Contents
President’s Message to Shareholders
Management’s Discussion and Analysis
of Financial Results
Financial Reporting Responsibility of Management
Auditors’ Report to the Shareholders
Consolidated Financial Statements / Notes
Corporate Information
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IBC
Newdico and Gcwihaba Prospecting Diamond Licenses - as of March 7, 2007
480000
500000
520000
540000
560000
580000
600000
620000
640000
660000
Legend
Diamond License Areas
(Newdico)
Diamond License Areas
(Gcwihaba)
Diamond License
Application Areas
(Gcwihaba)
Base Metal License
Areas (Gcwihaba)
Base Metal License
Application Areas
(Gcwihaba)
Botswana Border
Settlement
Road
Watercourse
Pan
Kilometers
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Tsodilo Hills
License
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Sepupa
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19°0'0"S
Nxau Nxau
68/2005
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Etsha 6
72/2005
73/2005
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Gumare
Dobe
78/2005
75/2005
76/2005
77/2005
Nokaneng
79/2005
Xaixai
License pending
118/2005
20°0'0"S
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480000
500000
520000
540000
560000
580000
600000
620000
640000
660000
Front cover photo courtesy of www.game-reserve.com
President’s Message
A very busy and exciting year lies
ahead as we make progress in the
exploration for an economic
kimberlite below the Kalahari cover
on this sector of the Congo craton
and expand our precious and base
metals exploration.
Fellow Shareholders,
Drilling in the Kalahari
2006 was a year of significant advances for Tsodilo
During the past year, the Company funded exploration
Resources Limited (“Tsodilo” or the “Company”). We transi-
activity by raising funds in the capital markets through the
tioned from an exploration company which by necessity was
successful issuance of stock by way of private placements.
reliant on others to perform their work into an efficient and
This process will continue in the coming year. Our current
fully equipped exploration company second to none in
share base consists of 13,577,354 issued and outstanding
capabilities and experience. As a result of the decision to
(17,820,448 on a fully diluted basis) common shares.
purchase a drill rig and supporting equipment as well as
Tsodilo has no debt, a 90% interest in our Botswana
geophysical instruments, we now have the ability to select a
Newdico project and a 100% interest in our Botswana
target; perform a detail ground magnetic survey; and drill
Gcwihaba projects. The Company is well positioned to meet
test it all in a matter of weeks as opposed to the months or
the challenges in the upcoming year.
years which it previously took. Since the on-site commission-
ing of the Atlas Copco CT14 drill rig, we have drilled
approximately 5 kilometers in total depth and collected a
similar amount of drill core for analysis. Operating our own
drill rig has given us the ability and flexibility to advance our
exploration at a far greater rate and at a fraction of the per
meter drilling costs of what it was previously.
In addition to our exploration program, which is designed to
locate an economic kimberlite diamond deposit, the
Company will also look to take advantage of opportunities
which present themselves in base and precious metals
A very busy and exciting year lies ahead as we make progress
in the exploration for an economic kimberlite below the
Kalahari cover on this sector of the Congo craton and expand
our precious and base metals exploration. Please follow our
progress carefully and remain informed by regular visits to
our website, www.TsodiloResources.com.
exploration. As precious and base metals are enjoying a
tremendous increase in demand and appreciation, it is
James M. Bruchs
appropriate that we consider these resources as targets for
President and Chief Executive Officer
exploration and development.
March 22, 2007
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tsodilo resources limited
Management’s Discussion and Analysis
This management’s discussion and analysis (“MD&A”) should be
paid by either Northbank Diamonds Limited, Hoanib Diamonds
read in conjunction with the Consolidated Annual Financial
(Proprietary) Limited or Trans Hex (Zimbabwe) Limited. In
Statements for the year ended December 31, 2006 and comments
addition, the Company was released from the long-term loans due
on the factors that affected the Company’s performance during the
to Trans Hex Group by the subsidiaries being sold, of $3,341,690,
periods covered by the Consolidated Annual Financial Statements
and Trans Hex Group agreed to return the 10,688,137 common
as well as the Company’s financial condition and future prospects.
shares in the capital of the Company, representing 73.22% of the
The Company’s functional and reporting currency is United States
issued and outstanding shares of the Company at that time, to
dollars and all amounts stated are in United States dollar unless
treasury for cancellation. The special meeting of shareholders also
otherwise noted. The Company changed its financial year end from
approved the discontinuance of the Company from the Province of
March 31 to December 31 effective December 31, 2005 and was
Ontario and its continuance under the Business Corporations Act
made to align with the reporting schedule of comparable public
(Yukon), the change of name of the Company from Trans Hex
companies. The period December 31, 2005 was the transitional
International Ltd. to Tsodilo Resources Limited, the election of new
period and has a nine month reporting period. This management’s
directors and the repeal of the existing stock option plan of the
discussion and analysis has been prepared as at March 22, 2007.
Company and adoption of a new stock option plan. Following the
OVERVIEW
Tsodilo Resources Limited (“Tsodilo” or the “Company”) was
restructuring of the Company, as approved by shareholders in April
2002, Tsodilo has no long-term debt.
organized under the laws of the Province of Ontario in 1996 and
Outstanding Share Data
continued under the laws of the Yukon in 2002. The shares of the
As of March 22, 2007, 13,577,354 common shares of the
Company are listed and posted for trading on the TSX Venture
Company were outstanding. Of the options to purchase common
Exchange under the symbol: TSD. Tsodilo is an international
shares issued to eligible persons under the stock option plan
diamond exploration company with the majority interest in a
of the Company, 1,480,000 options remain outstanding of which
kimberlite exploration project in northwest Botswana. The
873,375 are exercisable at exercise prices ranging from Canadian
Company has not yet determined whether these properties contain
$0.15 - $1.85. If all options were vested and exercised,
reserves that can be economically mined. As an exploration stage
1,480,000 common shares of the Company would be issued.
company, the recoverability of amounts shown for exploration
expenditures is dependent upon the discovery of reserves that can
be economically mined, the securing and maintenance of the
interests in the properties, the ability of the Company to obtain the
necessary financing to complete the development, and future
production or proceeds from the disposition thereof. The Company
is also actively reviewing additional opportunities within southern
As of March 22, 2007, 2,763,094 warrants are outstanding. The
warrants were issued by way of the private placements utilized by
the Company for financing purposes. Each warrant entitles the
holder thereof to purchase one common share of the Company at
purchase prices ranging from Canadian $0.70 - $2.35 for a period
of two years from the date of issuance. If converted, 2,763,094
common shares of the Company would be issued.
Africa.
