tsodilo resources limited president’s message FELLOW SHAREHOLDERS, The hard work and accomplishments in this past year have set drainage lines that are projected back from the Tsumkwe and the stage for what I believe will be a truly exciting period in the Omatako diamond and G10 garnet occurrences. annuals of Tsodilo Resources Limited (“Tsodilo” or the “Company”). The drilling program this past year has shown that not only do we have untold virgin kimberlites but the size of the kimberlites themselves are larger than any previously found in our licence blocks. 4. A contractor has been retained to construct a detailed geographic information system (GIS). This computer based system is capable of assembling, storing, manipulating, and displaying geographically referenced information, i.e. data identified according to their locations enabling our geologists to In the coming year, the following activities are planned or have review large amounts of information at a single time. been recently completed: 5. A Newdico Technical Committee was established to assist the 1. A second phase systematic drill program of the A12 and A37 Company’s personnel in meeting the challenges which kimberlites to define their size and shape, as well as determining this project presents. A representative of the Company, the relationship of the various kimberlite phases to the crater a representative of our minority partner, Trans Hex Group, and sediments and to obtain further samples with a higher a consulting geologist to the Company will form the committee. probability of carrying diamonds will begin in late August Each member of the committee brings their own niche or early September. expertise which will prove invaluable to the project. 2. The soil sampling field work is now complete and all samples During the past year, the Company funded exploration activity are currently at the laboratory for kimberlite indicator mineral by raising funds in the capital markets through the successful (KIM) recovery. A total of 420 samples were collected over 140 issuance of stock by way of private placements. This process airborne magnetic anomaly targets within our Newdico and will continue in the coming year. Our current share base Gcwihaba licence blocks. An additional 42 samples were consists of 9,006,383 issued and outstanding (11,439,378 on collected along the Namibia / Botswana border. The KIM a fully diluted basis) common shares. Tsodilo has no debt, a recovery procedure and analysis will assist us in determining 75% interest in our Botswana Newdico project and a 100% which anomalies we will perform ground magnetic and interest in our Botswana Gcwihaba project. The Company is gravity surveys over, with a view of selecting targets for the well positioned to meet the challenges in the upcoming year drilling program. and to reap the rewards thereof. 3. In addition to detailed gravity surveys to be performed over those targets selected as a result of the recent KIM soil sampling, the Company will shortly commence a gravity survey down sections of the Namibian / Botswana border fence James M. Bruchs line in our Newdico and Gcwihaba licence blocks. This survey President and Chief Executive Officer should more accurately determine the location of basal Kalahari July 22, 2004 why are we exploring in Botswana? Tsodilo Resources Limited (the “Com- pany”) is exploring the southern portion of the Congo craton for a primary source of diamonds because we believe that macro diamonds and G10 garnets recov- ered from both the surface and the basal Kalahari sediments at Tsumkwe, and G10 garnets recovered at two locations concessions. It is our view that both the unexplained Tsumkwe diamonds and Omatako KIM anomalies are derived from kimberlites within our concession area because the watershed for the streams draining into the Kalahari basin at both Tsumkwe and Omatako is within our concession - any streams carrying diamonds and G10 garnets are, therefore, likely to have come from our concession area. This geomorphological model is discussed in greater detail in the “Projects Ngamiland” section of the Company progress made in the past year Our primary focus during this past finan- cial year has been on drill-testing three virgin geophysical targets, designated A12, A37 and A38, adjacent to the Nxau Nxau cluster that were defined by the results from our detailed indicator mineral sampling, ground magnetic and gravity website, www.TsodiloResources.com. surveys. These targets were drilled in in the Omatako drainage of Namibia, Prior to the company acquiring the represent two of the worlds most licences, a cluster of kimberlite pipes September and October 2003, with the following result: important, unexplained Kimberlite near the village of Nxau Nxau some 40 A12 – Two reverse circulation drillholes, Indicator Mineral (KIM) anomalies. metres below the Kalahari sand cover, spaced 100m apart, intersected kimber- The Tsumkwe anomaly is located some were discovered. Their drilling revealed lite crater-facies sediments interbedded 120 km southwest of our Nxau Nxau crater-facies kimberlites, and micro- with kimberlitic tuffs below some 43m of kimberlite cluster, and only some 50 km diamond analyses showed that several Kalahari sediment cover. Based on the to the west of the Tsodilo Resources were diamondiferous but uneconomic. geophysical and drilling evidence, the Tsodilo Resources Limited Botswana Licence Map Omatako KIM Anomalies Sikereti Kimberlites Nxau-Nxau Kimberlites Guma Newdico Licences Congo Craton Damara Orogen Tsumkwe Congo Craton Gcwihaba Licences Kalahari Craton -20o Limpopo-Botswana Dyke Swarm Namibia Botswana Kalahari Craton Orapa Diamond Mine Lethakane Diamond Mine Legend 100 km Kimberlites Macrodiamonds in loam samples Macrodiamond / G10 garnet in drillhole Congo Craton Kalahari Craton Project Area Location Ngamiland and Gcwihaba Projects Gaborone BOTSWANA Geomorphological setting of the Tsodilo ground 20E 21E 22E 18S 19S 20S 21S Legend Margin of Dyke Swarm Magnetic Lineament Fault Kimberlite Magnetic Anomaly Kimberlite Field Licences Newdico Kalahari Thickness (m) 0 60-90 0-30 90-120 30-60 >120 Gowihaba A12 kimberlite is estimated to have a south. All of the holes were terminated in surface area of some 15 hectares, basement rocks, indicating that A37 has a significantly larger than any of the previ- relatively flat “champagne-glass” shape, ously discovered Nxau Nxau kimberlites, similar to the Australian lamproites. most of which are between 1 and 7ha in surface area. These results, coupled with the gravity data, indicate that A37 has a large A37 - Six holes were drilled into the A37 surface area of the order of 80-100 target. Five of these holes were drilled hectares. While further drilling is required along an approximately WNW-ESE line to delineate the extent of the body with some 1600m in length to investigate the greater accuracy, the available data major gravity low and subsidiary low to the indicate that A37 is the 2nd or 3rd east. All five holes intersected kimberlite largest known kimberlite, by surface area, crater facies sediments, which are inter- in Botswana. preted as causing the overall major gravity low. It is most likely that these sediments extend some distance to both the east and west of this line of holes, since the gravity low has a width of approximately 500-600 m. The remaining hole, drilled into a subsidiary gravity low immediately to the north of this line, also intersected crater facies sediments, probably continuous with those to the The A37 gravity “low” is associated with two prominent bulls-eye ground magnetic anomalies, and a number of very subtle positive magnetic features. This evidence may indicate that there were several kimberlite feeder pipes, with concentrated volcanic activity over a relatively small area, which appears to be a characteristic of the world’s large economic kimberlites. Pictorial sections showing the development of a flat champagne-glass crater as interpreted from a A-37 drilling results 1. Hot Kimberlite lava comes into contact with extensive groundwater in Dolomite Limestone and causes explosive fracturing of Dolomite over a wide area. 2. Large crater cone formed when venting completed. Some crude layering and sorting of material is evident in the crater sediments. Ash 3. Crater cone is eroded and it becomes a shallow, central water-filled depression. Fine grain sediments begin to deposit on the floor of the crater lake. 4. Erosion and levelling of the crater surface with coarse lower and outer sediments and fine shales at the core. Deposition of the Kalahari buries the crater. The “champagne glass” shape of the A37 body suggests that, as in the case of the Australian lamproites, it was probably formed as a result of phreatic explosive activity - i.e. a volcanic explosion triggered when the hot magma reacted with groundwater. It should be noted that the surface emplacement of a number of the world’s very high grade kimberlites appear to have involved similar phreatic eruptions. While the reason for this empirical observation is not well understood, it is speculated that it could be linked to rapid cooling of the magma, resulting in only very limited low-pressure diamond resorption. A38 - Three holes were drilled on the target designated A38 where the Kalahari cover is relatively thin (35-45m). All holes terminated in basement dolomite without intersecting kimberlite. The source of the A38 co-incident magnetic and gravity anomalies remains unexplained, and requires further investigation, particularly as it is in close proximity to the A37 kimberlite crater. exploration planned for the new financial year A technical committee was established for the express purpose of reviewing, developing and monitoring the Com- pany’s exploration program. The Committee is composed of a represen- tative of the Company, a representative of our Newdico minority partner, Trans Hex Group Limited, and, a consulting geologist to the Company. On completion of the sampling program and receipt of results, we intend to prioritize the targets, perform detailed ground magnetic and gravity surveys and follow this with reverse circulation drilling. Our other major exploration thrust is aimed at locating further virgin 1. To the south of the known Nxau Nxau kimberlites, in a magnetically noisy area. kimberlites within the ground held by These targets could represent a southerly Newdico (Pty) Ltd. and Gcwihaba extension of the Nxau Nxau field, and The Company has decided to forego Resources (Pty) Ltd. – the company’s from a geomorphological perspective, are the micro-diamond analysis on Botswana-registered subsidiaries. With well placed to provide the source of the samples obtained from A12 and A37 this in view, the Company retained one diamonds and G10 garnets reported to the and intends to proceed to a second of Canada’s leading kimberlite special- west at Tsumkwe in Namibia. ist geophysical contractors to reprocess the aeromagnetic data covering the company’s properties, using proprietary technology. Over 150 magnetic targets have been selected for follow-up sam- pling. The sampling has been completed 2. In the Guma area, situated in the eastern portion of the licence block, where earlier sampling by the company and previous workers led to the recovery of unexplained Kimberlite Indicator Minerals. and the samples are being processed for Kimberlite Indicator Minerals recov- 3. Previous work in this southern portion of the area resulted in the recovery of phase drill program of the A12 and A37 kimberlites to define their size and shape, as well as determine the relationship of the various kimberlite phases to the crater sediments, and to obtain further samples with a higher probability of carrying diamonds. The systematic drilling of these kimberlites is expected to begin in late August or ery. The selected targets are located in unexplained kimberlitic ilmenites. early September 2004. three main areas: The sampling program could therefore A very busy and exciting year lies lead to the extension of the known Nxau ahead as we make progress in the Nxau kimberlite cluster and the identifi- exploration for an economic kimberlite cation of three major virgin kimberlite below the Kalahari cover on this sector fields. In addition, there are a number of of the Congo craton. Please follow small groups of isolated bulls-eye our progress carefully and remain magnetic targets, which may represent informed by regular visits to our outlier groups of kimberlites. website www.TsodiloResources.com. 