Form 6-K Tanzanian Royalty Exploration Corp

6-K - Report of foreign issuer [Rules 13a-16 and 15d-16]

Published: 2018-01-11 18:44:55
Submitted: 2018-01-12
Period Ending In: 2018-01-11
f6k_011118.htm FORM 6-K


> ENT> 6-K 1 f6k_011118.htm FORM 6-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 or 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of January 2018

 

Commission File No. 001-32500

 

TANZANIAN ROYALTY EXPLORATION CORPORATION

(Translation of registrant’s name into English)

 

82 Richmond Street East, Suite 200, Toronto, Ontario M5C 1P1 Canada

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under the cover Form 20-F or Form 40-F

 

Form 20-F ☒  Form 40-F  ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):   ☐

 

Documents included as part of this Report:

 

 

   
Exhibit No. Document
   
99.1 Interim financial statements/report
99.2 Interim MD&A
99.3 52-109F2 - Certification of interim filings - CEO
99.4 52-109F2 - Certification of interim filings - CFO

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

   
TANZANIAN ROYALTY EXPLORATION CORPORATION  
(Registrant)  

 

 

     
By: /s/ James Sinclair  
  James E. Sinclair  
 

President and Director

 

 

 

     
Date: January 11, 2018  

 

 

 

 

 

exh_991.htm EXHIBIT 99.1


ENT> EX-99.1 2 exh_991.htm EXHIBIT 99.1

Exhibit 99.1

 

 

 

 

  

 

 

 

 

 

 

 

 

Tanzanian Royalty Exploration Corporation

 

Unaudited Interim Condensed Consolidated

Financial Statements

 

For the three month periods ended

November 30, 2017 and 2016

 

 

 

 

 

 

 

 

NOTICE TO READER

 

Tanzanian Royalty Exploration Corporation’s independent auditors have not performed a review of these financial statements in accordance with standards established by CPA Canada for a review of interim financial statements by an entity’s auditor.

 

 

 

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

 

 

The accompanying unaudited interim consolidated financial statements of Tanzanian Royalty Exploration Corporation, are the responsibility of the management and Board of Directors of the Company.

 

The unaudited interim consolidated financial statements have been prepared by management, on behalf of the Board of Directors, in accordance with the accounting policies disclosed in the notes to the unaudited interim consolidated financial statements. Where necessary, management has made informed judgments and estimates in accounting for transactions which were not complete at the statement of financial position date. In the opinion of management, the interim consolidated financial statements have been prepared within acceptable limits of materiality and are in accordance with International Accounting Standard 34 Interim Financial Reporting of International Financial Reporting Standards using accounting policies consistent with International Financial Reporting Standards appropriate in the circumstances.

 

Management has established systems of internal control over the financial reporting process, which are designed to provide reasonable assurance that relevant and reliable financial information is produced.

 

The Board of Directors is responsible for reviewing and approving the unaudited interim consolidated financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. An Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the financial reporting process and the unaudited interim consolidated financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the unaudited interim consolidated financial statements together with other financial information of the Company for issuance to the shareholders.

 

Management recognizes its responsibility for conducting the Company’s affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.

 

 

“Jeffrey R. Duval”                            “Marco Guidi”                         
Jeffrey R. Duval  Marco Guidi
Acting Chief Executive Officer  Chief Financial Officer

 

 2 

 

Tanzanian Royalty Exploration Corporation
 
Unaudited Interim Condensed Consolidated Statements of Financial Position

(Expressed in Canadian Dollars)

 

As at  November 30,
2017
   August 31,
2017
 
         
Assets          
Current Assets          
Cash
(Note 15)
  $409,147   $1,011,293 
Other receivables
(Note 11)
   330,385    329,008 
Inventory
(Note 14)
   522,966    507,489 
Prepaid and other assets
(Note 12)
   43,619    74,298 
    1,306,117    1,922,088 
Property, plant and equipment (Note 4)   2,474,935    2,510,697 
Mineral properties and deferred exploration (Note 3)   48,285,326    46,920,303 
   $52,066,378   $51,353,088 
           
Liabilities          
Current Liabilities          
Trade, other payables and accrued liabilities
(Note 13)
  $5,017,555   $5,216,703 
Leases payable
(Note 4)
   57,406    56,631 
Convertible loan
(Note 22)
   1,414,113    865,656 
Gold bullion loans
(Note 20)
   3,529,881    2,335,474 
    10,018,955    8,474,464 
Warrant liability (Note 5)   4,850,000    4,850,000 
Gold bullion loans (Note 20)   -    1,059,524 
Asset Retirement Obligation (Note 18)   719,498    715,057 
    15,588,453    15,099,045 
Shareholders’ equity          
Share capital
(Note 5)
   125,366,664    125,174,377 
Share based payment reserve
(Note 7)
   8,566,081    7,674,233 
Warrants reserve
(Note 6)
   1,248,037    1,248,037 
Accumulated other comprehensive loss    (1,206,609)   (2,176,352)
Accumulated deficit    (98,206,376)   (96,566,577)
Equity attributable to owners of the Company   35,767,797    35,353,718 
Non-controlling interests
(Note 19, 3(a))
   710,128    900,325 
Total shareholders’ equity   36,477,925    36,254,043 
   $52,066,378   $51,353,088 

 

Nature of operations and Going Concern (Note 1)

Segmented information (Note 16)

Commitments (Notes 3 and 17)

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements

 

 3 

 

Tanzanian Royalty Exploration Corporation
 
Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss

(Expressed in Canadian Dollars)

 

Three month periods ended November 30,  2017   2016 
Administrative expenses          
Depreciation (Note 4)
  $98,328   $105,489 
Consulting (Note 8)
   233,938    158,432 
Directors’ fees (Note 8)
   27,906    84,831 
Office and general   28,245    43,265 
Shareholder information   56,886    20,481 
Professional fees (Note 8)
   118,731    313,121 
Salaries and benefits (Note 5)
   103,528    110,493 
Share based payments (Note 5)
   849,590    633,088 
Travel and accommodation   13,406    13,640 
    (1,530,558)   (1,482,840)
Other income (expenses)          
Foreign exchange gain   96,016    (150,601)
Interest, net   (3,145)   (6,656)
Interest accretion (Note 20 and 22)
   (257,772)   (184,035)
Accretion on asset retirement obligation (Note 18)
   (2,772)   (2,749)
Finance costs (Note 21)
   (131,777)   (95,497)
Exploration costs   (3,804)   (5,760)
Interest on leases (Note 4)
   (2,480)   (10,231)
Gain on disposal of property, plant and equipment   -    10,133 
Gain (loss) on shares issued for settlement of debt (Note 5, 20 and 22)
   6,606    (90,486)
Withholding tax costs   (310)   - 
Net loss  $(1,829,996)  $(2,018,722)
Other comprehensive loss          
Foreign currency translation   969,703    1,002,704 
Comprehensive loss  $(860,293)  $(1,016,018)
           
Loss attributable to:          
Parent   (1,639,799)   (2,054,317)
Non-controlling interests   (190,197)   35,595 
   $(1,829,996)  $(2,018,722)
Comprehensive loss attributable to:          
Parent   (963,073)   (1,033,932)
Non-controlling interests   102,780    17,914 
   $(860,293)  $(1,016,018)
           
Loss per share – basic and diluted attributable to Parent  $(0.01)  $(0.02)
Weighted average # of shares outstanding – basic and diluted   122,102,191    114,838,325 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements

 

 4 

 

Tanzanian Royalty Exploration Corporation

 

Unaudited Interim Condensed Consolidated Statements of Changes in Equity

 

(Expressed in Canadian Dollars)

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share Capital
 
 
Reserves
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Number of Shares   Amount   Share based payments   Warrants   Accumulated other comprehensive income   Accumulated deficit   Owner's equity   Non-controlling interests   Total equity 
                                     
Balance at September 1, 2016   109,068,492   $122,380,723   $1,066,863   $941,037   $-   $(90,600,819)  $33,787,804   $1,368,679   $35,156,483 
Issued for private placement, net of issuance costs   7,197,543    5,589,501    -    -    -    -    5,589,501    -    5,589,501 
Warrants issued on private placement        (6,592,000)   -    -    -    -    (6,592,000)   -    (6,592,000)
Agent warrants issued on private placement        (92,000)   -    92,000    -    -    -    -    - 
Issued pursuant to Restricted Share Unit ("RSU") Plan (Note 5)   354,137    482,749    (482,749)   -    -    -    -    -    - 
Shares issued for interest on gold loans (Note 20)   202,260    172,318    -    -    -    -    172,318    -    172,318 
Reversal of warrant liability upon change of functional currency to USD        -    -    215,000    -    -    215,000    -    215,000 
Reversal of derivative in gold bullion loans upon change of functional                                             
currency to USD        -    5,051,000    -    -    -    5,051,000    -    5,051,000 
Reversal of derivative in gold convertible loans upon change of                                             
functional currency to USD        -    108,000    -    -    -    108,000    -    108,000 
Share based compensation - RSU        -    121,660    -    -    -    121,660    -    121,660 
Share based compensation - Stock options        -    704,000    -    -    -    704,000    -    704,000 
RSU shares forfeited (Note 5)        -    (116,911)   -    -    -    (116,911)   -    (116,911)
Exchange on translation of foreign subsidiaries        -    -    -    1,002,704    -    1,002,704    -    1,002,704 
Total comprehensive income (loss) for the period        -    -    -    -    (2,054,317)   (2,054,317)   35,595    (2,018,722)
Balance at November 30, 2016   116,822,432   $121,941,291   $6,451,863   $1,248,037   $1,002,704   $(92,655,136)  $37,988,759   $1,404,274   $39,393,033 
Issued pursuant to Restricted Share Unit ("RSU") Plan (Note 5)   341,854    558,241    (558,241)   -    -    -    -    -    - 
Shares issued for interest on gold loans (Note 20)   611,829    370,129    -    -    -    -    370,129    -    370,129 
Issued for settlement of leases (Note 4)   458,329    288,747    -    -    -    -    288,747    -    288,747 
Issued for settlement of amounts due to related parties (Note 8)   187,321    131,998    -    -    -    -    131,998    -    131,998 
Issued for settlement of convertible loans (Note 22)   83,333    49,166    -    -    -    -    49,166    -    49,166 
Shares issued as financing fee for convertible loans (Note 22)   132,577    92,805    -    -    -    -    92,805    -    92,805 
Exercise of warrants   3,146,944    1,742,000    -    -    -    -    1,742,000    -    1,742,000 
Conversion component of convertible loans (Note 22)        -    625,000    -    -    -    625,000    -    625,000 
Share based compensation - RSU        -    141,271    -    -    -    141,271    -    141,271 
Share based compensation - Stock options        -    1,021,000    -    -    -    1,021,000    -    1,021,000 
RSU shares forfeited (Note 5)        -    (6,660)   -    -    -    (6,660)   -    (6,660)
Exchange on translation of foreign subsidiaries        -    -    -    (3,179,056)   -    (3,179,056)   -    (3,179,056)
Total comprehensive loss for the period        -    -    -    -    (3,911,441)   (3,911,441)   (503,949)   (4,415,390)
Balance at August 31, 2017   121,784,619   $125,174,377   $7,674,233   $1,248,037   $(2,176,352)  $(96,566,577)  $35,353,718   $900,325   $36,254,043 
Shares issued for interest on gold loans (Note 20)   245,197    100,970    -    -    -    -    100,970    -    100,970 
Shares issued as financing fee for convertible loans (Note 22)   214,864    91,317    -    -    -    -    91,317    -    91,317 
Conversion component of convertible loans (Note 22)        -    39,000    -    -    -    39,000    -    39,000 
Share based compensation - Stock options        -    836,000    -    -    -    836,000    -    836,000 
Share based compensation - RSU        -    20,768    -    -    -    20,768    -    20,768 
RSU shares forfeited (Note 5)        -    (3,920)   -    -    -    (3,920)   -    (3,920)
Exchange on translation of foreign subsidiaries        -    -    -    969,743    -    969,743    -    969,743 
Total comprehensive loss for the period        -    -    -    -    (1,639,799)   (1,639,799)   (190,197)   (1,829,996)
Balance at November 30, 2017   122,244,680   $125,366,664   $8,566,081   $1,248,037   $(1,206,609)  $(98,206,376)  $35,767,797   $710,128   $36,477,925 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements

 

 5 

 

Tanzanian Royalty Exploration Corporation
 
Unaudited Interim Condensed Consolidated Statements of Cash Flow

(Expressed in Canadian Dollars)

 

Three month periods ended November 30,  2017   2016 
         
Operating          
Net loss  $(1,829,996)  $(2,018,722)
Adjustments to reconcile net loss to cash flow from operating activities:          
Depreciation   88,796    105,489 
Share based payments   849,590    633,088 
Accretion on asset retirement obligation   2,772    2,749 
Interest accretion   257,772    184,035 
Foreign exchange   (77,587)   120,423 
Shares issued for payment of interest on bullion loans   106,976    81,832 
(Gain) loss on shares issued for settlement of debt   (6,006)   90,486 
Gain on sale of property, plant and equipment   -    (10,133)
Non cash directors’ fees   -    56,938 
Net change in non-cash operating working capital items:          
Other receivables   (1,377)   (40,126)
Inventory   (15,477)   (30,683)
Prepaid expenses   30,679    105,945 
Trade, other payables and accrued liabilities   (202,557)   (271,284)
Cash used in operations   (796,415)   (989,963)
Investing          
Mineral properties and exploration expenditures, net of recoveries   (227,229)   (960,765)
Property, plant and equipment, net of proceeds from sale   -    1,150 
Cash used in investing activities   (227,229)   (959,615)
Financing          
Proceeds - private placements   -    5,589,501 
Loans (repayment) of loans from related parties   -    (80,318)
Interest on leases   775    19,336 
Proceeds from convertible loan   420,723    - 
Cash provided by financing activities   421,498    5,528,519 
Net increase (decrease) in cash and cash equivalents   (602,146)   3,578,941 
Cash and cash equivalents, beginning of period   1,011,293    84,913 
Cash and cash equivalents, end of period  $409,147   $3,663,854 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements

 

 6 

 

Tanzanian Royalty Exploration Corporation

 

Unaudited Interim Condensed Consolidated Statements of Cash Flow

(Expressed in Canadian Dollars)

 

Supplementary information:  2017   2016 
Non-cash transactions:          
Share based payments capitalized to mineral properties  $3,258   $18,733 
Shares issued pursuant to RSU plan   -    482,749 
Shares issued for interest on gold loans   100,970    172,318 
Shares issued as financing fee for convertible loans   91,317    - 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements

 

 7 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

1.Nature of Operations and Going Concern

 

The Company was originally incorporated under the corporate name “424547 Alberta Ltd.” in the Province of Alberta on July 5, 1990, under the Business Corporations Act (Alberta). The name was changed to “Tan Range Exploration Corporation” on August 13, 1991. The name of the Company was again changed to “Tanzanian Royalty Exploration Corporation” (“TREC” or the “Company”) on February 28, 2006. The address of the Company’s registered office is 22 Adelaide Street West, Suite 3400, Toronto, Ontario M5H 4E3 Canada. The Company’s principal business activity is in the exploration and development of mineral property interests. The Company’s mineral properties are located in United Republic of Tanzania (“Tanzania”).

 

The Company is in the process of exploring and evaluating its mineral properties. The business of exploring and mining for minerals involves a high degree of risk. The underlying value of the mineral properties is dependent upon the existence and economic recovery of mineral resources and reserves, the ability to raise long-term financing to complete the development of the properties, government policies and regulations, and upon future profitable production or, alternatively, upon the Company’s ability to dispose of its interest on an advantageous basis; all of which are uncertain.

