UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________________
FORM 20-F
_________________________
q
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12 (g) OF THE SECURITIES EXCHANGE ACT OF 1934
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
August 31, 2014
q
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
q
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission File Number 001-32500
TANZANIAN ROYALTY EXPLORATION CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
ALBERTA, CANADA
(Jurisdiction of Incorporation or Organization)
44th Floor, Scotia Plaza
40 King Street West
Toronto, Ontario
M5H 3Y4
(Address of Principal Executive Offices)
James Sinclair
Chief Executive Officer
Tanzanian Royalty Exploration Corporation
44th Floor, Scotia Plaza
40 King Street West
Toronto, Ontario
M5H 3Y4
Telephone: 1.844.364.1830
Fax: 860.799.0350
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Common Shares, without Par Value
NYSE MKT LLC
(Title of Class)
Name of Each Exchange on Which Registered
Securities registered or to be registered pursuant to Section 12(g) of the Act: NONE
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report: 101,325,880.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
q Yes
x No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. q Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes
q No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
q Yes
q No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
q
Accelerated filer
x
Non-accelerated filer
q
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP q
International Financial Reporting Standards as issued by the International Accounting Standards Board x
Other q
If Other has been checked in response to the previous question, indicate by check mark which financial statement item the Company has elected to follow.
Item 17 q
Item 18 q
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). q Yes x No
TABLE OF CONTENTS
Cautionary Note to U.S. Investors Concerning Estimates of Mineral Resources
1
Currency
1
Foreign Private Issuer Filings
1
2
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
7
Item 2.
Offer Statistics and Expected Timetable
7
Item 3.
Key Information
7
A.
Selected Financial Data
7
B.
Capitalization and Indebtedness
9
C.
Reasons for the Offer and Use of Proceeds
9
D.
Risk Factors
9
Item 4.
16
A.
History and Development of the Company
16
B.
17
18
24
C.
25
D.
26
Buckreef Property
26
Kigosi Property
33
Lunguya Property
37
Itetemia Property
40
Luhala Property
44
Kabanga Project
46
Item 4.A.
Unresolved Staff Comments
48
Item 5.
Operating and Financial Review and Prospects
48
A.
50
B.
Liquidity and Capital Resources
56
C.
Research and Development, Patents and License, etc.
58
D.
58
E.
Off Balance Sheet Arrangements
58
F.
Tabular Disclosure of Contractual Obligations
58
Item 6.
Directors, Senior Management and Employees
58
A.
Directors and Senior Management
58
B.
63
C.
71
D.
77
E.
77
Item 7.
Major Shareholders and Related Party Transactions
78
A.
Major Shareholders
78
B.
79
C.
Interests of Experts and Counsel
80
Item 8.
80
A.
Consolidated Statements and Other Financial Information
80
B.
81
Item 9.
81
- ii -
A.
Offering and Listing Details
81
B.
83
C.
83
D.
83
E.
Dilution
83
F.
83
Item 10.
84
A.
84
B.
Articles of Association and Bylaws
84
C.
86
D.
87
E.
88
F.
96
G.
Statement by Experts
96
H.
Documents on Display
96
I.
96
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
97
Item 12.
Description of Securities Other than Equity Securities
97
PART II
Item 13.
Defaults, Dividend Arrears and Delinquencies
98
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
98
Item 15.
98
Item 16 A.
Audit Committee Financial Expert
99
Item 16 B.
99
Item 16 C.
Principal Accountant Fees and Services
100
Item 16 D.
Exemptions from the Listing Standards for Audit Committees
100
Item 16 E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
100
Item 16 F.
Change in Registrant's Certifying Accountant
100
101
Item 16 H
Mine Safety Disclosure
102
Item 17.
Financial Statements
102
Item 18.
Financial Statements
102
Item 19.
Exhibits
102
Cautionary Note to U.S. Investors Concerning Estimates of Mineral Resources
Tanzanian Royalty Exploration Corporation (the Company) advises U.S. investors that while the terms measured mineral resources, indicated mineral resources and inferred mineral resources (see Glossary of Technical Terms Canadian Terminology herein) are recognized and required by Canadian securities regulations, the U.S. Securities and Exchange Commission (SEC) and their regulations do not recognize them. U.S. investors are cautioned not to assume that any part or all of mineral resources in these categories will ever be converted into mineral reserves.
As an Alberta corporation, the Company is subject to certain rules and regulations issued by Canadian Securities Administrators. The Company files this Annual Report on Form 20-F as its Annual Information Form (AIF) with the British Columbia, Alberta and Ontario Securities Commissions via the System for Electronic Document Analysis and Retrieval (SEDAR). Under the filing requirements for an AIF, the Company is required to provide detailed information regarding its properties including mineralization, drilling, sampling and analysis, security of samples, and mineral resource and mineral reserve estimates, if any. Further, the Company may describe its properties utilizing terminology such as measured mineral resources, indicated mineral resources and inferred mineral resources that are permitted by Canadian securities regulations, but are not recognized by the SEC. For clarification, the Company has no properties that contain mineral reserves as defined by either the SEC or Canadian securities regulations.
Currency
All references to dollar amounts are expressed in the lawful currency of Canada, unless otherwise specifically stated.
Foreign Private Issuer Filings
As a foreign private issuer registered under section 12(b) of the Securities Exchange Act of 1934 (the Exchange Act), the Company is subject to section 13 of the Exchange Act, and is required to file an Annual Report on Form 20-F and Reports of Foreign Private Issuer on Form 6-K with the SEC. However, the Company is exempt from the proxy rules under section 14 of the Exchange Act, and the short-swing profit and other rules under section 16 of the Exchange Act.
1
Glossary of Technical Terms
Ag | The elemental symbol for silver. |
alteration | Mineralogical change at low pressures due to invading fluids or the influence of chemical reactions in a rock mass resulting from the passage of hydrothermal fluids. |
anomaly | Any concentration of metal noticeably above or below the average background concentration. |
assay | An analysis to determine the presence, absence or quantity of one or more components. |
Au | The elemental symbol for gold. |
background | Traces of elements found in sediments, soils, and plant material that are unrelated to any mineralization and which come from the weathering of the natural constituents of the rocks. |
Barrick | Barrick Gold Corp. |
BLEG | Acronym for bulk leach extractable gold sampling. |
Cu | The elemental symbol for copper. |
dyke | A tabular body of igneous rock that has been injected while molten into a fissure. |
exploration information | Means geological, geophysical, geochemical, sampling, drilling, trenching, analytical testing, assaying, mineralogical, metallurgical and other similar information concerning a particular property that is derived from activities undertaken to locate, investigate, define or delineate a mineral prospect or mineral deposit. |
fault | A planar fracture or discontinuity in a volume of rock, across which there has been significant displacement. |
Fe | The elemental symbol for iron. |
feasibility study | Is a comprehensive technical and economic study of the selected development option for a mineral project that includes appropriately detailed assessments of realistically assumed mining, processing, metallurgical, economic, marketing, legal, environmental, social and governmental considerations together with any other relevant operational factors and detailed financial analysis, that are necessary to demonstrate at the time of reporting that extraction is reasonably justified (economically mineable). The results of the study may reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project. The confidence level of the study will be higher than that of a Pre-Feasibility Study. |
fracture | Any local separation or discontinuity plane in a geologic formation, such as a joint or a fault that are commonly caused by stress exceeding the rock strength. |
2
grade | The concentration of each ore metal in a rock sample, usually given as weight percent. Where extremely low concentrations are involved, the concentration may be given in grams per tonne (g/t or gpt) or ounces per ton (oz/t). The grade of an ore deposit is calculated, often using sophisticated statistical procedures, as an average of the grades of a very large number of samples collected from throughout the deposit. |
hectare or ha | An area totalling 10,000 square metres. |
hydrothermal | Hot fluids, usually mainly water, in the earth's crust which may carry metals and other compounds in solution to the site of ore deposition or wall rock alteration. |
IP | Induced polarization survey, a form of geophysical survey used in the exploration for minerals. |
intrusive | A rock mass formed below earth's surface from magma which has intruded into a pre-existing rock mass. |
Jinchuan Mining | Jinchuan Mining, a Chinese metals company. |
JORC | The Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia. |
JV | A joint venture, which is a term for a contractual relationship between parties, usually for a single purpose, which is not a partnership. |
kilometres or km | Metric measurement of distance equal to 1,000 metres (or 0.6214 miles). |
mill | A facility for processing ore to concentrate and recover valuable minerals. |
mineral reserve | That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. |
mineralization | The hydrothermal deposition of economically important metals in the formation of ore bodies or "lodes. |
net smelter or NSR royalty | Payment of a percentage of net mining profits based on returns from the smelter, after deducting applicable smeltering charges. |
NI 43-101 | National Instrument 43-101, Standards of Disclosure for Mineral Projects, as adopted by the Canadian Securities Administrators, as the same may be amended or replaced from time to time, and shall include any successor regulation or legislation. |
NWBM | Northwestern Base Metals Company Limited |
ore | A mineral or an aggregate of minerals from which a valuable constituent, especially a metal, can be profitably mined or extracted. |
outcrop | An exposure of rock at the earth's surface. |
overburden | A general term for any material covering or obscuring rocks from view. |
3
Pb | The elemental symbol for lead. |
porphyry | A variety of igneous rock consisting of large-grained crystals, such as feldspar or quartz, dispersed in a fine-grained feldspathic matrix or groundmass. |
ppm or parts per million | A unit of measurement which is 1000 times larger than parts per billion (i.e. ppb); 1 ppm is equivalent to 1000 ppb, and is also equivalent to 1 gram/tonne. |
prefeasibility study and preliminary feasibility study | Each mean a comprehensive study of a range of options for the technical and economic viability of a mineral project that has advanced to a stage where a preferred mining method, in the case of underground mining, or the pit configuration, in the case of open pit, is established and an effective method of mineral processing is determined. It includes a financial analysis based on reasonable assumptions on mining, processing, metallurgical, economic, marketing, legal, environmental, social and governmental considerations and the evaluation of any other relevant factors which are sufficient for a Qualified Person, acting reasonably, to determine if all or part of the Mineral Resource may be classified as a Mineral Reserve. |
Pyrrhotite | A bronze coloured mineral of metallic lustre that consists of ferrous sulphide and is attracted by a magnet. |
pyrite | Iron sulphide mineral. |
Qualified Person | An individual who is an engineer or geoscientist with at least five years of experience in mineral exploration, mine development or operation or mineral project assessment, or any combination of these; has experience relevant to the subject matter of the mineral project and the technical report; and is a member or licensee in good standing of a professional association. |
quartz | Silica or SiO2, a common constituent of veins, especially those containing gold and silver mineralization. |
RAB | Rotary air blast drilling. |
RC | Reverse circulation drilling. |
reef | A geological discontinuity which served as a trap or conduit for hydrothermal mineralizing fluids to form an ore deposit. |
Sb | The elemental symbol for antimony (stibnite). |
silicification | Replacement and or impregnation of the constituent of a rock by quartz rich hydrothermal fluids or (silica). |
Sloane | Sloane Developments Ltd., a corporation based in the United Kingdom. |
Songshan | Songshan Mining Company. |
Stamico | State Mining Corporation of Tanzania. |
Tancan | Tancan Mining Company Limited, a wholly-owned Tanzanian subsidiary of the Company. |
4
Tanzam | Tanzania American International Development Corporation 2000 Limited, a wholly-owned Tanzanian subsidiary of the Company. |
test pits | Shallow holes dug at spots along the strike of any mineralization or, if it is disseminated, anywhere in the area where the shallow holes might reach mineralized bedrock. |
ton | Imperial measurement of weight equivalent to 2,000 pounds (sometimes called a short ton). |
tonne | Metric measurement of weight equivalent to 1,000 kilograms (or 2,204.6 pounds). |
tuff | A rock comprised of fine fragments and ash particles ejected from a volcanic vent. |
veins | Distinct sheetlike body of crystallized mineral constituents carried by hydrothermal aqueous solutions that are deposited through precipitation within the host country rock. These bodies are often the source of mineralisation either in or proximal to the veins. |
Canadian Terminology The following terms may be used in the Companys technical reports to describe its mineral properties and have been used in this Annual Report (see Cautionary Note to U.S. Investors Concerning Estimates of Measured and Indicated Mineral Resources). These definitions have been published by the Canadian Institute of Mining, Metallurgy and Petroleum (the CIM) as the CIM Standards on Mineral Resources and Reserves Definitions and Guidelines adopted by the CIM Council on November 27, 2010, and have been approved for use by Canadian reporting issuers by the Canadian Securities Administrators under NI 43-101, and as those definitions may be amended: | |
Measured Mineral Resource | That part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological grade and continuity. |
Indicated Mineral Resource | That part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed. |
5
Inferred Mineral Resource | That part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. Confidence in the estimate is insufficient to allow the meaningful application of technical and economic parameters or to enable an evaluation of economic viability worthy of public disclosure. |
Mineral Reserve | A Mineral Reserve is the economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. A Mineral Reserve includes diluting materials and allowances for losses that may occur when the material is mined. Mineral resources are sub-divided in order of increasing confidence into Probable Mineral Reserves and Proven Mineral Reserves. A Probable Mineral Reserve has a lower level of confidence than a Proven Mineral Reserve. The term mineral reserve need not necessarily signify that extraction facilities are in place or operative or that all governmental approvals have been received. It does signify that there are reasonable expectations of such approvals. |
Mineral Resource | A concentration or occurrence of diamonds, natural solid inorganic material, or natural solid fossilized organic material including base and precious metals, coal, and industrial minerals in or on the Earths crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. A Mineral Resource is an inventory of mineralization that under realistically assumed and justifiable technical and economic conditions might become economically extractable. |
Probable Mineral Reserve | Is the economically mineable part of an Indicated and, in some circumstances, a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. |
Proven Mineral Reserve | Is the economically mineable part of a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified. The term should be restricted to that part of the deposit where production planning is taking plce and for which any variation in the estimate would not significantly affect potential economic viability. |
6
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
A.
Directors and Senior Management:
Not applicable.
B.
Advisers
Not applicable.
Item 2.
Offer Statistics and Expected Timetable
Not applicable.
Item 3.
Key Information
A.
Selected Financial Data
The audited financial statements for the Companys fiscal years ended August 31, 2014, 2013, 2012, 2011 and 2010 are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The following selected financial data is based on financial statements prepared in accordance with IFRS and is presented for the three most recent financial years. Unless stated otherwise, reference to dollar amounts shall mean Canadian dollars.
For each of the years in the five year periods ended August 31, the information in the tables was extracted from the more detailed audited financial statements of the Company.
The selected financial data should be read in conjunction with Item 5, Operating and Financial Review and Prospects and in conjunction with the consolidated financial statements of the Company and the notes thereto contained elsewhere in this Annual Report. The Companys fiscal period ends on August 31 of each year.
The following is a summary of certain selected financial information for the Companys five most recently completed fiscal years (in Canadian dollars, except number of shares):
IFRS 2014-2012
| 2014 | 2013 | 2012 | 2011 | 2010 1 |
Operations: |
|
|
|
|
|
|
|
|
|
|
|
Revenues | $ -- | $ -- | $ -- | $ -- | $ - |
|
|
|
|
|
|
Net loss | (2,416,265) | (3,225,998) | (8,897,843) | (11,132,371) | (3,427,655) |
|
|
|
|
|
|
Basic and diluted loss per share | (0.02) | (0.03) | (0.09) | (0.12) | (0.04) |
7
| 2014 | 2013 | 2012 | 2011 | 2010 1 |
Balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
Working Capital | 1,325,667 | 5,416,104 | 18,165,431 | 30,451,179 | 1,113,969 |
|
|
|
|
|
|
Total Assets | 52,792,901 | 58,193,340 | 65,711,075 | 67,632,380 | 32,783,560 |
|
|
|
|
|
|
Net Assets | 51,503,996 | 52,319,699 | 53,205,396 | 56,491,892 | 30,321,539 |
|
|
|
|
|
|
Share Capital | 117,153,440 | 115,614,202 | 113,476,858 | 109,935,253 | 72,855,310 |
|
|
|
|
|
|
Number of Shares | 101,325,880 | 100,922,582 | 100,459,937 | 99,758,753 | 91,415,459 |
|
|
|
|
|
|
Deficit | 69,095,649 | 67,117,263 | 64,098,273 | 55,504,339 | 43,884,125 |
(1)
The Canadian Accounting Standards Board required that Canadian publicly accountable enterprises adopt IFRS for financial periods beginning on and after January 1, 2011. The Company adopted IFRS with an adoption date of September 1, 2011 and a transition date of September 1, 2010. Previously, the Companys financial statements were prepared in accordance with Canadian generally accepted accounting principles.
Exchange Rates
The following table sets forth information as to the period end, average, the high and the low exchange rate for Canadian Dollars (CDN) and U.S. Dollars for the periods indicated based on the noon buying rate in New York City for cable transfers in Canadian Dollars as certified for customs purposes by the Federal Reserve Bank of New York (Canadian dollar = US$1):
Year Ended: | Average | Period End | High | Low |
2014 | 1.0777 | 1.0858 | 1.1251 | 1.0237 |
2013 | 1.011 | 1.0554 | 1.0578 | 0.971 |
2012 | 1.008 | 0.9862 | 1.0605 | 0.9751 |
2011 | 0.988 | 0.9783 | 1.052 | 0.9448 |
2010 | 1.044 | 1.064 | 1.106 | 0.996 |
The following table sets forth the high and low exchange rate for the past six months. As of August 31, 2014, the exchange rate was CDN $1.0858 for each US$1.00.
Month | High | Low |
October 1 29, 2014 | 1.1291 | 1.1150 |
September 2014 | 1.1207 | 1.0862 |
August 2014 | 1.0982 | 1.0857 |
July 2014 | 1.0908 | 1.0633 |
June 2014 | 1.0937 | 1.0676 |
May 2014 | 1.0973 | 1.0837 |
8
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
An investment in the Companys common shares involves a high degree of risk and should be considered speculative. You should carefully consider the following risks set out below and other information before investing in the Companys common shares. If any event arising from these risks occurs, the Companys business, prospects, financial condition, results of operations or cash flows could be adversely affected, the trading price of common shares could decline and all or part of any investment may be lost.
The operations of the Company are highly speculative due to the high-risk nature of its business, which include the acquisition, financing, exploration and, if warranted, development of mineral properties. The risks and uncertainties set out below are not the only ones facing the Company. Additional risks and uncertainties not currently known to the Company, or that the Company currently deems immaterial, may also impair the Companys operations. If any of the risks actually occur, the Companys business, financial condition and operating results could be adversely affected. As a result, the trading price of the Companys common shares could decline and investors could lose part or all of their investment. The Companys business is subject to significant risks and past performance is no guarantee of future performance.
Risks relating to the Company
The Company has incurred net losses since its inception and expects losses to continue.
The Company has not been profitable since its inception. For the fiscal year ended August 31, 2014, the Company had a net loss of $2,416,265 and an accumulated deficit on August 31, 2014 of $69,095,649. The Company has never generated revenues and does not expect to generate revenues from operations until one or more of its properties are placed in production. There is a risk that none of the Companys properties will be placed in production.
The Companys exploration activities are highly speculative and involve substantial risks.
All of the Companys properties are in the exploration stage and no proven mineral reserves have been established. The Companys exploration work may not result in the discovery of mineable deposits of ore in a commercially economical manner. There may be limited availability of water, which is essential to milling operations, and interruptions may be caused by adverse weather conditions. The Companys future operations, if any, are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air quality standards, pollution and other environmental protection controls.
The Company has uninsurable risks.
The Company may be subject to unforeseen hazards such as unusual or unexpected formations and other conditions. The Company may become subject to liability for pollution, cave-ins or hazards against which it cannot insure or against which it may elect not to insure. The payment of such liabilities may have a material adverse effect on the Companys financial position.
9
The Company depends on key management personnel.
The success of the operations and activities of the Company is dependent to a significant extent on the efforts and abilities of its management including James E. Sinclair, President and Chief Executive Officer, Joseph Kahama, Chairman and Chief Operating Officer (Tanzania), and Steve van Tongeren, Chief Financial Officer. Investors must be willing to rely to a significant extent on their discretion and judgment. The Company does not have employment contracts with the President and Chief Executive Officer. The Company maintains key-man life insurance on the President and Chief Executive Officer but not on the Chief Financial Officer of the Company or Chairman and Chief Operating Officer (Tanzania).
The Company will need additional capital.
As at August 31, 2014, the Company had cash and cash equivalents of $1,829,661 and working capital of $1,325,667. However, the Company will continue to incur exploration costs to fund its plan of operations and may need to raise additional capital. Ultimately, the Companys ability to continue its exploration activities depends in part on the Companys ability to commence operations and generate revenues or to obtain financing through joint ventures, debt financing, equity financing, production sharing agreements or some combination of these or other means. Further the raising of additional capital by the Company may dilute existing shareholders.
Substantial doubt about the Companys ability to ocntinue as a going concern.
Based on the Companys current funding sources and taking into account the working capital position and capital requirements at August 31, 2014, these factors indicate the existence of a material uncertainty that raises substantial doubt about the Companys 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 2015 in order to continue development and construction of the Buckreef Project. Furthermore, the Company is currently negotiating project financing terms with a number of lending institutions, which the Company believes will result in the Company obtaining the project financing required to fund the construction of the Buckreef Project. However there is no assurance that such additional funding and/or project financing will be obtained or obtained on commercially favourable terms.
The Company has no cash flow from operations and has historically depended on the proceeds from equity financings for its operations.
The Companys current operations do not generate any cash flow. Any work on the Companys properties may require additional equity financing. If the Company seeks funding from existing or new joint venture partners, its project interests will be diluted. If the Company seeks additional equity financing, the issuance of additional shares will dilute the current interests of the Companys current shareholders. The Company may not be able to obtain additional funding to allow the Company to fulfill its obligations on existing exploration properties. The Companys failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development and the possible partial or total loss of the Companys potential interest in certain properties or dilution of the Companys interest in certain properties.
10
Risks relating to the Mining Industry
The Company cannot accurately predict whether commercial quantities of ores will be established.
Whether an ore body will be commercially viable depends on a number of factors beyond the control of the Company, including the particular attributes of the deposit such as size, grade and proximity to infrastructure, as well as mineral prices and government regulations, including regulations relating to permitting, prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The Company cannot accurately predict the exact effect of these factors, but the combination of these factors may result in a mineral deposit being unprofitable. The Company has no mineral producing properties at this time. Although the mineralized material estimates included herein have been prepared by the Company, or, in some instances have been prepared, reviewed or verified by independent mining experts, these amounts are estimates only and there is a risk that a particular level of recovery of gold or other minerals from mineralized material will not in fact be realized or that an identified mineralized deposit, if any, will ever qualify as a commercially mineable or viable reserve.
The exploration for and development of mineral deposits involves significant risks.
Mineral resource exploration is a speculative business and involves a high degree of risk. The Company has recently completed a diamond drilling program on the Buckreef Project. The Company is reviewing the results of the drilling program in the context of analyzing the economic significance of the deeper resources at the Buckreef Project using current gold prices. However, the exploration for and development of mineral deposits involves significant risks, which even a combination of careful evaluation, experience and knowledge may not eliminate. Although the discovery of a resource may result in substantial rewards, few explored properties are ultimately developed into producing mines. Significant expenditures may be required to locate and establish reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site.
The Company may not be able to establish the presence of minerals on a commercially viable basis.
The Companys ability to generate revenues and profits, if any, is expected to occur through exploration and development of its existing properties as well as through acquisitions of interests in new properties. The Company will need to incur substantial expenditures in an attempt to establish the economic feasibility of mining operations by identifying mineral deposits and establishing ore reserves through drilling and other techniques, developing metallurgical processes to extract metals from ore, designing facilities and planning mining operations. The economic feasibility of a project depends on numerous factors beyond the Companys control, including the cost of mining and production facilities required to extract the desired minerals, the total mineral deposits that can be mined using a given facility, the proximity of the mineral deposits to a user of the minerals, and the market price of the minerals at the time of sale. The Companys existing or future exploration programmes or acquisitions may not result in the identification of deposits that can be mined profitably.
The Company depends on consultants and engineers for its exploration programmes.
The Company has relied on and may continue to rely upon consultants for exploration development, construction and operating expertise. Substantial expenditures are required to construct mines, to establish ore reserves through drilling, to carry out environmental and social impact assessments, to develop metallurgical processes to extract the metal from the ore and, in the case of new properties, to develop the exploration infrastructure at any site chosen for exploration. The Company may not be able to discover minerals in sufficient quantities to justify commercial operation, and the Company may not be able to obtain funds required for exploration on a timely basis.
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The Company may not have clear title to its properties.
Acquisition of title to mineral properties is a very detailed and time-consuming process, and the Companys title to its properties may be affected by prior unregistered agreements or transfers, or undetected defects. Several of the Companys prospecting licenses are currently subject to renewal by the Ministry of Energy and Minerals of Tanzania. There is a risk that the Company may not have clear title to all its mineral property interests, or they may be subject to challenge or impugned in the future. See Mineral Properties.
Mining exploration, development and operating activities are inherently hazardous.
If the Company experiences mining accidents or other adverse conditions, the Companys mining operations could be materially adversely affected. The Companys exploration activities may be interrupted by any or all of the following mining accidents such as cave-ins, rock falls, rock bursts, pit wall failures, fires or flooding. In addition, exploration activities may be reduced if unfavourable weather conditions, ground conditions or seismic activity are encountered, ore grades are lower than expected, the physical or metallurgical characteristics of the ore are less amenable than expected to mining or treatment, dilution increases or electrical power is interrupted. Occurrences of this nature and other accidents, adverse conditions or operational problems in future years may result in the Companys failure to achieve current or future exploration and production estimates.
Development of the Companys projects is based on estimates and the Company cannot guarantee that its projects, if any, will be placed into production.
Any potential production and revenues based on production from any of the Companys properties are estimates only. Estimates are based on, among other things, mining experience, resource estimates, assumptions regarding ground conditions and physical characteristics of ores (such as hardness and presence or absence of certain metallurgical characteristics) and estimated rates and costs of mining and processing. The Companys actual production from the Buckreef Project, if it ever achieves production, may be lower than its production estimates. Each of these factors also applies to future development properties not yet in production at the Companys other projects. In the case of mines the Company may develop in the future, it does not have the benefit of actual experience in its estimates, and there is a greater likelihood that the actual results will vary from the estimates. In addition, development and expansion projects are subject to unexpected construction and start-up problems and delays.
The Companys exploration activities are subject to various federal, state and local laws and regulations.
Laws and regulation govern the development, mining, production, importing and exporting of minerals; taxes; labor standards; occupational health; waste disposal; protection of the environment; mine safety; toxic substances; and other matters. The Company requires licenses and permits to conduct exploration and mining operations. Amendments to current laws and regulations governing operations and activities of mining companies or more stringent implementation thereof could have a substantial adverse impact on the Company. Applicable laws and regulations will require the Company to make certain capital and operating expenditures to initiate new operations. Under certain circumstances, the Company may be required to close an operation once it is started until a particular problem is remedied or to undertake other remedial actions.
The Companys mineral interests in Tanzania are 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. There are initial preparation fees and annual rental fees for prospecting licenses based on the total area of the license. Renewals of prospecting licenses can take many months and possibly even
12
years to process by the regulatory authority in Tanzania and there is no guarantee that they will be granted. 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 no guarantee on the timing for processing the new application and whether it will be successful.
Risks relating to the Market
The Companys competition is intense in all phases of the Companys business.
The mining industry in which the Company is engaged is in general, highly competitive. Competitors include well-capitalized mining companies, independent mining companies and other companies having financial and other resources far greater than those of the Company. The Company competes with other mining companies in connection with the acquisition of gold and other precious metal properties. In general, properties with a higher grade of recoverable mineral and/or which are more readily mineable afford the owners a competitive advantage in that the cost of production of the final mineral product is lower. Thus, a degree of competition exists between those engaged in the mining industries to acquire the most valuable properties. As a result, the Company may eventually be unable to acquire attractive gold mining properties.
The Company is subject to the volatility of metal and mineral prices.
The economics of developing metal and mineral properties are affected by many factors beyond the Companys control including, without limitation, the cost of operations, variations in the grade ore or resource mined, and the price of such resources. The market prices of the metals for which the Company are exploring are highly speculative and volatile. Depending on the price of gold or other resources, the Company may determine that it is impractical to commence or continue commercial production. The price of gold has fluctuated widely in recent years. The price of gold and other metals and minerals may not remain stable, and such prices may not be at levels that will make it feasible to continue the Companys exploration activities, or commence or continue commercial production.
The Companys business activities are conducted in Tanzania.
The Companys principal exploration and development properties are currently located in the United Republic of Tanzania, Africa. Although the Company believes that the Tanzania government is a stable, multi-party democracy, there is no guarantee that this will continue. Tanzania is surrounded by unstable countries enduring political and civil unrest, and in some cases, civil war. There is no guarantee that the surrounding unrest will not affect the Tanzanian government and people, and therefore, the Companys mineral exploration activities. Any such effect is beyond the control of the Company and may materially adversely affect its business.
The Company may be affected in varying degrees by political stability and government regulations relating to the mining industry and foreign investment in Tanzania. The government of Tanzania may institute regulatory policies that adversely affect the exploration and development (if any) of the Companys properties. Any changes in regulations or shifts in political conditions in this country are beyond the control of the Company and may materially adversely affect its business. Investors should assess the political and regulatory risks related to the Companys foreign country investments. The Companys operations in Tanzania are also subject to various levels of economic, social and other risks and uncertainties that are different from those encountered in North America. The Companys operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, restrictions on foreign exchange and repatriation, income taxes, expropriation of property,
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environmental legislation and mine safety. Other risks and uncertainties include extreme fluctuations in currency exchange rates, high rates of inflation, labour unrest, risks of war or civil unrest, government and civil unrest, regional expropriation and nationalization, renegotiation or nullification of existing concessions, licences, permits and contracts, illegal mining, corruption, hostage taking, civil war and changing political conditions and currency controls. Infectious diseases (including Ebola virus, malaria, HIV/AIDS and tuberculosis) are also major health care issues where the Company operates.
Mineral exploration in Tanzania is affected by local climatic and economic conditions.
The Companys properties in Tanzania have year round access, although seasonal winter rains from December to March may result in flooding in low lying areas, which are dominated by mbuga, a black organic rich laustrine flood soil. Further, most lowland areas are under active cultivation for corn, rice, beans and mixed crops by subsistence farmers. As a result, the area has been deforested by local agricultural practices for many years. The seasonal rains and deforested areas can create a muddy bog in some areas, which can make access more difficult, and could impede or even prevent the transport of heavy equipment to the Companys mineral properties at certain times of the year between December and March.
Commodity prices are subject to fluctuation.
The Companys future earnings, if any, are directly related to commodity prices as revenues, if any, are derived from rental/option payments on its mineral properties, direct sales of mined gold and post-production royalties received on the sales of gold. Gold prices fluctuate widely and are affected by numerous factors beyond the Companys control, including central bank purchases and sales, producer hedging and de-hedging activities, expectations of inflation, the relative exchange rate of the U.S. dollar with other major currencies, interest rates, global and regional demand, political and economic conditions, production costs in major gold-producing regions, speculative positions taken by investors or traders in gold and changes in supply, including worldwide production levels. The aggregate effect of these factors is impossible to predict with accuracy. In addition, the price of gold has on occasion been subject to very rapid short-term changes because of speculative activities. Fluctuations in gold prices may materially adversely affect the Companys financial performance or results of operations.
The Companys operations are subject to issues relating to security and human rights.
Civil disturbances and criminal activities such as trespass, illegal mining, theft and vandalism may cause disruptions at the Companys operations in Tanzania which may result in the suspension of operations. There is no guarantee that such incidents will not occur in the future. Such incidents may halt or delay exploration, increase operating costs, result in harm to employees or trespassers, decrease operational efficiency, increase community tensions or result in criminal and/or civil liability for the Company or its employees and/or financial damages or penalties. The manner in which the Companys personnel respond to civil disturbances and criminal activities can give rise to additional risks where those responses are not conducted in a manner that is consistent with international standards relating to the use of force and respect for human rights. The failure to conduct security operations in accordance with these standards can result in harm to employees or community members, increase community tensions, reputational harm to the Company and its partners or result in criminal and/or civil liability for the Company or its employees and/or financial damages or penalties. It is not possible to determine with certainty the future costs that the Company may incur in dealing with the issues described above at its operations.
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Risks relating to the Securities of the Company
Current global financial conditions.
Following the onset of the credit crisis in 2008, global financial conditions were characterized by extreme volatility. While global financial conditions subsequently stabilized, there remains considerable risk in the system given the extraordinary measures adopted by government authorities to achieve that stability. Global financial conditions could suddenly and rapidly destabilize in response to future economic shocks, as government authorities may have limited resources to respond to future crises. Future economic shocks may be precipitated by a number of causes, including a continued rise in the price of oil, geopolitical instability and natural disasters. Any sudden or rapid destabilization of global economic conditions could impact the Companys ability to obtain equity or debt financing in the future on terms favorable to the Company. In such an event, the Companys operations and financial condition could be adversely impacted.
As a foreign private issuer, the Company is subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to U.S. shareholders.
The Company is a foreign private issuer under applicable U.S. federal securities laws. As a result, the Company does not file the same reports that a U.S. domestic issuer would file with the SEC, although the Company is required to file with or furnish to the SEC the continuous disclosure documents that the Company is required to file in Canada under Canadian securities laws. In addition, the Companys officers, directors, and principal shareholders are exempt from the reporting and short swing profit rules of Section 16 of the Exchange Act. Therefore, shareholders may not know on as timely a basis when the Companys officers, directors and principal shareholders purchase or sell common shares, as the reporting dates under the corresponding Canadian insider reporting requirements are longer. In addition, as a foreign private issuer, the Company is exempt from the proxy rules under the Exchange Act.
The Company may lose its foreign private issuer status in the future, which could result in significant additional costs and expenses.
In order to maintain the Companys current status as a foreign private issuer, a majority of its common shares must be either directly or indirectly owned by non-residents of the United States, unless the Company also satisfies one of the additional requirements necessary to preserve this status. The Company may in the future lose its foreign private issuer status if a majority of its common shares is held in the United States and it fails to meet the additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs under U.S. federal securities laws as a U.S. domestic issuer may be significantly more than the costs incurred as a Canadian foreign private issuer eligible to use the multijurisdictional disclosure system (MJDS). If the Company is not a foreign private issuer, it would not be eligible to use the MJDS or other foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, the Company may lose the ability to rely upon certain exemptions from NYSE Mkt corporate governance requirements that are available to foreign private issuers.
United States investors may not be able to obtain enforcement of civil liabilities against the Company.
The enforcement by investors of civil liabilities under the United States federal or state securities laws may be affected adversely by the fact that the Company is governed by the Business Corporations Act (Alberta), that the some of the Companys officers and directors are residents of Canada or otherwise reside outside the United States, and that all, or a substantial portion of their assets and a substantial portion of the
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Companys assets, are located outside the United States. It may not be possible for investors to effect service of process within the United States on certain of the Companys directors and officers or enforce judgments obtained in the United States courts against the Company, certain of its directors and officers based upon the civil liability provisions of United States federal securities laws or the securities laws of any state of the United States.
There is uncertainty as to whether a judgment of a United States court based solely upon the civil liability is enforceable in Canada
Provisions of United States federal or state securities laws may not be enforceable in Canada against the Company and its directors and officers. There is also doubt as to whether an original action could be brought in Canada against the Company or its directors and officers to enforce liabilities based solely upon United States federal or state securities laws.
Common Share prices will likely be highly volatile, and investment could decline in value or the entire investment may be lost.
The market price of the common shares is likely to be highly volatile and may fluctuate significantly in response to various factors and events, many of which the Company cannot control. The stock market in general, and the market for mining company stocks in particular, has historically experienced significant price and volume fluctuations. Volatility in the market price for a particular issuers securities has often been unrelated or disproportionate to the operating performance of that issuer. Market and industry factors may depress the market price of the Companys securities, regardless of operating performance. Volatility in the Companys securities price also increases the risk of securities class action litigation.
Item 4.
Information on the Company
A.
History and Development of the Company
The Company was originally incorporated under the 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 on February 28, 2006. The Company is also registered in the Province of British Columbia as an extra-provincial company under the Business Corporations Act (British Columbia) and in the Province of Ontario as an extra-provincial company under the Business Corporations Act (Ontario).
The principal executive office of the Company is located at 44th Floor, Scotia Plaza, 40 King Street West, Toronto, Ontario, M5H 3Y4, Canada, and its telephone number is (604) 696-4236.
For the year ended August 31, 2014, the Company reported a net loss of $2,416,265. Included in the net loss is $1,209,640 of mineral properties and deferred exploration expenses that was written off relating to abandoned mineral properties. The Company incurred deferred exploration expenditures of 2,329,901 during the year ended August 31, 2014.
Significant Acquisitions and Significant Dispositions
The Companys principal capital expenditures and divestitures (including interests in other companies and amounts invested) for the last three fiscal years are described as follows:
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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 terms of the heads of agreement dated December 16, 2010, the Company paid U.S. $3,000,000 to Stamico in consideration of the transaction. On October 25, 2011, a Definitive Joint Venture Agreement was entered into with Stamico for the development of the Buckreef 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%.
