Annual Report 2011
Tsodilo Resources Limited
2011 Annual Report
Tsodilo Resources Limited
President’s Message
Dear Shareholders,
On behalf of the board of directors, I am pleased to
Our current share capital consists of 25,880,970 issued
provide the annual report of Tsodilo Resources Limited
and outstanding (31,553,672 on a fully diluted basis)
(“Tsodilo” or the “Company”) recording the Company’s
common shares. Tsodilo has a 97% interest in our
progress together with the audited financials for the year
Botswana (Newdico (Pty) Limited project and a 100%
ending December 31, 2011.
interest in our Gcwihaba Resources (Pty) Limited projects.
The metal commodity markets recovered signifiantly in
The Company continues to strengthen our organization
2011 and during this period the Company was able to
by appointments to our board and retaining quality
complete the first of its strategic objectives on its metal
professionals on the ground. We are well positioned for
mineral projects. Phase 1, reconnaissance drilling, was
the challenges inherent in resource exploration and please
completed in 2011 and mineralized zones were identified
follow our progress carefully and remained informed by
in several key areas. The next twelve months will be used
regular visits to our website, www.TsodiloResources.
to refine the geological models and mineralisation styles
com.
of these targets.
The rough diamonds also saw a remarkable upswing in
their prices but despite these improvements the general
On behalf of the Board,
appetite for greenfields diamond exploration remains low.
However, the Company will continue the exploration for
new kimberlites and complete the first-stage evaluation
of two of its kimberlites.
The privilidged and advantageous position in which the
Company is finding itself is having two drill rigs and fully
equipped ground magnetic teams on site which means
that considerable progress has been made with the
exploration work program at a relatively low-cost.
Sample preparation is ongoing and split cores are sent to
an accredited laboratory in Johannesburg on a continous
basis and the turn around time is generallyless than
two months. The newly acquired computer modelling
program is being updated continously as new data and
Michiel C.J. de Wit, Ph.D.
President and COO
February 17, 2012
Contents
President’s Message to Shareholders
results become available and provides the Company with
Management’s Discussion and Analysis
capabilities to review its geological database in 3D.
of Financial Results
Exploration activites were accelerated in 2011 and we
Financial Reporting Responsibility of
expect this to continue in 2012 as positive results continue
Management
to advance our programs.
Auditors’ Report to the Shareholders
Consolidated Financial Statements / Notes
Corporate Information
1
2
20
21
22
IBC
1
tsodilo resources limited
Management’s Discussion and Analysis
This management’s discussion and analysis (“MD&A”) should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto for the years ended December 31, 2011 and 2010. The Company’s
consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS).
The Company’s functional and reporting currency is United States dollars and all amounts stated are in United States
dollar unless otherwise noted. In addition, the Company has two operating subsidiaries, Newdico and Gcwihaba which
have a functional currency of the Botswana Pula. This management’s discussion and analysis has been prepared as at
February 17, 2012.
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 and metals exploration
company with majority interests in kimberlite and metals exploration projects 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 February 17, 2012, 25,880,970 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, 2,970,000 options remain
outstanding of which 2,455,000 are exercisable at exercise prices ranging from CAD $0.55 - $2.23.
As of February 17, 2012, 2,702,702 warrants are outstanding. The warrants were issued by way of the private placements
utilized by the Company for financing purposes. Each warrant entitles the holder thereof to purchase one common
share of the Company at purchase price of from Canadian $2.17 for a period of five years from the date of issuance (with
3.5 years remaining). If all warrants were converted, 2,702,702 common shares of the Company would be issued.
2
tsodilo resources limited
Principal Shareholders of the Company
The principal shareholders of the Company as of February 17, 2012 are as follows:
Name
Description
Preston Trust
Private Investment Vehicle
International Finance Corporation
Division of the World Bank
David J. Cushing
James M. Bruchs
Subsidiaries
Director
Director
Shares - Owns,
Controls or Directs
4,996,065
% of the Issued and
Outstanding Shares
19.30%
2,702,702
2,460,501
2,187,619
10.44%
9.50%
8.45%
The Company has a 97% 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 (3%) 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 4,456 square kilometers, eighteen
metals (base, precious, platinum group, and rare earth) licenses covering 4,618 square kilometers and eight radioactive
minerals licenses covering 6,927 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.
1. Diamond Projects
Exploration activities for the year 2011
The company holds 15 Prospecting licences (8 0612.2 km²) under the names of local companies Newdico (Pty) Ltd. and
Gcwihaba Resources (Pty) Ltd for precious stones (Table 1). The Company continued with its exploration program during
2011 whilst shifting its focus to the north of the existing Nxau Nxau kimberlites cluster. This is based on geological
interpretation of the Southern African Magnetotelluric Experiment (SAMTEX) project which indicates that the Angolan
Craton extends and thickens northwards. This MT data images the three-dimensional regional-scale geometry of the
electrical conductivity of the continental lithosphere below southern Africa. The results of this program has among
others shown that the Company’s northern licences are underlain by the Angolan Craton (Muller and Jones 2007) and
this suggests that kimberlites occurring in the most northern licences should be the most interesting from a diamond
perspective.
Furthermore, the mineral chemistry of the indicator minerals from the known kimberlites suggests that the interest
rating also improves to the north.
3
tsodilo resources limited
Table 1. Summary of the Company’s prospecting permits for precious stones
NEWDICO DIAMOND LICENSE AREAS AS AT DECEMBER 31, 2011
PL numbers
Km²
Grant
Date
Renewal
date
Current
Stage
Expenditure
Rental Fee
Per Annum
(BWP)
Work
Program
Per Annum
(BWP)
Total Expenditure From
Grant and if held to Full
License Term
BWP
USD as at
12.31.2011
PL 62/2005
PL 63/2005
PL 64 /2005
PL 65/2005
PL 66/2005
PL 67/2005
PL 68/2005
PL 69 /2005
PL 71/2005
797
718
851
194
621
229
220
181
138
7/01/10
7/01/10
7/01/10
7/01/10
7/01/10
7/01/10
7/01/10
7/01/10
7/01/10
7/01/12
7/01/12
7/01/12
7/01/12
7/01/12
7/01/12
7/01/12
7/01/12
7/01/12
2nd Renewal
2nd Renewal
2nd Renewal
2nd Renewal
2nd Renewal
2nd Renewal
2nd Renewal
2nd Renewal
2nd Renewal
3,985
3,590
4,255
970
3,105
1.145
1,100
905
690
200,000
200,000
200,000
200,000
200,000
200,000
200,000
200,000
200,000
407,970
407,180
408,510
401,940
406,210
402,290
402,200
401,810
401,380
53,545
53,4410
53,616
52,753
53,314
52,799
52,787
52,736
52,680
TOTAL
3,949
19,745
1,800,000
3,639,490
477,676
GCWIHABA DIAMOND LICENSE AREAS AS AT DECEMBER 31, 2011
PL numbers
Km²
Grant
Date
Renewal
date
Current
Stage
Expenditure
Rental Fee
Per Annum
(BWP)
Work
Program
Per Annum
(BWP)
PL 46/2008
PL 47/2008
PL 49/2008
PL 641/2009
709
491
710
923
6/01/11
6/01/11
1/01/11
7/01/09
1/01/13
1/01/13
1/01/13
7/01/12
1st Renewal
1st Renewal
1st Renewal
Initial Grant
3,545
2,455
3,550
4,615
PL 642/2009
839
7/01/09
7/01/12
Initial Grant
4,195
Pl 643/2009
786
7/01/09
7/01/12
Initial Grant
3,930
70,000
70,000
70,000
1) 70,000
2) 80,000
3) 90,000
1) 70,000
2) 80,000
3) 90,000
1) 70,000
2) 80,000
3) 90,000
Total Expenditure From
Grant and if held to Full
License Term
BWP
USD as at
12.31.2011
147,090
144,910
147,100
19,305
19,019
19,306
253,845
33,316
252,585
33,151
251,790
33,046
TOTAL
4,456
22,290
930,000
1,197,320
157,146
The interest level remains as 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.
4
tsodilo resources limited
The Company’s kimberlites in the Nxau Nxau field, just east of the Botswana/Namibia border, are situated in the regional
headwaters of the palaeo-drainages which generally feed these anomalies. The Company has therefore been working
through the existing kimberlite database in order 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 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 the northern licence blocks that warrant detailed ground work and
drilled scheduled for 2012. During the year, two targets were drilled – TOD 12 and K19. Both recovered kimberlite from
the drilling but based on the petrography it has been downgraded in terms of its diamond potential and no further work
is planned for these bodies.
The review of the petrography, mineral chemistry, micro-diamond and geophysical databases of the known kimberlites
in the Nxau Nxau field is on-going. This review resulted in the decision to submit samples of the three most interesting
pipes (K4 – PD07, K10 – B5, K20 – A15) in terms of size and mineral chemistry, for micro-diamond work in order to obtain
a first-pass grade valuation for these bodies. Core samples from three kimberlites were submitted for micro-diamond
analyses to the Geo-analytical Laboratories Diamond Services of the Saskatchewan Research Council. The results are
summarised in Table 2.
Table 2. Micro-diamond results
Kimberlite
K4 (PD07/2)
K10 (B5)
K20 (A15/5)
Total
Kg
208.85
228.65
183.80
621.30
Stones
Carats
Stones/tonne
2
14
0
16
0.000970
0.000955
0.000000
0.001925
9.58
61.23
0.00
Only K10, which produced 14 micro-diamonds, will require further work. Additional samples will be submitted in order
to obtain additional diamonds in order to construct a grade estimate. At the same time samples from K11, proximate to
K10 will also be submitted for microdiamond analyses.
Diamond exploration activities for 2012 will therefore focus on the microdiamond results of K10 and presumably K11 and
also on targets generated from the Airborne Magnetic Geophysical surveys in the Company’s most northern Prospecting
permits PL 46, 47 and 49/2008.
2. Metals (Base and Precious, Platinum Group Metals, and Rare Earth Elements) Projects
The Company’s Prospecting Licences have evolved with time into a package which covers some 12,110 km² (Table 2a).
Most of the ground has been covered by the 1st drilling phase which was completed during the 3rd Quarter of 2011
(Phase 1). The main objective of this phase was to cover the ground on a wide grid to identify the areas of interest for
more detailed follow-up work scheduled during Phase 2. So far the drilling has returned mineralised rocks in several
parts of the licence area representing a variety of geological settings with different mineralisation styles.
The Company’s exploration work had initially indicated that the sulphide-rich Matchless Amphibolite Belt (‘MAB’)
traverse the Company’s southern licences in north-west Botswana, in an area where the Damara Belt links up with the
Lufilian Arc. In addition more recent petrology, geochemistry and geochronology work by AEON’s research group has
highlighted the presence of Archean granite-gneisses (ca. 2550 Ma) in Ngamiland.
5
tsodilo resources limited
Table 2a. Summary of the Company’s Prospecting Licences for metals
GCWIHABA – METAL LICENSE AREAS AS AT DECEMBER 31, 2011
PL numbers
Km²
Grant
Date
Renewal
date
Current
Stage
Expenditure
Rental Fee
Per Annum
(BWP)
Work
Program
Per Annum
(BWP)
Total Expenditure From
Grant and if held to Full
License Term
BWP
USD as at
12.31.2011
PL 118/2005
PL 119/2005
PL 051/2008
PL 052/2008
PL 386/2008
PL 387/2008
PL 388/2008
PL 389/2008
PL 390/2008
PL 391/2008
PL 392/2008
PL 393/2008
PL 394/2008
PL 395/2008
PL 595/2009
PL 596/2009
PL 5972009
PL 588/2009
367
827
487
382
570
965
318
979
808
455
829
938
650
972
320
925
514
796
10/01/10
10/01/10
07/01/11
07/01/11
01/01/12
01/01/12
01/01/12
01/01/12
01/01/12
01/01/12
01/01/12
01/01/12
01/01/12
01/01/12
07/01/09
07/01/09
07/01/09
07/01/09
10/01/12
10/01/12
07/01/13
07/01/13
01/01/14
01/01/14
01/01/14
01/01/14
01/01/14
01/01/14
01/01/14
01/01/14
01/01/14
01/01/14
07/01/12
07/01/12
07/01/12
07/01/12
2nd Renewal
2nd Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
Initial Grant
Initial Grant
Initial Grant
Initial Grant
1,835
4,135
2,435
1,910
2,850
4,825
1,590
4,895
4,040
2,275
4,145
4,690
3,250
4,860
1,600
4,625
2,570
3,980
100,000
100,000
70,000
70,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
203,670
208,270
144,870
143,820
205,700
209,650
203,180
209,790
208,080
204,550
208,290
209,380
206,500
209,720
304,800
313,875
307,710
311,940
26,732
27,335
19,014
18,876
26,998
27,517
26,667
27,535
27,311
26,847
27,338
27,481
27,103
27,526
40,005
41,196
40,387
40,942
TOTAL
12,102
60,510
4,013,795
526,810
This is the first time that Archean basement rocks have been discovered in this north-western part of Botswana. This
development also supports the geophysical magnetic work that has been conducted in the region and identified the
presence of the Angolan Craton. 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, 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.
A minimum age for the diamictites intersected in the northern part of the project area was established at 743 Ma by our
academic partners AEON (Witbooi 2011). This is an important age as it aligns itself directly with the Grand Conglomerate in
the Copper Belt in Zambia and Chuos Formation in Namibia. This links the meta-sedimentary sequence in NW Ngamiland
directly with these two mineral provinces. Finally, the Pan African meta-basites in Ngamiland yield an age of ca. 535 Ma.
This age 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) and the Pan-African granites in Namibia and the Hook Rhyolite in
Zambia. The difference between metabasalts in Katanga and the Ngamiland meta-basites 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
6
tsodilo resources limited
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 Nagamiland 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 massive magnetite units in the northern part of the area and the copper and gold showings east of the
banded magnetite and associated with meta-basic rocks (epidote-scapolite-albite amphibolite) in the central part of
the area, indicates that the mineralization model of Ngamiland can be 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 is to
upgrade and focus the regional geophysical dataset for more accurate drill positions on the various targets, and the
latter as a continuation of the first-phase drilling program.
During the year 7,362 line-kilometers of ground magnetic data was collected. This was leveled and interpreted by the
Company’s in-house geophysical unit. This represents a coverage of some 264 km² on a 50-meter line spacing. During
the year an additional walk-magnetometer was purchased in order to increase the coverage. These data was successfully
used to position new drill holes on the often magnetic (due to the presence of pyrrhotite in the meta-sediments) zones
identified as conductors from the electromagnetic data (EM).
