Tsodilo Resources Limited
Annual Report 2012
President’s Message
Dear Shareholders,
On behalf of the board of directors, I am pleased to
provide the annual report of Tsodilo Resources Limited
these become available. This provides the Company with
capabilities to review its geological database in 3D.
(“Tsodilo” or the “Company”) recording the Company’s
Exploration activities were accelerated late in 2011 with
progress together with the audited financials for the year
the arrival of the second drill rig and this continued in
ending December 31, 2012.
2012 as positive results continue to advance our programs.
Although the outlook of the metal commodity markets
Our current share capital consists of 28,149,151 issued and
was reasonably positive in 2012, funding for exploration is
outstanding (35,790,034 on a fully diluted basis) common
still limited and mainly focused on brownfields evaluation
shares. Tsodilo has a 98% interest in our Botswana
projects. Despite these circumstances the Company was
(Newdico (Pty) Limited project and a 100% interest in our
able to commence an evaluation program over one of
Gcwihaba Resources (Pty) Limited projects.
its more interesting projects. A more detailed drilling
program, referred to as Phase 2, is focused on three of
its metal mineral projects that were identified by its
Phase 1 reconnaissance drilling program. The latter was
completed in 2011. The objective of Phase 2 is to refine
the geological models and mineralization styles of these
targets. These steps will form the basis to develop the first
resource model for the Company’s most advanced project,
The Company continues to strengthen our organization
by appointments to our board and retaining quality
professionals on the ground. We are well positioned for
the challenges inherent in resource exploration and please
follow our progress carefully and remained informed by
regular visits to our website, www.TsodiloResources.com.
which is the Iron Ore Magnetite project.
On behalf of the board,
The prices of rough diamonds, after an initial upswing,
were again negatively affected during the course of
the year and hence the general appetite for greenfields
diamond exploration remains low. However, the Company
will continue the exploration for new kimberlites and
was recently granted a prospecting license close to
Jwaneng, the richest diamond mine in the world, in the
south of Botswana. We also plan to complete a first-stage
evaluation and analysis of an additional kimberlite in the
Nxau Nxau kimberlite field.
The privileged 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 continuous
basis and the turn-around time is generally less than two
months. The advanced computer modeling program that
the Company installed two years ago has being used
effectively to upload and model new data and results as
Dr. Michiel C.J. de Wit
President and COO
February 18, 2013
Contents
President’s Message to Shareholders
Management’s Discussion and Analysis
of Financial Results
Financial Reporting Responsibility of
Management
Auditors’ Report to the Shareholders
Consolidated Financial Statements / Notes
Corporate Information
1
2
24
25
26
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, 2012 and 2011. 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 18, 2013.
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. 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.
Tsodilo 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.
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 18, 2013, 28,149,151 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, 2,995,000 options remain
outstanding of which 2,615,000 are exercisable at exercise prices ranging from CAD $0.55 - $2.23.
2
tsodilo resources limited
As of February 18, 2013, 4,520,883 warrants are outstanding. The warrants were issued by way of private placements
utilized by the Company for financing purposes. Each warrant entitles the holder thereof to purchase one common share
of the Company. 2,702,702 warrants expiring on June 29, 2015 are priced at CAD $2.17 and 1,818,181 warrants expiring
on June 29, 2015 are priced at USD $1.21 If all warrants were converted, 4,520,883 common shares of the Company would
be issued.
Principal Shareholders of the Company
The principal shareholders (greater than 5%) of the Company as of February 18, 2013 are as follows:
Name
Description
Shares - Owns,
Controls or Directs
% of the Issued and
Outstanding Shares
Azur LLC
Private Investment Vehicle
International Finance Corporation
Member of the World Bank Group
David J. Cushing
James M. Bruchs
Subsidiaries
Director
Director and CEO
4,996,065
4,522,883
2,460,501
2,232,119
17.81%
16.12%
8.77%
7.96%
The Company has a 98% operating interest in its Botswana subsidiary, Newdico (Proprietary) Limited, which holds
one prospecting license covering approximately 851 km²in northwest Botswana that expired on June 30, 2012. Prior
to expiry, the Company submitted a two year renewal application in order to continue and complete the first stage
exploration and evaluation program of kimberlites identified in this license area. The acknowledgement of receipt has
been received from the Botswana Department of Geological Survey and the renewal application is currently being
reviewed by the government. If the license is not renewed, the carrying value of Newdico’s exploration and evaluation
assets of $7,518,224 will be written off.
The Company has a 100% interest in its wholly owned Botswana subsidiary, Gcwihaba Resources (Proprietary) Limited,
which has four diamond prospecting licenses covering approximately 2,404 km², twenty-two metal (base, precious,
platinum group, and rare earth) licenses covering 11,159 km² (not including 1,339km2
of licenses currently in renewal)
and eight radioactive minerals licenses covering 6,925 km².
The Company holds a 100% interest in Tsodilo Resources Bermuda Limited to which the shares of its operating subsidiaries
are registered.
Exploration Activities for the Year 2012
1. Diamond Projects
The Company holds 4 Prospecting Licences (3,255 km²) under the names of local companies Newdico (Pty) Ltd.
(“Newdico”) and Gcwihaba Resources (Pty) Ltd. (“Gcwihaba”) for precious stones. As previously described, Newdico has
one license covering 895 square kilometres that expired June 30, 2012 and is currently being considered for renewal by
the government. The diamond licenses held by Gcwihaba are summarized in Table 1. In 2012, the Company continued
with its exploration program by focusing on two specific kimberlites within the Nxau Nxau cluster and also exploring
the northern area of the same kimberlites cluster. The exploration was driven on the geological interpretation of the
Southern African Magnetotelluric Experiment (SAMTEX) project which indicates that the Congo Craton, of which the
southern margin extends into Ngamiland, 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 Congo Craton (Muller and
3
tsodilo resources limited
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.
Table 1. Gcwihaba Diamond License Areas as at December 31, 2012
PL numbers
Km²
Grant
Date
Expiry
date
Current Stage
Expenditure
PL 46/2008
PL 47/2008
PL 49/2008
PL 195/2012
709
491
710
494
4/01/11
3/31/13
4/01/11
3/31/13
1/01/11
3/31/13
1st Renewal
1st Renewal
1st Renewal
7/01/12
7/01/15
Initial Grant
Total
2,404
Rental
Fee Per
Annum
(BWP)
Work
Program
Per Annum
(BWP)
3,545
2,455
3,550
2,470
70,000
70,000
70,000
100,000
Total Expenditure From
Grant and if held to Full
License Term
BWP
USD as at
12.31.2012
147,090
144,910
147,100
307,410
746,510
19,223
18,938
19,224
40,175
97,560
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 within or proximal
to the licence blocks presently held by the Company to the east. In addition, during the exploration phase for base
metals basement granites and granite/gneisses were intersected in boreholes L9590/7 and L9660/5 respectively. These
have been dated and Archaean ages have been obtained for the granite (2,641±82Ma) (Witbooi 2011) and granite/
gneiss (2,548±65Ma) (Gaisford 2010). This is highly significant in terms of target selection and greatly enhances the
prospectivity and diamond potential of the region and supports the significance of the presence of the Tsumkwe and
Omatako targets. Detailed drilling over and in the vicinity of the Tsumkwe target has indicated that the high-interest
grains found in the Tsumkwe anomaly not only have surface textures that indicate a proximal source but also occur at
the base of the Kalahari Group sediments.
The Company’s kimberlites in the Nxau Nxau field, just east of the Botswana/Namibia border, are part of a larger
kimberlite province referred to as the Xaudum province and 40 kimberlites have so far been identified in this province
on both sides of the border - 12 in Namibia and 28 in Botswana. Whilst working through the existing kimberlite database
of the kimberlites in the Xaudum Province the mineral chemistry of the indicator minerals of these kimberlites do not
match the chemical signature of the minerals associated with the Tsumkwe and Omatako. Recent detailed work on the
Nxau Nxau kimberlites identified several crustal xenoliths that resemble basal Kalahari rocks. This means that the age
of the basal Kalahari is older than the known kimberlites and that the presence of the high interest minerals at the very
base of the Kalahari Group might be from an older source than the known kimberlites and this has a major implication
for exploration.
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. Several targets had been identified in the northern licence blocks that warrant detailed ground work and these
were was completed in the year. Targets TOD 17, TOD 29 and TOD 30 were covered. TOD 29 and 30 were covered by 2 x 1.5
km ground geophysical blocks. TOD 17, which is associated with a Ni-anomaly, produced by the 1997-1999 Government
Ngamiland Geochemical sampling program, was covered by a large ground magnetic block measuring 98.8km². Since
4
tsodilo resources limited
kimberlites generally produce Ni in the overlying soil formations this was regarded as a priority target. No drilling has
been conducted to date.
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. The results of this work, conducted by the Geo-analytical Laboratories
Diamond Services of the Saskatchewan Research Council, produced 14 micro-diamonds from 221 kg from kimberlite
K10 (B5). This is highly significant for the area and although K10 is unlikely to develop into an economic deposit it does
provide confidence in a small group of 3 kimberlites – K10, K11 and a third yet untested magnetic anomaly. K11 was
sampled for mineral chemistry and core samples have been prepared to be submitted for micro-diamond analysis. The
Company also plans to drill the third magnetic target within this small group.
In 2012, certain licenses of both Newdico and Gcwihaba were relinquished (Tables 2 and 3). All of these were the subject
of extensive exploration during their license term and were determined not to be prospective for an economic kimberlite.
The relinquishment of these licenses will not have an adverse impact on the Ngamiland‘s kimberlite exploration program.
