Annual Report 2010
tsodilo
resources
limited
President’s Message
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, 2010.
2010 was a challenging yet defining year for the Company.
During the year we focused on positioning the Company
for the future by diligently executing the strategic
initiatives outlined in the beginning of the year. The
recession receded in 2010 and a renewed interest globally
in the resource sector rejuvenated the industry during
a member of the World Bank Group. IFC is our “Partner
of Choice,” and their participation, professionalism,
guidance, and expertise add
instant value to our
program and will ensure that the development of our
project proceeds in a manner consistent with the highest
industry standards.
Our current share capital consists of 23,370,431 issued and
outstanding (32,159,041 on a fully diluted basis) common
shares. Tsodilo has a 96% interest in our Botswana
Newdico (Pty) Limited project and a 100% interest in our
Botswana Gcwihaba Resources (Pty) Limited projects.
the year. Commodity prices recovered strongly during
The Company is a much stronger organization now than
the year and some increased exploration expenditure
it was a year ago and we are confident in our ability to
was evident especially towards the latter part of the year.
meet the challenges in the upcoming year and for the
Diamonds however lagged behind and although rough
years’ thereafter. Please follow our progress carefully and
diamond was achieving prices as before the recession
remain informed by regular visits to our website, www.
and many advanced projects were resurrected during the
TsodiloResources.com.
year, funding for exploration remained slim. However,
our decision in 2006 to acquire our own drill rig and
geophysical survey equipment allowed us to continue
On behalf of the Board,
our exploration activities without delay or interruption
during these difficult economic times. The acquisition of
our second drill rig will enable us to accelerate our efforts.
We expect to accelerate our exploration, analysis and
evaluation activities in 2011.
The acquisition of an
additional drill rig will allow us to more than double our
current meters drilled. We expect to focus on the more
promising base metal targets that were generated during
the first phase drilling program with at least one of the
drill rigs and based on our most recent micro-diamond
results also re-examine one or two more kimberlites.
Sample preparation, petrography and assaying are
all ongoing on our metals projects and an aggressive
Michiel C.J. de Wit
President and Chief Operating Officer
March 15, 2011
Contents
President’s Message to Shareholders
Management’s Discussion and Analysis
of Financial Results
exploration program is planned for 2011.
Financial Reporting Responsibility of
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.
Management
Auditors’ Report to the Shareholders
Consolidated Financial Statements / Notes
Of particular note, was the significant investment by IFC,
Corporate Information
1
2
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19
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IBC
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tsodilo resources limited
Management’s Discussion and Analysis
This management’s discussion and analysis (“MD&A”) should be read in conjunction with the Consolidated Annual
Financial Statements for the year ended December 31, 2010 and comments on the factors that affected the Company’s
performance during the periods covered by the Consolidated Annual Financial Statements as well as the Company’s
financial condition and future prospects. The Company’s functional and reporting currency is United States dollars and
all amounts stated are in United States dollar unless otherwise noted. This management’s discussion and analysis has
been prepared as at March 15, 2011.
OVERVIEW
Tsodilo Resources Limited (“Tsodilo” or the “Company”) was organized under the laws of the Province of Ontario in
1996 and continued under the laws of the Yukon in 2002. The shares of the Company are listed and posted for trading
on the TSX Venture Exchange under the symbol: TSD. Tsodilo is an international diamond exploration company with
the majority interest in a kimberlite exploration project 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 diamond and base and precious metal opportunities within
southern 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 on debt due of $612,783 and owing to Trans Hex Group Limited (“Trans Hex Group”), the
principal shareholder and creditor of the Company prior to restructuring. The Company retained an interest in all future
dividends that may be paid by either Northbank Diamonds Limited, Hoanib Diamonds (Proprietary) Limited or Trans
Hex (Zimbabwe) Limited. In addition, the Company was released from the long-term loans due to Trans Hex Group by
the subsidiaries being sold, of $3,341,690, and Trans Hex Group agreed to return the 10,688,137 common shares in the
capital of the Company, representing 73.22% of the issued and outstanding shares of the Company at that time, to
treasury for cancellation. The special meeting of shareholders also approved the discontinuance of the Company from
the Province of Ontario and its continuance 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 directors and the repeal of
the existing stock option plan of the Company and adoption of a new stock option plan. Following the restructuring of
the Company, as approved by shareholders in April 2002, Tsodilo has no long-term debt.
Outstanding Share Data
As of March 15, 2011, 23,370,431 common shares of the Company were outstanding. Of the options to purchase common
shares issued to eligible persons under the stock option plan of the Company, 2,985,000 options remain outstanding of
which 1,827,500 are exercisable at exercise prices ranging from CAD $0.55 - $2.23.
As of March 15, 2011, 5,803,610 warrants are outstanding. The warrants were issued by way of the private placements utilized by
the Company for fi nancing purposes. Each warrant entitles the holder thereof to purchase one common share of the Company at
purchase prices ranging from Canadian $0.55 - $2.17 for a period of two to fi ve years from the date of issuance. If all warrants were
converted, 5,803,610 common shares of the Company would be issued.
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tsodilo resources limited
Principal Shareholders of the Company
The principal shareholders of the Company as of March 15, 2011 are as follows:
Name
Description
Shares - Owns,
Controls or Directs
% of the Issued and
Outstanding Shares
Preston Trust
Private Investment Vehicle
International Finance Corporation
Division of the World Bank
David J. Cushing
James M. Bruchs
Subsidiaries
Director
Chairman & CEO
3,995,902
2,702,702
2,295,223
2,256,519
17.09%
11.56%
9.82%
9.66%
The Company has a 96% operating interest in its Botswana subsidiary, Newdico (Proprietary) Limited (“Newdico”), which
holds nine prospecting licenses covering approximately 3,949 square kilometers in northwest Botswana on which there
is encouragement for the existence of undiscovered kimberlites in at least three separate areas of the property. The
Company’s minority partner (4%) in this project, Trans Hex Group, is an established South African diamond mining
company.
The Company has a 100% interest in its wholly owned Botswana subsidiary, Gcwihaba Resources (Proprietary) Limited
(“Gcwihaba”), which has six diamond prospecting licenses covering approximately 3,728 square kilometers, eighteen
metals (base, precious, platinum group, and rare earth) licenses covering 12,097 square kilometers and eight radioactive
minerals licenses covering 6,925 square kilometers.
The Company holds a 100% interest in Tsodilo Resources Bermuda Limited to which the shares of its operating subsidiaries,
Newdico and Gcwihaba, are registered.
EXPLORATION ACTIVITIES - 2010
1. Diamond Projects
The company presently holds 15 Prospecting Licences (“PL’s”) both under the name of Newdico and Gcwihaba for
precious stones (Table 1). PL070/2005, PL062/2007, PL48/2008 and 050/2008 were relinquished during the year. The
objectives of the Company’s diamond strategy in the area are two-fold. First, there are two major unexplained surface
concentrations of both diamonds and high-interest (G10) garnets across the border in Namibia, the Tsumkwe and the
Omatako targets. It has been suggested that the diamonds and garnets from these targets have been derived from
diamond-bearing kimberlites in the licence blocks presently held by the Company to the east.
Table 1. Summary of the Company’s prospecting permits for precious stones
PL numbers
PL’s
Km2
Commodity
PL 62-69 & 71/2005
PL 46-47 & 49/2008
PL 641-643/2009
Total
9
3
3
15
3,949.0
1,182.0
2,546.2
7 ,677.2
Precious Stones
Precious Stones
Precious Stones
Renewal dates
mm/dd/yyyy
07/01/2012
01/01/2011
01/07/2012
Stage
Company
2nd Renewal
1st Renewal
Initial Grant
Newdico
Gcwihaba
Gcwihaba
Second, the Company’s kimberlites in the Nxau Nxau field, just east of the Botswana/Namibia border, are situated in
the regional headwaters of the paleo-drainages which generally feed these anomalies. The Company has been working
through the existing kimberlite database to try to match the mineral chemistry of the indicator minerals of these two
anomalies with those from kimberlites in the Nxau Nxau cluster. In addition, the geophysical data of the area covered by
the Precious Stones licences were subjected to a rigorous review by a very reputable geophysical company, specialised
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tsodilo resources limited
in kimberlites, in order to identify any other kimberlite targets for drilling. Not only have more first-grade targets been
identified within and immediately around the existing cluster, other targets have also been identified in other parts of
the licence blocks that warrant detailed ground work and drilled scheduled for 2011.
The review of the petrography, mineral chemistry, micro-diamond and geophysical databases of the known kimberlites
in the Nxau Nxau field has been on-going. Selected samples were submitted for additional mineral chemistry and
petrographic analyses. The results of this review resulted in the decision to submit samples of three of the six most
interesting pipes (K4, K10 and K20) in terms of size and mineral chemistry, for micro-diamond work in order to obtain
first-pass grade values for these bodies. These are all classical dipole targets and previous micro-diamond analysis,
which returned some positive results, was however not qualitative. Roughly 200 kg of core from each kimberlite was
submitted for analysis to the SRC laboratory in Canada. Two of the three kimberlites submitted had positive micro-
diamond recoveries as follows:
Number of Diamonds per Sieve Size (mm square Mesh sieve)
Kimberlite # Sample ID
Total Sample
Weight (kg)
Total Number of
Diamonds
0.106 mm 0.150 mm 0.212 mm 0.300 mm 0.425 mm
K4 05/26
K4 18/26
K10 09/29
K10 15/29
K10 19/29
K10 20/29
K10 25/29
K10 26/29
K10 27/29
8
8
8
8
8
8
8
8
8
72
1
1
2
1
2
2
1
3
3
2
14
16
1
0
1
0
1
1
2
2
1
9
0
0
0
1
1
0
0
1
1
4
0
0
0
1
0
0
1
0
0
2
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
1
Geological interpretation of the Southern African Magnetotelluric Experiment (SAMTEX) project data was completed
during the year. This data produced the first pseudo 3-dimensional electrical resistivity map of the crustal and mantle
lithosphere beneath the Damara-Ghanzi-Chobe belt and its surrounding Kalahari and Congo tectonic blocks. The
Congo and Kalahari cratons are characterised by very thick and resistive lithosphere, approximately 220km and 240km
respectively, which from a diamond perspective is encouraging.