In 2011, 36 diamond drill holes were completed to a cumulative depth of 9,242.44 meters and 7, 635.72 meters of core
was recovered (Table 3). The Company’s new drill rig, which was commissioned and started operating during the 3rd
Quarter of the year, drilled 9 holes of the total to a cumulative depth of 1,574.7m and produced 1,096.9m of core. The
objective of the Phase 1 drilling program was to cover all the prospecting licenses 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
Phase 2 of the program. This latter phase started at the end of the 3rd Quarter in 2011.
Rock samples from approximately 50 boreholes were submitted to independent parties and 177 petrographic thin
sections; 9 polished sections; 11 SEM images; 36 XRF analyses; and 5 samples were subject to geochronological age
testing and reported on.
Table 3. Holes drilled in 2011 during the reconnaissance Phase 1 drilling program
Borehole
Number
Drilled (m)
Total
Core(m)
Main Lithology
L9570/3
L9570/4
L9560/2
L9540/1
L9590/6
L9600/10
L9600/11
L9600/12
L9600/13
L9650/8
L9670/10
L9700/10
L9620/3
L9620/4
L9610/13
170.8
356.0
308.62
300.5
214.5
268.5
252.9
370.0
350.42
251.6
305.4
98.5
152.5
335.5
187.5
136.8 Meta-pelite; dirty carbonate
321.6
Schist; dirty carbonate
293.62 Meta-pelite; dirty carbonate; dolomite
239.9
157.9
264.5
231.3
358.0
332.0
214.9
Schist
Schist; meta-pelite
Banded magnetite; BIF; schist; dirty carb
Banded magnetite; schist
Banded magnetite; schist
Schist; meta-pelite; dolomite
Banded magnetite: schist
284.0 Gneiss; schist; meta-pelite; dirty carb
11.7
Black shales
110.5
295.5
133.5
Schist, carbonate – hole abandoned
Schist; meta-basite; meta-pelite
Schists, carbonates, meta-pelitic schists
7
tsodilo resources limited
Table 3 continued
L9600/14
L9600/15
L9610/14
PL 394/3
Pl 395/1
1822 C50
1822 C51
1822 C27/2
2021B10
2021B11
TOD12
1822 C27/3
1822 C27/5
K19
1821 B53
1821 B53/1
1821 B61
1821 B61/1
1821 B64
1821 B63
1821 B58
Total
195.5
401.5
401.5
380.6
159.9
425.6
119.0
381.4
211.4
176.4
122.3
377.4
297.0
138.3
75.5
101.3
86.5
350.5
312.5
302.5
302.6
9, 242.44
141.5
346.5
Black shales
Black shales; schist
351.6 Dolomite, mineralised schists
307.4 Amphibolite, gneiss,
102.1 Granite
383.0 Gneissic schist;
74.0 Granite schist
Skarn
Red sandstone
Red sandstone
326.4
123.5
92.4
98.3 Dwyka diamictite with kimberlites sill/dyke
Schist, meta-basite, carbonate
Schist, meta-basite
330.1
261
98.4 Kimberlite
33.5 Abadoned hole
86.3 Magnetite schist, garnet-magnetite
8.5 Granitic schist
309.0
247.0
259.5
270.0
7, 635.72
Schist; diamictite
Schist
Schist; diamictite
Schist; diamictite
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 . During the year 14, 671 samples were assayed using a variety of
methods as listed in Table 4.
Table 4. Assay results received during the year 2011
LABORATORY
ME ICP61
(Major
elements)
PGM
ICP23 (Au/
Pt/Pd)
ME
MS81
(REE)
ME
ICP81
(Si)
ME
OG62
(Fe)
ICP AES
(Au/Pd/
Pt/ Ag/Fe/
Mn)
ICP AES
(Ag/Fe/
Mn)
ICP
AES
(REE)
Total
ALS
Scientifi c Services
Total
5,400
5 ,171
1,389
675
21
1,651
162
202
12,656
2,015
14,671
The exploration program of Phase 1 has identified three different geological domains with different mineralization styles
that are targeted for a Phase 2 follow-up program. These are:
1. Xaudum BIF Magnetite deposit
The northern part of the area is underlain by the very strong Xaudum BIF magnetic anomaly lying in an almost north-
south orientation. Recent drilling has intersected multiple layers of magnetite in schist units. Assay results for selected
intersections of the three boreholes drilled on the layered magnetic BIF rocks are listed in Table 5. These are the averages
of the various intersections based on 1 meter samples. Iron values of well over 35% have been intersected repeatedly
over tens of meters. Petrographically, most of the opaque minerals are magnetite. In shallower samples of borehole
L9600/11 some of the magnetite is replaced by hematite.
The assay results are encouraging and indicate extensive mineralization associated with the ground geophysics. The
Phase 2 drilling program has been initiated and will provide more details on the extent of this deposit.
Average assay values over selected intersection based on 1 meter samples for three bore holes on the Xuadum BIF
Magnetite deposit are set forth in Table 5. (Note that the assay results in hole L9600/12 reported as 50% + have been
leveled at 50% until the ME OG62 results become available).
8
tsodilo resources limited
L9600/10
L9600/11
L9600/12
From (m)
139
144
192
38
62
118
29
29
67
67
97
137
171
171
183
229
302
356
To (m)
183
164
232
105
105
169
56
41
86
78
121
152
200
180
200
346
346
370
TABLE 5
Intersection (m)
45
21
41
68
44
52
28
13
20
12
24
16
30
10
18
118
45
15
Fe%
40.87
45.41
35.23
39.77
42.63
40.05
35.51
38.07
39.44
43.81
37.30
34.72
39.27
41.46
41.42
40.74
45.88
40.01
Al2O3%
1.13
0.64
1.74
1.13
1.12
1.14
0.97
0.61
1.74
0.93
2.01
2.48
1.15
0.82
0.88
0.91
0.84
0.86
SiO2%
24.42
21.35
30.70
25.75
26.84
27.42
26.01
26.49
29.97
25.22
29.12
30.32
28.12
33.46
23.61
26.68
25.06
30.35
P%
0.34
0.36
0.31
0.34
0.34
0.32
0.28
0.27
0.34
0.35
0.34
0.37
0.34
0.34
0.36
0.29
0.32
0.25
In addition to the presence of iron mainly in the form of magnetite, anomalous values of Co, V and Ti have also been
acquired using the Company’s hand-held XRF unit on outcrop samples.
2. The Central Shale Basin
Central to the license area is the Central Shale Basin. Most of the mineralized zones are conductive and visible on the
regional electro-magnetic survey flown on behalf of the government of Botswana. Subsequent drilling during Phase
1 recovered meta-sediments (pelites, shales, carbonates, evaporites and arenites) that are dipping steeply to the east.
Comparison of the main lithologies and evidence from recently acquired radiometric ages leaves little doubt that these
rocks are an extension of the stratiform Cu-Co province of the central African Copperbelt in Zambia and Democratic
Republic of Congo.
Sediments are mainly composed of black shales, meta-pelites, meta-arenites, and dolomites, with interbedded evaporites.
Most lithologies are mineralisased with pyrite, pyrrhotite, and chalco-pyrite.
Analysis of the geophysics combined with the lithological and assay information of the various boreholes in on going
and will direct Phase 2 of the project.
3. Skarn Deposit
In the south of the Central Shale Basin are zones of mineralisation associated with skarn deposits. These are related to
massive magnetite, meta-basites, meta-mafic units and granofels in contact with carbonates and meta-sediments.
The meta-basites at 1822C26/1 were dated at 535 Ma and have been interpreted as subducted tholeiitic oceanic crust
which has been rejuvenated before being extruded as island arc alkaline magmas (Gaisford 2010). These rocks are of
similar age to the Pan African granites in Namibia and the Hook Rhyolite in the Zambian Copper Belt. Mineralization here
is characterized by Cu and Fe (Table 6) with elevated values of Ni (234 ppm Ni between 116.6 and 126.6 m in borehole
1822C26/1, peaking at 564 ppm), Au (0.02 ppm), Ag (2.3 ppm), Ti and some REE (La and Ce).
9
tsodilo resources limited
1822C26/1
1822C27/2
Table 6. Average assay values over selected intersection based on
1 meter samples for two bore holes on the Skarn deposit.
From (m)
77.6
99.6
116.6
129.6
152.6
177.6
4
16
69
83
95
104
137
152
157
To (m)
80.6
105.6
126.6
136.6
162.6
180.6
7
21
73
89
101
109
148
153
162
Intersection (m)
3
6
10
7
10
3
4
6
5
7
7
6
12
2
6
Cu (ppm)
1,103
1,057
684
846
2,088
1,846
831
636
728
649
1,055
944
440
1,575
1,282
Fe (%)
13.04
13.39
4.38
7.31
13.5
8.71
12.64
12.84
21.58
30.51
25.58
43.63
40.66
37.15
24.48
The copper and iron showings of these rocks associated with meta-basites (epidote-scapolite-albite amphibolite) on
the central part of the area suggests that the mineralization model of these deposits could be associated with an Iron
Oxide Copper Gold ore deposit (IOCG). The strong relationship of the Cu and Fe with kicks in the Au and Ag support this
model and it may suggest, also based on the airborne geophysical data, that the sulphide-rich Matchless Amphibolite
Belt (‘MAB’) traverse the Company’s licences south of the shale basin.
4. Radioactive licenses
The Company was granted six prospecting permits for radioactive minerals through its wholly owned subsidiary
Gcwihaba Resources (Pty) Ltd in the north-west of Botswana directly west of the Okavango River in 2011. The additional
area covers some 5687 km² (Table 7). The total area that the Company has secured for radioactive minerals is 7116.8 km²
(Table 7) and overlaps with some of the Newdico diamond and Gcwihaba base metal permits.
Table 7. Prospecting Licences held by Gcwihaba
GCWIHABA – RADIOACTIVE LICENSE AREAS AS AT DECEMBER 31, 2011
PL numbers
Km²
Grant
Date
Renewal
date
Current
Stage
Expenditure
Pl 150/2010
719
07/01/10
07/01/13
Initial Grant
Rental Fee Per
Annum (BWP)
3,595
PL 151/2010
711
07/01/10
07/01/13
Initial Grant
3,555
PL 045/2011
1,000
01/01/11
01/01/14
Initial Grant
5,000
PL 046/2011
847
01/01/11
01/01/14
Initial Grant
4,235
PL 047/2011
907
01/01/11
01/01/14
Initial Grant
4,535
PL 048/2011
769
01/01/11
01/01/14
Initial Grant
3,845
PL 049/2011
974
01/01/11
01/01/14
Initial Grant
4,870
PL 050/2011
1,000
01/01/11
01/01/14
Initial Grant
TOTAL
6,927
5,000
34,635
Work Program Per
Annum (BWP)
1) 50,000
2) 60,000
3) 70,000
1) 50,000
2) 60,000
3) 70,000
1) 50,000
2) 60,000
3) 70,000
1) 50,000
2) 60,000
3) 70,000
1) 50,000
2) 60,000
3) 70,000
1) 50,000
2) 60,000
3) 70,000
1) 50,000
2) 60,000
3) 70,000
1) 50,000
2) 60,000
3) 70,000
Total Expenditure From
Grant and if held to Full
License Term
BWP
USD as at
12.31.2011
190,785
25,040
190,665
25,024
195,000
25,593
192,705
25,292
193,605
25,410
191,535
25,139
194,610
25,542
195,000
25,593
1,543,905
202,633
10
tsodilo resources limited
The company is reviewing the exploration results from Union Carbide Exploration Corporation who had secured many
prospecting licences in west and north-west Botswana for uranium. Their exploration program in north-west Botswana
(Ngamiland) started in 1977 and continued until 1980, and of particular interest are their findings of anomalous uranium
within what they called the Kkhaudum and Chadum palaeo-drainages covered by their Prospecting Licences 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. Firstly it is to conduct a geomorphological study of the area using remote sensing
techniques with field checking. This is to be linked to buried palaeo-channels of Tertiary age that have been identified
by geophysics while interpreting the most recent government Airborne Magnetic data in the search for kimberlites on
overlapping Newdico diamond prospecting licences. Secondly, recent diamond drilling conducted by Gcwihaba mainly
on the eastern part of the licences have returned anomalous uranium assay results in some of the Proterozoic meta-
sedimentary units underlying the Kalahari Group sediments.
During the year, 7,001 samples were assayed for Uranium using the ME ICP61, ME MS81 (both in the ALS Laboratory in
Johannesburg) and ICP AES (in the Scientific Services Laboratory in Cape Town) geochemical assay techniques. These
samples were derived from 29 boreholes drilled during the Phase 1 program.
The results from borehole L9640/2 (100 ppm U) in black shales, and 1822D12/3 (40 ppm U) from meta-pelites, have been
encouraging. Research in the understanding of the link between these anomalous meta-sedimentary rocks and the
surface uranium anomalies in the Kalahari calcretes is on-going.
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2011, the Company had a working capital of $80,446 [Deficiency at December 2010: ($2,569,273)],
which included cash and equivalents $1,505,965, (December 2010: $2,728,695). 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 had exercises of warrants related to
private placements for additional cash proceeds of $516,713, $150,979, $148,728, and $1,110,217 on February 26, 2011,
June 8, 2011, August 15, 2011, and December 22, 2011 respectively, see discussion in Financing Activities below. The
Company does not hedge its activities. 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, 2011, the expenditure requirements
inclusive of license fees from the date of grant to and if held to their full term are as follows:
Project Description
Required Expenditure
Newdico – Diamond
Gcwihaba - Diamond
Gcwihaba - Metals
Gcwihaba - Radioactive Minerals
BWP
3,639,490
1,197,320
4,013,795
1,543,905
USD
$477,676
$157,145
$526,810
$202,633
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’s warrants are classified as derivative liabilities and are recorded at their estimated fair value. The liability
recognized at December 31, 2011 for the warrants is $1,500,766 (December 2010: $5,266,191). The Company is not
11
tsodilo resources limited
required to pay cash to the holders of the warrants to settle this liability. 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 $413,859 for the year ended
December 31, 2010 to $521,422 for the year ended December 31, 2011. The increase was due primarily to corporate
remuneration, investor relations, legal and audit, filing fees, and administrative expenses, which were greater in 2011
than 2010.
