Tsodilo Resources Limited Annual Report 2013 President’s Message
Dear Shareholders,
On behalf of the board of directors, I am pleased to
provide the annual report of Tsodilo Resources Limited
(“Tsodilo” or the “Company”) recording the Company’s
progress together with the audited financials for the year
ending December 31, 2013.
initiated
in 2012
The accelerated work program
continued into 2013 as the Company concentrated its
efforts in preparation for its maiden Canadian National
Instrument 43-101 Resource Estimate and Technical
Report on its Xaudum Iron Ore Project. The exploration
target has, at this point in time, been conservatively
estimated at 5 to 7 billion tonnes of iron ore.
The ground magnetic survey was completed (18,000 line
kilometers) defining a project area of some 1,600 km2.
11,000 meters of core were drilled on fences across
portions of the body in order to establish a resource in
compliance with NI 43-101 standards.
The company remains committed in its search to
find an economic kimberlite. The market for rough
diamonds has strengthened over recent months
and longer term, a positive outlook for the
diamond market is supported by the continued
economic recovery in the US, and growth in
demand from emerging markets. The supply of
diamonds is diminishing and any upturn in the
economy will result in a tighter supply chain and
increased prices. We continue with exploration
on our current licenses and continue to look for
new opportunities.
Our current share capital consists of 30,541,878
issued and outstanding (40,620,488 on a fully
diluted basis) common shares. Tsodilo has a 98%
interest in our Botswana (Newdico (Pty) Limited
project and a 100% interest in our Gcwihaba
Resources (Pty) Limited projects.
SRK Consulting (U.K.) Limited was retained to prepare an
Initial NI 43-101 Technical Report and Resource Estimate
and on its Xaudum Iron Ore Project.
QAQC (Quality Assurance and Quality Control) steps
have been introduced in the Iron Ore sampling program
which includes blanc and duplicate samples, our in-
house QAQC check samples which include 3 Geostats
Pty. GIOP (Geostats Iron Ore Pulp) standards, and density
check samples in the form of Standard and Test Weights
(5 and 10 kg). All assays batches that included QAQC
samples to date have satisfactorily passed the QAQC
checks to and have been uploaded into the database.
A strategic partnership with First Quantum Minerals was
agreed to during the year. They are a world-class mining
company with great financial strength and specific
expertise in exploration for African Copperbelt type base
metal targets gained from their mining operations in
Zambia. The sequence of rocks in northwest Botswana
that Tsodilo has identified in the past several years are
identical in age and composition to those in the Central
fact the
African Copperbelt. These rocks are
southwesterly extension of the Zambian Copperbelt and
hold great potential for Copperbelt-style targets. This
joint venture will allow for aggressive exploration for
world-class metal deposits on our license areas. First
Quantum’s interest will extend to our metal (base,
precious, platinum group metals and rare earth
elements) licenses but exclude iron.
in
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 remain informed by regular
visits to our website, www.TsodiloResources.com.
On behalf of the board,
Dr. Michiel C.J. de Wit
President and COO
February 24, 2014
1
President’s Message to Shareholders
Management’s Discussion and Analysis
of Financial Results
Financial Reporting Responsibility of
30
Management
Auditor’s Report to the Shareholders
31
Consolidated Financial Statements / Notes 32
IBC
Corporate Information
2
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, 2013 and 2012. 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 24, 2014.
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 (TSX-V) 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
2
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 24, 2014, 30,541,878 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, 3,285,000 options remain
outstanding of which 2,806,250 are exercisable at exercise prices ranging from CAD $0.55 - $2.23.
As of February 24, 2014, 6,793,610 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. 2,272,727 warrants expiring on April 22, 2015 are priced at USD $1.21, 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, 6,793,610 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 24, 2014 are as follows:
Name
Description
Azur LLC
Private Investment Vehicle
Shares -
Owns,
Controls or
Directs
4,996,065
International Finance Corporation
Member of the World Bank Group
4,520,883
David J. Cushing
Director
First Quantum Minerals
Global Mining Company
James M. Bruchs
Director and CEO
2,368,593
2,272,727
2,232,119
% of the Issued
and
Outstanding
Shares
16.39%
14.83%
8.07%
7.45%
7.33%
Subsidiaries
The Company has a 98% operating interest in its Botswana subsidiary, Newdico (Proprietary) Limited (“Newdico”),
which holds one prospecting license covering approximately 851 km²in northwest Botswana that expired on June 30,
2012. Two of the three remaining licenses totalling 3,098 square kilometres were relinquished in 2012. These 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. Prior to expiry, the Company submitted a two year extension 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
extension application is currently being reviewed by the government. If the license is not extended, the carrying value
of Newdico’s exploration and evaluation assets of $6,779,575 will be written off.
The Company has a 100% interest in its wholly owned Botswana subsidiary, Gcwihaba Resources (Proprietary)
Limited (“Gcwihaba”), which has one diamond prospecting license covering approximately 494 km², twenty-two metal
3 (base, precious, platinum group, and rare earth) licenses covering 10,290 km² (not including 1,339km2
of licenses
currently in renewal) and eight radioactive minerals licenses currently in renewal.
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 2013
1. Diamond Projects
The Company holds 2 Prospecting Licences (3,255 km²) for precious stones, one registered to Newdico and the other
to Gcwihaba. These licenses are summarized in Table 1. The Gcwihaba license 195/2012 covers 494 square kilometers
and the initial license grant expires June 30, 2015. The Newdico license (PL 64/2005) covers 895 square kilometres and
expired June 30, 2012. A renewal application was submitted for PL64/2005 and is currently being considered by the
Ministry of Minerals, Energy and Water Resources (MMEWR). The two-year extension application for PL 64/2005 was
submitted in order to continue and complete the first stage evaluation program for K10 and K11 and to resolve target
B7 (THC10). The application was made in April 2012 and an acknowledgement of receipt was received from the
Department of Geological Survey (“DGS”) (Reference number PLI9042012103322-2010) in the same month. The DGS
requested additional information which the Company provided in April, 2013. The Company confers with the MMEWR
with respect to this license on a continuous basis.
Prospecting licenses PL 46/2008, 47/2008 and 49/2008 were relinquished during the year. These permits overlap two
Gcwihaba’ metal permits (PL 51 and 52/2008) and which are presently in application for renewal (see section ‘Other
base metal targets’).
Table 1. Precious Stone Prospecting Licenses as at December 31, 2013
PL number
Km²
Grant
Date
Expiry
date
Current
Stage
Expenditure
PL 195/2012
494
7/01/12
7/01/15
Initial Grant
2,470
Rental
Fee Per
Annum
(BWP)
Work
Program
Per Annum
(BWP)
100,000
PL 064/2005
Total
TBD
494
in extension
TBD
TBD
Total Expenditure From
Grant and if held to Full
License Term
BWP
USD as at
12.31.2013
307,410
35,550
TBD
307,410
TBD
35,550
Table 2. Gcwihaba Precious Stone Prospecting Licenses Relinquished in 2013
PL Number
PL46/2008
PL 47/2008
PL 49/2008
Total
KM2
709
491
710
1,910
Grant Date
04/01/11
04/01/11
01/01/11
Relinquishment Date
November 2013
November 2013
March 2013
4
Interest in the kimberlites located on PL 64/2005 is based on three main factors which makes this area prospective.
Firstly, there are two unexplained surface concentrations of both diamonds and high-interest (G10) garnets across the
border in Namibia - the Tsumkwe and the Omatoko targets. Based on the local geomorphology it was suggested that
the diamonds and garnets from these targets have been derived from one of the diamond-bearing kimberlites in the
Nxau field or from an undiscovered kimberlite(s) in the general area. The whole Nxau kimberlite field now comprises
40 bodies that occur on both sides of the border. Although not all of these kimberlite occurrences have mineral
chemistry data, those that have data do not match that of the garnets recovered from the Tsumkwe or Omatoko
anomalies.
Secondly, the geophysical interpretation of the Southern African Magnetotelluric Experiment (SAMTEX) project shows,
among others, that the Company’s northern licences are underlain by the Congo Craton (Khoza et al., in press; Muller
and Jones, 2007) and that the Nxau field is within the southern edge of this Craton.
Thirdly, Archaean ages obtained from granite/gneiss samples from two boreholes drilled by the Company in the
general area - L9590/7 (2,641 Ma) and L9660/5 (2,548 Ma) - confirm that the basement rocks are Archaean in age,
satisfying one of the most important exploration criteria for diamonds. This means that those kimberlites occurring in
these prospecting licences and within the Congo Craton should be the most interesting from a diamond perspective.
Recent microdiamond work on K10 produced 14 stones from 229 kg of kimberlite core (61.23 stones per ton). Because
of the relative limited number of stones a grade curve with some level of confidence cannot be produced and hence
more diamonds are required from K10. This will be considered once more information on the other two bodies is
available. Samples for micro-diamonds have been prepared for kimberlite K11 and will be submitted to the
microdiamond laboratory as soon as the application for a renewal period has been approved. K11’s mineral chemistry
signature is similar to K10 and this body is approximately 2.5 ha in size. In addition, a third magnetic target B7, directly
south of and almost adjacent to K10 and K11, appears to be very similar to the two known kimberlites and is likely a
third kimberlite in this tight cluster. B7 will be drilled once the renewal application has been approved. .
The geophysical modelling of the ground magnetic data which was collected over the three airborne magnetic targets
TOD 17 (Grade 6), and TOD 29 and 30 (both Grade 5), was completed and based on the results of this work these
targets were down-graded as possible kimberlites. The absence of kimberlitic indicator minerals over these anomalies
further supported analysis that these targets are in all likelihood not kimberlite. It was therefore decided to relinquish
the Company’s most northern Gcwihaba Prospecting Licences, PL 46/2008 and PL 47/2008. Since two of these
anomalies are associated with Ni and Zr/Cr soil anomalies, that were generated by the 1999 governments Ngamiland
Geochemical soil sampling program, it is highly likely that these bodies represent metal targets and will be drilled
under the metal licences PL 051/2008 and 052/2008, which overlap the relinquished diamond permits.
The detailed follow up loam deflation sampling program over Gcwihaba’s Prospecting Licence PL95/2012 has been
completed. The objective of this step is to confirm presence of kimberlitic minerals and to upgrade the chemistry of
these minerals that have been reported by De Beers when they had access to this ground between 1995 and 2002.
5
Several kimberlites were discovered by De Beers north of PL95/2012 during that period however, the heavy mineral
target on PL 95/2012 was never explained.
A full desktop study was performed on this permit collating all the De Beers exploration datasets. In addition, the
Government airborne geophysical data, which was flown on lines 250 meters apart, was reprocessed and interpreted.