 

The amounts shown as mineral properties and deferred expenditures represent costs incurred to date, less amounts amortized and/or written off, and do not necessarily represent present or future values. The underlying value of the mineral properties is entirely dependent on the existence of economically recoverable reserves, securing and maintaining title and beneficial interest, the ability of the Company to obtain the necessary financing to complete development, and future profitable production.

 

At November 30, 2017 the Company had a working capital deficiency of $8,712,838 (August 31, 2017 – $6,552,376 working capital deficiency), had not yet achieved profitable operations, has accumulated losses of $98,206,376 (August 31, 2017 – $96,566,577) and expects to incur further losses in the development of its business. The Company will require additional financing in order to conduct its planned work programs on mineral properties, meet its ongoing levels of corporate overhead and discharge its future liabilities as they come due.

 

The Company’s current funding sources and taking into account the working capital position and capital requirements at November 30, 2017, indicate the existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern and is dependent on the Company raising additional debt or equity financing. The Company must obtain additional funding in order to continue development and construction of the Buckreef Project. The Company is continuing to pursue additional financing to fund the construction of the Buckreef Project and additional projects. Whilst the Company has been successful in obtaining financing in the past, there is no assurance that such additional funding and/or project financing will be obtained or obtained on commercially favourable terms.

 

These unaudited interim condensed 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 unaudited interim condensed consolidated financial statements.

 

 8 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

2.Basis of Preparation

 

2.1 Statement of compliance

 

These unaudited interim condensed consolidated financial statements, including comparatives, have been prepared in accordance with International Accounting Standards (“IAS”) 34 ‘Interim Financial Reporting’ (“IAS 34”) using accounting policies consistent with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).

 

These unaudited interim condensed consolidated financial statements were approved and authorized by the Board of Directors of the Company on January 11, 2018.

 

2.2 Basis of presentation

 

The consolidated financial statements of the Company as at and for the three month periods ended November 30, 2017 and 2016 comprise of the Company and its subsidiaries (together referred to as the “Company” or “Group”).

 

These unaudited interim condensed consolidated financial statements have been prepared on the basis of accounting policies and methods of computation consistent with those applied in the Company’s August 31, 2017 annual financial statements.

 

2.3 Adoption of new and revised standards and interpretations

 

New standards and interpretations to be adopted in future

 

At the date of authorization of these Financial Statements, the IASB and IFRIC has issued the following new and revised Standards and Interpretations which are not yet effective for the relevant reporting periods and which the Company has not early adopted these standards, amendments and interpretations. However, the Company is currently assessing what impact the application of these standards or amendments will have on the consolidated financial statements of the Company.

 

IFRS 9 Financial Instruments. IFRS 9 covers the classification and measurement, impairment and hedge accounting of financial assets and financial liabilities and the effective date is for annual periods on or after January 1, 2018, with earlier application permitted. The Company is assessing the impact of adopting IFRS 9 but does not expect it will have a significant impact on its consolidated financial statements. Amendments to IFRS 9 also provide relief from the requirement to restate comparative financial statements for the effect of applying IFRS 9. Instead, additional transition disclosures will be required to help investors understand the effect that the initial application of IFRS 9 has on the classification and measurement of financial instruments.

 

IFRS 15 Revenue from Contracts with Customers. In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. IFRS 15 specifies how and when to recognize revenue as well as requires entities to provide users of financial statements with more informative, relevant disclosures. The standard supersedes IAS 18, Revenue, IAS 11, Construction Contracts, and a number of revenue-related interpretations. Application of the standard is mandatory for all IFRS reporters and it applies to nearly all contracts with customers: the main exceptions are leases, financial instruments and insurance contracts. IFRS 15 must be applied in an entity’s first annual IFRS financial statements for periods beginning on or after January 1, 2018. Application of the standard is mandatory and early adoption is permitted. The Company has not yet determined the impact of the amendments on the Company’s financial statements.

 

 9 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

2.Basis of Preparation (continued)

 

2.3Adoption of new and revised standards and interpretations (continued)

 

New standards and interpretations to be adopted in future (continued)

 

IFRS 16 - In 2016, the IASB issued IFRS 16, Leases (“IFRS 16”), replacing IAS 17, Leases and related interpretations. The standard introduces a single on-balance sheet recognition and measurement model for lessees, eliminating the distinction between operating and finance leases. Lessors continue to classify leases as finance and operating leases. IFRS 16 becomes effective for annual periods beginning on or after January 1, 2019, and is to be applied retrospectively. Early adoption is permitted if IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) has been adopted. The Company is assessing the impact of the amendments on the Company’s financial statements, but does not anticipate that the impact will be significant.

 

3.Mineral Properties

 

The Company explores or acquires gold or other precious metal concessions through its own efforts or through the efforts of its subsidiaries. All of the Company’s concessions are located in Tanzania.

 

The Company’s mineral interests in Tanzania are initially held under prospecting licenses granted pursuant to the Mining Act, 2010 (Tanzania) for a period of up to four years, and are renewable two times for a period of up to two years each. Annual rental fees for prospecting licenses are based on the total area of the license measured in square kilometres, multiplied by USD$100/sq.km for the initial period, USD$150/sq.km for the first renewal and USD$200/sq.km for the second renewal. With each renewal at least 50% of the licensed area, if greater than 20 square kilometres, must be relinquished and if the Company wishes to keep the relinquished one-half portion, it must file a new application for the relinquished portion. There is also an initial one-time “preparation fee” of USD$500 per license. Upon renewal, there is a renewal fee of USD$300 per license.

 

Section 30 of the Mining Act states that the amount that is to be spent on prospecting operations is to be prescribed by Regulation.

 

Period Minimum expenditure (US$)
Initial period (4 years) $500 per sq km for annum
First renewal (3 years) $1,000 per sq km for annum
Second renewal (2 years) $2,000 per sq km for annum

 

Certain of the Company’s prospecting licenses are currently being renewed.

 

The Company assessed the carrying value of mineral properties and deferred exploration costs as at November 30, 2017 and recorded a write-down of $nil during the three month period ended November 30, 2017 (2016 - $nil).

 

 10 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

3.Mineral Properties (continued)

 

The continuity of expenditures on mineral properties is as follows:

 

                     
   Buckreef
(a)
   Kigosi
(b)
   Itetemia
(c)
   Luhala
(d)
   Total 
                     
Balance, September 1, 2016  $24,034,731   $12,454,254   $5,962,715   $3,351,158   $45,802,858 
Exploration expenditures:                         
Camp, field supplies and travel   187,940    19,565    -    -    207,505 
License fees and exploration and field overhead   2,527,005    67,942    17,738    5,988    2,618,673 
Geological consulting and field wages   206,722    -    -    -    206,722 
Geophysical and geochemical   -    -    -    -    - 
Property acquisition costs   168,284    -    -    -    168,284 
Trenching and drilling   -    -    -    -    - 
Recoveries   (25,408)   -    -    -    (25,408)
Foreign exchange translation   (1,037,832)   (513,491)   (244,842)   (137,449)   (1,933,614)
    2,026,711    (425,984)   (227,104)   (131,461)   1,242,162 
    26,061,442    12,028,270    5,735,611    3,219,697    47,045,020 
Write-offs   -    (124,717)   -    -    (124,717)
Balance, August 31, 2017  $26,061,442   $11,903,553   $5,735,611   $3,219,697   $46,920,303 
Exploration expenditures:                         
Camp, field supplies and travel   52,678    7,400    -    -    60,078 
License fees and exploration and field overhead   159,783    -    -    -    159,783 
Geological consulting and field wages   14,035    -    -    -    14,035 
Geophysical and geochemical   -    -    -    -    - 
Property acquisition costs   -    -    -    -    - 
Trenching and drilling   -    -    -    -    - 
Recoveries   -    -    -    -    - 
Foreign exchange translation   628,299    286,944    138,259    77,625    1,131,127 
    854,795    294,344    138,259    77,625    1,365,023 
    26,916,237    12,197,897    5,873,870    3,297,322    48,285,326 
Write-offs   -    -    -    -    - 
Balance, November 30, 2017  $26,916,237   $12,197,897   $5,873,870   $3,297,322   $48,285,326 

 

 11 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

3.Mineral Properties (continued)

 

(a) Buckreef Gold Project:

 

On December 21, 2010, the Company announced it was the successful bidder for the Buckreef Gold Mine Re-development Project in northern Tanzania (the “Buckreef Project”). Pursuant to the agreement dated December 16, 2010, the Company paid USD $3,000,000 to the State Mining Company (“Stamico”). On October 25, 2011, a Definitive Joint Venture Agreement was entered into with Stamico for the development of the Buckreef Gold Project. Through its wholly-owned subsidiary, Tanzam, the Company holds a 55% interest in the joint venture company, Buckreef Gold Company Limited, with Stamico holding the remaining 45%.

 

The Company has 100% control over all aspects of the joint venture. In accordance with the joint venture agreement, the Company has to arrange financing, incur expenditures, make all decisions and operate the mine in the future. The Company’s obligations and commitments include completing a preliminary economic assessment, feasibility study and mine development. Stamico’s involvement is to contribute the licences and rights to the property and receive a 45% interest in Buckreef Project.

 

The joint venture agreement contains an obligation clause regarding the commissioning date for the plant. The clause becomes effective only in the event the property is not brought into production before a specified future date which was originally estimated to be in December 2015. The Company shall be entitled to extend the date for one additional year:  

    

          i) for the extension year, on payment to Stamico of US$500,000;

          ii) for the second extension year, on payment to Stamico of US$625,000; and

          iii) for each subsequent extension year, on payment to Stamico of US$750,000.

 

The Company has received a request letter from Stamico regarding the status of the penalty payment and has responded that no penalty is due at this time. The Company has received a subsequent letter from Stamico regarding request for payment. It remains the Company’s position that no penalty is due at this time, but the Company and Stamico have been engaged in settlement discussions to resolve this issue, and a payment of $172,330 has been made in connection with the settlement discussions to be applied towards the amount owing with the remainder to be paid out of proceeds of production.

 

The Company has recognized a non-controlling interest (NCI) in respect of Stamico’s 45% interest in the Consolidated Financial Statements based on the initial payment by the Company to Stamico and will be adjusted based on annual exploration and related expenditures. Stamico has a free carried interest and does not contribute to exploration expenses.

 

There is a supervisory board made up of 4 directors of Tanzam and 3 directors of Stamico, whom are updated with periodic reports and review major decisions. Amounts paid to Stamico and subsequent expenditures on the property are capitalized under Mineral Properties or Inventories for costs directly related to the extraction and processing of ore and reported under Buckreef Gold Company Limited.

 

 12 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

3.Mineral Properties (continued)

 

(b) Kigosi:

 

The Kigosi Project is principally located within the Kigosi Game Reserve controlled area. Through prospecting and mining option agreements, the Company has options to acquire interests in several Kigosi prospecting licenses. The Company has an agreement with Stamico providing Stamico a 15% carried interest in the Kigosi Project.

 

The Kigosi Mining License was granted by the Ministry of Energy and Minerals to Tanzam, (wholly owned subsidiary of Tanzanian Royalty). The official signing ceremony of the Kigosi Mining License was held in October 2013 and was attended by the Company and Ministry for Energy and Minerals representatives. The area remains subject to a Game Reserve Declaration Order. Upon repeal or amendment of that order by degazzeting the respective license by the Tanzanian Government, the Company will be legally entitled to exercise its rights under the Mineral Rights and Mining Licence.

 

During the three month period ended November 30, 2017, the Company decided to abandon certain licenses within the Kigosi project as they come up for renewal, as such, a write off of $nil was taken for these licenses related to the property (year ended August 31, 2017 - $124,717).

 

(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 three month period ended November 30, 2017, the Company did not abandon any licenses in the area and no write off was taken in this area (year ended August 31, 2017 - $nil) related to deferred exploration costs associated with licenses the Company does not intend to renew.

 

(d) Luhala Project:

 

The Company has selected a consultant to prepare the resource report for the Luhala Project in anticipation of filing for a Mining License for development of the site. Once funds are available the contract to engage the Consultant to carry out the work will be initiated.

 

During the three month period ended November 30, 2017, the Company did not abandon any licenses in the area and no write off was taken in this area (year ended August 31, 2017 - $nil).

 

 13 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

4.Property, plant and equipment

 

   Drilling equipment   Automotive   Computer Equipment   Machinery and equipment   Leasehold improvements   Heap leach  pads   Construction-
in-progress *
   Total 
Cost                                        
As at September 1, 2016  $464,487   $191,368   $99,636   $1,705,959   $100,328   $1,496,078   $1,379,012   $5,436,868 
Disposals   -    (47,967)   (32,462)   (81,990)   -    -    -    (162,419)
Foreign exchange   (19,662)   (7,943)   (4,079)   (71,028)   (4,215)   (64,262)   (62,155)   (233,344)
As at August 31, 2017  $444,825   $135,458   $63,095   $1,552,941   $96,113   $1,431,816   $1,316,857   $5,041,105 
Additions   -    -    -    -    -    -    -    - 
Foreign exchange   11,052    3,269    1,548    37,919    2,368    36,076    34,775    127,007 
As at November 30, 2017  $455,877   $138,727   $64,643   $1,590,860   $98,481   $1,467,892   $1,351,632   $5,168,112 
                                         
Accumulated depreciation                                        
As at September 1, 2016  $288,172   $167,827   $93,205   $1,317,633   $66,481   $453,182   $-   $2,386,500 
Depreciation expense   11,754    3,062    8,728    87,072    7,036    304,331    -    421,983 
Disposals   -    (35,233)   (49,672)   (65,741)   -    -    -    (150,646)
Foreign exchange   (12,626)   (7,087)   (8,431)   (60,080)   (3,217)   (35,988)   -    (127,429)
As at August 31, 2017  $287,300   $128,569   $43,830   $1,278,884   $70,300   $721,525   $-   $2,530,408 
Depreciation expense   10,502    905    1,616    7,816    1,407    76,082    -    98,328 
Foreign exchange   7,291    3,119    1,209    30,979    1,740    20,103    -    64,441 
As at November 30, 2017  $305,093   $132,593   $46,655   $1,317,679   $73,447   $817,710   $-   $2,693,177 
Net book value                                        
As at August 31, 2016  $176,315   $23,541   $6,431   $388,326   $33,847   $1,042,896   $1,379,012   $3,050,368 
As at August 31, 2017  $157,525   $6,889   $19,265   $274,057   $25,813   $710,291   $1,316,857   $2,510,697 
As at November 30, 2017  $150,784   $6,134   $17,988   $273,181   $25,034   $650,182   $1,351,632   $2,474,935 

 

* Construction in progress represents construction of the Company’s processing plant.

 

 14 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

4.Property, plant and equipment (continued)

 

Sale-leaseback transaction:

During the year ended August 31, 2015, the Company sold automotive and mining equipment for proceeds of $577,505 to various officers and directors. Pursuant to the agreements, the Company entered into 1-year lease agreements on the automotive and mining equipment with effective dates in May 2015. Per the terms of the leases, the Company agrees to purchase back the automotive and mining equipment at the end of the lease periods for a lump sum payment of USD$74,848. Based on the terms of the agreements, the Company has classified and is accounting for the leases as finance leases. The initial base payments vary between the agreements and range between $3,500 and $8,000 payable monthly. The effective interest rate on the finance lease obligations outstanding is between 20% and 30%. The gain on sale of $250,108 was deferred and is being recognized on a straight-line basis over the lease term as a reduction in amortization expense. The total deferred gain has been presented as a reduction of the finance asset. Under the lease, the Company is responsible for the costs of utilities, insurance, taxes and maintenance expenses.

