TRX GOLD Corp 6-K, filed Jul 16, 2020
TRX GOLD Corp (TRX)
About this 6-K
TRX GOLD Corp filed this 6-K on July 16, 2020.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 or 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of July 2020
Commission File No. 001-32500
TANZANIAN GOLD CORPORATION
(Translation of registrant’s name into English)
#202, 5626 Larch Street, Vancouver, British Columbia, Canada, V6M 4E1
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under the cover Form 20-F or Form 40-F
Form 20-F x Form 40-F o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
Documents included as part of this Report:
Exhibit No. | Document |
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99.1 | Unaudited financial statements for the nine months ended May 31, 2020 |
99.2 | Management’s Discussion & Analysis for the nine months ended May 31, 2020 |
99.3 | |
99.4 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TANZANIAN GOLD CORPORATION |
(Registrant) |
By: | /s/ Donna M. Moroney |
| Donna M. Moroney |
| Corporate Secretary |
Date: | July 15, 2020 |
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Unaudited Interim Condensed Consolidated
Financial Statements
For the three and nine month periods ended
May 31, 2020 and 2019
(expressed in Canadian dollars)
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying unaudited interim consolidated financial statements of Tanzanian Gold Corporation, are the responsibility of the management and Board of Directors of the Company.
The unaudited interim consolidated financial statements have been prepared by management, on behalf of the Board of Directors, in accordance with the accounting policies disclosed in the notes to the unaudited interim consolidated financial statements. Where necessary, management has made informed judgments and estimates in accounting for transactions which were not complete at the statement of financial position date. In the opinion of management, the interim consolidated financial statements have been prepared within acceptable limits of materiality and are in accordance with International Accounting Standard 34 Interim Financial Reporting of International Financial Reporting Standards using accounting policies consistent with International Financial Reporting Standards appropriate in the circumstances.
Management has established systems of internal control over the financial reporting process, which are designed to provide reasonable assurance that relevant and reliable financial information is produced.
The Board of Directors is responsible for reviewing and approving the unaudited interim consolidated financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. An Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the financial reporting process and the unaudited interim consolidated financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the unaudited interim consolidated financial statements together with other financial information of the Company for issuance to the shareholders.
Management recognizes its responsibility for conducting the Company’s affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.
“Jeffrey R. Duval” “Marco Guidi”_______
Jeffrey R. DuvalMarco Guidi
Acting Chief Executive Officer Chief Financial Officer
Tanzanian Gold Corporation (formerly Tanzanian Royalty Exploration Corporation)
Unaudited Interim Condensed Consolidated Statements of Financial Position (Expressed in Canadian Dollars) | ||
As at | May 31, 2020 | August 31, 2019 |
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Assets |
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Current Assets |
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Cash (Note 15) | $ 1,449,386 | $ 3,389,319 |
Other receivables (Note 11) | 614,383 | 625,519 |
Prepaid and other assets (Note 12) | 478,747 | 120,478 |
| 2,542,516 | 4,135,316 |
Property, plant and equipment (Note 4) | 2,214,415 | 1,710,575 |
Inventory (Note 14) | 579,194 | 522,779 |
Mineral properties and deferred exploration (Note 3) | 39,599,097 | 31,750,255 |
| $ 44,935,222 | $ 38,118,925 |
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Liabilities |
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Current Liabilities |
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Trade, other payables and accrued liabilities (Note 13) | $ 6,633,397 | $ 6,225,131 |
Leases payable (Note 4) | 87,903 | 78,784 |
Convertible loan (Note 22) | 6,504,199 | 1,929,244 |
Gold bullion loans (Note 20) | 5,224,933 | 4,998,127 |
Derivatives in gold bullion loans (Note 20) | 2,100,000 | - |
| 20,550,432 | 13,231,286 |
Warrant liability (Note 5) | - | 4,486,444 |
Asset Retirement Obligation (Note 18) | 747,495 | 737,404 |
| 21,297,927 | 18,455,134 |
Shareholders’ equity |
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Share capital (Note 5) | 157,673,093 | 142,251,909 |
Share based payment reserve (Note 7) | 8,970,920 | 8,374,041 |
Warrants reserve (Note 6) | 1,033,037 | 1,033,037 |
Accumulated other comprehensive income (loss) | 833,937 | (114,030) |
Accumulated deficit | (145,461,823) | (132,462,683) |
Equity attributable to owners of the Company | 23,049,164 | 19,082,274 |
Non-controlling interests (Note 19, 3(a)) | 588,131 | 581,517 |
Total shareholders’ equity | 23,637,295 | 19,663,791 |
| $ 44,935,222 | $ 38,118,925 |
Nature of operations and Going Concern (Note 1)
Commitments and Contingencies (Notes 3 and 17)
Events after the reporting period (Note 23)
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
3
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Tanzanian Gold Corporation (formerly Tanzanian Royalty Exploration Corporation)
Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss (Expressed in Canadian Dollars)
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| Three months ended May 31, 2020 | Three months ended May 31, 2019 | Nine months ended May 31, 2020 | Nine months ended May 31, 2019 | ||
Administrative expenses |
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Depreciation (Note 4) | $ 26,327 | $ 87,541 | $ 178,712 | $ 262,622 | ||
Consulting (Note 8) | 361,626 | 298,017 | 1,010,819 | 684,540 | ||
Directors’ fees (Note 8) | 74,765 | 27,906 | 164,953 | 83,719 | ||
Office and general | 59,278 | 39,536 | 184,089 | 130,626 | ||
Shareholder information | 221,537 | 92,032 | 579,336 | 264,207 | ||
Professional fees (Note 8) | 697,298 | 849,407 | 1,290,900 | 1,332,851 | ||
Salaries and benefits | 324,111 | 220,575 | 900,434 | 518,172 | ||
Share based payments (Note 5) | 4,329,710 | 46,000 | 4,340,710 | 183,000 | ||
Travel and accommodation | 11,762 | 8,600 | 80,710 | 23,266 | ||
| (6,106,414) | (1,669,614) | (8,730,663) | (3,483,003) | ||
Other income (expenses) |
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Foreign exchange | (89,180) | 7,081 | (90,390) | 89,766 | ||
Interest, net | (5,350) | (6,201) | (16,883) | (13,232) | ||
Interest accretion (Notes 20 and 22) | (314,462) | (261,718) | (648,782) | (655,405) | ||
Loss on derivative in gold bullion loans (Note 20) | (600,000) | - | (2,100,000) | - | ||
Accretion on asset retirement obligation (Note 18) | (2,860) | (2,815) | (8,580) | (8,446) | ||
Finance costs (Note 21) | (230,418) | (145,454) | (601,173) | (466,310) | ||
Exploration costs | (466,564) | (21,377) | (595,379) | (132,368) | ||
Interest on leases (Note 4) | (2,809) | (2,767) | (7,938) | (7,794) | ||
Settlement of lawsuit | - | (575) | - | (154,251) | ||
Withholding tax costs | (61,465) | (40,756) | (192,738) | (44,754) | ||
Net loss | $ (7,879,522) | $ (2,144,196) | $ (12,992,526) | $ (4,875,797) | ||
Other comprehensive income |
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Foreign currency translation | 738,904 | 1,217,943 | 947,967 | 1,369,469 | ||
Comprehensive loss | $ (7,140,618) | $ (926,253) | $ (12,044,559) | $ (3,506,328) | ||
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Loss attributable to: |
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Parent | (8,030,146) | (2,145,817) | (12,999,140) | (4,868,584) | ||
Non-controlling interests | 150,624 | 1,621 | 6,614 | (7,213) | ||
| $ (7,879,522) | $ (2,144,196) | $ (12,992,526) | $ (4,875,797) | ||
Comprehensive loss attributable to: |
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Parent | (7,473,124) | (1,474,327) | (12,471,144) | (4,122,589) | ||
Non-controlling interests | 332,506 | 548,074 | 426,585 | 616,261 | ||
| $ (7,140,618) | $ (926,253) | $ (12,044,559) | $ (3,506,328) | ||
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Loss per share – basic and diluted attributable to Parent | $ (0.05) | $ (0.02) | $ (0.08) | $ (0.04) | ||
Weighted average # of shares outstanding – basic and diluted | 161,729,645 | 139,201,008 | 157,428,902 | 135,712,289 | ||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
4
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Unaudited Interim Condensed Consolidated Statements of Changes in Equity
(Expressed in Canadian Dollars)
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
5
Tanzanian Gold Corporation (formerly Tanzanian Royalty Exploration Corporation)
Unaudited Interim Condensed Consolidated Statements of Cash Flow (Expressed in Canadian Dollars)
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Nine month periods ended May 31, |
| 2020 | 2019 |
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Operating |
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Net loss |
| $ (12,992,526) | $ (4,875,797) |
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Adjustments to reconcile net loss to cash flow from operating activities: |
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Depreciation |
| 178,712 | 262,622 |
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Share based payments |
| 4,340,710 | 183,000 |
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Loss on derivative in gold bullion loans |
| 2,100,000 | - |
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Accretion on asset retirement obligation |
| 8,580 | 8,446 |
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Interest accretion |
| 648,782 | 655,405 |
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Foreign exchange |
| 274,573 | (291,873) |
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Shares issued for payment of interest on bullion loans |
| 469,589 | 466,310 |
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Loss on shares issued for settlement of debt |
| - | 30,116 |
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Net change in non-cash operating working capital items: |
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Other receivables |
| 11,136 | (191,528) |
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Inventory |
| (56,415) | (16,951) |
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Prepaid expenses |
| (66,028) | (39,298) |
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Trade, other payables and accrued liabilities |
| 244,604 | 755,367 |
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Cash used in operating activities |
| (4,838,283) | (3,054,181) |
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Investing |
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Mineral properties and deferred exploration costs, net of recoveries |
| (6,448,335) | (1,919,793) |
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Purchase of property, plant and equipment |
| (625,681) | (20,062) |
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Cash used in investing activities |
| (7,074,016) | (1,939,855) |
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Financing |
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Issuance of common shares for cash, net of issue costs
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| 4,634,051 | 3,833,378 |
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Interest on leases
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| 9,119 | 9,084 |
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Proceeds from issuance of convertible loans
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| 5,612,589 | 1,596,401 |
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Repayment of convertible loans
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| (283,393) | - |
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Proceeds from gold bullion loans
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| - | 287,800 |
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Cash provided by financing activities |
| 9,972,366 | 5,726,663 |
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Net (decrease) increase in cash |
| (1,939,933) | 732,627 |
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Cash, beginning of period |
| 3,389,319 | 426,062 |
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Cash, end of period
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| $ 1,449,386 | $ 1,158,689 |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
6
Tanzanian Gold Corporation (formerly Tanzanian Royalty Exploration Corporation)
Unaudited Interim Condensed Consolidated Statements of Cash Flow (Expressed in Canadian Dollars)
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Supplementary information: |
| 2020 | 2019 |
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Non-cash transactions: |
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Shares issued for interest on loans |
| $ 469,589 | $ 555,800 |
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Shares issued as financing fee for convertible loans |
| 348,395 | 396,194 |
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Shares on conversion of loans |
| 865,624 | 1,362,587 |
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Shares issued for compensation |
| 4,329,710 | - |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
7
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
1.Nature of Operations and Going Concern
The Company was originally incorporated under the corporate name “424547 Alberta Ltd.” in the Province of Alberta on July 5, 1990, under the Business Corporations Act (Alberta). The name of the Company was changed to Tanzanian Gold Corporation on April 11, 2019 (“Tanzanian” or the “Company”). The address of the Company’s registered office is 400 3rd Avenue SW, Suite 3700, Calgary, Alberta, T2P 4H2, Canada. The Company’s principal business activity is in the exploration and development of mineral property interests. The Company’s mineral properties are located in United Republic of Tanzania (“Tanzania”).
The Company is in the process of exploring and evaluating its mineral properties. The business of exploring and mining for minerals involves a high degree of risk. The underlying value of the mineral properties is dependent upon the existence and economic recovery of mineral resources and reserves, the ability to raise long-term financing to complete the development of the properties, government policies and regulations, and upon future profitable production or, alternatively, upon the Company’s ability to dispose of its interest on an advantageous basis; all of which are uncertain.
The amounts shown as mineral properties and deferred exploration expenditures represent costs incurred to date, less amounts amortized and/or written off, and do not necessarily represent present or future values. The underlying value of the mineral properties is entirely dependent on the existence of economically recoverable reserves, securing and maintaining title and beneficial interest, the ability of the Company to obtain the necessary financing to complete development, and future profitable production.
At May 31, 2020 the Company had a working capital deficiency of $18,007,916 (August 31, 2019 – $9,095,970), had not yet achieved profitable operations, has accumulated losses of $145,461,823 (August 31, 2019 – $132,462,683). The Company will require additional financing in order to conduct its planned work programs on mineral properties, meet its ongoing levels of corporate overhead and discharge its future liabilities as they come due.
The Company’s current funding sources and taking into account the working capital position and capital requirements at May 31, 2020, indicate the existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern and is dependent on the Company raising additional debt or equity financing. The Company must obtain additional funding in order to continue development and construction of the Buckreef Project. The Company is continuing to pursue additional financing to fund the construction of the Buckreef Project and additional projects. Whilst the Company has been successful in obtaining financing in the past, there is no assurance that such additional funding and/or project financing will be obtained or obtained on commercially favourable terms.
These unaudited interim condensed consolidated financial statements do not give effect to any adjustment which would be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the consolidated financial statements.
8
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
2. Basis of Preparation
2.1 Statement of compliance
These unaudited interim condensed consolidated financial statements, including comparatives, have been prepared in accordance with International Accounting Standards (“IAS”) 34 ‘Interim Financial Reporting’ (“IAS 34”) using accounting policies consistent with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
These unaudited interim condensed consolidated financial statements were approved and authorized by the Board of Directors of the Company on July 13, 2020.
2.2 Basis of presentation
The consolidated financial statements of the Company as at and for the three and nine month periods ended May 31, 2020 and 2019 comprise of the Company and its subsidiaries (together referred to as the “Company” or “Group”).
These unaudited interim condensed consolidated financial statements have been prepared on the basis of accounting policies and methods of computation consistent with those applied in the Company’s August 31, 2019 annual financial statements, except for standards adopted during the period as noted below.
2.3Adoption of new and revised standards and interpretations
Adoption of New Accounting Standards
The adoption of the following new standards, interpretations and amendments where included in the financial statements for the year beginning September 1, 2019.
IFRS 16 Leases (“IFRS 16”), was issued in January 2016 and it replaces IAS 17 Leases. IFRS 16 requires entities to recognize lease assets and lease obligations on the balance sheet. IFRS 16 eliminates the classification of leases as either operating leases or finance leases for a lessee. Instead leases are “capitalized” by recognizing the present value of the lease payments and showing them either as lease assets (right-of-use assets) or together with property, plant and equipment. If lease payments are made over time, a company also recognizes a financial liability representing its obligations to make future lease payments. IFRS 16 is effective for fiscal periods beginning on or after January 1, 2019.
The Company did not have any operating leases in place as at September 1, 2019, as such, there was no impact on adoption of the standard.
2.4 COVID-19
At the end of 2019, a novel strain of coronavirus (“COVID-19”) was reported in China. The COVID-19 outbreak has developed rapidly in 2020, with a significant number of infections around the world. On March 11, 2020, it was labelled a pandemic by the World Health Organization. During the first quarter of 2020, attempts at containment of COVID-19 have resulted in decreased economic activity, which has adversely affected the broader global economy. The rapid development and fluidity of the situation precludes any prediction as to the ultimate impact of COVID-19; however, the Company seeks to obtain the best possible information to enable the assessment of the risks involved, and implement appropriate measures to respond. During the nine month period ended May 31, 2020, the Company has taken a number of measures to safeguard the health of its employees and the local communities where it operates.
9
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
3.Mineral Properties and Deferred Exploration
The Company explores or acquires gold or other precious metal concessions through its own efforts or through the efforts of its subsidiaries. All of the Company’s concessions are located in Tanzania.
The Company’s mineral interests in Tanzania are initially held under prospecting licenses granted pursuant to the Mining Act, 2010 (Tanzania) for a period of up to four years, and are renewable two times for a period of up to two years each. Annual rental fees for prospecting licenses are based on the total area of the license measured in square kilometres, multiplied by US$100/sq.km for the initial period, US$150/sq.km for the first renewal and US$200/sq.km for the second renewal. With each renewal at least 50% of the licensed area, if greater than 20 square kilometres, must be relinquished and if the Company wishes to keep the relinquished one-half portion, it must file a new application for the relinquished portion. There is also an initial one-time “preparation fee” of US$500 per license. Upon renewal, there is a renewal fee of US$300 per license.
