
Foreign exchange | (12,626 | ) | (7,087 | ) | (8,431 | ) | (60,080 | ) | (3,217 | ) | (35,988 | ) | - | (127,429 | ) | |||||||||||||||||
As at August 31, 2017 | $ | 287,300 | $ | 128,569 | $ | 43,830 | $ | 1,278,884 | $ | 70,300 | $ | 721,525 | $ | - | $ | 2,530,408 |
Net book value | ||||||||||||||||||||||||||||||||
As at September 1, 2015 | $ | 188,909 | $ | 51,139 | $ | 12,510 | $ | 509,105 | $ | 42,689 | $ | 1,349,084 | $ | 1,252,816 | $ | 3,406,252 | ||||||||||||||||
As at August 31, 2016 | $ | 176,315 | $ | 23,541 | $ | 6,431 | $ | 388,326 | $ | 33,847 | $ | 1,042,896 | $ | 1,379,012 | $ | 3,050,368 | ||||||||||||||||
As at August 31, 2017 | $ | 157,525 | $ | 6,889 | $ | 19,265 | $ | 274,057 | $ | 25,813 | $ | 710,291 | $ | 1,316,857 | $ | 2,510,697 |
* Construction in progress represents construction of the Company’s processing plant.
27
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
5. | Property, plant and equipment (continued) |
Sale-leaseback transaction:
During the year ended August 31, 2015, the Company sold automotive and mining equipment for proceeds of $577,505 to various officers and directors. Pursuant to the agreements, the Company entered into 1-year lease agreements on the automotive and mining equipment with effective dates in May 2015. Per the terms of the leases, the Company agrees to purchase back the automotive and mining equipment at the end of the lease periods for a lump sum payment of USD$74,848. Based on the terms of the agreements, the Company has classified and is accounting for the leases as finance leases. The initial base payments vary between the agreements and range between $3,500 and $8,000 payable monthly. The effective interest rate on the finance lease obligations outstanding is between 20% and 30%. The gain on sale of $250,108 was deferred and is being recognized on a straight-line basis over the lease term as a reduction in amortization expense. The total deferred gain has been presented as a reduction of the finance asset. Under the lease, the Company is responsible for the costs of utilities, insurance, taxes and maintenance expenses.
Settlement through shares:
On December 1, 2016, the Company entered into settlement agreements whereby a total of $343,623 in principal and accrued interest was settled through the issuance of 458,329 shares issued at an average price of $0.63 per share for total issued value of $288,747, resulting in a gain on settlement of debt of $54,876 for the year ended August 31, 2017.
Outstanding balance:
As at August 31, 2017, the remaining balance outstanding under finance lease obligations after the settlements described above is $56,631 (August 31, 2016 - $370,103) and is repayable within 1 year, as such, the finance lease obligation is classified as a current liability.
Interest expense for the year ended August 31, 2017 related to the leases amounted to $24,362 (2016 - $76,847), and is recorded in the statement of comprehensive loss.
28
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
6. | Capital Stock |
Share Capital
The Company’s Restated Articles of Incorporation authorize the Company to issue an unlimited number of common shares. On December 8, 2014, the Board resolved that the Company authorize for issuance up to a maximum of 155,000,000 common shares, subject to further resolutions of the Company’s board of directors.
Number | Amount ($) | |||||||
Balance at September 1, 2015 | 107,853,554 | $ | 120,532,634 | |||||
Issued pursuant to Restricted Share Unit Plan | 50,000 | 120,500 | ||||||
Finders fees on gold bullion loan | 320,543 | 477,609 | ||||||
Shares issued for interest on gold loans | 536,137 | 372,130 | ||||||
Shares issued for services | 75,000 | 26,250 | ||||||
Exercise of warrants | 233,258 | 851,600 | ||||||
Balance at August 31, 2016 | 109,068,492 | $ | 122,380,723 | |||||
Issued for private placements, net of share issue costs | 7,197,543 | 5,589,501 | ||||||
Warrants issued on private placement | - | (6,592,000 | ) | |||||
Agent warrants issued on private placement | - | (92,000 | ) | |||||
Issued pursuant to Restricted Share Unit Plan | 695,991 | 1,040,990 | ||||||
Shares issued for interest on gold loans | 814,089 | 542,447 | ||||||
Finders fees on convertible loans | 132,577 | 92,805 | ||||||
Shares issued for settlement of lease obligations (Note 5) | 458,329 | 288,747 | ||||||
Shares issued for settlement of amounts due to related parties (Note 9) | 187,321 | 131,998 | ||||||
Shares issued for settlement of convertible loans (Note 23) | 83,333 | 49,166 | ||||||
Exercise of warrants | 3,146,944 | 1,742,000 | ||||||
Balance at August 31, 2017 | 121,784,619 | $ | 125,174,377 |
Activity during the year ended August 31, 2017:
On September 1, 2016, the Company closed the first tranche of a US$5 Million private placement of securities with Crede CG III, Ltd.
In the initial round of financing, the Company privately placed 1,840,400 shares of its common stock and warrants for US$1.25 million. The common stock issued in the first tranche of the financing, which closed on September 1, 2016, was priced at US$0.6792 per share. The investor also received five-year warrants to purchase 1,840,400 shares of Common Stock with an exercise price of US$0.8291 per share. If the market price of the share is lower than the exercise price the warrants allow the holder to exercise into a variable number of common shares of the Company determined based on a fixed monetary value and the Company’s share price for no consideration. As the number of shares was variable, the warrants were recognized as a derivative liability with a fair value of $1,742,000 which was determined based on the fixed monetary value. In addition, the Company paid an 8% agent fee on gross proceeds and a 5% finders’ fee on gross proceeds and the Company issued to the agents 73,616 agent warrants, each exercisable to acquire one common share at a price of US$0.8718 for a period of five years.
29
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
6. | Capital Stock (continued) |
On September 26, 2016, the Company closed the second tranche of the $5 million private placement of securities with Crede CG III, Ltd.
In the second round of the financing, the Company privately placed convertible notes and warrants for US$3.75 million. The convertible notes were issued in the principal amount of US$3.75 million, carried a coupon of 2.0% and matured on September 26, 2046. The Company immediately exercised its right to cause the conversion of the convertible notes, resulting in the cancellation of the notes and the issuance of 5,357,143 shares of common stock to the investor. The investor also received five-year warrants to purchase 4,017,857 shares of common stock at an exercise price of US$1.10 per share. If the market price of the share is lower than the exercise price the warrants allow the holder to exercise into a variable number of common shares of the Company determined based on a fixed monetary value and the Company’s share price for no consideration. As the number of shares was variable, the warrants were recognized as a derivative liability with a fair value of $4,850,000 which was determined based on the fixed monetary value. In addition, the Company paid an 8% agent fee on gross proceeds and the Company issued to the agents 214,285 agent warrants, each exercisable to acquire one common share at a price of US$0.9515 for a period of five years.
During the year ended August 31, 2017, 695,991 shares were issued pursuant to the Company’s Restricted Share Unit Plan at an average price of $1.50 for total issued value of $1,040,990.
During the year ended August 31, 2017, 814,089 shares were issued at an average price of $0.67 per share for total issued value of $542,447 for payment of interest in connection with the convertible loans (see Note 21 for details).
On April 27, 2017, the Company issued 132,577 common shares at a price of $0.70 per share for total issued value of $92,805 for payment of finders fees in connection with the gold bullion loan (see Note 23 for details).
Activity during the year ended August 31, 2016:
During the year ended August 31, 2016, 50,000 shares were issued pursuant to the Company’s Restricted Share Unit Plan at an average price of $2.41 for total issued value of $120,500.
During the year ended August 31, 2016, 536,137 shares were issued at an average price of $0.69 per share for total issued value of $372,130 for payment of interest in connection with the gold bullion loans (see Note 21 for details).
On April 15, 2016 the Company issued 75,000 common shares common shares at a price of $0.35 per share for total issued value of $26,250 for consulting services.
On August 9, 2016, the Company issued 320,543 common shares at a price of $1.49 per share for total issued value of $477,609 for payment of finders fees in connection with the gold bullion loan (see Note 21 for details).
30
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
6. | Capital Stock (continued) |
Warrant issuances:
Activity during the year ended August 31, 2017:
On September 1, 2016 the Company issued 1,840,400 share purchase warrants in connection with the first tranche of its private placement financing as described above. Each warrant entitles the holder to acquire a common share at a price of US$0.8291. These warrants expire on September 1, 2021.
Each warrant is convertible into a variable number of common shares equal in value to a fixed monetary amount for $Nil consideration if the Company’s share price is below exercise price. As the number of shares to be received on exercise is variable, the warrants are initially recognized as derivative liabilities at fair value. Subsequent changes in fair value to the date of exercise are recognized in the loss for the year.
The warrants had a fair value of $1,742,000 on issuance, which was determined based on the fixed monetary amount.
The Company also issued 73,616 agent warrants in connection with the first tranche of its private placement financing. Each agent warrant entitles the holder to acquire a common share at a price of US$0.8718. These warrants expire on September 1, 2021.
The warrants had a fair value of $22,000 on issuance, which was estimated using the Black-Scholes option pricing model and recorded as a transaction cost. The following assumptions were used:
Risk-free interest rate | 0.91% | Expected volatility | 82% | |||||||
Dividend yield | nil | Expected life | 5 years |
On September 26, 2016 the Company issued 4,017,857 share purchase warrants in connection with the second tranche of its private placement financing as described above. Each warrant entitles the holder to acquire a common share at a price of US$1.10. These warrants expire on September 26, 2021.
Each warrant is convertible into a variable number of common shares equal in value to a fixed monetary amount for $Nil consideration if the Company’s share price is below exercise price. As the number of shares to be received on exercise is variable, the warrants are initially recognized as derivative liabilities at fair value. Subsequent changes in fair value to the date of exercise are recognized in the loss for the year.
The warrants had a fair value of $4,850,000 on issuance, which was determined based on the fixed monetary amount.
The Company also issued 214,285 agent warrants in connection with the second tranche of its private placement financing. Each agent warrant entitles the holder to acquire a common share at a price of US$0.9515. These warrants expire on September 26, 2021.
The warrants had a fair value of $70,000 on issuance, which was estimated using the Black-Scholes option pricing model and recorded as a transaction cost. The following assumptions were used:
Risk-free interest rate | 0.87% | Expected volatility | 84% | |||||||
Dividend yield | nil | Expected life | 5 years |
31
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
6. | Capital Stock (continued) |
Activity during the year ended August 31, 2016:
There were no warrant issuances during the year ended August 31, 2016.
Warrants and Compensation Options outstanding:
At August 31, 2017, the following warrants and compensation options were outstanding:
Number of Warrants | Exercise price | Expiry date | ||||||||||
Private placement financing agent warrants - September 26, 2016 | 214,285 | USD$0.9515 | September 26, 2021 | |||||||||
Private placement financing - September 26, 2016 | 4,017,857 | USD$1.10 | September 26, 2021 | |||||||||
Private placement financing agent warrants - September 1, 2016 | 73,616 | USD$0.8718 | September 1, 2021 | |||||||||
Convertible senior note financing - December 9, 2014 | 257,143 | USD$0.98 | December 9, 2019 | |||||||||
Balance, August 31, 2017 | 4,562,901 | - | - |
Warrant transactions are summarized as follows:
Number of Warrants | Weighted Average Exercise Price | |||||||
Balance, August 31, 2015 | 1,382,143 | $ | 1.29 | |||||
Warrants exercised | (725,000 | ) | (1.26 | ) | ||||
Balance, August 31, 2016 | 657,143 | $ | 1.29 | |||||
Warrants granted | 5,858,257 | 1.37 | ||||||
Agent warrants granted | 287,901 | 1.25 | ||||||
Expired warrants | (400,000 | ) | (1.30 | ) | ||||
Warrants exercised | (1,840,400 | ) | (1.12 | ) | ||||
Balance, August 31, 2017 | 4,562,901 | $ | 1.36 |
The outstanding warrants have weighted average price of US$1.08 and weighted average remaining contractual life of 3.97 years.
32
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
6. | Capital Stock (continued) |
Warrant liability:
Foreign currency denominated warrants (not including compensation warrants), are considered a derivative as they are not indexed solely to the entity’s own stock.
Prior to September 1, 2016 warrant liability consist of warrants that were originally issued in private placements which had exercise prices denominated in a currency other than the Company’s functional currency, which at that time was the Canadian dollar. During the period that the Canadian dollar was the Company’s functional currency, warrants that were exercisable in U.S. dollars was classified as derivative liabilities. Upon the change in functional currency to the U.S. dollar, these derivative liabilities were no longer classified as derivatives and an amount of $215,000 was reclassified to reserve for warrants.
The warrant liability at August 31, 2017 relates to the 4,017,857 September 26, 2016 private placement warrants that are exercisable at the option of the holder into such number of shares that have a current market value of approximately $4,850,000, for no consideration. This cashless exercise right is only in effect if the current market price is less than the exercise price of USD$1.10.
The table below shows the activity for warrant liability for the year ended August 31, 2017 and year ended August 31, 2016:
Year ended | August 31, 2017 | August 31, 2016 | ||||||
Balance at beginning of year | $ | 215,000 | $ | 120,000 | ||||
Warrants issued | 6,592,000 | - | ||||||
Warrants exercised | (1,742,000 | ) | (851,600 | ) | ||||
Increase (decrease) in value of warrant liability | - | 946,600 | ||||||
Reclassification on change of functional currency | (215,000 | ) | - | |||||
Balance at end of year | $ | 4,850,000 | $ | 215,000 |
During the year ended August 31, 2016, 725,000 warrants expiring on December 9, 2019 were exercised by way of cashless exercise into 233,258 common shares of the Company, reducing the balance at August 31, 2016 to 257,143 from the opening balance of 982,143. The value of the remaining 257,143 warrants was $215,000 as at August 31, 2016. The assumptions in valuing the warrant liability at August 31, 2016 include an expected volatility of 91%, a risk free interest rate of 0.92% and an expected life of 3.27 years. During the year ended August 31, 2017, the $215,000 was reclassified to reserve for warrants upon the change in functional currency on September 1, 2016.
The movement in value of $nil during the year ended August 31, 2017 (2016 – $946,600 increase) resulted in no gain or loss (2016 – loss) in the statement of comprehensive loss.
Employee stock ownership plan:
On May 1, 2003, the Company established a non-leveraged employee stock ownership plan (ESOP) for all eligible employees, consultants, and directors. The Company matches 100 percent of participants’ contributions up to 5 percent of the participants’ salaries and 50 percent of participants’ contributions between 6 percent and 30 percent of the participants’ salaries. All contributions vest immediately.
ESOP compensation expense for the year ended August 31, 2017 was $nil (2016 - $nil) and is included in salaries and benefits expenses.
33
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
6. | Capital Stock (continued) |
Restricted share units:
The Restricted Stock Unit Plan (RSU Plan) is intended to enhance the Company’s and its affiliates’ abilities to attract and retain highly qualified officers, directors, key employees and other persons, and to motivate such officers, directors, key employees and other persons to serve the Company and its affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the RSU Plan provides for the grant of restricted stock units (RSUs). Each RSU represents an entitlement to one common share of the Company, upon vesting. As of November 29, 2016, the Board resolved to amend the suspension to 800,000 of the 2,500,000 common shares previously authorized for issuance under the RSU Plan, such that a maximum of 2,500,000 shares shall be authorized for issuance under the RSU Plan, until such suspension may be lifted or further amended. RSU awards may, but need not, be subject to performance incentives to reward attainment of annual or long-term performance goals in accordance with the terms of the RSU Plan. Any such performance goals are specified in the award agreement.
The Board of Directors implemented the RSU Plan under which officers, directors, employees and others are compensated for their services to the Company. Annual compensation for outside directors is $68,750 per year, plus $6,875 per year for serving on Committees, plus $3,437 per year for serving as Chair of a Committee. On April 11, 2012, the board approved that at the election of each individual director, up to one half of the annual compensation may be received in cash, paid quarterly. The remainder of the director’s annual compensation (at least one half, and up to 100%) will be awarded as RSUs in accordance with the terms of the RSU Plan and shall vest within a minimum of one (1) year and a maximum of three (3) years, at the election of the director, subject to the conditions of the RSU Plan with respect to earlier vesting. In 2012 outside directors had the option to elect to receive 100% of their compensation in RSUs. If 100% compensation in RSUs is elected, the compensation on which the number of RSUs granted in excess of the required one half shall be increased by 20%.
