Contents
President’s Message to Shareholders
Management’s Discussion and Analysis
of Financial Results
1
2
Financial Reporting Responsibility of Management 12
Auditors’ Report to the Shareholders
Consolidated Financial Statements / Notes
Corporate Information
13
14
IBC
Newidico and Gcwihaba Prospecting Diamond Licenses - as of March 21, 2008
President’s Message
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.
Fellow Shareholders,
On behalf of the board of directors, I am pleased to provide
this report of Tsodilo Resources Limited (“Tsodilo” or the
“Company”) progress together with the audited financials
for the year ended December 31, 2007.
2007 was the first full year for the operation of our Atlas
Copco CT14 diamond core drill rig, and our drilling
operations in the field proceeded efficiently and without
interruption. In total, six kilometers were drilled on our
kimberlite and base and precious metals targets and
a similar length of core was collected for analysis. The
decision to purchase a drill rig and supporting equipment
as well as geophysical instruments has produced the
expected results as we have the ability to select a target;
perform a detail ground geophysical survey; and drill test
it all in a matter of weeks as opposed to the months or
years which it previously took. 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. This
efficient use of our resources resulted in the confirmation
of fifteen additional kimberlites in the Company’s Nxau
Nxau kimberlite field in 2007 and provided a wealth of
information in furtherance of our base and precious
metals exploration projects.
During the past year, the Company funded exploration
activity by raising funds in the capital markets through the
successful issuance of stock by way of private placements.
This process will continue in the coming year. Our current
Drilling in the Kalahari
We are looking forward to an exciting year ahead as
we make progress in the exploration for an economic
kimberlite below the Kalahari cover on this section of the
Congo craton and continue the expansion of our base
and precious metals projects. Please follow our progress
carefully and remain informed by regular visits to our website,
www.TsodiloResources.com.
On behalf of the board,
share base consists of 14,960,241 issued and outstanding
James M. Bruchs
(19,827,553 on a fully diluted basis) common shares.
President and Chief Executive Officer
Tsodilo has a 93% interest in our Botswana Newdico
March 21, 2008
project and a 100% interest in our Botswana Gcwihaba
projects. The Company is well positioned to meet the
challenges in the upcoming year.
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Management’s Discussion and Analysis
This management’s discussion and analysis (“MD&A”)
of substantially all of the Company’s assets. The assets were
should be read in conjunction with the Consolidated
transferred in settlement on debt due of $612,783 and
Annual Financial Statements for the year ended December
owing to Trans Hex Group Limited (“Trans Hex Group”), the
31, 2007 and comments on the factors that affected the
principal shareholder and creditor of the Company prior
Company’s performance during the periods covered by the
to restructuring. The Company retained an interest in all
Consolidated Annual Financial Statements as well as the
future dividends that may be paid by either Northbank
Company’s financial condition and future prospects. The
Diamonds Limited, Hoanib Diamonds (Proprietary) Limited
Company’s functional and reporting currency is United
or Trans Hex (Zimbabwe) Limited. In addition, the Company
States dollars and all amounts stated are in United States
was released from the long-term loans due to Trans Hex
dollar unless otherwise noted. The Company changed its
Group by the subsidiaries being sold, of $3,341,690, and
financial year end from March 31 to December 31 effective
Trans Hex Group agreed to return the 10,688,137 common
December 31, 2005 and was made to align with the
shares in the capital of the Company, representing 73.22%
reporting schedule of comparable public companies. The
of the issued and outstanding shares of the Company at
period December 31, 2005 was the transitional period and
that time, to treasury for cancellation. The special meeting
has a nine month reporting period. This management’s
of shareholders also approved the discontinuance of the
discussion and analysis has been prepared as at March 21,
Company from the Province of Ontario and its continuance
2008.
OVERVIEW
under the Business Corporations Act (Yukon), the change
of name of the Company from Trans Hex International
Ltd. to Tsodilo Resources Limited, the election of new
Tsodilo Resources Limited (“Tsodilo” or the “Company”)
directors and the repeal of the existing stock option plan
was organized under the laws of the Province of Ontario
of the Company and adoption of a new stock option plan.
in 1996 and continued under the laws of the Yukon in
Following the restructuring of the Company, as approved
2002. The shares of the Company are listed and posted for
by shareholders in April 2002, Tsodilo has no long-term
trading on the TSX Venture Exchange under the symbol:
debt.
TSD. Tsodilo is an international diamond exploration
company with the majority
interest
in a kimberlite
Outstanding Share Data
exploration project in northwest Botswana. The Company
As of March 21, 2008, 14,960,241 common shares of the
has not yet determined whether these properties contain
Company were outstanding. Of the options to purchase
reserves that can be economically mined. As an exploration
common shares issued to eligible persons under the stock
stage company, the recoverability of amounts shown for
option plan of the Company, 1,940,000 options remain
exploration expenditures is dependent upon the discovery
outstanding of which 1,448,750 are exercisable at exercise
of reserves that can be economically mined, the securing
prices ranging from Canadian $0.50 - $1.85. If all options
and maintenance of the interests in the properties, the
were vested and exercised, 1,940,000 common shares of
ability of the Company to obtain the necessary financing
the Company would be issued.
to complete the development, and future production or
proceeds from the disposition thereof. The Company is
As of March 21, 2008, 2,927,312 warrants are outstanding.
also actively reviewing additional diamond and base and
The warrants were issued by way of the private placements
precious metal opportunities within southern Africa.
utilized by the Company for financing purposes. Each warrant
Corporate
entitles the holder thereof to purchase one common share
of the Company at purchase prices ranging from Canadian
At a special meeting of the holders of common shares of
$0.70 - $0.80 for a period of two years from the date of
the Company held on April 9, 2002 shareholders approved
issuance (6/01/2006 – 3/11/08). If converted, 2,927,312
a restructuring of the Company that incorporated the sale
common shares of the Company would be issued.
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Principal Shareholders of the Company
in the Company’s license blocks. Prior to the deposition
The largest shareholder of the Company is its President
of the superficial Kalahari sand that covers much of
and Chief Executive Officer, James M. Bruchs, who
Ngamiland, this area formed a topographic high. Rivers
currently owns, controls or directs 2,793,085 or 18.67% of
rising off this high ground flowed westward into a major
the issued and outstanding common shares as of March
inland sea located in the north of present-day Namibia.
21, 2008. John R. Redmond, a Director of the Company,
The Company’s diamond targets cover former headwaters
currently owns, controls or directs 2,434,024 or 16.27%
of this ancient river system and lie within the southern
of the issued and outstanding shares as of March 21,
margin of the Congo craton.
2008 and the Firebird Global Master Fund, Ltd. controls
1,875,630 or 12.54% of the issued and outstanding shares
as of March 21, 2008.
Subsidiaries
Base and Precious Metals Project
The results of a soil sampling program by the Government
of Botswana show a high nickel kick associated with the
dyke swarms surrounding several large intrusive bodies
The Company has a 93% operating interest in its Botswana
within our license blocks. Most nickel mineralization is
subsidiary, Newdico (Proprietary) Limited (“Newdico”),
associated with highly magnetic basic and ultrabasic
which holds prospecting
licenses and applications
rocks emplaced in orogenic belts and rifted plate margins
covering approximately 16,800 square kilometers
in
and ocean basins. Examples of sulphide nickel deposits
northwest Botswana on which there is encouragement
developed along extensive faults/suture zones include
for the existence of undiscovered kimberlites in at least
the Kambalda deposit in Western Australia; Hunters Road
three separate areas of the property. The Company’s
in Zimbabwe; the Noril’sk-Talnakh region in Siberia; and,
minority partner (7%) in this project, Trans Hex Group, is
Sudbury, Ontario. It is also important to note that the
an established South African diamond mining company.