A granular screen test was done in April 2013 and determined a cut-off point of –0.425 mm and + 0.300 mm for
sampling. Some thirty-six (36) samples were subsequently taken, dry screened in the field and brought back to
company’s exploration facility in Maun, Botswana for further processing. The samples were re-screened in water at the
treatment station in order to optimize the sorting coefficient in each size fraction so that fractions going through the
jig are all uniform in grain size thereby enhancing the recovery of heavy minerals. The samples were screened in the -
0.425 mm and + 0.300 mm fraction, and it must be emphasized that this is a difficult fraction to concentrate by
mechanical means. A ‘Zambian’ jig had been set up at the facility to conduct a primary concentrate before submitting
these samples to the laboratory for heavy medium concentration and sorting. On the basis of the sample results the
Company intends to conduct several ground geophysical surveys in the first quarter of 2014.
The jig concentrates were too large for mineral sorting and these were sent to an independent accredited laboratory
where they were passed through the heavy liquid TBE (Tetrabromoethane – s.g. 2.96 g/ml) to separate the quartz from
the heavy minerals. These concentrates were then sent to another independent company for sorting for kimberlitic
minerals.
The initial cumulative sample weight for the 36 samples was approximately 720 kg. After screening these into the -
0.425 mm and + 0.300 mm fraction the cumulative weight was 323 kg. The Zambian jig reduced this to 24 kg and after
treatment of the heavy liquid TBE the final cumulative weight of all the concentrates was 1.8 gram. From these
concentrates 4 spinel and 2 garnets were recovered. These have been sent to the microprobe for further assessment.
What is of interest is that there were no ilmenites in the concentrates suggesting that this could be a Group 2
kimberlite (a micaceous kimberlite type that are devoid of ilmenite) source which are very hard to find and also that
the garnets and spinel recovered during this phase occur within the positive areas identified by De Beers.
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 10,289.50 km² not
including licenses currently in renewal (Table 3). Most of the ground was covered by the 1st drilling phase which was
completed in 2011 (Phase 1). The main objective of Phase 1 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.
6
Table 3. Gcwihaba – Metal License Areas as at December 31, 2013
PL numbers
Km²
Grant
Date
Expiry /
Renewal
date
Current
Stage
Expenditure
PL 119/2005
PL 051/2008
PL 052/2008
PL 386/2008
PL387/2008
PL 388/2008
PL 389/2008
PL 390/2008
PL 391/2008
PL 392/2008
PL 393/2008
PL 394/2008
PL 395/2008
PL 595/2009
PL 596/2009
PL 597/2009
PL 598/2009
PL 093/2012
PL 094/2012
PL 095/2012
PL 096/2012
PL 097/2012
TOTAL
10/01/10 10/01/12
07/01/11 07/01/13
07/01/11 07/01/13
in renewal
TBD
TBD
in renewal
TBD
in renewal
570.00 01/01/12 12/31/14 1st renewal
964.90 01/01/12 12/31/14 1st renewal
1st renewal
317.10 01/01/12 12/31/14
1st renewal
978.60 01/01/12 12/31/14
1st renewal
807.30 01/01/12 12/31/14
1st renewal
454.50 01/01/12 12/31/14
1st renewal
828.10 01/01/12 12/31/14
1st renewal
937.50 01/01/12 12/31/14
1st renewal
649.20 01/01/12 12/31/14
1st renewal
971.40 01/01/12 12/31/14
in renewal
07/01/09 07/01/12
TBD
in renewal
07/01/09 07/01/12
TBD
in renewal
07/01/09 07/01/12
TBD
in renewal
TBD
07/01/09 07/01/12
Initial Grant
433.70 04/01/12 04/01/15
Initial Grant
679.80 04/01/12 04/01/15
Initial Grant
421.60 04/01/12 04/01/15
Initial Grant
676.50 04/01/12 04/01/15
Initial Grant
599.30 04/01/12 04/01/15
10,289.50
Total Expenditure
From Grant and if held
to Full License Term
USD as at
BWP
12.31. 2013
Rental
Fee Per
Annum
(BWP)
TBD
TBD
TBD
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
51,485
Work
Program
Per Annum
(BWP)
TBD
TBD
TBD
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
TBD
TBD
TBD
TBD
*
*
*
*
*
TBD
TBD
TBD
35,687
36,272
35,250
36,397
36,100
35,487
36,136
36,325
35,826
36,384
TBD
TBD
TBD
TBD
19,259
19,686
19,238
19,680
19,547
457,374
* 1st year 50,000; 2nd year 50,000 : and 3rd year 60,000
TBD
TBD
TBD
308,550
314,475
304,770
314,685
312,120
306,825
312,435
314,070
309,750
314,580
TBD
TBD
TBD
TBD
166,510
170,200
166,330
170,155
169,000
3,954,455
The Company’s exploration work had initially indicated that the sulphide-rich Matchless Amphibolite Belt (‘MAB’)
traverse the Company’s southern licences in northwest Botswana in an area where the Damara Belt connects with the
Lufilian Arc. Petrology, geochemistry and geochronology work by conducted by AEON’s (Africa Earth Observatory
Network) research group now located at the NMMU (Nelson Mandela Metropolitan University) in Port Elizabeth, South
Africa has identified Archaean granite-gneisses between 2.548 and 2.641 Ma in age in Ngamiland. Paleoproterozoic
granites (ca. 2,000 Ma) seem to have been tectonically interlayered with Lufilian Arc-equivalent metasediments
(including graphitic schist, carbonates and diamictites), and metabasites and gabbros (ca. 540 Ma), all of which were
intersected during the Company’s Phase 1 drilling program. These tectonic contacts, which are mainly major trust
zones, and graphitic schists are mineralized and have been targeted for further work.
The Pan African metabasites in Ngamiland yield an age of ca. 535 Ma. This 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).
7
During the phase 1 drilling program three separate mineralisation domains were identified in different parts of the
licence area. These are areas with sulphide mineralisation associated with Neoproterozoic metasediments, base and
precious metals and REE showings associated with skarns linked to the 535 Ma age basic intrusions, and a large
mineral deposit of magnetite which the Company is presently evaluating (Table 4).
Table 4
Main mineralogical domains identified during the Phase 1 drill program
Sedimentary Cu/Co in central
shale belt
Central African Copper Belt-style sedimentary
rock-hosted copper showings at multiple
Copper (cobalt)
stratigraphic levels, spatially associated with faults
Sepopa Cu/Au Skarn deposit
Iron-copper skarns associated with ~535 Ma basic
(IOCG?)
intrusions
Xaudum Magnetite Banded Iron
Layered and massive BIF Rapitan type Fe
Formation (BIF)
Formation at the base of the Grand Conglomerate
Copper-gold-iron
Iron
STRATEGIC PARTNERSHIP
On November 20, 2013, Tsodilo announced that, further to its April 17, 2013 Memorandum Of Understanding (“MOU”)
with First Quantum Minerals Ltd. (TSX:FM)(LSE:FQM) ("First Quantum"), the Company, its wholly-owned subsidiary
Gcwihaba Resources (Pty) Ltd. ("Gcwihaba"), First Quantum and First Quantum's wholly-owned subsidiary Faloxia
(Proprietary) Limited ("FQM Subco") have entered into a definitive Earn-In Option Agreement (the "Option
Agreement") pursuant to which First Quantum (which term for the purposes of this section includes FQM Subco) has
acquired the right to earn up to a 70% interest in metals prospecting licences in Botswana granted to Gcwihaba insofar
as they cover base, precious and platinum group metals and rare earth minerals by meeting certain funding and other
obligations as set forth below. The interests that may be earned by First Quantum specifically exclude any rights to
iron held by Gcwihaba.
Under the terms of the Option Agreement, First Quantum can earn either a 51% participating interest or a 70%
participating interest in designated projects within the overall license area covered by the Option Agreement (the
"Project Area") by satisfying the following requirements:
funding exploration expenditures within the Project Area in the aggregate amount of US$6 million by
November 20, 2015 (the "Tranche 1 Funding Commitment");
funding an additional US$9 million in exploration expenditures within the Project Area by November 20,
2017; and
completing a technical report ("Technical Report") on a designated area within the Project Area prepared in
compliance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects of the Canadian
Securities Administrators and that meets certain requirements with respect to resources as described below.
8
The Tranche 1 Funding Commitment is a firm commitment by First Quantum and must be satisfied irrespective of
whether First Quantum elects to pursue the other requirements to earn an interest in Gcwihaba's licences.
In the event that First Quantum satisfies the funding obligations as set forth above but a Technical Report has not
been completed by the end of the fourth year following the execution of the earn-in option agreement, First Quantum
may maintain the earn-in option for up to an additional three years by continuing to spend a minimum of $2 million
per year on exploration and evaluation studies on the Project Area.
If the Technical Report delineates a "Major Defined Project" (being a designated project within the Project Area with
respect to which the Technical Report delineates a measured, indicated and inferred mineral resource within the
Project Area of not less than 2,000,000 tonnes of copper), First Quantum will be deemed to have earned a 70% interest
in the property that is the subject of such report. If the Technical Report delineates a "Minor Defined Project" (being a
designated project within the Project Area with respect to which the Technical Report delineates a measured,
indicated and inferred mineral resource within the Project Area of less than 2,000,000 tonnes of copper, or another
base, precious or platinum group metal and rare earth mineral), First Quantum will be deemed to have earned a 51%
interest in the property that is the subject of such report; provided, however, that it may elect to retain an option for
up to five years to convert such property into a Major Defined Project. If First Quantum makes such election, it will be
responsible for all further costs and expenses associated with the Minor Defined Project, including for operations and
capital expenditures, until the earliest of: (a) the completion of a Technical Report for a Major Defined Project, in which
event the Minor Defined Project will be deemed to be converted into a Major Defined Project and First Quantum will
be deemed to have earned a vested 70% participating interest therein; (b) written notice from First Quantum to the
Company that First Quantum no longer wishes to retain the option to convert such Minor Defined Project into a Major
Defined Project; and (c) five years after the date of the original vesting of a 51% interest in the Minor Defined Project. If
First Quantum fails to satisfy the requirements to convert a Minor Defined Project into a Major Defined Project it will
retain a vested 51% participating interest in the Minor Defined Project.
Upon First Quantum's participating interest in a defined project being crystallized at either 51% or 70%, Gcwihaba and
First Quantum will enter into a joint venture agreement for such project. Under the terms of each such joint venture
agreement, Gcwihaba's participating interest in each joint venture will be carried until the commencement of
construction of a mine for the project. Accordingly, all costs and expenses associated with the defined project until
such time, including for operations and capital expenditures, will be funded by First Quantum.
First Quantum has reported that expenditures as per the MOU amounted to $4,103,204 as at December 31, 2013.
