SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934
For the day of:April 15, 2013
Commission File Number 001-32500
TANZANIAN ROYALTY EXPLORATION CORPORATION
(Registrant's name)
404-1688 152nd Street
South Surrey, BC V4A 4N2
Canada
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-FPForm 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):__
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ___NoP
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
Attached hereto asExhibit 1 and incorporated by reference herein is the Registrant's Second Quarter Financial Statements, Management Discussion and Analysis and CEO and CFO Certifications, for the period ended February 28, 2013.
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 Corp. | |
(Registrant) | |
“Steven Van Tongeren” | |
Date:April 15, 2013 | |
Steven Van Tongeren | |
Cheif Financial Officer |
Tanzanian Royalty Exploration Corporation
Unaudited Interim Condensed Consolidated
Financial Statements
For the three and six month periods ended
February 28, 2013 and February 29, 2012
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 the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity’s auditor.
Tanzanian Royalty Exploration Corporation
Unaudited Interim Condensed Consolidated Statements of Financial Position (Expressed in Canadian Dollars) | ||
As at | February 28, 2013 | August 31, 2012 |
Assets | ||
Current Assets | ||
Cash and cash equivalents(Note 17) | $ 14,584,773 | $ 20,058,678 |
Other financial assets(Note 6) | 7,875 | 17,850 |
Other receivables(Note 14) | 77,253 | 71,225 |
Inventory(Note 16) | 258,898 | 248,395 |
Prepaid expenses(Note 13) | 103,716 | 87,676 |
15,032,515 | 20,483,824 | |
Property, plant and equipment(Note 4) | 1,099,975 | 1,209,710 |
Mineral properties and deferred exploration(Note 3) | 43,835,624 | 41,562,996 |
$ 59,968,114 | $ 63,256,530 | |
Liabilities | ||
Current Liabilities | ||
Trade, other payables and accrued liabilities(Note 15) | $ 856,822 | $ 2,318,393 |
Convertible debt(Note 5) | 1,059,946 | - |
1,916,768 | 2,318,393 | |
Convertible debt(Note 5) | - | 2,073,286 |
Warrant liability(Note 7) | 4,874,000 | 8,114,000 |
6,790,768 | 12,505,679 | |
Shareholders’ equity | ||
Share capital(Note 7) | 114,463,192 | 113,476,858 |
Share based payment reserve(Note 9) | 1,084,858 | 670,779 |
Warrants reserve(Note 8) | 870,037 | 870,037 |
Accumulated deficit | (63,240,741) | (64,266,823) |
Total shareholders’ equity | 53,177,346 | 50,750,851 |
$ 59,968,114 | $ 63,256,530 |
Nature of operations (Note 1)
Segmented information (Note 18)
Commitments (Notes 3 and 19)
Subsequent event (Note 20)
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
Tanzanian Royalty Exploration Corporation
Unaudited Interim Condensed Consolidated Statements of Comprehensive Income (Loss) (Expressed in Canadian Dollars)
| |||||
Three months ended February 28, 2013 | Three months ended February 29, 2012 | Six months ended February 28, 2013 | Six months ended February 29, 2012 | ||
Administrative expenses | |||||
Depreciation | $ 71,164 | $ 107,580 | $ 141,310 | $ 216,027 | |
Consulting | 77,844 | 55,939 | 129,436 | 120,158 | |
Directors’ fees | 92,594 | 119,544 | 181,549 | 250,898 | |
Office and general | 72,677 | 98,498 | 164,114 | 218,423 | |
Shareholder information | 109,368 | 209,258 | 178,691 | 379,701 | |
Professional fees | 129,999 | 169,553 | 263,678 | 399,396 | |
Salaries and benefits | 464,468 | 304,641 | 797,068 | 693,855 | |
Share based payments | 149,704 | (7,517) | 301,073 | 23,132 | |
Travel and accommodation | 10,511 | 16,896 | 43,908 | 84,464 | |
(1,178,329) | (1,074,392) | (2,200,827) | (2,386,054) | ||
Other income (expenses) | |||||
Foreign exchange | 18,813 | (41,150) | 3,840 | (11,808) | |
Interest, net | 40,831 | (20,640) | 77,800 | 4,400 | |
Interest accretion | (12,145) | (23,055) | (38,082) | (54,564) | |
Gain (Loss) on other financial assets | (4,725) | (3,150) | (9,975) | (6,300) | |
Property investigation costs | (21,749) | (55,041) | (44,833) | (136,827) | |
Change in value of warrant liability(Note 7) | 3,789,000 | (7,290,064) | 3,240,000 | (1,749,487) | |
Write-off of mineral properties and deferred exploration costs | - | (4,612) | - | (1,231,067) | |
Withholding tax (costs) recoveries | 6 | (3,642) | (1,841) | (135,002) | |
Net income (loss) and comprehensive income (loss) | $ 2,631,702 | $ (8,515,746) | $ 1,026,082 | $(5,706,709) | |
Income (loss) per share - basic | $ 0.03 | $ (0.09) | $ 0.01 | $ (0.06) | |
- diluted | $ 0.02 | $ (0.09) | $ 0.01 | $ (0.06) | |
Weighted average number of shares outstanding - basic - diluted - | 100,681,274 106,838,872 | 100,002,277 100,002,277 | 100,625,023 106,782,620 | 99,967,525 99,967,525 | |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
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 deficit | Total | ||||
Balance at September 1, 2011 | 99,758,753 | $ 109,935,253 | $ 706,988 | $ 1,353,990 | $ | (55,504,339) | $ 56,491,892 | ||
Issued on conversion of convertible debt agreement | 233,318 | 950,213 | (30,638) | - | - | 919,575 | |||
Shares issued for services | 25,000 | 65,475 | - | - | - | 65,475 | |||
Issued pursuant to Restricted Share Unit ("RSU") Plan | 4,783 | 33,003 | (33,003) | - | - | - | |||
RSU shares forfeited | - | (141,402) | - | - | (141,402) | ||||
Transfer of warrants to warrant liability | - | - | (216,188) | 135,359 | (80,829) | ||||
Share based compensation | - | 346,451 | - | - | 346,451 | ||||
Total comprehensive loss for the period | - | - | - | (5,706,709) | (5,706,709) | ||||
Balance at February 29, 2012 | 100,021,854 | $ 110,983,944 | $ 848,396 | $ 1,137,802 | $ | (61,075,689) | $ 51,894,453 | ||
Shares issued for services | 10,000 | 50,359 | - | - | - | 50,359 | |||
Issued pursuant to Restricted Share Unit ("RSU") Plan | 178,083 | 991,790 | (1,024,793) | - | - | (33,003) | |||
RSU shares forfeited | - | (123,126) | - | - | (123,126) | ||||
Compensation warrants exercised | 250,000 | 1,000,000 | - | - | - | 1,000,000 | |||
Reserve transferred on exercise of compensation warrants | 450,765 | - | (450,765) | - | - | ||||
Modification of warrants | - | - | 183,000 | - | 183,000 | ||||
Share based compensation | - | 970,302 | - | - | 970,302 | ||||
Total comprehensive loss for the period | - | - | - | (3,191,134) | (3,191,134) | ||||
Balance at August 31, 2012 | 100,459,937 | $ 113,476,858 | $ 670,779 | $ 870,037 | $ | (64,266,823) | $ 50,750,851 | ||
Issued on conversion of convertible debt agreement | 221,337 | 986,334 | - | - | - | 986,334 | |||
Share based payments | - | 414,079 | - | - | 414,079 | ||||
Total comprehensive income for the period | - | - | - | 1,026,082 | 1,026,082 | ||||
Balance at February 28, 2013 | 100,681,274 | $ 114,463,192 | $ 1,084,858 | $ 870,037 | $ | (63,240,741) | $ 53,177,346 | ||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
Tanzanian Royalty Exploration Corporation
Unaudited Interim Condensed Consolidated Statements of Cash Flow (Expressed in Canadian Dollars)
| ||||||
Six month periods ended | February 28, 2013 | February 29, 2012 | ||||
Operations | ||||||
Net income (loss) | $ 1,026,082 | $ (5,706,709) | ||||
Adjustments to reconcile net loss to cash flow from operating activities: | ||||||
Depreciation | 141,310 | 216,027 | ||||
Change in value of warrant liability | (3,240,000) | 1,749,487 | ||||
Share based payments | 301,073 | 36,320 | ||||
Loss on other financial assets | 9,975 | 6,300 | ||||
Cash interest paid | (75,811) | (67,964) | ||||
Cash interest received | 70,907 | 82,883 | ||||
Interest accretion | 38,082 | (17,799) | ||||
Non cash directors’ fees | 101,532 | 225,794 | ||||
Write-off of mineral properties | - | 1,231,067 | ||||
Net change in non-cash operating working capital items: | ||||||
Trade and other receivables | (6,028) | 42,089 | ||||
Inventory | (10,503) | (23,138) | ||||
Prepaid expenses | (16,040) | 2,693 | ||||
Trade, other payables and accrued liabilities | (204,958) | (1,412,128) | ||||
Cash used in operations | (1,864,379) | (3,635,078) | ||||
Investing | ||||||
Mineral properties and exploration expenditures | (3,618,126) | (2,267,090) | ||||
Option payments received and recoveries | 40,175 | - | ||||
Equipment and leasehold improvements, net
| (31,575) | (135,500) | ||||
Cash used in investing activities | (3,609,526) | (2,402,590) | ||||
Net decrease in cash and cash equivalents | (5,473,905) | (6,037,668) | ||||
Cash and cash equivalents, beginning of period | 20,058,678 | 32,428,471 | ||||
Cash and cash equivalents, end of period | $ 14,584,773 | $ 26,390,803 | ||||
Supplementary information: | ||||||
Non-cash transactions: | ||||||
Share based payments capitalized to mineral properties | 11,474 | 13,188 | ||||
Shares issued on conversion of convertible debt | 986,334 | 950,213 | ||||
Shares issued for services | - | 65,475 | ||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
1. | Nature of Operations |
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 dependant upon the existence and economic recovery of mineral reserves, the ability to raise long-term financing to complete the development of the properties, government policies and regulations, and upon future profitable production or, alternatively, upon the Company’s ability to dispose of it’s 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 February 28, 2013 the Company had working capital of $13,115,747 (August 31, 2012 – $18,165,431), had not yet achieved profitable operations, has accumulated losses of $63,240,741 (August 31, 2012 – $64,266,823) and expects to incur further losses in the development of its business. In the long term, 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.