Section 30 of the Mining Act states that the amount that is to be spent on prospecting operations is to be prescribed by Regulation.
Period | Minimum expenditure (US$) |
Initial period (4 years) | $500 per sq km for annum |
First renewal (3 years) | $1,000 per sq km for annum |
Second renewal (2 years) | $2,000 per sq km for annum |
Certain of the Company’s prospecting licenses are currently being renewed.
The Company assessed the carrying value of mineral properties and deferred exploration costs as at May 31, 2020 and recorded a write-down of $nil during the nine month period ended May 31, 2020 (2019 - $nil).
10
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
3.Mineral Properties and Deferred Exploration (continued)
The continuity of expenditures on mineral properties is as follows:
11
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
3.Mineral Properties and Deferred Exploration (continued)
(a) Buckreef Gold Project:
On December 21, 2010, the Company announced it was the successful bidder for the Buckreef Gold Mine Re-development Project in northern Tanzania (the “Buckreef Project”). Pursuant to the agreement dated December 16, 2010, the Company paid US$3,000,000 to the State Mining Company (“Stamico”). On October 25, 2011, a Definitive Joint Venture Agreement was entered into with Stamico for the development of the Buckreef Gold Project. Through its wholly-owned subsidiary, Tanzam, the Company holds a 55% interest in the joint venture company, Buckreef Gold Company Limited, with Stamico holding the remaining 45%.
The Company has 100% control over all aspects of the joint venture. In accordance with the joint venture agreement, the Company has to arrange financing, incur expenditures, make all decisions and operate the mine in the future. The Company’s obligations and commitments include completing a preliminary economic assessment, feasibility study and mine development. Stamico’s involvement is to contribute the licences and rights to the property and receive a 45% interest in Buckreef Project.
The joint venture agreement contains an obligation clause regarding the commissioning date for the plant. The clause becomes effective only in the event the property is not brought into production before a specified future date which was originally estimated to be in December 2015. The Company shall be entitled to extend the date for one additional year:
i) for the extension year, on payment to Stamico of US$500,000;
ii) for the second extension year, on payment to Stamico of US$625,000; and
iii) for each subsequent extension year, on payment to Stamico of US$750,000.
The Company has received a request letter from Stamico regarding the status of the penalty payment and has responded that no penalty is due at this time. The Company has received a subsequent letter from Stamico regarding request for payment. It remains the Company’s position that no penalty is due at this time, but the Company and Stamico have been engaged in settlement discussions to resolve this issue, and a payment of $172,330 has been made in connection with the settlement discussions to be applied towards the amount owing with the remainder to be paid out of proceeds of production. As at May 31, 2020 USD $306,412 remains accrued to be paid over eight instalments through April 2021.
The Company has recognized a non-controlling interest (NCI) in respect of Stamico’s 45% interest in the consolidated financial statements based on the initial payment by the Company to Stamico and will be adjusted based on annual exploration and related expenditures. Stamico has a free carried interest and does not contribute to exploration expenses.
There is a supervisory board made up of 4 directors of Tanzam and 3 directors of Stamico, whom are updated with periodic reports and review major decisions. Amounts paid to Stamico and subsequent expenditures on the property are capitalized to mineral properties or inventory for costs directly related to the extraction and processing of ore and reported under Buckreef Gold Company Limited.
(b) Kigosi:
The Kigosi Project is principally located within the Kigosi Game Reserve controlled area. Through prospecting and mining option agreements, the Company has options to acquire interests in several Kigosi prospecting licenses (the “Kigosi Mining License”). The Company has an agreement with Stamico providing Stamico a 15% carried interest in the Kigosi Project.
12
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
3.Mineral Properties and Deferred Exploration (continued)
(b) Kigosi:
The Kigosi Mining License was granted by the Ministry of Energy and Minerals of Tanzania to Tanzam, (wholly owned subsidiary of Tanzanian). The official signing ceremony of the Kigosi Mining License was held in October 2013 and was attended by the Company and Ministry for Energy and Minerals representatives. The area remains subject to a Game Reserve Declaration Order. Upon repeal or amendment of that order by degazzeting the respective license by the Tanzanian government, the Company will be legally entitled to exercise its rights under the Mineral Rights and Mining Licence.
During 2019 the Company received a notice of cancellation of mining license relating to the Kigosi Mining License for failure to satisfy the issues raised in the default notice. The Company has disagreed the notice sent by the government followed due process under Tanzanian law, as such, the Company filed an appeal to this notification. The Company recorded a write off of $12,769,216 for the year ended August 31, 2019 related to the property pending the result of the appeal.
(c) Itetemia Project:
Through prospecting and mining option agreements, the Company has options to acquire interests in several ltetemia property prospecting licenses. The licenses are held by the Company; through the Company's subsidiaries, Tancan or Tanzam. In the case of one prospecting license, Tancan acquired its interest pursuant to the Stamico Venture Agreement dated July 12, 1994, as amended June 18, 2001, July 2005, and October 13, 2008.
Stamico retains a 2% royalty interest as well as a right to earn back an additional 20% interest in the prospecting license by meeting 20% of the costs required to place the property into production. The Company retains the right to purchase one-half of Stamico's 2% royalty interest in exchange for US$1,000,000.
The Company is required to pay Stamico an annual option fee of US$25,000 per annum until commercial production.
During 2019 the Company received a notice of rejection of the mining license application for Itetamia, for failure to have complied with regulations. The Company disagreed the notice sent by the government followed due process under Tanzanian law, as such, the Company filed an appeal to this notification. The Company recorded a write off of $6,059,044 for the year ended August 31, 2019 related to the property pending the result of the appeal.
(d) Luhala Project:
The Company has selected a consultant to prepare the resource report for the Luhala Project in anticipation of filing for a Mining License for development of the site. Once funds are available the contract to engage the consultant to carry out the development work will be initiated.
During the year ended August 31, 2019, the Company recorded a write off of $3,401,492 related to the property to reflect the Company’s intentions on focusing and developing the Buckreef project.
13
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
4.Property, plant and equipment
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| Automotive | Computer Equipment | Machinery and equipment | Leasehold improvements | Heap leach pads | Construction-in-progress * | Total | |||||||||
Cost |
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As at September 1, 2018 |
| $ 14,783 | $ 65,970 | $ 1,300,721 | $ 99,832 | $ 1,490,851 | $ 1,381,969 | $ 4,354,126 | |||||||||
Additions |
| - | 4,950 | - | 21,147 | - | - | 26,097 | |||||||||
Disposals |
| - | (7,142) | - | - | - | - | (7,142) | |||||||||
Foreign exchange |
| 319 | 1,676 | 28,457 | 3,079 | 32,528 | 36,732 | 102,791 | |||||||||
As at August 31, 2019 |
| $ 15,102 | $ 65,454 | $ 1,329,178 | $ 124,058 | $ 1,523,379 | $ 1,418,701 | $ 4,475,872 | |||||||||
Additions |
| 29,342 | 83,629 | 81,360 | - | - | 431,350 | 625,681 | |||||||||
Foreign exchange |
| 1,537 | 4,470 | 41,924 | 2,919 | 13,749 | 4,351 | 68,950 | |||||||||
As at May 31, 2020 |
| $ 45,981 | $ 153,553 | $ 1,452,462 | $ 126,977 | $ 1,537,128 | $ 1,854,402 | $ 5,170,503 | |||||||||
Accumulated depreciation |
|
|
|
|
|
|
|
| |||||||||
As at September 1, 2018 |
| $ 14,552 | $ 48,911 | $ 1,143,231 | $ 78,759 | $ 1,068,694 | $ - | $ 2,354,147 | |||||||||
Depreciation expense |
| 12 | 7,191 | 36,718 | 4,956 | 304,238 | - | 353,115 | |||||||||
Disposals |
| - | (5,214) | - | - | - | - | (5,214) | |||||||||
Foreign exchange |
| 312 | 1,394 | 25,817 | 1,867 | 33,859 | - | 63,249 | |||||||||
As at August 31, 2019 |
| $ 14,876 | $ 52,282 | $ 1,205,766 | $ 85,582 | $ 1,406,791 | $ - | $ 2,765,297 | |||||||||
Depreciation expense |
| 7,014 | 19,380 | 18,615 | 3,451 | 130,252 | - | 178,712 | |||||||||
Foreign exchange |
| 485 | 576 | 10,121 | 1,012 | 85 | - | 12,279 | |||||||||
As at May 31, 2020 |
| $ 22,375 | $ 72,238 | $ 1,234,502 | $ 90,045 | $ 1,537,128 | $ - | $ 2,956,288 | |||||||||
Net book value |
|
|
|
|
|
|
|
| |||||||||
As at August 31, 2018 |
| $ 231 | $ 17,059 | $ 157,490 | $ 21,073 | $ 422,157 | $ 1,381,969 | $ 1,999,979 | |||||||||
As at August 31, 2019 |
| $ 226 | $ 13,172 | $ 123,412 | $ 38,476 | $ 116,588 | $ 1,418,701 | $ 1,710,575 | |||||||||
As at May 31, 2020 |
| $ 23,606 | $ 81,315 | $ 217,960 | $ 36,932 | $ - | $ 1,854,402 | $ 2,214,215 | |||||||||
* Construction in progress represents construction of the Company’s processing plant.
14
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
4.Property, plant and equipment (continued)
Sale-leaseback transaction:
As at May 31, 2020, the remaining balance outstanding under finance lease obligations after the settlements described above is $87,903 (August 31, 2019 - $78,784) and is repayable within 1 year, as such, the finance lease obligation is classified as a current liability.
Interest expense for the nine month period ended May 31, 2020 related to the leases amounted to $7,938 (2019 - $7,794), and is recorded in the statement of comprehensive loss.
5. Capital Stock
Share Capital
The Company’s Restated Articles of Incorporation authorize the Company to issue an unlimited number of common shares.
| Number | Amount ($)
($) |
Balance at September 1, 2018 | 125,162,803 | $ 127,003,132 |
Issued for private placements, net of share issue costs | 13,435,503 | 8,911,230 |
Shares issued for interest on gold and convertible loans | 1,836,229 | 699,651 |
Shares issued for settlement of convertible and gold loans (Note 20 and 22) | 7,789,895 | 2,781,473 |
Transfer of conversion component on conversion of convertible loans | - | 1,402,631 |
Finders fees on convertible and gold bullion loans (Note 20 and 22) | 686,446 | 581,181 |
Stock options exercised | 63,333 | 26,333 |
Transfer of reserve on exercise of stock options | - | 27,722 |
Warrants exercised | 85,127 | 215,000 |
Issued for legal appeal (Note 17) | 1,332,222 | 603,556 |
Balance at August 31, 2019 | 150,391,558 | $ 142,251,909 |
Issued for cash, net of share issue costs | 6,768,634 | 4,634,051 |
Shares issued for settlement of convertible and gold loans (Note 20 and 22) | 1,991,977 | 865,624 |
Transfer of conversion component on conversion of convertible loans | - | 87,371 |
Shares issued for interest on gold and convertible loans | 1,159,324 | 469,589 |
Shares issued for services | 5,623,000 | 4,329,710 |
Finders fees on convertible and gold bullion loans (Note 20 and 22) | 464,527 | 348,395 |
Warrants exercised | 5,434,896 | 4,686,444 |
Balance at May 31, 2020 | 171,833,916 | $ 157,673,093 |
Activity during the nine month period ended May 31, 2020:
During the nine month period ended May 31, 2020, the Company issued 6,768,674 common shares at an average price of USD $0.575 per common share, raising an aggregate net proceeds, net of share issue costs of $503,934, of $4,634,051 (US $3,559,000).
During the nine month period ended May 31, 2020, 4,017,857 warrants expiring on September 26, 2021 were exercised by way of cashless exercise into 5,434,896 common shares of the Company which resulted in the transfer of the associated value of $4,686,444 from warrant liability to share capital.
During the nine month period ended May 31, 2020, 1,159,324 shares were issued at an average price of $0.41 per share for total issued value of $469,589 for payment of interest (see Notes 20 and 22 for details).
15
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
5.Capital Stock (continued)
On April 15, 2020 the Company issued 5,623,000 common shares at a price of $0.75 per share with total value of $4,329,710 for compensation to various officers, directors, consultants and employees.
Activity during the year ended August 31, 2019:
During the year ended August 31, 2019, the Company issued 13,435,503 common shares at an average price of US $0.53 per common share, raising an aggregate net proceeds, net of share issue costs of $349,709, of $8,911,230 (US $7,158,934).
During the year ended August 31, 2019, 257,143 warrants expiring on December 9, 2019 were exercised by way of cashless exercise into 85,127 common shares of the Company which resulted in the transfer of the associated value of $215,000 from reserve for warrants to share capital.
During the year ended August 31, 2019, 1,836,229 shares were issued at an average price of $0.38 per share for total issued value of $699,969 for payment of interest (see Notes 20 and 22 for details).
During the year ended August 31, 2019, the Company issued 686,446 common shares at a price of $0.85 per share for total issued value of $581,181 for payment of finders fees in connection with the convertible and gold bullion loans (see Notes 20 and 22 for details).
Warrant issuances:
Activity during the nine month period ended May 31, 2020:
There were no warrant issuances during the nine month period ended May 31, 2020.
Activity during the year ended August 31, 2019:
There were no warrant issuances during the year ended August 31, 2019.
Warrants and Compensation Options outstanding:
At May 31, 2020, the following warrants and compensation warrants were outstanding:
| Number of Warrants |
Exercise price |
Expiry date |
Private placement financing agent warrants - September 26, 2016 | 214,285 | USD$0.9515 | September 26, 2021 |
Private placement financing agent warrants - September 1, 2016 | 73,616 | USD$0.8718 | September 1, 2021 |
|
|
|
|
Balance, May 31, 2020 | 287,901 | - | - |
The outstanding warrants have weighted average price of US$0.93 and weighted average remaining contractual life of 1.30 years.
16
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
5.Capital Stock (continued)
Warrant liability:
Foreign currency denominated warrants (not including compensation warrants), are considered a derivative as they are not indexed solely to the entity’s own stock.
The warrant liability at May 31, 2020 and August 31, 2019 relates to the outstanding balance of nil and 4,017,857 warrants, respectively, which were issued as part of the September 26, 2016 private placement and are exercisable at the option of the holder into common shares for no consideration. This cashless exercise right is only in effect if the current market price is less than the exercise price of US$1.10. (Note 17)
Restricted share units:
The Restricted Stock Unit Plan (the “RSU Plan”) is intended to enhance the Company’s and its affiliates’ abilities to attract and retain highly qualified officers, directors, key employees and other persons, and to motivate such officers, directors, key employees and other persons to serve the Company and its affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the RSU Plan provides for the grant of restricted stock units (RSUs). Each RSU represents an entitlement to one common share of the Company, upon vesting. Under the RSU Plan, a maximum of 2,500,000 shares are authorized for issuance. RSU awards may, but need not, be subject to performance incentives to reward attainment of annual or long-term performance goals in accordance with the terms of the RSU Plan. Any such performance goals are specified in the award agreement.
The Board of Directors implemented the RSU Plan under which officers, directors, employees and others are compensated for their services to the Company. Annual compensation for outside directors is $68,750 per year, plus $6,875 per year for serving on Committees, plus $3,437 per year for serving as Chair of a Committee. On April 11, 2012, the board approved that at the election of each individual director, up to one half of the annual compensation may be received in cash, paid quarterly. The remainder of the director’s annual compensation (at least one half, and up to 100%) will be awarded as RSUs in accordance with the terms of the RSU Plan and shall vest within a minimum of one (1) year and a maximum of three (3) years, at the election of the director, subject to the conditions of the RSU Plan with respect to earlier vesting. In 2012, the outside directors had the option to elect to receive 100% of their compensation in RSUs. If 100% compensation in RSUs is elected, the compensation on which the number of RSUs granted in excess of the required one half shall be increased by 20%.