Xaudum Magnetite Banded Iron Formation (BIF)
Tsodilo, through its local subsidiary Gcwihaba, is evaluating the Xaudum Iron Ore deposit. The drilling and the ground
geophysical surveys conducted by Tsodilo and its subsidiaries during 2013 have concentrated on this Iron Ore
Formation. The presence of the layered and massive magnetite banded ironstone formation associated with the
Xaudum Magnetic Anomaly in the northern part of the area has been isolated and is intimately associated with
9
deformed diamictites resembling glacial deposits. These rocks have been identified as being part of a Rapitan type
iron-formation both in terms of age and lithology and extend over 35 km in a north-south direction and the magnetite
bands interbedded with diamictites occur over a width of several kilometres. Rapitan-type iron-formations are
Neoproterozoic (0.8-0.6 Ga) iron-formations that are characterized by their distinct association with glaciomarine
sediments. Examples include the Rapitan Group (Canada), the Yudnamutara Subgroup (Australia), the Chuos
Formation (Namibia), and the Jacadigo Group (Brazil).
During the year, both diamond drill rigs were positioned over the northern part of this deposit to refine the geological
model and to sample the ironstone rocks on regular intervals as part of the development off its first resource definition
of Block 1 (Fig. 2). The Company anticipates to have the resource of this block completed during Q2 in 2014. Folds and
probably trusts have complicated the geology but the combination of high resolution ground magnetic surveys,
airborne Spectrem data, and drilling is continuously upgrading the details of the geology of this area.
Evaluation drilling of the Xaudum Iron Formation continued with both of the company’s rigs drilling holes every 50 m
on east-west orientated lines perpendicular to the strike of the Iron Formation. These east-west orientated lines are
400 or 800 m apart and each ‘fence’ line requires between 6 and 8 holes to model the complexities of each section and
to sample the ironstone on a regular interval. Holes are drilled inclined to the east, west or vertical, depending on the
requirement (Fig. 1). The fence section or diagrams are then modelled using the Company’s in-house software Gocad,
to project and calculate the ironstone volumes between the respective fences. During 2013, the Company’s two drill
rigs drilled 61 core holes with a cumulative depth of 11,624 m and extracted 10,418 m of core from these holes (Table
5). All of these were positioned over the Xaudum Iron stones and these cores have been logged and the relevant
sections have been sampled and assayed by two geochemistry laboratories, ALS Minerals and Set Point, in
Johannesburg.
Most of these holes intersected magnetite bearing rocks either massive magnetite, banded magnetite and/or
magnetic diamictite. The use of the Reflex Gyro instruments, capable of recording core orientation and down-the-hole
drill direction was applied to all the Gcwihaba holes and four of the FQM (BOTDD001 - BOTDD005) holes. Magnetic
susceptible readings were also collected from all the holes.
10
Figure 1. Location of the boreholes drilled on the northern limb of the Xaudum Iron Ore
formation (green) that were drilled in 2013 and those planned for 1st Q, 2014 (red).
Table 5. Drill progress during 2013 with the Company’s two drill rigs.
Q1
Q2
Q3
Q4
2013 Total
Metres drilled
Metres core
No of holes
2,142
1,825
10
2,841
2,628
14
3,484
3,116
22
3,157
2,848
15
11,624
10,417
61
11
Figure 2. The planned drill blocks (black) in numerical order of priority. The XIF ground coverage is outlined in blue. The
interpreted XIF from the second vertical derivative is shown in orange.
The focus of the drilling on the Xaudum Magnetite Banded Iron formation has been on block 1 (Fig. 1). A resource
estimate of this block will be completed by Q2 of 2014 and will form the basis for the total evaluation of this Ironstone
deposit. For this Tsodilo has engaged SRK Consulting (U.K.) Limited to prepare an initial National Instrument 43-101
compliant Mineral Resource Estimate and Technical Report for the Company’s Botswana subsidiary, Gcwihaba
Resources (Pty) Limited (“Gcwihaba”), on block 1 of the Xaudum Iron Ore Project.
The deposit has been subdivided into three geodomains:
1. MBA – Magnetite Banded Iron Formation
2. MBW – Partially oxidised (weathered) BIF
3. DIM – Magnetite schist or magnetite diamictite
12
The results of magnetic concentrate sizing, referred to as Davis Tube Recovery (DTR) test work, confirm that there is a
significant potential for a premium magnetite product in the order of >68% Fe that can be produced from the Xaudum
Iron Project’s full range of mineralised rocks, including lower grade (15-25% Fe) and partially oxidised material.
The main activity during the year, besides drilling, was to continue to collect high resolution ground magnetic data
over the Xaudum Magnetite body, mainly infilling lines and adding to the peripheral of the Ironstone Formation.
During the year 2,523 line-kilometers of ground magnetic data was collected which equals 143 km² and almost
completes the ground survey block over the entire Iron stone belt.
During 2013, the Company sent 2,957 samples for assaying and 41 samples for petrography. The results of 9,171 assays
and all petrographic descriptions were received. At the same time, the Company has also audited its sample
submission procedures and has collected a large bulk sample of clean river sand that will be used as blanc samples in
each Ironstone consignment.
Sedimentary Cu/Co in central shale belt
Between the BIF in the north and the skarn IOCG-type mineralization in the south-east, are north-eastward trending
mineralized metasediments in what is referred to as the Central Shale Basin. These are identical to the host rocks of the
Kalumbila Cu-Ni-Co deposit, which is part of the Copper Belt in western Zambia and directly north of Ngamiland. The
Central Shale Basin to the north-east of the project area contains a meta-sedimentary sequence which geologically is
very similar to the stratiform Cu-Co (Copper-Cobalt) province of the Central African Copper Belt. The black shales,
meta-pelites, meta-arenites, dolomites, with interbedded evaporates in particular bear strong resemblance to the
Mwashya rocks in Zambia. Most lithologies are mineralized with pyrite, pyrrhotite, and chalcopyrite.
First Quantum Minerals (FQM) continued with the re-logging of the Tsodilo drill core and has now re-logged 157
diamond drill holes amounting to 34,750 m which has been entered into the FQM’s SQL database.
Results of the multi-element geochemistry assays from the orientation sample grids around Sepopa have been
received and returned values generally below 3ppm with a maximum of 10ppm which is extremely low. The results are
associated with the different soil types that have been mapped during the sampling program. However, due to the
blanketing effect of the Kalahari Group and Okavango Delta sediments, the effectiveness of geochemical sampling is
greatly reduced.
FQM started their drilling program in the third quarter with both diamond and Reverse Circulation (RC) drilling, using
Titan Drilling as their contractor. The first four diamond holes were drilled to between 700 and 900 meters in order to
complete the geological model at depth and will be supplemented with the Tsodilo drill results. The objective of the
RC work drilling is to sample the Kalahari sediments for geochemical anomalies but more importantly to sample the
base of the Kalahari at the Kalahari/bedrock contact.
The four diamond holes that were drilled reached a cumulative depth of 3,136 m. and 3,193.63 m of core was
recovered from these holes. The RC drilling program was initiated to cover the ground on a 2 km grid in order to
13
sample the Kalahari/bedrock interface geochemically. Initial drilling proved to be problematic as sample recovery has
proved to be been difficult as soon as the drill rods intersect ground water. Several different techniques have been
tested and it has been decided to complete the program using one of the diamond drill rigs. By the end of the year, 54
holes (2,765.6 m) of almost 200 holes were completed.
The petrographic of 24 rock samples from the Tsodilo cores that were collected by FQM was completed and are as
follows:
Metamorphic assemblages are consistent with lower amphibolite facies P-T conditions.
Early kyanite has been variably replaced by sericite/muscovite, indicating that fluid-migration
continued after formation of the kyanite.
The Tsodilo Hills grab sample of quartz conglomerate was found to contain kyanite in the matrix.
Diamictites contain detrital feldspar, giving them an arenite matrix. Re-crystallisation and shearing
of detrital feldspar grains and granite clasts might give a feldspar altered appearance to the
diamictite.
Meta-granitoid rocks have been confirmed in seven samples, including several that were previously
suggested to be feldspar-altered metasediments.
Rocks logged as syenite interfingered with mafics are confirmed to be a mafic intrusive with
xenoliths of syenitic crystals.
Electon Microprobe Analysis (EPMA) of green mica confirmed it is chromium-bearing (fuchsite).
Results of the geochronological and geochemical studies are still outstanding.
The Spectrem Airborne EM survey was completed over the main Gcwihaba Prospecting Licences. Three different line
spacings were used for different blocks (Fig. 4). A 200 m line spacing was used over the central part of the area which
also contains the Iron stone formation (Fig. 4). In total 16,933.6 m line kilometres were flown.
Figure 4. Spectrem EM blocks flown at different line intervals on the left, the gridded Spectrem EM survey data over the Tsodilo area
on the right. Red denotes conductive material, blue denotes resistive. The data are ‘late-time’ channel Z9.
14
Sepopa Cu/Au Skarn deposit (IOCG?)
The copper and gold showings of skarn-type targets, south-east of this banded magnetite iron deposit and central to
the prospecting area, are associated with meta-basic rocks (garnet-epidote-scapolite-albite amphibolite and gabbros)
and indicate that the mineralization model here could be associated with Iron Oxide Copper Gold ore deposits
(“IOCG”) and skarns. So far several of these bodies have been identified and include 1822C26, 1822C27 and 1822C10.
Mineralisation associated with these skarn deposits are related to massive magnetite, metabasites, meta-mafic units
and granofels in contact with Mwashya-type carbonates and metasediments. Mineralization here is characterized by
elevated values of Cu, Ni, Ti, V, Co (Copper, Nickel, Titanium, Vanadium and Cobalt) and La (Lanthanum) and Ce
(Cerium) both of which are rare earth elements (REE’s). Anomalous levels for Au (Gold) and Ag (Silver) have also been
recorded in some samples. Follow up of these targets forms part of the First Quantum exploration program.
Other base metal targets
The ground magnetic surveys and geophysical modelling of three airborne magnetic targets TOD 17, TOD 29 and 30
was completed and are not interpreted as kimberlite targets. However, since these anomalies are associated with Ni
and Zr/Cr soil anomalies that were generated by the 1999 governments Ngamiland Geochemical soil sampling
program, it is highly likely that these represent metal targets and will be drilled under the base metal licences, PL
051/2008 and PL 052/2008, which overlap the relinquished diamond permits, during the course of 2014.
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. The area of the licenses in
renewal cover 6,925 km² (Table 6) and overlap with some of the Gcwihaba diamond and metal permits. Applications
for renewal for both sets of permits have been submitted to the Ministry of Minerals, Energy and Water Resources
(MMEWR) and the Company is awaiting confirmation of the renewals from MMEWR.
Table 6. Gcwihaba – Radioactive License Areas as at December 31, 2013
PL numbers
Km²
Grant Date
Renewal
date
Current
Stage
Expenditure
Total Expenditure
From Grant and if
held to Full License
Term
PL 150/2010
PL 151/2010
PL 045/2011
PL 046/2011
PL 047/2011
PL 048/2011
PL 049/2011
PL 050/2011
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
07/01/10
07/01/10
01/01/11
01/01/11
01/01/11
01/01/11
01/01/11
01/01/11
07/01/13
07/01/13
01/01/14
01/01/14
01/01/14
01/01/14
01/01/14
01/01/14
in renewal
in renewal
in renewal
in renewal
in renewal
in renewal
in renewal
in renewal
Rental
Fee Per
Annum
(BWP)
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
Work
Program
Per Annum*
(BWP)
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
BWP
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
USD as at
12.31.
