[exhibit151002.gif]                Tanzanian Royalty Exploration Corporation  Consolidated Financial Statements  For the years ended August 31, 2016 and 2015     MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING   The accompanying consolidated financial statements of Tanzanian Royalty Exploration Corporation were prepared by management in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board. Management acknowledges responsibility for the preparation and presentation of the consolidated financial statements, including responsibility for significant accounting judgments and estimates and the choice of accounting principles and methods that are appropriate to the Companys circumstances. The significant accounting policies of the Company are summarized in Note 3 to the consolidated financial statements.  Management has established processes, which are in place to provide them with sufficient knowledge to support management representations that they have exercised reasonable diligence that (i) the consolidated financial statements do not contain any untrue statement of 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 is made, as of the date of and for the year presented by the consolidated financial statements and (ii) the consolidated financial statements fairly present in all material respects the financial condition and results of operations of the Company, as of the date of and for the year presented by the consolidated financial statements.  The Board of Directors is responsible for ensuring that management fulfills its financial reporting responsibilities and for reviewing and approving the consolidated financial statements together with other financial information. An Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the internal controls over the financial reporting process. The Audit Committee meets with management as well as with the independent auditors to review the consolidated financial statements and the auditors' report. The Audit Committee also reviews the Annual Report to ensure that the financial information reported therein is consistent with the information presented in the consolidated financial statements. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the 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.   James E. Sinclair Marco Guidi_______ James E. Sinclair Marco Guidi Chief Executive Officer Chief Financial Officer      [exhibit151003.jpg]   [exhibit151004.jpg]    4    [exhibit151005.jpg]   [exhibit151006.jpg]    6      MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING  Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934.  Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  The Companys management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of August 31, 2016.  In making this assessment, the Companys management used the criteria established in Internal Control  Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 1992).  The Companys management has completed their review and testing of the Companys internal control over financial reporting and concluded that they are appropriately designed and operating effectively as of August 31, 2016.


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|Tanzanian Royalty Exploration Corporation

Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
|As at                                                                                                                    | August 31,       2016 | August 31, 2015 
|                                                                                                                         |                       |                 
|Assets                                                                                                                   |                       |                 
|Current Assets                                                                                                           |                       |                 
|Cash (Note 16)                                                                                                           | $           84,913    | $        767,826
|Other receivables (Note 12)                                                                                              | 254,389               | 216,172         
|Inventory (Note 15)                                                                                                      | 539,608               | 487,575         
|Prepaid and other assets (Note 13)                                                                                       | 153,409               | 80,843          
|                                                                                                                         | 1,032,319             | 1,552,416       
|Property, plant and equipment(Note 5)                                                                                    | 3,050,368             | 3,406,252       
|Mineral properties and deferred exploration(Note 4)                                                                      | 45,802,858            | 48,150,191      
|                                                                                                                         | $    49,885,545       | $    53,108,859 
|                                                                                                                         |                       |                 
|Liabilities                                                                                                              |                       |                 
|Current Liabilities                                                                                                      |                       |                 
|Trade, other payables and accrued liabilities (Note 14)                                                                  | $      4,827,508      | $      3,683,129
|Due to related parties (Note 9)                                                                                          | 221,115               | -               
|Leases payable (Note 5)                                                                                                  | 370,103               | 496,559         
|Convertible loan (Note 24)                                                                                               | 110,382               | -               
|Derivative in convertible loan (Note 24)                                                                                 | 108,000               | -               
|Gold bullion loans (Note 22)                                                                                             | 2,180,425             | 1,205,981       
|Derivative in gold bullion loans (Note 22)                                                                               | 5,051,000             | 851,000         
|                                                                                                                         | 12,868,533            | 6,236,669       
|Warrant liability(Note 6)                                                                                                | 215,000               | 120,000         
|Gold bullion loans(Note 22)                                                                                              | 941,406               | -               
|Asset Retirement Obligation(Note 20)                                                                                     | 704,123               | 680,000         
|                                                                                                                         | 14,729,062            | 7,036,669       
|Shareholders equity                                                                                                     |                       |                 
|Share capital(Note 6)                                                                                                    | 122,380,723           | 120,532,634     
|Share based payment reserve(Note 8)                                                                                      | 1,066,863             | 1,048,757       
|Warrants reserve(Note 7)                                                                                                 | 941,037               | 941,037         
|Accumulated deficit                                                                                                      | (90,600,819)          | (77,970,955)    
|Equity attributable to owners of the Company                                                                             | 33,787,804            | 44,551,473      
|Non-controlling interests(Note 21, 4(a))                                                                                 | 1,368,679             | 1,520,717       
|Total shareholders equity                                                                                               | 35,156,483            | 46,072,190      
|                                                                                                                         | $    49,885,545       | $    53,108,859 

Nature of operations and Going Concern (Note 1) Segmented information (Note 17) Commitments (Notes 4 and 18) Events subsequent to the reporting period (Notes 26)  The accompanying notes are an integral part of these consolidated financial statements  8


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|                                                                        | Tanzanian Royalty Exploration Corporation

Consolidated Statements of Comprehensive Loss
(Expressed in Canadian Dollars)
|Year ended August 31,                                                   |                                                                                                                          |  | 2016                | 2015                
|Administrative expenses                                                 |                                                                                                                          |  |                     |                     
|Depreciation (Note 5)                                                   |                                                                                                                          |  | $        478,699    | $        384,708    
|Consulting (Note 9)                                                     |                                                                                                                          |  | 432,316             | 246,147             
|Directors fees (Note 9)                                                |                                                                                                                          |  | 285,188             | 367,524             
|Office and general                                                      |                                                                                                                          |  | 246,938             | 326,088             
|Shareholder information                                                 |                                                                                                                          |  | 249,645             | 361,265             
|Professional fees (Note 9)                                              |                                                                                                                          |  | 387,177             | 680,048             
|Salaries and benefits (Note 6)                                          |                                                                                                                          |  | 623,716             | 1,053,364           
|Share based payments (Note 6)                                           |                                                                                                                          |  | (38,996)            | 506,747             
|Travel and accommodation                                                |                                                                                                                          |  | 61,681              | 58,507              
|                                                                        |                                                                                                                          |  | (2,726,364)         | (3,984,398)         
|Other income (expenses)                                                 |                                                                                                                          |  |                     |                     
|Foreign exchange gain                                                   |                                                                                                                          |  | 111,352             | 390,459             
|Interest, net                                                           |                                                                                                                          |  | (26,054)            | (12,128)            
|Interest accretion (Notes 19 and 22)                                    |                                                                                                                          |  | (1,028,568)         | (738,134)           
|Accretion on asset retirement obligation (Note 20)                      |                                                                                                                          |  | (24,123)            | (5,789)             
|Finance costs (Note 23)                                                 |                                                                                                                          |  | (262,213)           | (196,525)           
|Exploration costs                                                       |                                                                                                                          |  | (197,683)           | (212,225)           
|Provision of VAT                                                        |                                                                                                                          |  | -                   | (38,770)            
|Change in value of derivative liability (Notes 19,22 and 24)            |                                                                                                                          |  | (3,905,000)         | 150,000             
|Interest on leases (Note 5)                                             |                                                                                                                          |  | (76,847)            | (45,087)            
|Gain on disposal of assets                                              |                                                                                                                          |  | 34,476              | -                   
|Loss on settlement of debt for shares (Note 22)                         |                                                                                                                          |  | (172,467)           | -                   
|Loss on amendment of convertible senior notes (Note 19)                 |                                                                                                                          |  | -                   | (2,034,406)         
|Loss on redemption of convertible senior notes (Note 19)                |                                                                                                                          |  | -                   | (174,041)           
|Loss on sale of gold bullion (Note 22)                                  |                                                                                                                          |  | -                   | (184,810)           
|Change in value of warrant liability (Note 6)                           |                                                                                                                          |  | (946,600)           | 324,000             
|Write off of mineral properties and deferred exploration costs (Note 4) |                                                                                                                          |  | (3,516,268)         | (2,233,843)         
|Withholding tax costs                                                   |                                                                                                                          |  | (45,543)            | -                   
|Net loss and comprehensive loss                                         |                                                                                                                          |  | $  (12,781,902)     | $    (8,995,697)    
|                                                                        |                                                                                                                          |  |                     |                     
|Loss and comprehensive loss attributable to:                            |                                                                                                                          |  |                    
|Owners of the Company                                                   |                                                                                                                          |  | (12,629,864)        | (8,875,306)         
|Non-controlling interests                                               |                                                                                                                          |  | (152,038)           | (120,391)           
|                                                                        |                                                                                                                          |  | $  (12,781,902)     | $    (8,995,697)    
|                                                                        |                                                                                                                          |  |                     |                     
|Loss per share                                                          |                                                                                                                          |  |                     |                     
|     basic and diluted                                                 |                                                                                                                          |  | $            (0.12) | $             (0.09)
|Weighted average # of shares outstanding                                |                                                                                                                          |  |                     |                     
|     basic and diluted                                                 |                                                                                                                          |  | 108,200,190         | 103,241,433         

The accompanying notes are an integral part of these consolidated financial statements  9


Tanzanian Royalty Exploration Corporation  Consolidated Statements of Changes in Equity [exhibit151008.gif] (Expressed in Canadian Dollars)    The accompanying notes are an integral part of these consolidated financial statements  10





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|Tanzanian Royalty Exploration Corporation