The Company uses the fair value method to recognize the obligation and compensation expense associated with the RSU’s. The fair value of RSU’s issued is determined on the grant date based on the market price of the common shares on the grant date multiplied by the number of RSUs granted. The fair value is expensed over the vesting term. Upon redemption of the RSU the carrying amount is recorded as an increase in common share capital and a reduction in the share based payment reserve.
The Company has a RSU Plan which allows the Company to issue RSU’s which are redeemable for the issue of common shares at prevailing market prices on the date of the RSU grant. The aggregate number of RSU’s outstanding is limited to a maximum of ten percent of the outstanding common shares. The Company has granted RSU’s to officers and key employees.
Of the 2,500,000 shares authorized for issuance under the Plan, 2,114,853 (August 31, 2016 - 1,418,862) shares have been issued as at August 31, 2017.
Total share-based compensation expense related to the issue of RSUs was $262,931 for the year ended August 31, 2017 (2016 - $470,743). The amount capitalized to mineral properties for the year ended August 31, 2017 was $16,497 (2016 - $18,733). The amount charged to directors fees for the year ended August 31, 2017 was $75,200 (2016 - $157,813). During the year ended August 31, 2017 RSU’s were forfeited resulting in $123,571 (2016 - $333,193) in a reduction in share-based compensation expense related to the reversal of the expense related to forfeited RSU’s.
34
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
6. | Capital Stock (continued) |
The following table summarizes changes in the number of RSU’s outstanding:
Number of RSU’s | Weighted average fair value at issue date | |||||||
Balance, August 31, 2015 | 1,647,222 | $ | 1.27 | |||||
Granted | 75,000 | $ | 0.41 | |||||
Redeemed for common shares | (50,000 | ) | $ | 2.41 | ||||
Forfeited/cancelled | (396,631 | ) | $ | 1.25 | ||||
Balance, August 31, 2016 | 1,275,591 | $ | 1.18 | |||||
Redeemed for common shares | (695,991 | ) | $ | 1.50 | ||||
Forfeited/cancelled | (59,600 | ) | $ | 2.22 | ||||
Balance, August 31, 2017 | 520,000 | $ | 0.49 |
Stock options:
The Company has a stock option plan (the “Plan”) under which the Company may grant options to directors, officers, employees and consultants. The maximum number of common shares reserved for issue under the Plan at any point in time may not exceed 6% of the number of shares issued and outstanding. The purpose of the Plan is to attract, retain and motivate directors, officers, employees, and certain third party service providers by providing them with the opportunity to acquire a proprietary interest in the Company and benefit from its growth. Options granted under the Plan are non-assignable and vest over various terms up to 24 months from the date of grant. As at August 31, 2017, the Company had 3,557,077 (August 31, 2016 – nil) options available for issuance under the Plan.
The continuity of outstanding stock options for the year ended August 31, 2017 and 2016 is as follows:
Number of stock options | Weighted average exercise price per share $ | |||||||
Balance – August 31, 2015 and 2016 | - | - | ||||||
Granted (i) | 3,750,000 | 0.71 | ||||||
Balance – August 31, 2017 | 3,750,000 | 0.71 |
(i) | On November 28, 2016, the Company granted 3,750,000 stock options to directors, officers and employees of the Company. The options are exercisable at CAD$0.71 per share expiring on November 28, 2025. The resulting fair value of $2,133,000 was estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 84%; a risk-free interest rate of 0.95% and an expected average life of 9 years. Volatility and expected life were based on historical experience. The options are subject to a vesting period whereby 1/3 of the options vest immediately, 1/3 vest on September 1, 2017 with the remaining 1/3 vesting on September 1, 2018. Share based payments based on the portion vested during the year ended August 31, 2017 amounted to $1,725,000 (2016 - $nil). |
Options to purchase common shares carry exercise prices and terms to maturity as follows:
Remaining | |||||||||||||||||
Exercise price (1) | Number of options | Expiry | contractual | ||||||||||||||
Outstanding $ | Outstanding | Exercisable | date | life (years) (1) | |||||||||||||
CAD0.71 | 3,750,000 | 1,250,000 | November 28, 2025 | 8.25 | |||||||||||||
CAD0.71 | 3,750,000 | 1,250,000 | 8.25 |
(1) | Total represents weighted average. |
35
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
7. | Reserve for warrants |
Year ended | August 31, 2017 | August 31, 2016 | ||||||
Balance at beginning of year | $ | 941,037 | $ | 941,037 | ||||
Agent warrants issued on private placement | 92,000 | - | ||||||
Reversal of warrant liability upon change of functional currency to USD | 215,000 | - | ||||||
Balance at end of year | $ | 1,248,037 | $ | 941,037 |
8. | Reserve for share based payments |
Year ended | August 31, 2017 | August 31, 2016 | ||||||
Balance at beginning of year | $ | 1,066,863 | $ | 1,048,757 | ||||
Shares issued pursuant to RSU plan | (1,040,990 | ) | (120,500 | ) | ||||
Share based compensation – RSU’s | 262,931 | 471,799 | ||||||
Share based compensation – Stock options | 1,725,000 | - | ||||||
RSU shares forfeited | (123,571 | ) | (333,193 | ) | ||||
Reversal of derivative in gold bullion loan upon change of functional currency to USD | 5,051,000 | - | ||||||
Reversal of derivative in gold convertible loans upon change of functional currency to USD | 108,000 | - | ||||||
Conversion component of convertible loans | 625,000 | - | ||||||
Balance at end of year | $ | 7,674,233 | $ | 1,066,863 |
36
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
9. | Related party transactions and key management compensation |
Related parties include the Board of Directors and officers, close family members and enterprises that are controlled by these individuals as well as certain consultants performing similar functions.
(a) Tanzanian Royalty Exploration Corporation entered into the following transactions with related parties:
Years ended, | Notes | August 31, 2017 | August 31, 2016 | |||||||||
Legal services | (i) | $ | 82,455 | $ | 10,363 | |||||||
Rent | (ii) | $Nil | $ | 15,199 | ||||||||
Consulting | (iii) | $ | 203,274 | $ | 157,637 | |||||||
Consulting | (iv) | $ | 172,330 | $ | 33,838 |
(i) The Company engages a legal firm for professional services in which one of the Company’s directors is a partner. During the year ended August 31, 2017, the legal expense charged by the firm was $82,455 (2016 - $10,363). As at August 31, 2017, $370,940 remains payable (August 31, 2016 - $327,766).
(ii) During the year ended August 31, 2017, $nil (2016 - $15,199) was paid to a company associated with the Company’s former Chairman and COO and his spouse for office rental.
(iii) During the year ended August 31, 2017, $203,274 (2016 - $157,637) was paid for heap leach construction consulting and website/data back-up services to companies controlled by individuals associated with the former CEO and current director.
(iv) During the year ended August 31, 2017, $172,330 (2016 - $33,838) was paid for grade control drilling, license fees and other consulting services to Stamico, the Company’s joint venture partner on the Buckreef Gold Project.
As at August 31, 2017, the Company has a receivable of $37,247 (August 31, 2016 - $3,903) from an organization associated with the Company’s President and former CEO and current director and from current officers and directors.
As at August 31, 2017, the Company has a receivable of $nil (August 31, 2016 - $5,541) from the former general manager of the Company for amounts advanced on his behalf.
During the year ended August 31, 2015, the Company sold automotive and mining equipment in the amount of $243,805 to directors of the Company and $333,700 to the Company’s former CEO and current director for total proceeds of $577,505 as described in Note 5. Pursuant to the agreements, the Company entered into 1-year lease agreements on the automotive and mining equipment with effective dates in May 2015. Per the terms of the leases, the Company agrees to purchase back the automotive and mining equipment at the end of the lease periods for a lump sum payment of USD$74,848. The initial base payments vary between the agreements and range between $3,500 and $8,000 payable monthly. The effective interest rate on the capital lease obligation outstanding is between 20% and 30%.
On December 1, 2016, the Company entered into settlement agreements whereby a total of $343,623 in principal and accrued interest was settled through the issuance of 458,329 shares issued at an average price of $0.63 per share for total issued value of $288,747, resulting in a gain on settlement of debt of $54,876 for the year ended August 31, 2017.
As at August 31, 2017, the remaining balance outstanding under finance lease obligations after the settlements described above is $56,631 (August 31, 2016 - $370,103) and is repayable within 1 year, as such, the finance lease obligation is classified as a current liability.
37
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
9. | Related party transactions and key management compensation (continued) |
(b) Remuneration of Directors and key management personnel (being the Company’s Chief Executive Officer, Chief Financial Officer and Chief Operating Officer) of the Company was as follows:
Year ended, | August 31, 2017 | August 31, 2016 | ||||||||||||||
Fees, salaries and benefits (1) | Share based payments (2), (3), (4) | Fees, salaries and benefits (1) | Share based payments (2), (3) | |||||||||||||
Management | $ | 525,102 | $ | 1,175,439 | $ | 245,962 | $ | 130,873 | ||||||||
Directors | 111,625 | 673,200 | 127,375 | 157,813 | ||||||||||||
Total | $ | 636,727 | $ | 1,848,639 | $ | 373,337 | $ | 288,686 |
(1) Salaries and benefits include director fees. The board of directors do not have employment or service contracts with the Company. Directors are entitled to director fees and RSU’s for their services and officers are entitled to cash remuneration and RSU’s for their services.
(2) Compensation shares may carry restrictive legends.
(3) All RSU share based compensation is based on the accounting expense recorded in the year.
(4) All stock option share based compensation is based on the accounting expense recorded in the year.
As at August 31, 2017, included in trade and other payables is $638,000 (August 31, 2016 - $576,000) due to these key management personnel with no specific terms of repayment.
The Company’s former CEO and current director provided various loans to the Company totaling $133,632. On December 1, 2016, the Company entered into settlement agreements whereby the remaining balance of $136,519 was settled through the issuance of 187,321 shares issued at an average price of $0.705 per share for total issued value of $131,998, resulting in a gain on settlement of debt of $4,521 for the year ended August 31, 2017. As at August 31, 2017 $nil (August 31, 2016 - $86,000) is outstanding. The balance is payable on demand, interest free, and unsecured.
10. | Management of Capital |
The Company's objective when managing capital is to obtain adequate levels of funding to support its exploration activities, to obtain corporate and administrative functions necessary to support organizational functioning, to obtain sufficient funding to further the identification and development of precious metals deposits, and to develop and construct low cost heap leach gold production mines.
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business. The Company defines capital to include its shareholders’ equity. In order to carry out the planned exploration and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. The Company will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geologic or economic potential and if it has adequate financial resources to do so. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There were no changes in the Company's approach to capital management during the year ended August 31, 2017. The Company is not subject to externally imposed capital requirements.
The Company considers its capital to be shareholders’ equity, which is comprised of share capital, reserves, and deficit, which as at August 31, 2017 totaled $35,353,718 (August 31, 2016 - $33,787,804).
38
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
10. | Management of Capital (continued) |
The Company raises capital, as necessary, to meet its needs and take advantage of perceived opportunities and, therefore, does not have a numeric target for its capital structure. Funds are primarily secured through equity capital raised by way of private placements, however, debt and other financing alternatives may be utilized as well. There can be no assurance that the Company will be able to continue raising equity capital in this manner.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.
The Company invests all capital that is surplus to its immediate operational needs in short term, liquid and highly rated financial instruments, such as cash, and short term guarantee deposits, all held with major Canadian financial institutions and Canadian treasury deposits.
11. | Financial Instruments |
Fair Value of Financial Instruments
The Company designated warrant and derivative liabilities as FVTPL. Fair value of the warrant liabilities and gold bullion loan derivatives are categorized as Level 3 measurement as these are calculated based on unobservable market inputs. A 10% movement in volatility in the financial instruments that were classified as Level 3 measure will have an impact of approximately $nil on the consolidated statements of comprehensive loss as these amounts have been reclassified during the period on change of functional currency. Trade and other receivables and cash and cash equivalents are classified as loans and receivables, which are measured at amortized cost. Trade and other payables, leases payable and gold bullion loans are classified as other financial liabilities, which are measured at amortized cost. Fair value of trade and other payables and convertible debt are determined from transaction values that are not based on observable market data.
The carrying value of the Company’s cash and cash equivalents, trade and other receivables, trade and other payables approximate their fair value due to the relatively short term nature of these instruments.
Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment, therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
A summary of the Company's risk exposures as they relate to financial instruments are reflected below:
Credit Risk
Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its contractual obligations. The Company is subject to credit risk on the cash balances at the bank and accounts and other receivables and the carrying value of those accounts represent the Company’s maximum exposure to credit risk. The Company’s cash and cash equivalents and short-term bank investments are with Schedule 1 banks or equivalents. The accounts and other receivables consist of GST/HST and VAT receivable from the various government agencies and amounts due from related parties. The Company has not recorded an impairment or allowance for credit risk as at August 31, 2017, or August 31, 2016.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rate. The Company’s bank accounts earn interest income at variable rates. The bullion loan carries a fixed rate of interest. The Company’s future interest income is exposed to changes in short-term rates. As at August 31, 2017, a 1% increase/decrease in interest rates would decrease/increase net loss for the period by approximately $10,000 (2016 - $1,000).
39
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
11. | Financial Instruments (continued) |
Liquidity Risk
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at August 31, 2017, the Company had current assets of $1,922,088 (August 31, 2016 - $1,032,319) and current liabilities of $8,474,464 (August 31, 2016 - $12,868,533). All of the Company’s trade payables and receivables have contractual maturities of less than 90 days and are subject to normal trade terms. Current working capital deficiency of the Company is $6,552,376 (August 31, 2016 - $11,836,214 working capital deficiency). The Company will require additional financing in order to conduct its planned work programs on mineral properties and the development and construction of the Buckreef Project, meet its ongoing levels of corporate overhead and discharge its liabilities as they come due.
Foreign Currency Risk
The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company has offices in Canada, USA, and Tanzania, but holds cash mainly in Canadian and United States currencies. A significant change in the currency exchange rates between the Canadian dollar relative to US dollar and Tanzanian shillings could have an effect on the Company’s results of operations, financial position, or cash flows. At August 31, 2017, the Company had no hedging agreements in place with respect to foreign exchange rates. As a majority of the transactions of the Company are denominated in US and Tanzanian Shilling currencies, a 10% movement in the foreign exchange rate will have an impact of approximate $573,000 on the consolidated statements of comprehensive loss.
12. | Other receivables |
The Company’s other receivables arise from two main sources: receivables due from related parties and harmonized services tax (“HST”) and value added tax (“VAT”) receivable from government taxation authorities. These are broken down as follows:
August 31, 2017 | August 31, 2016 | |||||||
Receivable from related parties | $ | 43,497 | $ | 39,559 | ||||
HST and VAT Receivable | 169,533 | 199,967 | ||||||
Other | 115,978 | 14,863 | ||||||
Total Trade and Other Receivables | $ | 329,008 | $ | 254,389 |
Below is an aged analysis of the Company’s other receivables:
August 31, 2017 | August 31, 2016 | |||||||
Less than 1 month | $ | 50,715 | $ | 43,788 | ||||
1 to 3 months | 11,870 | 2,437 | ||||||
Over 3 months | 266,423 | 208,164 | ||||||
Total Other Receivables | $ | 329,008 | $ | 254,389 |
At August 31, 2017, the Company anticipates full recovery of these amounts and therefore no impairment has been recorded against these receivables. The credit risk on the receivables has been further discussed in Note 11.
The Company holds no collateral for any receivable amounts outstanding as at August 31, 2017.
