This prospectus relates to the sale or other disposition from time to time by the selling shareholder identified in this prospectus of up to 15,734,371 common shares, consisting of 1,840,400 common shares, up to 8,035,714 common shares which may be issued upon the conversion of outstanding 2% Convertible Notes (the Notes), 1,840,400 common shares which may be issued upon the exercise of outstanding Series A Warrants and 4,017,857 common shares which may be issued upon the exercise of outstanding Series B Warrants. All of the common shares, when sold, will be sold by the selling shareholder. We are not selling any common shares under this prospectus and will not receive any of the proceeds from the sale or other disposition of the common shares by the selling shareholder. We will, however, receive the net proceeds of any Warrants exercised for cash, if any. The selling shareholder became entitled to receive the common shares (some of which are upon their conversion of Convertible Notes or exercise of Warrants) offered by this prospectus in a private placement completed on September 1, 2016 in reliance on exemptions from registration under the Securities Act.
The selling shareholder may sell or otherwise dispose of some or all the common shares covered by this prospectus in a number of different ways and at varying prices. We provide more information about how the selling shareholder may sell or otherwise dispose of their common shares in the section entitled Plan of Distribution on page 16. Discounts, concessions, commissions and similar selling expenses attributable to the sale of common shares covered by this prospectus will be borne by a selling shareholder. We will pay the expenses incurred in registering the common shares covered by this prospectus, including legal and accounting fees. We will not be paying any underwriting discounts or commissions in this offering.
Our common shares are listed on the NYSE MKT under the symbol TRX and on the Toronto Stock Exchange (TSX) under the symbol TNX. On September 23, 2016, the closing prices for a common share on the NYSE MKT and TSX were $0.88 and Cdn$1.17 per share, respectively.
ABOUT THIS PROSPECTUS
We have not, and the selling shareholder has not, authorized anyone to provide you with information that is additional to or different from that contained or incorporated by reference in this prospectus, any accompanying prospectus supplement and any free writing prospectus in connection with the offering described herein. We and the selling shareholder take no responsibility for, and can provide no assurances as to the reliability of, any other information that others may give you.
We have not registered the sale of the common shares under the securities laws of any state. Brokers or dealers effecting transactions in the common shares offered hereby should confirm that such shares have been registered under the securities laws of the state or states in which sales of the shares occur as of the time of such sales, or that there is an available exemption from the registration requirements of the securities laws of such states.
Neither this prospectus nor any prospectus supplement nor any free writing prospectus is an offer to sell any securities other than the securities offered hereby. Neither this prospectus nor any prospectus supplement nor any free writing prospectus is an offer to sell securities in any circumstances in which such an offer is unlawful.
We are not making an offer to sell the securities covered by this prospectus in any jurisdiction in which an offer or solicitation is not permitted or in which the person making the offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make an offer or solicitation.
The information appearing in this prospectus, the documents incorporated by reference in this prospectus, and in any free writing prospectus that we have authorized for use in connection with this offering is accurate only as of its respective date, regardless of the time of delivery of the respective document or of any sale of securities covered by this prospectus. You should not assume that the information contained in or incorporated by reference in this prospectus, any prospectus supplement or any free writing prospectus that we have authorized for use in connection with this offering is accurate as of any date other than the respective dates thereof. Our business, financial condition, results of operations and prospects may have changed since that date.
This prospectus is part of a registration statement on Form F-3 that we filed with the Securities and Exchange Commission. This prospectus does not contain all of the information included in the registration statement. For a more complete understanding of the offering of the securities, you should refer to the registration statement, including its exhibits. You should read the entire prospectus and any prospectus supplement and any related issuer free writing prospectus, as well as the registration statement and documents incorporated by reference into this prospectus or any prospectus supplement or any related issuer free writing prospectus, before making an investment decision.
In this prospectus, we, us, our, the Company, and Tanzanian refer to Tanzanian Royalty Exploration Corporation and its subsidiaries, unless the context otherwise requires. In addition, references to dollar amounts in this prospectus shall mean United States dollars, unless otherwise indicated.