Annual Information
(in US Dollars)
Net income (loss) for the year
Basic income (loss) per share
Basic diluted income (loss) per share
Total other comprehensive income (loss)
Total comprehensive income (loss) for the year
Basic comprehensive income (loss) per share
Diluted comprehensive income (loss) per share
Total assets
Total long term liabilities
Cash dividend
Quarterly Information
(in US Dollars)
Fiscal Year ended December 31, 2010
Net income (loss) for the year
Basic income (loss) per share
Diluted basic income (loss) per share
Comprehensive income (loss) for the year
Basic comprehensive income (loss) for the year
Diluted comprehensive income (loss) per share
Total assets
Total long term liabilities
Quarterly Information
(in US Dollars)
Fiscal Year ended December 31, 2011
Net income (loss) for the year
Basic income (loss) per share
Diluted basic income (loss) per share
Comprehensive income (loss) for the year
Basic comprehensive income (loss) for the year
Diluted comprehensive income (loss) per share
Total assets
Total long term liabilities
Investing Activities
Fiscal Year
December 31, 2011
Fiscal Year
December 31, 2010
$1,719,246
$0.07
$0.07
($1,810,035)
($90,789)
$0.00
$0.00
$11,477,912
-
($233,146)
($0.01)
($0.01)
$335,407
$111,901
$0.01
$0.01
$11,481,978
-
-
-
Quarter 1
Quarter 2
Quarter 3
Quarter 4
($5,389,372)
($0.28)
($0.28)
($5,464,797)
($0.29)
($0.29)
$5,928,143
-
$1,270,083
$0.05
$0.04
$968,877
$0.04
$0.04
$10,577,211
-
$2,062,846
$0.10
$0.13
$2,550,863
$0.13
$0.11
$11,109,568
-
$1,823,297
$0.12
$0.10
($2,056,958)
($0.12)
($0.14)
$11,481,978
-
Quarter 1
Quarter 2
Quarter 3
Quarter 4
$1,405,616
$0.05
$0.05
$937,594
$0.04
$0.03
$11,454,205
-
$128,486
$0.01
$0.01
$262,444
$0.01
$0.01
$11,751,730
-
($457,653)
($0.02)
($0.02)
($1,169,022)
($0.01)
($0.01)
$11,066,456
-
$642,797
$0.03
$0.03
($121,805)
($0.04)
($0.03)
$11,477,912
-
Cash flow applied in investing activities decreased to $2,520,331 for the year ended December 31, 2011 (2010: $2,671,002).
Total expenditures of $2,270,342 on exploration properties for the year ended December 31, 2011 were attributable to
the Newdico and Gcwihaba projects in northwest Botswana. Included in this amount is the proportionate contributory
share, ranging from 3.55% to 2.89% attributed to the Trans Hex Group for the Newdico project. Trans Hex Group has a 3%
interest for funding the expenses of Newdico. There were no material disposals of capital assets or investments during
the year.
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
12
tsodilo resources limited
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 2011, the Company received gross proceeds in the amount of $1,926,547 from the
exercise of Warrants related to private placements.
Private Placement Date
No. of Units
Price per Unit
Proceeds
None
Warrant Exercise Date
February 26, 2011
June 8, 2011
August 15, 2011
December 22, 2011
--
No. of Shares
728,061
210,894
201,519
2,093,156
--
Price per Share
C$0.70
C$0.70
C$0.70
C$0.55
--
Proceeds
$516,713
$150,979
$148,728
$1,110,217
Tsodilo expects to raise the amounts required to fund its 97% 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 net income of $1,719,246 for the year ended December 31, 2011 ($0.07 cents
per common share) compared to a net loss of ($223,146) for the year ended December, 2010 [($0.01) cents per common
share]. Although the Company experienced an increase in remuneration and administration reflecting general corporate
activity, it was offset by unrealized gains on warrants. The decrease in stock option expense reflects fewer option
granted and changes to share price. The unrealized gain on warrants increased from $671,515 in 2010 to $2,673,378 in
2011.
Cumulative exploration expenditures including amortization of property, plant and equipment used in exploration
activities on all projects amounted to $8,774,657 as at December 31, 2011 compared to $7,493,891 as at December 31,
2010. Cumulative exploration expenditures incurred on the Newdico project as at December 31, 2011 was $6,291,558
compared to $6,057,490 as at December 31, 2010. 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.
Cumulative exploration expenditures incurred on Gcwihaba’s projects as at December 31, 2011 were $2,483,099
compared to $1,436,401 as at December 31, 2010.
PERSONNEL
At December 31, 2011, the Company and its subsidiaries employed thirty-five (35) individuals compared to twenty-six
(26) at December 31, 2010, including senior officers, administrative and operations personnel including those on a
short-term service basis.
FOURTH QUARTER - 2011
The fourth quarter was a normal operating period for a quarter. Operating expenses were at normal levels for the fourth
quarter of the year.
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
13
tsodilo resources limited
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
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.
14
tsodilo resources limited
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.
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.
ADOPTION OF NEW ACCOUNTING STANDARDS
New Accounting Pronouncements
Transition to International Financial Reporting Standards (“IFRS”)
On January 1, 2011, the Canadian Accounting Standards Board replaced Canadian GAAP with IFRS for publicly accountable
enterprises, with a transition date of January 1, 2010. IFRS represents standards and interpretations approved by the
IASB and are comprised of IFRSs, IASs, and interpretations issued by IFRICs or the former SICs.
15
tsodilo resources limited
As previously discussed in the Company’s MD&A for the year ended December 31, 2010, the Company’s two operating
subsidiaries previously prepared audited financial statements in accordance with IFRS. Accordingly, the Company’s
transition plan 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. The plan consisted of three main phases, 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 standard under IFRS was completed in 2010.
•
Impact, Analysis, Evaluation and Design Phase: In this phase, each area identified during the scoping phase was
addressed to determine the specific changes required to existing policies and to identify new policies under IFRS.
This phase has now been completed.
•
Implementation and Review Phase: This phase includes the execution of any changes to business processes and
completion of formal documents analyzing the transition to IFRS. This phase, which includes the maintenance of
sustainable IFRS compliant data and processes for fiscal 2011 and beyond, was carried out throughout 2011.
The Company’s IFRS accounting policies are disclosed in Note 2 to the consolidated financial statements. Reconciliation
between the Company’s financial statements as previously reported under Canadian GAAP and the accounting policies
used to prepare the interim condensed consolidated financial statements as at and for the periods ended March 31,
2010, June 30, 2011 and 2010, and September 30, 2011 and 2010, are consistent with the accounting policies used to
prepare the December 31, 2011 and 2010 consolidated financial statements. Refer to current reporting under IFRS as
detailed in Note 14 of the consolidated financial statements.
The following is an overview of the impacts to the Company’s financial results due to the transition to IFRS.
IFRS Adjustments
Adjustment 1 - IFRS 2 Stock Based Compensation Expenses
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 was recognized at more accelerated rates than under
Canadian GAAP.
The Company computed all non-vested stock options at January 1, 2010 on a graded basis separating tranches for
amortization over respective vesting periods. Stock option forfeitures were also estimated on a historical basis. The
Black Scholes valuation method was used to prepare the valuations, calculations and details for disclosure for Stock
Option expense and comparative stock option expense estimated for prior year comparisons. As a result, Stock Option
Reserves were increased by $29,629 as at January 1, 2010 and $261,482 as at December 31, 2010. Of these amounts,
$4,986 and $133,144 were capitalized as salaries to exploration and evaluation cost as at January 1, 2010 and December
31, 2010 respectively.
Adjustment 2 – IAS 21 Foreign Exchange
The Company’s subsidiaries (Gcwihaba and Newdico) operate in a functional currency in Botswana Pula. Under Canadian
GAAP the subsidiaries were considered integrated operations for foreign exchange considerations and calculations.
Under IFRS, since there is no integrated operation option and because of the difference in functional currency between
these subsidies and the Company’s U.S. Dollars, IFRS provides guidance on presenting the foreign operations in the
presentation currency. Non-monetary assets and liabilities are translated at year-end exchange rates and income and
16
tsodilo resources limited
expenses are translated at the rates at which they have been incurred. This differs from previous GAAP reporting which
required non-monetary assets to be translated at the historical exchange rate in effect when the assets were acquired.
For December 31, 2010, a cummulative adjustment of ($82,254) was made to Plant, Property and Equipment, ($159,633)
was made to Exploration and Evaluation Cost, and 1,994 was made to Accounts Payable.
Adjustment 3 – IAS 32 Warrants Denominated in Non-functional Currency
The Warrants issued by the Company provide the right to purchase stock in Canadian dollars. Since the Company’s
functional currency is the U.S. dollar, IFRS requires that the warrants be accounted for as derivative liabilities. As a
result, the Company has reclassified its Warrants from Equity to liabilities and will account for warrants as derivative
liabilities with changes in fair value being recognized in profit or loss.
At inception January 1, 2010 the value of the warrants increased by $1,466,252 resulting in corresponding charge to
deficit.
Adjustment 4 – Non-Controlling Interest Reclassification into Equity
The Company reclassified its non-controlling interest at January 1, 2010 and December 31, 2010 to equity.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
Certain new standards, interpretations and amendments to existing standards have been issued by the IASB or IFRIC
that are mandatory for accounting periods beginning after January 1, 2010, or later periods. Some updates that are
not applicable or are not consequential to the Company may have been excluded from the list below.
IAS 1 – Presentation of Financial Statements
IAS 1 prescribes the basis for presentation of general purpose financial statements and is effective for annual periods
beginning on or after January 1, 2011 to ensure comparability both with the entity’s financial statements of previous
periods and with the financial statements of other entities. It sets out overall requirements for the presentation
of financial statements, guidelines for their structure and minimum requirements for their content. There are no
additional significant impacts on the Company.
IAS 24 – Related Party Disclosures (Amendment)
The amended standard is effective for annual periods beginning on or after January 1, 2011. It clarified the definition
of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application.
The revised standard introduces a partial exemption of disclosure requirements for government-related entities. The
Company does not expect any impact on its financial position or performance. Early adoption is permitted for either
the partial exemption for government-related entities or for the entire standard. There are no additional significant
impacts on the Company.
Accounting standards effective January 1, 2012
Financial instruments disclosure
In October 2010, the IASB issued amendments to IFRS 7 – Financial Instruments: Disclosures that improve the
disclosure requirements in relation to transferred financial assets. The amendments are effective for the annual
periods beginning on or after July 1, 2011, with earlier adoption permitted. The Company does not anticipate the
amendment to have a significant impact on its consolidated financial statements.
Income Taxes
In December 2010, the IASB issued an amendment to IAS 12 – Income taxes that provide a practical solution to
determining the recovery of investment properties as it relates to the accounting for deferred income taxes. This
amendment is effective for annual periods beginning on or after July 1, 2011, with earlier adoption permitted. The
Company does not anticipate this amendment to have a significant impact on its consolidated financial statements.
17
tsodilo resources limited
Accounting standards anticipated to be effective January 1, 2013
IFRS 9 – Financial Instruments Disclosure
IFRS 9 Financial Instruments was published and contained requirements for financial assets updating IFRS 7.
Requirements for financial liabilities were added to IFRS 9 in October 2010. Most of the requirements for financial
liabilities were carried forward unchanged from IAS 39. However, some changes were made to the fair value option
for financial liabilities to address the issue of own credit risk. The Company does not anticipate this amendment to
have a significant impact on its consolidated financial statements.
IFRS 10 – Consolidated Financial Statements
IFRS 10 requires that a reporting entity should consolidate any investee that it controls. Control is the basis for
consolidation for all types of investees. IFRS 10 also provides guidance on assessing control in circumstances where
the assessment has proven to be difficult. IFRS 10 provides more guidance about the factors to consider in such
structures that involve potential voting rights, agency relationships, relationships with structured entities and
control without a majority of voting rights. The Company consolidation with its current subsidiaries and related
consolidation decisions should be unaffected by the new consolidation model in IFRS 10.
IFRS 11 – Joint Arrangements
The IASB issued IFRS 11 – Joint Arrangements on May 12, 2011. IFRS 11 eliminates the Company’s choice to
proportionately consolidate jointly controlled entities and requires such entities to be accounted for using the
equity methods and proposes to establish a principles-based approach to the accounting for joint arrangements
which focuses on the nature, extent and financial effects of the activities that an entity caries out through
joint arrangements and its contractual rights and obligations to assets and liabilities, respectively, of the joint
arrangements. The Company does not anticipate this amendment will have a significant impact on its consolidated
financial statements.
IFRS 12 – Disclosure of Interest in other entities
IFRS 12 sets out disclosure requirements for reporting entities that have an interest in a subsidiary, joint arrangement,
associate or unconsolidated structured entity. The are no additional interest or disclosures required.
Consolidation
On September 20, 2010 the IASB posted a staff draft of a forthcoming IFRS on consolidation. The staff draft reflects
tentative decisions made to date by the IASB with respect to the IASB’s project to replace current standard on
consolidations, IAS 27 – Consolidated and Separate Financial Statements and SIC-12, with a single standard on
consolidation. The IASB plans on publishing the final standard on consolidation during the first half of 2011,
with an anticipated effective date of January 1, 2013. The Company is currently evaluating the impact the final
standard’s expected to have on its condensed consolidated financial statements.
Fair Value Measurement
IFRS 13, Fair Value Measurement: effective for annual periods beginning on or after January 1, 2013, with early
adoption permitted, sets out in a single IFRS a framework for measuring fair value and new required disclosures
about fair value measurements. Management anticipates that this standard will be adopted in the Company’s
financial statements for the period beginning January 1, 2013, and has not yet considered the potential impact of
the adoption of IFRS 13.
Accounting standards effective January 1, 2012
Financial instruments disclosure
In October 2010, the IASB issued amendments to IFRS 7 – Financial Instruments: Disclosures that improve the
disclosure requirements in relation to transferred financial assets. The amendments are effective for the annual
18
tsodilo resources limited
periods beginning on or after July 1, 2011, with earlier adoption permitted. The Company does not anticipate the
amendment to have a significant impact on its consolidated financial statements.
Income Taxes
In December 2010, the IASB issued an amendment to IAS 12 – Income taxes that provide a practical solution to
determining the recovery of investment properties as it relates to the accounting for deferred income taxes. This
amendment is effective for annual periods beginning on or after July 1, 2011, with earlier adoption permitted. The
Company does not anticipate this amendment to have a significant impact on its consolidated financial statements.
RELATED PARTY TRANSACTIONS
During the years ended December 31, 2011, 2010, 2009 and 2008, the Company incurred leave benefits (2011 $23,412
2010: $33,293 2009: $19,024, 2008: $19,024) payable to an officer and director of the Company amounting to $94,753.