Jurassic Insizwa complex in South Africa is part of the
Karoo Magmatic event with a setting similar to that of
The Company has a 100% interest in its wholly owned
the intrusion being investigated by Tsodilo. Regional
Botswana subsidiary, Gcwihaba Resources (Proprietary)
geological trends strongly suggest the continuation of the
Limited (“Gcwihaba”), which has diamond prospecting
economically viable Matchless Amphibolite Belt (MAB) in
licenses covering approximately 7,543 square kilometers
Namibia across northwest Botswana.
and base and precious metal licenses covering 5,348
square kilometers.
Exploration Activities
Diamond Projects
NEWDICO (Pty) Limited (“Newdico”)
Summary of work completed in 2007 and to date
◊ The 2007 drilling program confirmed 15 target anomalies
The Company’s Botswana licenses are proximal to two major
in the Nxau Nxau field as kimberlites.
unexplained surface concentrations of diamonds and G10
garnets across the border in Namibia, one near the village
◊ Over 4,000 kimberlite indicator minerals (“KIM”) from
of Tsumkwe and another in the area known as Omatako.
kimberlites A41, C15, A36, 1821C16, PD07, PD25, B1, B2,
The characteristics of these kimberlite pathfinder mineral
B3, B4, B5, B6, B7, B8 and B9 as well as those from A15
anomalies indicate that they are secondary concentrations
are undergoing electron microprobe analysis to establish
derived from respective primary high-grade kimberlite
their chemical composition.
sources located elsewhere. The geomorphological model
envisages that the Tsumkwe and Omatako pathfinder
◊ A detailed petrography study is ongoing on core samples
anomalies were formed by ancient rivers transporting
from these kimberlites for the purpose of determining
diamonds and garnets derived from kimberlites located
their diamond-carrying potential.
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◊ A complete study of the kimberlites in the Company’s
with the known secondary alluvial diamond discoveries
Nxau Nxau kimberlite field for the purposing of selecting
down slope across the border in Namibia establish the
kimberlites for macro diamond analysis is expected to be
greater Nxau Nxau field as highly prospective with the
completed in the 3rd quarter.
possibility of several economic kimberlites present within
◊ Kimberlite samples from those bodies listed above were
discovered and tested for diamond in the Nxau Nxau field
submitted to GEMOC (Macquarie University, Australia) for
are known to be diamondiferous.
our ground. To date, at least 18% of the kimberlites
U-Pb dating which established the age of the kimberlites
in the Nxau Nxau field as 83.2 ± 1.2 Ma.
◊ Geophysical ground surveys (magnetic) were conducted
over fifteen targets totaling 166 line kilometers
GCWIHABA Resources (Pty) Limited
(“Gcwihaba”)
Diamond Licenses
Planned Exploration Program for 2008
The program is based on our strategy of using a combination
of indicator mineral sampling, magnetic and gravity data
Summary of work completed in 2007 and to date
◊ Four target anomalies were drill tested in late 2007 and
core samples have been submitted for petrography and
to generate individual targets for drill evaluation and
our regional strategy of evaluating possible transport
KIM recovery.
corridors giving rise to the alluvial secondary kimberlite
indicator minerals (“KIM”) and diamond deposits at
Tsumkwe and Omatako. Our program for 2008 will include
the following:
◊ Drill testing of approximately twenty-five (25) magnetic
target anomalies to the east / northeast of the Nxau Nxau
kimberlite field.
◊ Geophysical ground surveys (magnetic) were conducted
over ten targets totaling 80 line kilometers.
◊ Five Prospecting License (“PL”) Nos. 046 / 2007 – No.
050 / 2007 encompassing 3,325 square kilometers were
granted to the Company in 2008.
Planned Exploration Program for 2008
◊ Drill testing of priority 1 and 2 target anomalies will take
◊ A ground magnetic geophysical survey covering
place in the 3rd quarter of 2008.
approximately 400 square kilometers has commenced
and will be completed in the 2nd quarter.
Base and Precious Metals Licenses
◊ Our study of the linkages between magnetotellurics,
Summary of work completed in 2007 and to date
other geophysical variables and kimberlite occurrences
◊ Two exploratory holes were completed on targets BM1
and it's applicability to our license areas in northwest
and BM during the year and core samples from both these
Botswana will continue in 2008. Work to date shows that
holes have been submitted for analysis.
there is a correlation of certain values for diamondiferous
◊ Two exploratory holes were commenced over target
kimberlites as shown by the Resistivity and Temperature
anomaly (JB) in the 4th quarter at the end of the year
maps at a 200 kilometer depth in relation to high resistivity
but were abandoned due to technical difficulties and
value areas and low temperature. This will assist us in
the onslaught of early rains. Geophysical modeling of
prioritizing our drill target selection.
the intrusive is still being performed and it is expect
that drilling will recommence over this target in the 2nd
The
favorable chemistry and diamond preservation
quarter of 2008.
potential of the kimberlites in our license blocks together
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tsodilo resources limited
◊ Geophysical ground surveys (magnetic) were conducted
over five targets totaling 770 line kilometers.
Newdico
3,780,000 BWP
Gcwihaba - Diamond
885,000 BWP
Gcwihaba - Base and
720,000 BWP
$587,703
$137,597
$111,943
◊ Two Prospecting License (“PL”) No. 051 / 2007 and No.
Precious Metals
052 / 2007 encompassing 1,570 square kilometers were
granted to the Company in 2008.
To date, the Company has exceeded these requirements in
both the Newdico and Gcwihaba projects.
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 rate risk.
Operating Activities
Cash outflow used in operating activities decreased from
$292,016 in fiscal December 31, 2006 to $254,392 for
the year ended December 31, 2007. This decrease is due
to management’s decision to lower expenses pending
completion of research and analysis with respect to the
prioritization of drill targets.
◊ An examination of geochemical and geophysical
variations in the Ngamiland area and the application of
these observations to constrain areas of possible economic
interest on a regional scale was undertaken. Amongst the
data types compared are: aeromagnetics, geology, soil
geochemistry (Pb, Zn, Cu, Ag, Ni, Cr and Mg), degree of
exposure and detailed geophysics data interpretations.
Planned Exploration Program for 2008
◊ Geophysical modeling of the JB intrusive is still being
performed and it is expected that drilling will recommence
over this target in the 3rd quarter of 2008.
◊ Exploratory drilling of suspected base metals deposits
to determine their nature, composition and size will
continue.
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2007, the Company had negative
net working capital of ($207,155) (2006: $152,871, which
included cash and equivalents $53,197 (2006: $201,177).