PROSPECTUS SUMMARY
This summary highlights certain information about us, this offering and information appearing elsewhere in this prospectus and in the documents we incorporate by reference in this prospectus. This summary is not complete and does not contain all of the information that you should consider before investing in our common shares. After you read this summary, to fully understand our Company and this offering and its consequences to you, you should read this entire prospectus, any prospectus supplement, and any related free writing prospectus carefully, including the information referred to under the heading Risk Factors in this prospectus beginning on page 4, any prospectus supplement, and any related free writing prospectus as well as the other documents that we incorporate by reference into this prospectus, including our financial statements and the exhibits to the registration statement of which this prospectus is a part.
Our Company
The Company was originally incorporated under the name
424547 Alberta Ltd
. in the Province of Alberta on July 5, 1990, under the
Business Corporations Act
(Alberta). The name was changed to
Tan Range Exploration Corporation
on August 13, 1991. The name of the Company was again changed to
Tanzanian Royalty Exploration Corporation
on February 28, 2006. The Company is also registered in the Province of British Columbia as an extra-provincial company under the
Business Corporations Act
(British Columbia) and in the Province of Ontario as an extra-provincial company under the
Business Corporations Act
(Ontario).
The principal executive office of the Company is located at 44th Floor, Scotia Plaza, 40 King Street West, Toronto, Ontario, M5H 3Y4, Canada, and its telephone number is (604) 696-4236.
Business Overview
The Company is a mineral resource company with exploration stage properties, which engages in the acquisition of interests in and the exploration of natural resource properties and the possible development of those properties where warranted. The Company commits its own resources to the initial evaluation of mineral properties and in select situations, if and when warranted, the Company enters into joint venture agreements with other corporations to further the exploration of such properties, in exchange for annual rental/option payments and post-production royalty payments or with a view to direct development of a mine for the purpose of earning income from the sale of gold and other mined materials. At present, the Companys natural resource activities do not generate any income from production.
The Companys main area of interest has been in the exploration and development of gold properties, with a primary focus on exploring for and developing gold properties in Tanzania. Tanzania remains the focus of the Companys exploration and development activities.
The Securities the Selling Shareholder May Offer
The selling shareholder named in this prospectus may offer and sell up to 15,734,371 common shares, including 8,035,714 common shares which represent 150% of the number of common shares issuable under the Notes, including interest, as of the filing of this Registration Statement, 1,840,400 common shares which represent the number of common shares issuable upon the exercise of the Series A Warrants and 4,017,857 common shares which represent the number of common shares issuable upon the exercise of the Series B Warrants, pursuant to a registration rights agreement.
Throughout this prospectus, when we refer to our common shares being registered on behalf of the selling shareholder, we are referring to the common shares that have been issued and may be issuable upon conversion of for Notes or exercise of the Warrants. Throughout this prospectus, when we refer to the selling shareholder, we are referring to the selling shareholder named herein and, as applicable, any donees, pledgees, transferees or other successors-in-interest selling shares received after the date of this prospectus from a selling shareholder as a gift,
pledge, or other non-sale related transfer that may be identified in a supplement to this prospectus or, if required, a post-effective amendment to the registration statement of which this prospectus is a part.
On September 1, 2016, we entered into a securities purchase agreement with Crede CG III, Ltd. (Crede), the selling shareholder, pursuant to which we sold 1,840,400 common shares and Series A Warrants to purchase 1,840,400 shares at an exercise price of $0.8291 per share, for $1,250,000 and we sold to Crede $3,750,000 in the Notes and Series B Warrants to purchase 4,017,857 common shares at an exercise price of $1.10 per common share (the Securities Purchase Agreement). For additional information on the Securities Purchase Agreement see the description of the Securities Purchase Agreement in the section entitled Selling Shareholder on page 14 of this prospectus.