40
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
13. | Prepaid and other assets |
August 31, 2017 | August 31, 2016 | |||||||
Insurance | $ | 17,820 | $ | 66,945 | ||||
Listing fees | 29,627 | 28,672 | ||||||
Other | 26,851 | 57,792 | ||||||
Total prepaid expenses | $ | 74,298 | $ | 153,409 |
14. | Trade, other payables and accrued liabilities |
Trade and other payables of the Company are principally comprised of amounts outstanding for trade purchases relating to exploration activities and payroll liabilities. The usual credit period taken for trade purchases is between 30 to 90 days.
The following is an aged analysis of the trade, other payables and accrued liabilities:
August 31, 2017 | August 31, 2016 | |||||||
Less than 1 month | $ | 159,944 | $ | 353,858 | ||||
1 to 3 months | 411,543 | 95,308 | ||||||
Over 3 months | 4,645,216 | 4,378,342 | ||||||
Total Trade, Other Payables and Accrued Liabilities | $ | 5,216,703 | $ | 4,827,508 |
15. | Inventory |
Inventory consists of stockpiled ore and supplies consumed during the course of exploration development and operations. Cost represents the delivered price of the item. The following is a breakdown of items in inventory:
August 31, 2017 | August 31, 2016 | |||||||
Stockpiled ore and work in progress | $ | 503,187 | $ | 535,062 | ||||
Supplies | 4,302 | 4,546 | ||||||
Total Inventory | $ | 507,489 | $ | 539,608 |
16. | Cash |
As at August 31, 2017, cash and cash equivalents total $1,011,293 (August 31, 2016 - $84,913), consisting of cash on deposit with banks in general minimum interest bearing accounts.
41
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
17. | Segmented information |
Operating Segments
At August 31, 2017 the Company’s operations comprise of a single reporting operating segment engaged in mineral exploration in Tanzania. The Company’s corporate division only earns interest revenue that is considered incidental to the activities of the Company and therefore does not meet the definition of an operating segment as defined in IFRS 8 ‘Operating Segments’. As the operations comprise a single reporting segment, amounts disclosed in the consolidated financial statements also represent operating segment amounts.
An operating segment is defined as a component of the Company:
• that engages in business activities from which it may earn revenues and incur expenses;
• whose operating results are reviewed regularly by the entity’s chief operating decision maker; and
• for which discrete financial information is available.
Geographic Segments
The Company is in the business of mineral exploration and production in the country of Tanzania. Information concerning TREC’s geographic locations is as follows:
As at August 31, 2017 | As at August 31, 2016 | |||||||
Identifiable assets | ||||||||
Canada | $ | 1,184,932 | $ | 262,798 | ||||
Tanzania | 50,168,156 | 49,622,747 | ||||||
$ | 51,353,088 | $ | 49,885,545 | |||||
Non-current assets | ||||||||
Canada | $ | 10,064 | $ | 14,162 | ||||
Tanzania | 49,410,936 | 48,839,064 | ||||||
$ | 49,421,000 | $ | 48,853,226 |
18. | Commitments |
In order to maintain the existing site of mining and exploration licenses, the Company is required to pay annual license fees. The Company has not paid its annual license fees since October 2014 with exception of Buckreef mining licenses. As at August 31, 2017 an accrual of $817,000 (August 31, 2016 - $780,000) has been recorded relating to unpaid license fees. Note that these licenses remain in good standing until a letter of demand is received from Ministry of Energy and Minerals requesting payment of any unpaid license fees plus 50% penalty, and the Company fails to respond within 30 days. The Company has not received a letter of demand. The potential penalty relating to unpaid license fees is approximately $404,000 (August 31, 2016 - $390,000). The Company has recorded an accrual for all valid and active mining licenses.
42
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
19. | Asset Retirement Obligation |
The Company's asset retirement obligation relates to the cost of removing and restoring of the Buckreef Project in Tanzania. Significant reclamation and closure activities include land rehabilitation, demolition of buildings and mine facilities, ongoing care and maintenance and other costs. This estimate depends on the development of environmentally acceptable mine closure plan.
A reconciliation for asset retirement obligations is as follows:
August 31, 2017 | August 31, 2016 | |||||||
Balance, beginning of period/year | $ | 704,123 | $ | 680,000 | ||||
Accretion expense | 10,934 | 24,123 | ||||||
Balance, end of the period/year | $ | 715,057 | $ | 704,123 |
The mine closure provision liability is based upon the following estimates and assumptions:
a) | Total undiscounted amount of future retirement costs was estimated to be USD $522,000. |
b) | Risk-free rate at 1.58%. |
c) | Expected timing of cash outflows required to settle the obligation is for the full amount to be paid in 2025. |
d) | Inflation over the period from is estimated to be 1.5% per annum. |
20. | Non-Controlling Interest |
The changes to the non-controlling interest for the years ended August 31, 2017 and 2016 are as follows:
Year ended | August 31, 2017 | August 31, 2016 | ||||||
Balance at beginning of year | $ | 1,368,679 | $ | 1,520,717 | ||||
Non-controlling interest’s 45% share of Buckreef’s comprehensive loss | (458,573 | ) | (150,842 | ) | ||||
Non-controlling interest’s 25% share of NWBM’s comprehensive income (loss) | (9,781 | ) | (1,196 | ) | ||||
Balance at end of year | $ | 900,325 | $ | 1,368,679 |
The following is summarized financial information for Buckreef:
August 31, 2017 | August 31, 2016 | |||||||
Current assets | $ | 687,195 | $ | 682,620 | ||||
Long term assets | 20,651,428 | 18,712,913 | ||||||
Current liabilities | (17,390 | ) | (29,947 | ) | ||||
Asset retirement obligation | (715,057 | ) | (704,123 | ) | ||||
Advances from parent | (21,653,034 | ) | (20,831,251 | ) | ||||
Net income (loss) for the year | (1,345,872 | ) | (335,204 | ) |
43
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
20. | Non-Controlling Interest (continued) |
The following is summarized financial information for NWBM:
August 31, 2017 | August 31, 2016 | |||||||
Current assets | $ | - | $ | - | ||||
Long term assets | - | - | ||||||
Current liabilities | (7,462 | ) | (8,225 | ) | ||||
Advances from parent | (1,499,448 | ) | (1,499,430 | ) | ||||
Net income (loss) for the year | (51,668 | ) | (4,787 | ) |
21. | Gold Bullion Loans |
Activity during the year ended August 31, 2017:
There were no new gold loan issuances during the year ended August 31, 2017.
The Company entered into extension agreements in regards to USD$1,530,000 in gold loans closed on June 22, 2015, extending the term by one year to June 22, 2018, but modifying no other terms of the 2015 loans.
Activity during the year ended August 31, 2016:
During the year ended August 31, 2016, the Company closed the following gold loans with the following terms:
· | US$1,000,000 – Under the terms of the loan agreements, the gold loans are for a period of three year, are subject to renewal, and carry an 8% interest rate payable quarterly. At the sole discretion of the lender, the bullion loans may be repaid in cash or common shares of the Company or gold in specified form. If the bullion loans are paid back by bullion, the valuation date for such bullion will the date of the loan agreements. The bullion loans may be converted into common shares of the Company at the sole discretion of the lenders at an exercise price of US$0.70 per share. Interest is payable quarterly, either in cash or in shares at a price of US$0.308 per share. |
· | US$104,540 – Under the terms of the loan agreements, the gold loans are for a period of one year, are subject to renewal, and carry an 8% interest rate payable quarterly. At the sole discretion of the lender, the bullion loans may be repaid in cash or common shares of the Company or gold in specified form. If the bullion loans are paid back by bullion, the valuation date for such bullion will the date of the loan agreements. The bullion loans may be converted into common shares of the Company at the sole discretion of the lenders at an exercise price of US$0.50 per share. Interest is payable quarterly, either in cash or in shares at a price of US$0.375 per share. |
· | US$200,000 – Under the terms of the loan agreements, the gold loans are for a period of one year, are subject to renewal, and carry an 8% interest rate payable quarterly. At the sole discretion of the lender, the bullion loans may be repaid in cash or common shares of the Company or gold in specified form. If the bullion loans are paid back by bullion, the valuation date for such bullion will the date of the loan agreements. The bullion loans may be converted into common shares of the Company at the sole discretion of the lenders at an exercise price of US$0.40 per share. Interest is payable quarterly, either in cash or in shares at a price of US$0.39 per share. |
An 8% finder’s fee was paid through the issuance of 320,543 common shares at a price of $1.49 per share with a value of $477,609.
44
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
21. | Gold Bullion Loans (continued) |
The balance of the gold bullion loans is as follows:
August 31, 2017 | August 31, 2016 | |||||||
Balance at beginning of year | $ | 3,121,831 | $ | 1,205,981 | ||||
Proceeds from gold loans in gold bullion | - | 1,729,000 | ||||||
Less: derivative in gold bullion loans | - | (372,000 | ) | |||||
Less: transaction costs | - | (477,609 | ) | |||||
Interest accrued | 293,278 | 260,222 | ||||||
Issuance of shares for interest payment | (328,033 | ) | (188,829 | ) | ||||
Interest accretion | 449,460 | 1,020,783 | ||||||
Foreign exchange translation adjustment | (141,538 | ) | (55,717 | ) | ||||
Balance at end of year | $ | 3,394,998 | $ | 3,121,831 |
Classification:
Short term portion of gold loan | $ | 2,335,474 | $ | 2,180,425 | ||||
Long term portion of gold loan | 1,059,524 | 941,406 | ||||||
Balance at end of year | $ | 3,394,998 | $ | 3,121,831 |
Interest expense related to the gold bullion loan amounted to $293,278 (2016 - $260,222), for the year ended August 31, 2017 and is recorded as finance charge in the statements of comprehensive loss. Accretion expense during the year ended August 31, 2017 totaled $449,460 (2016 - $1,020,783).
During the year ended August 31, 2017, the Company issued 814,089 shares (2016 – 536,137 shares) with a fair value of $542,447 (2016 - $372,130) (Note 6) to settle interest of $328,033 (2016 - $199,663), resulting in a loss of $214,414 (2016 - $172,467) and is recorded in the statements of comprehensive loss.
Derivative in gold bullion loans:
Prior to September 1, 2016 the derivative in gold bullion loans consisted of conversion options issued on gold bullion loans which had exercise prices denominated in a currency other than the Company’s functional currency, which at that time was the Canadian dollar. During the period that the Canadian dollar was the Company’s functional currency, derivatives in gold bullion loans that were exercisable in U.S. dollars were classified as derivative liabilities. Upon the change in functional currency to the U.S. dollar, these derivative liabilities were no longer classified as derivatives and an amount of $5,051,000 was reclassified to reserve for share based payments.
Value of derivatives on issuance:
For the year ended August 31, 2016:
The assumptions in valuing the embedded derivative on issuance include an expected volatility ranging between 77% - 100%, a risk free interest rate of 0.45% - 0.89% and an expected life of 1 – 3 years resulting in a fair value of $372,000 on issuance.
45
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
21. | Gold Bullion Loans (continued) |
Value of derivatives at end of period/year:
The assumptions in valuing the embedded derivative as at August 31, 2016 include an expected volatility ranging between 98% - 138%, a risk free interest rate ranging between 0.61% - 0.81% and an expected life ranging between 0.7 – 2.1 years resulting in a fair value of $5,051,000 as at August 31, 2016. During the year ended August 31, 2017, the $5,051,000 was reclassified to reserve for share based payments upon the change in functional currency on September 1, 2016.
The movement in value of $nil during the year ended August 31, 2017 (2016 – $3,828,000 increase) resulted in no gain or loss (2016 – loss) in the statement of comprehensive loss.
22. | Finance costs |
Finance costs comprises of the following:
Year ended August 31, 2017 | Year ended August 31, 2016 | |||||||
Interest on Gold Bullion Loans (Note 21) | $ | 293,278 | $ | 260,222 | ||||
Interest on Convertible Loans (Note 23) | 54,140 | - | ||||||
Interest on Convertible Senior Notes | 1,991 | |||||||
$ | 347,418 | $ | 262,213 |
23. | Convertible loans |
Activity during the year ended August 31, 2017:
During the year ended August 31, 2017, the Company received loans in the amount of $1,181,993 (US$884,078) with a one year term with a right to extend by 1 additional year by mutual consent, carrying an 8% interest rate payable quarterly. The convertible loans may be repaid in cash or common shares of the Company at the option of the lender. The convertible loans may be converted into common shares of the Company at the sole discretion of the lender at an exercise price of US$0.36 – US$0.38 per share. Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.34 – US$0.36 per share.
In connection with the loans, the Company paid a finder’s fee via the issuance of an aggregate of 132,577 common shares with a value of $92,805.
On July 19, 2017, the Company settled $63,075 (US$50,000) of principal amount of outstanding loans through the issuance of 83,333 shares with a value of $49,166 resulting on a gain on settlement of $13,909.
Activity during the year ended August 31, 2016:
During the year ended August 31, 2016, the Company received loans in the amount of $267,264 maturing during fiscal 2017, carrying an 8% interest rate payable quarterly. The convertible loans may be repaid in cash or common shares of the Company at the option of the lender. The convertible loan may be converted into common shares of the Company at the sole discretion of the lender at an exercise price of US$0.50 – US$0.60 per share. Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.364 - $0.50 per share.
46
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
23. | Convertible loans (continued) |
The balance of the convertible loans is as follows:
August 31, 2017 | August 31, 2016 | |||||||
Balance at beginning of year | $ | 245,497 | $ | - | ||||
Proceeds from convertible loans | 1,181,993 | 267,264 | ||||||
Conversion of convertible loan to shares | (63,075 | ) | - | |||||
Less: conversion component of convertible loans | (625,000 | ) | (31,000 | ) | ||||
Less: finders fee | (92,805 | ) | - | |||||
Interest accrued | 24,878 | - | ||||||
Interest accretion | 276,236 | 7,750 | ||||||
Foreign exchange | (82,068 | ) | 1,483 | |||||
Balance at end of year | $ | 865,656 | $ | 245,497 |
Interest accretion expense related to these loans during the year ended August 31, 2017 totaled $276,236 (2016 - $7,750).
Conversion component of convertible loans:
The assumptions in valuing the conversion component of convertible loans on issuance during the year ended August 31, 2017 include an expected volatility of 94% - 100%, a risk free interest rate of 0.74% - 0.83% and an expected life of 1 year resulting in a fair value of $625,000 on issuance.
Derivative in convertible loan:
Prior to September 1, 2016 the derivative in gold bullion loans consisted of conversion options issued on gold bullion loans which had exercise prices denominated in a currency other than the Company’s functional currency, which at that time was the Canadian dollar. During the period that the Canadian dollar was the Company’s functional currency, derivatives in gold bullion loans that were exercisable in U.S. dollars were classified as derivative liabilities. Upon the change in functional currency to the U.S. dollar, these derivative liabilities were no longer classified as derivatives and an amount of $108,000 was reclassified to reserve for share based payments.
The assumptions in valuing the embedded derivative on issuance include an expected volatility of 100%, a risk free interest rate of 0.68% and an expected life of 1 year resulting in a fair value of $31,000 on issuance.
The assumptions in valuing the embedded derivative as at August 31, 2016 include an expected volatility of 101%, a risk free interest rate of 0.61% and an expected life of 0.71 years resulting in a fair value of $108,000 at August 31, 2016. During the year ended August 31, 2017, the $108,000 was reclassified to reserve for share based payments upon the change in functional currency on September 1, 2016.
24. | Comparative figures |
Certain comparative figures have been reclassified to conform to the current years’ presentation. These reclassifications did not affect prior years’ net losses.
47
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
25. | Taxes |
The Company’s provision for income taxes differs from the amount computed by applying the combined federal and provincial income tax rates to income (loss) before income taxes as a result of the following:
2017 | 2016 | |||||||
Combined basic Canadian federal and provincial statutory income tax rates including surtaxes | 26.50 | % | 26.50 | % | ||||
Statutory income tax rates applied to accounting income | $ | (1,705,000 | ) | $ | (3,387,000 | ) | ||
Increase (decrease) in provision for income taxes: | ||||||||
Foreign tax rates different from statutory rate | (156,000 | ) | (152,000 | ) | ||||
Permanent differences and other items | 789,000 | 2,010,000 | ||||||
Benefit of tax losses not recognized | 1,072,000 | 1,529,000 | ||||||
Provision for income taxes | $ | - | $ | - |
The enacted tax rates in Canada of 26.50% (26.25% - 2016) and Tanzania of 30% (2016 - 30%) where the Company operates are applied in the tax provision calculation. The combined Canadian federal and provincial statutory rate has increased from the prior period due to a scheduled enacted rate increase.