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 has completed a private placement for
an additional $325,000 in March 2008, see discussion
in Financing Activities below. 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. On licenses
current as of December 31, 2007, the expenditure
requirements exclusive of license fees are:
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ANNUAL INFORMATION
(in US Dollars)
Restated
Fiscal
Year
Dec. 31
2006
Restated
Nine
Months
Ended
Dec. 31
2005
Fiscal Year
Mar. 31
2005
Fiscal Year
Dec. 31
2007
Total Revenues
--
--
--
--
Loss before Non-controlling Interest
(504,075)
(554,547)
(423,395)
(620,822)
Basic and diluted loss per share
($0.04)
($0.04)
($0.04)
($0.07)
Non-controlling Interest
Net Loss for the Year
--
--
--
--
(504,075)
(554,547)
(423,395)
(620,822)
Basic and diluted loss per share
($0.04)
($0.04)
($0.04)
($0.07)
Total Assets
Total long term liabilities
Cash dividends declared
4,050,815
3,472,693
2,032,426
2,087,421
228,395
245,491
280,642
237,008
--
--
--
--
QUARTERLY INFORMATION (in US Dollars)
Fiscal Period 2005* (ended December 31, 2005)
Total Revenues
Loss for the period
Basic and diluted loss per share
Total Assets
Total long term liabilities
* 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
Total Assets
Total long term liabilities
Fiscal Year 2007 (ended December 31, 2007)
Total Revenues
Loss for the period
Basic and diluted loss per share
Total Assets
Total long term liabilities
Quarter 1
Quarter 2
Quarter 3
Quarter 4*
--
(83,068)
($0.01)
--
--
(190,070)
(150,257)
($0.02)
($0.02)
2,171,006
2,166,670
2,032,426
294,236
294,236
280,642
--
--
(156,252)
(234,194)
($0.01)
($0.02)
--
(89,720)
($0.01)
--
(74,381)
($0.00)
2,689,555
2,891,225
3,278,118
3,472,693
289,490
235,769
219,441
245,491
--
(97,193)
($0.01)
3,491,244
225,763
--
(239,086)
($0.02)
--
(42,114)
($0.00)
3,779,683
3,904,928
225,236
229,607
--
(125,682)
($0.01)
4,050,815
228,395
See accompanying notes to the consolidate financial statements
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tsodilol resources limited
Tnvesting Activities
and warrant shares are subject to a hold period of 12 months,
Cash flow applied in investing activities decreased to $748,789
as agreed to by the parties, expiring on March 11, 2009.
for the year ended December 31, 2007 (2006: $1,508,994).
Tsodilo expects to raise the amounts required to fund its 93%
Total expenditures of $914,757 on exploration properties for
share of the Newdico project, the Gcwihaba projects and
the period ended December 31, 2007 were attributable to
corporate general and administration expenses, by way of non-
the Newdico and Gcwihaba projects in northwest Botswana.
brokered private placements.
Included in this amount is the proportionate contributory
share, ranging from 9.67% to 7.96%, attributed to the Trans
Hex Group for the Newdico project. There were no material
disposals of capital assets or investments during the year.
RESULTS OF OPERATIONS
On a consolidated basis Tsodilo recorded a net loss of $504,075
in the fiscal year ended December 31, 2007 ($0.04 cents per
common share) compared to a net loss of $554,547 in the fiscal
In December 2007, the board of directors of Newdico approved
period ended December 31, 2006 ($0.04 cents per common
an exploration program and budget for the period January
share). The Company experienced decreases in travel, investor
1, to December 31, 2008 that calls for expenditures totaling
relations and office and admin expenses reflecting general
approximately Pula 7.76 million (approximately $1.2 million as
corporate activity. The increase in stock option expense reflects
of March 21, 2008). Trans Hex Group is presently responsible
the timing of option grants.
for funding 7% of the expenses of this company. The approved
exploration program includes provision for additional drilling,
soil sampling, ground geophysical surveys, processing and
analysis.
Financing Activities
Exploration expenditures on all projects amounted to $914,757
during the year ended December 31, 2007 compared to
$744,502 for the year ended December 31, 2006. Exploration
expenditures
incurred on the Newdico project for the
year ended December 31, 2007 was $908,321 compared
Following the restructuring of Tsodilo in April 2002 and the
to $693,394 for the year ended December 31, 2006. The
cancellation of the shares formerly held by Trans Hex, the
principal components of the Newdico exploration program
source of financing for the Company’s activities changed from
were: (a) additional soil sampling and the completion of the
debt (related party) finance to equity, through the issue of
processing and analysis of the soil samples; (b) commissioning
units by way of non-brokered private placements. Each unit
of further ground magnetic surveys of selected aeromagnetic
has consisted of one common share of the Company and one
anomalies; (c) analyzing detailed propri¬etary aeromagnetic
or one-half a warrant', with each full such warrant entitling the
maps covering the target areas; and (d) commencement of a
holder to purchase one common share of the Company for a
diamond core drilling program on selected targets. Exploration
purchase price equal to the unit price for a period of two years
expenditures incurred on the Gcwihaba project for the year
from the date of issuance.
ended December 31, 2007 were $6,436 compared to $51,108
During the year ended December 31, 2007 the Company
for the year ended December 31, 2006.
received proceeds in the amount of $615,858 from the issuance
PERSONNEL
of units consisting of one common share and one warrant
At December 31, 2007 the Company and its subsidiaries
related to private placements. Additional proceeds in the
employed twenty (20) individuals as compared to eighteen (18)
amount of $44,393 were received from the issuance of common
at December 31, 2006, including senior officers, administrative
shares upon the exercise of options during fiscal year 2007.
and operations personnel including those on a short-term
Subsequent to the fiscal period end, the Company issued,
service basis.
through a non-brokered private placement 457,901 units at a
FOURTH QUARTER – 2007
price of $0.71 (C$0.70) per unit for gross proceeds of $325,000.
The fourth quarter was a normal operating period for a quarter
Each unit consists of one common share of the Company and
and year end. Having acquired drilling equipment during the
one warrant of the Company, each warrant entitling the holder
previous year, the Company was able to continue its drilling
to purchase one common share of the Company at a price of
program to the end of the year without interruption. Operating
C$0.70 for a period of two years. The common shares, warrants
expenses were at normal levels for the last quarter of the year.
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RISKS AND UNCERTAINTIES
its proximity to existing infrastructure; financing costs and the
Tsodilo’s primary objective is the discovery of an economic
prevailing prices for diamonds. Also of key importance are
kimberlite diamond deposit capable of rapid advancement
government regulations, including those relating to prices,
to feasibility stage and ultimate development as a producing
taxes, royalties, land tenure, land use, the importing and
property. The discovery of a kimberlite is only the first step in
exporting of diamonds and production plant and equipment,
the exploration process. Subsequent evaluation begins with
and environmental protection. The effects of these factors
caustic fusion diamond analysis of the kimberlite and, if results
cannot be accurately predicted, but any combination of
warrant, continues through progressively larger mini-bulk
them may impede the development of a deposit or render it
and bulk samples in order to make an increasingly accurate
uneconomic.
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. 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 exploration
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 eliminate these risks. While discovery
of a diamond deposit may result in substantial rewards, few
exploration properties ultimately become producing mines.
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.
Currency Risks
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 exchange-rate adjustments to a crawling peg rather
than the discrete steps previously used, in order to improve
Botswana’s competitiveness. This action has stabilized the
current pula / dollar rates similar to those in 2002.
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.
Off-Balance Sheet Arrangements
The Company has not entered into any off-balance sheet
ACCOUNTING STANDARDS
financing arrangements.
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 possible
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;
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 (no such write-offs
were incurred in 2006 and 2007). 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.
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tsodilo resources limited
The Company evaluates its license properties on a project
Financial Instruments – Disclosures, Section 3862
basis as opposed to treating each individual license block as a
Section 3862 Financial Instruments – Disclosures, requires
separate project.