2. | Basis of Preparation |
2.1 Statement of compliance
The Company was originally incorporated under the corporate name “424547 Alberta Ltd.” in the Province of Alberta on July 5, 1990, under theBusiness 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 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. The unaudited interim condensed consolidated financial statements of the Company as at and for the six month periods ended February 28, 2013 and February 29, 2012 comprise of the Company and its subsidiaries (together referred to as the “Company” or “Group”).
These unaudited interim 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 consolidated financial statements were approved and authorized by the Board of Directors of the Company on April 10, 2013.
2.2 Basis of presentation
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, 2012 annual financial statements.
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
2. | Basis of Preparation (continued) |
2.3 Adoption of new and revised standards and interpretations
The IASB issued a number of new and revised International Accounting Standards, International Financial Reporting Standards, amendments and related interpretations which are effective for the Company’s financial year beginning on or after September 1, 2013. For the purpose of preparing and presenting the Financial Information for the relevant periods, the Company has consistently adopted all these new standards for the relevant reporting periods.
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.
• | IFRS 7 ‘Financial Instruments, Disclosures’ - effective for annual periods beginning on or after January 1, 2013, IFRS 7 has been amended to provide more extensive quantitative disclosures for financial instruments that are offset in the statement of financial position or that are subject to enforceable master netting similar arrangements. |
• | IFRS 9‘Financial Instruments: Classification and Measurement’ –effective for annual periods beginning on or after January 1, 2015, with early adoption permitted, introduces new requirements for the classification and measurement of financial instruments. |
• | IFRS 10 ‘Consolidated Financial Statements’ –effective for annual periods beginning on or after January 1, 2013, with early adoption permitted, establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. |
• | IFRS 11 ‘Joint Arrangements’ -effective for annual periods beginning on or after January 1, 2013, with early adoption permitted, provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form. |
• | IFRS 12 ‘Disclosure of Interests in Other Entities’ -effective for annual periods beginning on or after January 1, 2013, with early adoption permitted, requires the disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. |
• | IFRS 13 ‘Fair Value Measurement’ -effective for annual periods beginning on or after January 1, 2013, with early adoption permitted, provides the guidance on the measurement of fair value and related disclosures through a fair value hierarchy. |
• | IAS 27 ‘Separate Financial Statements’ -effective for annual periods beginning on or after January 1, 2013, as a result of the issue of the new consolidation suite of standards, IAS 27 Separate Financial Statements has been reissued, as the consolidation guidance will now be included in IFRS 10. IAS 27 will now only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. |
• | IAS 28 ‘Investments in Associates and Joint Ventures’ - effective for annual periods beginning on or after January 1, 2013, as a consequence of the issue of IFRS 10, IFRS 11and IFRS 12, IAS 28 has been amended and will provide the accounting guidance for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. The amended IAS 28 will be applied by all entities that are investors with joint control of, or significant influence over, an investee. |
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
2. | Basis of Preparation (continued) |
2.3 Adoption of new and revised standards and interpretations (continued)
• | IAS 32 ‘Financial instruments, Presentation’ – In December 2011, effective for annual periods beginning on or after January 1, 2013, IAS 32 was amended to clarify the requirements for offsetting financial assets and liabilities. The amendments clarify that the right of offset must be available on the current date and cannot be contingent on a future date. |
Management anticipates that where required, the above standards will be adopted at the applicable effective dates in the Company’s financial statements, and has not yet considered the impact of the adoption of these standards.
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.
The Company assessed the carrying value of mineral properties and deferred exploration costs as at February 28, 2013 and recorded a write-down of $nil during the three and six month period ended February 28, 2013 (Three month and six month period ended February 29, 2012 - $4,612 and $1,231,067 respectively).
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
3. | Mineral Properties (continued) |
The continuity of expenditures on mineral properties is as follows:
Itetemia (a) | Luhala (b) | Kigosi (c) | Lungaya (d) | Kanagele (e) | Tulawaka (f) | Ushirombo (g) | Mbogwe (h) | Biharamulu (i) | Buckreef (j) | Kabanga (k) | Other (l) | Total | |
Balance, September 1, 2011 | $ 5,823,059 | $ 3,727,626 | $ 13,753,050 | $ 3,184,675 | $ 1,124,487 | $ 636,175 | $ 264,355 | $ 82,039 | $ 124,329 | $ 4,421,243 | $ - | $ 121,934 | $ 33,262,972 |
Exploration expenditures: | |||||||||||||
Camp, field supplies and travel | 14,565 | - | 116,566 | 34,976 | - | - | - | - | - | 424,035 | - | - | 590,142 |
Exploration and field overhead | 1,420 | 1,340 | 47,581 | 71,737 | 2,755 | 3,573 | 6,285 | 12,463 | 7,211 | 1,124,484 | - | 88,114 | 1,366,963 |
Geological consulting and field wages | - | - | - | - | - | - | - | - | - | 664,513 | - | - | 664,513 |
Geophysical and geochemical | - | 30,381 | - | 90,050 | - | - | - | - | - | 569,283 | - | - | 689,714 |
Property acquisition costs | 37,070 | - | 3,892 | 13,326 | 17,693 | 17,092 | - | - | - | 108,804 | - | 13,070 | 210,947 |
Trenching and drilling | - | - | 39,636 | 28,527 | - | - | - | - | - | 6,053,665 | - | - | 6,121,828 |
Recoveries | (41,834) | - | - | - | - | - | - | (176) | (2,250) | - | - | (5,854) | (50,114) |
11,221 | 31,721 | 207,675 | 238,616 | 20,448 | 20,665 | 6,285 | 12,287 | 4,961 | 8,944,784 | - | 95,330 | 9,593,993 | |
5,834,280 | 3,759,347 | 13,960,725 | 3,423,291 | 1,144,935 | 656,840 | 270,640 | 94,326 | 129,290 | 13,366,027 | - | 217,264 | 42,856,965 | |
Write-offs | (46,544) | - | - | - | (297,588) | (331,402) | (266,379) | (13,019) | (129,290) | - | - | (209,747) | (1,293,969) |
Balance, August 31, 2012 | $ 5,787,736 | $ 3,759,347 | $ 13,960,725 | $ 3,423,291 | $ 847,347 | $ 325,438 | $ 4,261 | $ 81,307 | $ - | $ 13,366,027 | $ - | $ 7,517 | $ 41,562,996 |
Exploration expenditures: | |||||||||||||
Camp, field supplies and travel | 8,822 | - | 17,256 | - | - | - | - | - | - | 137,191 | - | - | 163,269 |
Exploration and field overhead | 7,122 | 4,895 | 253,668 | 20,784 | 5,431 | - | - | 9,453 | - | 436,101 | 300,536 | 17,655 | 1,055,645 |
Geological consulting and field wages | 18,086 | - | - | - | - | 68,652 | - | - | - | 12,057 | - | - | 98,795 |
Geophysical and geochemical | - | - | - | - | - | - | - | - | - | 99,777 | - | - | 99,777 |
Property acquisition costs | 11,837 | - | - | - | 11,568 | - | - | - | - | (29,500) | - | - | (6,095) |
Trenching and drilling | - | - | - | - | - | - | - | - | - | 901,412 | - | - | 901,412 |
Recoveries | (40,175) | - | - | - | - | - | - | - | - | - | - | - | (40,175) |
5,692 | 4,895 | 270,924 | 20,784 | 16,999 | 68,652 | - | 9,453 | - | 1,557,038 | 300,536 | 17,655 | 2,272,628 | |
Balance, February 28, 2013 | $ 5,793,428 | $ 3,764,242 | $ 14,231,649 | $ 3,444,075 | $ 864,346 | $ 394,090 | $ 4,261 | $ 90,760 | $ - | $ 14,923,065 | $ 300,536 | $ 25,172 | $ 43,835,624 |
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
3. | Mineral Properties (continued) |
(a) 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 State Mining Corporation (“Stamico”) Venture Agreement, as amended June 18, 2001 and July 2005.
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.
As at February 28, 2013, one license is subject to an Option Agreement with Barrick Exploration Africa Ltd. (BEAL) (note 3(m)).
During the three and six month period ended February 28, 2013, the Company did not abandon any licenses in the area and no write off was taken in this area (year ended August 31, 2012 - $46,544) related to deferred exploration costs associated with licenses the Company does not intend to renew.
(b) Luhala Project:
During the three and six month period ended February 28, 2013, the Company did not abandon any licenses in the area and no write-off was taken in this area (year ended August 31, 2012 - $nil).
(c) 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.
During the three and six month period ended February 28, 2013, the Company did not abandon any licenses in the area therefore no write off was taken for this property (year ended August 31, 2012 - $nil).
(d) Lunguya:
During the three and six month period ended February 28, 2013, the Company did not abandon any licenses in the area and no write-off was taken in this area (year ended August 31, 2012 - $nil).
(e) Kanagele:
During the three and six month period ended February 28, 2013, the Company did not abandon any licenses in the area and no write-off was taken for this property (year ended August 31, 2012 - $297,588).