 

Settlement through shares:

On December 1, 2016, the Company entered into settlement agreements whereby a total of $343,623 in principal and accrued interest was settled through the issuance of 458,329 shares issued

at an average price of $0.63 per share for total issued value of $288,747, resulting in a gain on settlement of debt of $54,876 for the year ended August 31, 2017.

 

Outstanding balance:

As at November 30, 2017, the remaining balance outstanding under finance lease obligations after the settlements described above is $57,406 (August 31, 2017 - $56,631) and is repayable within 1 year, as such, the finance lease obligation is classified as a current liability.

 

Interest expense for the three month period ended November 30, 2017 related to the leases amounted to $2,480 (2016 - $10,231), and is recorded in the statement of comprehensive loss.

 

 

 15 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

5.Capital Stock

 

Share Capital

The Company’s Restated Articles of Incorporation authorize the Company to issue an unlimited number of common shares. On December 8, 2014, the Board resolved that the Company authorize for issuance up to a maximum of 155,000,000 common shares, subject to further resolutions of the Company’s board of directors.

 

         
   Number   Amount ($) 
Balance at September 1, 2016   109,068,492   $122,380,723 
Issued for private placements, net of share issue costs   7,197,543    5,589,501 
Warrants issued on private placement   -    (6,592,000)
Agent warrants issued on private placement   -    (92,000)
Issued pursuant to Restricted Share Unit Plan   695,991    1,040,990 
Shares issued for interest on gold loans   814,089    542,447 
Finders fees on convertible loans   132,577    92,805 
Shares issued for settlement of lease obligations (Note 4)   458,329    288,747 
Shares issued for settlement of amounts due to related parties (Note 8)   187,321    131,998 
Shares issued for settlement of convertible loans (Note 22)   83,333    49,166 
Exercise of warrants   3,146,944    1,742,000 
Balance at August 31, 2017   121,784,619   $125,174,377 
Shares issued for interest on gold and convertible loans   245,197    100,970 
Finders fees on convertible loans   214,864    91,317 
Balance at November 30, 2017   122,244,680   $125,366,664 

 

Activity during the three month period ended November 30, 2017:

 

During the three month period ended November 30, 2017, 245,197 shares were issued

at an average price of $0.41 per share for total issued value of $100,970 for payment of interest of $107,576, resulting in a gain of $6,606, in connection with the gold loans and convertible loans (see Notes 20 and 22 for details).

 

On September 26, 2017, the Company issued 214,864 common shares at a price of $0.43 per share for total issued value of $91,317 for payment of finders fees in connection with the convertible loans (see Note 22 for details).

 

Activity during the year ended August 31, 2017:

 

On September 1, 2016, the Company closed the first tranche of a US$5 Million private placement of securities with Crede CG III, Ltd.

 

In the initial round of financing, the Company privately placed 1,840,400 shares of its common stock and warrants for US$1.25 million. The common stock issued in the first tranche of the financing, which closed on September 1, 2016, was priced at US$0.6792 per share. The investor also received five-year warrants to purchase 1,840,400 shares of Common Stock with an exercise price of US$0.8291 per share. If the market price of the share is lower than the exercise price the warrants allow the holder to exercise into a variable number of common shares of the Company determined based on a fixed monetary value and the Company’s share price for no consideration. As the number of shares was variable, the warrants were recognized as a derivative liability with a fair value of $1,742,000 which was determined based on the fixed monetary value. In addition, the Company paid an 8% agent fee on gross proceeds and a 5% finders’ fee on gross proceeds and the Company issued to the agents 73,616 agent warrants, each exercisable to acquire one common share at a price of US$0.8718 for a period of five years.

 

 16 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

5.Capital Stock (continued)

 

On September 26, 2016, the Company closed the second tranche of the $5 million private placement of securities with Crede CG III, Ltd.

 

In the second round of the financing, the Company privately placed convertible notes and warrants for US$3.75 million. The convertible notes were issued in the principal amount of US$3.75 million, carried a coupon of 2.0% and matured on September 26, 2046. The Company immediately exercised its right to cause the conversion of the convertible notes, resulting in the cancellation of the notes and the issuance of 5,357,143 shares of common stock to the investor. The investor also received five-year warrants to purchase 4,017,857 shares of common stock at an exercise price of US$1.10 per share. If the market price of the share is lower than the exercise price the warrants allow the holder to exercise into a variable number of common shares of the Company determined based on a fixed monetary value and the Company’s share price for no consideration. As the number of shares was variable, the warrants were recognized as a derivative liability with a fair value of $4,850,000 which was determined based on the fixed monetary value. In addition, the Company paid an 8% agent fee on gross proceeds and the Company issued to the agents 214,285 agent warrants, each exercisable to acquire one common share at a price of US$0.9515 for a period of five years.

 

During the year ended August 31, 2017, 695,991 shares were issued pursuant to the Company’s Restricted Share Unit Plan at an average price of $1.50 for total issued value of $1,040,990.

 

During the year ended August 31, 2017, 814,089 shares were issued

at an average price of $0.67 per share for total issued value of $542,447 for payment of interest in connection with the gold loans and convertible loans (see Notes 20 and 22 for details).

 

On April 27, 2017, the Company issued 132,577 common shares at a price of $0.70 per share for total issued value of $92,805 for payment of finders fees in connection with the gold bullion loan (see Note 20 for details).

 

Warrant issuances:

 

Activity during the three month period ended November 30, 2017:

 

There were no warrant issuances during the three month period ended November 30, 2017.

 

Activity during the year ended August 31, 2017:

 

On September 1, 2016 the Company issued 1,840,400 share purchase warrants in connection with the first tranche of its private placement financing as described above. Each warrant entitles the holder to acquire a common share at a price of US$0.8291. These warrants expire on September 1, 2021.

 

Each warrant is convertible into a variable number of common shares equal in value to a fixed monetary amount for $Nil consideration if the Company’s share price is below exercise price. As the number of shares to be received on exercise is variable, the warrants are initially recognized as derivative liabilities at fair value. Subsequent changes in fair value to the date of exercise are recognized in the loss for the year.

 

The warrants had a fair value of $1,742,000 on issuance, which was determined based on the fixed monetary amount.

 

The Company also issued 73,616 agent warrants in connection with the first tranche of its private placement financing. Each agent warrant entitles the holder to acquire a common share at a price of US$0.8718. These warrants expire on September 1, 2021.

 

 17 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

5.Capital Stock (continued)

 

The warrants had a fair value of $22,000 on issuance, which was estimated using the Black-Scholes option pricing model and recorded as a transaction cost. The following assumptions were used:

 

Risk-free interest rate  0.91%      Expected volatility  82%
Dividend yield     nil      Expected life  5 years

 

On September 26, 2016 the Company issued 4,017,857 share purchase warrants in connection with the second tranche of its private placement financing as described above. Each warrant entitles the holder to acquire a common share at a price of US$1.10. These warrants expire on September 26, 2021.

 

Each warrant is convertible into a variable number of common shares equal in value to a fixed monetary amount for $Nil consideration if the Company’s share price is below exercise price. As the number of shares to be received on exercise is variable, the warrants are initially recognized as derivative liabilities at fair value. Subsequent changes in fair value to the date of exercise are recognized in the loss for the year.

 

The warrants had a fair value of $4,850,000 on issuance, which was determined based on the fixed monetary amount.

 

The Company also issued 214,285 agent warrants in connection with the second tranche of its private placement financing. Each agent warrant entitles the holder to acquire a common share at a price of US$0.9515. These warrants expire on September 26, 2021.

 

The warrants had a fair value of $70,000 on issuance, which was estimated using the Black-Scholes option pricing model and recorded as a transaction cost. The following assumptions were used:

 

Risk-free interest rate   0.87%      Expected volatility   84%
Dividend yield   
   nil
       Expected life   
5 years
 

 

Warrants and Compensation Options outstanding:

 

At November 30, 2017, the following warrants and compensation options were outstanding:

 

             
   Number of 
Warrants
   Exercise price   Expiry date 
Private placement financing agent warrants - September 26, 2016   214,285    
USD$0.9515 
    
September 26, 2021 
 
Private placement financing - September 26, 2016   4,017,857    
USD$1.10 
    
September 26, 2021 
 
Private placement financing agent warrants - September 1, 2016   73,616    
USD$0.8718 
    
September 1, 2021 
 
Convertible senior note financing - December 9, 2014   257,143    
USD$0.98 
    
December 9, 2019 
 
                
Balance, November 30, 2017   4,562,901    -    - 

 

 18 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

5.Capital Stock (continued)

 

Warrant transactions are summarized as follows:

 

         
   Number of Warrants   Weighted Average Exercise Price 
Balance, August 31, 2016   657,143   $1.29 
Warrants granted   5,858,257    1.37 
Agent warrants granted   287,901    1.25 
Expired warrants   (400,000)   (1.30)
Warrants exercised   (1,840,400)   (1.12)
Balance, August 31, 2017 and November 30, 2017   4,562,901   $1.36 

 

The outstanding warrants have weighted average price of US$1.08 and weighted average remaining contractual life of 3.72 years.

 

Warrant liability:

 

Foreign currency denominated warrants (not including compensation warrants), are considered a derivative as they are not indexed solely to the entity’s own stock.

 

Prior to September 1, 2016 warrant liability consist of warrants that were originally issued in private placements which had exercise prices denominated in a currency other than the Company’s functional currency, which at that time was the Canadian dollar. During the period that the Canadian dollar was the Company’s functional currency, warrants that were exercisable in U.S. dollars was classified as derivative liabilities. Upon the change in functional currency to the U.S. dollar, these derivative liabilities were no longer classified as derivatives and an amount of $215,000 was reclassified to reserve for warrants.

 

The warrant liability at November 30, 2017 relates to the 4,017,857 September 26, 2016 private placement warrants that are exercisable at the option of the holder into such number of shares that have a current market value of approximately $4,850,000, for no consideration. This cashless exercise right is only in effect if the current market price is less than the exercise price of USD$1.10.

 

The table below shows the activity for warrant liability for the three month period ended November 30, 2017 and year ended August 31, 2017:

 

         
Period/Year ended  November 30, 2017   August 31, 2016 
Balance at beginning of period/year  $4,850,000   $215,000 
Warrants issued   -    6,592,000 
Warrants exercised   -    (1,742,000)
Reclassification on change of functional currency   -    (215,000)
Balance at end of period/year  $4,850,000   $4,850,000 

 

 19 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

5.Capital Stock (continued)

 

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 three month period ended November 30, 2017 was $nil (2016 - $nil) and is included in salaries and benefits expense

s.

 

Restricted share units:

The Restricted Stock Unit Plan (RSU Plan) is intended to enhance the Company’s and its affiliates’ abilities to attract and retain highly qualified officers, directors, key employees and other persons, and to motivate such officers, directors, key employees and other persons to serve the Company and its affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the RSU Plan provides for the grant of restricted stock units (RSUs). Each RSU represents an entitlement to one common share of the Company, upon vesting. As of November 29, 2016, the Board resolved to amend the suspension to 800,000 of the 2,500,000 common shares previously authorized for issuance under the RSU Plan, such that a maximum of 2,500,000 shares shall be authorized for issuance under the RSU Plan, until such suspension may be lifted or further amended. RSU awards may, but need not, be subject to performance incentives to reward attainment of annual or long-term performance goals in accordance with the terms of the RSU Plan. Any such performance goals are specified in the award agreement.

 

The Board of Directors implemented the RSU Plan under which officers, directors, employees and others are compensated for their services to the Company. Annual compensation for outside directors is $68,750 per year, plus $6,875 per year for serving on Committees, plus $3,437 per year for serving as Chair of a Committee. On April 11, 2012, the board approved that at the election of each individual director, up to one half of the annual compensation may be received in cash, paid quarterly. The remainder of the director’s annual compensation (at least one half, and up to 100%) will be awarded as RSUs in accordance with the terms of the RSU Plan and shall vest within a minimum of one (1) year and a maximum of three (3) years, at the election of the director, subject to the conditions of the RSU Plan with respect to earlier vesting. In 2012 outside directors had the option to elect to receive 100% of their compensation in RSUs. If 100% compensation in RSUs is elected, the compensation on which the number of RSUs granted in excess of the required one half shall be increased by 20%.

 

The Company uses the fair value method to recognize the obligation and compensation expense associated with the RSU’s. The fair value of RSU’s issued is determined on the grant date based on the market price of the common shares on the grant date multiplied by the number of RSUs granted. The fair value is expensed over the vesting term. Upon redemption of the RSU the carrying amount is recorded as an increase in common share capital and a reduction in the share based payment reserve.

 

The Company has a RSU Plan which allows the Company to issue RSU’s which are redeemable for the issue of common shares at prevailing market prices on the date of the RSU grant. The aggregate number of RSU’s outstanding is limited to a maximum of ten percent of the outstanding common shares. The Company has granted RSU’s to officers and key employees.

 

Of the 2,500,000 shares authorized for issuance under the Plan, 2,114,853 (August 31, 2017 - 2,114,853) shares have been issued as at November 30, 2017.

 

 20 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

5.Capital Stock (continued)

 

Total share-based compensation expense related to the issue of RSUs was $20,768 for the three month period ended November 30, 2017 (2016 - $121,660). The amount capitalized to mineral properties for the three month period ended November 30, 2017 was $3,258 (2016 - $18,733). The amount charged to directors fees for the three month period ended November 30, 2017 was $nil (2016 - $56,938). During the three month period ended November 30, 2017 RSU’s were forfeited resulting in $3,920 (2016 - $116,911) in a reduction in share-based compensation expense related to the reversal of the expense related to forfeited RSU’s.

 

The following table summarizes changes in the number of RSU’s outstanding:

 

         
   Number of RSU’s   Weighted average fair value at issue date 
Balance, August 31, 2016   1,275,591   $1.18 
Redeemed for common shares   (695,991)  $1.50 
Forfeited/cancelled   (59,600)  $2.22 
Balance, August 31, 2017   520,000   $0.49 
Forfeited/cancelled   (10,000)  $0.49 
Balance, November 30, 2017   510,000   $0.49 

 

Stock options:

 

The Company has a stock option plan (the “Plan”) under which the Company may grant options to directors, officers, employees and consultants. The maximum number of common shares reserved for issue under the Plan at any point in time may not exceed 6% of the number of shares issued and outstanding. The purpose of the Plan is to attract, retain and motivate directors, officers, employees, and certain third party service providers by providing them with the opportunity to acquire a proprietary interest in the Company and benefit from its growth. Options granted under the Plan are non-assignable and vest over various terms up to 24 months from the date of grant. As at November 30, 2017, the Company had 2,680 (August 31, 2017 – 3,557,077) options available for issuance under the Plan.

 

The continuity of outstanding stock options for the three month period ended November 30, 2017 and year ended August 31, 2017 is as follows:

 

   Number of stock options   Weighted average exercise price per share $ 
Balance – August 31, 2016   -    - 
Granted (i)   3,750,000    0.71 
Balance – August 31, 2017   3,750,000    0.71 
Cancelled (i)   (3,750,000)   (0.71)
Re-issued (i)   3,750,000    0.40 
Granted (ii)   3,582,000    0.43 
Balance – November 30, 2017   7,332,000    0.42 

 

 21 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

5.Capital Stock (continued)

 

(i)On November 28, 2016, the Company granted 3,750,000 stock options to directors, officers and employees of the Company. The options are exercisable at CAD$0.71 per share expiring on November 28, 2025. The resulting fair value of $2,133,000 was estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 84%; a risk-free interest rate of 0.95% and an expected average life of 9 years. Volatility and expected life were based on historical experience. The options are subject to a vesting period whereby 1/3 of the options vest immediately, 1/3 vest on September 1, 2017 with the remaining 1/3 vesting on September 1, 2018.