ADOPTION OF NEW ACCOUNTING STANDARDS
AND ACCOUNTING DEVELOPMENTS
Financial instruments
additional disclosures to enable users to evaluate the
significance of financial instruments to our financial position
and performance. In addition, qualitative and quantitative
disclosures are provided to enable users to evaluate the nature
and extent of risks arising from financial instruments.
Effective January 1, 2007, we adopted the new financial
Financial Instruments – Presentations, Section 3863
instruments accounting standards and related amendments
CICA 3863 carries forward, without change, the presentation
to other standards on financial instruments issued by the CICA.
related requirements of CICA 3861. The requirements of this
In accordance with the transitional provisions, prior period
Section address an issuer’s classification of financial instruments
financial statements have not been restated.
Financial Instruments–Recognition and Measurement,
Section 3855
between liabilities and equity, the classification of related
interest, dividends, losses and gains, as well as the offsetting of
financial assets and financial liabilities.
This standard prescribes when a financial asset, financial
Capital Disclosures – Section 1535
liability, or nonfinancial derivative is to be recognized on
Section 1535 Capital Disclosures, requires disclosure of
the balance sheet and whether fair value or cost-based
qualitative and quantitative information that enables users
methods are used to measure the recorded amounts. It
to evaluate our objectives, policies and process for managing
also specifies how financial instrument gains and losses
capital.
are to be presented.
Hedges, Section 3865
Inventories – Section 3031
In June 2007, the CICA issued Section 3031 “Inventories” to
This standard is applicable when a company chooses to
replace existing Section 3030. The new section, which is effective
designate a hedging relationship for accounting purposes.
January 1, 2008, establishes standards for the measurement
It builds on the previous AcG-13 “Hedging Relationships” and
and disclosure of inventories.
Section 1650 “Foreign Currency Translation”, by specifying how
hedge accounting is applied and what disclosures are necessary
We do not expect the application of Sections 3862, 3863,
1535 and 3031 to have a significant impact on our financial
when it is applied.
statements.
Comprehensive Income, Section 1530
This standard requires the presentation of a statement of
comprehensive income and its components. Comprehensive
income includes both net earnings and other comprehensive
income. Other comprehensive income (“OCI”) includes holding
gains and losses on available for sale investments, gains and
losses on certain derivative instruments and foreign currency
Over the next four years, the CICA will adopt its new strategic
plan for the direction of accounting standards in Canada which
was ratified in January 2006. As part of that plan, accounting
standards in Canada for public companies will converge with
International Financial Report Standards (IFRS) over the next
four years. The Company continues to monitor and assess the
impact of the planned convergence of Canadian GAAP with
gains and losses relating to self-sustaining foreign operations,
IFRS.
all of which are not included in the calculation of net earnings
until realized. As prescribed by these standards, prior periods
have not been restated.
The adoption of Sections 3250, 3865 and 3855 did not have a material
impact on the consolidated financial statements of the Company.
RELATED PARTY TRANSACTIONS
During the year ended December 31, 2007, the Company
borrowed $145,000 from a person who is an officer and director
of the Company. $20,000 of this amount was repaid during the
fiscal year. The $125,000 loan balance remaining has no interest
The following provisions have been adopted by the Company
rate, no maturity date, and no additional terms of repayment.
as of January 1, 2008.
In 2006, the Company borrowed $100,000 from a person who
9
tsodilo resources limited
is an officer and director of the Company. The loan had no
the parties’ respective interest in the project is attributed to
interest rate, no maturity date, and no terms of repayment. The
the dilution of THD’s interest as a result of not funding their
loan was repaid during the 2006 fiscal year.
proportionate share of expenditures from 2002 to date. The
Accrued leave benefits in the amount of $87,192 was offset by
following numbers are reflected in our records.
an officer and director for the exercise of options (exercise cost
Long-Term:
$20,203) on December 7, 2007 and participation (97,102 units
Loan from Tsodilo Resources Bermuda Limited
Primary
3,247,940
for a value of $66,989) in the Company’s December private
$1,149,078.11 * 75% =
Secondary
861,808
placement.
Tsodilo and its wholly owned subsidiary, Tsodilo Resources
Bermuda (Ltd) (“TSDB”) entered into an agreement with Trans
Hex Group and its wholly owned subsidiary Trans Hex Diamond
(“THD”) with respect to their respective interests in Newdico
(Pty) Ltd. (“Newdico”). At the time of agreement, Trans Hex
Group owned 73.22% of Tsodilo. The agreement between
the parties established that all expenditures undertaken by
Newdico up to and including March 31, 2002 shall be deemed
to have been incurred by Newdico and funded by TSDB and
THD by way of shareholders loan account by Tsodilo as to 75%
thereof; and Trans Hex as to 25% thereof.
Of the outstanding loan amounting to $1,611,058 as at 31
March 2002, $1,149,078 shall constitute a secondary loan,
deemed to have been advanced to the company by TSDB as
to 75% thereof and THD as to 25% thereof and such secondary
loans shall only be repayable after the primary loans have been
repaid to TSDB and THD in full. These secondary loans shall be
repayable before any additional secondary loans, which shall
be repaid in the proportions in which they have been advanced.
Thereafter, as to the secondary loans which existed as of March
31, 2002, in proportion after the additional secondary loans
have been repaid, $461,980.67 shall be deemed to have been
advanced to the company by TSDB as to 75% thereof and THD
as to 25% thereof (“the primary loan”). The primary loans shall
be repayable in full before any parts of the secondary loans are
repayable.
The secondary loans shall not be included in the necessary
calculations for purposes of the share dilution provisions. All
dilution calculations shall be based only on the value of the
primary loans. All funding of the company by shareholders
for purposes of the Ngami project, shall constitute additional
primary loans, or additional secondary loans in the circumstances
and to the extent set out in the parties agreement.
As of December 31, 2007, TSDB holds a 93% (2006: 90%) interest
in Newdico while THD holds 7% (2006: 10%). The change in
Total Loan Outstanding Eliminated in Consolidation
4,109,748
Loan from Trans Hex Diamonds Limited
(Minority Interest)
Primary
228,395
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.
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.
Gary A. Bojes
Chief Financial Officer
March 21, 2008
10
tsodilo resources limited
Financial Reporting Responsibility of Management
The annual report and consolidated financial statements
responsibilities for financial reporting and internal control.
have been prepared by management. The consolidated
The Audit Committee is composed of three directors, all of
financial statements have been prepared in accordance with
whom qualify as unrelated directors and are independent of
Canadian generally accepted accounting principles and
management and free from any interest or business relationship
include amounts that are based on informed judgments and
which could, or could be perceived to materially interfere
best estimates. The financial information presented in this
with their ability to act in the best interests of the Company.
annual report is consistent with the consolidated financial
This committee meets periodically with management and
statements. Management
acknowledges
responsibility
the external auditors to review accounting, auditing, internal
for the fairness, integrity and objectivity of all information
control and financial reporting matters. The Audit Committee
contained in the annual report including the consolidated
reviews the annual financial statements before they are
financial statements. Management is also responsible for the
presented to the Board of Directors for approval and considers
maintenance of financial and operating systems, which include
the independence of the auditors.
effective controls to provide reasonable assurance that assets
are properly protected and that relevant and reliable financial
The financial statements for the period ended December 31,
information is produced. Our independent auditors have the
2007 have been audited by KPMG Inc., the external auditors, in
responsibility of auditing the consolidated financial statements
accordance with Canadian generally accepted auditing standards
and expressing an opinion on them.
on behalf of the shareholders. Their report follows hereafter.