Consolidated Statements of Cash Flow
(Expressed in Canadian Dollars)
|Year ended August 31,                                                                                           |  |  | 2016                | 2015               
|                                                                                                                |  |  |                     |                    
|Operating                                                                                                       |  |  |                     |                    
|Net loss                                                                                                        |  |  | $    (12,781,902)   | $      (8,995,697) 
|Adjustments to reconcile net loss to cash flow from operating activities:                                       |  |  |                     |                    
|Depreciation                                                                                                    |  |  | 478,699             | 384,708            
|Change in value of warrant liability                                                                            |  |  | 946,600             | (324,000)          
|Change in value of derivative liability                                                                         |  |  | 3,905,000           | (150,000)          
|Write-off of mineral properties                                                                                 |  |  | 3,516,268           | 2,233,843          
|Share based payments                                                                                            |  |  | (38,996)            | 506,747            
|Accretion on asset retirement obligation                                                                        |  |  | 24,123              | 5,789              
|Interest accretion                                                                                              |  |  | 1,036,303           | 738,134            
|Loss on sale of gold bullion                                                                                    |  |  | -                   | 184,810            
|Loss on amendment of convertible senior notes                                                                   |  |  | -                   | 2,034,406          
|Loss on redemption of convertible senior notes                                                                  |  |  | -                   | 174,041            
|Foreign exchange                                                                                                |  |  | 7,906               | (154,420)          
|Shares issued for payment of interest on bullion loans                                                          |  |  | 174,076             | -                  
|Loss on shares issued for payment of interest on bullion loans                                                  |  |  | 172,467             | -                  
|Gain on sale of property, plant and equipment                                                                   |  |  | (34,476)            | -                  
|Shares issued for services                                                                                      |  |  | 26,250              | -                  
|Cash interest paid                                                                                              |  |  | (50,926)            | (142,589)          
|Cash interest received                                                                                          |  |  | -                   | 17,488             
|Non cash directors fees                                                                                        |  |  | 157,813             | 192,468            
|Net change in non-cash operating working capital items:                                                         |  |  |                    
|Other receivables                                                                                               |  |  | (38,217)            | 78,100             
|Inventory                                                                                                       |  |  | (52,033)            | (463,345)          
|Prepaid expenses                                                                                                |  |  | (72,566)            | (11,961)           
|Trade, other payables and accrued liabilities                                                                   |  |  | 709,116             | 2,790,416          
|Cash used in operations                                                                                         |  |  | (1,914,495)         | (901,062)          
|Investing                                                                                                       |  |  |                     |                    
|Mineral properties and exploration expenditures, net of recoveries                                              |  |  | (688,296)           | (2,529,248)        
|Property, plant and equipment, net of proceeds from sale                                                        |  |  | (88,339)            | (665,099)          
|Cash used in investing activities                                                                               |  |  | (776,635)           | (3,194,347)        
|Financing                                                                                                       |  |  |                     |                    
|Proceeds from convertible senior notes, net of issue costs                                                      |  |  | -                   | 1,618,804          
|Loans from related parties                                                                                      |  |  | 221,115             | -                  
|Repayment of convertible senior notes                                                                           |  |  | -                   | (933,825)          
|Repayment of leases                                                                                             |  |  | (75,530)            | -                  
|Proceeds from sale-leaseback                                                                                    |  |  | -                   | 496,559            
|Proceeds from gold bullion loan                                                                                 |  |  | 1,729,000           | 1,852,036          
|Proceeds from convertible loan                                                                                  |  |  | 133,632             | -                  
|Cash provided by financing activities                                                                           |  |  | 2,008,217           | 3,033,574          
|Net decrease in cash and cash equivalents                                                                       |  |  | (682,913)           | (1,061,835)        
|Cash and cash equivalents, beginning of year                                                                    |  |  | 767,826             | 1,829,661          
|Cash and cash equivalents, end of year                                                                          |  |  | $            84,913 | $           767,826




The accompanying notes are an integral part of these consolidated financial statements  11





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|Tanzanian Royalty Exploration Corporation

Consolidated Statements of Cash Flow
(Expressed in Canadian Dollars)

Supplementary information:20162015Non-cash transactions:Share based payments capitalized to mineral properties$      18,733$      42,316Shares issued pursuant to RSU plan120,500729,778Shares issued for interest on gold loans372,130-Exercise of warrants  cashless exercise851,600-Shares issued as finders fee on convertible senior note financing-264,000Shares issued on amendment of convertible senior note financing-250,000Shares issued for finders fee on gold bullion loan477,609177,019Shares issued on redemption of convertible senior note financing-1,958,397Warrants issued on convertible senior note financing-515,000Asset retirement obligation-680,000    The accompanying notes are an integral part of these consolidated financial statements  12


Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  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 was changed to Tan Range Exploration Corporation on August 13, 1991.  The name of the Company was again changed to Tanzanian Royalty Exploration Corporation (TREC or the Company)on February 28, 2006.The address of the Companys registered office is Bay Adelaide Centre, East Tower, 22 Adelaide Street West, Suite 3400, Toronto, Ontario, M5H 4E3.  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 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 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 August 31, 2016 the Company had a working capital deficiency of $11,836,214 (August 31, 2015  $4,684,253 working capital deficiency), had not yet achieved profitable operations, has accumulated losses of $90,600,819 (August 31, 2015  $77,970,95) 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.  Based on the Companys current funding sources and taking into account the working capital position and capital requirements at August 31, 2016, 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. Subsequent to August 31, 2016, the Company raised US$5 Million financing (Note 26). 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.  These 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.   13    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  2. Basis of Preparation  2.1 Statement of compliance  The Companys consolidated financial statements, including comparatives, have been prepared in accordance with and using accounting policies in full compliance with the International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) issued by the International Accounting Standards Board (IASB) and Interpretations of the International Financial Reporting Interpretations Committee (IFRIC), effective for the Companys reporting for the year ended August 31, 2016.  2.1 Statement of compliance (continued)  These consolidated financial statements were approved and authorized by the Board of Directors of the Company on November 22, 2016.  2.2 Basis of presentation  The consolidated financial statements of the Company as at and for the years ended August 31, 2016 and 2015 comprise of the Company and its subsidiaries (together referred to as the Company or Group).  The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair value, as explained in the accounting policies set out in note 3.  2.3 Adoption of new and revised standards and interpretations  New standards and interpretations to be adopted in future  At the date of authorization of these Financial Statements, the IASB and IFRIC has issued the following new and revised Standards and Interpretations which are not yet effective for the relevant reporting periods and which the Company has not early adopted these standards, amendments and interpretations.  However, the Company is currently assessing what impact the application of these standards or amendments will have on the consolidated financial statements of the Company.  • IFRS 9 Financial Instruments. IFRS 9 covers the classification and measurement, impairment and hedge accounting of financial assets and   financial liabilities and the effective date is for annual periods on or after January 1, 2018, with earlier application permitted. The Company is still assessing the impact of adopting IFRS 9.  Amendments to IFRS 9 also provide relief from the requirement to restate comparative financial statements for the effect of applying IFRS 9.  Instead, additional transition disclosures will be required to help investors understand the effect that the initial application of IFRS 9 has on the classification and measurement of financial instruments.  • IFRS 15 Revenue from Contracts with Customers.  In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. IFRS 15 specifies how and when to recognize revenue as well as requires entities to provide users of financial statements with more informative, relevant disclosures. The standard supersedes IAS 18, Revenue, IAS 11, Construction Contracts, and a number of revenue-related interpretations. Application of the standard is mandatory for all IFRS reporters and it applies to nearly all contracts with customers: the main exceptions are leases, financial instruments and insurance contracts. IFRS 15 must be applied in an entitys first annual IFRS financial statements for periods beginning on or after January 1, 2018. Application of the standard is mandatory and early adoption is permitted. The Company has not yet determined the impact of the amendments on the Companys financial statements.   14    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  2. Basis of Preparation(continued)  2.3 Adoption of new and revised standards and interpretations (continued)  New standards and interpretations to be adopted in future (continued)  • IFRS 16 - In 2016, the IASB issued IFRS 16, Leases (IFRS 16), replacing IAS 17, Leases and related interpretations. The standard introduces a single on-balance sheet recognition and measurement model for lessees, eliminating the distinction between operating and finance leases. Lessors continue to classify leases as finance and operating leases. IFRS 16 becomes effective for annual periods beginning on or after January 1, 2019, and is to be applied retrospectively. Early adoption is permitted if IFRS 15, Revenue from Contracts with Customers (IFRS 15) has been adopted. The Company has not yet determined the impact of the amendments on the Companys financial statements.  • In December 2014, the IASB issued amendments to IAS 1  Presentation of Financial Statements (IAS 1) to improve the effectiveness of presentation and disclosure in financial reports with the objective of reducing immaterial note disclosure. The amendments are effective for annual periods beginning on or after January 1, 2016 with early adoption permitted. The Company has not yet determined the impact of the amendments on the Companys financial statements.  • IAS 16 Property Plant and Equipment and IAS 38 Intangible Assets  The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data on either the gross or net carrying amount. In addition, the accumulated depreciation or amortization is the difference between the gross and carrying amounts of the asset. The Company is in the process of assessing the impact of IAS 16 and IAS 38 on its consolidated financial statements. The policy will become effective for annual periods starting after, or on January 1, 2016.  • Amendments to IFRS 11 Joint Arrangements - The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business must apply the relevant IFRS 3 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not re-measured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. The Company is in the process of assessing the impact of these amendments on its consolidated financial statements.  • IAS 38 - Intangible Assets (IAS 38) and IAS 16  Property, Plant and Equipment (IAS 16), were amended in May 2014 to introduce a rebuttable presumption that the use of revenue-based amortization methods is inappropriate.  The amendments are effective for annual periods beginning on or after January 1, 2016.   The adoption of the standard has not had an impact on the Companys financial statements.   15    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  3. Summary of Significant Accounting Policies    3.1 Basis of consolidation  The consolidated financial statements include the financial statements of the Company and its controlled subsidiaries: Tanzania American International Development Corporation 2000 Limited (Tanzam), Tancan Mining Co. Limited (Tancan), Buckreef Gold Company Ltd. (Buckreef), and Northwestern Base Metals Company Limited (NWBM). Control is achieved when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.  Subsidiaries are consolidated from the date of acquisition, being the date on which the Company obtains control, and continued to be consolidated until the date when such control ceases.  The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.  The consolidated financial statements of the Company set out the assets, liabilities, expenses, and cash flows of the Corporation and its subsidiaries, namely:  Ownership interest as at August 31,Country of
incorporation20162015TanzamTanzania100%100%TancanTanzania100%100%BuckreefTanzania55%55%NWBMTanzania75%75%  All intra‐company transactions, balances, income and expenses are eliminated in full on consolidation.  Non‐controlling interests in the net assets of consolidated subsidiaries are identified separately from the Companys equity therein.  Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if it results in a negative balance.  3.2 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 commercial 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.   16    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  3. Summary of Significant Accounting Policies(continued)  3.2 Mineral properties (continued)  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.  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 cost 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.  3.3 Property, plant and equipment  Property, plant and equipment (PPE) are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of PPE consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.  Depreciation is provided at rates calculated to write off the cost of PPE, less their estimated residual value, using the declining balance method over the following expected useful lives:  AssetsRateMachinery and equipment20% to 30%Automotive30%Computer equipment30%Drilling equipment and automotive equipment6.67%Leasehold improvements20%Heap leach pads20%   17    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  3. Summary of Significant Accounting Policies(continued)  3.3 Property, plant and equipment  An item of PPE is derecognized upon disposal, when held for sale or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in the consolidated statement of comprehensive loss.  Assets under construction are capitalized as construction-in-progress. The cost of construction-in-
progress comprises of its purchase price and any costs directly attributable to bringing it into working 
condition for its intended use. Construction-in-progress assets are not depreciated until it is completed 
and available for use.  The Company conducts an annual assessment of the residual balances, useful lives and depreciation methods being used for PPE and any changes arising from the assessment are applied by the Company prospectively.  Where an item of plant and equipment comprises major components with different useful lives, the components are accounted for as separate items of plant and equipment. Expenditures incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditures are capitalized.  3.4 Decommissioning, restoration and similar liabilities (Asset retirement obligation or ARO)  The Company recognizes liabilities for statutory, contractual, constructive or legal obligations, including those associated with the reclamation of mineral properties and PPE, when those obligations result from the acquisition, construction, development or normal operation of the Companys 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 the declining balance method.  Following the initial 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, and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.  3.5 Share based payments  Share based payment transactions Employees (including directors and senior executives) of the Company receive a portion of their remuneration in the form of share based payment transactions, whereby employees render services as consideration for equity instruments (equity‐settled transactions”).  In situations where equity instruments are issued and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at fair value of the share‐based payment.  Equity settled transactions The costs of equitysettled transactions with employees are measured by reference to the fair value at the date on which they are granted.   18    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  3. Summary of Significant Accounting Policies(continued)  3.5 Share based payments (continued)  The costs of equity‐settled transactions are recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“the vesting date”). The cumulative expense is recognized for equity‐settled transactions at each reporting date until the vesting date reflects the Company’s best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and the corresponding amount is represented in share based payment reserve.  No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied provided that all other performance and/or service conditions are satisfied.  Where the terms of an equity‐settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the share‐based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.  The effect of outstanding options is considered in the computation of earnings per share, if dilutive.  3.6 Taxation  Income tax expense represents the sum of tax currently payable and deferred tax.  Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the date of the statement of financial position.  Deferred income tax Deferred income tax is provided using the liability method on temporary differences at the date of the statement of financial position between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.  Deferred income tax liabilities are recognized for all taxable temporary differences, except:   where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and   in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.  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 it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized except:   19    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  3. Summary of Significant Accounting Policies(continued)  3.6 Taxation (continued)   where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and   in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.  The carrying amount of deferred income tax assets is reviewed at each date of the statement of financial position and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each date of the statement of financial position and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.  Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the date of the statement of financial position.  Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the statement of comprehensive loss.  Deferred income tax assets and deferred income tax liabilities are offset if, and only if, a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend to either settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.  Sales tax Expenses and assets are recognized net of the amount of sales tax, except:  • When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable; or  • When receivables and payables are stated with the amount of sales tax included.  The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.  3.7 Loss per share  The basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The diluted loss per share reflects the potential dilution of common share equivalents, such as outstanding restricted stock units and share purchase warrants, in the weighted average number of common shares outstanding during the year, if dilutive.   20    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  3. Summary of Significant Accounting Policies(continued)  3.8 Financial assets  All financial assets are initially recorded at fair value and designated upon inception into one of the following four categories: held‐to‐maturity, available‐for‐sale, loans‐and-receivables or at fair value through profit or loss (“FVTPL”).  The Company initially recognizes loans and receivables on the date they are originated.  All other financial assets are recognized on the trade date at which the Company becomes party to the contractual provisions of the instruments.  Subsequent to initial recognition, financial assets classified as FVTPL are measured at fair value with unrealized gains and losses recognized through earnings. The Companys other financial assets are classified as FVTPL.  Financial assets classified as loans‐and‐receivables and held‐to‐maturity are measured at amortized cost. The Company’s cash and cash equivalents and trade and other receivables are classified as loans‐and-receivables.  Subsequent to initial recognition, financial assets classified as available‐for‐sale are measured at fair value with unrealized gains and losses recognized in other comprehensive income (loss) except for losses in value that are considered other than temporary. During the periods presented, the Company has not classified any financial assets as available‐for‐sale.  Transactions costs associated with FVTPL financial assets are expensed as incurred, while transaction costs associated with all other financial assets are included in the initial carrying amount of the asset.  The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the rights and rewards of ownership of the financial asset are transferred.  3.9 Financial liabilities  All financial liabilities are initially recorded at fair value and designated upon inception as FVTPL or other‐financial‐liabilities on the trade date at which the Company becomes party to the contractual provisions of the instrument.  Financial liabilities classified as other‐financial‐liabilities are initially recognized at fair value less directly attributable transaction costs. After initial recognition, other‐financial-liabilities are subsequently measured at amortized cost using the effective interest method.  The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. The Companys trade and other payables and convertible debt are classified as other‐financial‐liabilities.  Financial liabilities classified as FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as FVTPL. Derivatives, including separated embedded derivatives are also classified as FVTPL unless they are designated as effective hedging instruments. Fair value changes on financial liabilities classified as FVTPL are recognized through the statement of comprehensive loss. At August 31, 2016 and 2015 the Companys warrant liability and the derivative in gold bullion loans have been classified as FVTPL.  The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, as they expire.   21    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  3. Summary of Significant Accounting Policies(continued)  3.10 Impairment of financial assets  The Company assesses at each date of the statement of financial position whether a financial asset is impaired.  Assets carried at amortized cost If there is objective evidence that an impairment loss on assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the financial assets original effective interest rate. The carrying amount of the asset is then reduced by the amount of the impairment. The amount of the loss is recognized in profit or loss.  If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed to the extent that the carrying value of the asset does not exceed what the amortized cost would have been had the impairment not been recognized. Any subsequent reversal of an impairment loss is recognized in profit or loss.  In relation to trade receivables, a provision for impairment is made and an impairment loss is recognized in profit and loss when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Company will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are written off against the allowance account when they are assessed as uncollectible.  Available-for-sale If an available‐for‐sale asset is impaired, an amount comprising the difference between its cost and its current fair value, less any impairment loss previously recognized in profit or loss, is transferred from equity to profit or loss. Reversals in respect of equity instruments classified as available‐for‐sale are not recognized in profit or loss.  3.11 Impairment of non-financial 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, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease.   22    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  3. Summary of Significant Accounting Policies(continued)  3.11 Impairment of non-financial assets (continued)  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.  3.12 Cash and cash equivalents  Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand, and short term deposits with an original maturity of three months or less, which are readily convertible into a known amount of cash.  3.13 Related party transactions  Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are considered to be related if they are subject to common control or are controlled by parties that have significant influence over the entity.  Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related party transactions that are in the normal course of business and have commercial substance are measured at the exchange amount, being the amount agreed by the parties to the transaction.  3.14 Foreign currency transactions  Functional and presentation currency  Items included in the financial statements of each of the Companys entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The functional currency of the Company and each of its subsidiaries is the Canadian Dollar (CDN). The consolidated financial statements are presented in Canadian Dollars which is the Companys presentation currency.  Transactions and balances  Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of comprehensive loss.   23    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  3. Summary of Significant Accounting Policies(continued)  3.15 Significant accounting judgments and estimates  The preparation of these consolidated financial statements requires management to make judgements and estimates and form assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its judgements and estimates in relation to assets, liabilities, revenue and expenses.  Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgements and estimates.  Actual outcomes may differ from these estimates under different assumptions and conditions. The most significant estimates relate to the appropriate depreciation rate for property, plant and equipment, the valuation of warrant liability, the recoverability of accounts receivable, the valuation of deferred income tax amounts, impairment testing of mineral properties and deferred exploration and property, plant and equipment and the calculation of share‐based payments. The most significant judgements relate to the recognition of deferred tax assets and liabilities and asset retirement obligations, the determination of the economic viability of a project or mineral property and the determination of functional currencies.  3.16 Inventory  Stockpiled ore and consumables are physically measured or estimated and valued at the lower of cost or net realizable value.  Net realizable value is the estimated future sales price of the product the entity expects to realize when the product is processed and sold, less estimated costs to complete production and bring the product to sale.  Where the time value of money is material, these future prices and costs to complete are discounted.  Consumables are valued at the lower of cost or net realizable value. Any provision for obsolescence is determined by reference to specific items. A regular review is undertaken to determine the extent of any provision for obsolescence.    4. Mineral Properties  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 USD$100/sq.km for the initial period, USD$150/sq.km for the first renewal and USD$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 USD$500 per license.  Upon renewal, there is a renewal fee of USD$300 per license.  Section 30 of the Mining Act states that the amount that is to be spent on prospecting operations is to be prescribed by Regulation.  PeriodMinimum expenditure (US$)Initial period (4 years)$500 per sq km for annumFirst renewal (3 years)$1,000 per sq km for annumSecond renewal (2 years)$2,000 per sq km for annum  Certain of the Companys prospecting licenses are currently being renewed.  24    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015