Corporate
At a special meeting of the holders of common shares of the
Company held on April 9, 2002 shareholders approved a
restructuring of the Company that incorporated the sale of
substantially all of the Company’s assets. The assets were
transferred in settlement of debt due and owing to Trans Hex
Group Limited (“Trans Hex Group”), the principal shareholder and
creditor of the Company prior to restructuring, of $612,783. The
Principal Shareholders of the Company
The largest shareholder of the Company is its President and Chief
Executive Officer, James M. Bruchs, who currently owns, controls
or directs 2,545,983 or 18.75% of the issued and outstanding
common shares as of March 22, 2007. The Firebird Global Master
Fund, Ltd. controls 1,875,630 or 13.81% of the issued and
outstanding shares as of March 22, 2007 and John R. Redmond,
a Director of the Company, currently owns, controls or directs
1,764,359 or 12.99% of the issued and outstanding shares as of
Company retained an interest in all future dividends that may be
March 22, 2007.
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tsodilo resources limited
Subsidiaries
2007. Drilling is currently ongoing and expected to continue into
The Company has a 90% operating interest in its Botswana
the 2nd quarter. Upon completion of the drilling in the Guma
subsidiary, Newdico (Proprietary) Limited (“Newdico”), which
area, various half core samples will be collected from select drill
holds prospecting
licenses and applications covering
holes for petrographic description and for analysis of kimberlite
approximately 16,800 square kilometers in northwest Botswana
indicator minerals.
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 (10%) in this project, Trans Hex
Group, is an established South African diamond mining company.
Some, or all, of the current licenses held by Newdico may be
subject to the granting of a 2% free carried interest in any mine or
mines that may result thereon.
Planned Exploration Program for 2007
The program is based on our strategy of using a combination of
indicator mineral sampling, magnetic and gravity data to generate
individual targets for drill evaluation and our regional strategy of
evaluating possible transport corridors giving rise to the alluvial
secondary kimberlite indicator minerals (“KIM”) and diamond
deposits at Tsumkwe and Omatako. Our program for 2007 will
The Company has a 100% interest in its wholly owned Botswana
include the following:
subsidiary, Gcwihaba Resources (Proprietary) Limited
(cid:129) Drill evaluation of 10 high-priority targets in the Nxau Nxau
(“Gcwihaba”), which has diamond prospecting licenses covering
kimberlite field.
approximately 6,800 square kilometers and base and precious
metal licenses covering 3,780 square kilometers.
Exploration Activities
(cid:129) Drill evaluation of 4 previously discovered diamondiferous
kimberlites in the Nxau Nxau field for petrography and KIM
chemistry analysis. Geophysical surveys will be performed prior
NEWDICO (Pty) Limited (“Newdico”)
to drilling.
Summary of work completed in 2006 and to date
(cid:129) Ground magnetic geophysical surveys over ten priority targets
and two paleo drainage channels were completed in the Nxau
(cid:129) The Company will commence a drill program to collect 100 tons
of kimberlite for macro diamond analysis on kimberlite A15 if the
KIM chemistry of A15 (5) is favorable. A decision is expected in
Nxau area.
the 2nd quarter of 2007.
(cid:129) A Geographical Information System was completed with all
available geological, geophysical and geochemical data captured
onto the system. The data is being used to prioritize target areas
for further exploration.
(cid:129) Access tracks and site clearing totaling 40 kilometers was
completed.
The favorable chemistry and diamond preservation potential of the
kimberlites in our license blocks together with the known secondary
alluvial diamond discoveries down slope across the border in
Namibia establish the greater Nxau Nxau field as highly prospective
with the possibility of several economic kimberlites present within
our ground. To date, at least 18% of the kimberlites discovered and
tested for diamond in the Nxau Nxau field are known to be
(cid:129) Twenty-five diamond core drill holes were completed to
diamondiferous.
investigate 13 priority targets in the Nxau Nxau kimberlite field.
Various half core samples have been collected from those drill
holes that intersected kimberlite or kimberlite crater sediments
GCWIHABA Resources (Pty) Limited
(“Gcwihaba”)
for petrographic description and for analysis of kimberlite
Diamond Licenses
indicator minerals.
Summary of work completed in 2006 and to date
(cid:129) Ground magnetic geophysical surveys over 6 priority targets were
(cid:129) Ground magnetic geophysical surveys over five targets were
completed in the northern Ngamiland region.
completed.
(cid:129) In the Guma area, 17 diamond core drill holes over 10 targets
(cid:129) Access tracks and site clearing totaling 19 kilometers was
have been completed since drilling commenced in late January
completed.
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tsodilo resources limited
(cid:129) During the year our Geographical Information System was
Planned Exploration Program for 2007
completed with all available geological, geophysical and
(cid:129) There are several zones of co-incident base metal anomalies that
geochemical data for these licenses captured onto the system.
require follow-up sampling as a first step in the evaluation
The data is being used to prioritize target areas for further
process. A Chalcophyle Index has been prepared and is currently
exploration.
(cid:129) Three diamond core drill holes were completed to investigate 3
being reviewed by the Company’s consultants in preparation to
assist in the prioritization of these zones for further drill testing.
priority targets in the Gcwihaba. The drill holes did not intersect
(cid:129) Exploratory drilling of suspected base metal deposits to
kimberlite and given the depth of the drill holes (150 – 175
determine their nature, composition and size will take place in
meters) no further work on these targets is recommended even
the 3rd quarter.
though the magnetic anomaly signatures have not been
explained.
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2006, the Company had net working capital
Planned Exploration Program for 2007
of $213,702 (2005: $296,541), which included cash and
(cid:129) Drill evaluation of eight priority targets in the Gcwihaba area is
equivalents $201,177 (2005: $289,810). These funds are
scheduled for the 4th quarter.
Base and Precious Metals Licenses
Summary of work completed in 2006 and to date
(cid:129) Four base and precious metal licenses were granted to the
Company on October 1, 2005, and encompass an area of some
3,780 square kilometers. These licenses were issued for an
initial period of three years, renewable for 2 two-year periods.
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. At year end the Company did not have any material
contractual obligations. The Company is required to spend a
minimum on prospecting over the period of its licenses (Newdico:
$1.7 million, Gcwihaba: $0.34 million). To date, the Company has
(cid:129) The license areas were selected based on the results of a 1999
exceeded this requirement in the Newdico project.
government geochemical soil sampling program, released and
partially reported on in November 2001.
(cid:129) Three diamond core drill holes were completed on the JEB
intrusion (fka 2021A7) to a depth of between 206 – 225
meters. The JEB target is located in the Company’s southern
most license block and lies south of the Gumare fault. Various
Financial Instruments
The carrying amounts reflected in the consolidated balance sheets
for cash and equivalents, accounts receivable and accounts
payable and accrued liabilities approximate their fair values due
to the short maturities of these instruments. Due to the nature of
the Company’s operations, there is no significant credit or interest
half core samples were submitted for multi-element analysis.
