Tsodilo Resources Limited
Annual Report 2017

Plain-text annual report

Annual Report 2017 Tsodilo Resources LimitedTable of Contents Management's Discussion and Analysis - P.1 Financial Reporting Responsibility of Management - P.28 IndependentAuditor's Report - P29 Consolidated Financial Statements - P.30 Information for Investors - IBC TSODILO RESOURCES LIMITED Management’s Discussion and Analysis FOR THE YEAR ENDED DECEMBER 31, 2017 The Management’s Discussion and Analysis has been authorized for release by the Company’s Board of Directors on February 23, 2018 1 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, 2017 and 2016. 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 three Botswana operating subsidiaries, Newdico (Pty) Ltd, Gcwihaba Resources (Pty) Ltd and Bosoto (Pty) Ltd which have a functional currency of the Botswana Pula, and a South African subsidiary, Idada 361 (Pty) Ltd. which has a functional currency of South African Rand. This management’s discussion and analysis has been prepared as at February 23, 2018. 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 Republics of Botswana and South Africa. 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. Outstanding Share Data As of February 23, 2018, 45,347,310 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, 3,692,500 options are outstanding of which 2,805,000 are exercisable at exercise prices ranging from CAD $0.65 - $1.25. Outstanding Options Expiry Date No. of Option Shares Exercisable March 22, 2018 January 2, 2019 March 21, 2019 January 2, 2020 March 27, 2020 September 1, 2020 January 4, 2021 April 8, 2021 January 2, 2022 April 3, 2022 January 2, 2023 Total 400,000 222,500 480,000 260,000 400,000 100,000 260,000 450,000 260,000 600,000 260,000 3,692,500 400,000 222,500 480,000 260,000 400,000 100,000 260,000 337,500 130,000 150,000 65,000 2,805,000 Exercise Price (CAD) $1.04 $0.75 $1.25 $1.05 $0.83 $0.70 $0.72 $0.79 $0.69 $0.85 $0.65 2 As of February 23, 2018, 11,804,526 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 and the specifics with expiry date, number, exercise price and currency are as follows: Outstanding Warrants Expiry Date April 29, 2018 December 12, 2018 Total No. of Warrant Shares 1,008,948 10,795,578 11,804,526 Exercise Price & Currency $0.60 USD $0.75 USD If all warrants were converted, 11,804,526 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 23, 2018, are as follows: Name Description Shares Owns, Controls or Directs % of the Issued and Outstanding Shares Azur LLC Private Investment Vehicle International Finance Corporation Member of the World Bank Group Lucara Diamond Corporation Diamond Mining Company David J. Cushing Director 4,996,065 4,520,883 4,476,773 4,327,579 JP Morgan Asset Management Global Investment Advisors and Managers 3,581,413 James M. Bruchs Chairman and CEO First Quantum Minerals Global Mining Company 2,285,619 2,272,727 11.01% 9.96% 9.87% 9.54% 7.89% 5.04% 5.01% Exploration Activities 2017 Subsidiaries The Company holds a 100% interest in its Botswana subsidiary, Gcwihaba (Pty) Ltd (“Gcwihaba”) which to date holds seven (7) metal (base, precious, platinum group, and rare earth) prospecting licenses in the North-West District. Twenty-one (21) licenses were relinquished in their entirety on December 29, 2017 and of those licenses relinquished seven core licenses were subsequently given an initial licenses grant on January 1, 2018 for three years renewable for two 2-year periods. The Company holds a 100% interest in its Botswana subsidiary, Bosoto (Pty) Limited (“Bosoto”), which holds two precious stone prospecting licenses, PL 369/2014 for the area which contains the BK16 kimberlite and precious stone prospecting license PL217/2016. The Company holds a 70% interest in its South African subsidiary, Idada Trading 361(Pty) Limited (“Idada”), which holds a gold and silver exploration license (Ref: MP30/5/1/1/2/1047PR) in the Barberton area. The Company holds a 100% interest in Newdico (Pty) Ltd (“Newdico”) which provides administrative, operational, exploration, geophysical and drilling services to the company’s other subsidiaries. 3 The Company holds a 100% interest in Tsodilo Resources Bermuda Limited to which the shares of its operating subsidiaries are registered. 1. DIAMOND PROJECTS The Company holds two prospecting licences for precious stones, registered to Bosoto. These licenses are summarized in Table 1. Precious Stone Prospecting Licenses as at December 31, 2017 Table 1 PL number Km² Grant Date Expiry date Current Stage Expenditure# PL 369/2014 1.02 10/01/17 9/30/19 1st Renewal 1,000 PL 217/2016 580 1/01/17 12/31/19 Initial Grant 2,900 Rental Fee Per Annum (BWP) Work Program Per Annum (BWP) 10,000,000 30,000,000 800,000 1,250,000 4,000,000 Total Expenditure From Grant and if held to Full License Term as of 12/31/2017 BWP USD as at 12/31/2017 42,002,000 4,334,980 6,058,700 625,342 # Amounts include services provided by Tsodilo and its subsidiaries and all expenditure amounts are incremental in nature and qualified by positive results in the evaluation process throughout the license term. PL369/2014 (BK 16) Tsodilo was granted a prospecting license (PL369/2014) over the BK16 kimberlite pipe through its Botswana subsidiary, Bosoto Pty (Ltd) effective October 1, 2014. The prospecting license was renewed for an additional two-year period commencing October 1, 2017. The diamondiferous BK16 kimberlite pipe is located within the Orapa Kimberlite Field (”OKF”) in Botswana and covered by 25 meters (m) of Kalahari Group sediments. BK16 is located 37 kilometers (km) east-southeast of the Orapa Diamond Mine AK01, 25 km southeast of the Damshtaa Diamond Mine, and 13 km north-northeast of the Letlhakane Diamond Mine, all operated by Debswana and 28 km east-northeast from Lucara Diamond Corporation's Karowe mine (F/K/A AK6). The OKF contains at least 83 kimberlite bodies, varying in size from insignificant dykes to the 110 hectares (ha) AK01 kimberlite pipe. Ages of emplacement are Cretaceous and range from 111 Ma for Lethlakane-DK01 (Letlhakane Mine) to 85 Ma for Orapa-AK01, representing a protracted period of kimberlite magmatism lasting approximately 20 million years. Of the 83 known kimberlite bodies, nine (11), AK01, AK02, AK07 (Orapa, Debswana); AK06 (Karowe, Lucara Diamond Corporation); BK01, BK09, BK12 and BK15 (Damshtaa, Debswana); DK01 and DK02 (Letlhakane, Debswana); BK11 (Firestone Diamonds), are currently being or have been mined. Many others have proved to be diamond bearing. The BK16 kimberlite was initially discovered by De Beers in the 1970's using soil sampling techniques, airborne magnetics, and ground magnetic surveys. This initial work was followed up by some initial drilling and the sinking of a shallow shaft to 36 meters in the central part of the pipe. Initial indications were that the kimberlite was diamondiferous albeit low grade and no further work was done by De Beers. Over the period 1994 to 2010, several companies held the prospecting rights over the area containing the BK16 kimberlite and various forms of surveying and sampling were employed all in an attempt to ascertain whether BK16 4 was economically viable. However, none of those efforts systematically evaluated the kimberlite to answer the question as to BK16's merits. Tsodilo believes that much of the above described sampling was done in the upper part of the kimberlite which is characterized by a basalt breccia. Like several of the other Orapa kimberlites, this upper zone of basalt diluted kimberlite is of low grade but the underlying 'cleaner' kimberlite as is the case at BK16 is known to be of higher grade. In July 2016, Tsodilo Resources Bermuda Limited completed a share repurchase and royalty fee agreement with its Bosoto (Pty) Ltd minority shareholders. The minority shareholders’ 25% equity interest has been purchased for a 2% gross proceeds royalty derived from the sale of diamonds mined from Bosoto’s BK16 kimberlite project. The result of this transaction is that Tsodilo now has a 100% interest in Bosoto and its BK16 exploration project. Summary of Work Performed in 2014 (cid:161) (cid:161) (cid:161) (cid:161) An application for a prospecting license over BK16 was submitted in July 2014 and was processed as part of a competitive tendering process by the Department of Mines. The Company was awarded the Prospecting License over BK16 (PL369/2014) effective October 2014 and valid for an initial period of three years. A desktop study was undertaken of all the historical exploration work that was conducted by several companies from 1970s to 2008. The company completed a high-resolution ground magnetic survey (73 line kilometers (km), 20 meter (m) line spacing and readings every 5 seconds) and a detailed gravity survey (21 line km, 50 m line spacing and 441 survey stations) over the kimberlite for modelling purposes. Summary of Work Performed in 2015 (cid:161) Drilling of 20 core holes to cumulative depth of 3,662 meters was completed to assist in the geological model and 3,050 meters of core was recovered. A 3-D geological model was completed based on the ground geophysics and these drill cores. (cid:161) Modelling of the cores and the ground geophysics suggest that the pipe is 5.9 hectares (ha) at surface. (cid:161) Detailed mapping of the core as well as petrographic studies were conducted under the guidance of an independent consultant, Dr. J Robey. This program identified five different kimberlite facies: four volcaniclastic phases (Red VK1, Black VK2, Grey VK3 and VK27x) and one coherent kimberlite phase (CK1). The Black VK2 and Grey VK3 are the main facies and make up more than 95% of the pipe. A density study was initiated with measurements of the different kimberlite phases as well as a geotechnical study of the cores from this intrusion. A 10 ton-per-hour (mph) mobile Dense Media Separation plant was purchased from De Beers which was previously used in the evaluation the AK6 kimberlite (Karowe Mine) and is located in Letlhakane. An agreement was reached with De Beers to lease the plant site as well as a neighboring site that houses a prospecting camp and which will be used during the evaluation program. The Company took procession of two parcels of diamonds, 25 (4.93 carat (ct) and 83 stones (16.98 ct), which were produced by Auridiam in their evaluation programs in 1998 and 2000 respectively. The diamonds were acid cleaned which reduced their collective weight to 21.88 ct. The diamonds were then valued and classified using a Yehunda colorimeter at the offices of I. Hennig Co. in Gaborone. Eight of these stones were identified as Type IIa diamonds and all of them are D, E or F colors. Z-Star Mineral Resource Consultants (Pty) Ltd were retained to assist in the planning and positioning of the Large Diameter Drill (LDD) holes that will be used to evaluate the kimberlite to 225 m depth. In total 17 holes were planned and ranked in terms of priority. (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) Summary of Work Performed in 2016 (cid:161) (cid:161) (cid:161) (cid:161) The geological logging of the cores was supplemented by dilution logging which records the amount of crustal (basalt and sandstone) and mantle xenoliths present in the kimberlite. Dilution by these xenoliths has a dampening effect on the diamond grades. The basalt inclusions are particularly important since most of the original evaluation historical work was conducted in zones with a high concentration of basalt inclusions (VKxxx). The core drilling conducted by the Company has established that the distribution of the VKxxx facies is limited to the central and upper part of the pipe. Density work was completed with measurements taken every 2 m of core, which produced a database of some 2,100 density measurements. These measurements are utilized when converting volumes to tonnes in the evaluation phase. An environmental assessment, in line with the requirements of the Department of Environmental Affairs (DEA), of both the BK16 site and the plant/camp area, was initiated. 