On August 12, 2011, the Company completed a US$30 million bought deal offering and 5,263,158 Units at a price of US$5.70 per Unit were issued. Each Unit consisted of one common share and one common share purchase warrant exercisable at a price of US$6.25 per warrant expiring on August 12, 2013. The Underwriter received a cash commission of 7% of the gross proceeds and 368,421 compensation warrants exercisable at a price of US$5.91 per share expiring on August 12, 2013. Effective December 7, 2011, the exercise price of 5,263,158 common share purchase warrants was reduced from US$6.25 to US$4.00 and the term of the warrants was extended one year to expire August 12, 2014, which warrants have now expired. On March 27, 2012, the Company received US$1,000,000 from the exercise of 250,000 compensation warrants. The balance of the compensation options expired.
On November 28, 2012 the Company announced the formation of a new company, NWBM to explore the Kabanga nickel, cobalt and platinum group metals belt. NWBM is owned 75% by the Company, 15% by Stamico, and 10% by Songshan.
The Company awarded a contract to Venmyn Independent Projects (Pty) Limited, a subsidiary of Venmyn Rand (Pty) Limited, to undertake an update of the 21 August 2012 National Instrument 43-101 Independent Technical Report on the Buckreef Project in Tanzania. The updated report is dated February 24, 2014 (the Updated Buckreef Technical Project) and it was filed on SEDAR on February 24, 2014. See Mineral Properties.
The Company completed the heap leach pad construction at its Buckreef redevelopment gold project, located in the Lake Victoria Goldfields of Tanzania for a total cost of $1,682,355. Construction began in April 2014 and was completed as of September 2, 2014, and was overseen by civil contractor Yale-Constech Company Limited. Four heap leach cells with dimensions of 100 metres by 30 metres each are complete. This will support the processing of stacked ore delivered from the Buckreef South Pit. The Company has also completed a significant portion of the Buckreef South Pit preparation, including grade control drilling, maps and roads.
B.
Business Overview
The Company is a mineral resource company with exploration and development stage properties, which engages in the acquisition of interests in and the exploration of natural resource properties and the development of those properties where warranted. The Company commits its own resources to the initial evaluation of mineral properties and in select situations, if and when warranted, the Company enters into joint venture agreements with other corporations to further the exploration of such properties, in exchange for annual rental/option payments and post-production royalty payments or with a view to direct development of a mine for the purpose of earning income from the sale of gold and other mined materials. At present, the Companys natural resource activities do not generate any income from production.
The Companys main area of interest has been in the exploration and development of gold properties, with a primary focus on exploring for and developing gold properties in Tanzania. Tanzania remains the focus of the Companys exploration and development activities.
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In the Companys view, its use of a joint venture and royalty strategy in addition to direct exploration and development offers investors leverage to precious and base metal prices with lower risk and shareholder dilution. Future production royalties from any producing properties discovered by joint venture partners would provide the Company with a direct interest in the mines cash flow, with exposure to any benefits from new discoveries and production growth, but without the capital obligations, and environmental and social liabilities, associated with direct ownership.
Plan of Operations
Exploration Activities
All of the properties in which the Company holds an interest are in the exploration, preliminary economic assessment or development stages of mining. Mineral exploration and development involves a high degree of risk and few properties, which are explored, are ultimately developed into producing mines. There is no assurance that the Companys mineral exploration activities will result in any discoveries of commercial bodies of ore. The long-term profitability of the Companys operations will be in part directly related to the cost and success of its exploration programs, which may be affected by a number of factors beyond the control of the Company.
By way of general description of the Companys operating activities, the Companys business operations involve using known or published geological and geophysical data to locate mineral resource properties meriting further exploration or development. Once identified, the Company must stake and apply for registration to title of the mineral properties, or negotiate the acquisition of such properties from any third party owners. Upon registration or acquisition of title, the Company then designs a program of preliminary exploration which can involve grid mapping, geophysical and magnetic surveying, geochemical surveying, geological sampling, grab sampling, assaying and other forms of prospecting as circumstances may require. Based on the preliminary results, mineral properties are ranked according to merit for further exploration work, which may involve further mapping, more detailed geophysical and geochemical surveying, and trenching to identify potential drill targets. If mineralization is indicated which merits further investigation, drill targets are selected and a preliminary RC drilling program commences for underground sampling and assaying. If the results are positive, then a diamond drilling program will commence mainly to check, verify and confirm the mineralization potential of the prospect.
Based on the drilling program results, the Company will develop models of the underlying geology and mineralized zones for more detailed testing. After further drilling, some mineralized zones will then be modeled using relevant geological software and ultimately be classified as inferred or indicated mineral resources. With sufficient infill drilling, these inferred or indicated mineral resources can be confirmed as a measured mineral resource, upon which a pre-feasibility study can be prepared by a qualified, independent mining engineer or geologist to determine whether mining activities are economic in the circumstances of the particular property. A pre-feasibility study must be completed under the requirements of NI 43-101 in Canada in order for mineral reserves to be designated and to confirm the appropriate mining and mineral processing method based on the geological and metallurgical studies of the ore. A final or bankable feasibility study must be completed for the designation of reserves under the SECs Industry Guide 7. If the bankable feasibility study is favorable, the Company can then use the feasibility study to seek out the necessary financing from a merchant banker or other financial institution for mine construction and development.
The Company continued its efforts for the farming-out of identified properties for royalty agreements with other mining companies, and continues to examine and review other exploration opportunities in Tanzania.
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Highlights for the year ended August 31, 2014
·
Construction of the Heap Leach Plant for the Buckreef Project Gold Mine located in the Lake Victoria Goldfields of Tanzania was initiated. Among significant progress made during the reported period include completion of heap leach pads, four 100m by 30m heap leach. This will support the processing of stacked ore delivered from the Buckreef South Pit.
·
Grade control drilling was initiated over the Buckreef South Block. Results from 250 drill holes provided detailed data required for mapping and identifying the highest ore grade material to supply the heap leach extraction plant.
·
Over 70% of the total holes drilled into Buckreef South Block intercepted ore material grading greater than 0.5g/t Au. This high-density drilling program confirmed two distinct mineralized zones termed as Buckreef South Zone One (BSZO) and Buckreef South Zone Two (BSZT) with an average grade of 3.16g/t Au and 5.31g/t Au respectively.
·
Construction of resource models for Buckreef prospects (Buckreef Main, Eastern Porphyry, Bingwa and Tembo) was carried out during the period. This process was preceded by the construction of geological and mineralization wireframes for the four Buckreef Prospects.
·
Positive Metallurgical Test results for Buckreef Bingwa Deposit confirmed potential or low cost mining for Buckreef Bingwa Deposit.
·
The Company announced a 121% increase. in gold resource for the Buckreef Main Prospect and a 39.2% increase for the entire Buckreef Project. These results show gold ounces contained in measured and indicated categories containing approximately 2.4 million ounces. On February 24, 2014 the Company filed on SEDAR a NI 43-101 independent technical report for the updated mineral resource estimate.
·
Two key permits granted for blasting and chemical processing at the Companys Buckreef open cut area.
·
On February 24, 2014, the Company and Allied Gold Corp. (AGC) of United Arab Emirates announced it had signed a letter of intent to develop a commercially producing mine Buziba-Busolwa area, Tanzania. This will be a stand-alone development that will encompass the Buziba site within the Companys Buckreef Gold Project.
·
Buckreef Gold Company Limited (BGCL), a joint venture company owned by the Company and the State Mining Corporation (STAMICO) was awarded an Environmental Impact Assessment Certificate for the Buckreef Gold Project.
·
The official signing ceremony of the Kigosi Mining Licence was held in October 2013. Company a Ministry for Energy and Minerals representatives attended the ceremony.
·
Biogeochemical (BGC) field sampling was carried out in the Kabanga Nickel belt.
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Buckreef Project
During the 2014 fiscal year, the Companys main activities focused on the Buckreef Project.
Mine Development and Operations
Progress
The project successfully completed a critical year with the completion of construction of four heap leach cells with dimensions of 100 metres by 30 metres each, as scheduled. The completion of heap leach pad and preparing the Buckreef South Pit for ore mining were two of the major objectives in the Companys march to production.
Throughout the year, significant improvements were made to the surrounding infrastructure, especially demolishment of the old Buckreef processing plant, and upgrading of approximately 30 kilometres of Buckreef - Katoro road.
Water Use Permit from Lake Tanganyika Basin Water Board and Occupational Safety and Health (OSHA) Compliance registration certificate were in the acquisition process after payment for water permit and given Provisional Water Use Permit while other steps for processing the final permits are underway according to the WRMA No. 11 of 2009.
Tanesco electric power line (33Kv) connection to Buckreef camp 100kVA, 33/0.4/0.23kV sub-station was completed. The construction of the 500m overhead power line from the nearby Tanesco main line was contracted to Agape Enterprises Ltd electric contractors. The activities completed by the contractor included bush clearing of the 500m root way from the Tanesco line to Buckreef substation, erection of 7 wooden electric poles on the line, and the installation of the conductor wire string and a power drop down transformer.
Construction and reinforcement of the fence around the Buckreef camp to enclose all houses at the camp including the main office, power substation and power house was undertaken. The work involved construction and erection of concrete fence poles, and installation of security razor wire and wire mesh.
An updated costing and mining study was completed based on a revised Heap Leach Processing Recovery Method which incorporated the combination of crushing ore to the required size fraction and stacking the ore to the pads for irrigation. This was then integrated into a final mining plan including multi open pit schedules. Optimisation of the mining and processing rates, capital estimate scheduling, and the final design was approved by the Companys Technical Committee.
The revised open pit mining designs and schedules support a 360,000tpa operation, planned for commissioning in the last quarter of 2014 and extending to 2019.
A Memorandum of Agreement of Sale was made and entered into by DMO Technological Services Ltd. of Zimbabwe and Buckreef Gold Company for the purchase of a carbon in column (CIC) plant for the proposed 1000 tpd heap leach operations at Buckreef. The CIC heap leach process plant fabrication which includes carbon adsorption unit, carbon elusion unit, electrowinning unit and gold room unit designs has been completed and fabrication works are expected to be completed before the end of calendar year 2014.
Grade Control drilling program was completed at the South Pit where a total of 6727m were drilled from 282 holes using a 5m x 10m x 24m grid to define & confirm Buckreef south ore zone as defined from the Buckreef block model. The drilling confirmed two distinct mineralized zones termed as Buckreef South
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Zone One and Zone Two with an average grade of 3.16g/t Au and 5.31g/t Au respectively over average mineralized intersection widths of 7.65m and 10.5m respectively.
Significant intercepts reported include:
Buckreef South Zone One
Drill hole BMGC00120 returned interval of 5 metres grading 4.77g/t Au from 19m 24m depth.
Drill hole BMGC00134 returned interval of 7 metres grading 1.68g/t Au from 12m - 19m depth.
Drill hole BMGC00162 returned interval of 4 metres grading 4.43g/t Au from 18m - 22m depth.
Drill hole BMGC00163 returned interval of 8 metres grading 3.40g/t Au from 9m 17m depth.
Drill hole BMGC00164 returned interval of 4 metres grading 2.75g/t Au from 4m 8m depth.
Drill hole BMGC00176 returned interval of 4 metres grading 6.12g/t Au from 20m 24m depth.
Drill hole BMGC00177 returned interval of 8 metres grading 7.27g/t Au from 13m 21m depth.
Drill hole BMGC00178 returned interval of 8 metres grading 7.18g/t Au from 5m 13m depth.
Buckreef South Zone Two
Drill hole BMGC00128 returned interval of 4 metres grading 3.76g/t Au from 11m 15m depth.
Drill hole BMGC00129 returned interval of 5 metres grading 9.68g/t Au from 10m 15m depth.
Drill hole BMGC00130 returned interval of 4 metres grading 3.07g/t Au from 2m 6m depth.
Drill hole BMGC00156 returned interval of 16 metres grading 4.10g/t Au from 0m 6m depth.
Drill hole BMGC00157 returned interval of 6 metres grading 3.01g/t Au from 4m 8m depth.
Drill hole BMGC00172 returned interval of 12 metres grading 8.25g/t Au from 12m 24m depth.
Drill hole BMGC00175 returned interval of 17 metres grading 12.93g/t Au from 5m 22m depth.
Buckreef Project environmental impact assessment study was completed and a certificate of environmental impact Assessment was awarded to the Buckreef project.
Buckreef enlarged Mining Licence (SML04/92) land valuation work was completed and the valuation and resettlement report was approved by the Chief Government Valuer for compensation. Management is currently reviewing the valuation to determine what, if any, resettlement will be required for mining the various deposits.
The BZMA Project entered a development pipeline after BGCL, a project subsidiary of the Company, (55% by Tanzanian Royalty and 45% by Stamico, signed a letter of intent in February 2014 with ARL Gold Tanzania Limited, a subsidiary of Allied Gold Company of United Arab Emirates, to conclude a Definitive Joint Venture Agreement for the standalone mine development of the Buziba-Busolwa resource.
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. Significant metres of drilling and sampling so frar completed over the GHR and surrounding areas has 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 8th March 2011 using a cut-off grade of 1.0g/t:-
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DOMAIN | CLASSIFICATION | VOLUME (m3) | TONNES (t) | GRADE (g/t) | OUNCES oz |
Main Lode | Indicated | 816,000 | 2,390,000 | 3.14 | 241,000 |
Inferred | 355,000 | 1,053,000 | 3.68 | 125,000 | |
TOTAL MAIN LODE | 1,171,000 | 3,443,000 | 3.31 | 366,000 | |
Footwall Lode | Indicated | 141,000 | 409,000 | 1.92 | 25,000 |
Inferred | 128,000 | 380,000 | 2.57 | 31,000 | |
TOTAL FOOTWALL LODE | 269,000 | 789,000 | 2.23 | 57,000 | |
TOTAL INDICATED | 957,000 | 2,799,000 | 2.96 | 266,000 | |
TOTAL INFERRED | 483,000 | 1,433,000 | 3.39 | 156,000 | |
GRAND TOTAL | 1,440,000 | 4,232,000 | 3.11 | 422,000 |
Rounding results in computational discrepancies
The main activity completed for the Itetemia project were the studies (final metallurgical testwork, process engineering designs, etc.) undertaken by MaSS Resources company. The Environmental & Social Impact Assessment (ESIA) studies, contracted to Efficient Consultants environmental experts, are near completion and the report has been submitted to NEMC for approval in connection with an applicaton for a certificate of environmental impact assessment.
Kigosi Project
Kigosi Mining Licence (ML/13) and Environmental impact assessment certificate were both granted to the Kigosi Project in the period. We considered a number of potential production scenarios for the Kigosi Project. One scenario is the potential for a modest low-capital start-up operation based on extracting gold from extensive surface rubble and gravel mineralization which has been the subject of a NI 43-101 Technical Report. The Kigosi gravel Coarse Gravity Recovery testwork final report using a Python Gekko gravity recovery process system was completed. The testwork indicates positive results as the overall gold recovery, based on pre-concentration by gravity and flotation, followed by intensive cyanide leaching at a grind size of 80% passing 0.106mm size, is 95.2%. This is based on a sample with a calculated head grade of 3.93 g/t Au; leach residue grade is 0.05 g/t and flotation tailings grade is 0.25g/t. The overall gold recovery achievable at the different leach conditions was determined using the average calculated head grade. The Table below summarises the testwork results for the Kigosi gravel ore.
Test ID | Calc Au Head Grade (g/t) | Pre-concentration Recoveries (%) | Leach Recoveries (%) | Overall Au Recovery (%) | Residue Au (g/t) |
LBUC 01 ( Concentrate @ P80 As-is) | 3.93 | 95.3 | 99.1 | 94.2 | 0.51 |
LBUC 02 ( Concentrate @ P80 106 μm) | 3.93 | 95.3 | 99.9 | 95.2 | 0.05 |
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 degazzetting the Kigosi mining licence project area from a game reserve area to a mining area on the government gazette have not yet been completed by the government of Tanzania.
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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 mineralisation is stratabound shear-zone hosted gold mineralisation (stratigraphic and structural control) within a distinct unit of felsic rocks with associated ferruginised mafics and felsics.
Varying amounts of drilling and sampling have been conducted over the various deposits at Luhala, which 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:-
DOMAIN / ZONE | CLASSIFICATION | VOLUME (m3) | TONNES (t) | GRADE (g/t) | OUNCES oz |
Kisunge Central | Inferred | 410,000 | 870,000 | 1.76 | 48,900 |
Kisunge East | 110,000 | 240,000 | 2.15 | 16,800 | |
Kisunge South | 60,000 | 120,000 | 1.68 | 6,300 | |
Shilalo South | 100,000 | 200,000 | 2.47 | 15,900 | |
Shilalo West | 200,000 | 430,000 | 1.73 | 23,900 | |
TOTAL LUHALA PROJECT | 880,000 | 1,860,000 | 1.87 | 112,000 | |
TOTAL INFERRED | 880,000 | 1,860,000 | 1.87 | 112,000 | |
GRAND TOTAL | 880,000 | 1,860,000 | 1.87 | 112,000 |
Rounding results in computational discrepancies
The Company is currently seeking bids to prepare the study required in connection with an application for a mining licence for the Luhala Project.
Lunguya Project
The Lunguya gold project is situated on a major NW-SE regional shear zone which extend north into Barricks Bulyanhulu gold mine (>10M oz). Gold in these shear zones occur in narrow shear-foliated quartz veins in sheared contacts between basalts and granites. Potential for the discovery of an economic resource from Luhala can be inferred from active small scale mining activities which are contiguous with Luhala. Work so far completed at Luhaha has identified bulls eye gold in soil anomalies and RAB-drilled contact along the granite-greenstone contacts. Reassessment is ongoing to determine whether additional work is required to upgrade the resource.
Kabanga Nickel Project
There were no exploration activities on the Kabanga Project licences in fiscal 2014 due to the Companys strategy to concentrate on projects with potential to generate near term cash flow, more specifically gold production start up. The Kabanga nickel and base metals project remain as the most potential mineral fields in the country for base metal mineralization (Nickel, PGM, tin, wolfram, coltan etc.). For example, previous test work that was carried out on BGC on the Ni anomalies in the Kabirizi and Buhamila licences demonstrate potential for future ground follow up exploration.
The Company will continue to explore opportunities to maximise shareholder value and closely follow development of the adjacent Barrick/Xstrata Project Nickel Project. However, the Company has taken a conservative approach to deferred carry values and conservation of cash.
23
Exploration Projects
Following the Companys decision to include mine development in its strategy of working toward 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. A technical team was formed to review the prospectivity of the entire licence portfolio in Tanzania and propose to management licences to be dropped. Thirty-nine (39) licences were proposed to be dropped by the technical team and the licences were approved for relinquishment by the Companys Technical Committee.
Exploration
The Companys principal exploration properties are currently all located in the United Republic of Tanzania, Africa. The government of Tanzania is a stable, multi-party democracy. Mineral exploration in Tanzania is affected by local climatic, political, and economic conditions. The Companys properties have year round access, although seasonal summer rains from December to March may result in flooding in low lying areas, which are dominated by mbuga (black organic rich laustrine flood soils). Further, most lowland areas are under active cultivation for corn, rice, beans and mixed crops by subsistence farmers. As a result, the area has been deforested by local agricultural practices for many years. The seasonal rains and deforested areas can create a muddy bog in some areas, which can make access more difficult, and could impede or even prevent the transport of heavy equipment to the Companys mineral properties at certain times of the year between December and March.
Competition
The mining industry in which the Company is engaged is in general, highly competitive. Competitors include well-capitalized mining companies, independent mining companies and other companies having financial and other resources far greater than those of the Company. The Company competes with other mining companies in connection with the acquisition of gold and other precious metal properties. In general, properties with a higher grade of recoverable mineral and/or which are more readily mineable afford the owners a competitive advantage in that the cost of production of the final mineral product is lower. Thus, a degree of competition exists between those engaged in the mining industry to acquire the most valuable properties. As a result, the Company may eventually be unable to acquire attractive gold mining properties.
Dependence on Customers and Suppliers
The Company is not dependent upon a single or few customers or supplier for revenues or its operations.
Governmental Regulations
As of November 1, 2010, the Tanzania Mining Act, 2010 (Mining Act, 2010) came into effect. The Tanzania Ministry of Energy and Minerals announced changes to fees effective July 27, 2012.
The Companys mineral interests in Tanzania are initially held under prospecting licenses granted pursuant to the Mining Act, 2010 for a period of up to four years, and are renewable two times for a period of up to two years each. The Company must pay annual rental fees for its prospecting licenses based on the total area of the license measured in square kilometres, multiplied by US$100/sq.km for the initial period, $150/sq.km for the first renewal and $200/sq.km for the second renewal. There is also an initial one-time preparation fee of US$500 per license. Upon renewal, the Company must pay a renewal fee of US$300 per license. Renewals of its prospecting licenses can take many months and even years to process by the regulatory authority in Tanzania.
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All prospecting licenses in Tanzania also require the holder to expend funds which are set out in the Mining Act, 2010. At each renewal, at least 50% of the Companys licensed area must be relinquished on prospecting licences in excess of 20 square kilometres. On relinquishing the ground, the area is automatically returned to the Mining Commissoners jurisdiction for a period of 4 months after which it will be declared vacant or otherwise by the Commissioner. If the Company still has an interest in the relinquished one-half portion, it must then file a new application in competition with other interested companies for the relinquished portion 4 months after the relinquishment date. If more than one application is lodged on the same day at the Mining Commissioners office, then the Commissioner may award the ground by tender. There is no guarantee on the timing for processing the new application and whether it will be successful.
The Company must hold a mining license or special mining licence to carry on mining activities. Pursuant to the Mining Act, 2010 a mining license is granted for a maximum initial period of 10 years. It is renewable 6 months prior to expiry for a period the applicant will state but not exceeding 10 years. A special mining licence is granted for the estimated life of the ore body indicated in the feasibility study report, or such period as the applicant may request whichever period is shorter. It is renewable for a period not exceeding the estimated life of the remaining ore body.
Prospecting and special mining and mining license holders must submit regular reports in accordance with mining regulations. Upon commercial production, the government of Tanzania imposes a royalty on the gross value of all production at the rate of 4% of all gold produced. The applicable regulatory body in Tanzania is the Ministry of Energy and Minerals.
An environmental impact statement and an environmental management plan must accompany special mining license, mining license and gemstone mining license applications for mineral rights. In addition to the establishment of environmental regulations, the Tanzanian Government has improved management procedures for effective monitoring and enforcement of these regulations by strengthening the institutional capacity, especially in the field offices. The Government has provided rules for the creation of reclamation funds to reinstate land to alternative uses after mining and it has developed guidelines for mining in restricted areas, such as forest reserves, national parks, sources of water and other designated areas.
C.
Organizational Structure
The Company has the following seven subsidiaries:
Name of Subsidiary | Jurisdiction of Incorporation | Percentage &Type of Securities Owned or Controlled by Company | |
Voting Securities Held | Non-Voting Securities | ||
Itetemia Mining Company Limited | Republic of Tanzania, Africa | 90% (1) | N/A |
Lunguya Mining Company Ltd. | Republic of Tanzania, Africa | 60% (2) | N/A |
Tancan Mining Company Limited | Republic of Tanzania, Africa | 100% | N/A |
Tanzania American International Development Corporation 2000 Limited | Republic of Tanzania, Africa | 100% | N/A |
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Name of Subsidiary | Jurisdiction of Incorporation | Percentage &Type of Securities Owned or Controlled by Company | |
Voting Securities Held | Non-Voting Securities | ||
Buckreef Gold Company Limited (BGCL) | Republic of Tanzania, Africa | 55% (3) | N/A |
Northwest Basemetals Company Limited | Republic of Tanzania, Africa | 75% (4) | N/A |
BGCL/AGC Joint Venture (6) | Republic of Tanzania, Africa | 40% (5) | N/A |
(1)
The remaining 10% interest is held by State Mining Corporation.
(2)
The remaining 40% interest is held by Northern Mining and Consultancy Company Ltd.
(3)
The remaining 45% interest is held by State Mining Corporation.
(4)
The remaining interest is held 15% by State Mining Corporation and 10% by Songshan.
(5)
The remaining interest is held 60% by Allied Gold Corp. of United Arab Emirates.
(6)
Joint venture letter of intent signed and subject to final approval.
D.
Property, Plant and Equipment
The Companys business is the acquisition, exploration and development of mineral properties, with a primary focus on exploring for gold properties in Tanzania. Historically, the Company has funded its activities by way of the sale and issuance of its securities. The Company also obtains operating funds through sales of and options to sell its various mineral property interests to other parties, retaining a royalty interest. The Companys properties are without a known body of commercial ore, with no established mineral reserves, and the Companys activities to date on such properties have been exploratory and developmental in nature.
Mineral Properties
Buckreef Project
History
The Lake Victoria Goldfields (LVG) was discovered in 1894 by German explorers and significant exploitation began in the 1930s at the Geita Gold Mine. Several small gold mines exploiting near surface reefs, operated throughout the Rwamagaza Greenstone Belt (RGB), particularly near the village of Rwamagaza. By 1940, Tanzania was producing 4.5tpa of gold (Au).
Gold bearing quartz veins were reported from the current Buckreef Mine area in 1945 and reports from the 1950s attest to ongoing production at a number of localities near Rwamagaza, including the Buckreef area. The extent of the small scale local and colonial mining activities is evident from the numerous pits and adits covering the entire Buckreef tenement; however, no production figures are available.
An airborne geophysical survey was flown during 1959 over the RGB, in a joint effort between the United Nations and the Tanzanian Mineral Resources Division, with a ground magnetic survey follow-up between 1965 to 1968. The Buckreef quartz vein hosted deposit was rediscovered in 1965 and followed-up by drilling by the Tanzanian Mineral Resources Division.
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The Buckreef Mine was an underground mine exploited in the name of the Buckreef Gold Mining Company (BGMC) approved by Stamico in 1982 and the exploration and mining activities during this period are summarised in the table below. The mining ceased in 1990 due to a number of operational reasons and the mine flooded. Approximately 100,000t of Run of Mine (RoM) ore was mined at a diluted grade of approximately 3g/t Au to 4g/t Au. In 1994, the Buckreef Redevelopment Agreement was signed between the State of Tanzania and East Africa Mines Limited (EAM) and additional surface and subsurface gold resources were identified.
Post 1990, a new phase of modern exploration focused on potential Archaean deposits in the Lake Victoria region and the LVG developed after significant gold discoveries.
EAM explored 40km of contiguous strike length of the RGB. During that time (2003) Spinifex Gold, the original parent company to EAM, merged with Gallery Gold Limited of Australia (Gallery Gold). Gallery Gold then became the parent company of EAM. Iamgold Corporation (Iamgold) acquired Gallery Gold in March 2006 and held the Buckreef Project until July 2009.
Summary of Buckreef Exploration and Mining between 1960 and 2003
DATE | EXPLORATION UNDERTAKEN*** |
1960 | 13 diamond drill holes by UNDP (12 in current database, UNBR01-12) identified a possible ore zone 107m long, 8m wide and extending to 122m depth |
1968 | 13 diamond drill holes by Tanzanian Mineral Resources Division (MRD01-13) |
1970s | Early 1970s Underground development on 30m and 61m levels by Williamson Diamonds Ltd. Indicated ore reserve of 106,000t @ 8.7g/t Au between 23m and 76m levels using minimum mining width of 1.5m*** |
1972 | Tanzanian government approved investment decision and BGMC |
1973-1979 | Further underground development and 3 diamond drill holes (BGMDD01-03) by BGMC. |
1978-1981 | Treatment plant and other facilities established with financial assistance from Swedish International Development Agency |
1982-1988 | Gold production commenced but reached only 25-40% of forecast targets. Production figure unavailable. |
1988 | Review of operations by British Mining Consultants Ltd. who found Buckreef assay laboratory assays 65% higher than overseas check assays |
1990 | Mining ceased and workings flooded. Total ore extracted estimated at approximately 100,000t @3-4g/t Au*** |
1992 | Aircore, RC and diamond drilling by East African Mining Corporation (now East Africa Gold Mines Ltd.) |
Source: Hellman and Schofield 2007. | |
*** This historical estimate is derived from an unpublished report prepared by Hellman and Schofield (Pty.) Ltd. In 2007. This historical estimate presented above is relevant to the further exploration of the project, which the Company is undertaking. Further drilling would be required to upgrade or verify the historical resource estimate as current mineral resources or reserves. A qualified person, as such term is defined under NI 43-101, has not done sufficient work to classify the historical estimate as current mineral resource or mineral reserve estimate and the historical estimate should not be relied upon. Please refer to the Buckreef Technical Report. |
The technical content of the following discussion regarding the Buckreef Project in Tanzania is summarized from the Buckreef Property technical report dated February 24, 2014 entitled Update National Instrument 43-101 Independent Technical Report on the Buckreef Project in Tanzania for Tanzanian Royalty Exploration Corporation prepared by Venmyn Rand (Pty) Limited and compiled by Fiona Harper, D.
27
Richards and Andrew Neil Clay (the Updated Buckreef Technical Report). The Updated Buckreef Technical Report was filed on SEDAR on February 24, 2014.
Ownership
Prior Ownership
Originally, the Buckreef Project was an advanced exploration project held by Iamgold Tanzania (IAGT) prior to July 2009. The Agreement to Redevelop the Buckreef Gold Mine (ARBGM) between IAGT and the Ministry for Energy and Minerals included at that point, a single Mining Licence and 12 Prospecting Licences covering 98.19km2.
In July 2009, IAGT applied to surrender all licenses relating to the ARBGM, effective October 25, 2009 and the Commissioner for Minerals withdraw all license applications relating to the ARBGM.
Current Ownership, Property and Location
In December 2010, the Company signed a binding heads of agreement with Stamico for the Buckreef Project and on October 25, 2011 entered into a Definitive Joint Venture Agreement with Stamico for the development of the project. Through its wholly-owned subsidiary, Tanzam, the Company will hold a 55% interest in the joint venture company, Buckreef Gold Company Limited, with Stamico holding the remaining 45%. The agreement provided for the formation and establishment of a joint venture company, Buckreef Gold Company Limited (BGC Ltd.). On 24th of October 2011, BGC Ltd. was formed and incorporated under certificate of incorporation number 86681.
The Buckreef Project is located in north central Tanzania immediately to the south of Lake Victoria, in the Mwanza Provincial District. The Buckreef Project is situated 110km southwest of Mwanza, in the Geita District and is accessed by ferry across Smiths Sound and then via unpaved roads and an airstrip. The Buckreef Project comprises five gold deposits located within two geographically separated areas approximately 25km apart, termed the Buckreef Mining Area (BRMA) and the Buziba-Busolwa Mining Area (BZMA) and the individual gold deposits within these mining areas have been termed Prospects, as summarized below:-
·
BRMA: includes the Buckreef Prospect, the Bingwa Prospect, Eastern Porphyry Prospect and the Tembo Prospect; and
·
BZMA: includes the Buziba Prospect and the Busolwa Prospect
An extended mining right was granted to Tanzam (Special Mining Licence 04/1992) encompassing the Buckreef, Bingwa, Eastern Porphyry and Tembo Prospect areas. The Buziba and Busolwa Prospects are held under a prospecting licence and a retention licence, respectively, and within the BZMA small-scale miners operate under numerous primary mining licences.
Geology and Mineralisation
The BRMA and BZMA gold deposits are classified as low to medium grade orogenic gold deposits hosted by mafic volcanic sequences of the eastwest trending Archaean RGB within the L of the Tanzanian Craton. The BRMA gold deposits are hosted by a major steeply dipping, northeast-southwest trending brittle-ductile shear zone and subsidiary shears, with an early phase of iron rich carbonate alteration, re-brecciation, felsite intrusion and a later phase of auriferous quartz veining.
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The BZMA deposit is located 25km east of the Buckreef Prospect in the RGB. The principal host lithologies include magnesium rich basalt, co-magmatic dolerite and a suite of quartz-albite felsic porphyries that have intruded the mafic sequence. Gold mineralisation is associated with quartz vein arrays that occur in altered shear zones in mafic lithologies and as extensive stock works in the felsic porphyries.
Regional Geological Setting
The Buckreef Project is situated within the LVG of northern Tanzania, which consists of a number of eastwest trending, linear, Archaean greenstone belts, which are separate granite-gneiss terrains within the Tanzanian Craton of east Africa. The LVG is the third largest gold producing region of Africa, surpassed only by the Witwatersrand Basin in South Africa and the Tarkwa region of Ghana. Numerous gold occurrences have been identified in the LVG, and new discoveries continue to be made. Since 1998, when the first mine, Golden Pride was commissioned, four additional large scale mines namely, Geita, Bulyanhulu, North Mara, and Tuluwaka have come into production.
The greenstone belts comprise mafic volcanics, pyritic sediments, tuffs, iron formation, chert, and felsic volcanics, collectively known as the Nyanzian Group. The metamorphic grade of the Nyanzian Group is lower to middle greenschist facies, and two major deformational episodes have been identified. Amphibolite facies metamorphic rocks are exposed in the western portions of the belt near Tulawaka Mine, but in general higher grade metamorphic complexes are rare.
The greenstone belt sequences have geological and structural similarities to major gold districts in the Canadian Shield (Val d´Or, Kirkland Lake) and the Yilgarn Craton in Western Australia (Kalgoorlie, Laverton, Leonora, Kambalda and Southern Cross).
Gold mineralisation within the LVG occurs in a number of styles including:-
·
quartz veins within minor brittle lineaments, most commonly worked on a small scale by artisanal workers, due to their limited extent and erratic gold distribution;
·
mineralisation within major ductile shear zones;
·
mineralisation associated with replacement of iron formation and ferruginous sediments; and
·
felsic (porphyry) hosted mineralisation, such as within the RGB.
Regardless of the geological environment, it is accepted that structural control on the emplacement of the mineralisation is critical. The following structural features have proven to be important foci of gold mineralisation:
·
structural lineaments trending at 120º;
·
flexures and splays to the 120º trend (such as at Golden Pride);
·
structural lineaments at 70º (such as at Golden Ridge); and
·
granite-greenstone contacts (such as at the Ushirombo and RGB).
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Local Geological Setting
The Buckreef Project area covers the eastern portion of the eastwest trending RGB, which forms part of the Sukumaland Greenstone Belt. The Sukumaland Greenstone Belt is oval shaped and is defined by two intermittently exposed belts of meta-volcanic and meta-sedimentary rocks that surround a core of granitoids and gneisses. The inner belt comprises an older, Lower Nyanzian sequence characterised by basaltic and andesitic lavas and tuffs, whilst the outer, younger, Upper Nyanzian succession consists of iron formation and tuffs. The understanding of the geology in the region has been hampered by the lack of outcrop (less than 2%). Isotopic dating suggests that the sequences are approximately 2.6Ga in age and although no contact between the outer and inner belts is exposed, a general trend of younging outwards is considered valid.
Within the Sukumaland Greenstone Belt, the RGB consists of a sequence of eastwest trending, poorly outcropping basaltic flows and overall the RGB varies in width from 5km to 10km. The mafic sequences consist of komatiitic basalts to the south and tholeitic basalts in the north, separated by the Rwamagaza Shear Zone. The basalts display well preserved volcanic features such as varioles, pillows, and flow top breccias Aeromagnetic data and minor outcrop, indicate the presence of a number of elongate discontinuous, serpentinised, sheared ultramafic bodies which parallel the flow stratigraphy and which could represent either intrusive bodies or the cumulate portions of thick, magnesium rich basaltic lava flows.
Two main clusters of felsic intrusions occur throughout the region and comprise large batholithic granites and porphyry intrusions. The RBG could possibly form part of a much larger mafic belt that has been dissected by the intrusion of large batholithic granites. Aeromagnetic surveys over the Project area indicate the presence of granites at depth. The RBG mafic-ultramafic sequence is strained to varying degrees, with the highest strain occurring in the central area of the Buckreef Prospect tenements, where the belt is thinnest. In this area, the dominant rock type is mafic schist. Toward the thicker (less attenuated) eastern and western parts, the schists form thinner more discrete zones of high strain separating areas of relatively unstrained ultramafic lithologies. The granitoids are generally unstrained and hence assumed to be post peak deformation. A large portion of the basalts to the southeast of Nyarugusu are hornfelsed, suggesting the presence of granite at shallow depths beneath them.
The tectonic evolution of the RGB is very poorly understood. Aeromagnetic data reveals several generations of crosscutting, late stage, brittle-ductile faults and shears, which offset flow stratigraphy and have locally been intruded by the felsic porphyries and by a late stage dolerite dykes. Early formed ductile structures are not easily defined in aeromagnetic data and there is evidence of shear zones that parallel the stratigraphy. The Project host rocks comprise meta-basalt, which is generally un-deformed but metamorphosed to lower greenschist facies grades. At Buckreef Prospect interflow units of predominantly pelitic and cherty sediments occur, as well as a variety of porphyritic textured, dyke and vein like felsic intrusions along crosscutting structures or sub-parallel to flow stratigraphy.
The RGB has been subjected to a phase of laterite development, with formation of predominantly iron rich ferricrete caps, which were subsequently extensively eroded and only isolated remnants of laterite remain in situ. The high rainfall and sub-tropical climate has resulted in deep laterisation and although there is evidence of localised gold enrichment in the shallow oxidation profiles in both BRMA or BZMA areas, major zones of supergene gold enrichment are not developed in either area. The RGB in general is covered by a thin layer of elluvial regolith, which is amenable to standard soil sampling techniques.
A non-penetrative deformation fabric is developed at Buziba, which dips steeply to the south, sub-parallel to the stratigraphy. Individual zones in which this fabric is well developed cannot be traced for distances of
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more than a few hundred metres on drill sections, but a number of such zones occur throughout the 200m of thickness of stratigraphy, which hosts the mineralisation.