Table 2. Newdico Diamond License Areas relinquished during 2012
PL Number
Km²
Grant Date
Relinquishment Date
PL 62/2005
PL 63/2005
PL 65/2005
PL 66/2005
PL 67/2005
PL 68/2005
PL 69 /2005
PL 71/2005
TOTAL
PL Number
PL 641/2009
PL 642/2009
Pl 643/2009
TOTAL
797
718
194
621
229
220
181
138
3,098
7/01/10
7/01/10
7/01/10
7/01/10
7/01/10
7/01/10
7/01/10
7/01/10
6/30/2012
6/30/2012
6/30/2012
6/30/2012
6/30/2012
6/30/2012
6/30/2012
6/30/2012
Table 3. Gcwihaba Diamond License Areas relinquished during 2012
Km²
923
839
785
2,547
Grant Date
7/01/12
7/01/12
7/01/12
Relinquishment Date
6/30/2012
6/30/2012
6/30/2012
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 11,159 km² (Tables 4 and
5). 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 reconnaissance basis in order to highlight areas
of interest for more detailed follow-up work scheduled during Phase 2. So far the drilling has identified mineralisation in
several parts of the licence area representing a variety of geological settings with different mineralisation styles.
5
tsodilo resources limited
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 in Namibia, to the
west of the Company’s project area, links up with the Lufilian Arc located in Zambia/DRC to the northeast of Ngamiland.
In addition, more recent petrology, geochemistry and geochronology work by AEON’s research group associated with
the NMMU University in Port Elizabeth, has highlighted the presence of Archean granite-gneisses (ca. 2,641 and 2,550
Ma) in Ngamiland.
Table 4. Gcwihaba – Metal License Areas as at December 2012
PL numbers
Km²
Grant
Date
Expiryenewal
date
Current
Stage
Expenditure
PL 119/2005
TBD
10/01/10
10/01/12
in renewal
PL 051/2008
485.00
07/01/11
07/01/13
PL 052/2008
384.00
07/01/11
07/01/13
PL 386/2008
570.00
01/01/12
01/01/14
PL 387/2008
964.90
01/01/12
01/01/14
PL 388/2008
317.10
01/01/12
01/01/14
PL 389/2008
978.60
01/01/12
01/01/14
PL 390/2008
807.30
01/01/12
01/01/14
PL 391/2008
454.50
01/01/12
01/01/14
PL 392/2008
828.10
01/01/12
01/01/14
PL 393/2008
937.50
01/01/12
01/01/14
PL 394/2008
649.20
01/01/12
01/01/14
PL 395/2008
971.40
01/01/12
01/01/14
PL 595/2009
PL 596/2009
PL 597/2009
PL 588/2009
TBD
TBD
TBD
TBD
07/01/09
07/01/12
07/01/09
07/01/12
07/01/09
07/01/12
07/01/09
07/01/12
PL 093/2012
433.70
04/01/12
04/01/15
PL 094/2012
679.80
04/01/12
04/01/15
PL 095/2012
421.60
04/01/12
04/01/15
PL 096/2012
676.50
04/01/12
04/01/15
PL 097/2012
599.30
04/01/12
04/01/15
TOTAL
11,158.50
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
1st Renewal
in renewal
in renewal
in renewal
in renewal
Initial Grant
Initial Grant
Initial Grant
Initial Grant
Initial Grant
Total Expenditure From
Grant and if held to Full
License Term
BWP
USD as at
12.31.2012
TBD
144,870
143,820
205,700
209,650
203,180
209,790
208,080
204,550
208,290
209,380
206,500
209,720
TBD
TBD
TBD
TBD
166,510
170,200
166,330
170,155
169,000
TBD
18,933
18,796
26,883
27,399
26,553
27,417
27,194
26,732
27,221
27,364
26,987
27,408
TBD
TBD
TBD
TBD
21,761
22,243
21,734
22,237
22,086
Rental
Fee Per
Annum
(BWP)
Work
Program
Per Annum
(BWP)
TBD
2,435
1,910
2,850
4,825
1,590
4,895
4,040
2,275
4,145
4,690
3,250
4,860
TBD
TBD
TBD
TBD
2,170
3,400
2,110
3,385
3,000
TBD
70,000
70,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
TBD
TBD
TBD
TBD
*
*
*
*
*
53,830
3,205,725
418,949
* 1year 50,000; 2nd year 50,000 : and 3rd year 60,000
6
tsodilo resources limited
Table 5. Gcwihaba Metal License Areas relinquished during 2012
PL Number
PL 118/2005
TOTAL
Km²
367
367
Grant Date
10/01/10
Relinquishment Date
9/30/12
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 Magnetotelluric work that has been conducted in the region and identified
the presence of the southern part of the Congo Craton. Paleoproterozoic granites (ca. 2,000 Ma), which have been
tectonically interlayered with Pan-African meta-sediments (including graphitic schist, carbonates, diamictites and meta-
basites ca. 540 Ma), These have also been dated by AEON’s research program. These tectonic contacts and graphitic
schists are mineralized and have been targeted for further work. These 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. 2,050 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 meta-basalts 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
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 direct correlation between the mineralized Pan African rocks and basement in Ngamiland with those in
the Central African Copper Belt, and those in the MAB. Work with AEON is on-going to refine the geological models.
The meta-sediments are composed of meta-pelites, schists, black shales, diamictites, carbonates and evaporaites. The
lithologies and stratigraphic relationships are identical to those of the Central African Copper Belt (Fig. 1) and are
supported by the Company’s obtained geochronology. Mineralisation has been observed throughout these rocks and
the finer-gained facies below the diamictites (Grand Conglomerate equivalent) has been compared to the Mwashya Subgroup
(Fig. 1) which houses some world-class base metal deposits in Zambia and DRC.
7
tsodilo resources limited
Figure 1. Stratigraphic comparison of the lithologies in Ngamiland (right) and the Lufilian belt in Zambia/DRC (left)
The Banded Iron Formation (“BIF”) Magnetite mineralisation is closely associated with the diamictites. These rocks are
equivalent to the ‘Grand Conglomerates’ in the Central African Copper Belt and several small magnetite bodies have
been described both in Namibia and Zambia. In Ngamiland and close to Shakawe the Company has moved into a phase
of detailed drilling in order to obtain a resource model for this magnetite.
The meta-basites described above have intruded the Mwashya Subgroup, that occurs straitgraphically below the BIF, and
have remobilised some of the metals to form what is referred to as (Endo) skarn deposits. These skarns have developed
around these intrusions, and typically contain massive magnetite, which differ chemically from the BIF Magnetite, and
has strong showings of copper, gold, silver, some nickel and various REE. This association with meta-basic rocks (epidote-
scapolite-albite amphibolite), indicates that the mineralization model of these types of settings can be referred to as an
Iron Oxide Copper Gold ore deposit (“IOCG”), and in this case 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 Phase 2 drilling program.
During the year 5,454 line-kilometers of ground magnetic data was collected. This was levelled and interpreted by the
Company’s in-house geophysical unit. This represents a coverage of some 320 km² on a 50-meter line spacing. This 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 (VTEM). The main objective in the year was to
complete the ground coverage of the BIF Magnetite formation. However, due to commitments of various other blocks
outside the BIF Magnetite, such as the TOD 17, 29 and 30 kimberlite targets, the magnetic surveys will now be completed
during Q1 of 2013.
In 2012, 53 diamond drill holes were drilled to a cumulative depth of 11,709 meters. This has produced 9,959 meters
of core (Table 6) increasing the company’s asset of core to almost 35km. 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 and was
8
tsodilo resources limited
completed in 2011. Phase 2 of the drilling program started Q4 of 2011 and the main areas of focus were BIF Magnetite
and the IOCG targets 1822C26 and 1822C27.
Table 6. Holes drilled in 2012 during the Reconnaissance Phase 2 drilling program
Hole No
Depth
Core
Main rock type
Drill
Hole
Direction
1821B59.
1821B59/1
1821B59/A
1821B59/B
1821B81/1
1821B81/C
1821B81/D
1821B81/E
191.50
132.65 Diamictite, Schist
68.50
8.70 Diamictite
338.50
279.50 Schist, diamictite
370.00
311.20 Schist, diamictite
215.50
167.40 Schist, diamictite
113.00
75.00 Schist, diamictite
188.50
137.00 Schist, diamictite
203.50
149.50 Schist, diamictite, magnetitie
1821B81/D (cnt)
114.00
114.00 Diamictite, Magnetite
1821B81/G
1821B80/W
1821B80/V
1821B111/V
1821B81/F
1821B85_W
1821B85_E
1821B85_V
1822C10_3
1822C10_5
1821B83_V
1821B83_W
1821B112_V
273.40
211.20 Diamictite, Magnetite, Schist
113.40
47.90 Diamictite, Magnetite
250.40
188.20 Diamictite, Magnetite
209.40
175.40 Diamictite, Magnetite
266.50
211.90 Diamictite
275.00
263.00 Diamictite, Magnetite
164.50
152.50 Diamictite
245.50
239.48 Schist, Magnetite
183.60
141.70 Dol shales (some sulphides)
248.60
203.60 Black shales, Magnetite
278.50
245.50 Diamictite/Magnetite
138.00
99.00 Diamictite
500.40
484.60 Magnetite, pebbly schist
1821B83A_W
224.50
186.50 Diamictite
1821B83A_W
224.50
188.50 Magnetite/ Diamictite
1821B112_V
1821B112_E
1821B90_V
1821B90_W
1821B90_E
500.40
484.26 Magnetite/ Diamictite
371.50
349.50 Magnetite/ Diamictite
205.50
174.00 Magnetite/ Diamictite
203.50
165.50 Magnetite/ Diamictite
173.40
144.00 Magnetite (mixed and massive), Diamictite
1821B90E_56AO
170.40
128.40 Magnetite (mixed and massive), Diamictite
1821B112_W
321.50
297.50 Magnetite (massive), Diamictite
L9600_10E
L9600_10W
174.40
168.40 Magnetite (massive), schist, Diamictite
188.40
159.00 Magnetite (mixed and massive), Diamictite
1821B90E_56AQ
131.50
85.50 Massive ‘Grand conglomerate’ inter-bedded with BIF.
1821B90E_56AP
172.44
128.44 Poor ‘Grand conglomerate’ above the BIF; massive
diamictite below.