The results of this program have, among others, shown that the Company’s northern licences are underlain by the
Angolan Craton (Khoza et al in press, Muller and Jones 2007) and this means that kimberlites occurring in the most
northern licences should be the most interesting from a diamond perspective.
Based on these tectonic reconstructions, diamond exploration activities for 2011 will therefore focus kimberlites K17,
K18, and K19 which are the most northerly bodies so far discovered in the Nxau Nxau cluster but for which the company
has very little information. Furthermore, some kimberlite targets that have been identified in the northern licences will
be targeted for drilling. Finally and based on the most recent micro-diamond results but depending on the interpretation
of these data, kimberlite K11, which is proximate to K10 and approximately 2.5ha in size, will also be sampled for micro-
diamond content.
2. Metals (Base and Precious, Rare Earth Elements (REE) and Platinum Group Minerals ( PGM)) Projects
The Company’s Prospecting Licences have evolved with time into a package which covers some 12,106.6 km2 (Table 2).
Most of the ground has been covered by the Phase 1 drilling program which will be completed during the 1st Quarter of
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tsodilo resources limited
2011. The main objective of this phase is to cover the ground on a wide grid to identify the areas of interest for more
detailed follow-up work scheduled as Phase 2. To date, the drilling has returned mineralised rocks in several parts of the
licence area representing a variety of geological settings with different mineralisation styles.
Table 2. Summary of the Company’s prospecting permits for metals
PL numbers
PL’s
Km2
Commodity
PL 118-119/2005
PL 051-052/2008
PL 386-395/2008
PL 588,595-597/2009
Total
2
2
10
4
18
1, 194.0
869.0
7, 478.6
2 ,555.0
12, 096.6
Metals
Metals
Metals
Metals
Renewal dates
mm/dd/yyyy
10/01/2012
01/01/2011
10/01/2011
07/01/2012
Stage
Company
2nd Renewal
1st Renewal
Initial Grant
Initial Grant
Gcwihaba
Gcwihaba
Gcwihaba
Gcwihaba
The Company’s exploration work had initially indicated that the sulphide-rich Matchless Amphibolite Belt (‘MAB’)
traverse the Company’s southern licences in northwest Botswana in an area where the Damara Belt connects with the
Lufilian Arc. Recent petrology, geochemistry and geochronology work by AEON’s (Africa Earth Observatory Network)
research group located at the University of Cape Town, South Africa highlights the presence in Ngamiland of Archean
granite-gneisses (ca. 2550 Ma). This is the first time Archean-Paleoproterozoic basement rocks have been discovered
in northwest Botswana. Paleoproterozoic granites (ca. 2000 Ma), which have been tectonically interlayered with Pan-
African meta-sediments (including graphitic schist, carbonates, diamictites and meta-basites (ca. 540 Ma), have also
been dated. These tectonic contacts and graphitic schists are mineralized and have been targeted for further work. The
2 billion year old granites can be correlated either with the nearby Quangwadum and Okwa Complex in Botswana and
the granites of the Bushveld intrusion in South Africa, suggesting the possibility of a large cryptic mineralized mafic
intrusion in the region, or with the Kibaran granitic basement (ca. 2050 Ma) to the Katangan Supergroup beneath the
Lufilian Arc in the DRC. The Pan African meta-basites in Nagamiland yield an age of ca. 535 Ma. This is younger than
the metabasalts of MAB and Katanga (ca 765 Ma), but similar to the age of peak metamorphism and deformation in
the MAB and Lufilian Arc (ca. 530 Ma). This difference can be accounted for through the higher degrees of Pan African
deformation and metamorphism found in Ngamiland (e.g. the new age is a tectonically reset age rather than a magmatic
age) and/or that the metabasalts of Ngamiland represent subducted basaltic MAB-like oceanic crust that has been
recycled as island-arc basalts. Either way, the new dates strengthen the previous suggestions by Tsodilo of a correlation
between the mineralized Pan African rocks and basement in Ngamiland with those in the Central African Copper Belt,
and those in the MAB. Work with AEON is on-going to refine the geological models.
The presence of the layered and massive magnetite units associated with the Xaudum Magnetic Anomaly in the
northern part of the area and the copper and gold showings east of the banded magnetite associated with meta-basic
rocks (epidote-scapolite-albite amphibolite) on the central part of the area indicates that the mineralization model
of Ngamiland is highly likely associated with an Iron Oxide Copper Gold ore deposit (“IOCG”), also referred to as the
Ngamiland IOCG.
The main activities during the year were driven by ground geophysical surveys and diamond drilling. The former
to upgrade and focus the regional geophysical dataset to more accurately position drill targets and the latter as a
continuation of the first-phase drilling program.
During 2010 and to date, 7,362 and 1,115 line-kilometers of ground magnetic data respectively was collected. This was
leveled and interpreted by the Company’s in-house geophysical unit. This represents coverage of some 367 km2 at 50
meter line spacing. An additional magnetometer was purchased in 2010, in order to increase the coverage. This data
was successfully used to position new drill holes on the often magnetic (due to the presence of pyrrhotite in the meta-
sediments) conductive zones.
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tsodilo resources limited
Table 3. Holes drilled in 2010 during the reconnaissance Phase 1 drilling program
Hole No
L9660/05
L9660/08
L9670/07
L9670/09
L9680/11
L9690/08
L9690/09
L9690/10
L9700/07
L9650/04
L9650/06
TOD 003
TOD 004
TOD 007
TOD 008
L9640/02
L9650/05
L9630/14
L9630/15
L9630/17
L9630/13
L9620/13
L9610/10
L9610/06
L9610/11
L9610/09
L9610/12
L9590/07
L9570/03 (1)
L9570/04 (1)
L9560/02 (1)
L9540/01 (1)
L9590/06 (1)
L9600/10 (1)
Drilled
meters
317.7
194.8
356.4
335.5
359.6
336.6
327.4
309.7
292.4
409.6
404.6
113.5
135.8
115.3
89.2
385.9
204.5
302.4
200.4
318.6
254.4
290.5
302.5
97.9
269.5
248.6
299.4
152.5
170.8
356.0
308.6
300.5
214.5
268.5
Core meters
Main Lithologies
291.2 Metaquartzite; shist; metadolerite
147.9 Metaquartzite; shist; black shale; metapelites
318.2 Garnet-rich metapelite; shabkwa; quartzite
263.5 Garnet-rich metapelite
316.1 Garnet-rich metapelites; coarse meta-quartzite
265.3 Garnet-rich metapelites; carbonate; shist
268.6
Carbonate; metapelites; folding black shale
247.7 Garnet-rich shist; carbonate
241.6 Micaceous quartzite (Gneiss texture); shist; black shale; evaporite
368.8 Mica-schist; shist; metapelite; shale
372.3
Black shale; mudrock; evaporite; siltstone
98.7
Talc rich serpentenite; schist; quartzite
85.8
Talc schist; magnetite-rich; gneiss; schist
88.8
Talc schist; serpentenite; metabasite
65.6
Serpentenite; magnetite-rich
324 Metapelite; black carbonaceous shale
174.7 Quartz schist; quartzite; gneiss; amphibolite
251.0 Garnet schist; quartz schist
122.7 Amphibolite; banded magnetite-schist; garnet-schist
242.5 Quartz-biotite-schist; garnet-schist
216.4 Meta-siltstone; metapelite; metabasite
225.5
Schists; carbonates
249.5 Magnetite bands; schist; quartz; magnetite
51.8 Quartz schist
225.0 Metabasite; schist; felsic-rocks; skarn; gneiss/schist
233.1 Quartz schist; banded magnetite
293.4
Banded magnetite bands; garnet-schist
136.5
Banded magnetite bands; diamictite shist
136.8 Metapelites; carbonates
321.6
Schists and dolomites
293.6 Dolomite and metapelites
239.9 Garnet schist; metapelites
157.9
Schist; metapelites; Metamafi c rocks
264.5
Banded magnetite; massive magnetite; amphibolite; garnet schist
Total
9,044.10
7,600,52
(1) 1st Quarter 2011
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tsodilo resources limited
In 2010, 28 diamond drill holes were completed to a cumulative depth of 7,425.20 meters and some 6,186.20 meters of
core was recovered (Table 3). During the first two months of 2011 and additional 1,414.32 meters of core was recovered
from 1,618.90 meters of drilling. The objective of this first-phase program is to cover the whole license area on a wide
grid in order to identify potential mineralized deposits that are to be covered with detailed ground geophysics and
follow up drilling during the 2nd phase of the program. This latter phase is likely to start at the end of the 1st quarter in
2011.
One hundred forty-one (141) samples were submitted to various individuals and laboratories and thin sections were
prepared of these for petrographic analysis. Laboratory services for the assaying of core samples were obtained from
ALS Minerals in Johannesburg, South Africa and Scientific Services CC in Cape Town, South Africa. To date, 2,074 and
2,188 one-meter core samples have been submitted to these laboratories for analyses, respectively.
The drilling has identified three different geological domains with different mineralization styles and can be defined as
follows:
1. The shale basin to the north east of the project area contains a meta-sedimentary sequence which geologically
is very similar to the stratiform Cu-Co (Copper-Cobalt) province of the central African Copperbelt. Sediments are
composed of black shales, metapelites, meta-arenites, dolomites, with interbedded evaporates. Most lithologies are
mineralized with pyrite, pyrrhotite, and chalcopyrite.
2. The airborne geophysical data suggests that the sulphide-rich Matchless Amphibolite Belt (‘MAB’) traverses the
Company’s southern licences and south of the shale basin. Mineralisation is also associated skarn deposits. These
are related to massive magnetite, metabasites, metamafic units and granofels in contact with carbonates and
metasediments. Mineralization here is characterized by Cu, Ni, Ti, V, (Copper, Nickel, Titanium and Vanadium) and
La (Lanthanum) and Ce (Cerium) both of which are rare earth elements (REE’s). Elevated levels for Au (Gold) have
also been recorded in some samples.