The Company uses the fair value method to recognize the obligation and compensation expense associated with the RSU’s. The fair value of RSU’s issued is determined on the grant date based on the market price of the common shares on the grant date multiplied by the number of RSUs granted. The fair value is expensed over the vesting term. Upon redemption of the RSU the carrying amount is recorded as an increase in common share capital and a reduction in the share based payment reserve.
Of the 2,500,000 shares authorized for issuance under the RSU Plan, 2,500,000 (August 31, 2019 - 2,500,000) shares have been issued as at May 31, 2020.
17
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
5.Capital Stock (continued)
Stock options:
The Company has a stock option plan (the “Plan”) under which the Company may grant options to directors, officers, employees and consultants. The maximum number of common shares reserved for issue under the Plan at any point in time may not exceed 10% of the number of shares issued and outstanding. The purpose of the Plan is to attract, retain and motivate directors, officers, employees, and certain third party service providers by providing them with the opportunity to acquire a proprietary interest in the Company and benefit from its growth. Options granted under the Plan are non-assignable and vest over various terms up to 24 months from the date of grant. As at May 31, 2020, the Company had 9,831,391 (August 31, 2019 – 7,687,155) options available for issuance under the Plan.
The continuity of outstanding stock options for the nine month period ended May 31, 2020 and year ended August 31, 2019 is as follows:
| Number of stock options |
| Weighted average exercise price per share |
Balance – August 31, 2018 | 7,432,000 |
| 0.41 |
Exercised | (63,333) |
| (0.42) |
Cancelled | (16,667) |
| (0.43) |
Balance – August 31, 2019 and May 31, 2020 | 7,352,000 | $ | 0.41 |
(i)On September 29, 2017, the Company granted 3,582,000 stock options to directors, officers and employees of the Company. The options are exercisable at CAD$0.43 per share expiring on September 29, 2026. The resulting fair value of $1,183,000 was estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 76%; a risk-free interest rate of 1.98% and an expected average life of 9 years. Volatility and expected life were based on historical experience. The options are subject to a vesting period whereby 1/3 of the options vest immediately, 1/3 vest on September 29, 2018 with the remaining 1/3 vesting on September 29, 2019.
Share based payments based on the portion vested during the nine month period ended May 31, 2020 amounted to $11,000 (2019 - $183,000).
(ii)On January 2, 2018, the Company granted 100,000 stock options to a consultant of the Company. The options are exercisable at CAD$0.35 per share expiring on January 2, 2028. The resulting fair value of $31,000 was estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 96%; a risk-free interest rate of 2.08% and an expected average life of 10 years. Volatility and expected life were based on historical experience. The options are subject to a vesting period whereby 1/4 of the options vest every three months through to January 2, 2019.
Share based payments based on the portion vested during the nine month period ended May 31, 2020 amounted to $nil (2019 - $3,000).
18
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
5.Capital Stock (continued)
Stock options (continued)
Options to purchase common shares carry exercise prices and terms to maturity as follows:
|
|
| Remaining | |
Exercise price (1) | Number of options | Expiry | contractual | |
Outstanding $ | Outstanding | Exercisable | date | life (years) (1) |
CAD0.35 | 100,000 | 100,000 | January 2, 2028 | 7.59 |
CAD0.40 | 3,720,000 | 2,480,000 | September 29, 2026 | 6.33 |
CAD0.43 | 3,532,000 | 3,532,000 | October 11, 2026 | 6.36 |
CAD0.41 | 7,352,000 | 7,352,000 |
| 6.36 |
(1)Total represents weighted average.
6.Reserve for warrants
Period/Year ended | May 31, 2020 | August 31, 2019 |
Balance at beginning of period/year | $ 1,033,037 | $ 1,248,037 |
Exercise of warrants | - | (215,000) |
Balance at end of period/year | $ 1,033,037 | $ 1,033,037 |
7.Reserve for share based payments
Period/Year ended | May 31, 2020 | August 31, 2019 |
Balance at beginning of period/year | $ 8,374,041 | $ 9,394,394 |
Share based compensation – Stock options | 11,000 | 236,000 |
Conversion component of convertible loans | 673,250 | 174,000 |
Transfer of reserve on conversion of convertible loans | (87,371) | (1,402,631) |
Transfer of reserve on exercise of stock options | - | (27,722) |
Balance at end of period/year | $ 8,970,920 | $ 8,374,041 |
19
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
8. Related party transactions and key management compensation
Related parties include the Board of Directors and officers, close family members and enterprises that are controlled by these individuals as well as certain consultants performing similar functions.
(a) Tanzanian Gold Corporation entered into the following transactions with related parties:
Nine months ended, | Notes | May 31, 2020 | May 31, 2019 |
Legal services | (i) | $Nil | $Nil |
Consulting | (ii) | $182,461 | $167,407 |
Consulting | (iii) | $325,734 | $246,602 |
Consulting | (iv) | $60,814 | $150,950 |
(i) The Company previously engaged a legal firm for professional services in which one of the Company’s directors is a partner. During the nine month period ended May 31, 2020, the legal expense charged by the firm was $nil (2019 - $nil). As at May 31, 2020, $335,940 remains payable (August 31, 2019 - $335,940).
(ii) During the nine month period ended May 31, 2020, $182,461 (2019 - $167,407) was paid for consulting and website/data back-up services to companies controlled by individuals associated with the former CEO and current director.
(iii) During the nine month period ended May 31, 2020, $325,734 (2019 - $246,602) was paid for drill mobilization, advances on drilling services, and payments due under agreement, to Stamico, the Company’s joint venture partner on the Buckreef Gold Project.
(iv) During the nine month period ended May 31, 2020, $60,814 (2019 - $150,950) was paid for consulting services to a company controlled by a director.
As at May 31, 2020, the Company has a receivable of $67,119 (August 31, 2019 - $45,368) from an organization associated with the Company’s President and former CEO and current director and from current officers and directors. The Company also has a receivable of $34,188 (August 31, 2019 - $33,071) from Stamico.
As at May 31, 2020, the Company has outstanding leases due under lease obligations as described in note 4 of $87,903 (August 31, 2019 - $78,784) repayable within 1 year.
20
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
8. Related party transactions and key management compensation (continued)
(b) Remuneration of Directors and key management personnel (being the Company’s Chief Executive Officer, Chief Financial Officer and Chief Operating Officer) of the Company was as follows:
Nine months ended May 31, | 2020 | 2019 | ||
| Fees, salaries and benefits (1) | Share based payments (2), (3) | Fees, salaries and benefits (1) | Share based payments (2), (3) |
Management | $ 478,310 | $ 2,117,500 | $ 425,337 | $ nil |
Directors | 164,953 | 1,247,400 | 83,719 | nil |
Total | $ 643,263 | $ 3,364,900 | $ 509,056 | $ nil |
(1) Salaries and benefits include director fees. The board of directors do not have employment or service contracts with the Company. Directors are entitled to director fees and RSU’s for their services and officers are entitled to cash remuneration and RSU’s for their services.
(2) All stock option share based compensation is based on the accounting expense recorded in the year.
As at May 31, 2020, included in trade and other payables is $1,130,000 (August 31, 2019 - $927,000) due to these key management personnel with no specific terms of repayment.
9. Management of Capital
The Company's objective when managing capital is to obtain adequate levels of funding to support its exploration activities, to obtain corporate and administrative functions necessary to support organizational functioning, to obtain sufficient funding to further the identification and development of precious metals deposits, and to develop and construct low cost heap leach gold production mines.
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business. The Company defines capital to include its shareholders’ equity. In order to carry out the planned exploration and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. The Company will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geologic or economic potential and if it has adequate financial resources to do so. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There were no changes in the Company's approach to capital management during the nine month period ended May 31, 2020. The Company is not subject to externally imposed capital requirements.
The Company considers its capital to be shareholders’ equity, which is comprised of share capital, reserves, and deficit, which as at May 31, 2020 totaled $23,049,164 (August 31, 2019 - $19,082,274).
The Company raises capital, as necessary, to meet its needs and take advantage of perceived opportunities and, therefore, does not have a numeric target for its capital structure. Funds are primarily secured through equity capital raised by way of private placements, however, debt and other financing alternatives may be utilized as well. There can be no assurance that the Company will be able to continue raising equity capital in this manner.
21
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
9. Management of Capital (continued)
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.
The Company invests all capital that is surplus to its immediate operational needs in short term, liquid and highly rated financial instruments, such as cash, and short term guarantee deposits, all held with major Canadian financial institutions and Canadian treasury deposits.
Fair Value of Financial Instruments
Cash and derivatives are classified as fair value through profit and loss, Trade and Other Receivables are measured at amortized cost. Trade and other payables, leases payable, convertible loans and gold bullion loans are classified as other financial liabilities, which are measured at amortized cost. Fair value of trade and other payables and convertible loans are determined from transaction values that are not based on observable market data.
The carrying value of the Company’s cash, other receivables, trade and other payables approximate their fair value due to the relatively short term nature of these instruments.
Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment, therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The Company classifies its financial instruments carried at fair value according to a three level hierarchy that reflects the significance of the inputs used in making the fair value measurements. The three levels of fair value hierarchy are as follows:
·Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
·Level 2 - Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly;
·Level 3 – Inputs for assets or liabilities that are not based on observable market data
As at May 31, 2020 and August 31, 2019, cash is recorded at fair value under level 1 within the fair value hierarchy and the derivatives in the gold bullion loans are classified as Level 2 within the fair value hierarchy. See Note 20 for further information on the fair value of the derivatives in the gold bullion loans.
The carrying value of cash, other receivables, accounts payable and accrued liabilities, leases payable, convertible loans and gold bullion loans approximate fair value because of the limited terms of these instruments.
A summary of the Company's risk exposures as they relate to financial instruments are reflected below:
Credit Risk
Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its contractual obligations. The Company is subject to credit risk on the cash balances at the bank and accounts and other receivables and the carrying value of those accounts represent the Company’s maximum exposure to credit risk. The Company’s cash and short-term bank investments are with Schedule 1 banks or equivalents. The other receivables consist primarily of amounts due from government taxation authorities. The Company has not recorded an impairment or allowance for credit risk as at May 31, 2020, or August 31, 2019.
22
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
10. Financial Instruments (continued)
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rate. The Company’s bank accounts earn interest income at variable rates. The bullion loan carries a fixed rate of interest. The Company’s future interest income is exposed to changes in short-term rates. As at May 31, 2020, a 1% increase/decrease in interest rates would decrease/increase net loss for the period by approximately $14,000 (2019 - $12,000).
Liquidity Risk
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at May 31, 2020, the Company had current assets of $2,542,516 (August 31, 2019 - $4,135,316) and current liabilities of $20,550,432 (August 31, 2019 - $13,231,286). All of the Company’s trade payables and receivables have contractual maturities of less than 90 days and are subject to normal trade terms. Current working capital deficiency of the Company is $18,007,916 (August 31, 2019 - $9,095,970). The Company will require additional financing in order to conduct its planned work programs on mineral properties and the development and construction of the Buckreef Project, meet its ongoing levels of corporate overhead and discharge its liabilities as they come due.
Foreign Currency Risk
The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company has offices in Canada, USA, and Tanzania, but holds cash mainly in Canadian and United States currencies. A significant change in the currency exchange rates between the Canadian dollar relative to US dollar and Tanzanian shillings could have an effect on the Company’s results of operations, financial position, or cash flows. At May 31, 2020, the Company had no hedging agreements in place with respect to foreign exchange rates. As a majority of the transactions of the Company are denominated in US and Tanzanian Shilling currencies, a 10% movement in the foreign exchange rate will have an impact of approximate $1,509,000 on the statements of comprehensive loss.
11. Other receivables
The Company’s other receivables arise from two main sources: receivables due from related parties and harmonized services tax (“HST”) and value added tax (“VAT”) receivable from government taxation authorities. These are broken down as follows:
| May 31, 2020 | August 31, 2019 |
|
|
|
Receivable from related parties | $ 67,119 | $ 78,439 |
HST and VAT receivable | 502,245 | 526,983 |
Other | 45,019 | 20,097 |
Other Receivables | $ 614,383 | $ 625,519 |
Below is an aged analysis of the Company’s other receivables:
| May 31, 2020 | August 31, 2019 |
|
|
|
Less than 1 month | $ 96,445 | $ 88,143 |
1 to 3 months | 214,601 | 111,239 |
Over 3 months | 303,337 | 426,137 |
Total Other Receivables | $ 614,383 | $ 625,519 |
23
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
11. Other receivables (continued)
At May 31, 2020, the Company anticipates full recovery of these amounts and therefore no impairment has been recorded against these receivables. The credit risk on the receivables has been further discussed in Note 10.
The Company holds no collateral for any receivable amounts outstanding as at May 31, 2020.
12. Prepaid and other assets
| May 31, 2020 | August 31, 2019 |
|
|
|
Insurance | $ 39,690 | $ 13,500 |
Listing fees | 69,528 | 39,114 |
Other | 71,050 | 67,864 |
Gold bullion (1) | 298,479 | - |
Total Prepaid Expenses | $ 478,747 | $ 120,478 |
(1)As at May 31, 2020, the Company held 125 ounces of gold in connection with gold loans received as detailed in Note 20. The ounces were valued at $298,479 and were converted to cash subsequent to May 31, 2020.
13. Trade, other payables and accrued liabilities
Trade and other payables of the Company are principally comprised of amounts outstanding for trade purchases relating to exploration activities and payroll liabilities. The usual credit period taken for trade purchases is between 30 to 90 days.
The following is an aged analysis of the trade, other payables and accrued liabilities:
| May 31, 2020 | August 31, 2019 |
|
|
|
Less than 1 month | $ 720,075 | $ 839,215 |
1 to 3 months | 1,438,524 | 403,532 |
Over 3 months | 4,474,798 | 4,982,384 |
Total Trade, Other Payables and Accrued Liabilities | $ 6,633,397 | $ 6,225,131 |
14. Inventory
Inventory consists of stockpiled ore and supplies consumed during the course of exploration development and operations. Cost represents the delivered price of the item. The following is a breakdown of items in inventory:
| May 31, 2020 | August 31, 2019 |
|
|
|
Stockpiled ore and work in progress | $ 535,881 | $ 518,375 |
Supplies | 43,313 | 4,404 |
Total Inventory | $ 579,194 | $ 522,779 |
24
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
15. Cash
As at May 31, 2020, cash totalled $1,449,386 (August 31, 2019 - $3,389,319), consisting of cash on deposit with banks in general minimum interest bearing accounts.
16. Segmented information
Operating Segments
At May 31, 2020 the Company’s operations comprise of a single reporting operating segment engaged in mineral exploration in Tanzania. The Company’s corporate division only earns interest revenue that is considered incidental to the activities of the Company and therefore does not meet the definition of an operating segment as defined in IFRS 8 ‘Operating Segments’. As the operations comprise a single reporting segment, amounts disclosed in the consolidated financial statements also represent operating segment amounts.
An operating segment is defined as a component of the Company:
• that engages in business activities from which it may earn revenues and incur expenses;
• whose operating results are reviewed regularly by the entity’s chief operating decision maker; and
• for which discrete financial information is available.
Geographic Segments
The Company is in the business of mineral exploration and production in the country of Tanzania. Information concerning the Company’s geographic locations is as follows:
| As at May 31, 2020 | As at August 31, 2019 |
Identifiable assets |
|
|
Canada | $ 2,058,484 | $ 3,567,316 |
Tanzania | 42,876,738 | 34,551,609 |
| $ 44,935,222 | $ 38,118,925 |
Non-current assets |
|
|
Canada | $ 74,083 | $ 14,731 |
Tanzania | 42,318,623 | 33,968,878 |
| $ 42,392,706 | $ 33,983,609 |
25
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
17. Commitments and Contingencies
Commitments:
In order to maintain the existing site of mining and exploration licenses, the Company is required to pay annual license fees. The Company has not paid certain of its annual license fees since October 2014 with exception of Buckreef mining licenses. As at May 31, 2020 an accrual of $347,000 (August 31, 2019 - $680,000) has been recorded relating to unpaid license fees and resultant penalties. These licenses remain in good standing until a letter of demand is received from Ministry of Energy and Minerals requesting payment of any unpaid license fees plus 50% penalty, and the Company fails to respond within 30 days. The Company has not received a letter of demand. The potential penalty relating to unpaid license fees is approximately $116,000 (August 31, 2019 - $211,000). The Company has recorded an accrual for all valid and active mining licenses.