2013
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
15
The Company has reviewed the exploration results from Union Carbide Exploration Corporation which had
secured many prospecting licences in west and northwest Botswana for uranium. They explored northwest Botswana
(Ngamiland) from 1977 until 1980, and of particular interest are their findings of anomalous uranium within what they
called the Khaudom and Chadum palaeo-drainages. High counts of uranium in both calcrete and water samples and
anomalous counts of vanadium from the water samples were obtained. Up to 30 m 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 age and origin of these types of calcretes further south has been incorporated in a research project conducted by
AEON and the following field observations were made after some detailed fieldwork:
1.
There are two types of duricrusts present both formed by ground water. A 3 m thick silcrete in the Groot
Laagte drainage, south of the Kuke fence, which is slightly radioactive (1500 cpm) and also occurs in the
Tsodilo-1 borehole (between -41 m and -47 m depth), and a 10 to 30 m thick calcrete in the Chadum
drainage, west of Nxau Nxau. Both units occur at the base of the Kalahari Group, and represent good
potential hosts for uranium, similarly to the well-known Langer Heinrich and Klein Trekkopje uranium
deposits in Namibia that developed within Tertiary paleo-channel systems of the Namid Desert (Iiluende
2012). Samples from the field and from borehole Tsodilo-1 and KPH-4 have been collected for more detailed
analysis.
2. Uranium-rich soils (3000-6000 cpm) in the Chadum and Kkhaudum drainages. Radiocarbon (14C) dating of
these uppermost lignitic soils can determine the minimum age of deposition and thus constrains the age of
uranium enrichments. This will be compared to the other records of paleo-climate (wetter periods) in the
Kalahari such as at Lake Ngami, where drilling has recovered black carbon rich muds/soils at depth (below -
60 m).
Recent diamond drilling conducted by Gcwihaba (Pty) Ltd. on overlapping metal licences have returned anomalous
uranium assay results in some of the Proterozoic meta-sedimentary units that are overlain by the Kalahari Group
sediments. In 2013 values up to 24 ppm U in these cores have been encountered (Table 7) and this is particularly
encouraging because of the presence of up to 100 and 40 ppm U in some other cores in the immediate vicinity. The
link between these anomalous meta-sedimentary rocks and the surface uranium anomalies in the Kalahari calcretes is
yet to be established.
Finally, radiometric airborne data was collected over the same area that was covered by the Spectrem EM survey (Fig.
4). Figure 5 shows the results of this radiometric survey over the Xaudum infill block of the Gcwihaba permits (Fig. 5).
The main objective was to locate any obvious U deposits and secondly if it is possible to assess the source(s) for the
valley calcrete uranium.
16
A total of 3,189 line kilometres was flown and there appears to be some overlap between the Xaudum Ironstones and
some of the airborne radiometric data such as Technetium (Tc) and Thorium (Th) (Fig. 5). The Potassium values also
shows similar trends but the Uranium shows very little variation over the Ironstones. Note the busy values over the
fluvial clays of the panhandle which is also seen from the Uranium values. A full interpretation of these data is still
outstanding.
Figure 5. Xaudum Infill block: Magnetic data from ground surveys (a), Airborne Spectrem EM (b) and
radiometric (Technetium Tc) surveys (c) and Thorium (Th) values (d).
17
Exploration and Evaluation Additions
The Company owns and operates its own diamond core drill rigs and provides support to its drilling operations with a
fleet of eight 6 x 6 heavy trucks and eight light trucks. Geophysical magnetic surveys are conducted by the company’s
employees using company owned magnetometers. Exploration and evaluation additions for the year ended
December 31, 2013 are summarized as follows:
Newdico
Botswana
Gcwihaba
Botswana
Total
Precious
Stones
Precious
Stones
Metals
Subtotal
Radio-
Active
Minerals
$ 4,366
$ 105,252
$ 520,903
$ 116,647
$ 742,802
$ 747,168
2,741
6,742
--
--
35,250
2,046
94
4,818
164,498
21,331
315,613
8,334
35,250
1,451
11,115
1,148
234,998
24,828
326,822
14,300
237,739
31,570
326,822
14,300
46,868
18,231
56,056
19,203
93,490
140,358
41,482
122,946
596,729
115,326
835,001
876,483
$ 102,199
$ 288,637
$1,683,464
$ 300,140
$ 2,272,241
$ 2,374,440
Drilling Expenditures
Amortization Drill
Rigs, Vehicles & Trucks
GIS & Geophysics
Lab Analyses & Assays
License Fees
Office, Maintenance,
& Consumables
Salaries, Wages &
Services
Balance at
December 31, 2013
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2013, the Company had a working capital surplus of $300,599 [December 2012: 92,902], which
included cash of $610,622 (December 2012: $982,051). 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 options for cash proceeds of $284,441,
$35,506, $35,285, $34,094, $32,913 and $10,279 in May 2012, December 2012, January 2013, April 2013, December
2013, and December 2013 respectively. The Company issued units (common shares & warrants) for additional net cash
proceeds in September 2012 (net of share issue cost) of $2,008,780, and in April 2013 (net of issue cost) of $2,409,340;
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 and
lease commitments of $39,878 shown in footnote 11 in the financial statements. During the year ended December
31, 2013, the Company received proceeds of $112,571 from the ecercise of Stock Options and $2,409,340 from the
issuance of Units in private placements. 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, 2013, the expenditure
requirements inclusive of license fees from the date of grant to and if held to their full terms are as follows:
18 Project Description
Required Expenditure
Newdico - Diamond
Gcwihaba - Diamond
Gcwihaba - Metals
BWP
TBD
307,410
3,954,455
Gcwihaba - Radioactive Minerals
TBD
USD
TDB
$34,624
$445,400
TBD
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, 2013 for those warrants is $184,264 (2012: $884,212). 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.
Operating Activities
Cash outflow used in operating activities before working capital adjustment increased from $506,702 for the year
ended December 31, 2012 to ($852,933) for the period ended December 31, 2013. Increases in corporate
remuneration resulted from concentrating more expenses to corporate activities, and resulting in savings capitalized
by focusing Botswana activities with local personnel. Legal and audit increased due to our First Quantum
investment/farm-out agreement. Stock based compensation expenses increased from lower capitalization of that
expense along with stock price and volatility changes in options valuations.
19 Annual Information
(in US Dollars)
Fiscal Year
December 31, 2012
Fiscal Year
December 31, 2013
Net income (loss) for the year
Basic income (loss) per share
Basic diluted income (loss) per share
Total other comprehensive income (loss)
Total comprehensive income (loss) for the year
Basic comprehensive income (loss) per share
Diluted comprehensive income (loss) per share
Total assets
Total long term liabilities
Cash dividend
Quarterly Information
(in US Dollar)
Fiscal Year ended December 31, 2012
Net income (loss) for the year
Basic income (loss) per share
Diluted basic income (loss) per share
Comprehensive income (loss) for the year
Basic comprehensive income (loss) for the
year
Diluted comprehensive income (loss) per
share
Total assets
Total long term liabilities
Quarterly Information
(in US Dollars)
Fiscal Period ended December 31, 2013
Net income (loss) for the year
Basic income (loss) per share
Diluted basic income (loss) per share
Comprehensive income (loss) for the year
Basic comprehensive income (loss) for the
year
Diluted comprehensive income (loss) per
share
Total assets
Total long term liabilities
($293,095)
($0.01)
($0.01)
($462,409)
($755,504)
($0.03)
($0.03)
$13,047,693
--
--
($778,389)
($0.03)
($0.03)
($1,462,172)
($2,240,561)
($0.07)
($0.08)
$13,365,230
--
--
Quarter 1
Quarter 2
Quarter 3
Quarter 4
($157,954)
($0.01)
($0.01)
$57,066
($0.00)
($309,887)
($0.01)
($0.01)
($792,276)
($0.03)
($178,518)
($0.00)
($0.00)
($258,478)
($0.01)
$353,264
$0.01
$0.01
$238,184
$0.01
($0.00)
($0.03)
($0.01)
$0.01
$11,662,096
--
$11,366,904
--
$13,297,755
--
$13,047,693
--
Quarter 1
Quarter 2
Quarter 3
Quarter 4
$30,658
$0.00
$0.00
($670,413)
($0.03)
$126,591
$0.01
$0.01
($462,546)
($0.01)
($461,724)
($0.02)
($0.02)
($391,720)
($0.01))
($473,914)
($0.02)
($0.02)
($715,882)
($0.02)
($0.02)
($0.02)
($0.01)
($0.03)
$12,366,937
--
$14,087,792
--
$13,805,179
--
$13,365,230
--
Investing Activities
Cash flow applied in investing activities decreased to $2,103,398 for the year ended December 31, 2013 (December 31,
2012: $2,406,209).
Total expenditures of $2,061,548 on exploration properties for the year ended December 31, 2013 were attributable to
the Newdico and Gcwihaba projects in northwest Botswana. Included in this amount is the proportionate contributory
share, ranging from 2.48% to 2.41% attributed to the Trans Hex Group for the Newdico project. Trans Hex Group has a
20 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. During the year ended December, 2013, the Company received proceeds of $112,571 from the
exercise of Stock Options and $2,409,340 from the issuance of Units in private placements.
Private Placement Date
No. of Units
Price per Unit
Net Proceeds USD
September 7, 2012
April 22, 2013
1,181,181
2,272,727
C$1.10
C$1.10
$2,008,780
$2,409,340
Warrant Exercise Date
No. of Shares
Price per Share
Proceeds USD
February 26, 2011
June 8, 2011
August 15, 2011
728,061
210,894
201,519
December 22, 2011
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
January 2, 2013
April 24, 2013
December 16, 2013
December 31, 2013
250,000
100,000
50,000
50,000
50,000
50,000
20,000
C$0.80
C$0.80
C$0.70
C$0.70
C$0.70
C$0.70
C$0.55
$204,073
$80,368
$35,506
$35,285
$34,094
$32,913
$10,279
21 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 comprehensive net loss of ($2,240,561) for the year ended
December 31, 2013 ($0.07 per common share) compared to a comprehensive net loss of ($775,504) for the year ended
December 31, 2012 ($0.03 per common share). The change in the loss in 2013 was due primarily due to increases in
corporate remuneration, and stock-based compensation expenses, and due to increase in foreign currency translation
losses.