In June 2010: $59,451 April 2011: $19,612 December 2011: $15,690, the Company paid the officer and director of the
Company a total of $94,753, leaving a zero balance payable as at December 31, 2011 to an officer and director of the
Company.
Remuneration of Key Management Personnel of the Company
Short Term employee remuneration and benefi ts
Stock based compensation
Total compensation paid to key management personnel
There are no other related party transactions.
2011
$ 419,861
522,963
$ 942,824
2010
$ 348,427
559,963
$ 908,390
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 and Chief Executive Officer
February 17, 2012
Gary A. Bojes
Chief Financial Officer
February 17, 2012
19
tsodilo resources limited
Financial Reporting Responsibility of Management
The annual report and consolidated financial statements
control. The Audit Committee is composed of three
have been prepared by management. The consolidated
directors, all of whom qualify as unrelated directors
financial statements have been prepared in accordance
and are independent of management and free from any
with International Financial Reporting Standards and
interest or business relationship which could, or could be
include amounts that are based on informed judgments
perceived to materially interfere with their ability to act in
and best estimates. The financial information presented
the best interests of the Company. This committee meets
in this annual report is consistent with the consolidated
periodically with management and the external auditors
financial
statements. Management
acknowledges
to review accounting, auditing,
internal control and
responsibility for the fairness, integrity and objectivity of
financial reporting matters. The Audit Committee reviews
all information contained in the annual report including
the annual financial statements before they are presented
the consolidated financial statements. Management is
to the Board of Directors for approval and considers the
also responsible for the maintenance of financial and
independence of the auditors.
operating systems, which include effective controls to
provide reasonable assurance that assets are properly
protected and
that
relevant and
reliable
financial
information is produced. Our independent auditors have
the responsibility of auditing the consolidated financial
statements and expressing an opinion on them.
The consolidated financial statements for the years ended
December 31, 2011 and 2010 and the January 1, 2010
opening IFRS statement of financial position have been
audited by Ernst & Young LLP, the external auditors, in
accordance with Canadian generally accepted auditing
The Board of Directors, through its Audit Committee,
standards on behalf of the shareholders. Their report
is responsible for ensuring that management fulfills
follows hereafter.
its responsibilities for financial reporting and internal
James M. Bruchs
Chairman and Chief Executive Offi cer
February 17, 2012
Gary A. Bojes
Chief Financial Offi cer
February 17, 2012
20
tsodilo resources limited
AUDITORS’ REPORT
To the Shareholders of Tsodilo Resources Limited:
We have audited the accompanying consolidated financial
An audit
involves performing procedures to obtain
statements of Tsodilo Resources Limited, which comprise
audit evidence about the amounts and disclosures in
the statements of financial position as at December 31,
the consolidated financial statements. The procedures
2011 and 2010, and January 1, 2010 and the consolidated
selected depend on the auditors’ judgment, including
statements of operations and comprehensive income
the assessment of the risks of material misstatement
(loss), shareholders’ equity and cash flows for the years
of the consolidated financial statements, whether due
ended December 31, 2011 and 2010, and a summary of
to fraud or error. In making those risk assessments, the
significant accounting policies and other explanatory
auditors consider internal control relevant to the entity’s
information.
Management’s responsibility for the consolidated
financial statements
preparation and fair presentation of the consolidated
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
Management is responsible for the preparation and fair
of the entity’s internal control. An audit also includes
presentation of these consolidated financial statements
evaluating the appropriateness of accounting policies
in accordance with
International Financial Reporting
used and the reasonableness of accounting estimates
Standards, and for such internal control as management
made by management, as well as evaluating the overall
determines is necessary to enable the preparation of
presentation of the consolidated financial statements.
consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Auditors’ responsibility
We believe that the audit evidence we have obtained in
our audits is sufficient and appropriate to provide a basis
for our audit opinion.
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian
Opinion
generally accepted auditing standards. Those standards
In our opinion, the consolidated financial statements
require that we comply with ethical requirements and
present fairly, in all material respects, the financial position
plan and perform the audit to obtain reasonable assurance
of Tsodilo Resources Limited as at December 31, 2011 and
about whether the consolidated financial statements are
2010, and January 1, 2010 and its financial performance
free from material misstatement.
and its cash flows for the years ended December 31,
2011 and 2010 in accordance with International Financial
Reporting Standards.
Vancouver, Canada
February 17, 2012
Chartered Accountants
21
tsodilo resources limited
Tsodilo Resources Limited
Consolidated Statements of Financial Position
(In United States dollars)
ASSETS
Current
Cash
December 31
2011
December 31
2010
(Note 14)
January 1
2010
(Note 14)
$ 1,505,965
$ 2,728,695
$ 108,341
Accounts receivable and prepaid expenses
Exploration and Evaluation Assets (note 3)
Property, Plant and Equipment (note 4)
Deposit on Equipment (note 4)
179,352
1,685,317
8,774,657
1,017,938
--
65,171
2,793,866
7,493,891
323,416
870,805
67,640
175,981
4,919,093
222,683
--
$ 11,477,912
$ 11,481,978
$ 5,317,757
LIABILITIES
Current
Accounts payable and accrued liabilities
$ 104,105
$ 97,448
$ 73,051
Warrants (note 5b)
Total Liabilities
SHAREHOLDERS’ EQUITY
Share Capital (note 5a)
Stock Option Reserves (note 5c)
Foreign Currency Reserves
Defi cit
Equity attributable to Owners of the Parent
Non-controlling Interest (note 3)
Total Equity
1,500,766
1,604,871
35,056,638
8,711,103
(1,455,134)
5,266,191
5,363,639
32,038,044
7,884,206
318,924
2,598,156
2,671,207
29,646,445
6,915,917
-
(32,653,953)
(34,373,199)
(34,150,053)
9,658,654
214,387
9,873,041
5,867,975
250,364
6,118,339
2,412,309
234,241
2,646,550
Total Liabilities and Equity
$ 11,477,912
$ 11,481,978
$ 5,317,757
Commitments (note 11)
Subsequent events (note 13)
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
22
tsodilo resources limited
Tsodilo Resources Limited
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In United States dollars)
Administrative Expenses
Corporate remuneration
Corporate travel and subsistence
Investor relations
Legal and audit
Filings and regulatory fees
Administrative expenses
Amortization
Stock-based compensation (note 5c)
Other Income (Expense)
Other expense
Warrant issue cost
Unrealized gain (loss) on warrants (Note 5b)
Foreign exchange (loss)
Net Income (Loss) for period
Other Comprehensive Income (Loss)
Foreign currency translation
Total Other Comprehensive Income (Loss)
Total Comprehensive Income (Loss) for the period
Year Ended December 31
2011
2010
(Note 14)
$ 148,624
$ 79,692
27,264
16,911
134,876
30,303
164,046
4,846
427,864
954,734
3,077
--
2,673,378
(2,475)
4,092
9,500
63,878
22,635
148,255
2,035
478,772
808,859
6,489
(52,804)
671,515
(39,487)
$ 1,719,246
($ 223,146)
(1,810,035)
335,047
(1,810,035)
($ 90,789)
335,407
$ 111,901
Net Income (Loss) attributable to shareholders of the parent
$ 1,719,246
($ 223,146)
Non-controlling interest
Total Comprehensive Income (Loss) attributable to owners of
the parent
Non-controlling Interest
Basic income (loss) per share attributable to owners of the
parent (note 7)
Fully diluted income (loss) per share attributable to the owners
of the parent (note 7)
Basic comprehensive income (loss) per share attributable to the
owners of the parent (note 7)
Fully diluted comprehensive income (loss) per share attributable
to the owners of the parent (note 7)
See accompanying notes to the consolidated fi nancial statements
--
--
$ 1,719,246
($ 223,146)
(54,812)
(35,977)
($90,789)
$0.07
$0.07
($0.00)
($0.00)
$ 95,778
16,123
$ 111,901
($0.01)
($0.01)
$0.01
$0.01
23
tsodilo resources limited
Tsodilo Resources Limited
Consolidated Statements of Shareholders’ Equity
(In United States dollars except for shares)
Share Capital
Shares
Issued
Amount
Stock
Option
Reserve
Foreign
Currency
Reserve
Defi cit
Total
attributable to
equity holder
of the parent
Non-
Controlling
Interest
Total
Equity
22,647,340 $32,038,044$7,884,206
$318,924 ($34,373,199))
$5,867,975
$250,364 $6,118,339
3,233,630
3,018,594
--
--
--
--
--
826,897
--
--
--
--
3,018,594
826,897
-- 3,018,594
--
826,897
--
(1,774,058)
1,719,246
(54,812)
(35,977)
(90,789)
25,880,970 $35,056,638$8,711,103 ($1,455,134) ($32,653,953)
$9,658,654
$214,387 $9,873,041
Balance January 1,
2011
Exercise of warrants
Stock Based
Compensation
Comprehensive
Income (loss) 2011
Balance December
31, 2011
See accompanying notes to the consolidated fi nancial statements.
Tsodilo Resources Limited
Consolidated Statements of Shareholders’ Equity
(In United States dollars except for shares)
Share Capital
Stock
Option
Reserve
Foreign
Currency
Reserve
Defi cit
Shares
Dollars
Non-
Controlling
Interest
Total
Total
attributable
to equity
holder of
the parent
Balance January 1,
2010
18,787,457 $29,646,445 $6,915,917
- ($34,150,053) $2,412,309 $234,241 $2,646,550
Private Placement
3,859,883
1,200,362
(21,554)
1,212,791
--
--
--
--
--
--
968,289
--
--
--
--
1,200,362
--
1,200,362
(21,554)
1,212,791
968,289
--
--
(21,554)
1,212,791
968,289
--
--
--
318,924
(223,146)
95,778
16,123
111,901
Transaction Costs
Exercised Warrants
Stock Based
Compensation
Comprehensive
Income (loss)
Balance December
31, 2010
22,647,340 $32,038,044 $7,884,206 $318,924 ($34,373,199) $5,867,975 $250,364 $6,118,339
See accompanying notes to the consolidated fi nancial statements.
24
tsodilo resources limited
Tsodilo Resources Limited
Consolidated Statements of Cash Flows
(In United States dollars)
Cash provided by (used in):
Operating Activities
Net Income (Loss) for the year
Adjustments for non-cash items:
Unrealized (gain) loss on warrants
Amortization
Stock-based compensation
Net change in non-cash working capital balances (note 12)
Investing Activities
Additions to exploration properties
Deposit on equipment
Additions to property, plant and equipment
Financing Activities
Shares and warrants issued for cash, net of cost
Change in cash - For the year
Cash - beginning of year
Cash - end of year
See accompanying notes to the consolidated fi nancial statements
Year Ended December 31
2011
2010
$ 1,719,246
($ 223,146)
(2,673,378)
4,846
427,864
(521,422)
(107,524)
(628,946)
(2,270,342)
--
(249,989)
(2,520,331)
1,926,547
1,926,547
(1,222,730)
2,728,695
$ 1,505,965
(671,515)
2,035
478,772
(413,854)
26,866
(386,988)
(1,584,780)
(870,805)
(215,417)
(2,671,002)
5,678,344
5,678,344
2,620,354
108,341
$ 2,728,695
25
tsodilo resources limited
Tsodilo Resources Limited
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011 and 2010
(All amounts are in U.S. dollars unless otherwise noted)
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 Company is considered to be in the exploration and development stage given that none of its properties are in
production and, to date, has not earned any significant revenues. The recoverability of amounts shown for exploration
and evaluation assets is dependent on the existence of economically recoverable reserves, the renewal of exploration
licenses, obtaining the necessary permits to operate a mine, obtaining the financing to complete exploration and
development, and future profitable production. It is incorporated under laws of the Yukon Territory, Canada, under the
Business Corporations Act of Yukon and the address of the Company’s registered office is 161 Bay Street, P.O. Box 508
Toronto, Ontario, Canada, M5J 2S1. The Company currently exists under the Business Corporations Act of Yukon and its
common shares are listed on the Toronto Venture Stock Exchange (TSXV) under the symbol TSD.
These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going
concern, which assumes that the Company will realize its assets and discharge its liabilities in the normal course of
business. Management has carried out an assessment of the going concern assumption and has concluded that the
Company has sufficient cash (as well as no debt obligations outside of normal course accounts payable and accrued
liabilities) to continue operating for the ensuing twelve months. Accordingly, these consolidated financial statements
do not reflect the adjustments to the carrying value of assets and liabilities, or the impact on the consolidated statement
of operations and comprehensive income (loss), and consolidated statement of financial position classifications that
would be necessary were the going concern assumption not appropriate.
2. SIGNIFICANT ACCOUNTING POLICIES
(a)
Statement of Compliance and conversion to International Financial Reporting Standards
These consolidated fi nancial statements are prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International
Financial Reporting Interpretations Committee (“IFRIC”).
These are the Company’s fi rst consolidated fi nancial statements prepared in accordance with IFRS using accounting policies
consistent with IFRS. The accounting policies have been selected to be consistent with IFRS eff ective on December 31,
2011, the Company’s fi rst annual IFRS reporting date. Previously, the Company prepared its annual consolidated fi nancial
statements in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”).
These consolidated fi nancial statements have been authorized for release by the Company’s Board of Directors on
February 17, 2012.
26
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(b)
Basis of Preparation
These consolidated fi nancial statements have been prepared on a historical cost basis except for fi nancial instruments classifi ed as fair
value through profi t and loss which are stated at their fair value. These consolidated fi nancial statements are presented in United Stated
dollars and include the accounts of the Company and the following direct and indirect subsidiaries:
Tsodilo Resources Bermuda Limited (Bermuda)
2011
100%
Gcwihaba Resources (Proprietary) Limited (“Gcwihaba”) [Botswana]
100%
Bosoto (Proprietary) Limited (“Bosoto”) [Botswana]
Newdico (Proprietary) Limited (“Newdico”) [Botswana]
100%
97%
All intercompany transactions have been eliminated on consolidation
2010
100%
100%
100%
96%
The adoption of IFRS resulted in changes to the accounting policies as compared with the most recent annual fi nancial statements
prepared under Canadian GAAP. The accounting policies set out below have been applied consistently to all periods presented. They
also have been applied in preparation of an opening IFRS statement of fi nancial position as at January 1, 2010 (the “Transition Date”), as
required by IFRS 1. First Time Adoptions of International Financial Reporting Standards (“IFRS 1”). The impact of the transition from Canadian
GAAP to IFRS is explained in note 14.