Exploration Status
The Buckreef Gold Mine was an underground mine operated by the Tanzanian State during the late 1980s. Apart from the state, several previous owners of the project undertook numerous exploration programmes including aeromagnetic, helicopter borne IP, ground magnetic and soil geochemistry surveys, as well as extensive RC, Air Circulation (AC) and diamond drilling programmes. Iamgold, the most recent historic owner of the project, verified the historic drilling data, undertook additional exploration and defined JORC compliant Mineral Resources in 2006. In total, the exploration programme included approximately 30,000 soil samples, 202,000m of RC drilling, 124,000m of AC drilling and 28,000m of diamond core drilling.
The Company acquired the rights to the Buckreef Project early in 2011 and results of the current metallurgical and geotechnical diamond drilling programs, as well as detailed RC and diamond mineral resource drilling programs, are incorporated in the Updated Buckreef Technical Report. To date, additional mineralisation has been intersected on Buckreef Prospect Main Zone in a wide zone between 150m and 250m vertical depth with assay results of 4.5g/t Au over 26m and 10.58g/t Au over 19m. Additional near surface mineralisation at less than 200m depth, from Buckreef North includes a mineralised zone 46m wide at 2.31g/t Au. Gold mineralisation has also been identified in the Eastern Porphyry deposit 800m east of Buckreef Main Zone, over 500m of strike length with near surface mineralisation ranging between 1.25g/tAu to 6.3g/tAu over widths of 2.25m to 10.5m.
Historic metallurgical testwork programs were undertaken on both the BRMA and BZMA mineralisation types. The testwork on BMRA material indicated that oxide and transitional material are amenable to treatment using typical carbon-in-leach (CIL) processing techniques and fresh material may benefit from flotation and a finer grind with recoveries anticipated to be in the low 90%s. The testwork results for BZMA mineralisation indicated that it is amenable to treatment using gravity and CIL processing techniques. Metallurgical recoveries for BZMA mineralisation were anticipated to be in the low to mid 90%s. Heap leaching testwork indicated that, at a 25mm to 50mm crushing size fraction in oxide mineralisation, a 75% recovery could be anticipated, whilst transitional and fresh mineralisation recoveries were lower, at 35% to 50%.
Current heap leach metallurgical testwork indicate positive results from column leach test for the oxide ore resources, at a 6mm crushing size fraction in oxide mineralization, a 71% recovery was achieved. Testwork on the sulphide and transition resource indicate a recovery of 58% using a 12.5mm crush size and agglomeration using 4kg/t of lime and 3kg/t of cement.
Previous Mineral Resource and Mineral Reserve Estimates
Hellman & Schofield (Pty) Ltd (Hellman and Schofield) was retained by the Company to undertake the Mineral Resource estimation for the Buckreef Project reported in the technical report effective June 30, 2011 entitled National Instrument 43-101 Technical Report on Tanzanian Royalty Exploration Corporations Buckreef Gold Project in Tanzania prepared by Venmyn Rand (Pty) Limited and compiled by Fiona Harper, Andrew Neil Clay and Nicholas J. Johnson (the Buckreef Technical Report).
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The Mineral Resource estimates were based partially on a historic dataset that has been verified and deemed suitable for Mineral Resource estimation (Hellman and Schofield 2007), as well as Iamgold exploration data, which is similarly of a standard compliant with National Instrument and JORC reporting requirements. The Mineral Resources were estimated using Multiple Indicator Kriging techniques in GS3 software produced by Hellman and Schofield. The model estimates resources into panels, which approximate the drillhole sample spacing throughout the majority of the study area. The Mineral Resource estimates within each panel were classified according to the distribution of sampling in the kriging neighbourhood and took into account the uncertainty in the estimates related to the proximity and distribution of the informing composites.
Summary of Mineral Resources of the Buckreef Project (Cut-Off 0.5g/t Au) - Dec 2011
DEPOSIT | MEASURED | INDICATED | INFERRED | MEASURED & INDICATED | ||||||||
| Tonnes (Mt) | Au Grade (g/t) | Contained Au (Mcz) | Tonnes (Mt) | Au Grade (g/t) | Contained Au (Moz) | Tonnes (Mt) | Au Grade (g/t) | Contained Au (Moz) | Tonnes (Mt) | Au Grade (g/t) | Contained Au (Moz) |
Buckreef | 5.176 | 2.05 | 0.341 | 3.706 | 1.86 | 0.222 | 7.158 | 1.89 | 0.435 | 8.882 | 1.97 | 0.563 |
Buziba-Busolwa |
|
|
| 35.270 | 1.04 | 1.179 | 14.350 | 0.90 | 0.415 | 35.27 | 1.04 | 1.179 |
Bingwa |
|
|
|
|
|
| 1.120 | 2.4 | 0.086 |
|
|
|
Tembo |
|
|
|
|
|
| 0.725 | 2.18 | 0.051 |
|
|
|
TOTAL | 5.17 | 2.05 | 0.34 | 38.97 | 1.12 | 1.40 | 23.35 | 1.32 | 0.98 | 44.15 | 1.23 | 1.74 |
Source: Hellman and Schofield 2007, 2011; Venmyn 2011.
Mineral Resources inclusive of Mineral Reserves.
Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability
Estimates over variable widths of 3m to 40m
Bulk Density ranges from 2.0g/cm3 to 2.8g/cm3
Inconsistencies in totals are due to rounding down
55% attributable to the Company
Cut-off grade 0.5g/t Au
New Mineral Resource and Mineral Reserve Estimates
A Mineral Resource estimate was completed on the BRMA based on the geological models supplied by CAE Mining. The Mineral Resource estimate was informed by both the diamond drilling and reverse circulation drilling results and a Mineral Resource block model was confined by wireframed interpretations of the volumes of the individual prospects as developed by CAE Mining using Datamine Studio 3 (version 3.21.7164). Venmyn Deloitte carried out the grade estimation using Ordinary Kriging (OK), using Datamine Studio 3 (version 3.20.5321).
The Buckreef Project was modelled for gold grade only using the shell of the wireframe models as hard boundaries. Only data within the wireframes were used in the estimate. The variograms ranges were used to define the search ellipse and each domain was estimated separately. The definition of narrow mineralised stringers which frequently change strike direction posed a difficulty to the estimation process but this issue was solved by the use of local anisotropy Kriging (LAK) for the stringers implemented through Datamine's dynamic anisotropy functions. Specific Gravity values from all prospects and the three alteration zones namely; fresh, transitional and oxide are sufficient for the estimation purposes. Topographic surface models were provided by the Company.
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NI 43-101 Compliant Mineral Resource Estimate for BRMA as at 29 November 2013
PROSPECT | MEASURED | INDICATED | INFERRED | EXPLORATION TARGETS - Unclassified | ||||||||||||||||
Volume (Mm3) | SG | Tonnes (Mt) | Grade (g/t) | Contained Gold (oz Au) | Volume (Mm3) | SG | Tonnes (Mt) | Grade (g/t) | Contained Gold (oz Au) | Volume (Mm3) | SG | Tonnes (Mt) | Grade (g/t) | Contained Gold (oz Au) | Volume (Mm3) | SG | Tonnes (Mt) | Grade (g/t) | Contained Gold (oz Au) | |
Buckreef Prospect | ||||||||||||||||||||
Sub-total | 3.260 | 2.73 | 8.902 | 1.72 | 491,529 | 4.764 | 2.75 | 13.100 | 1.41 | 594,456 | 2.710 | 2.78 | 7.528 | 1.33 | 322,902 | 1.577 | 2.78 | 4.385 | 1.10 | 155,321 |
Eastern Porphyry | ||||||||||||||||||||
Sub-total | 0.032 | 2.69 | 0.087 | 1.20 | 3,366 | 0.381 | 2.66 | 1.016 | 1.17 | 38,355 | 0.474 | 2.61 | 1.239 | 1.39 | 55,476 | 0.508 | 2.61 | 1.324 | 1.14 | 48,664 |
Tembo Prospect | ||||||||||||||||||||
Sub-total | 0.006 | 2.70 | 0.017 | 0.99 | 531 | 0.074 | 2.50 | 0.185 | 1.77 | 10,518 | 0.109 | 2.45 | 0.267 | 1.93 | 16,521 | 0.042 | 2.28 | 0.095 | 1.12 | 3,429 |
Bingwa Prospect | ||||||||||||||||||||
Sub-total | 0.387 | 2.34 | 0.906 | 2.83 | 82,387 | 0.232 | 2.45 | 0.569 | 1.38 | 25,274 | 0.122 | 2.57 | 0.312 | 1.29 | 12,922 | 0.019 | 2.56 | 0.049 | 1.25 | 1.982 |
Total | 3.685 | 2.69 | 9.912 | 1.81 | 577,813 | 5.452 | 2.73 | 14.870 | 1.40 | 668,602 | 3.416 | 2.74 | 9.345 | 1.36 | 407,821 | 2.146 | 2.73 | 5.853 | 1.11 | 209,397 |
TOTAL | 3.68 | 2.69 | 9.91 | 1.81 | 578,000 | 5.45 | 2.73 | 14.87 | 1.40 | 669,000 | 3.42 | 2.74 | 9.35 | 1.36 | 408,000 | 2.15 | 2.73 | 5.85 | 1.11 | 209,000 |
Source: Venmyn Deloitte 2013, CAE Mining 2013 and TRX 2013
Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability
Mineral Resources reported inclusive of Mineral Reserves (although no Mineral Reserves are reported)
Cut-off Grade 0.5 g/t Au
Estimates over variable widths to 1m to 40m
Specific Gravity ranges 2.0 to 2.8
Inconsistencies in totals are due to rounding
55% attributable to TRX
The Company has incurred total net costs (after recoveries, if any) of $1,750,582 on the Buckreef Project for the year ended August 31, 2014.
The Buckreef Project is without known mineral reserves and any exploration program is an exploratory search for ore.
Kigosi Project
Property Description and Location
The Kigosi Project area 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. A comprehensive report summarizing exploration work done and results to date was submitted to the Director of Wildlife and Nature Conservation as part of the requisite and mandatory requirements for an application to renew the Kigosi game reserve access permit. It is a statutory requirement to have an access permit to conduct any exploration activities in an area designated as a forest and/or game reserve. On May 31st, 2012 the Company was granted a two year permit from the Ministry of Wildlife and Nature Conservation to enter the Kigosi Game Reserve and continue with exploration activities. The Company is evaluating various alternatives for advancing the Kigosi Project by focusing on an area of near surface mineralization.
In December 2012, the Kigosi Access Agreement between the Company (through its subsidiary Tanzam) and the Director of Wildlife, Wildlife Division, Ministry of Natural Resources and Tourism was signed, and in February 23, 2013, the Company (through Tanzam), was awarded the Environmental Impact Assessment Certificate for the Kigosi gold project. Stamico has a 15% carried interest in the Kigosi Project.
On May 30, 2013 the Company announced it had been granted a Mineral Rights and Mining Licence through its wholly owned subsidiary, Tanzam. The Mineral Rights and Mining Licence covers the entire area applied for of 9.91 square kilometres of the Kigosi Project. The area remains subject to a Game Reserve Declaration Order. Upon repeal or amendment of that order by the Tanzanian government, the Company will be legally entitled to exercise its rights under the Mineral Rights and Mining Licence.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
The property is accessed via air from the city of Dar Es Salaam on the Indian Ocean coast to the city of Mwanza on the southern shoreline of Lake Victoria. From Mwanza, a moderately maintained tar road accesses the town of Ushirombo, via the towns of Shinyanga and Kahama, around the southern part of the
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Lake, referred to as Smith Sound. This trip is approximately 400 km and takes some 5 hours. From the town of Ushirombo one keeps heading east along the main Burundi tar road for approximately 6 km, where a dirt track allows access into the Kigosi Game Reserve.
The southern bulk of the Kigosi Project area is wholly located within the northern sector of the Kigosi game reserve with a third of the licenses being located in the adjacent Nikonga-Ushirombo Forestry reserves further north. As per legal and mandatory requirements, the Company acquired respective renewable permits from the Departments of Game Reserves and Forestry Reserves of the Ministry of Wildlife and Tourism to conduct exploration activities in both the game and forestry reservation areas throughout the year. Access to the main Kigosi exploration camp via the dirt track has been substantially improved by the Company to allow access by four wheel drive vehicles during the rainy season.
The exploration camp at Kigosi is predominantly a tented facility with larger semi-permanent structures employed for offices and storage facilities. Recent construction included the installation of metal containers which will be utilized as living and office quarters. Communications at the camp are via satellite, internet and telephone.
The access track passes over the Shiperenge River, a tributary to the Nikonga River and both are perennial rivers, typically dry in the winter months and overflowing during the October-May rainy season. Three (3) large ponds located on the Nikonga River were the only close source of water until recently when the company drilled a highly productive water borehole located some 5km northwest of the camp. Drinking water for the camp is pumped via pipeline from the borehole to the camp. The Nikonga and Shiperenge rivers have played a major part in structuring the physiographic landscape in the area. These rivers drain southwards into the Moyowosi and Njingwe Swamps. Small undulating granite hills form the topographic highs, and generally trend northwest. These hills make up approximately 5% of the project area. The climate is typical of an African tropical climate, being hot during the day and cooling down in the evenings. Winters are very mild, but a blanket is needed in the early hours of the mornings. Kigosi falls within a malaria area, and precautions are necessary. Tsetse flies are also present in some parts of the project area. The region is heavily forested, but has only limited wildlife, chiefly small gazelle and baboons.
Geology and Mineralization
The Kigosi-Miyabi granite-greenstone belt and the Ushirombo greenstone belt, form part of two of the greenstone belts within the Nyanzian Archaean greenstone terrain in northwestern Tanzania. These belts host small-scale artisanal workings at Luhwaika and Igunda within the core project area at Kigosi and further to the southeast. The Ushirombo Greenstone Belt has been extensively explored by geologists and small scale miners over the past decade. It consists predominantly of mafic volcanics with lesser meta-sedimentary rocks across an east-west trending belt some 50 kilometres in strike. Gold mineralization generally occurs in narrow quartz veins. The Kigosi-Miyabi Greenstone Belt has been less explored, mainly because of the location within the Kigosi Game Reserve.
Several prominent regional scale NW trending structural lineaments, interpreted as regional shear zones, appear to be the major conduits and controls for the localization of gold mineralization in the Kigosi area. There is also a prominent NNW trending set of regional scale lineaments that are believed to be deep seated sources of the gold bearing fluids.
The Company previously discovered three previously undocumented shear-zone hosted gold mineralized targets and it has also established the presence of a surface to sub-surface horizon of unconsolidated residual in-situ auriferous vein quartz rubble on the Kigosi Property, forming a part of the Companys Lake Victoria Goldfield Properties held through its subsidiary, Tanzam.
The Company received an updated NI 43-101 technical report dated September 1, 2011 from Venmyn Rand
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(Pty) Limited of South Africa (the Kigosi Technical Report). A quartz rubble area of mineralization has been identified which is of particular interest due to its tabular extent and unconsolidated nature. The 43-101 Technical Report has defined a surface area of 3.36km2 and an average thickness of 1.15m which contains an Indicated Mineral Resource of 3.89 million tons at an in-situ grade of 0.83g/t Au and an Inferred Mineral Resource of 6.30 million tons at a grade of 0.34g/t Au.
For additional information regarding the Kigosi Property see the Technical Report entitled National Instrument 43-101F Technical Report on the Kigosi Project in the Lake Victoria Greenstone Belt, Tanzania prepared for Tanzanian Royalty Exploration Corporation by Venmyn Rand (Pty) Limited and compiled by C.A. Telfer, N. McKenna, J. Glanvill and R.M. Tayelor dated September 1, 2011 and filed on SEDAR December 13, 2011.
Luhwaika Quartz Rubble Deposit
A brief summary of the work done on the Luhwaika Quartz Rubble Deposit and the Msonga Prospect during the year are briefly summarized. Historical summaries for Luhwaika and Igunda Prospects are also briefly described.
During a previous detailed vertical RC-drilling program on the Luhwaika Prospect, the company established the presence of a consistent and sizeable near-surface quartz-rubble bed with a potentially significant economic potential. The Luhwaika Prospect is host to a potentially economic quartz rubble deposit which is likely a direct result of surface collapse and erosion of the Luhwaika Main and West reefs. Artisanal mining activity has concentrated on this loose quartz rubble deposit which is easily accessible for mining. High grade quartz rubble has so far been identified in three areas: the Luhwaika West reef, the Luhwaika Main reef and the Luhwaika East area.
The Company completed a detailed bulk sampling program on this potentially economic quartz rubble bed.
Bulk Sampling Program
The Company initiated a pit bulk sampling campaign between September 2010 and February 2011. The nature of this exploration was the collection of composite channel sampling from the pit side walls as a way of providing an indication of the in-situ grade. The bulk sample itself was fed through a mobile modular gravity separation plant located at the main camp. The extent of the exploration was on a small scale and included 43 excavated and channel sampled pit bulk samples. Only 18 of these pit bulk samples underwent the full excavation, channel sampling and pilot plant testing within the four month period. The objective of the pit bulk sampling campaign was to provide confidence in the gold grades for the already finalised resource model for the quartz rubble deposit and to ascertain the free gold recoverability using a rudimentary pilot plant as a low cost exercise.
The Company utilised an in-house geologist and field assistants to carry out the pit bulk sampling. Excavation was conducted with a small excavator and a single dump truck. Excavation was monitored by the geologist to ensure uniformity of the excavation and to stop the hole once the mottled zone had been reached. The mottled zone was also dug out as part of the bulk sample to a further depth of ~0.5m below the quartz rubble.
The location of the bulk sampling pits was defined by the then Senior VP, Mr. R. Van Der Westhuizen, based on the earlier RAB drilling and various other requirements. The pit co-ordinates were emailed to the field geologist who then located the pit using a hand-held GPS and staked the limits on an east-west orientation. A 5.0m x 2.5m x 2.5m pit was measured out with tape and staked. The sizing of each pit was
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targeted to yield approximately 80t of bulk sample. No specific grid size or spacing was used for the pit location.
Luhwaika Prospect
Gold mineralization at the Luhwaika Prospect occurs in a series of sub-parallel and variably auriferous shear zones. The geological setting of the Luhwaika Gold Prospect shows many characteristics that are typical of classic mesothermal lode gold deposits.
At Luhwaika, two principal shear zones have been identified: the Luhwaika Main and Luhwaika West reefs. These reefs carry significant gold mineralization as evidenced by strike extensive small-scale mining and exploration shafts, and more recent drill results. The gold mineralization in the Luhwaika Main reef is structurally controlled, consisting mostly of lodes of laminated quartz veins impregnated in strongly sheared and altered quartz sericite schist with occasional massive tabular whitish-grey quartz vein blow-outs. These veins are shear hosted, with lesser extensional veins noted in outcrop in the granite host rock.
The Luhwaika West reef, located 100-200 metres in the hanging-wall and sub-parallel to the Luhwaika Main reef, consists mainly of shear-zone hosted tabular quartz veins that often contain irregular hematite filled fracture surfaces.
Igunda Prospect
The structural setting of the Igunda Gold Prospect is similar to that of the Luhwaika Prospect with the exception that the former is hosted in mafic greenstone rocks intruded by lenses of felsic granitoids including quartz-feldspar porphyry. At Igunda, two principal shear zones have been identified: the Igunda A and B reefs. Closely associated with the reefs are sub parallel quartz feldspar porphyry units.
Gold mineralization is structurally controlled and the Igunda Reefs are localized in two sub-vertical dipping northwest striking shear zones, dipping steeply (75º 85º) to the northeast. Gold mineralization also occurs in the host wall rock up to over a meter and is not confined to the veins.
Msonga Prospect
Drilling
The Msonga Prospect is situated in the far northeast of the Kigosi license area. The earlier geochemical and structural studies covering this area had identified the presence of a substantial (7 km long) Au-in-soil anomaly hosted in mafic greenstone rocks. Dominant regional structures in the area (Ushirombo greenstone belt) generally trend east-west and are associated with the development of swarms of auriferous quartz veins such as those being currently mined by small-scale miners in the Katente area at Ushirombo. The Msonga Prospect is located between 3-5km along strike from these artisanal workings, and as such it was considered conceivable that the Msonga Prospect represented a similar setting to the Igunda Prospect (i.e., a greenstone and shear zone hosted gold deposit).
During the period mid-2009 to early-2011, the Company conducted a single phase of widely spaced RAB drilling covering the 7km-long Au-in-soil anomaly outline. From early 2010 to June 2011, the Company conducted two phases of RC drilling. The first phase of RC drilling comprised short vertical RC drill-holes mainly investigating the areas potential for gold mineralization in a distinctive auriferous surficial lateritic quartz rubble deposit. The second phase of RC drilling comprised inclined RC drill-holes to mainly investigate the east-west strike extension of the auriferous quartz veins associated with the nearby Katente Prospect. A total of 148 inclined RC holes were drilled on the Msonga Prospect.
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Subsequent modelling and krigging was conducted on the deposit. However, no mineral resources could be declared for Msonga Prospect due to the very low average grade, the paucity of sampling and a lack of geological control for mineralisation. The current targets at Msonga prospect are therefore, classified as minor gold occurrences only.
Kigosi Exploration History
From 1998 to 2007, the Company and AngloGold-Ashanti conducted regional and detailed exploration work on the Kigosi Project Area including airborne magnetics, soil sampling, mapping and trenching. The aeromagnetic survey flown in 1999 covered the entire Ushirombo greenstone belt and parts of the Miyabi-Kigosi greenstone belt. Limited field work was conducted by the Company during this initial period including a helicopter visit to the Luhwaika artisanal site which included grab sampling and mapping.
In June 2002, the Company sent a team to investigate the Luhwaika and Igunda showings at which time a more thorough grab sampling program was conducted. Positive results from this sampling led to further sampling and a small mapping program was initiated. A Landsat and radiometric investigation was also conducted on the Kigosi Project Area in 2003.
AngloGold-Ashanti conducted a detailed airborne survey in 2003 that covered the eastern Kigosi licenses. A soil sampling program was also conducted as part of initial follow-up work on prospective aeromagnetic anomalies which were later classified as the Msonga, Bungoni, Luhwaika and Igunda prospect areas. AngloGold-Ashanti conducted limited trenching at both Luhwaika and Igunda.
The Company has incurred total net costs (after recoveries, if any) of $301,890 on the Kigosi Project for the year ended August 31, 2014.
The Kigosi Project is without known mineral reserves and any exploration program is an exploratory search for ore.
Lunguya Project Area
Property Description and Location
The Lunguya Property is located in the Kahama District of Tanzania. The Lunguya Property is situated in the Lake Victoria Greenstone Belts, approximately 100 kms by air to the southwest of Mwanza and about 15 kms south of Bulyanhulu. With respect to Lunguya PL 1766/01 in January, 2003, a Shareholders Agreement was entered into wherein a new company, Lunguya Mining Company Limited (LMC), was created to form a joint venture between Northern Mining and Consultancy Company Limited (NMCCL), Tanzam and LMC. Tanzam has a 60% shareholding and NMCCL has the remaining 40% shareholding in LMC.
In February 2010, the Company entered into an Option and Royalty Agreement with Joseph Magunila and Partners (JMP) over an area in the Kahama District of the Shinyanga Region in Tanzania 100% owned by JMP. The agreement grants the Company an option to acquire up to 90% of JMPs interest and/or, at the sole discretion of the Company, to enter into a mining and exploration services agreement. The Company paid US$90,000 for this option.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
The Lunguya Property can be reached by plane from Mwanza to an airstrip accommodating Bulyanhulu or by road via Geita up to the Bulyanhulu/Kahama road intersection. From Kahama, the property is located
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approximately 8 kms to the south, toward Lunguya village. Secondary roads and trails traverse the property. The Nyamakwenge Reef, located in the northeastern part of the property, can be accessed using a 12 kms dirt tract passing to the north of the property. Climate and elevation are similar to the Luhala Property.
Very little outcrop (less than 1%) has been identified at Lunguya. The entire property is flat and covered largely by granitic sands and grey orange laterities derived from granitic sources. Like Luhala, Lunguya is actively cultivated, but also is being actively mined by a few score artisanal miners along the trend of the Nyamakwenge Reefs. No significant infrastructure, power or water is available on site. However, the entire infrastructure of the region including electricity, air transport, health clinics, schools, and improved road networks, have been greatly improved due to the proximity to Barricks Bulyanhulu mine, some 20 kms to the north.
History
The project was acquired by the Company in 2001 and a program of BLEG sampling, geological mapping, rock sampling, RC and diamond drilling was initiated.
Geology
The very limited outcrop exposures on the Lunguya concession necessitate development of a geological and interpretive environment largely based on geophysical interpretations.
Regionally, Lunguya is located near the eastern terminus of the inner volcanic arc, lower Nyanzian, of the Sukumaland Greenstone belt. The succession is dominated by tholeiitic volcanic rocks containing lesser felsic tuffaceous rocks and argillaceous horizons cut by thin quartz porphyry dykes and sills. The thick, banded iron formation and felsic flows characteristic of the outer arc Upper Nyanzian sequence are absent. Most of the map scale granite greenstone contacts strike north-south. No information is available with respect to the orientation of sub-surface contacts.
At Lunguya, all currently known, auriferous structural zones track at an oblique angle, the eastern granodiorite-mafic volcanic contact. Auriferous veins strike at 020° to 030° with the dominant intrusive volcanic contact trending at approximately 360°. On the property scale, two 330° trending fault structures are interpreted to offset the Lunguya vein into two fault repeated vein segments, having strike lengths of approximately 180 and 300 m. A few score artisanal miners have exploited these veins to a depth not exceeding 30 vertical metres subsurface. A second set of auriferous reefs, the Nyikoboko Reefs, are located 12 kilometres to the south. This area is associated with a smaller set of largely inactive artisanal dumps and workings.
Based on the aeromagnetic data a model has been proposed whereby a large NS trending shear zone is believed to exist below a thick black cotton soil (mbuga) cover. The thin veins associated with the Nyikoboko and Nyamakwengwe reefs probably represent secondary structures from the main shear. This idea has been tested using biogeochemistry.
Mineralization
Lunguya is a mineralized brittle ductile strain zone, developing internal to a major granite-greenstone contact. Gold is associated with one fault offset vein which is likely broken into two segments, the Western and Eastern reefs. Lesser veins are also present. Initial sampling of artisanal vein waste dumps indicated the presence of well mineralized dump samples. The site contained greater than 200 of these small pits-shafts ranging from 1 to 20 metres deep.
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Diamond drill and RC programs at Lunguya have demonstrated geological continuity of the Nyamakwenge West and East Reefs but weaker continuity of grade. The difficulty in obtaining representative gold grades from small core samples of vein material containing coarse particulate gold is a well documented phenomenon. Widths in these boreholes are approximately true widths and the boreholes have been collared roughly perpendicular to the strike and dip of the mineralized structural zones.
Exploration
In November 2010, the Company announced positive results from laboratory test work on surface quartz rubble collected from its Lunguya Primary Mining Licenses (PMLs) in northern Tanzania. The laboratory test work was intended to establish the mineralogical (physical) characteristics of gold contained within an extensive auriferous (gold bearing) quartz rubble bed identified at Lunguya, along with suitable gravity-based recovery methods to extract gold from the quartz rubble which is essentially broken and fractured surface rock.
Chemical analysis of sample material returned values of 3.58g/t, 5.75g/t, 2.33g/t and 3.31g/t, giving an average "head grade" for gold of 3.74g/t. (The "head grade" refers to the average grade of the material submitted for processing and analysis).
Bulk samples were collected from random pits within the Lunguya PML in February 2010. RC drilling began at Lunguya in June 2011. The program was intended to confirm evidence of reef mineralization identified during the 2002 RC and diamond drilling program in the area. A total of 14 drill holes consisting of 1,247m were completed during the month. A number of narrow, parallel, moderate dipping shear structures hosted in granite were intersected. The shears are possibly related to those hosting gold mineralization in the area.
The RC drilling program continued at Lunguya in August 2011, demonstrating the continuity of Nyamakwenge reefs to the southwest of the prospect. Two sets of quartz vein in sheared granite were identified during the drilling program in 2002, with their thickness ranging from 1 8m thick. During 2011 RC program another two sets of quartz reefs were identified, with their thickness ranging from 2 to 20m. These two new sets of quartz reef have similar characteristics with the first sets of quartz veins identified.
A study was completed for the Lunguya project. For additional information regarding the Lunguya Property the reader is referred to the complete text of a technical report prepared in accordance with the requirements of NI 43-101 dated February 8, 2010, entitled, Report on the Lunguya Mineral Exploration Property of Tanzanian Royalty Exploration Corporation in the Kahama District, Shinyanga Region of the United Republic of Tanzania, East Africa by Martin J. Taylor, P.Geo. The Preliminary Lunguya Report is available online at www.sedar.com, filed on February 16, 2010 under the heading, Technical Report (NI 43-101).
During the period ended August 31, 2014, no direct property work was conducted on the Lunguya property.
The Company has deferred total net costs (after any recoveries and write offs) of $3,811 on the Lungua Property for the year ended August 31, 2014.
The Lunguya Property is without known mineral reserves and any exploration program is an exploratory search for ore. .
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Itetemia Property
Property Description and Location
The Itetemia Property is located in the Mwanza Region of the Lake Victoria Greenstone Region, Tanzania, approximately 90 kilometres by air southwest of the city of Mwanza, situated on the south shore of Lake Victoria.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
The property is accessed via local roads from Geita or by plane from Mwanza to an airstrip accommodating the neighbouring Bulyanhulu Mine, owned by Barrick. The Barrick airstrip is 3.75 km west of the western boundary of the Itetemia prospecting license, and approximately 4 km northeast of the Nyamykonze village. Local resources are available at Mwanza, located on the southern shore of Lake Victoria.
The topography in the region and on the property consists of large flat-lying areas surrounded by numerous small hills. The hills have elevations of up to 100 m above local terrain. The hills are thickly vegetated and access is only possible along cut lines. Little outcrop exists on the property. The climate is similar to the rest of the region. The rainy season starts in November and lasts to the middle of April, but precipitation is irregular from one season to another. The dry seasons are usually hot. Mwanza, located along the southern shore of Lake Victoria, can, and has, provided limited supplies for mining and exploration operations in the area. Dwellers in the area of the Itetemia Project, such as the neighbouring Nyamykonze village, are traditionally subsistence farmers and ranchers, and have limited mining experience from the Bulyanhulu operation and numerous small scale activities. Water for the purpose of mining and processing is not readily available in the region; however, a pipeline from Lake Victoria built by Barrick for its Bulyanhulu Mine, provides an adequate supply.
The large, relatively flat terrain surrounding the known gold mineralization may be suitable for potential tailings and waste rock storage and for heap leach pads and a potential processing plant. Electric power is available via the national grid within 5 km; due to the unreliability of such power, alternative forms of residual or back-up power would be necessary for mining or processing operations, such as diesel power generation used by Barrick at its Bulyanhulu mine.
Ownership
Prior Ownership
With respect to one Itetemia prospecting license, the interest of the Company was acquired from Stamico pursuant to a joint venture agreement dated July 12, 1994 (the Stamico Venture Agreement). The Stamico Venture Agreement obligated the Company to make two initial payments of TSh$1,000,000 and US$7,200 to Stamico, both of which were satisfied.
The Companys Interest
Through prospecting and mining option agreements, the Company has options to acquire interests in several Itetemia Property prospecting licenses. The prospecting licenses comprising the Itetemia Property are indirectly held by the Company through the Companys subsidiaries, Tancan or Tanzam. In the case of one prospecting license, Tancan acquired its interest pursuant to the Stamico Venture Agreement, as amended June 18, 2001 and July 2005, which provides, among other things, that:
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1.
Tancan had to pay Stamico, on execution of the Stamico Venture Agreement, the sum of US$7,200 (as an advance against the 2% gross revenue royalty) and TSh1,000,000.
2.
Tancan and Stamico were to form a joint venture company for the purpose of holding the prospecting license that shall be held 10% by Stamico (with no obligation to contribute) and 90% by Tancan, which was effected through the formation of Itetemia Mining Co.
3.
Stamico is entitled to acquire an additional 20% interest in the joint venture company by paying a sum equal to 20% of the cost of placing the property into commercial production based on the feasibility study, if and when submitted to the Government of Tanzania for such purpose.
4.
Tancan shall assist Stamico in raising the required capital to exercise the right referred to in (3) above.
5.
Tancan was to expend the sum of US$25,000 in the first year and US$50,000 annually thereafter in relation to the training of Tanzanian personnel.
6.
Upon commencement of commercial production, Stamico shall receive a 2% gross revenue royalty, which shall be increased to a 2.5% gross revenue royalty should a mine on the Itetemia prospecting license produce recoverable gold in excess of 12 grams per tonne.
7.
Tancan shall pay to Stamico, as an advance against the 2% gross revenue royalty, the sum of US$7,200 on or before every anniversary of the Stamico Venture Agreement up until the development phase, upon and after which the annual sum of US$10,000 shall be paid as an advance against such royalty.
8.
Tancan shall show preference to Stamico for the provision of local materials and services during the period of mining operations.
9.
As amended July 2005, Tancan had to pay to Stamico the sum of US$15,000 on or before July 12 of 2006 and 2007, and ending upon commercial production, provided that commercial production commences by December 31, 2007, failing which the aforementioned payment shall be revisited. As expected, commercial production did not commence by December 31, 2007. In 2008, the annual option fee was renegotiated to US$25,000 per annum until commercial production.
10.
Tancan may assign its rights under the agreement, subject to the prior written consent of Stamico.
The Itetemia prospecting licences are adjacent to Barricks Bulyanhulu gold mine.
History
The exploration history of the Itetemia Property from 2006 to 2014 is summarized as follows:
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Itetemia Exploration History Synopsis
Year | Operator | Work Performed |
2006 | Tancan | In-house evaluation. 4-hole diamond drill program |
2007 | Sloane | Planned 2000 m RC drill program and 3000 m infill diamond drilling program. |
2008 | Sloane | First phase drill program consisted of 10 Reverse Circulation (RC) aggregating 1,489 metres. Eight diamond drill holes were drilled totalling 2,286.5 metres. |
2009 | Sloane | Data analysis |
2010 | Sloane | Data analysis |
2011-2012 | Company | NI 43-101 report prepared by Venmyn Rand (Pty) Ltd. |
2013 | Company | In-house evaluation |
2014 | Tanzanian Royalty | Digital Terrain Model (DTM) survey pickups using GPS to create topographical survey over the resource area for resource modelling, completion of study, which was contracted to MaSS Resources Company Ltd., submission of the Final Itetemia Gold Project (IGP) Study by MaSS Resources company, Environmental Impact Assessment (EIA) study on the Itetemia Gold Project (IGP), which was contracted to Efficient Consultants environmental experts. The EIA study is ongoing and completed activities include - Visit to site, conducting consultative meetings with stake holders, consultation with OSHA officials & Lake zone mines officer, project registration with NEMC, submission of brief project report to NEMC for project screening, preparation of Scoping Project Report and Terms of Reference (ToR) for management approval before submission and the submission of the Scoping Report to NEMC for approval. |
Geology
The Lake Victoria area contains 12 Archean Nyanzian greenstone belts which are surrounded by and have been interrupted by numerous granitic intrusions. The Nyanzian belts comprise a volcano-sedimentary sequence composed of mafic to felsic volcanics (lavas and tuffs), BIF and shales. The greenstone belts have been grouped into locally distinct geographic regions. One of these regions is the Southwest Mwanza Region which includes a large area south of the town of Mwanza, located on the south shore of Lake Victoria. There are five greenstone belts in the Southwest Mwanza Region, one of which is the Ushirombo belt. The Ushirombo belt is an east-west trending belt, the eastern end of which is located approximately 25 km west of the southern end of Smith Sound on Lake Victoria. The eastern end of the belt is arcuate in shape and trends northerly tangential to the northwestern flank of the Siga Hills.
The Itetemia Property is underlain by the northerly trending eastern portion of the Ushirombo Nyanzian greenstone belt. Granite underlies the eastern and northern portions of the property. The greenstone/granite contact trends northerly through the east-central portion of the Itetemia prospecting license and through the central portion of the Itetemia East prospecting license onto the Itetemia Village license; at which point, the contract tends westerly through the Mwingilo license cutting the northeast corner of the Ngula license.
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Sixty percent of the Itetemia, Itetemia North and Ngula licenses are underlain by the Nyanzian greenstone belt. The remaining 40% is underlain by granite. Granite variably underlies 90 to 100% of the Itetemia East, Itetemia Village and Mwingilo prospecting licenses. The Mbuga soil covers 10 to 40% of the property.
Mineralization
The sulphide mineralization encountered on the Itetemia Property comprises massive to semi-massive, stringers, veins and veinlets, disseminated and nodular mineralization. The types of mineralization are (i) sulphides associated with volcanism activity; (ii) remobilized sulphides associated with deformation (shear hosted); and (iii) sulphides associated with sedimentation. The gold and metallic contents associated with this mineralization are variable and the relation between the grades and the mineralized type is not well known at this stage.
The massive to semi-massive sulphide mineralization seems to be related to volcanism. It occurs in two areas on the Property. One area is located in the northern part of the licenses and has been intersected by the hole ITDD-06. More than 30 m. of sulphides were intersected at the contact between a QFP and an argillite horizon separating two pillowed basalts. The sulphide content ranges from 10 to 90% pyrrhotite, 2 to 5% pyrite, trace to 5% sphalerite, trace to 1% copper.