3. The northern part of the area is underlain by the very strong Xaudum magnetic anomaly and recent drilling has
intersected multiple units of layered magnetite in a schist units. Mineralization associated with these extensive
magnetite bands, as measured with the Company’s recently acquired hand-held XRF unit, are characterized by
anomalous values of Co, V and Ti. The copper and gold showings south-east of the banded magnetite associated
with metabasic rocks (epidote-scapolite-albite-amphibolite) on the central part of the area suggests that the
mineralization model of Ngamiland could be associated with an Iron Oxide Copper Gold ore deposit (“IOCG”), also
referred to as the Ngamiland IOCG.
3. Radioactive licenses
The Company was granted two prospecting permits for radioactive minerals through its wholly owned subsidiary
Gcwihaba Resources (Pty) Ltd in northwest Botswana directly west of the Okavango River in 2010 and an additional
six licenses in the 1st Q of 2011. The area under license covers some 6,925 km2 (see Table 4). In general, the radioactive
license areas overlap the Company’s other diamond and metal licenses.
Table 4. Prospecting Licences held by Gcwihaba Resources (Radioactive Minerals)
PL numbers
PL 150/2010
PL 151/2010
PL 45-50/2011
Total
Km2
719
711
5,495
6,925
Commodity
Radioactive minerals
Radioactive minerals
Radioactive minerals
Renewal dates
mm/dd/yyyy
07/01/2013
07/01/2013
01/01/2014
Stage
Initial Grant
Initial Grant
Initial Grant
Company
Gcwihaba
Gcwihaba
Gcwihaba
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The Company is reviewing the exploration results from Union Carbide Exploration Corporation which had secured many
prospecting licences in west and northwest Botswana for uranium. The exploration program in northwest Botswana
(Ngamiland) started in 1977 and continued until 1980, and of particular interest are their findings of anomalous uranium
within what they called the Khaudum and Chadum palaeo-drainages covered by their PL’s 4/79, 5/79, 3/80, 4/80 and 5/80.
High counts of uranium in both calcrete and water samples and anomalous counts of vanadium from the water samples
were obtained. Up to 30 meter thick valley calcrete (the target calcrete) were drilled with geochemical anomalous
concentration of uranium in certain trap environments, However at the time, no ore-bodies were delineated, but Union
Carbide concluded “that there is definitely uranium in the system as is evident by some very high uranium contents in
the water samples” (Union Carbide Final report 1980 by DJ Jack).
The Company’s strategy is two-fold, first to conduct a geomorphological study of the area using remote sensing
techniques. This is to be linked to buried paleo-channels of Tertiary age that have been identified by geophysicist Scott
Hogg (2005) whilst interpreting the most recent government Airborne Magnetic data in the search for kimberlites on
overlapping Newdico (Pty) Ltd. diamond prospecting licences. Secondly, recent diamond drilling conducted by Gcwihaba
(Pty) Ltd on overlapping base metal licences have returned anomalous uranium and vanadium assay results in some of
the Proterozoic meta-sedimentary units underlying the Kalahari Group sediments. The recently obtained assay results
from borehole L9640/2 are particular encouraging because of the presence of up to 90ppm Uranium in parts of the core.
The link between these anomalous meta-sedimentary rocks and the surface uranium anomalies in the Kalahari calcretes
is yet to be established.
General
During the year, the Company continued its stewardship membership with AEON (Africa Earth Observatory Network)
at the University of Cape Town, Cape Town, South Africa. AEON under the direction of Dr. Maarten de Wit is a center
for Earth-systems science that provides a research and educational environment for consilience between earth and
life sciences, engineering, resource economics and the human sciences. AEON is developing earth stewardship as a
science and cultivates cutting-edge globally competitive research and analytical learning, using advanced tools and
technologies to promote an interdisciplinary view and exploration of our Earth and society, particularly in Africa. The
AEON science advisory group comprises 18 members spread across four continents, five South African universities and
from industry.
In addition, the University of Barcelona through Professor Joan Carles Melgarejo, a renowned mineralogist, and Tsodilo
are formulating a research project to further investigate the mineralogical composition of the ore minerals (sulfides,
precious metals and rare earth minerals) in order to clearly understand the mineralogical phases that have so far been
identified. Their first report concluded that most of the mineralization is found in quartz-sulfide-carbonate veins and
disseminated in metapelites and schists and they identified chalcopyrite and native gold as potential economic ores.
This first report, however, was limited to samples from only two boreholes (L9670/09 and 9680/11). In February 2011,
after a site visit by Professor Melgarejo, 200 hundred mineralized samples were prepared and sent to Barcelona to further
the research on the Tsodilo base metal mineralization model.
The Company has purchased an additional Atlas Copco CT 14 diamond core drill rig and four (4) Iveco 6x6 Trakker
support trucks. The new rig will be commissioned on site in the second quarter and enable the Company to immediately
increase the meters drilled.
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2010, the Company had net working capital of $2,698,411 (2009: $102,932), which included cash
and equivalents $2,728,695 (2009: $108,341). 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 completed private placements and exercise of warrants for an additional $5,752,697
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tsodilo resources limited
in January, June and November 2010, 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
except for minimum spending requirements on exploration licenses. The Company is required to spend a minimum on
prospecting over the period of its licenses. On licenses current as of December 31, 2010, the expenditure requirements
inclusive of license fees from the date of grant to and if held to their full term as well as actual and attributed expenditures
with respect thereto as of December 31, 2010, are as follows:
Project Description
Required Expenditure
Newdico
Gcwihaba - Diamond
Gcwihaba - Metals
Gcwihaba - Radioactive Minerals
BWP
3,639,490
1,177,264
5,051,380
1,544,970
USD
553,308
113,332
767,955
234,882
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.
The Company does not hold financial derivatives. 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 before working capital adjustment increased from $183,029 in fiscal December
31, 2009 to $354,561 for the year ended December 31, 2010. The increase was due primarily to remuneration, office
and administration, stock based compensation and foreign exchange expenses in 2010 which were greater than in
2009.
9
tsodilo resources limited
ANNUAL INFORMATION
(in US dollars)
Total Revenues
Loss before Non-controlling Interest
Basic and diluted loss per share
Non-controlling Interest
Net Loss for the Year
Basic and diluted loss per share
Total Assets
Total long term liabilities
Cash dividends declared
Fiscal
Year
Dec.31
2010
(744,651)
($0.04)
6,489
(738,162)
($0.04)
11,590,721
217,303
--
Fiscal
Year
Dec.31
2009
(331,162)
($0.02)
(4,040)
(327,122)
($0.02)
5,885,208
210,814
--
QUARTERLY INFORMATION
(in US Dollars)
Fiscal Year 2009 (ended December 31, 2009)
Total Revenues
Income (Loss) for the period
Basic and diluted loss per share
Total Assets
Total long term liabilities
Quarter 1
Quarter 2
Quarter 3
Quarter 4
--
(82,214)
--
4,989,799
211,615
--
(161,337)
($0.01)
5,151,428
262,361
--
--
(107,449)
($0.01)
5,339,383
277,661
19,888
--
5,885,208
210,814
Fiscal Year 2010 (ended December 31, 2010)
Total Revenues
Loss for the period
Basic and diluted loss per share
Total Assets
Total long term liabilities
See accompanying notes to the consolidate fi nancial statements
(141,379)
($0.01)
6,529,383
205,442
(376,053)
($0.01)
11,275,851
185,165
(200,317)
($0.01)
11,214,102
218,346
(20,413)
($0.01)
11,590,721
217,303
Investing Activities
Cash flow applied in investing activities increased to $2,728,303 for the year ended December 31, 2010 (2009: $1,051,584).
Total actual expenditures of $2,142,493 on exploration properties for the period ended December 31, 2010 were
attributable to the Newdico and Gcwihaba projects in northwest Botswana. Included in this amount is the proportionate
contributory share, ranging from 5.59% to 4.29% attributed to the Trans Hex Group for the Newdico project. There were
no material disposals of capital assets or investments during the year.
In December 2009, the board of directors of Newdico approved an exploration program and budget for the period
January 1 to December 31, 2010 that calls for expenditures totaling approximately Pula 9.8 million (approximately $1.45
million as of December 31, 2010). The 2011 budget envisions a macro-diamond sampling program and analysis for up
to three different kimberlites. Trans Hex Group is presently responsible for funding 4% of the expenses of this company.
The approved exploration program includes provision for additional drilling, soil sampling, ground geophysical surveys,
processing and analysis.
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tsodilo resources limited
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) financing 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 with each full such warrant entitling the holder to purchase one common share of the
Company for a purchase price equal to the unit price for a period of two to five years from the date of issuance.
During the year ended December 31, 2010, the Company received gross proceeds in the amount of $5,284,304 from the
issuance of units consisting of one common share and one warrant related to private placements; and gross proceeds in
the amount of $468,393 from the exercise of Warrants related to private placements.
Private Placement Date
January 22, 2010
June 29, 2010
Warrant Exercise Date
March 1, 2010
November 19, 2010
No. of Units
465,245
2,702,702
No. of Shares
457,907
234,035
Price per Unit
$0.97
$1.79
Price per Share
$0.67
$0.69
Proceeds
$451,944
$4,832,360
Proceeds
$304,896
$163,497
Tsodilo expects to raise the amounts required to fund its 96% share of the Newdico project, the Gcwihaba projects and corporate
general and administration expenses, by way of non-brokered private placements.
RESULTS OF OPERATIONS
On a consolidated basis, Tsodilo recorded a net loss of $738,162 in the fiscal year ended December 31, 2010 ($0.04
cents per common share) compared to a net loss of $327,122 in the fiscal period ended December 31, 2009 ($0.02
cents per common share). The Company experienced an increase in remuneration, office and administration, stock
based compensation and foreign exchange expenses reflecting general corporate activity. The increase in stock option
expense reflects the amount of option grants.
Exploration expenditures including amortization of property, plant and equipment used in exploration activities on
all projects amounted to $2,158,735 during the year ended December 31, 2010 compared to $1,202,652 for the year
ended December 31, 2009. Exploration expenditures incurred on the Newdico project for the year ended December 31,
2010 was $1,498,717 compared to $892,032 for the year ended December 31, 2009. The principal components of the
Newdico exploration program were: (a) additional soil sampling and the completion of the processing and analysis of the
soil samples; (b) commissioning of further ground magnetic surveys of selected aeromagnetic anomalies; (c) analyzing
detailed proprietary aeromagnetic maps covering the target areas; and (d) commencement of a diamond core drilling
program on selected targets. Exploration expenditures incurred on the Gcwihaba project for the year ended December
31, 2010 were $660,018 compared to $310,620 for the year ended December 31, 2009.