Contingencies:
Due to the size, complexity and nature of the Company’s operations, various legal, tax, environmental and regulatory matters are outstanding from time to time. By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events.
On January 19, 2018, Crede CG III, LTD (“Crede”) filed suit against the Company in the Supreme Court of the State of New York, County of New York, claiming, among other things, breach of contract for failure to allow Crede to exercise 1,300,000 Series A Warrants to acquire 3,100,751 common shares. The Series A Warrants were issued, along with Series B Warrants (the Series A Warrants and Series B Warrants, collectively “Warrants), in connection with a Securities Purchase Agreement entered into on September 1, 2016. In response to the complaint, the Company’s attorneys initiated correspondence with Crede’s attorneys regarding Crede’s January 19, 2018 complaint. On February 27, 2018, Crede dismissed its complaint against the Company without prejudice. On March 12, 2018, Crede filed suit against the Company in the Supreme Court of the State of New York, County of New York (Index No. 651156/2018) (“State Claim”), claiming breach of contract (including specific performance and injunctive relief); declaratory judgment that the Securities Purchase Agreement and Warrants are binding obligations; and, in the event injunctive and declaratory relief was not ordered, awarding compensatory and punitive damages, and attorney fees and costs for failure to allow Crede to exercise 500,000 Series B Warrants to acquire 1,332,222 common shares. On June 20, 2019, the Supreme Court of the State of New York, County of New York granted summary judgment to Crede on its December 3, 2018, motion for specific performance for the issuance of 1,332,222 common shares pursuant to the Series B Warrants and declaratory relief that the terms of the Securities Purchase Agreement and Warrants are valid. On August 21, 2019, the Company filed a notice of appeal and sought a stay of the summary judgement order in the State Claim pending appeal. On February 4, 2020, the Appellate Division, First Judicial Department, Supreme Court of the State of New York affirmed the Supreme Court of the State of New York, County of New York’s granting of summary judgment to Crede under the Securities Purchase Agreement and Warrants. On or around February 11, 2020, the Company filed an appeal of the Appellate Division’s February 4, 2020 decision which was subsequently denied. In February and May of 2020, Crede exercised its remaining 3,517,857 series B Warrants and the Company issued 5,434,896 common shares, in the aggregate, to them. After these exerxises, Crede no longer has outstanding Warrants.
26
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
17. Commitments and Contingencies (continued)
On May 10, 2018, we filed a complaint in the United States District Court Southern District of New York (Case No. 18–Civ-4201) (“Federal Claim”) against Crede and certain of its principals, and others, alleging, among other things, violation of certain acts under the Securities Exchange Act, as amended (“Exchange Act”). On March 26, 2019, the District Court dismissed certain of our claims against the defendants, but allowed certain claims under Exchange Act for market manipulation and breach of the covenant of good faith and fair dealing by Crede to continue. On May 28, 2020, we filed a second amended complaint in the Federal Court alleging, among other things, that Crede and certain of its principals manipulated the price of the Company’s common shares, breached the September 1, 2016 registration rights agreement entered into with the Company, and violated Section 10(b) and Rule 10b-5 promulgated thereunder and Section 13(d) of the Exchange Act. The Federal Claim is in its initial stage and limited discovery has been initiated.
18. Asset Retirement Obligation
The Company's asset retirement obligation relates to the cost of removing and restoring of the Buckreef Project in Tanzania. Significant reclamation and closure activities include land rehabilitation, demolition of buildings and mine facilities, ongoing care and maintenance and other costs. This estimate depends on the development of environmentally acceptable mine closure plan.
A reconciliation for asset retirement obligations is as follows: | |||
| May 31, 2020 | August 31, 2019 | |
Balance, beginning of period/year | $ 737,404 | $ 726,143 | |
Accretion expense | 8,580 | 11,261 | |
Foreign exchange | 1,511 | - | |
Balance, end of period/year | $ 747,495 | $ 737,404 | |
The mine closure provision liability is based upon the following estimates and assumptions:
a)Total undiscounted amount of future retirement costs was estimated to be US$522,000.
b)Risk-free rate at 1.58%.
c)Expected timing of cash outflows required to settle the obligation is for the full amount to be paid in 2025.
d)Inflation over the period is estimated to be 1.5% per annum.
27
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
19. Non-Controlling Interest
The changes to the non-controlling interest for the nine month periods ended May 31, 2020 and year ended August 31, 2019 are as follows:
Period/Year ended | May 31, 2020 | August 31, 2019 |
Balance at beginning of period/year | $ 581,517 | $ 700,310 |
Non-controlling interest’s 45% share of Buckreef’s comprehensive income (loss) | 6,614 | (118,793) |
Balance at end of period/year | $ 588,131 | $ 581,517 |
The following is summarized financial information for Buckreef:
| May 31, 2020 | August 31, 2019 |
Current assets | $ 354,984 | $ 522,780 |
Long term assets | $ 30,216,418 | $ 22,331,000 |
Current liabilities | $ (17,002) | $ (16,446) |
Asset retirement obligation | $ (747,495) | $ (737,404) |
Advances from parent | $ (32,912,993) | $ (25,585,385) |
|
|
|
Comprehensive loss for the period/year | $ (320,217) | $ (263,984) |
20. Gold Bullion Loans
Activity during the nine month period ended May 31, 2020:
During the nine month period ended May 31, 2020, the Company closed $292,241 (US $203,750) in gold loans.
Under the terms of the loan agreements, the bullion loans are for a period of one year, are subject to renewal, and carry an 8% interest rate payable quarterly. At the sole discretion of the Lender, the bullion loans may be repaid in cash or common shares of the Company or gold in specified form at the option of the lender. The bullion loans may be converted into common shares of the Company at the sole discretion of the lenders at an exercise price of US$0.3417 per share. Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.3417 per share. There is no prepayment penalty.
The Company recorded the equity portion of the conversion component in equity which amounted to $32,000.
During the nine month period ended May 31, 2020 the Company settled $224,513 (US$169,000) of principal amount of outstanding loans through the issuance of 504,419 shares.
Activity during the year ended August 31, 2019:
During the year ended August 31, 2019, the Company closed $287,800 (US $216,857) in gold loans.
Under the terms of the loan agreements, the bullion loans are for a period of one year, are subject to renewal, and carry an 8% interest rate payable quarterly. At the sole discretion of the Lender, the bullion loans may be repaid in cash or common shares of the Company or gold in specified form at the option of the lender. The bullion loans may be converted into common shares of the Company at the sole discretion of the lenders at an exercise price of US$0.3357 per share. Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.3357 per share. There is no prepayment penalty.
28
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
20. Gold Bullion Loans (continued)
The Company recorded the equity portion of the conversion component in equity which amounted to $32,000.
During the year ended August 31, 2019 the Company settled $130,670 (US$100,000) of principal amount of outstanding loans through the issuance of 402,077 shares.
Outstanding balance:
The balance of the gold bullion loans is as follows:
| May 31, 2020 | August 31, 2019 |
Balance at beginning of period/year | $ 4,998,127 | $ 4,622,351 |
Loans received | 292,241 | 287,800 |
Less: repayment of loans converted to shares | (224,513) | (130,670) |
Less: conversion component of loans and finders fees | (32,000) | (120,000) |
Interest accrued | 300,065 | 375,921 |
Issuance of shares for interest payment | (342,976) | (311,015) |
Interest accretion | 45,333 | 268,280 |
Foreign exchange translation adjustment | 188,656 | 5,460 |
Balance at end of period/year | $ 5,224,933 | $ 4,998,127 |
Interest expense related to the gold bullion loan amounted to $300,065 (2019 - $284,842), for the nine month period ended May 31, 2020 and is recorded as finance charge in the statements of comprehensive loss. Accretion expense during the nine month period ended May 31, 2020 totaled $45,333 (2019 - $222,030).
Derivatives in the gold bullion loans:
If lenders elect repayment in gold, the Company may have to purchase approximately 3,326 ounces of gold in the market in order to repay the loans. At May 31, 2020, the value of 3,326 ounces of gold was approximately $7,900,000.
The Company estimated the fair value of the derivatives embedded in the gold bullion loans to be $2,100,000 as at May 31, 2020, and recognized a loss of $600,000 and $2,100,000 in the statement of loss and comprehensive loss for the three-month period and nine-month period ended May 31, 2020 respectively.
The embedded derivatives were valued using a Monte Carlo simulation utilizing the following observable inputs:
·Risk free rate – range between 0.13% to 0.18%
·Gold spot price – $1,731
·Implied volatility – 18%
As all inputs used in the model are observable, the derivatives fall in Level 2 of the fair value hierarchy.
29
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
21. Finance costs
Finance costs comprises of the following:
| Nine months ended May 31, 2020 | Nine months ended May 31, 2019 |
| |||
|
|
|
| |||
Interest on Gold Bullion Loans (Note 20) | $ 300,065 | $ 284,842 |
| |||
Interest on Convertible Loans (Note 22) | 301,108 | 181,468 |
| |||
| $ 601,173 | $ 466,310 |
| |||
22. Convertible loans
Activity during the nine month period ended May 31, 2020:
During the nine month period ended May 31, 2020, the Company received loans in the amount of $5,612,589 (US$4,144,493) with a one year term with a right to extend by 1 additional year by mutual consent, carrying an 8% interest rate payable quarterly. The convertible loans may be repaid in cash or common shares of the Company at the option of the lender. The convertible loan may be converted into common shares of the Company at the sole discretion of the lender at an exercise price of US$0.3417 - US$0.598 per share. Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.3417 - US$0.598 per share.
The Company recorded the equity portion of the conversion component in equity which amounted to $641,250.
In connection with the convertible loans, the Company paid a finder’s fee via the issuance of an aggregate of 464,527 common shares with a value of $348,395.
During the nine month period ended May 31, 2020, the Company settled $636,582 (US$475,000) of principal amount of outstanding loans through the issuance of 1,487,558 shares. The Company also repaid $283,393 (USD$200,000) in cash.
Activity during the year ended August 31, 2019:
During the year ended August 31, 2019, the Company received loans in the amount of $1,596,401 (US$1,230,799) with a one year term with a right to extend by 1 additional year by mutual consent, carrying an 8% interest rate payable quarterly. The convertible loans may be repaid in cash or common shares of the Company at the option of the lender. The convertible loan may be converted into common shares of the Company at the sole discretion of the lender at an exercise price of US$0.27 - US$0.34 per share. Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.27 - US$0.34 per share.
During the year ended August 31, 2019, the Company settled $2,614,343 (US$2,028,768) of principal amount of outstanding loans through the issuance of 7,387,818 shares.
In connection with the gold loans described in note 20 and the convertible loans, the Company paid a finder’s fee via the issuance of an aggregate of 686,446 common shares with a value of $581,181. The finders fee was allocated proportionally between the gold loans and convertible loans, the portion allocated to the convertible loans amounted to $494,000.
30
Tanzanian Gold Corporation
(formerly Tanzanian Royalty Exploration Corporation)
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Month Periods Ended May 31, 2020 and 2019
(Expressed in Canadian dollars)
22. Convertible loans (continued)
The balance of the convertible loans is as follows:
| May 31, 2020 | August 31, 2019 |
Balance at beginning of period/year | $ 1,929,244 | $ 2,875,420 |
Proceeds from convertible loans | 5,612,589 | 1,596,401 |
Conversion of convertible loan to shares | (636,582) | (2,614,343) |
Repayment in cash | (283,393) | - |
Less: conversion component of convertible loans | (641,250) | (141,000) |
Less: finders fee | (348,395) | (494,000) |
Interest accrued | 301,108 | 229,854 |
Issuance of shares for interest payment | (126,613) | (206,962) |
Interest accretion | 603,449 | 720,250 |
Foreign exchange | 94,042 | (36,376) |
Balance at end of period/year | $ 6,504,199 | $ 1,929,244 |
Interest accretion expense related to these loans during the nine month period ended May 31, 2020 totaled $603,449 (2019 - $433,375).
23. Events after the reporting period
Subsequent to May 31, 2020 the Company settled USD$3,758,813 of principal amount of outstanding gold loans through the issuance of 13,831,467 shares.
Subsequent to May 31, 2020 the Company settled USD$4,620,662 of principal amount of outstanding convertible loans through the issuance of 10,967,416 shares.
31
Management Discussion and Analysis
May 31, 2020
The following Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations for Tanzanian Royalty Exploration Corporation (the “Company”) should be read in conjunction with the unaudited interim condensed consolidated financial statements for the three and nine month period ended May 31, 2020 and 2019 and the audited consolidated financial statements for the years ended August 31, 2019 and 2018. The MD&A was prepared as of July 15, 2020. All amounts are in Canadian dollars, unless otherwise specified.
Highlights – for the year ended August 31, 2019 and nine month period ended May 31, 2020
Financial:
·Subsequent to May 31, 2020 the Company settled USD$3,758,813 of principal amount of outstanding gold loans through the issuance of 13,831,467 shares.
·Subsequent to May 31, 2020 the Company settled USD$4,620,662 of principal amount of outstanding convertible loans through the issuance of 10,967,416 shares.
·During the nine month period ended May 31, 2020, the Company received convertible loans in the amount of $5,612,589 (US$4,144,493) and gold bullion loans in the amount of $292,241 (US $203,750), with a one year term with a right to extend by 1 additional year by mutual consent, carrying an 8% interest rate payable quarterly. At the sole discretion of the Lender, the bullion loans may be repaid in cash or common shares of the Company or gold in specified form at the option of the lender. The convertible loans may be repaid in cash or common shares of the Company at the option of the lender. The convertible loans and gold loans may be converted into common shares of the Company at the sole discretion of the lender at an exercise price of US$0.3417 - US$0.598 per share. Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.3417 - US$0.598 per share.
During the nine month period ended May 31, 2020 the Company settled $224,513 (US$169,000) of principal amount of outstanding loans through the issuance of 504,419 shares.
During the nine month period ended May 31, 2020, the Company settled $636,582 (US$475,000) of principal amount of outstanding loans through the issuance of 904,764 shares. The Company also repaid $283,393 (USD$200,000) in cash.
·On December 18, 2019, the Company announced that it completed the sale of 6,695,652 common shares raising USD $3,850,000.
·On August 13, 2019, the Company closed a public offering of 4,000,000 common shares at US$0.75 raising US $3,000,000.
·On July 1, 2019, the Company closed a registered direct offering of 1,916,379 common shares at US$0.58 per share raising US $1,111,500.
·On May 3, 2019, the Company completed the sale of 2,316,084 common shares at US $0.66 per share raising US $1,530,700 in the aggregate in a registered direct offering.
1
Management Discussion and Analysis
May 31, 2020
·On April 18, 2019, the Company completed the sale of 606,165 common shares at US $0.58 per share raising US $350,000 in the aggregate with three investors in a registered direct offering.
·On March 4, 2019, the Company completed the sale of 625,557 common shares at a price of US $0.45 per common share, raising an aggregate of US $281,000 in a registered direct offering.
On January 16, 2019, the Company completed the sale of 3,924,386 common shares at a price of US $0.23 per common share, raising an aggregate of $1,172,798 (US $885,734) in a registered direct offering. Share issue costs amounted to $103,591 for net proceeds of $1,069,207.
·During the year ended August 31, 2019, the Company closed $287,800 (US $216,857) in gold loans.
Under the terms of the loan agreements, the bullion loans are for a period of one year, are subject to renewal, and carry an 8% interest rate payable quarterly. At the sole discretion of the lender, the bullion loans may be repaid in cash or common shares of the Company or gold in specified form at the option of the lender. If the bullion loans are paid back by bullion, the valuation date for such bullion will be the date of the loan agreements. The bullion loans may be converted into common shares of the Company at the sole discretion of the lenders at an exercise price of US$0.3357 per share. Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.3357 per share. There is no prepayment penalty.
During the year ended August 31, 2019 the Company settled $130,670 (US$100,000) of principal amount of outstanding loans through the issuance of 402,077 common shares.
·During the year ended August 31, 2019, the Company received loans in the amount of $1,596,401 (US$1,230,799) with a one year term with a right to extend by one additional year by mutual consent, carrying an 8% interest rate payable quarterly. The convertible loans may be repaid in cash or common shares of the Company at the option of the lender. The convertible loan may be converted into common shares of the Company at the sole discretion of the lender at an exercise prices ranging from US$0.27 to US$0.34 per share. Interest is payable quarterly, either in cash or in shares at the option of the lender at prices ranging from US$0.27 - US$0.34 per share.