4. Mineral Properties(continued)  The Company assessed the carrying value of mineral properties and deferred exploration costs as at August 31, 2016 and recorded a write-down of $3,516,268 during the year ended August 31, 2016       (2015 - $2,233,843).  The continuity of expenditures on mineral properties is as follows: [exhibit151010.gif]


25    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015


4. Mineral Properties(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 USD $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 has proposed to Stamico that the parties commence settlement discussions to resolve this issue. No provision has been recorded in connection with this penalty.  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 under Mineral Properties or Inventories for cots directly related to the extraction and processing of ore and reported under Buckreef Gold Company Limited.  Force Majeure:  On February 5, 2016, the Company, through its subsidiary Tanzam provided notice of Force Majeure under its agreement with STAMICO. The notice of Force Majeure is based upon the invasion and forced occupation by several hundred illegal miners of the Companys properties including the South Pit and other areas within the Buckreef site, thereby endangering the Companys team and preventing Tanzam from continuing its mining operations.


26    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015


4. Mineral Properties(continued)  (a) Buckreef Gold Project (continued):  Force Majeure (continued):  The Company was requested by the Deputy Minister of Energy and Minerals to provide an area of access for artisanal miners within 14 days of notice. The Company identified three potential areas with one to be designated for true artisanal mining, meaning without the use of mechanized mining equipment. Mining would not be allowed below the water table. The Company would also require artisanal miners to operate responsibly in accordance with Tanzanian mining and environmental law, and land and water requirements.  On the 15th day following notice, the occupation by illegal miners occurred as the Company refused to allow access to areas that represent a material portion of the deposit according to the Companys NI 43-101 technical reports. The Company has communicated to both the Minister and the Deputy Minister, indicating its willingness to provide an area of access to legitimate artisanal miners.  On June 9th, 2016, Force Majeure was lifted.  (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 Company has an agreement with Stamico providing Stamico a 15% carried interest in the Kigosi Project.  The Kigosi Mining License was granted by the Ministry of Energy and Minerals to Tanzam, (wholly owned subsidiary of Tanzanian Royalty).  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 the year ended August 31, 2016, the Company abandoned certain licenses in the area which were previously written off, as such, no write off was taken for these licenses related to the property (year ended August 31, 2015 - $2,144,993 write off).  (c) Itetemia Project:  Through prospecting and mining option agreements, the Company has options to acquire interests in several ltetemia property prospecting licenses.  The prospecting licenses comprising the Itetemia property 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 USD$1,000,000.  The Company is required to pay Stamico an annual option fee of USD$25,000 per annum until commercial production.


27    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015


4. Mineral Properties(continued)  (c) Itetemia Project (continued):  During the year ended August 31, 2016, the Company abandoned certain licenses in the area and a write off of $153,588 was taken in this area (year ended August 31, 2015 - $nil) related to deferred exploration costs associated with licenses the Company does not intend to renew.  (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 work will be initiated.  During the year ended August 31, 2016, the Company abandoned certain licenses in the area and a write off of $8,757 was taken in this area (year ended August 31, 2015 - $47,152).  (e) Lunguya:  During the year ended August 31, 2016, the Company abandoned certain licenses in the area and a write off $3,353,923 was taken in this area (year ended August 31, 2015 - $41,698) for all previously deferred expenditures.  Although the Company retains certain licenses on the project, the Company will no longer pursue this project as it focuses its resources on core assets.


28


Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015


5. Property, plant and equipment


|                          |                    |                  |                    |                         |                        |                        |                            |             
|------------------------- | ------------------ | ---------------- | ------------------ | ----------------------- | ---------------------- | ---------------------- | -------------------------- | ------------
|                          | Drilling equipment | Automotive       | Computer Equipment | Machinery and equipment | Leasehold improvements | Heap leach  pads       | Construction-in-progress * | Total       
|Cost                      |                    |                  |                    |                         |                        |                        |                            |             
|As at September 1, 2014   | $     464,487      | $        302,640 | $   112,312        | $   1,844,110           | $       100,328        | $                    - | $     2,082,640            | $  4,906,517
|Additions                 | -                  | -                | 1,751              | -                       | -                      | -                      | 666,254                    | 668,005     
|Transfer of assets in use | -                  | -                | -                  | -                       | -                      | 1,496,078              | (1,496,078)                | -           
|Disposals                 | -                  | -                | (18,733)           | -                       | -                      | -                      | -                          | (18,733)    
|As at August 31, 2015     | $     464,487      | $        302,640 | $    95,330        | $   1,844,110           | $       100,328        | $    1,496,078         | $     1,252,816            | $  5,555,789
|Additions                 | -                  | -                | 4,306              | 27,360                  | -                      | -                      | 126,196                    | 157,862     
|Disposals                 | -                  | (111,272)        | -                  | (165,511)               | -                      | -                      | -                          | (276,783)   
|As at August 31, 2016     | $     464,487      | $        191,368 | $    99,636        | $   1,705,959           | $       100,328        | $    1,496,078         | $     1,379,012            | $  5,436,868




|                         |               |                 |               |                |                    |                      |                        |               
|------------------------ | ------------- | --------------- | ------------- | -------------- | ------------------ | -------------------- | ---------------------- | --------------
|Accumulated depreciation |               |                 |               |                |                    |                      |                        |               
|As at September 1, 2014  | $     262,085 | $      234,273  | $    83,595   | $  1,153,737   | $           46,966 | $                  - | $                    - | $    1,780,656
|Depreciation expense     | 13,493        | 17,228          | 15,052        | 181,268        | 10,673             | 146,994              | -                      | 384,708       
|Disposals                | -             | -               | (15,827)      | -              | -                  | -                    | -                      | (15,827)      
|As at August 31, 2015    | $     275,578 | $      251,501  | $    82,820   | $  1,335,005   | $           57,639 | $      146,994       | $                    - | $    2,149,537
|Depreciation expense     | 12,594        | 11,614          | 10,385        | 129,076        | 8,842              | 306,188              | -                      | 478,699       
|Disposals                | -             | (95,288)        | -             | (146,448)      | -                  | -                    | -                      | (241,736)     
|As at August 31, 2016    | $     288,172 | $      167,827  | $    93,205   | $  1,317,633   | $           66,481 | $      453,182       | $                    - | $    2,386,500
|Net book value           |               |                 |               |                |                    |                      |                        |               
|As at September 1, 2014  | $     202,402 | $        68,367 | $     28,717  | $      690,373 | $           53,362 | $                  - | $    2,082,640         | $   3,125,861 
|As at August 31, 2015    | $     188,909 | $        51,139 | $     12,510  | $      509,105 | $           42,689 | $  1,349,084         | $    1,252,816         | $   3,406,252 
|As at August 31, 2016    | $     176,315 | $        23,541 | $       6,431 | $      388,326 | $           33,847 | $  1,042,896         | $    1,379,012         | $   3,050,368 

* Construction in progress represents construction of the Companys heap leach pads and processing plant.  During the year ended August 31, 2015, construction of the heap leach pads was completed and the heap leach pads began being amortized as they came into operation.


29


Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  5. Property, plant and equipment(continued)  Sale-leaseback transaction  During the year ended August 31, 2015, the Company sold automotive and mining equipment for proceeds of $577,505 to various officers and directors. Pursuant to the agreements, the Company entered into 1-year lease agreements on the automotive and mining equipment with effective dates in May 2015. Per the terms of the leases, the Company agrees to purchase back the automotive and mining equipment at the end of the lease periods for a lump sum payment of USD$74,848. Based on the terms of the agreements, the Company has classified and is accounting for the leases as finance leases. The initial base payments vary between the agreements and range between $3,500 and $8,000 payable monthly. The effective interest rate on the finance lease obligations outstanding is between 20% and 30%. The gain on sale of $250,108 has been deferred and is being recognized on a straight-line basis over the lease term as a reduction in amortization expense. The total deferred gain has been presented as a reduction of the finance asset. Under the lease, the Company is responsible for the costs of utilities, insurance, taxes and maintenance expenses.  As at August 31, 2016, the balance outstanding under capital lease obligations is $370,103 (August 31, 2015 - $496,559) and is repayable within 1 year based on the monthly payments as described above.  As such, the capital lease obligation is classified as a current liability.  Interest expense for the year ended August 31, 2016 related to the leases amounted to $76,847 (2015 - $45,087), and is recorded in the statement of comprehensive loss.  6. Capital Stock  Share Capital The Companys Restated Articles of Incorporation authorize the Company to issue an unlimited number of common shares.  On December 8, 2014, the Board resolved that the Company authorize for issuance up to a maximum of 155,000,000 common shares, subject to further resolutions of the Companys board of directors.