1822C27_6
352.50
291.00 Fine-grained schist, greenish mafics, skarn (epidote,
pyroxene and big garnets) and coarse crystalline dolomite.
9
tsodilo resources limited
D1
D1
D1
D1
D1
D1
D1
D1
D1
D2
D2
D2
D1
D1
D2
D2
D2
D1
D1
D1
D1
D2
D1
D1
D2
D2
D2
D1
D1
D1
D2
D2
D2
D1
D1
D2
Vertical
Vertical
Vertical
Vertical
Vertical
Inclined 60° W
Vertical
Inclined 60° E
Vertical
60°NE
60°W
Vertical
Vertical
60W
60W
60E
Vertical
Vertical
Vertical
Vertical
60W
Vertical
60W
60W
Vertical
60E
Vertical
60W
60E
60E
60W
60E
60W
-60E
-60E
-90
Table 6 (cont’d)
L9600_10E_31S
155.40
153.4 Massive BIF inter-bedded with clast-poor diamictite.
Massive diamictite at the bottom of the hole.
L9600_11W _25P
178.05
164.65 Massive BIF inter-bedded with the ‘Grand conglomerate’.
1822C27_8
425.90
361.74 Skarnified meta-sediments
L9600_11W_25O
1822C27_7
L9600_11V_25O
164.50
150.30
Siderite and silica facies interbedded with oxide facies
(massive magnetite), diamictite with quartz and dolomite
clasts.
224.50
146.50
Quartz-biotite-phlogopite-amphibole schist, with skarn
garnets-epidote-pyroxene?
260.50
255.85
Siderite facies (carbonate matrix+ amphibole + garnets
+ magnetite matrix) interbedded with oxide facies, and
diamictite.
L9600_11W_25Q
148.66
139.66 Siderite, silica and oxide facies, diamictite.
1821B85W_28O
213.84
202.84
Diamictite interbedded with siderite, silica and oxide facies
(BIF).
1821B120/AV
140.40
110.40
1821B120/AV1
233.50
204.50
1821B85W/28Q
158.50
155.50
Siderite facies interbedded with grand conglomerate
diamictite,amphibole schist.
Siderite facies interbedded with grand conglomerate
diamictite, greenish amphibole schist.Mwasha formation
sediments at the base
Diamictite interbedded with magnetite (mostly siderite
facies).
L9600_10W_31P
260.50
255.85 Mixtite interbedded with magnetite and diamictite.
1821B120/BV
245.50
212.50 Diamictite interbedded with magnetite with dolomites.
1821B120/CV
87.00
57.00 Diamictite, black shales and carbonates
L9600_10W_31Q
281.50
273.50 Diamictite interbedded with massive and banded
magnetite.
L9600_13W_53S
242.50
227.50 Stratified diamictite interbedded with banded magnetite.
L9600/13W/53T
252.50
239.50 Diamictite interbedded with the banded and massive
magnetite.
L9600/13W/53U
230.50
218.50 Banded magnetite with massive garnets-amphibole
interbeds and diamictite.
1821B90E/56AQ
177.00
132.00 Diamictite and magnetite.
Total Meters
11,709
9,959
D2
D2
D2
D1
D2
D1
D2
D1
D2
D2
D1
D1
D2
D2
D1
D1
D1
D2
D2
-60E
-60W
-90
-60W
-65 SSW
-90
-60W
-60W
-90
-90
-65W
-65W
-90
-90
-60W
-60W
-60W
-60W
-60E
Laboratory services for the assaying of core samples were obtained from ALS Minerals and Set Point Laboratories in
Johannesburg, South Africa. During the year 8,552 samples were assayed using a variety of methods as listed in Table
7. In addition, 69 samples from 18 boreholes have been sent to Mircrosearch in Johannesburg for petrographic work.
Table 7. Assay results received during the year 2012
LABORATORY
ME ICP61/4AD-ICP
(Major elements)
PGM ICP23/
Fire assay ICP
(Au/Pt/Pd)
ME
MS81
(REE)
ME
ICP81
(Si)
Total
ME OG62 /
Fused disk
XRF
(Fe)
ALS /Set Point Labs
3,357
3,357
1,471
278
89
8,552
10
tsodilo resources limited
The exploration program of Phase 1 has identified three different geological domains with different mineralization styles
that have been identified for the Phase 2 follow-up program. These are:
1. Xaudum BIF Magnetite deposit
The Xaudum BIF Magnetite deposit in the north of the Company’s prospecting area is associated with a very
strong north-south orientated magnetic anomaly (Fig. 2). The BIF Magnetite deposit stretches over a distance of
approximately 35 km and the width of the zone containing the various BIF units is up to 3 km wide with wider
areas possible associated with NE-SW trending faults (Fig. 2). This BIF target is restricted to PL 386/2008 and PL
387/2008.
Figure 2. Strong magnetic anomaly assoicated with the Xaudum BIF Magnetic deposit
Drilling has intersected banded, massive and mixtite units of magnetite always closely associated with the
diamictites (Grand Conglomerate) (Fig. 3). Initially it was felt that the magnetite was part of the basal part of
the diamictites but more detailed work has shown that the magnetite can occur throughout the diamictite
formation and can occur as multiple layers of magnetite.
Figure 3. Example of cross-section of one of the magnetite bands with the Fe assay values in black
11
tsodilo resources limited
Assay results for selected intersections of some of the holes on the layered magnetic BIF rocks are listed in
Table 8. 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. The assay results are very encouraging and indicate extensive mineralization closely associated with
the ground geophysical anomaly. The analytical technique for Si is part of a different flow stream and these
results are presently outstanding.
Table 8. Iron (Fe) Assay Results for Selected Sample Intervals
From
sample
To
sample
Intersection (m)
Fe%
Al2O3%
P%
1821B53
1821B81/D
1821B85V
1821B85W
1821B112V
1821B85W28O
1821B85W28Q
1821B90/56AO
1821B90E
1821B90V
1821B90W
1821B112W
1
19
59
80
80
133
30
338
32
1
54
1
1
1
2
21
36
26
71
114
92
168
116
390
97
32
77
58
53
39
56
99
36
7
12
35
12
36
86
53
66
32
24
58
53
39
55
79
37.0
41.2
37.8
42.2
47.1
44.1
39.0
43.7
42.2
39.3
44.2
40.3
41.6
40.5
40.0
41.8
1.75
1.34
1.99
1.16
0.84
0.96
1.18
1.12
1.00
0.75
0.65
1.04
0.90
1.10
0.93
1.17
0.27
0.35
0.32
0.36
0.38
0.35
0.27
0.35
0.22
0.21
0.28
0.21
0.19
0,22
0.20
0.24
In addition to the presence of iron, mainly in the form of magnetite, anomalous values of Cu, V and Co have also
been acquired in some of the sections.
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. Drilling during Phase
1 of the conductive zones intersected meta-sediments that are steeply dipping 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. These are equivalent to the Mwashya meta-sediments and occur just above the Roan Group. Most
lithologies are mineralisased with pyrite, pyrrhotite, and chalcopyrite.
Analysis of the geophysics combined with the lithological and assay information of the various boreholes in on
going. Several target zones have been identified for detailed drilling during the Phase 2 of the project.
12
tsodilo resources limited
3. Skarn Deposit
In the south of the Central Shale Basin are zones of mineralisation associated with skarn deposits. These are
related to magnetite-rich, meta-basites, meta-mafic units and granofels in contact with carbonates and meta-
sediments.
The meta-basites at 1822C26/1 were dated at 535±36 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 Ni, Cu, V and some REE (Table 9). Elevated Ni values with an
average of 644 ppm Ni over a 44m intersection associated with V and REE have been obtained from 1822C27 -
a large magnetic dipole and gravity target. This geophysical target is linked to an intermediate (quartz diorite
and microdiorite) to basic (metabasite – biotite pyroxenite or even lamprophyre) intrusion that has been
metamorphosed to amphibolite facies.
Table 9. Various Assay Values Over Selected Intersection based on
1 meter samples for several bore holes on the Skarn deposits
From sample
To sample
Intersection (m)
1822C10
1822C23
1822C27/3
1822C27/5
1822C27/6
1822C27/8
1822C50
Ni
V
Ce
Y
V
Cu
Zn
V
V
Ni
V
Ni
Ce
La
U
Cu
Ni
U
12
12
12
12
185
112
119
1
241
241
1
221
81
81
81
179
81
331
24
24
24
24
193
112
119
131
285
264
172
225
83
83
83
179
141
331
12
12
12
12
8
1
1
131
44
23
172
5
3
3
3
1
60
1
%
0.034
0.16
0.017
0.015
0.03
0.12
0.1
0.02
0.02
0.05
0.02
0.04
0.46
0.38
14ppm
0.15
0.07
40ppm
The Copper, Zink and Uranium showings of these rocks (1822C10, 1822C23, 1822C27 and 1822C50) all associated
with some sort of meta-basite and the presence of elevated values of precious metals (0.1 ppm Au and 1.2 ppm
Ag in C50; 0.03 ppm Pt, 0.08ppm Pd and 5.1 ppm Ag in C27; 0.01ppm Au, 0.02 ppm Pt and 2,1 ppm Ag in C10)
suggests that the mineralization model of these deposits could be associated with an Iron Oxide Copper Gold
ore deposit (IOCG). The skarns closely associated with these intrusions are calc-silicate exoskarns.
13
tsodilo resources limited
3. Radioactive licenses
The Company holds eight 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. This covers an area of 6,925 km²
(Table 10) and overlaps with some of the Gcwihaba diamond and metal permits.