During the year ended August 31, 2019, the Company settled $2,614,343 (US$2,028,768) of principal amount of outstanding loans through the issuance of 7,387,818 common shares.
·In connection with the gold loans described in note 21 and the convertible loans, the Company paid a finder’s fee via the issuance of an aggregate of 686,446 common shares with a value of $581,181. The finder’s fee was allocated proportionally between the gold loans and convertible loans.
2
Management Discussion and Analysis
May 31, 2020
Operational:
·A new team that constitutes the in-house mining crew was engaged in order to supervise and direct the mining activities by consultant firm, FEMA.
·The start-up TSF design was completed and subsequently incorporated into the Environmental Management Audit Management Report for 2020 that was filed with NEMC, Mwanza branch.
·An application to register the TSF was subsequently submitted to the Ministry of Water and Irrigation (MOWI) and Ministry of Minerals (MOM).
·Officials from both ministries subsequently came to site to inspect the proposed site and construction of the TSF. Their initial evaluation reports are awaited. An application for the renewal of the Buckreef Chemical usage permit was submitted to the Government Laboratory Agency (Chief Government Chemist) in Mwanza.
·Based on the long list of additional metallurgical test-work (as per submissions in the RFPs) still to be conducted on the Buckreef oxide ore, management opted to fabricate, install and operate a 5TPH CIL process plant as a prelude to the main 15tph CIL process plant EPCM tender award.
·Conversion of the existing CIC process plant into a 5tph CIL process plant to assist with additional metallurgical test-work on the Buckreef oxide ore as well as commence gold production progressed well during the month.
·15tph process plant tender internal adjudication by Virimai Projects of the 6 RFPs completed and submitted to Technical Working Committee and Buckreef Board of Directors. Actual award of the tender will be done in June 2020 after completion of Local Content Regulatory requirements with the offices of the Mining Commission of Tanzania on such procurements.
·The Company completed processing Phase 1 & 2 Resource upgrade drilling results and thereafter engaged Virimai Projects Pvt Ltd who compiled an Independent Mineral Resource Update Technical Report for the Buckreef project. The ITR report was submitted for review by the British Columbia Securities Commission and will be published as a public NI43-101 compliant document in mid-June 2020.
·The Buckreef prospect shear zone hosted mineral resources (Measured & Indicated) at a cut-off grade of 0.5g/t as updated now stands at 35.88Mt @ 1.77g/t with ~2.04Moz of contained gold, up from a 2018 estimate of 21.99Mt @ 1.54g/t with 1.09Moz of contained gold. The combined total mineral resources (Measured & Indicated) for the Buckreef Project as updated now stands at 38.57Mt @ 1.77g/t with ~2.19Moz of contained gold.
3
Management Discussion and Analysis
May 31, 2020
·The Company continued with its Phase 3 deep drilling program targeting down dip and strike extensions of the Buckreef Main zone at elevations up to 700m below the current pit bottom. A combined total of 2 3891.32m (RC pre-collar: 479m & Core tailing: 1 910.32m) were drilled during the reporting period.
·Mining in the oxide ore starter pit commenced during the reporting period. Initial mining plan aimed at stripping the topsoil and waste material in the central section of the new pit to expose medium to high grade ores for immediate processing by the 5tph CIL process plant to achieve a first gold pour by end of June 2020.
·The mining stats for the reporting period are as follows:
§Topsoil and Waste rock: 43,041t
§High-grade Oxide Ore: 1,632t @4.0g/t Au &
§Low-grade oxide Ore: 873t @0.65g/t Au
·In order to maintain the existing site of mining and exploration licenses, the Company is required to pay annual license fees for both active licenses and any other licenses that have since forfeited with a debt. The Company has paid certain of its annual license fees for all active licenses except for some forfeited or lapsed licenses since October 2014.
·Based on the new regulations that have been enacted by the Mining Commission, some of the Company’s forfeited licenses still carry an outstanding debt (incurred before and by the time of the forfeiture). The Company has cleared off all outstanding debts for licenses (current and forfeited) for Tanzam2000 as per the payment schedule agreed with the Ministry of Mines.
·The list of Company’s license holdings portfolio now comprises 32 Active & 101 Forfeited licenses. The Active licenses are made up as follows: Tancan-3, Buckreef-14 & Tanzam2000-17 split into three main categories as Retain (21), JV (1) & Discard (12).
·Cumulative annual fees liabilities for the portfolio now stand at US$370,413.25 broken as follows: Active PLs 20/21 upcoming annual rents (US$118,400) & Forfeited PLs (US$249,240.75) inclusive of penalty fees liability as of 31st May 2020. The drop in grade is attributed to in-situ leaching with remnant cyanide over a 4 year period and the pregnant solution was never monitored but diluted with rain water and subsequently lost to the environment over the 4 year period as well.
·The Itetemia ML and Kigosi ML applications were arbitrarily cancelled by the Mining Commission without any formal communications on the outcome of the Company’s original applications submitted in November 2015 and due to a miscommunication on default letter sent to the wrong address respectively. The two court cases to resolve these issues are still being reviewed through our attorneys at the High Court of Tanzania.
4
Management Discussion and Analysis
May 31, 2020
Overall Performance
As at May 31, 2020, the Company had current assets of $2,542,516, compared to $4,135,316 on August 31, 2019. The increase is mainly due to inflows from proceeds of convertible loans issued of $5,612,589 (2019 - $1,596,401), inflows from proceeds of gold loans issued of $nil (2019 - $287,800), as well as inflows from proceeds of private placements, net off issue costs, of $4,634,051 (2019 - $3,833,378) offset by outflows in regard to expenditures on exploration of $6,448,335 (2019 - $1,919,793), additions to property, plant and equipment of $625,881 (2019 - $20,062) and cash used in operations of $4,838,083 (2019 - $3,054,181). Mineral properties and deferred exploration assets were $39,599,097 as at May 31, 2020, compared to $31,750,255 at August 31, 2019.
Net loss for the nine month period ended May 31, 2020 was $12,992,526, compared to a net loss of $4,875,797 in the nine month period ended May 31, 2019. Net loss increased in the current period, primarily due to share based compensation in the amount of $4,340,710 (2019 - $183,000), a loss on valuation of the derivative in gold bullion loans of $2,100,000 (2019 - $nil), as well as increases in consulting expenses, salaries and benefits as well as shareholder information costs, whose variances are further discussed below.
Share Capital:
During the nine month period ended May 31, 2020, the Company issued 1,159,324 (2019 – 1,444,023) common shares with a value of $469,589 (2019 - $555,800) in connection with interest payments related to the convertible loans and gold bullion loans outstanding. The Company also issued shares for cash during the nine month period ended May 31, 2020 issuing 6,768,634 (2019 – 7,472,192) common shares for proceeds of $4,634,051 (2019 - $3,807,045). The Company issued 1,991,997 common shares (2019 – 6,704,335) with a value of $865,624 (2019 - $2,313,694) for settlement of convertible loans as well. The Company also issued 5,623,000 shares (2019 – nil) with a value of $4,329,710 (2019 - $nil) for compensation to directors, officers and consultants. Finally, the Company issued 5,434,896 shares (2019 – nil) in connection with the cashless exercise of warrants upon which the Company transferred $4,686,444 from warrant liability to share capital. In the current period, capital was utilized for the Buckreef Project development, property acquisition, exploration, capital equipment purchases and general operating expenses as tabulated below. The remaining funds/cash liquid assets, when available, are invested in interest bearing investments, which are highly liquid.
| C$ (000) |
Funds available August 31, 2019 | 3,389 |
Net proceeds from convertible loans and gold bullion loans | 5,613 |
Repayment of convertible loan | (283) |
Net proceeds from private placements, net of issue cost | 4,634 |
Mineral property expenditures including licences, environmental and exploration, net of recoveries | (6,448) |
Additions to property, plant and equipment | (626) |
General corporate expenses | (4,830) |
Funds available May 31, 2020 | $1,449 |
5
Management Discussion and Analysis
May 31, 2020
Based on the Company’s current funding sources and taking into account the working capital position and capital requirements at May 31, 2020, these factors indicate the existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern and is dependent on the Company raising additional debt or equity financing. The Company must obtain additional funding in order to continue development and construction of the Buckreef Project. The Company presently does not have adequate resources to maintain its core activities for the next fiscal year or sufficient working capital to fund all of its planned activities. The Company is continuing to pursue additional financing to fund the construction of the Buckreef Project and additional projects. However there is no assurance that such additional funding and/or project financing will be obtained or obtained on commercially favourable terms.
Additional funding may be derived from revenues generated in the future from anticipated completion and operation of its Buckreef mine currently under development. Management continues to explore alternative financing sources in the form of equity, debt or a combination thereof; however, the current economic uncertainty and financial market volatility make it difficult to predict success. Risk factors potentially influencing the Company’s ability to raise equity or debt financing include: the outcome of the feasibility study at the Buckreef Project, mineral prices, the risk of operating in a foreign country, including, without limitation, risks relating to permitting, and the buoyancy of the credit and equity markets. For a more detailed list of risk factors, refer to the Company’s Form 20-F Annual Report for the year ended August 31, 2019, which is filed on SEDAR as the Company’s Annual Information Form.
Due to the current low interest rate environment and lack of funds, interest income is not expected to be a significant source of income or cash flow. Management intends to monitor spending and assess results on an ongoing basis and will make appropriate changes as required.
TRENDS
·There are significant uncertainties regarding the prices of precious and base metals and other minerals and the availability of equity and debt financing for the purposes of mineral exploration and development. The prices of precious and base metals have been subject to extreme volatility over recent periods, as such the Company remains cautious;
·The Company’s future performance is largely tied to development of the Buckreef project and other main projects and outcome of future drilling results; and
·Current financial markets are likely to be volatile in Canada and the United States for the remainder of the fiscal year, reflecting ongoing concerns about the stability of the global economy. As well, concern about global growth may lead to future drops in the commodity markets. Uncertainty in the credit markets has also led to increased difficulties in borrowing or raising funds. Companies worldwide have been negatively affected by these trends. As a result, the Company may have difficulties raising equity and debt financing for the purposes of base and precious metals exploration and development.
·The outbreak of COVID-19 has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. Measures taken to contain the spread of the virus, including travel bans, quarantines, social distancing, and closures of non-essential services have triggered significant disruptions to businesses worldwide, resulting in an economic slowdown. The duration and impact of the COVID-19 pandemic is unclear at this time and as a result it is not possible for management to estimate the severity of the impact it may have on the financial results and
6
Management Discussion and Analysis
May 31, 2020
operations of the Company in future periods. It is management’s assumption that the Company will continue to operate as a going concern.
These trends may limit the Company’s ability to discover and develop an economically viable mineral deposit.
Selected Financial Information
| As at and for the nine month period ended May 31, 2020 | As at and for the year ended August 31, 2019 | As at and for the year ended August 31, 2018 |
Total Revenues | $0 | $0 | $0 |
Net income (loss) for the period | $(12,992,526) | $(29,317,517) | $(6,897,397) |
Basic income (loss) per share | $(0.08) | $(0.22) | $(0.06) |
Diluted income (loss) per share | $(0.08) | $(0.22) | $(0.06) |
Total assets | $44,935,222 | $38,618,925 | $53,235,140 |
Total long term financial liabilities | $747,495 | $737,404 | $726,143 |
Cash dividends declared per share | $0 | $0 | $0 |
Results of Operations
Net additions to mineral properties and deferred exploration costs for the nine month period ended May 31, 2020 were $7,848,842 compared to $3,828,858 for the nine month period ended May 31, 2019. Out of the net additions, $1,236,845 (2019 - $1,799,248 increase) represents an increase/decrease due to foreign exchange on functional currency in the current period. The increase excluding these amounts saw expenditures of $6,611,997 for the nine month period ended May 31, 2020 compared to $2,029,610 during 2019. The expenditures increased compared with the prior year due to the ongoing drilling and exploration program initiated in the prior fiscal year as well as work completed to construct and initiate mining at Buckreef.
Net loss for the nine month period ended May 31, 2020 was $12,992,526, compared to a net loss of $4,875,797 for the comparable nine month period ended May 31, 2019. Net loss increased in the current period, primarily due to share based compensation in the amount of $4,340,710 (2019 - $183,000), a loss on valuation of the derivative in gold bullion loans of $2,100,000 (2019 - $nil), as well as increases in consulting expenses, salaries and benefits as well as shareholder information costs, whose variances are further discussed below. For the three month periods ended May 31, 2020 and 2019, there was a net loss of $7,879,522 compared to a net loss of $2,144,196, respectively. Net loss increased between the two periods primarily due to the same reasons for the increase in the nine month period.
Variances in expenditures are set out below:
For the nine month period ended May 31, 2020, depreciation expense was $178,712, compared to $262,622 for the nine month period ended May 31, 2019. Depreciation expense decrease slightly as the net book value amortization base decreased compared to the prior period and the heap leach pads were fully amortized in the period therefore no additional depreciation expense was reflected.
7
Management Discussion and Analysis
May 31, 2020
Consulting fees for the nine month period ended May 31, 2020 were $1,010,819, compared to $684,540 in the comparable nine month period ended May 31, 2019. Consulting expenses were higher in the current year due to additional work and consulting work at Buckreef as well as corporate in connection with promotional and other activities. Consulting fees for the three months ended May 31, 2020 were $361,626 compared to $298,017 in the comparable period ended May 31, 2019. The reason for the increase for the three month period is the same as above.
Directors’ fees for the nine month period ended May 31, 2020 were $164,953, compared to $83,719 in the comparable nine month period ended May 31, 2019. The amounts increased in the current period due to additional fees to directors. For the three month period ended May 31, 2020, director fees amounted to $74,765 (2019 - $27,906). The reason for the increase is the same as for the nine month period.
Office and general expenses for the nine month period ended May 31, 2020 were $184,089, compared to $130,626 in the comparable nine month period ended May 31, 2019. Office and general costs increased between the comparable period due to the increased activity at site with the current drill program which increased supporting office and general expenditures. For the three month period ended May 31, 2020, office and general expenses were $59,278 compared to $39,536 in the comparable period ended May 31, 2019. The reason for the increase for the three month period is the same as above.
Shareholder information costs for the nine month period ended May 31, 2020 increased to $579,336 from $264,207 for the comparable nine month period ended May 31, 2019. The amounts increased during the current period due to an investor relations initiative including a shareholder promotion program and investor shows initiated in the current period. For the three month period ended May 31, 2020, shareholder information costs were $221,537 compared to $92,032 for the three month period ended May 31, 2019. The reason for the increase is the same as for the nine month period.
Professional fees decreased by $41,951 for the nine month period ended May 31, 2020 to $1,290,900 from $1,332,851 for the nine month period ended May 31, 2019. Professional fees were consistent between the two periods. For the three month period ended May 31, 2020 professional fees went from $849,407 for the three month period ended May 31, 2019 to $697,298. The reason for the decrease is due to timing of work on the litigation as described in the unaudited interim condensed consolidated financial statements for the three and nine month periods ended May 31, 2020 and 2019.
Salaries and benefits expense increased to $900,434 for the nine month period ended May 31, 2020 from $518,172 for the nine month period ended May 31, 2019. Salaries and benefits increased in line with the overall increased activity due to the current drill and exploration program underway which resulted in addition in personnel in Tanzania and one employee at head office as well. The expenses for the corresponding three month period ending May 31, 2020 and 2019 were $324,111 and $220,575 respectively and increased for the same reason described above.
Share based payments for the nine month period ended May 31, 2020 were $4,340,710, compared to $183,000 in the comparable nine month period ended May 31, 2019. The increase is due to 5,623,000 shares with a value of $4,329,710 which were issued as compensation to various directors, officers and consultants. There was also an expense associated with vesting of options issued in prior years which resulted in compensation of $11,000 (2018 - $183,000), see note 5 of the unaudited interim condensed consolidated financial statements for the three and nine month periods ended May 31, 2020 and 2019 for details of stock options issued.
8
Management Discussion and Analysis
May 31, 2020
For the nine month period ended May 31, 2020, travel and accommodation expense were higher at $80,710 compared to $23,266 in 2019. Travel and accommodation expense increased due to increased travel to site given the current exploration program. For the three months ended May 31, 2020 and 2019, travel and accommodation went from $8,600 in 2019 to $11,762. Travel and accommodation expense for the three month period also increased due to increased travel to site given the current exploration program.