 

Share based payments based on the portion vested during the three month period ended November 30, 2017 amounted to $101,000 (2016 - $704,000).

 

Cancellation and re-issue of options:

On October 11, 2017, the Company

cancelled and re-issued the options originally issued on November 28, 2016 and re-issued the same number of options at an exercise price of CAD$0.40 per share, with
1/3 of the options vesting immediately, 1/3 vest on October 11, 2018 with the remaining 1/3 vesting on October 11, 2019 and
a final expiry date of October 11, 2026.

 

The new options issued were accounted for as modifications in accordance with IFRS 2, where
the incremental value was recorded as additional cost measured by the difference between the fair value of the cancelled options calculated on the modification date and the value of the
replacement options at the modification date.   The amount resulted in additional $240,000 in share based payments. The amount is recognized over the vesting period of the replacement option.   Any remaining compensation cost for as yet unvested cancelled options is also recognized over the new vesting period.

 

Share based payments based on the portion vested during the three month period ended November 30, 2017 amounted to $240,000 (2016 - $704,000).

 

(ii)On September 29, 2017, the Company granted 3,582,000 stock options to directors, officers and employees of the Company. The options are exercisable at CAD$0.43 per share expiring on September 29, 2026. The resulting fair value of $1,183,000 was estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 76%; a risk-free interest rate of 1.98% and an expected average life of 9 years. Volatility and expected life were based on historical experience. The options are subject to a vesting period whereby 1/3 of the options vest immediately, 1/3 vest on September 29, 2018 with the remaining 1/3 vesting on September 29, 2019.

 

Share based payments based on the portion vested during the three month period ended November 30, 2017 amounted to $495,000 (2016 - $nil).

 

Options to purchase common shares carry exercise prices and terms to maturity as follows:

 

          Remaining 
Exercise price (1)  Number of options   Expiry  contractual 
Outstanding $  Outstanding   Exercisable   date  life (years) (1) 
CAD0.40   3,750,000    1,250,000   September 29, 2026   8.83 
CAD0.43   3,582,000    1,194,000   October 11, 2026   8.87 
CAD0.42   7,332,000    2,444,000       8.85 

 

(1)Total represents weighted average.

 

 22 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

6.Reserve for warrants

 

         
Period/year ended  November 30,
2017
  

August 31,

2017

 
Balance at beginning of period/year  $1,248,037   $941,037 
Agent warrants issued on private placement   -    92,000 
Reversal of warrant liability upon change of functional currency to USD   -    215,000 
Balance at end of period/year  $1,248,037   $1,248,037 

 

7.Reserve for share based payments

 

         
Period/year ended  November 30,
2017
   August 31,
2017
 
Balance at beginning of period/year  $7,674,233   $1,066,863 
Shares issued pursuant to RSU plan   -    (1,040,990)
Share based compensation – RSU’s   20,768    262,931 
Share based compensation – Stock options   836,000    1,725,000 
RSU shares forfeited   (3,920)   (123,571)
Reversal of derivative in gold bullion loan upon change of functional currency to USD   -    5,051,000 
Reversal of derivative in gold convertible loans upon change of functional currency  to USD   -    108,000 
Conversion component of convertible loans   39,000    625,000 
Balance at end of period/year  $8,566,081   $7,674,233 

 

8.Related party transactions and key management compensation

 

Related parties include the Board of Directors and officers, close family members and enterprises that are controlled by these individuals as well as certain consultants performing similar functions.

 

(a) Tanzanian Royalty Exploration Corporation entered into the following transactions with related parties:

 

Three month ended November 30,  Notes  

November 30,

2017

  

November 30,

2016

 
Legal services   (i)    $Nil   $82,455 
Consulting   (ii)   $53,348   $43,859 
Consulting   (iii)    $Nil   $172,330 

 

(i) The Company engages a legal firm for professional services in which one of the Company’s directors is a partner. During the three month period ended November 30, 2017, the legal expense charged by the firm was $nil (2016 - $82,455). As at November 30, 2017, $355,940 remains payable (August 31, 2017 - $370,940).

 

(ii) During the three month period ended November 30, 2017, $53,348 (2016 - $43,859) was paid for heap leach construction consulting and website/data back-up services to companies controlled by individuals associated with the former CEO and current director.

 

(iii) During the three month period ended November 30, 2017, $Nil (2016 - $172,330) was paid for grade control drilling, license fees and other consulting services to Stamico, the Company’s joint venture partner on the Buckreef Gold Project.

 

 

 23 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

8.Related party transactions and key management compensation (continued)

 

As at November 30, 2017, the Company has a receivable of $37,247 (August 31, 2017 - $37,247) from an organization associated with the Company’s President and former CEO and current director and from current officers and directors.

 

During the year ended August 31, 2015, the Company sold automotive and mining equipment in the amount of $243,805 to directors of the Company and $333,700 to the Company’s former CEO and current director for total proceeds of $577,505 as described in Note 4. Pursuant to the agreements, the Company entered into 1-year lease agreements on the automotive and mining equipment with effective dates in May 2015. Per the terms of the leases, the Company agrees to purchase back the automotive and mining equipment at the end of the lease periods for a lump sum payment of USD$74,848. The initial base payments vary between the agreements and range between $3,500 and $8,000 payable monthly. The effective interest rate on the capital lease obligation outstanding is between 20% and 30%.

 

On December 1, 2016, the Company entered into settlement agreements whereby a total of $343,623 in principal and accrued interest was settled through the issuance of 458,329 shares issued

at an average price of $0.63 per share for total issued value of $288,747, resulting in a gain on settlement of debt of $54,876 for the year ended August 31, 2017.

 

As at November 30, 2017, the remaining balance outstanding under finance lease obligations after the settlements described above is $57,406 (August 31, 2017 - $56,631) and is repayable within 1 year, as such, the finance lease obligation is classified as a current liability.

 

(b) Remuneration of Directors and key management personnel (being the Company’s Chief Executive Officer, Chief Financial Officer and Chief Operating Officer) of the Company was as follows:

 

Three months ended November 30,  November 30, 2017   November 30, 2016 
   Fees, salaries and benefits
(1)
          Share based payments
(2), (3), (4)
   Fees, salaries and benefits
(1)
           Share based payments
(2), (3)
 
Management  $172,237   $765,047   $105,333   $723,090 
Directors   27,906    414,000    27,906    56,938 
Total  $200,143   $1,179,047   $133,239   $780,028 

 

(1)Salaries and benefits include director fees. The board of directors do not have employment or service contracts with the Company. Directors are entitled to director fees and RSU’s for their services and officers are entitled to cash remuneration and RSU’s for their services.
(2)Compensation shares may carry restrictive legends.
(3)All RSU share based compensation is based on the accounting expense recorded in the year.
(4)All stock option share based compensation is based on the accounting expense recorded in the year.

 

As at November 30, 2017, included in trade and other payables is $607,000 (August 31, 2017 - $638,000) due to these key management personnel with no specific terms of repayment.

 

The Company’s former CEO and current director provided various loans to the Company totaling $133,632. On December 1, 2016, the Company entered into settlement agreements whereby the remaining balance of $136,519 was settled through the issuance of 187,321 shares issued

at an average price of $0.705 per share for total issued value of $131,998, resulting in a gain on settlement of debt of $4,521 for the year ended August 31, 2017.
As at November 30, 2017 $nil (August 31, 2017 - $nil) is outstanding. The balance is payable on demand, interest free, and unsecured.

 

 24 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

9.Management of Capital

 

The Company's objective when managing capital is to obtain adequate levels of funding to support its exploration activities, to obtain corporate and administrative functions necessary to support organizational functioning, to obtain sufficient funding to further the identification and development of precious metals deposits, and to develop and construct low cost heap leach gold production mines.

 

The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business. The Company defines capital to include its shareholders’ equity. In order to carry out the planned exploration and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. The Company will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geologic or economic potential and if it has adequate financial resources to do so. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There were no changes in the Company's approach to capital management during the three month period ended November 30, 2017. The Company is not subject to externally imposed capital requirements.

 

The Company considers its capital to be shareholders’ equity, which is comprised of share capital, reserves, and deficit, which as at November 30, 2017 totaled $35,767,797 (August 31, 2017 - $35,353,718).

 

The Company raises capital, as necessary, to meet its needs and take advantage of perceived opportunities and, therefore, does not have a numeric target for its capital structure. Funds are primarily secured through equity capital raised by way of private placements, however, debt and other financing alternatives may be utilized as well. There can be no assurance that the Company will be able to continue raising equity capital in this manner.

 

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

 

The Company invests all capital that is surplus to its immediate operational needs in short term, liquid and highly rated financial instruments, such as cash, and short term guarantee deposits, all held with major Canadian financial institutions and Canadian treasury deposits.

 

 

 25 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

10. Financial Instruments

 

Fair Value of Financial Instruments

The Company designated warrant and derivative liabilities as FVTPL. Fair value of the warrant liabilities and gold bullion loan derivatives are categorized as Level 3 measurement as these are calculated based on unobservable market inputs. A 10% movement in volatility in the financial instruments that were classified as Level 3 measure will have an impact of approximately $nil on the consolidated statements of comprehensive loss as these amounts have been reclassified during the period on change of functional currency. Trade and other receivables and cash and cash equivalents are classified as loans and receivables, which are measured at amortized cost. Trade and other payables, leases payable and gold bullion loans are classified as other financial liabilities, which are measured at amortized cost. Fair value of trade and other payables and convertible debt are determined from transaction values that are not based on observable market data.

 

The carrying value of the Company’s cash and cash equivalents, trade and other receivables, trade and other payables approximate their fair value due to the relatively short term nature of these instruments.

 

Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment, therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

A summary of the Company's risk exposures as they relate to financial instruments are reflected below:

 

Credit Risk

Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its contractual obligations. The Company is subject to credit risk on the cash balances at the bank and accounts and other receivables and the carrying value of those accounts represent the Company’s maximum exposure to credit risk. The Company’s cash and cash equivalents and short-term bank investments are with Schedule 1 banks or equivalents. The accounts and other receivables consist of GST/HST and VAT receivable from the various government agencies and amounts due from related parties. The Company has not recorded an impairment or allowance for credit risk as at November 30, 2017, or August 31, 2017.

 

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rate. The Company’s bank accounts earn interest income at variable rates. The bullion loan carries a fixed rate of interest. The Company’s future interest income is exposed to changes in short-term rates. As at November 30, 2017, a 1% increase/decrease in interest rates would decrease/increase net loss for the period by approximately $4,000 (2016 - $37,000).

 

Liquidity Risk

The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at November 30, 2017, the Company had current assets of $1,306,117 (August 31, 2017 - $1,922,088) and current liabilities of $10,018,955 (August 31, 2017 - $8,474,464). All of the Company’s trade payables and receivables have contractual maturities of less than 90 days and are subject to normal trade terms. Current working capital deficiency of the Company is $8,712,838 (August 31, 2017 - $6,552,376 working capital deficiency). The Company will require additional financing in order to conduct its planned work programs on mineral properties and the development and construction of the Buckreef Project, meet its ongoing levels of corporate overhead and discharge its liabilities as they come due.

 

 26 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

10. Financial Instruments (continued)

 

Foreign Currency Risk

The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company has offices in Canada, USA, and Tanzania, but holds cash mainly in Canadian and United States currencies. A significant change in the currency exchange rates between the Canadian dollar relative to US dollar and Tanzanian shillings could have an effect on the Company’s results of operations, financial position, or cash flows. At November 30, 2017, the Company had no hedging agreements in place with respect to foreign exchange rates. As a majority of the transactions of the Company are denominated in US and Tanzanian Shilling currencies, a 10% movement in the foreign exchange rate will have an impact of approximate $698,000 on the consolidated statements of comprehensive loss.

 

11. Other receivables

 

The Company’s other receivables arise from two main sources: receivables due from related parties and harmonized services tax (“HST”) and value added tax (“VAT”) receivable from government taxation authorities. These are broken down as follows:

 

         
   November 30, 2017   August 31, 2017 
         
Receivable from related parties  $45,274   $43,497 
HST and VAT Receivable   264,467    169,533 
Other   20,644    115,978 
Total Trade and Other Receivables  $330,385   $329,008 

 

Below is an aged analysis of the Company’s other receivables:

 

         
   November 30, 2017   August 31, 2017 
         
Less than 1 month  $45,549   $50,715 
1 to 3 months   12,259    11,870 
Over 3 months   272,577    266,423 
Total Other Receivables  $330,385   $329,008 

 

At November 30, 2017, the Company anticipates full recovery of these amounts and therefore no impairment has been recorded against these receivables. The credit risk on the receivables has been further discussed in Note 10.

 

The Company holds no collateral for any receivable amounts outstanding as at November 30, 2017.

 

12. Prepaid and other assets

 

         
   November 30, 2017   August 31, 2017 
         
Insurance  $8,910   $17,820 
Listing fees   7,407    29,627 
Other   27,302    26,851 
Total prepaid expenses  $43,619   $74,298 

 

 27 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

13. 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:

 

         
   November 30, 2017   August 31, 2017 
         
Less than 1 month  $53,824   $159,944 
1 to 3 months   174,919    411,543 
Over 3 months   4,788,812    4,645,216 
Total Trade, Other Payables and Accrued Liabilities  $5,017,555   $5,216,703 

 

14. Inventory

 

Inventory consists of stockpiled ore and supplies consumed during the course of exploration development and operations. Cost represents the delivered price of the item. The following is a breakdown of items in inventory:

 

         
   November 30, 2017   August 31, 2017 
         
Stockpiled ore and work in progress  $518,561   $503,187 
Supplies   4,405    4,302 
Total Inventory  $522,966   $507,489 

 

15. Cash

 

As at November 30, 2017, cash and cash equivalents total $409,147 (August 31, 2017 - $1,011,293), consisting of cash on deposit with banks in general minimum interest bearing accounts.

 

 28 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

16. Segmented information

 

Operating Segments

 

At November 30, 2017 the Company’s operations comprise of a single reporting operating segment engaged in mineral exploration in Tanzania. The Company’s corporate division only earns interest revenue that is considered incidental to the activities of the Company and therefore does not meet the definition of an operating segment as defined in IFRS 8 ‘Operating Segments’. As the operations comprise a single reporting segment, amounts disclosed in the consolidated financial statements also represent operating segment amounts.

 

An operating segment is defined as a component of the Company:

 

• that engages in business activities from which it may earn revenues and incur expenses;

 

• whose operating results are reviewed regularly by the entity’s chief operating decision maker; and

 

• for which discrete financial information is available.

 

Geographic Segments

 

The Company is in the business of mineral exploration and production in the country of Tanzania. Information concerning TREC’s geographic locations is as follows:

   As at
November 30,
2017
   As at
August 31,
2017
 
Identifiable assets          
Canada  $533,695   $1,184,932 
Tanzania   51,532,683    50,168,156 
   $52,066,378   $51,353,088 
Non-current assets          
Canada  $10,306   $10,064 
Tanzania   50,749,955    49,410,936 
   $50,760,261   $49,421,000 

 

17. Commitments

 

In order to maintain the existing site of mining and exploration licenses, the Company is required to pay annual license fees. The Company has not paid certain of its annual license fees since October 2014 with exception of Buckreef mining licenses. As at November 30, 2017 an accrual of $408,000 (August 31, 2017 - $817,000) has been recorded relating to unpaid license fees. Note that these licenses remain in good standing until a letter of demand is received from Ministry of Energy and Minerals requesting payment of any unpaid license fees plus 50% penalty, and the Company fails to respond within 30 days. The Company has not received a letter of demand. The potential penalty relating to unpaid license fees is approximately $128,000 (August 31, 2017 - $404,000). The Company has recorded an accrual for all valid and active mining licenses.