The following table reflects the Company’s deferred income tax assets (liabilities):
The tax effects of significant temporary differences which would comprise deferred income tax assets and liabilities at August 31, 2017 and 2016 are as follows:
Deferred Income Tax Liabilities | Mineral properties | Debt issuance cost | Total | |||||||||
At August 31, 2015 | $ | (11,038,000 | ) | $ | (23,000 | ) | $ | (11,061,000 | ) | |||
Charged to the consolidated statement of comprehensive loss | 724,000 | (49,000 | ) | 675,000 | ||||||||
At August 31, 2016 | $ | (10,314,000 | ) | $ | (72,000 | ) | $ | (10,386,000 | ) | |||
Charged to the consolidated statement of comprehensive loss | (508,000 | ) | (54,000 | ) | (562,000 | ) | ||||||
At August 31, 2017 | $ | (10,822,000 | ) | $ | (126,000 | ) | $ | (10,948,000 | ) |
Deferred Income Tax Assets | Non-capital losses | Non-capital losses | Total | |||||||||
At August 31, 2015 | $ | 11,038,000 | $ | 23,000 | $ | 11,061,000 | ||||||
Charged to the consolidated statement of comprehensive loss | (724,000 | ) | 49,000 | (675,000 | ) | |||||||
At August 31, 2016 | $ | 10,314,000 | $ | 72,000 | $ | 10,386,000 | ||||||
Charged to the consolidated statement of comprehensive loss | 508,000 | 54,000 | 562,000 | |||||||||
At August 31, 2017 | $ | 10,822,000 | $ | 126,000 | $ | 10,948,000 | ||||||
Net deferred tax assets (liabilities) | $ | - | $ | - | $ | - |
48
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
25. | Taxes (continued) |
The following temporary differences have not been recognized in the Company’s consolidated financial statements:
August 31, 2017 | August 31, 2016 | |||||||
Non capital losses | $ | 38,767,000 | $ | 39,259,000 | ||||
Property, plant and equipment | 207,000 | 199,000 | ||||||
Capital losses | 127,000 | 127,000 | ||||||
$ | 39,101,000 | $ | 39,585,000 |
At August 31, 2017, the Company has Tanzanian non-capital losses of $15,480,000 (2016 - $18,203,000), that have not been recognized and may be carried forward and applied against Tanzania taxable income of future years. The non-capital loss may be carried forward without limitation.
At August 31, 2017, the Company has non-capital losses of $23,287,000 (2016 - $21,056,000), that have not been recognized and may be carried forward and applied against Canadian taxable income of future years. The non-capital losses have expiry dates as follows:
2015 | $ | - | ||
2026 | 1,711,000 | |||
2027 | 1,388,000 | |||
2028 | 1,333,000 | |||
2029 | 1,587,000 | |||
2030 | 1,427,000 | |||
2031 | 2,378,000 | |||
2032 | 2,496,000 | |||
2033 | 2,352,000 | |||
2034 | 2,195,000 | |||
2035 | 1,983,000 | |||
2036 | 2,050,000 | |||
2037 | 2,387,000 | |||
$ | 23,287,000 |
At August 31, 2017, $nil (2016 - $nil) was recognized as a deferred tax liability for taxes that would be payable as the Company’s subsidiaries have a deficit.
26. | Events subsequent to the reporting period |
Subsequent to the period, the Company received loans in the amount of US$339,710 maturing in 1 year with a right to extend by 1 additional year by mutual consent, carrying an 8% interest rate payable quarterly. The convertible loans may be repaid in cash or common shares of the Company at the option of the lender. The convertible loan may be converted into common shares of the Company at the sole discretion of the lender at an exercise price of US$0.36 per share. Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.36 per share.
In connection with the loans, the Company paid a finder’s fee via the issuance of an aggregate of 214,864 common shares.
49
Exhibit 99.2
Management Discussion and Analysis
August 31, 2017
The following Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations for Tanzanian Royalty Exploration Corporation (the “Company”) should be read in conjunction with the audited consolidated financial statements for the years ended August 31, 2017 and 2016. The MD&A was prepared as of November 29, 2017. All amounts are in Canadian dollars, unless otherwise specified.
Highlights – for the year ended August 31, 2017
Financial:
• | Subsequent to the period, the Company received loans in the amount of US$339,710 maturing in 1 year with a right to extend by 1 additional year by mutual consent, carrying an 8% interest rate payable quarterly. The convertible loans may be repaid in cash or common shares of the Company at the option of the lender.The convertible loan may be converted into common shares of the Company at the sole discretion of the lender at an exercise price of US$0.36 per share.Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.36 per share. |
• | In connection with the loans, the Company paid a finder’s fee via the issuance of an aggregate of 214,864 common shares. |
• | The Company also entered into extension agreements in regards to USD$1,530,000 in gold loans closed on June 22, 2015, extending the term by one year to June 22, 2018, but modifying no other terms of the 2015 loans. |
• | During the year ended August 31, 2017, the Company received loans in the amount of US$884,078 with a one year term with a right to extend by 1 additional year by mutual consent, carrying an 8% interest rate payable quarterly. The convertible loans may be repaid in cash or common shares of the Company at the option of the lender.The convertible loans may be converted into common shares of the Company at the sole discretion of the lender at an exercise price of US$0.36 – US$0.38 per share.Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.34 – US$0.36 per share. |
In connection with the loans, the Company paid a finder’s fee via the issuance of an aggregate of 132,577 common shares with a value of $92,805. | |
• | On July 19, 2017, the Company settled $63,075 (US$50,000) of principal amount of outstanding loans through the issuance of 83,333 shares with a value of $49,166 resulting on a gain on settlement of $13,909. |
1
Management Discussion and Analysis
August 31, 2017
• | On September 1, 2016, the Company closed the first tranche of a $5 Million private placement of securities with Crede CG III, Ltd. | |
In the initial round of financing, the Company privately placed 1,840,400 shares of its common stock and warrants for US$1.25 million. The common stock issued in the first tranche of the financing, which closed on September 1, 2016, was priced at US$0.6792 per share. The investor also received five-year warrants to purchase 1,840,400 shares of Common Stock with an exercise price of US$0.8291 per share. The common stock issued in the first tranche of the financing or issued upon exercise of the warrants issued in the first tranche of the financing will be restricted until a valid registration for such common stock becomes effective. | ||
On September 26, 2016, the Company closed the second tranche of the $5 million private placement of securities with Crede CG III, Ltd. | ||
In the second round of the financing, the Company privately placed convertible notes and warrants for US$3.75 million. The convertible notes were issued in the principal amount of US$3.75 million, carried a coupon of 2.0% and matured on September 26, 2046. The Company immediately exercised its right to cause the conversion of the convertible notes, resulting in the cancellation of the notes and the issuance of 5,357,143 shares of common stock to the investor. The investor also received five-year warrants to purchase 4,017,857 shares of common stock at an exercise price of US$1.10 per share. The closing of the second tranche of the financing was conditioned upon a valid registration statement for the common stock issued or issuable to the investor upon exercise of warrants being declared effective by the U.S. Securities and Exchange Commission. The Commission declared the Company’s Form F-3 Registration Statement registering the stock effective on September 23, 2016. | ||
• | During the year ended August 31, 2016, the Company closed US $1,000,000 in gold loans with the following terms: | |
• | Under the terms of the loan agreements, the gold loans are for a period of three years, are subject to renewal, and carry an 8% interest rate payable quarterly. The bullion loans may be repaid in cash or common shares of the Company or gold in specified form.If the bullion loans are paid back by bullion, the valuation date for such bullion will the date of the loan agreements. The bullion loans may be converted into common shares of the Company at the sole discretion of the lenders at an exercise price of US$0.70 per share.Interest is payable quarterly, either in cash or in shares at a price of US$0.308 per share. There is no prepayment penalty. |
2
Management Discussion and Analysis
August 31, 2017
The Company also closed and additional US $100,000 in gold loans with the following terms: |
• | Under the terms of the loan agreements, the gold loans are for a period of one year, are subject to renewal, and carry an 8% interest rate payable quarterly. The bullion loans may be repaid in cash or common shares of the Company or gold in specified form. If the bullion loans are paid back by bullion, the valuation date for such bullion will the date of the loan agreements. The bullion loans may be converted into common shares of the Company at the sole discretion of the lenders at an exercise price of US$0.50 per share. Interest is payable quarterly, either in cash or in shares at a price of US$0.375 per share. There is no prepayment penalty. |
The Company also closed and additional US $200,000 in gold loans with the following terms: |
• | Under the terms of the loan agreements, the gold loans are for a period of one year, are subject to renewal, and carry an 8% interest rate payable quarterly. The bullion loans may be repaid in cash or common shares of the Company or gold in specified form. If the bullion loans are paid back by bullion, the valuation date for such bullion will the date of the loan agreements. The bullion loans may be converted into common shares of the Company at the sole discretion of the lenders at an exercise price of US$0.40 per share. Interest is payable quarterly, either in cash or in shares at a price of US$0.38 per share. There is no prepayment penalty. |
• | On July 8, 2015, the Company closed US $1,530,000 million dollar "bullion loans”. |
Under the terms of the loan agreements, the bullion loans are for a period of one year, are subject to renewal, and carry an 8% interest rate payable quarterly. The bullion loans may be repaid in cash or common shares of the Company or gold in specified form at the option of the lender. If the bullion loans are paid back by bullion, the valuation date for such bullion will be the date of the loan agreements. The bullion loans may be converted into common shares of the Company at the sole discretion of the lenders at an exercise price of US$0.27658 per share. Interest is payable quarterly, either in cash or in shares at a price of US$0.27658 per share at the option of the lender. There is no prepayment penalty. An 8% finder’s fee was paid through the issuance of 442,548 common shares at a price of $0.40 per share with a value of $177,019. |
3
Management Discussion and Analysis
August 31, 2017
Operational:
• | Tanzania suspended granting of new mining licenses and froze the renewal of expired mining permits until further notice under their new legislative changes that seek to enable the government to re-negotiate of Mining Developments Agreements among other things. |
• | The signing of the Buckreef Special Mining Licence renewal application certificate which was postponed in March 2017 is still on the hold as the Minister of Energy and Minerals was fired from his post during the quarter. |
• | The company successfully completed ground clearing and surveying the demarcated Buckreef mega-pit outline. |
• | Proposed Grade Control drill collars were marked and surveyed covering the entire Buckreef mega-pit site. |
• | The company also commenced ground clearing of the two sites proposed for the construction of the tailings storage facility (TSF) for the Buckreef mining operation. |
• | An updated internal report on the financial projections for the Buckreef Mine Closure Conceptual Plan was completed. |
• | No mining or ore processing activities conducted at South Pit and Plant during the month. Status is still care and maintenance while we wait for the issuance of the renewed SML certificate. |
• | Cumulative Total Ore mined from the Buckreef South Pit (ROMPad + Pad#1-Pad#3+Crusher pad) as of 31st August, 2017 remains at 119,725.59 tonnes averaging 1.86g/t Au with total contained metal ounces of 7,161.24. |
• | The disposition of the Ore stockpiled as of 31st August 2017, remains as follows: ROMPAD: 72,315.66t @1.39g/t Au (3,237.96 Ozs); Pad#1: 20,931.75t @2.29g/t Au (1,541.77 Ozs); Pad#2: 12,943.78t @2.78g/t Au (1,155.55 Ozs); Pad#3: 11,232.90t @ 3.85g/t Au (1,389.27 Ozs) & Crusher Pad: 2,250t @ 3.88g/t Au (280.84 Ozs). |
• | Illegal mining activities at the Buziba, Eastern Porphyry Prospect, Bingwa Prospect, Kihesa Area and Tembo North have persisted throughout the 4th quarter as efforts to evict the illegal miners from these areas have been unsuccessful with local government officials insisting we pay land-holders their relocation and compensation figures first. |
4
Management Discussion and Analysis
August 31, 2017
Overall Performance
As at August 31, 2017, the Company had current assets of $1,922,088, compared to $1,032,319 on August 31, 2016. The increase is mainly due to the cash inflow of $5,589,501 (2016 - $nil) in connection with the proceeds of the private placements, net of issue costs, closed during September 2016 as well as inflows from proceeds of convertible loans issued of $1,181,993 (2016 - $221,115). This was offset by outflows in regards to expenditures on exploration of $1,568,614 (2016 - $688,296) and cash used in operations of $4,283,489 (2016 - $1,914,495). Mineral properties and deferred exploration assets were $46,920,303 as at August 31, 2017, compared to $45,802,858 at August 31, 2016.
Net loss for the year ended August 31, 2017 was $6,434,112, compared to a net loss of $12,781,902 in the comparable year ended August 31, 2016. The main difference in net loss between the two periods is due to the following fluctuations:
- | An increase in consulting fees for the year ended August 31, 2017 to $805,943, compared to $432,316 in the comparable year ended August 31, 2016. Consulting expenses increased during the current period as the Company hired consultants in an effort to advance its Buckreef project. The consultants were hired to advise in regards to the status of the processing plant and any modifications and changes to the operational process, and many were hired in replacement of salaried management and personnel that resigned or were let go during the course of the last year resulting in a decrease in salaries and benefits expense amounting to $458,700 for the year ended August 31, 2017 as compared to $623,716 for comparable period in 2016. |
- | An increase in professional fees expense to $754,738 for the year ended August 31, 2017, compared to $387,177 for the year ended August 31, 2016. Professional fees increased mainly due to various work surrounding the adoption of the stock option plan as well as continuing legal fees from the resolution of the Force Majeure matters. |
- | Higher share based payment expense of $1,772,663 during the year ended August 31, 2017, as compared to a recovery of $38,996 during the year ended August 31, 2016. The increase is due to the Company adopting a stock option plan during the period and issuing 3,750,000 options (2016 – nil) with a value of $1,725,000 (2016 - $nil) offset by the number of RSU’s forfeited during the current period resulting in a recovery of RSU expense (see note 6 of the audited consolidated financial statements for the year ended August 31, 2017 and 2016 for details of RSU’s and stock options issued). |
- | A decrease in the loss on the revaluation of derivative liability and change in value of warrant liability to $nil and $nil respectively for the year ended August 31, 2017 as compared to a loss of $3,905,000 and $946,600 respectively for the year ended August 31, 2016. During the year ended August 31, 2017, as a result of the change in functional currency, gains and losses on derivative instruments are no longer recognized. |
- | A decrease in write offs of mineral properties to $124,717 during the year ended August 31, 2017, compared to $3,516,268 during the year ended August 31, 2016. See details in note 4 of the audited consolidated financial statements for the years ended August 31, 2017 and 2016 for details. |
5
Management Discussion and Analysis
August 31, 2017
The remainder of the expenses primarily decreased in comparison to the prior period as the Company looked to be more cost effective as it worked towards securing additional financing and moving its Buckreef project into production. These variances are further discussed below.
Share Capital:
During the year ended August 31, 2017, the Company issued 695,991 shares (2016 – 50,000 shares) pursuant to the RSU plan with a value of $1,040,990 (2016 - $120,500). The Company issued 814,089 (2016 – 536,137) shares with a value of $542,447 (2016 - $372,130) in connection with interest payments related to the bullion loans outstanding. The Company issued 458,329 and 187,321 shares with a value of $288,747 and $131,998 respectively for settlement of various leases and amounts due to related parties, respectively. The Company also completed its private placement financing in September 2016 issuing 7,197,543 shares for proceeds, net of issue costs, of $5,589,501 (2016 - $nil). In connection with the private placement closed in September 2016, the Company also issued 3,146,944 (2016 – 233,258) shares pursuant to cashless exercise of warrants issued on the private placement. In the current period, capital was utilized for the Buckreef Gold Project development, property acquisition, exploration, capital equipment purchases and general operating expenses as tabulated below. The remaining funds/cash liquid assets, when available, are invested in interest bearing investments, which are highly liquid.