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
3. | Mineral Properties (continued) |
(f) Tulawaka:
The Company owns or has options to acquire interests ranging from 65% to 90% in the licenses through prospecting and option agreements. Three licenses in the Tulawaka area were subject to an option agreement with MDN Inc. (MDN) (note 3(n)).
During the three and six month period ended February 28, 2013, the Company did not abandon any licenses in the area and no write-off was taken for this property (year ended August 31, 2012 - $331,402), but is reviewing its exploration plan.
(g) Ushirombo:
During the three and six month period ended February 28, 2013, the Company did not abandon any licenses in the area and no write-off was taken in this area (year ended August 31, 2012 - $266,379).
(h) Mbogwe:
During the three and six month period ended February 28, 2013, the Company did not abandon any licenses in the area and no write-off was taken for this property (year ended August 31, 2012 - $13,019).
(i) Biharamulo:
Five Biharamulo licenses were subject to the option agreement with MDN (note 3(n)).
During the three and six month period ended February 28, 2013, the Company did not abandon any licenses in the area and no write-off was taken for this property (year ended August 31, 2012 - $129,290), The Company does not currently intend to pursue further exploration activities on the property at the current time and the balance as of August 31, 2012 was $nil.
(j) Buckreef Gold Project:
On December 21, 2010, the Company announced it was the successful bidder for the Buckreef Gold Mine Re-development Project in northern Tanzania (the Buckreef Project). Pursuant to the terms of the heads of agreement dated December 16, 2010, the Company paid USD $3,000,000 to Stamico in consideration of the transaction. On October 25, 2011, aDefinitive Joint Venture Agreement was entered into with Stamico for the development of the Buckreef Gold Project. Through its wholly-owned subsidiary, Tanzania American International Development Corporation 2000 Limited (Tanzam), the Company holds a 55% interest in the joint venture company, Buckreef Gold Company Limited, with Stamico holding the remaining 45%.
The Company has 100% control over all aspects of the joint venture company. In accordance with the joint venture agreement, the Company has to arrange financing, incur expenditure, make all decisions and operate the mine in the future. The 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 received a 45% interest in Buckreef Gold Company Limited. The Company has no other obligations to Stamico, until it reaches production stage and will have to pay 45% of the net income generated.
There is supervisory board made up of 4 directors of Tanzam and 3 of Stamico who will be updated with periodic reports and review major decisions. Amounts paid to Stamico and subsequent expenditure on the property were capitalized under Mineral Properties and reported under Buckreef Gold Company Limited.
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
3. Mineral Properties (continued)
(k) Kabanga:
The Kabanga Project is located in northwestern Tanzania, south of Lake Victoria and near the Burundi border within the Mesoproterozoic Karagwe-Ankolean sequence within the Kibaran Fold Belt of NW Tanzania.
The Company is engaged in the exploration and development of the Kagera Nickel project, adjacent to the Barrick/Xstrata Kabanga Nickel Project within the Kabanga-Musongati mafic-ultramafic belt, which contains Ni sulphide ores at Kabanga deposit and reef-type PGE concentrations at Musongati.
Northwestern Basemetals Company Limited, a new company 75% owned by the Company, 15% owned by Stamico and 10% owned by Beijing Songshanheli Mining Investment Co. was formed to explore the Kabanga nickel, cobalt and platinum group metals belt in Tanzania.
(l) Other properties:
The Company has options to acquire interests in their other properties. To maintain these options and licenses, the Company must make the following future payments:
USD$ | ||
2013 | 19,000 | |
During the three and six month period ended February 28, 2013, the Company did not abandon any licenses in the area and no write-off was taken (year ended August 31, 2012 - $209,747) of costs related to the abandoned area located within the other properties category.
(m) Option Agreement with BEAL:
BEAL had the option to acquire the total rights, titles, and interests of the Company in prospecting licenses in various properties, herein called the BEAL project. In exchange for this option, BEAL paid USD$100 to the Company. To maintain and exercise the option, BEAL was required to incur USD$250,000 in exploration and development costs on the BEAL project within a year of closing the agreement (completed), and thereafter, BEAL must expend USD$50,000 each year for each retained prospecting license. In addition, BEAL must make USD$40,000 annual payments to the Company for each retained prospecting licenses in December 2006 and subsequent years.
Within thirty days after commercial production, BEAL must pay the Company USD$1,000,000 and an additional USD$1,000,000 on each of the next two years. BEAL will also pay the owner of the license 1.5% of net smelter returns.
In prior years, the Company received from BEAL notices of relinquishment for all rights, titles and interests in all but one prospecting license included in the Option Agreement, which is located at Itetemia.
(n) Option Agreement with MDN:
On January 20, 2003, as amended on March 18, 2003 and January 9, 2007, the Company entered into an agreement with MDN granting MDN the exclusive option to acquire the total rights, titles, and interests of the Company in certain prospecting licenses. The prospecting licenses under option to MDN are located at Biharamulo and Tulawaka.
In January 2013 MDN advised the Company that they were unable to fulfill the terms of the option agreement between the Company and MDN and the option agreement has terminated. The Company does not currently intend to pursue further exploration activities in Biharamulo and is reviewing its future exploration plan in Tulawaka.
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
4. Property, plant and equipment
Drilling equipment | Automotive | Computer Equipment | Machinery and equipment | Leasehold improvements | Total | |
Cost | ||||||
As at September 1, 2011 | 464,487 | 302,640 | 157,892 | 1,507,349 | 4,469 | 2,436,837 |
Additions | - | - | 12,372 | 40,582 | 89,329 | 142,283 |
Disposals | - | - | (78,619) | (20,778) | (4,469) | (103,866) |
As at August 31, 2012 | $ 464,487 | $ 302,640 | $ 91,645 | $ 1,527,153 | $ 89,329 | $ 2,475,254 |
Additions | - | - | 18,110 | - | 13,465 | 31,575 |
As at February 28, 2013 | $ 464,487 | $ 302,640 | $ 109,755 | $ 1,527,153 | $ 102,794 | $ 2,506,829 |
Accumulated depreciation | ||||||
As at September 1, 2011 | 217,630 | 124,895 | 106,345 | 536,468 | 4,469 | 989,807 |
Depreciation expense | 14,509 | 49,606 | 22,646 | 274,977 | 17,866 | 379,604 |
Removed on disposal of asset | - | - | (78,620) | (20,778) | (4,469) | (103,867) |
As at August 31, 2012 | $ 232,139 | $ 174,501 | $ 50,371 | $ 790,667 | $ 17,866 | $ 1,265,544 |
Depreciation expense | 7,744 | 17,580 | 8,564 | 99,378 | 8,044 | 141,310 |
As at February 28, 2013 | $ 239,883 | $ 192,081 | $ 58,935 | $ 890,045 | $ 25,910 | $ 1,406,854 |
Net book value | ||||||
As at September 1, 2011 | $ 246,857 | $ 177,745 | $ 51,547 | $ 970,881 | $ - | $ 1,447,030 |
As at August 31, 2012 | $ 232,348 | $ 128,139 | $ 41,274 | $ 736,486 | $ 71,463 | $ 1,209,710 |
As at February 28, 2013 | $ 224,604 | $ 110,559 | $ 50,820 | $ 637,108 | $ 76,884 | $ 1,099,975 |
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
5. | Convertible Debt |
(i) | February 28, 2013: |
August 2010 | September 2010 | October 2010 | Total | |
Gross proceeds at inception | $ 1,000,000 | $ 1,000,000 | $1,060,000 | $ 3,060,000 |
Fair value of liability portion | 965,375 | 965,375 | 1,023,297 | 2,954,047 |
Fair value of equity portion | 34,625 | 34,625 | 36,703 | 105,953 |
Liability portion of convertible debt: | ||||
Initial fair value of debt component | $ 965,375 | $ 965,375 | $ 1,023,297 | $ 2,954,047 |
Issuance costs | (111,160) | (3,359) | (22,383) | (136,902) |
Accretion expense | 101,523 | 87,606 | 122,662 | 311,791 |
Interest paid | (36,164) | (63,288) | (63,630) | (163,082) |
Conversion into common shares | (919,574) | (986,334) | - | (1,905,908) |
Closing balance of liability portion (current) | $ - | $ - | $1,059,946 | $1,059,946 |
Equity portion of convertible debt: | ||||
Opening balance | $ - | $ - | $ - | $ - |
Initial fair value of equity component | 34,625 | 34,625 | 36,703 | 105,953 |
Issuance costs | (3,987) | (120) | (804) | (4,911) |
Conversion into common shares | (30,638) | (34,505) | - | (65,143) |
Closing balance of equity portion | $ - | $ - | $ 35,899 | $ 35,899 |
(ii) | August 31, 2012: |
August 2010 | September 2010 | October 2010 | Total | |
Gross proceeds at inception | $ 1,000,000 | $1,000,000 | $1,060,000 | $ 3,060,000 |
Fair value of liability portion | 965,375 | 965,375 | 1,023,297 | 2,954,047 |
Fair value of equity portion | 34,625 | 34,625 | 36,703 | 105,953 |
Liability portion of convertible debt: | ||||
Initial fair value of debt component | $ 965,375 | $ 965,375 | $ 1,023,297 | $ 2,954,047 |
Issuance costs | (111,160) | (3,359) | (22,383) | (136,902) |
Accretion expense | 101,523 | 82,065 | 90,091 | 273,679 |
Interest paid | (36,164) | (30,000) | (31,800) | (97,964) |
Conversion into common shares | (919,574) | - | - | (919,574) |
Closing balance of liability portion | $ - | $1,014,081 | $1,059,205 | $2,073,286 |
Equity portion of convertible debt: | ||||
Opening balance | $ - | $ - | $ - | $ - |
Initial fair value of equity component | 34,625 | 34,625 | 36,703 | 105,953 |
Issuance costs | (3,987) | (120) | (804) | (4,911) |
Conversion into common shares | (30,638) | - | - | (30,638) |
Closing balance of equity portion | $ - | $ 34,505 | $ 35,899 | $ 70,404 |
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
5. | Convertible Debt (continued) |
On August 17, 2010, the Company issued a three-year convertible promissory note to an arm’s length third party, in the principal amount of $1,000,000 bearing interest at 3% and convertible into 255,484 common shares at a price of $4.286 per share. The agreement charged finance and commitment fees of $95,000 which was paid by issuing 22,166 common shares. In September 2011, the loan was converted into 233,318 shares (see note 7).