The Golden Horseshoe Reef mineralization occurs as massive sulphide veins locally ranging from 15-30 cm wide. Sulphides dominantly appear in veins/veinlets less than 5 cm wide in felsic volcanic rocks. Five to thirty percent pyrite-pyrrhotite is common over sections of 1 to 15 m along the holes. They are sub-concordant and parallel to the schistosity. The strong shearing at the Golden Horseshoe Reef probably represents a remobilization of the sulphides.
Exploration
The majority of the exploration work in 2007 consisted of RC and diamond drilling, along with limited ground geophysics. Exploration crews were mobilized to the Itetemia Project in August 2007 and drilling commenced in mid-September. The first phase drill program completed 10 RC holes aggregating 1,489 metres and eight diamond drill holes totaling 2,286.5 metres. The drill program targeted the shallowest part of the previously established Golden Horseshoe Reef with a view to developing an open pit resource with a notional floor level of 200 metres below surface. In support of preparation of a resource estimate, drill holes were sited to provide data at grid points at or below 50 x 50 metres spacing. A number of deeper holes were also sited to test the extent of the mineralized body at depth and along strike.
The Company is reviewing various alternatives for advancing its Itetemia project. Previous studies have indicated that the Golden Horseshoe Reef (GHR) represents a small, yet robust, medium-grade, near surface gold deposit that warrants further feasibility investigations. A Technical Report dated January 31, 2012 (the Itetemia and Luhala Technical Report) shows the potential of a small opencast operation, at high gold prices. At lower gold prices, studies show some potential for toll treating the GHR material at the neighbouring Bulyanhulu Mine.
The Itetemia and Luhala Technical Report also includes a Resource Summary for the GHR. Based on a 1.0g/t Au cut-off grade, Itetemia has an Indicated Mineral Resource of 2.80 million tons grading 2.96g/t Au containing 266,000 ounces of gold.
For additional information regarding the Itetemia Property see the Technical Report entitled National Instrument 43-101F on the Itetemia and Luhala Gold Projects in the Lake Victoria Greenstone Belt, Tanzania prepared for the Company by Venmyn Rand (Pty) Limited and compiled by A.N. Clay, N.
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McKenna, and R.M. Tayelor dated January 31, 2012 and filed on SEDAR February 1, 2012.
During the period ended August 31, 2014, no direct property work was conducted on the Itetemia property.
The Company has incurred total net costs (after any recoveries and write offs) of $69,568 on the Itetemia Property for the year ended August 31, 2014.
The Itetemia Property is without known mineral reserves and any exploration program is an exploratory search for ore.
Luhala Property
Property Description and Location
The Luhala property is located in Misungwi District of Mwanza Region of Tanzania. It lies approximately 70 kilometres south of the city of Mwanza. The Luhala prospecting licenses are in good standing with respect to required filings and payments with the Government of Tanzania.
The target on the Luhala property is gold stockwork mineralization associated with felsic rock units in dilatational structures.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
Access to the Luhala Property is via the main Mwanza Shinyanga road, which is a single lane, good to excellent quality, asphalt highway. Approximately 45 kms south of Mwanza, a dirt road from a junction at the settlement of Manawa, leads southwest to the town of Misasi. The property has year round access, although seasonal winter rains, December to March, may result in flooding in low lying areas which are dominated by mbuga (black organic rich laustrine flood soils). Most lowland areas are under active cultivation, corn, rice, beans and mixed crops, by subsistence farmers. Low scrub and thorn bushes cover the small hills. The area has been, for many years, deforested by local agricultural practices.
At Luhala, the mean elevation is approximately 1,200 m above sea level, with a series of small sub-rounded hills, rising up to one hundred metres above the surrounding plain. These hills are typically formed by either resistive iron formations or felsic volcanic rocks. Mafic volcanic rocks weather recessively and are typically only exposed in trenches through well formed laterite profiles. Laterite development is extensive with brick-red laterites overlying weak mottled zones and saprolites at a depth of approximately 3-5 metres. Deep weathering penetrates 45 - 60 metres vertically within the subsurface.
An enthusiastic and competent labor force is available through the surrounding villages, and local people have been routinely hired during the trenching, drilling and soil sampling programs conducted on this property. However, no other significant infrastructure is available.
History
Luhala has had a significantly more protracted exploration history than Lunguya, beginning with the initial exploration by the then Tanganyikan Geological Survey in 1947. The exploration history of Luhala since 2006 to 2014 is summarized as:
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LUHALA EXPLORATION HISTORY SYNOPSIS
Year | Operator | Work Performed |
2006 | Tancan | Diamond drilling, RC drilling |
2007 | Sloane | Follow-up exploration planning |
2008 | Sloane | Data analysis |
2009 | Sloane | Data analysis |
2010 | Sloane | Data analysis |
2011-2012 | Company | NI 43-101 report prepared by Venmyn Rand (Pty) Ltd. |
2013 | Company | In-house evaluation |
2014 | Company | Continued in-house evaluation |
Geology
Luhala is found within the eastern portion of the Buhungukira Belt, a local place name assigned to one of the eight greenstone belts in the Lake Victoria District. These rocks are believed to be the eastern continuation of the Geita Greenstone Belt and consist of dominantly Upper Nyanzian rock sequences.
In the Luhala area, the predominant structural grain is dominated by an early deformational event which has deformed all supracrustal rocks into tight, south to southwest plunging, west overturned, synforms and antiforms. The short limbs of these folds may have east-west strikes and modest, 40 degree south dips. The long limbs of these folds have north to northeast strikes and generally much steeper, 60 80 degree, and east dips.
At Luhala, three principal mineralized zones have been identified. These include Kisunge Hill, Shilalo South, and Shilalo West. All of the three principal mineralized areas are linked by a common southwest plunging antiform, the limbs of which are separated by 500 to 800 metres and converge just south of Line 6200 E and 3800 N. Mineralization to Kisunge Hill is associated with a chert felsic volcanic contact. As Shilalo South, structurally controlled gold mineralization closely tracks the position of a massive to locally well-bedded chert or cherty iron formation. The results of diamond drilling in Shilalo West strongly outline the importance of the felsic volcanic - chert structural sites and gold association. For example, borehole LSD 08A is collared in the hangingwall to the Shilalo West mineralized zone, traverses the host rhyolite-chert lithology, and terminates in the footwall. This borehole intersected significant gold mineralization of 3.55 g/t Au over 5 m near the hangingwall contact of the felsic volcanic rocks, and is mineralized repeatedly at over one gram ranges throughout much of the felsic host interval, which in this borehole is over 35 metres thick.
The felsic volcanic rock package at Shilalo West once again presents an excellent structural site for the development of dilatant sites and gold mineralization. As of Shilalo South, a well defined planar, brittle-ductile structural zone was not identified at Shilalo West. Gold distribution is likely related to the presence of extensional and shear extensional veinlets, which are developed within the felsic volcanic rocks at or near, the felsic volcanic red tuff contact.
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Exploration
During the period ended August 31, 2014, no site-based exploration work was conducted on the Luhala Property.
At Luhala, three principal mineralized zones have been identified: Kisunge Hill, Shilalo South, and Shilalo West. Gold mineralization is associated with zones of diffuse silicification, localized around small scale fractures within competent chert and felsic volcanic rock units.
Mineralization
At Luhala, gold mineralization is associated with zones of diffuse silicification, localized around small cm and mm scale fractures within competent chert and felsic volcanic rock units. Major discordant vein structures are not identified and planar high strain zones are absent.
No specific gravity data have been calculated for any of the rocks cored in these intervals and without strong cross sectional control, no reliable resource estimates for any of the principal mineralized zones at Kisunge, Shilalo South and Shilalo West may be calculated.
Historical Drilling
The Phase 7 drill program at Luhala was completed in August 2006 and consisted of nine diamond drill holes aggregating 991 metres. All the holes tested the eastern limb of the Kisunge Main Zone. Among the better intercepts reported from this program was 3.07 metres grading 6.87 g/t. Within this intercept was a 1.44 metres interval averaging 10.95 g/t. Invaluable structural information was obtained from the Phase 7 diamond drilling program which will be utilized in the planning process for follow-up exploration.
For additional information regarding the Luhala Property see the Technical Report entitled National Instrument 43-101F on the Itetemia and Luhala Gold Projects in the Lake Victoria Greenstone Belt, Tanzania prepared for the Company by Venmyn Rand (Pty) Limited and compiled by A.N. Clay, N. McKenna, and R.M. Tayelor dated January 31, 2012 and filed on SEDAR February 1, 2012 (the Itetemia and Luhala Technical Report).
The Company has incurred total net costs of $9,368 and written off $377,511 of expenditures on the Luhala Property for the year ended August 31, 2014.
The Luhala Property is without known mineral reserves and any exploration program is an exploratory search for ore.
Kabanga Project
Property Description and Location
The Kabanga project is located in north western Tanzania, south of Lake Victoria and near the Burundi and Rwanda borders within the Mesoproterozoic Karagwe-Ankolean sequence within the Kibaran Fold Belt of NW Tanzania and is owned 75% Northwestern Basemetals Company Limited, 15% by Stamico and 10% by Songshan.
Northwestern Basemetals Company Limited, a subsidiary company of Tanzanian Royalty Exploration Corporation is engaged in the exploration and development of the Kagera Nickel project, adjacent to the Barrick/Xstrata Kabanga Nickel Project within the Kabanga-Musongati mafic-ultramafic belt, which contains Ni sulphide ores at Kabanga deposit and reef-type PGE concentrations at Musongati. The project
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portfolio consists of 32 granted prospective licenses (PLs) totalling 2350.45 square kilometres in area. In addition, the Company holds 18 applications for PLs covering 1563.14 square kilometres.
History
From1992 to 1993 BHP Billiton conducted regional and detailed exploration work on the Kabanga Project Area including airborne magnetics; soil sampling, mapping and stream sediment sampling which covered a broad north-northeast trending strip of ground some 220km long and up to 60km wide.
From 1993 to 1997 BHP Billiton conducted a follow-up with considerable exploration on targeted aeromagnetic anomalies.
In 2000, an interpretation of the regional aeromagnetic survey of the greater Kabanga Ni belt was carried out as part of the Companys regional exploration programme.
In 2004, with a Nickel price rise forecast, the Company applied for open ground on the stratigraphy that favours these magnetic anomalies
Geology
Weakly metamorphosed sedimentary formations of the mid-Proterozoic Karagwe Ankolean Supergroup underlie this region in extreme northwestern Tanzania, and forms part of the northerly trending Kibaran Orogenic Belt. This orogenic belt extends from Zambia in the south, through the DRC, Burundi, Rwanda and NW Tanzania, into Uganda in the north. To the east this belt is in structural contact with the late-Proterozoic Bukoban Supergroup, a sequence of younger, essentially unmetamorphosed sediments.
The thick (+10 km) sedimentary sequence of the Karagwe Ankolean Supergroup consists of massive to well-bedded sandstones and interbedded laminated shales and siltstones, now metamorphosed to quartzites, phyllites and mica schists. The K-A strata are moderately folded and can be mapped out for many kilometres, and are divided into Upper, Middle and Lower Divisions, each with characteristic marker units referred to as the q1, q2 and q3 quartzites. Later quartz reefs (veins) of metamorphic segregation origin are common.
The belt is characterised by early intrusions of mafic sill-like bodies at ~1400 Ma that are the host rocks to the nickel mineralisation, and are interbedded within the folded meta-sediments. These mafic-ultramafic intrusions form the complex Kabanga Musongati Kapalagulu igneous belt, reflected in the Kagera region as an elongate zone of airborne magnetic anomalies. Extensive bodies (sheets) of gabbroic magma were intruded later, towards the end of the main period of folding. A-type granitoids were intruded at a ~1250 Ma and post-orogenic Sn granites around 1000 Ma, which have developed contact aureoles.
There is a range of much younger deposits including old land-surface terrace deposits, laterite, mbuga, alluvium and seasonal swamp. In the northeast a considerable area is blanketed by recent surface deposits; similar deposits overlie low ground along the Lake Ihema shoreline in the west.
Exploration
6,791 biogeochemistry (BGC) samples have been collected. A total of 4490 samples were sent to the BGC Preparation Laboratory at Buckreef exploration camp for preparation by drying at 70 degree celcius for 12 hours, sieving and grinding. 3476 samples were shipped at 100g of the pulps to ACME Analytical Laboratory in Vancouver, Canada for Mult Element analysis using Coupled Plasma Mass Spectrometry (ICP MS) to detect a 53 elements suite within the collected tissue samples after proper laboratory preparation by controlled ashing and then placing the sample material on an aqua regia digestion.
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The Buhamila area was initially targeted because of both its relative proximity to the Companys Exploration camp at Buckreef in the Geita Destrict, making it an ideal test case for long range intermediate duration prospecting surveys. Furthermore, the Company conducted an aeromagnetic survey of the entire Kabanga corridor in northwestern Tanzania in the 1990s, and such data would act as a validation check on some of our large-scale findings due to the ferromagnetic characteristics of Ni and Co. Lastly, because of the nearly complete lack of other (non-Ni) geochemical exploration data for the region, our rapid mineral exploration capabilities inherent in BGC surveys (Woolman, Yi 2013) would provide excellent exploratory value on a cost-per-observation metric relative to other large-scale prospecting methods.
Mineralization
In summary the Kabanga nickel deposit is hosted within sill-like ultramafic to mafic intrusions and pipe-like bodies and breccias that form part of the complex Kabanga Musongati Kapalagulu igneous belt. Various reports indicate that individual igneous bodies are up to 1 km thick and 4 km long, and formed from several distinct primary magmas pulses (picritic to basaltic in composition) into sulphide-bearing phyllitic sediments. In the Kabanga area the intrusions contain abundant sulphides which form massive layers and lenses in places. Local remobilisation of sulphides occurred late during the Kibaran Orogeny and formed rich sulphide-hornfels breccias. In part these intrusions are considered to be chonolithic pipe-like mafic/ultramafic intrusions that were emplaced by early structural controls, and which may host significant ore. The concept of an early structural control at the Kabanga Ni and other deposits deserves to be investigated further.
The main Kabanga mineralisation is located between the Upper Division and Middle Divisions and is associated with a marked aeromagnetic low more than 1000 m long and over 300 m wide, and is coincident with a strong Ni geochemical anomaly. This anomaly lies at the southern end of a 200 km-long, north-trending zone of aeromagnetic anomalies interpreted as the prime zone of exploration interest and provides a focus for on-going Ni exploration. The Upper, Middle and Lower Divisions of the Supergroup are reported to have definitive aeromagnetic signatures which makes regional stratigraphic correlation relatively easy.
The Company has written off all costs incurred to date for Kabanga nickel and management will review all remaining licences for future continuity or abandonment as they come due.
The Kabanga Property is without known mineral reserves and any exploration program is an exploratory search for ore.
Item 4A.
Unresolved Staff Comments
None
Item 5.
Operating and Financial Review and Prospects
This discussion and analysis of the operating results and the financial position of the Company for the years ended August 31, 2014 and 2013, and should be read in conjunction with the consolidated financial statements and the related notes attached hereto.
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Critical Accounting Policies
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 during the development stage (prior to commercial production) 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. 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.
The consolidated financial statements utilize estimates and assumptions principally regarding mineral properties, going concern, future income taxes, fair value of convertible debt and stock-based compensation, that reflect managements expectations at the date of preparation. Events or circumstances in the future, many of which are beyond the control of the Company, may impact these expectations and
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accordingly could lead to different assumptions and estimates from those utilized. Factors that could impact the estimates and assumptions that were made at the date of preparation of the consolidated financial statements have been previously discussed under the heading Risk Factors.
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 Companys most critical accounting estimate relates to the impairment of mineral properties and deferred exploration costs. During the year ended August 31, 2014, the Company wrote off $1,209,640 of costs on abandoned mineral properties (2013 $2,194,907). 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 PPE, 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. As of August 31, 2014 no liability for restoration exists.
A.
Operating Results
The following discussion and analysis of the financial condition and operating results of the Company for the years ended August 31, 2014 and 2013 should be read in conjunction with the consolidated financial statements and related notes to the financial statements which have been prepared in accordance with IFRS.
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Overview
As at August 31, 2014, the Company had current assets of $2,614,572 compared to $11,289,745 on August 31, 2013. The decrease is mainly due to net expenditures on exploration of $2,329,901 (2013 - $4,109,573), additions to property, plant and equipment of $2,412,541 (2013 - $50,197) in connection with the construction of the processing plant, cash used to repay the convertible debenture of $1,090,000 (2013 - $nil) and cash used in operations of $3,485,590 (2013 - $4,137,953). Mineral properties and deferred exploration assets were $47,052,468 as compared to $45,932,207 at August 31, 2013.
Net loss for the year ended August 31, 2014 was $2,416,265 compared to a net loss of $3,225,998 in the comparable year ended August 31, 2013. The main differences in expenditures between the two periods are the recovery of VAT of $262,116 during the year ended August 31, 2014 compared to $nil in 2013, a write off of mineral properties of $1,209,640 for the year ended August 31, 2014 compared to $2,194,907 in 2013 and a lower gain of $3,524,000 from the revaluation of warrant liability during the year ended August 31, 2014 compared to a gain of $4,590,000 on the same revaluation of the warrant liability in 2013.
During the year ended August 31, 2013 the Company issued shares with a value of $986,334 on conversion of 221,337 shares under the convertible debt agreement. During the year ended August 31, 2014, the Company issued 320,823 shares (2013 241,308 shares) pursuant to the RSU plan with a value of $1,354,238 (2013 - $1,151,010). In addition, during the year ended August 31, 2014, the Company issued 82,405 shares (2013 nil shares) for settlement of a lawsuit. In the current year, capital is being utilized for the Buckreef Gold Project development, property acquisition, exploration, capital equipment purchases and general operating expenses as tabulated below. The remaining funds/cash liquid assets are invested in interest bearing investments, which are highly liquid.
| C$ (000) |
Funds available August 31, 2013 | 10,680 |
Equipment purchases | (2,412) |
Mineral property expenditures including licences, environmental and exploration, net of recoveries | (2,330) |
Repayment of convertible debt | (1,081) |
General corporate expenses | (3,027) |
Funds available August 31, 2014 | $1,830 |
Based on the Companys current funding sources and taking into account the working capital position and capital requirements at August 31, 2014, these factors indicate the existence of a material uncertainty that raises substantial doubt about the Companys 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 2015 in order to continue development and construction of the Buckreef Project. The Company is currently negotiating project financing terms with a number of lending institutions, which the Company believes will result in the Company obtaining the project financing required to fund the construction of the Buckreef Project. However there is no assurance that such additional funding and/or project financing will be obtained or obtained on commercially favourable terms.
Due to the current low interest rate environment, 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.
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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 Companys 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 for the remainder of the 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/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 Companys ability to discover and develop an economically viable mineral deposit.
Results of operations
Fiscal year ended August 31, 2014 compared to fiscal year ended August 31, 2013
Net additions to mineral properties and deferred exploration costs for the year ended August 31, 2014 were $2,329,901 compared to $4,109,573 for the year ended August 31, 2013. The amount has decreased as compared with prior year as the Company focused on construction of the heap leach and processing plant during the latter part of the year, incurring additions of $2,412,541 (2013 - $50,197) and thus reduced its exploration activities as it advances its Buckreef project towards the commencement of production and continues exploration work on other projects in its portfolio and at the same time is conscious about conserving its cash in the current economic downturn. Recoveries received during the year ended August 31, 2014 and 2013 from various option agreements and other miscellaneous sources were $nil and $41,786, respectively.
Net loss for the year ended August 31, 2014 was $2,416,265 compared to a loss of $3,225,998 for the comparable year ended August 31, 2013. For the three month period ended August 31, 2014 and 2013, the net loss was $1,649,399 and a loss of $2,754,677, respectively. The main reason for the decrease in net loss for the year is the recovery of VAT of $262,116 during the year ended August 31, 2014 compared to $nil in 2013 and a write off of mineral properties of $1,209,640 for the year ended August 31, 2014 compared to $2,194,907 in 2013. A lower gain of $3,524,000 from the revaluation of warrant liability during the year ended August 31, 2014 compared to a gain of $4,590,000 on the same revaluation of the warrant liability in 2013 reduced decrease in net loss.
The main reason for the decrease in net loss for the three month period is the reduced gain on revaluation of warrant liability of $33,000 compared to a loss of $747,000 on the same revaluation of the warrant liability in 2013 and a write off of mineral properties of $356,096 for the three month period ended August 31, 2014 compared to $695,094 in 2013.
For the year ended August 31, 2014, depreciation expense was $258,067 compared to $288,519 for the year ended August 31, 2013. The decrease of $30,452 was due to the lower capital asset cost base for capital
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assets currently being depreciated as depreciation lowered the capital asset balance offset by purchases in the period. The capital expenditure for the year ended August 31, 2014 was $2,412,541 as compared to $50,197 in the year ended August 31, 2013. The increase in capital expenditures is due to construction of the heap leach pads and processing plant.
Consulting fees for the year ended August 31, 2014 were $225,914 compared to $317,257 in the comparable year ended August 31, 2013. Consulting expenses decreased due to a reduction in fees to members of the technical committee and due to non recurring consulting work in the prior period in connection with preliminary economic analysis. Consulting fees for the three months ended August 31, 2014 were $173,933 compared to $136,807 in the comparable period ended August 31, 2013. The increase in the three month period is due to the final settlement of a lawsuit brought on by a former consultant.
Directors fees for the year ended August 31, 2014 were $376,434 compared to $375,342 in the comparable year ended August 31, 2013. Director fees remained consistent between the two periods as the number and valuation of RSUs issued to board members remained comparable.
Office and general expenses for the year ended August 31, 2014 were $380,632 compared to $388,675 in the comparable year ended August 31, 2013. Office and general costs remained consistent between the comparable periods. For the three month period ended August 31, 2014, office and general expenses were $107,655 compared to $124,742 in the comparable period ended August 31, 2013. Office and general costs remained consistent between the comparable quarters.
Shareholder information costs for the year ended August 31, 2014 decreased to $265,421 from $343,291 for the comparable year ended August 31, 2013. The decrease was due to lower investor relation costs during the current year. For the three month period ended August 31, 2014, shareholder information costs were $18,202 compared to $70,711 for the three month period ended August 31, 2013. The decrease of $52,509 was due to lower investor relations costs during the current quarter in 2014.
Professional fees decreased by $208,469 for the year ended August 31, 2014 to $523,359 from $732,328 for the year ended August 31, 2013. Professional fees were higher during fiscal 2013 due to litigation during the comparable period in 2013. For the three month period ended August 31, 2014 professional fees decreased to $145,803 from $318,594 for the three month period ended August 31, 2013. The decrease is due to the same reason as described above.
Salaries and benefits expense decreased to $1,304,895 for the year ended August 31, 2014 from $1,388,160 for the year ended August 31, 2013. Salaries and benefits decreased due to reduced bonuses paid in the current period. The expenses for the corresponding three month period ending August 31, 2014 and 2013 were $269,840 and $261,860 respectively. Salaries and benefits remained consistent between the two comparable periods.
Share based payments for the year ended August 31, 2014 were $1,106,517 compared to $1,053,509 in the comparable year ended August 31, 2013. Share based payments vary depending on the number of equity based compensation options issued and vesting. See note 8 of the audited consolidated financial statements for the years ended August 31, 2014 and 2013 for details. Director fee RSU expense was $194,682 and $208,572, respectively.
For the year ended August 31, 2014, travel and accommodation expense increased by $97,524 from $126,362 in 2013 to $223,886. For the three months ended August 31, 2014, travel and accommodation expense increased by $10,162 from $38,456 in 2013 to $48,618. Travel and accommodation expense increased as compared to the comparable quarter in 2013 due to an increase in travel in the latter half of the year related to advancement of projects into production.
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For the year ended August 31, 2014, the foreign exchange loss was $18,957 compared to an exchange loss of $5,215 for the same year ended August 31, 2013. This decreased loss of $13,742 was due to the years Tanzanian Shilling exchange rate having decreased from 1,524 at August 31, 2013 to 1,503 at August 31, 2014.
Interest income for the year ended August 31, 2014 was $65,362, compared to $133,116 for the year ended August 31, 2013. Interest income decreased as the average cash balance in interest bearing accounts decreased during the current period.
The interest accretion expense for the year ended August 31, 2014 was $4,779, compared to $55,549 for the year ended August 31, 2013. The interest relates to the issuance of convertible debt. Interest accretion has reduced to $nil as of August 31, 2014 as debt was repaid or converted into shares.
During the year ended August 31, 2014, the Company agreed to abandon and wrote off $1,209,640 in expenses in various project areas (2013 wrote off $2,194,907) from abandoning various licenses, see note 4 of the audited consolidated financial statements for the years ended August 31, 2014 and 2013 for details. The Company is continuously evaluating its mineral properties Licenses and Carry Forward Balances and makes adjustments as deemed necessary to reflect current plans to explore and develop licenses into the future.
During the year ended August 31, 2014, the Company recorded recoveries of VAT of $262,116 (2013 $nil) for VAT that was previously expensed due to the government conditions at the time which supported a low likelihood of receiving VAT refunds. During the current period, these government factors changed and the amount is deemed to be collectible.
A gain of $3,524,000 (2013 gain of $4,590,000) was recognized during the year ended August 31, 2014 in connection with the revaluation of the warrant liability. Warrant liability is revalued at every reporting period using the Black-Scholes model.
Fiscal year ended August 31, 2013 compared to fiscal year ended August 31, 2012
Net additions to mineral properties and deferred exploration costs for the year ended August 31, 2013 were $4,109,573 compared to $9,593,993 for the year ended August 31, 2012. The amount has decreased as compared with prior year as the Company advances its exploration of the Buckreef project and other projects in its portfolio and at the same time is conscious about conserving its cash in the current economic downturn. Recoveries received during the year ended August 31, 2013 and 2012 from various option agreements and other miscellaneous sources were $41,786 and $50,114, respectively.
Net loss for the year ended August 31, 2013 was $3,225,998 compared to a loss of $8,897,843 for the comparable year ended August 31, 2012. For the three month period ended August 31, 2013 and 2012, the net loss was $2,754,677 and $3,576,139, respectively. The main reason for the decrease in net loss for the year ended August 31, 2013 is the gain on revaluation of warrant liability of $4,590,000 (2012 loss of $2,321,921) offset by a write down in mineral properties and deferred exploration costs of $2,194,907 (2012 - $1,293,969). For the three month period ended August 31, 2013, net loss also decreased mainly due to the revaluation of warrant liability resulting in a loss of $747,000 (2012 loss of $1,927,000) offset by a write down in mineral properties and deferred exploration costs of $695,094 (2012 - $((66,601)).
For the year ended August 31, 2013, depreciation expense was $288,519 compared to $379,603 for the year ended August 31, 2012. The decrease of $91,084 was due to the lower capital asset cost base as purchases in the period were minimal and depreciation lowered the capital asset balance. The capital expenditure for
54
the year ended August 31, 2013 was $50,197 as compared to $142,283 in the year ended August 31, 2012.
Consulting fees for the year ended August 31, 2013 were $317,257 compared to $266,011 in the comparable year ended August 31, 2012. Consulting expenses increased due to independent work on resource upgrade and other general consulting. Consulting fees for the three months ended August 31, 2013 were $136,807 compared to $87,943 in the comparable three month period ended August 31, 2012. The increase for the three month period is due to the same reason as above.
Directors fees for the year ended August 31, 2013 were $375,342 compared to $365,049 in the comparable year ended August 31, 2012. Director fees remained consistent between the two periods as the number and valuation of RSUs issued to board members remained comparable.
Office and general expenses for the year ended August 31, 2013 were $388,675 compared to $437,380 in the comparable year ended August 31, 2012. The decrease is mainly due to the company closely managing its office and general costs including closure of the Mwanza office and consolidation of offices at the Buckreef camp, as well as reduced freight expenses. For the three month period ended August 31, 2013, office and general expenses were $124,742 compared to $151,581 in the comparable three month period ended August 31, 2012. The decrease for the three month period is due to the same reason as above.
Shareholder information costs decreased from $581,526 for the year ended August 31, 2012 to $343,291 for the year ended August 31, 2013. The decrease of $238,235 was due to decreased activity during the year ended August 31, 2013 in comparison to 2012 due to transfer agent and listing fees from the issue of shares for converted debt and corporate investor promotion activity completed during the prior year ended 2012. For the three month period ended August 31, 2013, shareholder information costs were $70,711 compared to $(21,143) for the three month period ended August 31, 2012. The negative amount in fiscal 2012 was due to account reclassifications in the period.
Professional fees decreased by $136,749 for the year ended August 31, 2013 to $732,328 from $869,077 for the year ended August 31, 2012. Professional fees decreased between the comparable periods as the Company incurred one time costs during fiscal 2012 related to the transition to IFRS and various legal work related to its Buckreef property. For the three month period ended August 31, 2013 professional fees went from $464,054 for the three month period ended August 31, 2012 to $318,594 for the three month period ended August 31, 2013. The decrease in the current three month period is due to the same reason as above.
Salaries and benefits expense has decreased to $1,388,160 for the year ended August 31, 2013 from $1,596,951 for the year ended August 31, 2012. The decrease is due to a reduced workforce on staff in Tanzania during the current year and termination payments in the prior year. The expenses for the corresponding three month period ending August 31, 2013 and 2012 were $261,860 and $502,877 respectively. The decrease in the current three month period is due to the same reason as above.
Share based payments for the year ended August 31, 2013 were $1,053,509 compared to $777,630 in the comparable year ended August 31, 2012. Share based payments vary depending on the number of equity based compensation options issued and vesting. See note 8 of the financial statements for details. Director fee RSU expense was $208,572 and $289,448, respectively.
For the year ended August 31, 2013, travel and accommodation expense decreased by $43,058 from $169,420 in 2012 to $126,362. For the three months ended August 31, 2013, travel and accommodation expense increased by $3,107 from $35,349 in 2012 to $38,456. Travel and accommodation expense decreased due to timing and increased control of travel requirements, while remaining consistent in the last quarter of 2013.
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For the year ended August 31, 2013, the foreign exchange loss was $5,215 compared to an exchange gain of $24,082 for the same year ended August 31, 2012. This increased loss of $29,297 was due to the years average Tanzanian Shilling exchange rate having increased from 1,572 at August 31, 2012 to 1,524 at August 31, 2013.
The interest accretion expense for the year ended August 31, 2013 was $55,549, compared to $102,785 for the year ended August 31, 2012. The interest relates to the issuance of convertible debt. Interest accretion is expected to decrease as debt is converted into shares or repaid. Interest income for the year ended August 31, 2013 was $133,116, compared to $274,913 for the year ended August 31, 2012. Interest income has decreased as the average cash balance in interest bearing accounts decreased during the current year.
During the year ended August 31, 2013, the Company agreed to abandon and wrote off $2,194,907 in expenses in various project areas (2012 wrote off $1,293,969) from abandoning various licenses, see note 4 of the financial statements, as the Company evaluated its mineral properties and has no current plans to explore, but may in the future.
A gain of $4,590,000 (2012 loss of $2,321,921) was recognized during the year ended August 31, 2013 in connection with the revaluation of the warrant liability.
Inflation
Historically, inflation has not affected the Companys business in the current locations where it is doing business and the Company does not expect it to affect the Companys operations in the future.
Foreign Exchange
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 Companys results of operations, financial position, or cash flows. At August 31, 2014, the Company had no hedging agreements in place with respect to foreign exchange rates. As a majority of the funds of the Company are held in Canadian currencies, the foreign currency risk associated with US dollar and Tanzanian Shilling financial instruments is not considered significant at August 31, 2014.
B.
Liquidity and Capital Resources
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 has obtained funding via private placements, public offering and various sources, including the Companys President and CEO.
At August 31, 2014 the Company had working capital of $1,325,667 (August 31, 2013 $5,416,104), including warrant liability or a working capital of $1, 325,667 (August 31, 2013 $8,940,104) excluding warrant liability, had not yet achieved profitable operations, has accumulated losses of $69,095,649 (August 31, 2013 $67,117,263) 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.
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Some of the Companys mineral properties are being acquired over time by way of option payments. It is at the Companys option as to whether to continue with the acquisition of the mineral properties and to incur these option payments.
The Company has no contractual obligations as of the latest fiscal year end and latest fiscal quarter.
Convertible Debt
Pursuant to the private placement completed on September 23, 2010, the Company received notice from an arms length third party to convert its Promissory Note in the principal amount of $1,000,000 bearing interest at 3% and convertible into 221,337 common shares at a price of $4.518 per share, and 221,337 shares were issued on October 17, 2012.
On October 4, 2010 the Company completed a private placement with arms length third parties consisting of three-year convertible promissory notes in the aggregate principal amount of $1,060,000 bearing interest at 3% and convertible into 204,772 common shares at the price of $5.1765 per share. On September 14, 2013 the promissory notes matured and the Holders elected repayment of the promissory notes in cash. Accordingly $1,060,000 plus interest in the amount of $30,000 was paid on September 16, 2013.
Mineral Property Projects
As of August 31, 2014, amounts capitalized in respect of mineral properties were $47,052,468, being an increase from August 31, 2013 when the balance was $45,932,207.
During the fiscal year ended August 31, 2014, the Company capitalized mineral property exploration costs of $2,329,901 on its mineral resource properties. The Company wrote off $1,209,907 in exploration expenditures on areas abandoned in the year ended August 31, 2014.
For information on the Companys commitments for property and rental payments, refer to Item 4.
Events Subsequent To August 31, 2014
On September 2, 2014, the Company announced the completion of the heap leach pad construction at its Buckreef Re-development Gold Project, located in the Lake Victoria Goldfields of Tanzania. Construction began in April 2014 and was overseen by civil contractor Yale-Constech Company Limited.
Four heap leach cells with dimensions of 100 metres by 30 metres each are now complete. This will support the processing of stacked ore delivered from the Buckreef South Pit. The Company has also completed a significant portion of the Buckreef South Pit preparation, including grade control drilling, maps and roads.
The heap leach project is subject to environmental regulation by the National Environmental Management Council (NEMC) and the pads were engineered to exceed the standards established in The Water Resource Management Act No. 11, 2009. A three-layer barrier structure permanently contains all fluids within the boundaries of the heap and connects the leaching field to the process ponds. From the bottom up, the three layers consist of a one-foot layer of compacted clay base, a 1.5 mm non-porous Bentomat high-density polyethylene liner, and 19 mm of gravel material primarily as a buffer to prevent the liner from contacting ore.
While the complete leach cycle is estimated at a minimum of 60 days, the majority of the metal should be recovered in less than 45 days. The Company anticipates that a sufficient quantity will have accumulated to begin the carbon elution process after about 30 days of irrigation.
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C.
Research and Development, Patents and License, etc.
Not applicable.
D.
Trend Information
No known trend.
E.
Off Balance Sheet Arrangements
The Company has no material off balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Companys financial condition.
F.
Tabular Disclosure of Contractual Obligations
The Company has no contractual obligations as of the latest fiscal year end.
Item 6.
Directors, Senior Management and Employees
A.
Directors and Senior Management
Directors and Senior Management
A.
Directors and Senior Management
The following is a list of the Companys current directors and officers. The directors named below were elected or re-elected by the Companys shareholders on February 27, 2014. There are no family relationships between the directors and officers.
Name, Municipality of Residence and Position With the Company | Principal occupation or employment and, if not a previously elected director, occupation during the past 5 years | Served as a Director Continuously Since |
James E. Sinclair | President and CEO of the Company | April 30, 2002 |
Joseph Kahama | Chairman and COO (Tanzania) of the Company; President, Tanzania American International Development Corporation 2000 Limited | February 29, 2008 |
Dr. Norman Betts | Associate Professor, Faculty of Business Administration, University of New Brunswick and a Chartered Accountant | January 4, 2005 |
William Harvey | Psychologist | April 30, 2002 |
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Name, Municipality of Residence and Position With the Company | Principal occupation or employment and, if not a previously elected director, occupation during the past 5 years | Served as a Director Continuously Since |
Rosalind Morrow | Lawyer; Partner, Borden Ladner Gervais LLP | October 20, 2003 |
Abdulkarim Mruma | Professor of Geology, University of Dar es Salaam | February 22, 2011 |
Ulrich E. Rath | Formerly President and CEO and Director of Chariot Resources Ltd. | October 7, 2003 |
Steven Van Tongeren | Chief Financial Officer of the Company | Officer only |
Directors and Senior Management
James E. Sinclair, President, Chief Executive Officer and Director
Mr. Sinclair is the President and CEO of the Company. Mr. Sinclair, age 73, devotes his full time to the business and affairs of the Company.
Mr. Sinclair is a precious metals specialist, commodities and foreign currency trader, and a respected minerals industry executive. He founded the Sinclair Group of Companies in 1977 which offered full brokerage services in stocks, bonds, and other investment vehicles. The companies, which operated branches in New York, Kansas City, Toronto, Chicago, London and Geneva, were sold in 1983. From 1981 to 1984, Mr. Sinclair served as a Precious Metals Advisor to Hunt Oil and the Hunt family for the liquidation of their silver position as a prerequisite for a $1 billion loan arranged by the Chairman of the Federal Reserve, Paul Volcker. He was also a General Partner and Member of the Executive Committee of two New York Stock Exchange firms and President of Sinclair Global Clearing Corporation and Global Arbitrage, a derivative dealer in metals and currencies.