 

 29 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

18.Asset Retirement Obligation

 

The Company's asset retirement obligation relates to the cost of removing and restoring of the Buckreef Project in Tanzania. Significant reclamation and closure activities include land rehabilitation, demolition of buildings and mine facilities, ongoing care and maintenance and other costs. This estimate depends on the development of environmentally acceptable mine closure plan.

A reconciliation for asset retirement obligations is as follows:
   November 30, 2017   August 31, 2017 
Balance, beginning of period/year  $715,057   $704,123 
Accretion expense   2,772    10,934 
Foreign exchange   1,669    - 
Balance, end of the period/year  $719,498   $715,057 

 

The mine closure provision liability is based upon the following estimates and assumptions:

 

a)Total undiscounted amount of future retirement costs was estimated to be USD $522,000.
b)Risk-free rate at 1.58%.
c)Expected timing of cash outflows required to settle the obligation is for the full amount to be paid in 2025.
d)Inflation over the period from is estimated to be 1.5% per annum.

 

19.Non-Controlling Interest

 

The changes to the non-controlling interest for the three month periods ended November 30, 2017 and year ended August 31, 2017 are as follows:

 

         
Period/year ended  November 30,
2017
  

August 31,

2017

 
Balance at beginning of period/year  $900,325   $1,368,679 
Non-controlling interest’s 45% share of Buckreef’s comprehensive loss   (186,691)   (458,573)
Non-controlling interest’s 25% share of NWBM’s comprehensive income (loss)   (3,506)   (9,781)
Balance at end of period/year  $710,128   $900,325 

 

The following is summarized financial information for Buckreef:

 

         
   November 30,
2017
  

August 31,

2017

 
Current assets  $713,111   $687,195 
Long term assets   19,350,909    20,651,428 
Current liabilities   (17,809)   (17,390)
Asset retirement obligation   (719,498)   (715,057)
Advances from parent   (21,921,317)   (21,653,034)
           
Net income (loss) for the period/year   (414,990)   (1,345,872)

 

 30 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

19.Non-Controlling Interest (continued)

 

The following is summarized financial information for NWBM:

 

         
   November 30,
2017
  

August 31,

2017

 
Current assets  $-   $- 
Long term assets   -    - 
Current liabilities   (7,641)   (7,462)
Advances from parent   (1,499,454)   (1,499,448)
           
Net income (loss) for the period/year   (14,031)   (51,668)

 

20. Gold Bullion Loans

 

Activity during the three month period ended November 30, 2017:

 

There were no new gold loan issuances during the three month period ended November 30, 2017.

 

Activity during the year ended August 31, 2017:

 

There were no new gold loan issuances during the year ended August 31, 2017.

 

The Company entered into extension agreements in regards to USD$1,530,000 in gold loans closed on June 22, 2015, extending the term by one year to June 22, 2018, but modifying no other terms of the 2015 loans.

 

Outstanding balance:

 

The balance of the gold bullion loans is as follows:

 

         
   November 30,
2017
  

August 31,

2017

 
Balance at beginning of period/year  $3,394,998   $3,121,831 
Interest accrued   98,108    293,278 
Issuance of shares for interest payment   (59,271)   (328,033)
Interest accretion   46,322    449,460 
Foreign exchange translation adjustment   49,724    (141,538)
Balance at end of period/year  $3,529,881   $3,394,998 
           
Classification:          
Short term portion of gold loan  $3,529,881   $2,335,474 
Long term portion of gold loan   -    1,059,524 
Balance at end of period/year  $3,529,881   $3,394,998 

 

Interest expense related to the gold bullion loan amounted to $98,108 (2016 - $95,497), for the three month period ended November 30, 2017 and is recorded as finance charge in the statements of comprehensive loss. Accretion expense during the three month period ended November 30, 2017 totaled $46,322 (2016 - $176,285).

 

 31 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

20. Gold Bullion Loans (continued)

 

Derivative in gold bullion loans:

 

Prior to September 1, 2016 the derivative in gold bullion loans consisted of conversion options issued on gold bullion loans which had exercise prices denominated in a currency other than the Company’s functional currency, which at that time was the Canadian dollar. During the period that the Canadian dollar was the Company’s functional currency, derivatives in gold bullion loans that were exercisable in U.S. dollars were classified as derivative liabilities. Upon the change in functional currency to the U.S. dollar, these derivative liabilities were no longer classified as derivatives and an amount of $5,051,000 was reclassified to reserve for share based payments.

 

21. Finance costs

 

Finance costs comprises of the following:

   Three month ended November 30, 2017   Three months ended November 30, 2016 
         
Interest on Gold Bullion Loans (Note 20)  $98,108   $95,497 
Interest on Convertible Loans (Note 22)   33,669    - 
   $131,777   $95,497 

 

22. Convertible loans

 

Activity during the three month period ended November 30, 2017:

 

During the three month period ended November 30, 2017, the Company received loans in the amount of $420,723 (US$339,710) with a one year term with a right to extend by 1 additional year by mutual consent, carrying an 8% interest rate payable quarterly. The convertible loans may be repaid in cash or common shares of the Company at the option of the lender. The convertible loan may be converted into common shares of the Company at the sole discretion of the lender at an exercise price of US$0.36 per share. Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.36 per share.

 

In connection with the loans, the Company paid a finder’s fee via the issuance of an aggregate of 214,864 common shares with a value of $91,317.

 

Activity during the year ended August 31, 2017:

 

During the year ended August 31, 2017, the Company received loans in the amount of $1,181,993 (US$884,078) with a one year term with a right to extend by 1 additional year by mutual consent, carrying an 8% interest rate payable quarterly. The convertible loans may be repaid in cash or common shares of the Company at the option of the lender. The convertible loans may be converted into common shares of the Company at the sole discretion of the lender at an exercise price of US$0.36 – US$0.38 per share. Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.34 – US$0.36 per share.

 

In connection with the loans, the Company paid a finder’s fee via the issuance of an aggregate of 132,577 common shares with a value of $92,805.

 

On July 19, 2017, the Company settled $63,075 (US$50,000) of principal amount of outstanding loans through the issuance of 83,333 shares with a value of $49,166 resulting on a gain on settlement of $13,909.

 

 32 

 

Tanzanian Royalty Exploration Corporation

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the Three Month Periods Ended November 30, 2017 and 2016

 

 

22. Convertible loans (continued)

 

The balance of the convertible loans is as follows:

 

         
   November 30,
2017
  

August 31,

2017

 
Balance at beginning of period/year  $865,656   $245,497 
Proceeds from convertible loans   420,723    1,181,993 
Conversion of convertible loan to shares   -    (63,075)
Less: conversion component of convertible loans   (39,000)   (625,000)
Less: finders fee   (91,317)   (92,805)
Interest accrued   22,266    24,878 
Interest accretion   211,450    276,236 
Foreign exchange   24,335    (82,068)
Balance at end of period/year  $1,414,113   $865,656 

 

Interest accretion expense related to these loans during the three month period ended November 30, 2017 totaled $211,450 (2016 - $7,750).

 

Derivative in convertible loan:

Prior to September 1, 2016 the derivative in gold bullion loans consisted of conversion options issued on gold bullion loans which had exercise prices denominated in a currency other than the Company’s functional currency, which at that time was the Canadian dollar. During the period that the Canadian dollar was the Company’s functional currency, derivatives in gold bullion loans that were exercisable in U.S. dollars were classified as derivative liabilities. Upon the change in functional currency to the U.S. dollar, these derivative liabilities were no longer classified as derivatives and an amount of $108,000 was reclassified to reserve for share based payments.

 

 

33

 

exh_992.htm EXHIBIT 99.2


ENT> EX-99.2 3 exh_992.htm EXHIBIT 99.2

Exhibit 99.2

 

 

 

 

Management Discussion and Analysis

November 30, 2017

 

 

The following Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations for Tanzanian Royalty Exploration Corporation (the “Company”) should be read in conjunction with the unaudited interim condensed consolidated financial statements for the three month period ended November 30, 2017 and 2016 and the audited consolidated financial statements for the years ended August 31, 2017 and 2016. The MD&A was prepared as of January 11, 2018. All amounts are in Canadian dollars, unless otherwise specified.

 

Highlights – for the three month period ended November 30, 2017

 

Financial:

 

The Company received loans in the amount of US$339,710 maturing in 1 year with a right to extend by 1 additional year by mutual consent, carrying an 8% interest rate payable quarterly. The convertible loans may be repaid in cash or common shares of the Company at the option of the lender. The convertible loan may be converted into common shares of the Company at the sole discretion of the lender at an exercise price of US$0.36 per share. Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.36 per share.
   
In connection with the loans, the Company paid a finder’s fee via the issuance of an aggregate of 214,864 common shares.
   
The Company also entered into extension agreements in regards to USD$1,530,000 in gold loans closed on June 22, 2015, extending the term by one year to June 22, 2018, but modifying no other terms of the 2015 loans.
   
During the year ended August 31, 2017, the Company received loans in the amount of US$884,078 with a one year term with a right to extend by 1 additional year by mutual consent, carrying an 8% interest rate payable quarterly. The convertible loans may be repaid in cash or common shares of the Company at the option of the lender. The convertible loans may be converted into common shares of the Company at the sole discretion of the lender at an exercise price of US$0.36 – US$0.38 per share. Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.34 – US$0.36 per share.
   
In connection with the loans, the Company paid a finder’s fee via the issuance of an aggregate of 132,577 common shares with a value of $92,805.
   
On July 19, 2017, the Company settled $63,075 (US$50,000) of principal amount of outstanding loans through the issuance of 83,333 shares with a value of $49,166 resulting on a gain on settlement of $13,909.
     

 

1

   
   
    Management Discussion and Analysis
November 30, 2017

 

On September 1, 2016, the Company closed the first tranche of a $5 Million private placement of securities with Crede CG III, Ltd.
   
  In the initial round of financing, the Company privately placed 1,840,400 shares of its common stock and warrants for US$1.25 million. The common stock issued in the first tranche of the financing, which closed on September 1, 2016, was priced at US$0.6792 per share. The investor also received five-year warrants to purchase 1,840,400 shares of Common Stock with an exercise price of US$0.8291 per share. The common stock issued in the first tranche of the financing or issued upon exercise of the warrants issued in the first tranche of the financing will be restricted until a valid registration for such common stock becomes effective.
   
  On September 26, 2016, the Company closed the second tranche of the $5 million private placement of securities with Crede CG III, Ltd.
   
  In the second round of the financing, the Company privately placed convertible notes and warrants for US$3.75 million. The convertible notes were issued in the principal amount of US$3.75 million, carried a coupon of 2.0% and matured on September 26, 2046. The Company immediately exercised its right to cause the conversion of the convertible notes, resulting in the cancellation of the notes and the issuance of 5,357,143 shares of common stock to the investor. The investor also received five-year warrants to purchase 4,017,857 shares of common stock at an exercise price of US$1.10 per share. The closing of the second tranche of the financing was conditioned upon a valid registration statement for the common stock issued or issuable to the investor upon exercise of warrants being declared effective by the U.S. Securities and Exchange Commission. The Commission declared the Company’s Form F-3 Registration Statement registering the stock effective on September 23, 2016.
   
During the year ended August 31, 2016, the Company closed US $1,000,000 in gold loans with the following terms:
   
  Under the terms of the loan agreements, the gold loans are for a period of three years, are subject to renewal, and carry an 8% interest rate payable quarterly. The bullion loans may be repaid in cash or common shares of the Company or gold in specified form. If the bullion loans are paid back by bullion, the valuation date for such bullion will the date of the loan agreements. The bullion loans may be converted into common shares of the Company at the sole discretion of the lenders at an exercise price of US$0.70 per share. Interest is payable quarterly, either in cash or in shares at a price of US$0.308 per share. There is no prepayment penalty.
     

 

2

   
   
    Management Discussion and Analysis
November 30, 2017

 

  The Company also closed and additional US $100,000 in gold loans with the following terms:
   
  Under the terms of the loan agreements, the gold loans are for a period of one year, are subject to renewal, and carry an 8% interest rate payable quarterly. The bullion loans may be repaid in cash or common shares of the Company or gold in specified form. If the bullion loans are paid back by bullion, the valuation date for such bullion will the date of the loan agreements. The bullion loans may be converted into common shares of the Company at the sole discretion of the lenders at an exercise price of US$0.50 per share. Interest is payable quarterly, either in cash or in shares at a price of US$0.375 per share. There is no prepayment penalty.
     
  The Company also closed and additional US $200,000 in gold loans with the following terms:
     
  Under the terms of the loan agreements, the gold loans are for a period of one year, are subject to renewal, and carry an 8% interest rate payable quarterly. The bullion loans may be repaid in cash or common shares of the Company or gold in specified form. If the bullion loans are paid back by bullion, the valuation date for such bullion will the date of the loan agreements. The bullion loans may be converted into common shares of the Company at the sole discretion of the lenders at an exercise price of US$0.40 per share. Interest is payable quarterly, either in cash or in shares at a price of US$0.38 per share. There is no prepayment penalty.
   
On July 8, 2015, the Company closed US $1,530,000 million dollar "bullion loans”.
   
  Under the terms of the loan agreements, the bullion loans are for a period of one year, are subject to renewal, and carry an 8% interest rate payable quarterly. The bullion loans may be repaid in cash or common shares of the Company or gold in specified form at the option of the lender. If the bullion loans are paid back by bullion, the valuation date for such bullion will be the date of the loan agreements. The bullion loans may be converted into common shares of the Company at the sole discretion of the lenders at an exercise price of US$0.27658 per share. Interest is payable quarterly, either in cash or in shares at a price of US$0.27658 per share at the option of the lender. There is no prepayment penalty. An 8% finder’s fee was paid through the issuance of 442,548 common shares at a price of $0.40 per share with a value of $177,019.
     

 

3

   
   
    Management Discussion and Analysis
November 30, 2017

 

Operational:
   
In October 2017, the newly appointed Minister for Minerals, Honourable Angellah Kairuki (MP), visited Buckreef Gold Company in company of the deputy Minister for Minerals, Stamico Board Chairman and the acting DG for Stamico. The team was given a detailed brief on the project.
   
No mining or ore processing activities conducted at South Pit and Plant during the quarter. Status is still care and maintenance while we wait for the resolution of the land compensation issue and issuance of the renewed SML certificate.
   
Cumulative Total Ore mined from the Buckreef South Pit (ROMPad + Pad#1-Pad#3+Crusher pad) as of 30th November 2017 remains at 119,725.59 tonnes averaging 1.86g/t Au with total contained metal ounces of 7,161.24.
   
The disposition of the Ore stockpiled as of 30th November 2017, remains as follows: ROMPAD: 72,315.66t @1.39g/t Au (3,237.96 Ozs); Pad#1: 20,931.75t @2.29g/t Au (1,541.77 Ozs); Pad#2: 12,943.78t @2.78g/t Au (1,155.55 Ozs); Pad#3: 9,237.90t @ 3.85g/t Au (1,143.49 Ozs) & Crusher Pad: 4,245t @ 3.86 g/t Au (526.62 Ozs).
   
Ground clearing of the 2nd site (0.25km2) proposed for the construction of the tailings storage facility (TSF) for the Buckreef mining operation commenced.
   