C$ (000) | ||||
Funds available August 31, 2016 | 85 | |||
Proceeds from private placements, net of issue costs | 5,590 | |||
Net proceeds from convertible loans | 1,182 | |||
Net proceeds (repayments) from loans from related parties | (33) | |||
Mineral property expenditures including licences, environmental and exploration, net of recoveries | (1,568) | |||
General corporate expenses | (4,245) | |||
Funds available August 31, 2017 | $1,011 |
At August 31, 2017, the Company had a working capital deficiency of $6,552,376 (August 31, 2016 – $11,836,214 working capital deficiency), had not yet achieved profitable operations, has accumulated losses of $96,566,577 (August 31, 2016 – $90,600,819) and expects to incur further losses in the development of its business. The Company will require additional financing in order to conduct its planned work programs on mineral properties, meet its ongoing levels of corporate overhead and discharge its future liabilities as they come due.
Based on the Company’s current funding sources and taking into account the working capital position and capital requirements at August 31, 2017, these factors indicate the existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern and is dependent on the Company raising additional debt or equity financing. In September 2016, the Company raised US$5 Million financing. The Company must obtain additional funding in order to continue development and construction of the Buckreef Project. The Company presently does not have adequate resources to maintain its core activities for the next fiscal year or sufficient working capital to fund all of its planned activities. The Company is continuing to pursue additional financing to fund the construction of the Buckreef Project and additional projects. However there is no assurance that such additional funding and/or project financing will be obtained or obtained on commercially favourable terms.
6
Management Discussion and Analysis
August 31, 2017
Additional funding may be derived from revenues generated in the future from anticipated completion and operation of its Buckreef mine currently under development. Management continues to explore alternative financing sources in the form of equity, debt or a combination thereof; however, the current economic uncertainty and financial market volatility make it difficult to predict success. Risk factors potentially influencing the Company’s ability to raise equity or debt financing include: the outcome of the feasibility study at the Buckreef Project, mineral prices, the risk of operating in a foreign country, including, without limitation, risks relating to permitting, and the buoyancy of the credit and equity markets. For a more detailed list of risk factors, refer to the Company’s Form 20-F Annual Report for the year ended August 31, 2017, which is filed on SEDAR as the Company’s Annual Information Form.
Due to the current low interest rate environment and lack of funds, interest income is not expected to be a significant source of income or cash flow. Management intends to monitor spending and assess results on an ongoing basis and will make appropriate changes as required.
TRENDS
• | There are significant uncertainties regarding the prices of precious and base metals and other minerals and the availability of equity and debt financing for the purposes of mineral exploration and development. The prices of precious and base metals have been subject to extreme volatility over recent periods, as such the Company remains cautious; |
• | The Company’s future performance is largely tied to development of the Buckreef project and other main projects and outcome of future drilling results; and |
• | Current financial markets are likely to be volatile in Canada and the United States for the remainder of the fiscal year, reflecting ongoing concerns about the stability of the global economy. As well, concern about global growth may lead to future drops in the commodity markets. Uncertainty in the credit markets has also led to increased difficulties in borrowing or raising funds. Companies worldwide have been negatively affected by these trends. As a result, the Company may have difficulties raising equity and debt financing for the purposes of base and precious metals exploration and development. |
These trends may limit the Company’s ability to discover and develop an economically viable mineral deposit.
7
Management Discussion and Analysis
August 31, 2017
Selected Financial Information
As at and for the year ended August 31, 2017 | As at and for the year ended August 31, 2016 | As at and for the year ended August 31, 2015 | ||||||||||
Total Revenues | $ | 0 | $ | 0 | $ | 0 | ||||||
Net income (loss) for the period | $ | (6,434,112 | ) | $ | (12,781,902 | ) | $ | (8,995,697 | ) | |||
Basic income (loss) per share | $ | (0.05 | ) | $ | (0.12 | ) | $ | (0.09 | ) | |||
Diluted income (loss) per share | $ | (0.05 | ) | $ | (0.12 | ) | $ | (0.09 | ) | |||
Total assets | $ | 51,353,088 | $ | 49,885,545 | $ | 53,108,859 | ||||||
Total long term financial liabilities | $ | 1,774,581 | $ | 1,645,529 | $ | 680,000 | ||||||
Cash dividends declared per share | $ | 0 | $ | 0 | $ | 0 |
Results of Operations
Net additions to mineral properties and deferred exploration costs for the year ended August 31, 2017 were $1,242,162 compared to $1,168,935 for the year ended August 31, 2016. The amount has increased as compared with the prior year due primarily to additions of $1,900,000 in connection with accrued amounts owing in connection with the Buckreef joint venture, offset by $1,933,614 (2016 - $nil) representing a decrease due to foreign exchange in the current period stemming from the change in functional currency from Canadian dollars to US dollars as of September 1, 2016. The increase excluding these amounts saw expenditures of $1,425,776 year ended August 31, 2017 compared to $1,168,935 during 2016 is due to the Company’s recently closed private placement financing out of which resources were allocated to license fees and other costs to keep properties in good standing and advance them towards production.
Net loss for the year ended August 31, 2017 was $6,434,112, compared to a net loss of $12,781,902 for the comparable year ended August 31, 2016. For the three month period ended August 31, 2017 and 2016, there was a net loss of $1,307,313 compared to a net loss of $5,509,566, respectively. The main difference in net loss between the comparable periods ended August 31, 2017 and 2016 is mainly due to the variances discussed above.
Variances in the remaining expenditures is set out below:
For the year ended August 31, 2017, depreciation expense was $421,984, compared to $478,699 for the year ended August 31, 2016. The decrease of $56,715 is due to a lower overall capital assets base as there were no additions during the period and prior fiscal year.
Consulting fees for the year ended August 31, 2017 were $805,943, compared to $432,316 in the comparable year ended August 31, 2016. Consulting expenses increased during the current period as the Company hired consultants in an effort to advance its Buckreef project. The consultants were hired to advise in regards to the status of the processing plant and any modifications and changes to the operational process, and many were hired in replacement of salaried management and personnel that resigned or were let go during the course of the last year resulting in a decrease in salaries and benefits expenses discussed below. Consulting fees for the three months ended August 31, 2017 were $272,597 compared to $204,446 in the comparable period ended August 31, 2016. The reason for the increase for the three month period is the same as above.
8
Management Discussion and Analysis
August 31, 2017
Directors’ fees for the year ended August 31, 2017 were $186,826, compared to $285,188 in the comparable year ended August 31, 2016. The amount decreased as compared to the same period in the prior year due to director resignations during the year as well as lower RSU expense in the current period, driven by lower stock prices for most of the year and a reduction of RSU issuances in favour of the newly adopted stock option plan. For the three month period ended August 31, 2017, director fees amounted to $27,907 (2016 - $54,890). The reason for the decrease for the three month period is the same as above.
Office and general expenses for the year ended August 31, 2017 were $197,456, compared to $246,938 in the comparable year ended August 31, 2016. Office and general costs decreased between the comparable periods due to continued cost reduction measures across all areas of the Company. For the three month period ended August 31, 2017, office and general expenses were $44,777 compared to $87,752 in the comparable period ended August 31, 2016. The reason for the decrease for the three month period is the same as above.
Shareholder information costs for the year ended August 31, 2017 increased to $476,285 from $249,645 for the comparable year ended August 31, 2016. The amounts increased due to higher spending in the current fiscal year on investor relations as the Company hired new investor relations consultants. For the three month period ended August 31, 2017, shareholder information costs were $113,838 compared to $99,299 for the three month period ended August 31, 2016. Shareholder information costs were comparable between the two periods.
Professional fees increased by $367,561 for the year ended August 31, 2017 to $754,738 from $387,177 for the year ended August 31, 2016. Professional fees increased mainly due to various work surrounding the adoption of the stock option plan as well as continuing legal fees from the resolution of the Force Majeure matters. For the three month period ended August 31, 2017 professional fees went from $127,180 for the year ended August 31, 2016 to $17,001. The decrease is due to various costs incurred in the last quarter of fiscal 2016 as the Company prepared for the financing closed in September 2016.
Salaries and benefits expense decreased to $458,700 for the year ended August 31, 2017 from $623,716 for the year ended August 31, 2016. Salaries and benefits decreased as the Company moved towards using consultants in the place of salaried employees which carries a lower cost than having salaried employees as well as the Company reducing its workforce wherever possible in an effort to minimize costs. The expenses for the corresponding three month period ending August 31, 2017 and 2016 were $116,309 and $57,788 respectively and increased in the current period as the third and fourth quarters of the prior year saw the largest staffing cuts as the Company was under Force Majeure during the period leading up.
Share based payments for the year ended August 31, 2017 were $1,772,663, compared to a recovery of $38,996 in the comparable year ended August 31, 2016. The increase is due to the Company adopting a stock option plan during the period and issuing 3,750,000 options (2016 – nil) with a value of $1,725,000 (2016 - $nil) offset by the number of RSU’s forfeited during the current period resulting in a recovery of RSU expense (see note 6 of the audited consolidated financial statements for the three and years ended August 31, 2017 and 2016 for details of RSU’s and stock options issued).
9
Management Discussion and Analysis
August 31, 2017
For the year ended August 31, 2017, travel and accommodation expense decreased by $30,414 from $61,881 in 2016 to $31,267. For the three months ended August 31, 2017 and 2016, travel and accommodation expense decreased by $43,876 from $39,773 in 2016 to $(4,103). Travel and accommodation expense decreased in comparison to the comparable period as various personnel took trips to Tanzania to assess the development of the Buckreef project during the last quarter in 2016 as well as refunds on travel overpayments in the current quarter.
For the year ended August 31, 2017, the foreign exchange gain was $161,593 compared to an exchange gain of $111,352 for the same year ended August 31, 2016. The primary reason is the US Dollar exchange rate decreasing from 1.312 at August 31, 2016 to 1.258 at August 31, 2017.
The interest accretion expense for the year ended August 31, 2017 was $725,696, compared to $1,028,568 for the year ended August 31, 2016. Interest accretion decreases as loans approach their maturity date.
A loss of $nil (2016 – $3,905,000 loss) was recognized during the year ended August 31, 2017, in connection with the revaluation of the derivative liability and $nil (2016 – $946,600 loss) was recognized during the year ended August 31, 2017, in connection with the revaluation of the warrant liability. The derivative and warrant liabilities are revalued at every reporting period using the Black-Scholes model. On September 1, 2016, upon the change in functional currency to the U.S. dollar, these derivative liabilities were no longer classified as derivatives and reclassified to reserve for share based payments.
A decrease in write offs of mineral properties to $124,717 during the year ended August 31, 2017, compared to $3,516,268 during the year ended August 31, 2016. See details in note 4 of the audited consolidated financial statements for the years ended August 31, 2017 and 2016 for details.
Summary of Quarterly Results (unaudited)
(Expressed in thousands of dollars, except per share amounts)
2017 Q4 | 2017 Q3 | 2017 Q2 | 2017 Q1 | 2016 Q4 | 2016 Q3 | 2016 Q2 | 2016 Q1 | |||||||||||||||||||||||||
Total revenues | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||
Net Income (Loss) | $ | (1,307 | ) | $ | (1,643 | ) | $ | (1,465 | ) | $ | (2,019 | ) | $ | (5,510 | ) | $ | (1,052 | ) | $ | (5,057 | ) | $ | (1,163 | ) | ||||||||
Basic and diluted income (loss) per share | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.05 | ) | $ | (0.01 | ) | $ | (0.05 | ) | $ | (0.01 | ) |
Liquidity and Capital Resources – Going Concern Discussion
The Company manages liquidity risk by maintaining adequate cash balances in order to meet short term business requirements. Because the Company does not currently derive any production revenue from operations, its ability to conduct exploration and development work on its properties is largely based upon its ability to raise capital by equity funding. Previously, the Company obtained funding via private placements, public offering and various sources, including the Company’s President and former CEO who is currently still a director.
10
Management Discussion and Analysis
August 31, 2017
Based on the Company’s current funding sources and taking into account the working capital position and capital requirements at August 31, 2017, these factors indicate the existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern and is dependent on the Company raising additional debt or equity financing. In September 2016, the Company raised US$5 Million financing. The Company must obtain additional funding in order to continue development and construction of the Buckreef Project. The Company presently does not have adequate resources to maintain its core activities for the next fiscal year or sufficient working capital to fund all of its planned activities. The Company is continuing to pursue additional financing to fund the construction of the Buckreef Project and additional projects. However there is no assurance that such additional funding and/or project financing will be obtained or obtained on commercially favourable terms.
At August 31, 2017 the Company had a working capital deficiency of $6,552,376 (August 31, 2016 – $11,836,214 working capital deficiency), had not yet achieved profitable operations, has accumulated losses of $96,566,577 (August 31, 2016 – $90,600,819) and expects to incur further losses in the development of its business. The Company will require additional financing in order to conduct its planned work programs on mineral properties, meet its ongoing levels of corporate overhead and discharge its future liabilities as they come due.
Some of the Company’s mineral properties are being acquired over time by way of option payments. It is at the Company’s option as to whether to continue with the acquisition of the mineral properties and to incur these option payments.
Force Majeure:
On February 5, 2016, the Company, through its subsidiary Tanzam provided notice of Force Majeure under its agreement with STAMICO, owned by Tanzanian Treasury. The notice of Force Majeure is based upon the invasion and forced occupation by several hundred illegal miners of the Company’s properties including the South Pit and other areas within the Buckreef site, thereby endangering the Company’s team and preventing Tanzam from continuing its mining operations.
The Company was requested by the Deputy Minister of Energy and Minerals to provide an area of access for artisanal miners within 14 days of notice. The Company identified three potential areas with one to be designated for true artisanal mining, meaning without the use of mechanized mining equipment. Mining would not be allowed below the water table. The Company would also require artisanal miners to operate responsibly in accordance with Tanzanian mining and environmental law, and land and water requirements.
On the 15th day following notice, the occupation by illegal miners occurred as the Company refused to allow access to areas that represent a material portion of the deposit according to the Company’s NI 43-101 technical reports. The Company has communicated to both the Minister and the Deputy Minister, indicating its willingness to provide an area of access to legitimate artisanal miners.
On June 9th, 2016, Force Majeure was lifted.
11
Management Discussion and Analysis
August 31, 2017
Commitments:
In order to maintain the existing site of mining and exploration licenses, the Company is required to pay annual license fees. The Company has not paid its annual license fees since October 2014 with exception of Buckreef mining licenses. As at August 31, 2017 an accrual of $817,000 (August 31, 2016 - $780,000) has been recorded relating to unpaid license fees. Note that these licenses remain in good standing until a letter of demand is received from Ministry of Energy and Minerals requesting payment of any unpaid license fees plus 50% penalty, and the Company fails to respond within 30 days. The Company has not received a letter of demand. The potential penalty relating to unpaid license fees is approximately $404,000 (August 31, 2016 - $390,000). The Company has recorded an accrual for all valid and active mining licenses.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Transactions with Related Parties
Related parties include the Board of Directors and officers, close family members and enterprises that are controlled by these individuals as well as certain consultants performing similar functions.
(a) Tanzanian Royalty Exploration Corporation entered into the following transactions with related parties:
Years ended, | Notes | August 31, 2017 | August 31, 2016 | |||||||||
Legal services | (i) | $ | 82.455 | $ | 10,363 | |||||||
Rent | (ii) | $nil | $ | 15,199 | ||||||||
Consulting | (iii) | $ | 203,274 | $ | 157,637 | |||||||
Consulting | (iv) | $ | 172,330 | $ | 33,838 |
(i) The Company engages a legal firm for professional services in which one of the Company’s directors is a partner. During the year ended August 31, 2017, the legal expense charged by the firm was $82,455 (2016 - $10,363). As at August 31, 2017, $370,940 remains payable (August 31, 2016 - $327,766).
(ii) During the year ended August 31, 2017, $nil (2016 - $15,199) was paid to a company associated with the Company’s former Chairman and COO and his spouse for office rental.