|                                                                |             |                
|--------------------------------------------------------------- | ----------- | ---------------
|                                                                | Number      | Amount ($)

($)
|Balance at September 1, 2014                                    | 101,325,880 | $ 117,153,440  
|Issued pursuant to Restricted Share Unit Plan                   | 174,608     | 729,778        
|Finders fees on convertible senior note financing               | 400,000     | 264,000        
|Shares issued on amendment of convertible senior note financing | 500,000     | 250,000        
|Finders fees on gold bullion loan                               | 442,548     | 177,019        
|Redemption of convertible senior notes                          | 5,010,518   | 1,958,397      
|Balance at August 31, 2015                                      | 107,853,554 | $ 120,532,634  
|Issued pursuant to Restricted Share Unit Plan                   | 50,000      | 120,500        
|Finders fees on gold bullion loan                               | 320,543     | 477,609        
|Shares issued for interest on gold loans                        | 536,137     | 372,130        
|Shares issued for services                                      | 75,000      | 26,250         
|Exercise of warrants                                            | 233,258     | 851,600        
|Balance at August 31, 2016                                      | 109,068,492 | $ 122,380,723  

30    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  6. Capital Stock(continued)  Activity during the year ended August 31, 2016:  During the year ended August 31, 2016, 50,000 shares were issued pursuant to the Companys Restricted Share Unit Plan at an average price of $2.41 for total issued value of $120,500.  On September 22, 2015, the Company issued 111,547 common shares at a price of $0.42 per share for total issued value of $46,850 for payment of interest in connection with the gold bullion loans (see Note 22 for details).  On December 21, 2015, the Company issued 73,195 common shares at a price of $0.38 per share for total issued value of $27,814 for payment of interest in connection with the gold bullion loans (see Note 22 for details).  On March 28, 2016, the Company issued 110,334 common shares at a price of $0.30 per share for total issued value of $33,100 for payment of interest in connection with the gold bullion loans (see Note 22 for details).  On April 15, 2016 the Company issued 75,000 common shares common shares at a price of $0.35 per share for total issued value of $26,250 for consulting services.  On June 23, 2016, the Company issued 111,547 common shares at a price of $0.64 per share for total issued value of $71,390 for payment of interest in connection with the gold bullion loans (see Note 22 for details).  On August 9, 2016, the Company issued 129,514 common shares at a price of $1.49 per share for total issued value of $192,976 for payment of interest in connection with the gold bullion loans (see Note 22 for details).  On August 9, 2016, the Company issued 320,543 common shares at a price of $1.49 per share for total issued value of $477,609 to an arms length third party for payment of finders fees in connection with the gold bullion loan (see Note 22 for details).  Activity during the year ended August 31, 2015:  During the year ended August 31, 2015, 174,608 shares were issued pursuant to the Companys Restricted Share Unit Plan at an average price of $4.18 for total issued value of $729,778.  On December 29, 2014, the Company issued 400,000 common shares at a price of $0.66 per share for total issued value of $264,000 to an arms length third party for payment of finders fees in connection with the convertible senior note financing (see Note 19).  On March 23, 2015, the Company issued 500,000 common shares at a price of $0.50 per share for total issued value of $250,000 as consideration in connection with the amendment to the previously completed convertible senior note financing (see Note 19 for details).  On August 25, 2015, the Company issued 442,548 common shares at a price of $0.40 per share for total issued value of $177,019 to an arms length third party for payment of finders fees in connection with the gold bullion loan (see Note 22 for details).  During the year ended August 31, 2015, pursuant to themandatory redemption option held by the lender under the convertible senior note financing as described in Note 18, the lender redeemed total convertible senior notes in the amount $1,784,356 which resulted in the issuance of 5,010,518 shares at an average price of $0.39 for total value of $1,958,397.  The redemption resulted in a loss on redemption of convertible senior notes of $174,041 for the year ended August 31, 2015.  31    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  6. Capital Stock(continued)  Warrant issuances:  Activity during the year ended August 31, 2016:  There were no warrant issuances during the year ended August 31, 2016.  Activity during the year ended August 31, 2015:  On December 9, 2014 the Company issued 982,143 share purchase warrants in connection with its convertible senior note financing (see Note 19).  Each warrant entitles the holder to acquire a common share at a price of US$0.98.  These warrants expire on December 9, 2019.  The warrants had a fair value of $444,000 on issuance, which was estimated using the Black-Scholes option pricing model and the following assumptions:  Risk-free interest rate1.63%Expected volatility61%Dividend yieldnilExpected life5 years  On December 29, 2014 the Company issued 400,000 share purchase warrants in connection with its convertible senior note financing (see Note 19).  Each warrant entitles the holder to acquire a common share at a price of US$0.98.  These warrants expire on December 29, 2016.  The warrants had a fair value of $71,000 on issuance, which was estimated using the Black-Scholes option pricing model and recorded as a transaction cost.  The following assumptions were used:  Risk-free interest rate0.72%Expected volatility75%Dividend yieldnilExpected life2 years  Warrants and Compensation Options outstanding:  At August 31, 2016, the following warrants and compensation options were outstanding:  Number of
WarrantsExercise priceExpiry dateConvertible senior note financing - December 9, 2014257,143*USD$0.98December 9, 2019Convertible senior note financing  December 29, 2014400,000USD$0.98December 29, 2016Balance,
   August 31, 2016657,143-- * warrants classified under warrant liability   32    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  6. Capital Stock(continued)  Warrant transactions are summarized as follows:  Number of WarrantsWeighted Average Exercise PriceBalance, August 31, 2014-$                        -Warrants granted1,382,1431.29Balance, August 31, 20151,382,1431.29Warrants exercised(725,000)(1.26)Balance, August 31, 2016657,143$                  1.29  The outstanding warrants have weighted average price of US$0.98 and weighted average remaining contractual life of 1.48 years.  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 Companys functional currency is the Canadian dollar as such the warrants whose exercise price is denominated in US dollars have been recorded under liabilities and carried at fair value as determined by the Black-Scholes option pricing model, with changes in fair values recorded as gains or losses in the statements of comprehensive loss.  The table below shows the activity for warrant liability for the years ended August 31, 2016 and 2015:


|                                                  |                       |                            
|------------------------------------------------- | --------------------- | ---------------------------
|Year ended                                        | August 31, 2016       | August  31, 2015           
|Balance at beginning of year                      | $             120,000 | $                         -
|Warrants exercised                                | (851,600)             | -                          
|Warrants issued                                   | -                     | 444,000                    
|Increase (decrease) in value of warrant liability | 946,600               | (324,000)                  
|Balance at end of year                            | $             215,000 | $             120,000      
|                                                  |                       |                            

During the year ended August 31, 2015, 982,143 warrants were issued with a value on issuance of $444,000 that were classified as warrant liability.  Between the date of issuance and August 31, 2015, the value of these warrants decreased to $120,000.  The assumptions in valuing the warrant liability at August 31, 2015 include an expected volatility of 72%, a risk free interest rate of 1.54% and an expected life of 4.3 years.  During the year ended August 31, 2016, 725,000 warrants expiring on December 9, 2019 were exercised by way of cashless exercise into 233,258 common shares of the Company, reducing the balance at August 31, 2016 to 257,143 from the opening balance of 982,143.  The value of the remaining 257,143 warrants increased to $215,000.  The assumptions in valuing the warrant liability at August 31, 2016 include an expected volatility of 91%, a risk free interest rate of 0.92% and an expected life of 3.27 years.  The increase in value of $946,600 during the year ended August 31, 2016 (2015  $324,000 decrease) resulted in a loss (2015  gain) in the statement of comprehensive loss.  Employee stock ownership plan: On May 1, 2003, the Company established a non-leveraged employee stock ownership plan (ESOP) for all eligible employees, consultants, and directors.  The Company matches 100 percent of participants contributions up to 5 percent of the participants salaries and 50 percent of participants contributions between 6 percent and 30 percent of the participants salaries.  All contributions vest immediately.  ESOP compensation expense for the year ended August 31, 2016 was $nil (2015 - $5,606) and is included in salaries and benefits expenses.   33    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  6. Capital Stock(continued)  Restricted share units: The Restricted Stock Unit Plan (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.  As of September 29, 2015, the Board resolved to amend the suspension to 800,000 of the 2,500,000 common shares previously authorized for issuance under the RSU Plan, such that a maximum of 1,700,000 shares shall be authorized for issuance under the RSU Plan, until such suspension may be lifted or further amended. 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 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.  The Company has a RSU Plan which allows the Company to issue RSUs which are redeemable for the issue of common shares at prevailing market prices on the date of the RSU grant. The aggregate number of RSUs outstanding is limited to a maximum of ten percent of the outstanding common shares. The Company has granted RSUs to officers and key employees.  Of the 1,700,000 shares authorized for issuance under the Plan, 1,418,862 (August 31, 2015 - 1,368,862) shares have been issued as at August 31, 2016.  Total share-based compensation expense related to the issue of RSUs was $470,743 for the year ended August 31, 2016 (2015 - $965,494).  The amount capitalized to mineral properties for the year ended August 31, 2016 was $18,733 (2015 - $42,316).  The amount charged to directors fees for the year ended August 31, 2016 was $157,813 (2015 - $192,468).  During the year ended August 31, 2016 RSUs were forfeited resulting in $333,193 (2015 - $122,019) in a reduction in share-based compensation expense related to the reversal of the expense related to forfeited RSUs.   34    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  6. Capital Stock(continued)  The following table summarizes changes in the number of RSUs outstanding:


|                           |                                           |       
|-------------------------- | ----------------------------------------- | ------
|Number of RSUs            | Weighted average fair value at issue date
|Balance, August 31, 2014   | 783,031                                   | $ 3.23
|Granted                    | 1,160,280                                 | $ 0.56
|Redeemed for common shares | (174,608)                                 | $ 4.18
|Forfeited/cancelled        | (121,481)                                 | $ 2.92
|Balance, August 31, 2015   | 1,647,222                                 | $ 1.27
|Granted                    | 75,000                                    | $ 0.41
|Redeemed for common shares | (50,000)                                  | $ 2.41
|Forfeited/cancelled        | (396,631)                                 | $ 1.25
|Balance, August 31, 2016   | 1,275,591                                 | $ 1.18