The entire discussion regarding the Securities Purchase Agreement, Notes, Series A Warrants, Series B Warrants, registration rights agreement and related agreements is qualified in its entirety to such agreements which have been filed with the SEC on September 7, 2016, as exhibits on Form 6-K.
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Common shares outstanding before the offering:
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109,079,364
(1)
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Common shares offered by the selling shareholder:
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15,734,371
(2)
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Common shares outstanding after the offering:
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124,813,735
(2)
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Use of proceeds:
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We will not receive any proceeds from the sale of the common shares offered by the selling shareholder. We will, however, receive the net proceeds of any Series A Warrants or Series B Warrants exercised for cash.
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NYSE MKT symbol
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TRX
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TSX symbol
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TNX
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Risk factors:
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Before deciding to invest in our common shares, you should carefully consider the risks related to our business, the offering and our common shares. See Risk Factors beginning on page 4 of this prospectus.
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(1)
Represents the number of common shares outstanding as of August 31, 2016, and excludes:
(a) shares issuable upon exercise of benefit plan awards; and
(b) shares available for issuance under outstanding warrants, debentures, convertible securities, excluding
common shares underlying the Notes, the Series A Warrants and the Series B Warrants applicable to this offering.
(2)
Represents the number of common shares that may be issued in connection with the conversion of the Notes and upon the exercise of Series A Warrants and Series B Warrants as of September 23, 2016. We have contractually agreed to register 8,035,714 common shares which represent 150% of the number of common shares issuable under the Notes, including interest, 1,840,400 common shares which represent the number of common shares issuable upon the exercise of the Series A Warrants and 4,017,857 common shares which represent the number of common shares issuable upon the exercise of the Series B Warrants. If all 15,734,371 common shares were issued, the number of common shares outstanding would be 124,813,735.
RISK FACTORS
Investment in our common shares involves risks. Before deciding whether to invest in our common shares, you should consider carefully the risk factors discussed below and those contained in Part I. Item 3. Key Information D. Risk Factors of our Annual Report on Form 20-F for the fiscal year ended August 31, 2015, as filed with the Securities and Exchange Commission (SEC) which is incorporated herein by reference in its entirety, as well as any amendment or update to our risk factors reflected in subsequent filings with the SEC. If any of the risks or uncertainties described in our SEC filings actually occurs, our business, financial condition, results of operations or cash flow could be materially and adversely affected. This could cause the trading price of our common shares to decline, resulting in a loss of all or part of your investment. The risks and uncertainties we have described are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations.
Risks Relating to the Company
We have decided to begin production at the Buckreef Project without preparing a pre-feasibility study or bankable feasibility study which may subject us to more risks.
We have decided to begin production at the Buckreef Project without preparing a pre-feasibility study or bankable feasibility study which is a more common practice within the mining industry and therefore may subject us to more business risks. Our decision to begin production at the Buckreef Project was based on limited prior historical information, drilling programs, modeling, and positive metallurgical testing. Therefore, our decision to begin production at the Buckreef Project was based on limited information which may or may not be representative of information regarding the mine had we otherwise prepared a more comprehensive study. In addition, basing our decision to begin production on limited information may make us susceptible to risks, including:
·
certain difficulties in obtaining expected metallurgical recoveries when scaling up to production scale;
·
the preliminary nature of mine plans and processing concepts and applying them to full scale production;
·
determining operating/capital costs estimates and possible variance associated with constructing, commissioning and operating the Buckreef facilities based on limited information;
·
that metallurgical testing is in development and may not be representative of results of the Buckreef Project; and
·
that we may underestimate capital and operating costs without a comprehensive bankable feasibility study.
The Company has incurred net losses since its inception and expects losses to continue.
The Company has not been profitable since its inception. For the fiscal year ended August 31, 2015, the Company had a net loss of Cdn$8,995,697 for the year ended, and an accumulated deficit of Cdn$77,970,955 at, August 31, 2015. The Company has never generated revenues and does not expect to generate revenues from operations until one or more of its properties are placed in production. There is a risk that none of the Companys properties will be placed into production.
The Companys exploration activities are highly speculative and involve substantial risks.