(iii) During the year ended August 31, 2017, $203,274 (2016 - $157,637) was paid for heap leach construction consulting and website/data back-up services to companies controlled by individuals associated with the former CEO and current director.
(iv) During the year ended August 31, 2017, $172,330 (2016 - $33,838) was paid for grade control drilling, license fees and other consulting services to Stamico, the Company’s joint venture partner on the Buckreef Gold Project.
12
Management Discussion and Analysis
August 31, 2017
As at August 31, 2017, the Company has a receivable of $37,247 (August 31, 2016 - $3,903) from an organization associated with the Company’s President and former CEO and current director and from current officers and directors.
As at August 31, 2017, the Company has a receivable of $nil (August 31, 2016 - $5,541) from the former general manager of the Company for amounts advanced on his behalf.
During the year ended August 31, 2015, the Company sold automotive and mining equipment in the amount of $243,805 to directors of the Company and $333,700 to the Company’s former CEO and current director for total proceeds of $577,505 as described in Note 5. Pursuant to the agreements, the Company entered into 1-year lease agreements on the automotive and mining equipment with effective dates in May 2015. Per the terms of the leases, the Company agrees to purchase back the automotive and mining equipment at the end of the lease periods for a lump sum payment of USD$74,848. The initial base payments vary between the agreements and range between $3,500 and $8,000 payable monthly. The effective interest rate on the capital lease obligation outstanding is between 20% and 30%.
On December 1, 2016, the Company entered into settlement agreements whereby a total of $343,623 in principal and accrued interest was settled through the issuance of 458,329 shares issued at an average price of $0.63 per share for total issued value of $288,747, resulting in a gain on settlement of debt of $54,876 for the year ended August 31, 2017.
As at August 31, 2017, the remaining balance outstanding under capital lease obligations after the settlements described above is $56,631 (August 31, 2016 - $370,103) and is repayable within 1 year, as such, the capital lease obligation is classified as a current liability.
(b) Remuneration of Directors and key management personnel (being the Company’s Chief Executive Officer, Chief Financial Officer and Chief Operating Officer) of the Company was as follows:
Year ended, | August 31, 2017 | August 31, 2016 | |||||||||||||||
Salaries and benefits (1) | Share based payments (2), (3), (4) | Salaries and benefits (1) | Share based payments (2), (3) | ||||||||||||||
Management | $ | 525,102 | $ | 1,175,439 | $ | 245,962 | $ | 130,873 | |||||||||
Directors | 111,625 | 673,200 | 127,375 | 157,813 | |||||||||||||
Total | $ | 636,727 | $ | 1,848,639 | $ | 373,337 | $ | 288,686 |
(1) Salaries and benefits include director fees. The board of directors do not have employment or service contracts with the Company. Directors are entitled to director fees and RSU’s for their services and officers are entitled to cash remuneration and RSU’s for their services.
(2) Compensation shares may carry restrictive legends.
(3) All RSU share based compensation is based on the accounting expense recorded in the year.
(4) All stock option share based compensation is based on the accounting expense recorded in the year.
13
Management Discussion and Analysis
August 31, 2017
As at August 31, 2017, included in trade and other payables is $638,000 (August 31, 2016 - $576,000) due to these key management personnel with no specific terms of repayment.
The Company’s former CEO and current director provided various loans to the Company totaling $133,632. On December 1, 2016, the Company entered into settlement agreements whereby the remaining balance of $136,519 was settled through the issuance of 187,321 shares issued at an average price of $0.705 per share for total issued value of $131,998, resulting in a gain on settlement of debt of $4,521 for the year ended August 31, 2017. As at August 31, 2017 $nil (August 31, 2016 - $86,000) is outstanding. The balance is payable on demand, interest free, and unsecured.
Restricted Stock Unit Plan
The Restricted Stock Unit Plan (RSU Plan) is intended to enhance the Company’s and its affiliates’ abilities to attract and retain highly qualified officers, directors, key employees and other persons, and to motivate such officers, directors, key employees and other persons to serve the Company and its affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the RSU Plan provides for the grant of restricted stock units (RSUs). Each RSU represents an entitlement to one common share of the Company, upon vesting. As of November 29, 2016, the Board resolved to amend the suspension to 800,000 of the 2,500,000 common shares previously authorized for issuance under the RSU Plan, such that a maximum of 2,500,000 shares shall be authorized for issuance under the RSU Plan, until such suspension may be lifted or further amended. RSU awards may, but need not, be subject to performance incentives to reward attainment of annual or long-term performance goals in accordance with the terms of the RSU Plan. Any such performance goals are specified in the award agreement.
Of the 2,500,000 shares authorized for issuance under the Plan, 2,114,853 (August 31, 2016 - 1,418,862) shares have been issued as at August 31, 2017.
14
Management Discussion and Analysis
August 31, 2017
Critical Accounting Estimates
Assessment of Recoverability of Mineral Property Costs
The deferred cost of mineral properties and their related development costs are deferred until the properties are placed into production, sold or abandoned. These costs will be amortized over the estimated useful life of the properties following the commencement of production. Cost includes both the cash consideration as well as the fair market value of any securities issued on the acquisition of mineral properties. Properties acquired under option agreements or joint ventures, whereby payments are made at the sole discretion of the Company, are recorded in the accounts at such time as the payments are made. The proceeds from property options granted reduce the cost of the related property and any excess over cost is applied to income The Company’s recorded value of its exploration properties is based on historical costs that expect to be recovered in the future. The Company’s recoverability evaluation is based on market conditions for minerals, underlying mineral resources associated with the properties and future costs that may be required for ultimate realization through mining operations or by sale.
Assessment of Recoverability of Deferred Income Tax Assets
The Company follows the balance sheet method of accounting for income taxes. Under this method, deferred tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax liabilities and assets are measured using substantively enacted tax rates. The effect on the deferred tax liabilities and assets of a change in tax rates is recognized in the period that the change occurs. Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that is probable that taxable profit will be available against which the deductible temporary difference and the carry forward of unused credits and unused tax losses can be utilized. In preparing the consolidated financial statements, the Company is required to estimate its income tax obligations. This process involves estimating the actual tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. The Company assesses, based on all available evidence, the likelihood that the deferred income tax assets will be recovered from future taxable income and, to the extent that recovery cannot be considered probable, the deferred tax asset is not recognized.
Estimate of Share Based Payments, Warrant Liability, Embedded Derivatives Associated Assumptions
The Company recorded share based payments based on an estimate of the fair value on the grant date of share based payments issued and reviews its foreign currency denominated warrants each period based on their fair value. The accounting required for the warrant liability and the derivative liability embedded in the gold bullion loan requires estimates of interest rate, life of the warrant, stock price volatility and the application of the Black-Scholes option pricing model. See note 6 of the August 31, 2017 audited consolidated financial statements for full disclosure.
15
Management Discussion and Analysis
August 31, 2017
Critical accounting policies
Mineral Properties
All direct costs related to the acquisition and exploration and development of specific properties are capitalized as incurred. If a property is brought into production, these costs will be amortized against the income generated from the property. If a property is abandoned, sold or impaired, an appropriate charge will be made to the statement of comprehensive loss at the date of such impairment. Discretionary option payments arising on the acquisition of mining properties are only recognized when paid. Amounts received from other parties to earn an interest in the Company's mining properties are applied as a reduction of the mining property and deferred exploration and development costs until all capitalized costs are recovered at which time additional reimbursements are recorded in the statement of comprehensive loss, except for administrative reimbursements which are credited to operations.
Consequential revenue from the sale of metals, extracted during the Company's test mining activities, is recognized on the date the mineral concentrate level is agreed upon by the Company and customer, as this coincides with the transfer of title, the risk of ownership, the determination of the amount due under the terms of settlement contracts the Company has with its customer, and collection is reasonably assured. Revenues from properties earned prior to the commercial production stage are deducted from capitalized costs.
The amounts shown for mining claims and related deferred costs represent costs incurred to date, less amounts expensed or written off, reimbursements and revenue, and do not necessarily reflect present or future values of the particular properties. The recoverability of these costs is dependent upon discovery of economically recoverable reserves and future production or proceeds from the disposition thereof.
The Company reviews the carrying value of a mineral exploration property when events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying value of the property exceeds its fair value, the property will be written down to fair value with the provision charged against operations in the year of impairment. An impairment is also recorded when management determines that it will discontinue exploration or development on a property or when exploration rights or permits expire.
Ownership in mineral properties involves certain risks due to the difficulties in determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history characteristic of many mineral interests. The Company has investigated the ownership of its mineral properties and, to the best of its knowledge, ownership of its interests are in good standing.
Capitalized mineral property exploration costs are those directly attributable costs related to the search for, and evaluation of mineral resources that are incurred after the Company has obtained legal rights to explore a mineral property and before the technical feasibility and commercial viability of a mineral reserve are demonstrable. Any costs incurred prior to obtaining the legal right to explore a mineral property are expensed as incurred. Field overhead costs directly related to exploration are capitalized and allocated to mineral properties explored. All other overhead and administration costs are expensed as incurred.
16
Management Discussion and Analysis
August 31, 2017
Once an economically viable reserve has been determined for a property and a decision has been made to proceed with development has been approved, acquisition, exploration and development costs previously capitalized to the mineral property are first tested for impairment and then classified as property, plant and equipment under construction.
Impairment of Long-lived Assets
At each date of the statement of financial position, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the assets belong.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of comprehensive loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years.
The Company’s most critical accounting estimate relates to the impairment of mineral properties and deferred exploration costs. Management assesses impairment of its exploration prospects quarterly. If an impairment results, the capitalized costs associated with the related project or area of interest are charged to expense.
Asset Retirement Obligations
The Company recognizes liabilities for statutory, contractual, constructive or legal obligations, including those associated with the reclamation of mineral properties and property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement obligation is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the current market-based discount rate, amount or timing of the underlying cash flows needed to settle the obligation.
17
Management Discussion and Analysis
August 31, 2017
Financial Instruments
Fair Value of Financial Instruments
The Company designated its other financial assets, derivatives in convertible senior notes and warrant liability as fair value through profit and loss, which are measured at fair value. Fair value of other financial assets is determined based on quoted market prices and is categorized as Level 1 measurement. Fair value of warrant liability and derivatives in convertible senior notes are categorized as Level 3 measurement as it is calculated based on unobservable market inputs. Trade and other receivables and cash and cash equivalents are classified as loans and receivables, which are measured at amortized cost. Trade and other payables and convertible debt are classified as other financial liabilities, which are measured at amortized cost. Fair value of trade and other payables and convertible debt are determined from transaction values that are not based on observable market data.
The carrying value of the Company’s cash and cash equivalents, trade and other receivables, trade and other payables approximate their fair value due to the relatively short term nature of these instruments.
Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment, therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
A summary of the Company's risk exposures as they relate to financial instruments are reflected below:
Credit Risk
Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its contractual obligations. The Company is subject to credit risk on the cash balances at the bank and accounts and other receivables and the carrying value of those accounts represent the Company’s maximum exposure to credit risk. The Company’s cash and cash equivalents and short-term bank investments are with Schedule 1 banks or equivalents. The accounts and other receivables consist of GST/HST and VAT receivable from the various government agencies and amounts due from related parties. The Company has not recorded an impairment or allowance for credit risk as at August 31, 2017, or August 31, 2016.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rate. The Company’s bank accounts earn interest income at variable rates. The bullion loan carries a fixed rate of interest. The Company’s future interest income is exposed to changes in short-term rates. As at August 31, 2017, a 1% increase/decrease in interest rates would decrease/increase net loss for the period by approximately $10,000 (2016 - $1,000).
18
Management Discussion and Analysis
August 31, 2017
Liquidity Risk
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at August 31, 2017, the Company had current assets of $1,922,088 (August 31, 2016 - $1,032,319) and current liabilities of $8,474,464 (August 31, 2016 - $12,868,533). All of the Company’s trade payables and receivables have contractual maturities of less than 90 days and are subject to normal trade terms. Current working capital deficiency of the Company is $6,552,376 (August 31, 2016 - $11,836,214 working capital deficiency). The Company will require additional financing in order to conduct its planned work programs on mineral properties and the development and construction of the Buckreef Project, meet its ongoing levels of corporate overhead and discharge its liabilities as they come due.
Foreign Currency Risk
The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company has offices in Canada, USA, and Tanzania, but holds cash mainly in Canadian and United States currencies. A significant change in the currency exchange rates between the Canadian dollar relative to US dollar and Tanzanian shillings could have an effect on the Company’s results of operations, financial position, or cash flows. At August 31, 2017, the Company had no hedging agreements in place with respect to foreign exchange rates. As a majority of the transactions of the Company are denominated in US and Tanzanian Shilling currencies, a 10% movement in the foreign exchange rate will have an impact of approximate $573,000 on the consolidated statements of comprehensive loss.
Disclosure of Outstanding Share Data
As at the date of this MD&A, there were 122,233,567 common shares outstanding, 4,562,901 share purchase warrants outstanding, 510,000 RSUs outstanding, and 7,332,000 stock options outstanding.
Outlook
The Company’s Board of Directors has confirmed the strategic objective of the Corporation is to develop the Buckreef Gold Project based on the conceptual production plan as published in the NI43-101 compliant Mining Feasibility Report (April 2017). The production plans including financial analysis projections the Buckreef encompassing the Buckreef Main, South, Eastern Porphyry, Bingwa and Tembo. Management has recommended immediate implementation of the mining and processing plan once the renewal certificate has been received from the Ministry of Mines.
The Company continues exploring and evaluating various mineral properties in the portfolio, notable among them being Itetemia, Luhala and Kigosi. In addition, management decided that Itetemia’s Golden Horseshoe Reef (GHR) represents a modest, yet robust, medium-grade, near surface gold deposit whose feasibility studies resulted in the application for a substantive Mining License that is still to be granted. The Luhala property holds modest but low cost gold extraction potential and still classified as an advanced stage exploration project. Kigosi project is a pre-production mining project whose development has been delayed due to recently enacted laws on mining in areas designated as game reserves.
19
Management Discussion and Analysis
August 31, 2017
Based on recommendations from the Executive Technical team, Management also adopted and implemented the decision to classify of all the company’s various Prospecting License (PL) holdings under three project categories identified as PLs to Retain, PLs for Joint venture & PLs to Discard/Abandon.
Five (5) critical target projects were identified as Buckreef project, Buziba project, Kigosi project, Itetemia project and Luhala project. The Buziba project was traditionally lumped up under Buckreef project in previous annual reports but will now be treated as a standalone project. Brief descriptions of PL holdings and financial obligation status for each respective project area as of 31st August 2017 are summarized in the sections below.