PERSONNEL
At December 31, 2010, the Company and its subsidiaries employed thirty (30) individuals compared to twenty-five (25) at
December 31, 2009, including senior officers, administrative and operations personnel including those on a short-term
service basis.
FOURTH QUARTER – 2010
The fourth quarter was a normal operating period for a quarter and year end. The Company made a full price deposit
for additional vehicles and drilling equipment for $870,805 which will position the Company to continue and expand its
drilling program and its geophysical surveys. Operating expenses were at normal levels for the last quarter of the year.
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tsodilo resources limited
RISKS AND UNCERTAINTIES
Operations of the Company are speculative due to the high risk nature of its business which includes acquisition,
financing, exploration and development of diamond and metal properties (collectively “mineral”). Material risk factors
and uncertainties, which should be taken into account in assessing the Company’s activities, include, but are not
necessarily limited to, those set below. Any one or more of these risks and others could have a material adverse effect
on the Company.
Additional Funding Requirements
Further development and exploration of the various mineral projects in which the Company holds an interest depends
upon the Company’s ability to obtain financing through equity or debt financing, joint ventures or other means. While
the Company has been successful in the past in obtaining financing through the sale of equity securities, there can be no
assurance that the Company will be successful in obtaining additional financing in the amount and at the time required
and, if available, that it can be obtained on terms satisfactory to the Company.
Failure to obtain equity or debt financing on a timely basis may cause the Company to postpone its exploration and
development plans or forfeit rights in some of its projects.
Uncertainties Related to Mineral Resource Estimates
There is a degree of uncertainty attributable to the calculation of mineral resources and corresponding grades being
mined or dedicated to future production. Until resources are actually mined and processed, the quantity of resources
and grades must be considered as estimates only. In addition, the quantity and value of reserves or resources may vary,
depending on mineral prices. Any material change in the quantity of resources, grades or stripping ratio may affect
the economic viability of the Company’s properties. In addition, there is no assurance that recoveries in small-scale
laboratory tests will be duplicated in larger-scale tests under on-site conditions, or during production. Determining the
economic viability of a mineral project is complicated and involves a number of variables.
Commodity Prices and Marketability
The mining industry, in general, is intensely competitive and there is no assurance that, even if commercial quantities
of minerals are discovered, a profitable market will exist for the sale of minerals produced. Factors beyond the control
of the Company may affect the marketability of any minerals produced and which cannot be accurately predicted, such
as market fluctuations, and such other factors as government regulations, including regulations relating to royalties,
allowable production, importing and exporting of minerals and environmental protection, any combination of which
factors may result in the Company not receiving an adequate return on investment capital. Prices received for minerals
produced and sold are also affected by numerous factors beyond the Company’s control such as international economic
and political trends, global or regional consumption and demand and supply patterns. There is no assurance that the
sale price of minerals produced from any deposit will be such that they can be mined at a profit.
Currency Risk
The Company’s business is mainly transacted in Botswana Pula and U.S. dollar currencies. As a consequence, fluctuations
in exchange rates may have a significant effect on the cash flows and operating results of the Company in either a
positive or negative direction.
Foreign Operations Risk
The Company’s current significant projects are located in Botswana. This exposes the Company to risks that may not
otherwise be experienced if its operations were domestic. The risks include, but are not limited to, environmental
protection, land use, water use, health safety, labor, restrictions on production, price controls, currency remittance,
and maintenance of mineral tenure and expropriation of property. There is no assurance that future changes in taxes
12
tsodilo resources limited
or such regulation in the various jurisdictions in which the Company operates will not adversely affect the Company’s
operations. Although the operating environments in Botswana are considered favorable compared to those in other
developing countries, there are still political risks. These risks include, but are not limited to terrorism, hostage taking,
military repression, expropriation, extreme fluctuations in currency exchange rates, high rates of inflation and labor
unrest. Changes in mining or investment policies or shifts in political attitudes may also adversely affect the Company’s
business.
Mineral Exploration and Development
The business of exploring for minerals and mining is highly, speculative in nature and involves significant financial
and other risks which even careful evaluation, experience and knowledge may not eliminate. There is no certainty that
expenditures made or to be made by the Company in exploring and developing mineral properties in which it has an
interest will result in the discovery of commercially mineable deposits. Most exploration projects do not result in the
discovery of commercially mineable deposit. While discovery of a mineral deposit may result in substantial rewards,
few properties which are explored are ultimately developed into producing mines. Major expenses may be required to
establish reserves by drilling and to construct mining and processing facilities at a site. There can be no guarantee that
exploration programs carried out by the Company will result in the development of profitable mining operations.
Title Matters
Any changes in the laws of Botswana relating to mining could have a material adverse effect to the rights and title to
the interests held in those countries by the Company. No assurance can be given that applicable governments will not
revoke or significantly alter the conditions of applicable exploration and mining authorizations nor that such exploration
and mining authorizations will not be challenged or impugned by third parties.
Infrastructure
Exploration, development, mining and processing activities depend on the availability of adequate infrastructure.
Reliable roads, bridges, sewer and water supply are important determinants which affect capital and operating costs.
Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance of provision
of such infrastructure could adversely affect activities and profitability of the Company.
Uninsured Risks
The mining business is subject to a number of risks and hazards including, but not limited to, environmental hazards,
industrial accidents, labor disputes, encountering unusual or unexpected geologic formations or other geological or
grade problems, encountering unanticipated ground or water conditions, cave-ins, pit wall failures, flooding, rock bursts,
periodic interruptions due to inclement or hazardous weather conditions and other acts of God. Such risks could result
in damage to mineral properties or facilities, personal injury or death, environmental damage, delays in exploration,
development or mining, monetary losses and possible legal liability. The Company maintains insurance against certain
risks that are associated with its business in amounts that it believes to be reasonable at the current stage of operations.
There can be no assurance that such insurance will continue to be available at economically acceptable premiums or will
be adequate to cover any future claim.
Competition
The mining industry is intensely competitive in all its phases and the Company competes with other companies that
have greater financial resources and technical capacity. Competition could adversely affect the Company’s ability to
acquire prospective properties in the future.
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tsodilo resources limited
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 (no such write-offs
were incurred in 2009 and 2010). 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.
The Company evaluates its license properties on a project basis as opposed to treating each individual license block as
a separate project.
ADOPTION OF NEW ACCOUNTING STANDARDS
New Accounting Pronouncements
Future Changes in Accounting Policies
International Financial Reporting Standards (“IFRS”)
In January 2006, the Canadian Accounting Standards Board adopted a strategic plan, which includes the decision to
move financial reporting for Canadian publicly accountable enterprises to a single set of globally accepted high-quality
standards, namely, International Financial Reporting Standards (“IFRS”), as issued by the International Accounting
Standards Board. The effective implementation date of the conversion from Canadian generally accepted accounting
principles (“Canadian GAAP”) to IFRS is January 1, 2011, with an effective transition date of January 1, 2010 for financial
statements prepared on a comparative basis. The Company is continuing to complete its review and is continually engaged
in an assessment and conversion process which includes consultation with external consulting firms. The Company’s two
operating subsidiaries currently prepare audited financial statements in accordance with IFRS. Accordingly, differences
relating to these operating subsidiaries have been previously identified.
As such, the Company’s transition plan to IFRS was primarily focused on transition issues relating to the consolidation
of the Company’s operating subsidiaries, and on accounting issues at the parent company level. This plan consisted of
three main phases, which are summarized as follows:
Scoping and Diagnostic Phase: An initial general diagnostic of its accounting policies and Canadian GAAP relevant
to its financial reporting requirements to determine the key differences and options with respect to acceptable
accounting standards under IFRS was completed in 2010. This phase is finalized and an overview of some of the
more significant differences identified to date are summarized below.
Impact Analysis, Evaluation and Design Phase: In this phase, each area identified during the scoping phase is
addressed to determine more specific changes required to existing accounting policies and identifying new policies
under IFRS. This phase includes analysis and conclusions on the accounting choices available under IFRS. The
Company has identified key areas that may have a material impact on the Company’s financial statements. These are
discussed in more detail in this Section of the Management, Discussions and Analysis (MD&A).
Implementation and Review Phase: This phase will include execution of any changes to business processes and
completion of formal documents analyzing the transition to IFRS for approval by the Board of Directors. It will also
include the final production of complete IFRS-Compliant financial statements for review by the Audit Committee.
14
tsodilo resources limited
As a result of the procedures performed to date, we have initially identified the following significant differences between
Canadian GAAP and IFRS that will impact the Company:
Stock Based Compensation Expense
Exploration and Evaluation Costs of Mineral Resources
Property, Plant and Equipment & Depreciation
Foreign Exchange
Non-Controlling Interest
Warrants
Disclosures
These are discussed as follows:
Elections under IFRS 1
The Company is still evaluating the various elections provided under IFRS 1; however, the expectation is that the
Company:
(i) Will elect to deem unrealized losses on translation of self-sustaining foreign operations to be zero and reclassify
the previous balance to opening retained earnings
(ii) Will not elect to apply IFRS 3 to past business combinations
(iii) Will elect that stock-based payments (Stock-based compensation) vested as at December 31, 2009 will not be
retrospectively applied.
IFRS 2– Stock Based Compensation Expense
The Company issues share-based compensation in the form of stock options that vest evenly (semi-annually) over a two
year period, Under Canadian GAAP, the company recognized the fair value of the compensation expenses, determined at
the time of the grant, on a straight-line basis over the two year vesting period. Under IFRS 2, Share Based Payments, the
fair value of each tranche of the award is considered to be a separate grant based on its vested period. The fair value of
each tranche is determined separately and recognized as compensation expense over the term of this respective vesting
period. Accordingly, compensation expense under IFRS will be recognized on a more accelerated basis as compared to
Canadian GAAP.