All of the Companys properties are in the exploration or development stage and no proven mineral reserves have been established. The Companys exploration work may not result in the discovery of mineable deposits of ore in a commercially economical manner. There may be limited availability of water, which is essential to milling operations, and interruptions may be caused by adverse weather conditions. The Companys future operations, if any, are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air quality standards, pollution and other environmental protection controls.
The Company has uninsurable risks.
The Company may be subject to unforeseen hazards such as unusual or unexpected formations and other conditions. The Company may become subject to liability for pollution, cave-ins or hazards against which it cannot insure or against which it may elect not to insure. The payment of such liabilities may have a material adverse effect on the Companys financial position.
The Company depends on key management personnel.
The success of the operations and activities of the Company is dependent to a significant extent on the efforts and abilities of its management, including James E. Sinclair, President and Chief Executive Officer. Investors must be willing to rely to a significant extent on their discretion and judgment. The Company does not have employment contracts with the President and Chief Executive Officer. The Company maintains key-man life insurance on the President and Chief Executive Officer. Upon completion of the financing under the Securities Purchase Agreement the Company may hire new management personnel in order to execute its business plan. The Company would be dependent to a significant extent on the efforts and abilities of such new management personnel.
The Company may need additional capital.
As at August 31, 2015, the Company had cash and cash equivalents of $1,552,416 and working capital deficiency of $4,684,253. However, the Company will continue to incur exploration and development costs to fund its plan of operations and may need to raise additional capital. Ultimately, the Companys ability to continue its exploration activities depends in part on the Companys ability to commence operations and generate revenues or to obtain financing through joint ventures, debt financing, equity financing, production sharing agreements or some combination of these or other means. Further the raising of additional capital by the Company may dilute existing shareholders.
Substantial doubt about the Companys ability to continue as a going concern.
Based on the Companys current funding sources and taking into account the working capital position and capital requirements at August 31, 2015, these factors indicate the existence of a material uncertainty that raises substantial doubt about the Companys 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 2016 in order to continue development and construction of the Buckreef Project. Furthermore, the Company is currently negotiating project financing terms with a number of lending institutions, which the Company believes will result in the Company obtaining the project financing required to fund the construction of the Buckreef Project. However there is no assurance that such additional funding and/or project financing will be obtained or obtained on commercially favourable terms.
The Company has no cash flow from operations and has historically depended on the proceeds from equity financings for its operations.
The Companys current operations do not generate any cash flow. Any work on the Companys properties may require additional equity financing. If the Company seeks funding from existing or new joint venture partners, its project interests will be diluted. If the Company seeks additional equity financing, the issuance of additional shares will dilute the current interests of the Companys current shareholders. The Company may not be able to obtain additional funding to allow the Company to fulfill its obligations on existing exploration properties. The Companys failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development and the possible partial or total loss of the Companys potential interest in certain properties or dilution of the Companys interest in certain properties.
Our former auditor communicated deficiencies to our audit committee regarding our 2015 impairment assessment and financial statement closing process.
In connection with the audit investigation of our 2015 financial statements, our former auditor identified to our audit committee significant deficiencies in our impairment assessment and financial statement closing process. Our audit committee considered the auditors position and concluded there was no deficiency in our impairment assessment and that our financial statement closing process for 2015 was consistent with prior year audits, and the audit opinion delivered by the auditor on our 2015 financial statements was not qualified.
The Company may be characterized as a passive foreign investment company.
We may be characterized as a passive foreign investment company (PFIC). If we are determined to be a PFIC, our U.S. shareholders may suffer adverse tax consequences. Under the PFIC rules, for any taxable year that our passive income or our assets that produce passive income exceed specified levels, we will be characterized as a PFIC for U.S. federal income tax purposes. This characterization could result in adverse U.S. tax consequences for our U.S. shareholders, which may include having certain distributions on our common shares and gains realized on the sale of our common shares treated as ordinary income, rather than as capital gains income, and having potentially punitive interest charges apply to the proceeds of sales of our common shares and certain distributions.