The Board of Directors, through
its Audit Committee,
is responsible for ensuring that management fulfills
its
James M. Bruchs
Gary A. Bojes
President and Chief Executive Officer
Officer Chief Financial Officer
March 21, 2008
March 21, 2008
11
tsodilo resources limited
Auditors’ Report to the Shareholders of Tsodilo Resources Limited
We have audited the consolidated balance sheets of Tsodilo
misstatement. An audit includes examining, on a test basis,
Resources Limited as at December 31, 2007 and 2006 and the
evidence supporting the amounts and disclosures in the
consolidated statements of operations and comprehensive
financial statements. An audit also includes assessing the
loss, deficits and cash flows for the years ended December
accounting principles used and significant estimates made
31, 2007 and 2006 period. These financial statements are the
by management, as well as evaluating the overall financial
responsibility of the Company’s management. Our responsibility
statement presentation.
is to express an opinion on these financial statements based on
our audit.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the
We conducted our audit in accordance with Canadian generally
Company as at December 31, 2007 and 2006 and the results of
accepted auditing standards. Those standards require that we
its operations and its cash flows for the years ended December
plan and perform an audit to obtain reasonable assurance
31, 2007 and 2006 in accordance with Canadian generally
whether the financial statements are
free of material
accepted accounting principles.
KPMG Inc.
Chartered Accountants (SA)
Bloemfonteim, South Africa
March 21, 2008
12
tsodilo resources limited
Tsodilo Resources Limited
Consolidated Balance Sheets
As at December 31, 2007 and 2006
(in United States dollars – note 2)
ASSETS
Current
Cash
Accounts receivable and prepaid expenses
Exploration Properties (note 3)
Property, Plant and Equipment (note 4)
LIABILITIES
Current
Accounts payable and accrued liabilities (note 9)
Notes Payable
Non-Controlling Interest (note 3)
SHAREHOLDERS' EQUITY
Share Capital (note 5)
Warrants (note 5)
Contributed Surplus (note 5)
Accumulated Other Comprehensive Income
Deficit
2007
2006
(Restated – note 9)
53,197
33,294
86,491
3,338,875
625,449
4,050,815
168,646
125,000
293,646
228,395
27,423,585
1.194,742
6,668,132
(837,425)
(30,920,260)
3,528,774
4,050,815
201,177
53,055
254,232
2,424,118
794,343
3,472,693
101,361
-
101,361
245,491
27,024,564
1,018,683
6,336,204
(837,425)
(30,416,185)
3,125,841
3,472,693
Going Concern (note 1)
Subsequent events (note 5)
Commitments (note 12)
See accompanying notes to the consolidated Financial Statements
APPROVED ON BEHALF OF THE BOARD OF DIRECTORS
James M. Bruchs
Director
Patrick C. McGinley
Director
13
tsodilo resources limited
Tsodilo Resources Limited
Consolidated Statements of Operations and Comprehensive Loss
For the years ended December 31, 2007 and 2006
(in United States dollars – note 2)
Expenses
Corporate remuneration (note 9)
Corporate travel and subsistence
Investor relations
Legal and audit
Office and administration
Lease Expense
Amortization
Foreign exchange profit
Stock-based compensation (note 5)
Loss before non-controlling interest
Non-controlling interest
Loss and comprehensive loss for the year
Basic and diluted loss per share - cents (note 7)
2007
2006
(Restated – note 9)
123,624
8,233
52,159
44,397
39.780
9.067
2,926
(22,868)
246,757
(504,075)
-
(504,075)
$(0.04)
137,669
36,089
74,437
37,392
58,577
8, 728
5,092
(60,876)
257,439
(554,547)
-
(554,547)
$(0.04)
Consolidated Statements of Deficit
For the years ended December 31
(in United States dollars – note 2)
Deficit – Beginning of period
Restatement due to accrued benefits (note 9)
Deficit as restated
Loss for the year as restated
Deficit - End of year
2007
(30,416,185)
-
(504,075)
2006
(Restated – note 9)
(29,814,222)
(47,416)
(29,861,638)
(554,547)
(30,920,260)
(30,416,185)
See accompanying notes to the consolidated Financial Statements
14
tsodilo resources limited
Tsodilo Resources Limited
Consolidated Statements of Cash Flows
For the years ended December 31, 2007 and 2006
(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)
2007
2006
(Restated – note 9)
(504,075)
(554,547)
2,926
246,757
(254,392)
5,092
257,439
(292,016)
Net change in non-cash working capital balances (note 13)
87,046
(167,346)
Investing Activities
Exploration properties
Additions to property, plant and equipment
Financing Activities
Shareholder Loan
Issue of common shares
Contribution from non-controlling interest
Change in cash - For the year
Cash - Beginning of year
Cash - End of year
(735,774)
(13,015)
(748,789)
125,000
660,251
(17,096)
768,155
(147,980)
201,177
53,197
7,623
(284,393)
(617,723)
(891,271)
(1,508,994)
1,739,905
(35,151)
1,704,754
(88,633)
289,810
201,177
The accompanying notes are an integral part of these consolidated financial statements.
15
tsodilo resources limited
Tsodilo Resources Limited
Notes to the Consolidated Financial Statements
For the years ended December 31, 2007 and 2006
1. NATURE OF OPERATIONS AND GOING CONCERN
Tsodilo Resources Limited is an exploration stage company (“Tsodilo” or “The Company”) which is engaged principally
in the acquisition, exploration and development of mineral properties in the Republic of Botswana. The recovery of
the Company’s investment in mineral properties and the attainment of profitable operations are dependent upon the
discovery, development and sale of ore reserves, and the renewal of licenses, the ultimate outcome of which cannot
presently be determined as they are contingent on future events. The Company along with its subsidiaries and joint
ventures operates internationally with projects in continental Africa. These financial statements have been prepared
using Canadian generally accepted accounting principles applicable to a going concern, which assumes continuity of
operations, realization of assets, and settlement of liabilities in the normal course of business.
As at December 31, 2007, the Company reported an accumulated deficit of ($30,920,260) [2006: ($30,416,185] and
negative net cash outflows from operations of ($254,392) [2006: ($292,016)] for the year then ended. The cash position
of the Company is insufficient to finance continued exploration. As an exploration stage company, it is currently unable
to self-finance its operations. Management believes that it will be able to secure the necessary financing through a
combination of the issue of new equity or debt instruments, the entering into of joint venture arrangements or the
exercise of warrants and options for the purchase of common shares. However, there is no assurance that the Company
will be successful in these actions.
These financial statements do not reflect the adjustments, which could be material, to the carrying value of assets and
liabilities, the reported revenues and expenses and balance sheet classifications that would be necessary were the going
concern assumption inappropriate.
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, 2007 and 2006
Tsodilo Resources Bermuda Limited
Gcwihaba Resources (Proprietary) Ltd (Botswana) (“Gcwihaba”)
2007
100%
100%
2006
100%
100%
Newdico (Proprietary) Limited (Botswana) (“Newdico”)
93% (note 3)
90% (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
16
tsodilo resources limited
that could occur from common shares issued through stock options, warrants and other convertible securities when the
effect would be dilutive. The “treasury share method” is used when calculating diluted earnings per share. However,
diluted loss per share has not been presented as the potential exercise / conversion of options and warrants outstanding
would have the effect of reducing loss per share. Basic and diluted loss per share are therefore presented as the same
figure.