5 (cid:161) (cid:161) (cid:161) (cid:161) Rock-quality designation (RQD) which is a rough measure of the degree of jointing or fracture in a rock mass and measured as a percentage of the drill core in lengths of 10 cm or more has been completed. It showed that VK3 is generally fresh and least altered compared to VK2 which is also much more friable. From this work, a geotechnical weathering profile of the kimberlite has been completed and distinguishes between, a slightly weathered calcrete/silcrete, a highly weathered zone and a moderately weathered zone which is immediately above the fresh and slightly weathered kimberlite. Volume measurements of the waste heaps from historic evaluation, some untreated, and left behind on surface came to approximately 756 m³ (1,534 tonnes). This material has been moved from the kimberlite to the plant area, a distance of some 15 km. This material will be used to commission the plant and to also add additional carats to the valuation parcel. A historic exploration borehole, now used by a local farmer for water, will be converted to the company’s use in order to accommodate the equipment required by the LDD drilling and a new hole has been sighted outside of the PL for the farmer’s use. Summary of Work Performed in 2017 (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) Drilling started in February of the pilot holes which are required to confirm the modelled kimberlite geology before a start is made with the Large Diameter Drill (LDD) holes for the evaluation program. The cores of these holes are also used once the results become available from the LDD program for geological auditing. The pilot holes (NQ) were drilled by the Company’s own diamond drilling equipment. The pilot hole program was completed in the 2nd quarter and in total 3,669 meters were drilled and 3,353 meters of NQ size core was recovered. This program, whereby each pilot holes will act as a ‘twin’ for the LDD holes, was completed not only to assist in the selection of the LDD holes and but also to provide the quality control on the bulk samples. Fourteen holes were selected for the LDD work. The kimberlite pipe was remodeled based on the newly acquired drill information. In addition to the geological logging, the core is being subjected to dilution studies, magnetic susceptibility measurements and moister tests (580 samples completed to date). Further density work will be done at the exploration facilities in Maun. The geotechnical report for the 2015 drill program on BK16 was completed. Further samples were taken for geotechnical Unconfined Compressive Strength (“UCS”) tests at Botswana International University of Science and Technology (“BIUST”) and the results will be used by the LDD drilling contractors in their planning. In addition, a MSc program was started at BIUST to do a more in depth study of the geotechnical properties of the kimberlite. A ground magnetic survey was completed over an area that has been earmarked for the relief water borehole for the local cattle syndicate in order to move their existing hole off the kimberlite and outside the perimeter of the prospecting license. A drilling contractor was engaged to drill a 140 m deep percussion hole and strong water was encountered at relatively shallow depth, paving the way to move the equipment from the water borehole on the kimberlite to the newly drilled relief borehole. Drilling of the 14 LDD holes was completed to a cumulative depth of 3,120 meters producing approximately 2,000 tonnes of kimberlite samples. All holes have been calipered, using an Auslog 3 Arm Caliper for down-the-hole volume measurements, although two of the holes were not completed due to untimely collapse. The collar elevation of all the PDH and LDD holes were surveyed using a differential Global Positioning System for accurate x,y and z coordinates. The Company has been assisting the local community with a new borehole that was relocated from a historic hole they were using at the kimberlite pipe. The magnetic susceptibility readings from the pilot hole program have been captured and analyzed. The different rock phases have been characterized and the magnetic susceptibility can also be used as a relative proxy indicator for changes in composition in the kimberlite, weathering and dilution. (cid:161) Moisture ‘dry weight’ were taken from the last Pilot drill holes as part of the geotechnical studies of the pipe. (cid:161) (cid:161) (cid:161) All samples were transported from the kimberlite to the Company’s plant facility. The refurbishment of the 10tph DMS treatment plant is completed Commissioning at the final stage 4, using tailing samples, started in the 4th Q and highlighted some issues which were resolved. The commissioning was completed in the third week of 2018 and the treatment of the 243 LDD drill samples commenced. The remaining tailing samples will be treated after the drill samples are completed. The Bourevestnik, Inc Polus-M X-ray sorter was delivered at the Company’s facilities in Maun. Commissioning of the instrument was completed in the second week of 2018. The containerized sample preparation unit for the Polus-M instrument was also delivered and set up at the same facility in Maun and awaiting the installation of the Polus-M instrument. Treatment of the drill samples is budgeted to be completed by the end of April. (cid:161) (cid:161) (cid:161) Summary of Work to be Performed in 2018 (cid:161) (cid:161) (cid:161) Treatment of the 243 LDD drill samples is scheduled to be completed in the second quarter. Diamonds, recovered from the Bourevestnik Polus-M X-ray sorter, to be weighed for grade estimation. Same diamonds to be acid cleaned for valuation purposes in Gaborone. 6 (cid:161) Preliminary evaluation assessment to make informed decision whether to extract additional bulk samples in order to recover more diamonds for the average diamond value to be established with a higher degree of confidence. PL217/2016 PL 217/2016 also occurs within the Orapa Kimberlite Field and is situated some 10 km south of the Orapa Mining area and with the same distance to the west of the Letlhakane Mining lease. It surrounds the Karowe Mining lease, while the BK11 prospect is directly to the east of the licence. Other kimberlites occur along its northern and eastern borders. The licence is highly prospective for kimberlites but also has the potential to contain secondary diamond deposits associated with the palaeo-drainage network in the area. The present drainage is to the north and erosion of the kimberlites would have resulted in the residue, including diamonds, to have been transported in the same direction. The focus of the exploration work would therefore be not only on finding kimberlites but also to assess the geomorphology in the search for palaeo-channels. Summary of Work Performed as at December 31, 2017 (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) The 90 m Digital Elevation Model (DEM) was processed to enhance the topography of the license area. The Letlhakane river was used as a bench mark. Furthermore the Landsat 8 False Color (Oct 2015) image was used as a background on the topography to enhance the drainage pattern. This work will highlight target area for further geophysical follow up work. The government generated Total Magnetic Intensity (AM) data was used to enhance potential kimberlite targets. Further review of the AM data using the analytical signal, and based on a pattern recognition technique developed by the Keating (2004) method, generated 28 kimberlite targets. Additional satellite images were collated over the OKF to enhance the palaeohydrological analysis (SRTM, Aster GDEM vs 2). Palaeoshorelines of the Magadikgadi pans were also mapped at selected elevations. Additional datasets for mineral indices and (thermal) emissivity work (Aster LT1; Aster GED Emissivity; Landsat ETM 7+; Landsat LC08) have been downloaded and will be processed for further remote sensing interrogation of the license area. Airborne magnetic anomalies PL217/02, -03, -04, -05, and -06, were checked in the field for any outcrop, possible previous drill holes, vegetation, soils, topography and access. Planning for ground magnetic surveys over these targets have been completed and ground work will start in the next quarter. Reports on ground gravity work from another company proximal to PL217 has been obtained to check whether gravity anomalies are associated with lower density paleo-channel and indicates that it would be a useful tool to apply. Four ground magnetic surveys over kimberlite targets were completed. Ground gravity surveys were also completed along lines perpendicular to the palaeochannel direction and several gravity lows (palaeochannels?) were identified. The gravity lines were placed directly downstream from the Karowe and BK11 kimberlites. Remote sensing using Landsat ETM 7+, Aster GED, Aster (Bands 1 – 14) and mineral ratios, and Alteration were used to characterise potential kimberlites, focussing on Mg rich clays. Paleaochannels appear to be related to high concentration of clay minerals, low ferrous minerals and low iron oxide ratios. Summary of Work to be Performed in 2018 (cid:161) (cid:161) (cid:161) (cid:161) The modelling of the gravity lows and interpretation of remote sensing will be used to prioritise drill targets over potential palaeochannels. Drilling of the highest priority and potential palaeochannels. Completing all the ground magnetic surveys over the kimberlite targets, and prioritising these in terms of interest rating. Drilling of the kimberlite targets in order to identify the causative bodies. 7 2. METALS (BASE AND PRECIOUS, PLATINUM GROUP METALS, AND RARE EARTH ELEMENTS) PROJECTS The Company’s current seven Prospecting Licences have evolved with time into a package which covers some 4,920.50 km² (Table 3). Table 3 Gcwihaba Metal License Areas as at December 31, 2017 PL numbers Km² Grant Date Expiry or Renewal date Date Relinquished Expenditure PL 119/2005* PL 051/2008* PL 052/2008* PL 386/2008* PL 387/2008* PL 388/2008* PL 389/2008* PL 390/2008* PL 391/2008* PL 392/2008* PL 393/2008* PL 394/2008* PL 395/2008* PL 595/2009* PL 596/2009* PL 597/2009* PL 093/2012* PL 094/2012* PL 095/2012* PL 096/2012* PL 097/2012* * relinquished 12/29/2017 -- 273.00 194.00 570.00 964.90 317.10 978.60 807.30 454.50 828.10 937.50 649.20 971.40 296.00 453.00 -- -- -- -- -- -- -- 07/01/16 07/01/16 07/01/16 07/01/16 07/01/16 07/01/16 07/01/16 07/01/16 07/01/16 07/01/16 07/01/16 07/01/16 07/01/16 07/01/16 -- -- -- -- -- -- -- 6/30/19 6/30/19 6/30/19 6/30/19 6/30/19 6/30/19 6/30/19 6/30/19 6/30/19 6/30/19 6/30/19 6/30/19 6/30/19 6/30/19 -- -- -- -- -- -- 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 12/29/17 Rental Fee Per Annum (BWP) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Work Program Per Annum (BWP) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Total Expenditure from Grant date and if held to Full License Term as of 12/31/2017 BWP USD as at 12/31/2017 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 8  Gcwihaba Metal License Areas as at January 1, 2018 PL numbers Km² Grant Date Expiry or Renewal date Current Stage Expenditure# Rental Fee Per Annum (BWP) Work Program Per Annum (BWP) Total Expenditure from Grant date and if held to Full License Term of 1/1/2020 BWP USD as at 1/01/2018 PL 020/2018 PL 021/2018 PL 022/2018 PL 023/2018 PL 024/2018 PL 025/2018 PL 026/2018 570.00 1/01/18 12/31/20 Initial Grant 964.90 1/01/18 12/31/20 Initial Grant 317.10 1/01/18 12/31/20 Initial Grant 978.60 1/01/18 12/31/20 Initial Grant 807.30 1/01/18 12/31/20 Initial Grant 454.50 1/01/18 12/31/20 Initial Grant 828.10 1/01/18 12/31/20 Initial Grant 4,920.50 # minimum annual charge + 1st year 70,000 BWP; 2nd year 80,000 BWP; and 3rd year 90,000 BWP 2,850 4,825 1,586 4,893 4,037 2,273 4,141 24,605 240,000+ 240,000+ 240,000+ 240,000+ 240,000+ 240,000+ 240,000+ 248,550 254,475 244,758 254,679 252,111 246,819 252,423 25,635 26,246 25,244 26,268 26,007 25,457 26,035 1,753,815 180,892 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 was conducted by AEON’s (Africa Earth Observatory Network) research group located at the NMMU (Nelson Mandela Metropolitan University) in Port Elizabeth, South Africa. This work has identified Archaean granite-gneisses between 2.548 and 2.641 Ma in age in Ngamiland, whilst paleoproterozoic granites (ca. 2,000 Ma) seem to have been tectonically interlayered with Copper Belt (Lufilian Arc)- equivalent metasediments (including graphitic schist, carbonates and diamictites), and metabasites and gabbros (535 Ma), all of which were intersected during the initial drilling program by the Company. During the initial drilling campaign by the Company, three separate mineralization domains were identified in the various licences. These are, (1) sulphide mineralization associated with Neoproterozoic metasediments, (2) base and precious metals and REE showings associated with skarns linked to the 535 Ma age basic intrusions, and (3) a large magnetite deposit (Xaudum Iron deposit) which the Company is presently evaluating (Table 4). Table 4 Main mineralogical domains identified during the Phase 1 drill program Sedimentary Cu/Co (Katanga Central African Copper Belt-style sedimentary rock - type sediments) in the central hosted copper showings at multiple stratigraphic levels, shale belt 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 Formation (XIF) closely associated with the Grand Conglomerate Copper Cobalt Copper Gold Iron Iron 9 2.2 XAUDUM MAGNETITE BANDED IRON FORMATION (XIF) This Xaudum XIF is intimately associated with glacial diamictites and is the cause of the large Xaudum Magnetic Anomaly that extends over 35 km in a north-south direction with several magnetite bands that occur over a width of several kilometres. The deposit, which has an exploration target of between 5 and 7 billion tonnes of iron ore at grades ranging between 15 - 40%, was subdivided into several exploration blocks. Drilling on Block 1, at the northern part of the Xaudum XIF deposit, was completed and in 2014 SRK Consulting (U.K.) presented Gcwihaba’s maiden National Instrument 43-101 Resource report of this Block with an Inferred Mineral Resource of 441 Mt grading 29.4% Fe, 41.0% SiO2, 6.1% Al2O3 and 0.3% P. Tsodilo initiated drilling on the next exploration area, referred to as Block 2, but delayed the completion thereof due to current iron-ore market conditions However, once completed, the resource definition of Block 2 will increase the resource to at least a +1Bt resource. The Company continues its investigating how to progress this deposit with aspects of local beneficiation. New technology is available to transform the magnetite iron concentrate on site to produce Iron Pellets (heat and fuse), briquettes or supa-scrap (IMBS non-conventional DRI process) or even pig iron (ESS Prodilux furnace). For this the thermal coal in eastern Botswana is considered most appropriate but issues surrounding the infra-structure need to be resolved. Discussions on the direct sale of the magnetite have also been undertaken with a South African commodity house which markets super high spec magnetite of over 69.5% Fe. This is used for manufacturing of dense media separation products such as magnetite and ferrosilicon, as well as other magnetite-based uses in the petrochemical market. The very high standard specifications of the magnetite attract a very high premium on normal iron ore sales. The feasibility of creating a small-scale magnetite mine to process the ore for this high-end market is being explored. Summary of Work Performed as at December 31, 2017 2014 (cid:161) Due to the large size of the Xaudum Iron Formation (XIF) deposit, which has an exploration target of between 5 and 7 billion tonnes of iron ore grading