IFRS 6 - Exploration and Evaluation Costs of Mineral Resources
This standard applies to expenditures incurred on properties in the exploration and evaluation (E & E) phase. The E & E
phase begins when an entity obtains the legal rights to explore a specific area and ends when the technical feasibility
and commercial viability of extracting a mineral resource are demonstrable. IFRS 6 requires entities to select and
consistently apply an accounting policy specifying which E & E expenditures are capitalized and which are expensed.
The Company policy has been under Canadian GAAP to capitalize E & E and it will continue to capitalize E & E under IFRS.
Each year the company analyses the projects under evaluation for impairment, and will expense those portions impaired
on an annual basis.
The Company will not change its accounting policies for exploration and evaluation cost, as its subsidiaries (Gcwihaba
and Newdico) have been preparing its financial statements in accordance with IFRS for years.
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tsodilo resources limited
IAS 16 - Property, Plant and Equipment & Depreciation
The Company expects the carrying value of it property, plant and equipment to remain the same upon conversion to
IFRS. The Company will continue to use historical cost for its plant, property and equipment such that no adjustment
between Canadian GAAP and IFRS is expected.
IAS 21 – Foreign Exchange
The Company is currently finalizing its evaluation of the functional currency for its two operating subsidiaries. If the
functional currency is determined to be the U.S. Dollar, the Company does not expect any significant change. If, however,
the functional currency of these two subsidiaries is determined to be Botswana Pula, the Company will start to translate
the results of these subsidiaries in accordance with the current rate method.
If the current rate method is required under IFRS, the Company plans to use the election available under IFRS 1 to set
the foreign exchange translation adjustment account to zero as at December 31, 2009. After that time, exchange gains
and losses on the translation of the Company’s two operating subsidiaries would be shown as a separate component in
shareholders’ equity.
IAS 27 – Non – Controlling Interests
The Company will reclassify its non-controlling interest to shareholders’ equity in accordance with IFRS.
IAS 32 – Warrants denominated in a different functional currency
The Company will reclassify its Warrants from the equity presentation to derivative liabilities. Because the strike price of
the warrants is in a currency that is different from the Company’s functional currency, IFRS requires that the warrants be
reclassified from shareholders’ equity to liabilities. In addition, warrants will be revalued at each report date with gains
and losses recognized in the Statement of Operations. The Company is currently preparing its estimate of the fair value
of the warrants as at December 31, 2009 and 2010.
Presentation and Disclosure
IFRS requires significantly more disclosure that Canadian GAAP for certain statements. The Company is currently
finalizing the specific additional disclosures that are required.
The above comments and discussions should not be considered as a complete list of changes that will result from the
transition to IFRS as the Company’s analysis is continual. However, all requirements to date are in place to meet the
first interim reporting period March 31, 2011. In addition, the accounting bodies responsible for issuing Canadian and
IFRS accounting standards have significant ongoing projects that could impact the Company’s financial statements
as at January 1, 2011 and in subsequent years, including projects regarding income taxes and financial instruments.
Furthermore, there is an extractive industries project currently underway that will lead to more definitive guidance on
the accounting for exploration and evaluation expenditures. The Company is continuing to monitor the development of
these projects and will assess their impact in the course of its compliance with IFRS. Finally the Company believes that
its information technology, accounting and financial reporting systems are capable of handling these changes.
The Canadian Accounting Standards Board (AcSB) requires that all public companies to adopt IFRS, replacing Canadian GAAP, for
interim and annual fi nancial statements relating to fi scal years beginning on or after January 1, 2011. As a result, the Company will
adopt IFRS on January 1, 2011 and prepare comparative fi nancial information for the year ended December 31, 2010 under IFRS.
Business combinations and related sections
In January 2009, the CICA issued Section 1582 “Business Combinations” to replace Section 1581. Prospective application
of the standard is effective January 1, 2011. This new standard effectively harmonizes the business combinations standard
under Canadian GAAP with International Financial Reporting Standards (“IFRS”). The new standard revises guidance on
16
tsodilo resources limited
the determination of the carrying amount of the assets acquired and liabilities assumed, goodwill and accounting for
non-controlling interests at the time of a business combination.
The CICA concurrently issued Section 1601 “Consolidated Financial Statements” and Section 1602 “Non-Controlling
Interests,” which replace Section 1600 “Consolidated Financial Statements.” Section 1601 provides revised guidance
on the preparation of consolidated financial statements and Section 1602 addresses accounting for non-controlling
interests in consolidated financial statements subsequent to a business combination. These standards are effective
January 1, 2011.
RELATED PARTY TRANSACTIONS
During the years ended December 31, 2010, 2009 and 2008, the Company incurred leave benefits (2010: $33,293 2009:
$19,024, 2008: $19,024) payable to an officer and director of the Company amounting to $71,341. In June 2010, the
Company paid the officer and director of the Company $59,451 leaving a payable to an officer and director of the
Company amounting to $11,890. In addition at December 31, 2010, the Company had salary payable to the officer and
director of $5,531.
The Company borrowed funds from a person who is an officer and director of the Company in fiscal years 2008 and 2007.
The loans were interest free, payable upon demand and had no other terms of repayment. The outstanding loans of
$105,000 were incurred and paid in 2009, leaving a zero balance.
OUTLOOK
Diamond and metal 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 commodity 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.
James M. Bruchs
Chairman & CEO
March 15, 2011
Gary A. Bojes
Chief Financial Officer
March 15, 2011
17
tsodilo resources limited
Financial Reporting Responsibility of Management
The annual report and consolidated financial statements
its responsibilities for financial reporting and internal
have been prepared by management. The consolidated
control. The Audit Committee is composed of three
financial statements have been prepared in accordance
directors, all of whom qualify as unrelated directors
with Canadian generally accepted accounting principles
and are independent of management and free from any
and
include amounts that are based on
informed
interest or business relationship which could, or could
judgments and best estimates. The financial information
be perceived to materially interfere with their ability to
presented
in this annual report
is consistent with
act in the best interests of the Company. This committee
the consolidated
financial statements. Management
meets periodically with management and the external
acknowledges responsibility for the fairness, integrity
auditors to review accounting, auditing, internal control
and objectivity of all information contained in the annual
and financial reporting matters. The Audit Committee
report including the consolidated financial statements.
reviews the annual financial statements before they are
Management is also responsible for the maintenance of
presented to the Board of Directors for approval and
financial and operating systems, which include effective
considers the independence of the auditors.
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 responsible for ensuring that management fulfills
The consolidated financial statements for the years
ended December 31, 2010 and 2009 have been audited
by Ernst & Young LLP, the external auditors, in accordance
with Canadian generally accepted auditing standards on
behalf of the shareholders. Their report follows hereafter.
James M. Bruchs
Chairman and Chief Executive Officer
March 15, 2011
Gary A. Bojes
Chief Financial Officer
March 15, 2011
18
tsodilo resources limited
AUDITORS’ REPORT
To the Shareholders of Tsodilo Resources Limited:
We have audited
the accompanying consolidated
the consolidated financial statements. The procedures
financial statements of Tsodilo Resources Limited, which
selected depend on the auditors’ judgment, including
comprise the consolidated balance sheets as at December
the assessment of the risks of material misstatement
31, 2010 and 2009, and the consolidated statements of
of the consolidated financial statements, whether due
operations and comprehensive loss, shareholders’ equity
to fraud or error. In making those risk assessments, the
and cash flows for the years then ended, and a summary
auditors consider internal control relevant to the entity’s
of significant accounting policies and other explanatory
preparation and fair presentation of the consolidated
information.
Management’s responsibility for the consolidated
fi nancial statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in
accordance with Canadian generally accepted accounting
principles, and for such internal control as management
determines is necessary to enable the preparation of
consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian
generally accepted auditing standards. Those standards
require that we comply with ethical requirements and
plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are
free from material misstatement.
An audit
involves performing procedures to obtain
audit evidence about the amounts and disclosures in
financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in
our audits is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial
position of Tsodilo Resources Limited as at December 31,
2010 and 2009 and the results of its operations and its
cash flows for the years then ended in accordance with
Canadian generally accepted accounting principles.
Vancouver, Canada
March 15, 2011
Chartered Accountants
19
tsodilo resources limited
Tsodilo Resources Limited
Consolidated Balance Sheets
As at December 31, 2010 and 2009
(in United States dollars)
ASSETS
Current
Cash
Accounts receivable and prepaid expenses
Exploration Properties (note 3)
Property, Plant and Equipment (note 4)
Deposit on Equipment (note 4)
LIABILITIES
Current
Accounts payable and accrued liabilities
Non-Controlling Interest (note 3)
SHAREHOLDERS’ EQUITY
Share Capital (note 5)
Warrants (note 5b)
Contributed Surplus (note 5c)
Accumulated Other Comprehensive Loss
Defi cit
2010
2009
$ 2,728,695
$ 108,341
65,171
2,793,866
7,520,380
405,670
870,805
67,640
175,981
5,361,645
347,582
--
$ 11,590,721
$ 5,885,208
$ 95,455
95,455
217,303
30,290,847
5,059,260
9,114,311
(837,425)
(32,349,030)
11,277,963
$ 11,590,721
$ 73,050
73,050
210,814
28,696,445
1,131,904
8,221,288
(837,425)
(31,610,868)
5,601,344
$ 5,885,208
Subsequent events (note 13)
Commitments (note 11)
See accompanying notes to the consolidated fi nancial statements
APPROVED ON BEHALF OF THE BOARD OF DIRECTORS
David J. Cushing
Chairman, of the Audit Committee
James M. Bruchs
Chairman
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tsodilo resources limited
Tsodilo Resources Limited
Consolidated Statements of Operations and Comprehensive Loss
For the years ended December 31, 2010 and 2009
(in United States dollars)
Expenses
Corporate remuneration
Corporate travel and subsistence
Investor relations
Legal and audit
Filings and regulatory fees
Offi ce and administration
Amortization
Foreign exchange loss (gain)
Stock-based compensation (note 5(d))
Loss before non-controlling interest
Non-controlling interest – (Income) Loss
Loss and comprehensive loss for the year
Basic and diluted loss per share (note 7)
2010
2009
$ 79,692
$ 16,194
4,092
9,500
63,878
22,635
148,255
2,035
39,487
375,077
(744,651)
(6,489)
$(738,162)
$(0.04)
1,332
9,028
36,058
20,470
117,769
1,421
(17,822)
146,712
(331,162)
4,040
$(327,122)
$(0.02)
See accompanying notes to the consolidated fi nancial statements
Tsodilo Resources Limited
Consolidated Statements of Defi cit
For the years ended December 31, 2010 and 2009
(in United States dollars)
2010
2009
Defi cit – Beginning of year
$(31,610,868)
$(31,283,746)
Comprehensive loss for the year
(738,162)
(327,122)
Defi cit - End of year
$(32,349,030)
$(31,610,868)
The accompanying notes are an integral part of these consolidated fi nancial statements.