On September 23, 2010 the Company completed a private placement with an arm’s length third party consisting of a three-year convertible promissory note in the principal amount of $1,000,000 bearing interest at 3% and convertible into 221,337 common shares at the price of $4.518 per share. The Company received notice to convert the Promissory Note in the principal amount of $1,000,000 and 221,337 shares were issued on October 17, 2012 (see note 7).
On October 4, 2010 the Company completed a private placement with arm’s length third parties consisting of three-year convertible promissory notes in the aggregate principal amount of $1,060,000 bearing interest at 3% and convertible into 204,772 common shares at the price of $5.1765 per share. This note has not yet been converted.
Each of the convertible debentures includes a conversion feature. The Company determined a fair value of the financial liability by obtaining independent bank rates of 4.25% for the August, September and October 2010 debt, assuming a three-year expected life and assigned the residual value of all debts to the equity conversion feature in the amount of $126,956. Total transaction costs for all debt agreements were $141,813 of which $4,911 was allocated to the equity component, which aggregated to $35,899 at February 28, 2013 (August 31, 2012 - $70,404) and is included in share based payment reserve in shareholders’ equity.
6. Other financial assets
Other financial assets are comprised of shares of publicly traded companies. As at February 28, 2013, these investments have been measured at their fair value of $7,875 (August 31, 2012 - $17,850). The impact to the unaudited interim condensed consolidated financial statements of this revaluation to market value for the six month period ended February 28, 2013 resulted in a $9,975 loss (February 29, 2012 – $6,300 loss) as market values of these securities decreased (February 29, 2012 – decreased) in the period.
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
7. | Capital Stock |
Share Capital
The Company’s Restated Articles of Incorporation authorize the Company to issue an unlimited number of common shares. On November 23, 2011, the Board resolved that the Company authorize for issuance up to a maximum of 115,000,000 common shares, subject to further resolutions of the Company’s board of directors.
Number | Amount ($) | |
Balance on September 1, 2011 | 99,758,753 | 109,935,253 |
Issued on conversion of convertible debt | 233,318 | 950,213 |
Issued for services | 35,000 | 115,834 |
Issued pursuant to Restricted Share Unit Plan | 182,866 | 1,024,793 |
Compensation warrants exercised | 250,000 | 1,000,000 |
Reserve transferred on exercise of compensation warrants | 450,765 | |
Balance at August 31, 2012 | 100,459,937 | $ 113,476,858 |
Issued on conversion of convertible debt | 221,337 | 986,334 |
Balance at February 28, 2013 | 100,681,274 | $ 114,463,192 |
Activity during the year ended August 31, 2012:
On September 23, 2011, pursuant to the private placement completed on August 17, 2010, the Company received notice from an arm’s length third party to convert its Promissory Note in the principal amount of $1,000,000 bearing interest at 3% and convertible into 233,318 common shares at a price of $4.286 per share, and 233,318 shares were issued on September 23, 2011.
On January 25, 2012 the Company issued 25,000 common shares common shares at a price of $2.619 per share respectively to an arm’s length third party in satisfaction of finder’s services provided to the Company in connection with a previous transaction. On April 23, 2012 the Company issued 10,000 common shares at a price of $5.036 to an arm’s length third party for investor relations services.
Activity during the six month period ended February 28, 2013:
On October 17, 2012, pursuant to the private placement completed on September 23, 2010, the Company received notice from an arm’s length third party to convert its Promissory Note in the principal amount of $1,000,000 bearing interest at 3% and convertible into 221,337 common shares at a price of $4.518 per share, and 221,337 shares were issued on October 17, 2012.
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
7. | Capital Stock (continued) |
Warrant issuances:
There were no warrant issuances during the six month period ended February 28, 2013 or the year ended August 31, 2012.
Warrants outstanding:
At February 28, 2013, the following warrants and compensation options were outstanding:
Number of Warrants |
Exercise price |
Expiry date | |
Private placement November 5, 2010 | 125,000* | USD$4.00 | October 20, 2013 |
Equity financing August 12, 2011 | 5,263,158* | USD$4.00 | August 12, 2014 |
Equity financing compensation options August 12, 2011 | 118,421 | USD$4.00 | August 12, 2014 |
Balance, February 28, 2013 |
5,506,579 | - | - |
* warrants classified under Warrant Liability |
Effective December 7, 2011 the exercise price of 5,263,158 common share purchase warrants was reduced from USD$6.25 to USD$4.00 and the term of the warrants was extended one year to expire August 12, 2014. In addition, if the weighted average trading price of the common shares increases to USD$6.50 after March 11, 2012, the Company will be entitled to require that the holders exercise the warrants, failing which the warrants will terminate. 368,421 compensation warrants issued under the prospectus financing have been amended in the same manner and re-priced from USD$5.91 to USD$4.00. The 5,263,158 warrants are accounted for and included in the calculation of the warrant liability. The compensation warrants continue to be classified as an equity instrument under warrants reserve and the increase in value of $183,000 from the modification of the warrants was recorded in the statement of loss and comprehensive loss for the year ended August 31, 2012.
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
7. | Capital Stock (continued) |
Warrant liability:
Foreign currency denominated warrants (not including compensation warrants), are considered a derivative as they are not indexed solely to the entity’s own stock. The Company’s functional currency is the Canadian dollar as such the warrants whose exercise price is denominated in US dollars have been recorded under liabilities and carried at fair value as determined by the Black-Scholes option pricing model, with changes in fair values recorded as gains or losses in the statements of comprehensive loss.
The table below shows the activity for warrant liability for the six month period ended February 28, 2013 and the year ended August 31, 2012:
Period/year ended | February 28, 2013 | August 31, 2012 |
Balance at beginning of period/year | $ 8,114,000 | $ 5,711,250 |
(Decrease) Increase in value of warrant liability | (3,240,000) | 2,321,921 |
Transfer of warrants on re-pricing to USD (i) | - | 80,829 |
Balance at end of period/year | $ 4,874,000 | $ 8,114,000 |
During the six month period ended February 28, 2013, the value of the warrants decreased to $4,874,000 from the balance at August 31, 2012 of $8,114,000, as a result of changes in fair value of warrants during the period. The assumptions in valuing the warrants at February 28, 2013 included an expected volatility of 40-63% (August 31, 2012 – 58%-71%), a risk free interest rate of 0.17% to 0.25% (August 31, 2012 – 1.16%) and an expected life ranging from 8 to 18 months (August 31, 2012 – one to two years). The decrease in value of $3,240,000 (2012 – $1,749,487 increase) has been recorded as a gain (2012 – loss) in the statement of comprehensive income.
(i) | Effective January 25, 2012 the exercise price of 125,000 common share purchase warrants was reduced from CDN $7.309 to USD$4.00, and the term of the warrants was extended one year to expire October 20, 2013. In addition, if the weighted average trading price of the common shares increases to USD$6.50 after April 12, 2012, the Company will be entitled to require that the holders exercise the warrants, failing which the warrants will terminate. The warrants are held by an arm’s length investor. The result of the modification resulted in the new foreign currency denominated warrants being considered a derivative as they are not indexed solely to the entity’s own stock. The warrants were transferred from reserve for warrants to liabilities and were accounted for and included in the calculation of the warrant liability and consequently reclassified $80,829 from warrants reserve to warrant liability. |
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
7. | Capital Stock (continued) |
Compensation options:
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 six month period ended February 28, 2013 was $29,160 (six month period ended February 29, 2012 - $37,644) and is included in salaries and benefits expense.
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 9, 2012 the Board resolved to suspend 1,500,000 of the 2,500,000 common shares previously authorized for issuance under the RSU Plan, such that a maximum of 1,000,000 shares shall be authorized for issuance under the RSU Plan, until such suspension may be lifted or further amended. 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 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 1,000,000 shares authorized for issuance under the Plan, 632,053 shares have been issued as at February 28, 2013.
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
7. | Capital Stock (continued) |
Total share-based compensation expense related to the issue of RSUs was $nil for the six month period ended February 28, 2013 (2012 - $315,804).
The following table summarizes changes in the number of RSU’s outstanding:
Number of RSU’s | Weighted average fair value at issue date | ||||
Balance, September 1, 2011 | 440,932 | $ 5.55 | |||
Granted | 296,926 | $ 4.83 | |||
Redeemed for common shares | (182,866) | $ 5.60 | |||
Forfeited - unvested | (108,745) | $ 5.39 | |||
Balance, August 31, 2012 and February 28, 2013 | 446,247 | $ 5.09 | |||
8. | Reserve for warrants |
Period/year ended | February 28, 2013 | August 31, 2012 |
Balance at beginning of period/year | $ 870,037 | $ 1,353,990 |
Transfer of warrants to warrant liability | - | (216,188) |
Modification of warrants | - | 183,000 |
Transfer on exercise of compensation warrants | - | (450,765) |
Balance at end of period/year | $ 870,037 | $ 870,037 |
9. | Reserve for share based payments |
Period/year ended | February 28, 2013 | August 31, 2012 |
Balance at beginning of period/year | $ 670,779 | $ 706,988 |
Shares issued pursuant to RSU plan | - | (1,024,793) |
Issued on conversion of convertible debt | - | (30,638) |
RSU shares forfeited | - | (264,528) |
Share based compensation | 414,079 | 1,283,750 |
Balance at end of period/year | $ 1,084,858 | $ 670,779 |
10. Related party transactions and key management compensation
Related parties include the Board of Directors and officers, close family members and enterprises that are controlled by these individuals as well as certain consultants performing similar functions.