For the nine month period ended May 31, 2020, the foreign exchange loss was $90,390 compared to an exchange gain of $119,882 for the same nine month period ended May 31, 2019. The primary reason is the US Dollar exchange rate decreasing from 1.353 at August 31, 2019 to 1.377 at May 31, 2020.
The interest accretion expense for the nine month period ended May 31, 2020 was $648,782, compared to $655,405 for the nine month period ended May 31, 2019. Interest accretion remained relatively consistent between the two periods.
A loss of $2,100,000 (2019 – $nil) was recognized during the nine month period ended May 31, 2020, in connection with the revaluation of the derivative in gold bullion loans. The derivative in gold bullion loans is revalued at every reporting period using Monte Carlo simulation utilizing the stochastic process using Geometric Brownian motion which is a continuous time stochastic process in which the logarithm of the randomly varying quantity follows a Brownian motion. See note 20 of the unaudited interim condensed consolidated financial statements for the three and nine month periods ended May 31, 2020 and 2019 for details.
Summary of Quarterly Results (unaudited)
(Expressed in thousands of dollars, except per share amounts)
| 2020 Q3 | 2020 Q2 | 2020 Q1 | 2019 Q4 | 2019 Q3 | 2019 Q2 | 2019 Q1 | 2018 Q4 | |||||||
Total revenues | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | |||||||
Net Income (Loss) | $(7,880) | $(1,995) | $(1,618) | $(24,442) | $(2,144) | $(1,339) | $(1,392) | $(1,877) | |||||||
Basic and diluted income (loss) per share |
$(0.05) |
$(0.02) |
$(0.01) |
$(0.18) |
$(0.02) |
$(0.01) |
$(0.01) |
$(0.02) | |||||||
Liquidity and Capital Resources – Going Concern Discussion
The Company manages liquidity risk by maintaining adequate cash balances in order to meet short term business requirements. Because the Company does not currently derive any production revenue from operations, its ability to conduct exploration and development work on its properties is largely based upon its ability to raise capital by equity funding and loans. Historically, the Company obtained funding via private placements and public offerings.
9
Management Discussion and Analysis
May 31, 2020
Based on the Company’s current funding sources and taking into account the working capital position and capital requirements at May 31, 2020, these factors indicate the existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern and is dependent on the Company raising additional debt or equity financing. The Company must obtain additional funding in order to continue development and construction of the Buckreef Project. The Company presently does not have adequate resources to maintain its core activities for the next fiscal year or sufficient working capital to fund all of its planned activities. The Company is continuing to pursue additional financing to fund the construction of the Buckreef Project and additional projects. However there is no assurance that such additional funding and/or project financing will be obtained or obtained on commercially favourable terms.
At May 31, 2020, the Company had a working capital deficiency of $18,007,916 (August 31, 2019 – $9,095,970 working capital deficiency), had not yet achieved profitable operations, has accumulated losses of $145,461,823 (August 31, 2019 – $132,462,683) and expects to incur further losses in the development of its business. The Company will require additional financing in order to conduct its planned work programs on mineral properties, meet its ongoing levels of corporate overhead and discharge its future liabilities as they come due.
Some of the Company’s mineral properties are being acquired over time by way of option payments. It is at the Company’s option as to whether to continue with the acquisition of the mineral properties and to incur these option payments.
Commitments:
In order to maintain the existing site of mining and exploration licenses, the Company is required to pay annual license fees. The Company has not paid certain of its annual license fees since October 2014 with exception of Buckreef mining licenses. As at May 31, 2020 an accrual of $347,000 (August 31, 2019 - $680,000) has been recorded relating to unpaid license fees and resultant penalties. These licenses remain in good standing until a letter of demand is received from Ministry of Energy and Minerals requesting payment of any unpaid license fees plus 50% penalty, and the Company fails to respond within 30 days. The Company has not received a letter of demand. The potential penalty relating to unpaid license fees is approximately $116,000 (August 31, 2019 - $211,000). The Company has recorded an accrual for all valid and active mining licenses.
Contingencies:
Due to the size, complexity and nature of the Company’s operations, various legal, tax, environmental and regulatory matters are outstanding from time to time. By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events.
10
Management Discussion and Analysis
May 31, 2020
On January 19, 2018, Crede CG III, LTD (“Crede”) filed suit against the Company in the Supreme Court of the State of New York, County of New York, claiming, among other things, breach of contract for failure to allow Crede to exercise 1,300,000 Series A Warrants to acquire 3,100,751 common shares. The Series A Warrants were issued, along with Series B Warrants (the Series A Warrants and Series B Warrants, collectively “Warrants), in connection with a Securities Purchase Agreement entered into on September 1, 2016. In response to the complaint, the Company’s attorneys initiated correspondence with Crede’s attorneys regarding Crede’s January 19, 2018 complaint. On February 27, 2018, Crede dismissed its complaint against the Company without prejudice. On March 12, 2018, Crede filed suit against the Company in the Supreme Court of the State of New York, County of New York (Index No. 651156/2018) (“State Claim”), claiming breach of contract (including specific performance and injunctive relief); declaratory judgment that the Securities Purchase Agreement and Warrants are binding obligations; and, in the event injunctive and declaratory relief was not ordered, awarding compensatory and punitive damages, and attorney fees and costs for failure to allow Crede to exercise 500,000 Series B Warrants to acquire 1,332,222 common shares. On June 20, 2019, the Supreme Court of the State of New York, County of New York granted summary judgment to Crede on its December 3, 2018, motion for specific performance for the issuance of 1,332,222 common shares pursuant to the Series B Warrants and declaratory relief that the terms of the Securities Purchase Agreement and Warrants are valid. On August 21, 2019, the Company filed a notice of appeal and sought a stay of the summary judgement order in the State Claim pending appeal. On February 4, 2020, the Appellate Division, First Judicial Department, Supreme Court of the State of New York affirmed the Supreme Court of the State of New York, County of New York’s granting of summary judgment to Crede under the Securities Purchase Agreement and Warrants. On or around February 11, 2020, the Company filed an appeal of the Appellate Division’s February 4, 2020 decision which was subsequently denied. In February and May of 2020, Crede exercised its remaining 3,517,857 series B Warrants and the Company issued 5,434,896 common shares, in the aggregate, to them. After these exerxises, Crede no longer has outstanding Warrants.
On May 10, 2018, we filed a complaint in the United States District Court Southern District of New York (Case No. 18–Civ-4201) (“Federal Claim”) against Crede and certain of its principals, and others, alleging, among other things, violation of certain acts under the Securities Exchange Act, as amended (“Exchange Act”). On March 26, 2019, the District Court dismissed certain of our claims against the defendants, but allowed certain claims under Exchange Act for market manipulation and breach of the covenant of good faith and fair dealing by Crede to continue. On May 28, 2020, we filed a second amended complaint in the Federal Court alleging, among other things, that Crede and certain of its principals manipulated the price of the Company’s common shares, breached the September 1, 2016 registration rights agreement entered into with the Company, and violated Section 10(b) and Rule 10b-5 promulgated thereunder and Section 13(d) of the Exchange Act. The Federal Claim is in its initial stage and limited discovery has been initiated.
The issuance of additional common shares to Crede pursuant to the Warrant will have a dilutive effect to our shareholders and the Company’s payment, if any, of potential expenses may adversely affect the Company’s financial condition.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
11
Management Discussion and Analysis
May 31, 2020
Transactions with Related Parties
Related parties include the Board of Directors and officers, close family members and enterprises that are controlled by these individuals as well as certain consultants performing similar functions.
(a) Tanzanian Gold Corporation entered into the following transactions with related parties:
Nine months ended, | Notes | May 31, 2020 | May 31, 2019 |
Legal services | (i) | $Nil | $Nil |
Consulting | (ii) | $182,461 | $167,407 |
Consulting | (iii) | $325,734 | $246,602 |
Consulting | (iv) | $60,814 | $150,950 |
(i) The Company previously engaged a legal firm for professional services in which one of the Company’s directors is a partner. During the nine month period ended May 31, 2020, the legal expense charged by the firm was $nil (2019 - $nil). As at May 31, 2020, $335,940 remains payable (August 31, 2019 - $335,940).
(ii) During the nine month period ended May 31, 2020, $182,461 (2019 - $167,407) was paid for consulting and website/data back-up services to companies controlled by individuals associated with the former CEO and current director.
(iii) During the nine month period ended May 31, 2020, $325,734 (2019 - $246,602) was paid for drill mobilization, advances on drilling services, and payments due under agreement, to Stamico, the Company’s joint venture partner on the Buckreef Gold Project.
(iv) During the nine month period ended May 31, 2020, $60,814 (2019 - $150,950) was paid for consulting services to a company controlled by a director.
As at May 31, 2020, the Company has a receivable of $67,119 (August 31, 2019 - $45,368) from an organization associated with the Company’s President and former CEO and current director and from current officers and directors. The Company also has a receivable of $34,188 (August 31, 2019 - $33,071) from Stamico.
As at May 31, 2020, the Company has outstanding leases due under finance lease obligations as described in note 4 of $87,903 (August 31, 2019 - $78,784) repayable within 1 year.
12
Management Discussion and Analysis
May 31, 2020
(b) Remuneration of Directors and key management personnel (being the Company’s Chief Executive Officer, Chief Financial Officer and Chief Operating Officer) of the Company was as follows:
Nine months ended May 31, | 2020 | 2019 | ||
| Fees, salaries and benefits (1) | Share based payments (2), (3) | Fees, salaries and benefits (1) | Share based payments (2), (3) |
Management | $ 478,310 | $ 2,117,500 | $ 425,337 | $ nil |
Directors | 164,953 | 1,247,400 | 83,719 | nil |
Total | $ 643,263 | $ 3,364,900 | $ 509,056 | $ nil |
(1) Salaries and benefits include director fees. The board of directors do not have employment or service contracts with the Company. Directors are entitled to director fees and RSU’s for their services and officers are entitled to cash remuneration and RSU’s for their services.
(2) All stock option share based compensation is based on the accounting expense recorded in the year.
As at May 31, 2020, included in trade and other payables is $1,130,000 (August 31, 2019 - $927,000) due to these key management personnel with no specific terms of repayment.
Omnibus Equity Incentive Plan
Effective June 26, 2019, the Company adopted the Omnibus Equity Incentive Plan dated June 26, 2019 (the “Omnibus Plan”), which Omnibus Plan was approved by the shareholders at a meeting held on August 16, 2019.
The purposes of the Omnibus Plan are (a) to advance the interests of the Company by enhancing the ability of the Company and its subsidiaries to attract, motivate and retain employees, officers, directors, and consultants, which either of directors or officers may be consultants or employees, (b) to reward such persons for their sustained contributions and (c) to encourage such persons to take into account the long-term corporate performance of the Company.
The Omnibus Plan provides for the grant of options, restricted share units, deferred share units and performance share units (collectively, the “Omnibus Plan Awards”), all of which are described in detail in the Form 20-F Annual Report for the year ended August 31, 2019
The Omnibus Plan provides for the grant of other share-based awards to participants (“Other Share-Based Awards”), which awards would include the grant of common shares. All Other Share-Based Awards will be granted by an agreement evidencing the Other Share-Based Awards granted under the Omnibus Plan.
13
Management Discussion and Analysis
May 31, 2020
Subject to adjustments as provided for under the Omnibus Plan, the maximum number of shares issuable pursuant to Omnibus Plan Awards outstanding at any time under the Plan shall not exceed 10% of the aggregate number of common shares outstanding from time to time on a non-diluted basis; provided that the acquisition of common shares by the Company for cancellation shall not constitute non-compliance with the Omnibus Plan for any Omnibus Plan Awards outstanding prior to such purchase of common shares for cancellation.
For more particulars about the Omnibus Plan we refer you to the Company’s Management Information Circular dated June 26, 2019 or the copy of the Omnibus Plan included with the Form 20-F Annual Report.
The Omnibus Plan replaces all previous equity compensation plans of the Company, including the Restricted Stock Unit Plan and Stock Option Plan.
Critical Accounting Estimates
Assessment of Recoverability of Mineral Property Costs
The deferred cost of mineral properties and their related development costs are deferred until the properties are placed into production, sold or abandoned. These costs will be amortized over the estimated useful life of the properties following the commencement of production. Cost includes both the cash consideration as well as the fair market value of any securities issued on the acquisition of mineral properties. Properties acquired under option agreements or joint ventures, whereby payments are made at the sole discretion of the Company, are recorded in the accounts at such time as the payments are made. The proceeds from property options granted reduce the cost of the related property and any excess over cost is applied to income the Company’s recorded value of its exploration properties is based on historical costs that expect to be recovered in the future. The Company’s recoverability evaluation is based on market conditions for minerals, underlying mineral resources associated with the properties and future costs that may be required for ultimate realization through mining operations or by sale.
Assessment of Recoverability of Deferred Income Tax Assets
The Company follows the balance sheet method of accounting for income taxes. Under this method, deferred tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax liabilities and assets are measured using substantively enacted tax rates. The effect on the deferred tax liabilities and assets of a change in tax rates is recognized in the period that the change occurs. Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that is probable that taxable profit will be available against which the deductible temporary difference and the carry forward of unused credits and unused tax losses can be utilized. In preparing the consolidated financial statements, the Company is required to estimate its income tax obligations. This process involves estimating the actual tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. The Company assesses, based on all available evidence, the likelihood that the deferred income tax assets will be recovered from future taxable income and, to the extent that recovery cannot be considered probable, the deferred tax asset is not recognized.
14
Management Discussion and Analysis
May 31, 2020
Estimate of Share Based Payments, Warrant Liability, Embedded Derivatives Associated Assumptions
The Company recorded share based payments based on an estimate of the fair value on the grant date of share based payments issued and reviews its foreign currency denominated warrants each period based on their fair value. The accounting required for the warrant liability and the derivative liability embedded in the gold bullion loan requires estimates of interest rate, life of the warrant, stock price volatility and the application of the Black-Scholes option pricing model. See note 5 of the May 31, 2020 unaudited interim condensed consolidated financial statements for full disclosure.
Critical accounting policies
Mineral Properties
All direct costs related to the acquisition and exploration and development of specific properties are capitalized as incurred. If a property is brought into production, these costs will be amortized against the income generated from the property. If a property is abandoned, sold or impaired, an appropriate charge will be made to the statement of comprehensive loss at the date of such impairment. Discretionary option payments arising on the acquisition of mining properties are only recognized when paid. Amounts received from other parties to earn an interest in the Company's mining properties are applied as a reduction of the mining property and deferred exploration and development costs until all capitalized costs are recovered at which time additional reimbursements are recorded in the statement of comprehensive loss, except for administrative reimbursements which are credited to operations.
Consequential revenue from the sale of metals, extracted during the Company's test mining activities, is recognized on the date the mineral concentrate level is agreed upon by the Company and customer, as this coincides with the transfer of title, the risk of ownership, the determination of the amount due under the terms of settlement contracts the Company has with its customer, and collection is reasonably assured. Revenues from properties earned prior to the commercial production stage are deducted from capitalized costs.
The amounts shown for mining claims and related deferred costs represent costs incurred to date, less amounts expensed or written off, reimbursements and revenue, and do not necessarily reflect present or future values of the particular properties. The recoverability of these costs is dependent upon discovery of economically recoverable reserves and future production or proceeds from the disposition thereof.
The Company reviews the carrying value of a mineral exploration property when events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying value of the property exceeds its fair value, the property will be written down to fair value with the provision charged against operations in the year of impairment. An impairment is also recorded when management determines that it will discontinue exploration or development on a property or when exploration rights or permits expire.
Ownership in mineral properties involves certain risks due to the difficulties in determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history characteristic of many mineral interests. The Company has investigated the ownership of its mineral properties and, to the best of its knowledge, ownership of its interests are in good standing.
15
Management Discussion and Analysis
May 31, 2020
Capitalized mineral property exploration costs are those directly attributable costs related to the search for, and evaluation of mineral resources that are incurred after the Company has obtained legal rights to explore a mineral property and before the technical feasibility and commercial viability of a mineral reserve are demonstrable. Any costs incurred prior to obtaining the legal right to explore a mineral property are expensed as incurred. Field overhead costs directly related to exploration are capitalized and allocated to mineral properties explored. All other overhead and administration costs are expensed as incurred.