between 15 – 40%, it was decided to subdivide the target into several exploration blocks. Drilling continued on the XIF Project and during the year all the planned holes over the most northerly block of the magnetite occurrence, Block 1, were completed. Some 33 holes, totaling 5,854 m were drilled into the magnetite body and 4,478 m of core were recovered Drilling on Block 2 was begun with nine holes drilled in this section to a cumulative depth of 1,490 m extracting some 1,223 m of core. All the cores were orientated with a Reflex Act II and down-the-hole drill directions were measured with the Reflex Gyro instrument. All cores are subjected to magnetic susceptibility (every 20 cm) measurements. The deposit was subdivided into four geodomains: MBA – Magnetite Banded Iron Formation, MBW – Partially oxidized (weathered) BIF, DIM – Magnetite schist or magnetite diamictite and MDS – Magnetic amphibole Schist. During the year, 2,867 samples were consigned for analyses and 4,574 assay results were received. SRK Consulting (UK) Ltd was contracted as independent consultants and completed a National Instrument 43-101 resource report for Block 1, which covers only a small part of this large XIF deposit, and derived at 441 Mt grading 29.4% Fe, 41.0% SiO2, 6.1% Al2O3 and 0.3% P. The ground magnetic survey over the entire XIF has been completed by filling in some data gaps. In total 1,780 km² was covered representing 22,749 line km on both 20 and 50 m line spacing. (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) 10 2015 (cid:161) The Company started an investigation of how to progress with the project looking at potential mining and beneficiation aspects especially on a local scale. New technology is available to transform the magnetite iron concentrate on site to produce iron pellets (heat and fuse) briquettes or supa-scrap (IMBS non-conventional DRI process) or even pig iron (ESS Prodilux furnace). For these processes the thermal coal is eastern and southwest Botswana are considered most appropriate but issues around the infra-structure need to be resolved. (cid:161) The iron ore price decrease in the middle of the year to 40US$/t result in the company adopting a longer term view the projects development. 2016 (cid:161) The feasibility of possible local beneficiation continued but with iron prices still low the outlook remains long term. 2017 (cid:161) Quotations for cost and also availability were obtained from six (6) engineering consultancy companies to conduct a Preliminary Economic Assessment (PEA) study for the development of the Xaudum Iron Project under a non-disclosure agreement. The PEA is designed to investigate the various options and the focus will be on size of operation, level of local beneficiation, a Botswana based steel industry versus export of raw ore, infrastructure, transport, etc. (cid:161) (cid:161) (cid:161) Additional information was requested from some of the above mentioned companies in order to update and equalize the proposals for comparison purposes. One additional company, with a base in Botswana, was invited to participate to quote to conduct a PEA. Discussions are ongoing with a 3rd party in order to get PEA in place. This study will be as a basis for taking the project to the next level. Summary of Work to be Performed in 2018 Iron ore prices have recovered to some extent and a decision will be made as to which of the six consultancy firms would be most suitable for such a PEA study. It will be important to take timing in consideration and what if any government requirements will be. 2.3 KATANGAN-LIKE META-SEDIMENTS General geology Southeast and east of the XIF Iron project are north-north-west to north-north-east trending mineralized metasediments in what is referred to as the Central Shale Basin. The latter meta-sedimentary sequence is very similar to the parts of the stratiform Cu-Co (Copper-Cobalt) province of the Central African Copper Belt and is identical to the host rocks of the Kalumbila Cu-Ni-Co deposit in western Zambia. The black shales, meta-pelites, meta-arenites, dolomites, with evidence of evaporate minerals, in particular bear strong resemblance to the Mwashya rocks in Zambia. Most lithologies are mineralized with pyrite, pyrrhotite, and chalcopyrite. The majority of Katangan metasediments intersected in drilling are interpreted to belong to the Mwashya Group (shale, carbonate), or the Grand Conglomerate (diamictite) units, occurring on each side of the ‘basement high’. Most of the FQM and Tsodilo Resources drilling have taken place within these two stratigraphic Groups. Much of the drilling has shown diamictite alternating with carbonate-shale packages and this is attributed to repetition by bedding- parallel thrust faults. The distribution of magnetite-facies BIF is restricted to the diamictite on the western side of the 11 basement-high, and this probably reflects differences in seawater chemistry across the ‘basement high’ during the Sturtian Glaciation. The understanding of the upper Katangan stratigraphy in the Shakawe area is poor. The diamictite of the Grand Conglomerate typically transitions abruptly into a clean dolomite referred to as the Kakontwe. This change reflects an abrupt global warming event at the end of the Sturtian glaciation and it is a feature observed in some drill cores from the Shakawe area. However, at the western end of FQM’s Stratigraphic Section Line the diamictite is conformably overlain by calcareous sandstone. The rocks at the extreme western end of the east- west sections contain zircon populations of ≈1.1 Ga and ≈2.0 Ga, but contain no 2.5 Ga zircons. The rocks are interpreted to be of the Ghanzi-Chobe Supergroup. The Kgwebe Volcanics are the most likely source of these ≈1.1 Ga zircons, implying significant differences in the provenance of the Katangan Supergroup and the Ghanzi-Chobe Supergroup meta-sediments. Summary of Work Performed as at December 31, 2017 2013 (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) First Quantum Minerals Ltd (FQM) signed a Memorandum of Understanding with Tsodilo Resources Ltd (Tsodilo) in April. First Quantum Minerals (FQM) re-logged 157 Tsodilo drill holes stored in the company’s Maun hangar, which represents some 34,750 m of core. Soil samples for geochemistry were collected over two grids in the Shakawe and Sepupa areas from shallow hand-dug pits. 584 samples were sieved (180 microns) and analyzed for Cu, Co, Pb, Zn, Au and other selected elements. The results were very poor, possibly due to the coarse sieve size, but the conclusion was that soil sampling was not an effective tool for metals exploration in this environment. FQM initiated a diamond drilling program across the area to assess its stratigraphy and drilled 5 holes to a cumulative depth of 3,987 m. The Kalahari Geochemistry Program (KGP) was initiated with the objective to sample the Kalahari/Bedrock interface by drilling 220 holes on a 2 x 2 km grid, using a combination of reverse circulation (24 holes), Sonic (5 holes) and diamond drilling (193 holes). In 2013, 54 holes were drilled to a depth of 2,552 m. Samples were collected every 2 m and screened to 80 mesh for ICP-MS (As, Au, Bi, Co, Pb) and ICP-OES (Al, Ca, Cu, Mg, Ni, Zn) analyses. (cid:161) Water samples (500 ml) were also collected from the KGP holes for hydro-geochemistry and sent for ICP-MS analysis in Canada. (cid:161) (cid:161) (cid:161) (cid:161) Rock samples were collected for U/Pb geochronology (26 samples) and petrology (30 samples). An airborne electro-magnetic survey (Spectrem) was flow over the project area and 16,934 line km were covered at 200 m, 500 m and 1000 m line interval depending on the distance of the areas of interest. During this survey, magnetic and radiometric data were also collected. An airborne gravity survey started initially to cover the same area as the Spectrem survey. However, due to technical problems the area was reduced to 14,078 line km and in the end only 10,392 line kms were completed at a 500 m flight line interval. The Company signed an ‘Earn-in Option Agreement’ with First Quantum Minerals (FQM) in November for FQM to earn up to 70% interest in Gcwihaba’s metals prospecting licenses. It excluded any rights to iron also held by Gcwihaba. 12 (cid:161) Mineralization associated with ‘skarn’ (possible IOCG) deposits, such as targets 1822C26, – C27 and -C10, are related to massive magnetite, metabasites, meta-mafic units and granofels in contact with Mwashya-type metasediments and carbonates. Elevated values of Cu, Ni, Ti, V, Co and Fe and La and Ce (both rare earth elements) have been obtained from core samples and anomalous levels of Au and Ag have also been reported from these targets. The assessment of these targets is ongoing. (cid:161) Three airborne magnetic targets in the northwestern corner of Botswana were covered by ground magnetic surveys. These targets are associated with Ni and Zn/Cr soil anomalies from the Government Ngamiland Geochemical soil sampling program in 1999. 2014 (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) The KGP program was completed and in total 13,689 meters was drilled to an average depth of 62.2 meters. Samples from the KGP program were also sent for Ultra-Low Detection Au analyses. The FQM stratigraphic drilling program was also completed and in the end 8 holes (BWADD 0001 to 0008) were drilled to a cumulative depth of 5,695 m. This provided the basis for the development of a robust geological model and facilitating a stratigraphic comparison to the Central African Copper Belt. A down-the-hole Electromagnetic probe was tested in boreholes to characterize the different lithologies, with measurements taken for density, conductivity, resistivity and Full Wave Sonic. It showed that it was possible to characterize the different lithologies and to distinguish between them. CSIRO in Australia was retained to assist in overburden regolith research primarily to assist in the sampling of areas of Kalahari cover. Some 230 samples were collected from areas of (weak) bedrock mineralization and areas of barren bedrock for comparison, and other regolith types. Targets TOD17, -29, -30 were drilled during the year (330 m drilled and 208 m core recovered). The siltstones and shales from TOD17 contained traces of chalcopyrite while TOD30 intersected basement, and TOD29 was abandoned in Kalahari sediment. 2015 (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) The diamond drilling on structural targets interpreted from the Spectrem airborne survey started in 2013 and was completed with the last hole (BWADD0034, 351 m) being drilled in Q1 2015 and thereby finishing this phase with a total of 11,266 m of drilling. Interpretation of the KGP data identified four targets – Middle East, School, Banana and Northern Swell. The Middle East target is definable by two coincident KGP drill holes containing anomalous copper at both the Kalahari interface and in the bedrock. No diamond drill holes existed along the length of the target and the potential for mineralization exists along nine km of untested strike. Two holes were drilled (BWADD0035, - 0036; 640 m) and no significant mineralization was found, leaving this target unresolved. The School target was drill tested with one hole (BWADD0037; 405 m) and intersected phyllite/shale with abundant sulphides, mainly pyrite. The alteration suite included garnets, retrograde kyanite and chlorite. This target is unresolved and warrants further work. Interpretation of the hydrogeochemistry indicates that anomalies identified within the KGP grid remained anomalous even when saturation indexes were applied. Additional anomalous samples were identified down flow of the ‘School’ target. This target shows on increased footprint for both the KGP and hydrogeochemistry dataset. Additional targets were identified of which the Nxamasere West remains of interest. Dr Murray Hitzman updated the pre-Kalahari geological map with different structural styles across the north- south orientated basement high, and contributed to a new and evolving theory on a link between iron formation and copper mineralization. The CSIRO (Dr Ravi Anand) research suggests that mineralization in the bedrock is transmitted to the Kalahari surface and can be detected using surface sampling provided that smaller sieve sizes are used. 13Ten sulphide samples were collected of which two yielded heavy sulfur isotope values likely the product of sulfate – bearing brines. While Sulphur isotopes are not an indicator of prospectivity, the technique elucidates a part of the basin’s history. Passive seismic was tested to assess the usefulness to map the Kalahari-Katangan unconformity surface. In January FQM notified Tsodilo Resources that it was to terminated the Earn-in Agreement on the back of a major drop of the global copper price. Tsodilo initiated a review of all data collected over the area (sources: historic, published, FQM and Tsodilo) with the objective to highlight targets that have either been superficially examine or investigated at all. All the FQM data (drillholes, geophysics, geochemistry, and geology) was checked and validated and outstanding results have been incorporated. Four different media types were sampled and each were plotted separately into four different result types, Recce 1 (metasediments including basement), Recce 2 (metasediments excluding the Kalahari cover and basement lithologies), Recce 3 (Kalahari cover only – KGP results) and Recce 4 (assay results from the hydro- geochemistry). Grids of four different data types were produced and normalized. These assay data were gridded and presented for major element (Cu, Ni, Co, Zn, Mo, Mn) and some other elements where found necessary including Sc-ratios in map form. These maps were then overlain on geology (favorable lithologies, faults, thrusts etc.), geophysics (particular magnetics and electromagnetics), alteration and mineralization. The grid stacks