Related party transactions conducted in the normal course of operations are measured at the exchange value (the amount established and agreed to by the related parties).
(a) Tanzanian Royalty Exploration Corporation entered into the following transactions with related parties:
Six month periods ended, | Notes | February 28, 2013 | February 29, 2012 |
Legal services | (i) | $199,213 | $570,890 |
Director compensation | (ii) | $177,199 | $250,898 |
Chairman and COO | (iii) | USD$ 21,332 | USD$ 4,000 |
Technical Committee | (iv) | $47,406 | $75,467 |
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
10. Related party transactions and key management compensation, (continued)
(i) The Company engages a legal firm for professional services in which one of the Company’s directors is a partner. During the six month period ended February 28, 2013, the legal expense charged by the firm was $199,213 (2012 - $570,890), of which $60,876 remains payable at February 28, 2013 (August 31, 2012 - $140,245).
(ii) During the six month period ended February 28, 2013, $177,199 (2012 - $250,898) was paid or payable by the Company to directors for serving on the Board and/or related Committees.
(iii) During the six month period ended February 28, 2013, USD$21,332 (2012 - USD$4,000) was paid to a company associated with the Company’s Chairman and COO and his spouse for office rental.
(iv) During the six month period ended February 28, 2013, $47,406 (2012 - $75,467) was paid or payable by the Company to directors as incremental fees for serving on the Company’s Technical Committee.
(b) Remuneration of Directors and key management personnel (being the Company’s Chief Executive Officer, Chief Financial Officer and Chief Operating Officer), other than consulting fees, of the Company was as follows:
Six month period ended, | February 28, 2013 | February 29, 2012 | ||
Salaries and benefits(1) | Share based payments(3) | Salaries and benefits(1) | Share based payments(3) | |
Management | $ 288,409 | $ 197,388 | $ 175,917 | $ 132,348 |
Directors | 75,672 | 177,199 | 25,104 | 250,898 |
Total | $ 364,081 | $ 374,587 | $ 201,021 | $ 383,246 |
(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 prohibiting selling within certain time frames up to a year.
(3)All RSU share based compensation is based on the accounting expense recorded in the period.
At February 28, 2013, the Company has a receivable of $21,779 (August 31, 2012 - $22,977) from an organization associated with the Company’s President and CEO.
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
11. Management of Capital
The Company's objective when managing capital is to obtain adequate levels of funding to support its exploration activities, to obtain corporate and administrative functions necessary to support organizational functioning and obtain sufficient funding to further the identification and development of precious metals deposits.
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business. The Company defines capital to include its shareholders’ equity. In order to carry out the planned exploration and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. The Company will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geologic or economic potential and if it has adequate financial resources to do so. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There were no changes in the Company's approach to capital management during the three and six month period ended February 28, 2013. 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 February 28, 2013 totaled $53,177,346 (August 31, 2012 - $50,750,851).
The Company raises capital, as necessary, to meet its needs and take advantage of perceived opportunities and, therefore, does not have a numeric target for its capital structure. Funds are primarily secured through equity capital raised by way of private placements. There can be no assurance that the Company will be able to continue raising equity capital in this manner.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.
The Company invests all capital that is surplus to its immediate operational needs in short term, liquid and highly rated financial instruments, such as cash, and short term guarantee deposits, all held with major Canadian financial institutions.
12. Financial Instruments
Fair Value of Financial Instruments
The Company designated its other financial assets and warrant liability as FVTPL, which are measured at fair value. Fair value of other financial assets is determined based on quoted market prices and is categorized as Level 1 measurement. Fair value of warrant liability is categorized as Level 2 measurement as it is calculated based on observable 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.
The Company’s convertible debt fair value is based on market interest rate. As at February 28, 2013, and August 31, 2012 the fair value of the convertible debt agreements did not differ materially from their carrying value.
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
12. Financial Instruments (continued)
Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment, therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
A summary of the Company's risk exposures as they relate to financial instruments are reflected below:
Credit Risk
Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its contractual obligations. The Company is subject to credit risk on the cash balances at the bank, its short-term bank investments and accounts and other receivables and the carrying value of those accounts represent the 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 February 28, 2013, or August 31, 2012.
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 Company’s future interest income is exposed to changes in short-term rates. As at February 28, 2013, a 1% increase/decrease in interest rates would decrease/increase net income (loss) for the period by approximately $146,000 (2012 - $264,000).
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 February 28, 2013, the Company had current assets of $15,032,515 (August 31, 2012 - $20,483,824) and current liabilities of $1,916,768 (August 31, 2012 - $2,318,393). 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 of the Company is $13,115,747 (August 31, 2012 - $18,165,431).
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 February 28, 2013, the Company had no hedging agreements in place with respect to foreign exchange rates. As a majority of the funds of the Company are held in Canadian currencies, the foreign currency risk associated with US dollar and Tanzanian Shilling financial instruments is not considered significant at February 28, 2013.
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
13. Prepaid expenses
February 28, 2013 | August 31, 2012 | |
Insurance | $ 4,281 | $ 41,525 |
Listing fees | 76,027 | 23,806 |
Other | 23,408 | 22,345 |
Total prepaid expenses | $ 103,716 | $ 87,676 |
14. 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:
February 28, 2013 | August 31, 2012 | |
Receivable from related parties | $ 21,779 | $ 23,315 |
HST and VAT Receivable | 39,777 | 38,824 |
Other | 15,697 | 9,086 |
Total Trade and Other Receivables | $ 77,253 | $ 71,225 |
Below is an aged analysis of the Company’s trade and other receivables:
February 28, 2013 | August 31, 2012 | |
Less than 1 month | $ 539 | $ 4,034 |
1 to 3 months | 57,582 | 64,016 |
Over 3 months | 19,132 | 3,175 |
Total Trade and Other Receivables | $ 77,253 | $ 71,225 |
At February 28, 2013, 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 12.
The Company holds no collateral for any receivable amounts outstanding as at February 28, 2013.
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
15. 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, amounts payable for financing 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:
February 28, 2013 | August 31, 2012 | |
Less than 1 month | $ 118,875 | $ 921,893 |
1 to 3 months | 358,879 | 1,378,486 |
Over 3 months | 379,068 | 18,014 |
Total Trade, Other Payables and Accrued Liabilities | $ 856,822 | $ 2,318,393 |
16. Inventory
Inventory consists of supplies for the Company’s drilling rig to be consumed during the course of exploration development and operations. Cost represents the delivered price of the item. The following is a breakdown of items in inventory:
February 28, 2013 | August 31, 2012 | |
Replacement parts for drill | $ 194,174 | $ 186,296 |
Other | 64,724 | 62,099 |
Total Inventory | $ 258,898 | $ 248,395 |
17. Cash and cash equivalents
As at February 28, 2013, cash and cash equivalents total $14,584,773 (August 31, 2012 - $20,058,678), consisting of cash on deposit with banks in general minimum interest bearing accounts totalling $2,071,666 (August 31, 2012 - $2,027,295), and Government investment certificates consisting of interest-generating money-market accounts of $12,513,107 (August 31, 2012 - $18,031,383). This interest-generating government investment certificate is cashable at any time and the Company expects to convert this into cash on an as needed basis.
18. Segmented information |
Operating Segments
At February 28, 2013 the Company’s operations comprise 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.
Tanzanian Royalty Exploration Corporation Notes to the Unaudited Interim Condensed Consolidated Financial Statements For the Six Month Periods Ended February 28, 2013 and February 29, 2012 |
18. Segmented information, (continued) |
Geographic Segments
The Company is in the business of mineral exploration and production in the country of Tanzania. As such, management has organized the Company’s reportable segments by geographic area. The Tanzanian segment is responsible for that country’s mineral exploration and production activities while the Canadian segment manages corporate head office activities. Information concerning TREC’s reportable segments is as follows:
Six month period ended February 28, 2013 | Six month period ended February 29, 2012 | |
Consolidated net income (loss) | ||
Canada | $ 1,694,788 | $ (3,292,968) |
Tanzania | (668,706) | (2,413,741) |
$ 1,026,082 | (5,706,709) | |
As at February 28, 2013 | As at August 31, 2012 | |
Identifiable assets | ||
Canada | $ 14,683,443 | $ 20,137,766 |
Tanzania | 45,284,671 | 43,118,764 |
$ 59,968,114 | $ 63,256,530 |
19. Commitments
In addition to the property payments committed to by the Company to maintain options in certain prospecting and mining option agreements (note 3), the Company is committed to rental payments of approximately $48,869 for premises in 2013.
20. Subsequent event
At the Company’s Board Meeting held on April 10, 2013, the Board of Directors of the Company approved the 2013 grant of 335,321 Restricted Stock Units (“RSUs”) to employees as per the approved RSU Plan. On April 11, 2013, 131,528 RSU shares vested and were issued to employees and certain outside directors for RSU grants approved by the Board in prior years.
Management Discussion and Analysis
February 28, 2013
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 and six month period ended February 28, 2013 and the audited consolidated financial statements for the years ended August 31, 2012 and 2011. The MD&A was prepared as of April 15, 2013. All amounts are in Canadian dollars, unless otherwise specified.