Concerted efforts to establish the status of the Itetemia ML Application (No. App/01722) submitted on 4th November 2015 conducted during the quarter. The application is still under review due to the fact that it covers four (4) Prospecting Licences (PLs) of which 3 are registered under Tanzam2000 while the fourth is registered under Tancan Mining. Efforts to re-establish security units at Itetemia ML Application area are still on hold while we wait for the issuance of the Mining License.
   
Artisanal small-scale mining activities at the Eastern Porphyry Prospect, Bingwa Prospect, Kihesa and Tembo North areas, as well as at the Buziba Licence, persisted during the quarter but advent of the rain season has forced a significant number to abandon operations and revert to farming.
   
Efforts to engage the Minister of Tourism and Natural Resources with regards to the limited access to our Kigosi gold project area located in a restricted game reserve commenced during the quarter. A letter with appendices was submitted to the Director General of the Kigosi-Moyowosi game reserve in response to a directive from the same offices for Tancan Mining to vacate the Kigosi exploration camp site. No response to our letter has been received so far.
   
PMCG consulting auditors commenced and completed the year-end audit inventory during the quarter.
   
End of year Occupational Health and Safety (OSHA) audits were conducted by the responsible government officials at Buckreef site towards the end of the quarter. The officials were informed the operations were on care & maintenance status till mining licence renewal issues were resolved.
     

Overall Performance

 

As at November 30, 2017, the Company had current assets of $1,306,117, compared to $1,922,088 on August 31, 2017. The decrease is mainly due to inflows from proceeds of convertible loans issued of $420,723 (2016 - $nil), offset by outflows in regards to expenditures on exploration of $227,229 (2016 - $960,765) and cash used in operations of $796,415 (2016 - $989,963). Mineral properties and deferred exploration assets were $48,285,326 as at November 30, 2017, compared to $46,920,303 at August 31, 2017.

 

4

   
   
    Management Discussion and Analysis
November 30, 2017

 

Net loss for the three month period ended November 30, 2017 was $1,829,996, compared to a net loss of $2,018,722 in the comparable three month period ended November 30, 2016. Net loss remained fairly consistent between the two periods. Variances in expenses are discussed below.

 

Share Capital:

During the three month period ended November 30, 2017, the Company issued nil shares (2016 – 354,137 shares) pursuant to the RSU plan with a value of $nil (2016 - $482,749). The Company issued 245,197 (2016 – 202,260) shares with a value of $100,970 (2016 - $172,318) in connection with interest payments related to the convertible loans and gold bullion loans outstanding. During the comparative period, in September 2016, the Company also completed its private placement financing issuing 7,197,543 shares for proceeds, net of issue costs, of $5,589,501. In connection with the private placement closed in September 2016, the Company also issued 3,146,944 shares pursuant to cashless exercise of warrants issued on the private placement. In the current period, capital was utilized for the Buckreef Gold Project development, property acquisition, exploration, capital equipment purchases and general operating expenses as tabulated below. The remaining funds/cash liquid assets, when available, are invested in interest bearing investments, which are highly liquid.

 

   C$
(000)
 
Funds available August 31, 2017   1,011 
Net proceeds from convertible loans   421 
Mineral property expenditures including licences, environmental and exploration, net of recoveries   (227)
General corporate expenses   (796)
Funds available November 30, 2017  $409 

 

At November 30, 2017, the Company had a working capital deficiency of $8,712,838 (August 31, 2017 – $6,552,376 working capital deficiency), had not yet achieved profitable operations, has accumulated losses of $98,206,376 (August 31, 2017 – $96,566,577) and expects to incur further losses in the development of its business. The Company will require additional financing in order to conduct its planned work programs on mineral properties, meet its ongoing levels of corporate overhead and discharge its future liabilities as they come due.

 

Based on the Company’s current funding sources and taking into account the working capital position and capital requirements at November 30, 2017, these factors indicate the existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern and is dependent on the Company raising additional debt or equity financing. The Company must obtain additional funding in order to continue development and construction of the Buckreef Project. The Company presently does not have adequate resources to maintain its core activities for the next fiscal year or sufficient working capital to fund all of its planned activities. The Company is continuing to pursue additional financing to fund the construction of the Buckreef Project and additional projects. However there is no assurance that such additional funding and/or project financing will be obtained or obtained on commercially favourable terms.

 

5

   
   
    Management Discussion and Analysis
November 30, 2017

 

Additional funding may be derived from revenues generated in the future from anticipated completion and operation of its Buckreef mine currently under development. Management continues to explore alternative financing sources in the form of equity, debt or a combination thereof; however, the current economic uncertainty and financial market volatility make it difficult to predict success. Risk factors potentially influencing the Company’s ability to raise equity or debt financing include: the outcome of the feasibility study at the Buckreef Project, mineral prices, the risk of operating in a foreign country, including, without limitation, risks relating to permitting, and the buoyancy of the credit and equity markets. For a more detailed list of risk factors, refer to the Company’s Form 20-F Annual Report for the year ended August 31, 2017, which is filed on SEDAR as the Company’s Annual Information Form.

 

Due to the current low interest rate environment and lack of funds, interest income is not expected to be a significant source of income or cash flow. Management intends to monitor spending and assess results on an ongoing basis and will make appropriate changes as required.

 

TRENDS

 

There are significant uncertainties regarding the prices of precious and base metals and other minerals and the availability of equity and debt financing for the purposes of mineral exploration and development. The prices of precious and base metals have been subject to extreme volatility over recent periods, as such the Company remains cautious;

 

The Company’s future performance is largely tied to development of the Buckreef project and other main projects and outcome of future drilling results; and

 

Current financial markets are likely to be volatile in Canada and the United States for the remainder of the fiscal year, reflecting ongoing concerns about the stability of the global economy. As well, concern about global growth may lead to future drops in the commodity markets. Uncertainty in the credit markets has also led to increased difficulties in borrowing or raising funds. Companies worldwide have been negatively affected by these trends. As a result, the Company may have difficulties raising equity and debt financing for the purposes of base and precious metals exploration and development.

 

These trends may limit the Company’s ability to discover and develop an economically viable mineral deposit.

 

6

   
   
    Management Discussion and Analysis
November 30, 2017

 

Selected Financial Information

 

   As at and for the three month period ended November 30, 2017   As at and for the year ended August 31, 2017   As at and for the year ended August 31, 2016 
Total Revenues  $0   $0   $0 
Net income (loss) for the period  $(1,829,996)  $(6,434,112)  $(12,781,902)
Basic income (loss) per share  $(0.01)  $(0.05)  $(0.12)
Diluted income (loss) per share  $(0.01)  $(0.05)  $(0.12)
Total assets  $52,066,378   $51,353,088   $49,885,545 
Total long term financial liabilities  $719,498   $1,774,581   $1,645,529 
Cash dividends declared per share  $0   $0   $0 

 

Results of Operations

 

Net additions to mineral properties and deferred exploration costs for the three month period ended November 30, 2017 were $1,365,023 compared to $1,916,261 for the three month period ended November 30, 2016. Out of the net additions, $1,131,127 (2016 - $1,056,240) represents an increase due to foreign exchange in the current period on functional currency. The increase excluding these amounts saw expenditures of $233,896 for the three month period ended November 30, 2017 compared to $860,021 during 2016. The higher expenditure in 2016 is due to the Company’s private placement financing closed in September 2016 out of which resources were allocated to license fees and other costs to keep properties in good standing and advance them towards production.

 

Net loss for the three month period ended November 30, 2017 was $1,829,996, compared to a net loss of $2,018,722 for the comparable three month period ended November 30, 2016.

 

Variances in the expenditures is set out below:

 

For the three month period ended November 30, 2017, depreciation expense was $98,328, compared to $105,489 for the three month period ended November 30, 2016. The decrease of $7,161 is due to a lower overall capital assets base as there were no additions during the period and prior fiscal year.

 

Consulting fees for the three month period ended November 30, 2017 were $233,938, compared to $158,432 in the comparable three month period ended November 30, 2016. Consulting expenses increased during the current period as the Company hired consultants in an effort to advance its Buckreef project. The consultants were hired to advise in regards to the status of the processing plant and any modifications and changes to the operational process, and many were hired in replacement of salaried management and personnel that resigned or were let go during the course of the last year resulting in a decrease in salaries and benefits expenses discussed below.

 

Directors’ fees for the three month period ended November 30, 2017 were $27,906, compared to $84,831 in the comparable three month period ended November 30, 2016. The amount decreased as compared to the same period in the prior year due to director resignations during the prior year.

 

Office and general expenses for the three month period ended November 30, 2017 were $28,245, compared to $43,265 in the comparable three month period ended November 30, 2016. Office and general costs decreased between the comparable periods due to continued cost reduction measures across all areas of the Company.

 

7

   
   
    Management Discussion and Analysis
November 30, 2017

 

Shareholder information costs for the three month period ended November 30, 2017 increased to $56,886 from $20,481 for the comparable three month period ended November 30, 2016. The amounts increased due to higher spending in the current fiscal year on investor relations as the Company hired new investor relations consultants in the latter part of the prior year.

 

Professional fees decreased by $194,390 for the three month period ended November 30, 2017 to $118,731 from $313,121 for the three month period ended November 30, 2016. Professional fees decreased mainly due to increased work surrounding the adoption of the stock option plan incurred in the comparative period.

 

Salaries and benefits expense were consistent at $103,528 for the three month period ended November 30, 2017 from $110,493 for the three month period ended November 30, 2016. Salaries and benefits remained consistent between the two periods.

 

Share based payments for the three month period ended November 30, 2017 were $849,590, compared to a recovery of $633,088 in the comparable three month period ended November 30, 2016. The increase is due to the Company issuing 3,582,000 options (2016 – 3,750,000) with a value of $495,000 (2016 - $704,000) offset by the forfeiture of RSU’s of $nil (2016 - $(116,911)) as well as the repricing of the 3,750,000 options issued in 2016 which resulted in additional compensation of $240,000 (2016 - $nil), see note 7 of the unaudited interim condensed consolidated financial statements for the three month period ended November 30, 2017 and 2016 for details of stock options issued.

 

For the three month period ended November 30, 2017, travel and accommodation expense was consistent at $13,406 compared to $13,640 in 2016. Travel and accommodation expense was consistent between the two periods.

 

For the three month period ended November 30, 2017, the foreign exchange gain was $96,016 compared to an exchange loss of $150,601 for the same three month period ended November 30, 2016. The primary reason is the US Dollar exchange rate decreasing from 1.258 at August 31, 2017 to 1.288 at November 30, 2017.

 

The interest accretion expense for the three month period ended November 30, 2017 was $257,772, compared to $184,035for the three month period ended November 30, 2016. Interest accretion decreases as loans approach their maturity date. The amount increased due to additional loans issued during the course of fiscal 2017 and in the first quarter of fiscal 2018.

 

8

   
   
    Management Discussion and Analysis
November 30, 2017

 

Summary of Quarterly Results (unaudited)

 

(Expressed in thousands of dollars, except per share amounts)

   2018
Q1
   2017
Q4
   2017
Q3
   2017
Q2
   2017
Q1
   2016
Q4
   2016
Q3
   2016
Q2
 
Total revenues  $0   $0   $0   $0   $0   $0   $0   $0 
Net Income (Loss)  $(1,830)  $(1,307)  $(1,643)  $(1,465)  $(2,019)  $(5,510)  $(1,052)  $(5,057)
Basic and diluted income (loss) per share  $(0.01)  $(0.01)  $(0.01)  $(0.01)  $(0.02)  $(0.05)  $(0.01)  $(0.05)

 

Liquidity and Capital Resources – Going Concern Discussion

 

The Company manages liquidity risk by maintaining adequate cash balances in order to meet short term business requirements. Because the Company does not currently derive any production revenue from operations, its ability to conduct exploration and development work on its properties is largely based upon its ability to raise capital by equity funding. Previously, the Company obtained funding via private placements, public offering and various sources, including the Company’s President and former CEO who is currently still a director.

 

Based on the Company’s current funding sources and taking into account the working capital position and capital requirements at November 30, 2017, these factors indicate the existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern and is dependent on the Company raising additional debt or equity financing. The Company must obtain additional funding in order to continue development and construction of the Buckreef Project. The Company presently does not have adequate resources to maintain its core activities for the next fiscal year or sufficient working capital to fund all of its planned activities. The Company is continuing to pursue additional financing to fund the construction of the Buckreef Project and additional projects. However there is no assurance that such additional funding and/or project financing will be obtained or obtained on commercially favourable terms.

 

At November 30, 2017 the Company had a working capital deficiency of $8,712,838 (August 31, 2017 – $6,552,376 working capital deficiency), had not yet achieved profitable operations, has accumulated losses of $98,206,376 (August 31, 2017 – $96,566,577) and expects to incur further losses in the development of its business. The Company will require additional financing in order to conduct its planned work programs on mineral properties, meet its ongoing levels of corporate overhead and discharge its future liabilities as they come due.

 

Some of the Company’s mineral properties are being acquired over time by way of option payments. It is at the Company’s option as to whether to continue with the acquisition of the mineral properties and to incur these option payments.

 

9

   
   
    Management Discussion and Analysis
November 30, 2017

 

Commitments:

 

In order to maintain the existing site of mining and exploration licenses, the Company is required to pay annual license fees. The Company has not paid its annual license fees since October 2014 with exception of Buckreef mining licenses. As at November 30, 2017 an accrual of $408,000 (August 31, 2017 - $817,000) has been recorded relating to unpaid license fees. Note that these licenses remain in good standing until a letter of demand is received from Ministry of Energy and Minerals requesting payment of any unpaid license fees plus 50% penalty, and the Company fails to respond within 30 days. The Company has not received a letter of demand. The potential penalty relating to unpaid license fees is approximately $128,000 (August 31, 2017 - $404,000). The Company has recorded an accrual for all valid and active mining licenses.

 

Off-Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements.

 

Transactions with Related Parties

 

Related parties include the Board of Directors and officers, close family members and enterprises that are controlled by these individuals as well as certain consultants performing similar functions.

 

(a) Tanzanian Royalty Exploration Corporation entered into the following transactions with related parties:

 

Three month ended November 30,  Notes   November 30,
2017
   November 30,
2016
 
Legal services   
(i)
    
$Nil
   $82,455 
Consulting   
(ii)
   $53,348   $43,859 
Consulting   
(iii)
    
$Nil
   $172,330 

 

(i) The Company engages a legal firm for professional services in which one of the Company’s directors is a partner. During the three month period ended November 30, 2017, the legal expense charged by the firm was $nil (2016 - $82,455). As at November 30, 2017, $355,940 remains payable (August 31, 2017 - $370,940).

 

(ii) During the three month period ended November 30, 2017, $53,348 (2016 - $43,859) was paid for heap leach construction consulting and website/data back-up services to companies controlled by individuals associated with the former CEO and current director.

 

(iii) During the three month period ended November 30, 2017, $Nil (2016 - $172,330) was paid for grade control drilling, license fees and other consulting services to Stamico, the Company’s joint venture partner on the Buckreef Gold Project.

 

10

   
   
    Management Discussion and Analysis
November 30, 2017

 

As at November 30, 2017, the Company has a receivable of $37,247 (August 31, 2017 - $37,247) from an organization associated with the Company’s President and former CEO and current director and from current officers and directors.

 

During the year ended August 31, 2015, the Company sold automotive and mining equipment in the amount of $243,805 to directors of the Company and $333,700 to the Company’s former CEO and current director for total proceeds of $577,505 as described in Note 4. Pursuant to the agreements, the Company entered into 1-year lease agreements on the automotive and mining equipment with effective dates in May 2015. Per the terms of the leases, the Company agrees to purchase back the automotive and mining equipment at the end of the lease periods for a lump sum payment of USD$74,848. The initial base payments vary between the agreements and range between $3,500 and $8,000 payable monthly. The effective interest rate on the capital lease obligation outstanding is between 20% and 30%.