Mr. Sinclair has authored numerous magazine articles and three books dealing with a variety of investment subjects including precious metals, trading strategies and geopolitical events, and their relationship to world economics and the markets. He maintains a high public profile and his commentary on gold and other financial issues garners extensive media attention at home and abroad. Mr. Sinclair is Executive Chairman of the Advisory Board to the Singapore Precious Metals Exchange, a physical metal exchange.
Joseph Kahama, B.A. (Carleton); M.A.(Udsm), Chairman and Chief Operating Officer (Tanzania) and Director
Joseph Kahama was appointed Chairman and Chief Operating Officer (Tanzania) of the Company in February 2011. He became a director of the Company in February 2008 and he formerly served as President and director of the Company's wholly owned subsidiary, Tanzania American International Development Corporation 2000 Limited, since 1997. In his capacity as President and director of Tanzam 2000, Mr. Kahama has been responsible for corporate administration and also for maintaining good relations with the government, vendors and with the Company's various business partners in Tanzania. In addition to serving as an Executive Councillor at the Tanzania Chamber of Minerals and Energy (TCME) since 1999, where he represents the Company and its various subsidiaries, Mr. Kahama served as the Chairman of the Tanzania
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Chamber of Minerals and Energy for the period 2011-2014. Since 2006, Mr. Kahama has been a member and advisor of the China-Africa Business Council which is headquartered in Beijing, People's Republic of China. Mr. Kahama currently serves as the Secretary General of the Tanzania-China Friendship Promotion Association and in October 2014, was decorated by the President of the East China Normal University in Shanghai as an Advisory Professor.
Mr. Kahama is author of a book titled "SIR GEORGE: A Thematic History of Tanzania Through His Fifty Years of Public Service", printed in 2010. Mr. Kahama, age 46, devotes his full time to the business and affairs of the Company.
Dr. Norman Betts, Ph.D., Director
Dr. Betts is an associate professor, Faculty of Business Administration, University of New Brunswick (UNB) and a Chartered Accountant Fellow (FCA). Dr. Betts serves as a Chair of the board of directors of Starfield Resources Inc. and as a director and member of the audit committees of Tembec Inc., New Brunswick Power Corporation, Export Development Canada and Adex Mining Inc. In June, Dr. Betts was appointed to the Board of Directors of the Bank of Canada. He is also a co-chair of the board of trustees of the UNB Pension Plan for Academic Employees. He is a former Finance Minister and Minister of Business New Brunswick with the Province of New Brunswick. He was awarded a PhD in Management from the School of Business at Queens University in 1992Dr. Betts, age 60, devotes approximately 10% of his time to the business and affairs of the Company.
Dr. William Harvey, B.A., Ph.D., Director
Dr. Harvey is a Clinical Psychologist, who for over thirty years has served as a consultant and technical expert on matters relating to substance abuse prevention and mental health promotion to a wide variety of private and governmental programs and agencies in the United States. These include the National Institute of Drug Abuse, the National Institute of Alcoholism and Alcohol Abuse, the Office of Juvenile Justice & Delinquency Prevention, and the National Mental Health Association. He was an Adjunct Professor in the Department of Sociology at Washington University, and a Senior Research Scientist at the Missouri Institute of Mental Health, University of Missouri. He continues to be involved in the formulation of new programs and policies aimed at the betterment of society. Dr. Harvey will continue to expand the role which the Company has at the local level to ensure that stakeholder interests are addressed. Dr. Harvey, age 81, devotes approximately 10% of his time to the business and affairs of the Company.
Rosalind Morrow, B.A., B.Ed., A.R.C.T, LL.B., Director
A graduate of Trinity College, Toronto, the Royal Conservatory of Music of Toronto and the University of Toronto Law School, Ms. Morrow specializes in corporate and securities law with a particular emphasis on financings, including government and structured finance, corporate governance and mergers and acquisitions. She has advised Canadian and international corporations on a number of major projects in the financial, communications and resource sectors. Ms. Morrow is a former member of the Securities Advisory Committee to the Ontario Securities Commission. Since the inception of the program in 2001, Ms. Morrow has been lead external counsel to Canada Mortgage and Housing Corporation on over $250 billion in fully underwritten global bond issuances under its Canada Mortgage Bond Program, and since 2008 has represented the Canadian federal government on its $125 billion Insured Mortgage Purchase Program, the Canadian equivalent of the U.S. TARP Program. A past president of the Womens Law Association of Ontario and recipient of its Presidents Award, Ms. Morrow currently serves on the Board of Governors of Trent University where she is a member of its Executive Committee and Chair of its Nominating and Governance Committee .. She is also Chair of The Living City Foundation, the charitable arm of the Toronto and Region Conservation Authority, one of the largest environmental organizations in
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North America, dedicated to the preservation of a green environment in the Toronto region. Ms. Morrow, age 60, devotes approximately 10% of her time to the business and affairs of the Company.
Abdulkarim Hamisi Mruma, PhD., M.Sc. (Geology), B.Sc. (Geology), Director
Dr. Mruma is a graduate of the University of Dar es Salaam where he currently serves as a Professor of Geology. His post graduate studies included research sabbaticals at universities and government institutions in Germany, Belgium, Zimbabwe and Finland. He has authored numerous technical reports on various geological topics and contributed to several technical and non-technical journals on a broad range of geology and industry-related subjects. The list of publications includes UNESCO Magazine, Journal of African Earth Sciences, and the Tanzanian Journal of Earth Sciences. In addition to his academic duties, Dr. Mruma is Chief Executive Officer of the Geological Survey of Tanzania, a position he has held since October 2004. He also serves as a Board member of both Williamson Diamonds Limited and National Development Corporation, College of Earth Sciences of the University of Dodoma. Dr. Mruma is the Chairman of the Advisory Board of Mineral Resources Institute and he also acts as National Coordinator of International Geological Correlation Programs and International Year of Planet Earth Programs. He is also a member of the Research and Development Advisory Committee on Natural Resources - Tanzania Commission for Science and Technology (COSTECH). Dr. Mruma, age 59, devotes approximately 10% of his time to the business and affairs of the Company.
Ulrich E. Rath, Director
Mr. Rath has a wide range of experience in the mining industry, and has specific experience in North America, South America including Argentina, Chile and Peru and in South Africa. Mr. Rath was the President and CEO and Director of Chariot Resources Ltd., a junior resource company focused on the exploration, acquisition and development of copper and precious metal mineral deposits in the Andes region of Latin America. In June 2010, Mr. Rath facilitated the sale of Chariot Resources following a global auction. The sale was approved by over 98% of the shareholders of Chariot Resources. As the former President, CEO and Director of Chimera Gold Corp. (previously known as EAGC Ventures), Ulrich Rath was responsible for facilitating the $US67 million acquisition of gold operations in the East Rand region of South Africa that now produce more than 200,000 ounces gold per annum. Subsequently, the Board of Chimera agreed to a 1:1 merger with Bema Gold Corp. He was formerly CEO and director of Compania Minera Milpo, a medium sized Peruvian zinc mining company. Mr. Rath was also formerly Vice-President, Corporate Development, for Rio Algom Ltd. from December 1992 to October 1998. Rio Algom Ltd. was a U.S. reporting issuer, whose common shares were listed on the American Stock Exchange. Mr. Rath, age 68, devotes approximately 10% of his time to the business and affairs of the Company.
Steven Van Tongeren, B.Sc, CPA, Chief Financial Officer
Mr. Van Tongeren holds a Bachelor of Science degree from the State University of New York and was certified as a Certified Public Accountant in the State of New York. He completed Executive Finance Management Training at INSEAD France, one of the world's leading and graduate business schools. He has extensive international experience having lived and worked in various countries. Mr. Van Tongeren was Executive Director, Finance for a London Stock Exchange listed restaurant group operating throughout Europe. He successfully brought the privately held company to full public listing and went on to complete major fund raising for the company's rapid international expansion. He acted as Vice President, Finance and Administration, for PolyGram Video and later as Manager of World-Wide Consolidation and Reporting for Polygram International BV. In that capacity, he was responsible for preparing all consolidated world-wide financial reporting for one of the world's major record and film entertainment companies with subsidiaries in 34 countries. He served as European and South African Financial Director for the Borden Food Inc. International packaging group with manufacturing and sales operations throughout Europe and South
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Africa. Mr. Van Tongeren has worked as Senior Operations Auditor for Gulf & Western Inc., where he was responsible for domestic and international company audits and special project due diligence. Mr. Van Tongeren, age 57, devotes his full time to the business and affairs of the Company.
Cease Trade Orders
No director or executive officer of the Company (or any personal holding corporation of such persons) is, or was within the ten years prior to the date hereof, a director, chief executive officer or chief financial officer of any company, including the Company, that:
(i)
was subject to an order (as defined below) that was issued while the director or executive officer was acting in the capacity as director, chief executive officer, or chief financial officer; or
(ii)
was subject to an order (as defined below) that was issued after the director or executive officer ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer, or chief financial officer.
For the purposes of the above disclosure, order means:
(i)
a cease trade order;
(ii)
an order similar to a cease trade order; or
(iii)
an order that denied the relevant company access to any exemption under securities legislation;
that was in effect for a period of more than thirty consecutive days.
Penalties or Sanctions
Within the past 10 years no directors or executive officers of the Company, or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the Company (or any personal holding corporation of such persons), has been subject to:
(a)
any penalties or sanctions imposed by a court relating to Canadian securities legislation or by a Canadian securities regulatory authority or has entered into a settlement agreement with a Canadian securities regulatory authority; or
(b)
any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.
Personal Bankruptcies
No director or executive officer of the Company, or a shareholder holding a sufficient number of securities of the Company to materially affect control of the Company (or any personal holding corporation of such persons):
(i)
is at the date hereof, or has been within the last ten years, a director or executive officer of any company that while the person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating
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to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement, or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold its assets; or
(ii)
has, within the last ten years, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement, or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder
Conflicts of Interest
There is no existing material conflict of interest between the Company or its subsidiaries and a director or executive officer of the Company or its subsidiaries. However, certain directors and officers of the Company are and may continue to be involved in the mining and mineral exploration industry through their direct and indirect participation in corporations, partnerships or joint ventures which are potential competitors. Situations may arise in connection with potential acquisitions and investments where the other interests of these directors and officers may conflict with the interests of the Company. As required by law, each of the directors of the Company is required to act honestly, in good faith and in the best interests of the Company. Any conflicts which arise shall be disclosed by the directors and officers in accordance with the Business Corporations Act (Alberta) and they will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed on them by law.
B.
Executive Compensation
Compensation Discussion and Analysis
The adequacy and form of director and officer compensation is reviewed on an annual basis by the Audit and Compensation Committee of the Board of Directors (the Board) of the Company. The Audit and Compensation Committee recommends to the Board any adjustments to the compensation payable to directors, officers, and senior staff. The Audit and Compensation Committee is comprised of three directors: Norman Betts (Chair), William Harvey and Ulrich Rath, all of whom are independent for the purposes of National Instrument 58-101 Corporate Governance.
The Audit and Compensation Committee meet to discuss salary matters as required. Its recommendations are reached primarily by comparison of the remuneration paid by the Company with publicly available information on remuneration paid by other reporting issuers that the Audit and Compensation Committee feels are similarly placed within the same stage of business development as the Company. No consultant or advisor has been retained by the Company to assist in determining compensation.
In assessing the compensation of its executive officers, the Company does not have in place any formal objectives, criteria or analysis; instead, it relies mainly on the recommendations of the Audit and Compensation Committee and Board discussion. The Companys executive compensation program has three principal components: base salary, incentive bonus plan, and equity compensation plans.
Base salaries for all employees of the Company are established for each position based on market information obtained through the recruitment process from recruitment consultants and candidates on an ad hoc basis. The Audit and Compensation Committee familiarizes itself with this market information, but does not employ a statistical or formal benchmarking approach in making its compensation recommendations. Individual qualifications and experience, together with the Companys pay scale and any market information obtained, are considered in determining base compensation levels.
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Equity compensation plans are designed to provide an incentive to the directors, officers, employees and consultants of the Company to achieve the longer-term objectives of the Company; to give suitable recognition to the ability and industry of such persons who contribute materially to the success of the Company; and to attract and retain persons of experience and ability, by providing them with the opportunity to acquire an increased proprietary interest in the Company. The Company awards equity based compensation to its executive officers and employees, based upon the Boards review of the recommendations of the Audit and Compensation Committee. Previous awards of such equity compensation are taken into account when considering new grants. The Company does not currently have an incentive stock option plan and none is contemplated.
Implementation of a new incentive equity based compensation plans and amendments to the existing plans are the responsibility of the Companys Board. The Companys equity compensation plans are discussed in more detail below, under the sub-headings, Restricted Stock Unit Plan and Employee Share Ownership Plan.
The Company's Code of Ethics and Business Conduct prohibits directors and NEOs (defined below) from entering into transactions to hedge or offset a decrease or protect the value of equity securities of the Company granted as compensation or otherwise directly or indirectly held.
The Company has no other forms of compensation, although payments may be made from time to time to individuals or companies they control for the provision of consulting services. Such consulting services are paid for by the Company at competitive industry rates for work of a similar nature by reputable arms length services providers.
The Company is required, under applicable securities legislation in Canada to disclose to its shareholders details of compensation paid to its named executive officers (a named executive officer or NEO). A named executive officer as defined in Form 51-102F6 Statement of Executive Compensation, prescribed by National Instrument 51-102 - Continuous Disclosure Obligations, means an individual who, at any time during the year, was:
(a)
the Companys chief executive officer (CEO);
(b)
the Companys chief financial officer (CFO);
(c)
each of the Companys three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year and whose total compensation will be, individually, more than $150,000 for that financial year; and
(d)
each individual who would be a NEO under paragraph (c) but for the fact that the individual was neither an executive officer of the Company, nor acting in a similar capacity, at the end of the most recently completed financial year.
Based on the foregoing definition, the Company has six NEOs for the fiscal year ended August 31, 2014: James E. Sinclair, President and CEO; Joseph Kahama, Chairman and COO (Tanzania); Steven Van Tongeren, CFO, Victoria Luis, Corporate Accountant, Phillip Kaniki, General Manager and Helen Hansen, former Corporate Secretary.
The following tables set forth particulars concerning the compensation of the named executive officers for the Companys last three fiscal years ended August 31, 2014:
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Summary Compensation Table
Name and Principal Position | Year | Salary ($) | Share-based awards ($) | Option-based awards ($) | Non-equity incentive plan compen- sation ($) | Pension Value ($) | All other compen-sation ($) | Total compen-sation ($) | |
Annual incentive plans (RSU) | Long term incen- tive plans (ESOP) | ||||||||
James Sinclair, | 2014 | 95,000 (1) | 187,500 (3) | Nil | Nil | Nil | Nil | 13,089 | 295,589 |
Joseph Kahama, Chairman and COO (Tanzania) | 2014 | 113,064 (1) | 193.750 (5) | Nil | Nil | Nil | Nil | 70,000 | 376,814 |
Steven Van Tongeren, | 2014 | 169,299 (1) | 206,125 (8) | 9,119 | Nil | Nil | Nil | 13,089 | 397.632 |
Helen Hansen, | 2014 | 87,120 | 72,750 (8) | 4,758 | Nil | Nil | Nil | 27,260 | 191,888 |
Victoria Luis, Corporate Accountant | 2014 | 115,000 (1) | 113,975 (8) | Nil | Nil | Nil | Nil | 8,790 | 237,765 |
Phillip Kaniki, | 2014 | 102,000 (1) | 41,225 (8) | 11,018 | Nil | Nil | Nil | Nil | 154,243 |
(1)
US$ exchange average for the year= $1.0908.
(2)
US$ exchange = 1.00.
(3)
Valued at $6.28 per RSU granted on May 6, 2011.
(4)
Includes taxes paid in Tanzania and statutory deductions.
(5)
Valued at $2.72 per RSU granted on July 3, 2013.
(6)
Valued at $4.69 per RSU granted on June 2, 2010.
(7)
Total is a combination of $74,700 cash and 27,574 RSUs valued at $2.72 per RSU granted on July 3, 2013.
(8)
Valued at $3.58 per RSU granted on April 10, 2013.
(9)
Total is a combination of 25,000 RSUs valued at $4.20 per RSU granted on February 24, 2012 and 42,152 RSUs valued at $4.89 per RSU granted on April 11, 2012.
(10)
Total is a combination of 20,000 RSUs valued at $6.90 per RSU granted on February 24, 2011 and 29,857 RSUs valued at $6.28 per RSU granted on May 6, 2011.
(11)
Helen Hansen resigned as Corporate Secretary as of May 31, 2014.
(12)
Total is a combination of 10,128 RSUs valued at $4.69 per RSU granted on June 2, 2010 and 14,877 RSUs valued at $4.89 per RSU
granted on April 11, 2012.
(13)
Total is a combination of 10,416 RSUs valued at $3.84 per RSU granted on May 27, 2009 and 10,032 RSUs valued at $6.28 per RSU
granted on May 6, 2011.
(14)
Total is a combination of 14,659 RSUs valued at $4.69 per RSU granted on June 2, 2010, 23,307 RSUs valued at $4.89 per RSU
granted on April 11, 2012.
(15)
Total is a combination of 17,903 RSUs valued at $3.84 per RSU granted on May 27, 2009 and 14,331 RSUs valued at $6.28 per RSU
granted on May 6, 2011.
(16)
Valued at $4.89 per RSU granted on April 11, 2012.
Compensation is determined by the Audit and Compensation Committee as set out under Compensation
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Discussion and Analysis. Salary compensation is not tied to a named executive officers individual performance, however the grant of restricted share units (RSUs) may be. The grant date fair value of RSUs is based on the closing price of the Companys shares on the Toronto Stock Exchange (the TSX) on the date of grant. All Employee Share Ownership Plan (ESOP) share purchases are at market prices at the time of each monthly purchase, through the facilities of the TSX using registered representatives. See Restricted Stock Unit Plan and Employee Share Ownership Plan below for more information.
Incentive Plan Awards
Outstanding share-based awards and option-based awards
Option-based Awards | Share-based Awards | ||||||
Name | Year | Number of securities underlying unexercised options (#) | Option exercise price ($) | Option expiration date | Value of unexercised in-the-money RSUs ($) | Number of shares or units of shares that have not vested (#) | Market or payout value of share-based awards that have not vested ($) |
James Sinclair, | 2014 | N/A | N/A | N/A | 206,000 (1) | 76,296 | 206,000 |
Joseph Kahama, | 2014 | N/A | N/A | N/A | 206,000 (1) | 76,296 | 206,000 |
Steven Van Tongeren, | 2014 | N/A | N/A | N/A | 206,000 (1) | 76,296 | 206,000 |
Helen Hansen, | 2014 | N/A | N/A | N/A | 73,000 (1) | 27,037 | 73,000 |
Victoria Luis, | 2014 | N/A | N/A | N/A | 114,000 (1) | 42,222 | 114,000 |
Phillip Kaniki, | 2014 | N/A | N/A | N/A | 41,000 (1) | 15,185 | 41,000 |
(1)
Valued at $2.70 per RSU granted on April 9, 2014.
(2)
Valued at $3.58 per RSU granted on April 10, 2013.
(3)
Valued at $4.89 per RSU granted on April 11, 2012.
(4)
Total is a combination of 57,577 RSUs valued at $3.58 per RSU granted on April 10, 2013 and 27,574 RSUs valued at $2.72 per RSU granted on July 3, 2013.
(5)
Total is a combination of 25,000 RSUs valued at $4.20 per RSU granted on February 24, 2011 and 42,152 RSUs valued at $4.89 per RSU granted on April 1, 2012.
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Incentive plan awards Value vested or earned during the year
Name | Option-based awards Value vested during the year ($) | Share-based awards Value vested during the year ($) | Non-equity incentive plan compensation Value earned during the year ($) |
James Sinclair, | None | 187,500 | None |
Joseph Kahama, | $193,751 | 268,750 | None |
Steven Van Tongeren, | None | 206,125 | None |
Helen Hansen, | None | 72,750 | None |
Victoria Luis, | None | 113,975 | None |
Phillip Kaniki, | None | 41,225 | None |
Long Term Incentive Plan Awards to NEOs
The Company has made long-term incentive plan awards during the fiscal year ended August 31, 2014 to NEOs of the Company. See Restricted Stock Unit Plan and Employee Share Ownership Plan below.
Restricted Stock Unit Plan
The Restricted Stock Unit Plan (RSU Plan) is intended to enhance the Companys 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 RSUs. Each RSU represents an entitlement to one common share of the Company, upon vesting.
Any of these awards of RSUs may, but need not, be made as 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 agreement between the Company and the recipient governing the award. The Board implemented the RSU Plan under which employees and directors are compensated for their services to the Company. See Director Compensation.
On April 26, 2011, the Companys RSU Plan was amended as the RSU Plan expressly excluded the Chairman and Chief Executive Officer of the Company from participating in the RSU Plan. As the joint office of Chairman and Chief Executive Officer of the Company no longer exists, and was replaced by two new positions, being President and Chief Executive Officer and Chairman and Chief Operating Officer (Tanzania), the Board determined that it would be in keeping with the objects of the RSU Plan and in the best interests of the Company that each of the offices of President and Chief Executive Officer and Chairman and Chief Operating Officer (Tanzania) be unambiguously included in the category of Service Providers eligible to receive awards of RSUs under the RSU Plan, and that the wording of the RSU Plan be
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amended as required to effect such result (as so amended, the Amended RSU Plan). The Amended RSU Plan was presented to shareholders and approved at the Companys annual general and special meeting held on March 1, 2012.
As of November 9, 2012, the Board resolved to suspend 1,500,000 common shares of the 2,500,000 common shares previously authorized for issuance under the RSU Plan, such that a maximum of 1,000,000 shares shall be authorized for issuance under the RSU Plan, until such suspension may be lifted or further amended. Subsequently, on January 9, 2014, the Board resolved to decrease the number of common shares suspended to 1,200,000 common shares so that a maximum of 1,300,000 common shares be authorized for issuance under the RSU Plan.
RSUs Granted to Directors and Named Executive Officers During the Fiscal Year Ended August 31, 2014:
Name | Date of Grant | No. of RSUs (1) | Cash Compensation Election | Vesting Period (3) | Expiration Date |
Norman Betts | April 9, 2014 | 15,949 | $36,000 | 2 years | April 9,2016 |
William Harvey | April 9, 2014 | 14,004 | $37,812 | 2 years | April 9, 2016 |
Rosalind Morrow | April 9, 2014 | 12,731 | $34,375 | 3 years | April 9, 2017 |
Abdulkarim Mruma | April 9, 2014 | 14,083 | $37,600 | 2 years | April 9, 2016 |
Ulrich Rath | April 9, 2014 | 14,004 | $37,812 | 1 year | April 9, 2015 |
Joseph Kahama | April 9, 2014 | 76,296 | N/A | 3 years | April 9, 2017 |
James Sinclair | April 9, 2014 | 76,296 | N/A | 3 years | April 9, 2017 |
Steven Van Tongeren | April 9, 2014 | 76,296 | N/A | 3 years | April 9, 2017 |
Helen Hansen | April 9, 2014 | 27,037 | N/A | 3 years | April 9, 2017 |
Victoria Luis | April 9, 2014 | 42,222 | N/A | 3 years | April 9, 2017 |
Phillip Kaniki | April 9, 2014 | 15,185 | N/A | 3 years | April 9, 2017 |
RSUs granted to directors and executive |
|
|
|
|
(1)
Valued at $2.70 per RSU.
(2)
Subject to the early vesting conditions of the Amended RSU Plan.
The following RSUs granted to directors during the fiscal year ended August 31, 2013 vested during fiscal year ended August 31, 2014:
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Name | Date of Grant | No. of RSUs (1) | Cash Compensation Election | Vesting Period (2) | Expiration Date |
William Harvey | April 10, 2013 | 10,562 | $37,812 | 1 year | April 10, 2014 |
Abdulkarim Mruma | April 10, 2013 | 11,068 | $39,625 | 1 year | April 10, 2014 |
Ulrich Rath | April 10, 2013 | 11,042 | $39,531 | 1 year | April 10, 2014 |
Joseph Kahama | July 3, 2013 | 27,574 (3) | N/A | 1 year | July 3, 2014 |
Steven Van Tongeren | April 10, 2013 | 57,577 | N/A | 3 years | April 10, 2016 |
Helen Hansen | April 10, 2013 | 20,321 | N/A | 3 years | April 10, 2016 |
Victoria Luis | April 10, 2013 | 31,837 | N/A | 3 years | April 10, 2016 |
Phillip Kaniki | April 10, 2013 | 11,515 | N/A | 3 years | April 10, 2016 |
RSUs granted to directors and executive |
|
|
|
|
(1)
Valued at $2.70 per RSU.
(2)
Subject to the early vesting conditions of the Amended RSU Plan.
(3)
Valued at $2.72 per RSU
The following RSUs granted to directors during the fiscal year ended August 31, 2011 vested during fiscal year ended August 31, 2014:
Name | Date of Grant | No. of Shares(1) | Cash Compensation Election | Vesting Period | Expiration Date |
Rosalind Morrow | May 6, 2011 | 11,677 | $Nil | 3 years | May 6, 2014 |
Joseph Kahama | May 6, 2011 | 30,852 | N/A | 3 years | May 6, 2014 |
James Sinclair | May 6, 2011 | 29,857 | N/A | 3 years | May 6, 2014 |
(1)
Valued at $6.28 per RSU
Outstanding RSUs
RSUs granted to directors and executive officers during fiscal year 2014 are outstanding as of August 31, 2014.
Employee Share Ownership Plan
By an agreement dated May 1, 2003, the Company appointed Olympia Trust Company (now Computershare Trust Company) , as trustee (the Trustee) to manage and administer the Companys ESOP. Under the ESOP, eligible employees, directors, and consultants can elect to contribute up to 30% of their salary or compensation on a monthly basis for investment by the Trustee in shares of the Company. The Company will contribute funds equal to 100% of the employees contribution up to an amount equal to 5% or less of the employees salary. The Company will contribute funds equal to 50% of the employees contribution for the next 6% to 30% inclusive of the employees salary. All share purchases are at market prices at the time of purchase, through the facilities of the TSX using registered representatives. As at August 31, 2014, 19 participants, including participating directors and officers, together with Company contributions, have purchased 68,279 common shares under the ESOP. The average monthly participant contributions are $7,244 and the Companys matching monthly contribution is $5,938 per month. Included
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in the above contributions are the following director and NEO contributions:
Name | Director/Officer/NEO Contribution | Company Contribution | Number of Common Shares Purchased |
Rosalind Morrow | 10,000 | 10,000 | 8,342 |
Steven Van Tongeren | 9,119 | 9,119 | 7,957 |
Helen Hansen | 5,160 | 4,758 | 4,325 |
Phillip Kaniki | 16,526 | 11,018 | 11,999 |
Pension Plan Benefits
The Company has not set aside or accrued any funds for pension, retirement or similar benefits.
Equity Compensation Plan Information
The following table provides information regarding compensation plans under which securities of the Company are authorized for issuance in effect as of the end of the Companys most recently completed financial year end:
| Number of securities to be issued upon exercise of outstanding RSUs | Weighted average exercise price of outstanding RSUs | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
Plan Category | (a) | (b) | (c) |
Equity compensation plans approved by security holders (Restricted Stock Unit Plan) | 783,031 | $3.23 | 516,969 |
Total | 783,031 | $3.23 | 516,969 |
Director Compensation
Director Compensation Table
The following table sets forth the value of all compensation provided to directors not including those directors who are also NEOs, for the Companys most recently completed financial year:
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Name | Fees Earned ($) | RSUs granted (1) | Cash Compensation Election ($) | All Other Compensation | Total |
Norman Betts | 79,062 | 15,949 | 36,000 | Nil | 79,062 |
William Harvey | 75,625 | 14,004 | 37,812 | Nil | 75,625 |
Rosalind Morrow | 68,750 | 12,731 | 34,375 | Nil | 68,750 |
Abdulkarim Mruma | 75,625 | 14,083 | 37,600 | Nil | 75,625 |
Ulrich Rath | 75,625 | 14,004 | 37,812 | Nil | 75,625 |
(1)
Valued at $2.70 per RSU (the closing price of the Companys shares on April 9, 2014, the date of grant of the RSUs).
Directors who are also members of management do not receive any additional cash compensation for serving on the Board. All directors are granted RSUs as compensation for serving on the Companys Board. Please see the table entitled RSUs Granted to Directors and Named Executive Officers During the Fiscal Year Ended August 31, 2014 under Restricted Stock Unit Plan above.
Annual compensation for outside directors is $68,750 per year, plus $6,875 per year for serving on Committees, plus $3,437.50 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 directors 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 year and a maximum of three years, at the election of the director, subject to the conditions of the Amended RSU Plan with respect to earlier vesting. In 2014, 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%.
Under the Amended RSU Plan, at the election of each outside director, outside directors were granted 70,771 RSUs during the fiscal year ended August 31, 2014.
At the election of each outside director, directors fees of $181,752 were paid to outside directors during the fiscal year ended August 31, 2014.
Termination and Change of Control Benefits
There are currently no contracts for outside management services. There are two employment contracts with certain NEOs, including Mr. Kahama and Mr. Steven Van Tongeren, whereby they will be entitled to receive an amount by way of severance payment equal to one month's salary per full year of service in the event of termination without cause. The employment contracts do not provide for change of control benefits. If a termination without cause was to have occurred on August 31, 2014, the Company would have been required to pay a severance payment in the aggregate amount of US$154,939 in the case of Mr. Kahama and Mr. Van Tongeren.
C.
Board Practices
The directors of the Company serve a one year term and are elected at the annual general meeting of shareholders. At the last annual general meeting, held on February 27, 2014, the shareholders elected James Sinclair, Joseph Kahama, William Harvey, Rosalind Morrow, Norman Betts, Ulrich Rath and
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Abdulkarim Mruma as directors. The officers of the Company are elected by the Board and serve at the pleasure of the Board.
The Company has an audit committee consisting of Ulrich Rath, William Harvey and Norman Betts. The roles and responsibilities of the audit committee have been specifically defined as described below under Audit Committee Information, and include responsibilities for overseeing management reporting on internal control. The audit committee has direct communication channels with the external auditors.
The Company also has a compensation committee. The audit committee and compensation committee is collectively referred to as the Audit and Compensation Committee.
The adequacy and form of director and officer compensation is reviewed on an annual basis by the Audit and Compensation Committee of the Board of Directors of the Company. The Audit and Compensation Committee recommends to the Board any adjustments to the compensation payable to directors, officers, and senior staff. The Audit and Compensation Committee is comprised of three directors: Norman Betts (Chair), William Harvey and Ulrich Rath, all of whom are independent for the purposes of National Instrument 58-101 Corporate Governance. The Audit and Compensation Committee meet to discuss salary matters as required. Its recommendations are reached primarily by comparison of the remuneration paid by the Company with publicly available information on remuneration paid by other reporting issuers that the Audit and Compensation Committee feels are similarly placed within the same stage of business development as the Company.
The Company also has a nominating committee (the Nominating Committee) comprised of Ulrich Rath, William Harvey and Norman Betts. The Nominating Committee considers the size of the Board each year when it considers the number of directors to recommend to shareholders for election at the annual meeting of shareholders, taking into account the number required to carry out the Boards duties effectively and to maintain a diversity of view and experience. When a vacancy on the Board arises, the independent directors of the Nominating Committee will be encouraged to bring forward any potential nominees that have the necessary skills and knowledge to serve on the Companys Board.
The Company has a Technical Committee currently comprised of Joseph Kahama, Chair, Abdulkarim Mruma, Phillip Kaniki and Joas Kabete. The Technical Committee has approved a Technical Committee Manual defining Composition and Terms of Reference. Among other things, the Technical Committee reviews with management any exploration, geological, mining, metallurgical and other technical issues and reviews technical and financial issues associated with new and existing projects that require Board approval with respect to their technical and financial impact on the Company. The Technical Committee reports directly to the Board of Directors.
AUDIT COMMITTEE INFORMATION
Under National Instrument 52-110 Audit Committees (NI 52-110) reporting issuers are required to provide disclosure with respect to its Audit Committee including the text of the Audit Committees Charter, composition of the Committee, and the fees paid to the external auditor. Accordingly, the Company provides the following disclosure with respect to its Audit Committee:
1.
The Audit and Compensation Committees Charter
1.0
Purpose of the Committee
1.1
The purpose of the Audit and Compensation Committee is to assist the Board in its oversight of the integrity of the Company's financial statements and other relevant public disclosures, the Company's compliance with legal and
72
regulatory requirements relating to financial reporting, the external auditors' qualifications and independence and the performance of the internal audit function and the external auditors.
2.0
Compensation
2.1
The adequacy and form of director and officer compensation is reviewed on an annual basis by the Board. The Audit and Compensation Committee recommends to the Board any adjustments to the compensation payable to directors, officers, and senior staff. The Audit and Compensation Committee meet to discuss salary and bonus incentive matters as required.
3.0
Members of the Audit and Compensation Committee
3.1
All of the members of the Audit and Compensation Committee must be "financially literate" as defined under NI 52-110, Audit Committees, having sufficient accounting or related financial management expertise to read and understand a set of financial statements, including the related notes, that present a breadth and level of complexity of the accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company's financial statements.
3.2
The Audit and Compensation Committee shall consist of no less than three Directors.
3.3
All of the members of the Audit and Compensation Committee shall be "independent" as defined under NI 52-110.
4.0
Relationship with External Auditors
4.1
The external auditors are the independent representatives of the shareholders, but the external auditors are also accountable to the Board of Directors and the Audit and Compensation Committee.
4.2
The external auditors must be able to complete their audit procedures and reviews with professional independence, free from any undue interference from the management or directors.
4.3
The Audit and Compensation Committee must direct and ensure that the management fully co-operates with the external auditors in the course of carrying out their professional duties.
4.4
The Audit and Compensation Committee will have direct communications access at all times with the external auditors.
4.5
The Audit and Compensation Committee will ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law.
4.6
The Audit and Compensation Committee will recommend to the Board of Directors policies for the Companys hiring of employees or former employees of the external auditors who participated in any capacity in the audit of the Company.
5.0
Non-Audit Services
5.1
The external auditors are prohibited from providing any non-audit services to the Company, without the express written consent of the Audit and Compensation Committee. In determining whether the external auditors will be granted permission to provide non-audit services to the Company, the Audit and Compensation Committee must consider that the benefits to the Company from the provision of such services, outweighs the risk of any compromise to or loss of the independence of the external auditors in carrying out their auditing mandate.
5.2
Notwithstanding section 5.1, the external auditors are prohibited at all times from carrying out any of the following services, while they are appointed the external auditors of the Company:
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(i)
acting as an agent of the Company for the sale of all or substantially all of the undertaking of the Company; and
(ii)
performing any non-audit consulting work for any director or senior officer of the Company in their personal capacity, but not as a director, officer or insider of any other entity not associated or related to the Company.
6.0
Appointment of Auditors
6.1
The external auditors will be appointed each year by the shareholders of the Company at the annual general meeting of the shareholders.
6.2
The Audit and Compensation Committee will nominate the external auditors for appointment, such nomination to be approved by the Board of Directors.
7.0
Evaluation of Auditors
7.1
The Audit and Compensation Committee will review the performance of the external auditors on at least an annual basis, and notify the Board and the external auditors in writing of any concerns in regards to the performance of the external auditors, or the accounting or auditing methods, procedures, standards, or principles applied by the external auditors, or any other accounting or auditing issues which come to the attention of the Audit and Compensation Committee.
8.0
Remuneration of the Auditors
8.1
The remuneration of the external auditors will be determined by the Board of Directors, upon the annual authorization of the shareholders at each general meeting of the shareholders.
8.2
The remuneration of the external auditors will be determined based on the time required to complete the audit and preparation of the audited financial statements, and the difficulty of the audit and performance of the standard auditing procedures under generally accepted auditing standards and generally accepted accounting principles of Canada.
9.0
Termination of the Auditors
9.1
The Audit and Compensation Committee has the power to terminate the services of the external auditors, with or without the approval of the Board of Directors, acting reasonably.
10.0
Funding of Auditing and Consulting Services
10.1
Auditing expenses will be funded by the Company. The auditors must not perform any other consulting services for the Company, which could impair or interfere with their role as the independent auditors of the Company.
11.0
Role and Responsibilities of the Internal Auditor
11.1
At this time, due to the Company's size and limited financial resources, the Chief Financial Officer of the Company shall be responsible for implementing internal controls and performing the role as the internal auditor to ensure that such controls are adequate.
12.0
Oversight of Internal Controls
12.1
The Audit and Compensation Committee will have the oversight responsibility for ensuring that the internal controls are implemented and monitored, and that such internal controls are effective.
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13.0
Continuous Disclosure Requirements
13.1
At this time, due to the Company's size and limited financial resources, the Chief Financial Officer of the Company is responsible for ensuring that the Company's continuous reporting requirements are met and in compliance with applicable regulatory requirements.
14.0
Other Auditing Matters
14.1
The Audit and Compensation Committee may meet with the Auditors independently of the management of the Company at any time, acting reasonably.
14.2
The Auditors are authorized and directed to respond to all enquiries from the Audit and Compensation Committee in a thorough and timely fashion, without reporting these enquiries or actions to the Board of Directors or the management of the Company.
15.0
Annual Review
15.1
The Audit and Compensation Committee Charter will be reviewed annually by the Board of Directors and the Audit and Compensation Committee to assess the adequacy of this Charter.