Cumulative exploration expenditures including amortization of property, plant and equipment used in exploration
activities on all projects amounted to $12,125,174 as at December 31, 2013 compared to $11,150,180 as at December
31, 2012. Cumulative exploration expenditures incurred on the Newdico project as at December 31, 2013 was
$6,779,575 compared to $7,518,224 as at December 31, 2012. A net exchange translation difference accounted for a
($854,035) reduction. The principal components of the Newdico and Gcwihaba exploration program were: (a)
additional soil sampling and the completion of the processing and analysis of the soil samples; (b) commissioning of
further ground magnetic surveys of selected aeromagnetic anomalies; (c) analyzing detailed proprietary aeromagnetic
maps covering the target areas; and (d) commencement of a diamond core drilling program on selected targets. A
table is presented above with specific details. Cumulative exploration expenditures incurred on Gcwihaba’s projects as
at December 31, 2013 were $5,345,599 compared to $3,631,956 as at December 31, 2012.
PERSONNEL
At December 31, 2013, the Company and its subsidiaries employed forty (40) individuals compared to thirty-eight (38)
at December 31, 2012, including senior officers, administrative and operations personnel including those on a short-
term service basis.
FISCAL YEAR 2013
The fiscal year 2013 was a normal operating year. Operating expenses were at normal levels for 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.
Extension of Newdico License
A two year extension application for PL 64/2005, Newdico’s remaining license covering 851 km² has been submitted in
order to continue and complete the first stage exploration and evaluation program for K10 and K11 and to resolve
22 target THC10. An acknowledgement of receipt has been received from the Botswana Department of Geological Survey
and the extension application is currently being reviewed by the government. If the government does not extend this
license, the carrying value of Newdico’s exploration and evaluation assets of $6,779,575 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 extended.
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.
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. The Company incurred a loss of $778,389 during the year ended December 31, 2013, and as of that date,
the Company had an accumulated deficit of $33,724,583 and net working capital of $300,599. Management has
carried out an assessment of the going concern assumption and has concluded that the cash position of the
Company is insufficient to finance exploration and resource evaluation at the 2013 and 2012 levels, and may be
insufficient to finance continued operations for the 12 month period subsequent to December 31, 2013. The
continuity of the Company’s operations is dependent on raising future financing for working capital, the
continued exploration and development of its properties and for acquisition and development costs of new projects.
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.”
Management believes that it will be able to secure the necessary financing through a combination of the issue of new
equity or debt instruments, the entering into of joint venture arrangements or the exercise of warrants and options for
the purchase of common shares. However there is no assurance the Company will be successful in these actions. There
can be no assurance that adequate financing will be available, or available under terms favorable to the Company.
Should it be determined that the Company is no longer a going concern, adjustments, which could be
significant, would be required to the carrying value of assets and liabilities. 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 be appropriate.
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
23 vary, depending on mineral prices. Any material change in the quantity of resources, grades or stripping ratio may
affect the economic viability of the Company's properties. In addition, there is no assurance that recoveries in small-
scale laboratory tests will be duplicated in larger-scale tests under on-site conditions, or during production.
Determining the economic viability of a mineral project is complicated and involves a number of variables.
Commodity Prices and Marketability
The mining industry, in general, is intensely competitive and there is no assurance that, even if commercial quantities
of minerals are discovered, a profitable market will exist for the sale of minerals produced. Factors beyond the control
of the Company may affect the marketability of any minerals produced and which cannot be accurately predicted,
such as market fluctuations, and such other factors as government regulations, including regulations relating to
royalties, allowable production, importing and exporting of minerals and environmental protection, any combination
of which factors may result in the Company not receiving an adequate return on investment capital. Prices received for
minerals produced and sold are also affected by numerous factors beyond the Company's control such as international
economic and political trends, global or regional consumption and demand and supply patterns. There is no assurance
that the sale price of minerals produced from any deposit will be such that they can be mined at a profit.
Currency Risk
The Company's business is mainly transacted in Botswana Pula and U.S. dollar currencies. As a consequence,
fluctuations in exchange rates may have a significant effect on the cash flows and operating results of the Company in
either a positive or negative direction.
Foreign Operations Risk
The Company's current significant projects are located in Botswana. This exposes the Company to risks that may not
otherwise be experienced if its operations were domestic. The risks include, but are not limited to, environmental
protection, land use, water use, health safety, labor, restrictions on production, price controls, currency remittance, and
maintenance of mineral tenure and expropriation of property. There is no assurance that future changes in taxes or
such regulation in the various jurisdictions in which the Company operates will not adversely affect the Company's
operations. Although the operating environments in Botswana are considered favorable compared to those in other
developing countries, there are still political risks. These risks include, but are not limited to terrorism, hostage taking,
military repression, expropriation, extreme fluctuations in currency exchange rates, high rates of inflation and labor
unrest. Changes in mining or investment policies or shifts in political attitudes may also adversely affect the
Company's business.
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,
24 few properties which are explored are ultimately developed into producing mines. Major expenses may be required to
establish reserves by drilling and to construct mining and processing facilities at a site. There can be no guarantee that
exploration programs carried out by the Company will result in the development of profitable mining operations.
Title Matters
Any changes in the laws of Botswana relating to mining could have a material adverse effect to the rights and title to
the interests held in those countries by the Company. No assurance can be given that applicable governments will not
revoke or significantly alter the conditions of applicable exploration and mining authorizations nor that such
exploration and mining authorizations will not be challenged or impugned by third parties.
Infrastructure
Exploration, development, mining and processing activities depend on the availability of adequate infrastructure.
Reliable roads, bridges, sewer and water supply are important determinants which affect capital and operating costs.
Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance of
provision of such infrastructure could adversely affect activities and profitability of the Company.
Uninsured Risks
The mining business is subject to a number of risks and hazards including, but not limited to, environmental hazards,
industrial accidents, labor disputes, encountering unusual or unexpected geologic formations or other geological or
grade problems, encountering unanticipated ground or water conditions, cave-ins, pit wall failures, flooding, rock
bursts, periodic interruptions due to inclement or hazardous weather conditions and other acts of God. Such risks
could result in damage to mineral properties or facilities, personal injury or death, environmental damage, delays in
exploration, development or mining, monetary losses and possible legal liability. The Company maintains insurance
against certain risks that are associated with its business in amounts that it believes to be reasonable at the current
stage of operations. There can be no assurance that such insurance will continue to be available at economically
acceptable premiums or will be adequate to cover any future claim.
Competition
The mining industry is intensely competitive in all its phases and the Company competes with other companies that
have greater financial resources and technical capacity. Competition could adversely affect the Company's ability to
acquire prospective properties in the future.
Key Personnel
The Company is dependent upon on a relatively small number of key employees, the loss of any of whom could have
an adverse effect on the Company. The Company currently does not have key personal insurance on these individuals.
25 ADOPTION OF NEW ACCOUNTING STANDARDS
New Accounting Standards, Amendments and interpretations
The following new standards and issued amendments to standards and interpretations are effective for the year ended
December 31, 2013 and have been adopted when preparing these consolidated financial statements. The Company’s
assessment of the impact of these new standards and interpretations is set out below.
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 ventures) 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 statements are unchanged and included in the amended IAS
27. The consolidation guidance currently included in IAS 27 is replaced by IFRS 10.
26
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 did not have a significant impact on the Company’s consolidated financial statements,
and certain additional disclosures thereof are included in these statements.
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 did not have a significant impact on the Company’s
methodologies in determining fair values.
New Accounting Standards, Amendments and interpretations not yet adopted
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.
RELATED PARTY TRANSACTIONS
As of December 31, 2013, the Company has incurred leave benefits payable to an officer and director of the Company.
Remuneration of Key Management Personnel of the Company.
Short term employee remuneration and benefits
Stock based compensation
Post employment benefits*
2013
2012
$ 385,835
$ 453,118
283,090
71,835
586,813
166,463
Total compensation paid to key management personnel
$ 740,760
$ 1,206,394
*Post employment benefits include $28,736 of accrued leave benefits.
There are no other related party transactions.
27
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 24, 2014
Gary A. Bojes
Chief Financial Officer
February 24, 2014
28
29
Financial Reporting Responsibility of Management
The annual
report and consolidated
financial
responsibilities for financial reporting and internal
statements have been prepared by management. The
control. The Audit Committee is composed of three
consolidated financial statements have been prepared
directors, all of whom qualify as unrelated directors
in accordance with International Financial Reporting
and are independent of management and free from
Standards and include amounts that are based on
any interest or business relationship which could, or
informed judgments and best estimates. The financial
could be perceived to materially interfere with their
information presented
in this annual report
is
ability to act in the best interests of the Company. This
consistent with the consolidated financial statements.
committee meets periodically with management and
Management acknowledges responsibility for the
the external auditors to review accounting, auditing,
fairness, integrity and objectivity of all information
internal control and financial reporting matters. The
contained
in
the annual
report
including
the
Audit Committee
reviews
the annual
financial
consolidated financial statements. Management is
statements before they are presented to the Board of
also responsible for the maintenance of financial and
Directors
for
approval
and
considers
the
operating systems, which include effective controls to
independence of the auditors.
provide reasonable assurance that assets are properly
protected and that relevant and reliable financial
The consolidated financial statements for the years
information is produced. Our independent auditors
ended December 31, 2013 and 2012 have been
have the responsibility of auditing the consolidated
audited by Ernst & Young LLP, the external auditors, in
financial statements and expressing an opinion on
accordance with Canadian generally accepted
them.
auditing standards on behalf of the shareholders.
Their report follows hereafter.
The Board of Directors, through its Audit Committee,
is responsible for ensuring that management fulfills its
James M. Bruchs
Chairman and Chief Executive Officer
February 24, 2014
Gary A. Bojes
Chief Financial Officer
February 24, 2014
30
AUDITORS' REPORT
To the Shareholders of Tsodilo Resources Limited:
We have audited the accompanying consolidated financial statements of Tsodilo Resources Limited, which comprise
the consolidated statements of financial position as at December 31, 2013 and 2012, and the consolidated statements
of operations and comprehensive income (loss), changes in shareholders’ equity and cash flows for the years then
ended, and a summary of significant accounting policies and other explanatory information.
Management's responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and
fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal
control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Tsodilo Resources Limited as at December 31, 2013 and 2012, and its financial performance and its cash flows for the
years then ended in accordance with International Financial Reporting Standards.
Emphasis of matter – going concern
Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements which indicates
that the Company incurred a loss of $778,389 during the year ended December 31, 2013, and as of that date, the
Company had an accumulated deficit of $33,724,583 and net working capital of $300,599. These conditions, along with
other matters as set forth in Note 1, indicate the existence of material uncertainties that may cast significant doubt on
the Company’s ability to continue as a going concern.