(c)
Significant Accounting Judgments, Estimates and Assumptions
The preparation of the consolidated fi nancial statements in conformity with IFRS requires management to make judgments, estimates
and assumptions that aff ect the application of polices and reporting amounts and assets and liabilities, income and expenses. Actual
results may diff er from these estimates.
Accounts that require estimates as the basis for determining the stated amounts include exploration and evaluation assets, property, plant
and equipment, warrant liability and share-based compensation. Depreciation and depletion of exploration and evaluation assets and
property, plant and equipment assets are dependent upon estimates of useful lives and resource estimates, both of which are determined
with the exercise of judgment. The assessment of any impairment of exploration and evaluation assets or property, plant and equipment
upon the estimates of fair value that take into account factors such as resources, economic and market conditions, and the useful lives of
assets. Share-based compensation expense is calculated using the Black-Scholes valuation model which requires signifi cant judgment
as to considerations such as stock option lives and stock volatility. Warrant liability is also calculated using the Black-Scholes valuation
model which requires signifi cant judgment as to the considerations such as warrant lives and stock volatility.
(d)
Earnings (Loss) per Common Share
Earnings (loss) per share calculations are based on the net income attributable to common shareholders for the year divided by the
weighted average number of common shares issued and outstanding during the year.
Diluted earnings per share calculations are based on the net income attributable to common shareholders for the year divided by the
weighted average number of common shares outstanding during the year plus the eff ects of dilutive common share equivalents. This
method requires that the dilutive eff ect of outstanding options and warrants issued be calculated using the treasury stock method. This
method assumes that all common share equivalents have been exercised at the beginning of the year (or at the time of issuance, if later),
and that the funds obtained thereby were used to purchase common shares of the Company at the average trading price of common
27
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
shares during the year. The incremental number of common shares that would be issued is included in the calculation of
diluted earnings per share.
Diluted earnings per share calculations are based on the net comprehensive income (loss) and income attributable to
common shareholders for the year divided by the weighted average number of common shares issued and outstanding
during the year ended 2011. Stock options and share purchase warrants are included in the computation of comprehensive
income (loss) and income per share for the year ended December 31, 2011.
(e)
Exploration and Evaluation Assets
Exploration and evaluation assets include acquired mineral use rights for mineral properties held by the Company.
The amount of consideration paid (in cash or share value) for mineral use rights is capitalized. The amounts shown for
exploration and evaluation assets represents all direct and indirect costs relating to the acquisition, exploration and
development of exploration properties, less recoveries, and do not necessarily refl ect present or future values. These
costs will be amortized against revenue from future production or written off if the exploration and evaluation assets are
abandoned or sold. The Company has classifi ed exploration and evaluation assets as intangible in nature. Depletion of
costs capitalized on projects put into commercial production will be recorded using the unit-of-production method based
upon estimates of proven and probable reserves.
Ownership of exploration and evaluation assets involves certain inherent risks, including geological, metal prices,
operating costs, and permitting risks. Many of these risks are outside the Company’s control. The ultimate recoverability
of the amounts capitalized for exploration and evaluation assets is dependent upon the delineation of economically
recoverable ore reserves, the renewal of exploration licenses, obtaining the necessary fi nancing to complete their
development, obtaining the necessary permits to operate the mine, and realizing profi table production or proceeds
from the disposition thereof. Management’s estimates of recoverability of the Company’s investment in its Botswana
exploration and evaluation assets have been based on current and expected conditions. However, it is possible that
changes could occur which could adversely aff ect management’s estimates and may result in future write downs of
exploration and evaluation assets carrying values.
(f)
Property, Plant and Equipment
Property, plant and equipment is stated at cost, less accumulated depreciation.
Depreciation is calculated on a straight line basis over the following terms:
Vehicles
5 Years
Furniture and equipment
3 Years
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefi ts are
expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the
diff erence between the net disposal proceeds and the carrying amount of the asset, is recognized in profi t or loss.
Where an item of plant and equipment comprises major components with diff erent useful lives, the components are
accounted for as separate items of plant and equipment. Expenditures incurred to replace a component of an item of plant
and equipment that is accounted for separately, including major inspection and overhaul expenditures, are capitalized.
(g)
Cash
Cash consists of cash held in banks.
28
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(h)
Foreign Currency Translation
(i) Functional and presentation currency
The Company’s functional and presentation currency is the United States dollar. The functional currency of the Company’s
subsidiaries is as follows:
Tsodilo Resources Bermuda Limited
Gcwihaba
Newdico
Bosoto
U.S. Dollar
Botswana Pula
Botswana Pula
Botswana Pula
Each subsidiary and the Company’s parent entity determine their own functional currency and items included in the
fi nancial statements of each subsidiary are measured using that functional currency.
(ii) Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates
prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated
at the exchange rate prevailing at the reporting date.
(iii) Translation of foreign operations
As at the reporting date the assets and liabilities of Gcwihaba, Newdico and Bosoto are translated into the presentation
currency of the Company at the rate of exchange prevailing at the reporting date and its revenue and expenses are
translated at the exchange rate at the date of the transactions. The exchange diff erences arising on the translation are
taken to the foreign currency reserve. On consolidation, exchange diff erences arising from the translation of the net
investments in Gcwihaba, Newdico and Bosoto are taken to the foreign currency reserve.
If Gcwihaba, Newdico and Bosoto were sold, the exchange diff erences would be transferred out of equity and recognized
in the Statement of Operations and Comprehensive Income (Loss).
(i)
Income Taxes
Current taxes are the expected tax payable or receivable on the local taxable income or loss for the year, using the local tax
rate enacted or substantively enacted at the reporting date, and includes any adjustments to tax payable or receivable in
respect of previous years.
Deferred income taxes are recorded using the balance sheet method whereby deferred tax is recognized in respect to
temporary diff erences between the carrying amounts of assets and liabilities for fi nancial reporting purposes and the
amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary
diff erences when they are realized or settled, based on the laws that have been enacted or substantively enacted by the
reporting date. Deferred tax is not recognized for temporary diff erences which arise on the initial recognition of assets or
liabilities in a transaction that is not a business combination and that aff ect neither accounting, nor taxable profi t or loss.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary diff erences, to the extent
that it is probable that future taxable profi ts will be available against which they can be utilized. Deferred tax assets are
reviewed each reporting date and are reduced to the extent that it is no longer probable that the related tax benefi t will
be realized.
29
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(j)
Share-based Compensation
The Company follows the fair value method of accounting for stock option awards granted to employees, directors and
consultants. The fair value of stock options is determined by the Black-Scholes Option Pricing Model with assumptions
for risk-free interest rates, dividend yields, volatility of the expected market price of the Company’s common shares and
an expected life of the options. The number of stock option awards expected to vest are estimated using a forfeiture
rate based on historical experience and future expectations. The fair value of direct awards of stock is determined by
the quoted market price of the Company’s stock. Share-based compensation is amortized to earnings and portions are
capitalized for indirect exploration costs over the vesting period of the related option.
The Company uses graded or accelerated amortization which specifi es that each vesting tranche must be accounted
for as a separate arrangement with a unique fair value measurement. Each vesting tranche is subsequently amortized
separately and in parallel from the grant date.
Option-pricing models require the use of highly subjective estimates and assumptions including the expected stock price
volatility. Changes in the underlying assumptions can materially aff ect the fair value estimates.
(k)
Decommissioning, restoration and similar liabilities (Asset Retirement Obligation or “ARO”)
The Company records the present value of estimated costs of legal and constructive obligations required to restore the
site in a period in which the obligation is incurred. The nature of these restorations activities include dismantling and
removing structures, rehabilitating mines and tailings dams, dismantling facilities, closure of plant and waste sites and
restoration, reclamation and re-vegetation of aff ected areas.
The future obligations for mine closure activities are estimated by the Company using mine closure plans or other
similar studies which outline the requirements that will be carried out to meet the obligations. Since the obligations are
dependent on the laws and regulations of Botswana where the potential mines would operate, the requirements could
change as a result of amendments in the laws and regulations relating to environmental protection and other legislation
aff ecting resource companies.
As the estimate of the obligations is based on future expectations, a number of assumptions and judgments are made by
management in the determination of closure provisions. The closure provisions are more uncertain the further into the
future the mine closure activities are to be carried out.
The present value of decommissioning and site restoration costs are recorded as a long-term liability. The provision
is discounted using a nominal, risk free pre-tax discount rate. Charges for accretion and restoration expenditures are
recorded as operating activities. In subsequent periods, the carrying amount of the liability is accreted by a charge to the
statement of operations and comprehensive income (loss) to refl ect the passage of time and the liability is accreted by a
charge to the statement of operations and comprehensive income (loss) to refl ect the passage of time and the liability is
adjusted to refl ect any change in the timing of the underlying future cash fl ows.
Changes to the obligation resulting from any revisions to the timing or amount of the original estimate of undiscounted
cash fl ows are recognized as an increase or decrease in the decommissioning provision, and a corresponding change in
the carrying amount of the related long term asset. Where rehabilitation is conducted systematically over the life of the
operation, rather than at the time of closure, a provision is made for the estimated outstanding continuous rehabilitation
work at each reporting date and the cost is charged to the statement of operations and comprehensive income (loss).
The Company had no asset retirement obligations as of December 31, 2011, December 31, 2010 and January 1, 2010.
30
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(l)
Financial Assets
All financial assets are initially recorded at fair value and designated upon inception into one of the following
four
categories: held for maturity, available for sale, loans and receivables, or at fair value through profi t or loss (“FVTPL”).
Financial assets classifi ed as FVTPL are measured at fair value with unrealized gains and losses, recognized
through
earnings. The Company does not have any fi nancial assets classifi ed as FVTPL.
Financial assets classifi ed as loans and receivables and held to maturity assets are measured at amortized cost. The
Company’s cash and accounts receivable are classifi ed as loans and receivables. Financial assets classifi ed as available for
sale are measured at fair value with unrealized gains or losses recognized in other comprehensive income and loss except
for losses in value that are considered other than temporary which are recognized in earnings. At December 31, 2011,
December 31, 2010 and January 1, 2010, the Company has not classifi ed any fi nancial assets as available for sale.
Transaction costs associated with FVTPL fi nancial assets are expensed as incurred, while transaction costs associated with
all other fi nancial assets are included in the initial carrying amount of the asset.
(m)
Financial Liabilities
All fi nancial liabilities are initially recorded at fair value and designated upon inception as FVTPL or other fi nancial liabilities.
Financial liabilities classifi ed as other fi nancial liabilities are initially recognized at fair value less directly attributable
transaction costs. After initial recognition, other fi nancial liabilities are subsequently measured at amortized cost using
the eff ective interest rate method. The eff ective interest rate method is a method of calculating the amortized cost of a
fi nancial liability and of allocating interest expenses over the relevant period. The eff ective interest rate is the rate that
discounts estimated future cash payments through the expected life of the fi nancial liability, to, where appropriate, a
shorter period. The Company’s accounts payable and accrued liabilities are classifi ed as other fi nancial liabilities.
Financial liabilities classifi ed as FVTPL include warrants with exercise prices denominated in a currency other than the
Company’s functional currency. Derivatives, including separated embedded derivatives are also classifi ed as FVTPL and
recognized at fair value with changes in fair value recognized in earnings unless they are designated as eff ective hedging
instruments. Fair value changes on fi nancial liabilities classifi ed as FVTPL are recognized in earnings. Transaction costs
associated with FVTPL liabilities are expensed as incurred.
(n)
Impairment of assets
At the end of each reporting period, the Company assesses each cash generating unit to determine whether there is any
indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment, if any. The recoverable amount is the higher of the fair value less cost to
sell and the value in use. Fair value is determined as the amount that would be obtained from the sale of the asset in an
arm’s length transaction between knowledgeable and willing parties. In assessing value in use, the estimated future cash
fl ows are discounted to their present value using a discount rate that refl ects current market assessment of the time value
of money and the risk of a specifi c asset. If the recoverable amount of an asset is estimated to be less than its carrying
amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in
profi t or loss for the period. For an asset that does not generate largely independent cash infl ows, the recoverable amount
is determined for the cash generating unit to which the asset belongs.
When an impairment subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the
revised estimate of its recoverable amount, but to an amount that does not exceed the carrying amount that would have
been determined had no impairment loss been recognized for the asset (or cash generating unit) in prior years. A reversal
of an impairment loss is recognized immediately in profi t or loss.
31
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(o)
Related Party transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise
signifi cant infl uence over the other party in making fi nancial and operating decisions. Related parties may be individuals
or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources,
services or obligations between related parties.
(p)
New standards, amendments and interpretations not yet effective
Certain new standards, interpretations and amendments to existing standards have been issued by the IASB or IFRIC
that are mandatory for accounting periods beginning after January 1, 2010, or later periods. Some updates that are not
applicable or are not consequential to the Company may have been excluded from the list below.
IAS 1 – Presentation of Financial Statements
IAS 1 prescribes the basis for presentation of general purpose fi nancial statements and is eff ective for annual periods
beginning on or after January 1, 2011 to ensure comparability both with the entity’s fi nancial statements of previous
periods and with the fi nancial statements of other entities. It sets out overall requirements for the presentation of fi nancial
statements, guidelines for their structure and minimum requirements for their content. There are no additional signifi cant
impacts on the Company.
IAS 24 - Related Party Disclosures (Amendment)
The amended standard is eff ective for annual periods beginning on or after January 1, 2011. It clarifi ed the defi nition
of a related party to simplify the identifi cation of such relationships and to eliminate inconsistencies in its application.
The revised standard introduces a partial exemption of disclosure requirements for government-related entities. The
Company does not expect any impact on its fi nancial position or performance. Early adoption is permitted for either the
partial exemption for government-related entities or for the entire standard. There are no additional signifi cant impacts
on the Company.
Accounting standards effective January 1, 2012
Financial instruments disclosure
In October 2010, the IASB issued amendments to IFRS 7 – Financial Instruments: Disclosures that improve the disclosure
requirements in relation to transferred fi nancial assets. The amendments are eff ective for the annual periods beginning
on or after July 1, 2011, with earlier adoption permitted. The Company does not anticipate the amendment to have a
signifi cant impact on its consolidated fi nancial statements.