The results of this multi-element analysis were subject to further
rate risk.
study to determine Ni sulfide potential. The metal tenor of the
Operating Activities
sulfides in the JEB rocks have 1.75% Ni. However, it appears
that based on all the data that these rocks crystallized from
magma too differentiated to have potential for significant sulfide
Cash outflow used in operating activities decreased from
$340,924 in fiscal December 31, 2005 to $284,395 for the year
ended December 31, 2006. This decrease is due to the result in
ores as most of the Ni will have been extracted from the magma
gains in foreign exchange.
by earlier crystallizing olivine and pyroxene.
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tsodilo resources limited
SELECTED ANNUAL AND QUARTERLY FINANCIAL INFORMATION
ANNUAL INFORMATION
(in US dollars)
Total Revenues
Loss before non-controlling interest
Basic and diluted loss per share - cents
Non-controlling interest
Net Loss for the Year
Basic and diluted loss per share - cents
Total Assets
Total long term liabilities
Cash dividends declared
QUARTERLY INFORMATION
(in US dollars)
Fiscal Year
Nine Months Ended
Fiscal Year
Dec. 31 2006
Dec. 31 2005
Mar. 31 2005
–
541,132
$0.04
–
541,132
$0.04
3,472,693
245,491
–
–
470,811
$0.04
–
470,811
$0.04
2,032,426
280,642
–
–
620,822
$0.07
–
620,822
$0.07
2,087,421
237,008
–
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Fiscal Year 2005 (ended March 31, 2005)
Total Revenues
Loss for the period
Basic and diluted loss per share - cents
Total assets
Total long term liabilities
–
75,106
$0.01
1,422,230
213,549
Fiscal Period 2005* (ended December 31, 2005)
Total Revenues
Loss for the period
Basic and diluted loss per share - cents
Total assets
Total long term liabilities
–
83,068
$0.01
2,171,006
294,236
* Transitional period for year end change to December 31
Fiscal Year 2006 (ended December 31, 2006)
Total Revenues
Loss for the period
Basic and diluted loss per share - cents
Total assets
Total long term liabilities
–
156,252
$0.01
2,689,555
289,490
–
185,742
$0.02
1,408,529
237,245
–
190,070
$0.02
2,166,670
294,236
–
234,194
$0.02
2,891,225
235,769
–
113,981
$0.01
1,842,605
237,245
–
197,673
$0.02
2,032,426
280,642
–
89,720
$0.01
3,278,118
219,441
–
245,993
$0.03
2,087,421
237,008
–
60,966
$0.00
3,472,693
245,491
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tsodilo resources limited
Investing Activities
Company received proceeds in the amount of $1,739,907 from
Cash flow applied in investing activities increased to $1,508,994
the issuance of common shares upon the exercise of warrants
for the year ended December 31, 2006 (2005: $281,249).
during the fiscal period.
$693,394 or 93.1% of the exploration expenditures were spent on
the Newdico properties and $51,108 or 6.9% of the expenditures
were on the Gcwihaba properties. Total expenditures of $744,502
on exploration properties for the period ended December 31, 2006
were attributable to the Newdico and Gcwihaba projects in
northwest Botswana and included the 10% share funded by the
Trans Hex Group for the Newdico project. During the year the
Company acquired a Mobile drill rig and support vehicles at a total
cost of $752,625. There were no material disposals of capital
assets or investments during the year.
In November 2006, the board of directors of Newdico approved an
exploration program and budget for the period January 1, to
December 31, 2007 that calls for expenditures totaling
approximately Pula 10.6 million (approximately $1.7 million as of
Subsequent to the fiscal period end, the Company issued, through
non-brokered private placement 141,516 units at a price of $0.68
(C$0.80) per unit for gross proceeds of $95,853. Each unit
consists of one common share of the Company and one warrant of
the Company, each warrant entitling the holder to purchase one
common share of the Company at a price of C$0.80 for a period
of two years. The common shares, warrants and warrant shares are
subject to a hold period of 12 months, as agreed to by the parties,
expiring on February 15, 2008.
Tsodilo expects to raise the amounts required to fund its 90%
share of the Newdico project, the Gcwihaba projects and corporate
general and administration expenses, by way of negotiated non-
brokered private placements.
March 22, 2007). Trans Hex Group is presently responsible for
RESULTS OF OPERATIONS
funding 10% of the expenses of this company. The approved
exploration program includes provision for additional drilling, soil
sampling, airborne and ground magnetics and ground gravity
surveying, geophysical interpretation.
The
required
third year diamond exploration program
expenditures, including license fees, for Gcwihaba amount to
approximately Pula 0.42 million (approximately $0.07 million as
of March 22, 2007). Gcwihaba’s expenditures will exceed this
required amount. The required expenditure in the first year of the
base metal exploration program amounts to approximately Pula
0.20 million (approximately $0.03 million as of March 22, 2007).
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, 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. Each unit has consisted of
one common share of the Company and one or one-half a warrant
On a consolidated basis Tsodilo recorded a net loss of $541,132
in the fiscal year ended December 31, 2006 ($0.04 cents per
common share) compared to a net loss of $470,811 in the nine
month fiscal period ended December 31, 2005 ($0.04 cents per
common share). The Company experienced increases in travel,
investor relations and office and admin expenses reflecting
increased activity in general corporate activity partially offset by
reductions in consulting and legal and audit as a result of less
reliance on outside consultants and professional services. The
increase in stock option expense reflects the timing of option
grants and the change in year end from March 31 to December 31
in 2005, resulting in options issued in one period would have been
reported in the next fiscal if the year end had not been changed.
Exploration expenditure on all projects amounted to $744,502
during the year ended December 31, 2006 compared to
$282,977 for the period ended December 31, 2005. Exploration
expenditure incurred on the Newdico project for the year ended
December 31, 2006 was $693,394 compared to $239,505 for
the period ended December 31, 2005. The principal components
of the Newdico exploration program were: (a) additional soil
of the Company, with each full such warrant entitling the holder to
sampling and the completion of the processing and analysis of the
purchase one common share of the Company for a purchase price
soil samples; (b) commissioning of further ground magnetic and
equal to the unit price for a period of two years from the date of
gravity survey of selected aeromagnetic anomalies; (c) analyzing
issuance. During the year ended December 31, 2006 the
detailed proprietary aeromagnetic maps covering the target areas;
6
tsodilo resources limited
and (d) commencement of a reverse circulation drilling program on
adequate funding will be available, or available under terms
selected targets. Exploration expenditure incurred on the Gcwihaba
favorable to the Company, for these purposes when ultimately
project for the year ended December 31, 2006 was $51,108
required. The exploration and development of mineral deposits
compared to $43,472 for the period ended December 31, 2005.
involve significant financial risks over an extended period of time.