Vancouver, Canada
February 24, 2014
Chartered Accountants
31
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)
Total Assets
LIABILITIES
Current
December 31
2013
December 31
2012
$ 610,622
85,046
695,668
12,125,174
544,388
--
$ 982,051
109,031
1,091,082
11,150,180
762,761
43,670
$13,365,230
$13,047,693
Accounts payable and accrued liabilities
$ 210,805
$ 113,968
Warrants (note 5b)
Total Liabilities
SHAREHOLDERS' EQUITY
Share capital (note 5a)
Contributed surplus (note 5c)
Foreign translation 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)
184,264
395,069
40,094,987
9,765,939
(3,340,515)
884,212
998,180
37,525,377
9,174,340
(1,909,448)
(33,724,583)
(32,946,552)
12,795,828
174,333
12,970,161
$ 13,365,230
11,843,717
205,796
12,049,513
$13,047,693
See accompanying notes to the consolidated financial statements
APPROVED ON BEHALF OF THE BOARD OF DIRECTORS
David J. Cushing
Chairman, of the Audit Committee
James M. Bruchs
Chairman
32
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)
Interest Income
Gain on disposal of assets
Unrealized gain on warrants (Note 5b)
Foreign exchange loss
Loss for year
Other Comprehensive Income (Loss)
Foreign currency translation
Total Other Comprehensive Income (Loss)
Year Ended December 31
2013
2012
$ 399,137
$ 90,228
29,458
43,301
209,118
32,881
139,528
6,128
550,191
1,409,742
490
--
699,948
(69,085)
631,353
(778,389)
(1,462,172)
(1,462,172)
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)
Total Comprehensive Income (Loss) for the year
($ 2,240,561)
($ 755,504)
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
income (loss) per share attributable to
Basic
owners of the parent (note 7)
Fully diluted income (loss) per share attributable to
the owners of the parent (note 7)
income
Basic comprehensive
attributable to the owners of the parent (note 7)
Fully diluted comprehensive income (loss) per
share attributable to the owners of the parent
(note 7)
(loss) per share
($ 778,031)
(358)
($ 778,389)
($ 2,209,098)
(31,463)
($ 2,240,561)
($0.03)
($0.03)
($0.07)
($0.07)
($ 292,599)
(496)
($ 293,095)
($ 746,913)
(8,591)
($ 755,504)
($0.01)
($0.01)
($0.03)
($0.03)
See accompanying notes to the consolidated financial statements
33
Tsodilo Resources Limited
Consolidated Statements of Changes in Shareholders’ Equity
(In United States dollars except for shares)
Share Capital
Contributed
Surplus
Foreign
Translation
Reserve
Deficit
Non-
Controlling
Interest
Total
Equity
Total
attributable
to equity
holder of the
parent
Shares Issued
Amount
28,099,151
2,272,727
170,000
$37,525,377
2,409,340
160,270
Balance January 1, 2013
Units Issued
Exercised Options
Stock Based Compensation
Comprehensive Income
(loss)
$9,174,340
--
(47,699)
639,298
($1,909,448)
--
--
($32,946,552)
--
--
$11,843,717
2,409,340
112,571
639,298
$205,796
--
$12,049,513
2,409,340
112,571
639,298
(1,431,067)
(778,031)
(2,209,098)
(31,463)
(2,240,561)
Balance December 31, 2013
30,541,878
$40,094,987
$9,765,939
($3,340,515)
($33,724,583)
$12,795,828
$174,333
$12,970,161
See accompanying notes to the consolidated financial statements.
Tsodilo Resources Limited
Consolidated Statements of Changes in Shareholders’ Equity
(In United States dollars except for shares)
Share Capital
Contributed
Surplus
Foreign
Translation
Reserve
Deficit
Non-
Controlling
Interest
Total
Equity
Total
attributable
to equity
holder of the
parent
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
Shares Issued
Amount
Units Issued
1,818,181
2,008,780
Exercised Options
400,000
459,959
(140,012)
Stock Based Compensation
Comprehensive Income
(loss)
--
--
--
--
603,249
--
--
--
(454,314)
(292,599)
(746,913)
(8,591)
(755,504)
2,008,780
319,947
603,249
--
--
2,008,780
319,947
603,249
Balance December 31,
2012
28,099,151
$37,525,377
$9,174,340
($1,909,448)
($32,946,552)
$11,843,717
$205,796
$12,049,513
See accompanying notes to the consolidated financial statements.
34
Tsodilo Resources Limited
Consolidated Statements of Cash Flows
(In United States dollars)
Cash provided by (used in):
Operating Activities
Net Income (Loss) for the year
Adjustments for non-cash items:
Unrealized gain on warrants
Gain on disposal of equipment
Amortization
Foreign exchange loss
Stock-based compensation
Net change in non-cash working capital balances (note 12)
Investing Activities
Additions to exploration properties
Deposit on equipment
Proceed received from disposal of equipment
Additions to property, plant and equipment
Financing Activities
Shares and warrants issued for cash, net of costs
Year Ended December 31
2013
2012
($ 778,389)
$ (293,095)
(699,948)
--
6,128
69,085
550,191
(852,933)
120,822
(732,111)
(616,554)
(13,225)
6,465
34,061
375,646
(506,702)
80,183
(426,519)
(2,047,594)
(2,342,142)
--
--
(55,804)
(2,103,398)
(46,052)
13,225
(31,940)
(2,406,909)
2,521,910
2,521,910
2,328,727
2,328,727
Impact of exchange on cash and cash equivalents
(57,830)
(19,213)
Change in cash - for the year
Cash - beginning of year
Cash - end of year
(371,429)
982,051
$ 610,622
(523,914)
1,505,965
$ 982,051
See accompanying notes to the consolidated financial statements
35
Tsodilo Resources Limited
Notes to the Consolidated Financial Statements
For the years ended December 31, 2013 and 2012
(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, have not earned any revenues. The recoverability of amounts shown for
exploration and evaluation assets is dependent on the existence of economically recoverable reserves, the
renewal or extension 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 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. The Company incurred a loss of $778,389 during the year ended December 31,
2013, and as of that date, the Company had an accumulated deficit of $33,724,583 and net working capital of
$300,599. Management has carried out an assessment of the going concern assumption and has concluded
that the cash position of the Company is insufficient to finance exploration and resource evaluation at
the 2013 and 2012 levels, and may be insufficient to finance continued operations for the 12 month
period subsequent to December 31, 2013. The continuity of the Company’s operations is dependent on
raising future financing for working capital, the continued exploration and development of its properties
and for acquisition and development costs of new projects. 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.” Management believes that it will
be able to secure the necessary financing through a combination of the issue of new equity or debt
instruments, the entering into of joint venture arrangements or the exercise of warrants and options for the
purchase of common shares. However there is no assurance the Company will be successful in these actions.
There can be no assurance that adequate financing will be available, or available under terms favorable to
the Company. Should it be determined that the Company is no longer a going concern, adjustments, which
could be significant, would be required to the carrying value of assets and liabilities. 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 be appropriate.
36 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 24, 2014.
(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:
2013
2012
Tsodilo Resources Bermuda Limited (“Bermuda”) [Bermuda]
100%
100%
Bosoto (Proprietary) Limited (“Bosoto”) [Botswana]
100%
100%
Gcwihaba Resources (Proprietary) Limited (“Gcwihaba”) [Botswana]
100%
100%
Newdico (Proprietary) Limited (“Newdico”) [Botswana]
98%
98%
All intercompany transactions have been eliminated on consolidation
The accounting policies set out below have been applied consistently to all years 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 of
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 estimated useful 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, the determination of the functional currency of the Company and its 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
37 future prospects of its exploration and evaluation assets and the ability of the Company to successfully
complete the renewal or extension 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 period divided by the weighted average number of common shares issued and outstanding during the
period.
Diluted earnings per share calculations are based on the net income attributable to common shareholders
for the period divided by the weighted average number of common shares outstanding during the period
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 period (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 period. The incremental number of
common shares that would be issued is included in the calculation of diluted earnings per share.
(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 or extension 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. See footnote 3 for additional
disclosures related to license commitments and strategic partners commitments and earn-in agreement.
Exploration and Evaluation Assets (Farm-Out)
The Company has entered into a farm-out arrangement during the year, in which the Company is the
farmor. Farm-out arrangements will be recorded at cost during the exploration and evaluation phase of the
projects. The farmor will not record any exploration costs of the farmee. There are no accruals for future
38 commitments in farm-out agreements in the exploration and evaluation phase, and no profit or loss is
recognized by the farmor. In the development phase, a farm-out agreement will be treated as a transaction
recorded at fair value as represented by the costs borne by the farmee.
(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.
(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 are 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 entity 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 their
revenue and expenses are translated at the average exchange for the year. On consolidation, the exchange
39 differences arising on the translation are recognized in Other Comprehensive Income and accumulated in
the foreign translation 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.
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.
(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.
40 (k)
Severance Benefits
Under Botswana law, the Company is required to pay severance benefits upon the completion of 5 years of
continued service or upon the termination of employment. Severance is earned at the rate of one day per
month for an employee with less than five years of service and two days per month for employees with
greater than five years of service. The specifics and benefits of the severance program mandated in
Botswana is extended to full-time employees residing and working outside of Botswana. The cost of these
severance benefits is accrued immediately to the extent that the benefits are amortized on a straight line
basis over the period of service until the benefit becomes payable. During the year ending December 31,
2013, $85,956 (2012: $209,545) in costs relating to severance benefits were incurred. Portions of the
severance expenses are capitalized to exploration and evaluation assets.
(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 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, 2013 and 2012.
41 (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, 2013 and 2012, 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.
(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.
42
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
The following new standards and issued amendments to standards and interpretations are effective for the
year ended December 31, 2013 and have been adopted when preparing these consolidated financial
statements. The Company’s assessment of the impact of these new standards and interpretations is set out
below.
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.
43 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 statements 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 did not have a significant impact on the Company’s consolidated financial
statements, and certain additional disclosures thereof are included in these statements.
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 did not have a significant impact on the Company’s
methodologies in determining fair values.
(r)
New Standards, Amendments and Interpretations, Not Yet Adopted
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.
44 3. EXPLORATION AND EVALUATION ASSETS
Exploration and evaluation assets are summarized as follows:
Newdico
Botswana
Gcwihaba
Botswana
Total
Precious
Stones
Precious
Stones
Metals
Subtotal
Radio-
Active
Minerals
Balance at
December 31, 2011
Additions
Net Exchange
Differences
Balance at
December 31, 2012
Additions
Net Exchange
Differences
Balance at
December 31, 2013
$6,291,558
1,524,592
$1,677,187
421,262
$565,829
536,758
$240,083
344,679
$2,483,099
1,302,699
$8,774,657
2,827,291
(297,926)
(49,749)
(63,388)
(40,705)
(153,842)
(451,768)
$7,518,224
102,199
$2,048,700
288,637
$1,039,199
1,683,464
$544,057
300,140
$ 3,631,956
2,272,241
$
11,150,180
2,374,440
(840,848)
(70,957)
(413,856)
(73,785)
(558,598)
(1,399,446)
$6,779,575
$2,266,380
$2,308,807
$770,412
$5,345,599
$12,125,174
Exploration and Evaluation additions for the year ended December 31, 2013 are summarized as follows:
Newdico
Botswana
Gcwihaba
Botswana
Total
Precious
Stones
Precious
Stones
Metals
Subtotal
Radio-
Active
Minerals
$ 4,366
$ 105,252
$ 520,903
$ 116,647
$ 742,802
$ 747,168
2,741
6,742
--
--
35,250
2,046
94
4,818
164,498
21,331
315,613
8,334
35,250
1,451
11,115
1,148
234,998
24,828
326,822
14,300
237,739
31,570
326,822
14,300
46,868
18,231
56,056
19,203
93,490
140,358
41,482
122,946
596,729
115,326
835,001
876,483
$ 102,199
$ 288,637
$1,683,464
$ 300,140
$ 2,272,241
$ 2,374,440
Drilling Expenditures
Amortization Drill
Rigs, Vehicles & Trucks
GIS & Geophysics
Lab Analyses & Assays
License Fees
Office, Maintenance,
& Consumables
Salaries, Wages &
Services
Balance at
December 31, 2013
The Company’s significant exploration and evaluation assets are summarized as follows:
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
45
mineral properties and believes, to the best of its knowledge, that evidence of title is adequate and
acceptable given the current stage of exploration.