Use of estimates
The preparation of the consolidated financial statements in conformity with Canadian 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 valuation of warrants and options, the recoverability of exploration expenditures, property, plant and
equipment 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.
The Company evaluates its license properties on a project basis as opposed to treating each individual license block as
a separate project.
Property, Plant and Equipment
Property, plant and equipment are amortized principally on a straight-line basis over their estimated useful lives of
three to five years to their estimated residual values. 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 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.
17
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. The Company does not have
deferred tax assets, deferred tax liabilities or current tax provisions.
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 2,715,471 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.
Asset Retirement Obligations
The Company recognizes the fair value of liabilities for asset retirement obligations in the period in which they occur
and/or in which a reasonable estimate of such costs can be made using the total undiscounted cash flows required to
settle estimated obligations, estimated expected timing of cash flow payments required to settle the obligations and
estimated credit-adjusted risk free discount rates and inflation rates.
ADOPTION OF NEW ACCOUNTING STANDARDS AND ACCOUNTING DEVELOPMENTS
Financial instruments
Effective January 1, 2007, we adopted the new financial instruments accounting standards and related amendments to
other standards on financial instruments issued by the CICA. In accordance with the transitional provisions, prior period
financial statements have not been restated.
Financial Instruments – Recognition and Measurement, Section 3855
This standard prescribes when a financial asset, financial liability, or nonfinancial derivative is to be recognized on the balance sheet
and whether fair value or cost-based methods are used to measure the recorded amounts. It also specifies how financial instrument
gains and losses are to be presented.
Hedges, Section 3865
This standard is applicable when a company chooses to designate a hedging relationship for accounting purposes. It
builds on the previous AcG-13 “Hedging Relationships” and Section 1650 “Foreign Currency Translation”, by specifying
how hedge accounting is applied and what disclosures are necessary when it is applied.
Comprehensive Income, Section 1530
This standard requires the presentation of a statement of comprehensive income and its components. Comprehensive
income includes both net earnings and other comprehensive income. Other comprehensive income (“OCI”) includes
18
tsodilo resources limited
holding gains and losses on available for sale investments, gains and losses on certain derivative instruments and foreign
currency gains and losses relating to self-sustaining foreign operations, all of which are not included in the calculation of
net earnings until realized. As prescribed by these standards, prior periods have not been restated.
The adoption of Sections 3250, 3865 and 3855 did not have a material impact on the consolidated financial statements
of the Company.
The following provisions have been adopted by the Company as of January 1, 2008.
Financial Instruments – Disclosures, Section 3862
Section 3862 Financial Instruments – Disclosures, requires additional disclosures to enable users to evaluate the
significance of financial instruments to our financial position and performance. In addition, qualitative and quantitative
disclosures are provided to enable users to evaluate the nature and extent of risks arising from financial instruments.
Financial Instruments – Presentations, Section 3863
CICA 3863 carries forward, without change, the presentation related requirements of CICA 3861. The requirements of
this Section address an issuer’s classification of financial instruments between liabilities and equity, the classification of
related interest, dividends, losses and gains, as well as the offsetting of financial assets and financial liabilities.
Capital Disclosures – Section 1535
Section 1535 Capital Disclosures, requires disclosure of qualitative and quantitative information that enables users to
evaluate our objectives, policies and process for managing capital.
Inventories – Section 3031
In June 2007, the CICA issued Section 3031 “Inventories” to replace existing Section 3030. The new section, which is
effective January 1, 2008, establishes standards for the measurement and disclosure of inventories.
We do not expect the application of Sections 3862, 3863, 1535 and 3031 to have a significant impact on our financial
statements.
Over the next four years, the CICA will adopt its new strategic plan for the direction of accounting standards in Canada
which was ratified in January 2006. As part of that plan, accounting standards in Canada for public companies will
converge with International Financial Report Standards (IFRS) over the next four years. The Company continues to
monitor and assess the impact of the planned convergence of Canadian GAAP with IFRS.
3. EXPLORATION PROPERTIES
Exploration properties are summarized as follows:
Balance at December 31, 2005
Jan. to Dec. 2006 expenditures
Balance at December 31, 2006
Jan. to Dec 2007 expenditures
Balance at December 31, 2007
Gcwihaba
Botswana
179,564
51,108
230,672
6,436
237,108
Newdico
Botswana
1,500,052
693,394
2,193,446
908,321
3,101,767
19
tsodilo resources limited
Total
1,679,616
744,502
2,424,118
914,757
3,338,875
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 expiring June 30, 2008, and are renewable for 2 two year periods upon application and have a final expiry of 2012.
The terms of the licenses require Newdico to spend a minimum of Botswana Pula 3.78 million (approximately $587,703
as of March 21, 2008) during the initial period of grant (7/1/05 – 6/30/08) exclusive of license fees.
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 $228,395 (2006: $245,491) in the financial statements. During the year ended December
31, 2007, THG decided not to fund its propionate share of expenditures on cash calls and therefore as of January 1,
2008, the Company’s interest in Newdico had effectively increased from 75% to 93% (2006: 90%) in accordance with the
exploration agreement between the two parties.
Trans Hex Group has also advanced funds amounting to $205,591 (2006: $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.
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 granted Gcwihaba the right to prospect for a total of three years to 2006, and were renewed
for a two year period expiring on June 30, 2008. The terms of these licenses require Gcwihaba to spend a minimum of
Botswana Pula 675,000 (approximately $104,947 as of March 21, 2008) exclusive of license fees during the first renewal
grant period. The licenses can be renewed for an additional two year period with a final expiry of 2010.
An additional license was granted to the Company for an initial three year period as of April 1, 2007. The terms of the
license requires Gcwihaba to spend a minimum of Botswana Pula 210,000 (approximately $32,650 as of March 21, 2008)
during the initial period of grant (4/1/07 – 3/31/2010) exclusive of license fees.
Base and Precious Metal Exploration
Gcwihaba holds base and precious metals prospecting licenses in the Ngamiland District of northwest Botswana. The
Company acquired the various licenses in 2005. The licenses are granted for an initial period for three years expiring
September 30, 2008 and are renewable for an additional 2 two year period upon application and have a final expiry of
2012. The terms of the licenses require Gcwihaba Newdico to spend a minimum of Botswana Pula 720,000 (approximately
$111,943 as of March 21, 2008) during the initial period of grant (10/1/05 – 9/30/08) exclusive of license fees.
20
tsodilo resources limited
4. PROPERTY, PLANT and EQUIPMENT
December 31, 2007
Vehicles
Furniture and Equipment
December 31, 2006
Vehicles
Furniture and Equipment
Depreciation Rate
in Years
Cost
Accumulated
amortization
Book value
5 Years
3 Years
5 Years
3 Years
887,855
88,608
976,463
887,855
76,484
964,339
293,688
57,326
351,014
132,387
37,609
169,996
594,167
31,282
625,449
755,468
38,875
794,343
For the year ended 2007, an amount of $172,546 (2006: $126,781) of amortization 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 December 31, 2005
Shares
(number)
Amount
$
11,045,045
26,218,172
On private placement for cash in 2006 See (i) to (v) below
2,390,793
1,739,907
Ascribed to warrants issued in 2006
Issued and outstanding at December 31, 2006
On private placement for cash (vi)
On private placement for cash (vii)
On private placement for cash (viii)
On private placement for cash (vi)
On private placement not for cash (x)
Ascribed to Exercise of Options
Ascribed to warrants issued in 2007
Issued and outstanding at December 31, 2007
Subsequent to Year End Private Placement (x)
(i)Private Placement
-
(933,515)
13,435,838
27,024,564
141,516
95,869
167,146
120,000
231,714
175,000
235,024
158,000
91,102
200,000
66,989
44,392
-
(261,229)
14,502,340
27,423,585
457,901
$325,000
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.