The principal component of the Gcwihaba exploration program was
Even a combination of careful evaluation, experience and
commencement of a reverse circulation drilling program on
knowledge may not eliminate these risks. While discovery of a
selected targets
PERSONNEL
diamond deposit may result in substantial rewards, few exploration
properties ultimately become producing mines.
At December 31, 2006 the Company and its subsidiaries
Off-Balance Sheet Arrangements
employed eighteen (18) individuals as compared to six at
The Company has not entered into any off-balance sheet financing
December 31, 2005, including senior officers, administrative and
arrangements.
operations personnel including those on short-term contract bases.
Exploration Risks
FOURTH QUARTER – 2006
The Company’s operations are subject to all the hazards and risks
The fourth quarter was a normal operating period for a quarter and
normally incident to the exploration, development and mining of
year end. Having acquired drilling equipment during the year, the
diamond deposits, any of which could result in damage to life or
Company was able to continue its drilling program to the end of the
property, environmental damage and possible legal liability for any
year. Operating expenses were at normal levels for the last quarter
or all damage. Whether a diamond deposit will ultimately be
of the year.
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 accurate determination of the
content and quality of the diamonds. Early stages of kimberlite
evaluation provide an initial qualitative assessment rather than an
accurate indication 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
necessary to make an accurate determination of these parameters.
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; financing costs and the prevailing prices for
diamonds. Also of key importance are government regulations,
including those relating 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 combination 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 diamond exploration,
and to optimize its use of financial and management resources.
At any stage in the process, the results may indicate that the
Currency Risks
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 exploration and
eventual successful development of a diamond mine would require
significant additional financing. There can be no assurance that
The Company’s financing has generally been received in United
States dollars while significant portions of its operating expenses
has been and will be incurred in Botswana Pula. On May 29,
2005, the Botswana Minister of Finance and Development
Planning announced a 12% devaluation of the pula against a
basket of currencies, as well as a change in the system of
7
tsodilo resources limited
exchange-rate adjustments to a crawling peg rather than the
reporting and display of comprehensive income. It does not
discrete steps previously used, in order to improve Botswana’s
address issues of recognition or measurement for comprehensive
competitiveness. This action has stabilized the current pula /
income and its components. The Company is assessing the impact
dollar rates similar to those in 2002.
of the adoption of Section 1506 on the consolidated financial
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
personal insurance on these individuals.
ACCOUNTING STANDARDS
Tsodilo follows Canadian generally accepted accounting principles.
The Company has adopted the policy of deferring property specific
acquisition and exploration costs. Deferred costs relating to
properties that are relinquished, or where continued exploration is
deemed inappropriate, are written off in the year such assessment
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 including Initial
Adoption
There were no changes in accounting policies for the fiscal year
ended December 31, 2006. The following accounting policies
impact 2007.
statements of the Company.
Effective January 1, 2007, the Company will be required to adopt
CICA Handbook Section 3051 which replaces Section 3050. This
Section establishes standards for accounting for investments
subject to significant influence and for measuring and disclosing
certain other non-financial instrument investments. The adoption
of Section 3051 is not expected to have a material impact on the
consolidated financial statements of the Company.
Effective January 1, 2007 the Company will be required to adopt
CICA Handbook Section 3251 which replaces Section 3250. This
Section establishes standards for the presentation of equity and
changes in equity during the reporting period. The adoption of
Section 3251 is not expected to have a material impact on the
consolidated financial statements of the Company.
Effective January 1, 2007, the Company will be required to adopt
the changes to CICA Handbook Section 3855 and to adopt Section
3861 which replaces Section 3250. Section 3855 establishes
standards for recognizing and measuring financial assets, financial
liabilities and non-financial derivatives. Section 3861 establishes
standards for presentation of financial instruments and non-
Effective January 1, 2007, the Company will be required to adopt
financial derivatives, and identifies the information that should be
the Canadian Institute of Chartered Accountants ("CICA")
disclosed about them. The Company is assessing the impact of the
Handbook Section 1506. This Section establishes criteria for
adoption of Sections 3855 and 3861 on the consolidated financial
changing accounting policies, together with treatment and
statements of the Company.
disclosure of changes in accounting policies and estimates and
correction of errors. The Company is assessing the impact of the
adoption of Section 1506 on the consolidated financial
statements of the Company.
Effective January 1, 2007, the Company will be required to
adopt the changes to CICA Handbook Section 3865. This
Section establishes standards for when and how hedge
accounting may be applied. The adoption of Section 3865 is not
Effective January 1, 2007, the Company will be required to adopt
expected to have a material impact on the consolidated financial
the Canadian Institute of Chartered Accountants ("CICA")
statements of the Company.
Handbook Section 1530. This Section establishes standards for
8
tsodilo resources limited
Over the next five years the CICA will adopt its new strategic plan
FORWARD-LOOKING STATEMENTS
for the direction of accounting standards in Canada which was
The Annual Report, including this MD&A, contains certain
ratified in January 2006. As part of that plan, accounting
forward-looking statements related to, among other things,
standards in Canada for public companies will converge with
expected future events and the financial and operating results of
International Financial Report Standards (IFRS) over the next five
the Company. Forward-looking statements are subject to inherent
years. The Company continues to monitor and assess the impact
risks and uncertainties including, but not limited to, market and
of the planned convergence of Canadian GAAP with IFRS.
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.
L. Kirk Boyd
Chief Financial Officer
March 22, 2007
DISCLOSURE CONTROLS
The Company’s Chief Executive Officer and Chief Financial
Officer are responsible for establishing and maintaining the
Company’s disclosure controls and procedures. The Chief
Executive Officer and the Chief Financial Officer, after evaluating
the effectiveness of the Company's disclosure controls and
procedures as at December 31, 2006, have concluded that the
Company’s disclosure controls and procedures were adequate and
effective to ensure that material information relating to the
Company would have been known to them.
RELATED PARTY TRANSACTIONS
During the year ended December 31, 2006, the Company
borrowed $100,000 on an interim basis from a person who is an
officer and director of the Company. The loan had no interest rate,
no maturity date, and no terms of repayment. The loan was repaid
during the year. The Company did not enter into transactions with
related parties during the year ended December 31, 2005.
OUTLOOK
Diamond exploration remains a high-risk undertaking requiring
patience and persistence. Despite difficult capital markets in
the junior resource sector, the Company remains committed to
international diamond exploration through carefully managed
programs.
ADDITIONAL INFORMATION
Additional information relating to Tsodilo Resources Limited is
available on its website www.TsodiloResources.com or through
SEDAR at www.sedar.com.
