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, 2011 (Unaudited)

Filing Date: July 15, 2011

Business Stage: Exploration Stage. The Company holds mineral properties in Tanzania and has not yet determined if these properties contain economically recoverable mineral deposits. Operations focus on the Buckreef Project (acquired 55% interest in Dec 2010) and the Kigosi/Msonga project.

Key Financial Metrics

Cash Flow Summary (Nine Months 2011):

• Operating Activities: Used $3,023,411
• Investing Activities: Used $6,709,864 (Primarily $6.2M in mineral property expenditures)
• Financing Activities: Provided $15,888,166 (Primarily $13.8M from share issuances and $2.0M from convertible debt)
• Net Increase in Cash: $6,154,891

Material Changes vs. Prior Period

• Net Loss Increase: Net loss increased by $1.18M (45%) compared to the prior year period, driven by higher exploration spending and increased operating costs.
• Exploration Expenditures: Net spending on mineral properties surged to $6.2M (from $2.2M in 2010), largely due to the $3.0M US acquisition cost for the Buckreef Project.
• Salaries and Benefits: Increased to $1.13M (from $737k) due to significant hiring in Tanzania and the US to support the Buckreef project and administrative functions.
• Professional Fees: Increased by $150k to $415k, attributed to legal expenses for the Buckreef acquisition and financing activities.
• Foreign Exchange Loss: Increased to $194k (from $121k) due to the depreciation of the Tanzanian Shilling against the Canadian Dollar.
• Capitalization: Share capital increased by $13.8M through private placements completed in late 2010 and early 2011.

Outlook, Risks, and Unusual Items

Subsequent Events & Financing:

• Underwriting Agreement: On July 12, 2011, the Company entered a bought deal agreement to sell 4,237,289 units at US$5.90 per unit, expected to raise gross proceeds of US$25M.
• Share Authorization: Board authorized issuance up to 105,000,000 common shares (July 11, 2011).
• Future Write-offs: The Company identified additional properties to be abandoned subsequent to May 31, 2011. Costs are undetermined but will be written off in the fourth quarter.

Operational Outlook:

• Buckreef Project: Focus is on data validation, feasibility study preparation, and potential tailings retreatment. Drilling programs are planned for Tembo and Bingwa prospects.
• Kigosi Project: Infill drilling completed; gravity plant moved to Buckreef area.

Risks and Contingencies:

• Internal Controls: A material weakness in internal controls (limited accounting personnel/segregation of duties) identified in 2010 is being remediated. Management believes it has been fully remediated as of May 31, 2011, pending year-end auditor attestation.
• Accounting Standards: The Company will adopt International Financial Reporting Standards (IFRS) for the fiscal year ending August 2012, requiring restatement of comparative amounts.
• Related Party Transactions: Significant transactions include a $100k loan to the Chairman/COO (Tanzania) and legal fees paid to a firm where a director is a partner.

Investor Verification Checklist

• Financing Execution: Verify the closing of the US$25M underwritten offering announced July 12, 2011.
• Future Write-offs: Monitor the Q4 financials for the magnitude of write-offs related to the properties identified for abandonment post-May 31, 2011.
• IFRS Transition: Review the impact of the transition from Canadian GAAP to IFRS on the August 2012 year-end financials, particularly regarding mineral property classification and stock-based compensation.
• Internal Controls: Confirm the auditor's attestation regarding the remediation of the previously identified material weakness in internal controls.
• Exploration Results: Track the results of the planned drilling programs at the Tembo and Bingwa prospects and the bulk sampling at Buziba.