consolidate the impact of controlling variables and have been used to define target outlines. Some 22 priority targets were generated some of which coincides with those that FQM had highlighted. The prioritization of these targets is based on the number of times the anomaly is repeated across the four stacks and its coincidence or proximity to shear junctions. This has identified eight targets as priority -1, six as priority -2, and nine as priority -3. The Company’s two drill rigs have had a major overhaul and refurbishment. (cid:161) (cid:161) 2016 (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) 2017 (cid:161) Interpretation of the Tsodilo and First Quantum data continued. The drill hole database was used to calculate the following geochemical control grids: the total element concentration (ppm) over the total thickness of the metasediments from deep boreholes drilled mainly for stratigraphic purposes, the maximum element concentration (ppm) within these holes over the total length and the total element concentration (ppm) over the overburden (Kalahari) thickness only. Sc ratios were calculated for Cu, Co, Ni, Zn, Mn and Mo and used to set as the final target boundaries. These were prioritized based on geochemical anomaly overlaps, structural and geological controls and where indicative of new targets. It was concluded that the data from the Kalahari Geochemistry Program (KGP), which was the program to drill through the Kalahari cover into the weathered bedrock to sample this Kalahari/bedrock interface and hence equivalent to a geochemistry sampling program of this palaeo surface, was the most representative of the underlying geology where no deep drill hole data coverage existed. These holes were drilled on a 2 x 2 km grid covering a large area. The results of the deep holes, although encouraging, skew the KGP results which represent the sub-Kalahari geochemistry signatures. Based on these data nine target areas were identified, some linked to metal kicks at depth from the deep holes and some isolated. (cid:161) (cid:161) Based on the interpretation of the combined Tsodilo and First Quantum datasets the final tally of 9 target areas have been identified. These are still being assessed for drill targets using all the available geophysical data sets. 14 (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) A start was made to assess the gold potential of the same area with analysis of both Au and As values. Several of the previously drilled core holes did return isolated anomalous values of these elements. The approach to assess these datasets will be similar as to that of which was employed for the base metals as described in Q1. The assay data from the KPG (Kalahari Geochemistry Program) and Deep drilling program were analysed for gold exploration purposes. Twenty gold targets were defined on a combination of the Au and As anomalies. The gold targets were also compared in details with the copper targets for overlaps which in some cases was very clear. Actual drill positions were finalized using geophysics, on each of these nine metal targets in consultation with an independent metals exploration expert. To identify target areas for precious metals over the same area and to upgrade these to drill targets using the available geophysical information. A decision was made to relinquish all the metals licenses in exchange for an initial grant of the seven (7) that form the core holdings of the metals licenses and which contain the iron deposit and copper targets. This transaction was initiated on December 29, 2017 and completed with the issuance of 7 initial grant licenses effective January 1, 2018. Summary of Work to be Performed in 2018 (cid:161) (cid:161) (cid:161) (cid:161) The 9 drill targets for the sedimentary copper targeting exercise have been prioritized in terms of interest. The 6 best targets will be covered by a TerraLeach (TL) sampling program which is highly effective in sandy cover soils. These targets will also be covered by details ground geophysics, mainly magnetics, gravity and/or electro- magnetics, and in conjunctions with the TL results will be used to define drill positions over these targets. Additional TL sampling and ground geophysics is also planned over the mineralized ‘skarn’ anomalies associated with younger basic intrusions, as well as some of the gold targets. 3. Idada Trading 361 (Pty) Limited (“Idada”) – South Africa The Company holds a 70% interest in its South African subsidiary, Idada. Idada made application for an exploration license (Ref: MP30/5/1/1/2/1047PR) in the Barberton area in February 2012. This application was accepted in February 2013 and consultation was conducted with interested and affected parties in April and June 2013. An Environmental Management Plan (EMP) was submitted in April 2013 and a site visit was made by various governmental departments (DMR, EWT, and REMDEC) in September 2013. During the second quarter 2015, notice was received from the Department of Mineral Resources, South Africa which granted the Company the prospecting rights for gold and silver in the applied for area subject to certain subsequent conditions being met. The Company has fulfilled those requirements and the Prospecting Right, together with the EMP, was executed and became effective on April 7, 2016. The Prospecting Right has been granted for a term of five years effective May 2015. Notices have been sent to all surface owners of the five farms informing the owners of our intent to access the property to commence exploration activities. Three land owners, holding most of the target ground, have denied access. This issue has been submitted to the Department of Mineral Resources (DMR) for resolution. A start was made on the Barberton data collation and mapping process. Various open source satellite imagery data sources were examined to obtain the best cloud-cover free open source Landsat and Aster data. This is on-going work 15 and further downloads may be required (hyperspectral data) for the spectral analysis exploration work. Sample gold and other base metal deposit locations (from de Wit’s Africa Mineral Database) were plotted up on the imagery and will enable spectral signature mapping for identifying similar areas in the Barberton PL. Currently the focus is on obtaining as much detailed geological data for the PL as possible before starting the imagery analysis and mapping. Summary of Work Performed as at December 31, 2017 2012 (cid:161) The Company made an application for a Prospecting Right (PR) over a prospective area for gold and silver near Barberton in South Africa (Ref: MP30/5/1/1/2/1047PR). 2013 (cid:161) (cid:161) (cid:161) 2014 The application was accepted by the Department of Mineral Resources (DMR). Consultation was conducted with interested and affected parties An Environmental Management Plan (EMP) was submitted followed by a site visit by various governmental departments (DMR, EWT, and REMDEC). (cid:161) The application continued to be reviews by DMR 2015 (cid:161) The DMR issued the PR subject to certain subsequent conditions being met. 2016 (cid:161) (cid:161) (cid:161) (cid:161) (cid:161) The Company fulfilled all those requirements and the PR together with the EMP became effective as at May 2015 for a period of five years. Notices were sent to the surface owners of all the subdivisions of the five farms that are covered by the PR of the intention of the Company to start work. Three owners, holding most of this target ground, subsequently denied access. This issue has been submitted to the DMR for resolution. A detailed study of all available remote sensing data (satellite, spectral and other available images) was initiated to study the geomorphology, with special attention to soil types and thicknesses and the drainage network, but also to map the major structural and geological features. The ASTER data was useful in particular for mapping areas of alteration, and the radar data Sentinel 1-A provided some useful images of existing lineaments. The northwesterly extension of the Moodies (Komatie) shear zone is of particular interest. Depth estimates from the detailed airborne magnetic data was restricted because the Total Magnetic Intensity (TMI) was an unconstrained model. However, other information such as the dip of the structure was obtained from these data. Utilizing an Extended Euler Deconvolution (EED) routine suggests that the depth to fresh rock is between 185 to 329 m below surface. All the gold and base metal occurrences in the immediate area, in the public and academic domain, have been plotted in relation to the PR. Other available maps were georeferenced and added to the database. 2017 (cid:161) The issue regarding the three owners refusing access to the target area has been brought to the attention of the BEE partner, Identity Resources (Pty) Ltd, in South Africa. The land related to these three owners covers a major part of the target area. The Department of Mineral Resources (DMR) has been advised of the owners refusing access to the properties for the Company to conduct their exploration program. The DMR has committed to meet with these owners in order to inform them of our legal rights. 16 (cid:161) (cid:161) The East Northeast – West Southwest orientated mineralized trust zones were incorporated and the areas of intersection with the North South target structure was located on the properties. The Shuttle Radar Topography Mission (SRTM) data was acquired for the properties and the topography highlights the structural grain of the geology. Summary of Work to be Performed in 2018 (cid:161) (cid:161) (cid:161) Once the issues with the surface owners have been resolved the Company will commence a mapping exercise based on the remote sensing information verifying various geological features and soil types. Some soil and/or stream samples are planned which is to be followed by a ground magnetic survey to cover the major shear zone which will provide drill targets to intersect this structural feature. A request has been made to access to raw data of the airborne magnetic data, that was flown over the area, in order to model the depths and orientation of the North - South directed shear zone. A visit will be made to the Department of Mineral Resources (DMR) to reiterate the importance that the Company accesses to ground for it to conducts its exploration program. Exploration and evaluation additions for the period ended December 31, 2017 are summarized as follows: Drilling Expenditures Amortization Drill Rigs, Vehicles & Trucks GIS & Geophysics Lab Analyses & Assays License Fees Office, Maintenance, & Consumables Salaries, Wages & Services Balance at December 31, 2017 Bosoto Botswana Precious Stones Idada So. Africa Precious Metals Gcwihaba Botswana Metals Radio-Active Minerals Total Subtotal TOTAL $1,993,249 $ 224 $ 27,089 $ -- $ 27,089 $ 2,020,562 33,184 83,168 12,184 448 264,980 489,434 -- -- -- -- 1,615 -- 13,494 19,515 5,882 2,147 80,823 84,696 -- -- -- -- -- -- 13,494 19,515 5,882 2,147 80,823 84,696 46,677 102,683 18,066 2,595 347,418 574,130 $2,876,647 $1,839 $233,646 $-- $233,646 $3,122,131 Exploration and evaluation additions for Bosoto Projects for the period ended December 31, 2017 as follows: Bosoto Botswana Precious Stone Drilling Expenditures Amortization Drill Rigs, Vehicles & Trucks GIS & Geophysics Lab Analyses & Assays License Fees Office, Maintenance, & Consumables Salaries, Wages & Services Balance at December 31, 2017 BK16 PL217/2016 $1,962,059 $31,190 28,714 43,612 9,641 448 97,148 389,067 4,470 39,556 2,543 -- 167,832 100,367 TOTAL $1,993,249 33,184 83,168 12,184 448 264,980 489,434 $2,530,689 $345,958 $2,876,647 17 Exploration and evaluation additions for the year ended December 31, 2016 are summarized as follows: Newdico Botswana Bosoto Botswana Idada So. Africa Gcwihaba Botswana Total Precious Stones Precious Stones Precious Stones Precious Stones Metals Subtotal TOTAL Radio- Active Minerals -- -- -- -- -- -- $ 47,964 $ -- -- $ 37,318 $ 29,051 $ 66,369 $ 114,333 48,410 -- 570 -- -- -- -- -- 31,905 5,731 298,423 -- -- -- -- -- -- -- 20,904 373 90 2,044 20,904 41,808 90,218 373 90 401 746 180 2,445 746 750 2,445 26,671 25,098 51,769 89,405 136,113 106,652 242,765 541,188 -- $427,272 $5,731 -- $223,513 $182,569 $406,082 $839,085 Drilling Expenditures Amortization Drill Rigs, Vehicles & Trucks GIS & Geophysics Lab Analyses & Assays License Fees Office, Maintenance, & Consumables Salaries, Wages & Services Balance at December 31, 2016 LIQUIDITY AND CAPITAL RESOURCES As at December 31, 2017, the Company had a working capital of $1,144,372 [2016: $3,989,993], which included cash of $1,116,195 (2016: $4,215,333). 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 received net proceeds of $466,534 and $5,921,437, from the sale of common shares and warrant units as a result of the private placement which closed on April 29, 2016, and December 12, 2016, respectively. 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, 2017 for those warrants is NIL (2016: NIL). 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. 