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 1 Consolidated Financial Statements Consolidated Financial Statements March 31, 2004 and 2003 March 31, 2004 and 2003 tsodilo resources limited Management’s Discussion and Analysis Management’s Discussion and Analysis This management’s discussion and analysis should be read in This management’s discussion and analysis should be read in conjunction with the Consolidated Annual Financial the Consolidated Annual Financial conjunction with Statements for the fiscal years ending March 31, 2004 and Statements for the fiscal years ending March 31, 2004 and 2003, and comments on the factors that affected the 2003, and comments on the factors that affected the Company’s performance during the periods covered by the Company’s performance during the periods covered by the Consolidated Annual Financial Statements as well as the Consolidated Annual Financial Statements as well as the Company’s financial condition and future prospects. The Company’s financial condition and future prospects. The Company’s functional and reporting currency is Canadian Company’s functional and reporting currency is Canadian dollars and all amounts stated are in Canadian dollars unless dollars and all amounts stated are in Canadian dollars unless otherwise stated. otherwise stated. OVERVIEW OVERVIEW Tsodilo Resources Limited (“Tsodilo” or the “Company”) was Tsodilo Resources Limited (“Tsodilo” or the “Company”) was organized under the laws of the Province of Ontario in 1996 organized under the laws of the Province of Ontario in 1996 and continued under the laws of the Yukon in 2002. The shares and continued under the laws of the Yukon in 2002. The shares of the Company are listed and posted for trading on the TSX of the Company are listed and posted for trading on the TSX Venture Exchange under the symbol: . Tsodilo is an Venture Exchange under the symbol: TSDTSD. Tsodilo is an international diamond exploration company with the majority international diamond exploration company with the majority interest in a kimberlite exploration project in northwest interest in a kimberlite exploration project in northwest Botswana. The Company has not yet determined whether these Botswana. The Company has not yet determined whether these properties contain reserves that can be economically mined. As properties contain reserves that can be economically mined. As an exploration stage company, the recoverability of amounts an exploration stage company, the recoverability of amounts shown for exploration expenditures is dependent upon the shown for exploration expenditures is dependent upon the discovery of reserves that can be economically mined, the discovery of reserves that can be economically mined, the securing and maintenance of the interests in the properties, the securing and maintenance of the interests in the properties, the ability of the Company to obtain the necessary financing to ability of the Company to obtain the necessary financing to complete the development, and future production or proceeds complete the development, and future production or proceeds from the disposition thereof. The Company is also actively from the disposition thereof. The Company is also actively reviewing additional opportunities within southern Africa. reviewing additional opportunities within southern Africa. Corporate Corporate At a special meeting of the holders of common shares of the At a special meeting of the holders of common shares of the Company held on April 9, 2002 shareholders approved a Company held on April 9, 2002 shareholders approved a restructuring of the Company that incorporated the sale of restructuring of the Company that incorporated the sale of substantially all of the Company's assets. The assets were substantially all of the Company's assets. The assets were transferred in settlement of debt due and owing to Trans Hex transferred in settlement of debt due and owing to Trans Hex Group Limited (“Trans Hex Group”), the principal shareholder Group Limited (“Trans Hex Group”), the principal shareholder and creditor of the Company prior to restructuring, of $952,000. and creditor of the Company prior to restructuring, of $952,000. The Company retained an interest in all future dividends that The Company retained an interest in all future dividends that may be paid by either Northbank Diamonds Limited, Hoanib may be paid by either Northbank Diamonds Limited, Hoanib Diamonds (Proprietary) Limited or Trans Hex (Zimbabwe) Diamonds (Proprietary) Limited or Trans Hex (Zimbabwe) Limited. In addition, the Company was released from the long- Limited. In addition, the Company was released from the long- term loans due to Trans Hex Group by the subsidiaries being term loans due to Trans Hex Group by the subsidiaries being sold, of $5.24 million, and Trans Hex Group agreed to return the sold, of $5.24 million, and Trans Hex Group agreed to return the 10,688,137 common shares in the capital of the Company, 10,688,137 common shares in the capital of the Company, representing 73.22% of the issued and outstanding shares of representing 73.22% of the issued and outstanding shares of the Company at that time, to treasury for cancellation. The the Company at that time, to treasury for cancellation. The special meeting of Shareholders also approved the discontinu- special meeting of Shareholders also approved the discontinu- ance of the Company from the Province of Ontario and its con- ance of the Company from the Province of Ontario and its con- tinuance under the Business Corporations Act (Yukon), the tinuance under the Business Corporations Act (Yukon), the change of name of the Company from Trans Hex International change of name of the Company from Trans Hex International , the election of new directors Tsodilo Resources Limited, the election of new directors Ltd. to Tsodilo Resources Limited Ltd. to 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 2 and the repeal of the existing stock option plan of the Company and adoption of a new stock option plan. Following the restruc- turing of the Company, as approved by shareholders in April 2002, Tsodilo has no long-term debt. Outstanding Share Data As of July 22, 2004, 9,006,383 common shares of the Company were outstanding. Of the options to purchase common shares issued to service providers under the share option plan of the Company, 860,000 options remain outstanding at exercise prices ranging from $0.15 - $0.75. If exercised, 860,000 common shares of the Company would be issued. As of July 22, 2004, 1,572,995 warrants were outstanding. The warrants were issued by way of the private placements utilized by the Company for financing purposes. Each warrant entitles the purchaser of the unit to purchase one common share of the Company at prices ranging from $0.50 - $0.75 for a period of two years from the date of issuance. If converted, 1,572,995 common shares of the Company would be issued. The largest shareholder of the Company is its President and Chief Executive Officer, James M. Bruchs, who controls 2,474,001 or 27.47% of the issued and outstanding com- mon shares as of July 22, 2004. Subsidiaries The Company has a 100% interest in its wholly owned Botswana subsidiary, Gcwihaba Resources (Proprietary) Limited (“ Gcwihaba”), which has prospecting licences cover- ing approximately 6,793 kilometers. The Company has a 75% operating interest in its Botswana subsidiary, Newdico (Proprietary) Limited (“Newdico”), which holds prospecting licensees and applications covering approximately 12,726 square kilometers in northwest Botswana on which there is encouragement for the existence of undiscovered kimberlites in at least three separate areas of the property. The Company’s minority partner in this project, Trans Hex Group, is an established South African diamond mining company. During the 2004 fiscal year, Trans Hex Group funded their 25% share of the exploration expenditure at this project. Some, or all, of the current licenses held by Newdico are subject to the granting of a 2% free carried interest in any mine or mines that may result thereon. One of the beneficiaries of this arrangement is Dr. Andrew E. Moore, an officer of the Company. Proposed Transactions The Company and SouthernEra Resources Limited (“SouthernEra”) have been unable to agree upon the terms of a mutually satisfactory joint venture agreement, which was referred to in a joint news release with SouthernEra dated July 8, 2003. Accordingly, the parties have agreed to discontinue their discussions with respect to a joint venture on the Company’s Gcwihaba property. As a result of the termination of these discussions, SouthernEra will have no interest in the Gcwihaba Project and Tsodilo and SouthernEra will have no rights or obligations to one another concerning the property. This development will have no impact on the Company’s per- formance or operations. Exploration Activities Newdico A second phase of soil sampling field work is nearing completion. A total of 243 samples are planned to be collected over 81 airborne magnetic targets in addition to 42 samples collected along the Namibian / Botswana border. Many of the samples are already at the laboratory for processing. The results of this program will determine the targets over which ground gravity and magnetic surveys will be conducted. In addition to performing surveys over select targets, a gravity survey program will be commenced in the second quarter of fiscal 2005 down a portion of the fence line separating Namibia and Botswana in order to more accurately determine the location of basal Kalahari drainage lines that are projected back from the Tsumkwe and Omatako diamond and G10 garnet occurrences in Namibia. The Company intends to proceed to a second phase drill program of the A12 and A37 kimberlites to define their size and shape as well as to determine the relationship of the various kimberlite phases to the crater sediments. Further samples with a higher probability of carrying diamonds will be obtained from these zones. We expect to begin the systematic drilling of these kimberlites in late August or early September of 2005. Additional targets will be selected as a result of the soil sampling program and the gravity and magnetic survey for drilling at this time. 2 tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 3 Gcwihaba In the first quarter of fiscal 2005, soil sampling field work was completed and all samples are at the laboratory for kimberlite indicator mineral (KIM) recovery. A total of 177 samples were collected in the Gcwihaba license block over 59 airborne magnetic anomaly targets. The results of this program will determine at which targets ground gravity and magnetic surveys will be conducted. The border gravity survey program referred to in the Newdico exploration program will be extended into a portion of the Gcwihaba license block. SELECTED ANNUAL AND QUARTERLY FINANCIAL INFORMATION ANNUAL INFORMATION (in thousands of Canadian dollars, except per share data) Total Revenues Loss before minority interest Minority Interest Loss for the Year Basic and diluted loss per share - cents Total Assets Liabilities (Long-Term) Cash