Table 10. Gcwihaba – Radioactive License Areas as at December 31, 2012
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
12.31.2012
PL 150/2010
719.00
07/01/10
07/01/13
Initial Grant
PL 151/2010
711.00
07/01/10
07/01/13
Initial Grant
PL 045/2011
1,000.00
01/01/11
01/01/14
Initial Grant
PL 046/2011
846.80
01/01/11
01/01/14
Initial Grant
PL 047/2011
906.80
01/01/11
01/01/14
Initial Grant
PL 048/2011
768.00
01/01/11
01/01/14
Initial Grant
PL 049/2011
973.40
01/01/11
01/01/14
Initial Grant
PL 050/2011
1,000.00
01/01/11
01/01/14
Initial Grant
3,595
3,555
5,000
4,235
4,535
3,845
4,870
5,000
*
*
*
*
*
*
*
*
190,785
190,665
198,000
192,702
193,602
191,520
194,610
195,000
24,933
24,917
25,876
25,184
25,301
25,029
25,433
25,484
TOTAL
6,925.00
34,635
1,543,905
202,161
* 1year 50,000; 2nd year 60,000 : and 3rd year 70,000
The company has reviewed 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. First, it is to complete a geomorphological study of the area using remote sensing
techniques with field checking. Among others 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 Gcwihaba diamond prospecting licences and these will be tested for Uranium. Second, 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 (Table 11). It is still
unclear what the relationship is of the Uranium that occurs in these meta-sediments and the Uranium in the surficial
calcretes.
14
tsodilo resources limited
Table 11. Uranium Assay Values of Samples with more than 15 ppm
Borehole Number
Sample Number
U ppm
1822C27/4
L9600/11W/25O
L9600/11V/25O
14
59, 78, 79
127, 140
15
22.7, 29.3, 15.9
28.5, 22.7
1821/B85V
1822C23
1822C27/6
1822C50
L9630/13
L9670/10
108, 113, 123, 127,133,143,147,162
All 20
41
81-83
47, 145, 331, 322
76
186
20
Average 14
20, 15, 52, 16
20
20
During the year, 4,449 samples were assayed for Uranium using the ME ICP61, ME MS81 (both in the ALS Laboratory,
Johannesburg) and ICP-MS (in the Set Point Laboratory, Johannesburg) geochemical assay techniques. The anomalous
results of samples in excess of 15ppm have been listed in Table 11. These samples were derived from the boreholes
drilled during the year.
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2012, the Company had a working capital surplus of $92,902 (2011: $80,446), which included cash
of $982,051 (2011: $1,505,965). 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. The Company had exercises of options for additional cash proceeds of $284,441, $35,506 and $35,285
in May 2012, December 2012 and January 2013 respectively, and issued units (common shares & warrants) for additional
net cash proceeds (net of share issue cost) of $2,008,780; 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 and not in renewal as of December 31, 2012, the expenditure requirements
inclusive of license fees from the date of grant to and if held to their full terms are as follows:
Project Description
Required Expenditure
Newdico – Diamond
Gcwihaba - Diamond
Gcwihaba - Metals
Gcwihaba - Radioactive Minerals
BWP
-
746,510
3,205,725
1,543,905
USD
-
$97,560
$418,949
$202,161
Financial Instruments
The carrying amounts reflected in the consolidated Statement of Financial Position for cash, accounts receivable,
accounts payable, and accrued liabilities approximate their fair values due to the short maturities of these instruments.
Certain of the Company’s warrants are classified as derivative liabilities and are recorded at their estimated fair value.
The liability recognized at December 31, 2012 for those warrants is $884,212 (2011: $1,500,766). The Company is not
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.
15
tsodilo resources limited
Operating Activities
Cash outflow used in operating activities before working capital adjustment decreased from $521,442 for the year ended
December 31 2011 to $506,702 for the year ended December 31, 2012. The decrease in 2012 was due primarily to a
decrease from 2011 in corporate remuneration, and to increases in legal and audit, and general and administrative
expenses.
Annual Information
(in US Dollars)
Fiscal Year
December 31, 2012
Fiscal Year
December 31, 2011
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
($293,095)
($0.01)
($0.01)
($462,409)
($755,504)
($0.03)
($0.03)
$1,719,246
$0.07
$0.07
($1,810,035)
($90,789)
$0.00
$0.00
Total assets
Total long term liabilities
Cash dividend
Quarterly Information
(in US Dollar)
$13,047,693
$11,477,912
--
--
--
--
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Fiscal Year ended December 31, 2011
Net income (loss) for the year
$1,405,616
$128,486
($457,653)
$642,797
Basic income (loss) per share
Diluted basic income (loss) per share
$0.05
$0.05
$0.01
$0.01
($0.02)
($0.02)
$0.03
$0.03
Comprehensive income (loss) for the year
$937,594
$262,444
($1,169,022)
($121,805)
Basic comprehensive income (loss) for the year
Diluted comprehensive income (loss) per share
$0.04
$0.03
$0.01
$0.01
($0.01)
($0.01)
($0.04)
($0.03)
Total assets
Total long term liabilities
Quarterly Information
(in US Dollars)
Fiscal Year ended December 31, 2012
$11,454,205
$11,751,730
$11,066,456
$11,477,912
--
--
--
--
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Net income (loss) for the year
($157,954)
($309,887)
($178,518)
$353,264
Basic income (loss) per share
Diluted basic income (loss) per share
($0.01)
($0.01)
($0.01)
($0.01)
($0.00)
($0.00)
$0.01
$0.01
Comprehensive income (loss) for the year
$57,066
($792,276)
($258,478)
$238,184
Basic comprehensive income (loss) for the year
Diluted comprehensive income (loss) per share
($0.00)
($0.00)
($0.03)
($0.03)
($0.01)
($0.01)
$0.01
$0.01
Total assets
Total long term liabilities
$11,662,096
$11,366,904
$13,297,755
$13,047,693
--
--
--
--
16
tsodilo resources limited
Investing Activities
Cash flow applied in investing activities decreased to $2,406,909 for the year ended December 31, 2012 (2011: $2,520,331).
Total expenditures of $2,392,142 on exploration properties for the year ended December 31, 2012 were attributable to
the Newdico and Gcwihaba projects in northwest Botswana. Included in this amount is the proportionate contributory
share, ranging from 2.89% to 2.48% attributed to the Trans Hex Group for the Newdico project. Trans Hex Group has a 2%
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
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. During the year ended December 31 2012, the Company received
proceeds of $319,947 from the exercise of Stock Options, and $2,008,780 from the issuance of Units in private placements.
Private Placement Date
No. of Units
Price per Unit
Net Proceeds USD
September 7, 2012
1,181,181
C$1.10
$2,008,780
Warrant Exercise Date
No. of Shares
Price per Share
Proceeds USD
February 26, 2011
June 8, 2011
August 15, 2011
December 22, 2011
728,061
210,894
201,519
2,093,156
C$0.70
C$0.70
C$0.70
C$0.55
$516,713
$150,979
$148,728
$1,110,217
Options Exercised Date
No. of Shares
Price per Share
Proceeds USD
May 1, 2012
May 7, 2012
December 19, 2012
250,000
100,000
50,000
C$0.80
C$0.80
C$.070
$204,073
$80,368
$35,506
Tsodilo expects to raise the amounts required to fund its 98% 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, the Company recorded a net loss of ($293,095) for the year ended December 31, 2012 ($0.01)
per common share) compared to a net income of $1,719,246 for the year ended December 31, 2011 ($0.07) per common
share). The change from the gain to the loss in 2012 was due primarily to a decrease in the unrealized gain on the
warrants from $2,673,378 to $616,554 and an increase in legal and audit expenses. These increases were partially offset
by decreases in corporate remuneration and a decrease in stock based compensation expense. The decrease in stock
based compensation expense reflects changes to amount of options issued and share price.
Cumulative exploration expenditures including amortization of property, plant and equipment used in exploration
activities on all projects amounted to $11,150,180 as at December 31, 2012 compared to $8,774,657 as at December 31,
2011. Cumulative exploration expenditures incurred on the Newdico project as at December 31, 2012 was $7,518,224
compared to $6,291,558 as at December 31, 2011. 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
17
tsodilo resources limited
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, 2012 were $3,631,957
compared to $2,483,099 as at December 31, 2011.
PERSONNEL
At December 31, 2012, the Company and its subsidiaries employed thirty-eight (38) individuals compared to thirty-five
(35) at December 31, 2011, including senior officers, administrative and operations personnel including those on a short-
term service basis.
FOURTH QUARTER - 2012
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
necessarily limited to, those set below. Any one or more of these risks and others could have a material adverse effect
on the Company.
Renewal of Newdico License
A two year renewal application for PL 64/2005, Newdico’s remaining license covering 851 km²has been submitted in
order to continue and complete the first stage exploration and evaluation program for K10 and K11 and to resolve target
THC10. An acknowledgement of receipt has been received from the Botswana Department of Geological Survey and the
renewal application is currently being reviewed by the government. If the government does not renew this license, the
carrying value of Newdico’s exploration and evaluation assets of $7,518,224 will be written off as an impairment loss in
the Statement of Operations and Comprehensive Income (Loss) upon notification from the government that the license
has not been renewed.
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
18
tsodilo resources limited
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.
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
19
tsodilo resources limited
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 Standards, Amendments and interpretations not yet adopted
The following new standards and issued amendments to standards and interpretations are not yet effective for
the year ended December 31, 2012, and have not been applied when preparing these consolidated financial
statements. The Company’s assessment of the impact of these new standards and interpretations is set out
below:
IFRS 9, Financial Instruments, issued in November 2009
This standard is the first step in the process to replace IAS 39, Financial Instruments: Recognition & Measurement. IFRS 9
introduces new requirements for classifying and measuring financial assets. IFRS 9 establishes two primary
measurement categories for financial assets: (i) amortized cost, and (ii) fair value; establishes criteria for
classification of financial assets within the measurement category based on business model and cash flow
characteristics; and eliminates existing held for trading, held for maturity, available for sale, loans and receivables
and other financial liabilities categories. The IASB currently has an active project to make limited amendments
to the classification and measurement requirements of IFRS 9 and add new requirements to address the
20
tsodilo resources limited
impairment of financial assets and hedge accounting. IFRS 9 has an effective date of January 1 2015, with early
adoption permitted. The Company continues to monitor and assess the impact of this standard.