21
tsodilo resources limited
Share Capital
Warrants
Contributed
Surplus
Comprehensive
Loss
Defi cit
TOTAL
Shareholders’
Equity
Shares
Dollars
15,423,733
$27,862,864
$417,815
$7,798,255
$(837,425)
$(31,283,746)
$3,957,763
18,787,457
$28,696,445
$1,131,904
$8,221,288
$(837,425)
$(31,610,868)
$5,601,344
--
--
--
--
--
--
--
--
--
1,808,899
--
--
161,804
(327,122)
(327,122)
--
--
--
--
--
--
--
--
--
5,678,344
--
--
736,437
(738,162)
(738,162)
Tsodilo Resources Limited
Consolidated Statements of Shareholders’ Equity
For the years ended December 31, 2010 and 2009
(in United States dollars)
Balance December
31, 2008
Shares and warrants
issued for Cash
(note 5)
Ascribed to Warrants
issued 2009
Warrants Expired
Stock Based
Compensation
Comprehensive Loss
for 2009
Balance December
31, 2009
Shares and warrants
issued for Cash
(note 5)
Ascribed to Warrants
issued 2010
Warrants Expired
Stock Based
Compensation
Comprehensive Loss
for 2010
Balance December
31, 2010
--
--
--
--
3,363,724
1,808,899
--
(975,318)
975,318
--
--
--
(261,229)
261,229
--
--
161,804
--
3,859,883
5,678,344
--
(4,083,942)
4,083,942
--
--
--
(156,586)
156,587
--
--
736,436
--
--
--
--
--
--
--
--
--
The accompanying notes are an integral part of these consolidated fi nancial statements.
22
tsodilo resources limited
22,647,340
$30,290,847
$5,059,260
$9,114,311
$(837,425)
$(32,349,030)
$11,277,963
Tsodilo Resources Limited
Consolidated Statements of Cash Flows
For the years ended December 31, 2010 and 2009
(in United States dollars)
Cash provided by (used in):
Operating Activities
Net Loss for the year
Adjustments for non-cash items:
Amortization
Non-controlling interest
Stock-based compensation
Net change in non-cash working capital balances (note 12)
Investing Activities
Additions to exploration properties
Additions to property, plant and equipment
Deposit on Equipment
Financing Activities
Repayment of shareholder loan
Shares and warrants issued for cash, net of cost
Change in cash - For the year
Cash - beginning of year
Cash - end of year
2010
2009
$ (738,162)
$ (327,122)
2,035
6,489
375,077
(354,561)
24,874
(329,687)
(1,619,058)
(238,440)
(870,805)
(2,728,303)
--
5,678,344
5,678,344
2,620,354
108,341
$ 2,728,695
1,421
(4,040)
146,712
(183,029)
(337,772)
(520,801)
(1,038,859)
(12,725)
--
(1,051,584)
(105,000)
1,723,899
1,618,899
46,514
61,827
$ 108,341
The accompanying notes are an integral part of these consolidated fi nancial statements.
23
tsodilo resources limited
Tsodilo Resources Limited
Notes to the Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
1. NATURE OF OPERATIONS
Tsodilo Resources Limited (“Tsodilo” or “the Company”) is an exploration stage 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 exploration 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 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, 2010, the Company reported an accumulated deficit of $32,349,030 [2009: $31,610,868] and negative
net cash outflows from operations before changes in working capital of $354,561 [2009: $183,029] for the year then
ended and current required exploration property license commitments (which may be reduced by relinquishing licenses
prior to the expiry of their call term) of approximately Botswana Pula 11,413,104 ($1,735,124 to the end of the license).
The cash position of the Company is sufficient to finance the Company’s continued exploration and meet its requisite
expenditures in 2011.
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 or if the necessary financing cannot be raised.
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 the following direct and indirect subsidiaries:
Tsodilo Resources Bermuda Limited (Bermuda)
Gcwihaba Resources (Proprietary) Ltd (“Gcwihaba”) [Botswana]
Newdico (Proprietary) Limited (“Newdico”) [Botswana].
All intercompany transactions have been eliminated on consolidation
Earnings (loss) per Share
2010
100%
100%
96%
2009
100%
100%
95%
Basic loss per share is calculated using the weighted average number of shares outstanding during the year. Loss per
share calculations are based on the weighted average number of common shares and common shares equivalents issued
and outstanding during the year. Diluted loss per share are calculated using the treasury method which requires the
calculation of diluted loss per share by assuming that outstanding stock options and warrants with the average market
price that exceeds the average exercise prices of the options and warrants for the year are exercised and the assumed
proceeds are used to repurchase shares of the Company at the average market price of common shares for the year. Basic
loss per share is the same as diluted loss per share because diluted loss per share is anti-dilutive.
24
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of financial statements in accordance 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 and the reported amounts of revenues and expenses
during the periods. Actual results could differ from those estimates.
Significant accounts that require estimates relate to the possible impairment of property, plant and equipment and
mineral property interest, the useful life of property, plant and equipment, valuation allowances for future income taxes,
valuation of investments, valuation of stock-based compensation and warrants in private placements.
Exploration Properties
All direct and indirect 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. Exploration costs that do not relate to specific
non-producing mining properties are expensed as incurred.
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.
On an ongoing basis the capitalized costs are reviewed to consider if there is any impairment on the subject mineral
property interest. The Company conducts this evaluation on a project specific basis as opposed to treating each
individual license block as a separate project. If a property is deemed impaired, an impairment loss is measured and
recorded based on the net recoverable value of the asset.
Property, Plant and Equipment
Property, plant and equipment are amortized on a straight-line basis over its estimated useful life of three to five years.
Cash
Cash consists of cash held in banks.
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 and are translated into the US dollar equivalent using the temporal method. 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 assets and liabilities denominated in foreign currencies are translated at the exchange
rate in effect at the consolidated 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 rates of
exchange approximating those in effect at the time of the transaction. Foreign exchange gains and losses are included
in the consolidated statements of operations.
Income Taxes
The Company uses the 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
tax asset if it is more than likely than not that the asset will not be realized. Future income tax assets and liabilities are
25
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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
The Company 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 3,942,120 shares of common stock. The exercise price is determined by
the Chairman and CEO of the Company 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 five 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
An asset retirement obligation is a legal obligation associated with the retirement of tangible long-lived assets that the
Company is required to settle. The Company recognizes the fair value of the liability for an asset retirement obligation
in the year in which it is incurred and when a reasonable estimate of fair value can be made. The carrying amount of
the related long-lived asset is increased by the same amount as the liability. The Company currently does not have any
material asset retirement obligations.
Financial Instruments and Comprehensive Loss
Financial instruments are classified into one of five categories: held-for-trading, held-to-maturity, loans and receivables,
available-for-sale financial assets or other financial liabilities. All financial instruments, including derivatives, are
measured in the consolidated balance sheet at fair value at the date of acquisition. Subsequent measurement and
accounting for changes in fair value will depend on the initial classification, as follows:
I.
II.
held-for-trading financial assets are measured at fair value and changes in fair value are recognized in net income;
available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other
comprehensive income (loss) until the investment is no longer recognized or impaired, at which time the amounts
would be recorded in net income (loss); and
III.
loans and receivables, held-to-maturity investments and other financial liabilities, are measured at amortized
cost.
The Company designated its cash as held-for-trading, which is measured at fair value. Accounts receivable are classified
as loans and receivables, which are measured at amortized cost. Accounts payable and accrued liabilities are classified
as other financial liabilities, which are measured at amortized cost.
Transaction costs directly attributable to the acquisition or issuance of financial instruments are recognized in net
income (loss) in the period incurred.
26
tsodilo resources limited
3. EXPLORATION PROPERTIES
Exploration properties are summarized as follows
Balance at December 31, 2008
Jan. to Dec 2009 expenditures
Balance at December 31, 2009
Jan. to Dec 2010 expenditures
Balance at December 31, 2010
Newdico
Botswana
$ 3,787,002
892,032
$4,679,034
1,498,717
$6,177,751
Gcwihaba
Botswana
$ 371,991
310,620
682,611
660,018
$1,342,629
Total
$ 4,158,993
1,202,652
$5,361,645
2,158,735
$7,520,380
A summary of the signifi cant agreements entered into by the Company is as follows:
Newdico (Proprietary) Limited (“Newdico”) - 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, renewable for 2 two year periods upon application and which have a final expiry of June
2012. In June of 2008, Newdico relinquished approximately 7,400 square kilometers of the then outstanding 16,800
square kilometers under license. The licenses relinquished were evaluated and determine to be non-prospective for
an economic kimberlite discovery. In June of 2010, Newdico relinquished approximately 5,463 of the then outstanding
9,402 square kilometers under license. The relinquishment of this portion of the overall licenses did not cause a
reduction or change in the continuing overall exploration program nor impact the chances of the overall success of the
program. The balance of the licenses totaling 3,949 square kilometers were renewed for a two-year period. The terms
of the licenses require Newdico to spend a minimum of Botswana Pula 3,839,490 ($553,308) as at December 31, 2010)
inclusive of license fees from the date of grant to and if the licenses were held to their full term.
Originally, as a result of an agreement completed on March 31, 2002, Newdico was held 75% by Tsodilo and 25% by Trans
Hex Group Limited (“THG”) with Tsodilo being the operator. Both Tsodilo and THG funded their initial investments in the
Ngami property held by Newdico through a combination of an equity interest and a primary loan interest. Based on the
terms of the equity and primary loan interests, THG’s interest in Newdico has been accounted for as a non-controlling
interest. As at December 31, 2010, the amount reflected as non-controlling interest was $217,303 (2009: $210,814).