Once an economically viable reserve has been determined for a property and a decision has been made to proceed with development has been approved, acquisition, exploration and development costs previously capitalized to the mineral property are first tested for impairment and then classified as property, plant and equipment under construction.
Impairment of Long-lived Assets
At each date of the statement of financial position, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash‐generating unit to which the assets belong.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre‐tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash‐generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash‐generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of comprehensive loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash‐generating unit) in prior years.
The Company’s most critical accounting estimate relates to the impairment of mineral properties and deferred exploration costs. Management assesses impairment of its exploration prospects quarterly. If an impairment results, the capitalized costs associated with the related project or area of interest are charged to expense.
Asset Retirement Obligations
The Company recognizes liabilities for statutory, contractual, constructive or legal obligations, including those associated with the reclamation of mineral properties and property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement obligation is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using either the unit‐of‐production method or the straight‐line method, as appropriate. Following the initial
16
Management Discussion and Analysis
May 31, 2020
recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the current market‐based discount rate, amount or timing of the underlying cash flows needed to settle the obligation.
Financial Instruments
Fair Value of Financial Instruments
Cash and derivatives are classified as fair value through profit and loss, Trade and Other Receivables are measured at amortized cost. Trade and other payables, leases payable, convertible loans and gold bullion loans are classified as other financial liabilities, which are measured at amortized cost. Fair value of trade and other payables and convertible loans are determined from transaction values that are not based on observable market data.
The carrying value of the Company’s cash, other receivables, trade and other payables approximate their fair value due to the relatively short term nature of these instruments.
Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment, therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The Company classifies its financial instruments carried at fair value according to a three level hierarchy that reflects the significance of the inputs used in making the fair value measurements. The three levels of fair value hierarchy are as follows:
·Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
·Level 2 - Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly;
·Level 3 – Inputs for assets or liabilities that are not based on observable market data
As at May 31, 2020 and August 31, 2019, cash is recorded at fair value under level 1 within the fair value hierarchy and the derivatives in the gold bullion loans are classified as Level 2 within the fair value hierarchy. See Note 20 of the unaudited interim condensed consolidated financial statements for the three and nine month periods ended May 31, 2020 and 2019 for further information on the fair value of the derivatives in the gold bullion loans.
The carrying value of cash, other receivables, accounts payable and accrued liabilities, leases payable, convertible loans and gold bullion loans approximate fair value because of the limited terms of these instruments.
17
Management Discussion and Analysis
May 31, 2020
A summary of the Company's risk exposures as they relate to financial instruments are reflected below:
Credit Risk
Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its contractual obligations. The Company is subject to credit risk on the cash balances at the bank and accounts and other receivables and the carrying value of those accounts represent the Company’s maximum exposure to credit risk. The Company’s cash and cash equivalents and short-term bank investments are with Schedule 1 banks or equivalents. The accounts and other receivables consist of GST/HST and VAT receivable from the various government agencies and amounts due from related parties. The Company has not recorded an impairment or allowance for credit risk as at May 31, 2020, or August 31, 2019.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rate. The Company’s bank accounts earn interest income at variable rates. The bullion loan carries a fixed rate of interest. The Company’s future interest income is exposed to changes in short-term rates. As at May 31, 2020, a 1% increase/decrease in interest rates would decrease/increase net loss for the period by approximately $14,000 (2019 - $12,000).
Liquidity Risk
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at May 31, 2020, the Company had current assets of $2,542,516 (August 31, 2019 - $4,135,316) and current liabilities of $20,550,432 (August 31, 2019 - $13,231,286). All of the Company’s trade payables and receivables have contractual maturities of less than 90 days and are subject to normal trade terms. Current working capital deficiency of the Company is $18,007,916 (August 31, 2019 - $9,095,970). The Company will require additional financing in order to conduct its planned work programs on mineral properties and the development and construction of the Buckreef Project, meet its ongoing levels of corporate overhead and discharge its liabilities as they come due.
Foreign Currency Risk
The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company has offices in Canada, USA, and Tanzania, but holds cash mainly in Canadian and United States currencies. A significant change in the currency exchange rates between the Canadian dollar relative to US dollar and Tanzanian shillings could have an effect on the Company’s results of operations, financial position, or cash flows. At May 31, 2020, the Company had no hedging agreements in place with respect to foreign exchange rates. As a majority of the transactions of the Company are denominated in US and Tanzanian Shilling currencies, a 10% movement in the foreign exchange rate will have an impact of approximate $1,509,000 on the statements of comprehensive loss.
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Management Discussion and Analysis
May 31, 2020
COVID-19
In particular, the Company wishes to highlight that it continues to face risks related to COVID-19, which could continue to significantly disrupt its operations and may materially and adversely affect its business and financial conditions.
In December 2019, a novel strain of the coronavirus emerged in China and the virus has now spread to several other countries, including Canada and the U.S., and infections have been reported globally resulting in a global pandemic. The extent to which COVID-19 will continue to impact the Company's business, including its operations and the market for its securities, will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the outbreak and the actions taken to contain or treat the coronavirus outbreak. In particular, the continued spread of COVID- 19 globally could materially and adversely impact the Company's business including without limitation, employee health, workforce productivity, increased insurance premiums, limitations on travel, the availability of industry experts and personnel, restrictions to its drill program and/or the timing to process drill and other metallurgical testing, and other factors that will depend on future developments beyond the Company's control, which may have a material and adverse effect on the its business, financial condition and results of operations.
There can be no assurance that the Company's personnel will not be impacted by these pandemic diseases and ultimately see its workforce productivity reduced or incur increased medical costs / insurance premiums as a result of these health risks.
In addition, a significant outbreak of COVID-19 could result in a widespread global health crisis that could adversely affect global economies and financial markets resulting in an economic downturn that could have an adverse effect on the demand for precious metals and the Company's future prospects.
Disclosure of Outstanding Share Data
As at the date of this MD&A, there were 197,462,832 common shares outstanding, 287,901 share purchase warrants outstanding, nil RSUs outstanding, and 7,352,000 stock options outstanding.
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Management Discussion and Analysis
May 31, 2020
Outlook
The Company’s Board of Directors has revised the strategic objective of the Company is to develop the Buckreef Project based on the conceptual production plan as published in the NI43-101 compliant Mining Feasibility Report (June 2018). The revised plan involves oxide ore mining from the Buckreef Main prospect and immediately commence processing this ore using a pilot 5tph CIL process plant whose construction was completed during the reporting period. The exploration plans including financial analysis projections on the Buckreef encompassing the Buckreef Main, South, Eastern Porphyry, Bingwa and Tembo open pit mines. Results from the recommendations for further resource upgrade drilling as stated in the June 26, 2018 NI43-101 pre-feasibility report have resulted in the compilation of an NI43-101 compliant Updated Mineral Resource report statement that is currently under review by the British Columbia Securities Commission prior to publication. In addition, the Corporation also continued with its Phase 3 deep drilling program targeting down dip and strike extensions of the Buckreef Main zone at elevations up to 700m below the current pit bottom. The Corporation has also engaged the world-renowned SGS (Lakefield) Company to conduct additional metallurgical, rock stress and other tests with the intent of determining the best plan to bringing the Buckreef sulphide ores into production.
As a prelude increasing gold production from the oxide ore at Buckreef, the Corporation has completed internal tender adjudication process on the awarding of the 15tph CIL process plant EPCM proposals received from 6 prospective suppliers. The Corporation has also contracted SGS-Bateman as a preferred consultant to oversee and direct the winner of the EPCM tender in the final design, fabrication, installation and commissioning of a 15tph CIL process plant to beef gold production from oxide ore component at the Buckreef project.
The Company continues to monitor its other various mineral properties in the portfolio, notable among them being Itetemia, Luhala and Kigosi. However, the Company suffered a setback on its Itetemia’s Golden Horseshoe Reef (GHR) that represented a modest, yet robust, medium grade, near surface gold deposit and is currently the subject of a court case after the mining license application was arbitrarily rejected by the offices of the Mining Commission of Tanzania. In the Company’s normal monthly review of the Government portal it became aware of changes made to the Itetemia Mining License Application. No official correspondence has been received; however, it appears that our application had been denied and 5 PML’s were issued under another name based on the Government’s portal. Management has engaged the Mining Commission as well as the Minister of Mines to determine what’s taken place, and the course of action required to remedy the situation and is pursuing all necessary actions to do so. The Company also has the option of referring the situation should it not resolve in its favor to the Tanzanian anti-corruption bureau or possibly seeking remedy under the Tanzanian / Canadian economic treaty of 2013.
The Luhala property holds modest but low-cost gold extraction potential and is still classified as an advanced stage exploration project.
The Company also suffered a setback on its Kigosi project, a pre-production mining project whereby development has been delayed due to recently enacted laws on mining in areas designated as game reserves. As reported in the last quarter, the Mining Commission assumed 100% control of the Kigosi ML96/2013 while the protracted negotiations for access to the restricted Kigosi game reserve area are ongoing. Management has engaged the Mining Commission as well as the Minister of Mines to determine what’s taken place, and the course of action required to remedy the situation and is pursuing all necessary actions to do so. Despite the setback, the Company has paid all outstanding annual fees to the Ministry of
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Management Discussion and Analysis
May 31, 2020
Mines as a show of good faith while negotiations for the re-instatement of the mining license as well as access with the Ministry of Natural Resources and Tourism continue.
Based on the Management’s adoption and implementation of the recommendations from the Executive Technical team to classify of all the Company’s various Prospecting License (PL) holdings under three project categories identified as PLs to Retain, PLs for joint venture and PLs to Discard/Abandon, efforts to pay up all outstanding annual fees on the PLs in the PLs to Retain and/or JV category progressed well but mainly targeted the Special Mining License and Mining licenses. At the end of this current reporting quarter only annual fees for the upcoming period 2020 to 2021 will be due for payment starting in June 2020.
The five critical target projects were identified as Buckreef project, Buziba project, Kigosi project, Itetemia project and Luhala project of which all projects, except for Buckreef, are in the care and maintenance stage. The Buziba project was traditionally included under Buckreef Project in previous annual reports but will now be treated as a standalone project. Brief descriptions of PL holdings and financial obligation status for each respective project area are summarized in the sections below. Actual fieldwork was mainly concentrated on the Buckreef Project during the reporting period.
Exploration Summary
The continuity of expenditures on mineral properties is as follows:
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Management Discussion and Analysis
May 31, 2020
Buckreef Project
Mine Development and Operations
The Buckreef Project is in the Geita District of the Geita Region south of Lake Victoria, some 110km southwest of the city of Mwanza (see Figure, overleaf). The project area can be accessed by ferry across Smiths Sound, via tarred national road and thereafter via unpaved but well-maintained gravel roads. The Project comprises five prospects namely Buckreef, Bingwa, Tembo, Eastern Porphyry and Buziba. The Buckreef Project encompasses three ore zones namely Buckreef South, Buckreef Main and Buckreef North. The Buckreef Project is fully licensed for mining and extraction of gold.
The following work on mining and process plant operations was completed up to 31st May 2020:
Mine Pit Design
vThe oxide ore starter pit was designed by in-house mining engineer to match the updated 3D topography (Figure 1).
vMining in the oxide ore starter pit commenced from a central position mainly targeting a quick access to high-grade mineralization for planned first gold pour.
vPit expansion was to both the East-West and North-South directions and mainly involved removal of the top soil.
Figure 1: Oxide Ore Pit Design and Development
vThe in-pit material based on the grade control-drilling model to be mined was categorised into four (4) different classes based on au-content grades as shown in Table 1 below.
vTotal waste material (grades <0.3g/t Au) worked out as 862,032t while ROMPAD ore grade material (>0.3g/t Au) is 419,988t for an ore to waste stripping ratio of 1: 2.1.
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Management Discussion and Analysis
May 31, 2020
Table 1: Buckreef Gold Mine: Oxide Ore Starter Pit Mineral Reserves
vAfter applying an estimated 5% ore loss due to dilution and other factors, total mineable ounces is estimated at ~33,020 ounces.
Mine Activities & Mine Production
vA baseline surface topography map showing the start-up footprint of starter pit, ROM pad, top soil dump and waste rock dump completed during the month.
vMineralized surface projection of the ore zone within the starter pit was demarcated in red tape.
vHaul roads to waste rock dump and ROMPAD cleared and compacted.
vActual mining in the oxide ore starter pit commenced during the reporting period. Initial mining plan aimed at stripping the topsoil and waste material in the central section of the new pit to expose medium to high grade ores for immediate processing by the 5tph CIL process plant to achieve a first gold pour by end of June 2020.
Rom Pad
vThere was ore material movement from the starter pit to the ROM pad as follows:
·High-grade Ore: 1 632t@4.0g/t Au (209.90Ozs) &
·Low-grade ore: 873t @ 0.65g/t Au (18.25Ozs).
vTotal Ore mined from the Buckreef as of 31st May 2020 by source of ore now stands at:
·South Pit: 119,654.09t averaging 1.07g/t Au with total contained metal ounces of 4,108.87 &
·Main Starter Pit: 2,505t averaging 1.86g/t Au with total contained metal ounces of 228.15.
The Material inventory is summarized in detail in Table below.
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Management Discussion and Analysis
May 31, 2020
Table 2: Buckreef Gold Mine: Main Starter Pit Oxide Ore Inventory (as of 31st May 2020)
vProcess plant feed is scheduled to commence in mid-June 2020 once all operational permits for the TSF facility have been received from the Ministry of Mines and/or Ministry of Water and Irrigation.
Mine Operational Challenges
vPersistent rains during the reporting period was a major delay (wet & slippery ground.
vTeething problems with some equipment breakdowns and sourcing spares (contractor advised to finalize site prep and spares store inventory)
Mineral Processing
15tph Processing Plant (EPCM Tender)
·The 15tph CIL process plant tender internal adjudication by Virimai Projects of the six (6) tender bids was presented to the BGC Technical Working Committee and the Buckreef Board of Directors for discussion prior to final decision to award.
·Local Content documentation compilations for submission to Mining Commissioner on the number and types of tender bids were completed and submitted as part of the internal adjudication.
·Actual award of the tender will be done in June 2020 after completion of Local Content Regulatory requirements with the offices of the Mining Commission of Tanzania on such procurements.
·The Corporation has also selected SGS (Lakefield) and Bateman (South Africa) as a preferred consultant to oversee and direct the winner of the EPCM tender in the final design, fabrication of the plant.
5tph Processing Plant
Conversion of the existing CIC process plant into a 5tph CIL process plant to assist with additional metallurgical test-work on the Buckreef oxide ore as well as commence gold production was completed during the reporting period. Brief summary of the work achieved is outlined below.
Power Supply
vPurchase and installation of a new 550kVa transformer and powerline connections from TANESCO were completed successfully.
vThe power tie-in to process plant’s main motor control center (MCC) completed.
vPurchase and installation of a second 350kVa diesel powered generator to boost power supply back up at the process plant completed.
vAdditional security lighting around the process plant installed.
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Management Discussion and Analysis
May 31, 2020
Chemical Reagents/Storage/Permitting
vHousekeeping to renovate and clean up the old chemical storage warehouse was completed.
vAn application for the renewal of the Buckreef Chemical usage permit was submitted to the Government Laboratory Agency (Chief Government Chemist) in Mwanza.
vCertification by GCLA also achieved during the reporting period.
vChemicals reagents procured as the first fill reagents for the process plant
Crushing Circuit
vCrushing units were set into final positions.
vAll the crushing plant motors were tested and confirmed to be fully functional as part of dry commissioning.
vConveyors, feeders, vibrating screen, primary crusher, and secondary crusher were fully serviced (greasing, retightening and realignment) successfully.
vCircuit construction completed.
vROM bin and Crushed Ore bin discharge vibrating reclaim feeders optimization completed.
vConveyor belt repairs completed.
vSeveral trial ore crushing tests were subsequently conducted to confirm operational expectations successfully.
vEquipment commissioning has been completed.
Grinding Circuit
vBall mill installation and alignment was completed.
vBall mill was successfully fitted with gearbox and the electrical motor and then bump tested and operated okay.
vThe ball mill feed chute, the crushed ore bin were successfully installed, and connections to the discharge-vibrating feeder completed.
vModifications to the hydro cyclone and the tonnage box completed.
vBall mill grinding steel balls first fill completed.
vPumps and piping connections to CIL completed.
vGrinding water flowmeter installation completed.