In May 2011, the IASB published five new and amended standards addressing the accounting for consolidation,
joint arrangements and disclosures related to involvement with other entities, each of which is highlighted
below:
IFRS 10, Consolidated Financial Statements
IFRS 10 replaces the consolidation guidance in IAS 27, Consolidated and Separate Financial Statements and Standing
Interpretations Committee (“SIC”) Interpretation 12, Consolidation – Special Purpose Entities, by introducing a single
consolidation model for all entities based on control, irrespective of the nature of the investee. Under IFRS
10, control is based on whether and investor has: 1) power over the investee; 2) exposure, or rights, to variable
returns from its involvement with the investee; and 3) the ability to use its power over the investee to affect the
amount of the returns.
IFRS 11, Joint Arrangements
IFRS 11 replaces IAS 31, Interest in Joint Ventures. IFRS 11 focuses on the rights and obligations of the
arrangement, rather than its legal form (as is currently the case). It addresses the inconsistencies in the
reporting of joint arrangements by requiring a single method to account for all joint arrangements. This new
standard principally addresses two aspects of IAS 31: first, that the structure of the arrangement was the only
determinant of the accounting and, second, that an entity had a choice of accounting treatment for joint
arrangements. Accordingly, IFRS 11 removes the options to apply the proportional consolidation method and
classifies joint arrangements into two types – Joint operations and joint ventures. A joint operation is where
the parties have control of the arrangement (i.e. joint operators) and have rights to the assets and obligations
relating to the arrangement. A joint venture is where the parties have joint control of the arrangement (i.e. joint
venturers) and have rights to the net assets of the arrangements.
IFRS 12, Disclosures of Involvement with Other Entities
IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interest in other
entities, including joint arrangements, associations, special purpose vehicles and other off-balance sheet
vehicles.
IAS 27, Separate Financial Statements
The requirements relating to separate financial statement s are unchanged and included in the amended IAS 27.
The consolidation guidance currently included in IAS 27 is replaced by IFRS 10.
IAS 28, Investment in Associates and Joint Ventures
IAS 28 is amended to conform to changes resulting from issuance of IFRS 10, IFRS 11, and IFRS 12.
Each of the above five standards has an effective date for annual periods beginning on or after January 1, 2013.
The adoption of these standards is not expected to have a significant impact on the Company’s consolidated
financial statements, but will require certain additional disclosures.
IFRS 13, Fair Value Measurement, issued May 2011
IFRS 13 replaces the guidance on fair value measurement in existing IFRS accounting literature with a single
standard. IFRS 13 defines fair value, provides guidance on how to determine fair value and requires disclosures
about fair value measurements. However, IFRS 13 does not change the requirements regarding which items
21
tsodilo resources limited
should be measured or disclosed at fair value. IFRS is effective for annual periods beginning on or after January
1, 2013. The adoption of IFRS 13 is not expected to have a significant impact on the Company’s methodologies
in determining fair values.
RELATED PARTY TRANSACTIONS
As of December 31, 2012 the Company has incurred leave benefits payable to an officer and director of the Company,
however all amounts were paid by year end.
Remuneration of Key Management Personnel of the Company
Short term employee remuneration and benefits
Stock based compensation
Post Employment Benefits*
2012
2011
$ 453,118
$ 419,861
586,813
166,463
522,963
--
Total compensation paid to key management personnel
$ 1,206,394
$ 942,824
*Post employment benefits include $17,496 of accrued benefits.
There are no other related party transactions.
OUTLOOK
Precious stones, metals and radio-active materials exploration remain 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.
The company does not invest in financial instruments, nor does it do any hedging transactions.
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 18, 2012
Gary A. Bojes
Chief Financial Officer
February 18, 2012
22
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 Board of Directors, through its Audit Committee,
is responsible for ensuring that management fulfills
its responsibilities for financial reporting and internal
The consolidated financial statements for the years
ended December 31, 2012 and 2011 have been audited
by Ernst & Young LLP, the external auditors, in accordance
with Canadian generally accepted auditing standards on
behalf of the shareholders. Their report follows hereafter.
James M. Bruchs
Chairman and Chief Executive Officer
February 18, 2013
Gary A. Bojes
Chief Financial Officer
February 18, 2013
23
tsodilo resources limited
Independent 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 consolidated statements of financial position as
the consolidated financial statements. The procedures
at December 31, 2012 and 2011, 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
then ended, and a summary of significant accounting
to fraud or error. In making these risk assessments,
policies and other explanatory information.
the auditors consider
internal controls relevant to
the entity’s preparation and fair presentation of the
Management’s responsibility for the consolidated
consolidated
financial statements, but not
for the
financial statements
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.
We believe that the audit evidence we have obtained in
our audits is sufficient and appropriate to provide a basis
Auditors’ responsibility
for our audit opinion.
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
Opinion
We conducted our audits in accordance with Canadian
In our opinion, the consolidated financial statements
generally accepted auditing standards. Those standards
present fairly,
in all material respects, the financial
require that we comply with ethical requirements and
position of Tsodilo Resources Limited as at December 31,
plan and perform the audit to obtain reasonable assurance
2012 and 2011, and its financial performance and its
about whether the consolidated financial statements are
cash flows for the years then ended in accordance with
free from material misstatement.
International Financial Reporting Standards.
Vancouver, Canada
February 18, 2013
Chartered Accountants
24
tsodilo resources limited
Tsodilo Resources Limited
Consolidated Statements of Financial Position
(In United States dollars)
ASSETS
Current
Cash
Accounts receivable and prepaid expenses
Exploration and Evaluation Assets (note 3)
Property, Plant and Equipment (note 4)
Deposits on Equipment (note 4)
LIABILITIES
Current
December 31
2012
December 31
2011
$ 982,051
$ 1,505,965
109,031
1,091,082
11,150,180
762,761
43,670
179,352
1,685,317
8,774,657
1,017,938
--
$13,047,693
$11,477,912
Accounts payable and accrued liabilities
$ 113,968
$ 104,105
Warrants (note 5b)
Total Liabilities
SHAREHOLDERS’ EQUITY
Share Capital (note 5a)
Contributed Surplus (note 5c)
Foreign Currency Reserve
Deficit
Equity attributable to Owners of the Parent
Non-controlling Interest (note 3)
Total Equity
Total Liabilities and Equity
Commitments (note 11)
Subsequent events (note 13)
See accompanying notes to the consolidated financial statements
APPROVED ON BEHALF OF THE BOARD OF DIRECTORS
884,212
998,180
37,525,377
9,174,340
(1,909,448)
1,500,766
1,604,871
35,056,638
8,711,103
(1,455,134)
(32,946,552)
(32,653,953)
11,843,717
205,796
12,049,513
$13,047,693
9,658,654
214,387
9,873,041
$11,477,912
David J. Cushing James M. Bruchs
Chairman, of the Audit Committee Chairman
25
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
Gain on disposal of assets
Unrealized gain on warrants (Note 5b)
Foreign exchange (loss)
Net Income (Loss) for year
Other Comprehensive Income (Loss)
Foreign currency translation
Total Other Comprehensive Income (Loss)
Year Ended December 31
2012
2011
$ 90,228
$ 148,624
33,920
22,310
147,449
35,080
177,715
6,465
375,646
888,813
--
13,225
616,554
(34,061)
595,718
(293,095)
(462,409)
(462,409)
27,264
16,911
134,876
30,303
164,046
4,846
427,864
954,734
3,077
--
2,673,378
(2,475)
2,673,980
1,719,246
(1,810,035)
(1,810,035)
Total Comprehensive Income (Loss) for the year
($ 755,504)
($ 90,789)
Net Income (Loss) attributable to shareholders of the parent
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
attributable to the owners of the parent (note 7)
income
(loss) per share
(292,599)
(496)
($293,095)
($ 746,913)
(8,591)
($755,504)
($0.01)
($0.01)
($0.03)
($0.03)
$1,719,246
--
$1,719,246
($ 54,812)
(35,977)
($ 90,789)
$0.07
$0.07
($0.00)
($0.00)
See accompanying notes to the consolidated financial statements
26
tsodilo resources limited
Tsodilo Resources Limited
Consolidated Statements of Shareholders’ Equity
(In United States dollars except for shares)
Share Capital
Contributed
Surplus
Foreign
Currency
Reserve
Deficit
Non-
Controlling
Interest
Total
Equity
Total
attributable
to equity
holder of
the parent
Shares
Issued
Amount
Balance
January 1, 2012
25,880,970
$35,056,638
$8,711,103
($1,455,134)
($32,653,953)
$9,658,654
$214,387
$9,873,041
Units Issued
1,818,181
2,008,780
2,008,780
--
2,008,780
Exercised
Options
Stock Based
Compensation
Comprehensive
Income (loss)
2012
Balance
December 31,
2012
400,000
459,959
(140,012)
319,947
319,947
--
--
--
--
603,249
--
--
603,249
--
603,249
--
(454,314)
(292,599)
(746,913)
(8,591)
(755,504)
28,099,151
$37,525,377
$9,174,340
($1,909,448)
($32,946,552)
$11,843,717
$205,796 $12,049,513
See accompanying notes to the consolidated financial statements.
Tsodilo Resources Limited
Consolidated Statements of Shareholders’ Equity
(In United States dollars except for shares)
Share Capital
Contributed
Surplus
Foreign
Currency
Reserve
Deficit
Total
Non-
Controlling
Interest
Total
attributable
to equity
holder of
the parent
Shares
Issued
Amount
Balance January 1, 2011
22,647,340 $32,038,044
$7,884,206
$318,924 ($34,373,199) $5,867,975
$250,364 $6,118,339
Exercised Warrants
3,233,630
3,018,594
--
Stock Based Compensation
Comprehensive Income (loss)
--
--
--
--
826,897
--
--
--
--
3,018,594
826,897
-- 3,018,594
--
826,897
--
(1,774,058)
1,719,246
(54,812)
(35,977)
(90,789)
Balance December 31, 2011 25,880,970 $35,056,638
$8,711,103 ($1,455,134) ($32,653,953) $9,658,654
$214,387 $9,873,041
See accompanying notes to the consolidated financial statements.