Highlights – for the six months ended February 28, 2013
· | The Company signed Kigosi Access Agreement in December 2012 and in February 2013, the Company was awarded an Environmental Impact Assessment (EIA) Certificate for Kigosi. |
· | Assay results from Eastern Porphyry prospect at the Buckreef Gold Project continues to increase confidence in the additional potential the prospect might possess |
· | Assay results from the Company’s ongoing deep diamond drill program at the Buckreef Gold Project confirm continuity of wide, higher-grade gold mineralization |
· | In October 2012 the Company retained Venmyn Rand Limited to prepare mineral resource block models and updated mineral resource statements for the Company’s Buckreef Project |
· | In November 2012 the Company announced the formation of Northwestern Basemetals Company Limited, a new company 75% owned by Tanzanian Royalty, 15% by State Mining Corporation (“Stamico”) and 10% by Beijing Songshanheli Mining Investment Co., to explore the Kabanga nickel, cobalt and platinum group metals belt in Tanzania |
Overall Performance
As at February 28, 2013 the Company had current assets of $15,032,515 compared to $20,483,824 on August 31, 2012. The decrease is mainly due to net expenditures on exploration of $3,577,951 (2012 - $2,267,090) and cash used in operations of $1,864,379 (2012 - $3,635,078). Mineral properties and deferred exploration costs were $43,835,624 as compared to $41,562,996 at August 31, 2012.
Net income for the six month period ended February 28, 2013 was $1,026,082 compared to a net loss of $5,706,709 in the comparable six month period ended February 29, 2012. The decrease in net loss is primarily due to a gain of $3,240,000 from the revaluation of warrant liability during the six month period ended February 28, 2013 compared to a loss of $1,749,487 on the same revaluation of the warrant liability in 2012 as well as a decrease in the loss due to the write down in mineral properties and deferred exploration costs to $nil for the six month period ended February 28, 2013 (2012 - $1,231,067).
The Company issued common shares during the six month period ended February 28, 2013 with a value of $986,334 on conversion of 221,337 shares under the convertible debt agreement (compared to a value of $950,213 on conversion of 233,318 shares under the convertible debt agreement during the six month period ended February 29, 2012). In the current quarter, capital is being utilized for the Buckreef Gold Project development, property acquisition, exploration, capital equipment purchases and general operating expenses as tabulated below. The remaining capital is invested in interest bearing investments, which are highly liquid.
1 |
Management Discussion and Analysis
February 28, 2013
C$ (000) | |
Funds available August 31, 2012 | 20,059 |
Equipment purchases | (32) |
Mineral property expenditures including licences, environmental and exploration, net of recoveries | (3,578) |
General corporate expenses | (1,864) |
Funds available February 28, 2013 | $14,585 |
Management of the Company believes that the current level of funds is sufficient to achieve its business objectives and milestones over the next 12 months. 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 Annual Information Form for the year ended August 31, 2012, which is filed on SEDAR.
Due to the current low interest rate environment, interest income is not expected to be a significant source of income or cash flow. Management intends to monitor spending and assess results on an ongoing basis and will make appropriate changes as required.
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. Although the prices of precious and base metals have risen substantially over the past several months, the Company remains cautious; |
· | The Company’s future performance is largely tied to the outcome of future drilling results and the development of the Buckreef project; and |
· | Current financial markets are likely to be volatile in Canada for the remainder of the year, reflecting ongoing concerns about the stability of the global economy. As well, concern about global growth may lead to future drops in the commodity markets. Uncertainty in the credit markets has also led to increased difficulties in borrowing/raising funds. Companies worldwide have been negatively affected by these trends. As a result, the Company may have difficulties raising equity and debt financing for the purposes of base and precious metals exploration and development. |
These trends may limit the Company’s ability to discover and develop an economically viable mineral deposit.
2 |
Management Discussion and Analysis
February 28, 2013
Selected Financial Information
As at and for the six month period ended February 28, 2013 | As at and for the year ended August 31, 2012 | As at and for the year ended August 31, 2011 | |
Total Revenues | $0 | $0 | $0 |
Net income (loss) for the period | $1,026,082 | ($8,897,843) | ($11,132,371) |
Basic and diluted income (loss) per share | $0.01 | ($0.09) | ($0.12) |
Total assets | $59,968,114 | $63,256,530 | $67,632,380 |
Total long term financial liabilities | $4,874,000 | $10,187,286 | $8,669,289 |
Cash dividends declared per share | $0 | $0 | $0 |
Results of Operations
Net additions to mineral properties and deferred exploration costs for the six month period ended February 28, 2013 were $3,577,951 compared to $2,267,090 for the six month period ended February 28, 2012. The amount has increased as compared with prior year as the Company advances its exploration of the Buckreef project and other projects in its portfolio.Recoveries received during the six month period endedFebruary28, 2013 and February 29, 2012 from various option agreements and other miscellaneous sources were $40,175 and $nil, respectively.
Net income for the six month period endedFebruary28, 2013 was $1,026,082 compared to a loss of $5,706,709 for the comparable six month period endedFebruary29, 2012.For the three month period ended February 28, 2013 and February 29, 2012, the net income was $2,631,702 and a loss of $8,515,746, respectively. The main reason for the decrease in net loss for both the six month and the three month periods is the gain on revaluation of warrant liability of $3,240,000 and $3,789,000 for the three and six month periods ended February 28, 2013 respectively (2012 – loss of $7,290,064 and $1,749,487 for the three and six month periods respectively).
For the six month period endedFebruary 28, 2013, depreciation expense was $141,310 compared to $216,027 for the same six month period endedFebruary 29, 2012. The decrease of $74,717 was due to the lower capital asset cost base as purchases in the period were minimal and depreciation lowered the capital asset balance. The capital expenditure for the six month period endedFebruary28, 2013 was $31,575 as compared to $135,500 in the six month period endedFebruary29, 2012.
Consulting fees for thesix month period endedFebruary28, 2013were $129,436 compared to $120,158 in the comparablesix month period endedFebruary29, 2012. Consulting expenses remained consistent between the comparable periods. The slight increase in total consulting expense is a result of the Company using additional consultants for its financial reporting requirements and IFRS conversion.Consulting fees for the three months ended February 28, 2013 were $77,844 compared to $55,939 in the comparable period ended February 29, 2012.The increase in total consulting expense is a result of the Company using additional consultants for its financial reporting requirements and additional consultants as the Company advances its portfolio of exploration properties.
Directors’ fees for thesix month period endedFebruary28, 2013were $181,549 compared to $250,898 in the comparablesix month period endedFebruary29, 2012. The decrease in director fees expense is a result of a decrease in number and valuation of RSU’s issued to board members.
3 |
Management Discussion and Analysis
February 28, 2013
Office and general expenses for thesix month period endedFebruary28, 2013were $164,114 compared to $218,423 in the comparablesix month period endedFebruary29, 2012. The decrease is mainly due to the company closely managing its office and general costs including closure of the Mwanza office and consolidation of offices at the Buckreef camp.For the three month period ended February 28, 2013, office and general expenses were $72,677 compared to $98,498 in the comparable period ended February 29, 2012. The decrease for the three month period is the same as above.
Shareholder information costs decreased from $379,701 for the six month period endedFebruary29, 2012 to $178,691 for the six month period endedFebruary 28, 2013. The decrease of $201,010 wasdue to decreased activity during the six month period ended February 28, 2013 due to transfer agent and listing fees from the issue of shares for converted debt and corporate investor promotion activity completed during prior period ended 2012.For the three month period ended February 28, 2013, shareholder information costs were $109,368 compared to $209,258 for the three month period ended February 29, 2012. The decrease of $99,890 was due to the same reason as above.
Professional fees decreased by $135,718 for the six month period endedFebruary28, 2013 to $263,678 from $399,396 for the six month period endedFebruary 29, 2012. The decrease in the current six month period is due to increased costs during the comparative 2012 quarter surrounding legal, audit and tax advisor professional fees which were not incurred during the current quarter. For the three month period ended February 28, 2013 professional fees went from $169,553 for six month period ended February 29, 2012 to $129,999. The decrease is due to the same reasons above.
Salaries and benefits expense has increased to $797,068 for the six month period endedFebruary28, 2013 from $693,855 for the six month period endedFebruary 29, 2012. The expenses for the corresponding three month period ending February 28, 2013 and February 29, 2012 were $464,468 and $304,641 respectively. Salaries and benefits have increased due to incentive bonus paid to COO Tanzania and increased salary paid to the CEO in current versus prior year.
Share based payments for thesix month period endedFebruary28, 2013were $301,073 compared to $23,132 in the comparable periodendedFebruary29, 2012. Share based payments vary on the number of equity based compensation options issued and vesting. See note 7 of the financial statements for details.Director fee RSU expense was $101,532 and $225,794, respectively.
For the six month period endedFebruary 28, 2013, travel and accommodation expense decreased by $40,556 from $84,464 in 2012 to $43,908. For the three months ended February 28, 2013, travel and accommodation expense decreased by $6,385 from $16,896 in 2012 to $10,511. Travel and accommodation expense decreased due to timing and increased control of travel requirements.
For the six month period endedFebruary 28, 2013, the foreign exchange income was $3,840 compared to an exchange loss of $11,808 for the same period endedFebruary 29, 2012. This decreased loss of $15,648 was due to the years’ average Tanzanian Shilling exchange rate having increased from 1,572 atAugust31, 2012 to 1,564 atFebruary 28, 2013.
4 |
Management Discussion and Analysis
February 28, 2013
The interest accretion expense for the six month period endedFebruary 28, 2013 was $32,082, compared to $54,564 for the six month period endedFebruary 29, 2012. The interest relates to the issuance of convertible debt.Interest accretion is expected to decrease as debt is converted into shares.