Newdico (Proprietary) Limited (“Newdico”) - Botswana
Newdico’s Prospecting License (“PL”) is 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. Two of the three remaining licenses totalling 3,098 square
kilometres were relinquished in 2012. These 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 extension 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. The
application was made in April 2012 and an acknowledgement of receipt was received from the Department
of Geological Survey (“DGS”) (Reference number PLI9042012103322-2010) in the same month. The DGS
requested additional information which the Company provided in April 2013. The extension application is
currently being reviewed by the government.
If the government does not extend this license, the carrying value of $6,779,575 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 extended. As at the date of this filing the Company has not
received any indication that the license will not be extended.
Originally, as a result of an agreement completed on June 30, 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 97.57% at December 31, 2013.
46 Gcwihaba Resources (Proprietary) Ltd (“Gcwihaba”) – Botswana
Gcwihaba, a wholly owned subsidiary of the Company, holds one (1) prospecting license for precious stone
in the Kgalagadi District; twenty-two (22) metal prospecting licenses in the North-West district of which
seven (7) are currently in renewal; and, eight (8) radioactive mineral licenses located in the North-West
district, all of which are currently in renewal.
Diamond Exploration
Gcwihaba currently holds one precious stone prospecting license as at December 31, 2013. PL 195/2012 has
an initial expiry date of July 1, 2015 and requires a minimum spending commitment of Botswana Pula
307,410 (US$34,624) if held to its full term. As of December 31, 2013 the Company believes it has fulfilled the
spending requirements associated with this license.
Prospecting licenses PL’s 46/2008, 47/2008 and 49/2008 were relinquished during the year. The licenses
relinquished were evaluated and based on current available data were determined to be non-prospective for
an economic kimberlite discovery.
Metal Exploration
Gcwihaba holds twenty-two (22) metal (base, precious, platinum group, and rare earth) prospecting licenses
inclusive of 7 licenses currently in renewal in the North-West District of Botswana. The current licenses, those
not presently in renewal, cover 10,290 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 /renewal dates of the 15 current licenses range from December 31, 2014 to April 1,
2015 and require a minimum spending commitment of Botswana Pula 3,954,455 (US $445,400) over the term
of the licenses, if held to their full-term. The Company has fulfilled the spending commitments associated
with these licenses.
Strategic Exploration and Evaluation Partner
On November 20, 2013, Tsodilo announced that, further to its April 17, 2013 Memorandum Of
Understanding (“MOU”) with First Quantum Minerals Ltd. (TSX:FM) (LSE:FQM) ("First Quantum"), the
Company, its wholly-owned subsidiary Gcwihaba Resources (Pty) Ltd. ("Gcwihaba"), First Quantum and First
Quantum's wholly-owned subsidiary Faloxia (Proprietary) Limited ("FQM Subco") have entered into a
definitive Earn-In Option Agreement (the "Option Agreement") pursuant to which First Quantum (which term
for the purposes of this section includes FQM Subco) has acquired the right to earn up to a 70% interest in
metals prospecting licences in Botswana granted to Gcwihaba insofar as they cover base, precious and
platinum group metals and rare earth minerals by meeting certain funding and other obligations as set forth
below. The interests that may be earned by First Quantum specifically exclude any rights to iron held by
Gcwihaba.
Under the terms of the Option Agreement, First Quantum can earn either a 51% participating interest or a
70% participating interest in designated projects within the overall license area covered by the Option
Agreement (the "Project Area") by satisfying the following requirements:
47
funding exploration expenditures within the Project Area in the aggregate amount of US$6 million
by November 20, 2015 (the "Tranche 1 Funding Commitment");
funding an additional US$9 million in exploration expenditures within the Project Area by
November 20, 2017; and
completing a technical report ("Technical Report") on a designated area within the Project Area
prepared in compliance with National Instrument 43-101 - Standards of Disclosure for Mineral
Projects of the Canadian Securities Administrators and that meets certain requirements with respect
to resources as described below.
The Tranche 1 Funding Commitment is a firm commitment by First Quantum and must be satisfied
irrespective of whether First Quantum elects to pursue the other requirements to earn an interest in
Gcwihaba's licences.
In the event that First Quantum satisfies the funding obligations as set forth above but a Technical Report has
not been completed by the end of the fourth year following the execution of the earn-in option agreement,
First Quantum may maintain the earn-in option for up to an additional three years by continuing to spend a
minimum of $2 million per year on exploration and evaluation studies on the Project Area.
If the Technical Report delineates a "Major Defined Project" (being a designated project within the Project
Area with respect to which the Technical Report delineates a measured, indicated and inferred mineral
resource within the Project Area of not less than 2,000,000 tonnes of copper), First Quantum will be deemed
to have earned a 70% interest in the property that is the subject of such report. If the Technical Report
delineates a "Minor Defined Project" (being a designated project within the Project Area with respect to
which the Technical Report delineates a measured, indicated and inferred mineral resource within the Project
Area of less than 2,000,000 tonnes of copper, or another base, precious or platinum group metal and rare
earth mineral), First Quantum will be deemed to have earned a 51% interest in the property that is the
subject of such report; provided, however, that it may elect to retain an option for up to five years to convert
such property into a Major Defined Project. If First Quantum makes such election, it will be responsible for all
further costs and expenses associated with the Minor Defined Project, including for operations and capital
expenditures, until the earliest of: (a) the completion of a Technical Report for a Major Defined Project, in
which event the Minor Defined Project will be deemed to be converted into a Major Defined Project and First
Quantum will be deemed to have earned a vested 70% participating interest therein; (b) written notice from
First Quantum to the Company that First Quantum no longer wishes to retain the option to convert such
Minor Defined Project into a Major Defined Project; and (c) five years after the date of the original vesting of a
51% interest in the Minor Defined Project. If First Quantum fails to satisfy the requirements to convert a
Minor Defined Project into a Major Defined Project it will retain a vested 51% participating interest in the
Minor Defined Project.
Upon First Quantum's participating interest in a defined project being crystallized at either 51% or 70%,
Gcwihaba and First Quantum will enter into a joint venture agreement for such project. Under the terms of
each such joint venture agreement, Gcwihaba's participating interest in each joint venture will be carried
until the commencement of construction of a mine for the project. Accordingly, all costs and expenses
48 associated with the defined project until such time, including for operations and capital expenditures, will be
funded by First Quantum.
First Quantum has reported that expenditures as per the MOA amounted to $4,103,204 as at December 31,
2013.
Radioactive Minerals
As at December 31, 2013, Gcwihaba holds prospecting permits for eight (8) radioactive mineral licenses in
the North-West District of Botswana. In general, these licenses overlap or are contiguous to the Company’s
metal licenses. PL’s 150 and 151/2013 had an initial grant expiration date of June 30, 2013 and first renewal
applications have been filed. Pl’s 045/2011 – 050/2011 had an initial grant exploration date of December 31,
2013 and first renewal applications have been filed.
If the government does not renew this license, the carrying value of $770,412 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. As at the date of this filing the Company has not
received any indication that the license will not be renewed.
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49 4. PROPERTY, PLANT, AND EQUIPMENT AND DEPOSITS ON EQUIPMENT
Property, Plant, and Equipment
Cost
As at December 31, 2011
Additions
Disposals
Net Exchange Difference
As at December 31, 2012
As at December 31, 2012
Additions
Disposals
Net Exchange Difference
As at December 31, 2013
Accumulated Depreciation
As at December 31, 2011
Depreciation
Disposals
Net Exchange Difference
As at December 31, 2012
As at December 31, 2012
Depreciation
Disposals
Net Exchange Difference
As at December 31, 2013
Net book value
As at December 31, 2012
As at December 31, 2013
Deposits on Equipment
As at December 31, 2012
As at December 31, 2013
Vehicles
$ 1,704,620
22,134
(25,556)
(59,176)
$ 1,642,022
Vehicles
$ 1,642,022
68,141
--
(186,788)
$ 1,523,375
Vehicles
$ 759,217
219,585
(25,556)
(36,472)
$ 916,774
Vehicles
$916,774
210,932
--
(116,140)
$ 1,011,566
$ 725,248
$ 511,809
$43,670
--
Furniture and
Equipment
$ 220,371
9,806
--
(6,472)
$ 223,705
Furniture and
Equipment
$ 223,705
31,333
--
(21,789)
$ 233,249
Furniture and
Equipment
$ 147,836
44,426
--
(6,070)
$ 186,192
Furniture and
Equipment
$ 186,192
32,935
--
(18,457)
$ 200,670
Total
$ 1,924,991
31,940
(25,556)
(65,648)
$ 1,865,727
Total
$ 1,865,727
99,474
--
(208,577)
$ 1,756,624
Total
$ 907,053
264,011
(25,556)
(42,542)
$ 1,102,966
Total
$ 1,102,966
243,867
--
(134,597)
$ 1,212,236
$ 37,513
$ 32,579
$ 762,761
$544,388
--
--
$43,670
--
For the year ended December, 2013, an amount of $237,739 (2012: $257,546) of amortization has been
capitalized under exploration properties.
The deposits as at December 31, 2012 relate to the purchase of three trucks delivered in April 2013.
50
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: 30,541,878 Common Shares as at December 31, 2013 (December 31, 2012:
25,099,151)
1) During the year ending December 31, 2013:
i.
On January 3, 2013, 50,000 options were exercised at a price of C$0.70 for proceeds to
the Company of $35,285 (C$35,000). The fair value associated with the exercised options
that were reclassified from contributed surplus to share capital was $20,130.
ii.
On April 22, 2013, 2,272,727 Units were issued at a price of C$1.10 for gross proceeds to
the Company of $2,434,510 (C$2,500,000). 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 April 22, 2015 at USD$1.21. $25,170 of issuance
costs were netted against the proceeds.
iii.
On April 24, 2013, 50,000 options were exercised at a price of C$0.70 for proceeds to the
Company of $34,094 (C$35,000). The fair value associated with the exercised options
that were reclassified from contributed surplus to share capital was $16,872.
iv.