27
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
(Gain) loss on disposal of equipment
Amortization
Foreign Exchange Loss
Stock-based compensation
Net change in non-cash working capital balances (note 12)
Investing Activities
Additions to exploration properties
Deposit on equipment
Proceed received from disposal of equipment
Additions to property, plant and equipment
Financing Activities
Shares and warrants issued for cash, net of cost
Impact of Exchange on cash and cash equivalents
Change in cash - For the year
Cash - beginning of year
Cash - end of year
See accompanying notes to the consolidated financial statements
Year Ended December 31
2012
2011
$ (293,095)
$ 1,719,246
(616,554)
(13,225)
6,465
34,061
375,646
(506,702)
80,183
(426,519)
(2,342,142)
(46,052)
13,225
(31,940)
(2,406,909)
2,328,727
2,328,727
(19,213)
(523,914)
1,505,965
$ 982,051
(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
28
tsodilo resources limited
Tsodilo Resources Limited
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012 and 2011
(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. However, the Company’s failure to raise
additional funds could result in the delay in the work performed on the Company’s exploration properties and may lead
to an impairment charge on the Company’s exploration and evaluation assets.
2. SIGNIFICANT ACCOUNTING POLICIES
(a)
Statement of Compliance with International Financial Reporting Standards
These consolidated financial 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 consolidated financial statements have been authorized for release by the Company’s Board of Directors
on February 18, 2013.
(b)
Basis of Preparation
These consolidated financial statements have been prepared on a historical cost basis except for financial
instruments classified as fair value through profit and loss which are stated at their fair value. These consolidated
financial statements are presented in United Stated dollars and include the accounts of the Company and the
following direct and indirect subsidiaries:
29
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Tsodilo Resources Bermuda Limited (Bermuda)
Bosoto (Proprietary) Limited (“Bosoto”) [Botswana]
Gcwihaba Resources (Proprietary) Limited (“Gcwihaba”) [Botswana]
Newdico (Proprietary) Limited (“Newdico”) [Botswana]
All intercompany transactions have been eliminated on consolidation
2012
100%
100%
100%
98%
2011
100%
100%
100%
97%
The accounting policies set out below have been applied consistently to all periods presented.
(c)
Significant Accounting Judgments, Estimates and Assumptions
The preparation of the consolidated financial statements in conformity with IFRS requires management to make
judgments, estimates and assumptions that affect the application of polices and reporting amounts and assets
and liabilities, income and expenses. Actual results may differ from these estimates.
Accounts that require estimates as the basis for determining the stated amounts include warrant liability,
contributed surplus, stock-based compensation expense, and amortization expense. The amounts estimated
for the warrant liability and stock based compensation are calculated using the Black-Scholes Merton valuation
model, which requires significant estimates with respect to the expected life and volatility of such instruments.
The estimated depreciation is influenced primarily by the estimate of the estimated life of the Company’s
Property, Plant & Equipment.
Significant judgments are required with respect to the carrying value of the Company’s exploration and evaluation
assets, its determination of the functional currency of the Company’s subsidiaries and the recoverability of the
Company’s deferred tax assets. In particular, the carrying value of the Company’s exploration and evaluation
assets is dependent upon the Company’s determination with respect to the future prospects of its exploration
and evaluation assets and the ability of the Company to successfully complete the renewal process for its
exploration properties as required.
(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
effects of dilutive common share equivalents. This method requires that the dilutive effect 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 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 2012.
30
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(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
reflect 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 classified
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 financing to complete their development, obtaining the necessary permits to operate the mine,
and realizing profitable 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
affect 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 and drilling equipment
Furniture and equipment
5 Years
3 Years
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits
are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset,
determined as the difference between the net disposal proceeds and the carrying amount of the asset, is
recognized in profit or loss.
Where an item of plant and equipment comprises major components with different 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.
31
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 Resources (Pty) Limited
Newdico (Pty) Limited
Bosoto (Pty) Limited
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 financial 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 differences
arising on the translation are recognized in Other Comprehensive Income and accumulated in the foreign
currency reserve. On consolidation, exchange differences arising from the translation of the net investments
in Gcwihaba, Newdico and Bosoto are taken Other Comprehensive Income and accumulated in the Foreign
Currency Reserve.
If Gcwihaba, Newdico and Bosoto were sold, the amount recognized in the foreign currency reserve would be
realized and reflected in the Statement of Operations and Comprehensive Income (Loss) as part of the gain and
loss on disposal.
(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 differences between the carrying amounts of assets and liabilities for financial 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 differences 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
differences which arise on the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affect neither accounting, nor taxable profit or loss.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to
the extent that it is probable that future taxable profits will be available against which they can be utilized.
32
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred tax assets are reviewed each reporting date and are reduced to the extent that it is no longer probable
that the related tax benefit will be realized.
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. There were no additional significant impacts on the Company.
( 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 specifies 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 affect the fair value estimates.
(k)
Severance Benefits
Under Botswana law, the Company is required to pay severance benefit upon the completion of 5 years of
continued service or upon the termination of employment. The cost of these severance benefits is recognized
immediately to the extent that the benefits are amortized on a straight line basis over the period of service
until the benefit becomes payable. The charge is made to exploration and evaluation assets. During the year,
$209,545 (2011: - nil) in costs relating to severance benefits were incurred.
(l)
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 affected 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 affecting 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
33
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 reflect the passage of
time and the liability is accreted by a charge to the statement of operations and comprehensive income (loss)
to reflect the passage of time and the liability is adjusted to reflect any change in the timing of the underlying
future cash flows.
Changes to the obligation resulting from any revisions to the timing or amount of the original estimate of
undiscounted cash flows 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, 2012, and 2011.
(m)
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 profit or
loss (“FVTPL”). Financial assets classified as FVTPL are measured at fair value with unrealized gains and losses,
recognized through earnings. The Company does not have any financial assets classified as FVTPL.
Financial assets classified as loans and receivables and held to maturity assets are measured at amortized
cost. The Company’s cash and accounts receivable are classified as loans and receivables. Financial assets
classified 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, 2012 and 2011, the Company has not classified any financial assets as
available for sale.
Transaction costs associated with FVTPL financial assets are expensed as incurred, while transaction costs
associated with all other financial assets are included in the initial carrying amount of the asset.
(n)
Financial Liabilities
All financial liabilities are initially recorded at fair value and designated upon inception as FVTPL or other
financial liabilities.
Financial liabilities classified as other financial liabilities are initially recognized at fair value less directly
attributable transaction costs. After initial recognition, other financial liabilities are subsequently measured
at amortized cost using the effective interest rate method. The effective interest rate method is a method of
calculating the amortized cost of a financial liability and of allocating interest expenses over the relevant period.
The effective interest rate is the rate that discounts estimated future cash payments through the expected life
of the financial liability, to, where appropriate, a shorter period. The Company’s accounts payable and accrued
liabilities are classified as other financial liabilities.
Financial liabilities classified 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
classified as FVTPL and recognized at fair value with changes in fair value recognized in earnings unless they
are designated as effective hedging instruments. Fair value changes on financial liabilities classified as FVTPL
are recognized in earnings. Transaction costs associated with FVTPL liabilities are expensed as incurred.
34
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(o)
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 flows are discounted to their present value using a
discount rate that reflects current market assessment of the time value of money and the risk of a specific 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 profit or loss for
the period. For an asset that does not generate largely independent cash inflows, 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 profit or loss.
(p)
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 significant influence over the other party in making financial 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.
(q)
New Standards, Amendments and Interpretations not yet adopted
The following new standards and issued amendments to standards and interpretations are not yet effective for
the year ended December 31, 2012, and have not been applied when preparing these consolidated financial
statements. The Company’s assessment of the impact of these new standards and interpretations is set out
below.
IFRS 9, Financial Instruments, issued in November 2009
This standard is the first step in the process to replace IAS 39, Financial Instruments: Recognition & Measurement. IFRS 9
introduces new requirements for classifying and measuring financial assets. IFRS 9 establishes two primary
measurement categories for financial assets: (i) amortized cost, and (ii) fair value; establishes criteria for
classification of financial assets within the measurement category based on business model and cash flow
characteristics; and eliminates existing held for trading, held for maturity, available for sale, loans and receivables
and other financial liabilities categories. The IASB currently has an active project to make limited amendments
to the classification and measurement requirements of IFRS 9 and add new requirements to address the
impairment of financial assets and hedge accounting. IFRS 9 has an effective date of January 1 2015, with early
adoption permitted. The Company continues to monitor and assess the impact of this standard.
In May 2011, the IASB published five new and amended standards addressing the accounting for consolidation,
joint arrangements and disclosures related to involvement with other entities, each of which is highlighted
below:
35
tsodilo resources limited
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
IFRS 10, Consolidated Financial Statements
IFRS 10 replaces the consolidation guidance in IAS 27, Consolidated and Separate Financial Statements and Standing
Interpretations Committee (“SIC”) Interpretation 12, Consolidation – Special Purpose Entities, by introducing a single
consolidation model for all entities based on control, irrespective of the nature of the investee. Under IFRS
10, control is based on whether and investor has: 1) power over the investee; 2) exposure, or rights, to variable
returns from its involvement with the investee; and 3) the ability to use its power over the investee to affect the
amount of the returns.
IFRS 11, Joint Arrangements
IFRS 11 replaces IAS 31, Interest in Joint Ventures. IFRS 11 focuses on the rights and obligations of the
arrangement, rather than its legal form (as is currently the case). It addresses the inconsistencies in the
reporting of joint arrangements by requiring a single method to account for all joint arrangements. This new
standard principally addresses two aspects of IAS 31: first, that the structure of the arrangement was the only
determinant of the accounting and, second, that an entity had a choice of accounting treatment for joint
arrangements. Accordingly, IFRS 11 removes the options to apply the proportional consolidation method and
classifies joint arrangements into two types – Joint operations and joint ventures. A joint operation is where
the parties have control of the arrangement (i.e. joint operators) and have rights to the assets and obligations
relating to the arrangement. A joint venture is where the parties have joint control of the arrangement (i.e. joint
venturers) and have rights to the net assets of the arrangements.