During thesix month period endedFebruary 28, 2013, the Company did not abandon or write-off expenses in various project areas (2012 – wrote off $1,231,067 from abandoning various licenses, see note 3 of the financial statements, as the Company evaluated its mineral properties and deemed certain properties to warrant no further exploration).
Summary of Quarterly Results (unaudited)
(Expressed in thousands of dollars, except per share amounts)
2013 Q2 | 2013 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | 2012 Q1 | 2011 Q4 | 2011 Q3 | |
Total revenues | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
Net Income (Loss) | $2,632 | $(1,606) | $(3,576) | $385 | $(8,516) | $2,809 | ($7,402) | ($1,493) |
Basic and diluted income (loss) per share |
$0.03 |
($0.02) |
($0.04) |
$0.00 |
($0.09) |
$0.03 |
($0.07) |
($0.02) |
Liquidity and Capital Resources
The Company manages liquidity risk by maintaining adequate cash balances in order to meet short term business requirements. Because the Company does not currently derive any production revenue from operations, its ability to conduct exploration and development work on its properties is largely based upon its ability to raise capital by equity funding. Previously, the Company has obtained funding via private placements, public offering and various sources, including the Company’s President and CEO.
As of February 28, 2013, the Company’s working capital position was $13,115,747, as compared to $18,165,431 as of August 31, 2012. As the Company’s mineral properties advance, additional equity and debt financing will be required to fund exploration and mining activities.
The Company has prepared a cash flow forecast for fiscal 2013 and believes that it has sufficient funds to continue operations for at least the next twelve months.
Some of the Company’s mineral properties are being acquired over time by way of option payments. It is at the Company’s option as to whether to continue with the acquisition of the mineral properties and to incur these option payments. Current details of option payments required in the future if the Company is to maintain its interests are as follows:
Option Payments due by Period (US$) | |||||
Total | Less than 1 year |
2 - 3 years |
4 - 5 years |
Over 5 years | |
Option agreement obligations | 19,000 | 19,000 | nil | Nil | Nil |
5 |
Management Discussion and Analysis
February 28, 2013
Convertible Debt
Pursuant to the private placement completed on September 23, 2010, the Company received notice from an arm’s length third party to convert its Promissory Note in the principal amount of $1,000,000 bearing interest at 3% and convertible into 221,337 common shares at a price of $4.518 per share, and 221,337 shares were issued on October 17, 2012.
On October 4, 2010 the Company completed a private placement with arm’s length third parties consisting of three-year convertible promissory notes in the aggregate principal amount of $1,060,000 bearing interest at 3% and convertible into 204,772 common shares at the price of $5.1765 per share. This note has not yet been converted.
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.
Related party transactions conducted in the normal course of operations are measured at the exchange value (the amount established and agreed to by the related parties).
(a) Tanzanian Royalty Exploration Corporation entered into the following transactions with related parties:
Six month periods ended, | Notes | February 28, 2013 | February 29, 2012 |
Legal services | (i) | $199,213 | $570,890 |
Director compensation | (ii) | $177,199 | $250,898 |
Chairman and COO | (iii) | USD$ 21,332 | USD$ 4,000 |
Technical Committee | (iv) | $47,406 | $75,467 |
(i) The Company engages a legal firm for professional services in which one of the Company’s directors is a partner. During the six month period ended February 28, 2013, the legal expense charged by the firm was $199,213 (2012 - $570,890), of which $60,876 remains payable at February 28, 2013 (August 31, 2012 - $140,245).
(ii) During the six month period ended February 28, 2013, $177,199 (2012 - $250,898) was paid or payable by the Company to directors for serving on the Board and/or related Committees.
6 |
Management Discussion and Analysis
February 28, 2013
(iii) During the six month period ended February 28, 2013, USD$21,332 (2012 - USD$4,000) was paid to a company associated with the Company’s Chairman and COO and his spouse for office rental.
(iv) During the six month period ended February 28, 2013, $47,406 (2012 - $75,467) was paid or payable by the Company to directors as incremental fees for serving on the Company’s Technical Committee.
(b) Remuneration of Directors and key management personnel (being the Company’s Chief Executive Officer, Chief Financial Officer and Chief Operating Officer), other than consulting fees, of the Company was as follows:
Six month period ended, | February 28, 2013 | February 29, 2012 | ||
Salaries and benefits (1) | Share based payments (3) | Salaries and benefits (1) | Share based payments (3) | |
Management | $ 288,409 | $ 197,388 | $ 175,917 | $ 132,348 |
Directors | 75,672 | 177,199 | 25,104 | 250,898 |
Total | $ 364,081 | $ 374,587 | $ 201,021 | $ 383,246 |
(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 prohibiting selling within certain time frames up to a year.
(3)All RSU share based compensation is based on the accounting expense recorded in the period.
At February 28, 2013, the Company has a receivable of $21,779 (August 31, 2012 - $22,977) from an organization associated with the Company’s President and CEO.
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 9, 2012 the Board resolved to suspend 1,500,000 of the 2,500,000 common shares previously authorized for issuance under the RSU Plan, such that a maximum of 1,000,000 Shares shall be authorized for issuance under the RSU Plan, until such suspension may be lifted or further amended. Any of these awards of RSUs may, but need not, be made as performance incentives to reward attainment of annual or long-term performance goals in accordance with the terms of the RSU Plan. Any such performance goals are specified in the Award Agreement.
7 |
Management Discussion and Analysis
February 28, 2013
Of the 1,000,000 shares authorized for issuance under the Plan, 632,053 shares have been issued as at February 28, 2013.
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 berecovered in the future. The Company’s recoverability evaluation is based on market conditions forminerals, underlying mineral resources associated with the properties and future costs that may be required for ultimate realization through mining operations or by sale.
Assessment of Recoverability of Deferred Income Tax Assets
TREC 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 taxobligations. This process involves estimating the actual tax exposure together with assessing temporarydifferences resulting from differing treatment of items for tax and accounting purposes. The Companyassesses, 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 and Warrant Liability and Associated Assumptions
The Company recorded share based payments based on an estimate of the fair value on the grant dateof 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 requires estimates of interest rate, life of the warrant, stock pricevolatility and the application of the Black-Scholes option pricing model. See note 7 of the February 28,2013, unaudited interim condensed consolidated financial statements for a full disclosure.
8 |
Management Discussion and Analysis
February 28, 2013
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. 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, except for administrative reimbursements which are credited to operations.
Consequential revenue from the sale of metals, extracted during the Company's test mining activities, is recognized on the date the mineral concentrate level is agreed upon by the Company and customer, as this coincides with the transfer of title, the risk of ownership, the determination of the amount due under the terms of settlement contracts the Company has with its customer, and collection is reasonably assured. Revenues from properties earned during the development stage (prior to commercial production) are deducted from capitalized costs.
The amounts shown for mining claims and related deferred costs represent costs incurred to date, less amounts expensed or written off, reimbursements and revenue, and do not necessarily reflect present or future values of the particular properties. The recoverability of these costs is dependent upon discovery of economically recoverable reserves and future production or proceeds from the disposition thereof.
The Company reviews the carrying value of a mineral exploration property when events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying value of the property exceeds its fair value, the property will be written down to fair value with the provision charged against operations in the year. An impairment is also recorded when management determines that it will discontinue exploration or development on a property or when exploration rights or permits expire. The amount shown for deferred exploration expenses, represents costs incurred to date net of write‑downs, if any, and is not intended to reflect present or future values.
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 conveyancing history characteristic of many mineral interests. The Company has investigated the ownership of its mineral properties and, to the best of its knowledge, ownership of its interests are in good standing.
Capitalized mineral property exploration costs are those directly attributable costs related to the search for, and evaluation of mineral resources, that are incurred after the Company has obtained legal rights to explore a mineral property and before the technical feasibility and commercial viability of a mineral reserve are demonstrable. Any cost incurred prior to obtaining the legal right to explore a mineral property are expensed as incurred.
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.
9 |
Management Discussion and Analysis
February 28, 2013
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 cashgenerating 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 pretax 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 cashgenerating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cashgenerating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of comprehensive loss, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cashgenerating unit) in prior years.
The Company’s most critical accounting estimate relates to the impairment of mineral properties and deferred exploration costs. During the six month period endedFebruary28, 2013 the Company wrote off $nil of costs on abandoned mineral properties (2012 – $1,231,067). Management assesses impairment of its exploration prospects quarterly. If an impairment results, the capitalized costs associated with the related project or area of interest are charged to expense.
Asset Retirement Obligations
The Company recognizes liabilities for statutory, contractual, constructive or legal obligations, including those associated with the reclamation of mineral properties and PPE, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement obligation is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit‐of‐production method or the straight‐line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the current market‐based discount rate, amount or timing of the underlying cash flows needed to settle the obligation. As ofFebruary 28, 2013 no liability for restoration exists.
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Management Discussion and Analysis
February 28, 2013
Financial Instruments
Fair Value of Financial Instruments
The Company designed its other financial assets and warrant liability as FVTPL, which are measured at fair value. Fair value of other financial assets is determined based on quoted market prices and is categorized as Level 1 measurement. The warrant liability is recorded at fair value based on observable 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.
The Company’s convertible debt fair value is based on market interest rate. As atFebruary 28, 2013 the fair value of the convertible debt agreements did not differ materially from their carrying value.
Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment, therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
A summary of the Company's risk exposures as they relate to financial instruments are reflected below:
Credit Risk
Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its contractual obligations. The Company is subject to credit risk on the cash balances at the bank, its short-term bank investments and accounts and other receivables. 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 receivable from the Custom Revenue Agency and amounts due from related parties.
