TRX

Business Context and Reporting Period

Company: Tanzanian Royalty Exploration Corporation (TRX Gold Corp)

Filing Type: Form 20-F (Annual Report)

Reporting Period: Fiscal year ended August 31, 2009

Business Overview: The Company is a mineral resource company in the exploration stage, focusing on gold and diamond properties in Tanzania. It operates primarily through a royalty and joint venture strategy, "farming out" properties to third parties in exchange for option payments and future production royalties. The Company has no producing mines and has never generated operating revenue.

Key Financial Metrics (Fiscal Year Ended August 31, 2009)

Note: All figures are in Canadian Dollars (CAD) unless otherwise specified.

Exploration Expenditures: Net deferred exploration expenditures were $3,797,496. The Company wrote off $1,207,409 related to abandoned mineral properties.

Material Changes vs. Prior Period

• Increased Net Loss: The net loss increased by approximately $1.03 million compared to the prior year. This was primarily driven by a $535,000 increase in write-offs of mineral properties and a $372,000 increase in salaries and benefits (due to full-year impact of Tanzanian minimum taxes and severance accruals).
• Decreased Working Capital: Working capital declined by approximately $321,000, attributed mainly to decreases in drill inventory.
• Financing Activity: The Company raised approximately $5.99 million through private placements and share subscriptions in 2009, compared to $4.88 million in 2008. A significant portion of this funding came from the Chairman and CEO, James E. Sinclair.
• Property Agreements: The Company entered into new option and royalty agreements with Kazakh Africa Mining Ltd. (diamonds) and Songshan Mining Co. Ltd. (nickel) in early 2009.

Guidance, Outlook, Risks, and Unusual Items

Outlook and Liquidity: Management believes current cash and working capital are sufficient to fund operations for the 2010 fiscal year. However, the Company has no operating revenues and relies entirely on equity financing, joint ventures, or royalty agreements to sustain exploration activities. Future funding requirements may lead to shareholder dilution.

Key Risks:

• Exploration Risk: All properties are in the exploration stage with no proven mineral reserves. There is a risk that no commercially viable deposits will be discovered.
• Financing Risk: The Company has no cash flow from operations and depends on equity financing. Failure to obtain additional funding could result in the loss of property interests.
• Political and Regulatory Risk: Operations are conducted in Tanzania, subject to political stability, government regulations, and potential changes in mining laws or royalties.
• Internal Controls: The Company identified a material weakness in internal control over financial reporting due to limited accounting personnel and a lack of segregation of duties.

Unusual Items: A write-down of $1,207,000 was recorded for abandoned mineral properties. The Company also recorded a decrease in stock-based compensation due to forfeited Restricted Stock Units.

Important Facts for Investor Verification

• No Revenue or Reserves: Verify the Company's status as a pre-revenue exploration entity with no defined mineral reserves under SEC or Canadian standards.
• Dependence on CEO Financing: Confirm the extent of funding provided by Chairman James E. Sinclair through private placements and the terms of his ongoing subscription agreements.
• Material Weakness in Controls: Review the specific details of the internal control weakness regarding segregation of duties and the Company's remediation plan.
• Joint Venture Terms: Examine the specific earn-in requirements and royalty rates (e.g., 1.5% to 3% NSR) in agreements with partners like Kazakh, Songshan, and Sloane.
• Share Count and Dilution: Note the outstanding share count of 89,782,544 and the potential for dilution from future equity raises required to fund exploration.