dividends declared QUARTERLY INFORMATION The quarterly results have been as follows: (in thousands of Canadian dollars, except per share data) Fiscal Year 2003 Revenue Loss for the period Loss per share - cents Total assets Total long term liabilities Fiscal Year 2004 Revenue Loss for the period Loss per share - cents Total assets Total long term liabilities 2004 – (545) – (545) (7) 1,443 309 – Fiscal Year 2003 – (390) 4 (386) (8) 756 177 – 2002 45 (9,585) – (9,585) (66) 1,191 5,240 – Quarter 1 Quarter 2 Quarter 3 Quarter 4 – 54 1 576 112 – 77 1 938 235 – 145 3 538 114 – 121 2 1464 277 – 80 2 650 155 – 109 2 1400 277 – 111 2 756 177 – 238 2 1443 309 3 tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 4 LIQUIDITY AND CAPITAL RESOURCES As at March 31, 2004, the Company had net working capital of $170,000 (March 31, 2003: –$35,000), which included cash and equivalents of $194,000 (March 31, 2003: $38,000). These funds are managed in-house in accordance with specific investment criteria approved by the board of directors, the primary objective being the preservation of capital to assure funding for exploration activities. The Company does not hedge its activities or otherwise use derivatives. Financial Instruments The carrying amounts reflected in the consolidated balance sheets for cash and equivalents, accounts receivable and prepaid expenses, and accounts payable and accrued liabilities approximate their fair values due to the short maturities of these instruments. Operating Activities Cash outflow from operating activities increased from $320,000 in fiscal 2003 to $494,000 in fiscal 2004. This increase reflects increases in general and administration expenses, particularly consulting fees and corporate travel and subsistence. Investing Activities Cash flow applied in investing activities increased to $527,000 in fiscal 2004 (March 31, 2003: 240,000). All expenditure on exploration properties in fiscal 2004 was attributable to the Newdico and Gcwihaba projects in northwest Botswana and includes the 25% share funded by Trans Hex Group for the Newdico project. There were no material acquisitions or disposals of capital assets or investments during the year. In March 2004, the board of directors of Newdico including the representatives of joint venture partner Trans Hex Group, approved an exploration program and budget for the period April 2004 to March 2005 that calls for expenditures totaling approximately Pula 2.7 million (approximately $0.78 million). Trans Hex Group is responsible for funding 25% of the expenses of this company, which holds the licenses for the northern portion of the Company’s Ngami project. The approved exploration program includes provision for additional soil sampling, ground magnetic and gravity surveying and geophysical interpretation, as well as a program of reverse circulation drilling. The required first year exploration program expenditures, including license fees, for Gcwihaba amounted to approxi- mately Pula 0.28 million (approximately $0.08 million). Gcwihaba’s expenditures will exceed this required amount in the first year. The required expenditure in the second year exploration program amounts to approximately Pula 0.42 mil- lion (approximately $0.12 million). Gcwihaba expects to meet or exceed this requirement. Financing Activities Following the restructuring of Tsodilo in April 2002 and the cancellation of the shares formerly held by Trans Hex Group, the source of financing for the Company’s activities changed from debt (related party) finance to equity, through the issue of units by way of non-brokered private placements. During the fiscal year ended March 31, 2004 the Company completed the issue and sale, through non-brokered private placements, of a total of 1,775,290 units of the Company. These units were issued at prices increasing from $0.50 per unit in May 2003 to $0.75 per unit in January, 2004, for proceeds to the Company of approximately $929,361. In addition, proceeds were received in the amount of $115,142 from the issuance of common shares upon the exercise of options and warrants. Since March 31, 2004, the Company has raised $515,557 through the issuance of 687,409 units of the Company by way of non-brokered private placements, and received proceeds in the amount of $150,958 through the exercise of warrants. Tsodilo expects to raise the amounts required to fund its 75% share of the Ngami project, the Gcwihaba project and corporate general and administration expenses, by way of non-brokered private placements. Such private placements are expected to include a half-warrant priced at a similar level to the units sold. RESULTS OF OPERATIONS On a consolidated basis Tsodilo recorded a net loss of $545,000 in the fiscal year ended March 31, 2004 (7 cents per common share) compared to a net loss of $390,000 in the fiscal year ended March 31, 2003 (8 cents per common share). Eliminating the effect of $98,000 of non-cash charges relating to stock-based compensation, general and administration expenses in 2004 amounted to $447,000 compared with $390,000 in 2003. This increase is due to increases in general and administration expenses, particular- ly consulting fees and corporate travel and subsistence. 4 tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 5 Exploration expenditure incurred during the year ended March 31, 2004 at the Newdico project in Botswana was $447,000 compared to $249,000 at March 31, 2003. Exploration expenditure on all projects amounted to $469,000 during the year. The principal components of the Newdico exploration program were: (a) additional soil sampling and the completion of the processing and analysis of the soil samples; (b) commis- sioning of further ground magnetic and gravity survey of select- ed aeromagnetic anomalies; (c) analyzing detailed proprietary aeromagnetic maps covering the target areas; and (d) com- mencement of a reverse circulation drilling program on select- ed targets. PERSONNEL At March 31, 2004 the Company and its subsidiaries employed 7 personnel compared to 4 personnel at March 31, 2003, including senior officers, administrative and operations personnel including those on short-term con- tract bases. Individual components of the exploration pro- gram, such as soil sampling, geophysical surveying and reverse circulation drilling, are contracted out to independ- ent third parties operating under the control and direction of the Company’s Chief Executive Officer, James M. Bruchs, and the Company’s Exploration Vice President, Dr. Andrew Moore. RISKS AND UNCERTAINTIES Tsodilo’s primary objective is the discovery of an economic kimberlite diamond deposit capable of rapid advancement to feasibility stage and ultimate development as a producing property. The discovery of a kimberlite is only the first step in the exploration process. Subsequent evaluation begins with caustic fusion diamond analysis of the kimberlite and, if results warrant, continues through progressively larger mini- bulk and bulk samples in order to make an increasingly accu- rate determination of the content and quality of the diamonds. Early stages of kimberlite evaluation provide an initial qualitative assessment rather than an accurate indica- tion of either the grade of the ore body or the value per carat of the diamonds. Collection of larger bulk samples and formal appraisal of a commercial-size parcel of diamonds are neces- sary to make an accurate determination of these parameters. At any stage in the process, the results may indicate that the deposit lacks the required economic value. Capital Requirements In the absence of cash flow from operations, Tsodilo relies on capital markets to fund its operations. The ongoing explo- ration and eventual successful development of a diamond mine would require significant additional financing. There can be no assurance that adequate funding will be available, or available under terms favorable to the Company, for these purposes when ultimately required. The exploration and development of mineral deposits involve significant financial risks over an extended period of time. Even a combination of careful evaluation, experience and knowledge may not elimi- nate these risks. While discovery of a diamond deposit may result in substantial rewards, few exploration properties ulti- mately become producing mines. Exploration Risks The Company’s operations are subject to all the hazards and risks normally incident to the exploration, development and mining of diamond deposits, any of which could result in damage to life or property, environmental damage and possi- ble legal liability for any or all damage. Whether a diamond deposit will ultimately be commercially viable depends on a number of factors, including the particular attributes of the deposit such as the deposit’s size; the quality and quantity of the diamonds; its proximity to existing infrastructure; financ- ing costs and the prevailing prices for diamonds. Also of key importance are government regulations, including those relat- ing to prices, taxes, royalties, land tenure, land use, the importing and exporting of diamonds and production plant and equipment, and environmental protection. The effects of these factors cannot be accurately predicted, but any combi- nation of them may impede the development of a deposit or render it uneconomic. At this time, the major portion of the Company’s exploration activity is carried out in partnership with another party. Doing so allows the Company to maximize its exposure to promising exploration opportunities, to manage the risks inherent in dia- mond exploration, and to optimize its use of financial and management resources. Currency Risks The Company’s financing has generally been received in United States dollars while significant portions of its operat- ing expenses have been and will be incurred in Botswana 5 tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 6 Pula. In fiscal 2004, the Pula has shown unexpected and substantial strength against most major world currencies including the US dollar and the strength in the Pula, if it con- tinues, may adversely affect the Company’s exploration expenditures due solely to currency exchange factors. Key Personnel The Company is dependent upon on a relatively small number of key employees, the loss of any of whom could have an adverse effect on the Company. The Company currently does not have key person insurance on these individuals. ACCOUNTING STANDARDS Tsodilo follows Canadian generally accepted accounting prin- ciples. In line with accepted industry practice, the Company has adopted the policy of deferring property specific acquisi- tion and exploration costs. Deferred costs relating to proper- ties that are relinquished, or where continued exploration is deemed inappropriate, are written off in the year such assess- ment is made. If Tsodilo adopted a policy of expensing all exploration costs, the Company’s asset base, shareholders’ equity, and loss from operations would be materially different. Changes in Accounting Policies Effective April 1, 2003, the Company prospectively adopted CICA 3870, “Stock Based Compensation and Other Stock Based Payments.” The Company has elected to use the fair value method of accounting for stock options, and its adop- tion resulted in a charge to earnings for compensation expense of $98,000 in 2004. Consideration paid on exercise of stock options is credited to share capital. In accordance with the transition rules of the section, the Company increased its cumulative deficit at April 1, 2003 by $120,000, reflecting the impact of options granted prior to that date. The new accounting standard on stock-based compensation also requires the use of the fair value method for options granted as compensation for services rendered to the Company other than in the course of employment. Tsodilo has not granted options