TRX

Business Context and Reporting Period

Company: Tanzanian Royalty Exploration Corporation (TRX Gold Corp)

Filing Type: Form 6-K (Report of Foreign Issuer)

Reporting Period: Nine months ended May 31, 2009 (Third Quarter)

Business Stage: Exploration Stage Company. The Company holds mineral properties in Tanzania and has not yet determined if these properties contain economically recoverable mineral deposits. Operations are funded primarily through equity financing.

Key Financial Metrics

All figures expressed in Canadian Dollars (CAD) unless noted.

Material Changes vs. Prior Period

• Increased Net Loss: Net loss increased by approximately $1.19 million (39%) compared to the prior year period. This was driven primarily by a significant non-cash write-off of mineral properties.
• Property Write-Offs: The Company recorded a property write-off of $1,639,682 for the nine-month period (and specifically in the third quarter) due to the abandonment of 21 properties. This compares to $673,881 in the prior year period.
• Exploration Expenditures: Net spending on mineral properties increased to $3,161,073 from $1,639,016 in the prior year, reflecting a concentrated drill program at the Kigosi project.
• Operating Expenses: Salaries and benefits increased to $936,195 from $747,602 due to the hiring of an Exploration Manager and minimum wage increases in Tanzania. Professional fees also rose to $336,137.
• Foreign Exchange: The Company recorded a foreign exchange gain of $16,466, an improvement of $129,731 from the prior year's loss, attributed to a stronger US dollar exchange rate.
• Liquidity: Cash balances increased by $578,414 during the period, supported by equity financing of nearly $6 million.

Outlook, Risks, and Management Commentary

• Financing Strategy: The Company relies on equity funding. Management is confident in its ability to raise capital through private placements, specifically citing ongoing agreements with Chairman and CEO James E. Sinclair (who has committed to a new $3 million subscription agreement) and Van Tongeren Management LLC.
• Project Focus: Exploration efforts are concentrated on the Kigosi Gold Project. A preliminary NI 43-101 compliant Technical Report has been filed, and a resource calculation is underway for the Luhwaika and Igunda prospect areas.
• Contractual Obligations: The Company has future option payment obligations totaling $1,368,000 (USD) to maintain interests in various mineral properties, with $391,500 due within one year.
• Internal Control Weakness: Management identified a material weakness in internal control over financial reporting as of August 31, 2008. This weakness relates to limited accounting personnel and a lack of segregation of duties, allowing certain personnel to initiate, review, and record journal entries without independent authorization. Management is reassessing responsibilities to remediate this.
• Risk Factors: Key risks include project ownership, exploration risk, depressed equity markets, commodity price volatility, and sovereign risk in Tanzania.

Investor Verification Checklist

• Capital Commitments: Verify the status of the $3 million private placement subscription agreement with James E. Sinclair and the timing of future tranches.
• Exploration Results: Review the upcoming full Technical Report and resource calculations for the Kigosi project to assess economic viability.
• Internal Controls: Monitor progress on remediating the material weakness regarding segregation of duties in financial reporting.
• Option Payments: Confirm the Company's ability to meet the $391,500 (USD) in option payments due within the next 12 months to retain property interests.
• Write-Off Justification: Review the specific criteria used to determine the abandonment of the 21 properties written off in the third quarter.