7. Reserve for warrants


|                                                               |                    |                  
|-------------------------------------------------------------- | ------------------ | -----------------
|Year ended                                                     | August 31,
2016    | August 31, 2015  
|Balance at beginning of year                                   | $          941,037 | $         870,037
|Warrants issued on convertible senior note financing (Note 19) | -                  | 71,000           
|Balance at end of year                                         | $          941,037 | $         941,037

8. Reserve for share based payments


|                                   |                  |                  
|---------------------------------- | ---------------- | -----------------
|Year ended                         | August 31,
2016  | August 31, 2015  
|Balance at beginning of year       | $      1,048,757 | $         935,060
|Shares issued pursuant to RSU plan | (120,500)        | (729,778)        
|Share based compensation           | 471,799          | 965,494          
|RSU shares forfeited               | (333,193)        | (122,019)        
|Balance at end of year             | $      1,066,863 | $      1,048,757 

9. 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 Royalty Exploration Corporation entered into the following transactions with related parties:  Year ended,NotesAugust 31, 2016August 31, 2015Legal services(i)$10,363$282,169Rent(ii)$15,199$27,199Rent(iii)$nil$5,516Consulting(iv)$157,637$175,908Consulting(v)$33,838$165,477  (i) The Company engages a legal firm for professional services in which one of the Companys directors is a partner.  During the year ended August 31, 2016, the legal expense charged by the firm was $10,363 (2015 - $282,169).  As at August 31, 2016, $327,766 remains payable (August 31, 2015 - $315,994).   35    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  9. Related party transactions and key management compensation(continued)  (ii) During the year ended August 31, 2016, $15,199 (2015 - $27,199) was paid to a company associated with the Companys former Chairman and COO and his spouse for office rental.  (iii) During the year ended August 31, 2016, $nil (2015 - $5,516) was paid to a company associated with the Companys former CFO for office rental.  This office rental lease was cancelled effective November 1, 2014.  (iv) During the year ended August 31, 2016, $157,637 (2015 - $175,908) was paid for heap leach construction consulting and website/data back-up services to companies controlled by individuals associated with the CEO.  (v) During the year ended August 31, 2016, $33,838 (2015 - $165,477) was paid for grade control drilling, license fees and other consulting services to Stamico, the Companys joint venture partner on the Buckreef Gold Project.  As at August 31, 2016, the Company has a receivable of $3,903 (August 31, 2015 - $nil) from an organization associated with the Companys President and CEO.  As at August 31, 2016, the Company has a receivable of $5,541 (August 31, 2015 - $5,541) from the former general manager of the Company for amounts advanced on his behalf.  During the year ended August 31, 2015, the Company sold automotive and mining equipment in the amount of $243,805 to directors of the Company and $333,700 to the Companys CEO for total proceeds of $577,505 as described in Note 4.  Pursuant to the agreements, the Company entered into 1-year lease agreements on the automotive and mining equipment with effective dates in May 2015. Per the terms of the leases, the Company agrees to purchase back the automotive and mining equipment at the end of the lease periods for a lump sum payment of USD$74,848. The initial base payments vary between the agreements and range between $3,500 and $8,000 payable monthly.  The effective interest rate on the capital lease obligation outstanding is between 20% and 30%.  As at August 31, 2016, the balance outstanding under capital lease obligations is $370,103 (August 31, 2015 - $496,559) and is repayable within 1 year based on the monthly payments as described above.  As such, the capital lease obligation is classified as a current liability.  (b) Remuneration of Directors and key management personnel (being the Companys Chief Executive Officer, Chief Financial Officer and Chief Operating Officer) of the Company was as follows:  Years ended,August 31, 2016August 31, 2015Salaries and benefits (1)Share based payments (2), (3)Salaries and benefits (1)Share based payments (2), (3)Management$    245,962$       130,873$    346,464$     397,440Directors127,375157,813175,056192,468Total$    373,337$       288,686$    521,520$     589,908  (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)Compensation shares may carry restrictive legends. (3)All RSU share based compensation is based on the accounting expense recorded in the year.   36    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  9. Related party transactions and key management compensation(continued)  As at August 31, 2016, included in trade and other payables is $576,000 (August 31, 2015 - $133,000) due to these key management personnel with no specific terms of repayment.  During the year ended August 31, 2016 the Companys CEO provided various loans to the Company totaling $221,115 which is outstanding as at August 31, 2016.  The balance is payable on demand, interest free, and unsecured.  10. 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 year ended August 31, 2016. 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 August 31, 2016 totaled $33,787,804 (August 31, 2015 - $44,551,473).  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.  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.      37    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  11. Financial Instruments  Fair Value of Financial Instruments The Company designated warrant and derivative liabilities as FVTPL.  Fair value of the warrant liabilities and gold bullion loan derivatives are categorized as Level 3 measurement as these are calculated based on unobservable market inputs.   A 10% movement in volatility in the financial instruments that were classified as Level 3 measure will have an impact of approximately $176,000 on the consolidated statements of comprehensive loss.  Trade and other receivables and cash and cash equivalents are classified as loans and receivables, which are measured at amortized cost.  Trade and other payables, leases payable 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 debt are determined from transaction values that are not based on observable market data.  The carrying value of the Companys cash and cash equivalents, trade and 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.  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 August 31, 2016, or August 31, 2015.  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 August 31, 2016, a 1% increase/decrease in interest rates would decrease/increase net loss for the period by approximately $1,000 (2015 - $7,000).  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 August 31, 2016, the Company had current assets of $1,032,319 (August 31, 2015 - $1,552,416) and current liabilities of $12,868,533 (August 31, 2015 - $6,236,669). 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 $11,836,214 (August 31, 2015 - $4,684,253 working capital deficiency).  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.   38    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  11. Financial Instruments(continued)  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 August 31, 2016, 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 $723,000 on the consolidated statements of comprehensive loss.    12. Other receivables  The Companys other receivables arise from two main sources: receivables due from related parties and harmonized services tax (HST) and value added tax (VAT) receivable from government taxation authorities. These are broken down as follows:  August 31, 2016August 31, 2015Receivable from related parties$            39,559$            20,062HST and VAT Receivable199,967184,058Other14,86312,052Total Trade and Other Receivables$          254,389$          216,172  Below is an aged analysis of the Companys other receivables:  August 31, 2016August 31, 2015Less than 1 month$            43,788$              4,4971 to 3 months2,43726,940Over 3 months208,164184,735Total Other Receivables$          254,389$          216,172  At August 31, 2016, 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 11.  The Company holds no collateral for any receivable amounts outstanding as at August 31, 2016.  13. Prepaid and other assets  August 31, 2016August 31, 2015Insurance$                66,945$                42,201Listing fees28,67229,575Other57,7929,067Total prepaid expenses$              153,409$                80,843   39    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  14. 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:  August 31, 2016August 31, 2015Less than 1 month$          353,858$          396,2381 to 3 months95,308905,141Over 3 months4,378,3422,381,750Total Trade, Other Payables and Accrued Liabilities$       4,827,508$       3,683,129  15. 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:  August 31, 2016August 31, 2015Stockpiled ore and work in progress$         535,062$         480,363Supplies4,5467,212Total Inventory$         539,608$         487,575  16. Cash  As at August 31, 2016, cash and cash equivalents total $84,913 (August 31, 2015 - $767,826), consisting of cash on deposit with banks in general minimum interest bearing accounts.  17. Segmented information  Operating Segments  At August 31, 2016 the Companys operations comprise of a single reporting operating segment engaged in mineral exploration in Tanzania.  The Companys corporate division only earns interest revenue that is considered incidental to the activities of the Company and therefore does not meet the definition of an operating segment as defined in IFRS 8 Operating Segments. As the operations comprise a single reporting segment, amounts disclosed in the consolidated financial statements also represent operating segment amounts.  An operating segment is defined as a component of the Company:   that engages in business activities from which it may earn revenues and incur expenses;   whose operating results are reviewed regularly by the entitys chief operating decision maker; and   for which discrete financial information is available.   40    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  17. Segmented information(continued)  Geographic Segments  The Company is in the business of mineral exploration and production in the country of Tanzania. Information concerning TRECs geographic locations is as follows:  As at
August 31,
2016As at
August 31,
2015Identifiable assetsCanada$           262,798$         883,267Tanzania49,622,74752,225,592$      49,885,545$    53,108,859Non-current assetsCanada$             14,162$           13,350Tanzania48,839,06451,543,093$      48,853,226$    51,556,443  18. 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 its annual license fees since October 2014 with exception of Buckreef mining licenses. As at August 31, 2016 an accrual of $780,000 (August 31, 2015 - $463,390) has been recorded relating to unpaid license fees. Note that 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 $390,000 (August 31, 2015 - $75,000). The Company has recorded an accrual for all valid and active mining licenses.  19. Convertible senior note  Initial issuance: On December 29, 2014, the Company closed out of escrow the issuance of US$10,000,000 in convertible senior notes to an institutional lender. The facility may be increased to US$15,000,000, subject to financial criteria.  The notes were issued at an 8% discount, with an initial funding amount of US$9,200,000.  The notes are convertible at the option of the lender at a price of US$0.98.  The notes bear interest at 8% per annum, payable monthly.  