Certain elections may be made to reduce or eliminate the adverse impact of the PFIC rules for holders of our common shares, but these elections may be detrimental to the shareholder under certain circumstances. The PFIC rules are extremely complex and U.S. investors are urged to consult independent tax advisers regarding the potential consequences to them of our classification as a PFIC. See TAXATION Material United States Federal Income Tax Considerations
Risks Relating to the Mining Industry
The Company cannot accurately predict whether commercial quantities of ores will be established.
Whether an ore body will be commercially viable depends on a number of factors beyond the control of the Company, including the particular attributes of the deposit such as size, grade and proximity to infrastructure, as well as mineral prices and government regulations, including regulations relating to permitting, prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The Company cannot accurately predict the exact effect of these factors, but the combination of these factors may result in a mineral deposit being unprofitable. The Company has no mineral producing properties at this time. Although the mineralized material estimates included herein have been prepared by the Company, or, in some instances have been prepared, reviewed or verified by independent mining experts, these amounts are estimates only and there is a risk that a particular level of recovery of gold or other minerals from mineralized material will not in fact be realized or that an identified mineralized deposit, if any, will never qualify as a commercially mineable or viable reserve.
The exploration for and development of mineral deposits involves significant risks.
Mineral resource exploration is a speculative business and involves a high degree of risk. The Company has completed a diamond drilling program on the Buckreef Project and has been reviewing the results of the drilling program in the context of analyzing the economic significance of the deeper resources at the Buckreef Project using current gold prices. However, the exploration for and development of mineral deposits involves significant risks, which even a combination of careful evaluation, experience and knowledge may not eliminate. Although the discovery of a resource may result in substantial rewards, few explored properties are ultimately developed into producing mines. Significant expenditures may be required to locate and establish reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site.
The Company may not be able to establish the presence of minerals on a commercially viable basis.
The Companys ability to generate revenues and profits, if any, is expected to occur through exploration and development of its existing properties as well as through acquisitions of interests in new properties. The
Company will need to incur substantial expenditures in an attempt to establish the economic feasibility of mining operations by identifying mineral deposits and establishing ore reserves through drilling and other techniques, developing metallurgical processes to extract metals from ore, designing facilities and planning mining operations. The economic feasibility of a project depends on numerous factors beyond the Companys control, including the cost of mining and production facilities required to extract the desired minerals, the total mineral deposits that can be mined using a given facility, the proximity of the mineral deposits to a user of the minerals, and the market price of the minerals at the time of sale. The Companys existing or future exploration programs or acquisitions may not result in the identification of deposits that can be mined profitably.
The Company depends on consultants and engineers for its exploration programs.
The Company has relied on and may continue to rely upon consultants for exploration development, construction and operating expertise. Substantial expenditures are required to construct mines, to establish ore reserves through drilling, to carry out environmental and social impact assessments, to develop metallurgical processes to extract the metal from the ore and, in the case of new properties, to develop the exploration infrastructure at any site chosen for exploration. The Company may not be able to discover minerals in sufficient quantities to justify commercial operation, and the Company may not be able to obtain funds required for exploration on a timely basis.
The Company may not have clear title to its properties.
Acquisition of title to mineral properties is a very detailed and time-consuming process, and the Companys title to its properties may be affected by prior unregistered agreements or transfers, or undetected defects. Several of the Companys prospecting licenses are currently subject to renewal by the Ministry of Energy and Minerals of Tanzania. There is a risk that the Company may not have clear title to all its mineral property interests, or they may be subject to challenge or impugned in the future.
Mining exploration, development and operating activities are inherently hazardous.
If the Company experiences mining accidents or other adverse conditions, the Companys mining operations could be materially adversely affected. The Companys exploration activities may be interrupted by any or all of the following mining accidents such as cave-ins, rock falls, rock bursts, pit wall failures, fires or flooding. In addition, exploration activities may be reduced if unfavorable weather conditions, ground conditions or seismic activity are encountered, ore grades are lower than expected, the physical or metallurgical characteristics of the ore are less amenable than expected to mining or treatment, dilution increases or electrical power is interrupted. Occurrences of this nature and other accidents, adverse conditions or operational problems in future years may result in the Companys failure to achieve current or future exploration and production estimates.