9
9
tsodilo resources limited
tsodilo resources limited
Financial Reporting Responsibility of Management
The annual report and consolidated financial statements have
financial reporting and internal control. The Audit Committee is
been prepared by management. The consolidated financial
composed of three directors, all of whom qualify as unrelated
statements have been prepared in accordance with Canadian
directors and are independent of management and free from any
generally accepted accounting principles and include amounts
interest or business relationship which could, or could be
that are based on informed judgments and best estimates. The
perceived to, materially interfere with their ability to act in the
financial information presented in this annual report is consis-
best interests of the Company. This committee meets periodical-
tent with the consolidated financial statements. Management
ly with management and the external auditors to review
acknowledges responsibility for the fairness, integrity and
accounting, auditing, internal control and financial reporting
objectivity of all information contained in the annual report
matters. The Audit Committee reviews the annual financial
including the consolidated financial statements. Management is
statements before they are presented to the Board of Directors
also responsible for the maintenance of financial and operating
for approval and considers the independence of the auditors.
systems, which 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.
The Board of Directors, through its Audit Committee, is respon-
sible for ensuring that management fulfills its responsibilities for
The financial statements for the period ended December 31,
2006 have been audited by KPMG Inc., the external auditors, in
accordance with Canadian generally accepted auditing standards
on behalf of the shareholders. Their report follows hereafter.
James M. Bruchs
President and Chief Executive Officer
March 22, 2007
L. Kirk Boyd
Chief Financial Officer
March 22, 2007
10
tsodilo resources limited
Auditors’ Report to the Shareholders of Tsodilo Resources Limited
We have audited the consolidated balance sheets of Tsodilo
includes examining, on a test basis, evidence supporting the amounts
Resources Limited as at December 31, 2006 and the consolidated
and disclosures in the financial statements. An audit also includes
statements of operations, deficit and cash flows for each of the years
assessing the accounting principles used and significant estimates
in the two-year period ended December 31, 2006. These financial
made by management, as well as evaluating the overall financial
statements are the responsibility of the Company’s management. Our
statement presentation.
responsibility is to express an opinion on these financial statements
based on our audits.
In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at
We conducted our audits in accordance with Canadian generally
December 31, 2006 and the results of its operations and its cash
accepted auditing standards. Those standards require that we plan
flows for each of the years in the two-year period ended December 31,
and perform an audit to obtain reasonable assurance whether the
2006 in accordance with Canadian generally accepted accounting
financial statements are free of material misstatement. An audit
principles.
KPMG Inc.
Registered accountants and auditors
Bloemfontein, South Africa
March 22, 2007
11
tsodilo resources limited
Tsodilo Resources Limited
Consolidated Balance Sheets
As at December 31, 2006 and 2005
(in United States dollars – note 2)
ASSETS
Current
Cash and equivalents
Amounts receivable and prepaid expenses
Exploration Properties (note 3)
Property, Plant and Equipment (note 4)
LIABILITIES
Current
Accounts payable and accrued liabilities
NON-CONTROLLING INTEREST (note 3)
SHAREHOLDERS' EQUITY
Share Capital (note 5)
Warrants (note 5)
Contributed Surplus (note 5)
Cumulative Translation
Deficit
Going Concern (note 1)
Subsequent events (note 5)
Commitments (note 11)
2006
2005
201,177
53,055
254,232
2,424,118
794,343
3,472,693
40,530
245,491
27,024,564
1,018,683
6,336,204
(837,425)
(30,355,354)
3,186,672
3,472,693
289,810
28,055
317,865
1,679,616
34,945
2,032,426
21,324
280,642
26,218,172
140,112
6,023,823
(837,425)
(29,814,222)
1,730,460
2,032,426
APPROVED ON BEHALF OF THE BOARD OF DIRECTORS
James M. Bruchs
Director
Patrick C. McGinley
Director
The accompanying notes are an integral part of these consolidated financial statements.
12
tsodilo resources limited
Tsodilo Resources Limited
Consolidated Statements of Operations
For the years ended December 31, 2006 and 2005
(in United States dollars – note 2)
EXPENSES
Consulting fees
Corporate remuneration
Corporate travel and subsistence
Investor relations
Legal and audit
Office and administration
Amortization
Foreign exchange (gain)/loss
Stock-based compensation (note 5)
Loss before non-controlling interest
Non-controlling interest
Loss for the period
Basic and diluted loss per share - cents (note 7)
Consolidated Statements of Deficit
For the years ended December 31
(in United States dollars – note 2)
Deficit – Beginning of period
Loss for the year
Deficit - End of year
2006
2005
-
124,254
36,089
74,437
37,392
67,305
5,092
(60,876)
257,439
541,132
(541,132)
-
(541,132)
($0.04)
17,939
99,844
5,029
35,374
56,799
40,836
1,688
50,546
162,756
470,811
(470,811)
–
(470,811)
($0.04)
2006
2005
(29,814,222)
(541,132)
(30,355,354)
(29,343,411)
(470,811)
(29,814,222)
The accompanying notes are an integral part of these consolidated financial statements.
13
tsodilo resources limited
Tsodilo Resources Limited
Consolidated Statements of Cash Flows
For the years ended December 31, 2006 and 2005
(in United States dollars – note 2)
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Loss for the year
Adjustments for non-cash items:
Amortization
Stock-based compensation (note 5)
Net change in non-cash working capital balances
INVESTING ACTIVITIES
Exploration properties
Additions to Property, Plant and Equipment
FINANCING ACTIVITIES
Issue of common shares
Contribution from non-controlling interest
Change in cash and equivalents - For the period
Cash and equivalents - Beginning of period
Cash and equivalents - End of period
2006
2005
(541,132)
(470,811)
5,092
257,439
(278,601)
(5,794)
(284,395)
(617,723)
(891,271)
(1,508,994)
1,739,905
(35,151)
1,704,756
(88,633)
289,810
201,177
1,688
162,756
(306,367)
34,557
(340,924)
(273,924)
(7,325)
(281,249)
230,544
43,634
274,178
(347,995)
637,805
289,810
The accompanying notes are an integral part of these consolidated financial statements.
14
tsodilo resources limited
Tsodilo Resources Limited
Notes to the Consolidated Financial Statements
For the years ended December 31, 2006 and 2005
1. NATURE OF OPERATIONS AND GOING CONCERN
Tsodilo Resources Limited (“Tsodilo” or the “Company”) is an international diamond exploration company engaged in the process
of exploring its mineral properties in northwest Botswana. The Company has not yet determined whether these properties contain
reserves that can be economically mined. As an exploration stage company, the recoverability of amounts shown for exploration
expenditures is dependent upon the discovery of reserves that can be economically mined, the securing and maintenance of the
interests in the properties, the ability of the Company to obtain the necessary financing to complete the development, and future
production or proceeds from the disposition thereof. The Company is also actively reviewing additional opportunities within Africa.