The

 lender may opt to receive interest in common shares in lieu of cash at 

US$0.98 per share

..  The notes mature in 24 months and are prepayable 

in full (if the prepayment amount is funded by new debt) or in part (if the prepayment amount is funded by equity) 

at the option of the Company after 6 months

 at a price equal to 107% of the principal being repaid

.. The lender may redeem 7.5% of principal monthly commencing in March, 2015 payable in cash or shares at the option of the Company (at a price based on 90% of the then-current volume weighted average trading price)

, subject to certain conditions, including that the


volume-weighted average trading price (VWAP)


of the common shares exceeds US$0.60 per share on the payment date and on each of the 20 trading days immediately preceding such date, and that an SEC registration statement is effective for resale of the common shares issuable under the notes

..   41    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  19. Convertible senior note(continued)  The initial closing drawdown was US$1,766,588. Subsequent drawdowns may be made based on meeting certain financial 

conditions, including the Company achieving net free cash flow of at least US$1,050,000 over a quarterly period

..  As at February 28, 2015, the Company had not achieved the financial conditions, as such, the cash held in escrow is restricted and unavailable to the Company for use.  As at February 28, 2015, the Company repaid USD$750,000.  On closing, 

982,143 

warrants 

were issued


 to the lender


which


 

are exercisable for 5 years at the conversion price of US$0.98. Any

 warrants issued to the lender in


 the


 future will be exercisable at 115% of the 5-day


VWAP


 of the common shares on the 5 trading days immediately preceding the date of issue.  The Company incurred $435,174 in direct expenditures relating to securing this financing.  In addition, 400,000 shares and 400,000 warrants were issued as finders fees (Note 6).  The 400,000 warrants are exercisable for 2 years at the conversion price of US$0.98.These costs have been recorded as transaction costs against the convertible senior notes to be amortized over the life of the notes.  Amendment to initial issuance: On March 25, 2015, the Company amended the terms of its convertible senior note financing, the first drawdown under which successfully closed on December 29, 2014.  The outstanding principal at the time of the amendment was US$9,250,000 representing the original USD$10,000,000 less the payment made as part of the lenders mandatory redemption option. The previously escrowed funds were returned to the lender.  Under the amended financing, there is no escrow of funds and the outstanding principal amount of the notes was reduced to US$1,450,000. Interest at 8% per annum is calculated on the reduced principal amount only, effective from March 1, 2015. A maximum of US$300,000 in cash will be repayable in April, 2015, pursuant once again to the lenders "mandatory redemption option."  The reduced amount of outstanding notes remain convertible at the option of the lender at 115% of the 5-day volume-weighted average trading price on the NYSE MKT of the Company's common shares as at December 9, 2014 (being US$0.98). The terms of the 982,143 share purchase warrants issued to the lender on closing are unchanged; they remain exercisable for 5 years at the conversion price, and the lender may also opt to receive interest in common shares in lieu of cash at that price. The notes mature in 24 months and are prepayable at the option of the Company 6 months after the original closing. The lender may resume mandatory redemptions of up to US$750,000 monthly commencing in May, 2015 payable in cash or, subject to registration and certain financial criteria, shares at the option of the Company (at a price based on 90% of the then-current volume weighted average trading price).  The lender will be entitled to advance up to an additional US$4,000,000 to the Company in exchange for 8% discount notes subject to the same maturity and repayment terms (and entitlement to share purchase warrants) as currently apply, with a conversion price of US$0.98, subject to downward adjustment to $0.50, from and after September 30, 2015, under certain market conditions. In consideration of the amendments agreed to, the lender will receive 500,000 common shares of the Company.  The loss on amendment is presented net of gains on the conversion option occurring up to the time of amendment.   42    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  19. Convertible senior note(continued)  The balance of the convertible senior note is as follows: August 31, 2015                            and 2016Note issued at face value ($10,000,000 USD)$       11,626,808Discount on convertible note ($800,000 USD)(930,145)Conversion component of convertible note ($2,934,000 USD)(3,359,000)Transaction costs relating to convertible note  shares(264,000)Warrants issued to debenture holders(444,000)Transaction costs relating to convertible note  broker warrants(71,000)Transaction costs relating to convertible note  cash(435,174)Amortization of bond discount and transaction costs540,980Repayments  cash ($750,000 USD)(933,825)Reduction of conversion component on repayment252,000Foreign exchange282,731Balance, prior to amendment$         6,265,375Reduction in notes on amendment(4,521,501)Redemption of convertible notes(1,784,356)Foreign exchange40,482Balance, August 31, 2015 and August 31, 2016$                        -  Derivative in convertible senior notes: The conversion option is considered an embedded derivative as it is denominated in USD whereas the Companys functional currency is the Canadian dollar. The feature is classified as a current liability on the statement of financial position and is carried at fair value as determined by the Black-Scholes option pricing model, with changes in fair value recorded as gains or losses in the statement of comprehensive loss.  The assumptions in valuing the embedded derivative on issuance at December 9, 2014 include an expected volatility of 74%, a risk free interest rate of 0.72% and an expected life of 2 years resulting in a fair value on issuance of $3,359,000.  As at August 31, 2015, the derivative in the convertible note was valued at $nil, as the balance of the convertible notes was converted into shares.  Interest expense related to the Debentures amounted to $172,700, as at August 31, 2015 and is recorded as finance charge in the statement of comprehensive loss. Accretion expense during the year ended August 31, 2015 totaled $540,980.  All interest payments have been paid as of August 31, 2015.  During the year ended August 31, 2015, the lender redeemed $1,784,356 of convertible senior notes which were paid in shares, which resulted in the issuance of 5,010,518 common shares with a fair value of $1,958,397.  The resulting loss on redemption of convertible senior notes of $174,041 is reflected as a loss for the year ended August 31, 2015.   43    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  20. Asset Retirement Obligation  The Company's asset retirement obligation relates to the cost of removing and restoring of the Buckreef Project in Tanzania.  Significant reclamation and closure activities include land rehabilitation, demolition of buildings and mine facilities, ongoing care and maintenance and other costs.  This estimate depends on the development of environmentally acceptable mine closure plan.  A reconciliation for asset retirement obligations is as follows:  August 31, 2016August 31, 2015Balance, beginning of year$      680,000$                -Asset retirement obligation addition  initial recognition-329,000Accretion expense24,1435,789Asset retirement obligation addition  additional estimate-345,211Balance, end of the year$      704,143$    680,000  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 USD $794,000. b) Risk-free rate at 3.5%. c) Expected timing of cash outflows required to settle the obligation is for the full amount to be paid in 2020. d) Inflation over the period from is estimated to be 1.75% per annum.  21. Non-Controlling Interest  The changes to the non-controlling interest for the years ended August 31, 2016 and 2015 are as follows:  Year endedAugust 31,
2016August 31,
2015Balance at beginning of year$      1,520,717$      1,641,108Non-controlling interests 45% share of Buckreefs comprehensive loss(150,842)(104,477)Non-controlling interests 25% share of NWBMs comprehensive loss(1,196)(15,914)Balance at end of year$      1,368,679$      1,520,717  The following is summarized financial information for Buckreef:  August 31,
2016August 31,
2015Current assets$         682,620$         625,676Long term assets18,712,91318,573,638Current liabilities(29,947)(20,842)Advances from parent(20,831,251)(20,411,623)Net loss for the year(335,204)(232,172)   44    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  21. Non-Controlling Interest(continued)  The following is summarized financial information for NWBM:  August 31,
2016August 31,
2015Current assets$                    -$                    -Long term assets--Current liabilities(8,225)(8,225)Advances from parent(1,499,430)(1,494,646)Net loss for the year(4,787)(63,653)  22. Gold Bullion Loans  Activity during the year ended August 31, 2016:  During the year ended August 31, 2016, the Company closed the following gold loans with the following terms:  · US$1,000,000  Under the terms of the loan agreements, the gold loans are for a period of three 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.  If the bullion loans are paid back by bullion, the valuation date for such bullion will 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$0.70 per share.  Interest is payable quarterly, either in cash or in shares at a price of US$0.308 per share.  · US$104,540  Under the terms of the loan agreements, the gold 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.  If the bullion loans are paid back by bullion, the valuation date for such bullion will 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$0.50 per share.  Interest is payable quarterly, either in cash or in shares at a price of US$0.375 per share.  · US$200,000  Under the terms of the loan agreements, the gold 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.  If the bullion loans are paid back by bullion, the valuation date for such bullion will 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$0.40 per share.  Interest is payable quarterly, either in cash or in shares at a price of US$0.39 per share.  An 8% finders fee was paid through the issuance of 320,543 common shares at a price of $1.49 per share with a value of $477,609.  Activity during the year ended August 31, 2015:  On July 8, 2015, the Company closed US $1,530,000 gold loans.   45    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  22. Gold Bullion Loans(continued)  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$0.27658 per share.  Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.27658 per share. There is no prepayment penalty.  An 8% finders fee was paid through the issuance of 442,548 common shares at a price of $0.40 per share with a value of $177,019.  The balance of the gold bullion loans is as follows:


|                                         |                 |                       
|---------------------------------------- | --------------- | ----------------------
|                                         | August 31,
2016 | August 31, 2015       
|Balance at beginning of year             | $    1,205,981  | $                    -
|Proceeds from gold loans in gold bullion | 1,729,000       | 2,013,021             
|Less: derivative in gold bullion loans   | (372,000)       | (851,000)             
|Less: transaction costs                  | (477,609)       | (177,019)             
|Interest accrued                         | 260,222         | 23,825                
|Issuance of shares for interest payment  | (188,829)       | -                     
|Interest accretion                       | 1,020,783       | 197,154               
|Foreign exchange                         | (55,717)        | -                     
|Balance at end of year                   | $    3,121,831  | $    1,205,981        