on this basis. OUTLOOK Diamond exploration remains a high-risk undertaking requir- ing patience and persistence. Despite difficult capital mar- kets in the junior resource sector, the Company remains committed to international diamond exploration through care- fully managed programs. The design and conduct of the Company’s exploration programs is the responsibility of Dr. Andrew Moore, a professional geologist registered with the South African Council for Natural Scientific Professions. ADDITIONAL INFORMATION Additional information relating to Tsodilo Resources Limited is available on its website www.TsodiloResources.com, or through SEDAR at www.sedar.com FORWARD-LOOKING STATEMENTS The Annual Report, including this MD&A, contains certain forward-looking statements related to, among other things, expected future events and the financial and operating results of the Company. Forward-looking statements are subject to inherent risks and uncertainties including, but not limited to, market and general economic conditions, changes in regulatory environments affecting the Company’s business and the availability and terms of financing. Other risks are outlined in the Uncertainties and Risk Factors section of this MD&A. Consequently, actual results and events may differ materially from those included in, contemplated or implied by such forward looking statements for a variety of reasons. Readers are therefore cautioned not to place undue reliance on any forward-looking statement. The Company disclaims any intention and assumes no obligation to update any forward-looking statement even if such information becomes available as a result of future events or for any other reason. James Bruchs Chief Executive Officer July 22, 2004 6 tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 7 Financial Reporting Responsibility of Management The annual report and consolidated financial statements have been The Board of Directors, through its Audit Committee, is responsible for prepared by management. The consolidated financial statements ensuring that management fulfills its responsibilities for financial have been prepared in accordance with accounting principles reporting and internal control. The Audit Committee is composed of generally accepted in Canada and include amounts that are based three directors, two of whom qualify as unrelated directors and are on informed judgments and best estimates. The financial independent of management and free from any interest or business information presented in this annual report is consistent with the relationship which could, or could be perceived to, materially interfere consolidated financial statements. Management acknowledges with their ability to act in the best interests of the Company. This responsibility for the fairness, integrity and objectivity of all committee meets periodically with management and the external information contained in the annual report including the auditors to review accounting, auditing, internal control and financial consolidated financial statements. Management is also responsible reporting matters. The Audit Committee reviews the annual financial for the maintenance of financial and operating systems, which statements before they are presented to the Board of Directors for include effective controls to provide reasonable assurance that assets are properly protected and that relevant and reliable financial information is produced. Our independent auditors have the responsibility of auditing the consolidated financial statements and expressing an opinion on them. approval and considers the independence of the auditors. The financial statements have been audited by Pricewaterhouse- Coopers LLP, the external auditors, in accordance with Canadian generally accepted auditing standards on behalf of the shareholders. Their report follows hereafter. James M. Bruchs Chief Executive Officer May 20, 2004 Stephen Woodhead Chief Financial Officer May 20, 2004 Auditors’ Report to the Shareholders of Tsodilo Resources Limited We have audited the consolidated balance sheets of Tsodilo An audit includes examining, on a test basis, evidence supporting the Resources Limited as at March 31, 2004 and 2003 and the amounts and disclosures in the financial statements. An audit also consolidated statements of operations, deficit and cash flows for the includes assessing the accounting principles used and significant years then ended. These financial statements are the responsibility estimates made by management, as well as evaluating the overall of the Company’s management. Our responsibility is to express an financial statement presentation. opinion on these financial statements based on our audits. In our opinion, these consolidated financial statements present We conducted our audits in accordance with Canadian generally fairly, in all material respects, the financial position of the Company accepted auditing standards. Those standards require that we plan as at March 31, 2004 and 2003 and the results of its operations and and perform an audit to obtain reasonable assurance whether its cash flows for the years then ended in accordance with Canadian the financial statements are free of material misstatement. generally accepted accounting principles. Chartered Accountants Toronto, Canada May 20, 2004 7 tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 8 Tsodilo Resources Limited Tsodilo Resources Limited Consolidated Balance Sheets Consolidated Balance Sheets As at March 31 As at March 31 ASSETS ASSETS Current Current Cash and equivalents Cash and equivalents Amounts receivable and prepaid expenses Amounts receivable and prepaid expenses Exploration Properties and Joint Ventures (note 3) Exploration Properties and Joint Ventures (note 3) Fixed Assets (note 4) Fixed Assets (note 4) LIABILITIES LIABILITIES Current Current Accounts payable and accrued liabilities Accounts payable and accrued liabilities MINORITY INTEREST (note 3) MINORITY INTEREST (note 3) SHAREHOLDERS' EQUITY SHAREHOLDERS' EQUITY Share Capital (note 5) Share Capital (note 5) Warrants (note 5) Warrants (note 5) Contributed Surplus (note 5) Contributed Surplus (note 5) Deficit Deficit Going Concern (note 1) Going Concern (note 1) APPROVED ON BEHALF OF THE BOARD OF DIRECTORS APPROVED ON BEHALF OF THE BOARD OF DIRECTORS 2004 2004 $000$000 194194 1818 212212 1,169 1,169 6262 1,443 1,443 4242 309309 33,518 33,518 195195 8,702 8,702 (41,323) (41,323) 1,092 1,092 1,443 1,443 2003 2003 $000 $000 3838 1212 5050 700700 66 756756 8585 177177 32,640 32,640 2626 8,486 8,486 (40,658) (40,658) 494494 756756 Christopher M.H. Jennings Christopher M.H. Jennings Director Director James M. Bruchs James M. Bruchs Director Director The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. 88 tsodilo resources limited tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 9 Tsodilo Resources Limited Tsodilo Resources Limited Consolidated Statements of Operations Consolidated Statements of Operations For the years ended March 31 For the years ended March 31 EXPENSES EXPENSES Consulting fees Consulting fees Corporate remuneration Corporate remuneration Corporate travel and subsistence Corporate travel and subsistence Investor relations Investor relations Legal and audit Legal and audit Office and administration Office and administration Taxation Taxation Amortization Amortization Stock-based compensation (note 2) Stock-based compensation (note 2) Loss before minority interest Loss before minority interest Minority Interest Minority Interest Loss for the year Loss for the year 2004 2004 $000$000 6262 181181 6868 3535 2626 7373 –– 22 9898 545545 (545) (545) –– (545) (545) 2003 2003 $000 $000 1818 174174 3030 2424 3535 9696 1212 11 –– 390390 (390) (390) 44 (386) (386) Basic and diluted loss per share - cents (note 7) Basic and diluted loss per share - cents (note 7) ($0.07) ($0.07) ($0.08) ($0.08) Consolidated Statements of Deficit Consolidated Statements of Deficit For the years ended March 31 For the years ended March 31 2004 2004 $000$000 2003 2003 $000 $000 Deficit - Beginning of year as previously reported Deficit - Beginning of year as previously reported (40,658) (40,658) (40,272) (40,272) Retroactive adjustment on change of accounting policy Retroactive adjustment on change of accounting policy 2003 stock based compensation (note 2) 2003 stock based compensation (note 2) Deficit – Beginning of year as restated Deficit – Beginning of year as restated Loss for the year Loss for the year Deficit - End of year Deficit - End of year (120) (120) (40,778) (40,778) (545) (545) (41,323) (41,323) –– (40,272) (40,272) (386) (386) (40,658) (40,658) The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. 99 tsodilo resources limited tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 10 Tsodilo Resources Limited Tsodilo Resources Limited Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows As at March 31 As at March 31 CASH PROVIDED BY (USED IN): CASH PROVIDED BY (USED IN): OPERATING ACTIVITIES OPERATING ACTIVITIES Loss for the year Loss for the year Adjustments for non-cash items: Adjustments for non-cash items: Amortization Amortization Stock-based compensation (note 2) Stock-based compensation (note 2) Profit on disposal of investments Profit on disposal of investments Net change in non-cash working capital balances Net change in non-cash working capital balances INVESTING ACTIVITIES INVESTING ACTIVITIES Exploration properties and joint ventures Exploration properties and joint ventures Investments Investments Additions to capital assets Additions to capital assets FINANCING ACTIVITIES FINANCING ACTIVITIES Issue of common shares Issue of common shares Contribution by joint venture partner Contribution by joint venture partner Change in cash and equivalents - For the year Change in cash and equivalents - For the year Cash and equivalents – Disposed of in restructuring Cash and equivalents – Disposed of in restructuring Cash and equivalents - Beginning of year Cash and equivalents - Beginning of year Cash and equivalents - End of year Cash and equivalents - End of year 2004 2004 $000$000 (545) (545) 22 9898 – – (445) (445) (49) (49) (494) (494) (469) (469) –– (58) (58) (527) (527) 1,045 1,045 132132 1,177 1,177 156156 –– 3838 194194 2003 2003 $000 $000 (390) (390) 11 –– (7)(7) (396) (396) 7676 (320) (320) (249) (249) 1313 (4)(4) (240) (240) 494494 6868 562562 22 (12) (12) 4848 3838 The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. 