CIL & Elution Circuit
vAll seven (7) tanks for the CIL circuit fabricated and installed.
vThe tanks successfully fitted with down-comers, inlet and discharge launders and agitator installation, pulley and motor alignment completed.
vThe installation and piping of the aeration blower also completed.
vDry and wet commissioning of the CIL tanks successful
vElution plant refurbishment commenced and progressing well.
Tailings Storage Facility
vThe start-up TSF design was completed and subsequently incorporated into the Environmental Management Audit Management Report for 2020 that was filed with NEMC.
vAn application to register the TSF was subsequently submitted to the Ministry of Water and Irrigation (MOWI) and Ministry of Minerals (MOM). Officials from both ministries subsequently came to site to inspect the proposed site and construction of the TSF.
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Management Discussion and Analysis
May 31, 2020
vPermits to commence construction received from both Ministries.
vRenovations and excavations on ex-heap leach Pads 4 and 3 to enhance tailings freeboard and containment volume completed.
vThe HDPE liners to guard against accidental seepage was purchased and installed.
vThis initial TSF facility will be able to cater for 2.5 months of tailings storage.
vAn application for a permit to commence using the TSF was submitted to MOM at the end of May 2020.
vOre removal from Pad 2 also commenced towards the end of the month in order to clear space for extension of the TSF facility.
Process Plant Challenges
·Persistent rains during the reporting period delayed welding and most electrical works.
·Delayed response by Chief Government Chemist on the issue chemical warehouse inspection and certification has delayed purchasing of the chemical reagents and the planned wet commissioning.
·TSF certification also caused a significant delay in the actual hot commissioning and actual start-up of the plant.
·Lack of mobile mine-site analytical laboratory will compromise plant performance monitoring and adjustments at start-up.
Exploration & Resource Extension Drilling
The Corporation continued with its Phase 3 deep drilling program targeting down dip and strike extensions of the Buckreef Main zone at elevations up to 700m below the current pit bottom.
The program is more concerned with accurate azimuth for precise intercepts at expected target depths rather than amount of meters drilled. A brief summary of the activities and results achieved during the reporting period is given in the sections below.
Phase 3 Drilling
A combined total of 2 389.32m was drilled during the reporting period as summarized in the table below. Breakdown of the drilling details are as follows:
·RC pre-collaring totalled 479m
·Diamond core tailing totalled 1 910.32m
·Three drill-holes were completed and one was abandoned due to a collapse loose broken ground.
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Management Discussion and Analysis
May 31, 2020
Table 4: Drilling Stats-: Q3 2020
A combined total of samples were generated and submitted to analytical labs in Mwanza during the reporting period as summarized in the table below:
Table 5: Sampling Stats-: Q3 2020
·Mintech laboratory continues to be the primary laboratory while SGS-Mwanza is used for umpire checks.
·Though no assay results were published during the quarter, the initial assay results from the northeast extension zone show wide low-grade mineralization envelopes at depth related to specific geological units and structures while that from main zone show wide high to medium grade mineralization envelope.
·The wide ore zones occasionally contain pockets of high gold content whose control is possibly related to points of cross cutting structures and intensity of alteration plus presence of finely disseminated sulphides in the unit.
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Management Discussion and Analysis
May 31, 2020
Mineral Resource Statement
·An updated mineral resource statement was published by TANGOLD on the 17th of March 2020.
·A detailed NI43-101 compliant updated Independent Technical Mineral Resource report was completed and filed in June 2020.
The updated mineral resource figures at cut-off grades of 0.4g/t (Buckreef) and 0.5g/t (rest of the prospects) are as summarized in the table below:
Table 6: Buckreef Gold Project Mineral Resource Estimate as of 31st May 2020 (Source: Virimai Projects, 2020)
·The Buckreef shear zone hosted mineral resources (Measured & Indicated) as updated now stands at 35.88Mt @ 1.77g/t with ~2.04Moz of contained gold, up from a 2018 estimate of 21.99Mt @ 1.54g/t with 1.09Moz of contained gold.
·The overall mineral resource figures for the other three prospects remain the same as previously published since there was no new exploration work conducted on those prospects.
·The combined total mineral resources (Measured & Indicated) for the Buckreef Project as updated now stands at 38.57Mt @ 1.77g/t with ~2.19Moz of contained gold.
Mineral Reserve Statement
The Corporation did not conduct and new review of the mineral reserves for the Buckreef project during the reporting period. The Buckreef Gold project pit-optimized mineral reserves as at 31st May 2020 still remains as summarized in the table below:
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Management Discussion and Analysis
May 31, 2020
Table 7: Buckreef Gold Project Mineral Reserve Estimate as of 31st May 2020 (Source Virimai Projects, 2018)
·Depletion of the oxide ore reserve component from the Buckreef shear zone will be conducted in the next reporting period.
Buziba Project
During the reporting period, no fieldwork was conducted in the project area.
The Buziba Project comprises a single prospecting license (PL6545/2010) located some 25km east of the Buckreef project in the Geita district (see Figure, overleaf). The project area can be accessed from Buckreef via unpaved and poorly maintained gravel roads. The Project is a pre-development stage medium grade gold deposit and principal host lithologies include basalt, co-magmatic dolerite and a suite of intrusive quartz-albite felsic porphyries. Gold mineralization associated with shear-hosted vein quartz arrays in meta-basalts and as extensive stock works in the felsic porphyries. Geometry of the mineralization is highly irregular, forming a zone 200m thick and extending E-W for at least 2,500m.
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Management Discussion and Analysis
May 31, 2020
Itetemia Project
During the reporting period, no fieldwork was conducted in the project area.
The Itetemia gold deposit includes the mineral resources of the Golden Horseshoe Reef (“GHR”), and is an advanced stage exploration project focusing on the development of the GHR. A total of 9,833m of diamond core drilling (51 holes) and 8,339m of RC drilling (138 holes) was completed on the project. Modeling and processing of assay results from both the core drilling and RC drilling so far completed over the GHR and surrounding areas.
The process to convert the PL covering the Horseshoe Gold Prospect at Itetemia into a Mining License (ML) commenced on 4th November 2015. As reported in the last quarter, the Itetemia ML application (01722/2015) was arbitrarily removed from the Ministry of Mines License portal and the 5 PML’s that were awarded by the government to local third parties are still in existence on the said Government’s portal. Management has engaged the Mining Commission as well as the Minister of Mines to determine what’s taken place, and the course of action required to remedy the situation and is pursuing all necessary actions to do so. The Company also has the option of referring the situation should it not resolve in our favor to the Tanzanian anti-corruption bureau or possibly seeking remedy under the Tanzanian / Canadian economic treaty of 2013.
Kigosi Project
During the reporting period, no fieldwork was conducted in the project area.
Kigosi Project area remains subject to a Game Reserve Declaration Order. Upon repeal or amendment of that order by the Tanzanian Government, the Kigosi Mining Company will be legally entitled to exercise its rights under the Mineral Rights and Mining License. A recent pronouncement by the Honorable President of Tanzania to local villagers in Ushirombo stated that his government had commenced procedures for de-gazetting part of the Kigosi-Moyowosi game reserve area to afford villagers extended land for agriculture and mining activities.
Mine development plans at Kigosi continue to be shelved since under the 2010 Mining Act, only exploration and mining of energy minerals, including uranium, gas and petroleum is permitted in any game reserve.
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Management Discussion and Analysis
May 31, 2020
Luhala Project
During the reporting period, no fieldwork was conducted in the project area.
The Luhala Project is an advanced stage exploration project focusing on the development of the Luhala gold deposit which consists of five anomalous hilltops. The mineralization is stratabound shear-zone hosted gold mineralization (stratigraphic and structural control) within a distinct unit of felsic rocks with associated ferruginized mafic and felsic rocks.
The Corporation was mainly focused on bringing the Buckreef project into production such the planned selection of a consultant to commence a preliminary feasibility study at the Luhala gold project has been deferred to a later date and once funds are available the contract to engage the consultant to carry out the study will be signed to initiate the study.
Exploration Updates &License Holding and Status: All PLs (Retain/JV/Discard/Forfeited)
Following the Company’s decision to focus on mine development as its strategy of generating maximum revenue from its existing portfolio of properties and with the rising costs of maintaining prospecting and other licences in Tanzania, management continues to streamline its license portfolio in Tanzania.
Active PLs License Holding and Status: Retain/JV/Discard Portfolio
During the reporting period, the Company recorded no outstanding liabilities for its portfolio of currently active licenses categorised as Retain (black test), Joint Venture (blue text) and Discard (purple text) as illustrated in the table below.
However, the Company does have the anticipated statutory liabilities for the entire portfolio of active licenses as of 31st May 2020 covering a combined area of 240.90km2are as shown in the table below:
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Management Discussion and Analysis
May 31, 2020
Table 9: TanGold Corporation Gold Projects Active PL Portfolio Status – License Status and Liabilities as of 31st May 2020
As of 31st May 2020, cumulative annual fees liabilities for all Active PLs by respective projects now totals US$ 85,578 comprised as follows:
·Outstanding Annual Fees (+ penalties)-: US$ 2,772;
·Renewal Application Fees-: US$nil;
·Processing Fees-: US$nil and
·Upcoming June Annual Fees-: US$ 82,806
The Company, through its JV partner, Stamico, is still in the process of negotiating with the Mining Commission to issue new Licenses to preserve the PL holdings for the JV agreement.
The Company still has not received any information back from the Government on its request to review the proposed land compensation for villagers affected by the expanded Buckreef Special Mining Lease area.
Historical PLs License Holding and Status: Forfeited Portfolio
As per new regulations now in force since 2015, outstanding annual fees and penalties for all licenses that expired and/or forfeited at the expiry of their tenure have to be settled with the Ministry of Mines. During the reporting period, the Company cleared off the historical debt for all PLs that were registered under Tanzam2000.
The Company has been paying off these debts and as of 31st May 2020, the remaining forfeited license portfolio stands at 109 licences and the attendant liabilities are as summarized in the table below:
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Management Discussion and Analysis
May 31, 2020
Table 10: TanGold Corporation Gold Projects Forfeited PL Portfolio Status – Liabilities as of 31st May 2020
As of 31st May 2020, cumulative outstanding annual fees liabilities for the remaining forfeited PLs by respective projects now totals US$ 249,240.
Summary
As of 31st May 2020, and based on the continuing streamlining of the PL-holdings exercise, all outstanding, current and future financial liabilities and obligations arising from our total current land-holdings (including forfeited PLs all of which no longer appear on our portal) in unpaid rents including the penalties is summarized by company below.
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Management Discussion and Analysis
May 31, 2020
Table 10: TRX All Project PL Portfolio Status – License Status and Liabilities as of 31st May 2020
Risk Factors
The Company is subject to a number of extraneous risk factors over which it has no control. These factors are common to most exploration companies and include, among others: project ownership and exploration risk, depressed equity markets and related financing risk, commodity price risk, fluctuating exchange rates, environmental risk, insurance risk, sovereign risk. For further details on the risk factors affecting the Company, please see the Company’s Form 20-F Annual Report for year ended August 31, 2019 filed on SEDAR as the Company’s Annual Information Form and as filed with the SEC via Edgar.
Disclosure Controls and Procedures (“DC&P”)
Requirements of NI 52-109 include conducting an evaluation of the effectiveness of DC&P. Management conducted an assessment of the effectiveness of the DC&P in place as of May 31, 2020 and concluded that such procedures are adequate and effective to ensure accurate and complete disclosures in filings. Any system control over disclosure procedures, particularly for junior exploration companies, no matter how well designed and implemented, has inherent limitations and may not prevent or detect all inaccuracies. These limitations include limited personnel available for such work, geographical logistics and human error among others. The Board of Directors assess the integrity of the public financial disclosures through the oversight of the Audit Committee.
Internal Control Over Financial Reporting (“ICFR”)
Requirements of NI 52-109 include conducting an evaluation of the effectiveness of ICFR. Management conducted an assessment of the effectiveness of the ICFR in place as of May 31, 2020 and concluded that such procedures are adequate and effective to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements in compliance with International Financial Reporting Standards. Any system of internal control over financial reporting, no matter how well designed and implemented, has inherent limitations and may not prevent or detect all misstatements.
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Management Discussion and Analysis
May 31, 2020
The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) are responsible for design and effectiveness of disclosure controls and procedures (“DC&P”) and the design of internal control over financial reporting (“ICFR”) to provide reasonable assurance that material information related to the Company is made known to the Company’s certifying officers. The Company’s controls are based on the Committee of Sponsoring Organizations (“COSO”) 2013 framework. The Company’s CEO and the CFO have evaluated the design and effectiveness of the Company’s DC&P as of May 31, 2020 and have concluded that these controls and procedures are not effective in providing reasonable assurance that material information relating to the Company is made known to them by others within the Company in light of the material weakness in the Company’s ICFR as further discussed. The CEO and CFO have also evaluated the design and effectiveness of the Company’s ICFR as of May 31, 2020 and concluded that ICFR was not effective as at May 31, 2020 due to the following material weaknesses; (i) review and approval of certain invoices and the related oversight and accuracy of recording the associated charges in the Company’s books; and (ii) lack of adequate oversight related to the development and performance of internal controls. Due to the limited number of personnel in the company, there are inherent limitations to segregation of duties amongst personnel to perform adequate oversight, including oversight regarding complex International Financial Reporting Standards that may cause misinterpretation and misapplication.
The Company intends to take steps to enhance and improve the design of its ICFR; however during the fiscal period ended May 31, 2020, the Company has not been able to remediate the material weaknesses identified above. Further, proposed changes to address the material weaknesses will take time to implement due to, among other things, a limited number of staff at the Company.
During the current period there have been no other changes in the Company’s DC&P or ICFR that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Additional Information
The Company is a Canadian public company listed on the Toronto Stock Exchange trading under the symbol “TNX” and also listed on the NYSE American trading under the symbol “TRX”. Additional information about the Company and its business activities is available on SEDAR at www.sedar.com and the Company’s website at www.tanzanianroyalty.com .
Approval
The Board of Directors of Tanzanian Gold Corporation has approved the disclosure contained in the interim MD&A. A copy of this interim MD&A will be provided to anyone who requests it. It is also available on the SEDAR website at www.sedar.com
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Management Discussion and Analysis
May 31, 2020
Cautionary Note Regarding Forward-Looking Statements
Except for statements of historical fact relating to the Company, certain information contained in this MD&A constitutes “forward-looking information” under Canadian securities legislation. Forward-looking information includes, but is not limited to, statements with respect to the potential of the Company’s properties; the future prices of base and precious metals; success of exploration activities, cost and timing of future exploration and development; the estimation of mineral reserves and mineral resources; conclusions of economic evaluations; requirements for additional capital; and other statements relating to the financial and business prospects of the Company. Generally, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects”, or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or “variations of such words and phrases or statements that certain actions, events or results “may” , “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments at Buckreef or other mining or exploration projects, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, and is inherently subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to risks related to: unexpected events and delays during permitting; the possibility that future exploration results will not be consistent with the Company’s expectations; timing and availability of external financing on acceptable terms in light of the current decline in global liquidity and credit availability; uncertainty of inferred mineral resources; future prices of base and precious metals; currency exchange rates; government regulation of mining operations; failure of equipment or processes to operate as anticipated; risks inherent in base and precious metal exploration and development including environmental hazards, industrial accidents, unusual or unexpected geological formations; and uncertain political and economic environments. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws.
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Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Jeff Duval, Acting Chief Executive Officer of Tanzanian Gold Corporation, certify the following:
1.Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Tanzanian Gold Corporation (the “issuer”) for the interim period ended May 31, 2020.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3.Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4.Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5.Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i)material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii)information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
5.2ICFR – material weakness relating to design: N/A
1
5.3Limitation on scope of design: N/A
6.Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on March 1, 2020 and ended on May 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: July 15, 2020
/s/ Jeff Duval
Jeff Duval
Acting Chief Executive Officer
2
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Marco Guidi, Chief Financial Officer of Tanzanian Gold Corporation, certify the following:
1.Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Tanzanian Gold Corporation (the “issuer”) for the interim period ended May 31, 2020.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3.Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4.Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5.Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i)material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii)information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
5.2ICFR – material weakness relating to design: N/A
1
5.3Limitation on scope of design: N/A
6.Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on March 1, 2020 and ended on May 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: July 15, 2020
/s/ Marco Guidi
Marco Guidi
Chief Financial Officer
2