Development of the Companys projects is based on estimates and the Company cannot guarantee that its projects, if any, will be placed into production.
Any potential production and revenues based on production from any of the Companys properties are estimates only. Estimates are based on, among other things, mining experience, resource estimates, assumptions regarding ground conditions and physical characteristics of ores (such as hardness and presence or absence of certain metallurgical characteristics) and estimated rates and costs of mining and processing. The Companys actual production from the Buckreef Project, if it ever achieves production, may be lower than its production estimates. Each of these factors also applies to future development properties not yet in production at the Companys other projects. In the case of mines the Company may develop in the future, it does not have the benefit of actual experience in its estimates, and there is a greater likelihood that the actual results will vary from the estimates. In addition, development and expansion projects are subject to unexpected construction and start-up problems and delays.
The Companys exploration activities are subject to various federal, state and local laws and regulations.
Laws and regulation govern the development, mining, production, importing and exporting of minerals; taxes; labor standards; occupational health; waste disposal; protection of the environment; mine safety; toxic substances; and other matters. The Company requires licenses and permits to conduct exploration and mining operations. Amendments to current laws and regulations governing operations and activities of mining companies or more stringent implementation thereof could have a substantial adverse impact on the Company. Applicable laws and regulations will require the Company to make certain capital and operating expenditures to initiate new operations. Under certain circumstances, the Company may be required to close an operation once it is started until a particular problem is remedied or to undertake other remedial actions.
The Companys mineral interests in Tanzania are 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. There are initial preparation fees and annual rental fees for prospecting licenses based on the total area of the license. Renewals of prospecting licenses can take many months and possibly even years to process by the regulatory authority in Tanzania and there is no guarantee that they will be granted. With each renewal at least 50% of the licensed area, if greater than 20 square kilometers, 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 no guarantee on the timing for processing the new application and whether it will be successful.
Risks Relating to the Market
The Companys competition is intense in all phases of the Companys business.
The mining industry in which the Company is engaged is in general, highly competitive. Competitors include well-capitalized mining companies, independent mining companies and other companies having financial and other resources far greater than those of the Company. The Company competes with other mining companies in connection with the acquisition of gold and other precious metal properties. In general, properties with a higher grade of recoverable mineral and/or which are more readily mineable afford the owners a competitive advantage in that the cost of production of the final mineral product is lower. Thus, a degree of competition exists between those engaged in the mining industries to acquire the most valuable properties. As a result, the Company may eventually be unable to acquire attractive gold mining properties.
The Company is subject to the volatility of metal and mineral prices.
The economics of developing metal and mineral properties are affected by many factors beyond the Companys control, including, without limitation, the cost of operations, variations in the grade ore or resource mined, and the price of such resources. The market prices of the metals for which the Company is exploring are highly speculative and volatile. Depending on the price of gold or other resources, the Company may determine that it is impractical to commence or continue commercial production. Gold prices fluctuate widely and are affected by numerous factors beyond the Companys control, including central bank purchases and sales, producer hedging and de-hedging activities, expectations of inflation, the relative exchange rate of the U.S. dollar with other major currencies, interest rates, global and regional demand, political and economic conditions, production costs in major gold-producing regions, speculative positions taken by investors or traders in gold and changes in supply, including worldwide production levels. The price of gold and other metals and minerals may not remain stable, and such prices may not be at levels that will make it feasible to continue the Companys exploration activities, or commence or continue commercial production. The aggregate effect of these factors is impossible to predict with accuracy.
The Companys business activities are conducted in Tanzania.