18 Operating Activities Cash outflow used in operating activities before working capital adjustment increased from ($791,487) the period ended December 31, 2016 to ($939,254) for the year ended December 31, 2017. Other operating expenses fluctuated but on the whole were increased for the year ended December 31, 2017 by $189,142 compared to 2016. The largest impact on Comprehensive income (loss) for the period was the impairment expense which was a ($1,178,363) loss in 2016 and NIL in 2017. The second largest was the foreign exchange translation which was $186,002 in 2016 and $373,806 in 2017. Investor relations increased from $13,957 in 2016 to $105,250 in 2017. Foreign exchange expense decreased from the 2016 gain of $33,493 to 2017 loss of ($13,490). Other expense variances were throughout the other expense categories with the largest increases in stock-based compensation and administration expenses going up by approximately $40,414 and $28,562 respectively. Annual Information (in US Dollars) Fiscal Period December 31,2017 Fiscal Year December 31, 2016 Net loss for the year Basic loss per share Basic diluted loss per share Total other comprehensive income (loss) Total comprehensive loss for the year Basic comprehensive loss per share Diluted comprehensive loss per share Total assets Total long term liabilities Cash dividend ($1,301,378) ($0.03) ($0.03) 373,806 (927,572) ($0.02) ($0.02) $7,845,863 -- -- ($2,243,671) ($0.06) ($0.06) 186,002 ($2,057,669) ($0.06) ($0.06) $8,539,876 -- -- Quarterly Information (in US Dollar) Fiscal Year ended December 31, 2016 Net income (loss) for the period Basic income (loss) per share Diluted basic income (loss per share Comprehensive income (loss) for the period Basic comprehensive income (loss) for the period Diluted comprehensive income (loss) per share Total assets Total long term liabilities Quarterly Information (in US Dollars) Fiscal Period ended December 31, 2017 Net income (loss) for the period Basic income (loss) per share Diluted basic income (loss) per share Comprehensive income (loss) for the period Basic comprehensive income (loss) for the period Diluted comprehensive income (loss) per share Total assets Total long term liabilities Quarter 1 Quarter 2 Quarter 3 Quarter 4 ($285,854) ($0.01) ($0.01) (249,396) ($0.01) ($0.01) $4,412,454 -- ($299,277) ($0.01) ($0.01) ($287,861) ($0.01) ($0.01) $4,635,888 -- ($387,742) ($0.01) ($0.01) ($55,946) $0.00 $0.00 $5,068,644 -- ($1,270,798) ($0.03) ($0.03) ($1,464,466) ($0.04) ($0.04) $8,539,876 -- Quarter 1 Quarter 2 Quarter 3 Quarter 4 ($311,018) ($0.01) ($0.01) (225,849) ($0.01) ($0.00) $8,285,854 -- ($416,914) ($0.01) ($0.01) ($293,941) ($0.01) ($0.01) $8,168,529 -- ($307,291) ($0.00) ($0.00) ($424,450) ($0.00) ($0.01) $7,744,583 -- ($266,155) ($0.01) ($0.01) 16,668 ($0.01) $0.00 $7,845,863 19 Investing Activities Cash flow applied in investing activities increased to ($3,521,663) for the period ended December 31, 2017, [2016: ($836,838)]. Total expenditures of $3,112,131 on exploration properties for the period ended December 31, 2017 were attributable to the Newdico, Gcwihaba and Bosoto projects in northwest Botswana and the Idada project in Barberton, South Africa. There no longer are expenses and funding for the exploration of the Newdico project. Financing Activities The Company finances its corporate and exploration activities through the issuance of equity 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. Private Placement Date No. of Units Price per Unit CAD Net Proceeds USD December 12, 2016 10,795,578 April 29, 2016 1,008,948 C$0.75 C$0.60 $5,921,437 $466,534 Warrant Exercise Date No. of Shares Price per Share Proceeds USD None -- -- -- Options Exercised Date No. of Shares Price per Share Proceeds USD None -- -- -- Private placements took place on April 29, 2016 and December 12, 2016, from which the Company received net proceeds of $466,534 and $5,921,437 respectively from the sale of common shares and warrant units. The Company sold royalties on September 28, 2017 receiving net proceeds of $1,500,000 (2016: NIL). Tsodilo expects to raise the amounts required to fund the Gcwihaba, Bosoto and Idada projects and corporate general and administration expenses, by way of non-brokered private placements and joint ventures. In the third quarter the Company reached an agreement with Sandstorm Gold Ltd. ("Sandstorm") (NYSE MKT: SAND, TSX: SSL) to grant royalties on three projects in consideration of the payment of $1,500,000. The package of assets in the Royalty Sale includes: (cid:120) (cid:120) (cid:120) the grant of a 1% NSR on the Company's wholly owned Botswana subsidiary Gcwihaba Resources (Pty) Ltd. prospecting metal licenses in northwest Botswana; the grant of a 1% GPR on the Company's Botswana wholly owned subsidiary Bosoto (Pty) Ltd. precious stone prospecting license (PL217/2016) located in the Orapa Kimberlite Field; and, the grant of a 1% NSR on the Company's 70% owned South African subsidiary Idada 361 (Pty) Ltd. gold and silver prospecting license located in the Barberton Greenstone Belt in the Mpumalanga province of South Africa. 20 Sandstorm shall have a right of first refusal with respect to any third-party bona fide offers to purchase a metal or precious stone royalty on the properties. RESULTS OF OPERATIONS On a consolidated basis, the Company recorded a comprehensive net loss of ($927,572) for the period ended December 31, 2017 [($0.02) per common share] compared to a comprehensive net loss of ($2,057,669) for the period ended December 31, 2016 [($0.06) per common share]. The change in the loss in 2017 was due primarily to the impairments recorded in 2017 of NIL, and in 2016 of ($1,178,363) and exchange rate translation recorded in 2017 of $373,806 and in 2016 of $186,002. Total capitalized exploration expenditures including amortization of property, plant and equipment used in exploration activities on all projects amounted to net $5,943,818 as at December 31, 2017 compared to $4,036,895 as at December 31, 2016. Total capitalized exploration expenditures incurred on Gcwihaba’s projects as at December 31, 2017 were $2,752,737 compared to $3,158,472 as at December 31, 2016. A net exchange translation difference accounted for a $199,605 increase and a royalty sale accounted for a $838,985 decrease. Total capitalized exploration expenditures incurred on Bosoto’s projects as at December 31, 2017 were $3,181,859 compared to $869,415 as at December 31, 2016. A net exchange translation difference accounted for a $98,608 increase and a royalty sale accounted for a $662,809 decrease. Total capitalized exploration expenditures incurred on Idada’s projects as at December 31, 2017 were $9,221 compared to $9,008 as at December 31, 2016. A net exchange translation difference accounted for a $1,273 increase and a royalty sale accounted for a $2,900 decrease. The principal components of the Newdico, Gcwihaba, Bosoto and Idada 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 in the Exploration and Evaluation Additions section above with specific details. PERSONNEL At December 31, 2017, the Company and its subsidiaries employed thirty-five (35) compared to twelve (12) at December 31, 2016, including senior officers, administrative and operations personnel including those on a short-term service basis. YEAR ENDED DECEMBER 31, 2017 The year ended December 31, 2017 was a normal operating year. Operating expenses were at normal levels for the year except for those expenditures on the Bosoto BK16 project as those expenditures were at an increased level given the costs associated with the evaluation process. See discussion under operating activities above. 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. 21 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 $1,301,378 and comprehensive loss of $927,572 during the year ended December 31, 2017 and as of that date the Company had an accumulated deficit of $47,866,388 and net working capital of $1,144,373. Management has carried out an assessment of the going concern assumption and has concluded that the cash position of the Company is sufficient to finance exploration and resource evaluation at the projected levels, and to finance continued operations for the 12 month period subsequent to December 31, 2017. The continuity of the Company’s operations is not 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. 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. The Company received net proceeds of $466,534 and $5,921,437 from the issuance of common shares and warrant units as a result of the private placement which closed on April 29, 2016 and December 12, 2016 respectively. The Company received $1,500,000 from the sale of royalties on September 28, 2017. 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 operation and comprehensive income (loss), and consolidated statement of financial position classifications that would be necessary were the going concern assumption not 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 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. 22 Commodity Prices and Marketability The mining industry, in general, is intensely competitive and there is no assurance that, even if commercial quantities of minerals are discovered, a profitable market will exist for the sale of minerals produced. Factors beyond the control of the Company may affect the marketability of any minerals produced and which cannot be accurately predicted, such as market fluctuations, and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals and environmental protection, any combination of which factors may result in the Company not receiving an adequate return on investment capital. Prices received for minerals produced and sold are also affected by numerous factors beyond the Company's control such as international economic and political trends, global or regional consumption and demand and supply patterns. There is no assurance that the sale price of minerals produced from any deposit will be such that they can be mined at a profit. Currency Risk The Company's business is mainly transacted in Botswana Pula and U.S. dollar currencies. As a consequence, fluctuations in exchange rates may have a significant effect on the cash flows and operating results of the Company in either a positive or negative direction. Foreign Operations Risk The Company's current significant projects are located in Botswana. This exposes the Company to risks that may not otherwise be experienced if its operations were domestic. The risks include, but are not limited to, environmental protection, land use, water use, health safety, labor, restrictions on production, price controls, currency remittance, and maintenance of mineral tenure and expropriation of property. There is no assurance that future changes in taxes or such regulation in the various jurisdictions in which the Company operates will not adversely affect the Company's operations. Although the operating environments in Botswana are considered favorable compared to those in other developing countries, there are still political risks. These risks include, but are not limited to terrorism, hostage taking, military repression, expropriation, extreme fluctuations in currency exchange rates, high rates of inflation and labor unrest. Changes in mining or investment policies or shifts in political attitudes may also adversely affect the Company's business. Mineral Exploration and Development The business of exploring for minerals and mining is highly, speculative in nature and involves significant financial and other risks which even careful evaluation, experience and knowledge may not eliminate. There is no certainty that expenditures made or to be made by the Company in exploring and developing mineral properties in which it has an interest will result in the discovery of commercially mineable deposits. Most exploration projects do not result in the discovery of commercially mineable deposit. While discovery of a mineral deposit may result in substantial rewards, few properties which are explored are ultimately developed into producing mines. Major expenses may be required to establish reserves by drilling and to construct mining and processing facilities at a site. There can be no guarantee that exploration programs carried out by the Company will result in the development of profitable mining operations. Title Matters Any changes in the laws of Botswana and South Africa 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. 23 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. Key Personnel The Company is dependent upon on a relatively small number of key employees, the loss of any of whom could have an adverse effect on the Company. The Company currently does not have key personal insurance on these individuals. ADOPTION OF NEW ACCOUNTING STANDARDS New Standards, Amendments and Interpretations, Not Yet Adopted The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective. IFRS 16 Leases IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. 24 Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases. IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs. In 2017, the Company assessed the potential effect of IFRS 16 on its consolidated financial statements, and determined that there would be no material impact. IFRS 9, Financial Instruments IFRS 9 covers the classification and measurement, impairment and hedge accounting of financial assets and financial liabilities and the effective date was for annual years on or after January 1, 2018, with an earlier application permitted. The Company is still assessing the impact of adopting IFRS 9. Amendments to IFRS 9 also provide relief from the requirement to restate comparative financial statement for the effect of applying IFRS 9. Instead, additional transition disclosure will be required to help investors understand the effect that the initial application of IFRS 9 has on the classification and measurement of financial instruments. No material impact is expected from IFRS 9. RELATED PARTY TRANSACTIONS Remuneration of Key Management Personnel of the Company Short term employee remuneration and benefits Stock based compensation Post employment benefits* 2017 2016 $430,002 $430,002 340,872 37,271 284,447 205,047 Total compensation attributed to key management personnel $808,145 $919,496 *Post employment benefits include NIL of accrued leave benefits through December 31, 2017. During the year an individual related to the CEO provided administrative and management services to the Company in 2017 and was remunerated in 2017 in the amount of $36,000 (2016: $36,000). During the year, two individuals related to key personnel of the company, received $12,684 in stock based compensation during the year (2016 $13,717). There are no other related party transactions. OUTLOOK Precious stones and metals exploration remain a high-risk undertaking requiring patience and persistence. Despite difficult capital markets in the junior resource sector and the general decrease in commodity prices, the Company remains committed to international commodity exploration through carefully managed programs. 