1010 tsodilo resources limited tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 11 Tsodilo Resources Limited Tsodilo Resources Limited Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements For the years ended March 31, 2004 and 2003 For the years ended March 31, 2004 and 2003 1. NATURE OF OPERATIONS AND GOING CONCERN 1. NATURE OF OPERATIONS AND GOING CONCERN nd exploration Tsodilo Resources Limited (“Tsodilo” or the “Company”), formerly called Trans Hex International Ltd., is an international diamond exploration Tsodilo Resources Limited (“Tsodilo” or the “Company”), formerly called Trans Hex International Ltd., is an international diamo ether company engaged in the process of exploring its mineral properties in northwest Botswana. The Company has not yet determined whether company engaged in the process of exploring its mineral properties in northwest Botswana. The Company has not yet determined wh s shown for these properties contain reserves that can be economically mined. As an exploration stage company, the recoverability of amounts shown for these properties contain reserves that can be economically mined. As an exploration stage company, the recoverability of amount ce of the exploration expenditures is dependent upon the discovery of reserves that can be economically mined, the securing and maintenance of the exploration expenditures is dependent upon the discovery of reserves that can be economically mined, the securing and maintenan re production interests in the properties, the ability of the Company to obtain the necessary financing to complete the development, and future production interests in the properties, the ability of the Company to obtain the necessary financing to complete the development, and futu or proceeds from the disposition thereof. or proceeds from the disposition thereof. rations As at March 31, 2004, the Company reported an accumulated deficit of $41 million (2003: $41 million) and cash outflows from operations As at March 31, 2004, the Company reported an accumulated deficit of $41 million (2003: $41 million) and cash outflows from ope loration. of $494,000 (2003: $320,000) for the year then ended. The cash position of the Company is insufficient to finance continued exploration. of $494,000 (2003: $320,000) for the year then ended. The cash position of the Company is insufficient to finance continued exp exploration The continuity of the Company’s operations is dependent on Tsodilo raising future financing for working capital, the continued exploration The continuity of the Company’s operations is dependent on Tsodilo raising future financing for working capital, the continued rance that and development of its properties, and for acquisition and development costs of new project opportunities. There can be no assurance that and development of its properties, and for acquisition and development costs of new project opportunities. There can be no assu repared on adequate financing will be available, or available under terms favorable to the Company. These financial statements have been prepared on adequate financing will be available, or available under terms favorable to the Company. These financial statements have been p normal course of a going concern basis that assumes the continuity of operations and realization of assets and settlement of liabilities in the normal course of a going concern basis that assumes the continuity of operations and realization of assets and settlement of liabilities in the be required business. Should it be determined that the Company is no longer a going concern adjustments, which could be significant, would be required business. Should it be determined that the Company is no longer a going concern adjustments, which could be significant, would to the carrying value of assets. to the carrying value of assets. 2. SIGNIFICANT ACCOUNTING POLICIES 2. SIGNIFICANT ACCOUNTING POLICIES Basis of consolidation and preparation of the financial statements Basis of consolidation and preparation of the financial statements “GAAP”) The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ( es. All inter- and include the accounts of the Company and its direct and indirect subsidiaries and its proportionate interest in joint ventures. All inter- and include the accounts of the Company and its direct and indirect subsidiaries and its proportionate interest in joint ventur all company transactions and balances have been eliminated. The Company’s functional and reporting currency is Canadian dollars and all company transactions and balances have been eliminated. The Company’s functional and reporting currency is Canadian dollars and amounts stated are in Canadian dollars unless otherwise stated. amounts stated are in Canadian dollars unless otherwise stated. Group Companies: March 31, 2004 Group Companies: March 31, 2004 Tsodilo Resources Bermuda Limited Tsodilo Resources Bermuda Limited Gcwihaba Resources (Proprietary) Ltd (Botswana) Gcwihaba Resources (Proprietary) Ltd (Botswana) Newdico (Proprietary) Limited (Botswana) Newdico (Proprietary) Limited (Botswana) Use of estimates Use of estimates 100% 100% 100% 100% 75% 75% mptions The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assu of the consolidated that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date s and contingencies. financial statements. The most significant estimates are related to the recoverability of exploration expenditures, fixed assets and contingencies. financial statements. The most significant estimates are related to the recoverability of exploration expenditures, fixed asset Actual results could differ from those estimates. Actual results could differ from those estimates. Exploration properties Exploration properties ed. Some of the All costs relating to the acquisition, exploration and development of non-producing mining properties are capitalized as incurred. Some of the All costs relating to the acquisition, exploration and development of non-producing mining properties are capitalized as incurr venture nature, exploration activities of the Company are conducted jointly with others and accordingly, where the arrangements are of a joint venture nature, exploration activities of the Company are conducted jointly with others and accordingly, where the arrangements are of a joint sent costs to be these financial statements reflect only the Company’s proportionate interest in these activities. The amounts capitalized represent costs to be these financial statements reflect only the Company’s proportionate interest in these activities. The amounts capitalized repre charged to operations in the future and do not necessarily reflect the present or future values of the particular properties. charged to operations in the future and do not necessarily reflect the present or future values of the particular properties. mortized If a property proceeds to development, these costs become part of preproduction and development costs of the mine and will be amortized If a property proceeds to development, these costs become part of preproduction and development costs of the mine and will be a foreseeable over the expected life of the mine. If a property is abandoned, sold or continued exploration is not deemed appropriate in the foreseeable over the expected life of the mine. If a property is abandoned, sold or continued exploration is not deemed appropriate in the enditures future or when other events and circumstances indicate that the carrying amount may not be recovered, the related costs and expenditures future or when other events and circumstances indicate that the carrying amount may not be recovered, the related costs and exp perties are are written down to the net recoverable amount at the time the determination is made. Proceeds from the sale of exploration properties are are written down to the net recoverable amount at the time the determination is made. Proceeds from the sale of exploration pro credited to the costs of the relevant property. credited to the costs of the relevant property. 1111 tsodilo resources limited tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 12 Exploration costs that do not relate to specific non-producing mining properties are expensed as incurred. Exploration costs that do not relate to specific non-producing mining properties are expensed as incurred. Amortization Amortization assets awaiting Fixed assets are amortized principally on a straight-line basis over their estimated useful lives of three to ten years. Fixed assets awaiting Fixed assets are amortized principally on a straight-line basis over their estimated useful lives of three to ten years. Fixed impairment installation on site are not amortized until they are commissioned, but are reviewed for impairment and if deemed impaired, an impairment installation on site are not amortized until they are commissioned, but are reviewed for impairment and if deemed impaired, an loss is measured and recorded based on the net recoverable value of the asset. loss is measured and recorded based on the net recoverable value of the asset. Foreign currency translation Foreign currency translation tions. The Foreign currency transactions are translated into Canadian dollars at the exchange rates prevailing on the dates of the transactions. The Foreign currency transactions are translated into Canadian dollars at the exchange rates prevailing on the dates of the transac ed at the year- operations of the Company’s subsidiaries are determined to be of an integrated nature. Accordingly, monetary items are translated at the year- operations of the Company’s subsidiaries are determined to be of an integrated nature. Accordingly, monetary items are translat in the results end exchange rate and non-monetary items are translated at historical exchange rates. Translation gains or losses are included in the results end exchange rate and non-monetary items are translated at historical exchange rates. Translation gains or losses are included of operations. of operations. Cash and Equivalents Cash and Equivalents original Cash and equivalents are comprised of cash, term deposits and money market instruments with investment grade credit ratings and original Cash and equivalents are comprised of cash, term deposits and money market instruments with investment grade credit ratings and maturity dates of 90 days or less from the date of acquisition. maturity dates of 90 days or less from the date of acquisition. Income Taxes Income Taxes ome taxes Income and resource taxes are calculated using the asset and liability method of tax accounting. Under this method, current income taxes Income and resource taxes are calculated using the asset and liability method of tax accounting. Under this method, current inc rmined based are recognized for the estimated income taxes payable for the current period. Future income tax assets and liabilities are determined based are recognized for the estimated income taxes payable for the current period. Future income tax assets and liabilities are dete y enacted tax on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the substantially enacted tax on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the substantiall extent the rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recognized to the extent the rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recognized to the recoverability of future income tax assets is not considered more likely than not. recoverability of future income tax assets is not considered more likely than not. Stock-Based Compensation Plans Stock-Based Compensation Plans icers and Tsodilo has a Stock Option Plan (refer to note 5). Under the Stock Option Plan, the Company may grant options to directors, officers and Tsodilo has a Stock Option Plan (refer to note 5). Under the Stock Option Plan, the Company may grant options to directors, off ss than the employees for up to 1,250,000 shares of common stock. The exercise price is determined by the board of directors, but is not less than the employees for up to 1,250,000 shares of common stock. The exercise price is determined by the board of directors, but is not le ercise of market price of the Company's stock on the date of the grant. An option's maximum term is 5 years. Consideration paid on the exercise of market price of the Company's stock on the date of the grant. An option's maximum term is 5 years. Consideration paid on the ex stock options is credited to common share capital stock options is credited to common share capital Change in Accounting Policy Change in Accounting Policy Effective January April 1, 2003, the Company prospectively adopted Canadian Institute of Chartered Accountants (“CICA”) 3870, Effective January April 1, 2003, the Company prospectively adopted Canadian Institute of Chartered Accountants (“CICA”) 3870, “Stock Based Compensation and Other Stock Based Payments.” This Section establishes standards for the recognition, measurement andand “Stock Based Compensation and Other Stock Based Payments.” This Section establishes standards for the recognition, measurement disclosure of stock based compensation and other stock based payments made in exchange for goods and services. The Company has disclosure of stock based compensation and other stock based payments made in exchange for goods and services. The Company has pensation elected to use the fair value method of accounting for stock options, and its adoption resulted in a charge to earnings for compensation elected to use the fair value method of accounting for stock options, and its adoption resulted in a charge to earnings for com expense of $98,000 in 2004. Consideration paid on exercise of stock options is credited to common share capital. expense of $98,000 in 2004. Consideration paid on exercise of stock options is credited to common share capital. 