16.0
Independent Advisers
16.1
The Audit and Compensation Committee shall have the power to retain legal, accounting or other advisors to assist the Committee.
17.0
Reports of Fraud and Misconduct
17.1
The Audit and Compensation Committee will review, investigate and evaluate all reports of fraud and misconduct. Refer to the Companys Whistle Blower Policy and Procedures.
18.0
Changes in Accounting Policies
18.1
The Audit and Compensation Committee will review and maintain Accounting Policies including the selection, documentation and changes in Accounting Policies.
19.0
Nominating Committee
19.1
The Nominating Committee considers the size of the Board of Directors each year when it considers the number of directors to recommend to shareholders for election at the annual meeting of shareholders, taking into account the number required to carry out the Boards duties effectively and to maintain a diversity of view and experience. When a vacancy on the Board arises, the independent directors of the Nominating Committee will be encouraged to bring forward any potential nominees that have the necessary skills and knowledge to serve on the Companys Board.
2.
Composition of the Audit and Compensation Committee
Following are the members of the Audit and Compensation Committee:
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Norman Betts (Chair) | Independent (1) | Financial expert (3) |
Ulrich Rath | Independent (1) | Financially literate (2) |
William Harvey | Independent (1) | Financially literate (2) |
(1)
A member of an audit committee is independent if the member has no direct or indirect material relationship with the Company, which could, in the view of the Board of Directors, reasonably interfere with the exercise of a members independent judgment.
(2)
An individual is financially literate if he has the ability to read and understand a set of financial statements that present a breadth of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Companys financial statements.
(3)
An Audit Committee Financial Expert must possess five attributes: (i) an understanding of GAAP and financial statements; (ii) the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves; (iii) experience preparing auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrants financial statements, or experience actively supervising one or more persons engaged in such activities; (iv) an understanding of internal controls and procedures for financial reporting; and (v) an understanding of audit committee functions.
3.
Relevant Education and Experience
Dr. Betts is the Chair of the Committee. He is the former Minister of Finance of New Brunswick and current Associate Professor of Business Administration, University of New Brunswick; Mr. Rath was the President and CEO of a Canadian resource company; and Dr. William Harvey is a psychologist and businessman.
4.6.
Reliance on Certain Exemptions
At no time since the commencement of the Companys most recently completed financial year has the Company relied on the exemption in Section 2.4 of NI 52-110 (De Minimis Non-audit Services), Section 3.3(2) (Controlled Companies), Section 3.6 (Temporary Exemption for Limited and Exceptional Circumstances), or an exemption from NI 52-110, in whole or in part, granted under Part 8 of National Instrument 52-110. Nor has the Company relied on Section 3.8 (Acquisition of Financial Literacy) of NI 52-110.
7.
Audit and Compensation Committee Oversight
At no time since the commencement of the Companys most recently completed financial year was a recommendation of the Audit and Compensation Committee to nominate or compensate an external auditor not adopted by the Board of Directors.
8.
Pre-Approval Policies and Procedures
The Audit and Compensation Committee is authorized by the Board of Directors to review the performance of the Companys external auditors and approve in advance the provision of services other than auditing and to consider the independence of the external auditors, including a review of the range of services provided in the context of all consulting services bought by the Company. The Audit and Compensation Committee is authorized to approve in writing any non-audit services or additional work which the Chairman of the Audit and Compensation Committee deems is necessary, and the Chairman will notify the other members of the Audit and Compensation Committee of such non-audit or additional work and the reasons for such non-audit work for the Committees consideration, and if thought fit, approval in writing.
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9.
External Auditor Service Fees
The fees billed by the Companys external auditors in each of the last two fiscal years for audit and non-audit related services provided to the Company or its subsidiaries are as follows:
Financial Year Ending August 31 | Audit Fees | Audit Related Fees | Tax Fees | All Other Fees |
2014 | Canada $135,925 | Nil | Nil | Nil |
2013 | Canada - $135,000 | Nil | Nil | Nil |
D.
Employees
The Company has four full time employee located in Sharon, Connecticut, USA, thirty-three full time employees located in Buckreef, Tanzania, and seven full time employees located in Dar es Salaam, Tanzania.
The Company also hires employees on a part time or temporary basis as dictated by the exploration activities on its properties. The full time and temporary employees and consultants of the Company can be grouped according to main category of activity and geographic location as follows:
Location | Category | Full Time Employees | Temporary Employees | Full Time Consultants | Part Time Consultants |
Buckreef , Tanzania | Administration | 13 | Nil | Nil | Nil |
Exploration | 19 | Nil | Nil | Nil | |
Dar es Salaam, Tanzania | Administration | 7 | Nil | Nil | Nil |
Exploration | 1 | Nil | Nil | Nil | |
Connecticut, USA | Administration | 4 | Nil | Nil | Nil |
E.
Share Ownership
The following table sets forth the share ownership of our directors and named executive officers, held by such persons as of August 31, 2014.
Name of Owner | Number of Shares Owned | Percentage (1) |
Betts, Norman | 2,100 | <0.01% |
Hansen, Helen | 6,605 | <0.01% |
Harvey, William | 350,652 | 0.35% |
Kahama, Joseph | 68,726 | 0.07% |
Luis, Victoria | 155,848 | 0.15% |
Morrow, Rosalind | 465,084 | 0.46% |
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(1)
Calculation based on 101,325,880 shares of common stock outstanding as of August 31, 2014.
The voting rights attached to the common shares owned by our officers and directors do not differ from those voting rights attached to shares owned by people who are not officers or directors of our Company.
Item 7.
Major Shareholders and Related Party Transactions
A.
Major Shareholders
As far as it is known to the Company, it is not directly or indirectly owned or controlled by any other Company or by the Canadian Government, or any foreign government. The Company has no knowledge of any arrangements which at a subsequent date would result in a change of control. All of the Companys issued common shares rank equally as to voting rights, dividends, and any distribution of assets on winding-up or liquidation.
As of August 31, 2014, the Company knows of one shareholder who beneficially own more than five (5%) of the outstanding shares of the Companys voting securities as set forth in the following table:
Title of Class | Identity of Holder(2) | Amount Owned | Percent of Class(1) |
Common Shares | Van Eck Associates Corporation | 13,628,498 | 13.45% |
(1)
Based on the issued and outstanding shares of the Company of 101,325,880 shares as at October 31, 2014.
(2)
As per information provided pursuant to sec. 2.2 of NI 62-103 an Alternative Monthly Report filed on SEDAR on August 7, 2014.
The following table sets out the portion of common shares of the Company held by registered shareholders in Canada, the United States of America, and all other countries by total number of holders, total shareholdings, percentage of total issued shares, and percentage of total holders as of August 31, 2014:
Jurisdiction of Shareholders of Record | Number of Shareholders | Number of Common Shares | Percentage of Total Issued Shares | Percentage of Total Holders |
United States | 1497 | 40,370,596 | 39.84% | 81.36% |
Canada | 229 | 59,001,045 | 58.23% | 12.44% |
Other Countries | 114 | 1,954,239 | 1.93% | 6.20% |
TOTAL |
|
|
|
|
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B.
Related Party Transactions
Financing Transactions
None.
Other Related Party Transactions
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.
Related party transactions conducted in the normal course of operations are measured at the exchange value (the amount established and agreed to by the related parties).
(a)
The Company entered into the following transactions with related parties:
Year ended August 31, | Notes | 2014 | 2013 |
Legal services | (i) | $257,050 | $269,880 |
Rent | (ii) | $21,347 | $21,364 |
Technical Committee | (iii) | $nil | $55,709 |
Rent | (iv) | $33,924 | $23,750 |
Consulting | (v) | $160,954 | $82,173 |
Consulting | (vi) | $174,163 | $nil |
(i)
The Company engages a legal firm for professional services in which one of the Companys directors is a partner. During the year ended August 31, 2014, the legal expense charged by the firm was $257,050 (2013 - $269,880), of which $28,648 remains payable at August 31, 2014 (August 31, 2013 - $13,143).
(ii)
During the year ended August 31, 2014, $21,347 (2013 - $21,364) was paid to a company associated with the Companys Chairman and COO and his spouse for office rental.
(iii)
During the year ended August 31, 2014, $nil (2013 - $55,709) was paid or payable by the Company to directors as incremental fees for serving on the Companys Technical Committee.
(iv)
During the year ended August 31, 2014, $33,924 (2013 - $23,750) was paid to a company associated with the Companys CFO for office rental.
(v)
During the year ended August 31, 2014, $160,954 (2013 - $82,173) was paid for heap leach construction consulting and website/data back-up services to companies controlled by individuals associated with the CEO.
(vi)
During the year ended August 31, 2014, $174,163 (2013 - $nil) was paid for grade control drilling and other consulting services to Stamico, the Companys joint venture partner on the Buckreef Gold Project.
At August 31, 2014, the Company has a receivable of $2,072 (August 31, 2013 - $nil) from an organization associated with the Companys President and CEO.
At August 31, 2014, the Company has a receivable of $16,622 (August 31, 2013 - $nil) from the general manager of the Company for amounts advanced on his behalf.
(b)
Remuneration of Directors and key management personnel (being the Companys Chief Executive
79
Officer, Chief Financial Officer and Chief Operating Officer) of the Company was as follows:
Year ended August 31, | 2014 | 2013 | ||
| Salaries and benefits (1) | Share based payments (2), (3) | Salaries and benefits (1) | Share based payments (2), (3) |
Management | $ 446,640 | $ 720,336 | $ 508,217 | $ 654,412 |
Directors | 181,752 | 194,682 | 166,770 | 208,572 |
Total | $ 628,392 | $ 915,018 | $ 674,987 | $ 862,984 |
(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 RSUs for their services and officers are entitled to cash remuneration and RSUs 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.
C.
Interests of Experts and Counsel
Not applicable.
Item 8.
Financial Statements
A.
Consolidated Statements and Other Financial Information
This Form 20-FAnnual Report contains the audited consolidated financial statements of the Company for the fiscal years ended August 31, 2014 and 2013 with the Report of Independent Registered Public Accounting Firm, comprised of:
(a)
Consolidated Balance Sheets as of August 31, 2014 and 2013;
(b)
Consolidated Statements of Comprehensive Loss for the years ended August 31, 2014 and 2013;
(c)
Consolidated Statements of Changes in Equity for the years ended August 31, 2014 and 2013;
(d)
Consolidated Statements of Cash Flows for the years ended August 31, 2014 and 2013; and
(e)
Notes to the consolidated financial statements.
Dividend Policy
The Company has never paid dividends and does not intend to in the near future.
Litigation
The Company in the ordinary course of business had been notified of a claim for additional compensation by a contractor. This matter was settled during the year ended August 31, 2014 by the issuance of 82,405 common shares at a value of $185,000
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B.
Significant Changes
None.
Item 9.
The Offering and Listing
A.
Offering and Listing Details
The common shares of the Company are listed on the TSX under the symbol TNX. The common shares of the Company are also listed on the NYSE MKT LLC (NYSE MKT)) under the symbol TRX
As of August 31, 2014 there were 1,498 registered shareholders in the United States holding 39.86% of the Companys outstanding common shares, representing approximately 81.41% of the total number of registered shareholders. The Companys common shares are issued in registered form and the percentage of shares reported to be held by registered holders in the United States is taken from the records of the Computershare Trust Company, the registrar and transfer agent for the Companys common shares.
The number of registered shareholders resident in the United States is attributed as to 0.27% to directors and officers of the Company who are United States residents; a further 0.20% held by United States residents who are immediate family members of a director and officer of the Company; and the balance of 39.39% are United States residents who have purchased shares in the secondary market, through the facilities of the TSX or NYSE MKT.
The high and low market prices expressed in Canadian dollars on the TSX and the high and low expressed in US dollars on the NYSE MKT for the Companys common shares for the last five years, for the last six months, and each quarter for the last three fiscal years
TSX
(Canadian Dollars)
Last Six Months | High | Low | Volume |
October 1 29, 2014 | 2.40 | 1.70 | 420,760 |
September 2014 | 2.70 | 2.20 | 967,634 |
August 2014 | 2.74 | 2.44 | 528,768 |
July 2014 | 2.70 | 2.23 | 791,339 |
June 2014 | 2.75 | 1.89 | 890,732 |
May 2014 | 2.47 | 1.81 | 701,052 |
2013-2014 | High | Low | Volume |
Fourth Quarter ended August 31, 2014 | 2.75 | 1.89 | 2,210,839 |
Third Quarter ended May 31, 2014 | 3.13 | 1.81 | 3,360,408 |
Second Quarter ended February 28, 2014 | 2.91 | 1.75 | 4,058,712 |
First Quarter ended November 30, 2013 | 4.15 | 2.05 | 9,312,124 |
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2012-2013 | High | Low | Volume |
Fourth Quarter ended August 31, 2013 | 4.40 | 2.20 | 4,863,35,7 |
Third Quarter ended May 31, 2013 | 4.32 | 2.38 | 4,699,925 |
Second Quarter ended February 28, 2013 | 4.78 | 3.02 | 3,153,469 |
First Quarter ended November 30, 2012 | 5.21 | 4.28 | 3,575,412 |
2011-2012 | High | Low | Volume |
Fourth Quarter ended August 31, 2012 | 5.18 | 3.88 | 4,992,199 |
Third Quarter ended May 31, 2012 | 5.28 | 3.25 | 7,107,846 |
Second Quarter ended February 28, 2012 | 4.50 | 2.21 | 4,369,050 |
First Quarter ended November 30, 2011 | 5.87 | 1.59 | 8,577,391 |
Last Five Fiscal Years | High | Low |
2014 | 4.15 | 1.75 |
2013 | 5.21 | 2.20 |
2012 | 5.87 | 1.59 |
2011 | 7.79 | 5.32 |
2010 | 5.98 | 2.91 |
NYSE MKT
(US Dollars)
Last Six Months | High | Low | Volume |
October 1 29, 2014 | 2.15 | 1.51 | 4,514,600 |
September 2014 | 2.45 | 1.98 | 7,369,200 |
August 2014 | 2.52 | 2.24 | 2,798,200 |
July 2014 | 2.54 | 2.09 | 5,510,200 |
June 2014 | 2.57 | 1.72 | 7,748,900 |
May 2014 | 2.26 | 1.89 | 3,170,900 |
2014-2013 | High | Low | Volume |
Fourth Quarter ended August 31, 2014 | 2.57 | 1.72 | 16,057,300 |
Third Quarter ended May 31, 2014 | 2.81 | 1.69 | 13,660,500 |
Second Quarter ended February 28, 2014 | 2.67 | 1.63 | 21,779,200 |
First Quarter ended November 30, 2013 | 4.06 | 1.98 | 37,997,000 |
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2013-2012 | High | Low | Volume |
Fourth Quarter ended August 31, 2013 | 4.15 | 2.14 | 30,,463,361 |
Third Quarter ended May 31, 2013 | 4.20 | 2.35 | 30,245,852 |
Second Quarter ended February 28, 2013 | 4.79 | 3.03 | 25,583,328 |
First Quarter ended November 30, 2012 | 5.34 | 4.32 | 20,539,806 |
2012-2011 | High | Low | Volume |
Fourth Quarter ended August 31, 2012 | 4.82 | 3.74 | 25,848,383 |
Third Quarter ended May 31, 2012 | 5.32 | 3.20 | 51,388,433 |
Second Quarter ended February 28, 2012 | 4.56 | 2.18 | 33,685,275 |
First Quarter ended November 30, 2011 | 5.94 | 1.56 | 55,934,886 |
Last Five Fiscal Years | High | Low |
2014 | 4.06 | 1.63 |
2013 | 5.34 | 2.14 |
2012 | 5.94 | 1.56 |
2011 | 7.82 | 5.38 |
2010 | 5.63 | 2.69 |
B.
Plan of Distribution
Not applicable.
C.
Markets
The Companys common shares are listed on the TSX under the trading symbol TNX and on the NYSE MKT under the trading symbol TRX.
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
F.
Expenses of the Issue
Not applicable.
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Item 10.
Additional Information
A.
Share Capital
The Companys Restated Articles of Incorporation authorize the Company to issue an unlimited number of common shares. On November 23, 2011, the Board resolved that the Company authorize for issuance up to a maximum of 115,000,000 common shares, subject to further resolutions of the Companys Board of Directors. As of August 31, 2014, there were 101,325,880 shares common shares issued and outstanding.
Each common share has equal dividend, liquidation and voting rights. Voters of common shares are entitled to one vote per share on all matters that may be brought before them. Holders of common shares are entitled to receive dividends when declared by the Board from funds legally available therefor. The common shares are not redeemable, have no conversion rights and carry no pre-emptive or other rights to subscribe for additional shares. The outstanding common shares are fully paid and non-assessable.
The following table reconciles the total number of common shares outstanding for the last three fiscal years:
| No. of Shares | $ Amount |
Total Outstanding as of August 31, 2012 | 100,459,937 | 113,476,858 |
Add: Issued on conversion of convertible debt | 221,337 | 986,334 |
Issued pursuant to Restricted Share Unit Plan | 241,308 | 1,151,010 |
Total Outstanding as of August 31, 2013 | 100,922,582 | 115,614,202 |
Add: Issued pursuant to Restricted Share Unit Plan | 320,893 | 1,354,235 |
Issued on settlement of | 82,405 | 185,000 |
Total Outstanding as of August 31, 2014 | 101,325,880 | 117,153,437 |
Shares are issued by the Company with the regulatory acceptance of the Toronto Stock Exchange and NYSE MKT, upon resolution of the Board of Directors of the Company. As of August 31, 2014, there are a total of 101,325,880 common shares issued and a further 783,031 common shares reserved for issuance under outstanding RSUs.
B.
Articles of Association and Bylaws
The Company was originally incorporated under the corporate name 424547 Alberta Ltd. on July 5, 1990, under the Business Corporations Act (Alberta).
The Articles of 424547 Alberta Ltd. were amended on August 13, 1991, as follows:
·
the name of the Company was changed to Tan Range Exploration Corporation;
·
the restriction on the transfer of shares was removed; and
·
a new paragraph regarding the appointment of additional directors was added as follows:
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(b)
The Directors, may, between annual general meetings, appoint one or more additional directors of the Company to serve until the next annual general meeting, but the number of additional Directors shall not at any time exceed one-third (1/3) of the number of Directors who held office at the expiration of the last annual meeting of the corporation.
The Company was registered in the Province of British Columbia as an extra provincial company under the Company Act (British Columbia) on August 5, 1994.
The Articles of the Company were further amended on February 15, 1996, as follows:
·
the provisions of the Articles authorizing the issue of Class B Voting shares, Class C Non-Voting shares and Class D Preferred shares were deleted;
·
Class A voting shares were redesignated as common shares; and
·
a provision was added to allow meetings of shareholders to be held outside Alberta in either of the cities of Vancouver, British Columbia or Toronto, Ontario.
The Articles of the Company were further amended on February 28, 2006, as follows:
·
the name of the Company was changed to its present name, Tanzanian Royalty Exploration Corporation.
The Articles of the Company were further amended on February 29, 2008 as follows:
·
Pursuant to Section 173(1)(l) of the Business Corporations Act (Alberta), Item 5 of the Articles of the Company was amended by changing the maximum number of directors from 9 to 11.
Common Shares
All issued and outstanding common shares are fully paid and non-assessable. Each holder of record of common shares is entitled to one vote for each common share so held on all matters requiring a vote of shareholders, including the election of directors. The holders of common shares will be entitled to dividends on a pro-rata basis, if and when as declared by the board of directors. There are no preferences, conversion rights, preemptive rights, subscription rights, or restrictions or transfers attached to the common shares. In the event of liquidation, dissolution, or winding up of the Company, the holders of common shares are entitled to participate in the assets of the Company available for distribution after satisfaction of the claims of creditors.
The rights of shareholders cannot be changed without a special resolution of at least 2/3 of the votes cast by the shareholders who voted in respect of the resolution, and separate classes of shareholders are entitled to separate class votes. Any such alteration of shareholders rights would also require the regulatory acceptance of the TSX. There are no provisions of the Companys Articles or Bylaws that would have the effect of delaying, deferring, or preventing a change of control of the Company, and that would operate only with respect to a merger, acquisition, or corporate restructuring involving the Company (or any of its subsidiaries).
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Powers and Duties of Directors
The directors shall manage or supervise the management of the affairs and business of the Company and shall have authority to exercise all such powers of the Company as are not, by the Business Corporations Act (Alberta) or by the Articles or Bylaws, required to be exercised by the Company in a general meeting.
Directors will serve as such until the next annual meeting. In general, a director who is, in any way, directly or indirectly interested in an existing or proposed contract or transaction with the Company whereby a duty or interest might be created to conflict with his duty or interest director, shall declare the nature and extent of his interest in such contract or transaction or the conflict or potential conflict with his duty and interest as a director. Such director shall not vote in respect of any such contract or transaction with the Company in which he is interested and if he shall do so, his vote shall not be counted, but he shall be counted in the quorum present at the meeting at which such vote is taken. However, notwithstanding the foregoing, directors shall have the right to vote on determining the remuneration of the directors.
The directors may from time to time on behalf of the Company: (a) borrow money in such manner and amount from such sources and upon such terms and conditions as they think fit; (b) issue bonds, debentures and other debt obligations; or (c) mortgage, charge or give other security on the whole or any part of the property and assets of the Company.
At least one-quarter of the directors of the Company should be persons ordinarily resident in Canada and all must be at least 18 years of age. There is no minimum share ownership to be a director. No person shall be a director of the Company who is not capable of managing their own affairs; is an undischarged bankrupt or who is a person who is not an individual.
Shareholders
An annual general meeting shall be held once in every calendar year at such time and place as may be determined by the directors. A quorum at an annual general meeting and special meeting shall be two shareholders or one or more proxy holder representing two shareholders, or one shareholder and a proxy holder representing another shareholder. There is no limitation imposed by the laws of Canada or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote the common shares, other than as provided in the Investment Canada Act, (the Investment Act) discussed below under Item 10. Additional Information, D. Exchange Controls.
In accordance with Alberta law, directors shall be elected by an ordinary resolution which means (a) a resolution passed by the shareholders of the Company in general meeting by a simple majority of the votes cast in person or by proxy, or (b) a resolution that has been signed by all shareholders entitled to vote on the resolution.
Under Alberta law certain items such as an amendment to the Companys articles or entering into a merger, requires approval by a special resolution, which means (a) a resolution passed by a majority of not less than 2/3 of the votes cast by the shareholders of the Company who, being entitled to do so, vote in person or by proxy at a general meeting of the company (b) a resolution consented to in writing by every shareholder of the Company who would have been entitled to vote in person or by proxy at a general meeting of the Company, and a resolution so consented to is deemed to be a special resolution passed at a general meeting of the Company.
C.
Material Contracts
The following are the material contracts of the Company (other than contracts in the ordinary course of business) entered into within the last two years:
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Date | Names of Parties | Description of General Nature of the Contract | Consideration Paid; Terms and Conditions |
May 23, 2014 | David Duval | Mutual Settlement and Release of All Claims | $185,000 by way of issuance of 82,405 common shares |
December 10, 2012 | Director of Wildlife, Wildlife Division, Ministry of Natural Resources and Tourism and the Company | Kigosi Access Agreement | N/A |
D.
Exchange Controls
Canada
There is no law, governmental decree or regulation in Canada that restricts the export or import of capital or affects the remittance of dividends, interest or other payments to a non-resident holder of common shares other than withholding tax requirements. Any such remittances to United States residents are subject to withholding tax. See Taxation.
There is no limitation imposed by the laws of Canada or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote the common shares, other than as provided in the Investment Act. The following discussion summarizes the principal features of the Investment Act for a non-resident who proposes to acquire the common shares.
The Investment Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture (each an entity) that is not a Canadian as defined in the Investment Act (a non-Canadian), unless after review, the Director of Investments appointed by the minister responsible for the Investment Act is satisfied that the investment is likely to be of net benefit to Canada. An investment in the common shares by a non-Canadian other than a WTO Investor (as that term is defined by the Investment Act, and which term includes entities which are nationals of or are controlled by nationals of member states of the World Trade Organization) when the Company was not controlled by a WTO Investor, would be reviewable under the Investment Act if it was an investment to acquire control of the Company and the value of the assets of the Company, as determined in accordance with the regulations promulgated under the Investment Act, was $5,000,000 or more, or if an order for review was made by the federal cabinet on the grounds that the investment related to Canadas cultural heritage or national identity, regardless of the value of the assets of the Company. An investment in the common shares by a WTO Investor, or by a non-Canadian when the Company was controlled by a WTO Investor, would be reviewable under the Investment Act if it was an investment to acquire control of the Company and the value of the assets of the Company, as determined in accordance with the regulations promulgated under the Investment Act was not less than a specified amount, which as specified in 2014 was any amount in excess of $354 million. A non-Canadian would acquire control of the Company for the purposes of the Investment Act if the non-Canadian acquired a majority of the common shares. The acquisition of one third or more, but less than a majority of the common shares would be presumed to be an acquisition of control of the Company unless it could be established that, on the acquisition, the Company was not controlled in fact by the acquirer through the ownership of the common shares.
Certain transactions relating to the common shares would be exempt from the Investment Act, including: (a) an acquisition of the common shares by a person in the ordinary course of that persons business as a
87
trader or dealer in securities; (b) an acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the Investment Act; and (c) an acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Company, through the ownership of the common shares, remained unchanged.
Foreign Investments and Exchange in Tanzania
The Tanzania Investment Centre (TIC) issues certificates of Approval to Foreign and Local Companies wishing to invest in Tanzania. Possession of Certificate of Approval entitles the investor to the following Tax Incentives under the Income Tax Act.
(i)
maximum Corporate Tax Rate of 30% (Residents and Non Residents)
(ii)
Withholding Tax on Dividends = 10%
(iii)
Withholding Tax on Interest = 10%
(iv)
Carry forward of losses for unlimited period of time.
In 1992, the stringent foreign exchange legislation was repealed and the restriction on foreign commercial banks abolished. Any person whether resident or not may establish foreign currency accounts with any of the commercial banks and transfer foreign currency outside Tanzania without restriction. The Bank of Tanzania regulates commercial banks and approves the establishment of offshore foreign currency accounts by residents. There are no controls on foreign exchange rates or interest rate on loans and overdrafts.
E.
Taxation
Canadian Federal Income Tax Consequences
The following summarizes the principal Canadian federal income tax consequences applicable to the holding and disposition of common shares in the capital of the Company by a United States resident, a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, an entity created or organized in or under the laws of the United States or of any political subdivision thereof, which has elected to be treated as a corporation for U.S. federal income tax purposes, an estate whose income is taxable in the U.S. irrespective of source, or a trust subject to primary supervision of a court within the U.S. and control of a U.S. fiduciary, and who holds common shares solely as capital property and who owns (directly and indirectly) no more than 5% of the value of the total outstanding stock of the Company (a U.S. Holder). This summary is based on the current provisions of the Income Tax Act (Canada) (the Tax Act), the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of Canada Revenue Agency, and on the current provisions of the Canada-United States Income Tax Convention, 1980, as amended (the Treaty). Except as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign (including without limitation, any U.S.) tax law or treaty. It has been assumed that all currently proposed amendments will be enacted substantially as proposed and that there is no other relevant change in any governing law or practice, although no assurance can be given in these respects.
Each U.S. Holder is advised to obtain tax and legal advice applicable to such U.S. Holders particular circumstances.
88
Every U.S. Holder is liable to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holders common shares. The statutory rate of withholding tax is 25% of the gross amount of the dividend paid. The Treaty reduces the statutory rate with respect to dividends paid to a U.S. Holder for the purposes of the Treaty. Where applicable, the general rate of withholding tax under the Treaty is 15% of the gross amount of the dividend, but if the U.S. Holder is a corporation that owns at least 10% of the voting stock of the Company and beneficially owns the dividend, the rate of withholding tax is 5% for dividends paid or credited after 1996 to such corporate U.S. Holder. The Company is required to withhold the applicable tax from the dividend payable to the U.S. Holder, and to remit the tax to the Receiver General of Canada for the account of the U. S. Holder.
Pursuant to the Tax Act, a U.S. Holder will not be subject to Canadian capital gains tax on any capital gain realized on an actual or deemed disposition of a common share, including a deemed disposition on death, provided that the U.S. Holder did not hold the common share as capital property used in carrying on a business in Canada, and that neither the U. S. Holder nor persons with whom the U.S. Holder did not deal a arms length (alone or together) owned or had the right or an option to acquire 25% or more of the issued shares of any class of the Company at any time in the five years immediately preceding the disposition.
United States Federal Income Tax Consequences
The following is a discussion of material United States federal income tax consequences, under current law, generally applicable to a U.S. Holder (as defined above) of common shares of the Company. This discussion does not address all potentially relevant federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of federal income tax law. In addition, this discussion does not cover any state, local or foreign tax consequences. (See Taxation Canadian Federal Income Tax Consequences above). Accordingly, holders and prospective holders of common shares of the Company are urged to consult their own tax advisors about the specific federal, state, local, and foreign tax consequences to them of purchasing, owning and disposing of common shares of the Company, based upon their individual circumstances.
The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (the Code), Treasury Regulations, published Internal Revenue Service (IRS) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time and which are subject to differing interpretations. This discussion does not consider the potential effects, both adverse and beneficial, of any proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. There can be no assurance that future changes in applicable law or administrative and judicial interpretations thereof will not adversely affect the tax consequences discussed herein.
Since the United States federal income and withholding tax treatment may vary depending upon a U.S. Holders particular situation, a U.S. Holder may be subject to special rules that may have been excluded in this discussion. Special rules will apply, for example, if the U.S. Holder is
·
an insurance company;
·
a tax-exempt organization;
·
a financial institution;
·
a person subject to the alternative minimum tax;
·
a person who is a broker-dealer in securities;
·
an S corporation;
·
an expatriate subject to Section 877 of the Code;
·
an owner of, directly, indirectly or by attribution, 10% or more of the outstanding common
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shares; or
·
an owner holding common shares as part of a hedge, straddle, synthetic security or conversion transaction.
In addition, this summary is generally limited to persons holding common shares as "capital assets" within the meaning of Section 1221 of the Code, and whose functional currency is the U.S. dollar. The discussion below also does not address the effect of any United States state or local tax law or foreign tax law.
Passive Foreign Investment Company.
The Company believes that it could be a passive foreign investment company (PFIC) for United States federal income tax purposes with respect to a U.S. Holder (as defined above). The Company will be a PFIC with respect to a U.S. Holder if, for any taxable year in which such U.S. Holder held the Companys shares, either (i) at least 75% of the gross income of the Company for the taxable year is passive income, or (ii) on average, at least 50% of the Companys assets are attributable to assets that produce or are held for the production of passive income. In each case, the Company must take into account a pro rata share of the income and the assets of any corporation in which the Company owns, directly or indirectly, 25% or more of the stock by value (the look-through rules). Passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived from the active conduct of a trade or business and not derived from a related person), annuities, and gains from assets that produce passive income. As a publicly traded corporation, the Company would apply the 50% asset test based on the value of the Companys assets.
Because the Company may be a PFIC, unless a U.S. Holder who owns shares in the Company (i) elects (a section 1295 election) to have the Company treated as a qualified electing fund (a QEF) (described below), or (ii) marks the stock to market (described below), the following rules apply:
1.
Distributions made by the Company during a taxable year to a U.S. Holder who owns shares in the Company that are an excess distribution (defined generally as the excess of the amount received with respect to the shares in any taxable year over 125% of the average received in the shorter of either the three previous years or such U.S. Holder's holding period before the taxable year) must be allocated ratably to each day of such shareholders holding period. The amount allocated to the current taxable year and to years when the Company was not a PFIC must be included as ordinary income in the shareholders gross income for the year of distribution. The remainder is not included in gross income but the shareholder must pay a deferred tax on that portion. The deferred tax amount, in general, is the amount of tax that would have been owed if the allocated amount had been included in income in the earlier year, plus interest. The interest charge is at the rate applicable to deficiencies in income taxes. For a U.S. Holder that is not a corporation, the interest charge is wholly non-deductible.
2.
The entire amount of any gain realized upon the sale or other disposition of the shares will be treated as an excess distribution made in the year of sale or other disposition and as a consequence will be treated as ordinary income and, to the extent allocated to years prior to the year of sale or disposition, will be subject to the interest charge described above.
A shareholder that makes a section 1295 election will be currently taxable on his or her pro rata share of the Companys ordinary earnings and net capital gain (at ordinary income and long term capital gains rates, respectively) for each taxable year of the Company, regardless of whether or not distributions were received. The shareholders basis in his or her shares will be increased to reflect taxed but undistributed income. Distributions of income that had previously been taxed will result in a corresponding reduction of basis in the shares and will not be taxed again as a distribution to the shareholder.
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A shareholder may make a section 1295 election with respect to a PFIC for any taxable year of the shareholder (shareholders election year). A section 1295 election is effective for the shareholders election year and all subsequent taxable years of the shareholder. Procedures exist for both retroactive elections and filing of protective statements. Once a section 1295 election is made it remains in effect, although not applicable, during those years that the Company is not a PFIC. Therefore, if the Company re-qualifies as a PFIC, the section 1295 election previously made is still valid and the shareholder is required to satisfy the requirements of that election. Once a shareholder makes a section 1295 election, the shareholder may revoke the election only with the consent of the Commissioner. Nevertheless, the Commissioner in his discretion may invalidate or terminate a section 1295 election applicable to a shareholder, if the shareholder and the Company fail the annual reporting requirements of the section 1295 election.
If a shareholder makes the section 1295 election for the first taxable year of the Company as a PFIC that is included in the shareholders holding period of the PFIC shares, the PFIC qualifies as a pedigreed QEF with respect to the shareholder. If a QEF is an unpedigreed QEF with respect to the shareholder, the shareholder is subject to both the non-QEF and QEF regimes. Under the proposed regulations, a PFIC that qualifies as a pedigreed QEF with respect to the shareholder would be taxed currently on his or her share of the PFICs earnings and profits, whether distributed or not. On the other hand, a PFIC that qualifies as an unpedigreed QEF with respect to the shareholder would be taxed currently on his or share of the PFICs earnings and profits, whether distributed or not, during the period the PFIC shares qualify as a QEF; and would be taxed under the excess distribution and interest charge rules during the period the PFIC shares do not qualify as a QEF. Certain elections are available which enable shareholders to convert an unpedigreed QEF into a pedigreed QEF thereby avoiding such dual application.
A shareholder making the section 1295 election must make the election on or before the due date, as extended, for filing the shareholders income tax return for the first taxable year to which the election will apply. A shareholder must make a section 1295 election by completing a Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund (the Form); attaching said Form to its federal income tax return; and reflecting in the Form the information provided in the PFIC Annual Information Statement or if the shareholder calculated the financial information, a statement to that effect. The PFIC Annual Information Statement must include the shareholders pro rata shares of the ordinary earnings and net capital gain of the PFIC for the PFICs taxable year or information that will enable the shareholder to calculate its pro rata shares. In addition, the PFIC Annual Information Statement must contain information about distributions to shareholders and a statement that the PFIC will permit the shareholder to inspect and copy its permanent books of account, records, and other documents of the PFIC necessary to determine that the ordinary earnings and net capital gain of the PFIC have been calculated according to federal income tax accounting principles. A shareholder may also obtain the books, records and other documents of the foreign corporation necessary for the shareholder to determine the correct earnings and profits and net capital gain of the PFIC according to federal income tax principles and calculate the shareholders pro rata shares of the PFICs ordinary earnings and net capital gain. In that case, the PFIC must include a statement in its PFIC Annual Information Statement that it has permitted the shareholder to examine the PFICs books of account, records, and other documents necessary for the shareholder to calculate the amounts of ordinary earnings and net capital gain. A shareholder that makes a Section 1295 election with respect to a PFIC held directly or indirectly, for each taxable year to which the Section 1295 election applies, must comply with the foregoing submissions.
Because the Companys stock is marketable under section 1296(e), a U.S. Holder may elect to mark the stock to market each year. In general, a PFIC shareholder who elects under section 1296 to mark the marketable stock of a PFIC includes in ordinary income each year an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the shareholders adjusted basis in such stock. A PFIC shareholder is also generally allowed an ordinary deduction for the excess, if
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any, of the adjusted basis of the PFIC stock over the fair market value as of the close of the taxable year. Deductions under this rule, however, are allowable only to the extent of any net mark to market gains with respect to the stock included by the PFIC shareholder for prior taxable years. While the interest charge regime under the PFIC rules generally does not apply to distributions from and dispositions of stock of a PFIC where the U.S. Holder has marked to market, coordination rules for limited application will apply in the case of a U.S. Holder that marks to market PFIC stock later than the beginning of the shareholder's holding period for the PFIC stock, unless the PFIC stock was a QEF with respect to the U.S. Holder.
Special rules apply with respect to the calculation of the amount of the foreign tax credit with respect to excess distributions by a PFIC or current income inclusions under a QEF.
Distribution on Common Shares of the Company
In general, U.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares of the Company are required to include in gross income for United States federal income tax purposes the gross amount of such distributions, equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that the Company has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holders federal income tax liability or, alternatively, may be deducted in computing the U.S. Holders federal taxable income. (See more detailed discussion at Foreign Tax Credit below). To the extent that distributions exceed current or accumulated earnings and profits of the Company, they will be treated first as a tax-free return of capital up to the U.S. Holders adjusted basis in the common shares and thereafter as gain from the sale or exchange of property. Preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation.