25 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 at, 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 James M. Bruchs Chairman and Chief Executive Officer Gary A. Bojeseeeeeeeee Gary A. Bojes Chief Financial Officer Chief Financial Officer 26 TSODILO RESOURCES LIMITED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2017 27 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, 2017 and 2016 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 James M. Bruchs Chairman and Chief Executive Officer February 23, 2018 Gary A. Bojes Gary A. BBBBBBBBBBBojojojojojojojojojojojeseeeeeeeeee l Offi i Chi f Fi Chief Financial Officer February 23, 2018 28 Independent 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, 2017 and 2016, and the consolidated statements of operations and comprehensive 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 audits 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, 2017 and 2016, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. Vancouver, Canada February 23, 2018 A member firm of Ernst & Young Global Limited Tsodilo Resources Limited Consolidated Statements of Financial Position (In United States dollars) ASSETS Current Cash Restricted cash Accounts receivable and prepaid expenses Exploration and Evaluation Assets (note 3) Property, Plant and Equipment (note 4) Total Assets LIABILITIES Current Accounts payable and accrued liabilities Total Liabilities SHAREHOLDERS' EQUITY Share capital (note 5a) Contributed surplus (note 5c) Foreign currency translation reserve Deficit Total Equity Total Liabilities and Equity Nature of operations (note 1) Commitments and contingencies (note 11) Subsequent events (note 13) December 31 2017 December 31 2016 $1,081,209 34,986 237,404 1,353,599 5,943,818 548,446 $7,845,863 $ 209,227 209,227 49,281,890 11,327,971 (5,106,837) (47,866,388) 7,636,636 $7,845,863 $4,215,333 - 100,310 4,315,643 4,036,895 187,338 $8,539,876 $ 325,650 325,650 49,281,890 10,977,989 (5,480,643) (46,565,010) 8,214,226 $8,539,876 See accompanying notes to the consolidated financial statements APPROVED ON BEHALF OF THE BOARD OF DIRECTORS JJaJJJJJ mes M. Bruchs David J. Cushing David J. Cushing James M. Bruchs Chairman, of the Audit Committee Chairman 30 Tsodilo Resources Limited Consolidated Statements of Operations and Comprehensive 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 Impairment (note 3) Foreign exchange gain (loss) Loss for year Other Comprehensive Gain/(Loss) Foreign currency translation Total Other Comprehensive Gain/(Loss) Total Comprehensive Loss for the year Basic loss per share (note 7) Basic comprehensive (note 7) Years Ended December 31 2017 2016 $ 473,617 $450,573 18,157 105,250 100,243 40,507 201,535 1,245 347,389 1,287,943 55 -- (13,490) (13,435) (1,301,378) 373,806 373,806 ($927,572) ($0.03) ($0.02) 24,636 13,957 93,650 35,698 172,973 339 306,975 1,098,801 -- (1,178,363) 33,493 (1,144,870) (2,243,671) 186,002 186,002 ($2,057,669) ($0.06) ($0.06) See accompanying notes to the consolidated financial statements 31 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 Total Equity Shares Issued Amount Stock-based compensation & Other Warrants 45,347,310 $49,281,890 -- -- -- -- $10,884,378 -- 93,611 $ 93,611 -- (93,611) ($5,480,643) -- -- ($46,565,010) -- -- -- -- -- -- 349,982 -- -- -- -- 373,806 -- (1,301,378) $8,214,226 -- 349,982 (927,572) 45,347,310 $49,281,890 $11,327,971 -- ($5,106,837) ($47,866,388) $7,636,636 Share Capital Contributed Surplus Foreign Translation Reserve Deficit Total Equity Shares Issued Amount Stock-based compensation & Other Warrants 33,542,784 $42,893,919 6,387,971 11,804,526 -- -- $10,471,523 -- 104,894 $198,505 -- (104,894) ($5,666,645) -- -- ($44,321,339) -- -- -- -- -- -- 307,961 -- -- -- -- 186,002 -- (2,243,671) $3,575,963 6,387,971 -- 307,961 (2,057,669) 45,347,310 $49,281,890 $10,884,378 $ 93,611 ($5,480,643) ($46,565,010) $8,214,226 Balance January 1, 2017 Units Issued Warrants Expiry Stock Based Compensation Comprehensive loss Balance December 31, 2017 Balance January 1, 2016 Units Issued Exercised Options Stock Based Compensation Comprehensive loss Balance December 31, 2016 See accompanying notes to the consolidated financial statements. 32 Tsodilo Resources Limited Consolidated Statements of Cash Flows (In United States dollars) Cash provided by (used in): Operating Activities Net Loss for the year Adjustments for non-cash items: Impairment Amortization Foreign exchange loss (gain) Stock-based compensation Net change in non-cash working capital balances (note 12) Investing Activities Additions to exploration properties Additions to property, plant and equipment Financing Activities Royalties Sold Shares and warrants issued for cash Share issuance cost Subscriptions received Impact of exchange on cash Change in cash - for the year Cash - beginning of year Cash - end of year See accompanying notes to the consolidated financial statements Years Ended December 31 2017 2016 ($ 1,301,378) ($ 2,243,671) -- 1,245 13,490 347,389 (939,254) (253,517) (1,192,771) (3,065,454) (456,208) (3,521,662) 1,500,000 -- -- -- 1,500,000 88,316 (3,126,117) 4,215,333 $ 1,089,216 1,178,363 339 (33,493) 306,975 (791,487) (5,047) (796,534) (832,185) (4,653) (836,838) -- 6,433,564 (45,594) (590,050) 5,797,920 (23,125) 4,141,423 73,910 $ 4,215,333 33 Tsodilo Resources Limited Notes to the Consolidated Financial Statements For the periods ended December 31, 2017 and 2016 (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 $1,301,378 and comprehensive loss of $927,572 during the period ended December 31, 2017 and as of that date, the Company had an accumulated deficit of $47,866,388 and working capital of $1,144,372. Management has carried out an assessment of the going concern assumption and has concluded that the cash position of the Company is sufficient to finance exploration and resource evaluation at projected levels, and to finance continued operations for the 12 month period subsequent to December 31, 2017. The continuity of the Company’s operations over the 12 month period from December 31, 2017 is not 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. Beyond the 12 month time horizon, management believes that it will be able to secure additional 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. 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 loss, and consolidated statement of financial position classifications that would be necessary should the going concern assumption not be appropriate. 34 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 23, 2018. (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 or loss which are stated at their fair value. These consolidated financial statements are presented in United States dollars and include the accounts of the Company and the following direct and indirect subsidiaries: ENTITY 2017 2016 Tsodilo Resources Bermuda Limited (“TRBL”) [Bermuda] 100% 100% Bosoto (Proprietary) Limited (“Bosoto”) [Botswana] 100% 100% Gcwihaba Resources (Proprietary) Limited (“Gcwihaba”) [Botswana] 100% 100% Newdico (Proprietary) Limited (“Newdico”) [Botswana] 100% 100% Idada Trading 361 (Pty) Ltd. (“Idada”) [South Africa] 70% 70% All intercompany transactions have been eliminated on consolidation The accounting policies set out below have been applied consistently to all periods and 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 is 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 and 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, the recoverability of the Company’s deferred tax assets, and potential tax exposures given the company operates in multiple jurisdictions. In particular, the carrying value of the Company’s exploration and 35 evaluation assets is dependent upon the Company’s determination with respect to the future prospects of its exploration and evaluation assets and the ability of the Company to successfully complete the renewal or extension process for its exploration properties as required. The Company has defined the cash generating units to be precious stones, metals and radioactive minerals. The quantification of potential tax exposures is dependent on the relevant tax authorities’ acceptance of the Company’s positions. (d) Earnings (Loss) per Common Share Earnings (loss) per share calculations are based on the net income (loss) attributable to common shareholders for the year divided by the weighted average number of common shares issued and outstanding during the year. Diluted earnings per share calculations are based on the net income (loss) attributable to common shareholders for the year divided by the weighted average number of common shares outstanding during the year plus the effects of dilutive common share equivalents. This method requires that the dilutive effect of outstanding options and warrants issued be calculated using the treasury stock method. This method assumes that all common share equivalents have been exercised at the beginning of the year (or at the time of issuance, if later), and that the funds obtained thereby were used to purchase common shares of the Company at the average trading price of common shares during the year. The incremental number of common shares that would be issued is included in the calculation of diluted earnings per share. (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, commodity 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 and South Africa 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 note 3 for additional disclosures related to license commitments and strategic partners commitments and earn-in agreement. 36 (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: Building (over remaining life of land lease) 9 Years 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 property, 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 property, 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 and petty cash. (h) Foreign Currency Translation (i) Functional and presentation currency The Company’s functional and presentation currency is the United States dollar (“U.S. Dollar”). The functional currencies of the Company’s subsidiaries are as follows: Tsodilo Resources Bermuda Limited (”TRBL”) U.S. Dollar Gcwihaba Resources (Pty) Limited (“Gcwihaba”) Botswana Pula Newdico (Pty) Limited (“Newdico”) Botswana Pula Bosoto (Pty) Limited (“Bosoto”’) Botswana Pula Idada Trading 361 (Pty) Ltd. ("‘Idada”) South African Rand 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 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, Bosoto, and Idada are translated into the functional 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 period. On consolidation, the exchange differences arising on the translation are recognized in other comprehensive loss and accumulated in the foreign currency translation reserve. 37 If TRBL, Gcwihaba, Newdico, Bosoto, and Idada were sold, the amount recognized in the foreign currency reserve would be realized and reflected in the statement of operations and comprehensive loss as part of the gain or 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 over the vesting period of the related option to earnings and no portions were capitalized for indirect exploration costs. The Company uses graded or accelerated amortization which specifies that each vesting tranche must be accounted for as a separate arrangement with a unique fair value measurement. Each vesting tranche is subsequently amortized separately and in parallel from the grant date. Option-pricing models require the use of highly subjective estimates and assumptions including the expected stock price volatility. Changes in the underlying assumptions can materially affect the fair value estimates. (k) Severance Benefits Under Botswana law, the Company is required to pay severance benefits upon the completion of 5 years of continued service if the employee so elects 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 38 for employees with greater than five years of service. The specifics and benefits of the severance program mandated in Botswana are extended to full-time employees residing and working outside of Botswana. The cost of these severance benefits is accrued over the year of service until the benefit becomes payable. Portions of the severance expenses are capitalized to exploration and evaluation assets. (l) Financial Assets All financial assets are initially recorded at fair value and designated upon inception into one of the following four categories: held for maturity, available for sale, loans and receivables, or at fair value through 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, 2017 and 2016, 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. (m) 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 year. 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 year. The Company’s accounts payable and accrued liabilities and subscriptions 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. (n) Impairment of Assets At the end of each reporting period, the Company assesses each cash-generating unit to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. The recoverable amount is the higher of the fair value less cost to sell and the value in use. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties. In assessing value in use, the estimated future cash flows are discounted to their present 39 value using a discount rate that reflects current market assessment of the time value of money and the risk of a specific asset. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in profit or loss for the period. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs. When an impairment subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount, but to an amount that does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash generating unit) in prior periods. A reversal of an impairment loss is recognized immediately in profit or loss. No impairment adjustments were recognized in 2017 (2016: $1,178,363). (o) Related Party Transactions Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties may be individuals or corporate entities and includes, but is not limited to, key management personnel, directors, affiliated companies, and project partners. A transaction is considered to be a related party transaction when there is a transfer of resources, services or obligations between related parties. (p) New Standards, Amendments and Interpretations Adopted There are no other standards which the Company would have been required to adopt in the period. (q) New Standards, Amendments and Interpretations, Not Yet Adopted The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective. IFRS 16 Leases IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right- of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. 40 Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases. IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs. In 2017, the Company assessed the potential effect of IFRS 16 on its consolidated financial statements, and determined that there would be no material impact. IFRS 9, Financial Instruments IFRS 9 covers the classification and measurement, impairment and hedge accounting of financial assets and financial liabilities and the effective date was for annual years on or after January 1, 2018, with an earlier application permitted. The Company has assessed the impact of adopting IFRS 9. Amendments to IFRS 9 also provide relief from the requirement to restate comparative financial statement for the effect of applying IFRS 9. Instead, additional transition disclosure will be required to help investors understand the effect that the initial application of IFRS 9 has on the classification and measurement of financial instruments. No material impact is expected from IFRS 9. REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK 41 3. EXPLORATION AND EVALUATION ASSETS Exploration and evaluation assets are summarized as follows: Bosoto Botswana Precious Stones Idada So. Africa Precious Metals Gcwihaba Botswana Metals Gcwihaba Botswana Radio-Active Minerals Gcwihaba Botswana Subtotal Total Balance at December 31, 2015 $390,773 $3,071 $2,779,268 $942,928 $3,722,196 $4,116,040 Additions 427,272 5,731 223,513 182,569 406,082 839,085 Net Exchange Differences 51,370 206 155,691 52,867 208,557 260,133 Impairment -- -- -- (1,178,363) (1,178,363) (1,178,363) Balance at December 31, 2016 $869,415 $9,008 $3,158,472 $ -- $3,158,472 $4,036,895 Additions 2,876,647 1,839 233,646 Net Exchange Differences 98,608 1,273 199,605 -- -- 233,646 3,112,131 199,605 299,486 Subtotal Balance at December 31, 2017 Royalty contribution/reduction in exploration cost $3,844,670 $12,120 $3,591,723 $ -- $3,591,723 $7,448,512 (662,809) (2,900) (838,985) -- (838,985) (1,504,694) Balance at December 31, 2017 $3,181,861 $9,220 $2,752,738 $ -- $2,752,738 $5,943,818 Exploration and evaluation additions for the period ended December 31, 2017 are summarized as follows: Drilling Expenditures Amortization Drill Rigs, Vehicles & Trucks GIS & Geophysics Lab Analyses & Assays License Fees Office, Maintenance, & Consumables Salaries, Wages & Services Balance at December 31, 2017 Bosoto Botswana Precious Stones Idada So. Africa Precious Metals Gcwihaba Botswana Total Metals TOTAL $1,993,249 $ 224 $ 27,089 $ 2,020,562 33,184 83,168 12,184 448 264,980 489,434 -- -- -- -- 1,615 -- 13,494 19,515 5,882 2,147 80,823 84,696 46,678 102,683 18,066 2,595 347,418 574,130 $2,876,647 $1,839 $ 233,646 $3,112,132 42 Exploration and evaluation for Bosoto Projects for the period ended December 31, 2017: Project BK 16 Bosoto Botswana Project PL 217 Bosoto Total Precious Stones Balance at December 31, 2016 $869,415 $-- $869,415 Additions 2,530,689 345,958 2,876,647 Net Exchange Differences 89,501 9,107 98,608 Subtotal at December 31, 2017 $3,489,605 $355,065 $3,844,670 Exploration and evaluation additions Bosoto Project for the period ended December 31, 2017: Drilling Expenditures Amortization Drill Rigs, Vehicles & Trucks GIS & Geophysics Lab Analyses & Assays License Fees Office, Maintenance, & Consumables Salaries, Wages & Services Balance at December 31, 2017 Project BK 16 Bosoto Botswana Project PL 217 Bosoto Precious Stones $1,962,059 $31,190 $1,993,249 28,714 43,612 9,641 448 97,148 389,067 4,470 39,556 2,543 -- 167,832 100,367 33,184 83,168 12,184 448 264,980 489,434 $2,530,689 $345,958 $2,876,647 The Company’s 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 mineral properties and believes, to the best of its knowledge, that evidence of title is adequate and acceptable given the current stage of exploration. Exploration and Evaluation Assets (Royalties) During the year, the Company reached an agreement with Sandstorm Gold Ltd. (“Sandstorm”) (NYSE MKT: SAND, TSX: SSL) to grant royalties on three projects in consideration of the payment of $1,500,000 USD. 43 The package of assets in the Royalty Sale includes: (cid:161) (cid:161) (cid:161) the grant of a 1% NSR on the Company’s wholly owned Botswana subsidiary Gcwihaba Resources (Pty) Ltd. prospecting metal licenses in northwest Botswana; the grant of a 1% GPR on the Company’s Botswana wholly owned subsidiary Bosoto (Pty) Ltd. precious stone prospecting license (PL217/2016) located in the Orapa Kimberlite Field; and, the grant of a 1% NSR on the Company’s 70% owned South African subsidiary Idada 361 (Pty) Ltd. gold and silver prospecting license located in the Barberton Greenstone Belt in the Mpumalanga province of South Africa. Sandstorm shall have a right of first refusal with respect to any third-party bona fide offers to purchase a metal or precious stone royalty on the properties. Proceeds from the Royalty Sale will be used for exploration and general corporate purposes. Gcwihaba Resources (Proprietary) Ltd (“Gcwihaba”) – Botswana In 2017, Gcwihaba, a wholly owned subsidiary of the Company, held twenty-one (21) metal (base, precious, platinum group, and rare earth) prospecting licenses in the North-West district of which seven (7) were in renewal. A review of the merits of each license was undertaken in the fourth quarter in an effort to determine which licenses were the most prospective in terms of exploration, discovery and development and an economic resource. The review determined that 7 licenses were more prospective than the others. A series of meeting were held with the Department of Mines and it was proposed that the company would relinquish the aforesaid twenty-one (21) licenses in exchange for an initial grant of the core seven (7) licenses. The proposal was accepted by the DOM and the 21 licenses were relinquished at year end and the core seven licenses were given an initial grant effective January 1, 2018. The licenses have an initial grant term of three (3) to be followed by 2 two year renewal periods. 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 current licenses, those effective January 1, 2018, cover 4,920.50 square kilometers and collectively have a proposed minimum spending commitment of BWP 1,753,815 ($180,892 USD) if held to their full initial term. Bosoto (Pty) Limited (“Bosoto”) - Botswana Tsodilo was granted a prospecting license (PL369/2014) over the BK16 kimberlite pipe through its 100% owned Botswana subsidiary, Bosoto Pty (Ltd) effective October 1, 2014. The diamondiferous BK16 kimberlite pipe is located within the Orapa Kimberlite Field in Botswana and covered by 25 meters of Kalahari Group sediments. BK16 is located 37 km east-southeast of the Orapa Diamond Mine AK01, 25 km southeast of the Damshtaa Diamond Mine, and 13 km north-northeast of the Letlhakane Diamond Mine, all operated by Debswana and 28 km east-northeast from Lucara Diamond Corporation's Karowe mine (F/K/A AK6). Tsodilo has a 100% interest in Bosoto. The Company submitted a two year renewal application in the second quarter and the license was renewed on October 20, 2017 to be effective October 1, 2017. The Company estimated that it would take approximately BWP 42,002,000 ($4,334,980 USD) in expenditures, goods and services over the two year renewal period to continue the evaluation of the BK16 kimberlite’s economic potential and if warranted the preparation of a compliant NI 43-101 Bankable Feasibility Study 44 (BFS). This estimate is based on the agreed work plan with the MMEWR. At any point the work plan may be amended and a new work plan agreed to with the MMEWR. The first two year renewal expires September 30, 2019. PL 217/2016 is situated within the Orapa Kimberlite Field and is located some 10 km south of the Orapa Mining area and with the same distance to the west of the Letlhakane Mining lease. It surrounds the Karowe Mining lease, while the BK11 prospect is directly to the east of the licence. Other kimberlites occur along its northern and eastern borders. The licence is highly prospective for kimberlites but also has the potential to contain secondary diamond deposits associated with the palaeo-drainage network in the area. The present drainage is to the north and erosion of the kimberlites would have resulted in the residue, including diamonds, to have been transported in the same direction. The focus of the exploration work would therefore be not only on finding kimberlites but also to assess the geomorphology in the search for palaeo- channels PL217/2016 has an initial grant term of three (3) years effective January 1, 2017 to be followed by 2 two year renewal periods. The license comprises 580 square kilometers and has a proposed minimum spending commitment of BWP 6,058,700 ($625,342 USD) if held to the furthest out initial full-term to December 31, 2019. The license has an initial grant term of three (3) years to be followed by 2 two year renewal periods. Idada Trading 361 (Pty) Limited (“Idada”) – South Africa The Company holds a 70% interest in its South African subsidiary, Idada. Idada made application for an exploration license (Ref: MP30/5/1/1/2/1047PR) in the Barberton area in February 2012. This application was accepted in February 2013 and consultation was conducted with interested and affected parties in April and June 2013. An Environmental Management Plan (EMP) was submitted in April 2013 and a site visit was made by various governmental departments (DMR, EWT, REMDEC) in September 2013. During the second quarter 2015, notice was received from the Department of Mineral Resources, South Africa which granted the Company the prospecting rights for gold and silver in the applied for area subject to certain subsequent conditions being met. The Company has fulfilled those requirements and the Prospecting Right, together with the EMP, was executed and became effective on April 7, 2016. The Prospecting Right has been granted for a term of five years effective as of May 2015. Other – Newdico (Pty) Ltd Newdico is currently evaluating numerous land areas within Botswana for application of prospecting licenses. Newdico provides exploration, drilling and geophysical services to associated companies on an as needed basis. 45 4. PROPERTY, PLANT, AND EQUIPMENT Property, Plant, and Equipment Cost Hangar Vehicles As at December 31, 2015 $-- $1,153,280 Additions Disposals Net Exchange Difference As at December 31, 2016 -- -- -- -- 55,322 -- 64,565 Furniture and Equipment $ 313,242 4,653 -- 14,883 Total $ 1,466,522 59,975 -- 79,448 $ 1,273,167 $ 332,778 $ 1,605,945 Total $ 1,605,945 436,447 -- 71,993 $ 2,114,385 Total $ 1,260,072 89,878 68,657 Hangar Vehicles $-- 191,069 -- 8,651 $199,720 $ 1,273,167 56,720 -- 34,552 $ 1,364,439 Furniture and Equipment $ 332,778 188,658 -- 28,790 $ 550,226 Hangar Vehicles $-- -- -- -- -- $ 1,068,109 82,297 -- 59,797 $ 1,210,203 Hangar Vehicles $-- 21,035 1,666 $ 1,210,203 17,785 -- 87,564 Furniture and Equipment $ 191,963 7,581 -- 8,860 $ 208,404 $ 1,418,607 Furniture and Equipment $ 208,404 8,114 -- 11,168 Total $ 1,418,607 46,934 100,398 $22,701 $ 1,315,552 $ 227,686 $ 1,565,939 As at December 31, 2016 Additions Disposals Net Exchange Difference As at December 31, 2017 Accumulated Depreciation As at December 31, 2015 Depreciation Disposals Net Exchange Difference As at December 31, 2016 As at December 31, 2016 Depreciation Disposals Net Exchange Difference As at December 31, 2017 Net book value As at December 31, 2016 As at December 31, 2017 $-- $177,019 $ 62,964 $ 48,887 $ 124,374 $322,540 $ 187,338 $548,446 For the period ended December 31, 2017, an amount of $46,678 (2016: $90,218) of amortization has been capitalized under exploration properties. 