03 by In accordance with the transition rules of the section, the Company the Company increased its cumulative deficit at April 1, 2003 by In accordance with the transition rules of the section, the Company the Company increased its cumulative deficit at April 1, 20 $120,000, reflecting the impact of options granted prior to that date. $120,000, reflecting the impact of options granted prior to that date. The new accounting standard on stock-based compensation also requires the use of the fair value method for options granted as The new accounting standard on stock-based compensation also requires the use of the fair value method for options granted as is basis. compensation for services rendered to the Company other than in the course of employment. Tsodilo has not granted options on this basis. compensation for services rendered to the Company other than in the course of employment. Tsodilo has not granted options on th 1212 tsodilo resources limited tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 13 Basis of Presentation Basis of Presentation year’s results. Certain items in the comparative income statement have been reclassified to be consistent with the presentation of the current year’s results. Certain items in the comparative income statement have been reclassified to be consistent with the presentation of the current 3. EXPLORATION PROPERTIES AND JOINT VENTURES 3. EXPLORATION PROPERTIES AND JOINT VENTURES These may be summarized as follows: These may be summarized as follows: Balance at March 31, 2002 Balance at March 31, 2002 2003 expenditures 2003 expenditures Exploration costs written off to operations Exploration costs written off to operations Balance at March 31, 2003 Balance at March 31, 2003 2004 expenditures 2004 expenditures Balance at March 31, 2004 Balance at March 31, 2004 Ngami Ngami Botswana Botswana $000 $000 451 451 249 249 – – 700 700 447 447 1,147 1,147 Gcwihaba Gcwihaba Botswana Botswana $000 $000 – – – – – – – – 22 22 22 22 Skeleton Skeleton Coast Coast $000 $000 467 467 – – (467) (467) – – – – – – Total Total $000 $000 918 918 249 249 (467) (467) 700 700 469 469 1,169 1,169 A summary of the significant joint venture and other agreements entered into by the Company is as follows: A summary of the significant joint venture and other agreements entered into by the Company is as follows: Newdico (Proprietary) Limited Newdico (Proprietary) Limited d District On November 22, 1999 Newdico (Proprietary) Limited (“Newdico”) was granted an initial five prospecting licenses in the Ngamiland District On November 22, 1999 Newdico (Proprietary) Limited (“Newdico”) was granted an initial five prospecting licenses in the Ngamilan g added of northwest Botswana. A further 10 prospecting licenses were granted to Newdico in May 2001, with a total of another five being added of northwest Botswana. A further 10 prospecting licenses were granted to Newdico in May 2001, with a total of another five bein e licenses now during fiscal 2003. Following the relinquishment of a portion of the initial five prospecting licenses upon their renewal, these licenses now during fiscal 2003. Following the relinquishment of a portion of the initial five prospecting licenses upon their renewal, thes ears, renewable cover an area of 12,726 square kilometers. The terms of the licenses grant Newdico the right to prospect for a total of three years, renewable cover an area of 12,726 square kilometers. The terms of the licenses grant Newdico the right to prospect for a total of three y ng over upon application, and require Newdico to spend a minimum of Botswana Pula 3.6 million (approximately $1.0 million) on prospecting over upon application, and require Newdico to spend a minimum of Botswana Pula 3.6 million (approximately $1.0 million) on prospecti ns Hex this period, inclusive of their current renewals. Newdico is held as to 75% by Tsodilo and 25% by Trans Hex Group Limited (“Trans Hex this period, inclusive of their current renewals. Newdico is held as to 75% by Tsodilo and 25% by Trans Hex Group Limited (“Tra to the granting Group”) (refer to note 12), with Tsodilo being the operator. Some, or all, of the current licenses held by Newdico are subject to the granting Group”) (refer to note 12), with Tsodilo being the operator. Some, or all, of the current licenses held by Newdico are subject A.E. Moore, an of a 2% free carried interest in any mine or mines that may result thereon. One of the beneficiaries of this arrangement is Dr. A.E. Moore, an of a 2% free carried interest in any mine or mines that may result thereon. One of the beneficiaries of this arrangement is Dr. officer of the Company. officer of the Company. n the financial Trans Hex Group has funded its proportionate share of expenditure, and these amounts have been reflected as minority interest in the financial Trans Hex Group has funded its proportionate share of expenditure, and these amounts have been reflected as minority interest i statements of $309,000 (2003: $ 177,000). Trans Hex Group has also advanced funds amounting to $294,000 (2003: $294,000) to statements of $309,000 (2003: $ 177,000). Trans Hex Group has also advanced funds amounting to $294,000 (2003: $294,000) to in these financial Newdico, relating to exploration properties which have been written off in earlier years. This liability has not been recorded in these financial Newdico, relating to exploration properties which have been written off in earlier years. This liability has not been recorded ing to the statements as it is repayable only from Tran Hex Group’s share of any future earnings of Newdico after repayment of loans relating to the statements as it is repayable only from Tran Hex Group’s share of any future earnings of Newdico after repayment of loans relat Newdico Project. Newdico Project. Gcwihaba Resources (Proprietary) Limited Gcwihaba Resources (Proprietary) Limited On June 6, 2003 Gcwihaba Resources (Proprietary) Limited (“Gcwihaba”), a wholly owned subsidiary of the Company, was granted sevenven On June 6, 2003 Gcwihaba Resources (Proprietary) Limited (“Gcwihaba”), a wholly owned subsidiary of the Company, was granted se rant Gcwihaba prospecting licenses to the south of the Ngamiland project area. The terms of the licenses, covering 6,793 square kilometers, grant Gcwihaba prospecting licenses to the south of the Ngamiland project area. The terms of the licenses, covering 6,793 square kilometers, g the right to prospect for a total of three years, renewable for a total of four additional years. the right to prospect for a total of three years, renewable for a total of four additional years. 1313 tsodilo resources limited tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 14 4. FIXED ASSETS 4. FIXED ASSETS Vehicles Vehicles Furniture and Equipment Furniture and Equipment 5. SHARE CAPITAL 5. SHARE CAPITAL Common Shares Common Shares Authorized Authorized Cost Cost $000 $000 55 55 26 26 81 81 Accumulated Accumulated amortization amortization $000 $000 6 6 13 13 19 19 2004 2004 Book value Book value 2003 2003 Book value Book value $000 $000 49 49 13 13 62 62 $000$000 –– 66 66 The authorized capital stock of the Company comprises an unlimited number of common shares. The authorized capital stock of the Company comprises an unlimited number of common shares. Issued and outstanding Issued and outstanding Details of the issued and outstanding common shares are as follows: Details of the issued and outstanding common shares are as follows: Issued and outstanding at April 1, 2002 Issued and outstanding at April 1, 2002 Shares returned to treasury for cancellation: Shares returned to treasury for cancellation: Shares Shares (number) (number) Amount Amount (dollars) (dollars) 14,597,856 14,597,856 32,171,895 32,171,895 On restructuring approved by shareholders on April 9, 2002 On restructuring approved by shareholders on April 9, 2002 (10,688,137) (10,688,137) – – Shares issued: Shares issued: On private placement (i) On private placement (i) On private placement (ii) On private placement (ii) On private placement (iii) On private placement (iii) On private placement (iv) On private placement (iv) Ascribed to warrants issued (b) Ascribed to warrants issued (b) Issued and outstanding at March 31, 2003 Issued and outstanding at March 31, 2003 Shares issued: Shares issued: On private placement for cash (v) On private placement for cash (v) On private placement for cash (vi) On private placement for cash (vi) On private placement for cash (vii) On private placement for cash (vii) On private placement for cash (viii) On private placement for cash (viii) Ascribed to warrants issued (b) Ascribed to warrants issued (b) On exercise of stock options (including $2,508 reallocated from contributed surplus) (c) On exercise of stock options (including $2,508 reallocated from contributed surplus) (c) On exercise of warrants (including $3,799 reallocated from warrants)(b) On exercise of warrants (including $3,799 reallocated from warrants)(b) 835,300 835,300 372,120 372,120 236,130 236,130 323,122 323,122 – – 125,295 125,295 93,030 93,030 118,065 118,065 157,561 157,561 (26,055) (26,055) 5,676,391 5,676,391 32,639,971 32,639,971 535,906 535,906 325,708 325,708 746,812 746,812 166,864 166,864 – – 1,775,290 1,775,290 60,000 60,000 379,899 379,899 267,953 267,953 162,854 162,854 373,406 373,406 125,148 125,148 (172,651) (172,651) 756,710 756,710 11,508 11,508 109,941 109,941 Issued and outstanding at March 31, 2004 Issued and outstanding at March 31, 2004 7,891,580 7,891,580 33,518,130 33,518,130 (i) Private Placement (i) Private Placement On June 14, 2002 the Company issued, through a non-brokered private placement, 835,300 units of the Company at a price of On June 14, 2002 the Company issued, through a non-brokered private placement, 835,300 units of the Company at a price of $0.15 per unit for gross proceeds to the Company of $125,295. Each unit consists of one common share of the Company and one $0.15 per unit for gross proceeds to the Company of $125,295. Each unit consists of one common share of the Company and one warrant of the Company, each such warrant entitling the holder to purchase one common share of the Company at a price of warrant of the Company, each such warrant entitling the holder to purchase one common share of the Company at a price of $0.40 for a period of two years. $0.40 for a period of two years. 