As at December 31, 2006, the Company reported an accumulated deficit of $30,355,354 (2005: $29,814,222) and cash
outflows from operations $284,395 (2005: $340,924) for the period then ended. The cash position of the Company is insufficient
to finance continued exploration. The continuity of the Company’s operations is dependent on Tsodilo raising future financing for
working capital, the continued exploration and development of its properties, and for acquisition and development costs of new
project opportunities. There can be no assurance that adequate financing will be available, or available under terms favorable to the
Company. These financial statements have been prepared on a going concern basis that assumes the continuity of operations and
realization of assets and settlement of liabilities in the normal course of business. Should it be determined that the Company is no
longer a going concern, adjustments, which could be significant, would be required to the carrying value of assets.
Tsodilo expects to raise amounts to fund continued exploration by way of negotiated non-brokered private placements (refer note 5).
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation and preparation of the consolidated financial statements
The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles
(“GAAP”) and include the accounts of the Company and its direct and indirect subsidiaries. All inter-company transactions and
balances have been eliminated.
Group Companies: December 31, 2006 and 2005
Tsodilo Resources Bermuda Limited
Gcwihaba Resources (Proprietary) Ltd (Botswana) (“Gcwihaba”)
2006
100%
100%
2005
100%
100%
Newdico (Proprietary) Limited (Botswana) (“Newdico”)
90% (note 3)
81% (note 3)
Earnings per share
Basic Earnings-Per-Share (EPS) is computed as net income (loss) applicable to common stockholders’ divided by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from
common shares issued through stock options, warrants and other convertible securities when the effect would be dilutive.
15
tsodilo resources limited
Use of estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements. The most significant estimates are related to the recoverability of exploration
expenditures, fixed assets and contingencies. Actual results could differ from those estimates.
Exploration properties
All costs relating to the acquisition, exploration and development of non-producing mining properties are capitalized as incurred.
The amounts capitalized represent costs to be charged to operations in the future and do not necessarily reflect the present or
future values of the particular properties.
If a property proceeds to development, these costs become part of preproduction and development costs of the mine and will be
amortized over the expected life of the mine. If a property is abandoned, sold or continued exploration is not deemed appropriate
in the foreseeable future or when other events and circumstances indicate that the carrying amount may not be recovered, the
related costs and expenditures are written down to the net recoverable amount at the time the determination is made. Proceeds
from the sale of exploration properties are credited to the costs of the relevant property.
Exploration costs that do not relate to specific non-producing mining properties are expensed as incurred.
Property, Plant and Equipment
Property, plant and equipment are amortized principally on a straight-line basis over their estimated useful lives of three to ten
years. Property, plant and equipment awaiting installation on site are not amortized until they are commissioned. Property, plant
and equipment are reviewed for impairment and if deemed impaired, an impairment loss is measured and recorded based on the
net recoverable value of the asset.
Foreign currency translation
The Company’s functional and reporting currency is the US dollar. The Company’s subsidiaries are accounted for as integrated
foreign operations. Transactions of the Company and its subsidiaries originating in foreign currencies are translated at the rates
in effect at the time of the transaction. Monetary items are denominated in foreign currencies which are translated to US dollar
at exchange rates in effect at the balance sheet dates and non-monetary items are translated at rates of exchange in effect when
the assets were acquired or obligations incurred. Revenue and expense items are translated at the average rate prevailing during
the year except for depreciation, depletion, amortization and write-downs, which are translated at the same exchange rates as the
assets to which they relate. Foreign exchange gains and losses are included in the statement of operations.
Cash and Equivalents
Cash and equivalents are comprised of cash, term deposits and money market instruments with investment grade credit ratings
and market maturity dates remaining of 90 days or less from the date of acquisition.
16
tsodilo resources limited
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. A valuation allowance is recorded against any future income to an asset if it is more
than likely than not that the asset will not be realized. Future income tax assets and liabilities are measured using tax rates in
effect for the period in which those temporary differences are expected to be recovered or settled. The effect on future income
tax assets and liabilities of a change in tax rates or laws is recognized as part of the provision for income taxes in the period the
changes are considered substantively enacted.
Stock-Based Compensation Plans
Tsodilo has a Stock Option Plan (refer to note 5). Under the Stock Option Plan, the Company may grant options to directors,
officers and employees for up to 1,789,750 shares of common stock. The exercise price is determined by the Chairman of the
Compensation Committee and the President and CEO in consultation with the board of directors, but is not less than the market
price of the Company’s stock on the date of the grant. An option’s maximum term is 5 years. The Company uses the fair value
method of accounting for stock options. Under the fair value method stock-based payments are measured at the fair value of the
equity investments and are amortized over the vesting period. Consideration paid on exercise of stock options is credited to
common share capital.
3. EXPLORATION PROPERTIES
These may be summarized as follows:
Balance at March 31, 2005
Apr. to Dec. 2005 expenditures
Balance at December 31, 2005
Jan. to Dec. 2006 expenditures
Balance at December 31, 2006
Newdico
Botswana
$
1,260,547
239,505
1,500,052
693,394
2,193,446
Gcwihaba
Botswana
$
136,092
43,472
179,564
51,108
230,672
Total
$
1,396,639
282,977
1,679,616
744,502
2,424,118
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tsodilo resources limited
A summary of the significant agreements entered into by the Company is as follows:
Newdico (Proprietary) Limited - Botswana
Newdico holds prospecting licenses in the Ngamiland District of northwest Botswana. The Company acquired the various
licenses in 1999, 2001 and 2003. In 2005, the Company was reissued its prospecting licenses for an initial term of three
years, and are renewable for 2 two year periods upon application and have a final expiry of 2012. The terms of the licenses also
require Newdico to spend a minimum of Botswana Pula 8.6 million (approximately $1.4 million) on prospecting over this period,
inclusive of the renewals.
Originally, Newdico was held 75% by Tsodilo and 25% by Trans Hex Group Limited (“THG”), with Tsodilo being the operator. THG
has funded or been attributed to its proportionate share of expenditure and these amounts have been reflected as non-controlling
interest of $245,491 (2005: $280,642) in the financial statements. During the year ended December 31, 2006, THG decided
not to fund its proportional share of expenditures on cash calls and therefore as of January 1, 2007, the Company’s interest in
Newdico had effectively increased from 75% to 90% (2005: 81%) in accordance with the exploration agreement between the
two parties.
Trans Hex Group has also advanced funds amounting to $205,591 (2005: $205,591) to Newdico, relating to exploration
properties which have been written off in earlier years. This liability has not been recorded in these financial statements as it
is repayable only from Trans Hex Group’s share of any future earnings of Newdico after repayment of loans relating to the
Newdico Project.
Some, or all, of the current licenses held by Newdico may be subject to the granting of a 2% free carried interest in any diamond
mine or mines that may result thereon.
Gcwihaba Resources (Proprietary) Limited – Botswana
Gcwihaba, a wholly owned subsidiary of the Company, holds prospecting licenses in the southern Ngamiland project area.