Income Taxes
In December 2010, the IASB issued an amendment to IAS 12 – Income taxes that provide a practical solution to determining
the recovery of investment properties as it relates to the accounting for deferred income taxes. This amendment is
eff ective for annual periods beginning on or after July 1, 2011, with earlier adoption permitted. The Company does not
anticipate this amendment to have a signifi cant impact on its consolidated fi nancial statements.
32
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES(continued)
Accounting standards anticipated to be effective January 1, 2013
IFRS 9 – Financial Instruments Disclosure
IFRS 9 Financial Instruments was published and contained requirements for fi nancial assets updating IFRS 7. Requirements
for fi nancial liabilities were added to IFRS 9 in October 2010. Most of the requirements for fi nancial liabilities were carried
forward unchanged from IAS 39. However, some changes were made to the fair value option for fi nancial liabilities to
address the issue of own credit risk. The Company does not anticipate this amendment to have a signifi cant impact on its
consolidated fi nancial statements.
IFRS 10 – Consolidated Financial Statements
IFRS 10 requires that a reporting entity should consolidate any investee that it controls. Control is the basis for consolidation
for all types of investees. IFRS 10 also provides guidance on assessing control in circumstances where the assessment
has proven to be diffi cult. IFRS 10 provides more guidance about the factors to consider in such structures that involve
potential voting rights, agency relationships, relationships with structured entities and control without a majority of
voting rights. The Company consolidation with its current subsidiaries and related consolidation decisions should be
unaff ected by the new consolidation model in IFRS 10.
IFRS 11 – Joint Arrangements
The IASB issued IFRS 11 – Joint Arrangements on May 12, 2011. IFRS 11 eliminates the Company’s choice to proportionately
consolidate jointly controlled entities and requires such entities to be accounted for using the equity methods and
proposes to establish a principles-based approach to the accounting for joint arrangements which focuses on the nature,
extent and fi nancial eff ects of the activities that an entity caries out through joint arrangements and its contractual rights
and obligations to assets and liabilities, respectively, of the joint arrangements. The Company does not anticipate this
amendment will have a signifi cant impact on its consolidated fi nancial statements.
IFRS 12 – Disclosure of Interest in other entities
IFRS 12 sets out disclosure requirements for reporting entities that have an interest in a subsidiary, joint arrangement,
associate or unconsolidated structured entity. There are no additional interest or disclosures required.
Consolidation
On September 20, 2010 the IASB posted a staff draft of a forthcoming IFRS on consolidation. The staff draft refl ects tentative
decisions made to date by the IASB with respect to the IASB’s project to replace current standard on consolidations,
IAS 27 – Consolidated and Separate Financial Statements and SIC-12, with a single standard on consolidation. The IASB
plans on publishing the fi nal standard on consolidation during the fi rst half of 2011, with an anticipated eff ective date of
January 1, 2013. The Company is currently evaluating the impact the fi nal standard’s expected to have on its condensed
consolidated fi nancial statements.
Fair Value Measurement
IFRS 13, Fair Value Measurement: eff ective for annual periods beginning on or after January 1, 2013, with early adoption
permitted, sets out in a single IFRS a framework for measuring fair value and new required disclosures about fair value
measurements. Management anticipates that this standard will be adopted in the Company’s fi nancial statements for the
period beginning January 1, 2013, and has not yet considered the potential impact of the adoption of IFRS 13.
33
tsodilo resources limited
3. EXPLORATION AND EVALUATION ASSETS
Exploration and evaluation assets are summarized as follows:
Newdico
Botswana
Precious
Stones
Gcwihaba
Botswana
Total
Precious
Stones
Metals
Radio-Active
Materials
Subtotal
Balance at
January 1, 2010
$ 4,259,345
$ 631,152
$ 28,596
$ -0-
$ 659,748
$ 4,919,093
Additions
1,543,854
669,316
54,780
254,291
49,390
3,167
--
--
724,096
2,267,950
52,557
306,848
Net Exchange
Diff erences
Balance at
December 31, 2010
$6,057,490
$1,349,858
$86,543
$ -0-
$1,436,401
$7,493,891
Additions
1,461,647
456,415
668,300
334,763
1,459,478
2,921,125
Net Exchange
Diff erences
Balance at
December 31, 2011
(1,227,579)
(129,086)
(189,014)
(94,680)
(412,780)
(1,640,359)
$6,291,558
$1,677,187
$565,829
$240,083
$ 2,483,099
$ 8,774,657
The Company’s signifi cant exploration and evaluation assets are summarized 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 additional 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 determined to be
non-prospective for an economic kimberlite discovery. In June 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
and expire in June 2012. The terms of the licenses require Newdico to spend a minimum of Botswana Pula 3,639,490
(US$ 477,676 as at December 31, 2011) inclusive of license fees, from the date of grant to and if held to their full-term.
34
tsodilo resources limited
3. EXPLORATION AND EVALUATION ASSETS (continued)
NEWDICO DIAMOND LICENSE AREAS AS AT DECEMBER 31, 2011
PL numbers
Km²
Grant
Date
Renewal
date
Current
Stage
Expenditure
PL 62/2005
PL 63/2005
PL 64 /2005
PL 65/2005
PL 66/2005
PL 67/2005
PL 68/2005
PL 69 /2005
PL 71/2005
TOTAL
797
718
851
194
621
229
220
181
138
3,949
7/01/10
7/01/10
7/01/10
7/01/10
7/01/10
7/01/10
7/01/10
7/01/10
7/01/10
7/01/12
7/01/12
7/01/12
7/01/12
7/01/12
7/01/12
7/01/12
7/01/12
7/01/12
2nd Renewal
2nd Renewal
2nd Renewal
2nd Renewal
2nd Renewal
2nd Renewal
2nd Renewal
2nd Renewal
2nd Renewal
Rental Fee
Per Annum
(BWP)
3,985
3,590
4,255
970
3,105
1.145
1,100
905
690
19,745
Work
Program
Per Annum
(BWP)
200,000
200,000
200,000
200,000
200,000
200,000
200,000
200,000
200,000
1,800,000
Total Expenditure From
Grant and if held to Full
License Term
BWP
USD as at
12.31.2011
407,970
407,180
408,510
401,940
406,210
402,290
402,200
401,810
401,380
3,639,490
53,545.20
53,441.60
53,616.10
52,753.80
53,314.30
52,799.80
52,787.90
52,736.80
52,680.30
477,676.00
Originally, as a result of an agreement completed on March 31, 2002, Newdico was owned 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 Newdico through
a combination of an equity and debt interest. Based on the terms of the equity and debt interests, THG’s equity and debt interest in
Newdico has been accounted for as a non-controlling interest.
Starting in 2005, THG decided not to fund its proportionate share of expenditures on certain cash calls. Accordingly, the Company’s
interest in Newdico has increased from 75% to 97% at December 31, 2011 (December 31, 2010 - 96%, and January 1, 2010 - 95%).
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 north-west 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
determined 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 1,197,320 (US$ 157,146) as at
December 31, 2011, inclusive of license fees from the date of grant to and if held to their full-term.
35
tsodilo resources limited
3. EXPLORATION AND EVALUATION ASSETS (continued)
GCWIHABA DIAMOND LICENSE AREAS AS AT DECEMBER 31, 2011
PL numbers
Km²
Grant
Date
Renewal
date
Current
Stage
Expenditure
PL 46/2008
PL 47/2008
PL 49/2008
PL 641/2009
709
491
710
923
6/01/11
6/01/11
1/01/11
7/01/09
1/01/13
1/01/13
1/01/13
7/01/12
1st Renewal
1st Renewal
1st Renewal
Initial Grant
Rental
Fee Per
Annum
(BWP)
3,545
2,455
3,550
4,615
PL 642/2009
839
7/01/09
7/01/12
Initial Grant
4,195
Pl 643/2009
786
7/01/09
7/01/12
Initial Grant
3,930
TOTAL
4,456
Metal Exploration
22,290
Work Program
Per Annum
(BWP)
70,000
70,000
70,000
1) 70,000
2) 80,000
3) 90,000
1) 70,000
2) 80,000
3) 90,000
1) 70,000
2) 80,000
3) 90,000
930,000
Total Expenditure
From Grant and if
held to Full License
Term
BWP
USD as at
12.31.2011
147,090
144,910
147,100
19,305.30
19,019.10
19,306.60
253,845
33,316.60
252,585
33,151.30
251,790
33,047.00
1,197,320
157,145.90
Gcwihaba holds eighteen (18) metal (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 4,013,795 (US$ 526,881) as
at December 31, 2011, inclusive of license fees from the date of grant to and if held to their full-term.
36
tsodilo resources limited
3. EXPLORATION AND EVALUATION ASSETS (continued)
GCWIHABA – METAL LICENSE AREAS AS AT DECEMBER 31, 2011
PL numbers
Km²
Grant
Date
Renewal
date
Current Stage
Expenditure
PL 118/2005
PL 119/2005
PL 051/2008
PL 052/2008
PL 386/2008
PL 387/2008
PL 388/2008
PL 389/2008
PL 390/2008
PL 391/2008
PL 392/2008
PL 393/2008
PL 394/2008
PL 395/2008
PL 595/2009
PL 596/2009
PL 5972009
PL 588/2009
TOTAL
367
827
487
382
570
965
318
979
808
455
829
938
650
972
320
925
514
796
12,102
10/01/10
10/01/10
07/01/11
07/01/11
01/01/12
01/01/12
01/01/12
01/01/12
01/01/12
01/01/12
01/01/12
01/01/12
01/01/12
01/01/12
07/01/09
07/01/09
07/01/09
07/01/09
10/01/12
10/01/12
07/01/13
07/01/13
01/01/14
01/01/14
01/01/14
01/01/14
01/01/14
01/01/14
01/01/14
01/01/14
01/01/14
01/01/14
07/01/12
07/01/12
07/01/12
07/01/12
2nd Renewal
2nd Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
Initial Grant
Initial Grant
Initial Grant
Initial Grant
Rental
Fee Per
Annum
(BWP)
1,835
4,135
2,435
1,910
2,850
4,825
1,590
4,895
4,040
2,275
4,145
4,690
3,250
4,860
1,600
4,625
2,570
3,980
60,510
Work
Program
Per Annum
(BWP)
100,000
100,000
70,000
70,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
1,740,000
Total Expenditure From
Grant and if held to Full
License Term
BWP
USD as at
12.31.2011
203,670
208,270
144,870
143,820
205,700
209,650
203,180
209,790
208,080
204,550
208,290
209,380
206,500
209,720
304,800
313,875
307,710
311,940
4,013,795
26,732
27,335
19,014
18,876
26,998
27,517
26,667
27,535
27,311
26,847
27,338
27,481
27,103
27,526
40,005
41,196
40,387
40,942
526,881
Radioactive Minerals
As at December 31, 2011, Gcwihaba holds eight (8) radioactive mineral licenses in the Ngamiland District of northwest
Botswana covering 6,925 square kilometers. The Company acquired two (2) of the licenses in July 2010 and a further six
(6) in January 2011. The terms of the licenses require Gcwihaba to spend a minimum of Botswana Pula 1,543,905 (US$
202,633) inclusive of license fees, from the date of initial grant to and if held to their full-term.
37
tsodilo resources limited
3. EXPLORATION AND EVALUATION ASSETS (continued)
GCWIHABA – RADIOACTIVE LICENSE AREAS AS AT DECEMBER 31, 2011
PL numbers
Km²
Grant Date
Renewal
date
Current Stage
Expenditure
Rental
Fee Per
Annum
(BWP)
Pl 150/2010
719
07/01/10
07/01/13
Initial Grant
3,595
PL 151/2010
711
07/01/10
07/01/13
Initial Grant
3,555
PL 045/2011
1,000
01/01/11
01/01/14
Initial Grant
5,000
PL 046/2011
847
01/01/11
01/01/14
Initial Grant
4,235
PL 047/2011
907
01/01/11
01/01/14
Initial Grant
4,535
PL 048/2011
769
01/01/11
01/01/14
Initial Grant
3,845
PL 049/2011
974
01/01/11
01/01/14
Initial Grant
4,870
PL 050/2011
1,000
01/01/11
01/01/14
Initial Grant
5,000
Work
Program
Per Annum
(BWP)
1) 50,000
2) 60,000
3) 70,000
1) 50,000
2) 60,000
3) 70,000
1) 50,000
2) 60,000
3) 70,000
1) 50,000
2) 60,000
3) 70,000
1) 50,000
2) 60,000
3) 70,000
1) 50,000
2) 60,000
3) 70,000
1) 50,000
2) 60,000
3) 70,000
1) 50,000
2) 60,000
3) 70,000
Total Expenditure
From Grant and if held
to Full License Term
BWP
USD as at
12.31.2011
190,785
25,040
190,665
25,024
195,000
25,593
192,705
25,292
193,605
25,410
191,535
25,139
194,610
25,542
195,000
25,593
TOTAL
6,925
34,635
1,543,905
202,633
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.
38
tsodilo resources limited
4. PROPERTY, PLANT, AND EQUIPMENT AND DEPOSITS ON EQUIPMENT
PropertyPlnt and Equipment
Cost
As at January 1, 2010
Additions
Net Exchange Difference
As at December 31, 2010
As at December 31, 2011
Additions
Net Exchange Difference
As at December31, 2011
Accumulated Depreciation
As at January 1, 2010
Depreciation
Net Exchange Difference
As at December 31, 2010
As at December 31, 2010
Depreciation
Net Exchange Difference
As at December 31, 2011
Net book value
As at January 1, 2010
As at December 31, 2010
As at December 31, 2011
Deposits on Equipment
As at January 1, 2010
Additions
Net exchange diff erence
As at December 31, 2010
-
Vehicles
Furniture and Equipment
$ 747,792
114,871
76,033
$ 938,696
$ 85,555
100,546
44,574
$ 230,675
Vehicles
Furniture and Equipment
$ 938,696
1,097,607
(331,683)
$ 1,704,620
$ 230,675
23,187
(33,491)
$ 220,371
Vehicles
Furniture and Equipment
$ 546,255
158,578
19,046
$ 723,879
$ 64,409
29,291
28,376
$ 122,076
Vehicles
Furniture and Equipment
$ 122,076
40,562
(14,802)
$ 147,836
$ 21,146
$ 108,599
$ 72,535
$723,879
178,573
(143,235)
$ 759,217
$ 201,097
$ 214,817
$ 945,403
$ 870,805
-
$ 870,805
Total
$ 833,347
215,417
120,607
$ 1,169,371
Total
$ 1,169,371
1,120,794
(365,174)
$ 1,924,991
Total
$ 610,664
187,869
47,422
$ 845,955
Total
$ 845,955
219,135
( 158,037)
$ 907,053
$ 222,683
$ 323,416
$ 1,017,938
For the year ended December 31, 2011, an amount of $219,135 (year ended December 31 2010: $187,869) of amortization has
been capitalized under exploration properties.