1414 tsodilo resources limited tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 15 (ii) Private Placement (ii) Private Placement On October 15, 2002 the Company issued, through a non-brokered private placement, 372,120 units of the Company at a price of On October 15, 2002 the Company issued, through a non-brokered private placement, 372,120 units of the Company at a price of $0.25 per unit for gross proceeds to the Company of $93,030. Each unit consists of one common share of the Company and one $0.25 per unit for gross proceeds to the Company of $93,030. Each unit consists of one common share of the Company and one warrant of the Company, each such warrant entitling the holder to purchase one common share of the Company at a price of $0.25 forfor warrant of the Company, each such warrant entitling the holder to purchase one common share of the Company at a price of $0.25 a period of two years. a period of two years. (iii) Private Placement (iii) Private Placement On November 15, 2002 the Company issued, through a non-brokered private placement, 236,130 units of the Company at a price of On November 15, 2002 the Company issued, through a non-brokered private placement, 236,130 units of the Company at a price of warrant $0.50 per unit for gross proceeds to the Company of $118,065. Each unit consists of one common share of the Company and half a warrant $0.50 per unit for gross proceeds to the Company of $118,065. Each unit consists of one common share of the Company and half a a period of the Company, each full such warrant entitling the holder to purchase one common share of the Company at a price of $0.50 for a period of the Company, each full such warrant entitling the holder to purchase one common share of the Company at a price of $0.50 for of two years. of two years. (iv) Private Placement (iv) Private Placement 0 per On March 25, 2003 the Company issued, through a non-brokered private placement, 315,122 units of the Company at a price of $0.50 per On March 25, 2003 the Company issued, through a non-brokered private placement, 315,122 units of the Company at a price of $0.5 unit for gross proceeds to the Company of $157,561. Each unit consists of one common share of the Company and half a warrant of the the unit for gross proceeds to the Company of $157,561. Each unit consists of one common share of the Company and half a warrant of od of two Company, each full such warrant entitling the holder to purchase one common share of the Company at a price of $0.50 for a period of two Company, each full such warrant entitling the holder to purchase one common share of the Company at a price of $0.50 for a peri an agent, years. With respect to the placement of 100,000 units with participants located in New Zealand, a commission of 8% was paid to an agent, years. With respect to the placement of 100,000 units with participants located in New Zealand, a commission of 8% was paid to Mr. William Rae. In settlement of this obligation, 8,000 units were issued to Mr. Rae. Mr. William Rae. In settlement of this obligation, 8,000 units were issued to Mr. Rae. (v) Private Placement (v) Private Placement In May 2003 the Company issued, through a non-brokered private placement, 535,906 units of the Company at a price of $0.50 per In May 2003 the Company issued, through a non-brokered private placement, 535,906 units of the Company at a price of $0.50 per unit for gross proceeds to the Company of $267,953. Each unit consists of one common share of the Company and half a warrant of the the unit for gross proceeds to the Company of $267,953. Each unit consists of one common share of the Company and half a warrant of od of two Company, each full such warrant entitling the holder to purchase one common share of the Company at a price of $0.50 for a period of two Company, each full such warrant entitling the holder to purchase one common share of the Company at a price of $0.50 for a peri , expiring years. The common shares, warrants and warrant shares are subject to a statutory hold period under securities laws of 12 months, expiring years. The common shares, warrants and warrant shares are subject to a statutory hold period under securities laws of 12 months on May 26, 2004. on May 26, 2004. (vi) Private Placement (vi) Private Placement er unit In August 2003 the Company issued, through a non-brokered private placement, 325,708 units of the Company at a price of $0.50 per unit In August 2003 the Company issued, through a non-brokered private placement, 325,708 units of the Company at a price of $0.50 p Company, for gross proceeds to the Company of $162,854. Each unit consists of one common share of the Company and half a warrant of the Company, for gross proceeds to the Company of $162,854. Each unit consists of one common share of the Company and half a warrant of the years. each full such warrant entitling the holder to purchase one common share of the Company at a price of $0.50 for a period of two years. each full such warrant entitling the holder to purchase one common share of the Company at a price of $0.50 for a period of two ing The common shares, warrants and warrant shares are subject to a statutory hold period under securities laws of 12 months, expiring The common shares, warrants and warrant shares are subject to a statutory hold period under securities laws of 12 months, expir on August 17, 2004. on August 17, 2004. (vii) Private Placement (vii) Private Placement 0 per In September 2003 the Company issued, through a non-brokered private placement, 746,812 units of the Company at a price of $0.50 per In September 2003 the Company issued, through a non-brokered private placement, 746,812 units of the Company at a price of $0.5 unit for gross proceeds to the Company of $373,406. Each unit consists of one common share of the Company and half a warrant of the the unit for gross proceeds to the Company of $373,406. Each unit consists of one common share of the Company and half a warrant of od of two Company, each full such warrant entitling the holder to purchase one common share of the Company at a price of $0.50 for a period of two Company, each full such warrant entitling the holder to purchase one common share of the Company at a price of $0.50 for a peri , expiring years. The common shares, warrants and warrant shares are subject to a statutory hold period under securities laws of 12 months, expiring years. The common shares, warrants and warrant shares are subject to a statutory hold period under securities laws of 12 months on September 29, 2004. on September 29, 2004. (viii) Private Placement (viii) Private Placement In January 2004 the Company issued, through a non-brokered private placement, 166,864 units of the Company at a price of $0.75 perper In January 2004 the Company issued, through a non-brokered private placement, 166,864 units of the Company at a price of $0.75 unit for gross proceeds to the Company of $125,148. Each unit consists of one common share of the Company and half a warrant of the the unit for gross proceeds to the Company of $125,148. Each unit consists of one common share of the Company and half a warrant of od of two Company, each full such warrant entitling the holder to purchase one common share of the Company at a price of $0.75 for a period of two Company, each full such warrant entitling the holder to purchase one common share of the Company at a price of $0.75 for a peri , expiring years. The common shares, warrants and warrant shares are subject to a statutory hold period under securities laws of 12 months, expiring years. The common shares, warrants and warrant shares are subject to a statutory hold period under securities laws of 12 months on January 15, 2005. on January 15, 2005. 1515 tsodilo resources limited tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 16 (b) Warrants (b) Warrants As at March 31, 2004, the following warrants were outstanding: As at March 31, 2004, the following warrants were outstanding: Expiry Expiry DateDate Exercise Exercise Price Price Opening Opening June 13, 2004 (i) June 13, 2004 (i) October 14, 2004 (ii) October 14, 2004 (ii) November 14, 2004 (iii) November 14, 2004 (iii) March 24, 2005 (iv) March 24, 2005 (iv) May 26, 2005 (v) May 26, 2005 (v) August 17, 2005 (vi) August 17, 2005 (vi) September 29, 2005 (vii) September 29, 2005 (vii) January 15, 2006 (viii) January 15, 2006 (viii) 835,300 835,300 372,120 372,120 118,065 118,065 161,561 161,561 0.40 0.40 0.25 0.25 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.75 0.75 Number of Warrants Number of Warrants Issued/ Issued/ Exercised Exercised (69,799) (69,799) (310,100) (310,100) – – – – 267,953 267,953 162,854 162,854 373,406 373,406 83,432 83,432 Closing Closing 765,501 765,501 62,020 62,020 118,065 118,065 161,561 161,561 267,953 267,953 162,854 162,854 373,406 373,406 83,432 83,432 Opening Opening (dollars) (dollars) 8,353 8,353 3,721 3,721 5,903 5,903 8,078 8,078 – – – – – – – – Value Value Issued/ Issued/ Exercised Exercised (698) (698) (3,101) (3,101) 67,978 67,978 23,527 23,527 60,494 60,494 20,652 20,652 Closing Closing (dollars) (dollars) 7,655 7,655 620 620 5903 5903 8,078 8,078 67,978 67,978 23,527 23,527 60,494 60,494 20,652 20,652 1,487,046 1,487,046 507,746 507,746 1,994,792 1,994,792 26,055 26,055 168,852 168,852 194,907 194,907 During the year, 379,899 warrants were exercised for proceeds to the Company of $106,142. This exercise resulted in the issuance ofe of During the year, 379,899 warrants were exercised for proceeds to the Company of $106,142. This exercise resulted in the issuanc apital. A 379,899 common shares. In addition, $3,799 attributed to the warrants exercised during the year has been reallocated to share capital. A 379,899 common shares. In addition, $3,799 attributed to the warrants exercised during the year has been reallocated to share c value of $172,651 (2003: $26,055) has been attributed to the warrants issued during the year. Warrants were valued using the Black-ack- value of $172,651 (2003: $26,055) has been attributed to the warrants issued during the year. Warrants were valued using the Bl e warrant, and Scholes model, using key assumptions of volatility of 69%, a risk-free interest rate of 4%, a term equivalent to the life of the warrant, and Scholes model, using key assumptions of volatility of 69%, a risk-free interest rate of 4%, a term equivalent to the life of th reinvestment of all dividends in the Company. reinvestment of all dividends in the Company. (c) Contributed Surplus (c) Contributed Surplus As at April 1, 2003 As at April 1, 2003 Relating to issue of stock options Relating to issue of stock options - 2003 - 2003 - 2004 - 2004 Transferred to share capital on exercise of options Transferred to share capital on exercise of options As at March 31, 2004 As at March 31, 2004 $000$000 8,486 8,486 120120 9898 (2) (2) 8,702 8,702 1616 tsodilo resources limited tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 17 (d) Stock Option Plan (d) Stock Option Plan Outstanding stock options granted to directors, officers and employees at March 31, 2004 and 2003 were as follows: Outstanding stock options granted to directors, officers and employees at March 31, 2004 and 2003 were as follows: Expiry Expiry May 21, 2003 May 21, 2003 July 4, 2005 July 4, 2005 June 24, 2007 June 24, 2007 September 18, 2007 September 18, 2007 December 31, 2007 December 31, 2007 July 8, 2008 July 8, 2008 January 1, 2009 January 1, 2009 January 26, 2009 January 26, 2009 Price Price Outstanding Outstanding April 1, 2002 April 1, 2002 Granted / Granted / Outstanding Outstanding (Cancelled) March 31, 2003 (Cancelled) March 31, 2003 Granted / Granted / Outstanding Outstanding (Exercised) March 31, 2004 (Exercised) March 31, 2004 0.40 0.40 0.30 0.30 0.15 0.15 0.23 0.23 0.41 0.41 0.50 0.50 0.75 0.75 0.75 0.75 280,000 280,000 300,000 300,000 – – – – – – – – – – – – (280,000) (280,000) (300,000) (300,000) 260,000 260,000 200,000 200,000 165,000 165,000 – – – – – – – – – – 260,000 260,000 200,000 200,000 165,000 165,000 – – – – – – – – – – (60,000) (60,000) – – – – 210,000 210,000 110,000 110,000 (i) (i) (i) (i) (ii) (ii) (ii) (ii) –– –– 200,000 200,000 200,000 200,000 165,000 (iii) 165,000 (iii) 210,000 (iii) 210,000 (iii) 110,000 (iii) 110,000 (iii) 50,000 50,000 (iii) (iii) 50,000 50,000 580,000 580,000 45,000 45,000 625,000 625,000 310,000 310,000 935,000 935,000 Options exercisable at end of year Options exercisable at end of year Weighted average exercise price Weighted average exercise price - outstanding - outstanding - exercisable - exercisable 501,250 501,250 $0.24 $0.24 $0.20 $0.20 668,750 668,750 $0.39 $0.39 $0.31 $0.31 (i) All outstanding stock options expired with the restructuring of the Company that was approved by the holders of common shar (i) All outstanding stock options expired with the restructuring of the Company that was approved by the holders of common shares es on April 9, 2002. on April 9, 2002. (ii) These common share purchase options vest as to one-half immediately and one-half on the six-month anniversary of the date (ii) These granted. common share purchase options vest as to one-half immediately and one-half on the six-month anniversary of the date granted. and (iii) These common share purchase options vest as to one-quarter immediately and one-quarter on each of the six-month, 12-month and (iii) These common share purchase options vest as to one-quarter immediately and one-quarter on each of the six-month, 12-month 18-month anniversaries of the date granted. 