Starting in 2005, THG decided not to fund its proportionate share of expenditures on certain cash calls. Accordingly, the
Company’s interest in Newdico increased from 75% to 96% at December 31, 2010. During the year ended December 31,
2010, THG did not fund its proportionate share of expenditures on cash calls, and therefore, the Company’s interest in
Newdico increased to 96% at December 31, 2010 in accordance with the agreement between the two parties.
THG has also advanced funds, designated as a secondary loan, amounting to $287,270 CAD ($287,204 as at December
31, 2010; 2009: $273,750) to Newdico, relating to exploration properties which had been written off prior to March 31,
2002. This liability has not been recorded in these financial statements as it is repayable only from THG’s share of any
future earnings of Newdico after repayment of loans relating to the Newdico project.
27
tsodilo resources limited
3. EXPLORATION PROPERTIES (continued)
Gcwihaba Resources (Proprietary) Ltd (“Gcwihaba”) – Botswana
Gcwihaba, a wholly owned subsidiary of the Company, holds prospecting licenses in the Ngamiland project area.
Diamond Exploration
Gcwihaba holds six (6) precious stone – diamond prospecting licenses in the Ngamiland District of northwest Botswana
covering 3,728 square kilometers as at December 31, 2010. The Company acquired the various licenses in 2007,
2008 and 2009. In April 2010, the Company relinquished PL 062/2007 in its entirety and PL’s 048 and 050/2008 were
relinquished in their entirety in December 2010. PL’s 046, 047 and 049/2008 were reduced in part in December 31, 2010.
The licenses relinquished were evaluated and determine to be non-prospective for an economic kimberlite discovery.
The relinquishment of this portion of the overall licenses did not cause a reduction or change in the continuing overall
exploration program nor impact the chances of the overall success of the program. The terms of the licenses require
Gcwihaba to spend a minimum of Botswana Pula 1,177,264 ($178,978) as at December 31, 2010, inclusive of license fees
from the date of grant to and if the licenses were held to their full term. Licenses that are expected to be renewed as of
January 1, 2011 are represented in these figures.
Metal Exploration
Gcwihaba holds eighteen metal (18) (base, precious, platinum group, and rare earth) prospecting licenses in the
Ngamiland District of northwest Botswana covering 12,118 square kilometers. The Company acquired the various
licenses in 2005, 2008 and 2009. In October 2010, PL’s 118 and 119/2005 were relinquished in part and in December
2010, PL’s 051 and 052/2008 were relinquished in part. The relinquishment of this portion of the overall licenses did not
cause a reduction or change in the continuing overall exploration program nor impact the chances of the overall success
of the program. The terms of the licenses require Gcwihaba to spend a minimum of Botswana Pula 5,051,380 ($767,956)
as at December 31, 2010) inclusive of license fees from the date of grant to and if the licenses were held to their full term.
Licenses that are expected to be renewed as of January 1, 2011 are represented in these figures.
Radioactive Minerals
As at December 31, 2010, Gcwihaba holds two (2) radioactive mineral licenses in the Ngamiland District of northwest
Botswana covering 6,925 square kilometers. The Company acquired the licenses in July 2010. The terms of the licenses
require Gcwihaba to spend a minimum of Botswana Pula 1,544,970 ($234,882) inclusive of license fees from the date of
grant to and if the licenses were held to their full term. Licenses that were granted January 1, 2011 are represented in
these figures. Expenditures from July 1 to December 31, 2010 were minimal.
General
Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of permits and
the potential for problems arising from government conveyance accuracy, prior unregistered agreements or transfers,
native land claims, confirmation of physical boundaries, and title may be affected by undetected defects. The Company
does not carry title insurance. The Company has evaluated title to all of its mineral properties and believes, to the best of
its knowledge, that evidence of title is adequate and acceptable given the current stage of exploration.
28
tsodilo resources limited
4. PROPERTY, PLANT and EQUIPMENT
Amortization
Rate in Years
December 31, 2010
Vehicles, Drilling and Survey
Equipment
Furniture and Equipment
December 31, 2009
Vehicles, Drilling and Survey
Equipment
Furniture and Equipment
5 Years
3 Years
5 Years
3 Years
Cost
$1,002,727
247,388
$1,250,115
$887,855
123,819
$ 1,011,674
Accumulated
amortization
Book value
$721,698
122,747
$844,445
$571,018
93,074
$ 664,092
$281,029
124,641
$405,670
$ 316,837
30,745
$ 347,582
For the year ended 2010, an amount of $178,317 (2009: $147,952) of amortization has been capitalized under exploration
properties.
The Company had purchased $870,805 of drilling equipment being custom designed, with delivery expected at the end of the
1st Quarter, 2011.
5. SHARE CAPITAL
(a) Common Shares
Authorized, Issued and outstanding
The authorized capital stock of the Company comprises an unlimited number of common shares with no par value.
Details of the issued and outstanding common shares are as follows:
Issued and outstanding at December 31, 2008
On private placement for cash (i)
On private placement for cash (ii)
On private placement for cash (iii)
On private placement for cash (iv)
Share issue costs
Ascribed to warrants issued in 2009
Issued and outstanding at December 31, 2009
On private placement for cash (v)
On Issuance of warrants for cash (vi)
On private placement for cash (vii)
On private placement for cash (viii)
Share issue costs
Ascribed to warrants issued in 2010
Issued and outstanding at December 31, 2010
Shares
(number)
15,423,733
728,061
331,386
201,519
2,102,758
--
--
18,787,457
465,245
457,901
2,702,702
234,035
--
--
22,647,340
Amount
$
27,862,864
405,000
200,000
121,400
1,095,000
(12,501)
(975,318)
28,696,445
451,944
304,896
4,832,360
163,497
(74,353)
(4,083,942)
30,290,847
29
tsodilo resources limited
5. SHARE CAPITAL (continued)
(i) Private Placement
On February 26, 2009, the Company issued, through a non-brokered private placement, 728,061 units of the Company
at a price of $0.56 (C$0.70) per unit for gross proceeds to the Company of $405,000. 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$0.70) for a period of two years.
(ii) Private Placement
On June 8, 2009, the Company issued, through a non-brokered private placement, 331,386 units of the Company at a
price of $0.60 (C$0.70) per unit for gross proceeds to the Company of $200,000. 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$0.70) for a period of two years.
(iii) Private Placement
On August 5, 2009, the Company issued, through a non-brokered private placement, 201,519 units of the Company at a
price of $0.60 (C$0.70) per unit for gross proceeds to the Company of $121,400. 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$0.70) for a period of two years.
(iv) Private Placement
On December 22, 2009, the Company issued, through a non-brokered private placement, 2,102,758 units of the Company
at a price of $0.52 (C$0.55) per unit for gross proceeds to the Company of $1,095,000. 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$0.55) for a period of two years.
(v) Private Placement
On January 22, 2010, the Company issued, through a non-brokered private placement, 465,245 units of the Company
at a price of $0.97 (C$1.00) per unit for gross proceeds to the Company of $451,944. 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$1.00) for a period of two years.
(vi) Stock issued from exercise of warrants
On March 1, 2010, 457,901 warrants were exercised at a price of C$0.70 for proceeds to the Company of $304,896.
(vii) Private Placement
On June 29, 2010, the Company issued, through a non-brokered private placement, 2,702,702 units of the Company at
a price of $1.79 (C$1.85) per unit for gross proceeds to the Company of $4,832,360. 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$2.17 for a period of five years.
(viii) Private Placement
On November 19, 2010, 234,035 warrants were exercised at a price of C$0.70 for proceeds to the Company of $163,497.
30
tsodilo resources limited
5. SHARE CAPITAL (continued)
(b) Warrants
As at December 31, 2010, the following warrants were outstanding:
Number of Warrants
Exercise
Price
December
31, 2009
Expiry
March 10, 2010
C$0.70
457,901
November 14, 2010
C$0.70
463,852
February 26, 2011
C$0.70
728,061
June 3, 2011
C$0.70
331,386
August 4, 2011
C$0.70
201,519
December 22, 2011
C$0.55
2,102,758
Issued
[Exercised]
(Expired)
[457,901]
[234,035]
(229,817)
--
--
--
--
December
31, 2010
December
31,2009
--
--
104,958
51,628
728,061
157,751
331,386
104,159
201,519
60,056
2,102,758
653,352
January 20, 2012
June 29, 2015
C$1.00
C$2.17
--
--
465,245
465,245
2,702,702
2,702,702
--
--
Value
Issued
[Exercised]
(Expired)
[104,958]
[26,048]
(25,580)
--
--
--
--
354,213
December
31, 2010
--
--
157,751
104,159
60,056
653,352
354,213
3,729,729
3,729,729
4,285,477
2,246,194
6,531,671
$1,131,904
$3,927,356
$5,059,260
On March 10, 2010, 457,901 warrants were exercised. On November 14 2010, 234,035 warrants were exercised and
229,817 expired. During the year ended December 31, 2010, warrants were valued using the Black-Scholes model, using
key assumptions of volatility ranging from 101% to 206% (2009: 139% to 170%), a risk-free interest rate ranging from
approximately 0.87% to 1.78% (2009: 0.9% to 1.42%), a term equivalent to the life of the warrant, and a dividend rate of
zero percent.