Exploration Summary
The continuity of expenditures on mineral properties is as follows:
Buckreef (a) | Kigosi (b) | Itetemia (c) | Luhala (d) | Lunguya (e) | Total | |||||||||||||||||||
Balance, September 1, 2015 | $ | 23,153,374 | $ | 12,208,394 | $ | 6,080,438 | $ | 3,354,062 | $ | 3,353,923 | $ | 48,150,191 | ||||||||||||
Exploration expenditures: | ||||||||||||||||||||||||
Camp, field supplies and travel | 386,911 | 23,354 | - | - | - | 410,265 | ||||||||||||||||||
License fees and exploration and field overhead | 773,388 | 222,506 | 35,865 | 5,853 | - | 1,037,612 | ||||||||||||||||||
Geological consulting and field wages | 261 | - | - | - | - | 261 | ||||||||||||||||||
Geophysical and geochemical | - | - | - | - | - | - | ||||||||||||||||||
Property acquisition costs | - | - | - | - | - | - | ||||||||||||||||||
Trenching and drilling | - | - | - | - | - | - | ||||||||||||||||||
Recoveries | (279,203 | ) | - | - | - | - | (279,203 | ) | ||||||||||||||||
881,357 | 245,860 | 35,865 | 5,853 | - | 1,168,935 | |||||||||||||||||||
24,034,731 | 12,454,254 | 6,116,303 | 3,359,915 | 3,353,923 | 49,319,126 | |||||||||||||||||||
Write-offs | - | - | (153,588 | ) | (8,757 | ) | (3,353,923 | ) | (3,516,268 | ) | ||||||||||||||
Balance, August 31, 2016 | $ | 24,034,731 | $ | 12,454,254 | $ | 5,962,715 | $ | 3,351,158 | $ | - | $ | 45,802,858 | ||||||||||||
Exploration expenditures: | ||||||||||||||||||||||||
Camp, field supplies and travel | 187,940 | 19,565 | - | - | - | 207,505 | ||||||||||||||||||
License fees and exploration and field overhead | 2,527,005 | 67,942 | 17,738 | 5,988 | - | 2,618,673 | ||||||||||||||||||
Geological consulting and field wages | 206,722 | - | - | - | - | 206,722 | ||||||||||||||||||
Geophysical and geochemical | - | - | - | - | - | - | ||||||||||||||||||
Property acquisition costs | 168,284 | - | - | - | - | 168,284 | ||||||||||||||||||
Trenching and drilling | - | - | - | - | - | - | ||||||||||||||||||
Recoveries | (25,408 | ) | - | - | - | - | (25,408 | ) | ||||||||||||||||
Foreign exchange translation | (1,037,832 | ) | (513,491 | ) | (244,842 | ) | (137,449 | ) | - | (1,933,614 | ) | |||||||||||||
2,026,711 | (425,984 | ) | (227,104 | ) | (131,461 | ) | - | 1,242,162 | ||||||||||||||||
26,061,442 | 12,028,270 | 5,735,611 | 3,219,697 | - | 47,045,020 | |||||||||||||||||||
Write-offs | - | (124,717 | ) | - | - | - | (124,717 | ) | ||||||||||||||||
Balance, August 31, 2017 | $ | 26,061,442 | $ | 11,903,553 | $ | 5,735,611 | $ | 3,219,697 | $ | - | $ | 46,920,303 |
20
Management Discussion and Analysis
August 31, 2017
Buckreef Project
Mine Development and Operations
The Buckreef Project is in the Geita District of the Geita Region south of Lake Victoria, some 110km southwest of the city of Mwanza (see Figure, overleaf). The project area can be accessed by ferry across Smiths Sound, via tarred national road and thereafter via unpaved but well-maintained gravel roads. The Project comprises five prospects namely Buckreef, Bingwa, Tembo, Eastern Porphyry and Buziba. The Buckreef prospect encompasses three ore zones namely Buckreef South, Buckreef Main and Buckreef North. The Project is fully-licensed for mining and extraction of gold.
The following cumulative work was completed up to 31st August 2017:
• | No mining or ore processing activities conducted at the Buckreef project during the year. Status of the project for the year-ended 31st August 2017 is still care and maintenance while we wait for the issuance of the renewed SML certificate. |
• | Historical cumulative total ore mined from the Buckreef South pilot pit as of 31st August 2017 remains at 119,725.59t averaging 1.86g/t Au with total contained metal ounces of 7,161.24. |
• | The disposition of the Ore stockpiled as of 31st August 2017, remains as follows: ROMPAD: 72,315.66t @1.39g/t Au (3,237.96 Ozs); Pad#1: 20,931.75t @2.29g/t Au (1,541.77 Ozs); Pad#2: 12,943.78t @2.78g/t Au (1,155.55 Ozs); Pad#3: 9,237.90t @ 3.85g/t Au (1,143.49 Ozs) & Crusher Pad: 4,245t @ 3.86 g/t Au (526.62 Ozs). |
• | A report updating the Buckreef Project was completed as part of the company's ongoing review of this project. Major Assumptions in the report included a gold price of $1250/oz, an effective Tax Rate of 15.25%; a Royalty Rate of 4.3%; transport refining cost of $15.00/oz Au and discount rate of 5%. |
Buziba Project
The Buziba Project comprises a single prospecting license (PL6545/2010) located some 25km east of the Buckreef project in the Geita district (see Figure, overleaf). The project area can be accessed from Buckreef via unpaved and poorly maintained gravel roads. The Project is a pre-development stage medium grade gold deposit and principal host lithologies include basalt, co-magmatic dolerite and a suite of intrusive quartz-albite felsic porphyries. Gold mineralization associated with shear-hosted vein quartz arrays in meta-basalts and as extensive stock works in the felsic porphyries. Geometry of the mineralization is highly irregular, forming a zone 200m thick and extending E-W for at least 2,500m.
Based on an NI43-101 compliant Preliminary Economic Report published in 2012 and subsequently in 2014, the global gold resources (Measured, Indicated & Inferred) estimated over approximately 2.5km strike length and to a depth of 230 metres below surface amounts to 29Mt@1.04g/t containing 984,144ozs of gold.
During the reporting period, no fieldwork was conducted in the project area.
21
Management Discussion and Analysis
August 31, 2017
License Holding and Status (Buckreef & Buziba)
As of 10th November 2017, the Buckreef and Buziba projects had 13 PLs and 1 SML covering a surface area of 95.40km2. The license status and statutory liabilities for the two projects are as shown in the table below:
Book # | Licence Name | PL_ID | Application Date | Granted Date | Rent Paid To | Renewal Submission Date | Expiry Date | Area
(km2) |
Status | Company_ID | Application Fee (US$) | Preparation Fee (US$) | Annual Rent (US$- 2014/15) | Annual Rent (US$- 2015/16) | Annual Rent (US$- 2016/17) | Annual Rent (US$- 2017/18) | Total (US$) | Comment |
288 | Nyambale (2) Busanda | PL6427/10 | 12-Mar-10 | 21-Jun-10 | 20-Jun-17 | 20-May-18 | 20-Jun-18 | 2.1 | Active | Buckreef | 0.0 | Paid up to 2018 | ||||||
289 | Mabamba | PL6428/10 | 12-Mar-10 | 21-Jun-10 | 20-Jun-17 | 20-May-18 | 20-Jun-18 | 3.0 | Active | Buckreef | 0.0 | Paid up to 2018 | ||||||
295 | Rwamagaza North | PL6429/10 | 12-Mar-10 | 21-Jun-10 | 20-Jun-17 | 20-May-18 | 20-Jun-18 | 20.0 | Active | Buckreef | 0.0 | Paid up to 2018 | ||||||
291 | Rwamagaza West | PL6430/10 | 12-Mar-10 | 21-Jun-10 | 20-Jun-17 | 20-May-18 | 20-Jun-18 | 8.9 | Active | Buckreef | 0.0 | Paid up to 2018 | ||||||
290 | Nyamalimbe (2) Geita | PL6431/10 | 12-Mar-10 | 21-Jun-10 | 20-Jun-17 | 20-May-18 | 20-Jun-18 | 2.7 | Active | Buckreef | 0.0 | Paid up to 2018 | ||||||
294 | Rwamagaza South | PL6432/10 | 12-Mar-10 | 21-Jun-10 | 20-Jun-17 | 20-May-18 | 20-Jun-18 | 2.0 | Active | Buckreef | 0.0 | Paid up to 2018 | ||||||
293 | Rwamagaza South | PL6544/10 | 30-Mar-10 | 12-Jul-10 | 11-Jul-17 | 11-Jun-18 | 11-Jul-18 | 2.6 | Active | Buckreef | 0.0 | Paid up to 2018 | ||||||
284 | Buziba | PL6545/10 | 30-Mar-10 | 12-Jul-10 | 11-Jul-17 | 11-Jun-18 | 11-Jul-18 | 5.3 | Active | Buckreef | 0.0 | Paid up to 2018 | ||||||
292 | Rwamagaza | PL6546/10 | 30-Mar-10 | 12-Jul-10 | 11-Jul-17 | 11-Jun-18 | 11-Jul-18 | 17.4 | Active | Buckreef | 0.0 | Paid up to 2018 | ||||||
285 | Buseresere | PL6547/10 | 30-Mar-10 | 12-Jul-10 | 11-Jul-17 | 11-Jun-18 | 11-Jul-18 | 5.3 | Active | Buckreef | 0.0 | Paid up to 2018 | ||||||
287 | Nyambare Boss-Reef | PL6548/10 | 30-Mar-10 | 12-Jul-10 | 11-Jul-17 | 11-Jun-18 | 11-Jul-18 | 1.9 | Active | Buckreef | 0.0 | Paid up to 2018 | ||||||
286 | Nyamalimbe | PL6549/10 | 30-Mar-10 | 12-Jul-10 | 11-Jul-17 | 11-Jun-18 | 11-Jul-18 | 2.7 | Active | Buckreef | 0.0 | Paid up to 2018 | ||||||
381 | Rwamagaza N., Geita | PL9968/14 | 21-Oct-13 | 10-Jul-14 | 9-Jul-17 | 9-Jun-23 | 9-Jul-23 | 5.6 | Active | Buckreef | 0.0 | Paid up to 2018 | ||||||
296 | Buckreef SML | SML04/92 | 12-Jun-00 | 12-Jun-00 | 11-Jun-17 | 11-Jun-26 | 11-Jun-27 | 16.0 | Active (No SML cert) | Buckreef | 0.0 | Paid up to 2018 | ||||||
TOTAL | 95.38 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
PENALTY (50%) | 0.00 | 0.00 | ||||||||||||||||
GRAND TOTAL | 95.38 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
• | PL and SML annual fees for 2017/2018 paid up. |
• | The Buckreef Renewal Licence SML04/92 certificate issuance ceremony was postponed indefinitely by the Ministry of Energy and Minerals (MEM) after the Minister failed to sign the document as planned on 7th March 2017. |
Exploration Projects and License Status
Following the Company’s decision to include mine development to its strategy of generating maximum revenue from its extensive portfolio of properties and with the rising costs of maintaining prospecting and other licenses in Tanzania, management decided review, revamp and clean up the TRX PL portfolio with a view to discard certain licenses and/or alternatively farm them out in JV packages.
A detailed in-house geological review reports on each respective project area and its potential for discovery of gold mineralization were reviewed by the Executive Technical team and their recommendations are now being implemented. Four critical target projects were identified as Buckreef/Buziba project, Kigosi project, Itetemia project and Luhala project.
Concerted efforts to clear off all outstanding statutory liabilities for the PLs that make up the 4 projects that were identified as integral and critical to the TRX portfolio progressed well during the quarter. Brief descriptions of PL holdings for each respective project area are summarized below up to 31st August 2017.
Itetemia Project
The Itetemia gold deposit includes the mineral resources of the Golden Horseshoe Reef (“GHR”), and is an advanced stage exploration project focusing on the development of the GHR. A total of 9,833m of diamond core drilling (51 holes) and 8,339m of RC drilling (138 holes) was completed on the project. Modeling and processing of assay results from both the core drilling and RC drilling so far completed over the GHR and surrounding areas culminated in the estimation of the following Mineral Resources by CSA Australia Pty (Ltd) (“CSA”). The gold resource numbers for the GHR are as at 30th May 2016 using a cut-off grade of 1.0g/t: -
22
Management Discussion and Analysis
August 31, 2017
The process to convert the PL covering the Horseshoe Gold Prospect at Itetemia into a Mining License (ML) commenced on 4th November 2015. The Company re-submitted all documentation required for the conversion of the Itetemia PL into a Mining License at the request of the relevant authorities in the Ministry of Mines. A follow up on the Mining License renewal shows that the application is still under review.
As of the 31st August 2017, the retained portion of the Itetemia project area has 8 active PLs and 1 ML application all covering a surface area of 41.23km2. The Itetemia Project license status and statutory liabilities are as shown in the table below:
Book # | Licence Name | PL_ID | Application Date | Granted Date | Rent Paid To | Renewal Submission Date | Expiry Date | Area (km2) | Status | Company_ID | Application Fee (US$) | Preparation Fee (US$) | Annual Rent (US$- 2014/15) | Annual Rent (US$- 2015/16) | Annual Rent (US$- 2016/17) | Annual Rent (US$- 2017/18) | Total (US$) | Comment |
Itetemia ML | App no/01722 | 04-Nov-15 | 4.99 | Application | Tancan | 14,970.00 | 14,970.00 | Application under review | ||||||||||
253 | Itetemia | PL6059/2009 | 18-May-07 | 03-Dec-09 | 30-Dec-16 | 30-Nov-17 | 30-Dec-17 | 9.24 | Active | Tancan | 1,848.00 | 1,848.00 | Renewal Applic due Nov 2017 | |||||
261 | Itetemia | PL6520/2010 | 01-Nov-07 | 13-Aug-10 | 12-Aug-16 | 12-Jul-16 | 12-Aug-16 | 4.32 | Pending Renewal | Tanzam | 500.00 | 648.00 | 1,148.00 | Renewal Applic submitted | ||||
104 | Itetemia | PL8638/2012 | 02-Nov-10 | 21-Dec-12 | 20-Dec-15 | 20-Nov-16 | 20-Dec-16 | 4.21 | Pending Renewal | Tancan | 500.00 | 421.00 | 421.00 | 1,342.00 | Renewal Applic submitted | |||
322 | Itetemia | PL8661/2012 | 18-May-09 | 24-Dec-12 | 23-Dec-15 | 23-Nov-16 | 23-Dec-16 | 4.62 | Pending Renewal | Tancan | 500.00 | 462.00 | 462.00 | 1,424.00 | Renewal Applic submitted | |||
341 | Itetemia | PL8958/2013 | 14-Jun-10 | 08-Feb-13 | 7-Feb-16 | 07-Jan-17 | 07-Feb-17 | 2.27 | Pending Renewal | Tancan | 500.00 | 227.00 | 727.00 | Renewal Applic submitted | ||||
84 | Itetemia | PL9198/2013 | 19-Sep-11 | 21-Jun-13 | 20-Jun-16 | 20-May-17 | 20-Jun-17 | 4.62 | Active | Wakawaka | 300.00 | 462.00 | 762.00 | Renewal Applic overdue May 2017 | ||||
357 | Itetemia | PL9229/2013 | 16-Jun-08 | 21-Jun-13 | 20-Jun-16 | 20-May-17 | 20-Jun-17 | 4.69 | Active | Tancan | 300.00 | 469.00 | 769.00 | Renewal Applic overdue May 2017 | ||||
166 | Itetemia | PL9374/2013 | 15-Oct-12 | 04-Oct-13 | 3-Oct-16 | 03-Sep-17 | 03-Oct-17 | 2.27 | Active | Tanzam | 300.00 | 227.00 | 527.00 | Renewal Applic due Sept 2017 | ||||
TOTAL | 41.23 | 900.00 | 2,000.00 | 0.00 | 883.00 | 4,764.00 | 14,970.00 | 22,990.00 | ||||||||||
PENALTY (50%) | 0.00 | 441.50 | 2,382.00 | 11,495.00 | ||||||||||||||
GRAND TOTAL | 41.23 | 900.00 | 2,000.00 | 0.00 | 1,324.50 | 7,146.00 | 14,970.00 | 34,485.00 |
· | All the Itetemia PLs nominated for retention by the company have outstanding annual fee payments as shown above. |
· | Two (2) PLs expired in June 2017 and applications for renewal are now overdue while one (1) PL will expire in October 2017 and is now due for renewal application submission. |
· | Renewal applications for 4 of the critical licenses are still being processed and application fee payment was completed and posted online. We now await offer letters. |
· | The ML application is still under review for close to 2 years now and no response on the delayed application have been received from MEM offices. The ML application covers three (3) licenses viz 9198/2013, 9229/2013 & 9374/2013 that have now also expired or are soon to expire. |
23
Management Discussion and Analysis
August 31, 2017
Kigosi Project
Kigosi Project area remains subject to a Game Reserve Declaration Order. Upon repeal or amendment of that order by the Tanzanian Government, the Kigosi Mining Company will be legally entitled to exercise its rights under the Mineral Rights and Mining Licence. The procedures for de-gazetting the Kigosi mining licence project area from a game reserve area to a mining area on the government gazette has not been completed by government of Tanzania.
Gold Mine development plans at Kigosi continue to be shelved mainly since under the 2010 Mining Act, only exploration and mining of energy minerals, including uranium, gas and petroleum is permitted in any game reserve. Historical exploration on the project established a resource as shown in table below.