Classification:


|                                |                |               
|------------------------------- | -------------- | --------------
|Short term portion of gold loan | $    2,180,425 | $    1,205,981
|Long term portion of gold loan  | 941,406        | -             
|Balance at end of year          | $    3,121,831 | $    1,205,981

During the year ended August 31, 2015, the Company recognized a loss on sale of the gold bullion received under the gold bullion loans as a result of the decline in the price of gold between the date the gold bullion was received and the date the gold bullion was sold for cash.  A loss of $184,810 is reflected as a loss for the year ended August 31, 2015.  There was no gain or loss from the sale of bullion during the year ended August 31, 2016.  Derivative in gold bullion loans: The conversion option in the gold bullion loans is considered an embedded derivative. The feature is classified as a current liability on the statement of financial position and is carried at fair value as determined by the Black-Scholes option pricing model, with changes in fair value recorded as gains or losses in the statement of comprehensive loss.  Value of derivatives on issuance:  For the year ended August 31, 2016: The assumptions in valuing the embedded derivative on issuance include an expected volatility ranging between 77% - 100%, a risk free interest rate of 0.45% - 0.89% and an expected life of 1  3 years resulting in a fair value of $372,000 on issuance.  For the year ended August 31, 2015: The assumptions in valuing the embedded derivative include an expected volatility of 97%, a risk free interest rate of 0.44% and an expected life of 1 year resulting in a fair value of $851,000 on issuance.  46    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015   22. Gold Bullion Loans(continued)  Value of derivatives at end of year: The assumptions in valuing the embedded derivative as at August 31, 2016 include an expected volatility ranging between 98% - 138%, (August 31, 2015  97%) a risk free interest rate ranging between 0.61% - 0.81% (August 31, 2015  0.44%) and an expected life ranging between 0.7  2.1 years (August 31, 2015 1 year) resulting in a fair value of $5,051,000 as at August 31, 2016 (August 31, 2015 - $851,000).  The increase in value of $3,828,000 during the year ended August 31, 2016 (2015  $nil) resulted in a loss (2015  $Nil) in the statement of comprehensive loss.  Interest expense related to the gold bullion loan amounted to $260,222 (2015 - $23,825), for the year ended August 31, 2016 and is recorded as finance charge in the statements of comprehensive loss. Accretion expense during the year ended August 31, 2016 totaled $1,020,783 (2015 - $197,154).  During the year ended August 31, 2016, the Company issued 536,137 shares with a fair value of $372,130 (Note 6) to settle interest expenses of $199,663 (US$159,308), resulting in a loss of $172,467 and is recorded in the statements of comprehensive loss.  23. Finance costs  Finance costs comprises of the following: Year ended August 31, 2016Year ended August 31, 2015Interest on Gold Bullion Loans (Note 22)$        260,222$               23,825Interest on Convertible Senior Notes (Note 19)1,991172,700$        262,213$            196,525  24. Convertible loan  On May 16, 2016, the Company received a loan in the amount of $133,632 maturing on May 16, 2017 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$0.50 per share.  Interest is payable quarterly, either in cash or in shares at the option of the lender at a price of US$0.364 per share.  Derivative in convertible loan: The conversion option in the gold bullion loans is considered a derivative. The feature is classified as a current liability on the statement of financial position and is carried at fair value as determined by the Black-Scholes option pricing model, with changes in fair value recorded as gains or losses in the statement of comprehensive loss.  The assumptions in valuing the embedded derivative on issuance on May 16, 2016 include an expected volatility of 100%, a risk free interest rate of 0.68% and an expected life of 1 year resulting in a fair value of $31,000 on May 16, 2016.  The assumptions in valuing the embedded derivative as at August 31, 2016 include an expected volatility of 101%, a risk free interest rate of 0.61% and an expected life of 0.71 years resulting in a fair value of $108,000 at August 31, 2016.   47    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  25. Taxes  The Companys provision for income taxes differs from the amount computed by applying the combined federal and provincial income tax rates to income (loss) before income taxes as a result of the following:  20162015Combined basic Canadian federal and
provincial statutory income tax rates 
including surtaxes26.50%26.50%Statutory income tax rates applied to
accounting income$(3,387,000)$(2,384,000)Increase (decrease) in provision for income
taxes:Foreign tax rates different from statutory rate(152,000)(131,000)Permanent differences and other items2,010,0001,398,000Benefit of tax losses not recognized1,529,0001,117,000Provision for income taxes$-$-  The enacted tax rates in Canada of 26.50% (26.25% - 2015) and Tanzania of 30% (2015 - 30%) where the Company operates are applied in the tax provision calculation.  The combined Canadian federal and provincial statutory rate has increased from the prior period due to a scheduled enacted rate increase.  The following table reflects the Companys deferred income tax assets (liabilities):  The tax effects of significant temporary differences which would comprise deferred income tax assets and liabilities at August 31, 2016 and 2015 are as follows:


|                                                             |                    |                    |                   
|------------------------------------------------------------ | ------------------ | ------------------ | ------------------
|Deferred Income Tax Liabilities                              | Mineral properties | Debt issuance cost | Total             
|                                                             |                    |                    |                   
|At August 31, 2014                                           | $    (10,948,000)  | $     (35,000)     | $     (10,983,000)
|Charged  to the consolidated statement of comprehensive loss | (90,000)           | 12,000             | (78,000           
|At August 31, 2015                                           | $    (11,038,000)  | $     (23,000)     | $     (11,061,000)
|Charged  to the consolidated statement of comprehensive loss | 724,000            | (49,000)           | 675,000           
|At August 31, 2016                                           | $    (10,314,000)  | $     (72,000)     | $     (10,386,000)




|                                                             |                           |                     |                           
|------------------------------------------------------------ | ------------------------- | ------------------- | --------------------------
|Deferred Income Tax Assets                                   | Non-capital losses        | Non-capital losses  | Total                     
|                                                             |                           |                     |                           
|At August 31, 2014                                           | $      10,948,000         | $       35,000      | $       10,983,000        
|Charged  to the consolidated statement of comprehensive loss | 90,000                    | (12,000)            | 78,000                    
|At August 31, 2015                                           | $      11,038,000         | $       23,000      | $       11,061,000        
|Charged  to the consolidated statement of comprehensive loss | (724,000)                 | 49,000              | (675,000)                 
|At August 31, 2016                                           | $      10,314,000         | $       72,000      | $       10,386,000        
|                                                             |                           |                     |                           
|Net deferred tax assets (liabilities)                        | $                       - | $                 - | $                        -

48    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  25. Taxes(continued)  The following temporary differences have not been recognized in the Companys consolidated financial statements:  August 31, 2016August 31, 2015Non capital losses$    39,259,000$    35,071,000Property, plant and equipment199,000198,000Capital losses127,000127,000$    39,585,000$    35,396,000  At August 31, 2016, the Company has Tanzanian non-capital losses of $18,203,000 (2015 - $16,308,000), that have not been recognized and may be carried forward and applied against Tanzania taxable income of future years.  The non-capital loss may be carried forward without limitation.  At August 31, 2016, the Company has non-capital losses of $21,056,000 (2015 - $18,762,000), that have not been recognized and may be carried forward and applied against Canadian taxable income of future years.   The non-capital losses have expiry dates as follows:  2015$-20261,711,00020271,388,00020281,333,00020291,587,00020301,427,00020312,378,00020322,496,00020332,352,00020342,195,00020351,983,00020362,206,000$21,056,000  At August 31, 2016, $nil (2015 - $nil) was recognized as a deferred tax liability for taxes that would be payable as the Companys subsidiaries have a deficit.  26. Events subsequent to the reporting period  On September 1, 2016, the Company closed the first tranche of a US$5 Million private placement of securities with Crede CG III, Ltd.  In the initial round of financing, the Company privately placed 1,840,400 shares of its common stock and warrants for US$1.25 million. The common stock issued in the first tranche of the financing, which closed on September 1, 2016, was priced at US$0.6792 per share. The investor also received five-year warrants to purchase 1,840,400 shares of Common Stock with an exercise price of US$0.8291 per share. The common stock issued in the first tranche of the financing or issued upon exercise of the warrants issued in the first tranche of the financing will be restricted until a valid registration for such common stock becomes effective.  On September 26, 2016, the Company closed the second tranche of the $5 million private placement of securities with Crede CG III, Ltd.   49    Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial Statements For the Years Ended August 31, 2016 and 2015  26. Events subsequent to the reporting period(continued)  In the second round of the financing, the Company privately placed convertible notes and warrants for US$3.75 million. The convertible notes were issued in the principal amount of US$3.75 million, carried a coupon of 2.0% and matured on September 26, 2046. The Company immediately exercised its right to cause the conversion of the convertible notes, resulting in the cancellation of the notes and the issuance of 5,357,143 shares of common stock to the investor. The investor also received five-year warrants to purchase 4,017,857 shares of common stock at an exercise price of US$1.10 per share. The closing of the second tranche of the financing was conditioned upon a valid registration statement for the common stock issued or issuable to the investor upon exercise of warrants being declared effective by the U.S. Securities and Exchange Commission. The Commission declared the Companys Form F-3 Registration Statement registering the stock effective on September 23, 2016.   50