The Companys principal exploration and development properties are currently located in the United Republic of Tanzania, Africa. Although the Company believes that the Tanzania government is a stable, multi-party democracy, there is no guarantee that this will continue. Tanzania is surrounded by unstable countries enduring political and civil unrest, and in some cases, civil war. There is no guarantee that the surrounding unrest will not
affect the Tanzanian government and people, and therefore, the Companys mineral exploration activities. Any such effect is beyond the control of the Company and may materially adversely affect its business.
The Company may be affected in varying degrees by political stability and government regulations relating to the mining industry and foreign investment in Tanzania. The government of Tanzania may institute regulatory policies that adversely affect the exploration and development (if any) of the Companys properties. Any changes in regulations or shifts in political conditions in this country are beyond the control of the Company and may materially adversely affect its business. Investors should assess the political and regulatory risks related to the Companys foreign country investments. The Companys operations in Tanzania are also subject to various levels of economic, social and other risks and uncertainties that are different from those encountered in North America. The Companys operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, restrictions on foreign exchange and repatriation, income taxes, expropriation of property, environmental legislation and mine safety. Other risks and uncertainties include extreme fluctuations in currency exchange rates, high rates of inflation, labor unrest, risks of war or civil unrest, government and civil unrest, regional expropriation and nationalization, renegotiation or nullification of existing concessions, licenses, permits and contracts, illegal mining, corruption, hostage taking, civil war and changing political conditions and currency controls. Infectious diseases (including Ebola virus, malaria, HIV/AIDS and tuberculosis) are also major health care issues where the Company operates.
Mineral exploration in Tanzania is affected by local climatic and economic conditions.
The Companys properties in Tanzania have year round access, although seasonal winter rains from December to March may result in flooding in low lying areas, which are dominated by mbuga, a black organic rich laustrine flood soil. Further, most lowland areas are under active cultivation for corn, rice, beans and mixed crops by subsistence farmers. As a result, the area has been deforested by local agricultural practices for many years. The seasonal rains and deforested areas can create a muddy bog in some areas, which can make access more difficult, and could impede or even prevent the transport of heavy equipment to the Companys mineral properties at certain times of the year between December and March.
The Companys operations are subject to issues relating to security and human rights.
Civil disturbances and criminal activities such as trespass, illegal mining, theft and vandalism may cause disruptions at the Companys operations in Tanzania which may result in the suspension of operations. There is no guarantee that such incidents will not occur in the future. Such incidents may halt or delay exploration, increase operating costs, result in harm to employees or trespassers, decrease operational efficiency, increase community tensions or result in criminal and/or civil liability for the Company or its employees and/or financial damages or penalties. The manner in which the Companys personnel respond to civil disturbances and criminal activities can give rise to additional risks where those responses are not conducted in a manner that is consistent with international standards relating to the use of force and respect for human rights. The failure to conduct security operations in accordance with these standards can result in harm to employees or community members, increase community tensions, reputational harm to the Company and its partners or result in criminal and/or civil liability for the Company or its employees and/or financial damages or penalties. It is not possible to determine with certainty the future costs that the Company may incur in dealing with the issues described above at its operations.
Risks relating to the Securities of the Company
The Selling Shareholder may convert or exercise some or all of the Notes and the Warrants into our common shares which will dilute our current shareholders.
The issuance of the common shares through the conversion or exercise will dilute current shareholders. As of September 23, 2016, 13,893,971 of our common shares, subject to further adjustment, may be issued in connection with the conversion of the Notes and upon exercise of the Warrants. We have contractually agreed to register 1,840,400 common shares which already have been issued to the selling shareholder, 8,035,714 common shares that may be issuable under the Notes, 1,840,400 common shares which represent the number of common shares issuable upon the exercise of the Series A Warrants and 4,017,857 common shares which represent the
number of common shares issuable upon the exercise of the Series B Warrants. The issuance of these common shares upon the conversion of the Notes and exercise of Warrants will dilute the ownership of existing shareholders.
As a foreign private issuer, the Company is subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to U.S. shareholders.