21
tsodilo resources limited
(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.
(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.
.
(iv) Private Placement
In July 2006, the Company issued, through a non-brokered private placement 161,586 units of the Company were issued
at a price of $0.62 (C$0.70) per Unit for 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.
(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.
(vi) Private Placement
On February 13, 2007, the Company completed a non-brokered private placement. 141,516 units of the Company (the
"Units") were issued at a price of $0.68 (C$0.80) per Unit for proceeds to the Company of $95,869. 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 ofC$0.80 for a period of two years.
vii) Private Placement
On May 18, 2007, the Company completed a non-brokered private placement. 167,146 units of the Company (the "Units")
were issued at a price of $0.72 (C$0.80) per Unit for proceeds to the Company of $120,000. 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 C$0.80 for a period of two years.
(viii) Private Placement
On June 29, 2007, the Company completed a non-brokered private placement. 231,714 units of the Company (the "Units")
were issued at a price of $0.75 (C$0.80) per Unit for proceeds to the Company of $175,000. 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 C$0.80 for a period of two years.
22
tsodilo resources limited
(ix) Private Placement
On December 19, 2007, the Company completed a non-brokered private placement. 326,126 units of the Company (the
"Units") were issued at a price of $0.69 (C $0.70) per Unit for proceeds to the Company of $224,989. Of this amount,
91,102 units valued at $66,989 are attributed to an officer and director as an offset for accrued leave benefits as outlined
in note 8. 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 C$0.70 for a period of two years.
(x) Private Placement
On March 11, 2008, the Company completed a non-brokered private placement. 457,901 units of the Company (the
"Units") were issued at a price of $0.71 (C $0.70) per Unit for proceeds to the Company of $325,000. 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 C$0.70 for a period of two years.
(b) Warrants
As at December 31, 2006, the following warrants were outstanding:
Number of Warrants
Value
Expiry
June 1, 2006
October 14, 2006
November 8, 2006
March 4, 2007
January 27, 2008
February 21, 2008
May 4, 2008
July 19, 2008
September 21, 2008
Exercise
Price
Opening
Issued
[Exercised]
(Expired)
Closing
Opening
(dollars)
Issued
[Exercised]
(Expired)
Closing
(dollars)
C$0.75
C$1.12
C$2.35
C$1.15
C$1.00
C$1.00
C$0.70
C$0.70
C$0.70
65,024
59,969
26,668
230,785
--
--
--
--
--
(65,024)
(56,969)
(26,668)
--
468,776
319,108
649,984
161,586
791,339
--
--
--
230,785
468,776
319,108
649,984
161,586
791,339
14,164
20,156
20,622
85,170
--
--
--
--
(14,164)
(20,156)
(20,622)
--
146,788
109,988
167,886
49,643
--
--
--
85,170
146,788
109,988
167,886
49,643
459,208
459,208
379,446
2,242,132
2,621,578
140,112
878,571
1,018,663
During the year ended December 31, 2006 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.
23
tsodilo resources limited
As at December 31, 2007, the following warrants were outstanding:
Number of Warrants
Exercise
Price
Opening
Issued
[Exercised]
(Expired)
Closing
Opening
(dollars)
Value
Issued
[Exercised]
(Expired)
Closing
(dollars)
C$0.75
C$1.12
C$2.35
C$1.15
C$1.00
C$1.00
C$0.70
C$0.70
C$0.70
C$0.80
C$0.80
C$0.80
C$0.70
65,024
56,969
26,668
230,785
468,776
319,108
649,984
161,586
791,339
--
--
--
--
(65,024)
(56,969)
(26,668)
(230,785)
--
--
--
--
--
141,516
167,146
231,714
326,126
--
--
--
--
468,776
319,108
649,984
161,586
791,339
141,516
167,146
231,714
326,126
--
--
--
85,170
146,788
109,988
167,886
49,643
459,208
--
--
--
--
--
--
--
(85,170)
--
--
--
--
--
55,047
40,408
67,829
97,945
--
--
--
--
146,778
109,988
167,886
49,643
459,208
55,047
40,408
67,829
97,945
2,770,239
487,056
3,257,295
1,018,683
176,059
1,194,742
Expiry
June 1, 2006
October 14, 2006
November 8, 2006
March 4, 2007
January 27, 2008
Febryary 21, 2008
May 4, 2008
July 19, 2008
September 21, 2008
February 13, 2009
May 18, 2009
June 29, 2009
December 19, 2009
During the year ended December 31, 2007 866,502 warrants issued and a value of $261,229 was attributed as at December 31, 2007
(2006: 2,390,853 issued and a value of $933,813 was attributed). During the year ended December 31, 2007, warrants were valued
using the Black-Scholes model, using key assumptions of volatility ranging from 99-131% (2006: 69-89%), a risk-free interest rate
of approximately 4% (2006: 4.5%), a term equivalent to the life of the warrant, and reinvestment of all dividends in the Company.
Subsequent to year end 146,788 warrants expired on January 27, 2008 and 109,988 warrants expired on February 21, 2008.
(c) Contributed Surplus
As at December 31, 2005
Relating to the expiry of warrants
Relating to stock based compensation
As at December 31, 2006
Relating to the expiry of warrants
Relating to stock based compensation
As at December 31, 2007
6,023,823
54,942
257,439
6,336,204
85,170
246,757
6,668,132
24
tsodilo resources limited
(d) Stock Option Plan
Outstanding stock options granted to directors, officers and employees at
December 31, 2007 and December 31, 2006 were as follows:
Outstanding
Granted
Outstanding
Outstanding
Exercisable
December
[Cancelled]
December
Granted
[Cancelled]
December
December
Expiry
Price
31, 2005
(Exercised)
31, 2006
(Exercised)
31, 2007
31, 2007
(100,000)
[50,000]
(50,000)
(50,000)
(i)
(i)
(ii)
(ii)
(ii)
(ii)
(ii)
(ii)
(ii)
(ii)
(ii)
0
0
0
0
0
0
100,000
100,000
50,000
50,000
250,000
250,000
10,000
10,000
260,000
260,000
60,000
60,000
300,000
300,000
65,000
48,750
June 24, 2007
C$0.15
100,000
September 18, 2007
C$0.23
100,000
December 31, 2007
C$0.41
50,000
July 8, 2008
C$0.50
100,000
-
-
-
-
100,000
100,000
50,000
100,000
January 1, 2009
C$0.75
60,000
(10,000)
50,000
August 31, 2009
C$0.75
260,000
(10,000)
250,000
January 3, 2010
C$1.85
35,000
(25,000)
10,000
280,000
(20,000)
260,000
-
60,000
60,000
-
300,000
300,000
-
65,000
65,000
August 19, 2010
January 3, 2011
April 27, 2011
August 18, 2011
November 1, 2011
January 3, 2012
May 7, 2012
C$1.25
C$1.25
C$0.70
C$0.70
C$1.00
C$1.00
C$0.80
Cancelled
Exercised
-
50,000
50,000
[50,000]
(iii)
0
0
-
-
-
-
-
-
85,000
550,000
(iii)
(iii)
85,000
42,500
550,000
275,000
[100,000]
(200,000)
Total
985,000
410,000
1,395,000
635,000
(300,000)
1,730,000
1,396,250
Options exercisable at end of year
680,000
873,375
Weighted average exercise price
- issued
- outstanding
- exercisable
C$0.67
C$0.83
C$0.65
All options have a term of five years.