In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Generally any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss. However, an individual whose realized gain does not exceed $200 will not recognize that gain, provided that there are no expenses associated with the transaction that meet the requirements for deductibility as a trade or business expense (other than travel expenses in connection with a business trip) or as an expense for the production of income.
Dividends paid on the common shares of the Company generally will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A U.S. Holder which is a corporation and which owns shares representing at least 10% of the voting power and value of the Company may, under certain circumstances, be entitled to a 70% (or 80% if the U.S. Holder owns shares representing at least 20% of the voting power and value of the Company) deduction equal to the United States source portion of dividends received from the Company (unless the Company qualifies as a passive foreign investment company (a PFIC) as defined above). The Company does not anticipate that it will earn any U.S. source income, however, and therefore does not anticipate that any U.S. Holder which is a corporation will be eligible for the dividends received deduction.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares of the Company may be entitled, at the option of the U.S. Holder, to either receive a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more
92
advantageous to claim a credit because a credit reduces United States federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayers income subject to tax. This election is made on a year-by-year basis and generally applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holders United States income tax liability that the U.S. Holders foreign source income bears to his or its worldwide taxable income. In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. In addition, this limitation is calculated separately with respect to specific classes of income such as passive income, high withholding tax interest, financial services income, shipping income, and certain other classifications of income. Dividends distributed by the Company will generally constitute passive income or, in the case of certain U.S. Holders, financial services income for these purposes. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific, and U.S. Holders of common shares of the Company should consult their own tax advisors regarding their individual circumstances. U.S. Holders should be aware that legislation eliminates the financial services income category for taxable years beginning after December 31, 2006. Under the legislation, the foreign tax credit limitation categories are limited to passive category income and general category income.
Disposition of Common Shares of the Company
In general, U.S. Holders will recognize gain or loss upon the sale of common shares of the Company equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholders tax basis in the common shares of the Company. Preferential tax rates apply to long-term capital gains of U.S. Holders which are individuals, estates or trusts. In general, gain or loss on the sale of common shares of the Company will be long-term capital gain or loss if the common shares are a capital asset in the hands of the U.S. Holder and are held for more than one year. Deductions for net capital losses are subject to significant limitations. For a U.S. Holder that is an individual, estate, or trust, capital losses may be used to offset capital gains and up to US$3,000 of ordinary income and any unused portion of net capital loss may be carried over to be used in later taxable years until such net capital loss is thereby exhausted. For U.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.
Controlled Foreign Corporations.
Sections 951 through 964 and Section 1248 of the Code relate to controlled foreign corporations (CFCs). A foreign corporation that qualifies as a CFC will not be treated as a PFIC with respect to a shareholder during the portion of the shareholders holding period after December 31, 1997, during which the shareholder owns, directly or indirectly, 10% or more of the total voting power of the outstanding shares of the Company (a 10% Shareholder) and the corporation is a CFC. A CFC is a foreign corporation where more than 50% of the corporations voting stock or value is owned by U.S. shareholders on any day during the foreign corporations taxable year. The PFIC provisions continue to apply in the case of PFIC that is also a CFC with respect to shareholders that are not 10% Shareholders.
The 10% Shareholders of a CFC are subject to current U.S. tax on their pro rata shares of certain income of the CFC and their pro rata shares of the CFCs earnings invested in certain U.S. property. The effect is that the CFC provisions may impute some portion of such a corporations undistributed income to certain shareholders on a current basis and convert into dividend income some portion of gains on dispositions of stock, which would otherwise qualify for capital gains treatment.
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The Company does not believe that it will be a CFC. It is possible that the Company could become a CFC in the future. Even if the Company were classified as a CFC in a future year, however, the CFC rules referred to above would apply only with respect to 10% Shareholders.
U.S. Information Reporting and Backup Withholding.
Payments made within the United States, or by a U.S. payor or U.S. middleman, of dividends or proceeds arising from certain sales or other taxable dispositions of the common shares of the Company are generally subject to the information reporting requirements of the Code. Dividends may be subject to backup withholding at the rate of 28% unless the holder provides a taxpayer identification number on a properly completed Form W-9 or otherwise establishes an exemption. U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding tax rules.
The amount of any backup withholding will not constitute additional tax and will be allowed as a credit against the U.S. Holder's federal income tax liability, provided the required information is furnished to the IRS.
Filing of Information Returns.
Under a number of circumstances, a U.S. Holder acquiring shares of the Company may be required to file an information return. In particular, any U.S. Holder who becomes the owner, directly or indirectly, of 10% or more of the shares of the Company will be required to file such a return. Other filing requirements may apply, and U.S. Holders should consult their own tax advisors concerning these requirements.
Tanzania
Taxation
Tax in Tanzania is levied based on residence and source. Resident persons are taxed on worldwide income whilst non-residents are only taxed on income sourced in Tanzania. An individual is considered to be Tanzanian resident if he has a permanent home in Tanzania and is present during any part of the year, he was resident in Tanzania during the year of income for periods amounting in aggregate to 183 days or more; or if he was in the United Republic in that year of income and each of the two preceding years of income for periods averaging more than 122 days in each such year of income.
The minimum annual income tax threshold is TShs. 2,040,000 or TShs. 170,000 per month. Income Tax Rates vary from Nil up to 30%. Prevailing corporate income tax rate is 30%.
Value Added Tax (VAT)
Taxable Supplies | Rate |
Supply of goods and services in Mainland Tanzania | 18% |
Import of goods and services in Mainland Tanzania | 18% |
Export of goods and services from Mainland Tanzania | 0% |
Special relief to some entities/items | 10% |
VAT registrable threshold is TShs. 40 Million (or about US$25,000 at prevailing exchange rates).
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Withholding Tax
Withholding tax is charged at the rates specified below:
| Resident | Non-Resident |
Dividend | 10% | 10% |
Dividend from listed on the Dar es Salaam Stock Exchange | 5% | 5% |
Interest | 10% | 10% |
Royalties | 0% | 15% |
Management Fees | 5% | 15% |
Professional Fees | 5% | 15% |
Rent, Premium for Use of Property | 10% | 15% |
Pension/Retirement Annuity | 10% | 15% |
Service fee | 5% | 15% |
Insurance premium | 0 | 5% |
Special Rates for Persons Engaged in Mining Operations Rates
| Resident | Non-Resident |
Technical Services to Mining Operations | 5% | 15% |
Management Fee | 0% | 15% |
Capital Gains Taxation
0% applies to capital gains on the sale of shares listed at the DSM Stock Exchange. Normal pay as you earn rates with a marginal rate of 30% applies to capital gains by resident individuals, 30% applies to capital gains by corporations.
Thin capitalisation
For exempt controlled entities, the interest expense that is allowable for tax purposes is restricted to debt and equity ratio of 7 to 3. Debts and equity are defined terms in the legislation. Any interest expense relating to debts exceeding this ratio is permanently disallowed.
Stamp duty
Stamp duty is chargeable on various legal documents and agreements (e.g. transfer of shares, issue of shares, etc.) generally at ad valorem rates of up to 1%.
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Customs Duty
There are three import duty rates: 0% for capital goods and raw materials, 10% for semi finished goods and 25% for finished final consumer goods.
Mining Sector
The Tax Incentives and Investment allowances are designed to encourage industrial growth and attract foreign investments. They are granted for capital expenditure on hotels and manufacturing and mining operations. The allowance is a deduction in computing taxable income.
For companies investing in the Mining Industries (Mineral mining Rights Holders) specific tax incentives are applicable to their investments. These are:-
(i)
Indefinite carry forward of losses.
(iii)
15% additional Capital Expenditure on unredeemed qualifying Capital Expenditure for Mining Operators who had entered into Agreement with the Government before 1st July 2001, under the Mining Acts.
The government of Tanzania also imposes a royalty on the gross value of all production equal to 5% for diamonds and 4% for metallic minerals (including copper, silver, gold and platinum group minerals).
Double Taxation Agreement
Tanzania has tax treaties to prevent double taxation with Canada, Denmark, Finland, India, Italy, Norway, South Africa, Sweden and Zambia. Tanzania is also in the process of negotiating treaties with several countries including Belgium, Burundi, Iran, Lebanon, Malaysia, Mauritius, Pakistan, and Rwanda.
F.
Dividends and Paying Agents
Not applicable.
G.
Statement by Experts
Not applicable.
H.
Documents on Display
The Company files annual reports and other information with the SEC. You may read and copy any document that it files at the SECs Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information about the Public Reference Rooms. The SEC also maintains a website, www.sec.gov, where you may obtain our reports. The Company also files certain reports with the Canadian Securities Administrators that you may obtain through access of the SEDAR website, www.sedar.com.
Copies of the Companys material contracts are kept in the Companys principal executive office.
I.
Subsidiary Information
Not applicable.
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Item 11.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk, primarily related to foreign exchange and metals prices (gold in particular). The Company uses the Canadian dollar as its reporting currency, but the Company converts Canadian dollars to U.S. dollars, and then U.S. dollars to Tanzanian schillings. The Company is therefore exposed to foreign exchange movements in Tanzania where the Company is incurring costs in conducting exploration activities. Most of the Companys exploration work is conducted in U.S. dollars; however, some general and administrative expenses are paid in Tanzanian schillings.
The following table sets forth the percentage of the Company's administrative expense by currency for the year ended August 31, 2014.
By Currency
| 2014 |
Canadian Dollar | 25% |
U.S. Dollar | 50% |
Tanzanian Shilling | 25% |
Total: | 100% |
Such administrative expense by currency may change from time to time, but it has been roughly the same year to year. Further, the Company incurred net exploration costs of $2,329,901and $4,109,573 for the years ended August 31, 2014 and 2013 respectively, which are primarily paid in U.S. dollars.
The Company has not entered into any material foreign exchange contracts to minimize or mitigate the effects of foreign exchange fluctuations on the Company's operations. Based on prior years, the Company does not believe that it is subject to material foreign exchange fluctuations. However, no assurance can be given that this will continue to be true in the future.
The market prices of most precious metals, including gold, have generally increased over the past three years, but are subject to market fluctuations based primarily on supply and demand.
The following table sets out the cumulative average prices of gold for the past five years, based on the London Metals Market afternoon price fix in U.S. dollars:
2014 (Average to August 31) | 2013 | 2012 | 2011 | 2010 |
$1,294.17 | 1,411.23 | $1,668.98 | $1,571.52 | $1,224.53 |
Item 12.
Description of Securities Other than Equity Securities
Not applicable.
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Part II
Item 13.
Defaults, Dividend Arrears and Delinquencies
None.
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
At the annual general and special meeting held on March 1, 2012 the shareholders approved the Shareholder Rights Plan (the Rights Plan).
On November 23, 2011, the Directors of the Company approved the adoption of the Rights Plan designed to encourage the fair and equal treatment of shareholders in connection with any take-over bid for the outstanding common shares of the Company. The Companys board is not aware of any specific take-over bid for the Company that has been made or is contemplated. In the event that a take-over bid is made for the Companys common shares in the future, the Rights Plan is intended to provide the Companys board with adequate time to assess a take-over bid, to consider alternatives to a take-over bid and to provide the Companys shareholders with time to assess a take-over bid. Under the Rights Plan, offers that satisfy certain standards designed to protect shareholder interests will be considered to be Permitted Bids. Specifically, a Permitted Bid must be made to all shareholders of the Company and must be outstanding for a minimum period of 60 days, among other conditions. If a bid does not qualify as a Permitted Bid, shareholders other than the acquiring person and joint actors will become entitled to exercise the rights to acquire the Companys common shares at a significant discount to the prevailing market.
A complete copy of the Rights Plan can be obtained either by accessing it on SEDAR (www.sedar.com) or upon written request to the Company, free of charge.
Item 15.
Controls and Procedures
Disclosure Controls and Procedures
The Companys management, with the participation of its Chief Executive Officer and Chief Financial Officer, as of the end of the period covered in this report, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) and concluded that they are appropriately designed and operating effectively to ensure that information required to be disclosed by the Company in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
Managements Annual 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 Exchange Act. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Companys management, including its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of its internal control over financial reporting as of August 31, 2014. In making this assessment, the Companys management used the criteria established in Internal Control Integrated Framework 1992, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management has completed their review and testing of the Companys internal control over financial reporting and concluded that they are appropriately designed and operating effectively as of August 31, 2014.
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The Public Company Accounting Oversight Boards Auditing Standard No. 5 defines a material weakness as a control deficiency, or a combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the Companys annual financial statements will not be prevented or detected.
Attestation Report of the Registered Public Accounting Firm
The Companys independent auditor, Ernst & Young LLP, the independent registered public accounting firm that audited the financial statements included in this Form 20-F Annual Report, has issued an attestation report on the Company's internal control over financial reporting. Their attestation report appears with the financial statements.
Changes in Internal Controls over Financial Reporting
During the year ended August 31, 2014, the Company continued to strengthen internal controls and implement additional segregation of duties on both administrative and operational sides of the business. New procedures and controls are documented and implemented in conjunction with the continued growth of the Company. The Chief Executive Officer and the Chief Financial Officer, together with other members of management, have designed the Companys disclosure controls and procedures in order to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries would have been known to them, and by others, within those entities. Management have also designed internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS.
Item 16 A.
Audit Committee Financial Expert
The Companys Board has determined that Dr. Norman Betts qualified as an Audit Committee financial expert. Dr. Betts is an independent director, as defined under NI 52-110 and as defined pursuant to National Association of Securities Dealers (NASD) Rule 4200(a)(15) (as such definition may be modified or supplemented). The SEC has indicated that the designation of an audit committee financial expert does not make that person an expert for any purpose, impose any duties, obligations, or liability on that person that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation, or affect the duties, obligations, or liabilities of any other member of the audit committee.
Item 16 B.
Code of Ethics
The Company has a Code of Ethics and Business Conduct that applies to the Companys directors, officers, employees and consultants. In addition, the Company has a Code of Ethical Conduct for Financial Managers that applies to its principal executive officer, principal financial officer, principal accounting officer, controller and other persons performing similar functions. A copy of the Companys Code of Ethics and Business Conduct and Code of Ethical Conduct for Financial Managers can be found on its website at www.TanzanianRoyalty.com. The Company will report any amendment or waiver to the Code of Ethics on its website within five business days of such amendment or waiver.
The Company undertakes to provide any person without charge a copy of its code of ethics. Persons requesting a copy should address their request to Corporate Secretary, Tanzanian Royalty Exploration Corporation, Suite 202, 5626 Larch Street, Vancouver, BC, V6M 4E1.
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Item 16 C.
Principal Accountant Fees and Services
The Companys independent auditor for the fiscal years ended August 31, 2014 and 2013 was Ernst & Young LLP, Chartered Accountants.
The Companys Audit and Compensation Committee pre-approves all services provided by its independent auditors. All of the services and fees described below were reviewed and pre-approved by the audit committee.
The following summarizes the significant professional services rendered by Ernst & Young LLP for the years ended August 31, 2014 and August 31, 2013
Fiscal Year Ending August 31 | Audit Fees | Audit Related Fees | Tax Fees | All Other Fees |
2014 | Canada $135,925 | Nil | Nil | Nil |
2013 | Canada $135,000 | Nil | Nil | Nil |
Item 16 D.
Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16 E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable.
Item16 F.
Change in Registrants Certifying Accountant
On December 20, 2012, the Company elected not to reappoint KPMG LLP (KPMG) as its independent accountant effective as of the expiry of KPMGs appointment at the close of the annual shareholders meeting held on February 28, 2013.
KPMGs report on the Companys consolidated statements of financial position as of August 31, 2012, August 31, 2011 and September 1, 2010, and the related consolidated statements of comprehensive loss, changes in equity and cash flows for the years ended August 31, 2012 and August 31, 2011 did not contain an adverse opinion, and was not modified as to uncertainty, audit scope or accounting principles.
The decision to change the Companys independent accountant was made and approved by the Audit Committee on December 20, 2012, which Committee is comprised of independent directors who serve on the Companys Board of Directors.
During the fiscal years ended August 31, 2012 and 2011 and the subsequent interim period through to February 28, 2013, there were no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of KPMG, would have caused it to make reference to the subject matter of the disagreements in connection with its report.
A letter from KPMG addressed to the SEC is attached in Exhibit 4.19 to the Companys Form 20-F Annual
100
Report for the year ended August 31, 2013 filed with the SEC on November 15, 2013.
On December 20, 2012, the Company engaged Ernst & Young LLP (E&Y) to serve as its independent registered public accounting firm effective March 1, 2013, for its fiscal year ended August 31, 2013. During the fiscal years ended August 31, 2012 and 2011, and through the subsequent interim periods ended November 30, 2012 and February 28, 2013, the Company did not consult with E&Y regarding (i) the application of accounting principles to a specific transaction, either completed or contemplated, or the type of audit opinion that might be rendered on its financial statements, and no written report or oral advice was provided to it that was an important factor to be considered by the Company in reaching a decision as to an accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement of the type described in paragraph (a)(1)(iv) or any reportable event as described in paragraph (a)(1)(v) of Item 16F of Form 20-F.
The Company requested E&Y to review the disclosure required by this Item 16F(a) and provided E&Y the opportunity to furnish it a letter addressed to the SEC containing any new information, clarification of the Companys views, or the aspects in which E&Y does not agree with the Companys statements made in response to this Item 16F(a). E&Y has confirmed that a letter is not necessary..
Item 16 G.
Corporate Governance
The Companys common shares are listed on the NYSE MKT. Section 110 of the NYSE MKT Company Guide permits NYSE MKT to consider the laws, customs and practices of foreign issuers in relaxing certain NYSE MKT listing criteria, and to grant exemptions from NYSE MKT listing criteria based on these considerations. A company seeking relief under these provisions is required to provide written certification from independent local counsel that the non-complying practice is not prohibited by home country law. The following is a description of the significant ways in which the Companys governance practices differ from those followed by domestic companies pursuant to NYSE MKT standards:
Shareholder Meeting Quorum Requirement. The NYSE MKT minimum quorum requirement for shareholder meeting is 33 1/3% of the outstanding shares of common stock. In addition, a company listed on NYSE MKT is required to state its quorum requirement in its bylaws. The Companys quorum requirement is set forth in its bylaws. The Companys bylaws provide that a quorum at any meeting of shareholders shall be persons present not being less than two in number and who hold or represent not less than 20% of the total number of the issued shares of the Company.
Proxy Delivery Requirement. NYSE MKT requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that these proxies be solicited pursuant to a proxy statement that conforms to the proxy rules of the SEC. The Company is a foreign private issuer as defined in Rule 3b-4 under the Exchange Act, and the equity securities of the Company are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of such Act. The Company solicits proxies in accordance with applicable rules and regulations in Canada.
Shareholder Approval Requirements. NYSE MKT requires a listed company to obtain the approval of its shareholders for certain types of securities issuances, including private placements that may result in the issuance of common shares (or securities convertible into common shares) equal to 20% or more of presently outstanding shares for less than the greater of book or market value of the shares. In general, there is no such requirement under the rules of the TSX unless the transaction results in a change of control. The Company will seek a waiver from NYSE MKTs shareholder approval requirements in circumstances where the securities issuance does not trigger such a requirement under the rules of the TSX.
The foregoing is consistent with the laws, customs and practices in Canada.
101
Item 16 H.
Mine Safety Disclosure
The Company is in the exploration stage and its mining properties are located outside the United States.
Part III
Item 17.
Financial Statements
Not applicable.
Item 18.
Financial Statements
The consolidated financial statements are prepared in accordance with International Financial Reporting Standards asissued by the International Accounting Standards Board and are expressed in Canadian dollars.
Item 19.
Exhibits
Exhibit No.
Name
102
4.9 | Purchase and Sale Agreement dated September 26, 2006 between the Company and Ashanti Goldfields (Cayman) Limited (4) |
4.10 | Option and Royalty Agreement dated January 25, 2007 between the Company and Sloane Developments Ltd. (5) |
4.12 | March 27, 2009 Subscription Agreement for purchase of 248,139 common shares with James E. Sinclair (6) |
4.13 | February 23, 2009 Subscription Agreement for purchase of 189,036 common shares with James E. Sinclair (6) |
4.14 | February 1, 2009 Subscription Agreement for purchase of $3,000,000 of common shares with James E. Sinclair (6) |
4.15 | August 24, 2010 Subscription Agreement for purchase of 144,430 common shares with James E. Sinclair (7) |
4.16 | Heads of Agreement dated December 16, 2010 between the Company and State Mining Corporation (8) |
4.17 | Joint Venture Agreement dated October 25, 2011 between the Company and State Mining Corporation (8) |
4.18 | Kigosi Access Agreement dated December 10, 2012 between the Company and The Director of Wildlife, Wildlife Division, Ministry of Natural Resources and Tourism (10) |
4.19 | Letter from KPMG (10) |
8.1 | List of Subsidiaries * |
12.1 | Certification of the Principal Executive Officer under the Sarbanes-Oxley Act * |
12.2 | Certification of the Principal Financial Officer under the Sarbanes-Oxley Act * |
13.1 | Certification under Section 1350 * |
15.1 | Consolidated Financial Statements for the years ended August 31, 2014 and 2013 * |
15.2 | Managements Discussion and Analysis for the years ended August 31, 2014 and 2013 * |
* Filed herewith
(1)
Previously filed with the SEC on Form 20-F Registration Statement on March 15, 2004
(2)
Previously filed with the SEC on Amendment No. 1 to Form 20 Registration Statement on June 28, 2004
(3)
Previously filed with the SEC on Form 20-F Annual Report on February 10, 2005
(4)
Previously filed with the SEC on Form 20-F Annual Report on November 30, 2006
(5)
Previously filed with the SEC on Form 20-F Annual Report on November 30, 2007
(6)
Previously filed with the SEC on Form 20-F Annual Report on November 25, 2009
(7)
Previously filed with the SEC on Form 20-F Annual Report on November 30, 2010
(8)
Previously filed with the SEC on Form 20-F Annual Report on December 12, 2011
(9)
Previously filed with the SEC on Form 20-F Annual Report on November 27, 2012
(10)
Previously filed with the SEC on Form 20-F Annual Report on November 15, 2013
103
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
Date
October 30, 2014
TANZANIAN ROYALTY EXPLORATION CORPORATION
By: | James E. Sinclair |
| James E. Sinclair, |
| President and Chief Executive Officer |
| (Principal Executive Officer) |
104
Exhibit 8.1
LIST OF SUBSIDIARIES
Name of Subsidiary | Jurisdiction of Incorporation | Percentage &Type of Securities Owned or Controlled by Company | |
Voting Securities Held | Non-Voting Securities | ||
Itetemia Mining Company Limited | Republic of Tanzania, Africa | 90% (1) | N/A |
Lunguya Mining Company Ltd. | Republic of Tanzania, Africa | 60% (2) | N/A |
Tancan Mining Company Limited | Republic of Tanzania, Africa | 100% | N/A |
Tanzania American International Development Corporation 2000 Limited | Republic of Tanzania, Africa | 100% | N/A |
Buckreef Gold Company Limited (BGCL) | Republic of Tanzania, Africa | 55% (3) | N/A |
Northwest Basemetals Company Limited | Republic of Tanzania, Africa | 75% (4) | N/A |
BGCL/AGC Joint Venture (6) | Republic of Tanzania, Africa | 40% (5) | N/A |
(1)
The remaining 10% interest is held by State Mining Corporation.
(2)
The remaining 40% interest is held by Northern Mining and Consultancy Company Ltd.
(3)
The remaining 45% interest is held by State Mining Corporation.
(4)
The remaining interest is held 15% by State Mining Corporation and 10% by Songshan.
(5)
The remaining interest is held 60% by Allied Gold Corp. of United Arab Emirates.
(6)
Joint venture letter of intent signed and subject to final approval.
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Exhibit 12.1
CERTIFICATION
I, James E. Sinclair, certify that:
1.
I have reviewed this annual report on Form 20-F of Tanzanian Royalty Exploration Corporation (the Company);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.
The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting 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 generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and
5.
The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
Date:
October 30, 2014
James E Sinclair |
President and Chief Executive Officer |
(Principal Executive Officer) |
1
Exhibit 12.2
CERTIFICATION
I, Steven Van Tongeren, certify that:
1.
I have reviewed this annual report on Form 20-F of Tanzanian Royalty Exploration Corporation (the Company);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.
The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting 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 generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and
5.
The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
Date:
October 30, 2014
Steven Van Tongeren |
Chief Financial Officer |
(Principal Financial Officer) |
Exhibit 13.1
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF
TITLE 18, UNITED STATES CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), each of the undersigned officers of Tanzanian Royalty Exploration Corporation (the Company), does hereby certify with respect to the Annual Report of the Company on Form 20-F for the year ended August 31, 2014 as filed with the Securities and Exchange Commission (the Form 20-F) that, to the best of their knowledge:
(1)
the Form 20-F fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated:
October 30, 2014
James E. Sinclair |
James E. Sinclair, President and Chief Executive Officer (Principal Executive Officer) |
|
|
Steven Van Tongeren |
Steven Van Tongeren Chief Financial Officer (Principal Financial Officer) |
Tanzanian Royalty Exploration Corporation
Consolidated Financial Statements
For the years ended
August 31, 2014 and 2013
MANAGEMENTS 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 Companys 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 Companys affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.
James E. Sinclair |
| Steven Van Tongeren |
James E. Sinclair |
| Steven Van Tongeren |
Chief Executive Officer |
| Chief Financial Officer |
2
INDEPENDENT AUDITORS REPORT
OF REGISTERED PUBLIC ACCOUNTING FIRM
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, 2014 and 2013, and the consolidated statements of
comprehensive loss, changes in equity and cash flows for the years then ended, and a
summary of significant accounting policies and other explanatory information.
Managements 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.
Auditors 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 auditors 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 auditors consider internal control relevant to
the entitys preparation and fair presentation of the consolidated financial statements
in order to design audit procedures that are appropriate in the circumstances. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, 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.
- 2 -
We believe that the audit evidence we have obtained in our audits 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, 2014 and 2013, 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 indicates that the Company has working capital of
$1,325,667 and accumulated losses of $69,095,649 at August 31, 2014. These
conditions, along with other matters as set forth in note 1, indicate the existence of a
material uncertainty that raises substantial doubt about the Companys ability to
continue as a going concern.
Other matter
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Tanzanian Royalty Exploration
Corporations internal control over financial reporting as at August 31, 2014, based
on the criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated October 30, 2014 expressed an unqualified opinion on Tanzanian Royalty
Exploration Corporations internal control over financial reporting.
Vancouver, Canada, Ernst & Young LLP
October 30, 2014.
Chartered Accountants
MANAGEMENTS 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 Companys 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, 2014. In making this assessment, the Companys management used the criteria established in Internal Control Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 1992). The Companys management has completed their review and testing of the Companys internal control over financial reporting and concluded that they are appropriately designed and operating effectively as of August 31, 2014.
5
INDEPENDENT AUDITORS REPORT
OF REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Tanzanian Royalty Exploration Corporation
We have audited Tanzanian Royalty Exploration Corporations internal control
over financial reporting as at August 31, 2014, based on criteria established in
Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework) (the "COSO
criteria"). Tanzanian Royalty Exploration Corporations management is
responsible for maintaining effective internal control over financial reporting, and for
its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States) ("PCAOB"). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the financial
statements.
- 2 -
Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, Tanzanian Royalty Exploration Corporation has maintained, in all
material respects, effective internal control over financial reporting as at August 31,
2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the PCAOB, the
consolidated statements of financial position of Tanzanian Royalty Exploration
Corporation as at August 31, 2014 and 2013, and the related consolidated statements
of comprehensive loss, changes in equity, and cash flows for the years then ended.
Our report dated October 30, 2014 expressed an unqualified opinion thereon that
included an explanatory paragraph regarding Tanzanian Royalty Exploration
Corporations ability to continue as a going concern.
Vancouver, Canada, Ernst & Young LLP
October 30, 2014.
Chartered Accountants
Tanzanian Royalty Exploration Corporation Consolidated Statements of Financial Position (Expressed in Canadian Dollars) | ||
As at | August 31, 2014 | August 31, 2013 |
|
|
|
Assets |
|
|
Current Assets |
|
|
Cash and cash equivalents (Note 18) | $ 1,829,661 | $ 10,679,516 |
Other financial assets (Note 7) | - | 5,250 |
Other receivables (Note 15) | 691,799 | 512,369 |
Inventory (Note 17) | 24,230 | 11,849 |
Prepaid expenses (Note 14) | 68,882 | 80,761 |
| 2,614,572 | 11,289,745 |
Property, plant and equipment (Note 5) | 3,125,861 | 971,388 |
Mineral properties and deferred exploration (Note 4) | 47,052,468 | 45,932,207 |
| $ 52,792,901 | $ 58,193,340 |
|
|
|
Liabilities |
|
|
Current Liabilities |
|
|
Trade, other payables and accrued liabilities (Note 16) | $ 1,288,905 | $ 1,264,420 |
Convertible debt (Note 6) | - | 1,085,221 |
Warrant liability (Note 8) | - | 3,524,000 |
| 1,288,905 | 5,873,641 |
Shareholders equity |
|
|
Share capital (Note 8) | 117,153,440 | 115,614,202 |
Share based payment reserve (Note 10) | 935,060 | 873,736 |
Warrants reserve (Note 9) | 870,037 | 870,037 |
Accumulated deficit | (69,095,649) | (67,117,263) |
Equity attributable to owners of the Company | 49,862,888 | 50,240,712 |
Non-controlling interests (Note 21, 4(a), 4(f)) | 1,641,108 | 2,078,987 |
Total shareholders equity | 51,503,996 | 52,319,699 |
| $ 52,792,901 | $ 58,193,340 |
Nature of operations and Going Concern (Note 1)
Segmented information (Note 19)
Commitments (Notes 4 and 20)
The accompanying notes are an integral part of these consolidated financial statements
8
Tanzanian Royalty Exploration Corporation Consolidated Statements of Comprehensive Loss (Expressed in Canadian Dollars) | |||
Year ended August 31, | 2014 | 2013 | |
|
|
| |
Administrative expenses |
|
| |
Depreciation (Note 5) | $ 258,068 | $ 288,519 | |
Consulting | 225,914 | 317,257 | |
Directors fees (Note 11) | 376,434 | 375,342 | |
Office and general | 380,631 | 388,675 | |
Shareholder information | 265,421 | 343,291 | |
Professional fees | 523,359 | 732,328 | |
Salaries and benefits | 1,304,895 | 1,388,160 | |
Share based payments (Note 8) | 1,106,517 | 1,053,509 | |
Travel and accommodation | 223,886 | 126,362 | |
| (4,665,125) | (5,013,443) | |
Other income (expenses) |
|
| |
Foreign exchange | (18,957) | (5,215) | |
Interest, net | 65,362 | 133,116 | |
Interest accretion | (4,779) | (55,549) | |
Unrealized gain (loss) on other financial assets (Note 7) | 417 | (12,600) | |
Exploration costs | (347,699) | (497,263) | |
Write off of mineral properties and deferred exploration costs (Note 4) | (1,209,640) | (2,194,907) | |
Write off of inventory | - | (246,548) | |
Recovery of VAT, net | 262,116 | - | |
Change in value of warrant liability (Note 8) | 3,524,000 | 4,590,000 | |
Withholding tax recoveries (costs) | (21,960) | 76,411 | |
Net loss and comprehensive loss | $ (2,416,265) | $ (3,225,998) | |
|
|
| |
Loss and comprehensive loss for the year attributable to: |
|
| |
Owners of the Company | (1,978,386) | (3,018,990) | |
Non-controlling interests | (437,879) | (207,008) | |
| $ (2,416,265) | $ (3,225,998) | |
|
|
| |
Loss per share |
|
| |
basic and diluted | $ (0.02) | $ (0.03) | |
Weighted average # of shares outstanding |
|
| |
basic and diluted | 101,051,691 | 100,735,972 |
The accompanying notes are an integral part of these consolidated financial statements
9
Tanzanian Royalty Exploration Corporation
Consolidated Statements of Changes in Equity
(Expressed in Canadian Dollars)
The accompanying notes are an integral part of these consolidated financial statements
10
Tanzanian Royalty Exploration Corporation Consolidated Statements of Cash Flow (Expressed in Canadian Dollars) | ||||||
Year ended August 31, |
|
| 2014 | 2013 | ||
|
|
|
|
| ||
Operations |
|
|
|
| ||
Net loss |
|
| $ (2,416,265) | $ (3,225,998) | ||
Adjustments to reconcile net loss to cash flow from operating activities: |
|
|
|
| ||
Depreciation |
|
| 258,068 | 288,519 | ||
Change in value of warrant liability |
|
| (3,524,000) | (4,590,000) | ||
Share based payments |
|
| 1,106,517 | 1,053,509 | ||
Unrealized loss on other financial assets |
|
| - | 12,600 | ||
Share issued on settlement of lawsuit |
|
| 185,000 | - | ||
Realized gain on other financial assets |
|
| (417) | - | ||
Cash interest paid |
|
| (11,033) | (74,486) | ||
Cash interest received |
|
| 62,455 | 124,432 | ||
Interest accretion |
|
| 4,779 | 55,549 | ||
Non cash directors fees |
|
| 194,682 | 208,572 | ||
Write-off of mineral properties |
|
| 1,209,640 | 2,194,907 | ||
Write-off of inventory |
|
| - | 246,548 | ||
Net change in non-cash operating working capital items: |
|
|
| |||
Other receivables |
|
| (179,430) | (441,144) | ||
Inventory |
|
| (12,381) | (10,002) | ||
Prepaid expenses |
|
| 11,879 | 6,915 | ||
Trade, other payables and accrued liabilities |
|
| (375,084) | 12,126 | ||
Cash used in operations |
|
| (3,485,590) | (4,137,953) | ||
Investing |
|
|
|
| ||
Mineral properties and exploration expenditures |
|
| (1,867,391) | (5,232,798) | ||
Option payments received and recoveries |
|
| - | 41,786 | ||
Proceeds from sale of other financial assets |
|
| 5,667 | - | ||
Equipment and leasehold improvements, net |
|
| (2,412,541) | (50,197) | ||
Cash used in investing activities |
|
| (4,274,265) | (5,241,209) | ||
Financing |
|
|
|
| ||
Repayment of convertible debt |
|
| (1,090,000) | - | ||
Cash used in from financing activities |
|
| (1,090,000) | - | ||
Net decrease in cash and cash equivalents |
|
| (8,849,855) | (9,379,162) | ||
Cash and cash equivalents, beginning of year |
|
| 10,679,516 | 20,058,678 | ||
Cash and cash equivalents, end of year |
|
| $ 1,829,661 | $ 10,679,516 |
The accompanying notes are an integral part of these consolidated financial statements
11
Tanzanian Royalty Exploration Corporation Consolidated Statements of Cash Flow (Expressed in Canadian Dollars) |
Supplementary information: |
|
| 2014 | 2013 | ||
Non-cash transactions: |
|
|
|
| ||
Share based payments capitalized to mineral properties |
|
| $ 114,363 | $ 91,886 | ||
Shares issued on conversion of convertible debt |
|
| - | 986,334 | ||
Shares issued pursuant to RSU plan |
|
| 1,354,238 | 1,151,010 |
The accompanying notes are an integral part of these consolidated financial statements
12
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
1.
Nature of Operations and Going Concern
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 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 Companys 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, 2014 the Company had working capital of $1,325,667 (August 31, 2013 $5,416,104), including warrant liability or a working capital of $1, 325,667 (August 31, 2013 $8,940,104) excluding warrant liability, had not yet achieved profitable operations, has accumulated losses of $69,095,649 (August 31, 2013 $67,117,263) 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 Companys current funding sources and taking into account the working capital position and capital requirements at August 31, 2014, these factors indicate the existence of a material uncertainty that raises substantial doubt about the Companys 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 2015 in order to continue development and construction of the Buckreef Project. Furthermore, the Company is currently negotiating project financing terms with a number of lending institutions, which the Company believes will result in the Company obtaining the project financing required to fund the construction of the Buckreef Project. However 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.
2.
Basis of Preparation
2.1 Statement of compliance
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 Companys registered office is 40 King Street West, Suite 4400, Toronto, Ontario M5H 3Y4 Canada. The Companys principal business activity is in the exploration and development of mineral property interests. The Companys mineral properties are located in United Republic of Tanzania. The consolidated financial statements of the Company as at and for the years ended August 31, 2014 and 2013 comprise of the Company and its subsidiaries (together referred to as the Company or Group).
13
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
2.
Basis of Preparation (continued)
2.1 Statement of compliance (continued)
The Companys 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 Companys reporting for the year ended August 31, 2014.
These consolidated financial statements were approved and authorized by the Board of Directors of the Company on October 30, 2014.
2.2 Basis of presentation
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 to the financial statements. These include IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 13 Fair Value Measurement and amendments to IAS 1 Presentation of Financial Statements. The nature and effect of these changes are disclosed below.
The nature and impact of each new standard/amendment is described below:
·
IAS 1 Presentation of Items of Other Comprehensive Income Amendments to IAS. The amendments to IAS 1 introduce a grouping of items present in other comprehensive income (OCI). Items that could be reclassified (or recycled) to profit and loss at a future point in time (e.g., net gain on hedge of net investment, exchange differences on translation of foreign operations, net movement on cash flow hedges and net loss or gain on available-for-sale financial assets) now have to be presented separately from items that will never be reclassified (eg. actuarial gains and losses on defined benefit plans and revaluation of land and buildings). The amendment affected presentation only and had no impact on the Companys financial position of performance.