The Company had purchased $870,805 of drilling equipment being custom designed during 2010. The Company took
possession of the equipment during the third quarter, 2011.
39
tsodilo resources limited
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.
Issued and outstanding: 25,880,970 Common Shares as at December 31, 2011 (December 31, 2010 - 22,647,340
Common Shares; January 1, 2010 - 18,787,457 Common Shares)
a) During the year ended December 31, 2011:
(i)
On February 26, 2011, 728,061 warrants were exercised at a price of C$0.70 for proceeds to the
Company of $516,713 (C$509,643). The fair value of the warrant liability associated with the exercised
warrants that was reclassified to share capital was $259,699.
(ii)
On June 8, 2011, 210,894 warrants were exercised at a price of C$0.70 for proceeds to the Company
of $150,889 (C$147,626). The fair value of the warrant liability associated with the exercise warrants
that was reclassified to share capital was $58,204.
(iii)
On August 15, 2011, 201,519 warrants were exercised at a price of C$0.70 for proceeds to the Company
of $148,728 (C$141,063). The fair value of the warrant liability associated with the exercise warrants
that was reclassified to share capital was $59,246.
(iv)
On December 22, 2011, 2,093,156 warrants were exercised at a price of C$0.55 for proceeds to the
Company of $1,110,217 (C$1,151,236). The fair value of the warrant liability associated with the
exercised warrants that was reclassified to share capital was $714,899.
b) During the year ended December 31, 2010:
(i)
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 entitles the holder to purchase one common share of the Company at a price of C$1.00
until January 22, 2012. The amount of proceeds allocated to the common shares and warrants was
$98,321 and $353,623, respectively. Transaction costs of $3,156 were allocated to the shares.
(ii)
On March 1, 2010, 457,901 warrants were exercised at a price of C$0.70 for proceeds to the Company
of $304,896 (C$320,531). The fair value of the warrant liability associated with these exercised
warrants that was reclassified to share capital was $690,990.
(iii)
On June 29, 2010, the Company issued through a non-brokered private placement, 2,701,702 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 entitles the holder to purchase one common share of the Company at a price of C$2.17
until January 22, 2015. The amount of proceeds allocated to the common shares and warrants was
$1,102,831 and $3,729,729, respectively. Transaction costs of $71,202 were incurred and $18,398
was allocated to the shares and $52,804 was allocated to the warrant. Because the warrants are a
FVTPL liability, the transaction costs allocated to the warrants were expensed.
(iv)
On November 19, 2010, 234,035 warrants were exercised at a price of C$0.70 for proceeds to the
Company of $163,497 (C$114,448). The fair value of the warrant liability associated with these
exercised warrants that was reclassified to share capital was $53,408.
40
tsodilo resources limited
5. SHARE CAPITAL (continued)
(b) Warrants
As at December 31, 2011, the following warrants were outstanding:
Number of Warrants - Units
Exercise Price
December 31,
2010
Issued
Exercised
Expired
December
31, 2011
Expiry
February 26, 2011
June 7, 2011
August 4, 2011
December 22, 2011
January 20, 2012
June 29, 2015
C$0.70
C$0.70
C$0.70
C$0.55
C$1.00
C$2.17
728,061
331,386
201,519
2,102,758
465,245
2,702,702
6,531,671
--
--
--
--
--
--
--
(728,061)
(210,894)
(201,519)
(2,093,156)
--
--
(3,233,630)
--
(120,492)
--
(9,602)
--
--
(130,094)
--
--
--
--
465,245
2,702,702
3,167,947
On February 26, 2011, 728,061 warrants were exercised at a price of C$0.70 for proceeds to the company of $516,713.
On June 7 2011, 210,894 warrants were exercised at a price of C$0.70 for proceeds to the Company of $150,889. Also
120,492 warrants expired unexercised.
On August 15, 2011, 201,519 warrants were exercised at a price of C$0.70 for proceeds to the Company of $148,728.
On December 22, 2011, 2,093,156 warrants were exercised at a price of C$0.55 for proceeds to the Company of $1,110,217
Also 9,602 warrants expired unexercised.
Under IFRS, warrants having a strike price other that the functional currency of the issuer are a derivative liability and are
marked to market as the end of each reporting period. For the year ended December 31, 2011 the Company recorded
a mark to market gain of $2,673,378 (December 31, 2010 - $671,515) on the revaluation of warrants. As at December
31, 2011, the outstanding warrants have a fair value of $1,500,766 (December 31, 2010 - $5,266,191; January 1, 2010 - $
2,598,156) which is determined using the Black-Scholes Option Pricing Model with an expected volatility ranging from
23.18% to 120.13%, expected life of 3.0 to 4.5 years at a risk free rate ranging from 0.95% to 1.06%.
(c) Stock Option Plan
The Company has a stock option plan providing for the issuance of options that can not exceed 3,942,120 shares of
common stock. The Company may grant options to directors, officers, employees, and contractors, and other personnel
of the Company or its subsidiaries. The exercise price of each option cannot be lower than the market price of the shares
being the closing price of the Company’s common shares on the Toronto Stock Exchange the day before the grant date.
Options generally vest ratable over eighteen- month period, beginning with the date of issuance and every 6 months
thereafter, and expire in five years from the date of grant as determined by the Board of Directors.
41
tsodilo resources limited
5. SHARE CAPITAL (continued)
The following Table summarizes the Company’s stock option plan as at December 31, 2011:
Outstanding as at January 1, 2010
Granted
Exercised
Forfeited
Expired
Outstanding as at December 31, 2010
Granted
Expired
Cancelled
Outstanding as at December 31, 2011
Weighted average
exercise price
Number of Shares
2,195,000
740,000
(210,000)
--
--
2,725,000
710,000
(215,000)
(420,000)
2,800,000
(C$)
C$0.80
C$1.91
C$1.39
C$1.06
C$1.15
C$0.83
C$0.98
C$1.11
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 April 17, 2011, the Company issued 300,000 options at C$1.03 under its Stock Option Plan to persons who are officers
and employees of the Company.
On July 25, 2011, the Company issued 100,000 options at C$1.19 under its Stock Option Plan to persons who are officers
and employees of the Company.
On January 3, 2011, 50,000 stock options at C$1.25 expired
On April 24, 2011, 100,000 stock options at C$0.70 expired.
On August 15, 2011, 65,000 options at a price of C$0.70 expired.
420,000 options were cancelled during the year ended December 31, 2011, as a result of employees’ and board member’s
retirements from the Company
Subsequent to December 31, 2011, (on January 2, 2012) 65,000 stock options at C$1.00 expired.
Subsequent to December 31, 2011 (on January 3, 2012), the Company issued 235,000 options at C$0.90 under its Stock
Option Plan to persons who are officers and employees of the Company.
The following table summarizes the stock option compensation expense and capitalized stock compensation for the
year ended December 31, 2011 and 2010.
Stock-based compensation expense
Capitalized Stock-based compensation expense
2011
$ 427,864
399,033
$826,897
2010
$478,772
489,467
$968,239
The following assumptions were used in the Black Scholes option pricing model to fair value of the stock options granted
during the year ended December 31, 2011 and 2010:
Expected lives
Expected volatilities
Expected dividend yield
Risk free rates
Weighted average fair value of option
2011
3.0 to 4.5 years
158.4% - 176.0%
0%
0.68% - 1.90%
1.05
2010
5 years
118% - 126%
0%
2.42% - 2.6%
1.56
42
tsodilo resources limited
5. SHARE CAPITAL (continued)
The following table summarizes stock options outstanding as at December 31, 2011:
Exercise
Price
(C$)
C$0.55
C$0.70
C$0.80
C$1.00
C$1.03
C$1.19
C$1.25
C$2.23
Number of
Options Outstanding
Weighted
Weighted
Options Exercisable
Number of
Weighted
Weighted
Outstanding
Average
Average
Exercisable
Options
Exercise
Remaining
Options
Price (C$)
Contractual
C$0.55
C$0.70
C$0.80
C$1.00
C$1.03
C$1.19
C$1.25
C$2.23
Life (Years)
2.84
1.68
0.35
1.52
4.30
4.57
4.01
3.34
100,000
970,000
350,000
195,000
300,000
100,000
285,000
500,000
2,800,000
Average
Exercise
Average
Remaining
Price (C$)
Contractual
Life (Years)
100,000
970,000
350,000
195,000
150,000
25,000
142,500
500,000
2,432,500
C$0.55
C$0.70
C$0.80
C$1.00
C$1.03
C$1.19
C$1.25
C$2.23
2.84
1.68
0.35
2.02
4.29
4.57
4.00
3.34
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 28.25% (2010: 31.00%) to net income (loss) before income taxes as follows:
Net Income (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
December 31, 2011
$1,719,246
28.25%
485,687
(4,261)
4,545
(634,357)
(63,615)
163.847
49.040
(886)
$ --
December 31 2010
$(223,146)
31.00%
(89,175)
(7,809)
7,143
(37,539)
(120,301)
135,256
105,905
(13,480)
$ --
The following summarizes the principal temporary diff erences and related future income tax eff ect:
Losses carried forward - Botswana
Other
Exploration & Development - Botswana
Property, Plant and Equipment - Botswana
Net future income tax asset recorded
December 31, 2011
2,026,000
45,000
(2,026,000)
(45,000)
$ --
December 31 2010
1,798,000
45,000
(1,836,000)
(7,000)
$ --
As at December 31, 2011, the Company has Canadian net operating losses carried forward that expire as follows:
Loss
275,000
335,000
235,000
213,000
136,000
307,000
Year of Expiry
2015
2016
2027
2028
2029
2030
43
tsodilo resources limited
6. INCOME TAXES (continued)
456,000
2031
Total assessable losses relating to the activity in Botswana as at December 31, 2011 was $9,107,576 (2010: $8,317,342).
7. EARNINGS (LOSS) PER SHARE
Net earnings per share were calculated based on the following:
Year ended December31
Net income for the year
Effect of Dilutive Securities
Stock options and warrants
Diluted net earnings for the year
2011
$ 1,719,246
(7,937)
$ 1,711,309
2010
$ (223,146)
--
$ (223,146)
Net earnings per share from continuing operations and net earnings per share for the year ended December 31 were calculated
based on the following:
Basic weighted-average number of shares outstanding
Effect of dilutive securities:
Stock Options
Warrants
Diluted weighted-average number of shares outstanding
2011
23,508,532
1,193,343
459,220
25,161,195
2010
21,004,082
--
--
21,004,082
The weighted average number of stock options and warrants outstanding during the year ended December 31, 2011 was 5,541,194
of which 2,080,245 were dilutive and included in the above tables. The eff ect of the remaining 3,460,949 million stock options was
anti-dilutive because the underlying exercise prices exceeded the average market price of the underlying common shares of C$1.01.
In addition, the loss per share is the same as the basic loss per share for the year period ended December 31, 2010 because the stock
options and warrants were anti-dilutive.
8. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2011, 2010, 2009 and 2008, the Company incurred leave benefits (2011: $23,412,
2010: $33,293, 2009: $19,024, 2008: $19,024) payable to an officer and director of the Company amounting to $94,753.
In June 2010: $59,451, April 2011: $19,612, December 2011: $15,690, the Company paid the officer and director of the
Company a total of $94,753, leaving a zero balance payable as at December 31, 2011 to an officer and director of the
Company.
Remuneration of Key Management Personnel of the Company
Short term employee remuneration and benefits
Stock based compensation
Total compensation paid to key management personnel
2011
$ 419,861
522,963
$ 942,824
2010
$ 348,427
559,963
$ 908,390
There are no other related party transactions.
9. SEGMENTED INFORMATION
The Company is operating in one industry. As at December 31, 2011 the Company’s long-term assets in the United
States were $11,696 (December 31, 2010 - $7,909) and in Botswana of $1,006,242 (December 31, 2010 – $315,507). No
revenues or expenses were realized for Exploration and Evaluation Segments that are detailed in note 4 above.
44
tsodilo resources limited
10. FINANCIAL INSTRUMENTS
The Company’s financial instruments include cash and cash equivalents, accounts receivable and accounts payable
and accrued liabilities. The carrying value of cash, restricted cash, accounts receivable, accounts payable, and accrued
liabilities as presented in the financial statements are reasonable estimates of fair values due to the relatively short
periods to maturity and the terms of these instruments.
The Company’s financial instruments have been classified as follows:
Financial Instrument
Cash and cash equivalents
Accounts receivable
Accounts payable and accrued liabilities
Warrants
See the Company’s statement of financial position for financial instrument balances.
Classifi cation
Held-for-trading
Loans and receivables
Other fi nancial liabilities
Fair value through Profi t and Loss
Fair Value Hierarchy
Level 1 & Level 2
n/a
n/a
Level 3
International Financial Reporting Standards 7, Financial Instruments: Disclosures, establishes a fair value hierarchy that
reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following
levels:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – inputs other that quoted prices included in Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices): and
Level 3 – inputs for the asset or liability that are not based on observable market data (unobserved inputs).
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 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 2011 the Company raised the cash capital as shown in note 5(a) in the amount
of $1,926,547. It is anticipated that the Company cash balance of $1,505,965 will be substantial enough to continue
operations for the ensuing twelve months.
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.
45
tsodilo resources limited
10. FINANCIAL INSTRUMENTS (continued)
(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, there are no amounts at risk. The Company limits exposure to credit risk on
liquid financial assets through maintaining its cash and equivalents with high-credit quality financial institutions. There
are no allowances for doubtful accounts required.
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.
The Company is exposed to currency risks on its Canadian dollar denominated working capital balances due to changes
in the USD/CAD exchange rate and the functional currency of the parent company.
The Company issues equity in Canadian dollars but the majority of its expenditures is in U.S. dollars. The Company
purchases U.S. dollars based on its near term forecast expenditures and does not hedge its exposure to currency
fluctuations.
Based on the net Pula denominated asset and liability exposures as at December 31, 2011, a 10% change in the USD/
Pula exchange rate would not have a material impact the Company’s earnings. The risk range from a 10% reduction in
exchange rate is $16,701 to a 10% increase in exchange rate is $18,371.