46 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: 45,347,310 Common Shares as at December 31, 2017 and December 31, 2016: 1) Issued during the period-ended December 31, 2017: None 2) Issued during the year-ended December 31, 2016: i. On April 29, 2016, 1,008,948 Units were issued at a price of C$0.60 for proceeds to the Company of $466,534 (C$605,370). Each unit includes one common share and one warrant entitling the holder to purchase one common share of the Company for a year until the close of business on April 29, 2018 at USD $0.60. $3,396 (C$4,268) of issuance costs were netted against the proceeds. ii. On December 12, 2016, 10,795,578 Units were issued at a price of C$0.75 for proceeds to the Company of $5,921,437 (C$8,096,683). Each unit includes one common share and one warrant entitling the holder to purchase one common share of the Company for a year until the close of business on December 12, 2018 at USD $0.75. $42,198 (C$55,974) of issuance costs were netted against the proceeds. (b) Warrants As at December 31, 2017, the following warrants were outstanding: Number of Warrants - Units Expiry August 10, 2017 April 29, 2018 December 12, 2018 Exercise Price (USD) $1.10 $0.60 $0.75 December 31, 2016 1,116,075 1,008,948 10,795,578 12,920,601 Issued Exercised Expired December 31, 2017 -- -- -- -- -- -- -- -- 1,116,075 -- -- -- 1,008,948 10,795,578 1,116,075 11,804,526 On April 29, 2016, the Company issued 1,008,948 warrants with an exercise price of $0.60, expiring on April 29, 2018. As the strike price of these warrants is in U.S. Dollars, the warrants were classified as equity instruments. The values of the units are equal to the value of the common shares at the issuance date. On December 12, 2016, the Company issued 10,795,578 warrants with an exercise price of $0.75, expiring on December 12, 2018. As the strike price of these warrants is in U.S. Dollars, the warrants were classified as equity instruments. The values of the units are equal to the value of the common shares at the issuance date. On August 10, 2017, 1,116,075 warrants with an exercise price of $1.10 expired. 47 c) Stock Option Plan The Company has a stock option plan (“SOP”) providing for the issuance of options that cannot exceed 5,629,830 shares of common stock. The Company may grant options to directors, officers, employees, and contractors, and other personnel of the Company or its subsidiaries. The exercise price of each option cannot be lower than the market price of the shares being the closing price of the Company’s common shares on the Toronto Stock Exchange the day before the grant date. Options generally vest ratably over an eighteen- month period, beginning with the date of issuance and every 6 months thereafter, and expire in five years from the date of grant as determined by the Board of Directors. The following Table summarizes the Company’s stock option activity for the years ended December 31, 2016 and December 31, 2017 Outstanding as at December 31, 2015 Granted Exercised Expired Outstanding as at December 31, 2016 Granted Exercised Expired Outstanding as at December 31, 2017 2017 Weighted average exercise price (C$) Number of Options 3,221,390 710,000 -- (585,000) 3,346,390 860,000 -- (538,890) 3,667,500 C$1.03 C$0.76 -- C$1.14 C$0.96 C$0.80 -- C$0.96 C$0.92 On January 2, 2017, the Company issued 260,000 options at C$0.69 under its SOP to persons who are officers and employees of the Company. On January 3 2017, 210,000 stock options issued at C$0.90 expired. On April 2, 2017, 328,890 options exercisable at C$1.00 expired. On April 3, 2017, the Company issued 600,000 options exercisable at C$0.85 under its SOP to persons who are Directors and an employee of the Company. 2016 On January 3, 2016, 285,000 stock options issued at C$1.25 expired. On January 4, 2016, the Company issued 260,000 options at C$0.72 under its SOP to persons who are officers and employees of the Company. On April 8, 2016, the Company issued 450,000 options at C$0.79 under its SOP to persons who are officers and employees of the Company. On April 17, 2016, 300,000 stock options issued at C$1.03 expired. 48 The following table summarizes the stock based compensation expense and capitalized stock based compensation for the periods ended December 31, 2017 and 2016. Stock-based compensation expense Capitalized Stock-based compensation expense 2017 2016 $347,389 $306,975 -- -- $347,389 $306,975 The following assumptions were used in the Black Scholes option pricing model to fair value the stock options granted during the periods ended December 31, 2017 and 2016: Expected lives 2017 2016 4.06 years 3.9 years Expected volatilities (based on Company’s historical prices) 101.0%-104.9% 105.6%-106.2% Expected dividend yield Risk free rates Weighted average fair value of option 0% 0% 1.68-1.71% 1.00-1.51% $0.53 $0.55 The following table summarizes stock options outstanding as at December 31, 2017: Options Outstanding Options Exercisable Exercise Number of Weighted Weighted Number of Weighted Weighted Price (C$) Outstanding Average Average Exercisable Average Average Options Exercise Remaining Options Exercise Price Remaining Price (C$) Contractual (C$) Contractual Life (Years) Life (Years) C$1.20 C$1.04 C$0.75 C$1.25 C$1.05 C$0.83 C$0.70 C$0.72 C$0.79 C$0.69 C$0.85 235,000 400,000 222,500 480,000 260,000 400,000 100,000 260,000 450,000 260,000 600,000 3,667,500 C$1.20 C$1.04 C$0.75 C$1.25 C$1.05 C$0.83 C$0.70 C$0.72 C$0.79 C$0.69 C$0.85 C$0.92 0.01 0.22 1.00 1.22 2.00 2.24 2.67 3.01 3.27 4.01 4.25 2.30 235,000 400,000 222,500 480,000 260,000 400,000 100,000 260,000 450,000 130,000 300,000 3,237,500 C$1.20 C$1.04 C$0.75 C$1.25 C$1.05 C$0.83 C$0.70 C$0.72 C$0.79 C$0.69 C$0.85 C$0.94 0.01 0.22 1.00 1.22 2.00 2.24 2.67 3.01 3.27 4.01 4.25 2.05 49 6. INCOME TAXES The recovery of income taxes varies from the amounts that would be computed by applying the Canadian federal and provincial statutory rate for 2017 of approximately 26.5% (2016: 26.5%) to loss before income taxes as follows: Loss for the year Income tax rate Income tax recovery Foreign operation taxed at lower rates Permanent differences Benefits not recognized Expiry of tax losses carried forward Changes in estimate and foreign exchange Provision for income taxes December 31, 2017 December 31, 2016 ($1,301,378) ($2,243,671) 26.50% 26.50% (344,865) 1,670 89,942 220,999 32,254 $ -- (594,573) 47,195 79,102 610,335 (142,060) $ -- As of December 31, 2017 the following Deferred tax assets and liabilities have been recognized: Property, Plant and Equipment Exploration & Evaluation Assets Deferred tax liabilities Tax losses carried forward December 31, 2017 ($ 27,000) (1,293,000) (1,320,000) 1,320,000 December 31, 2016 $ 2,000 (701,000) (699,000) 699,000 Net future income tax asset recorded $ -- $ -- As at December 31, 2017 the Company has unrecognized deductible temporary differences aggregating to $17,064,000 (2016: $16,188,000), that are available to offset future taxable income. However these temporary differences relate to companies with a history of losses, and they may not be utilized to offset taxable income. Losses carried forward - Botswana Losses carried forward - Canada Other December 31, 2017 December 31, 2016 $10,832,000 5,661,000 571,000 $ 17,064,000 $10,666,000 4,811,000 711,000 $16,188,000 The Canadian tax losses of $5,662,000 (2016: $4,884,000) expire from 2026 through to 2037. Total assessable losses relating to the activity in Botswana $16,830,150 $13,839,359 December 31, 2017 December 31, 2016 The majority of the Botswana tax losses can be carried forward indefinitely with remaining expiring within five years 7. LOSS PER SHARE Net loss per share was calculated based on the following: Year ended December 31 Net loss for the year Effect of Dilutive Securities Stock options and warrants 2017 2016 ($1,301,378) ($2,243,671) -- -- Diluted net earnings (loss) for the year ($1,301,378) ($2,243,671) 50 The diluted loss per share is the same as the basic loss per share for the year ended December 31, 2017 because the stock options and warrants were anti-dilutive and had no impact on the EPS calculation. 8. RELATED PARTY TRANSACTIONS Remuneration of Key Management Personnel of the Company Short term employee remuneration and benefits Stock based compensation Post employment benefits* 2017 2016 $430,002 $430,001 340,872 37,271 284,447 205,047 Total compensation attributed to key management personnel $808,145 $919,495 *Post employment benefits include NIL of accrued leave benefits through December 31, 2017. (2016: NIL) During the year an individual related to the CEO provided administrative and management services to the Company in 2017 and was remunerated in 2017 in the amount of $36,000 (2016: $36,000). During the year, two individuals related to key management personnel of the company, received $12,684 in stock based compensation during the year (2016 $13,717). There are no other related party transactions. 9. SEGMENTED INFORMATION The Company is operating in one industry. As at December 31, 2017 the Company’s property, plant, and equipment in the United States was $2,109 (2016: $3,354) and in Botswana was $546,336 (2016: $183,984). No revenues were realized for exploration and evaluation properties that are detailed in note 3 above. Segment long-term exploration and evaluations properties in Botswana were $5,934,597 (2016: $4,027,887) and South Africa were $9,222 (2016: $9,008). 10. FINANCIAL INSTRUMENTS The Company’s financial instruments include cash, accounts receivable, accounts payable, accrued liabilities, subscriptions and accrued warrants liabilities. The carrying value of cash, accounts receivable, accounts payable and accrued liabilities as presented in the consolidated financial statements are reasonable estimates of fair values due to the relatively short period to maturity and the terms of these instruments. The Company’s financial instruments have been classified as follows: Financial Instrument Classification Fair Value Hierarchy Cash Accounts receivable Loans and receivables Loans and receivables Accounts payable and accrued liabilities Other financial liabilities Subscriptions Other financial liabilities n/a n/a n/a n/a See the Company’s consolidated statement of financial position for financial instrument balances. 51 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 2016 the Company raised cash capital as shown in note 5(a) in the amount of $6,387,971. No equity capital was raised in 2017. See note 3 for a description of royalty interests sold which provided $1,500,000 in cash to be used in further exploration and evaluation. In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets, which are approved by the Board of Directors and updated as necessary depending on various factors, including capital deployment and general industry conditions. The Company anticipates continuing to access equity markets to fund continued exploration of its mineral properties and the future growth of the business. However, there is no guarantee that such financing will be available when required. (b) Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company maintains sufficient cash balances to meet current working capital requirements. The Company is considered to be in the exploration stage. Thus, it is dependent on obtaining regular financings in order to continue its exploration programs. Despite previous success in acquiring these financings, there is no guarantee of obtaining future financings. The Company’s cash is invested in business accounts with quality financial institutions and which is available on demand for the Company’s programs, and is not invested in any asset backed commercial paper. 52 (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 accounts receivable. The Company limits exposure to credit risk on liquid financial assets through maintaining its cash 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. As at December 31, 2017, a ten percent change in the exchange rate would result in a $53,720 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, 2017, a ten percentage change in the exchange rate would result in a $231,004 impact to the Company’s net comprehensive income (loss). 11. COMMITMENTS AND CONTINGENCIES Prospecting Licenses The Company holds prospecting licenses which require the Company to spend a specified minimum amount on prospecting over the period of the licenses as outlined in note 3. 53 Lease Commitments Currently, the aggregate minimum lease payments are as follows: Year Facility Term BWP USD* Rental Services Total 2017 Hangar Maun1 1/01/2016 – 12/31/2026 103,680 15,562 119,242 11,284 2017 Shakawe Plot2 1/01/2016 – 12/31/2020 72,000 2017 Letlhakane Plot3 2/01/2016 – 1/31/2019 72,000 Total - - 72,000 6,813 72,000 6,813 262,242 24,910 * aggregate costs converted at January 1 of the current calendar year 1The lease has an effective date of January 1, 2016 and continues for 10 years at 8% escalation annually and shall be renewed every three (3) years at market and commercial rates. The initial monthly lease payment is 8,000 BWP / month in addition to a fee of 15% of monthly rental for security and general maintenance at the airport complex. 2The lease has an effective date of January 1, 2016 and is renewable at the company’s option for an additional 4 years expiring on December 31, 2020. The monthly lease payment is 6,000 BWP. The Company prepays 1 year in advance. 3The lease has an effective date of February 1, 2016 and continues for 3 years. The company prepays at least 6 months in advance. 12. NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS December 31 2017 December 31 2016 Net change in non-cash working capital balances (Increase) decrease in accounts receivable and prepaid expenses ($137,094) ($57,490) Increase (decrease) in accounts payable and accrued liabilities (116,423) 52,443 Total ($253,517) ($5,047) 13. SUBSEQUENT EVENTS On January 2, 2018, the Company issued 260,000 options at C$0.65 under its stock option plan to persons who are officers and employees of the Company. On January 3, 2017, 235,000 options at C$1.20 expired. 54 Corporate Information DIRECTORS James M. Bruchs, Chairman McLean, Virginia 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 Cape Town, South Africa Appointed as director in 2009 Thomas S. Bruington Vancouver, British Columbia Appointed as director in 2013 CORPORATE HEAD OFFICE TD Canada Trust Tower Suite 2700 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 Mark Scowcroft Victoria, Seychelles Appointed as director in 2015 Toronto, Ontario Blackie Marole Gaborone, Botswana Appointed as director in 2017 STOCK EXCHANGE LISTING TSX Venture Exchange Trading Symbol: TSD OFFICERS James M. Bruchs, B.Sc., J.D. Chairman and Chief Executive Officer Appointed in 2002 Michiel C. J. de Wit, Ph.D. Cape Town, 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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