 

On December 1, 2016, the Company entered into settlement agreements whereby a total of $343,623 in principal and accrued interest was settled through the issuance of 458,329 shares issued

at an average price of $0.63 per share for total issued value of $288,747, resulting in a gain on settlement of debt of $54,876 for the year ended August 31, 2017.

 

As at November 30, 2017, the remaining balance outstanding under finance lease obligations after the settlements described above is $57,406 (August 31, 2017 - $56,631) and is repayable within 1 year, as such, the finance lease obligation is classified as a current liability.

 

(b) Remuneration of Directors and key management personnel (being the Company’s Chief Executive Officer, Chief Financial Officer and Chief Operating Officer) of the Company was as follows:

 

Three months ended November 30,  November 30, 2017   November 30, 2016 
    
Fees, salaries and benefits (1)
    
Share based payments (2), (3), (4)
    
Fees, salaries and benefits (1)
    
Share based payments (2), (3)
 
Management  $172,237   $765,047   $105,333   $723,090 
Directors   27,906    414,000    27,906    56,938 
Total  $200,143   $1,179,047   $133,239   $780,028 

 

(1)Salaries and benefits include director fees. The board of directors do not have employment or service contracts with the Company. Directors are entitled to director fees and RSU’s for their services and officers are entitled to cash remuneration and RSU’s for their services.
(2)Compensation shares may carry restrictive legends.
(3)All RSU share based compensation is based on the accounting expense recorded in the year.
(4)All stock option share based compensation is based on the accounting expense recorded in the year.

 

11

   
   
    Management Discussion and Analysis
November 30, 2017

 

As at November 30, 2017, included in trade and other payables is $607,000 (August 31, 2017 - $638,000) due to these key management personnel with no specific terms of repayment.

 

The Company’s former CEO and current director provided various loans to the Company totaling $133,632. On December 1, 2016, the Company entered into settlement agreements whereby the remaining balance of $136,519 was settled through the issuance of 187,321 shares issued

at an average price of $0.705 per share for total issued value of $131,998, resulting in a gain on settlement of debt of $4,521 for the year ended August 31, 2017.
As at November 30, 2017 $nil (August 31, 2017 - $nil) is outstanding. The balance is payable on demand, interest free, and unsecured.

 

Restricted Stock Unit Plan

 

The Restricted Stock Unit Plan (RSU Plan) is intended to enhance the Company’s and its affiliates’ abilities to attract and retain highly qualified officers, directors, key employees and other persons, and to motivate such officers, directors, key employees and other persons to serve the Company and its affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the RSU Plan provides for the grant of restricted stock units (RSUs). Each RSU represents an entitlement to one common share of the Company, upon vesting. As of November 29, 2016, the Board resolved to amend the suspension to 800,000 of the 2,500,000 common shares previously authorized for issuance under the RSU Plan, such that a maximum of 2,500,000 shares shall be authorized for issuance under the RSU Plan, until such suspension may be lifted or further amended. RSU awards may, but need not, be subject to performance incentives to reward attainment of annual or long-term performance goals in accordance with the terms of the RSU Plan. Any such performance goals are specified in the award agreement.

 

Of the 2,500,000 shares authorized for issuance under the Plan, 2,114,853 (August 31, 2017 - 2,114,853) shares have been issued as at November 30, 2017.

 

Critical Accounting Estimates

 

Assessment of Recoverability of Mineral Property Costs

 

The deferred cost of mineral properties and their related development costs are deferred until the properties are placed into production, sold or abandoned. These costs will be amortized over the estimated useful life of the properties following the commencement of production. Cost includes both the cash consideration as well as the fair market value of any securities issued on the acquisition of mineral properties. Properties acquired under option agreements or joint ventures, whereby payments are made at the sole discretion of the Company, are recorded in the accounts at such time as the payments are made. The proceeds from property options granted reduce the cost of the related property and any excess over cost is applied to income The Company’s recorded value of its exploration properties is based on historical costs that expect to be recovered in the future. The Company’s recoverability evaluation is based on market conditions for minerals, underlying mineral resources associated with the properties and future costs that may be required for ultimate realization through mining operations or by sale.

 

12

   
   
    Management Discussion and Analysis
November 30, 2017

 

Assessment of Recoverability of Deferred Income Tax Assets

 

The Company follows the balance sheet method of accounting for income taxes. Under this method, deferred tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax liabilities and assets are measured using substantively enacted tax rates. The effect on the deferred tax liabilities and assets of a change in tax rates is recognized in the period that the change occurs. Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that is probable that taxable profit will be available against which the deductible temporary difference and the carry forward of unused credits and unused tax losses can be utilized. In preparing the consolidated financial statements, the Company is required to estimate its income tax obligations. This process involves estimating the actual tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. The Company assesses, based on all available evidence, the likelihood that the deferred income tax assets will be recovered from future taxable income and, to the extent that recovery cannot be considered probable, the deferred tax asset is not recognized.

 

Estimate of Share Based Payments, Warrant Liability, Embedded Derivatives Associated Assumptions

 

The Company recorded share based payments based on an estimate of the fair value on the grant date of share based payments issued and reviews its foreign currency denominated warrants each period based on their fair value. The accounting required for the warrant liability and the derivative liability embedded in the gold bullion loan requires estimates of interest rate, life of the warrant, stock price volatility and the application of the Black-Scholes option pricing model. See note 7 of the November 30, 2017 unaudited interim condensed consolidated financial statements for full disclosure.

 

Critical accounting policies

 

Mineral Properties

 

All direct costs related to the acquisition and exploration and development of specific properties are capitalized as incurred. If a property is brought into production, these costs will be amortized against the income generated from the property. If a property is abandoned, sold or impaired, an appropriate charge will be made to the statement of comprehensive loss at the date of such impairment. Discretionary option payments arising on the acquisition of mining properties are only recognized when paid. Amounts received from other parties to earn an interest in the Company's mining properties are applied as a reduction of the mining property and deferred exploration and development costs until all capitalized costs are recovered at which time additional reimbursements are recorded in the statement of comprehensive loss, except for administrative reimbursements which are credited to operations.

 

Consequential revenue from the sale of metals, extracted during the Company's test mining activities, is recognized on the date the mineral concentrate level is agreed upon by the Company and customer, as this coincides with the transfer of title, the risk of ownership, the determination of the amount due under the terms of settlement contracts the Company has with its customer, and collection is reasonably assured. Revenues from properties earned prior to the commercial production stage are deducted from capitalized costs.

 

13

   
   
    Management Discussion and Analysis
November 30, 2017

 

The amounts shown for mining claims and related deferred costs represent costs incurred to date, less amounts expensed or written off, reimbursements and revenue, and do not necessarily reflect present or future values of the particular properties. The recoverability of these costs is dependent upon discovery of economically recoverable reserves and future production or proceeds from the disposition thereof.

 

The Company reviews the carrying value of a mineral exploration property when events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying value of the property exceeds its fair value, the property will be written down to fair value with the provision charged against operations in the year of impairment. An impairment is also recorded when management determines that it will discontinue exploration or development on a property or when exploration rights or permits expire.

 

Ownership in mineral properties involves certain risks due to the difficulties in determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history characteristic of many mineral interests. The Company has investigated the ownership of its mineral properties and, to the best of its knowledge, ownership of its interests are in good standing.

 

Capitalized mineral property exploration costs are those directly attributable costs related to the search for, and evaluation of mineral resources that are incurred after the Company has obtained legal rights to explore a mineral property and before the technical feasibility and commercial viability of a mineral reserve are demonstrable. Any costs incurred prior to obtaining the legal right to explore a mineral property are expensed as incurred. Field overhead costs directly related to exploration are capitalized and allocated to mineral properties explored. All other overhead and administration costs are expensed as incurred.

 

Once an economically viable reserve has been determined for a property and a decision has been made to proceed with development has been approved, acquisition, exploration and development costs previously capitalized to the mineral property are first tested for impairment and then classified as property, plant and equipment under construction.

 

Impairment of Long-lived Assets

 

At each date of the statement of financial position, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the assets belong.

 

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of comprehensive loss.

 

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years.

 

14

   
   
    Management Discussion and Analysis
November 30, 2017

 

The Company’s most critical accounting estimate relates to the impairment of mineral properties and deferred exploration costs. Management assesses impairment of its exploration prospects quarterly. If an impairment results, the capitalized costs associated with the related project or area of interest are charged to expense.

 

Asset Retirement Obligations

 

The Company recognizes liabilities for statutory, contractual, constructive or legal obligations, including those associated with the reclamation of mineral properties and property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement obligation is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the current market-based discount rate, amount or timing of the underlying cash flows needed to settle the obligation.

 

Financial Instruments

 

Fair Value of Financial Instruments

 

The Company designated its other financial assets, derivatives in convertible senior notes and warrant liability as fair value through profit and loss, which are measured at fair value. Fair value of other financial assets is determined based on quoted market prices and is categorized as Level 1 measurement. Fair value of warrant liability and derivatives in convertible senior notes are categorized as Level 3 measurement as it is calculated based on unobservable market inputs. Trade and other receivables and cash and cash equivalents are classified as loans and receivables, which are measured at amortized cost. Trade and other payables and convertible debt are classified as other financial liabilities, which are measured at amortized cost. Fair value of trade and other payables and convertible debt are determined from transaction values that are not based on observable market data.

 

The carrying value of the Company’s cash and cash equivalents, trade and other receivables, trade and other payables approximate their fair value due to the relatively short term nature of these instruments.

 

Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment, therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

15

   
   
    Management Discussion and Analysis
November 30, 2017

 

A summary of the Company's risk exposures as they relate to financial instruments are reflected below:

 

Credit Risk

Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its contractual obligations. The Company is subject to credit risk on the cash balances at the bank and accounts and other receivables and the carrying value of those accounts represent the Company’s maximum exposure to credit risk. The Company’s cash and cash equivalents and short-term bank investments are with Schedule 1 banks or equivalents. The accounts and other receivables consist of GST/HST and VAT receivable from the various government agencies and amounts due from related parties. The Company has not recorded an impairment or allowance for credit risk as at November 30, 2017, or August 31, 2017.

 

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rate. The Company’s bank accounts earn interest income at variable rates. The bullion loan carries a fixed rate of interest. The Company’s future interest income is exposed to changes in short-term rates. As at November 30, 2017, a 1% increase/decrease in interest rates would decrease/increase net loss for the period by approximately $4,000 (2016 - $37,000).

 

Liquidity Risk

The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at November 30, 2017, the Company had current assets of $1,306,117 (August 31, 2017 - $1,922,088) and current liabilities of $10,018,955 (August 31, 2017 - $8,474,464). All of the Company’s trade payables and receivables have contractual maturities of less than 90 days and are subject to normal trade terms. Current working capital deficiency of the Company is $8,712,838 (August 31, 2017 - $6,552,376 working capital deficiency). The Company will require additional financing in order to conduct its planned work programs on mineral properties and the development and construction of the Buckreef Project, meet its ongoing levels of corporate overhead and discharge its liabilities as they come due.

 

Foreign Currency Risk

The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company has offices in Canada, USA, and Tanzania, but holds cash mainly in Canadian and United States currencies. A significant change in the currency exchange rates between the Canadian dollar relative to US dollar and Tanzanian shillings could have an effect on the Company’s results of operations, financial position, or cash flows. At November 30, 2017, the Company had no hedging agreements in place with respect to foreign exchange rates. As a majority of the transactions of the Company are denominated in US and Tanzanian Shilling currencies, a 10% movement in the foreign exchange rate will have an impact of approximate $698,000 on the consolidated statements of comprehensive loss.

 

Disclosure of Outstanding Share Data

 

As at the date of this MD&A, there were 122,437,228 common shares outstanding, 4,562,901 share purchase warrants outstanding, 510,000 RSUs outstanding, and 7,332,000 stock options outstanding.

 

16

   
   
    Management Discussion and Analysis
November 30, 2017

 

Outlook

 

The Company’s Board of Directors has confirmed the strategic objective of the Corporation is to develop the Buckreef Gold Project based on the conceptual production plan as published in the NI43-101 compliant Mining Feasibility Report (April 2017). The production plans including financial analysis projections the Buckreef encompassing the Buckreef Main, South, Eastern Porphyry, Bingwa and Tembo. Management has recommended immediate implementation of the mining and processing plan once the renewal certificate has been received from the Ministry of Mines.

 

The Company continues exploring and evaluating various mineral properties in the portfolio, notable among them being Itetemia, Luhala and Kigosi. In addition, management decided that Itetemia’s Golden Horseshoe Reef (GHR) represents a modest, yet robust, medium-grade, near surface gold deposit whose feasibility studies resulted in the application for a substantive Mining License that is still to be granted. The Luhala property holds modest but low cost gold extraction potential and still classified as an advanced stage exploration project. Kigosi project is a pre-production mining project whose development has been delayed due to recently enacted laws on mining in areas designated as game reserves.

 

Based on recommendations from the Executive Technical team, Management also adopted and implemented the decision to classify of all the company’s various Prospecting License (PL) holdings under three project categories identified as PLs to Retain, PLs for Joint venture & PLs to Discard/Abandon.

 

Five (5) critical target projects were identified as Buckreef project, Buziba project, Kigosi project, Itetemia project and Luhala project. The Buziba project was traditionally lumped up under Buckreef project in previous annual reports but will now be treated as a standalone project. Brief descriptions of PL holdings and financial obligation status for each respective project area as of 31st August 2017 are summarized in the sections below.

 

 

 

 

 

17

   
   
    Management Discussion and Analysis
November 30, 2017

 

Exploration Summary

 

The continuity of expenditures on mineral properties is as follows:

 

   Buckreef
(a)
   Kigosi
(b)
   Itetemia
(c)
   Luhala
(d)
   Total 
                     
Balance, September 1, 2016  $24,034,731   $12,454,254   $5,962,715   $3,351,158   $45,802,858 
Exploration expenditures:                         
Camp, field supplies and travel   187,940    19,565    -    -    207,505 
License fees and exploration and field overhead   2,527,005    67,942    17,738    5,988    2,618,673 
Geological consulting and field wages   206,722    -    -    -    206,722 
Geophysical and geochemical   -    -    -    -    - 
Property acquisition costs   168,284    -    -    -    168,284 
Trenching and drilling   -    -    -    -    - 
Recoveries   (25,408)   -    -    -    (25,408)
Foreign exchange translation   (1,037,832)   (513,491)   (244,842)   (137,449)   (1,933,614)
    2,026,711    (425,984)   (227,104)   (131,461)   1,242,162 
    26,061,442    12,028,270    5,735,611    3,219,697    47,045,020 
Write-offs   -    (124,717)   -    -    (124,717)
Balance, August 31, 2017  $26,061,442   $11,903,553   $5,735,611   $3,219,697   $46,920,303 
Exploration expenditures:                         
Camp, field supplies and travel   52,678    7,400    -    -    60,078 
License fees and exploration and field overhead   159,783    -    -    -    159,783 
Geological consulting and field wages   14,035    -    -    -    14,035 
Geophysical and geochemical   -    -    -    -    - 
Property acquisition costs   -    -    -    -    - 
Trenching and drilling   -    -    -    -    - 
Recoveries   -    -    -    -    - 
Foreign exchange translation   628,299    286,944    138,259    77,625    1,131,127 
    854,795    294,344    138,259    77,625    1,365,023 
    26,916,237    12,197,897    5,873,870    3,297,322    48,285,326 
Write-offs   -    -    -    -    - 
Balance, November 30, 2017  $26,916,237   $12,197,897   $5,873,870   $3,297,322   $48,285,326 

 

 

18

   
   
    Management Discussion and Analysis
November 30, 2017

 

Buckreef Project

 

Mine Development and Operations

 

The Buckreef Project is in the Geita District of the Geita Region south of Lake Victoria, some 110km southwest of the city of Mwanza (see Figure, overleaf). The project area can be accessed by ferry across Smiths Sound, via tarred national road and thereafter via unpaved but well-maintained gravel roads. The Project comprises five prospects namely Buckreef, Bingwa, Tembo, Eastern Porphyry and Buziba. The Buckreef prospect encompasses three ore zones namely Buckreef South, Buckreef Main and Buckreef North. The Project is fully-licensed for mining and extraction of gold.