C$0.76
C$0.80
C$0.79
1,396,250
C$0,79
C$0.88
C$0.90
(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 $246,757 (2006: $257,439) 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 98% and 103%, a risk-free interest rate of approximately 4%, a term equivalent to the life of
the option, and reinvestment of all dividends in the Company.
On January 2, 2008, the Company issued 210,000 options under its Stock Option Plan to persons who are officers and
employees of the Company.
25
tsodilo resources limited
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. 2006 – 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
Dec-31
2007
Dec-31
2006
(Restated – note 9)
(504,075)
(554,547)
(182,072)
(200,302)
92,943
89,129
110,875
89,427
Provision for (recovery of ) income taxes
-
-
The following summarizes the principal temporary differences and related future tax effect:
(Restated – note 9)
Property, Plant and Equipment
Exploration & Development - Canada
Exploration & Development - Botswana
Losses carried forward - Canada
Losses carried forward - Botswana
Other
Subtotal – fut¬ure income tax asset
Valuation allowance
Dec-31
2007
Dec-31
2006
(Restated – note 9)
8.000
93,000
14,000
93,000
(1,206,002)
(890,617)
1,197,000
1,389,000
1,294,426
941,563
35,000
42,000
1,421,424
1,588,944
(1,421,424)
(1,588,944)
Net future income tax asset recorded
-
-
The permanent differences are primarily the result of expenses not allowed for stock-option based compensation for 2007 and 2006.
At December 31, 2007, the Company has Canadian net operating losses carried forward that expire as follows:
Loss
818,000
697,000
322,000
383,000
505,000
198,000
227,000
210,000
Year of Expiry
2008
2009
2010
2011
2012
2012
2013
2014
(1)
(1)
(1)
(1)
(1) *
(2) *
(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.
Total assessable losses relating to the activity in Botswana as at December 31, 2007 was $3,209,762 (December 31, 2006: $3,337,768)
of which $2,606,760 have no expiry date.
26
tsodilo resources limited
7. LOSS PER SHARE
Loss per share is computed on the basis of the loss of ($504,075) for the year ended December 31, 2007 [2006: ($554,547)]
and the weighted average number of common or equivalent shares outstanding during period, December 31, 2007:
13,889,166 (2006: 12,473,977). The effects of stock options and warrants in computing diluted per share amounts for
December 31, 2007 and December 31, 2006 are anti-dilutive.
8. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2007, the Company borrowed $145,000 from a person who is an officer and director
of the Company. $20,000 of this amount was repaid during the fiscal year. The $125,000 loan balance remaining has no
interest rate, no maturity date, and no additional terms of repayment. In 2006, the Company borrowed $100,000 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 2006 fiscal year.
Accrued leave benefits in the amount of $87,192 was offset by an officer for the exercise of options (exercise cost
$20,203) on December 7, 2007 and participation (97,102 units for a value of $66,989) in the Company’s December private
placement.
Tsodilo and its wholly owned subsidiary, Tsodilo Resources Bermuda (Ltd) (“TSDB”) entered into an agreement with
Trans Hex Group and its wholly owned subsidiary Trans Hex Diamond (“THD”) with respect to their respective interests
in Newdico (Pty) Ltd. (“Newdico”). At the time of agreement, Trans Hex Group owned 73.22% of Tsodilo. The agreement
between the parties established that all expenditures undertaken by Newdico up to and including March 31, 2002 shall
be deemed to have been incurred by Newdico and funded by TSDB and THD by way of shareholders loan account by
Tsodilo as to 75% thereof; and Trans Hex as to 25% thereof.
Of the outstanding loan amounting to $1,611,058 as at 31 March 2002, $1,149,078 shall constitute a secondary loan,
deemed to have been advanced to the company by TSDB as to 75% thereof and THD as to 25% thereof and such secondary
loans shall only be repayable after the primary loans have been repaid to TSDB and THD in full. These secondary loans shall
be repayable before any additional secondary loans, which shall be repaid in the proportions in which they have been
advanced. Thereafter, as to the secondary loans which existed as of March 31, 2002, in proportion after the additional
secondary loans have been repaid, $461,980.67 shall be deemed to have been advanced to the company by TSDB as to
75% thereof and THD as to 25% thereof (“the primary loan”). The primary loans shall be repayable in full before any parts
of the secondary loans are repayable.
The secondary loans shall not be included in the necessary calculations for purposes of the share dilution provisions. All
dilution calculations shall be based only on the value of the primary loans. All funding of the company by shareholders
for purposes of the Ngami project, shall constitute additional primary loans, or additional secondary loans in the
circumstances and to the extent set out in the parties agreement.
As of December 31, 2007, TSDB holds a 93% (2006: 90%) interest in Newdico while THD holds 7% (2006: 10%). The change
in the parties’ respective interest in the project is attributed to the dilution of THD’s interest as a result of not funding
their proportionate share of expenditures from 2002 to date. The following numbers are reflected in our records.
Long-Term:
Loan from Tsodilo Resources Bermuda Limited
$1,149,078.11 * 75% =
Total Loan Outstanding Eliminated in Consolidation
Primary
Secondary
Loan from Trans Hex Diamonds Limited (Minority Interest)
Primary
3,247,940
861,808
4,109,748
228,395
27
tsodilo resources limited
9. Restatement
The Company did not previously record leave for the prior year of the President and CEO. In the current year, the Company
recorded this liability and the financial statements of 2006 have been restated to correct this error. The effect of the
restatement on those financial statements is summarized below.
Increase in corporate remuneration
Increase in loss for the period
Decrease in non-cash working capital
Increase in accounts payable
Increase in deficit – end of year
Restated loss per share
10. SEGMENTED INFORMATION
Effect on 2006
13,415
13,415
13,415
13,415
60,831
($0.04)
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 ($3,768) and Botswana
($621,681). The geographic distribution of the property acquisition costs and exploration expenditures is outlined in
note 4.
11. 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.
12. COMMITMENTS
All operating leases that are for a period of no longer than one year are prepaid.
The aggregate minimum lease payments are $52,374 as follows:
2008
2009
$26,187
$26,187
The lease commitment is for storage space in Maun, Botswana at an annual rental of BWP 158,888 per year for 2008 and
2009 converted at an exchange rate as of December 31, 2007 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.
13. NOTES TO THE CASH FLOW
Net change in non-working Capital balances
Decrease / (Increase) in accounts receivable and prepaid expenses
Increase in accounts payable and accrued liabilities
Total
2007
19,761
67,285
87,046
2006
(25,000)
32,623
7,623
28
tsodilo resources limited
Corporate Information
DIRECTORS
James M. Bruchs
Washington, DC
Appointed as director in 2002
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
Jonathan R. KeLafant
Arlington, Virginia
Appointed as director in 2007
OFFICERS
James M. Bruchs, B.Sc., J.D.
CORPORATE HEAD OFFICE
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
President and Chief Executive Officer
STOCK EXCHANGE LISTING
TSX Venture Exchange
Trading Symbol: TSD
Appointed in 2002
Gary A. Bojes, CPA, Ph.D.
Chief Financial Officer
Appointed in 2007
Gail McGinley
Corporate Secretary
Appointed in 2005