On December 9, 2013, 50,000 options were exercised at a price of C$0.70 for proceeds to
the Company of $32,913 (C$35,000). The fair value associated with the exercised options
that were reclassified from contributed surplus to share capital was $5,972.
v.
On December 31, 2013, 20,000 options were exercised at a price of C$0.55 for proceeds
to the Company of $10,279. ($11,000). The fair value associated with the exercised
options that were reclassified from contributed surplus to share capital was $4,725.
2) 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 associated with the exercised options
that were reclassified from contributed surplus 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 fair value associated with the exercised options
that were reclassified from contributed surplus 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 associated with the exercised
options that were reclassified from contributed surplus to share capital was $20,130.
51 (b) Warrants
As December 31, 2013, the following warrants were outstanding:
Number of Warrants - Units
Exercise
Price
December 31,
2012
Expiry
Issued
Exercised
Expired December 31,
June 29, 2015
C$2.17
2,702,702
June 29, 2015
USD$1.21
1,818,181
--
--
April 22, 2015
USD$1.21
--
4,520,883
2,272,727
2,272,727
--
--
--
--
--
--
--
--
2013
2,702,702
1,818,181
2,272,727
6,793,610
On September 7, 2012, the Company issued 1,818,181 warrants 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 April 22, 2013, the Company issued 2,272,727 warrants with an exercise price of USD$1.21, expiring on
April 22, 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.
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,
2013 the Company recorded a mark to market gain of $699,948 (2012 - $616,554) on the revaluation of
warrants. As at December 31, 2013, the outstanding liability portion of the warrants have a fair value of
$184,264 (2012: $884,212) which is determined using the Black-Scholes Option Pricing Model with an
expected volatility of 76.5%, expected life of 1.49 years at a risk free rate of 1.13%.
On January 20, 2012, 465,245 warrants with an exercise price of C$1.00 expired.
Balance December 31, 2011
Additions
Exercise
Expiry
Valuation Change
Balance December 31, 2012
Additions
Exercise
Expiry
Valuation Change
Balance December 31, 2013
Warrant Liability
Number of
Units
Value of
Warrants
3,167,947
--
--
(465,245)
--
2,702,702
--
--
--
--
2,702,702
$1,500,766
--
--
--
(616,554)
$884,212
--
--
--
(699,948)
$184,264
52
c) Stock Option Plan
The Company has a stock option plan providing for the issuance of options that cannot exceed 5,629,830
shares of common stock. The Company may grant options to directors, officers, employees, and contractors,
and other personnel of the Company or its subsidiaries. The exercise price of each option cannot be lower
than the market price of the shares being the closing price of the Company’s common shares on the Toronto
Stock Exchange the day before the grant date. Options generally vest ratably over an eighteen- month
period, beginning with the date of issuance and every 6 months thereafter, and expire in five years from the
date of grant as determined by the Board of Directors.
The following Table summarizes the Company’s stock option activity for the year ended December 31, 2012
and 2013:
Outstanding as at December 31, 2011
Granted
Exercised
Cancelled
Expired
Outstanding as at December 31, 2012
Granted
Exercised
Cancelled
Expired
Outstanding as at December 31, 2013
Weighted
average
exercise price
(C$)
Number of
Options
2,800,000
710,000
(400,000)
--
(65,000)
3,045,000
685,000
(170,000)
(25,000)
(360,000)
3,175,000
C$1.11
C$0.97
C$0.78
--
C$1.00
C$1.13
C$1.09
C$0.70
C$1.00
C$.0.70
C$1.19
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.
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).
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).
On January 3, 2013, 110,000 stock options at C$0.70 expired.
On March 22, 2013, the Company issued 450,000 options at C$1.04 under its Stock Options Plan to persons
who are officers and employees of the Company.
53 On April 24, 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 $34,094).
On May 7, 2013, 250,000 stock options at C$0.70 expired.
On May 23, 2013, 25,000 stock options at C$1.00 were cancelled.
On December 16, 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 $32,913).
On December 31, 2013, 20,000 options granted under its Stock Option Plan (‘SOP’) were exercised pursuant
to the SOP at C$0.55 for total proceeds of C$11,000 (USD $10,279).
The following table summarizes the stock option compensation expense and capitalized stock compensation
for the year ended December 31, 2013 and 2012.
Stock-based compensation expense
Capitalized Stock-based compensation expense
2013
2012
$ 550,191
$ 375,646
89,107
227,603
$ 639,298
$ 603,249
The following assumptions were used in the Black Scholes option pricing model to fair value the stock
options granted during the year ended December 31, 2013 and 2012:
Expected lives
2013
2012
4.5 years
3.0 to 4.5 years
Expected volatilities (based on Company’s historical prices)
143.0% - 146.4%
111.4% - 158.0%
Expected dividend yield
Risk free rates
Weighted average fair value of option
0%
0%
1.30 – 1.46%
0.41% - 0.92%
$0.95
$0.82
54 The following table summarizes stock options outstanding as at December 31, 2013:
Options Outstanding
Options Exercisable
Exercise
Number of
Weighted
Weighted
Number of
Weighted
Weighted
Price (C$)
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$1.04
C$1.19
C$1.20
C$1.25
C$2.23
80,000
410,000
235,000
580,000
300,000
450,000
100,000
235,000
285,000
500,000
C$0.55
C$0.70
C$0.90
C$1.00
C$1.03
C$1.04
C$1.19
C$1.20
C$1.25
C$2.23
3,175,000
C$1.19
6. INCOME TAXES
0.84
0.22
3.01
2.75
2.29
4.22
2.57
4.01
2.01
1.34
2.36
80,000
410,000
235,000
580,000
300,000
225,000
100,000
117,500
285,000
500,000
2,832,500
C$0.55
C$0.70
C$0.90
C$1.00
C$1.03
C$1.04
C$1.19
C$1.20
C$1.25
C$2.23
C$1.20
0.84
0.22
3.01
2.75
2.29
4.22
2.57
4.01
2.01
1.34
2.14
The recovery of income taxes varies from the amounts that would be computed by applying the Canadian
federal and provincial statutory rate for 2013 of approximately 26.5% (2012: 26.5%) to net income (loss)
before income taxes as follows:
Net Income (Loss) for the year
Canadian statutory Income tax rates
Expected tax expense (recovery)
Effect of statutory tax rate change
Foreign operation taxed at lower rates
Permanent differences
Change in benefits not recognized
Expiry of tax losses
Changes in estimate and foreign exchange
Other
Provision for (recovery of) income taxes
December 31, 2013
December 31 2012
($778,389)
26.50%
(206,273)
--
426,351
(351,434)
573,714
115,622
(567,980)
--
--
$
($293,095)
26.50%
(77,670)
(36,853)
3,233
(65,396)
88,980
--
5,273
82,383
--
$
The following summarizes the principal temporary differences and related future income tax effect:
Losses carried forward - Botswana
Exploration & Development - Botswana
Property, Plant and Equipment - Botswana
December 31, 2013
2,458,000
(2,401,000)
(57,000)
December 31, 2012
$2,602,000
(2,470,000)
(132,000)
Net future income tax asset recorded
$
--
$
--
55 As at December 31, 2013 the following temporary differences have not been recognized :
December 31, 2013
December 31, 2012
Losses carried forward - Botswana
Losses carried forward - Canadian
Property Plant & Equipment
Reserve Properties - Canadian
Other
556,000
2,387,000
86,000
302,000
218,000
$3,549,000
As at December 31, 2013, the Company has Canadian net operating losses carried forward that expire as
1,290,000
3,860,000
--
137,000
468,000
$5,763,000
follows:
Year of
Expiry
2014
2015
2026
2027
2028
2019
2030
2031
2032
2033
Loss
$ 580,000
275,000
335,000
235,000
213,000
136,000
272,000
457,000
468,000
889,000
$3,860,000
Total assessable losses relating to the activity in
Botswana
$12,464,920
$10,961,093
December 31, 2013 December 31, 2012
7. EARNINGS (LOSS) PER SHARE
Net earnings (loss) per share were calculated based on the following:
Year ended December 31
Net income (loss) for the year
Effect of Dilutive Securities
Stock options and warrants
2013
2012
($ 778,389)
($ 293,095)
--
--
Diluted net earnings (loss) for the year
($ 778,389)
($ 293,095)
56
Net loss per share from for the year ended December 31 were calculated based on the following:
2013
2012
Basic weighted-average number of shares outstanding
29,754,294
26,722,663
Effect of dilutive securities:
Stock Options
Warrants
41,800
--
--
--
Diluted weighted-average number of shares outstanding
29,796,094
26,722,663
The diluted loss per share is the same as the basic loss per share for the year ended December 31, 2013
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 the year ended
December 31, 2013, was 9,968,610 of which 9,964,430 were anti-dilutive.
8. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2013 and 2012, the Company incurred leave benefits payable to an
officer and director of the Company, however all amounts for 2013 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*
2013
2012
$ 385,835
$ 453,118
283,090
71,835
586,813
166,463
Total compensation paid to key management personnel
$ 740,760
$1,206,394
*Post employment benefits include $28,736 of accrued leave benefits.
There are no other related party transactions.
9. SEGMENTED INFORMATION
The Company is operating in one industry. As at December 31, 2013 the Company’s Property, Plant, and
Equipment in the United States was $4,132 (2012: $10,260) and in Botswana was $540,256 (2012: $752,501).
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 (2012: nil)
and in Botswana $12,125,174 (2012: $11,150,180).
10. FINANCIAL INSTRUMENTS
The Company’s financial instruments include cash and cash equivalents, accounts receivable and accounts
payable and accrued warrants 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.
57 The Company’s financial instruments have been classified as follows:
Financial Instrument
Classification
Fair Value Hierarchy
Cash and cash equivalents
Accounts receivable
Loans and receivables
Loans and receivables
Accounts payable and accrued liabilities Other financial liabilities
n/a
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, foreign exchange 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 2013 and
2012 the Company raised cash capital as shown in note 5(a) in the amount of $2,521,911 and $2,328,727,
respectively.
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.
58 (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 $51,354 impact to 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, 2013, 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 $1,766 impact the Company’s net income (loss).
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:
2014
2015
Total
19,939
19,939
$ 39,878
59 The lease commitment is for storage space in Maun, Botswana at an annual rental of Pula 175,165 for years
2014 and 2015 plus taxes converted at an exchange rate as at December 31, 2013 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 INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31,
2013
December 31,
2012
Net change in noncash working capital balances
Decrease in accounts receivable and prepaid expenses
$23,985
$70,320
Increase in accounts payable and accrued liabilities
96,837
9,863
Total
$120,822
$ 80,183
13. SUBSEQUENT EVENTS
On January 2, 2014, the Company issued 260,000 options at C$0.75 under its Stock Option Plan to persons
who are officers and employees of the Company.
On January 2, 2014, 150,000 stock options issued at C$0.70 expired.
60
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 Fulbright, 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
Thomas S. Bruington
Vancover, British Columbia
Appointed as director in 2013
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
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