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 as follows:
2012
2013
2014
2015
Total
$ 21,897
22,990
22,990
22,990
$ 90,867
The lease commitment is for storage space in Maun, Botswana at an annual rental of Pula 166,834 per year for 2012 and
Pula 175,165 for years 2013 through 2015 plus taxes converted at an exchange rate as at December 31, 2011 to US dollars.
46
tsodilo resources limited
11. COMMITMENTS (continued)
The Company holds prospecting licenses which require the Company to spend a specified minimum amount on
prospecting over the period of the terms as outlined in note 3.
12. NOTES TO THE CONSOLIDATED STATEMENTS OF CASH 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,
2011
$(114,181)
6,657
($107,524)
2010
$2,469
$24,397
$26,866
13. SUBSEQUENT EVENTS
Warrants
On January 20, 2012, 465,245 warrants at a price of C$1.00 expired unexercised.
Stock Option Plan
On January 3, 2012, the Company issued 235,000 options at C$0.90 under its Stock Option Plan to persons who are
officers and employees of the Company.
On January 2, 2012, 65,000 stock options at C$1.00 expired.
14. TRANSITION AND FIRST TIME ADOPTION OF IFRS
The Company has adopted IFRS with a transition date of January 1, 2010. Under IFRS 1 ‘First Time Adoption of International
Financial Reporting Standards,’ the IFRS are applied retrospectively at the transition date with all adjustments to assets
and liabilities as stated under Canadian GAAP taken to retained earnings unless certain exemptions are applied. The
guidance for first time adoption of IFRS is set out in IFRS 1. IFRS 1 provides for certain mandatory exceptions and
optional exemptions for first time adopters of IFRS. The Company is applying the following exemptions on first-time
adoption of IFRS:
to not account for business combinations that occurred prior to January 1, 2010 using the principles of IFRS
3 – Business Combinations and instead retain the accounting treatment applied under Canadian GAAP;
to charge all foreign currency translation differences, previously recognized as a separate component
of equity to deficit as at the transition date including those foreign currency differences which arise on
adoption of IFRS; and
to only apply IFRS 2 to the Sock Option Grants that were unvested as at the date of transition.
The IFRS 1 elections, identified, above, and the significant accounting policies, set out in note 2, have been applied in
preparing these audited consolidated financial statements and selected audited comparative information presented
below. The following tables reconcile the Company’s audited consolidated statements of financial position and
statements of loss and comprehensive income (loss) with those prepared in accordance with Canadian GAAP and as
previously reported to those prepared and reported in these audited consolidated financial statements in accordance
with IFRS.
47
tsodilo resources limited
14. TRANSITION AND FIRST TIME ADOPTION OF IFRS (continued)
Tsodilo Resources Limited
Reconciliation of equity as at January 1, 2010
(in United States dollars)
Previous
Amounts per
Canadian
GAAP
$ 108,341
67,640
175,981
$73,050
73,050
210,814
28,696,445
8,221,288
1,131,904
ASSETS
Current
Cash
Accounts receivable and
prepaid expenses
Exploration Properties
(note3)
Property, Plant and
Equipment (note 4)
Deposit on Equipment
(note 4)
Total Assets
LIABILITIES
Current
Accounts payable and
accrued liabilities
Warrants (note 5b)
Total Liabilities
Minority Interest
SHAREHOLDERS’
EQUITY
Share Capital (note 5)
Stock Option Reserve
(note 5c)
Warrants
Foreign Currency
Reserve
Defi cit
Equity attributable to
Owners of the Parent
Non-controlling Interest
(note 3)
Total Equity
Total Liabilities &
Equity
Adjustment
1
Adjustment 2 Adjustment
3
Adjustment
4
Total IFRS
adjustments
IFRSs
IFRS 2
Stock-based
Compensation
IAS 21
Foreign
Exchange
IAS 32
Warrants
in Non-
functional
Currency
IAS 21
Reclass
Non-
controlling
Interest
5,361,645
$4,986
($447,538)
347,582
(124,899)
$5,885,208
$4,986
($572,437)
$ --
$ --
($567,451)
$5,317,757
$ -0-
$108,341
-0-
-0-
67,640
175,981
(442,552)
4,919,093
(124,899)
222,683
--
1
1
2,598,156
2,598,156
1
2,598,156
2,598,157
--
$73,051
2,598,156
2,671,207
(210,814)
(210,814)
-0-
29,629
950,000
(1,335,000)
(1,131,904)
950,000
29,646,445
(1,305,371)
(1,131,904)
6,915,917
-0-
837,425
(2,539,185)
--
(34,150,053)
(837,425)
(31,610,868)
(24,643)
837,425
(1,409,863)
(1,081,252)
(23,427)
5,601,344
4,986
(572,438)
(2,598,156)
(23,427)
(3,189,035)
2,412,309
5,601,344
4,986
--
(572,438)
(2,598,156)
234,241
234,241
210,814 (2,954,794)
234,241
2,646,550
$ 5,885,208
$ 4,986
($572,437)
$ --
$ --
($567,451)
$5,317,757
48
tsodilo resources limited
14. TRANSITION AND FIRST TIME ADOPTION OF IFRS (continued)
Tsodilo Resources Limited
Reconciliation of equity as at December 31, 2010
(in United States dollars)
Previous
Amounts per
Canadian
GAAP
$ 2,728,695
65,171
2,793,866
405,670
870,805
$11,590,721
$95,455
95,455
217,303
30,290,847
9,114,311
5,059,260
ASSETS
Current
Cash
Accounts receivable
and prepaid
expenses
Exploration
Properties (note 3)
Property, Plant and
Equipment (note 4)
Deposit on
Equipment (note 4)
Total Assets
LIABILITIES
Current
Accounts payable
and accrued
liabilities
Warrants (note 5b)
Total Liabilities
Minority Interest
SHAREHOLDERS’
EQUITY
Share Capita
(note 5)
Stock Option
Reserve (note 5c)
Warrants
Foreign Currency
Reserve
Defi cit
Equity attributable
to Owners of the
Parent
Non-controlling
Interest (note 3)
Total Equity
Total Liabilities &
Equity
Adjustment
1
Adjustment
2
Adjustment
3
Adjustment
4
Total IFRS
adjustments
IFRSs
IFRS 2
Stock-based
Compensation
IAS 21
Foreign
Exchange
IAS 32
Warrants
in Non-
functional
Currency
IAS 21
Reclass
Non-
controlling
Interest
7,520,380
$ 133,144
($159,633)
(82,254)
$ 133,144
($241,887)
$ 0
$ 0
$ -0-
$
2,728,695
-0-
-0-
65,171
2,793,866
(26,489)
7,493,891
(82,254)
323,416
0
($108,743)
870,805
$11,481,978
0
$ 1,993
1,993
(6,489)
$ 5,266,191
5,266,191
$ 1,993
5,266,191
5,268,184
$ 97,448
5,266,191
5,363,639
0
(210,814)
(217,303)
$0
261,482
1,747,197
(1,491,587)
(5,059,260)
(837,425)
(32,349,030)
(128,338)
1,156,349
(1,409,863)
(462,541)
(23,427)
1,747,197
32,038,044
(1,230,105)
(5,059,260)
7,884,206
-0-
1,156,349
(2,024,169)
$318,924
(34,373,199)
11,277,963
133,144
(253,514)
(5,266,191)
(23,427)
(5,409,988)
5,867,975
11,277,963
133,144
16,123
(237,391)
(5,266,191)
234,241
210,814
250,364
(5,159,624)
250,364
6,118,339
$11,590,721
$ 133,144
($241,887)
$ 0
$ 0
($108,743)
$11,481,978
49
tsodilo resources limited
14. TRANSITION AND FIRST TIME ADOPTION OF IFRS (continued)
Tsodilo Resources Limited
Reconciliation of Profi t and Loss for the year ended December 31, 2010
(in United States dollars)
Previous
Amounts per
Canadian
GAAP
$79,692
4,092
9,500
63,878
22,635
148,255
2,035
Adjustment
1
Adjustment
2
Adjustment
3
Adjustment
4
Total IFRS
adjustments
IFRSs
IFRS 2
Stock-based
Compensation
IAS 21
Foreign
Exchange
IAS 32
Warrants in
Non-functional
Currency
IAS 21
Reclass
Non-controlling
Interest
$ 0
$ 79,692
0
0
0
0
0
0
$4,092
$9,500
$63,878
$22,635
148,255
$2,035
375,077
705,164
$ 103,695
103,695
--
--
--
103,695
$808,859
103,695
$478,772
--
--
(39,487)
6,489
(52,804)
671,515
(52,804)
($52,804)
671,515
$671,515
0
0
($39,487)
$6,489
(738,162)
(103,695)
--
618,711
--
515,016
($223,146)
--
335,047
335,047
$335,047
Expenses
Corporate remuneration
Corporate travel and
subsistence
Investor relations
Legal and audit
Filings and regulatory fees
Offi ce and administration
Amortization
Stock-based compensation
(note 5(d))
Total Expenses
Other Income
Warrant issue costs
Gain/(Loss) on warrants
Foreign exchange Gain/
(Loss)
Non-controlling interest
Net Income
Foreign exchange
translation
Comprehensive Income
($738,162)
($103,695)
$ 335,047
$ 618,711
--
$ 850,063
$ 111,901
Net Income attributable to
owners of the parent
Net Income Attributable to
Non-controlling Interest
Comprehensive income
attributable to owners of
the parent
Comprehensive Income
Attributable to Non-
controlling Interest
($744,651)
($103,695)
$ 6,489
$ 618,711
$ 521,505
($223,146)
6,489
($738,162)
($103,695)
-6,489
$ --
$618,711
-6,489
$ 515,016
$ --
--
($223,146)
($744,651)
($103,695)
$ 325,413
$ 618,711
$ 840,429
$ 95,778
6,489
($738,162
($103,695)
9,634
$ 355,047
$ 618,711
9,634
$ 850,063
$ --
16,123
$ 111,901
50
tsodilo resources limited
14. TRANSITION AND FIRST TIME ADOPTION OF IFRS (continued)
Tsodilo Resources Limited
Reconciliation of Statements of Cash Flows
(in United States dollars)
Cash provided by (used in):
Operating Activities
Net Income (Loss) for the period
Adjustments for non-cash items:
Unrealized (gain) loss on warrants
Amortization
Other
Stock-based compensation
Year Ended December 31
2010
GAAP
Eff ect of Transition
to IFRS
2010
IFRS
$ (738,162)
$515,016
$ (223,146)
--
2,035
6,489
375,077
(354,561)
(671,515)
(671,515)
--
(6,489)
103,695
(59,293)
2,035
--
478,772
(413,854)
Net change in non-cash working capital balances (note 11)
24,874
(329,687)
1,992
26,866
(57,301)
(386,988)
Investing Activities
Additions to exploration properties
Additions to property, plant and equipment
Deposit on Equipment
Financing Activities
Shares and warrants issued for cash, net of cost
Change in cash - For the period
Cash - beginning of period
Cash - end of period
(1,619,058)
(238,440)
(870,805)
(2,728,303)
5,678,344
5,678,344
2,620,354
108,341
$ 2,728,695
34,278
23,023
--
(1,584,780)
(215,417)
(870,805)
57,301
(2,671,002)
--
--
--
--
5,678,344
5,678,344
2,620,354
108,341
$ --
$2,728,695
51
tsodilo resources limited
14. TRANSITION AND FIRST TIME ADOPTION OF IFRS (continued)
NOTES TO RESTATEMENT OF EQUITY FROM PREVIOUS CANADIAN GAAP to IFRS
ADJUSTMENT REQUIRED TO RECONCILE EQUITY FROM CANADIAN GAAP TO IFRS
Adjustment 1 - IFRS 2 Stock Based Compensation Expenses
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 vesting 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 was recognized at more accelerated rates than under
Canadian GAAP.
The Company computed all non-vested stock options at January 1, 2010 on a graded basis separating tranches for
amortization over respective vesting periods. Stock option forfeitures were also estimated on a historical basis. The
Black Scholes valuation method was used to prepare the valuations, calculations and details for disclosure for Stock
Option expense and comparative stock option expense estimated for prior year comparisons. As a result, Stock Option
Reserves were increased by $29,629 as at January 1, 2010 and $261,482 as at December 31, 2010. Of these amounts,
$4,986 and $133,144 were capitalized as salaries to exploration and evaluation cost as at January 1, 2010 and December
31, 2010 respectively.
Adjustment 2 – IAS 21 Foreign Exchange
The Company’s subsidiaries (Gcwihaba and Newdico) operate in a functional currency in Botswana Pula. Under Canadian
GAAP the subsidiaries were considered integrated operations for foreign exchange considerations and calculations.
Under IFRS, since there is no integrated operation option and because of the difference in functional currency between
these subsidies and the Company’s U.S. Dollars, IFRS provides guidance on presenting the foreign operations in the
presentation currency. Non-monetary assets and liabilities are translated at year-end exchange rates and income and
expenses are translated at the rates at which they have been incurred. This differs from previous GAAP reporting which
required non-monetary assets to be translated at the historical exchange rate in effect when the assets were acquired.
For December 31, 2009, an adjustment of ($124,899) made to Plant, Property and Equipment, and an adjustment of
($447,538) was made to Exploration and evaluation cost. For December 31, 2010, a cummulative adjustment of ($82,254)
was made to Plant, Property and Equipment, ($159,633) was made to Exploration and Evaluation Cost, and $1,994 was
made to Accounts Payable.
Adjustment 3 – IAS 32 Warrants Denominated in Non-functional Currency
The Warrants issued by the Company provide the right to purchase stock in Canadian dollars. Since the Company’s
functional currency is the U.S. dollar, IFRS requires that the warrants be accounted for as derivative liabilities. As a
result, the Company has reclassified its Warrants from Equity to liabilities and will account for warrants as derivative
liabilities with changes in fair value being recognized in profit or loss.
At inception January 1, 2010 the value of the warrants increased by $1,466,252 resulting in corresponding charge to
deficit.
Adjustment 4 – Non-Controlling Interest Reclassification into Equity
The Company reclassified its non-controlling interest at January 1, 2010 and December 31, 2010 to equity.
52
tsodilo resources limited
CORPORATE HEAD OFFICE
TD Canada Trust Tower
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
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, Ph.D.
Irene, South Africa
Appointed as director in 2009
Murray Hitzman, Ph.D.
Golden Colorado
Appointed as director in 2011
OFFICERS
James M. Bruchs, B.Sc., J.D.
Chairman and Chief Executive Officer
Appointed in 2002
Michiel C. J. de Wit, Ph.D.
Irene, 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
53
tsodilo resources limited