IFRS 12, Disclosures of Involvement with Other Entities
IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interest in other
entities, including joint arrangements, associations, special purpose vehicles and other off-balance sheet
vehicles.
IAS 27, Separate Financial Statements
The requirements relating to separate financial statement s are unchanged and included in the amended IAS 27.
The consolidation guidance currently included in IAS 27 is replaced by IFRS 10.
IAS 28, Investment in Associates and Joint Ventures
IAS 28 is amended to conform to changes resulting from issuance of IFRS 10, IFRS 11, and IFRS 12.
Each of the above five standards has an effective date for annual periods beginning on or after January 1, 2013.
The adoption of these standards is not expected to have a significant impact on the Company’s consolidated
financial statements, but will require certain additional disclosures.
IFRS 13, Fair Value Measurement, issued May 2011
IFRS 13 replaces the guidance on fair value measurement in existing IFRS accounting literature with a single
standard. IFRS 13 defines fair value, provides guidance on how to determine fair value and requires disclosures
about fair value measurements. However, IFRS 13 does not change the requirements regarding which items
should be measured or disclosed at fair value. IFRS is effective for annual periods beginning on or after January
1, 2013. The adoption of IFRS 13 is not expected to have a significant impact on the Company’s methodologies
in determining fair values.
36
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
Minerals
Subtotal
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
Differences
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
Additions
1,524,592
421,262
536,758
344,679
1,302,699
Net Exchange
Differences
Balance at
December 31, 2012
(297,926)
(49,749)
(63,388)
(40,705)
(153,842)
2,827,291
(451,768)
$7,518,224
$2,048,700
$1,039,199
$544,057
$ 3,631,956
$ 11,150,180
The Company’s significant exploration and evaluation assets are summarized as follows:
Newdico (Proprietary) Limited (“Newdico”) - Botswana
Newdico’s Prospecting Licenses (“PL’s”) are located 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 three remaining licenses totaling 3,949 square kilometers were renewed for a two-year
period and expired in June 2012. During the year, two of the three remaining licenses were relinquished. These licenses
totalled 3,098 square kilometres and were the subject of extensive exploration during their license terms and were
determine not to be prospective for an economic kimberlite. The relinquishment of these licenses will not have an
adverse impact on the Ngamiland ‘s kimberlite exploration program.
A two year renewal application for Newdico’s remaining license covering 851 square kilometres has been submitted in
order to continue and complete the first stage exploration and evaluation program. An acknowledgement of receipt
has been received from the Botswana Department of Geological Survey and the renewal application is currently being
reviewed by the government. If the government does not renew this license, the carrying value of $7,518,224 will be
written off as an impairment loss in the Statement of Operations and Comprehensive Income (loss), upon notification
from the government that the license has not been renewed.
37
tsodilo resources limited
3. EXPLORATION AND EVALUATION ASSETS (continued)
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 97.52% at December 31, 2012.
Gcwihaba Resources (Proprietary) Ltd (“Gcwihaba”) – Botswana
Gcwihaba, a wholly owned subsidiary of the Company, holds prospecting licenses in the North-West and Kgalagadi
Districts in Botswana.
Diamond Exploration
Gcwihaba currently holds four (4) precious stone – diamond prospecting licenses. Three licenses are in the North-West
District of Botswana covering 1,910 square kilometers and one license covering 494 square kilometers in the Kgalagadi
District in southern Botswana. The licenses have expiry dates ranging from March 31, 2013 to July 1, 2015 and require
a minimum spending commitment of Botswana Pula 746,510 (US$97,560) if held to their full term. As at December 31,
2012 the Company believes it has fulfilled most of the spending requirements associated with these licenses.
Metal Exploration
Gcwihaba holds twenty-two (22) metal (base, precious, platinum group, and rare earth) prospecting licenses inclusive
of 5 licenses currently in renewal in the North-West District of Botswana. The current licenses cover 11,158.50 square
kilometers. The Company initially acquired the various licenses in 2005, 2008, 2009 and 2012. 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. In 2012,
PL118 was relinquished in its entirety. The relinquishment of the aforementioned licenses or portions thereof 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 expiry dates of the 17 licenses range from July 1, 2013 to April 1, 2015 and require a minimum
spending commitment of Botswana Pula 3,205,725 (US $418,949) over the term of the licenses, if held to their full-term.
As at December 31, 2012, the Company believes is has fulfilled most of the spending commitments associated with these
licenses.
Radioactive Minerals
As at December 31, 2012, Gcwihaba holds eight (8) radioactive mineral licenses in the Northwest District of Botswana
covering 6,925 square kilometers. The licenses have expiry dates ranging from July 1, 2013 through January 1, 2017
and require a minimum spending commitment of Botswana Pula 1,543,905 (US$ 202,161) , if held to their full-term. As
at December 31, 2012 the Company believes is has fulfilled most of the spending requirements associated with these
licenses.
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
Property, Plant, and Equipment
Cost
Vehicles
Furniture and Equipment
As at December 31, 2010
Additions
Net Exchange Difference
As at December 31, 2011
$ 938,696
1,097,607
(331,683)
$ 1,704,620
$ 230,675
23,187
(33,491)
$ 220,371
Vehicles
Furniture and Equipment
As at December 31, 2011
$ 1,704,620
Additions
Disposals
Net Exchange Difference
As at December 31, 2012
Accumulated Depreciation
As at December 31, 2010
Depreciation
Net Exchange Difference
As at December 31, 2011
As at December 31, 2011
Depreciation
Disposals
Net Exchange Difference
As at December 31, 2012
Net book value
As at December 31, 2010
As at December 31, 2011
As at December 31, 2012
Deposits on Equipment
As at December 31, 2010
As at December 31, 2011
As at December 31, 2012
22,134
(25,556)
(59,176)
$ 1,642,022
$ 220,371
9,806
--
(6,472)
$ 223,705
Vehicles
Furniture and Equipment
$ 723,879
178,573
(143,235)
$ 759,217
$ 122,076
40,562
(14,802)
$ 147,836
Vehicles
Furniture and Equipment
$759,217
219,585
(25,556)
(36,472)
$ 916,774
$ 214,817
$ 945,403
$ 725,248
$ 870,805
--
$ 43,670
$ 147,836
44,426
--
(6,070)
$ 186,192
$ 108,599
$ 72,535
$ 37,513
--
--
--
Total
$ 1,169,371
1,120,794
(365,174)
$ 1,924,991
Total
$ 1,924,991
31,940
(25,556)
(65,648)
$ 1,865,727
Total
$ 845,955
219,135
(158,037)
$ 907,053
Total
$ 907,053
264,011
(25,556)
(42,542)
$ 1,102,966
$ 323,416
$ 1,017,938
$ 762,761
$ 870,805
--
$ 43,670
For the year ended December 31, 2012, an amount of $257,546 (2011: $219,135) of amortization has been capitalized under
exploration properties.
The $870,805 of drilling equipment was received during the third quarter, 2011. The deposit at December 31, 2012 relate to the
purchase of three trucks to be delivered in 2013.
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: 28,099,151 Common Shares as at December 31, 2012 (2011: 25,880,970)
During the year ending December 31, 2012:
(i)
On May 1, 2012, 250,000 options were exercised at a price of C$0.80 for proceeds to the Company of
$204,073 (C$200,000). The fair value of the option associated with the exercised options that were reclassified
to share capital was $85,630.
(ii)
On May 7, 2012, 100,000 options were exercised at a price of C$0.80 for proceeds to the Company of
$80,368 (C$80,000). The value of the option associated with the exercised options that were reclassified to
share capital was $34,252.
(iii)
On September 7, 2012, 1,818,181 Units were issued at a price of C$1.10 for net proceeds to the
Company of $2,008,780 (C$1,963,779). Each unit includes one common share and one warrant entitling the
holder to purchase one common share of the Company for a period until the close of business on June 29, 2015
at USD$1.21. $36,730 of issuance costs were netted against the proceeds.
(iv)
On December 19, 2012, 50,000 options were exercised at a price of C$0.70 for proceeds to the Company
of $35,506 (C$35,000). The fair value of the option associated with the exercised options that were reclassified
to share capital was $20,130.
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.
40
tsodilo resources limited
5. SHARE CAPITAL (continued)
(b) Warrants
As December 31, 2012, the following warrants were outstanding:
Number of Warrants - Units
Exercise
Price
December
31, 2011
Issued
Exercised
Expired
December
31, 2012
Expiry
January 20, 2012
C$1.00
465,245
June 29, 2015
C$2.17
2,702,702
--
--
June 29, 2015
USD$1.21
1,818,181
3,167,947
1,818,181
--
--
--
--
(465,245)
--
--
--
(465,245)
2,702,702
1,818,181
4,520,883
On September 7, 2012, 1,818,181 warrants were issued with an exercise price of USD$1.21, expiring on June 29, 2015. As
the strike price of these warrants is in U.S. Dollars, the warrants were classified as equity instruments. The value of the
Units equals the value of the Common Shares, and no amount was allocated to the warrants.
On January 20, 2012, 465,245 warrants with an exercise price of C$1.00 expired.
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, 2012 the Company recorded
a mark to market gain of $616,554 (2011: $2,673,378) on the revaluation of warrants. As at December 31, 2012, the
outstanding liability portion of the warrants have a fair value of $884,212 (2011: $1,500,766) which is determined using
the Black-Scholes Option Pricing Model with an expected volatility of 70.5%, expected life of 2.5 years at a risk free rate
of 1.17%.