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 Company’s future interest income is exposed to changes in short-term rates. As at February 28, 2013, a 1% increase/decrease in interest rates would decrease/increase net loss for the period by approximately $146,000 (2012 - $264,000).
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Management Discussion and Analysis
February 28, 2013
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 February 28, 2013, the Company had current assets of $15,032,515 (August 31, 2012 - $20,483,824) and current liabilities of $1,916,768 (August 31, 2012 - $2,318,393). 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 of the Company is $13,115,747 (August 31, 2012 - $18,165,431).
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 February 28, 2013, the Company had no hedging agreements in place with respect to foreign exchange rates. As a majority of the funds of the Company are held in Canadian currencies, the foreign currency risk associated with US dollar and Tanzanian Shilling financial instruments is not considered significant at February 28, 2013.
Disclosure of Outstanding Share Data
As at the date of this MD&A, there were 100,812,802 common shares outstanding. There were RSUs, convertible debt and warrants outstanding to purchase an aggregate 6,361,391 common shares.
Subsequent Event
At the Company’s Board Meeting held on April 10, 2013, the Board of Directors of the Company approved the 2013 grant of 335,321 Restricted Stock Units (“RSUs”) to employees as per the approved RSU Plan. On April 11, 2013, 131,528 RSU shares vested and were issued to employees and certain outside directors for RSU grants approved by the Board in prior years.
Litigation
There are no legal proceedings which may have or have had a significant effect on the Company’s financial position or profitability.
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Management Discussion and Analysis
February 28, 2013
Outlook
The Company’s Board of Directors has confirmed the strategic objective of the Corporation is to explore and evaluate its various mineral properties and develop the Buckreef Gold Mine Re-development Project and the Kigosi project in northern Tanzania. In addition, management is of the opinion that the Golden Horseshoe Reef (GHR) at Itetemia represents a modest, yet robust, medium-grade, near surface gold deposit that warrants further feasibility investigations.Management of the Company has developed a conceptual five-year production plan. This plan is based on advancing Buckreef (including Bingwa and Tembo), Itetemia and Kigosi projects through various stages of development to production.The Company seeks out and explores gold, nickel and other mineral deposits with the intention of developing certain ones for our own account and partnering with an exploration corporation to generate royalty interest in a deposit that results in production.
Exploration Summary
Buckreef Project
A total number of ten (10) Reverse Circulation (RC) drill holes for 1,008m were achieved from December to February 2013.The Eastern Porphyry target is located approximately 800m east of Buckreef Main Zone. Gold mineralization at Eastern Porphyry occurs in a sequence of fine grained basalts to medium grained dolerites and in altered felsic porphyry dykes. The mafic package unit has been intruded by a series of porphyritic felsic dykes. The dykes are typically pink in colour and possess both quartz and feldspar phenocrysts phases in a fine-grained ground mass.
The RC drilling on the Eastern Porphyry prospect returned impressive and significant intercepts including:
· | BMRC541 with 5.0m at 1.12g/t gold from 30.0m, 1m at 2.35g/t gold from 41m and 2m at 0.65g/t gold from 76m. |
· | BMRC542 which intersected 1m at 1.44g/t Au from 31m, and a second zone of 1m at 6.85g/t Au from 60m. |
· | BMRC543 returned intervals of 9 metres grading 3.07g/t Au from 40m, including 4 metres grading 6.25g/t gold, 1m 2.54 g/t Au from 84m, and 1.0m @ 1.73g/t Au from 101.0m. |
Buckreef Project Resource Upgrade
During the report period, interpretation of ore body outlines was done. Buckreef was done to a cut-off of 0.2g/t for low grade and 1.5g/t for high-grade. Bingwa outline was done to a cut-off of 0.1 g/t. The Bingwa geological interpretations were based on two geological domains - granite contact domain versus non-granite domains. A 3D wire framing model for geology and mineralization for Buckreef, Bingwa, Tembo and Eastern Porphyry deposits was completed during the reporting period.
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Management Discussion and Analysis
February 28, 2013
Regional Tenure Review
The final Independent Review Report by MSA Group under consultant Mike Robertson on six (6) exploration projects was received during the reporting period. The projects under the review comprised of one Nickel exploration project and five gold exploration projects. The review ranked the projects in terms of their exploration prospectivity following a desktop study of information and data provided by Company personnel for each project. The review on the gold projects ranked the projects from the highest to the least potential, including conclusions and recommendations on every project. The final review on the Kabanga Nickel project noted that there exists already an extensive high quality data of regional aeromagnetic, soil geochemistry data and geological mapping from previous exploration in the area augmented by ground follow up work, including RC and diamond drilling. The ranking of the licences in the area for the nickel and base metals prospectivity was grouped into seven (7) geographic Blocks starting with the most prospective nickel-based metal Block to the least prospective Block.
Karangwe BGC Survey
During the report period, the Company reintroduced the Biogeochemical (BGC) program. The BGC objective for the company’s prospecting licenses in the Karagwe-Akolean belt is to conduct an efficient and rapid exploration survey targeting Nickel, Cobalt and the Platinum Group Metals (PGM). A total of 429 BGC samples were collected during the reporting period. The line distance covered during sampling program was 21.9km.
Projects Development
Management of the Company has developed a conceptual five-year production plan. This plan is based on advancing Buckreef (including Bingwa and Tembo), Itetemia and Kigosi projects through various stages of development to production.
The update of the original Scoping Study for the Itetemia project continued during the period to reflect the value potential, and to include: the current gold price, revised cut-off grades, and the increase of current operating and capital cost estimates.
During the report period, the company has been awarded the Environmental Impact Assessment Certificate for its Kigosi gold project. The Certificate was issued and signed by The Minister of State; Vice-Present’s Office-Environment, on 24th January, 2013 and is good for entire lifecycle of the Kigosi project.
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 Annual Information Form filed on SEDAR.
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Management Discussion and Analysis
February 28, 2013
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 February 28, 2013 and concluded that such procedures are adequate and effective to ensure accurate and complete disclosures in filings. Any system control over disclosure procedures, particularly for junior exploration companies, no matter how well designed and implemented, has inherent limitations and may not prevent or detect all inaccuracies. These limitations include limited personnel available for such work, geographical logistics and human error among others. The Board of Directors assess the integrity of the public financial disclosures through the oversight of the Audit Committee.
Internal Control Over Financial Reporting (“ICFR”)
Requirements of NI 52-109 include conducting an evaluation of the effectiveness of ICFR. Management conducted an assessment of the effectiveness of the ICFR in place as of February 28, 2013 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 Board of Directors assess the integrity of the public financial disclosure through the oversight of the Audit Committee.
Additional Information
Tanzanian Royalty Exploration Corporation is a Canadian public company listed on the TSX Exchange trading under the symbol “TNX” and also listed on the NYSE Amex Equities Exchange 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 annual MD&A. A copy of this annual MD&A will be provided to anyone who requests it. It is also available on the SEDAR website at www.sedar.com
Cautionary Note Regarding Forward-Looking Statements
Except for statements of historical fact relating to the Company, certain information contained in this MD&A constitutes “forward-looking information” under Canadian securities legislation. Forward-looking information includes, but is not limited to, statements with respect to the potential of the Company’s properties; the future prices of base and precious metals; success of exploration activities, cost and timing of future exploration and development; the estimation of mineral reserves and mineral resources; conclusions of economic evaluations; requirements for additional capital; and other statements relating to the financial and business prospects of the Company. Generally, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects”, or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or “variations of such words and phrases or statements that certain actions, events or results “may” , “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments at Buckreef or other mining or exploration projects, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, and is inherently subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to risks related to: unexpected events and delays during permitting; the possibility that future exploration results will not be consistent with the Company’s expectations; timing and availability of external financing on acceptable terms in light of the current decline in global liquidity and credit availability; uncertainty of inferred mineral resources; future prices of base and precious metals; currency exchange rates; government regulation of mining operations; failure of equipment or processes to operate as anticipated; risks inherent in base and precious metal exploration and development including environmental hazards, industrial accidents, unusual or unexpected geological formations; and uncertain political and economic environments. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws.
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This is an unofficial consolidation of Form 52-109F2Certification of Interim Filings Full Certificate reflecting amendments made effective January 1, 2011 in connection with Canada’s changeover to IFRS. The amendments apply for financial periods relating to financial years beginningon or after January 1, 2011. This document is for reference purposes only and is not an official statement of the law. |
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, James E. Sinclair, President and CEO 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 February 28, 2013. |
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 52-109Certification 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. |
5.1Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
5.2 | ICFR – material weakness relating to design:The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period |
(a) | a description of the material weakness; |
(b) | the impact of the material weakness on the issuer’s financial reporting and its ICFR; and |
(c) | the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness. |
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 December 1, 2012 and ended on February 28, 2013that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
April 15, 2013
“James E. Sinclair”
James E. Sinclair
President and Chief Executive Officer
This is an unofficial consolidation of Form 52-109F2Certification of Interim Filings Full Certificate reflecting amendments made effective January 1, 2011 in connection with Canada’s changeover to IFRS. The amendments apply for financial periods relating to financial years beginningon or after January 1, 2011. This document is for reference purposes only and is not an official statement of the law. |
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Steven Van Tongeren, 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 February 28, 2013. |
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. |
6. | 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. |
7. | 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 52-109Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
8. | 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. |
5.1Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
5.2 | ICFR – material weakness relating to design:The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period |
(a) | a description of the material weakness; |
(b) | the impact of the material weakness on the issuer’s financial reporting and its ICFR; and |
(c) | the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness. |
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 December 1, 2012 and ended on February 28, 2013that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
April 15, 2013
“Steven Van Tongeren”
Steven Van Tongeren
Chief Financial Officer