·
IAS 1 Clarification of the requirement for comparative information (Amendment). The amendment to IAS 1 clarifies the difference between voluntary additional comparative information and the minimum required comparative information. An entity must include the comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional voluntarily comparative information does not need to be presented in a complete set of financial statements.
14
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
2.
Basis of Preparation (continued)
2.3
Adoption of new and revised standards and interpretations (continued)
New standards and interpretations adopted (continued)
·
IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements
IFRS 10 establishes a single control model that applies to all entities including special purpose entities. IFRS 10 replace the parts of previously existing IAS 27 Consolidated and Separate Financial Statements that dealt with consolidated financial statements and SIC-12 Consolidation Special Purpose Entities. IFRS 10 changes the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To meet the definition of control in IFRS 10, all three criteria must be met, including: (a) an investor has power over the investee; (b) the investor has exposure, or rights, to variable returns from its involvement with the investee; and (c) the investor has the ability to use its power over the investee to affect the amount of the investors returns. IFRS 10 had no impact to the Company.
·
IFRS 11 Joint Arrangements and IAS 28 Investments in Associates and Joint Ventures. IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities-Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using the proportionate consolidation. Instead, JCEs that meet the definition of a joint venture under IFRS 11 must be accounted for using the equity method. The application of IFRS 11 has no impact to the Company.
·
IFRS 12 Disclosure of Interests in Other Entities. IFRS 12 sets out the requirement for disclosures relating to an entitys interests in subsidiaries, joint arrangements, associates and structured entities. None of these disclosure requirements are applicable for the consolidated financial statements, unless significant events and transactions in the period requires that they are provided. The amendment affected presentation only and had no impact on the Companys financial position of performance.
·
IFRS 13 Fair Value Measurement. IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The application of IFRS 13 has not impacted the fair value measurements carried out by the Company.
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 still assessing the impact of adopting IFRS 9. 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.
15
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
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 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 entitys first annual IFRS financial statements for periods beginning on or after January 1, 2017. Application of the standard is mandatory and early adoption is permitted. The Company has not yet determined the impact of the amendments on the Companys financial statements.
IAS 32 Financial instruments, Presentation In December 2011, effective for annual periods beginning on or after January 1, 2014, IAS 32 was amended to clarify the requirements for offsetting financial assets and liabilities. The amendments clarify that the right of offset must be available on the current date and cannot be contingent on a future date. The Company has not yet determined the impact of the amendments on the Companys financial statements.
Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets. The IASB has published Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36). These narrow-scope amendments to IAS 36, Impairment of Assets, address the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. When developing IFRS 13, Fair Value Measurement, the IASB decided to amend IAS 36 to require disclosures about the recoverable amount of impaired assets. The amendments clarify the IASBs original intention that the scope of those disclosures is limited to the recoverable amount of impaired assets that is based on fair value less costs of disposal. The amendments to IAS 36 are effective for annual periods beginning on or after January 1, 2014. The Company is still assessing the impact of adopting these amendments to IAS 36.
IFRIC 21 Levies - In May 2013, the IASB issued IFRIC 21 Levies (IFRIC 21), an interpretation of IAS 37 Provision, Contingent Liabilities and Contingent Assets (IAS 37), on the accounting for levies imposed by governments. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (obligation event). IFRIC 21 clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. IFRIC 21 is effective for annual periods commencing on or after January 1, 2014. The Company has not yet determined the impact of the amendments on the Companys financial statements.
16
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
3.
Summary of Significant Accounting Policies
3.1 Basis of consolidation
The consolidated financial statements include the financial statements of the Company and its wholly 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 | 2014 | 2013 |
Tanzam | Tanzania | 100% | 100% |
Tancan | Tanzania | 100% | 100% |
Buckreef | Tanzania | 55% | 55% |
NWBM | Tanzania | 75% | 75% |
All intra‐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 Companys 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 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.
17
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
3.
Summary of Significant Accounting Policies (continued)
3.2 Mineral properties (continued)
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 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.
2.3
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% |
|
|
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.
18
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
3.
Summary of Significant Accounting Policies (continued)
3.3 Property, plant and equipment (continued)
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. Construction-in-progress assets are not depreciated until it is completed
and available for use.
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 Companys 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. As of August 31, 2014, and 2013 no liability for asset retirement obligations exists.
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 Companys 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.
19
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
3.
Summary of Significant Accounting Policies (continued)
3.5 Share based payments (continued)
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.
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.
20
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
3.
Summary of Significant Accounting Policies (continued)
3.6 Taxation (continued)
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.
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
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.
21
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
3.
Summary of Significant Accounting Policies (continued)
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 Companys other financial assets are classified as FVTPL.
Financial assets classified as loans‐and‐receivables and held‐to‐maturity are measured at amortized cost. The Companys 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.
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 Companys 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, 2014 and 2013 the Companys warrant liability has been classified as FVTPL.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, as they expire.
22
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
3.
Summary of Significant Accounting Policies (continued)
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 assets carrying amount and the present value of estimated future cash flows discounted at the financial assets 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.
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.
23
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
3.
Summary of Significant Accounting Policies (continued)
3.11 Impairment of non-financial assets (continued)
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 also considered to be related if they are subject to common control or common significant influence. 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.
3.14 Foreign currency transactions
Functional and presentation currency
Items included in the financial statements of each of the Companys 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 the Canadian Dollar (CDN). The consolidated financial statements are presented in Canadian Dollars which is the Companys presentation currency.
Transactions and balances
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.
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.
24
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
3.
Summary of Significant Accounting Policies (continued)
3.16 Inventory
Inventory consists of supplies for the Companys drilling rig to be consumed during the course of exploration development and operations. Cost represents the delivered price of the item.
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 Companys concessions are located in Tanzania.
The Companys 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.
Certain of the Companys prospecting licenses are currently being renewed.
The Company assessed the carrying value of mineral properties and deferred exploration costs as at August 31, 2014 and recorded a write-down of $1,209,640 during the year ended August 31, 2014 (2013 - $2,194,907)
25
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
4.
Mineral Properties (continued)
The continuity of expenditures on mineral properties is as follows:
26
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
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 terms of the heads of agreement dated December 16, 2010, the Company paid USD $3,000,000 to State Mining Company (Stamico) in consideration of the transaction. 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 company. In accordance with the joint venture agreement, the Company has to arrange financing, incur expenditure, make all decisions and operate the mine in the future. The Companys obligations and commitments include completing a preliminary economic assessment, feasibility study and mine development. Stamicos involvement is to contribute the licences and rights to the property and receive a 45% interest in Buckreef Gold Company Limited.
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. The date deadline is estimated as December 18, 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 recognized a non-controlling interest (NCI) in respect of Stamicos 45% interest on 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 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 expenditure on the property are capitalized under Mineral Properties and reported under Buckreef Gold Company Limited.
(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 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.
27
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
4.
Mineral Properties (continued)
During the year ended August 31, 2014, the Company did not abandon any licenses in the area and a write off $nil was taken for these licenses related to the property (year ended August 31, 2013 - $469,940).
(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.
During the year ended August 31, 2014, the Company did not abandon any licenses in the area and no write off was taken in this area (year ended August 31, 2013 - $nil) related to deferred exploration costs associated with licenses the Company does not intend to renew.
(d) Luhala Project:
The Company is now soliciting bids for completion of a resource report for the Luhala Project in anticipation of filing for a Mining License for development of the site.
During the year ended August 31, 2014, the Company did not abandon any licenses in the area and a write-off of $377,511 was taken in this area (year ended August 31, 2013 - $6,983).
(e) Lunguya:
During the year ended August 31, 2014, the Company did not abandon any licenses and a write-off of $nil was taken in this area (year ended August 31, 2013 - $103,636).
(f) Kabanga:
The Kabanga Project is located in northwestern Tanzania, south of Lake Victoria and near the Burundi border within the Mesoproterozoic Karagwe-Ankolean sequence within the Kibaran Fold Belt of NW Tanzania.
The Company is engaged in the exploration and development of the Kagera Nickel project, adjacent to the Barrick/Xstrata Kabanga Nickel Project within the Kabanga-Musongati mafic-ultramafic belt, which contains nickel (Ni) sulphide ores at Kabanga deposit and reef-type concentrations at Musongati.
During the year ended August 31, 2014, the Company abandoned some licenses in the area and a write off of $832,129 was taken (year ended August 31, 2013 - $147,429) for all previously deferred expenditures. Although the Company will continue to explore opportunities to maximise shareholder value and closely follow development of the adjacent Barrick/ Xstrata Nickel Project, the Company has decided to reallocate cash resources to other projects with near term returns.
28
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
4.
Mineral Properties (continued)
Northwestern Basemetals Company Limited, a new company 75% owned by the Company, 15% owned by Stamico and 10% owned by Songshan Mining Company was formed to explore the Kabanga nickel, cobalt and platinum group metals belt in Tanzania. Stamico has a carried interest on the Company and Songshan has a carried interest.
(g) Kanagele:
During the year ended August 31, 2014, the Company did not abandon any licenses in the area and a write-off of $nil was taken for this property (year ended August 31, 2013 - $892,727), as the Company is focusing its exploration efforts on other projects at this time;, however, the Company may consider future exploration development on the license.
(h) Tulawaka:
The Company owns or has options to acquire interests ranging from 65% to 90% in the licenses through prospecting and option agreements.
During the year ended August 31, 2014, the Company did not abandon any licenses in the area and a write-off of $nil was taken for this property (year ended August 31, 2013 - $405,688), as the Company is focusing its exploration efforts on other projects at this time; however, the Company may consider future exploration development on the license.
(i) Ushirombo:
During the year ended August 31, 2014, the Company did not abandon any licenses in the area and a write-off of $nil was taken for this property (year ended August 31, 2013 - $38,531), as the Company is focusing its exploration efforts on other projects at this time; however, the Company may consider future exploration development on the license.
(j) Mbogwe:
During the year ended August 31, 2014, the Company did not abandon any licenses in the area and a write-off of $nil was taken for this property (year ended August 31, 2013 - $84,853), as the Company is focusing its exploration efforts on other projects at this time; however, the Company may consider future exploration development on the license.
(k) Biharamulo:
During the year ended August 31, 2014, the Company did not abandon any licenses in the area and a write-off of $nil was taken for this property (year ended August 31, 2013 - $16,906), as the Company is focusing its exploration efforts on other projects at this time; however, the Company may consider future exploration development on the license.
(l) Other properties:
During the year ended August 31, 2014, the Company did not abandon any licenses in the area and recorded a write-off of $nil (year ended August 31, 2013 - $28,214) of costs related to the abandoned area located within the other properties category.
29
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
4.
Mineral Properties (continued)
(m) Buziba-Busalwo
On February 24, 2014, the Company and Allied Gold Corp. (AGC) of United Arab Emirates announced it had signed a letter of intent to develop a commercially producing mine in the area known as Buziba-Busolwa in Tanzania, in a stand-alone development that will encompass the Buziba site within the Companys Buckreef Gold Project.
Buckreef Gold Company Limited (BGCL), a project subsidiary of the Company owned 55% by the Company and 45% by Stamico, signed a letter of intent with ARL Gold Tanzania Limited (ARL), a subsidiary of AGC, to conclude a Definitive Joint Venture Agreement in connection with a joint venture to be created for the development of a producing gold mine at Buziba- Busolwa.
The Companys BGCL joint venture with Stamico will hold a 40% interest in the Buziba-Busolwa Project, with AGC holding the remaining 60%.
30
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
5.
Property, plant and equipment
| Drilling equipment | Automotive | Computer Equipment | Machinery and equipment | Leasehold improvements | Construction-in-progress * | Total |
Cost |
|
|
|
|
|
|
|
As at September 1, 2012 | $ 464,487 | $ 302,640 | $ 91,645 | $ 1,527,153 | $ 89,329 | $ - | $ 2,475,254 |
Additions | - | - | 26,122 | 13,076 | 10,999 | - | 50,197 |
As at August 31, 2013 | $ 464,487 | $ 302,640 | $ 117,767 | $ 1,540,229 | $ 100,328 | $ - | $ 2,525,451 |
Additions | - | - | 5,919 | 323,982 | - | 2,082,640 | 2,412,541 |
Disposals | - | - | (11,374) | (20,101) | - | - | (31,475) |
As at August 31, 2014 | $ 464,487 | $ 302,640 | $ 112,312 | $ 1,844,110 | $ 100,328 | $ 2,082,640 | $ 4,906,517 |
Accumulated depreciation |
|
|
|
|
|
|
|
As at September 1, 2012 | $ 232,139 | $ 174,501 | $ 50,371 | $ 790,667 | $ 17,866 | $ - | $ 1,265,544 |
Depreciation expense | 15,490 | 35,160 | 22,695 | 199,415 | 15,759 | - | 288,519 |
As at August 31, 2013 | $ 247,629 | $ 209,661 | $ 73,066 | $ 990,082 | $ 33,625 | $ - | $ 1,554,063 |
Depreciation expense | 14,456 | 24,612 | 21,903 | 183,756 | 13,341 | - | 258,068 |
Disposals | - | - | (11,374) | (20,101) | - | - | (31,475) |
As at August 31, 2014 | $ 262,085 | $ 234,273 | $ 83,595 | $ 1,153,737 | $ 46,966 | $ - | $ 1,780,656 |
Net book value |
|
|
|
|
|
|
|
As at September 1, 2012 | $ 232,348 | $ 128,139 | $ 41,274 | $ 736,486 | $ 71,463 | $ - | $ 1,209,710 |
As at August 31, 2013 | $ 216,858 | $ 92,979 | $ 44,701 | $ 550,147 | $ 66,703 | $ - | $ 971,388 |
As at August 31, 2014 | $ 202,402 | $ 68,367 | $ 28,717 | $ 690,373 | $ 53,362 | $ 2,082,640 | $ 3,125,861 |
* Construction in progress represents construction of the Companys heap leach pads and processing plant.
31
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
6.
Convertible Debt
As of August 31, 2014, the company has no outstanding Convertible Debt Obligations.
(i)
August 31, 2014:
| August 2010 | September 2010 | October 2010 | Total |
|
|
|
|
|
Gross proceeds at inception | $ 1,000,000 | $ 1,000,000 | $1,060,000 | $ 3,060,000 |
Fair value of liability portion | 965,375 | 965,375 | 1,023,297 | 2,954,047 |
Fair value of equity portion | 34,625 | 34,625 | 36,703 | 105,953 |
|
|
|
|
|
Liability portion of convertible debt: |
|
|
|
|
Initial fair value of debt component | $ 965,375 | $ 965,375 | $ 1,023,297 | $ 2,954,047 |
Issuance costs | (111,160) | (3,359) | (22,383) | (136,902) |
Accretion expense | 101,523 | 87,606 | 152,716 | 341,845 |
Interest paid | (36,164) | (63,288) | (93,630) | (193,082) |
Conversion into common shares | (919,574) | (986,334) | - | (1,905,908) |
Cash repayment on principal | - | - | (1,060,000) | (1,060,000) |
|
|
|
|
|
Closing balance of liability portion (current) | $ - | $ - | $ - | $ - |
|
|
|
|
|
Equity portion of convertible debt: |
|
|
|
|
Opening balance | $ - | $ - | $ - | $ - |
Initial fair value of equity component | 34,625 | 34,625 | 36,703 | 105,953 |
Issuance costs | (3,987) | (120) | (804) | (4,911) |
Conversion into common shares | (30,638) | (34,505) | - | (65,143) |
|
|
|
|
|
Closing balance of equity portion | $ - | $ - | $ 35,899 | $ 35,899 |
(ii)
August 31, 2013:
| August 2010 | September 2010 | October 2010 | Total |
|
|
|
|
|
Gross proceeds at inception | $ 1,000,000 | $ 1,000,000 | $1,060,000 | $ 3,060,000 |
Fair value of liability portion | 965,375 | 965,375 | 1,023,297 | 2,954,047 |
Fair value of equity portion | 34,625 | 34,625 | 36,703 | 105,953 |
|
|
|
|
|
Liability portion of convertible debt: |
|
|
|
|
Initial fair value of debt component | $ 965,375 | $ 965,375 | $ 1,023,297 | $ 2,954,047 |
Issuance costs | (111,160) | (3,359) | (22,383) | (136,902) |
Accretion expense | 101,523 | 87,606 | 147,937 | 337,066 |
Interest paid | (36,164) | (63,288) | (63,630) | (163,082) |
Conversion into common shares | (919,574) | (986,334) | - | (1,905,908) |
|
|
|
|
|
Closing balance of liability portion (current) | $ - | $ - | $1,085,221 | $1,085,221 |
|
|
|
|
|
Equity portion of convertible debt: |
|
|
|
|
Opening balance | $ - | $ - | $ - | $ - |
Initial fair value of equity component | 34,625 | 34,625 | 36,703 | 105,953 |
Issuance costs | (3,987) | (120) | (804) | (4,911) |
Conversion into common shares | (30,638) | (34,505) | - | (65,143) |
|
|
|
|
|
Closing balance of equity portion | $ - | $ - | $ 35,899 | $ 35,899 |
32
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
6.
Convertible Debt (continued)
On August 17, 2010, the Company issued a three-year convertible promissory note to an arms length third party, in the principal amount of $1,000,000 bearing interest at 3% and convertible into 255,484 common shares at a price of $4.286 per share. The agreement charged finance and commitment fees of $95,000 which was paid by issuing 22,166 common shares. In September 2011, the loan was converted into 233,318 shares.
On September 23, 2010, the Company completed a private placement with an arms length third party consisting of a three-year convertible promissory note in the principal amount of $1,000,000 bearing interest at 3% and convertible into 221,337 common shares at the price of $4.518 per share. The Company received notice to convert the Promissory Note in the principal amount of $1,000,000 and 221,337 shares were issued on October 17, 2012.
On October 4, 2010, the Company completed a private placement with arms length third parties consisting of three-year convertible promissory notes in the aggregate principal amount of $1,060,000 bearing interest at 3% and convertible into 204,772 common shares at the price of $5.1765 per share. On September 14, 2013 the promissory notes matured and the Holders elected repayment of the promissory notes in cash. Accordingly $1,060,000 plus interest in the amount of $30,000 was paid on September 16, 2013.
Each of the convertible debentures includes a conversion feature. The Company determined a fair value of the financial liability by obtaining independent bank rates of 4.25% for the August, September and October 2010 debt, assuming a three-year expected life and assigned the residual value of all debts to the equity conversion feature in the amount of $105,953. Total transaction costs for all debt agreements were $141,813 of which $4,911 was allocated to the equity component, which aggregated to $35,899 at August 31, 2014 (August 31, 2013 - $35,899) and is included in share based payment reserve in shareholders equity.
7.
Other financial assets
Other financial assets are comprised of shares of publicly traded companies. As at August 31, 2014, these investments have been sold resulting in a balance of $nil. As of August 31, 2013, these investments were measured at their fair value of $5,250. The impact to the consolidated financial statements of the revaluation to market value for the year ended August 31, 2014 resulted in a realized gain of $417 (2013 $12,600 unrealized loss) as the investments were sold. In the prior period market values of these securities decreased resulting in an unrealized loss.
33
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
8.
Capital Stock
Share Capital
The Companys Restated Articles of Incorporation authorize the Company to issue an unlimited number of common shares. On November 23, 2011, the Board resolved that the Company authorize for issuance up to a maximum of 115,000,000 common shares, subject to further resolutions of the Companys board of directors.
| Number | Amount ($) ($) |
Balance on September 1, 2012 | 100,459,937 | $ 113,476,858 |
Issued on conversion of convertible debt | 221,337 | 986,334 |
Issued pursuant to Restricted Share Unit Plan | 241,308 | 1,151,010 |
Balance at August 31, 2013 | 100,922,582 | $ 115,614,202 |
Issued pursuant to Restricted Share Unit Plan | 320,893 | 1,354,238 |
Issued for settlement of lawsuit | 82,405 | 185,000 |
Balance at August 31, 2014 | 101,325,880 | $ 117,153,440 |
Activity during the year ended August 31, 2014:
During the year ended August 31, 2014, 320,893 shares were issued pursuant to the Companys Restricted Share Unit Plan at an average price of $4.22 for total issued value of $1,354,238.
On June 27, 2014, the Company issued 82,405 common shares common shares at a price of $2.245 per share to an arms length third party in settlement of legal proceedings initiated by the consultant for consulting services provided to the Company.
Activity during the year ended August 31, 2013:
On October 17, 2012, pursuant to the private placement completed on September 23, 2010, the Company received notice from an arms length third party to convert its Promissory Note in the principal amount of $1,000,000 bearing interest at 3% and convertible into 221,337 common shares at a price of $4.518 per share, and 221,337 shares were issued on October 17, 2012.
During the year ended August 31, 2013, 241,308 shares were issued pursuant to the Companys Restricted Share Unit Plan at an average price of $4.77 for total issued value of $1,151,010.
Warrant issuances:
There were no warrant issuances during the year ended August 31, 2014 or the year ended August 31, 2013.
Warrants and Compensation Options outstanding:
At August 31, 2014, there were no warrants or compensation options outstanding.
34
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
8.
Capital Stock (continued)
Warrant liability:
As part of the Companys prospectus financing on August 12, 2011, and April 18, 2012, 5,263,158 warrants were issued exercisable at USD$6.25.
Effective December 7, 2011, the exercise price of the 5,263,158 common share purchase warrants was reduced from USD$6.25 to USD$4.00 and the term of the warrants was extended one year to expire August 12, 2014. Effective February 6, 2014, the exercise price of 2,381,578 common share purchase warrants was further reduced from USD$4.00 to USD$2.50.
Foreign currency denominated warrants (not including compensation warrants), are considered a derivative as they are not indexed solely to the entitys own stock. The Companys functional currency is the Canadian dollar as such the warrants whose exercise price is denominated in US dollars have been recorded under liabilities and carried at fair value as determined by the Black-Scholes option pricing model, with changes in fair values recorded as gains or losses in the statements of comprehensive loss.
The table below shows the activity for warrant liability for the years ended August 31, 2014 and 2013:
Year ended | August 31, 2014 | August 31, 2013 |
Balance at beginning of year | $ 3,524,000 | $ 8,114,000 |
Decrease in value of warrant liability | (3,524,000) | (4,590,000) |
Balance at end of year | $ - | $ 3,524,000 |
|
|
|
During the year ended August 31, 2014, the value of the warrants decreased to $nil from the balance at August 31, 2013 of $3,524,000, as a result of the warrants expiring unexercised on August 12, 2014. The assumptions in valuing the warrants at August 31, 2013 included an expected volatility of 64-83%, a US risk free interest rate of 0.03% to 0.13% and an expected life of 2 to 12 months. The decrease in value of $3,524,000 (2013 $4,590,000 decrease) has been recorded as a gain (2013 gain) 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, 2014 was $71,251 (2013 - $58,864) and is included in salaries and benefits expense.
35
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
8.
Capital Stock (continued)
Restricted share units:
The Restricted Stock Unit Plan (RSU Plan) is intended to enhance the Companys 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 9, 2012, the Board resolved to suspend 1,500,000 of the 2,500,000 common shares previously authorized for issuance under the RSU Plan, such that a maximum of 1,000,000 shares shall be authorized for issuance under the RSU Plan, until such suspension may be lifted or further amended. As of January 9, 2014, the Board further resolved to amend the suspension to 1,200,000 of the 2,500,000 common shares previously authorized for issuance under the RSU Plan, such that a maximum of 1,300,000 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 directors 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 RSUs. The fair value of RSUs 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 RSUs which are redeemable for the issue of common shares at prevailing market prices on the date of the RSU grant. The aggregate number of RSUs outstanding is limited to a maximum of ten percent of the outstanding common shares. The Company has granted RSUs to officers and key employees.
Of the 1,300,000 shares authorized for issuance under the Plan, 1,194,254 shares have been issued as at August 31, 2014.
Total share-based compensation expense related to the issue of RSUs was $1,416,868 for the year ended August 31, 2014 (2013 - $1,353,967). The amount capitalized to mineral properties for the year ended August 31, 2014 was $114,363 (2013 - $91,886).
36
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
8.
Capital Stock (continued)
The following table summarizes changes in the number of RSUs outstanding:
Number of RSUs | Weighted average fair value at issue date | ||||
Balance, September 1, 2012 | 446,247 | $ 5.09 | |||
Granted | 416,639 | $ 3.52 | |||
Redeemed for common shares | (241,308) | $ 4.77 | |||
Balance, August 31, 2013 | 621,578 | $ 4.16 | |||
Granted | 485,139 | $ 2.70 | |||
Redeemed for common shares | (320,893) | $ 4.22 | |||
Forfeited | (2,793) | $ 3.58 | |||
Balance, August 31, 2014 | 783,031 | $ 3.23 | |||
|
|
|
|
9.
Reserve for warrants
Year ended | August 31, 2014 | August 31, 2013 |
Balance at beginning of year | $ 870,037 | $ 870,037 |
Balance at end of year | $ 870,037 | $ 870,037 |
10.
Reserve for share based payments
Year ended | August 31, 2014 | August 31, 2013 |
Balance at beginning of year | $ 873,736 | $ 670,779 |
Shares issued pursuant to RSU plan | (1,354,238) | (1,151,010) |
Share based compensation | 1,416,868 | 1,353,967 |
RSU shares forfeited | (1,306) | - |
Balance at end of year | $ 935,060 | $ 873,736 |
11.
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.
Related party transactions conducted in the normal course of operations are measured at the exchange value (the amount established and agreed to by the related parties).
(a) Tanzanian Royalty Exploration Corporation entered into the following transactions with related parties:
Year ended August 31, | Notes | 2014 | 2013 |
Legal services | (i) | $257,050 | $269,880 |
Rent | (ii) | $21,347 | $21,364 |
Technical Committee | (iii) | $nil | $55,709 |
Rent | (iv) | $33,924 | $23,750 |
Consulting | (v) | $160,954 | $82,173 |
Consulting | (vi) | $174,163 | $nil |
37
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
11.
Related party transactions and key management compensation (continued)
(i) The Company engages a legal firm for professional services in which one of the Companys directors is a partner. During the year ended August 31, 2014, the legal expense charged by the firm was $257,050 (2013 - $269,880), of which $28,648 remains payable at August 31, 2014 (August 31, 2013 - $13,143).
(ii) During the year ended August 31, 2014, $21,347 (2013 - $21,364) was paid to a company associated with the Companys Chairman and COO and his spouse for office rental.
(iii) During the year ended August 31, 2014, $nil (2013 - $55,709) was paid or payable by the Company to directors as incremental fees for serving on the Companys Technical Committee.
(iv) During the year ended August 31, 2014, $33,924 (2013 - $23,750) was paid to a company associated with the Companys CFO for office rental.
(v) During the year ended August 31, 2014, $160,954 (2013 - $82,173) was paid for heap leach construction consulting and website/data back-up services to companies controlled by individuals associated with the CEO.
(vi) During the year ended August 31, 2014, $174,163 (2013 - $nil) was paid for grade control drilling and other consulting services to Stamico, the Companys joint venture partner on the Buckreef Gold Project.
At August 31, 2014, the Company has a receivable of $2,072 (August 31, 2013 - $nil) from an organization associated with the Companys President and CEO.
At August 31, 2014, the Company has a receivable of $16,622 (August 31, 2013 - $nil) from the general manager of the Company for amounts advanced on his behalf.
(b) Remuneration of Directors and key management personnel (being the Companys Chief Executive Officer, Chief Financial Officer and Chief Operating Officer) of the Company was as follows:
Year ended August 31, | 2014 | 2013 | ||
| Salaries and benefits (1) | Share based payments (2), (3) | Salaries and benefits (1) | Share based payments (2), (3) |
Management | $ 446,640 | $ 720,336 | $ 508,217 | $ 654,412 |
Directors | 181,752 | 194,682 | 166,770 | 208,572 |
Total | $ 628,392 | $ 915,018 | $ 674,987 | $ 862,984 |
(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 RSUs for their services and officers are entitled to cash remuneration and RSUs 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.
38
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
12.
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 and obtain sufficient funding to further the identification and development of precious metals deposits.
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, 2014. 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, 2014 totaled $49,862,888 (August 31, 2013 - $50,240,712).
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. 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.
13. Financial Instruments
Fair Value of Financial Instruments
The Company designated its other financial assets and warrant liability as FVTPL, 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 is 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 Companys 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.
The Companys convertible debt fair value is based on market interest rate. As at August 31, 2013 the fair value of the convertible debt agreements did not differ materially from their carrying value, due to the short time to maturity.
39
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
13. Financial Instruments (continued)
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, its short-term bank investments and accounts and other receivables and the carrying value of those accounts represent the Companys maximum exposure to credit risk. The Companys 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, 2014, or August 31, 2013.
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 Companys bank accounts earn interest income at variable rates. The Companys future interest income is exposed to changes in short-term rates. As at August 31, 2014, a 1% increase/decrease in interest rates would decrease/increase net loss for the period by approximately $18,000 (2013 - $107,000).
Liquidity Risk
The Companys approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at August 31, 2014, the Company had current assets of $2,614,572 (August 31, 2013 - $11,289,745) and current liabilities of $1,288,905 (August 31, 2013 - $5,873,641), including warrant liability or $1,288,905 (August 31, 2013 $2,349,641) excluding warrant liability. All of the Companys trade payables and receivables have contractual maturities of less than 90 days and are subject to normal trade terms. Current working capital of the Company is $1,325,667 (August 31, 2013 - $5,416,104) including warrant liability or a working capital of $1,325,667 (August 31, 2013 $8,940,104) excluding warrant liability.
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 Companys results of operations, financial position, or cash flows. At August 31, 2014, the Company had no hedging agreements in place with respect to foreign exchange rates. As a majority of the funds of the Company are held in Canadian currencies, the foreign currency risk associated with US dollar and Tanzanian Shilling financial instruments is not considered significant at August 31, 2014.
40
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
14. Prepaid expenses
| August 31, 2014 | August 31, 2013 |
|
|
|
Insurance | $ 41,475 | $ 47,159 |
Listing fees | 25,602 | 30,411 |
Other | 1,805 | 3,191 |
Total prepaid expenses | $ 68,882 | $ 80,761 |
15. Other receivables
The Companys 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, 2014 | August 31, 2013 |
|
|
|
Receivable from related parties | $ 27,139 | $ 811 |
HST and VAT Receivable | 658,437 | 510,062 |
Other | 6,223 | 1,496 |
Total Trade and Other Receivables | $ 691,799 | $ 512,369 |
Below is an aged analysis of the Companys other receivables:
| August 31, 2014 | August 31, 2013 |
|
|
|
Less than 1 month | $ 31,846 | $ 499,537 |
1 to 3 months | 12,840 | 12,832 |
Over 3 months | 647,113 | - |
Total Other Receivables | $ 691,799 | $ 512,369 |
At August 31, 2014, 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 13.
The Company holds no collateral for any receivable amounts outstanding as at August 31, 2014.
41
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
16. 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, 2014 | August 31, 2013 |
|
|
|
Less than 1 month | $ 992,684 | $ 1,186,377 |
1 to 3 months | 239,728 | 51,315 |
Over 3 months | 56,493 | 26,728 |
Total Trade, Other Payables and Accrued Liabilities | $ 1,288,905 | $ 1,264,420 |
17. Inventory
Inventory consists of fuel to be 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, 2014 | August 31, 2013 |
|
|
|
Other | $ 24,230 | $ 11,849 |
Total Inventory | $ 24,230 | $ 11,849 |
18. Cash and cash equivalents
As at August 31, 2014, cash and cash equivalents total $1,829,661 (August 31, 2013 - $10,679,516), consisting of cash on deposit with banks in general minimum interest bearing accounts totalling $497,661 (August 31, 2013 - $329,659), and guaranteed investment certificates and treasury bills consisting of interest-generating money-market accounts of $1,332,000 (August 31, 2013 - $10,349,857). The interest-generating government investment certificate is cashable at any time and the Company expects to convert this into cash on an as needed basis.
42
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
19. Segmented information
Operating Segments
At August 31, 2014 the Companys operations comprise a single reporting operating segment engaged in mineral exploration in Tanzania. The Companys 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 entitys 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 TRECs geographic locations is as follows:
| Year ended August 31, 2014 | Year ended August 31, 2013 |
Consolidated net income (loss) |
|
|
Canada | $ (135,311) | $ 1,223,920 |
Tanzania | (2,280,954) | (4,449,918) |
| $ (2,416,265) | $ (3,225,998) |
| As at August 31, 2014 | As at August 31, 2013 |
Identifiable assets |
|
|
Canada | $ 1,830,815 | $ 10,748,028 |
Tanzania | 50,962,086 | 47,445,312 |
| $ 52,792,901 | $ 58,193,340 |
Non-current assets |
|
|
Canada | $ 19,551 | $ 21,486 |
Tanzania | 50,158,778 | 46,882,109 |
| $ 50,178,329 | $ 46,903,595 |
20. Commitments
In addition to the property payments committed to by the Company to maintain options in certain prospecting and mining option agreements (note 4), the Company is committed to rental payments of approximately $nil as at August 31, 2014 (August 31, 2013 - $13,266) for premises in fiscal 2014.
The Company also entered into a commitment with DMO Technological Services Ltd. of Zimbabwe for the purchase of a carbon in column plant in connection with the heap leach operations at Buckreef in the
43
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
amount of $582,240 (August 31, 2013 - $nil).
21.
Non-Controlling Interest
The changes to the non-controlling interest for the year ended August 31, 2014 and 2013 are as follows:
Year ended | August 31, 2014 | August 31, 2013 |
Balance at beginning of year | $ 2,078,987 | $ 2,285,995 |
Non-controlling interests 45% share of Buckreefs comprehensive loss | (135,872) | (146,015) |
Non-controlling interests 25% share of NWBMs comprehensive loss | (302,007) | (60,993) |
Balance at end of year | $ 1,641,108 | $ 2,078,987 |
The following is summarized financial information for Buckreef:
| August 31, 2014 | August 31, 2013 |
Current assets | $ 40,395 | $ 11,849 |
Long term assets | 16,546,400 | 13,337,680 |
Current liabilities | (10,801) | (286,091) |
Advances from parent | (17,576,972) | (13,762,479) |
|
|
|
Net loss for the year | 301,938 | 324,477 |
The following is summarized financial information for NWBM:
| August 31, 2014 | August 31, 2013 |
Current assets | $ - | $ - |
Long term assets | - | 981,957 |
Current liabilities | (3,780) | (8,428) |
Advances from parent | (1,435,434) | (1,204,717) |
|
|
|
Net loss for the year | 1,208,028 | 243,971 |
44
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
22. Taxes
The Companys 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:
|
| 2014 |
| 2013 | |
Combined basic Canadian federal and | | 26.25% |
| 26.0% | |
|
|
|
|
| |
Statutory income tax rates applied to | $ | (637,000) | $ | (837,000) | |
|
|
|
|
| |
Increase (decrease) in provision for income |
|
|
|
| |
| Foreign tax rates different from statutory rate |
| (86,000) |
| (259,000) |
| Permanent differences and other items |
| 77,000 |
| 487,000 |
| Benefit of tax losses not recognized |
| 646,000 |
| 609,000 |
|
|
|
|
| |
Provision for income taxes | $ | - | $ | - |
The enacted tax rates in Canada of 26.25% (26.0% - 2013) and Tanzania of 30% (30% - 2013) 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 Companys deferred income tax assets (liabilities):
The tax effects of significant temporary differences which would comprise deferred income tax assets and liabilities at August 31, 2014 and 2013 are as follows:
Deferred Income Tax Liabilities | Mineral properties | Debt issuance cost | Total |
|
|
|
|
At August 31, 2012 | $ (10,348,000) | $ (18,000) | $ (10,366,000) |
Charged to the consolidated statement of comprehensive loss | (369,000) | (8,000) | (377,000) |
At August 31, 2013 | $ (10,717,000) | $ (26,000) | $ (10,743,000) |
Charged to the consolidated statement of comprehensive loss | (231,000) | (9,000) | (240,000) |
At August 31, 2013 | $ (10,948,000) | $ (35,000) | $ (10,983,000) |
Deferred Income Tax Assets | Non-capital losses | Non-capital losses | Total |
|
|
|
|
At August 31, 2012 | $ 10,348,000 | $ 18,000 | $ 10,366,000 |
Charged to the consolidated statement of comprehensive loss | 369,000 | 8,000 | 377,000 |
At August 31, 2013 | $ 10,717,000 | $ 26,000 | $ 10,743,000 |
Charged to the consolidated statement of comprehensive loss | 231,000 | 9,000 | 240,000 |
At August 31, 2013 | $ 10,948,000 | $ 35,000 | $ 10,983,000 |
|
|
|
|
Net deferred tax assets (liabilities) | $ - | $ - | $ - |
45
Tanzanian Royalty Exploration Corporation
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2014 and 2013
22. Taxes (continued)
The following temporary differences have not been recognized in the Companys consolidated financial statements:
| August 31, 2014 | August 31, 2013 |
|
|
|
Non capital losses | $ 32,286,000 | $ 30,136,000 |
Property, plant and equipment | 192,000 | 184,000 |
Capital losses | 127,000 | 127,000 |
| $ 32,605,000 | $ 30,447,000 |
At August 31, 2014, the Company has Tanzanian non-capital losses of $14,554,000 (2013 - $13,743,000), 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, 2014, the Company has non-capital losses of $17,732,000 (2013 - $16,393,000), 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 | $ | 997,000 |
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 |
| 2,063,000 |
| $ | 17,732,000 |
At August 31, 2014, $nil (2013 - $nil) was recognized as a deferred tax liability for taxes that would be payable as the Companys subsidiaries have a deficit.
46
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