Diamond Exploration
The terms of the licenses grant Gcwihaba the right to prospect for a total of three years to 2006, and were renewed for 2 two year
period with a final expiry of 2010. The terms require Gcwihaba to spend a minimum of Botswana Pula 1.05 million (approximately
$0.17 million) on prospecting over the initial period of the licenses exclusive of the current renewals.
Base and Precious Metal Exploration
The terms of the licenses grant Gcwihaba the right to prospect for a total of three years to 2008, and are renewable for 2 two year
periods upon application and have a final expiry of 2012. The terms require Gcwihaba to spend a minimum of Botswana Pula
0.72 million (approximately $0.12 million) on prospecting over this period, exclusive of their current renewals.
18
tsodilo resources limited
4. PROPERTY, PLANT AND EQUIPMENT
December 31, 2005
Vehicles
Furniture and Equipment
December 31, 2006
Vehicles
Furniture and Equipment
Cost
40,473
32,595
73,068
887,855
76,484
964,339
Accumulated
amortization
21,555
16,568
38,123
132,387
37,609
169,996
Book value
18,918
16,027
34,945
755,468
38,875
794,343
An amount of $126,781 of the accumulated depreciation has been capitalized under exploration properties.
5. SHARE CAPITAL
Common Shares
Authorized
The authorized capital stock of the Company comprises an unlimited number of common shares.
Issued and outstanding
Details of the issued and outstanding common shares are as follows:
Issued and outstanding at March 31, 2005
10,481,626
25,909,032
On exercise of warrants (including $78,596 reallocated from warrants) (b)
563,419
309,140
Issued and outstanding at December 31, 2005
11,045,045
26,218,172
Shares
(number)
Amount
$
On private placement for cash (i)
On private placement for cash (ii)
On private placement for cash (iii)
On private placement for cash (iv)
On private placement for cash (v)
Ascribed to warrants issued (b)
468,776
319,108
649,984
161,586
791,339
499,990
248,828
405,441
100,000
485,648
-
(933,515)
Issued and outstanding at December 31, 2006
13,435,838
27,024,564
19
tsodilo resources limited
(i) Private Placement
In January 2006, the Company issued, through a non-brokered private placement, 468,776 units of the Company at a price of
$1.07 (C$1.25) per unit for gross proceeds to the Company of $499,990. Each unit consists of one common share of the
Company and one warrant of the Company, each warrant entitling the holder to purchase one common share of the Company at
a price of $0.87 (C$1.00) for a period of two years. The common shares, warrants and warrant shares are subject to a hold period
of 12 months as agreed to by the parties, expiring on January 27, 2007.
(ii) Private Placement
In February 2006, the Company issued, through a non-brokered private placement, 319,108 units of the Company at a price of
$0.78 (C$0.90) per unit for gross proceeds to the Company of $248,828. Each unit consists of one common share of the
Company and one warrant of the Company, each warrant entitling the holder to purchase one common share of the Company at
a price of $0.87 (C$1.00) for a period of two years. The common shares, warrants and warrant shares are subject to a statutory
hold period under securities laws of 4 months, expiring on June 21, 2006.
(iii) Private Placement
In May 2006, the Company issued, through a non-brokered private placement 649,984 units of the Company at a price of $0.63
(C$0.70) per unit for gross proceeds to the Company of $405,441. 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
$0.62 (C$0.70) for a period of two years. The common shares, warrants and warrant shares are subject to a negotiated hold period
of 12 months, expiring on May 9, 2007.
(iv) Private Placement
In July 2006, the Company issued, through a non-brokered private placement 161,586 units of the Company at a price of $0.62
(C$0.70) per unit for gross proceeds to the Company of $100,000. 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
$0.62 (C$0.70) for a period of two years. The common shares, warrants and warrant shares are subject to a negotiated hold period
of 12 months, expiring on July 28, 2007.
(v) Private Placement
In September 2006, the Company issued, through a non-brokered private placement 791,339 units of the Company at a price
of $0.63 (C$0.70) per unit for gross proceeds to the Company of $485,648. 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 $0.63 (C$0.70) for a period of two years. The Company has negotiated finder’s fees of $13,875,
payable in accordance with the policies of the TSX Venture Exchange with respect to 500,000 units of the placement. The
common shares, warrants and warrant shares are subject to a statutory hold period under securities laws of 4 months, expiring
on January 27, 2007.
20
tsodilo resources limited
(vi) Private Placement
In February 2007, the Company issued, through a non-brokered private placement 141,516 units of the Company at a price of
$0.68 (C$0.80) per unit for gross proceeds to the Company of $95,853. 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 $0.68 (C$0.80) for a period of two years. The common shares, warrants and warrant shares are subject to a negotiated hold
period of 12 months, expiring on February 13, 2008.
(b) Warrants
As at December 31, 2006, the following warrants were outstanding:
Expiry
Number of Warrants
Exercise
Price
Opening
Issued/
(Exercised)
(Expired)
Closing
Opening
(dollars)
Value
Issued/
(Exercised)
(Expired)
Closing
(dollars)
June 1, 2006
C$0.75
65,024
(65,024)
October 14, 2006
C$1.12
56,969
(56,969)
November 8, 2006
C$2.35
26,668
(26,668)
-
-
-
14,164
(14,164)
20,156
(20,156)
20,622
(20,622)
-
-
-
March 4, 2007
C$1.15
230,785
-
230,785
85,170
-
85,170
January 27, 2008
February 21, 2008
May 4, 2008
July 19, 2008
September 21, 2008
C$1.00
C$1.00
C$0.70
C$0.70
C$0.70
-
-
-
-
-
468,776
468,776
319,108
319,108
649,984
649,984
161,586
161,586
791,339
791,339
-
-
-
-
-
146,788
146,788
109,988
109,988
167,886
167,886
49,643
49,643
459,208
459,208
379,446 2,242,132
2,621,578
140,112
878,571 1,018,683
During the year 2,390,853 warrants issued and a value of $933,813 was attributed as at December 31, 2006 (2005: none
issued). During the year ended December 31, 2006 warrants were valued using the Black-Scholes model, using key assumptions
of volatility ranging from 69-89%, a risk-free interest rate of 4.5%, a term equivalent to the life of the warrant, and reinvestment
of all dividends in the Company.