 

The following cumulative work was completed up to 30th November 2017:

 

No mining or ore processing activities conducted at the Buckreef project during the year. Status of the project for the year-ended 31st August 2017 is still care and maintenance while we wait for the issuance of the renewed SML certificate.
Historical cumulative total ore mined from the Buckreef South pilot pit as of 31st August 2017 remains at 119,725.59t averaging 1.86g/t Au with total contained metal ounces of 7,161.24.
 The disposition of the Ore stockpiled as of 31st August 2017, remains as follows: ROMPAD: 72,315.66t @1.39g/t Au (3,237.96 Ozs); Pad#1: 20,931.75t @2.29g/t Au (1,541.77 Ozs); Pad#2: 12,943.78t @2.78g/t Au (1,155.55 Ozs); Pad#3: 9,237.90t @ 3.85g/t Au (1,143.49 Ozs) & Crusher Pad: 4,245t @ 3.86 g/t Au (526.62 Ozs).
 Compilation of a detailed but provisional Buckreef Mine Closure plan based on technical data from the published and updated Buckreef Technical Feasibility Report of April 2017.

 

Buziba Project

During the reporting period, no fieldwork was conducted in the project area.

 

The Buziba Project comprises a single prospecting license (PL6545/2010) located some 25km east of the Buckreef project in the Geita district (see Figure, overleaf). The project area can be accessed from Buckreef via unpaved and poorly maintained gravel roads. The Project is a pre-development stage medium grade gold deposit and principal host lithologies include basalt, co-magmatic dolerite and a suite of intrusive quartz-albite felsic porphyries. Gold mineralization associated with shear-hosted vein quartz arrays in meta-basalts and as extensive stock works in the felsic porphyries. Geometry of the mineralization is highly irregular, forming a zone 200m thick and extending E-W for at least 2,500m.

 

Based on an NI43-101 compliant Preliminary Economic Report published in 2012 and subsequently in 2014, the global gold resources (Measured, Indicated & Inferred) estimated over approximately 2.5km strike length and to a depth of 230 metres below surface amounts to 29Mt@1.04g/t containing 984,144ozs of gold.

 

19

   
   
    Management Discussion and Analysis
November 30, 2017

 

License Holding and Status (Buckreef & Buziba)

 

At the end of Q1_2018, the Buckreef and Buziba projects had 13 PLs and 1 SML covering a surface area of 95.38km2. The license status and statutory liabilities for the two projects are as shown in the table below:

 

 

 

PL and SML annual fees for 2017/2018 paid up.
The Buckreef Renewal Licence SML04/92 certificate issuance ceremony was postponed indefinitely by the Ministry of Energy and Minerals (MEM) after the Minister failed to sign the document as planned on 7th March 2017.
A review of the proposed land compensation for villagers affected by the proposed mining activity underway by the newly appointed Minister of Mines.

 

Itetemia Project

 

During the reporting period, no fieldwork was conducted in the project area.

 

The Itetemia gold deposit includes the mineral resources of the Golden Horseshoe Reef (“GHR”), and is an advanced stage exploration project focusing on the development of the GHR. A total of 9,833m of diamond core drilling (51 holes) and 8,339m of RC drilling (138 holes) was completed on the project. Modeling and processing of assay results from both the core drilling and RC drilling so far completed over the GHR and surrounding areas culminated in the estimation of the following Mineral Resources by CSA Australia Pty (Ltd) (“CSA”). The gold resource numbers for the GHR are as at 30th May 2016 using a cut-off grade of 1.0g/t:

 

20

   
   
    Management Discussion and Analysis
November 30, 2017

 

 

The process to convert the PL covering the Horseshoe Gold Prospect at Itetemia into a Mining License (ML) commenced on 4th November 2015. The Company re-submitted all documentation required for the conversion of the Itetemia PL into a Mining License at the request of the relevant authorities in the Ministry of Mines. A follow up on the Mining License renewal shows that the application is still under review.

 

As of the 30th November 2017, the retained portion of the Itetemia project area has 6 active PLs and 1 ML application all covering a surface area of 31.92km2. The Itetemia Project license status and statutory liabilities are as shown in the table below:

 

 

 

All the Itetemia PLs nominated for retention by the company have outstanding annual fee payments as shown above.
One (1) PL expired in October 2017 and application for renewal is being prepared while one (1) PL will expire in December 2017 and is now due for renewal application submission.
Renewal applications for 4 of the critical licenses are still being processed and application fee payment was completed and posted online. We now await offer letters.
The ML application is still under review for close to 2 years now and no response on the delayed application have been received from MEM offices. The ML application covers three (3) licenses registered under Tanzam2000 and one (1) license registered under Tancan Mining. This is apparently the cause of the delay in issuance of the Mining License as by law, the application has encroached on two separate companies in the MEM data files.

 

21

   
   
    Management Discussion and Analysis
November 30, 2017

 

Kigosi Project

 

During the reporting period, no fieldwork was conducted in the project area.

 

Kigosi Project area remains subject to a Game Reserve Declaration Order. Upon repeal or amendment of that order by the Tanzanian Government, the Kigosi Mining Company will be legally entitled to exercise its rights under the Mineral Rights and Mining Licence. The procedures for de-gazetting the Kigosi mining licence project area from a game reserve area to a mining area on the government gazette has not been completed by government of Tanzania.

 

Gold Mine development plans at Kigosi continue to be shelved mainly since under the 2010 Mining Act, only exploration and mining of energy minerals, including uranium, gas and petroleum is permitted in any game reserve. Historical exploration on the project established a resource as shown in table below.

 

Kigosi Gold Project: Historical published Resource/Reserve results

 

 

The table below shows the status (as of 30th November 2017) of the Kigosi Project license portfolio (identified as critical to the project) has 9 active PLs and 1 ML all covering a surface area of 126.44km2. The license status and statutory liabilities are as shown in the table below:

 

22

   
   
    Management Discussion and Analysis
November 30, 2017

 

Kigosi Gold Project PL Portfolio Status – PLs Proposed for Retaining

 

 

 

 All the Kigosi PLs nominated for retention by the company have outstanding annual fee payments.
Kigosi ML payments all up to date and the 2017/2018 annual fees were due in October 2017.
PL highlighted in red text has technically expired and no renewal application has been submitted due to the outstanding annual fee payments.
Access to the project area is still difficult due to the prevailing uncertainty with the new laws enacted recently with especial reference to game reserves.

 

Luhala Project

 

During the reporting period, no fieldwork was conducted in the project area.

 

The Luhala Project is an advanced stage exploration project focusing on the development of the Luhala gold deposit which consists of five anomalous hilltops. The mineralization is stratabound shear-zone hosted gold mineralization (stratigraphic and structural control) within a distinct unit of felsic rocks with associated ferruginized mafic and felsic rocks.

 

Drilling at the Luhala Project has been concentrated on the Luhala Hills (Luhala Hill, Kisunge Hill, Shilalo Hill South and Shilalo Hill West). A total of 3,279m of diamond core drilling (26 holes) and 8,665m of RC drilling (144 holes) was completed on the project. Modeling and processing of assay results from both the core drilling and RC drilling conducted over the various deposits at Luhala, has to-date resulted in the estimation, by CSA, of the following Mineral Resources for Luhala as at 8th March 2011 using a cut-off grade of 1.0g/t:

 

 

 

23

   
   
    Management Discussion and Analysis
November 30, 2017

 

Luhala Gold Project: Historical published exploration results

 

 

The process of selecting a consultant to carry out feasibility study at the Luhala gold project has been completed and once funds are available the contract to engage the consultant to carry out the study will be signed to initiate the FS study works.

 

At the end of this reporting quarter critical Luhala project area had 2 PLs covering a surface area of 17.31km2. The Luhala Project license status and statutory liabilities are as shown in the table below:

 

 

Luhala Gold Project PL Portfolio Status - PLs Proposed for Retaining

 

 

Payment of outstanding annual fees for the critical Luhala PLs was completed as one of the conditions to submit renewal or extension applications.
Response from MEM is awaited.

 

 

24

   
   
    Management Discussion and Analysis
November 30, 2017

 

Exploration Projects

 

Following the Company’s decision to include mine development to its strategy of generating maximum revenue from its extensive portfolio of properties and with the rising costs of maintaining prospecting and other licences in Tanzania, management decided to drop some licences. Efforts to revamp and clean up our current presentation of the TRX PL portfolio are at an advanced stage.

 

The technical team that was formed to review the entire licence portfolio in Tanzania and propose to management licences to be dropped will finalize reviews of the rest of the land holdings in the next reporting quarter as part of our ongoing efforts to revamp the land holdings. This exercise was necessitated by the need to establish all outstanding, current and future financial liabilities and obligations arising from our total land-holdings. The total liabilities of unpaid rents including the penalties is around US$452,348.

 

Risk Factors

 

The Company is subject to a number of extraneous risk factors over which it has no control. These factors are common to most exploration companies and include, among others: project ownership and exploration risk, depressed equity markets and related financing risk, commodity price risk, fluctuating exchange rates, environmental risk, insurance risk, sovereign risk. For further details on the risk factors affecting the Company, please see the Company’s Form 20-F Annual Report for year ended August 31, 2017 filed on SEDAR as the Company’s Annual Information Form.

 

Disclosure Controls and Procedures (“DC&P”)

 

Requirements of NI 52-109 include conducting an evaluation of the effectiveness of DC&P. Management conducted an assessment of the effectiveness of the DC&P in place as of November 30, 2017 and concluded that such procedures are adequate and effective to ensure accurate and complete disclosures in filings. Any system control over disclosure procedures, particularly for junior exploration companies, no matter how well designed and implemented, has inherent limitations and may not prevent or detect all inaccuracies. These limitations include limited personnel available for such work, geographical logistics and human error among others. The Board of Directors assess the integrity of the public financial disclosures through the oversight of the Audit Committee.

 

25

   
   
    Management Discussion and Analysis
November 30, 2017

 

Internal Control Over Financial Reporting (“ICFR”)

 

Requirements of NI 52-109 include conducting an evaluation of the effectiveness of ICFR. Management conducted an assessment of the effectiveness of the ICFR in place as of November 30, 2017 and concluded that such procedures are adequate and effective to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements in compliance with International Financial Reporting Standards. Any system of internal control over financial reporting, no matter how well designed and implemented, has inherent limitations and may not prevent or detect all misstatements.

 

The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) are responsible for the design and effectiveness of disclosure controls and procedures (“DC&P”) and the design of internal control over financial reporting (“ICFR”) to provide reasonable assurance that material information related to the Company is made known to the Company’s certifying officers. The Company’s controls are based on the Committee of Sponsoring Organizations (“COSO”) 2013 framework. The Company’s CEO and the CFO have evaluated the design and effectiveness of the Company’s DC&P as of November 30, 2017 and have concluded that these controls and procedures are effective in providing reasonable assurance that material information relating to the Company is made known to them by others within the Company. The CEO and CFO have also evaluated the design and effectiveness of the Company’s ICFR as of November 30, 2017 and concluded that these controls and procedures are effective in providing reasonable assurance that financial information is recorded, processed, summarized and reported in a timely manner.

 

During the current period there have been no changes in the Company’s DC&P or ICFR that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Additional Information

 

The Company is a Canadian public company listed on the Toronto Stock Exchange trading under the symbol “TNX” and also listed on the NYSE MKT LLC trading under the symbol “TRX”. Additional information about the Company and its business activities is available on SEDAR at www.sedar.com and the Company’s website at www.tanzanianroyalty.com .

 

Approval

 

The Board of Directors of Tanzanian Royalty Exploration Corporation has approved the disclosure contained in the interim MD&A. A copy of this interim MD&A will be provided to anyone who requests it. It is also available on the SEDAR website at www.sedar.com

 

 

26

   
   
    Management Discussion and Analysis
November 30, 2017

 

Cautionary Note Regarding Forward-Looking Statements

 

Except for statements of historical fact relating to the Company, certain information contained in this MD&A constitutes “forward-looking information” under Canadian securities legislation. Forward-looking information includes, but is not limited to, statements with respect to the potential of the Company’s properties; the future prices of base and precious metals; success of exploration activities, cost and timing of future exploration and development; the estimation of mineral reserves and mineral resources; conclusions of economic evaluations; requirements for additional capital; and other statements relating to the financial and business prospects of the Company. Generally, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects”, or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or “variations of such words and phrases or statements that certain actions, events or results “may” , “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments at Buckreef or other mining or exploration projects, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, and is inherently subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to risks related to: unexpected events and delays during permitting; the possibility that future exploration results will not be consistent with the Company’s expectations; timing and availability of external financing on acceptable terms in light of the current decline in global liquidity and credit availability; uncertainty of inferred mineral resources; future prices of base and precious metals; currency exchange rates; government regulation of mining operations; failure of equipment or processes to operate as anticipated; risks inherent in base and precious metal exploration and development including environmental hazards, industrial accidents, unusual or unexpected geological formations; and uncertain political and economic environments. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws.

 

 

 

27

 

exh_993.htm EXHIBIT 99.3


> ENT> EX-99.3 4 exh_993.htm EXHIBIT 99.3

Exhibit 99.3

 

Form 52-109F2

Certification of Interim Filings

Full Certificate

 

I, Jeffrey Duval, Acting Chief Executive Officer of Tanzanian Royalty Exploration Corporation, certify the following:

 

1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Tanzanian Royalty Exploration Corporation (the “issuer”) for the interim period ended November 30, 2017.

 

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

 

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

 

 

5.2 ICFR – material weakness relating to design: N/A

 

5.3 Limitation on scope of design: N/A

 

6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on September 1, 2017 and ended on November 30, 2017 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

 

Date:     January 11, 2018

 

“Jeffrey Duval”

__________________________

Jeffrey Duval

Acting Chief Executive Officer

exh_994.htm EXHIBIT 99.4


> ENT> EX-99.4 5 exh_994.htm EXHIBIT 99.4

Exhibit 99.4

 

Form 52-109F2

Certification of Interim Filings

Full Certificate

 

 

I, Marco Guidi, Chief Financial Officer of Tanzanian Royalty Exploration Corporation, certify the following:

 

1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Tanzanian Royalty Exploration Corporation (the “issuer”) for the interim period ended November 30, 2017.

 

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

 

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

 

 

5.2 ICFR – material weakness relating to design: N/A

 

5.3 Limitation on scope of design: N/A

 

6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on September 1, 2017 and ended on November 30, 2017 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

 

Date:     January 11, 2018

 

“Marco Guidi”

__________________________

Marco Guidi

Chief Financial Officer

Additional Files
FileSequenceDescriptionTypeSize
0001171843-18-000328.txt   Complete submission text file   1257930
$TNX $TRX

© 2019 SEC.report
SEC CFR Title 17 of the Code of Federal Regulations.