18-month anniversaries of the date granted. f 4%, a term (iv) Options were valued using the Black-Scholes model, using key assumptions of volatility of 69%, a risk-free interest rate of 4%, a term (iv) Options were valued using the Black-Scholes model, using key assumptions of volatility of 69%, a risk-free interest rate o equivalent to the life of the option, and reinvestment of all dividends in the Company. equivalent to the life of the option, and reinvestment of all dividends in the Company. 6. INCOME TAXES 6. INCOME TAXES purposes, As at March 31, 2004, the Company had net operating losses carried forward of $5.5 million (2003: $6.0 million) for income tax purposes, As at March 31, 2004, the Company had net operating losses carried forward of $5.5 million (2003: $6.0 million) for income tax come taxes as well as $0.3 million (2003: $0.3 million) of Canadian exploration and development expenditures that may be used to reduce income taxes as well as $0.3 million (2003: $0.3 million) of Canadian exploration and development expenditures that may be used to reduce in payable in future periods. The net operating losses carried forward expire as follows: payable in future periods. The net operating losses carried forward expire as follows: 20042004 20052005 20062006 20072007 20082008 20092009 20102010 20112011 20042004 $000$000 –– 1,230 1,230 884884 863863 954954 792792 367367 377377 2003 2003 $000$000 877877 1,230 1,230 884884 863863 954954 792792 367367 –– 5,467 5,467 5,967 5,967 1717 tsodilo resources limited tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 18 Significant components of the Company's future tax assets as at March 31, 2004 and 2003 were as follows: Significant components of the Company's future tax assets as at March 31, 2004 and 2003 were as follows: Future tax assets Future tax assets Valuation allowance Valuation allowance Net future tax assets Net future tax assets The Company has recorded a valuation allowance against its future tax assets. The Company has recorded a valuation allowance against its future tax assets. 7. EARNINGS / (LOSS) PER SHARE 7. EARNINGS / (LOSS) PER SHARE 2004 2004 $000$000 1,707 1,707 (1,707) (1,707) –– 20032003 $000$000 1,887 1,887 (1,887) (1,887) –– Loss per share is based on a weighted average number of common shares outstanding of 7,125,514 for fiscal 2004 (2003: 5,076,035).). Loss per share is based on a weighted average number of common shares outstanding of 7,125,514 for fiscal 2004 (2003: 5,076,035 the time of Diluted loss per share assumes that outstanding stock options and warrants are exercised at the beginning of the period (or at the time of Diluted loss per share assumes that outstanding stock options and warrants are exercised at the beginning of the period (or at n computing issuance, if later) and the proceeds used to purchase common stock at the then ruling closing price. The effect of conversion in computing issuance, if later) and the proceeds used to purchase common stock at the then ruling closing price. The effect of conversion i diluted per share amounts for 2004 and 2003 is anti-dilutive. diluted per share amounts for 2004 and 2003 is anti-dilutive. 8. RELATED PARTY TRANSACTIONS 8. RELATED PARTY TRANSACTIONS During the year, the Company entered into transactions with related parties at standard commercial rates and prices. During the year, the Company entered into transactions with related parties at standard commercial rates and prices. the Company At March 31, 2004, Tsodilo had no long-term debt. The loan from a related party disclosed in the consolidated balance sheet of the Company At March 31, 2004, Tsodilo had no long-term debt. The loan from a related party disclosed in the consolidated balance sheet of rans Hex Group. relates to 25% of the accumulated expenditure of its subsidiary, Newdico, that was funded by Tsodilo’s joint venture partner, Trans Hex Group. relates to 25% of the accumulated expenditure of its subsidiary, Newdico, that was funded by Tsodilo’s joint venture partner, T 9. SEGMENTED INFORMATION 9. SEGMENTED INFORMATION assets of the Substantially all working capital balances of the Company are situated at the head office in Canada and in Botswana. The fixed assets of the Substantially all working capital balances of the Company are situated at the head office in Canada and in Botswana. The fixed n costs Company are presently located in Canada ($6,000) and Botswana ($56,000). The geographic distribution of the property acquisition costs Company are presently located in Canada ($6,000) and Botswana ($56,000). The geographic distribution of the property acquisitio and exploration expenditures is evident from the details presented in note 3. and exploration expenditures is evident from the details presented in note 3. 10. FINANCIAL INSTRUMENTS 10. FINANCIAL INSTRUMENTS enses, and The carrying amounts reflected in the consolidated balance sheets for cash and equivalents, accounts receivable and prepaid expenses, and The carrying amounts reflected in the consolidated balance sheets for cash and equivalents, accounts receivable and prepaid exp accounts payable and accrued liabilities approximate their fair values due to the short maturities of these instruments. accounts payable and accrued liabilities approximate their fair values due to the short maturities of these instruments. 11. COMMITMENTS 11. COMMITMENTS Minimum lease payments for leased equipment are as follows: Minimum lease payments for leased equipment are as follows: 20052005 20062006 $000$000 44 33 77 1818 tsodilo resources limited tsodilo resources limited 4476 Tsodilo AR v5 7/29/04 2:04 PM Page 19 12. RESTRUCTURING 12. RESTRUCTURING 's assets. The At a special meeting of shareholders held on April 9, 2002, shareholders approved the sale of substantially all of the Company 's assets. The At a special meeting of shareholders held on April 9, 2002, shareholders approved the sale of substantially all of the Company assets sold were as follows: assets sold were as follows: ng to Trans - a 100% interest in Trans Hex (Namibia) (Proprietary) Limited, together with a loan in the amount of $2.75 million due and owing to Trans - a 100% interest in Trans Hex (Namibia) (Proprietary) Limited, together with a loan in the amount of $2.75 million due and owi Hex (Bermuda) Limited; Hex (Bermuda) Limited; Bermuda; - a 100% interest in Trans Hex Brasil Limitada, together with a loan in the amount of $1.44 million due and owing to Trans Hex Bermuda; - a 100% interest in Trans Hex Brasil Limitada, together with a loan in the amount of $1.44 million due and owing to Trans Hex - a 100% interest in Trans Hex (Zimbabwe) Limited, together with a loan in the amount of $3.23 million due and owing to Trans Hexex - a 100% interest in Trans Hex (Zimbabwe) Limited, together with a loan in the amount of $3.23 million due and owing to Trans H Bermuda; and Bermuda; and any. - a 25% interest in the equity and debt of Newdico (Proprietary) Limited, the remaining 75% interest to be retained by the Company. - a 25% interest in the equity and debt of Newdico (Proprietary) Limited, the remaining 75% interest to be retained by the Comp the amount The assets were transferred in exchange for the settlement of debt due and owing to Trans Hex Group as at closing, deemed to be the amount The assets were transferred in exchange for the settlement of debt due and owing to Trans Hex Group as at closing, deemed to be erest due and owing as at March 31, 2002 as per these audited annual financial statements, such amount aggregating $952,000, a 1% interest due and owing as at March 31, 2002 as per these audited annual financial statements, such amount aggregating $952,000, a 1% int or Hoanib in all dividends received from time to time by Trans Hex (Namibia) (Proprietary) Limited from either Northbank Diamonds Limited or Hoanib in all dividends received from time to time by Trans Hex (Namibia) (Proprietary) Limited from either Northbank Diamonds Limited rom the Diamonds (Proprietary) Limited and a 50% interest in all dividends received from time to time by Trans Hex (Zimbabwe) Limited from the Diamonds (Proprietary) Limited and a 50% interest in all dividends received from time to time by Trans Hex (Zimbabwe) Limited f s being Limpopo property. In addition, the Company was also released from the long-term loans due to Trans Hex Group by the subsidiaries being Limpopo property. In addition, the Company was also released from the long-term loans due to Trans Hex Group by the subsidiarie sold, of $5.24 million. sold, of $5.24 million. At the special meeting, shareholders also approved the following matters: At the special meeting, shareholders also approved the following matters: - the discontinuance of the Company from the Province of Ontario and its continuance under the Business Corporations Act (Yukon), in), in - the discontinuance of the Company from the Province of Ontario and its continuance under the Business Corporations Act (Yukon tors to fix compliance with the provisions of the YBCA, including a new general by-law for the Company and authority for the board of directors to fix compliance with the provisions of the YBCA, including a new general by-law for the Company and authority for the board of direc the number of directors from time to time within the minimum and maximum numbers set forth in the articles of continuance; the number of directors from time to time within the minimum and maximum numbers set forth in the articles of continuance; - the change of name of the Company to Tsodilo Resources Limited; - the change of name of the Company to Tsodilo Resources Limited; - the election of new directors; and - the election of new directors; and - the repeal of the existing stock option plan of the Company and adoption of a new stock option plan. - the repeal of the existing stock option plan of the Company and adoption of a new stock option plan. 1919 tsodilo resources limited tsodilo resources limited corporate information DIRECTORS OFFICERS CORPORATE HEAD OFFICE Christopher M. H. Jennings (Dr.) James M. Bruchs, B.Sc.,J.D. Canada Trust Tower - BCE Place Chairman Cayman Islands President and Chief Executive Officer Appointed as director in 2002 Appointed in 2002 James M. Bruchs Gaborone, Botswana Andrew E. Moore (Dr.), MBA.,Ph.D., Pr.Sci.Nat. Appointed as director in 2002 Vice President, Exploration 161 Bay Street, Box 508 Toronto, Ontario M5J 2S1 Telephone: (416) 572-2033 Facsimile: (416) 572-4164 Website: www.TsodiloResources.com E-Mail: info@TsodiloResources.com Patrick C. McGinley Washington, D.C. Appointed in 2002 Stephen Woodhead, B. Com., CA(SA) AUDITORS Appointed as director in 2002 Chief Financial Officer PricewaterhouseCoopers LLP Toronto, R. Stuart Angus Vancouver, British Columbia Appointed as director in 2004 Appointed in 2002 Ontario LEGAL COUNSEL Fasken Martineau DuMoulin LLP Toronto, Ontario REGISTRAR AND TRANSFER AGENT Computershare Trust Company of Canada Toronto, Ontario STOCK EXCHANGE LISTING TSX Venture Exchange Trading Symbol: TSD Design by MacraeDesign Inc. - www.macraedesign.com