Kigosi Gold Project: Historical published Resource/Reserve results
The table below shows the status (as of 31st August 2017) of the Kigosi Project license portfolio (identified as critical to the project) has 13 active PLs and 1 ML all covering a surface area of 177.01km2. The license status and statutory liabilities are as shown in the table below:
24
Management Discussion and Analysis
August 31, 2017
Kigosi Gold Project PL Portfolio Status – PLs Proposed for Retaining
Book # | Licence Name | PL_ID | Application Date | Granted Date | Rent Paid To | Renewal Submission Date | Expiry Date | Area (km2) | Status | Company_ID | Application Fee (US$) | Preparation Fee (US$) | Annual Rent (US$- 2014/15) | Annual Rent (US$- 2015/16) | Annual Rent (US$- 2016/17) | Annual Rent (US$- 2017/18) | Total (US$) | Comment |
368 | Kigosi | ML 496/2013 | 09-Nov-12 | 11-Oct-13 | 10-Oct-14 | 10-Oct-21 | 10-Oct-23 | 9.91 | Active | Tanzam | 29,730.00 | 29,730.00 | Paid up? | |||||
379 | Kigosi | PL 9712/2014 | 25-Feb-11 | 08-May-14 | 7-May-15 | 07-Apr-18 | 07-May-18 | 13.97 | Active | Pamwe Tutafika | 2,794.00 | 2,794.00 | 2,794.00 | 8,382.00 | Outstanding payments | |||
162 | Kigosi | PL10140/2014 | 22-Aug-12 | 29-Aug-14 | 28-Aug-15 | 28-Jul-18 | 28-Aug-18 | 2.49 | Active | Tancan | 498.00 | 498.00 | 498.00 | 1,494.00 | Outstanding payments | |||
382 | Kigosi | PL10169/2014 | 02-May-13 | 29-Aug-14 | 28-Aug-15 | 28-Jul-18 | 28-Aug-18 | 12.16 | Active | Tancan | 2,432.00 | 2,432.00 | 2,432.00 | 7,296.00 | Outstanding payments | |||
20 | Kigosi | PL10170/2014 | 15-Oct-13 | 29-Aug-14 | 29-Aug-15 | 28-Jul-18 | 28-Aug-18 | 14.9 | Active | Tanzam | 2,980.00 | 2,980.00 | 2,980.00 | 8,940.00 | Outstanding payments | |||
385 | Kigosi | PL10171/2014 | 13-Dec-13 | 29-Aug-14 | 28-Aug-15 | 28-Jul-18 | 28-Aug-18 | 22.69 | Active | Tanzam | 4,538.00 | 4,538.00 | 4,538.00 | 13,614.00 | Outstanding payments | |||
216 | Kigosi | PL10184/2014 | 15-Oct-13 | 29-Aug-14 | 28-Aug-15 | 28-Jul-18 | 28-Aug-18 | 19.5 | Active | Tanzam | 3,900.00 | 3,900.00 | 3,900.00 | 11,700.00 | Outstanding payments | |||
159 | Kigosi | PL10277/2014 | 22-Aug-12 | 25-Sep-14 | 26-Sep-15 | 24-Aug-18 | 24-Sep-18 | 21.18 | Active - In Default | Tancan | 4,236.00 | 4,236.00 | 8,472.00 | Outstanding payments | ||||
45 | Kigosi | PL6273/2009 | 05-Dec-08 | 31-Dec-09 | 30-Dec-14 | 30-Nov-17 | 30-Dec-17 | 5.44 | Active | Tanzam | 1,088.00 | 1,088.00 | 1,088.00 | 3,264.00 | Renewal Applic due Nov 2017 | |||
264 | Kigosi | PL6564/2010 | 22-Apr-08 | 13-Aug-10 | 12-Aug-15 | 12-Jul-16 | 12-Aug-16 | 20.46 | Active | Tancan | 300.00 | 500.00 | 4,092.00 | 4,092.00 | 8,984.00 | Renewal Applic overdue July 2016 | ||
339 | Kigosi | PL8921/2013 | 22-Apr-10 | 08-Feb-13 | 7-Feb-15 | 07-Jan-17 | 07-Feb-17 | 2.95 | Active-Expired | Tancan | 300.00 | 500.00 | 590.00 | 590.00 | 1,980.00 | Renewal Applic overdue Jan 2017 | ||
338 | Kigosi | PL8925/2013 | 22-Apr-10 | 08-Feb-13 | 7-Feb-15 | 07-Jan-17 | 07-Feb-17 | 21.65 | Active-Expired | Tancan | 300.00 | 500.00 | 4,330.00 | 4,330.00 | 9,460.00 | Renewal Applic overdue Jan 2017 | ||
330 | Kigosi | PL8938/2013 | 22-Apr-08 | 08-Feb-13 | 7-Feb-15 | 07-Jan-17 | 07-Feb-17 | 5.51 | Active-Expired | Tancan | 300.00 | 500.00 | 1,102.00 | 1,102.00 | 3,004.00 | Renewal Applic overdue Jan 2017 | ||
96 | Kigosi | PL9785/2014 | 01-Mar-12 | 05-Jun-14 | 4-Jun-15 | 04-May-18 | 04-Jun-18 | 4.2 | Active | Tancan | 840.00 | 840.00 | 840.00 | 2,520.00 | Outstanding payments | |||
TOTAL | 177.01 | 1,200.00 | 2,000.00 | 1,088.00 | 29,184.00 | 33,420.00 | 51,948.00 | 66,892.00 | ||||||||||
PENALTY (50%) | 15,409.00 | 14,592.00 | 16,710.00 | 46,711.00 | ||||||||||||||
GRAND TOTAL | 177.01 | 1,200.00 | 2,000.00 | 16,497.00 | 43,776.00 | 50,130.00 | 51,948.00 | 113,603.00 |
• | All the Kigosi PLs nominated for retention by the company have outstanding annual fee payments. | |
• | Kigosi ML payments all up to date and the 2017/2018 annual fees are due in October 2017. |
• | PLs highlighted in red text have technically expired and no renewal application has been submitted due to the outstanding annual fee payments and prevailing uncertainty with the new laws enacted recently with especial reference to game reserves. |
Luhala Project
The Luhala Project is an advanced stage exploration project focusing on the development of the Luhala gold deposit which consists of five anomalous hilltops. The mineralization is stratabound shear-zone hosted gold mineralization (stratigraphic and structural control) within a distinct unit of felsic rocks with associated ferruginized mafic and felsic rocks.
Drilling at the Luhala Project has been concentrated on the Luhala Hills (Luhala Hill, Kisunge Hill, Shilalo Hill South and Shilalo Hill West). A total of 3,279m of diamond core drilling (26 holes) and 8,665m of RC drilling (144 holes) was completed on the project. Modeling and processing of assay results from both the core drilling and RC drilling conducted over the various deposits at Luhala, has to-date resulted in the estimation, by CSA, of the following Mineral Resources for Luhala as at 8th March 2011 using a cut-off grade of 1.0g/t:
25
Management Discussion and Analysis
August 31, 2017
Luhala Gold Project: Historical published exploration results
The process of selecting a consultant to carry out feasibility study at the Luhala gold project has been completed and once funds are available the contract to engage the consultant to carry out the study will be signed to initiate the FS study works.
At the end of this reporting quarter critical Luhala project area had 2 PLs covering a surface area of 17.31km2. The Luhala Project license status and statutory liabilities are as shown in the table below:
Luhala Gold Project PL Portfolio Status - PLs Proposed for Retaining
Book # | Licence Name | PL_ID | Application Date | Granted Date | Rent Paid To | Renewal Submission Date | Expiry Date | Area (km2) | Status | Company_ID | Application Fee (US$) | Preparation Fee (US$) | Annual Rent (US$- 2014/15) | Annual Rent (US$- 2015/16) | Annual Rent (US$- 2016/17) | Annual Rent (US$- 2017/18) | Total (US$) | Status |
340 | Luhala | PL8937/2013 | 14-Jun-10 | 08-Feb-13 | 07-Feb-15 | 07-Jan-17 | 07-Feb-17 | 3.45 | Pending Renewal | Tanzam | 500.00 | 500.00 | Application submitted | |||||
102 | Luhala | PL5278/2009 | 15-Jun-10 | 13-Feb-09 | 12-Feb-15 | 12-Jan-17 | 12-Feb-17 | 13.86 | Pending Extension | Tancan | 500.00 | 500.00 | Application submitted | |||||
TOTAL | 17.31 | 0.00 | 1,000.00 | 0.00 | 0.00 | 0.00 | 1,000.00 | |||||||||||
PENALTY (50%) | 0.00 | 0.00 | 0.00 | |||||||||||||||
GRAND TOTAL | 17.31 | 0.00 | 1,000.00 | 0.00 | 0.00 | 0.00 | 1,000.00 |
• | Payment of outstanding annual fees for the critical Luhala PLs was completed as one of the conditions to submit renewal or extension applications. |
• | Online renewal application for PL8937/2013 was successfully lodged on the MEM portal. Application fee payment has been done and posted inline. |
• | Response from MEM awaited. |
Exploration Projects
Following the Company’s decision to include mine development to its strategy of generating maximum revenue from its extensive portfolio of properties and with the rising costs of maintaining prospecting and other licences in Tanzania, management decided to drop some licences. Efforts to revamp and clean up our current presentation of the TRX PL portifolio are at an advanced stage.
26
Management Discussion and Analysis
August 31, 2017
The technical team that was formed to review the prospectivity of the entire licence portfolio in Tanzania and propose to management licences to be dropped will finalize reviews of the rest of the land holdings in the next reporting quarter as part of our ongoing efforts to revamp the land holdings. This exercise was necessitated by the need to establish all outstanding, current and future financial liabilities and obligations arising from our total land-holdings. The total liabilities of unpaid rents including the penalties is around US$1,114,125.
Risk Factors
The Company is subject to a number of extraneous risk factors over which it has no control. These factors are common to most exploration companies and include, among others: project ownership and exploration risk, depressed equity markets and related financing risk, commodity price risk, fluctuating exchange rates, environmental risk, insurance risk, sovereign risk. For further details on the risk factors affecting the Company, please see the Company’s Form 20-F Annual Report for year ended August 31, 2017 filed on SEDAR as the Company’s Annual Information Form.
Disclosure Controls and Procedures (“DC&P”)
Requirements of NI 52-109 include conducting an evaluation of the effectiveness of DC&P. Management conducted an assessment of the effectiveness of the DC&P in place as of August 31, 2017 and concluded that such procedures are adequate and effective to ensure accurate and complete disclosures in filings. Any system control over disclosure procedures, particularly for junior exploration companies, no matter how well designed and implemented, has inherent limitations and may not prevent or detect all inaccuracies. These limitations include limited personnel available for such work, geographical logistics and human error among others. The Board of Directors assess the integrity of the public financial disclosures through the oversight of the Audit Committee.
Internal Control Over Financial Reporting (“ICFR”)
Requirements of NI 52-109 include conducting an evaluation of the effectiveness of ICFR. Management conducted an assessment of the effectiveness of the ICFR in place as of August 31, 2017 and concluded that such procedures are adequate and effective to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements in compliance with International Financial Reporting Standards. Any system of internal control over financial reporting, no matter how well designed and implemented, has inherent limitations and may not prevent or detect all misstatements.
The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) are responsible for the design and effectiveness of disclosure controls and procedures (“DC&P”) and the design of internal control over financial reporting (“ICFR”) to provide reasonable assurance that material information related to the Company is made known to the Company’s certifying officers. The Company’s controls are based on the Committee of Sponsoring Organizations (“COSO”) 2013 framework. The Company’s CEO and the CFO have evaluated the design and effectiveness of the Company’s DC&P as of August 31, 2017 and have concluded that these controls and procedures are effective in providing reasonable assurance that material information relating to the Company is made known to them by others within the Company. The CEO and CFO have also evaluated the design and effectiveness of the Company’s ICFR as of August 31, 2017 and concluded that these controls and procedures are effective in providing reasonable assurance that financial information is recorded, processed, summarized and reported in a timely manner.
27
Management Discussion and Analysis
August 31, 2017
During the current period there have been no changes in the Company’s DC&P or ICFR that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Additional Information
The Company is a Canadian public company listed on the Toronto Stock Exchange trading under the symbol “TNX” and also listed on the NYSE MKT LLC trading under the symbol “TRX”. Additional information about the Company and its business activities is available on SEDAR at www.sedar.com and the Company’s website at www.tanzanianroyalty.com .
Approval
The Board of Directors of Tanzanian Royalty Exploration Corporation has approved the disclosure contained in the interim MD&A. A copy of this interim MD&A will be provided to anyone who requests it. It is also available on the SEDAR website at www.sedar.com
Cautionary Note Regarding Forward-Looking Statements
Except for statements of historical fact relating to the Company, certain information contained in this MD&A constitutes “forward-looking information” under Canadian securities legislation. Forward-looking information includes, but is not limited to, statements with respect to the potential of the Company’s properties; the future prices of base and precious metals; success of exploration activities, cost and timing of future exploration and development; the estimation of mineral reserves and mineral resources; conclusions of economic evaluations; requirements for additional capital; and other statements relating to the financial and business prospects of the Company. Generally, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects”, or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or “variations of such words and phrases or statements that certain actions, events or results “may” , “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments at Buckreef or other mining or exploration projects, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, and is inherently subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to risks related to: unexpected events and delays during permitting; the possibility that future exploration results will not be consistent with the Company’s expectations; timing and availability of external financing on acceptable terms in light of the current decline in global liquidity and credit availability; uncertainty of inferred mineral resources; future prices of base and precious metals; currency exchange rates; government regulation of mining operations; failure of equipment or processes to operate as anticipated; risks inherent in base and precious metal exploration and development including environmental hazards, industrial accidents, unusual or unexpected geological formations; and uncertain political and economic environments. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws.
28
Exhibit 99.3
FORM 52-109F1
CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE
I, Jeffrey Duval, Acting Chief Executive Officer of Tanzanian Royalty Exploration Corporation, certify the following:
1. Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of Tanzanian Royalty Exploration Corporation (the “issuer”) for the financial year ended August 31, 2017.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the financial year end
A. | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
I. | material information relating to the issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and |
II. | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
B. | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
1
5.1 Control framework: The control framework the
issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is Integrated Framework, issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
5.2 ICFR – material weakness relating to design: N/A
5.3 Limitation on scope of design: N/A
6. Evaluation: The issuer’s other certifying officer(s) and I have
A. | evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and |
B. | evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the financial year end and the issuer has disclosed in its annual MD&A |
I. | our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and |
II. | N/A |
7. Reporting changes in ICFR: The issuer has disclosed in its
annual MD&A any change in the issuer’s ICFR that occurred during the period beginning on June 1, 2017 and ended
on August 31, 2017 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
8. Reporting to the issuer’s auditors and board of directors or audit committee: The issuer’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer’s auditors, and the board of
directors or the audit committee of the board of directors any fraud that involves management or other employees who have a significant
role in the issuer’s ICFR.
Date: November 29, 2017
“Jeffrey Duval”
_________________________________
Jeffrey Duval
Acting Chief Executive Officer
Exhibit 99.4
FORM 52-109F1
CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE
I, Marco Guidi, Chief Financial Officer of Tanzanian Royalty Exploration Corporation, certify the following:
1. Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of Tanzanian Royalty Exploration Corporation (the “issuer”) for the financial year ended August 31, 2017.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the financial year end
A. | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
I. | material information relating to the issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and |
II. | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
B. | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
1
5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s
ICFR is Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
5.2 ICFR – material weakness relating to design: N/A
5.3 Limitation on scope of design: N/A
6. Evaluation: The issuer’s other certifying officer(s) and I have
A. | evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and |
B. | evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the financial year end and the issuer has disclosed in its annual MD&A |
I. | our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and |
II. | N/A |
7. Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer’s ICFR that occurred during the period beginning on June 1, 2017 and ended on August 31, 2017 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
8. Reporting to the issuer’s auditors and board of directors or audit committee: The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer’s auditors, and the board of directors or the audit committee of the board of directors any fraud that involves management or other employees who have a significant role in the issuer’s ICFR.
Date: November 29, 2017
“Marco Guidi”
_________________________________
Marco Guidi
Chief Financial Officer
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