(c) Contributed Surplus
As at March 31, 2005
Relating to expiry of warrants
Relating to issue of stock options
As at December 31, 2005
Relating to the expiry of warrants
Relating to issue of stock options
As at December 31, 2006
5,846,718
14,349
162,756
6,023,823
54,942
257,439
6,336,204
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(d) Stock Option Plan
Outstanding stock options granted to directors, officers and employees at December 31, 2006 and December 31, 2005 were
as follows:
Outstanding
Granted/
Outstanding
March
(Cancelled/
December
Expiry
Price
31, 2005
Exercised)
31, 2005
Granted
(Cancelled)
June 24, 2007
C$0.15
150,000
(50,000)
100,000
September 18, 2007 C$0.23
150,000
(50,000)
100,000
December 31, 2007
C$0.41
50,000
-
50,000
July 8, 2008
C$0.50
150,000
(50,000)
100,000
Outstanding
December
31, 2006
(i)
(i)
(ii)
(ii)
100,000
100,000
50,000
100,000
January 1, 2009
C$0.75
60,000
August 31, 2009
C$0.75
260,000
-
-
60,000
260,000
(10,000)
(ii)
50,000
(10,000)
(ii)
250,000
January 3, 2010
C$1.85
85,000
(50,000)
35,000
(25,000)
(ii)
10,000
August 19, 2010
C$1.25
January 3, 2011
C$1.25
April 27, 2011
C$0.70
August 18, 2011
C$0.70
November 1, 2011
C$1.00
-
-
-
-
-
280,000
280,000
(20,000)
(ii)
260,000
-
-
-
-
-
-
-
-
85,000
(25,000)
(ii)
60,000
300,000
65,000
50,000
(ii)
(ii)
(ii)
300,000
65,000
50,000
905,000
80,000
985,000
500,000
(90,000)
1,395,000
Options exercisable at end of year 696,250
680,000
Weighted average exercise price
- issued
- outstanding
- exercisable
C$0.55
C$0.60
C$0.46
All options have a term of five years.
C$0.67
C$0.83
C$0.65
873,375
C$0.76
C$0.80
C$0.79
(i) These common share purchase options vest as to one-half immediately and one-half on the six-month anniversary of the
date granted.
(ii) These common share purchase options vest as to one-quarter immediately and one-quarter on each of the six-month, 12-
month and 18-month anniversaries of the date granted.
(iii) The Company recognized an expense of $257,439 (2005: $162,756) relating to the fair value of options granted or vesting
during the year. The fair value of options granted was calculated using the Black-Scholes model, using key assumptions of
volatility of 88%, a risk-free interest rate of 4%, a term equivalent to the life of the option, and reinvestment of all dividends
in the Company. The Company will recognize expense of C$124,043 relating to options granted before December 31, 2006
but not yet vested.
On January 2, 2007, the Company issued 85,000 options under its Stock Option Plan to persons who were officers and employees
of the Company.
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6. INCOME TAXES
The recovery of income taxes varies from the amounts that would be computed by applying the Canadian federal and provincial
statutory rate of approximately 36.12% (Dec. 2005 – 36.12%) to income before taxes as follows:
Net loss for the period
Income tax (recovery) provision at Canadian statutory income tax rates
Current year losses not recognized
Permanent differences
Provision for (recovery of ) income taxes
December 31
December 31
2006
2005
(541,132)
(195,457)
106,030
89,427
(470,811)
(170,057)
111,263
58,794
-
-
The following summarizes the principal temporary differences and related future tax effect:
Property, Plant and Equipment
Exploration & Development - Canada
Exploration & Development - Botswana
Losses carried forward - Canada
Losses carried forward - Botswana
Other
Subtotal – future income tax asset
Valuation allowance
Net future income tax asset recorded
Dec 31
2006
14,000
93,000
Dec 31
2005
12,000
92,000
(890,617)
(606,000)
1,389,000
1,585,000
941,562
42,000
642,000
42,000
1,588,944
1,767,000
(1,588,944)
(1,767,000)
-
-
At December 31, 2006, the Company has Canadian net operating losses carried forward that expire as follows:
Loss
740,000
818,000
697,000
315,000
369,000
492,000
185,000
214,000
Year of Expiry
2007
2008
2009
2010
2011
2012
2012
2013
(1)
(1)
(1)
(1)
(1)
*(1)
*(2)
(2)
* 2005 was a transitional year for year end change from March 31 to December 31. (1) expires March 31 and (2) expires
December 31.
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tsodilo resources limited
Total assessable losses relating to the activity in Botswana as at December 31, 2006 was $3,337,768 (December 31, 2005:
$1,778,000) of which $2,606,760 (December 31, 2005: $1,680,000) have no expiry date.
7. LOSS PER SHARE
Loss per share is computed on the basis of the loss of $541,132 for the year ended December 31, 2006 (2005: $470,811) and
the weighted average number of common or equivalent shares outstanding during period, December 31, 2006: 12,473,977
(2005: 10,811,496). The effect of stock options and warrants in computing diluted per share amounts for December 31, 2006
and December 31, 2005 is anti-dilutive.
8. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2006, the Company borrowed $100,000 on an interim basis from a person who is an officer
and director of the Company. The loan had no interest rate, no maturity date, and no terms of repayment. The loan was repaid
during the year. The Company did not enter into transactions with related parties during the year ended December 31, 2005.
9. SEGMENTED INFORMATION
Substantially all working capital balances of the Company are situated at the head office in Canada and in Botswana. Materially
all of the Company’s property plant and equipment is presently located in Canada ($2,720) and Botswana ($791,623). The
geographic distribution of the property acquisition costs and exploration expenditures is outlined in note 3.
10. FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated balance sheets for cash and equivalents, accounts receivable and accounts
payable and accrued liabilities approximate their fair values due to the short maturities of these instruments.
11. COMMITMENTS
All operating leases that are for a period of no longer than one year are prepaid.
Minimum lease payments for leased storage space are as follows:
2008
2009
27,216
27,216
The lease commitment is for storage space in Botswana at an annual rental of BWP 158,888 per year for 2008 and 2009
converted at an exchange rate as of the date of the report to US dollar.
The Company holds prospecting licenses which require the Company to spend a specified minimum amount on prospecting over
the period of the terms as outlined in note 3.
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Corporate Information
DIRECTORS
OFFICERS
CORPORATE HEAD OFFICE
James M. Bruchs, B.Sc., J.D.
Canada Trust Tower - BCE Place
161 Bay Street, Box 508
Toronto, Ontario M5J 2S1
Telephone: (416) 572-2033
Facsimile: (416) 987-4369
Website: www.TsodiloResources.com
E-Mail:
info@TsodiloResources.com
AUDITORS
KPMG Inc.
Johannesburg, South Africa
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
James M. Bruchs
Gaborone, Botswana
President and
Appointed as director in 2002
Chief Executive Officer
Patrick C. McGinley
Washington, D.C.
Appointed as director in 2002
R. Stuart Angus
Vancouver, British Columbia
Appointed as director in 2004
John R. Redmond
Potomac, Maryland
Appointed as director in 2005
Appointed in 2002
L. Kirk Boyd, B. Com.
Chief Financial Officer
Appointed in 2005
Gail McGinley
Corporate Secretary
Appointed in 2005
Design: Macrae Design