Warrant Liability
Number of
Units
2,702,702
Valuation
$5,266,191
--
--
--
(3,765,425)
$1,500,766
--
--
--
(616,554)
$884,212
Balance December 31, 2010
Additions
Exercise
Expiry
Valuation Change
--
--
--
--
Balance December 31, 2011
2,702,702
--
--
--
--
Balance December 31, 2012
2,702,702
41
tsodilo resources limited
5. SHARE CAPITAL (continued)
(c) Stock Option Plan
The Company has a stock option plan providing for the issuance of options that can not exceed 3,942,120 shares of
common stock. The Company may grant options to directors, officers, employees, and contractors, and other personnel
of the Company or its subsidiaries. The exercise price of each option cannot be lower than the market price of the shares
being the closing price of the Company’s common shares on the Toronto Stock Exchange the day before the grant date.
Options generally vest ratable over eighteen- month period, beginning with the date of issuance and every 6 months
thereafter, and expire in five years from the date of grant as determined by the Board of Directors.
The following Table summarizes the Company’s stock option plan as at December 31, 2012:
Outstanding as at December 31, 2010
Granted
Exercised
Cancelled
Expired
Outstanding as at December 31, 2011
Granted
Exercised
Cancelled
Expired
Outstanding as at December 31, 2012
Weighted average
exercise price
Number of
Shares
2,725,000
710,000
--
(420,000)
(215,000)
2,800,000
710,000
(400,000)
--
(65,000)
3,045,000
(C$)
C$1.06
C$1.15
--
C$0.98
C$0.83
C$1.11
C$0.97
C$0.78
--
C$1.00
C$1.13
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.
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
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.
On January 2, 2012, 65,000 stock options at C$1.00 expired.
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 April 2, 2012, the Company issued 475,000 options at C$1.00 under its Stock Option Plan to persons who are officers
and employees of the Company.
42
tsodilo resources limited
5. SHARE CAPITAL (continued)
On May 1, 2012, 250,000 options granted under its Stock Option Plan (‘SOP’) were exercised pursuant to the SOP at
C$0.80 for total proceeds of C$200,000 (USD $204,073).
On May 7, 2012, 100,000 options granted under its Stock Option Plan (‘SOP’) were exercised pursuant to the SOP at
C$0.80 for total proceeds of C$80,000 (USD $80,368).
On December 19, 2012, 50,000 options granted under its Stock Option Plan (‘SOP’) were exercised pursuant to the SOP
at C$0.70 for total proceeds of C$35,000 (USD $35,506).
The following table summarizes the stock option compensation expense and capitalized stock compensation for the
year ended December 31, 2012 and 2011.
Stock-based compensation expense
Capitalized Stock-based compensation expense
2012
$ 375,646
227,603
$603,249
2011
$ 427,864
399,033
$ 826,897
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, 2012 and 2011:
2012
2011
Expected lives
3.0 to 4.5 years
3.0 to 4.5 years
Expected volatilities (based on Company’s historical prices)
111.4% - 158.0% 158.4% - 176.0%
Expected dividend yield
Risk free rates
Weighted average fair value of option
0%
0%
0.41% - 0 .92%
0.68% - 1.90%
$0.82
$1.05
The following table summarizes stock options outstanding as at December 31, 2012:
Options Outstanding
Options Exercisable
Exercise
Number of
Weighted
Weighted
Number of
Weighted
Weighted
Price (C$)
Outstanding
Average
Average
Exercisable
Average
Average
Options
Exercise
Remaining
Options
Exercise Price
Remaining
Price (C$)
Contractual
(C$)
Contractual
Life (Years)
Life (Years)
C$0.55
C$0.70
C$0.90
C$1.00
C$1.03
C$1.19
C$1.25
C$2.23
100,000
920,000
235,000
605,000
300,000
100,000
285,000
500,000
3,045,000
C$0.55
C$0.70
C$0.90
C$1.00
C$1.03
C$1.19
C$1.25
C$2.23
C$1.13
1.83
0.75
4.01
3.77
3.29
3.56
3.01
2.34
2.48
100,000
920,000
117,500
367,500
300,000
75,000
285,000
500,000
2,665,000
C$0.55
C$0.70
C$0.90
C$1.00
C$1.03
C$1.19
C$1.25
C$2.23
C$1.14
1.83
0.75
4.01
3.47
3.29
3.56
3.01
2.34
2.2
43
tsodilo resources limited
6. INCOME TAXES
The recovery of income taxes varies from the amounts that would be computed by applying the Canadian federal and
provincial statutory rate of approximately 26. 5% (2010: 28.25%) to net income (loss) before income taxes as follows:
Net Income (Loss) for the year
Income tax recovery at Canadian statutory
Income tax rates
Effect of statutory tax rate change
Foreign operation taxed at lower rates
Permanent differences
Change in valuation allowances
Expiry of tax losses
Changes in estimate and foreign exchange
Other
Provision for (recovery of ) income taxes
December 31, 2012
December 31 2011
($293,095)
$1,719,246
26.5%
(77,670)
36,853
3,233
(65,396)
88,980
--
5,273
(82,383)
$ --
28.25%
485,687
(4,261)
4,545
(634,357)
(63,615)
163.847
49.040
(886)
$ --
The following summarizes the principal temporary differences and related future income tax effect:
Losses carried forward - Botswana
Other
Exploration & Development - Botswana
Property, Plant and Equipment - Botswana
December 31, 2012
December 31, 2011
$2,602,000
--
(2,470,000)
(132,000)
$2,026,000
45,000
(2,026,000)
(45,000)
Net future income tax asset recorded
$ --
$ --
As at December 31, 2012 the following deferred taxes have not been recognized :
Losses carried forward - Botswana
Losses carried forward - Canadian
Property Plant & Equipment
Reserve Properties - Canadian
Other
December 31, 2012
December 31, 2011
$138,000
632,000
23,000
80,000
54,000
$927,000
$244,000
493,000
18,000
76,000
--
$831,000
As at December 31, 2012, 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
456,000
464,000
Year of Expiry
2015
2016
2027
2028
2029
2030
2031
2032
Total assessable losses relating to the activity in Botswana as at December 31, 2012 was $10,961,093 (2011: $9,107,576).
44
tsodilo resources limited
7. EARNINGS (LOSS) PER SHARE
Net earnings per share were calculated based on the following:
Year ended December 31
Net income (loss) for the year
Effect of Dilutive Securities
Stock options and warrants
2012
2011
($ 293,095)
$ 1,719,246
--
(7,937)
Diluted net earnings (loss) for the year
($ 293,095)
$ 1,711,309
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
26,722,663
23,508,532
2012
2011
Effect of dilutive securities:
Stock Options
Warrants
--
--
Diluted weighted-average number of shares outstanding
26,772,663
1,193,343
459,220
25,161,095
The loss per share is the same as the basic loss per share for the year ended December 31, 2012 because the stock options
and warrants that were dilutive did not have a material impact on the EPS calculation. In addition, the number of stock
options and warrants outstanding as at year ended December 31, 2012, was 7,565,883 all of which were anti-dilutive.
8. RELATED PARTY TRANSACTIONS
During the year ended December31, 2012, the Company incurred leave benefits payable to an officer and director of the
Company, however all amounts were paid by year end.
Remuneration of Key Management Personnel of the Company
Short term employee remuneration and benefits
Stock based compensation
Post Employment Benefits*
2012
2011
$ 453,118
$ 419,861
586,813
166,463
522,963
--
Total compensation paid to key management personnel
$ 1,206,394
$ 942,824
*Post employment benefits includes $17,496 of accrued benefits.
There are no other related party transactions.
9. SEGMENTED INFORMATION
The Company is operating in one industry. As at December 31, 2012 the Company’s Plant, Property and equipment
in the United States was $10,260 (2011: $11,696) and in Botswana was $752,501 (2011: $1,006,242). No revenues or
expenses were realized for Exploration and Evaluation Properties that are detailed in note 3 above. Segment long term
Exploration and Evaluations properties in the United States were zero (2011: nil) and in Botswana of $11,150,180.
45
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
Classification
Cash and cash equivalents
Accounts receivable
Loans and receivables
Loans and receivables
Accounts payable and accrued liabilities Other financial liabilities
Fair Value Hierarchy
Level 1 & Level 2
n/a
n/a
Warrants
Fair value through Profit and Loss
Level 3
See the Company’s statement of financial position for financial instrument balances.
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 2012 and 2011 the Company raised cash capital as shown in note 5(a)
in the amount of $2,328,727 and $1,926,547, respectively. It is anticipated that the Company cash of $982,051 will be
substantial enough to continue operations for the ensuing twelve months.
46
tsodilo resources limited
10. FINANCIAL INSTRUMENTS (continued)
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. However, there is no guarantee that such financing will be available when
required.
(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.
(e) Foreign Exchange Risk
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. A ten percentage change in the
exchange rate would result in a $92,490 impact the Company’s net income (loss).
The Company issues equity in Canadian dollars and the majority of its expenditures are 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, 2012, a 10% change in the USD/
Pula exchange rate would not materially impact the Company’s earnings. A ten percentage change in the exchange rate
would result in a $310 impact the Company’s net income (los).
47
tsodilo resources limited
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:
2013
2014
2015
Total
21,133
22,190
22,190
$ 65,513
The lease commitment is for storage space in Maun, Botswana at an annual rental of Pula 166,824 for year 2013 and
175,165 for years 2014 and 2015 plus taxes converted at an exchange rate as at December 31, 2012 to US dollars.
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
$70,320
($114,181)
Increase / (Decrease) in accounts payable and accrued liabilities
9,863
6,657
Total
$80,183
($107,524)
December 31
December 31
2012
2011
13. SUBSEQUENT EVENTS
On January 3, 2013, the Company issued 235,000 options at C$1.20 under its Stock Option Plan to persons who are
officers and employees of the Company.
On January 3, 2013, 50,000 options granted under its Stock Option Plan (‘SOP’) were exercised pursuant to the SOP at
C$0.70 for total proceeds of C$35,000 (USD $35,285).
48
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
Norton Rose, 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
McLean, VA
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 2010
Gary A. Bojes, CPA, Ph.D.
Chief Financial Officer
Appointed in 2007
Gail McGinley
Corporate Secretary
Appointed in 2005
49
tsodilo resources limited