(c) Contributed Surplus
As at December 31, 2008
Relating to the expiry of warrants
Relating to stock based compensation
As at December 31, 2009
Relating to the exercise and expiry of warrants
Relating to stock based compensation
As at December 31, 2010
$ 7,798,255
261,229
161,804
8,221,288
156,587
736,436
$ 9,114,311
31
tsodilo resources limited
5. SHARE CAPITAL (continued)
(d) Stock Option Plan
Outstanding stock options granted to directors, officers and employees at December 31, 2010 were as follows:
Expiry
January 3, 2010
August 18, 2010
January 3, 2011
April 24, 2011
August 15, 2011
January 2, 2012
May 8, 2012
January 2, 2013
May 8, 2013
January 2, 2014
May 3, 2014
Price
C$1.85
C$1.25
C$1.25
C$0.70
C$0.70
C$1.00
C$0.80
C$0.70
C$0.70
C$0.70
C$0.70
November 1, 2014
C$0.55
January 9, 2015
May 4, 2010
C$1.00
C$2.23
Outstanding
Granted
Outstanding
December
31, 2008
[Cancelled]
(Exercised)
December
31, 2009
Granted
[Cancelled]
(Exercised)
Outstanding
December
31, 2010
Exercisable
December
31, 2010
50,000
160,000
50,000
150,000
65,000
75,000
400,000
210,000
350,000
--
--
--
--
--
--
--
--
--
--
--
--
--
--
225,000
360,000
100,000
--
--
50,000
160,000
50,000
150,000
65,000
75,000
400,000
210,000
350,000
225,000
360,000
100,000
--
--
--
--
--
--
--
--
--
--
--
--
--
--
190,000
550,000
(i)
(i)
(i)
(i)
(i)
(i)
(i)
(i)
(i)
(ii)
(ii)
(ii)
[50,000]
[160,000]
--
--
--
--
--
--
--
--
--
--
--
--
--
--
50,000
150,000
65,000
75,000
400,000
210,000
350,000
225,000
360,000
100,000
190,000
550,000
--
--
50,000
150,000
65,000
75,000
400,000
210,000
350,000
225,000
360,000
75,000
95,000
275,000
Total
1,510,000
685,000
2,195,000
740,000
[210,000]
2,725,000
2,330,000
Options exercisable at end of
year
Weighted average exercise
price
1,480,000
1,827,500
2,330,000
- issued
- outstanding
- exercisable
C$0.83
C$0.91
C$0.94
C$0.68
C$0.80
C$0.83
C$1.94
C$1.08
C$0.93
All options have a term of five years.
(i)
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.
(ii)
On January 10, 2010, the Company under its Stock Option Plan issued 190,000 options at C$1.00 to persons who
are directors, officers and employees of the Company. On May 4, 2010, the Company under its Stock Option Plan issued
550,000 options at C$2.23 to persons who are officers and employees of the Company.
The Company recognized an expense of $375,077 (2009: $146,712) relating to the fair value of options granted and vesting
during the year. In addition, $361,360 (2009: $15,092) of stock-based compensation was capitalized into exploration
properties. The fair value of options granted was calculated using the Black-Scholes model, using key assumptions of
volatility ranging from 105% to 151% (2009: 115% to 133%), risk-free interest rates ranging from approximately 1.10 to
3.76% (2009: 1.7% to 2.3%), a term equivalent to the life of the option, and a dividend rate of zero percent.
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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 31.00% (2009: 33.00%) to loss before income taxes as follows:
December 31, 2010
December 31, 2009
Net loss for the year
Income tax recovery at Canadian statutory
Income tax rates
Eff ect of statutory tax rate change
Foreign operation taxed at lower rates
Permanent diff erences
Change in valuation allowances
Expiry of tax losses
Changes in estimate and foreign exchange
Other
Provision for (recovery of ) income taxes
$(738,162)
31.00%
(228,830)
(7,809)
7,143
122,121
(120,301)
135,256
105,905
(13,485)
$ --
$(327,122)
33.00%
(107,950)
84,820
7,924
41,200
254,376
274,477
(547,723)
(4,124)
$ --
The following summarizes the principal temporary diff erences and related future income tax eff ect:
December 31, 2010
December 31, 2009
Property, Plant and Equipment - Canada
Property, Plant and Equipment - Botswana
Exploration & Development - Canada
Exploration & Development - Botswana
Losses carried forward - Canada
Losses carried forward - Botswana
Other
Subtotal – fut ure income tax asset
Valuation allowance
Net future income tax asset recorded
17,000
(7,000)
76,000
(1,836,000)
515,000
2,079,000
45,000
889,000
(889,000)
$ --
$ 16,000
51,000
20,000
(1,227,000)
626,000
1,485,000
38,000
1,009,000
(1,009,000)
$ --
As at December 31, 2010, the Company has Canadian net operating losses carried forward that expire as follows:
Loss
580,000
275,000
335,000
235,000
213,000
136,000
273,000
Year of Expiry
2014
2015
2026
2027
2028
2029
2030
Total assessable losses relating to the activity in Botswana as at December 31, 2010 was $8,317,432 (2009: $5,939,979).
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7. LOSS PER SHARE
Loss per share is computed on the basis of the loss of ($738,162) for the year ended December 31, 2010 [2009: ($327,122)] and
the weighted average number of common or equivalent shares outstanding during period, December 31, 2010: 21,004,082 (2009
16,366,665). The eff ects of Stock options and warrants in computing basic and diluted earnings (loss) per share amounts for
December 31, 2010 are calculated as follows:
Net Loss from
Weighted Average number of shares
Basic and diluted loss per share
8. RELATED PARTY TRANSACTIONS
2010
($ 738,162)
21,004,082
($0.04)
2009
($ 327,122)
16,366,665
($0.02)
During the years ended December 31, 2010, 2009 and 2008, the Company incurred leave benefits (2010: $33,293 2009:
$19,024, 2008: $19,024) payable to an officer and director of the Company amounting to $71,341. In June 2010, the
Company paid the officer and director of the Company $59,451 leaving a payable to an officer and director of the
Company amounting to $11,890. In addition at December 31, 2010, the Company had salary payable to the officer and
director of $5,531.
The Company borrowed funds from a person who is an officer and director of the Company in fiscal years 2008 and 2007.
The loans were interest free, payable upon demand and had no other terms of repayment. The outstanding loans of
$105,000 were incurred and paid in 2009, leaving a zero balance.
9. SEGMENTED INFORMATION
Materially all of the Company’s property, plant and equipment at December 31, 2010 is located in North America of
$7,909 (2009: $442) and Botswana of $397,761 (2009: $347,140). 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 (classified by the Company as held-for-
trading), accounts receivable and accounts payable and accrued liabilities approximate their fair values due to the short
maturities of these instruments. The Company does not have any financial derivatives. The Company’s cash is level one
fair value.
Risk Exposure and Management
The Company is exposed to various financial instrument risks and assesses the impact and likelihood of this exposure.
These risks include liquidity risk, credit risk, and interest rate risk. Where material these risks are reviewed and monitored
by the Board of Directors.
(a) Capital Management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern
in order to pursue the development and exploration of its mineral properties and to maintain a flexible capital structure
which optimizes the costs of capital at an acceptable risk.
The Company depends on external financing to fund its activities. The capital structure of the Company currently consists
of common shares, stock options and share purchase warrants. The Company manages the capital structure and makes
adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To
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10. FINANCIAL INSTRUMENTS (continued)
maintain or adjust the capital structure, the Company may attempt to issue new shares, acquire or dispose of assets or
adjust the amount of cash on hand.
In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets,
which are approved by the Board of Directors and updated as necessary depending on various factors, including capital
deployment and general industry conditions.
The Company anticipates continuing to access equity markets to fund continued exploration of its mineral properties
and the future growth of the business.
(b) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company
maintains sufficient cash balances to meet current working capital requirements. The Company is considered to be
in the exploration stage. Thus, it is dependent on obtaining regular financings in order to continue its exploration
programs. Despite previous success in acquiring these financings, there is no guarantee of obtaining future financings.
The Company’s cash is invested in business accounts with quality financial institutions and which is available on demand
for the Company’s programs, and is not invested in any asset backed commercial paper.
(c) Credit Risk
Credit risk is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet it
contractual obligations. The Company’s credit risk is primarily attributable to its liquid financial assets including cash
and equivalents and accounts receivable. The Company limits exposure to credit risk on liquid financial assets through
maintaining its cash and equivalents with high-credit quality financial institutions.
The majority of the Company’s cash is held with a major Canadian based financial institution.
(d) Interest Rate Risk
The Company’s exposure to interest rate risk arises from the interest rate impact on its cash. Because the cash is held on
deposit at financial institutions and may be withdrawn at any time, the Company’s exposure to interest rate risk is not
significant.
11. COMMITMENTS
All operating leases that are for a period of no longer than one year are prepaid.
The aggregate minimum lease payments exclusive of VAT are $130,618 as follows:
2011
2012
2013
2014
2015
25,364
25,364
26,630
26,630
26,630
The lease commitment is for storage space in Maun, Botswana at an annual rental of Pula 166,834 per year for 2010 through 2012
and Pula 175,165 for years 2013 through 2015 converted at an exchange rate as at December 31, 2010 to US dollar.
The Company holds prospecting licenses which require the Company to spend a specifi ed minimum amount on prospecting over
the period of the terms as outlined in note 3.
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12. NOTES TO THE CONSOLIDATED STATEMENTS OFCASH FLOWS
Net change in noncash working capital balances
Decrease / (Increase) in accounts receivable and prepaid expenses
Increase / (Decrease) in accounts payable and accrued liabilities
Total
December 31
December 31
2010
$ 2,469
22,405
$ 24,874
2009
$ (48,149)
(289,623)
$ (337,772)
13. SUBSEQUENT EVENTS
Warrants
In February 26, 2011, 728,061 warrants were exercised at a price of C$0.70 for proceeds to the Company of $516,713.
Stock Option Plan
On January 3, 2011, the Company issued 310,000 options at C$1.25 under its Stock Option Plan to persons who are
officers and employees of the Company.
On January 11, 2011, 50,000 stock options at C$1.25 expired.
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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
Ernst & Young, LLP
Vancouver, Canada
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
Corporate Information
DIRECTORS
James M. Bruchs, Chairman
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
Jonathan R. KeLafant
Arlington, Virginia
Appointed as director in 2007
David J. Cushing
Chevy Chase, Maryland
Appointed as director in 2008
Michiel C. J. de Wit
Pretoria, South Africa
Appointed as director in 2009
OFFICERS
James M. Bruchs, B.Sc., J.D.
Chairman and Chief Executive Officer
Appointed in 2002
Michiel C. J. de Wit
Pretoria, South Africa
President and Chief Operating Officer
Appointed in 20109
Gary A. Bojes, CPA, Ph.D.
Chief Financial Officer
Appointed in 2007
Gail McGinley
Corporate Secretary
Appointed in 2005
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