The Company is a foreign private issuer under applicable U.S. federal securities laws. As a result, the Company does not file the same reports that a U.S. domestic issuer would file with the SEC, although the Company is required to file with or furnish to the SEC the continuous disclosure documents that the Company is required to file in Canada under Canadian securities laws. In addition, the Companys officers, directors, and principal shareholders are exempt from the reporting and short swing profit rules of Section 16 of the Exchange Act. Therefore, shareholders may not know on as timely a basis when the Companys officers, directors and principal shareholders purchase or sell common shares, as the reporting dates under the corresponding Canadian insider reporting requirements are longer. In addition, as a foreign private issuer, the Company is exempt from the proxy rules under the Exchange Act.
The Company may lose its foreign private issuer status in the future, which could result in significant additional costs and expenses.
In order to maintain the Companys current status as a foreign private issuer, a majority of its common shares must be either directly or indirectly owned by non-residents of the United States, unless the Company also satisfies one of the additional requirements necessary to preserve this status. The Company may in the future lose its foreign private issuer status if a majority of its common shares is held in the United States and it fails to meet the additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs under U.S. federal securities laws as a U.S. domestic issuer may be significantly more than the costs incurred as a Canadian foreign private issuer eligible to use the multijurisdictional disclosure system (MJDS). If the Company is not a foreign private issuer, it would not be eligible to use the MJDS or other foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, the Company may lose the ability to rely upon certain exemptions from NYSE MKT corporate governance requirements that are available to foreign private issuers.
United States investors may not be able to obtain enforcement of civil liabilities against the Company.
The enforcement by investors of civil liabilities under the United States federal or state securities laws may be affected adversely by the fact that the Company is governed by the Business Corporations Act (Alberta), that the some of the Companys officers and directors are residents of Canada or otherwise reside outside the United States, and that all, or a substantial portion of their assets and a substantial portion of the Companys assets, are located outside the United States. It may not be possible for investors to effect service of process within the United States on certain of the Companys directors and officers or enforce judgments obtained in the United States courts against the Company, certain of its directors and officers based upon the civil liability provisions of United States federal securities laws or the securities laws of any state of the United States.
Common share prices will likely be highly volatile, and your investment could decline in value or be lost entirely.
The market price of the common shares is likely to be highly volatile and may fluctuate significantly in response to various factors and events, many of which the Company cannot control. The stock market in general, and the market for mining company stocks in particular, has historically experienced significant price and volume fluctuations. Volatility in the market price for a particular issuers securities has often been unrelated or disproportionate to the operating performance of that issuer. Market and industry factors may depress the market price of the Companys securities, regardless of operating performance. Volatility in the Companys securities price also increases the risk of securities class action litigation.
Our common shares must meet the requirements of the NYSE MKT.
The NYSE MKT rules provides that the NYSE MKT may, in its discretion, at any time, and without notice, suspend dealings in or remove any security from listing or unlisted trading privileges, if, among other things, where the financial condition and/or operating results of the issuer appear to be unsatisfactory or it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make further dealings on the NYSE MKT inadvisable. Although the Company has received no indication or notification that its common shares may be delisted, in light of the current per common share price, there is no assurance that the Companys common shares will continue to be listed on the NYSE MKT.
The registration and sale of common shares through this offering may depress our share price.
The registration and sale of common shares upon the conversion of the Notes and exercise of Warrants could have the effect of depressing the price of a common share due to the substantial number of common shares that may be sold.
Offers or availability for sale of a substantial number of common shares may cause the price of our common shares to decline.
Sales of a significant number of the Companys common shares in the public market could harm the market price of its common shares and make it more difficult for the Company to raise funds through future offerings of common shares. The Companys shareholders may sell substantial amounts of its common shares in the public market. The availability of these common shares for resale in the public market has the potential to cause the supply of its common shares to exceed investor demand, thereby decreasing the price of the common shares.
In addition, the fact that the Companys shareholders can sell substantial amounts of its common shares in the public market, whether or not sales have occurred or are occurring, could make it more difficult for the Company to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that it deems reasonable or appropriate.